Sarchuk,
T.CJ.:
—By
notice
of
assessment
number
603910
dated
November
7,
1986
the
respondent
assessed
the
appellant
Donald
Lindsay
in
the
amount
of
$36,036.18
under
subsection
160(2)
of
the
Income
Tax
Act
(the
Act)
as
a
result
of
a
transfer
of
property
from
Gertrude
Friesen,
now
known
as
Gertrude
Françoise
Isaiah
Landreville
(Friesen)
to
Donald
Lindsay
and
his
wife
Jacqueline.
By
notice
of
assessment
number
603913
dated
November
7,
1986
the
respondent
also
assessed
the
appellant
Jacqueline
Lindsay
in
the
amount
of
$36,036.18
under
subsection
160(2)
of
the
Act
as
a
result
of
the
same
transfer
of
property.
Both
taxpayers
appealed
and
by
consent
of
all
parties
the
appeals
were
heard
together
on
common
evidence.
In
assessing
the
appellants
as
he
did
the
respondent
assumed,
among
other
matters,
the
following
facts:
(a)
at
all
material
times
the
appellant
was
the
spouse
of
Jacqueline
Lindsay
("Jacqueline");
(b)
at
all
material
times,
the
appellant
and
Jacqueline
were
personal
friends
of
Gertrude
Friesen,
also
known
as
Gertrude
Friesen-Isaiah
and
Gertrude
Isaiah,
also
known
as
Gigi
Isaiah,
carrying
on
under
the
firm
name
and
style
Isaiah
Creations
Ministry
International
("Gertrude");
(c)
at
all
material
times,
the
appellant
and
Jacqueline
were
persons
with
whom
Gertrude
was
not
dealing
at
arm's
length;
(d)
in
1976,
Gertrude
was
reassessed
for
unreported
income
from
real
estate
transactions
during
the
1971,
1973
and
1974
taxation
years,
and
she
remains
liable
to
pay
amounts
under
the
Income
Tax
Act;
(e)
in
December
1983,
Gertrude
received
the
amount
of
$250,000
from
her
exspouse
as
a
negotiated
divorce
settlement;
(f)
in
December
1983,
Gertrude
purchased
a
home
and
31
acres
of
land
(the
"property")
from
Margaret
Giroux
for
$129,000
cash.
A
deed
from
Margaret
Giroux
to
Isaiah
Creations
Ministry
International
was
registered.
The
property
is
described
as
part
of
the
east
half
of
lot
34,
Concession
6,
Township
of
Osgoode,
Regional
Municipality
of
Ottawa-Car
I
eton,
Province
of
Ontario;
(g)
Gertrude
subsequently
embarked
upon
a
deliberate
campaign
to
encumber
and
transfer
assets
which
she
had
previously
owned
free
and
clear.
Her
admitted
intention
in
doing
so
was
to
avoid
paying
her
outstanding
liability
for
income
tax;
(h)
in
April
1984,
Gertrude
mortgaged
the
property
to
Richard
Hanoski;
(i)
Gertrude
purchased
a
1983
Audi
5000
automobile
for
$23,000
cash,
and
later
transferred
it
to
her
16
year
old
daughter
Charmaine
Friesen
("Charmaine");
(j)
in
May
1985,
Gertrude
gave
Charmaine
$5,000
cash;
(k)
on
June
12,
1985,
the
Respondent
registered
a
writ
of
fi
fa
against
the
property.
Due
to
an
administrative
error
by
the
Sheriff,
the
writ
was
indexed
only
under
the
name
Gertrude
Friesen;
(l)
on
June
19,
1985,
Gertrude
was
the
sole
owner
of
the
property.
On
that
date
it
had
a
fair
market
value
of
$152,000
(land
$37,000;
building
$115,000),
and
was
encumbered
by
a
mortgage
with
the
approximate
amount
of
$72,000
outstanding;
(m)
on
June
19,
1985,
a
deed
from
Margaret
Giroux
to
Gigi
Isaiah
was
registered,
to
correct
an
error
in
the
description
of
the
grantee;
(n)
on
June
19,
1985,
Gertrude
transferred
the
property
to
the
appellant
and
Jacqueline.
A
deed
from
Gigi
Isaiah
to
the
appellant
and
Jacqueline
as
joint
tenants
was
registered.
On
that
date
Gertrude's
equity
in
the
property
was
not
less
than
$80,000;
(o)
Gertrude
transferred
her
equity
in
the
property
to
the
appellant
and
Jacqueline
without
consideration;
(p)
the
stated
consideration
for
the
transfer
referred
to
in
paragraph
3(n)
was
$140,000
which,
on
the
affidavit
of
consideration,
was
allocated
$72,000
to
mortgages
assumed
and
$68,000
to
other
valuable
consideration.
