REASONS
FOR JUDGMENT
Pizzitelli J.
[1]
These two appeals under the Income Tax Act
(the “ITA”) were heard at the same time
and on common evidence. There is also before me an appeal under the Excise
Tax Act ( the “ETA”) involving the
same Appellant in file 2011‑3776(GST)I which the Appellant requested be
heard separately and which was so heard and an oral decision rendered.
[2]
Both these income tax appeals deal with
assessments against the Appellant for the transfer of property to her from her
tax debtor husband, R. Elander, pursuant to subsection 160(1) of the ITA.
In both appeals R. Elander, a lawyer, was a tax debtor owing more than $500,000.00
in taxes, penalties and interest assessed or reassessed in respect of the 1999,
2000 to 2005 inclusive and 2007 taxation years at the time he deposited
funds in either the Appellant’s joint and several bank account with him or the
Appellant’s own bank accounts. In appeal No. 2011-3409(IT)G, the Minister of
National Revenue (the “Minister”) assumes the said
tax debtor transferred funds to her totalling $61,960.71; $47,933.41 of which
went to their joint bank account during the period from January, 2003 to
January, 2007 and $14,027.30 of which went to the Appellant’s individual bank
account during the period from November 1, 2007 to January 31, 2008, while he
was a tax debtor. In appeal No. 2011-3775(IT)I, the Minister assumes he
transferred funds totalling $9,285.00 between January, 2002 and May, 2003 to
the Appellant’s individual bank account.
[3]
Subsection 160(1) of the ITA is a
provision that places joint and several liability on a transferor and
transferee of property where property is transferred by a transferor, who is
liable to pay tax, and the transferee is a spouse. The amount of joint and
several liability is generally the amount by which the fair market value of the
property transferred exceeds the value of any consideration received at the
time of the transfer but it cannot be more than the actual tax debt of the
transferor. See Livingston v The Queen, 2008 FCA 89, 2008 DTC 6233.
[4]
It is also established law, not disputed by any
of the parties, that a taxpayer assessed under such provision may generally
dispute the transferor’s underlying tax liability.
[5]
It should be noted that the Appellant conceded
at the beginning of the trial that she was not disputing the underlying
assessments against her husband who did not appeal final reassessments against
him. The Appellant’s only position taken at trial with respect to any
over-assessment is that the Respondent over‑assessed her by $9,500.00
with respect to the 2011‑3409(IT)G appeal on the basis her husband
immediately withdrew the funds he transferred on the same day to pay bills
relating to her husband’s law practice. The Appellant also takes the position that
in both income tax appeals there was consideration for the transfers. There was
no dispute that she was married to the tax debtor and that he otherwise
transferred funds to the bank accounts above referenced.
[6]
In dealing with the over-assessment issue of $9,500.00,
the evidence of the Appellant’s husband, the tax debtor, is that on December
26, 2006 he received a cheque for $9,499.40 and deposited it into their joint
bank account and on the same day withdrew $9,000.00 to pay his law firm bills
and $500.00 for himself. Entries for these figures only, without further
particulars, are evidenced on the bank statement tendered into evidence and the
transaction record that shows a money order or draft was issued for $9,000.00
and cash received was $500.00.
[7]
There is no evidence other than the transferor’s
oral evidence that he immediately used $9,000.00 of the transferred funds to
pay his law firm bills. He testified he was having problems with the Canada
Revenue Agency (the “CRA”) and wanted to avoid depositing
his fees cheque in his law firm account for fear funds would not be accessible
and so deposited them in the joint account and applied them to pay law firm
bills. No copy of the money order or draft were put into evidence nor were
details given as to who issued the cheque deposited or to whom was the draft or
money ordered paid to and how one draft or money order would pay the plural bills.
There is simply no evidence to corroborate the Appellant’s contention.
[8]
While the Respondent led no documentary evidence
that would rebut the oral evidence of the Appellant’s witness, relying on
cross-examination only, the Respondent elicited a great deal of convincing
evidence that rendered the transferor’s credibility totally unreliable, which
included evidence he was charged and convicted on 14 counts of mortgage fraud
as a lawyer in Alberta and disbarred; was earlier cited and suspended from
practice for four (4) months by the Law Society of Alberta for failure to keep
proper records and provide requested information and that he repeatedly failed
to provide requested general ledgers and financial information to the CRA
during his audits leading to the unchallenged reassessments against him. I also
found his testimony to be vague at trial. In these circumstances, I am not
prepared to accept his testimony as credible on the issue without further
corroborating evidence and none was tendered. Accordingly, it is not necessary
for me to consider whether such funds could be said to be exempt from being
transferred to the Appellant.
