REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
The Appellant was assessed pursuant to section
160 of the Income Tax Act (“ITA”) for the amount of $249,999 with
respect to the transfer of the matrimonial home (the “Property”) from her
spouse to her on September 29, 2000 while he was a tax debtor.
[2]
The only issue in this appeal is whether the
fair market value of the Property exceeded the fair market value of the
consideration given by the Appellant for the transfer of the Property.
[3]
The Appellant asserts that she provided
consideration in excess of the fair market value of the Property for its
transfer to her. The consideration was her assumption of the mortgage on the
Property; her unregistered equitable interest in a resulting or constructive
trust in the Property which was relinquished at the time of the transfer; and, cash
contributions she made both before and after the transfer to her spouse and his
businesses.
[4]
The witnesses at the hearing were the Appellant;
Lori Kimball, Field Officer with the Canada Revenue Agency and, Keely Moure,
Certified Financial Planner.
[5]
The parties submitted an Agreed Statement of
Facts (Partial) which I have attached as Appendix A to this decision. A summary
of the facts from the hearing and the Agreed Statement of Facts is as follows.
Facts
[6]
The Appellant and Dieter Hardtke (the “spouse”)
were married on August 27, 1977 and they are still married to each other.
[7]
The spouse started to practice as a chiropractor
around 1975 and he continued his business as a chiropractor during the relevant
period. I gather from the evidence that initially he carried on his business as
a chiropractor as a sole practitioner. He later carried on his business through
one or more corporations in which he was the sole shareholder and officer.
[8]
From 1980 to 2000, the Appellant was employed
full time as a chiropractic assistant in her spouse’s businesses.
[9]
The parties gave details of the properties
acquired by the Appellant’s spouse. There are two properties which are relevant
to this appeal:
a)
On or about October 20, 1978, the spouse
acquired sole title to a residential property in the Village of Winchester (the
“Winchester Property”). The purchase price of the Winchester Property was
$80,000 which was paid by $24,000 in cash and $56,000 in mortgage proceeds.
b) The spouse operated his chiropractor business on the first level of
the Winchester Property and the Appellant and her spouse lived on the second
level until the Winchester Property was sold on September 1, 1983 for $100,000.
This amount was paid to them with cash of $45,133.42 and the assumption of the
mortgage of $54,866.58.
c)
On September 2, 1983, the spouse used the cash
from the sale of the Winchester Property and he acquired sole title to the
residential property in Manotick which became the matrimonial home and which is
the subject of this appeal (the “Property”). The purchase price for the
Property was $180,000 and it was paid by $55,000 in cash and $125,000 in
mortgage proceeds.
d) From the date of purchase to September 2000, four mortgages were
granted on the Property. The Appellant was not a mortgagor/chargor under any of
these mortgages but she did consent to the mortgages and she signed as spouse
of the mortgagor. The four mortgages were as follows:
(i)
on August 11, 1983, the spouse granted a
mortgage to the Royal Bank of Canada for proceeds of $125,000 which was used to
acquire the Property (“the first mortgage”);
(ii)
on January 6, 1987, the spouse granted a
mortgage to the Royal Bank of Canada for proceeds of $160,000 which was used in
part to repay the outstanding balance of the first mortgage (“the second
mortgage”);
(iii)
on June 20, 1989, the spouse granted a mortgage
to the Royal Bank of Canada for proceeds of $250,000 which was used in part to
repay the outstanding balance of the second mortgage (“the third mortgage”);
(iv)
on February 20, 1996, the spouse granted a mortgage
to the Bank of Montreal for proceeds of $65,000 (“the fourth mortgage”).
[10]
The Appellant recalled that some of the proceeds
of the second mortgage were used to purchase a clinic in Manotick (the
“Manotick clinic”). This clinic was purchased in the name of a numbered company
which was wholly owned by the spouse. A portion of the proceeds from the third
mortgage on the Property was used to renovate the Manotick clinic and the
fourth mortgage was used to establish a line of credit for the clinic.
[11]
In 1995, the Appellant’s spouse purchased a
second clinic in the name of a numbered company which he wholly owned. This
clinic was located in Winchester (the “Winchester clinic”). The consideration
given for this clinic was $155,000 and it was paid by cash.
[12]
The Appellant’s spouse transferred the Property
to her on September 29, 2000. At the time of transfer, the fair
market value of the Property was $315,000 and all mortgages, except the fourth
mortgage of $65,000, had been discharged. As consideration for the transfer,
the Appellant assumed the mortgage and gave her spouse $1 in cash.