There
was
no
further
description
of
the
other
valuable
consideration;
(q)
on
June
19,
1985,
Gertrude
was
liable
to
pay
an
amount
of
not
less
than
$69,312.03
under
the
Income
Tax
Act,
in
respect
of
the
1985
or
preceding
taxation
years;
(r)
on
June
19,
1985,
the
appellant
was
aware
of
the
facts
referred
to
in
paragraphs
(g)
and
(q);
(s)
Gertrude
declared
personal
bankruptcy
on
May
1,
1986;
(t)
on
Ma
1,
1986,
Gertrude
was
liable
to
pay
an
amount
of
not
less
than
$72,072.36
under
the
Income
Tax
Act,
in
respect
of
the
1985
or
preceding
taxation
years.
The
respondent
takes
the
position
that
Friesen
transferred
property
to
the
appellants,
persons
with
whom
she
was
not
dealing
at
arm's
length;
that
the
fair
market
value
of
the
property
at
the
time
it
was
transferred
exceeded
the
fair
market
value
of
any
consideration
given
for
the
property;
and
that,
at
the
time
of
the
transfer,
Friesen
was
liable
to
pay
income
tax
in
respect
of
the
taxation
year
in
which
the
property
was
transferred
or
of
any
preceding
taxation
year.
Accordingly
each
appellant
is
jointly
and
severally
liable
under
paragraph
160(1)(c)
of
the
Act
to
pay
the
amount
of
$36,036.18
and
each
appellant
was
assessed
properly
in
accordance
with
subsection
160(2)
of
the
Act.
The
appellants
assert
that
throughout
the
relevant
period
of
time
they
were
dealing
with
Friesen
at
arm's
length.
Both
appellants
testified,
as
did
Friesen.
It
is
undisputed
that
Jacqueline
Lindsay
and
Friesen
have
been
friends
for
over
30
years.
Donald
Lindsay
first
met
Friesen
at
the
time
of
or
just
before
his
marriage
to
Jacqueline
in
1961.
Subsequently
in
1962
Friesen
moved
to
British
Columbia.
Contact
between
Friesen
and
Jacqueline
Lindsay
was
maintained
albeit
on
an
irregular
basis.
In
1983
when
Friesen
returned
to
the
Ottawa
area
their
close
friendship
was
renewed.
Both
women
refer
to
themselves
as
born-
again
Christians.
Although
it
would
not
be
inappropriate
to
describe
Friesen
and
Donald
Lindsay
as
friends,
it
is
clear
that
they
lacked
the
same
closeness
or
mutuality
of
interests.
I
propose
to
briefly
review
the
testimony
of
Friesen
since
it
provides
the
setting
for
the
impugned
transaction.
In
so
doing
I
should
first
state
that
on
the
basis
of
her
testimony
as
a
whole,
including
her
demeanour,
her
frequent
equivocation
and
her
occasional
deliberate
unresponsiveness
I
have
concluded
that
she
was
not
a
credible
witness.
Her
evidence
was
replete
with
selfserving
rationalization,
and
it
was
at
times
difficult
to
tell
where
fact
ended
and
fiction
began.
She
would
have
the
Court
believe
that
she
was
helpless,
an
innocent
in
business
matters,
yet
on
a
number
of
occasions
her
testimony
demonstrated
a
keen
business
mind
and
a
thorough
understanding
of
commercial
realities.
What
can
be
gleaned
from
her
testimony
is
the
following.
At
some
point
of
time
following
her
marriage
Friesen
became
involved
in
the
real
estate
business
in
British
Columbia.
This
ultimately
led
to
the
acquisition
and
sale
of
some
properties.
As
pleaded
by
the
Minister,
in
1976
she
was
reassessed
for
unreported
income
from
real
estate
transactions
which
took
place
during
the
1971,
1973
and
1974
taxation
years.
According
to
Friesen
her
failure
to
object
to
the
assessments
was
in
part
due
to
domestic
problems
and
in
part
to
the
carelessness
and
negligence
of
her
accountant.
Whatever
the
reasons
for
the
failure,
she
was
and
remains
liable
to
pay
amounts
under
the
Income
Tax
Act.
In
May
1983,
following
a
protracted
marital
dispute
(about
which
the
Court
heard
far
more
than
reasonably
required),
Friesen
and
her
husband
were
divorced.
Friesen
then
left
British
Columbia
and
on
July
31
arrived
in
Ottawa
where
her
mother
and
other
family
members
still
lived.
