COMMON
REASONS FOR JUDGMENT
Bocock J.
[1]
On consent, these two appeals were heard
together on common evidence, although the appeals concern distinct transactions
in respect of which the Minister has raised assessments under
subsection 160(1) of the Income Tax Act (the “Act”) against a
mother and son, respectively.
I. Facts
A. Rabinder Parihar
[2]
With respect to the Appellant, Rabinder Parihar,
Aaremic Travel Corp. (“Aaremic”) owed the Minister substantial tax debts
relating to the 1996, 1997, and 1998 taxation years.
[3]
Rabinder is married to Ranjit Parihar (“Randy”).
Rabinder and Randy’s children are Reema McGonagle (“Reema”), Michael Parihar (the
other appellant), and Aaron Parihar (“Aaron”).
[4]
Both Randy and Rabinder testified at trial. According
to their testimony, Aaremic operated a full service travel agency mainly
earning commission income on airline tickets. Rabinder and Reema were each 50%
shareholders and directors of Aaremic. Randy was the president and principal
manager of Aaremic.
[5]
Aaremic owned a bank account at Scotiabank (the
“Aaremic Account”) in respect of which Rabinder and Randy each had signing
authority. Randy and Rabinder also held a personal joint bank account at
Scotiabank (the “Joint Account”).
[6]
On July 15, 2002, the Minister assessed
Aaremic’s 1996, 1997, and 1998 taxation years and accordingly issued notices on
that date. On December 28, 2006, the Minister further reassessed Aaremic’s
1996, 1997, and 1998 taxation years pursuant to a waiver signed by Randy on
behalf of Aaremic.
[7]
As a result of the further reassessments,
Aaremic became indebted for taxes related to its 1996, 1997, and 1998 taxation
years in the total amount of $183,834.02 (the “Tax Debt”).
[8]
Previously, at or around November 28, 1998 (the “Date
of Transfer”), Randy became aware that a client was considering suing Aaremic.
To protect Aaremic’s assets, Randy directed Aaremic to transfer funds to
Rabinder in order to protect those funds from a potential garnishment by the
client. On the Date of Transfer, Aaremic transferred $100,000 into a Scotiabank
GIC (the “GIC”) in Rabinder’s name.
[9]
During the period March 1 to 25, 1999, capital
and interest from the GIC were distributed as follows:
(a) $37,539.69
was deposited to Aaremic’s Account; and,
(b) $63,736.67
was deposited to the Joint Account.
[10]
In turn, the amount of $63,736.67 was deposited
to RRSPs in various amounts to the benefit of Randy, Rabinder, Michael, Reema,
and Aaron.
[11]
A bare trust and agency agreement (the “Trust
Declaration”) was signed on June 1, 2000 and backdated to December 1,
1998 which provided that Rabinder held the monies in trust for Aaremic and not
on her own behalf.
[12]
On June 19, 2002, Rabinder’s 1996, 1997,
and 1998 taxation years were reassessed by the Minister assessing shareholder
benefits and unreported income of $334,761, $479,058, and $212,862, respectively,
and levying gross negligence penalties for all three years.
[13]
On November 6, 2006, Rabinder signed a waiver
agreeing to be reassessed on the basis that her shareholder benefits and
unreported income for 1996, 1997, and 1998 would be reduced by $308,671,
$431,002, and $74,437, respectively, and gross negligence penalties would be
deleted (the “Rabinder Waiver”).
[14]
The first provision of the Rabinder Waiver reads
as follows:
“I waive my right
of objection or appeal in respect of all issues if Canada Revenue Agency
re-assesses as follows:
1. Reduce the
amount of the subsection 15(1) benefit by $300,369, $426,710 and $70,239 for
the 1996, 1997 and 1998 taxation years respectively with respect to temporary
investments in GICs and securities made on behalf of Aaremic Travel Corp.”
[15]
On January 29, 2007, Rabinder’s 1996, 1997, and
1998 taxation years were reassessed in accordance with the terms resolved with
the Minister.
[16]
On October 30, 2009, the section 160
assessment at issue was raised against Rabinder in respect of the Tax Debt and
the transfer of funds by Aaremic into the GIC in Rabinder’s name on the Date of
Transfer.