[13]
According to the Appellant, the Property was
transferred to her to shield it from potential lawsuits by her spouse’s
patients. At the time, the spouse had just finished defending a lawsuit from a
former patient who had accused him of improper conduct. The lawsuit had lasted
three years and was resolved prior to the transfer of the Property to the
Appellant.
[14]
At the time of the transfer, the Appellant and
her spouse were not living separate and apart.
[15]
In 2002, the Appellant became aware that her
spouse’s 1994 to 2000 years were being audited by the Minister and he was
reassessed for these years by notice dated March 19, 2003.
[16]
The Appellant and her spouse executed a
separation agreement on September 7, 2006 and the spouse transferred his
businesses and real property to the Appellant or to corporations which she
owned. The following transfers were made pursuant to the separation agreement:
a)
in March 2007, the Manotick clinic was
transferred from the spouse’s corporation to a corporation which was
wholly-owned by the Appellant;
b) in April 2007, the Winchester clinic was transferred from the
spouse’s corporation to a corporation wholly-owned by the Appellant; and,
c) in April 2007, the spouse’s 50% interest in a cottage real property
located in the Thousand Islands was transferred to the Appellant.
[17]
According to the Appellant, the Manotick clinic
and the Winchester clinic were appraised and they along with the Property were
mortgaged so she could pay for the transfer of the clinics to her wholly owned
corporations.
[18]
However, the judge who heard the spouse’s
application for discharge from bankruptcy found that the appraisal of the
spouse’s interest in the clinics was improper. He concluded that the fair market
value in the appraisal was too low.
[19]
In the separation agreement, the Appellant and
her spouse agreed to continue to live in the Property but to maintain separate
residences therein. The Appellant was aware of her spouse’s tax debt at the
time she signed the separation agreement.
[20]
The Appellant and her spouse continue to live in
the Property but they are no longer separated. There was no testimony as to
when they resumed living as husband and wife but I have inferred from the
evidence that their separation was short lived.
[21]
On December 18, 2009, the spouse filed for
bankruptcy.
[22]
The Appellant was assessed on September 29, 2011
for the amount of $249,999 on account of the transfer of the Property.
[23]
According to the Reply, the spouse’s tax debt
was $833,060.19 at the time the Property was transferred in 2000. In the Agreed
Statement of Fact, the parties wrote that the spouse made no efforts to pay the
tax debt. They also agreed that when the Appellant was assessed on September
29, 2011, her spouse’s income tax debt was $778,511.56. As a result, I am not
sure of the exact amount of the spouse’s tax debt at the date of the transfer.
Regardless, both parties agreed that the spouse’s tax debt, at the time the
Property was transferred, exceeded the amount of $249,999 which was the amount
assessed against the Appellant.
Law
[24]
Subsection 160(1) of the ITA provides:
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, or solidarily, 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 for it, and
(e)
the transferee and transferor are jointly and severally, or solidarily, 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 (including, for
greater certainty, an amount that the transferor is liable to pay under this
section, regardless of whether the Minister has made an assessment under
subsection (2) for that amount) in or in respect of the taxation year in which
the property was transferred or any preceding taxation year,
but nothing in
this subsection limits the liability of the transferor under any other
provision of this Act or of the transferee for the interest that the transferee
is liable to pay under this Act on an assessment in respect of the amount that
the transferee is liable to pay because of this subsection.
[25]
Subsection 160(1) imposes joint and several
liability for unpaid taxes on a person to whom property is transferred if four
conditions are met:
a)
There must be a transfer of property;
b) The transferor must be liable to pay income tax at the time of
transfer;
c)
The transferor and transferee must not have been
dealing at arm’s length;
d) The fair market value of the property transferred must exceed the
fair market value of the consideration given by the transferee: The Queen v
Livingston, 2008 FCA 89 at paragraph 17.
[26]
In this appeal, only the fourth of these
conditions is in dispute.
Appellant’s
Position
[27]
As stated earlier, it was the Appellant’s
position that the consideration provided by her for the transfer of the
Property exceeded the fair market value of the Property at the time of the
transfer. She argued that the consideration she gave consisted of amounts she
paid towards the down payment on the Winchester Property and the Property;
amounts she paid on the various mortgages which had been held on the Property
prior to its transfer to her; amounts she paid on behalf of her spouse and his
businesses both prior to the transfer and after the transfer; her assumption of
the mortgage of $65,000; and, the rights she relinquished to apply for a
declaration that she had a resulting or constructive trust in the Property.
