Citation: 2013 TCC 6
Date: 20130109
Docket: 2010-3142(GST)I
BETWEEN:
RUPEE BASHIR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1]
This is an appeal from
an assessment dated September 17, 2009 and confirmed on July 28, 2010 whereby
the appellant was assessed for an amount of $26,707.92 with respect to the
transfer of various properties to her by her husband Bashir Munshi (the transferor).
The assessment was issued under section 325 of the Excise Tax Act (ETA)
on the basis that, at the time of the transfer of the various properties, the transferor
was liable to pay the amount now assessed against the appellant and that, as a
result of the said transfer, the appellant became jointly and severally liable
with the transferor to pay that amount.
[2]
It is not disputed that
on February 18, 2008, the following properties were transferred to the
appellant by the transferor:
1 - a property located on Woodland Street in Montreal;
2 - a property located on Saint-Charles Street in Montreal;
3 - an undivided half of a property
located on Workman Street in Montreal (the appellant owned the other half); and
4 - an undivided half of a property
located on Lionel‑Groulx Street in Montreal (the appellant owned the
other half).
These properties are hereinafter referred to as the "four
properties".
[3]
It is also not disputed
that the debt owed by the transferor under the ETA was in the amount
assessed, which, or a prorata basis, represented 18% of the total indebtedness
under both the Quebec tax laws and the ETA of $145,706.59.
[4]
The transferor was
operating a restaurant in Montreal and was registered for the purposes of Part
IX of the ETA. His business was audited in June 2007 for all its
reporting periods in the years 2004, 2005 and 2006. It was determined that GST
and Quebec sales tax on all of the business’s cash sales had not been remitted
during the periods covered by the audit. The cash sales were reconstituted and,
to make a long story short, the auditor and the transferor finally agreed to
settle the matter. On August 24, 2007, an agreement was signed with Revenu
Québec concerning the Quebec sales tax amount owed, and on the same day one was
also signed respecting the GST. A further agreement was signed on November 5, 2007
regarding the transferor’s personal income tax for the 2005 and 2006 taxation
years. Under this latter agreement the Quebec Minister of Revenue was to
reassess the transferor for unreported business income of $273,646 for both
taxation years. In reaching all these agreements, the transferor was assisted
by his accountant.
[5]
According to the
documents introduced in evidence the appellant married Bashir Munshi (the transferor)
on August 3, 1995 in Brahmanbaria, Bangladesh, under the legal regime of
partnership of acquests as the transferor was domiciled in the province of Quebec at the time. They have two children, a boy born in 1998 and a girl
born in 2004.
[6]
According to the
appellant, her marriage began to break down as early as her arrival in Canada with the transferor, and things got worse after the birth of their daughter in 2004.
It eventually led to their separation and the signature of a separation
agreement (hereinafter referred to as the Agreement) on November 4, 2007.
[7]
The Agreement was
signed in the presence of a consultant who is an accountant and whose name was
not disclosed. The witness to the transferor's signature is his brother-in-law
and the witness to the appellant’s signature is a friend of the brother-in-law's.
According to the appellant, the separation agreement was entered into in the
presence of community members, as is the tradition in their culture.
[8]
In the Agreement, both
spouses renounced any claims to alimony. The transferor agreed to transfer the four
properties as a lump sum payment of child support for the two children and to forfeit
any future claims to those properties and to their principal residence as well
as another property, which was owned by the appellant. Custody of the children was
given to the appellant with visiting rights to the transferor.
[9]
The transfer of the
four properties was made on February 18, 2008. On January 22, 2008,
between the date of the Agreement and the date of the transfer, the appellant
mortgaged the four properties. A mortgage document (Deed of Hypothec) was
signed by the appellant for each of the four properties and she is in each case
identified as the only "grantor". The transferor is identified in all
four mortgage documents as a non‑owner spouse who joins with the "grantor"
for the purposes of those documents, confirms that the grantor’s declarations
regarding her marital status are correct, and also consents to the mortgages.