[17]
As a result of the further reassessments of these
taxation years, as of March 22, 2012, Rabinder remained indebted for taxes,
penalties, and interest related to her 1996, 1997, and 1998 taxation years in
the amount of $232,912.80.
B. Michael
Parihar
[18]
On March 27, 2008, Randy and Rabinder purchased
a condominium known as 1202 – 738 Farrow Street, Coquitlam, British Columbia
(the “Condo”) for $338,000.
[19]
In the agreement of purchase and sale for the
Condo dated March 17, 2008 (the “APS”), the purchasers were identified as “R
& R Parihar and/or Nominee”. Randy and Rabinder took title to the property jointly
later in March 2008 (the “Initial Transfer”).
[20]
On July 17, 2009, Randy and Rabinder transferred
legal title to a one-third interest (the “One-Third Interest”) in the Condo to
Michael. On July 17, 2009, the fair market value of the Condo was
$338,000, and the fair market value of the One-Third Interest was $112,667. Arithmetically,
the fair market value of Rabinder’s half of that One-Third Interest was
$56,333.33 on that date. Michael gave consideration of $1.00 and love and
affection for the One-Third Interest. In his testimony, Michael confirmed that
he did not receive the One-Third Interest in relation to any repayment of loans
between Michael and his parents, he did not contribute any money to the
purchase of the Condo, and has never paid strata fees, utilities, or property
taxes in respect of the Condo.
[21]
Michael did not see the Condo before it was
purchased and did not discuss the purchase of the specific Condo before his
parents purchased it. Michael did not know about the purchase of the Condo
until he returned from a trip to Holland, Mexico, and Las Vegas.
[22]
Randy and Rabinder conducted renovations to the
Condo. Michael did not contribute any money to the renovations of the Condo.
After renovations were complete, Randy, Rabinder, and Aaron, not Michael, moved
in. Michael has occasionally stayed at the Condo on a short-term basis, but he
has never resided at the Condo.
[23]
On April 12, 2012, the Minister raised the
section 160 assessment against Michael to the extent of the lesser of
Rabinder’s tax debt and the value of the One-Third Interest in the Condo.
II. Law
(1) The Purpose of Subsection 160(1)
[24]
The purpose of subsection 160(1) of the Act
is to protect the Minister’s ability to collect tax debts. The object and
spirit of subsection 160(1) is to prevent a taxpayer from transferring his
or her property to a related person, in order to thwart the Minister’s ability
to collect a tax debt: Her Majesty The Queen v. Livingston, 2008 FCA 89 at paragraph 18 (“Livingston”);
Medland v. Canada, 98 DTC 6358 (FCA); and Canada v. Heavyside, 51
DTC 5026 (FCA), at paragraph 10.
[25]
The application of subsection 160(1) can be
“draconian” (Wannan v. Canada, 2003 FCA 423, (“Wannan”)
at paragraph 3). However, it is also recognized as an “important tax collection
tool” (Wannan, at paragraph 3). The Federal Court of Appeal has
observed, “[t]he power to tax means little without the power to collect” (Livingston,
at paragraph 1).
(2) The Four-Part Test from Livingston
[26]
In Livingston, the Federal Court of
Appeal established a four-part test for subsection 160(1) assessments, as
follows (Livingston, at paragraph 17):
1) The transferor must be liable to pay tax under the Act at
the time of transfer;
2) There must be a transfer of property, either directly or
indirectly, by means of a trust or by any other means whatever;
3) The transferee must either be:
i. the transferor’s spouse or common-law
partner at the time of transfer or a person who has since become the person’s
spouse or common-law partner;
ii. a person who was under 18 years of age at
the time of transfer; or
iii. a person with whom the transferor was not
dealing at arm’s length.
4) The fair market value of the property transferred must
exceed the fair market value of the consideration given by the transferee.
[27]
If all four elements are met, the Court has no
option but to uphold the assessment (Woodland v. Canada, 2009 TCC 434, (“Woodland”)
at paragraph 28).
[28]
The four-part test from Livingston does
not look to the subjective motivations of the transferee. There is no due
diligence defence to an assessment under subsection 160(1) (Woodland, at
paragraph 28). Further, although it may be relevant in determining the
adequacy of any consideration given, there is no requirement that the
transferee intended to defraud the CRA or frustrate the Minister’s ability to
collect (Livingston, at paragraph 19; Woodland, at paragraph 27;
and Wannan, at paragraph 3).
