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Citation: 2003TCC562
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Date: 20030813
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Docket: 2000-3705(IT)G
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BETWEEN:
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JOHANNA ELASH,
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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 Saskatoon, Saskatchewan on July 2,
2003. The Appellant was the only witness.
[2] Paragraphs 4 to 11 inclusive of
the Reply to the Notice of Appeal read:
4. The
Minister of National Revenue (the "Minister") initially
assessed the Appellant by Notice of Assessment dated August 19,
1998 pursuant to subsection 160(1) of the Income Tax Act
("ITA") in the amount of $100,419.27 in respect
of transfers of property and cash from Larry Machula
("Machula") to the Appellant between May 1995 and
November 1997 ("the period").
5. By Notice
of Objection dated November 16, 1998 the Appellant objected to
the subsection 160(1) ITA assessment.
6. By Notice
of Reassessment dated May 25, 2000 the Minister revised the
subsection 160(1) ITA assessment and confirmed the
assessment in the amount of $70,857.65.
7. By Notice
of Appeal dated August 23, 2000 the Appellant appealed from the
Notice of Reassessment.
8. In so
reassessing the Appellant, the Minister relied on the following
assumptions of fact:
a) The facts
admitted above are true;
b) On or about
May 7, 1992 Machula was liable to the Department of National
Revenue, currently the Canada Customs and Revenue Agency, for
outstanding income tax, penalty and interest in the amount of
$432,873.43;
c) On or about
May 1, 1996 Machula was liable to the Department of National
Revenue, currently the Canada Customs and Revenue Agency, for
outstanding income tax, penalty and interest in the amount of
$174,066.76;
d) The
Appellant and Machula have lived in a common law relationship
since early 1995;
e) The
Appellant and Machula are the parents of three children born as a
result of the Appellant and Machula's common law
relationship;
f) On or
about May 1, 1996 a 1996 Lexus CS300 automobile ("the
Lexus") was purchased from Ens Lexus Toyota and registered
in the Appellant's name for a net purchase price of
$62,606.90;
g) The sales
contract for the purchase of the Lexus included the
following:
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Net Price
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$62,606.90
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Less trade-in
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(25,233.64)
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Net difference
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$37,373.26
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PST
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5,634.62
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GST
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2,616.13
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Total Due
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$45,624.01
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h) Machula
made an initial payment in the amount of $25,000 for the purchase
of the Lexus;
i)
Machula made a payment upon delivery of the Lexus in the amount
of $20,624.01;
j) The
vehicle used as a trade-in for the purchase of the Lexus was a
1992 Lexus ES300 ("the 1992 Lexus") that was registered
in the Appellant's name;
k) Machula
provided the funds for the purchase of the 1992 Lexus;
l) The
1992 Lexus and the Lexus are luxury vehicles;
m) A luxury vehicle
such as a Lexus is not necessary for use as a family vehicle;
n) The
Appellant provided no consideration for the purchase of the 1992
Lexus;
o) The
Appellant provided no consideration for the purchase of the
Lexus;
p) The
Appellant was the spouse of Machula at the time of the transfer
of the cash and property for the purchase of the Lexus or has
since become the spouse of Machula, for the purpose of subsection
160(1) ITA;
q) The
Appellant and Machula were not dealing with each other at
arm's length at the time of the transfer of the cash and
property for the purchase of the Lexus, for the purpose of
subsection 160(1) ITA;
r) The
fair market value of the Lexus at the time of its purchase was at
least $70,857.65, including GST and PST; and
s) Machula was
liable to pay the amount of at least $70,857.65 under the
ITA at the time of the transfer of the cash and property
for the purchase of the Lexus, for the purpose of subsection
160(1) ITA.
B. ISSUES
TO BE DECIDED
9. The issue
is whether the Appellant is liable for transfers of property and
cash from Larry Machula to her in respect of the purchase of a
1996 Lexus CS300 vehicle on or about May 1, 1996.
C.
STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
10. He relies on
subsection 160(1) and sections 251 and 252 of the Income Tax
Act, R.S.C. 1985, c. 1 (5th Supp.), as amended
("ITA").
11. He respectfully
submits that Appellant is liable under subsection 160(1)
ITA for the transfers of property and cash in respect of
the purchase of the Lexus in the amount of $70.857.65.
[3] None of the assumptions except
subparagraph 8 n) and o) were refuted.
[4] The original Notice of Assessment
dated August 19, 1998 for $100,419.27 was reduced by Notice of
Reassessment dated May 25, 2000 to $70,857.65 after the Appellant
filed a Notice of Objection (Exhibit R-1) stating that Mr.
Machula paid the Appellant $23,561.62 as "contributions
toward the charges of the house and family".
[5] Paragraph 4 of the Reply describes
the August 19, 1998 Notice of Assessment to be the result of
"transfers of property and cash from Larry Machula
("Machula") to the Appellant between May 1995 and
November 1997 (the "period"). However, the 1992 Lexus
was given to the Appellant, in her name, in 1992 (Exhibit A-1).
The Appellant testified that Mr. Machula traded it in on the
Lexus in 1996. Nonetheless, the value of the trade-in of the 1992
Lexus was not a transfer of property and cash in "the
period". For this reason the value of the trade-in,
$25,233.64, was not a transfer from Mr. Machula in the period.
The appeal is therefore allowed respecting the sum of
$25,233.64.
[6] With respect to the remaining
$45,624.01, Appellant's counsel made two arguments:
1. There was no
consideration transferred from Mr. Machula to the Appellant
because, according to the Guidelines issued pursuant to the
Supreme Court of Canada decision respecting family support, it
can be assumed from the amount of taxes allegedly owed by
Mr. Machula, that he would have been required to pay about
$124,000 in support to the Appellant. However the Court finds
that there is no evidence of Mr. Machula's income and,
further, Ms. Elash never required Mr. Machula to pay
support. As a result there is no foundation whereby the
Appellant's counsel's argument can be upheld.
2. Did Mr. Machula owe tax
in 1996 and, if so, was the transfer to Ms. Elash part of an
avoidance scheme? The Court accepts assumption 8 c), that Mr.
Machula was liable for taxes, penalty and interest of $174,066.76
on May 1, 1996 when the Lexus was purchased. On this basis, it is
not necessary that the transfer of the $45,624.01 to the
Appellant was to avoid paying the taxes. The transfer, by itself,
is sufficient to create "liability", and the appeal is
dismissed respecting the $45,624.01.
[7] Therefore, the Court finds that
assumption 8 n) is irrelevant for the purposes of the assessment
in question. Assumption 8 o) is correct respecting the sum of
$45,624.01. The $25,233.64 trade-in value was the property of the
Appellant and by accepting the Lexus, she authorized the trade-in
of the 1992 Lexus.
[8] The appeal is allowed and this
matter is referred to the Minister of National Revenue for
reconsideration and reassessment pursuant to these reasons.
[9] The Appellant was represented by
counsel at the hearing whose address is:
McKercher, McKercher & Whitmore
Barristers and Solicitors
374 - Third Avenue South
Saskatoon, Saskatchewan
S7K 1M5
Tel: (306) 653-2000
Fax: (306) 244-7335
Attention: Catherine A. Sloan
[10] There is no order respecting costs.
Signed at Regina, Saskatchewan, this 13th day of August
2003.
Beaubier, J.
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