Dianne Maureen Eilertsen v. Her Majesty the Queen (Informal Procedure), [1995] 1 CTC 2731

McArthur J.T.C.C.:-I am prepared to give judgment in the appeal of Dianne Maureen Eilertsen. This an appeal under the informal procedures of this court from an assessment dated April 25, 1990, in respect of the appellant’s 1986 taxation year.

The Minister of National Revenue, the Minister, assessed the appellant pursuant to subsection 16(1) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the "Act"), on the basis that she was jointly and severally liable for the tax liability of her husband Gordon Eilertsen to the extent that the value of a certain property transferred to her exceeded the consideration given by her.

The relevant facts include the following: in August 1984 the appellant who was then Dianne Maureen Finnson (phonetic) and Gordon Eilertsen were granted title to a property known municipally as 20460 74 B Avenue, Langley, British Columbia, for the sum of $92,000 as joint tenants. They granted a mortgage to Scotia Mortgage Corporation in the face amount of $81,600.

The appellant and Gordon Eilertsen stated that the appellant paid the balance due on closing of approximately $10,000 in cash from her own separate funds obtained by her through a divorce settlement. The appellant and Gordon Eilertsen were married in 1985.

On December 10, 1986, the appellant and her husband transferred the property to the appellant alone in consideration of a dollar. At that time Gordon was indebted to the Minister for tax arrears. The parties agree that the fair market value of the property on December 10, 1986 was $95,000. The respondent claims the sum of $6,885.85 from the appellant being one-half the difference between $95,000 and the mortgage balance on the property as of December 10, 1986.

Taken from the notice of appeal the appellant stated the following: the appellant supplied the downpayment for the acquisition of the property entirely from her own funds. At the time of the acquisition of the property the appellant was unable to qualify to receive bank financing for the purchase of the property as a result of her income being deemed inadequate by the banks consulted by her.

In order to assist the appellant obtain bank financing one Gordon Eilertsen who subsequently became the appellant’s spouse agreed to allow his name to be added to the title of the property. Since the date the property was acquired by the appellant the appellant has made all the monthly mortgage payments with respect to the property.

On or about December 10, 1986, Gordon Eilertsen and the appellant agreed that in recognition of the fact that the appellant had made the downpayment and all monthly mortgage payments, title to the property should be solely in the name of the appellant. On or about December 10 the appellant and Gordon Eilertsen executed documents so as to transfer title to the property from the appellant and Gordon Eilertsen as joint tenants to the appellant alone.

The appellant further submitted that the appraisal of $95,000, while accepted, should be reduced by $3,500 being the cost of a furnace because there was no furnace in the house as of December 10, 1986.

A remittance form from Revenue Canada submitted by the appellant as an exhibit reflected tax arrears owing by Gordon Eilertsen in 1986 taxation year totalling $8,305. Evidence further revealed that the income during the years 1985 and 1986 reported by the appellant in her income tax returns was approximately equivalent to the amount of the mortgage payments.

The position of the appellant was that Gordon Eilertsen’s interest in the property was that of bare trustee for the appellant and the fair market value of the property accepted as $95,000 has to be reduced by $3,500 because the house contained no furnace on December 10, 1986 and further reduced by a real estate commission payable if the property had been sold leaving no equity as of December 10, 1986.

The position of the respondent, the fair market value of the property was agreed to as $95,000 as of December 10, 1986, the date of the transfer to the appellant. One-half the equity calculated as $6,885.85 was the difference between the mortgage and the market value. Pursuant to subsection 160(1) of the Income Tax Act, the appellant is liable for tax to that extent.

The Act, subsection 160(1) provides in part:

160(1) Where a person has transferred property to his spouse the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of 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 the time of the consideration given for the property.

More simply summarized for our purposes, where a taxpayer has transferred property to his wife they, the husband and wife, are jointly and severally liable for certain taxes that the husband would otherwise be liable for alone.

Analysis

The property in question was purchased for $92,000 and title granted to the appellant and Gordon Eilertsen in 1984. They both occupied the house from that date. There is a legal presumption that they shared equally in the equity at that time, at the time they took joint title and jointly signed a mortgage. The evidence presented by the appellant does not rebut that presumption and I accept that Gordon Eilertsen and the appellant shared the ownership equally.

The fair market value agreed to by the parties upon the transfer to the appellant was $95,000. Subsection 160(1) refers to fair market value and does not state that this is to be interpreted as net after commission or any other deduction. There was no evidence presented with respect to costs of a selling commission.

The Court accepts the respondent’s position that within the meaning of the Act the fair market value of the property was $95,000. General statements were made by the appellant to the effect that the property contained no furnace as of the date of transfer December 10, 1986. Without further evidence the Court does not accept that argument.

By agreement of both parties prior to the hearing of the appeal the respondent’s assessment number 6732 was reduced from $16,855.85 to $6,855.85, and this appeal was heard on the basis that the appellant was assessed for $6,855.85. That amount was correctly assessed.

For these reasons the appeal is dismissed.

Appeal dismissed.