[29]
In fact, there is no requirement that the
transferee have any knowledge of the transferor’s underlying tax debt (Wannan,
at paragraph 3).
[30]
The underlying tax debts are admitted in both
appeals.
A. Rabinder
Parihar
(1) Law
[31]
The relevant provisions of the Act read
as follows:
Benefits conferred on shareholder
15. (1) If, at any time, a benefit is conferred by a corporation on a
shareholder of the corporation, on a member of a partnership that is a
shareholder of the corporation or on a contemplated shareholder of the
corporation, then the amount or value of the benefit is to be included in
computing the income of the shareholder, member or contemplated shareholder, as
the case may be, for its taxation year that includes the time, except to the
extent that the amount or value of the benefit is deemed by section 84 to be a
dividend or that the benefit is conferred on the shareholder …
Waived issues
169. (2.2) Notwithstanding subsections 169(1) and 169(2), for greater
certainty a taxpayer may not appeal to the Tax Court of Canada to have an
assessment under this Part vacated or varied in respect of an issue for which
the right of objection or appeal has been waived in writing by the taxpayer.
[32]
“Arm’s length” and “related persons” are defined
in the Act by the following provisions:
Arm’s
length
251. (1)
For the purposes of this Act,
(a)
related persons shall be deemed not to deal with each other at arm’s length;
…
and
(c)
in any other case, it is a question of fact whether persons not related to each
other are, at a particular time, dealing with each other at arm’s length.
Definition of “related persons”
(2) For the purpose of this Act, “related
persons”, or persons related to each other, are
…
(b) a corporation and
(i) a person who controls the corporation, if it
is controlled by one person,
(ii) a person who is a member of a related group
that controls the corporation, or
(iii) any person related to a person described in
subparagraph 251(2)(b)(i) or 251(2)(b)(ii); and …
(2) Arguments of Rabinder
(a) Monies held in trust for Aaremic
[33]
Rabinder has argued that she was holding the transferred
funds in the GIC in trust for Aaremic pursuant to the terms of the Trust
Declaration.
(b) A subsisting waiver estoppes the assessment
[34]
Rabinder argues that the Respondent should be
estopped from making the subsection 160(1) assessment since the same issue
has been resolved and exhausted pursuant to subsection 15(1), the
shareholder benefit assessment, which was in turn the subject of the Rabinder
Waiver. To this end, Rabinder advances the following arguments and authorities:
(a)
Pursuant to Livingston, the Federal Court
of Appeal has cautioned that courts should remain mindful as to the provision’s
intended purpose and its effect in the context of the factual circumstances of
each case;
(b)
Justice Archambault of this Court noted in Bleau
v. The Queen, 2006 TCC 36 (“Bleau”), that a subsection 160(1)
assessment is not intended to impose a tax on the taxpayer’s income, but rather
to provide an avenue to collect tax from a third party as distinct from the
purposes of a subsection 15(1) assessment which is a taxing section per se;
however, the facts in Bleau are distinguishable and Livingston is
the authoritative case, the caution within Livingston provides that the
contextual factors of each case must be taken into account and given great
weight; and
(c)
The doctrine of res judicata should be
applied as accepted by Justice Woods of this Court in Lee v. Her
Majesty The Queen, 2012 TCC 335 (“Lee”). In that case, the Court
followed the decision of the Judicial Committee of the Privy Council in Thomas
v. Trinidad and Tobago (Attorney General) (1990), 115 NR 313 (UK PC) (“Thomas”).
In Thomas, the Privy Council noted that res judicata recognizes
that there should be finality to litigation such that no person should be
subjected to legal action more than once in relation to the same issue. In Lee,
Justice Woods also outlined that two forms of estoppel which have been
recognized: issue estoppel and cause of action estoppel. Reference was made to Chief
Justice Laskin’s decision in Angle v. Canada (Minister of National Revenue),
[1975] 2 S.C.R. 248 (“Angle”), noting that res judicata encompasses
the principles regarding finality and double-peril noted above. Further, it is
in the general interest of the community to have finality, and for the rights
of the individual to be protected from vexatious multiplication of suits and
prosecutions.