Respondent’s Position
[28]
It was the Respondent’s position that the
Appellant gave only $65,001 as consideration for the transfer of the Property.
If, however, I conclude that she gave consideration beyond $65,001, then the
amount of that consideration is either incapable of being valued or is
valueless.
[29]
Counsel for the Respondent argued that this
Court does not have the jurisdiction to grant the equitable remedies of
resulting or constructive trust. However, if I conclude that the Tax Court does
have jurisdiction, then the Appellant has not satisfied the requirements of a
constructive or resulting trust.
Analysis
A. Interpretation
of subparagraph 160(1)(e)(i)
[30]
Counsel for the Appellant argued that the
consideration given for the transfer of the Property can consist of amounts
which the Appellant gave to her spouse both before and after the transfer of
the Property occurred. He stated that both subparagraph 160(1)(e)(i) of
the ITA and the definition of “value of the consideration” in the Land
Transfer Act, R.S.O. 1990, c.L6 support his position.
[31]
For ease of reference, I have recopied
subparagraph160(1)(e)(i) which reads as follow:
(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 (emphasis added)
[32]
Counsel for the Appellant stated that the phrase
“at that time” in subparagraph 160(1)(e)(i) modifies the phrase “fair
market value” and not the word “consideration”. Therefore any consideration
given at any time for the Property must be considered for purposes of
subsection 160(1). In particular, the Appellant submitted cheques dated both
prior to and after the transfer of the Property. These cheques allegedly
represented payments made on behalf of the spouse and formed part of the
consideration for the Property.
[33]
I disagree with the Appellant’s interpretation.
The phrase “at that time” cannot just speak to only the phrase “fair market
value”. It has to be the “fair market value” of something “at that time” and
the something is “the consideration given for the property”. The sentence must
be read in its entirety. I interpret subparagraph 160(1)(e)(i) to mean
that the Appellant and her spouse are jointly and severally liable to pay an
amount equal to the lesser of: the amount by which the fair market value of the
Property at the time it was transferred exceeds the fair market value of the
consideration given at the time that the Property was transferred. “At that
time” refers to the time the Property was transferred and it modifies the “fair
market value of the consideration”. This interpretation is consistent with the
Federal Court of Appeal’s decision in Madsen v R, 2006 FCA 46 where it
was stated that:
7 In these
circumstances, in valuing the consideration given for the British Columbia
property in 1989, the court could not take into account the transfer of the
Arizona property interest that occurred five years later. It is the fair market
value of the consideration at the time of the transfer which governs.
[34]
Consequently, any amounts which the Appellant
may have given to her spouse after the transfer of the Property and which were
not part of the contract at the time of the transfer were not consideration for
the transfer.
B. Definition of Consideration
[35]
The Appellant also relied on the definition of
“Value of Consideration” in the Ontario Land Transfer Tax Act to state
that the consideration for the transfer can include amounts paid prior to the
transfer. It is my view that this definition does not support the Appellant’s
position. The portion of that definition which counsel relied on reads:
“value of
consideration” includes,
(a) the
gross sale price or the amount expressed in money of any consideration given or
to be given for the conveyance by or on behalf of the transferee and the value
expressed in money of any liability assumed or undertaken by or on behalf of
the transferee as part of the arrangement relating to the conveyance and the
value expressed in money of any benefit of whatsoever kind conferred directly
or indirectly by the transferee on any person as part of the arrangement
relating to the conveyance,
[36]
According to the Land Transfer Tax Act,
consideration for the transfer of property includes the gross sale price or
amounts already given or to be given or liabilities assumed or benefits given
for the conveyance. However, as I read the definition, all of those types of
consideration must be expressed “in money” for the purposes of that Act and
declared in an affidavit of the transferee. Subsections 5(1) and (2) of that
same Act stipulate that the transferee must make an affidavit in which the true
value of the consideration for the conveyance is declared. The relevant
portions of that section read:
Statement or
affidavit re conveyance
5.(1)The
following information respecting a conveyance shall be provided to the Minister
in the form and manner required by subsection (1.1) or (1.2):
1. The true value
of the consideration for the conveyance.
2. The true
amount in cash and the value of any property or security included in the value
of the consideration.
3. The amount or
value of any lien or encumbrance subject to which the conveyance is made.