At
some
point
of
time
that
summer,
and
in
anticipation
of
concluding
a
settlement
with
her
husband,
Friesen
made
arrangements
to
buy
a
house
and
31
acres
of
land
in
Metcalfe,
Ontario
(the
Metcalfe
property).
In
September
she
returned
to
British
Columbia
where
she
remained
until
the
final
settlement
with
her
husband
was
effected
in
December,
at
which
time
she
received
the
sum
of
$250,000.
The
payment
was
made
in
the
form
of
three
cheques,
one
of
which,
for
$129,000,
being
the
amount
Friesen
required
to
complete
the
purchase
of
the
Metcalfe
property
was
forwarded
to
Ottawa.
Friesen's
solicitor,
pursuant
to
her
instructions,
arranged
to
have
the
vendor,
Margaret
Giroux,
transfer
the
Metcalfe
property
to
Isaiah
Creations
Ministry
International.
The
deed
was
registered
in
December
1983.
Friesen
purchased
a
car
in
British
Columbia
with
a
second
cheque
specifically
provided
for
that
purpose
and
returned
to
Ottawa,
arriving
on
December
19,
1983
at
which
time
she
took
possession.
Friesen
testified
that
it
was
her
desire
to
utilize
the
Metcalfe
property
as
a
home
for
battered
women
and,
if
I
understood
her
correctly,
Isaiah
Creations
Ministry
International
was
to
be
her
vehicle
for
this
project.
This
“ministry”
was
not
incorporated,
nor
was
it
ever
registered
for
any
purpose,
business
or
charitable.
She
claims
to
have
spent
the
sum
of
approximately
$10,000
during
the
next
10
or
11
months
refurbishing
the
property
for
the
proposed
home
for
women.
However
she
also
testified
that
by
April
of
1984,
feeling
that
things
were
not
going
the
way
she
had
expected,
and
allegedly
because
outside
funding
was
not
forthcoming,
she
had
abandoned
the
project.
At
about
the
same
point
of
time
in
1984
she
put
the
Metcalfe
property
up
for
sale.
Concurrently
she
mortgaged
the
Metcalfe
property
and
used
the
proceeds
to
purchase
a
condominium
in
Kanata.
Although
the
evidence
is
unclear,
Friesen's
responses
being
equivocal
if
not
evasive,
this
property
may
also
have
been
registered
in
the
name
of
Isaiah
Creations
Ministry
International.
In
any
event,
shortly
after
its
acquisition
the
Kanata
condominium
was
placed
on
the
market
and
resold,
allegedly
at
a
loss.
Friesen
left
the
Metcalfe
property
on
the
market
and
received
at
least
one
offer
which
she
rejected
as
unsatisfactory.
The
property
remained
unsold
and
in
her
possession
until
its
transfer
to
the
appellants
in
1985.
With
respect
to
Friesen's
liability
under
the
Income
Tax
Act
although
she
continued
to
deny
the
validity
of
the
Minister's
reassessments
arising
out
of
unreported
income
during
the
1971,
1973
and
1974
taxation
years,
she
ultimately
and
somewhat
reluctantly
conceded
that
on
June
19,
1985
she
was
liable
to
pay
the
amount
of
tax
and
interest
pleaded
by
the
respondent.
It
is
appropriate
for
the
purposes
of
this
appeal
to
review
some
of
Friesen's
testimony
regarding
her
dealings
with
Revenue
Canada.
In
1976
and
1977
(and
perhaps
even
earlier)
Friesen
ran
into
financial
difficulties
in
her
business
dealings
in
British
Columbia.
These
ultimately
led
to
a
receivership
and
to
one
or
more
lawsuits,
with
the
result,
in
her
words:
The
bank
got
their
money.
I
believe
that
there
were
a
few
people
who
had
judgments
who
got
a
bit
of
money.
But
I
know
that
Revenue
Canada
didn't
get
anything.
Friesen
said
that
at
the
conclusion
of
those
proceedings
she
owed
money
to
a
number
of
creditors
including
her
accountant,
Revenue
Canada
and
other
people
whom
she
does
not
now
recall.
She
asserts
that
she
made
every
effort
to
pay
“private
debts"
such
as
to
her
accountants
and
lawyers,
even
to
the
extent
of
bartering
valuable
objects
of
art,
paintings
and
carpets
for
that
purpose.
However
she
made
no
attempt
whatsoever
(and
from
her
testimony
it
would
appear
deliberately
so)
to
pay
Revenue
Canada.