(c) Rabinder Parihar was arm’s length to Aaremic
[35]
In this argument, Rabinder has challenged the
third condition that must be met for the subsection 160(1) assessment to
succeed: the transferee must be a person with whom the transferor was not
dealing at arm’s length. It is submitted that Rabinder, while legally a
director and shareholder of Aaremic, factually was not a directing mind of the
corporation and did not have de facto control of Aaremic. Instead, Randy
was the directing mind exercising control and Rabinder acquiesced to or merely
took instructions from him.
[36]
It was Randy who opened the subject GIC account,
unbeknownst to Rabinder. Randy did so to avoid a potential garnishment from a
possible execution creditor which was considering suing Aaremic at the time.
The action was not taken to avoid collection proceedings from the CRA.
Appellants’ counsel argues, therefore, that the deeming provisions cannot apply
as Aaremic was its own legal person and was controlled by a person that was not
Rabinder: namely, Randy. Rabinder also could not be a member of a related group
that controlled Aaremic as Randy was the sole person in control of Aaremic.
(3) Analysis
(a) Monies held in trust
[37]
Subsection 160(1) applies to all transfers,
including those by means of a trust. In Livingston, the Federal Court of
Appeal explained that there is a transfer for the purposes of subsection 160(1),
even where beneficial ownership has not been transferred. Thus, following Livingston,
even if Aaremic had simply transferred legal title to Rabinder, but not
beneficial interest, that transfer would constitute a transfer of property for the
purposes of subsection 160(1).
[38]
In any event, there is no valid trust where the
intention of the parties is to transfer property solely in order to avoid
creditors. In Raphael v. Canada, 2002 FCA 23 (“Raphael”), the
taxpayer’s husband transferred funds to an account under the taxpayer’s name in
an effort to avoid creditors. The taxpayer claimed that she held the funds in
trust for her husband and he retained beneficial interest. The Federal Court of
Appeal determined that an intention to secure funds from creditors was
inconsistent with a trust.
[39]
Similarly, in Rose v. Canada, 2009 FCA 93
(“Rose”), the taxpayer’s husband transferred a half interest in their
matrimonial home to the appellant in order to avoid a creditor. Like Raphael,
the taxpayer claimed that her husband had only transferred legal title (not
beneficial title) in order to avoid a creditor who threatened to put a lien on
the property. Again, the Federal Court of Appeal found that a trust was
inconsistent with an exclusive or predominant intention to keep property safe
from creditors.
[40]
Lastly, the evidence, if any, of a trust is
inadequate. In order to support a finding that property is not owned by the
individuals who hold legal title, especially between related parties, the law
requires “very cogent evidence”: Campbell v. Canada, 2009 TCC 431, at
paragraph 43. The following are critical evidentiary weaknesses in
Rabinder’s argument that a trust existed:
(a)
the Trust Declaration was not signed until June
1, 2000, long after the Date of Transfer;
(b)
the Trust Declaration was backdated, effective
December 1, 1998, which “backdating”, if acceptable, nonetheless gave effect to
the “trust” after the Date of Transfer (November 24, 1998);
(c)
Rabinder was not aware of the Trust Declaration
or related arrangement; and
(d)
on March 1, 1999, approximately $63,000 was
transferred from the $100,000 GIC to the Joint Account and subsequently to
RRSPs belonging to Randy, Rabinder, and their children, who as ultimate
beneficiaries do not include the alleged beneficial owner: Aaremic.
[41]
In light of the above, the contention that
Rabinder held the funds in trust for Aaremic is neither supported by the law nor
the facts and cannot be accepted by this Court.
(b) Waiver and issue estoppel
[42]
The respective criteria for an assessment under
subsection 15(1) and subsection 160(1) are different. In support of
an assessment under subsection 15(1), a benefit must have been conferred
on a shareholder whereas there is no similar requirement that a benefit be
conferred in order to assess pursuant to subsection 160(1): Doucet v.
Canada, 2007 TCC 268 (“Doucet”). In Doucet, Justice Tardif of
this Court noted the following at paragraph 45:
To claim and
indeed to prove that the transferee was not enriched following the transfer is
neither a sufficient nor, for that matter, a relevant basis for excluding the
application of section 160.