Maker of
statement or affidavit
(2) The statement
or affidavit required by this section shall be made by,
…
(c) each transferee named in the conveyance to which the
affidavit relates;
[37]
In the present appeal, the Appellant’s spouse
transferred the Property to her on September 19, 2000. In the deed they stated
that the consideration given was $65,001. On that same date, the Appellant as
transferee swore an Affidavit of Residence and of Value of the Consideration
for purposes of the Land Transfer Tax Act in which she declared that the
total consideration for the transfer of the Property was $1 cash and the
assumption of a mortgage of $65,000. She said that the consideration was
nominal because the transferor and transferee were husband and wife and the transfer
was a gift of land for natural love and affection.
[38]
Counsel for the Appellant also argued that
transfers of property between spouses are treated differently for purposes of
the Land Transfer Tax Act. He relied on a bulletin called “Transfers of
Land Between Spouses” for this proposition. This bulletin does not assist the
Appellant’s position.
[39]
The bulletin states that its purpose is to
outline the application of the Land Transfer Tax Act to registered
conveyances and unregistered dispositions of land between spouses and former
spouses. It repeats the definition of “Value of Consideration” and states that
“the amount expressed in money of any consideration given or to be given, as
well as any benefit given to any person as part of the arrangement, must be
included” in the consideration. The bulletin also informs that unless there is
a specific exemption, transfers between spouses are subject to land transfer
tax. In the circumstances of this appeal, the transfer of the Property to the
Appellant was exempted from land transfer tax because “the only consideration
given” was the assumption of the mortgage.
[40]
Neither the Land Transfer Tax Act nor the
bulletin relied on by the Appellant support her position that the consideration
for the transfer consisted of amounts not declared in her affidavit which
accompanied the deed.
[41]
As stated by Bonner J. in Ruffolo et al v The
Queen, 99 DTC 184 (TCC), the term “consideration” in subparagraph 160(1)(e)(i)
is to be given its ordinary meaning, namely, something given in payment.
[42]
In Logiudice v The Queen, 97 DTC 1462
(TCC) at paragraph 16, Bowie J. made the following comments:
16 The word
consideration, as it is used in the context of section 160 of the Act, in its
ordinary sense refers to the consideration given by one party to a contract to
the other party, in return for the property transferred. The obvious
purpose of section 160 is to prevent taxpayers from escaping their liability
for tax, interest and penalties arising under the provisions of the Act by
placing their exigible assets in the hands of relatives, or others with whom
they are not at arms' length, and thus beyond the immediate reach of the tax
collector. The limiting provision in subparagraph 160(1)(e)(i) of the
Act is to protect genuine business transactions from the operation of the
section, to the extent of the fair market value of the consideration given for
the property transferred. It is apparent, therefore, that for a transferee to
have the benefit of this saving provision she must be able to prove that the
transfer of property to her was made pursuant to the terms of a genuine
contractual arrangement. (emphasis added)
C. Amounts
Paid Prior to Transfer of Property
(1)
Cheques written in 1999 and 2000
[43]
The Appellant produced copies of cheques which
she had written on her chequing account to her spouse’s businesses, BMO
Mastercard, the Bank of Montreal and Scotiabank Visa in 1999 and 2000. Those
cheques were as follows:
Date
|
Payable to
|
|
Date
|
Payable To
|
|
05-Mar-99
|
Manotick
Chiropractic
|
$4,000.0000
|
10-Jan-00
|
Manotick
Chiropractic
|
$3,000.0000
|
12-Apr-99
|
BMO
Mastercard
|
298.0060
|
18-Jan-00
|
Manotick
Chiropractic
|
6,000.0000
|
05-Aug-99
|
Winchester Chiro
|
4,300.0000
|
04-Apr-00
|
Bank of
Montreal
|
2,500.0000
|
12-Nov-99
|
Manotick
Chiropractic
|
5,000.0000
|
11-Apr-00
|
Bank of
Montreal
|
6,700.0000
|
13-Dec-99
|
Manotick
Chiropractic
|
13,000.0000
|
11-Apr-00
|
Scotiabank
Visa
|
7,216.0000
|
|
Total
|
$26,598.0060
|
|
Total
|
$25,416.0000
|
[44]
It is my view that the amounts on these cheques
were not consideration for the transfer of the Property. It is clear from the
deed and the Appellant’s affidavit that the consideration given for the
transfer was $65,001. There is no documentation or corroboration to support the
Appellant’s contention that the amounts in these cheques were part of the price
she paid for the transfer. In cross examination, she admitted that at the time
the Property was transferred to her she did not promise her spouse that she
would make payments to his businesses or on behalf of his businesses. The
Appellant testified that money was transferred to her spouse’s business or on
loans at the request of the bookkeeper who would phone her to say that an
injection of cash was needed for the businesses.
