Valerie Louise Cooke v. Her Majesty the Queen, [1994] 1 CTC 2061, 93 DTC 1561

Bonner, J.T.C.C.:—This is an appeal from an assessment made under section 160 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). The assessment, notice of which was dated December 12, 1990, was made on the basis that:

(a) on June 24, 1982, the appellant and her spouse were the legal and the beneficial owners as joint tenants of the matrimonial home located at 211 Blair Gowrie Place, Nanaimo, British Columbia;

(b) on that day, the appellant and her spouse transferred title to the home to Ross D. Charman who took and held title as trustee only;

(c) at the time the appellant's spouse was in financial difficulties;

(d) on December 29, 1983, title to the home was transferred by Mr. Charman to the appellant for nominal consideration;

(e) by means of the two transfers the appellant's spouse transferred to the appellant his one-half interest in the home;

(f) at the time the appellant's spouse was liable to pay tax under the Act.

It was the position of the appellant that her spouse had no beneficial interest at any time in the home because she had bought and paid for it. The transfer to her husband, she asserted, resulted from a simple conveyancing error. Accordingly Mr. Cooke at no time had any beneficial interest capable of being transferred within the meaning of section 160 of the Act. It was further submitted that if any transfer to the appellant did take place it was on June 24, 1982 when the legal title was conveyed to Mr. Charman as trustee. On that day the appellant's spouse owed no tax. It was submitted that if the appellant's spouse did have a beneficial interest in the lot on which the home was eventually built that interest was subject to a resulting trust in favour of the appellant arising from the erection of the house by the appellant at her own expense. It was submitted that on August 15, 1982, the appellant and her spouse were living separate and apart as a result of the breakdown of their marriage, that on that day they entered into a written separation agreement pursuant to which the home was transferred to the appellant and that liability under section 160 of the Act was discharged by virtue of paragraph 160(4)(b) of the Act. Finally, it was argued that the Minister of National Revenue (the "Minister") had lost his right to assert or enforce a claim under section 160 of the Act because he had either waived it or was precluded from enforcing it by virtue of the doctrine of laches. In this regard the appellant relied on the abandonment by the Minister of an attempt which he made in November 1984 to attach the proceeds of the sale of the home.

At the hearing of the appeal, three witnesses were called by counsel for the appellant. They were the appellant, her spouse and Gerhard Bergen, a solicitor who acted for the appellant and her husband in June 1982. At the hearing of the appeal, it became apparent that Mr. Cooke was not prepared to tell the truth. He exhibited a tendency to avoid answering questions by making selfserving statements which were not responsive to the questions asked. He pretended to be unable to remember events which he clearly did not wish to discuss. I reject his evidence as totally unreliable. After a review of the appellant's testimony I have concluded that her recollection of events was imperfect and that much of her evidence consisted of a reconstruction, based on wishful thinking, of events which she imperfectly recalled. I accept Mr. Bergen's evidence as to what he did but not as to the truth of what he was told by the appellant and her husband or was led to believe by them.

The basic thesis advanced by the appellant and her spouse as to beneficial ownership of the Blair Gowrie home rests on an agreement said to have been made in 1978 on the occasion of the sale of a matrimonial residence located on Hammond Bay Road in Nanaimo. Title to the property was held by the appellant's husband free of encumbrances. A discussion of the use of the proceeds of the sale was said to have occurred. It was alleged that the appellant wanted to purchase another home. Her husband wanted to invest in commercial property. They agreed to divide the proceeds equally and to keep their assets separate thereafter. It was said that in accordance with the agreement the appellant bought a vacant lot on Davies Lane in Nanaimo and proceeded to construct a house thereon at her expense. In November 1980, the appellant purchased a vacant lot at 211 Blair Gowrie Place in Nanaimo. Title to the lot was taken in the name of the appellant and her spouse. It was said that the appellant paid for it with her own funds. Mrs. Cooke said that the registration of title in both names was due to a lawyer's error. The 1978 agreement was invoked in support of the allegation that it was never intended that the appellant's spouse have any interest in the property. I must find that the appellant’s unsupported statements as to events which occurred 15 years ago are unreliable. Again and again she professed to be unable to remember not only events which occurred before 1978 but also events which occurred after that time.

The evidence in my view supports a conclusion that the 1978 agreement was not intended to be a legally binding arrangement which governed the property rights of the two spouses. The acquisition of the Blair Gowrie lot in the joint names of the spouses was not the only departure from the alleged agreement. The business affairs of the appellant and her husband were not kept separate after 1978. It appears that the appellant did, for her own account, earn money from the purchase and sale of real property. However, it is also true that she joined with her husband in a number of purchases and resales of real estate. As well, she, her husband and his sister held interests in a corporation which dealt in land.

