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Citation: 2004TCC391
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Date: 20040528
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Docket: 2002-2058(IT)G
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BETWEEN:
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JOANNE DUCHARME,
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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 JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the
General Procedure was heard at Prince George, British Columbia,
on May 5, 2004. The Appellant testified and called
Douglas Ward Allen, Ph.D., who qualified as an expert to
testify as to the fair market value of domestic services of a
housewife in a traditional marriage. The Respondent called Tracy
Head, a Resource Officer of Canada Revenue Agency
("CRA") on the file.
[2] Appellant's counsel asked that
the matter of costs be argued after the Court's decision and
it is ordered that the Registrar arrange a telephone conference
call for that argument to occur within 30 days after this
decision.
[3] Paragraphs 8 to 11 of the Reply to
the Notice of Appeal outline the matters in dispute. They
read:
8. By Notice
of Assessment numbered 26526 dated November 15, 2000, the
Minister of National Revenue (the "Minister") assessed
the Appellant in the amount of $61,878.94, representing her
liability in respect of transfers of property to the Appellant by
her common-law partner, within the meaning of section 160 of the
Income Tax Act (the "Act").
9. In so
reassessing the Appellant, the Minister relied on the following
assumptions of fact:
a) At all
material times, Donald Vienneau ("Vienneau") was the
common-law partner of the Appellant;
b) At all
material times, Vienneau and the Appellant were not dealing with
each other at arm's length;
c) On or about
October 19, 1987, the Appellant received property located at 8507
78A Street, Fort St. John, B.C. (the "Property"), which
was given to her by her parents for consideration of $1.00;
d) At all
material times, the Appellant was the sole legal owner of the
Property and was registered on the land title;
e) At all
material times, the Property was occupied as the family home by
both Vienneau and the Appellant;
f) At
the time she received the Property, the Appellant assumed the
existing mortgage with the bank;
g) For the
period from January 2, 1992 to September 2, 1997, Vienneau
transferred property to the Appellant, as he made all of the
mortgage payments on the Property, which totalled $61,878.94 (the
"Payments");
h) Vienneau
accelerated the Payments in order to pay out the mortgage early
and clear the title to the Property, and the last Payment was a
lump sum amount of $25,452.94 paid to the bank on September 2,
1997;
i) the
appellant received no income from employment during the period
from January 2, 1992 to September 2, 1997;
j) The
fair market value of the consideration given by the Appellant for
the Payments made on her behalf was nil;
k) Vienneau
failed to file tax returns until 1996, at which point he filed
returns for 10 taxation years at one time;
l)
Vienneau declared personal bankruptcy on November 27, 1998;
m) Vienneau's
liability for federal amounts of tax, penalties and interest
under the Act as of January 2, 1992 was no less than
$86,047.28 as follows:
federal tax
$54,842.79
interest
$23,129.04
penalties
$8,075.45
n) The
aggregate of all amounts that Vienneau was liable to pay under
the Act, in respect of the taxation years in which the
Payments were made, or any preceding taxation year, was
$564,628.08 as of September 2, 1997.
B.
ISSUE TO BE DECIDED
10. The issue in this
appeal is whether the Appellant is liable to pay the amount of
$61,878.94, pursuant to the provisions of section 160 of the
Act, in respect of transfers of property to the Appellant
by her common-law partner.
C.
STATUTORY PROVISIONS RELIED ON
11. He relies on sections
160 and 251, and subsection 248(1) of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.), as amended (the
"Act").
[4] Assumptions 9 a) to i) inclusive
and k) to n) inclusive were not refuted by the evidence.
[5] Dr. Allen's report and
testimony are accepted to the effect that, for the purposes of
valuing Ms. Ducharme's services in what amounts to a
traditional marriage household where she is at home caring for
the children and the household, her services have a value
equivalent to $55,000 per year based upon Mr. Vienneau's
income and the fact that his workplace was away from their home
in Fort St. John and for that reason he commonly was engaged in
private consumption outside the marriage. The evidence
established that, practically speaking, Ms. Ducharme earned no
income between 1992-1997 and that Mr. Vienneau performed no
household work.
[6] The evidence is that, except for
the lump sum paid on the mortgage of $25,452.94 on September 2,
1997 and a lump sum of $3,000, the remaining payments in question
were simply the regular monthly mortgage instalments of
principal, interest and taxes of about $500 per month when rents
for an equivalent (and apparently, average) house for the family
in Fort St. John ranged between $1,200 and $1,500 per month.
[7] Ms. Ducharme testified that Mr.
Vienneau wanted her to stay at home with the children and he
would earn the money to provide for the household on that basis.
They discussed this about a dozen times over the years and agreed
upon this course of action. Mr. Vienneau worked and lived away
from Fort St. John about 80 per cent of the time.
[8] The principal owed on the mortgage
was $34,508 on June 2, 1988 (Exhibit A-1, Tab 3). On August 2,
1997 Ms. Ducharme re-mortgaged the house for $95,250 (Exhibit
A-1, Tabs 9-11). Out of these proceeds, $25,452.94 paid off the
original mortgage; $5,413.14 of this was a pre-payment penalty,
so that the actual balance of principal owed and paid on August
2, 1997 was $20,029.80. Thus from June 2, 1988 until August 2,
1997 the actual principal paid by Mr. Vienneau on the
mortgage was $14,468.20 according to the mortgage company's
records. Tab 3 establishes that the actual principal paid on the
original mortgage in the period was:
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Balance January 2, 1992
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$31,824.84
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Balance August 1, 1997
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20,595.57
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Net principal paid
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$11,229.27
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excepting for the lump sum amount of $25,452.94
[9] The August 2, 1997 re-mortgaging
with the Royal Bank of Canada was done by Ms. Ducharme with Mr.
