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Citation: 2005TCC110
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Date: 20050225
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Docket: 2001-887(IT)G
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BETWEEN:
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MARY MADSEN,
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Appellant,
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And
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER AND
SUPPLEMENTARY REASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The
appeal was heard in Vancouver,
British Columbia on April
14, 2003.
[2] There
were two issues raised during the appeal:
(a) Whether the
Appellant was liable to pay the amount of $102,500.00 that was assessed by the
Minister of National Revenue (the "Minister") pursuant to
section 160 of the Income Tax Act (the "Act") ;
and
(b) Whether the
decision of the Supreme Court of Canada in The Queen v. Markevich et al. applied. If the Markevich
reasoning applied in this situation the Federal Government was barred by the
statute of limitations from collecting the federal tax debt and the provincial
tax debt.
[3] By
Reasons for Judgment dated July 29, 2004 I concluded that the decision in Markevich
did not apply in this situation.
[4] Counsel
for the Appellant filed a Notice of Motion dated August 13, 2004. The
Notice of Motion requested that I reconsider the terms of the Reasons for
Judgment.
[5] In
the Notice of Motion counsel for the Appellant said:
6. The Appellant therefore
requests that Justice Little reconsider the terms of his Judgment and Reasons
and that he specifically deal with the Primary Issue because it has been
accidentally omitted or overlooked in the pronouncement.
[6] Section
168 of the Tax Court of Canada Rules (General Procedure) reads as
follow:
168. Where the Court has
pronounced a judgment disposing of an appeal any party may within ten days
after that party has knowledge of the judgment, move the Court to reconsider
the terms of the judgment on grounds only,
(a) that
the judgment does not accord with the reasons for judgment, if any, or
(b) that
some matter that should have been dealt with in the judgment has been
overlooked or accidentally omitted.
[7] I
have carefully reviewed the file and the Reasons for Judgment and I have
concluded that counsel for the Appellant is correct in his statement in the
Motion that I have not dealt with the Primary Issue. These Supplementary
Reasons for Judgment review the relevant facts and deals with the Primary Issue.
[8] The
facts may be summarized as follows:
A. FACTS:
[9] Gunnar
Madsen (the "Transferor") is the spouse of the Appellant.
[10] On or about August 1, 1989 the Transferor transferred to the Appellant
his one-half interest in a home located at 3065 Lazy A Street, Port Coquitlam, British Columbia (the "Property").
[11] At the time of the transfer of the Property to the Appellant on
August 1, 1989 the Transferor owed income tax in an amount in excess of
$685,000.00. The tax was imposed in connection with the 1982-1983 taxation
years. The Transferor disputed the tax assessments. The Transferor was
unsuccessful in appeals filed with the Tax Court of Canada, the Federal Court of Appeal and the Supreme Court of Canada.
[12] At the time of the transfer of the Property to the Appellant, the fair
market value of the Property as determined by the Minister was $205,000.00 and
the fair market value of the Transferor's interest in the Property was
$102,500.00. (Note: – Counsel for the Appellant indicated at the
commencement of the hearing that the fair market value of the Property on August
1, 1989 as determined by the Minister was not in dispute.)
[13] During the hearing the Appellant testified that when her husband
transferred his interest in the Lazy A Property to her, she said that she
promised to pay her husband an amount equal to the fair market value of the Property
when she had sufficient funds to do so.
[14] The Appellant said that she personally prepared the document that was
used to transfer a one-half interest in the Property with the assistance of a friend
(Ms. Vierke) (She did not retain a lawyer).
[15] The value of the Property as determined by the Appellant at the time
of transfer was $135,500.00.
[16] The document used to transfer the one-half interest in the Property
from Mr. Madsen to the Appellant stated that the consideration that the
Appellant paid was $1.00.
[17] On June 21, 1994 the Appellant purchased a property in Arizona using her own funds. The Appellant testified that
she recorded title in the Arizona Property as follows:
The Appellant - 50%
Mr. Madsen - 50%
[18] Counsel for the Appellant maintains that the one-half interest in the
Arizona Property that was transferred by her to Mr. Madsen in 1994 was at least
equal to $142,000.00 (Cdn. funds).