Over
the
years
she
was
contacted
by
Revenue
Canada
employees
"on
and
off
maybe
once
a
year,
maybe
every
two
years"
and
she
made
it
abundantly
clear
to
them
that
there
was
“absolutely
no
way"
that
she
would
ever
pay
that
amount.
She
maintains,
however,
that
this
resulted
from
the
fact
that
she
could
not
rather
than
would
not
pay
the
amounts
owing.
Given
her
conduct
that
statement
is
difficult
to
accept.
According
to
Friesen,
at
some
point
of
time
in
1985,
officials
from
Revenue
Canada,
Ottawa,
telephoned
her
to
arrange
a
meeting
for
the
purpose
of
discussing
her
affairs.
It
appears
that
one
of
Revenue
Canada's
concerns
in
addition
to
her
existing
liability
for
tax,
was
the
fact
that
Friesen
had
not
filed
income
tax
returns
for
a
number
of
years.
During
the
course
of
the
meeting
Friesen
learned
that
Revenue
Canada
was
aware
of
the
divorce
settlement
and
she
was
asked
to
make
some
arrangement
for
the
payment
of
her
liability
to
Revenue
Canada.
The
nature
of
her
discussions
with
Revenue
Canada
and
her
attitude
can
best
be
exemplified
by
the
following
excerpt
of
her
testimony
in
cross-
examination:
Mr.
Gibson:
Q.
When
you
were
dealing
with
Revenue
Canada
you
did
not
in
fact
own
the
condominium.
A.
No,
sir.
Q.
But
you
were
sitting
with
the
proceeds
in
an
account
of
some
sort
at
Canada
Trust.
A.
Whatever
the
residue
happened
to
be
of
my
monies
at
that
time,
yes.
There
was
a
bit
of
money
in
Canada
Trust.
Q.
Did
you
tell
Revenue
Canada
about
that?
A.
That
I
had
money
in
Canada
Trust?
Q.
Yes.
A.
Well,
certainly;
plus
they
tried
to
get
it.
Q.
What
do
you
mean
when
you
say
they
tried
to
get
it?
A.
I
don't
know
what
the
legal
words
are,
but
they
went
to
the
bank
to
take
the
money
that
was
there
and
there
was
no
money
there.
Q.
Where
was
the
money?
A.
At
ten
to
seven
the
night
before,
I
went
to
pick
it
up.
Q.
Are
you
telling
us
that
you
knew
what
day
Revenue
Canada
was
going
to
go
to
Canada
Trust
to
pick
up
the
money?
A.
No,
sir.
Q.
How
is
it
that
at
ten
to
seven,
on
the
evening
of
the
day
before
they
were
going
to
go
to
pick
up
the
money,
you
were
able
to
clean
out
the
account?
A.
I
was
just
told
to
go
and
get
my
money.
Q.
By
whom?
A.
By
a
voice.
His
Honour:
Q.
I
beg
your
pardon?
Mr.
Gibson:
Q.
Whose
voice?
A.
It
came
from
within
my
being.
His
Honour:
Q.
From
where?
A.
From
my
spirit;
from
within
my
being.
Mr.
Gibson:
Q.
Are
you
being
serious?
A.
I
am
very
serious,
sir.
I
had
over
$16,000
in
one
account
and
a
few
hundred
dollars
in
my
Mary
Kay
account.
I
was
standing
in
front
of
the
Metcalfe
property
talking
with
three
people
who
had
come
from
Toronto
who
had
no
place
to
live,
plus
there
were
two
other
gentlemen
there.
We
were
all
standing
there
talking.
I
was
told
very
clearly,
as
audibly
as
I
am
telling
you
now,
“Go
to
the
bank
and
pick
up
your
money."
Whether
you
believe
me
or
not
is
irrelevant.
It
is
the
truth.
Q.
When
was
this?
A.
It
was
the
summer,
I
believe,
of
1985.
Q.
And
your
intention,
of
course,
in
going
and
doing
this
was
to
get
the
money
out
of
the
bank
before
Revenue
Canada
got
it.
A.
Yes,
sir,
because
that
is
all
the
money
that
I
had
to
live
on,
and
still
no
full-
time
job.
Q.
How
did
you
find
out
that
Revenue
Canada
was
there
the
following
day?
A.
Because
subsequently
the
bank
manager
told
me.
Q.
This
sounds
like
a
very
interesting
story,
that
you
hear
this
voice
very
audibly
telling
you
to
go
and
clean
out
the
bank
account
the
night
before
Revenue
Canada
is
going
to
get
it.
A.
I
have
lived
a
very
interesting
life,
sir.
Q.
This
sounds
like
the
type
of
story
that
one
would
repeat
to
various
people.
A.
And
I
have.
