Citation: 2013 TCC 26
Date: 20130205
Docket: 2011-4100(GST)I
BETWEEN:
ANGELA FERRARO-PASSARELLI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Batiot D.J.
[1]
Ms. Ferraro, also known
as Ms. Ferraro-Passarelli, or Ms. Passarelli, appealed on
December 27, 2011, a Notice of Assessment in the amount of $31,789.93.
[2]
The Respondent assessed
the Appellant for having received from Mr. Michele Passarelli, her
husband, his undivided half-interest in their home at less than market value,
and thus is jointly and severally liable to the Minister of National
Revenue (the "Minister"), pursuant to section 325 of the Excise
Tax Act, ("ETA").
[3]
The Minister based this
assessment on the following facts, presumed to be valid pursuant to
subsection 299(4) of the ETA:
1.
Mr. Passarelli, the Appellant’s
husband, is indebted to the Respondent for at least the amount of the
assessment.
2.
He transferred his
undivided half interest in their home to the Appellant on the 21st
of April 2005.
3.
Its market value, on
the date of the transfer, was $269,500.
4.
That undivided half interest
was thus worth $134,750.
5.
The value declared by
the Appellant and her husband in the “Contrat de vente”, $107,578.73, was
inferior to that market value.
6.
The undivided half
interest was subject to a joint mortgage, with an outstanding balance on that
date of $56,933.42 (half of $113,866.84).
7.
Mr. Passarelli received
an advantage worth $77,817 ($134,750 – $56,933).
8.
The Appellant is thus
liable for Mr. Passarelli’s indebtedness to the Respondent to the extent
allowed by s. 325 of the ETA, thus the Notice of Assessment with respect
to Mr. Passarelli’s indebtedness for the unpaid GST.
[4]
The Appellant has the
onus to “demolish” these facts, on the balance of probabilities; if she does,
the Respondent must demonstrate, on a balance of probabilities, their
correctness: Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336.
[5]
The parties are in
agreement that Mr. Passarelli transferred to the Appellant his undivided
half interest in 2570 Rue des Pintades, Laval, Quebec on 21st day
of April 2005. At issue are: 1) the market value of the property; and
2) the validity of the stated consideration for its transfer on that day.
FAIR MARKET VALUE
[6]
We do not have an
appraisal of the market value of this property, only appraisals for assessment
purposes, which may, in the absence of an arm’s length transaction, be an
estimate, at best.
[7]
The Appellant said all
along it was worth between $220,000 and $230,000 when making her representation
to the Respondent’s counsel; $231,400 at the hearing; in the “Contrat de vente”
of April 6th, 2005, its value is stated at $215,157.46
($107,578.73 x 2). The Appellant did not provide independent and
reliable evidence to justify these different values.
[8]
We do have the Account
for Municipal Taxes (Exhibit A‑14) for the year 2005 showing the
different adjusted values for tax purposes (Valeurs imposables ajustées), as of
December 31st of each year;
|
2003
|
$196,300
|
|
2004
|
$208,000
|
|
2005
|
$219,700
|
|
2006
|
$231,400
|
[9]
We also have the
testimony of Ms. Geneviève Robidoux, an appraiser for the City of Laval, called to testify by the Respondent. In light of the information available to her
about the particulars of the property, including the renovation approved in
2004 and completed in February 2005, she establishes the market value at
$269,500 for the 21st of April, 2005, the date of transfer.
[10]
That value may be more;
it is unlikely less. It is the best objective evidence of value. It justifies
the assessment in the case at bar, which remains undisturbed. Therefore, the
market value of Mr. Passarelli’s undivided half interest is $134,750.00.
CONSIDERATION FOR THE TRANSFER
[11]
The Appellant says that
she paid valuable consideration for her husband’s undivided half interest for
the following reasons:
1.
Her income was much
greater than her husband’s; some years, the only family income.
2.
It was deposited directly
in their joint bank account.
3.
She paid the totality
of the mortgage payments, including property taxes, since 1999, even though she
and her husband together were equally responsible to repay that debt.
4.
Her husband’s share of
these payments, $50,645.31, contained in the “Contrat de vente”, was a debt he
owed to her.
5.
By Article 1656 of
the Civil Code of Quebec ("Civil Code"), she had a
right of subrogation, and thus a priority over the Respondent’s claim.