[19] On May 3, 1999 the Minister assessed the Appellant for tax in the
amount of $102,500.00. The Notice of Assessment (the "Assessment")
states that the Assessment is in respect of the following:
Liability under subsection 160(1) of the Act
in the amount of $102,500.00 in respect of a transfer on or about August 1,
1989 from Gunnar Madsen to Mary Madsen of property, namely,
3065 Lazy A Street, Port Coquitlam, B.C.
B. ISSUE:
[20] The issue is whether the Appellant is liable to pay the amount of
$102,500.00 that was assessed by the Minister pursuant to the section 160
Assessment issued on May 3, 1999.
C. ANALYSIS:
[21] Section 160 of the Act permits the Minister to collect a tax
debt from someone other than the tax debtor provided the various statutory
conditions contained in the section are met.
[22] Subsection 160(1) of the Act reads as follows:
160. (1) Where a person has, on or
after May 1, 1951, transferred property, either directly or indirectly, by
means of a trust or by any other means whatever, to
(a) the person's
spouse or a person who has since become the person's spouse,
(b) a person who was
under 18 years of age, or
(c) a person with
whom the person was not dealing at arm's length,
the following rules apply:
(d) the transferee
and transferor are jointly and severally liable to pay a part of the
transferor's tax under this Part for each taxation year equal to the amount by
which the tax for the year is greater than it would have been if it were not
for the operation of sections 74.1 to 75.1 of this Act and section 74 of the Income
Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of
any income from, or gain from the disposition of, the property so transferred
or property substituted therefor, and
(e) the transferee
and transferor are jointly and severally liable to pay under this Act an amount
equal to the lesser of
(i) the amount,
if any, by which the fair market value of the property at the time it was
transferred exceeds the fair market value at that time of the consideration
given for the property, and
(ii) the total of
all amounts each of which is an amount that the transferor is liable to pay
under this Act in or in respect of the taxation year in which the property was
transferred or any preceding taxation year.
[23] Subsection 160(2) reads as follows:
160. (2) The Minister may at any
time assess a taxpayer in respect of any amount payable because of this section
and the provisions of this Division apply, with any modifications that the
circumstances require, in respect of an assessment made under this section as
though it had been made under section 152.
. . .
[24] Counsel for the Appellant said that it is the Appellant's contention
that the transfer of the one-half interest in the Lazy A Property by the husband
to the Appellant was to be at the fair market value of the Property. Counsel
for the Appellant said that the Appellant intended to pay her husband whatever
his interest in the Property was in 1989. However the Appellant said that she
did not have sufficient funds to pay her husband in 1989. The Appellant said
that she and her husband agreed that when she had sufficient funds she would
pay him for his interest in the Property.
[25] Counsel for the Appellant said that in 1991 a company by the name of GMT
Holdings Ltd. was formed and that company prospered.
[26] As noted above the Appellant testified that in 1994 she and her
husband purchased a property jointly in the State of Arizona. In effect the Appellant used her own funds to purchase an interest in
the Arizona Property for her husband.
[27] Counsel for the Appellant maintains that by purchasing an interest in
the Arizona Property for her husband in 1994 the Appellant has paid her husband
in full for his interest in the Lazy A Property that he transferred to her in
1989.
[28] I have carefully reviewed the evidence of the Appellant regarding the
transfer by her husband of a one-half interest in the Lazy A Property in 1989
and I have concluded that the suggestion that she would pay her husband the
fair market value of the Lazy A Property "when she had funds"
was nothing more than a vague and uncertain promise with no specific terms.
There was nothing in writing to confirm this arrangement and the document that
was used to transfer the Property was not prepared by a lawyer. Furthermore,
there was no evidence presented to the Court to confirm the Appellant's self-serving
testimony. In my opinion the "vague promise" that the Appellant would
pay her husband fair market value cannot be accepted as consideration
sufficient to prevent the application of section 160.
[29] The appeal is dismissed, with costs.
Signed at Vancouver,
British Columbia, this 25th day
of February 2005.
Little
J.
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