The marital status clause in all four mortgage documents reads as follows:
8.2
MARITAL STATUS
(a)
of the Grantor. said Dame Rupee BASHIR hereby declares that she is
married in a first wedlock to Bashir MUNSHI under the legal regime of
partnership of acquests by virtue of the Laws of the Province of Quebec where
the husband was domiciled at the time of their marriage which was celebrated at
Brahmanbaria, Bangladesh, on the 3rd of August 1995, the spouses returning
thereafter to the Province of Quebec and residing permanently here until this
day, and that neither her civil status nor matrimonial regime has been or is in
the process of being changed. Furthermore, said Dame Rupee BASHIR hereby
declares that the presently hypothecated does not serve and will never serve as
the family residence of the spouses.
(b)
of the intervening co-owner (if applicable): (Not applicable).
[10]
In addition, clause 6.8
of the four mortgage documents, under the heading Representations, reads as
follows:
6.8
REPRESENTATIONS
You [the appellant] represent to us that:
(a) you are the absolute and uncontested
owner of your Property;
. .
.
(e)
your marital status, if applicable, is as indicated in section 8.2 of the Deed
of Hypothec;
(f)
if you are married, no change has occurred in your marital status
since your marriage and no agreement exists between you and your
spouse to change your matrimonial regime or your marriage
contract and no petition seeking the approval of such an agreement and no
petition for separation as to property, separation as to bed and board, for
annulment of marriage or for divorce is pending.
[11]
These mortgages were
signed before notary Igor Pryszlak as was the deed of transfer of
February 18, 2008. In the deed of transfer, the address for both the
transferor and the appellant is the same. It lists each of the four properties
and states that the consideration for the transfer is the sum of $1.00 and
other good and valuable consideration which the transferor acknowledges having
received from the transferee. No mention is made of a lump sum payment in lieu
of child support. Although the appellant and the transferor had been separated
since November 4, 2007, the deed of transfer still contains a civil status and
matrimonial regime clause which reads as follows:
CIVIL
STATUS AND MATRIMONIAL REGIME
Said
Bashir Miah MUNSHI, the Transferor, and Dame
Rupee BASHIR, the Transferee, hereby declare that, notwithstanding any
prior declarations made under previous title deeds, they are indeed married to
one another both in a first wedlock under the legal regime of partnership of
acquests by virtue of the Laws of the Province of Quebec where the husband was
domiciled at the time of their marriage which was celebrated at Brahmanbaria,
Bangladesh, on the 3rd of August 1995, the spouses returning thereafter to the
Province of Quebec and residing permanently here until this day, and that
neither their civil status nor matrimonial regime has been or is in the process
of being changed.
[12]
When asked why the
transfer took place almost three months after the separation agreement, the
appellant answered that she was mentally upset at the time and that she had to
go to the bank for the mortgages. On cross-examination, she said she had
refinanced the properties so that she could pay the transferor’s debt and that
he would have kept the money for that purpose. As for the same address being
given for the transferor and her on the deed of transfer, the appellant was
unable to explain why this was so and could only say that the transferor had
been living with his sister since November of 2007. The evidence also discloses
that in correspondence he received from Revenu Québec and the Canada Revenue
Agency after May 14, 2008, the address indicated for the transferor is his
sister’s, and in one such item of correspondence, his marital status was shown
as "separated". The transferor’s explanation for the gap between the date
of the Agreement and the date of the deed of transfer is that they had to arrange
the mortgages. No explanation was given for the fact that his address is stated
to be the same as his wife's on the deed of transfer other than that he knew
the notary and that although the deed of transfer indicates the same address,
he had actually been living with his sister since November of 2007. The
appellant testified that she was not aware that the transferor had been audited,
and the transferor testified that during the relevant period he never spoke to
his wife about his tax debts.
[13]
Neither the appellant nor
the transferor has initiated proceedings before the Quebec courts regarding either
their separation or a divorce.