[43]
In McGonagle v. Canada, 2009 TCC 168,
2009 DTC 1120 (“McGonagle TCC”), the very issue before the Court was
whether this very appellant, Rabinder, was precluded by subsection 169(2.2)
of the Act from appealing the underlying assessment which was the
subject of the Rabinder Waiver. Rabinder argued in that appeal that she was
coerced by the CRA into signing the Rabinder Waiver and thus the Rabinder
Waiver should be found to be invalid. Further, Rabinder argued that she did not
understand the financial implications contained in the settlement within the
Rabinder Waiver until she received the Minister’s subsequent reassessment.
Justice Campbell Miller of this Court granted the Respondent’s motion to quash
the income tax appeals for the 1996 to 1998 taxation years. For various factual
reasons, the Court found that the CRA auditor’s repeated suggestions of closing
the file did not have such a cumulative effect as to constitute undue influence.
[44]
With respect to the factors contained in Danyluk
v. Ainsworth Technologies Inc., 2001 SCC 44, regarding the determination of
whether issue estoppel should apply, there can be no dispute that the decision
of McGonagle v. Canada, 2010 FCA 108 (“McGonagle FCA”), was
itself final and binding, and that Rabinder and the Respondent are the same
parties in this case as in McGonagle FCA. The only requirement at issue
is whether the same issue in this case was decided in McGonagle FCA,
and, if so, whether issue estoppel should apply.
[45]
In McGonagle TCC, this Court was faced
with the issue of whether Rabinder was precluded by subsection 169(2.2) of
the Act from appealing the assessment of the 1996 to 1998 taxation years
subject to the Rabinder Waiver. This Court did not adjudicate on the issue of
the assessment of Rabinder’s shareholder benefits. In support of an assessment
under subsection 15(1), a benefit must have been conferred on a
shareholder while there is no similar requirement that a benefit be conferred
to assess pursuant to subsection 160(1). Finally, a shareholder who has
been assessed under subsection 15(1) can also be assessed under
subsection 160(1) given the different purposes of the two provisions. As
this Court found in Bleau, subsection 160(1) may be applicable to
an amount transferred, notwithstanding that the same amounts may have already
been taxed under the provisions of subsections 15(1) and (2).
(c) Rabinder as arm’s length transferee
[46]
Rabinder’s arguments cannot succeed under either
subparagraphs 251(2)(b)(ii) and (iii); a finding that she was related to
Aaremic under either of these subparagraphs is sufficient for the purpose of
the definition within paragraph 251(2)(b). For this reason, it is
not necessary to make a determination of whether Rabinder was a directing mind
and controlled Aaremic.
[47]
Subparagraph 251(2)(b)(ii) deems a
person to be related to a corporation if the person is a member of a related
group that controls the corporation. Rabinder argues that she could not have
been part of a related group that controlled Aaremic as only one person
(Randy), and not a group, controlled Aaremic. However, Rabinder and Randy were
related by marriage and were thus, together, members of a related group of
persons that controlled Aaremic.
[48]
Similarly, subparagraph 251(2)(b)(iii)
deems a person to be related to a corporation if she is related to a person who
controls the corporation, if the corporation is controlled by one person. The
presumption is irrebuttable: Fluxgold v. R, 90 DTC 6187 (FCTD) at
paragraph 26. Even if Aaremic were controlled by Randy alone, Rabinder was
still related to Randy by marriage and Randy, in turn and as admitted,
controlled Aaremic. Definitionally, the definitions are plainly and clearly
worded. Rabinder was not arm’s length to Aaremic because of her non-arm’s
length relationship to the controlling person: Randy.
B. Michael
Parihar
(1) Law
[49]
Under the Torrens land registration system
operable in British Columbia, the register for a parcel of land is said to be a
mirror of all rights in relation to the land (Bruce Ziff, Principles of
Property Law, 5th ed. (Toronto: Carswell, 2010) at 472). The system aims to
make it possible to examine a record of title for a specific parcel of land and
find listed there all the interests in the land that pertain to that parcel (ibid.).
[50]
The British Columbia Land Title Act, RSBC
1996, c. 250 (the “LTA”) defines an “owner” of property as “a person
registered in the records as owner of land or of a charge on land, whether
entitled to it in the person’s own right or in a representative capacity or
otherwise, and includes a registered owner”. The LTA defines “indefeasible
title” as “(a) a certificate of indefeasible title issued by the registrar
under this Act or the former Act, at any time before August 1, 1983, and
(b) that part of the information stored in the register respecting one title
number, that is required under section 176(2) to be contained in a
duplicate indefeasible title”.