Vienneau's guarantee in order to obtain the net balance of
the mortgage proceeds, $68,846.56, so that Mr. Vienneau could use
them to make an offer of settlement with CRA respecting its claim
in his bankruptcy. It was deposited in one of their two joint
accounts at the Royal Bank of Canada respecting which there is no
other evidence before the Court. Eventually Mr. Vienneau
apparently settled with CRA for more than the $68,846.56.
[10] Section 160 of the Income Tax
Act reads:
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 common-law partner or a
person who has since become the person's spouse or common-
law partner,
(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,
but nothing in this subsection shall be deemed to limit the
liability of the transferor under any other provision of this
Act.
The main thrust of the Appellant's argument turns on the
question arising from subparagraph 160(1)(e)(i) as to
whether the fair market value of what Mr. Vienneau transferred
exceeds the fair market value of the consideration given by Ms.
Ducharme at that time. In support of that, Appellant's
counsel reviewed sections 88 and 89 of the Family Relations
Act, R.S.B.C., 1996, Chapter 128. They read:
88(1) Each parent of a child is responsible and liable
for the reasonable and necessary support and maintenance of the
child.
(2) The making of an order
against one parent for the maintenance and support of a child
does not affect the liability of another parent for the
maintenance and support of the child or bar the making of an
order against the other parent.
89(1) A spouse is responsible and liable for the
support and maintenance of the other spouse having regard to the
following:
(a) the role of each spouse in their family;
(b) an express or implied agreement between the spouses that
one has the responsibility to support and maintain the other;
(c) custodial obligations respecting a child;
(d) the ability and capacity of, and the reasonable efforts
made by, either or both spouses to support themselves;
(e) economic circumstances.
(2) Except as provided in
subsection (1), a spouse or former spouse is required to be self
sufficient in relation to the other spouse or former spouse.
[11] This Court accepts as binding upon it
the decision of the Federal Court of Appeal in Medland v.
Canada, [1998] F.C.J. No. 708 that the amount of the
principal paid by Mr. Vienneau in the period to the mortgage on
Ms. Ducharme's property was a transfer of property to
Ms. Ducharme. That amount, according to the mortgage records,
was:
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$20,029.80
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+ 11,229.27
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$31,259.07
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Thus, $31,259.07 is the correct total of the fair market value
of the consideration transferred by Mr. Vienneau to Ms.
Ducharme during the period.
[12] However, the Court accepts as true, Ms.
Ducharme's statement that the re-mortgaging occurred to
obtain the money for Mr. Vienneau to settle with CRA. It was for
that purpose that the $20,029.80 was paid out of the proceeds of
the new mortgage. This negates that sum as a gain in equity by
Ms. Ducharme.
[13] Further, on August 29, 1997, $68,846.56
was paid jointly to Mr. Vienneau and Ms. Ducharme as the net
proceeds out of the mortgage which Ms. Ducharme executed on
August 27, 1997 to assist Mr. Vienneau to pay CRA. As a result,
Ms. Ducharme's equity in the house was reduced by $98,250
less the payout of the original mortgage's remaining
principal of $20,029.80, a loss of $78,220.20. Even though it was
secured in some part by Mr. Vienneau's guarantee, the bank
would take the house owned by Ms. Ducharme in the event of
default.
[14] Having done these calculations, the
fact remains that Ms. Ducharme and her two daughters received the
consideration from any unpaid taxes that Mr. Vienneau spent
on the family throughout the years forming part of the evidence.
As a result her mortgage was paid down by principal of $11,229.27
by Mr. Vienneau during the period for which the assessment was
raised. There is no evidence that Mr. Vienneau received a
corresponding increase in his property or transfer of calculable
fair market value at those times from Ms. Ducharme. To the
contrary, he concluded the period in bankruptcy.
[15] The evidence before the Court is that
in return for these payments of $11,229.27 on principal, Ms.
Ducharme incurred an additional liability of $78,220.20 for the
purpose of paying CRA a settlement of Mr. Vienneau's taxes.
Thus, on the reasoning in Medland, Ms. Ducharme suffered a
personal loss in her capital assets as a consequence of her
exchanges of consideration with Mr. Vienneau. On balance,
within the period in question, Ms. Ducharme lost equity in her
home of:
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$78,220.20
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- 11,229.27
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Net loss
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$66,900.93
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[16] The actual residue of mortgage money of
$68,846.56 was placed in the Vienneau-Ducharme joint account,
implying that half this sum remained Ms. Ducharme's -
still a net deficit in theory. But all of this money was obtained
from Ms. Ducharme's property to settle CRA's claim
against Mr. Vienneau and was so used.
[17] On the evidence before the Court, Ms.
Ducharme gave more consideration than she got.
[18] This Court has also had the privilege
of reading the judgment of Lamarre-Proulx, J. in Michaud v.
Canada, [1998] T.C.J. No. 908, an Informal Procedure case and
in addition to the foregoing, adopts her reasoning in that case
which is equally applicable in the Appellant's common-law
relationship in this case.
[19] Thus on the facts and on the basis of
the separate concepts described in both Medland and
Michaud, the appeal is allowed. This matter is referred
back to the Minister of National Revenue for reconsideration and
reassessment allowing the appeal.
Signed at Ottawa, Canada, this 28th day of May 2004.
Beaubier, J.
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