Q.
And
you
have.
And
some
of
the
people
you
repeated
it
to
are
in
fact
the
Lindsays.
A.
And
Revenue
Canada
also.
Q.
In
fact
you
are
quite
happy
that
you
were
able
to
scoop
the
account
before
Revenue
Canada,
were
you
not?
A.
Yes,
sir,
I
am,
because
that
is
all
the
money
that
I
had
to
live
on.
Q.
And
you
have
made
that
abundantly
clear
to
all
and
sundry
also,
haven't
you?
A.
Yes,
sir.
As
a
matter
of
fact
Mr.
Schroeder
and
his
superior
just
about
jumped
out
of
their
tenth
floor
storey
window.
Her
testimony,
in
its
totality,
satisfies
me
that
at
all
relevant
times
she
had
every
intention
of
ignoring
her
liability
to
Revenue
Canada.
When
Friesen
obtained
the
settlement
from
her
husband
she
embarked
upon
a
deliberate
campaign
to
conceal,
and
when
it
became
necessary
to
transfer
assets
which
she
had
acquired.
In
this
regard
all
of
the
facts
clearly
and
unequivocally
lead
to
that
conclusion.
I
turn
now
to
the
impugned
transaction.
There
is
no
precise
evidence
as
to
the
date
of
the
first
discussion
or
communication
between
Friesen
and
Revenue
Canada
officials
in
Ottawa.
She
maintains
that
she
had
no
contact
with
them
in
1984
and
indeed
prior
to
the
summer
of
1985.
Given
the
nature
of
her
evidence
generally
and
her
testimony
as
to
the
meetings
with
Revenue
Canada
specifically,
I
am
skeptical
of
her
assertions.
Although
the
sequence
of
events
is
not
clear
the
transaction
giving
rise
to
the
reassessments
appears
to
have
taken
place
at
about
the
same
time
as
did
Friesen's
discussions
with
Revenue
Canada.
According
to
her
the
two
were
not
related.
She
said
that
she
had
become
disenchanted
with
her
current
state
of
life.
The
spirit
had
moved
her
once
again
and
she
had
decided
to
give
away
her
worldly
possessions
and
leave
on
a
religious
crusade
to
India.
Although
she
had
a
daughter
living
in
British
Columbia
and
a
mother
and
sister
living
in
Ottawa,
she
appears
to
have
ignored
them
and
instead
proposed
to
the
appellants
that
they
acquire
the
Metcalfe
property
from
her
for
$1.
She
says
that
she
imposed
but
one
condition;
that
the
appellants
promise
to
provide
her
and
her
daughter
with
room
and
board
if
such
were
ever
required
in
the
future.
She
maintained
that
having
lived
on
welfare
in
the
past
she
had
a
deathly
fear
of
not
having
food
and
shelter.
The
appellants
accepted
her
terms
and
on
June
19,
1985
the
property
was
transferred
to
them.
Her
recollection
as
to
when
she
first
approached
the
appellants
with
this
proposal
was
that
“it
must
have
been
six
or
seven
or
eight
months
before
that."
She
asserts
that
no
mention
was
ever
made
by
her
of
her
financial
difficulties
and
more
particularly
of
her
problems
with
Revenue
Canada.
Friesen
never
did
go
on
her
crusade
to
India.
In
cross-examination
she
explained
her
change
of
mind
in
the
following
manner:
Mr.
Gibson:
Q.
Why
didn't
you
go
to
India?
A.
Because
of
my
health.
It
disintegrated
even
further.
I
was
not
well
enough.
I
don't
think
I
could
have
obtained
a
visa.
Q.
When
did
you
start
experiencing
health
problems?
A.
In
1971
and
‘72.
Q.
No,
no,
please.
We
are
in
1984-85
now
and
you
are
going
to
India
so
you
have
to
get
rid
of
the
house.
Let's
keep
it
fairly
current.
A.
I
had
been
on
medication,
sir,
since
1971
or
‘72.
Q.
I
am
not
interested
in
that.
I
am
interested
in
what
is
relevant
to
this
case,
which
is
1984-85.
A.
I
am
still
on
medication.
Q.
Fine.
When
did
your
health
change
to
the
extent
that
day
one
you
are
going
to
India
and
have
to
make
a
disposition
of
the
house,
and
some
other
time
when
you
can't
go
to
India?
A.
I
don't
know
that
I
can
specifically
answer
that,
sir.
I
am
not
really
sure.
Health
is
a
fluctuating
thing.
It
has
been
with
me,
at
any
rate.
Q.
Were
you
ever
in
what
you
would
consider
to
be
good
enough
health
to
go
to
India?