[14]
On June 10, 2009, the
appellant acquired another property in the Montreal area. The transferor
intervened in that transaction to consent thereto and to confirm the
declaration of civil status and matrimonial regime, which were described in the
same terms as those found in the deed of transfer of the four properties and
the four mortgage documents referred to above. The appellant testified that she
never read the document and that it was her understanding that the transferor
had to sign for the purpose of confirming the matrimonial regime. The transferor,
on the other hand, said that he had to sign the purchase agreement as his wife
would not have been able to get a loan unless he signed. It is interesting to
note that, the next day, the transferor made a proposal to his creditors.
[15]
The transferor’s sister
and her husband both testified that the transferor has been living with them
since 2007.
[16]
Ms. Estelle Darbouze was
a collection agent for Revenu Québec. She informed the appellant of her
intention to assess her as a result of the aforesaid transfers and asked her to
provide evidence regarding her separation. None was provided by the appellant
and Ms. Darbouze saw the separation agreement for the first time two weeks
before the trial. The appeals officer for Revenu Québec also only saw the
separation agreement two weeks before the trial. The existence of a written
separation agreement was mentioned in the appellant’s notice of objection dated
October 20, 2009, but no copy of the agreement was attached or forwarded at
that time.
[17]
Section 325 of the
ETA reads as follows:
(1) Tax
liability re transfers not at arm's length — Where at any time a person
transfers property, either directly or indirectly, by means of a trust or by
any other means, to
(a) the transferor's spouse or common-law
partner or an individual who has since become the
transferor's spouse or common-law partner,
(b) an individual
who was under eighteen years of age, or
(c) another person
with whom the transferor was not dealing at arm's length,
the transferee and transferor are jointly
and severally liable to pay under this Part an amount equal to the
lesser of
(d) the amount
determined by the formula
A – B
where
A is the amount,
if any, by which the fair market value of the property at that time exceeds the
fair market value at that time of the consideration given by the transferee for
the transfer of the property, and
B is the amount, if any, by which the amount assessed the
transferee under subsection 160(2) of the Income Tax Act in respect
of the property exceeds the amount paid by the transferor in respect of the
amount so assessed, and
(e) the total of all amounts each
of which is
(i) an amount that the transferor is liable to pay or
remit under this Part for the reporting period of
the transferor that includes that time or any preceding reporting
period of the transferor, or
(ii) interest or penalty for which the transferor is liable as of that
time,
but nothing in this subsection limits the
liability of the transferor under any provision of this Part.
(1.1) Fair market value of undivided
interest — For the
purpose of this section, the fair market value at any time of an undivided
interest in a property, expressed as a proportionate interest in that property,
is, subject to subsection (4), deemed to be equal to the same proportion of the
fair market value of that property at that time.
(2) Assessment — The Minister may at any time assess a
transferee in respect of any amount payable by
reason of this section, and the provisions of sections 296 to 311 apply, with such
modifications as the circumstances require.
(3) Rules applicable — Where a transferor and transferee have,
by reason of subsection (1), become jointly
and severally liable in respect of part or all of the liability of the
transferor under this Part, the following rules apply:
(a)
a payment by the transferee on account of the transferee's liability shall, to
the extent thereof, discharge the joint liability; and
(b) a payment by the transferor
on account of the transferor's liability only discharges the transferee's
liability to the extent that the payment operates to reduce the transferor's
liability to an amount less than the amount
in respect of which the transferee was, by subsection (1), made jointly and
severally liable.
(4) Transfers to spouse or common-law
partner — Despite
subsection (1), if at any time an
individual transfers property to the individual’s spouse or
common-law partner under a decree, order or judgment of a competent tribunal or
under a written separation agreement and, at that time, the individual
and the individual's spouse or common-law partner
were separated and living apart as a result of the breakdown of their marriage
or common-law partnership (as defined in subsection 248(1) of the Income Tax
Act), for the purposes of paragraph (1)(d), the fair market value at
that time of the property so transferred is deemed to be nil, but nothing in
this subsection limits the liability of the individual under any provision of
this Part.