[9]
In Livingston above, the Federal Court of
Appeal stated at paragraph 21:
The deposit of funds into another person's
account constitutes a transfer of property. To make the point more emphatically,
the deposit of funds by Ms. Davies into the account of the respondent
permitted the respondent to withdraw those funds herself anytime. The property
transferred was the right to require the bank to release all the funds to the
respondent….
[10]
Moreover, at paragraph 24 of Livingston,
Sexton J.A stated:
The trial judge emphasized in his
reasons that the respondent ultimately received no monetary benefit. The
respondent argues that this is a critical factor in considering whether there
has been a transfer of property. In my opinion it is irrelevant whether or not
the respondent ultimately received a "benefit." It does not matter
that the funds went back to Ms. Davies. The respondent certainly received
property at the time of transfer which is the relevant time for the
purposes of subsection 160(1). That the money happened to go back to
Ms. Davies in the end is not sufficient to reverse the triggering of the
provision. As was stated by this Court in Heavyside, supra at
paragraph 9:
Once the conditions of subsection
160(1) are met... the transferee becomes personally liable to pay the tax
determined under that subsection ... That liability arises at the moment of
the transfer ... and is joint and several with that of the transferor. The
Minister may "at any time" thereafter assess the transferee
(subsection 160(2)) and the transferee's joint liability will only disappear
with a payment made by her or by the transferor in accordance with subsection
160(3)). [Emphasis added.]
[11]
While having regard to the above provisions of
the Livingston case, it is I suppose, possible to argue that in a
situation where the transferee was not permitted or able to withdraw funds
deposited into his or her account due to the fact they were immediately
withdrawn after deposit for the transferor’s exclusive use would not fall
within the rationale of the Federal Court of Appeal’s decision in Livingston
above; but as I cannot find the Appellant’s position factually credible there
is no need to address that issue here.
[12]
With respect to the Appellant’s main argument
that she gave consideration for the multiple transfers of funds to her
respective accounts in both tax appeals, I simply cannot agree. The Appellant’s
position is that before she married her husband in 2003, they discussed
financial contribution to living expenses including the payment of mortgages
for the houses they would live in. The Appellant held sole title to the homes
they occupied throughout the periods in question, first in Alberta then in British
Columbia. The Appellant testified that her husband was starting a new practice
of law and would need funds to do so, so it was agreed she would put all her
earnings towards living expenses, the largest expense being the mortgage on the
family home, and that he was to contribute $1,000.00 per month if able. The
evidence the Appellant led was that he contributed far less than her each year
and certainly less than her for the 2001 to 2004 years anyway when comparative deposits
were submitted by the Appellant. In essence, the Appellant argues that the
consideration given for his agreement to deposit $1,000.00 a month towards
living expenses was her agreeing to deposit all her earnings towards such
expenses.
[13]
Certainly, based on her earnings from 2001 to
2008 versus the transfers found to be made by her husband to her, she appears
to have contributed over twice as much to family expenses. There was of course
no evidence submitted as to what funds the husband may have directly
contributed to the arrangement without going through the joint or her sole
account. After all, he was reassessed a tax liability in excess of $500,000.00
for the same period so one can reasonably assume he had the means.
[14]
Regardless of the levels of different
contributions however, the Federal Court of Appeal in Yates v The Queen,
2009 FCA 50, 2009 DTC 5062, made clear two important points: firstly, that the
nature of expenses incurred with the transferred funds, such as household,
mortgage or other family expenses are irrelevant to the determination of
whether there was a transfer and secondly, that allowing a husband to live in
the family residence is not considered the provision of consideration at fair
market value.
[15]
As required in Livingston and Yates,
there must be proof at the time of each transfer that consideration was given.
There was no such proof here and merely agreeing in advance to pay more of the
family living expenses than your spouse over a period of time, does not
constitute giving fair market consideration at the time of each transfer.
[16]
Let me say that I can understand the concerns of
the Appellant and even all still married couples, or formerly married couples, of
having to deal with losing the benefit of prior transfers intended and used for
family expenses during their marriage pursuant to moral and even legal
obligations to support each other and children under provincial family laws;
particularly when payments ordered by a Court between no longer married couples
living separate and apart may be exempted when paid under subsection 160(4) of
the ITA. Having to repay such amounts may be harsh in certain
circumstances and spouses may be left to wonder why the need to preserve the
value of existing assets of a taxpayer for collection by the CRA as the
rationale for section 160 should take precedence over a family’s essential
needs, but amendments to legislation including to section 160 are the purview
of Parliament, not the Courts.
[17]
The appeals are dismissed with costs to the Respondent
on the General procedure file only bearing Court File No. 2011-3409(IT)G.
Signed at Ottawa,
Canada, this 28th day of September 2017.
“F.J. Pizzitelli”
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