[12]
Of the Appellant’s
15 exhibits, the more relevant describe their financial dealings with each
other and third parties. There are: Exhibit A‑1, Statements of their
joint bank accounts; Exhibit A‑2, her remuneration; Exhibit A‑3,
revenues and mortgage payments, Exhibit A‑4, 1997 request for bank
loan, Exhibit A‑5, sale agreement regarding the property in question
(Contrat de vente); Exhibit A‑7, real property index (Index des
immeubles); Exhibit A‑8, 1994 request for a mortgage; Exhibit A‑11,
bank acceptance of mortgage assumption (Acceptation d’une alienation
hypothécaire); Exhibits A‑12 and A‑13, mortgage statements at
time of assumption; Exhibit A‑14, municipal taxes account. All but
one, Exhibit A‑5, the sale agreement, show that the Appellant and
her husband acted jointly, in disbursing or receiving funds, or in assuming or
alienating an interest in property.
[13]
Ms. Ferraro and
her husband, Mr. Michele Passarelli purchased that property together
on April 11, 1988. It was then, and continues to be, their residence.
[14]
The Appellant was a
successful business woman, involved in the fashion industry, assuming
increasing responsibilities, with a corresponding income, until her employer,
Consoltex Inc., was taken over or sold. She was the main breadwinner and looked
after all the expenses for the home and her family. She continues to do so.
[15]
Mr. Passarelli was also
involved in the clothing industry, as an employee or in his own business. Over
his years of self-employment through a company, he has been unable, in spite of
his efforts, to comply with the GST regime. This has left him with a
substantial GST debt to the Respondent, well before the transfer of property in
question, valued in excess of the assessment in question. His income was
minimal, $25,000 in 1999, $202 in 2000, $163 in 2003, $8,972 in 2004 and $2,092
in 2005, for a total of $36,429.00 for the period of time.
[16]
By contrast, the
Appellant’s income from 1999 to 2005, inclusively, averaged $266,954.28 per
annum.
[17]
Her evidence is most telling:
clearly she was the financial mainstay of the family, and so at least since
1999; theirs was a traditional “Italian” family (her description). All
monies and properties were held together.
[18]
On April 21st,
2005, both signed a Contrat de vente, registered on April 25th,
2005, whereby Mr. Passarelli “sold” his undivided half interest in the said
property to Ms. Ferraro for $107,578.73, the Appellant assuming sole
responsibility for his 50% share of the mortgage of $113,866.84, i.e.,
$56,933.42; and forgiving the advances of $50,645.31, i.e. the total of mortgage
payments she has made.
[19]
There is no evidence
explaining the latter sum, and why it would equal so exactly an amount due to
her, and so complementary to the outstanding mortgage balance and the stated
market value, unsupported by extrinsic evidence.
[20]
The Appellant relied a
great deal on her accountant who prepared different exhibits, based on accounts
she held jointly with her husband, to explain the financial dealings of the
couple. Indeed she could not explain the different transactions in and out of
their joint chequing account.
[21]
Of particular
importance is the description on their relationship with respect to their
property: all were held jointly, home, cottage, accounts, cars (it appears), mortgages
and credit cards, etcetera.
[22]
There is simply no
evidence, until the “Contrat de vente” of April 21st, 2005,
that Mr. Passarelli owed any debt to the Appellant, or that she expected
repayment of any money she may have paid on his behalf. There is no evidence of
a contractual debt between them, or of a mutual understanding to that effect
pre dating April 21st, 2005. On the contrary, they both seem to
access their joint account as they wish. Indeed she would even cash his
cheques, amounting to over $36,000 for the six year period, into the joint
account and give him back immediately the corresponding cash for his own needs.
That fact alone does show she did not require any repayment from her husband.
[23]
Ms. Ferraro has been a
successful business woman for several years, who has assumed increasing
business responsibilities commensurate with her considerable professional
achievements and income. It is obvious from the evidence she was the main
financial anchor for this family of five.
[24]
The “Contrat de vente”
came to pass three weeks after the mailing of the Notice of Assessment – Third
Party (Avis de cotisation – Tierce personne), mailed on March 31st,
2005. She may have considered a change of ownership of the property before, but
nothing had been done, for various reasons (busy lives, travels). I find the
catalyst for this transfer was the Notice. I do not accept that this Notice had
nothing to do with their decision and action, as they stated.