[18]
The appellant’s counsel
submits that subsection 325(4) of the ETA is applicable in this
case: the transfer of the four properties was made under a written separation
agreement and the appellant and the transferor (the husband) were separated and
living apart at the time as a result of the breakdown of their marriage. In the
alternative, the appellant’s counsel argues that there was a consideration given
by the appellant in that she renounced her right to child support for her
children, who were four and ten years old at the time. Although this fact is not
in evidence, counsel submits that child support for both children adds up to
$25,000 a year and that it represents sufficient consideration for the transfer.
[19]
The respondent’s
counsel questions the timing of the separation agreement as it was signed one
day before the transferor signed an agreement with Revenu Québec concerning his
personal income tax and a little more than two months after he had signed another
agreement with Revenu Québec respecting the GST amount he owed. Counsel for the
respondent further argues that no mention of the separation is made in the deed
of transfer of the four properties and that the address for both the appellant
and the transferor is the same more than three months after they say they
separated. As an alternative argument, counsel for the respondent submits that
the only exception to the application of section 325 is found in subsection 325(4),
and it is an exception with regard to any payments made for child support. One
must therefore meet the requirements set out in subsection 325(4) if one
is to avoid the application of section 325, and therefore the matter of the
consideration given and of fair market value with respect to the transferred
properties becomes irrelevant.
[20]
There is no doubt that
the facts of this case leave many questions unanswered. Many of the facts and situations
referred to are questionable, particularly with regard to the sequence of
events and the reasons given for what was done. It appears strange to me that
the transferor never spoke to his wife about his tax problems at any time prior
to the transfers; moreover, the appellant was never made aware of the audit
taking place at her husband’s restaurant. Yet she testified that the four properties
were mortgaged in January 2008 to pay her husband’s debts. She did not specify
which debts and I suppose one could conclude that they did not include the tax
debt as no tax debt payment was made. We do not know which debts needed to be
paid. We do not know how the appellant was able to mortgage the four properties
on January 22, 2008 when she in fact became their owner only on
February 18, 2008, almost a month later.
[21]
The advances made on
the four mortgages totalled one million two hundred and ninety thousand
dollars. In a letter dated July 31, 2009 from the Royal Bank of Canada to Revenu Québec, the balance owed on the mortgages held by the bank on the same
four properties is determined as of January 21, 2008, one day before the
January 22, 2008 mortgages, and as of February 18, 2008, the day of
the transfer. The amounts shown as owing are substantially the same for both
dates, except in the case of the Woodland property, which has a new balance of
$134,090.61 on February 18, 2008 whereas there is none for January 21,
2008. The letter also indicates that they are joint mortgages while the four
mortgage documents produced in evidence show the appellant as the grantor. I reproduce
below, without the account numbers, the information given in the letter of
July 31, 2009:
Renseignements
sur le compte:
|
Description
|
Propriété
|
No de compte
|
Solde
|
|
|
|
|
21/01/2008
|
18/02/2008
|
|
Hypothèque conjointe
|
Workman
|
XXXXXX
|
150,976.13$
|
150,599.84$
|
|
Hypothèque conjointe
|
Woodland
|
XXXXXX
|
s/o
|
134,090.61$
|
|
Hypothèque conjointe
|
St-Charles
|
XXXXXX
|
76,906.41$
|
76,500.46$
|
|
Hypothèque conjointe
|
Lionel-Groulx
|
XXXXXX
|
205,868.50$
|
204,909.39$
|
[22]
The evidence presented
does not enable me to understand how four mortgages totalling over one million
dollars in January 2008 can show the same balance due a month later, except for
the Woodland property, as before the execution of these four mortgages.