[45]
The total amounts on the cheques which the
Appellant alleged were part of the consideration for the transfer of the
Property were $26,596.60 and $25,416 in 1999 and 2000. However, according to
the Agreed Statement of Facts, the taxable income of the Appellant and her
spouse was as follows:
|
Appellant
|
Spouse
|
2000
|
$23,448
|
$ 84,081
|
1999
|
23,345
|
83,066
|
1998
|
21,875
|
159,538
|
1997
|
32,268
|
106,375
|
1996
|
23,154
|
135,322
|
1995
|
25,461
|
261,279
|
1994
|
29,146
|
144,547
|
1993
|
20,784
|
147,136
|
1992
|
17,979
|
143,315
|
1991
|
16,586
|
89,122
|
1990
|
17,022
|
61,094
|
1989
|
15,840
|
57,119
|
1988
|
15,505
|
44,610
|
1987
|
6,624
|
46,621
|
1986
|
7,639
|
75,131
|
1985
|
19,480
|
68,891
|
1984
|
7,869
|
54,078
|
1983
|
9,607
|
39,746
|
1982
|
9,790
|
33,798
|
1981
|
9,475
|
8,105
|
1980
|
6,183
|
56,863
|
1979
|
-
|
72,138
|
1978
|
-
|
33,619
|
[46]
Clearly, the Appellant’s taxable income in 1999
and 2000 was less than the total amounts in the cheques for those years. The
evidence consisted of only five cheques for each year and there was no evidence
as to the total number of cheques written on this account each year. The total
amount payable pursuant to these five cheques for each year exceeded the
Appellant’s taxable income in 1999 and 2000 and according to the Appellant she
also contributed to the household expenses and the mortgage on the Property.
She did not submit the bank statements for these years which may have shown the
source of the deposits in her account or the quantum of money deposited and
withdrawn from her account in 1999 and 2000. The Appellant stated that some of
the funds in her chequing account came from her RRSP. However, she submitted no
documents to corroborate her testimony.
[47]
In direct examination, the Appellant stated that
none of the money in her chequing account came from her spouse. However, in
cross examination, she admitted that her spouse did deposit money in her account
because he did not have a chequing account. Aside from her spouse’s businesses,
she held the only chequing account for the couple. Based on the evidence
presented at the hearing, it is implausible that the Appellant had the funds to
give $26,596.60 and $25,416 to her spouse in 1999 and 2000.
(2) Down
Payment on Winchester Property and mortgage payments
[48]
It was the Appellant’s evidence that she worked
prior to her marriage in 1977 and she had savings but her spouse did not have
savings. The Winchester Property was purchased in 1978 for $80,000 with a cash
down payment of $24,000 and a mortgage of $56,000. The Appellant stated that
she used some of her money to purchase this first home but she was not sure how
much she contributed to the cash down payment. She submitted no documentation
or brought any witnesses to corroborate her testimony that she contributed any
amount of cash towards the down payment. The Appellant did not quantify the
savings she may have had and she could not quantify how much she may have
contributed to the purchase of the Winchester Property or as payments on the
mortgage.
[49]
In cross examination, the Appellant agreed that
all payments for the pre-transfer mortgages were made by cheque. She also
agreed that half of the time those payments were made by cheque drawn against
her spouse’s business’ account and the other half of the time, the payments
were made by cheque drawn from her chequing account. The other household
expenses were also paid by cheques drawn against the Appellant’s account. The
Appellant also admitted that the funds in her chequing account were from her
income and her spouse’s income.
[50]
Counsel for the Appellant argued that the
Appellant’s contributions to the down payment on the Winchester Property and
her contributions to the mortgages on both the Winchester Property and the
Property are part of the consideration she provided for the transfer of the
Property. He stated that the Appellant had to be given credit for the actual
cash consideration she provided for all marital and business properties which
were registered in her spouse’s name. The problem I have with this argument is
that any payments which the Appellant may have made towards the down payment
and the mortgages on the Winchester Property and the Property were not quantified.
I have no way of valuing these contributions when the Appellant herself could
not quantify them and could not remember any amounts which she allegedly paid.
The Appellant’s evidence on these matters was vague and self-serving. There
were inconsistencies in her evidence regarding the deposits in her chequing
account and I have rejected her evidence that all amounts withdrawn from this
account were her monies only.
(3) Amounts
Paid After the Transfer
[51]
The Appellant submitted that the following
cheques which were written on her chequing account in 2001 and 2002 were
payments she made on behalf of her spouse. It was her position that these
amounts were part of the consideration she paid for the transfer of the
Property in 2000.