A.
Yes.
Q.
In
1984¢
A.
Yes.
Q.
What
happened
to
get
you
to
the
point,
presumably
in
1985,
when
you
were
not
in
good
enough
health
to
go
to
India?
A.
I
had
experienced
severe
allergies,
and
still
do.
At
times,
for
reasons
that
I
cannot
seem
to
explain,
I
have,
if
you
call
them
that,
relapses.
Q.
Allergies
are
always
there
and
they
depend
on
where
you
are
and
what
the
things
are
in
the
environment.
That
is
not
something
that
would
—
we
are
in
Ontario.
That
is
not
something
that
would
change
between
1984
and
1985.
Specifically
what
changed
in
your
health
to
cause
you
to
call
off
the
trip
to
India?
A.
I
have
answered
you,
sir,
but
you
don't
want
to
accept
my
answer,
so
there
is
nothing
more
I
can
say.
It
should
be
added
that
Friesen
lived
at
the
appellants’
residence
for
some
time
commencing
late
in
1985,
departing
in
the
spring
of
1986
for
British
Columbia
to
be
with
her
daughter.
Both
appellants
testified.
The
general
tenor
of
their
assertions
was
that
at
some
point
of
time
in
the
spring
of
1985,
but
most
certainly
before
June
19,
Friesen
approached
the
appellants
with
her
offer
regarding
the
Metcalfe
property.
Initially
they
were
taken
aback,
but
after
one
or
two
further
discussions
and
some
consideration
they
accepted
Friesen's
terms.
The
appellants
were
quite
imprecise
as
to
dates,
and
to
that
extent
their
evidence
was
somewhat
unsatisfactory.
However
from
their
testimony
and
from
the
reporting
letter
sent
to
them
by
their
solicitor
(Exhibit
A-2)
the
following
appears
to
have
been
the
sequence
of
events:
Friesen
approached
them
with
her
offer,
they
accepted,
saw
their
solicitor
and
discovered
that
Friesen
was
not
the
registered
owner
of
the
property.
Their
solicitor
was
instructed
to
rectify
the
situation.
On
April
26,
1985
a
correction
deed
was
executed
by
Margaret
Giroux
changing
the
description
of
the
grantee
from
Isaiah
Creations
Ministry
International
to
Gigi
Isaiah.
The
affidavit
of
value
was
sworn
by
G.F.
Isaiah
on
May
7,
1985.
On
that
same
date
G.F.
Isaiah
transferred
the
Metcalfe
property
to
the
appellants.
The
affidavit
of
value
forming
part
of
this
document
was
sworn
by
the
appellant
Donald
Lindsay
on
June
17,
1985.
It
discloses,
inter
alia,
that
a
portion
of
the
consideration
for
the
transaction
was
allocated
to
the
assumption
of
a
mortgage
in
the
amount
of
$72,000.
That
was,
according
to
the
testimony
of
Friesen
and
the
appellants,
the
balance
owing
on
the
existing
mortgage.
On
May
31,
1985
the
appellants
executed
a
mortgage
of
land
in
respect
of
the
Metcalfe
property
in
favour
of
Vanguard
Trust
of
Canada
Limited
in
the
amount
of
$84,500.
In
reporting
on
the
transaction
the
appellants
solicitor
refers
to
the
"new
first
mortgage
financing”,
and
while
there
is
no
reference
to
the
existing
mortgage,
it
would
appear
that
it
was
discharged.
The
transfer
from
Friesen
to
the
appellants
was
ultimately
registered
on
June
19,
1985.
Both
appellants
state
they
were
not
aware
of
Friesen's
income
tax
problems
until
June
or
July
1985,
and
more
specifically
until
they
were
served
with
"some
papers"
relating
to
an
action
commenced
by
the
respondent
under
the
Fraudulent
Conveyances
Act.
At
this
time
they
spoke
to
Friesen
who
advised
them
that
it
was
a
mistake;
that
it
was
being
taken
care
of
and
that
they
ought
not
to
worry
about
it.
With
respect
to
Friesen's
offer
Jacqueline
Lindsay
recalled
that
Friesen
wanted
the
appellants
to
accept
her
gift
because
she
was
“considering
at
the
time
of
going
to
India
on
a
crusade”
and
was
unsure
about
her
future.
She
asserted
that
she
found
nothing
surprising
or
inconsistent
in
the
offer,
given
what
she
described
as
Friesen's
previous
history,
and
with
but
little
protest
or
reluctance
she
and
her
husband
accepted.
