Date: 20060201
Docket: A-125-05
Citation: 2006 FCA 46
CORAM: DESJARDINS J.A.
DÉCARY J.A.
SEXTON J.A.
BETWEEN:
MARY MADSEN
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Heard at Vancouver, British Columbia, on February 1, 2006.
Judgment delivered from the Bench at Vancouver, British Columbia, on February 1, 2006.
REASONS FOR JUDGMENT OF THE COURT BY: SEXTON J.A.
Date: 20060201
Docket: A-125-05
Citation: 2006 FCA 46
CORAM: DESJARDINS J.A.
DÉCARY J.A.
SEXTON J.A.
BETWEEN:
MARY MADSEN
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Vancouver, British Columbia, on February 1, 2006)
SEXTON J.A.
[1] This is an appeal from a Tax Court of Canada decision which held that the appellant taxpayer, Mary Madsen, was liable to pay $102,500 pursuant to section 160 of the Income Tax Act. That provision contains rules regarding the joint and several liability of a taxpayer for the income tax liability of a tax debtor who, when not dealing at arm's length with the taxpayer, transfers property to the taxpayer for consideration less than its fair market value ("FMV"). At the time in question, the section read in relevant part:
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 a person who has since become the person's spouse,
(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 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 therefor, and
(e) the transferee and transferor are jointly and severally 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 in or in respect of the taxation year in which the property was transferred or any preceding taxation year.
160. (2) The Minister may at any time assess a taxpayer in respect of any amount payable because of this section and the provisions of this Division apply, with any modifications that the circumstances require, in respect of an assessment made under this section as though it had been made under section 152.
¼
[2] The appellant argues that the Tax Court erred in concluding that she did not provide consideration greater than or equal to FMV to the tax debtor, her husband, for the property in issue.
[3] On August 1, 1989, the appellant's husband transferred his half-interest in their British Columbia property to her. The document used in the transfer stated that the consideration paid was $1.00. The appellant testified that when the transfer occurred, she also promised to pay her husband the FMV of the property when she had sufficient funds to do so. On June 21, 1994, the appellant purchased a property in Arizona and transferred one-half interest in that property to her husband. According to the appellant, this transfer represented the fulfillment of her 1989 promise to her husband.
[4] The Tax Court concluded that this promise was "vague and uncertain . . . with no specific terms." He could not accept it as consideration sufficient to prevent the application of section 160.
[5] We agree. A vague promise, such as in this case, to pay in the future, when the appellant had sufficient funds, does not constitute consideration at the time of the transfer.
[6] Subparagraph 160(1)(e)(i) of the Income Tax Act refers to:
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]
[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.
[8] The appeal will be dismissed with costs.
(Sgd.) "J. Edgar Sexton"
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-125-05
APPEAL FROM A JUDGMENT OF LITTLE, J. T.C.C. DATED JULY 29TH, 2004 AND FEBRUARY 25TH 2005
STYLE OF CAUSE: Mary Madsen v
Her Majesty the Queen
PLACE OF HEARING: Vancouver BC
DATE OF HEARING: February 1st 2006
REASONS FOR JUDGMENT OF THE COURT: Desjardins J.A.
Décary J.A.
Sexton J.A.
DELIVERED FROM THE BENCH BY: Sexton J.A.
APPEARANCES:
SOLICITORS OF RECORD:
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