[25]
The Appellant invokes
Article 1656 of the Civil Code:
1656. Subrogation
takes place by operation of law
…
3) in favour
of a person who pays a debt to which he is bound with others or for others and
which he has an interest in paying;
for
the proposition that by making such mortgage payments, she is subrogated to the
right of the mortgagee, Banque Laurentienne. She cites in support Forget c.
Lamoureux, (REJB 1999-11802, Cour du Québec), where Gosselin, J.C.Q.
reviewed the jurisdiction of a régisseur of the Régie du logement dealing, upon
their separation, with the subrogation right of a renter, the
Demandeur/Plaintiff, who had retained possession of the rental premises,
against his co-renter, the Défenderesse/Defendant, who had vacated the
premises. The régisseur had declined to consider the evidence of the Defendant,
who alleged she was no longer responsible to the landlord because she and the
Plaintiff had agreed the latter would stay in sole possession of the premises, and
be solely responsible for the rent. They lived, but for an attempt to
reconcile, apart.
[26]
The learned Judge reviewed the
jurisprudence and the requirements of the Civil Code, and held (at paragraph 41)
that, since there were in effect two contracts, one between the two parties and
the landlord, and another between the Plaintiff and the Defendant, it was
incumbent upon the régisseur to consider her evidence with respect to any
variation as to this second contract. Absent a decision on that point, in light
of the delays, costs and minimum sums at issue ($3,125), Gosselin, J.C.Q.
resolved the issue in favour of the Defendant: the contract had been varied on
the facts adduced; there was no right to subrogation.
[27]
This case is of course to be
distinguished from the case at bar on the facts. Here, there is no evidence of
a mutual contract, for each to be responsible for her/his share of the mortgage;
theirs was a joint responsibility to a mortgagee, with a joint title. The fact
the Appellant and her husband continue to share the same home, presumably on
the same terms, shows a clear intent that their financial affairs were common
and not separate.
[28]
The Appellant relies also on Ducharme v. Canada, 2005 FCA 137, where the Appellant argued, successfully, that the
mortgage payment she had received from her common law partner [Vienneau]
amounted to, as found as a fact at the hearing in the Tax Court, to be
reasonable consideration for the use of her own home. The Federal Court of Appeal in Yates v. The Queen,
2009 FCA 50. Desjardins J.A., for the majority, commented as follows, at
paras 21, 24 and 25:
[21] … Rothstein
J.A. felt a reasonable inference could be drawn from these facts, namely that
Ms. Ducharme gave to Mr. Vienneau the availability and use of the house she
owned in consideration for his payments on the mortgage. The amounts paid by
Mr. Vienneau were considered tantamount to rent. Rothstein J.A. was careful to
add that identifying the amounts paid by Mr. Vienneau as rent was not a
re-characterization of the legal effects of transactions. It was simply a way
of explaining that Mr. Vienneau received consideration equivalent to or greater
than the amounts he transferred to Ms. Ducharme.
….
[24] … I cannot
agree with the respondent that Rothstein J.A. implicitly found that there was a
legally enforceable agreement between Ms. Ducharme and Mr. Vienneau according
to which each had promised to give the other something they did not already
have under the British Columbia legislation which did not give common law
spouses the right to use and enjoy the matrimonial home (Family Relations
Act [R.S.B.C. 1996] c. 128).
[25] I find on
the whole that it is for Parliament to articulate an appropriate framework that
would give married couples the equal treatment the appellant wishes they should
enjoy by comparison to those who come under the purview of
subsection 160(4) of the Act.
[29]
Both cases dealt with
section 160 of the Income Tax Act ("ITA"), the non‑arm’s
length provision, quite similar in wording to subsection 325(1) applicable
to the case at bar. Both sections only provide one exception, transfers between
spouses or common-law partners, upon separation, under a decree, order or judgment
of a competent tribunal or under a written separation agreement
(subsection 325(4) ETA; subsection 160(4) ITA). It is
clear from Yates that only Parliament can provide an appropriate
framework to deal with a situation such as the one presented in the case at
bar.
[30]
The appeal is dismissed.
Signed at Montréal, Quebec, this 5th day of February 2013.
"J.-L. Batiot"
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