They
agreed
to
provide
shelter
if
and
when
needed
in
compliance
with
Friesen's
condition
adding
that
such
assistance
was
in
any
event
available
to
Friesen
even
without
the
“gift”.
With
respect
to
her
relationship
with
Friesen
I
found
Jacqueline
Lindsay's
testimony
unresponsive
and
inconsistent.
She
agreed
they
were
close
friends
and
that
Friesen
on
occasion
confided
to
her
about
her
personal
life,
but
asserts
that
Friesen
never
discussed
her
marriage
settlement
nor
her
financial
difficulties.
With
respect
to
Friesen's
financial
settlement
with
her
former
husband,
Jacqueline
Lindsay
said
that
she
had
no
real
knowledge
of
it
but
merely
assumed
that
one
had
been
made.
She
was,
on
the
other
hand,
aware
of
the
purchase
of
the
Metcalfe
property,
she
was
aware
of
Friesen's
efforts
to
sell
it,
and
she
was
aware
of
Friesen's
purchase
and
sale
of
the
Kanata
condominium.
She
testified
that
one
reason
for
the
acceptance
of
Friesen's
offer
of
the
Metcalfe
property
was
that
Friesen
was
having
difficulties
meeting
her
mortgage
payments
at
the
time.
She
knew
that
Friesen
had
transferred
a
car
and
had
given
$5,000
to
her
daughter,
both
transactions
occurring
at
or
about
the
same
time
that
the
offer
was
being
made
to
them,
was
aware
of
Friesen's
rationale
regarding
these
transfers
(upon
which
Friesen
expounded
at
length
and
which
was
not
credible)
and
said
that
she
found
nothing
unusual
therein.
Jacqueline
Lindsay
does
not
recall
whether
Friesen
told
her
about
hearing
a
voice
directing
her
to
withdraw
her
funds
from
her
Canada
Trust
account
so
that
Revenue
Canada
could
not
get
at
it.
It
must
be
remembered
that
this
is
the
incident
of
which
Friesen
was
so
proud
that
she
bragged
about
it
to
everyone,
including,
according
to
her,
the
appellants.
Given
her
antipathy
to
Revenue
Canada
and
her
unbridled
delight
in
retelling
the
story,
it
is
difficult
to
believe
that
her
closest
friend
was
not
regaled
by
her.
Donald
Lindsay
testified
that
he
did
not
know
Friesen
as
well
as
his
wife
did,
but
he
too
was
not
surprised
by
Friesen's
offer.
He
says
"she
was
probably
going
to
India
doing
ministry
work.
I
took
it
that
was
her
reason
and
I
accepted
it
as
such."
Lindsay
did
not
question
the
terms
of
the
offer,
accepted
Friesen's
conditions
and
notwithstanding
the
fact
that
he
viewed
Friesen's
offer
as
fairly
unusual,
he
said
it
did
not
cause
him
to
think
about
it,
nor
did
he
wish
to
delve
into
it
or
to
ask
any
questions
about
it.
He
chose
not
to
question
her
as
to
her
intentions
saying
that
he
had
become
"acclimatized
to
Gigi
through
Jackie
through
the
years.
I
took
it
to
be
fairly
normal
on
her
part.
As
I
say
I
took
it
in
the
spirit
with
which
I
believed
it
was
being
given.”
With
respect
to
Friesen's
financial
position
he
described
himself
as
being:
.
.
.
semi-aware
at
the
time
that
Gigi
may
be
buying
a
condominium
out
near
Kanata,
and
blah,
blah,
blah.
I
am
in
the
car
business.
I
work
64
hours
a
week.
I
get
home
at
9:00
or
9:30
each
and
every
evening
outside
of
Friday.
When
I
get
home
I
usually
have
time
for
my
supper,
feed
my
dogs,
talk
to
my
children
if
they
happen
to
be
home,
and
my
wife.
If
Gigi
was
there,
she
was
there
and
we
had
a
few
words,
said
good
evening,
and
that
was
it.
I
had
many
other
things
I
had
to
do.
I
wasn't
into
discussing
condominiums,
etc.
As
I
say
I
heard
it
in
passing.
I
believe
I
heard
it
from
my
wife
Jackie.
I
don't
believe
Gertrude
mentioned
it
to
me.
.
.
.
Again
a
lot
of
that
I
would
hear
second
hand.
I
wasn't
sitting
around
the
table
at
5
o’clock
with
Gertrude
and
my
wife
having
a
little
tea
chat.
I
was
working.
Donald
Lindsay
attended
to
the
bulk
of
the
business
aspect
of
this
transaction.
He
expressed
concern
that
accepting
Friesen's
offer
would
place
an
added
burden
on
their
finances
given
their
other
obligations,
but
nonetheless
they
proceeded
to
accept.