Date
|
Payable to
|
|
Date
|
Payable to
|
|
16-Feb-01
|
Manotick
Chiropractic
|
$ 2,200.00
|
08-Jan-02
|
Manotick
Chiropractic
|
$ 8,000.00
|
01-May-01
|
Manotick
Chiropractic
|
6,000.00
|
31-Jan-02
|
Manotick
Chiropractic
|
9,000.00
|
11-May 01
|
BNS Visa
|
2,000.00
|
27-Feb-02
|
BMO Nesbitt
Burns
|
218.00
|
28-May-01
|
Manotick
Chiropractic
|
7,000.00
|
21-Mar-02
|
Bank of
Montreal
|
7,648.00
|
27-Jun-01
|
BNS Visa
|
6,072.09
|
21-May-02
|
Winchester
Chiropractic
|
5,000.00
|
08-Aug-01
|
Manotick
Chiropractic
|
3,000.00
|
12-Jun-02
|
Manotick
Chiropractic
|
5,000.00
|
17-Aug-01
|
Citifinancial
|
4,905.00
|
04-Jul-02
|
Winchester
Chiropractic
|
5,000.00
|
27-Sept-01
|
Ryan Barber
|
5,440.00
|
09-Jul-02
|
Winchester
Chiropractic
|
5,000.00
|
11-Oct-01
|
Manotick
Chiropractic
|
11,000.00
|
09-Aug-02
|
Manotick
Chirpractic
|
4,500.00
|
23-Oct-01
|
State Farm
Insurance
|
147.34
|
03-Sept-02
|
Manotick
Chirporactic
|
4,000.00
|
01-Dec-01
|
BMO Nesbitt
Burns
|
133.75
|
10-Sept-02
|
Winchester
Chiropractic
|
5,000.00
|
|
|
|
08-Nov-02
|
Manotick
Chiropractic
|
4,000.00
|
|
|
|
11-Dec-02
|
Manotick
Chiropractic
|
10,000.00
|
Total
|
|
$47,898.18
|
|
|
$72,366.00
|
[52]
There was no evidence that the Appellant and her
spouse had an oral or written contract at the time the Property was transferred
to her that any consideration would be paid by her at a future date. There was
also no evidence regarding the Appellant’s income in 2001 and 2002. It was
clear from the Appellant’s evidence that her spouse also deposited funds into
her chequing account. As a result of all of the above, I have disregarded all
cheques which the Appellant produced which were made in 2001 and 2002.
D. Constructive or Resulting Trust
[53]
Counsel for the Appellant relied on the decision
in Darte v R, 2008 TCC 66 to argue that the Appellant relinquished her
right to apply to a superior court for a declaration that she had a resulting
or constructive trust in the Property. He submitted that the right which she
relinquished was valued at 50% of the fair market value of the Property at the
time of the transfer. In the circumstances of this case, that right was valued
at $124,999.50.
[54]
I disagree with the Appellant’s position for
several reasons.
[55]
There was no evidence that the Appellant paid
any consideration by forbearing to seek the remedy of constructive trust. As in
the case of Pliskow v The Queen, 2013 TCC 283, there was no evidence of
any contract, waiver or other agreement that the Appellant agreed to refrain
from pursuing her right for declarative relief under the doctrine of
constructive trust: The Queen v Livingston, 2008 FCA 89 at paragraph 29;
Pliskow at paragraph 27.
[56]
The Appellant testified that prior to the
transfer she did not consult anyone concerning any rights she may have had to
claim an interest in the Property. She and her spouse never discussed what
interest in the Property she was entitled to claim. Prior to the transfer, she did
not threaten to bring a claim in resulting or constructive trust. There was no
forbearance in this case.
[57]
Counsel for the Appellant has requested that I
declare that prior to the transfer, the Appellant held 50% of the Property by
way of a constructive trust. It is my opinion that this court does not have the
jurisdiction to grant the equitable remedy of constructive trust. Although the
Tax Court is a superior court, it was created by statute and unlike the
provincial superior courts it does not have inherent equitable jurisdiction. I
agree with Webb J., as he then was, that the Tax Court is not a court of equity
and cannot grant or declare the equitable remedy of a constructive trust: Darte
(supra) at paragraph 21.
[58]
Even if I had the jurisdiction to declare a
constructive trust, this would require an analysis of the entire relationship
between the Appellant and her spouse; the contributions each made to their
assets and their liabilities; whether there were any agreements, marriage
contracts, separation agreements or in general, any factors the parties would
utilize in arguing for the division of their property rights: Kardaras v
Canada, 2014 TCC 135. That analysis would have been impossible to make in
the present case because the spouse was not a witness at the hearing and the
evidence was lacking.