I am not persuaded that registration of title to the Blair Gowrie property in joint names was the result of alawyer's error. The allegation that there was such an error was unsupported by anything more than the appellant's bald assertion. There was no reliable evidence that the appellant had sufficient funds of her own to pay for the construction of the Blair Gowrie house. The appellant's evidence as to the source of funds said to have been used by her to buy the lot and build the house was inconsistent with evidence on the same topic iven by her on the examination for discovery. The explanation which she offered to counsel for the respondent for the inconsistency points to the unreliability of the appellant's unsupported recollection. She said" I told you at the time what I remembered at that time". It has not been established that the Minister was wrong in finding that, on June 24, 1982 the appellant and her husband were legal and beneficial owners of the Blair Gowrie Road property.

In the spring of 1982, the appellant and her husband separated due to matrimonial difficulties. It was said that Mr. Cooke consulted Gerhard Bergen, a lawyer, and that Mr. Cooke then discovered that title to the Blair Gowrie Road house was registered in both names. Mr. Cooke said that he advised his wife who asserted that she alone owned the Blair Gowrie property and insisted that the matter be rectified immediately. Mr. & Mrs. Cooke together consulted Mr. Bergen. The three met on June 24,1982. Mr. Bergen testified that Mr. Cooke acknowledged that the Blair Gowrie property belonged to his wife but said that he was not prepared to put it in her name as she demanded. Mr. Bergen advised the two of their rights under the Family Relations Act, R.S.B.C. 1979, c. 121. Mr. Bergen indicated that there were two choices open to them in relation to ownership of the property. Mrs. Cooke could commence legal proceedings to secure and register a lis pendens or the two could agree to convey title to a trustee who would (a) hold it in trust for the appellant and (b) advise Mr. Cooke in the event that Mrs. Cooke were to call for a conveyance of the legal title. Mr. Cooke would thus know of the conveyance in time to permit him to take legal action to assert his rights. It was decided to use the trust device. Accordingly, by deed dated June 24, 1982 and registered June 25, 1982, Mr. & Mrs. Cooke conveyed the property to Mr. Charman. A trust agreement dated June 24, 1982 between the appellant as beneficiary and Mr. Charman as trustee was prepared. Mr. Cooke took it away and returned it to Mr. Bergen a few days later signed by Mrs. Cooke and Mr. Charman. No provision was made for signature by Mr. Cooke.

Save for one paragraph the trust agreement on its face appears to require Mr. Charman to hold title as trustee for Mrs. Cooke alone. Paragraph 6 of the agreement reads:

The trustee has agreed to execute a transfer back to the original beneficiary, such transfer to be held in trust by the beneficiary and used at her own choosing.

[Emphasis added.]

No satisfactory explanation of the intended purpose of this paragraph was forthcoming. It is not at all clear that the conveyance to Mr. Charman was intended to transfer from Mr. Cooke to Mr. Charman as trustee for Mrs. Cooke alone the half interest previously held by Mr. Cooke. The status of the property as a family asset under paragraph 45.3(a)(ii) of the Family Relations Act does not appear to have been clarified.

On August 5, 1982, according to the evidence of both Mr. & Mrs. Cooke, the two met. They prepared and signed a hand-written document which was called a separation agreement. The body of that agreement reads:

E. Cooke and V. Cooke hereby agree to a legal separation. E. Cooke is to retain 100 per cent ownership of 491 Island Hwy Parksville and V. Cooke is to retain 100 per cent ownership of 211 Blair Cowrie Place, Nanaimo.

The signatures were not witnessed. If the conveyance to Mr. Charman and the trust agreement of June 1982 had indeed been intended by the appellant and her husband to vest beneficial ownership of the matrimonial home in the appellant alone then this document would seem to have been unnecessary. The “separation agreement" suggests that the parties did not so regard the June 1982 transactions and tends to cast doubt on the completeness of the story told by them as to the events of June 24, 1982. Further doubt arises from the admission by the appellant's husband that an action was brought in the Supreme Court of British Columbia to set aside the June 24 conveyance as a fraudulent preference and the further admission by the appellant that the action was settled in favour of the plaintiff. The evidence falls far short of establishing that Mr. Charman held title in trust for Mrs. Cooke alone.

The argument founded on subsection 160(4) of the Act is without merit. That subsection applies where property has been transferred "pursuant to” a written separation agreement. The so-called separation agreement does not contain any provision calling for transfer of the Blair Gowrie property. Thus no transfer can be said to have been made pursuant to it.

The conveyance by Mr. Charman to the appellant which forms the basis for the assessment now in issue took place not on December 29, 1983, as found by the Minister, but rather by deed dated November 28, 1983 and registered December 13, 1983. Counsel for the appellant did not suggest that the discrepancy in dates affected the validity of the assessment.

In 1984, when the appellant sold the Blair Gowrie property, the Minister tried to attach the proceeds by means of a requirement under section 224 of the Act. The evidence did not disclose the basis on which the Minister decided to release the demand. There is therefore no evidentiary foundation for the waiver argument. Equally there is no basis for the laches argument. Although there were delays, they arose according to the evidence of lan A. Hill, a revenue Official, from restrictions on collection imposed by section 225.1 of the Act.

For the foregoing reasons, the appeal is dismissed with costs to the respondent.

Appeal dismissed.