[51]
Pursuant to section 23 of the LTA,
an indefeasible title is conclusive evidence at both law and in equity that the
person named as the registered owner is indefeasibly entitled to the land as
described. The section then lists statutory exceptions, which include a caution
or caveat.
[52]
Pursuant to section 20 of the LTA,
an instrument purporting to transfer land does not operate to pass an interest unless
that instrument is registered in accordance with the LTA.
Section 22 further provides that the document registered takes effect as
of the time of registration, regardless of when it was executed.
(2) Argument of Michael
(a) No transfer occurred since Michael was already an owner
[53]
On March 17, 2008, Randy and Rabinder
entered into the APS related to the Condo. In the APS, the buyers were described
as “R & R Parihar and/or Nominee”. Randy and Rabinder, as well as their
son, Michael Parihar, testified that Michael was intended to be the nominee referred
to in the APS and that such document bears sufficient witness to this statement.
All three stated they had a prior agreement among themselves and a common
intention that they were all intended to be owners of the Condo. Michael was
simply listed as “nominee” because he was out of the country during the time of
the purchase of the Condo. As well, the seller of the unit purportedly knew of
this intention. The seller did not testify.
[54]
Michael’s interest was eventually registered
with the land title office under the LTA as an owner of the Condo by
virtue of a transfer registered in July, 2009 (the “Registration Date”). However,
only the interest of Rabinder and Randy was registered in the Initial Transfer.
Michael argues that the registration merely reflected the pre-existing interests
among the three parties established in the APS, and merely gave effective notice
to the world at large of the One-Third Interest. As a result, registration was
reflective of past ownership and no actual transfer took place at the time of
the Registration Date.
(3) Analysis
[55]
While, at common law, conveyancing was
fundamentally a private matter, the land title office of government is interposed
in the Torrens system and warrants the ownership rights to persons examining
title. Pursuant to section 23 of the LTA, registered title is
conclusive evidence at both law and equity that the person named as the
registered owner is indefeasibly entitled to the land as described unless the
interest falls within the statutory exceptions, which include a situation where
a caution or caveat is registered on title.
[56]
Michael cannot have maintained against a third
party that he held the One-Third Interest until he was registered as an owner on
the Registration Date. The Torrens system does not recognize private
arrangements for the division of land ownership, unless, as noted, same are
reflected in some way upon the parcel register of land. Factually, a simple
caveat or caution or notation in the Initial Transfer of Randy and Rabinder’s
partial trustee capacity might have accomplished this, but none occurred so to
afford the Land Registrar and others reliance upon the state of the parcel
register as regards the alleged undisclosed trust: Smith v. Graham, 2009
BCCA 192, at paragraphs 16 and 17. Further and consistent with this
conclusion, the notation in the APS of “and/or Nominee” is not factually
sufficient to constitute evidence of a beneficial interest in favour of a
specific person (i.e. Michael) for a specific share (i.e. the One-Third
Interest). The APS could easily have reflected this supposed intention by
simply stating Randy and Rabinder’s interest qua trustee for Michael.
Michael’s absence from the country would not have impeded that reference.
[57]
Similarly, neither a specific interest in favour
of a specific person, aside from Randy and Rabinder, was noted in the land
title system in any manner in the Initial Transfer or any time before the
Registration Date, nor was Randy and Rabinder’s supposed capacity as trustees. As
well and aside from the legal doctrine of merger, the vague reference to
“and/or Nominee” in the APS, as the only documentary or corroborative evidence,
is not, on the balance of probability, probative of Michael’s One-Third
Interest in the Condo prior to the Registration Date. Therefore, Michael’s
interest in the Condo, beneficial or otherwise, did not have legal effect until
the Registration Date and was not factually reflected at any time prior to that
date by any evidence which, on balance, would constitute a prior ascertainable
intention that he held or was to hold a One-Third Interest.
III. Summary and Costs
[58]
For these reasons, the appeals are dismissed.
Costs are awarded to the Respondent on a party and party basis in accordance
with the relevant provisions of the Tariff, however, any of the parties may
make submissions otherwise for consideration by the Court within 30 days of
this judgment.
Signed at Ottawa, Canada, this 3rd day of March 2015.
“R. S. Bocock”
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