[23]
The other inconsistency
that the existence of these four mortgages creates is that the appellant stated
that she mortgaged the four properties so that the transferor could pay his
debts, but the Agreement states that the transfer to her is made for child
support. It seems to me that the amount that these four properties were
mortgaged for leaves little room for child support in that the income from the
rents would necessarily be applied to the mortgage payments and that, in the
event of their sale, there would be hardly any equity in the four properties
when one compares the mortgage amounts with their assessed value for property tax
purposes.
[24]
Subsection 325(4) of
the ETA clearly indicates that the transfer must be made pursuant to a
written separation agreement. In this case, there is no apparent explanation
for the fact that the transfer took place on February 18, 2008 other than that
it was for the purpose of mortgaging the four properties, and the deed of transfer
is silent regarding the existence of the separation agreement. In fact, not
only does the deed of transfer contain no reference to the Agreement or to the alleged
separation but there is no mention of the consideration of $1.00 and other good
and valuable consideration being for child support.
[25]
The deed of transfer of
February 18, 2008 indicates that the address of the transferor is the same as
that of the appellant, and the transferor's explanation for that is that he
knew the notary. I do not find that explanation any more reliable than the
explanation as to why it took three months after their separation to transfer
the four properties. The same so‑called mistake regarding the addresses also
appears in all four mortgage documents on page 19, where the grantor’s spouse
is described as being "of the same place", and in the contract for
the purchase of another property entered into by the appellant on June 10, 2009,
where her husband, who intervened in the transaction, is again described as
being "of the same place".
[26]
In none of these
documents is it indicated that the appellant is separated from her husband. In
fact, the deed of transfer does not even mention the consideration referred to
in the separation agreement. It states instead that the consideration is $1.00
and other good and valuable consideration. The civil status and matrimonial regime
clauses or marital status clauses found in all of the above‑mentioned documents
state that neither the spouses' civil status nor their matrimonial regime has
been or is in the process of being changed. I can understand that statement
being made with regard to their matrimonial regime but not with regard to their
civil status, even though they are still legally married.
[27]
It is indeed
inconsistent that we find no reference to the Agreement or to the alleged
separation in any of the documents nor any mention that the deed of transfer
was executed pursuant to the Agreement. The declaration in the deed of transfer
that they both resided at the same address must not be taken lightly and, as stated
by the late Justice Dussault in Yeramiyan v. Canada, [1997] T.C.J.
No. 1393 (QL), at paragraph 20:
The
declarations by the parties in a [notarial] deed like this – which by its very
nature is authentic – must not be taken lightly.
[28]
It seems to me that the
notary who drafted both deeds of transfer and the four mortgages could have
shed some light on the status of both the appellant and her husband and on the
state of their affairs. The fact that the transferor was not called as a
witness leads me to conclude that his evidence would not have been favourable
to the appellant.
[29]
It is also strange that
the appellant and the transferor signed their separation agreement just one day
before the latter reached an agreement with Revenu Québec on the amount of
personal income tax he owed.
[30]
On considering all of
the evidence and the many incongruities it contains, I find as well that the testimony
of the transferor's sister and her husband is inconsistent with the documentary
evidence and raises other unanswered questions; hence I cannot give any weight
to their evidence.
[31]
In order to meet her
burden of proof, the appellant must, on a balance of probabilities, satisfy
this Court that one of the exceptions stated in subsection 325(4) of the ETA
exists here. I am not satisfied that the evidence adduced permits me to
conclude that when the transfer occurred or when the Agreement was signed there
had been a breakdown of the marriage in that the appellant and the transferor
were living separate and apart, nor do I find that the deed of transfer was a
logical extension of the Agreement.
[32]
Regarding the alternative
argument, raised by the appellant's counsel, as to there having been a valid
consideration, I do not find that the facts of this case support such an
argument since the only exception to the application of section 325 is that found
in subsection 325(4) (see Yates v. Canada, 2009 FCA 50).
[33]
The appeal is dismissed
with costs.
Signed at Ottawa, Canada, this 9th day of January 2013.
"François Angers"
Email this Content