[59]
The Appellant never gave a reason why she and
her spouse did not hold the Winchester Property or the Property as joint
tenants. However, after a review of the evidence in this appeal, it appears to
me that up until the Property was transferred to the Appellant, she and her
spouse arranged their affairs so that he alone held title to all real property
while she controlled their financial affairs. Both the Appellant and Keely
Moure testified that the Appellant was responsible for the couple’s financial
matters. The Appellant was the person who was contacted by the bookkeeper when
the businesses required a deposit of money. The Appellant then wrote a cheque
on her chequing account for deposit into the clinic’s account. Between her and
her spouse, only the Appellant had a chequing account. There was no evidence
that either she or her spouse had a savings account. Her spouse had RRSPs and
the Appellant deposited money into his RRSP from her chequing account. There
was no evidence whether the RRSP was a spousal RRSP.
[60]
In conclusion, the Appellant has not adduced
sufficient evidence to show that she provided consideration in excess of
$65,001 for the transfer of the Property. Documentary evidence was lacking and
clear testimony was lacking. She said that she paid a portion of the down
payment on the first matrimonial home and she contributed to the mortgages on
each of the homes. However, she couldn’t even hazard a guess as to how much she
contributed. The Appellant’s testimony was vague on key items. The Appellant
has not discharged the onus which she had and the appeal is dismissed with
costs to the Respondent.
Signed at Halifax, Nova Scotia, this 3rd day of June 2015.
“V.A. Miller”
Appendix
A
AGREED
STATEMENT OF FACTS
(PARTIAL)
For the purposes
of this proceeding and in addition to any evidence that may be adduced at the
hearing, the appellant and the respondent agree to the following facts:
1.
On August 27, 1977, the appellant and Dieter
Hardtke (the “spouse”) were married, and have been married ever since.
2.
At all material times, the spouse carried on a
chiropractor business, whether directly or through one or more corporations.
3.
On or about October 20, 1978, the spouse
acquired title in fee simple to the residential property described as Lot 42,
North of Main Street in the Village of Winchester, according to Purvis Plan No.
34 (the “Winchester Property”).
4.
The Winchester property was acquired for a
purchase price of $80,000, which was paid for by way of $24,000 in cash and
$56,000 in mortgage proceeds.
5.
On or about September 1, 1983, the Winchester
property was sold for proceeds of $100,000 by way of a deed of transfer dated
August 29, 1983.
6.
The consideration for the sale of the Winchester
property was paid for by way of $45,133.42 in cash and $54,866.58 in mortgages
assumed.
7.
On or about September 2, 1983, the spouse
acquired title in fee simple to the residential property described as Lot 14,
Plan 804, township of Rideau Municipality of Ottawa-Carleton (the “Manotick
property” or the “property”).
8.
The Manotick property was acquired for a
purchase price of $180,000, which was paid for as follows:
a.
$125,000 in mortgage proceeds obtained by the
spouse; and
b.
$55,000 in cash.
9.
From August, 1983 to September 2000, four
mortgages had been granted on the Manotick property:
a.
on or about August 11, 1983, the spouse granted
a mortgage to the Royal Bank of Canada for proceeds of $125,000, which were
used to acquire the property (the “first mortgage”);
b.
on or about January 6, 1987, the spouse granted
a mortgage to the Royal Bank of Canada for proceeds of $160,000, which were
used in part to repay the outstanding balance of the first mortgage (the
“second mortgage”);
c.
on or about June 20, 1989, the spouse granted a
mortgage to the Royal Bank of Canada for proceeds of $250,000, which were used
in part to repay the outstanding balance of the second mortgage (the “third
mortgage”); and
d.
on or about February 20, 1996, the spouse
granted a mortgage to the Bank of Montreal for proceeds of $65,000, (the
“fourth mortgage”)
(collectively the “pre-transfer mortgages”)
10.
The appellant was not a mortgagor/chargor under
any of the pre-transfer mortgages, though she did consent as the spouse of the
mortgagor/chargor to each of those mortgages and signed each Charge/Mortgage of
Land documents.
11.
All principal and interest payments under the
pre-transfer mortgages were made after title to the Manotick property had been
transferred to the spouse in 1983.
12.
On or about September 29, 2000, the spouse
transferred the Manotick property to the appellant (the “transfer”).
13.
The transfer was not made pursuant to the
separation agreement between the appellant and her spouse dated August 15, 2006
and executed on September 7, 2006.
14.
At the time of the transfer, the fair market
value of the Manotick property was $315,000.
15.
At the time of the transfer, all but the fourth
pre-transfer mortgages had been discharged and the balance outstanding on that
mortgage was $65,000.
16.
At the time of the transfer and in exchange for
the property, the appellant gave her spouse consideration of $65,001, $1 in
cash and $65,000 in assuming the outstanding balance of the fourth pre-transfer
mortgage. (In so admitting, the appellant does not admit that she gave no
additional consideration for the property.)
17.
No tax was paid on the transfer under the Land
Transfer Tax Act.
18.
The taxable income of the appellant the spouse
was as follows for the following years:
|
Appellant
|
Spouse
|
2000
|
$23,448
|
$ 84,081
|
1999
|
23,345
|
83,066
|
1998
|
21,875
|
159,538
|
1997
|
32,268
|
106,375
|
1996
|
23,154
|
135,322
|
1995
|
25,461
|
261,279
|
1994
|
29,146
|
144,547
|
1993
|
20,784
|
147,136
|
1992
|
17,979
|
143,315
|
1991
|
16,586
|
89,122
|
1990
|
17,022
|
61,094
|
1989
|
15,840
|
57,119
|
1988
|
15,505
|
44,610
|
1987
|
6,624
|
46,621
|
1986
|
7,639
|
75,131
|
1985
|
19,480
|
68,891
|
1984
|
7,869
|
54,078
|
1983
|
9,607
|
39,746
|
1982
|
9,790
|
33,798
|
1981
|
9,475
|
8,105
|
1980
|
6,183
|
56,863
|
1979
|
-
|
72,138
|
1978
|
-
|
33,619
|
19.
From 1980 to 2000, the appellant was employed
full time as a chiropractic assistant.
20.
In respect of the Manotick property,
a.
on or about October 9, 2007, the appellant
granted a mortgage to the Royal Bank of Canada for proceeds of $400,000 (the
“first post-transfer mortgage”),
b.
on or about October 24, 2007, the Bank of
Montreal discharged the fourth mortgage of $65,000,
c.
on or about January 5, 2009, the Royal Bank of
Canada discharged the first post-transfer mortgage of $400,000,
d.
on or about March 8, 2010, the appellant granted
a mortgage to the Royal Bank of Canada for proceeds of $750,000 (the “second
post-transfer mortgage”), and
e.
on or about March 9, 2010, the Royal Bank of
Canada discharged a mortgage registered as OC934667 on December 4, 2008.
21.
In respect of the real property located at 569
Main Street, Winchester, Ontario (the “other Winchester property”),
a.
on or about September 11, 2006, title in fee
simple was transferred from 1091973 Ontario Inc. to 2086751 Ontario Inc., for
consideration totaling $190,000, including $39,388.18 in assumed mortgages and
$83,212.84 in a mortgage given back to the vendor, and
b.
on or about September 11, 2006 2086751 Ontario
Inc. granted a mortgage to 1091973 Ontario Inc. for proceeds of $83,212.84.
22.
In respect of the real property located at 5482
Main Street, Manotick, Ontario (the “other Manotick property”), on or about
December 4, 2008, Hard Key Health Care Inc. granted a mortgage to the Royal
Bank of Canada for proceeds of $210,000, which charge was registered as
OC934668.
23.
In the 1990s, the Canada Revenue Agency
commenced an investigation and audit of 115 chiropractic clinics in Ontario.
24.
The common factor in the audits was an
accountant named Leo Sabourin.
25.
Mr. Sabourin was eventually charged and
convicted for, among other things, fraud relating to the tax returns he
prepared, or directed to be prepared, for 115 chiropractor clients from across
Ontario for the 1994 to 1999 taxation years.
26.
Mr. Sabourin was the spouse’s accountant during
those years.
27.
On or about December 18, 2009, the spouse filed
for bankruptcy.
28.
The spouse made no efforts to pay the tax debt.
29.
On September 29, 2011, the appellant was
assessed under section 160 in the amount of $249,999 in respect of the
transfer.
30.
As at the date of the assessment, the spouse’s
liabilities under the Act for the 1994 to 2000 taxation years totaled
$791,467.96 (i.e., excluding any liabilities in respect of provincial tax)(the
$791,467.96 amount being the “tax debt”).
31.
The tax debt arose from reassessments of the
1994 to 2000 taxation years dated March 19, 2003.