Notwithstanding
his
assertion
that
they
assumed
the
existing
mortgage,
it
is
a
fact
that
new
financing
was
put
in
place
which
increased
their
liability
by
almost
$15,000.
Although
it
may
be
no
more
than
marginally
relevant
neither
appellant
mentioned
this
fact
in
their
testimony.
Counsel
for
the
appellants
argued
that
throughout
the
appellants
acted
reasonably
and
properly
in
their
own
economic
interest
in
this
transaction.
They
had
their
solicitor
conduct
searches,
made
the
necessary
inquiries
and
in
all
respects
acted
at
arm's
length
with
Friesen.
In
order
to
succeed
in
their
appeals
the
appellants
must
establish
that
the
provisions
of
section
160
of
the
Act
cannot
be
applied
to
them.
This
section
reads:
160
(1)
Where
a
person
has,
on
or
after
the
1st
day
of
May,
1951,
transferred
property,
either
directly
or
indirectly,
by
means
of
a
trust
or
by
any
other
means
whatever,
to
(a)
his
spouse
or
a
person
who
has
since
become
his
spouse,
(b)
a
person
who
was
under
18
years
of
age,
or
(c)
a
person
with
whom
he
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
section
74,
75
or
75.1,
as
the
case
may
be,
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
aggregate
of
all
amounts
each
of
which
is
an
amount
that
the
transferor
is
liable
to
pay
under
this
Act
in
respect
of
the
taxation
year
in
which
the
property
was
transferred
or
of
any
preceding
taxation
year,
but
nothing
in
this
subsection
shall
be
deemed
to
limit
the
liability
of
the
transferor
under
any
other
provision
of
this
Act.
(2)
The
Minister
may
at
any
time
assess
a
transferee
in
respect
of
any
amount
payable
by
virtue
of
this
section
and
the
provisions
of
this
Division
are
applicable
mutatis
mutandis
in
respect
of
an
assessment
made
under
this
section
as
though
it
had
been
made
under
section
152.
Since
the
parties
in
this
case
are
not
related
to
each
other
it
is
a
question
of
fact
for
this
Court
whether
or
not
at
the
particular
time
they
were
dealing
with
each
other
at
arm's
length.
There
is,
of
course,
no
complete
or
all-
encompassing
definition
in
the
Income
Tax
Act
of
"arm's
length".
It
has
often
been
stated
that
even
when
there
are
two
distinct
parties
or
minds
to
a
transaction
but
these
parties
act
in
a
highly
interdependent
manner,
then
it
may,
in
certain
circumstances,
be
assumed
that
the
parties
are
acting
in
concert
and
hence
not
at
arm's
length.
Furthermore,
in
circumstances
where
the
parties
are
acting
in
concert
and
where
a
common
purpose
exists
the
transaction
may
not
necessarily
be
at
arm's
length
even
though
an
interest
may
also
be
present.
(See
Zeal
and
Gold
Ltd.
v.
M.N.R.,
[1973]
C.T.C.
129;
73
D.T.C.
5116;
Swiss
Bank
v.
M.N.R.,
[1971]
C.T.C.
427;
71
D.T.C.
5235;
[1972]
C.T.C.
614;
72
D.T.C.
6470
(S.C.C.).)
I
am
satisfied
that
Friesen
selected
the
appellants
as
the
recipients
of
this
property
for
the
purpose
of
attempting
to
avoid
paying
her
outstanding
liability
for
income
tax.
I
do
not
for
one
moment
believe
that
she
was
motivated
to
transfer
the
property
to
the
Lindsays
either
because
she
was
going
on
a
religious
crusade
to
India
or
because
of
their
promise
to
provide
her
with
shelter
if
the
occasion
ever
arose.
I
do
not
accept
Friesen's
assertions
that
she
had,
over
a
period
of
years,
on
other
occasions,
divested
herself
of
substantial
amounts
of
property
through
the
various
ministries
she
was
involved
in.
On
the
contrary
the
cross-examination
of
Friesen
indicated
a
consistent
pattern
of
selling
of
her
chattels
and
other
assets.
Equally
I
do
not
accept
the
submission
made
by
counsel
for
the
appellants
that
Friesen's
actions
were
consistent
with
her
character
and
that
if
she
really
wished
to
avoid
Revenue
Canada
the
Metcalfe
property
could
have
been
transferred
to
a
member
of
her
family
in
Ottawa
or
to
her
daughter.
In
fact
the
completion
of
this
transaction
with
persons
who
were
not
related
by
blood
was
quite
consistent
with
her
desire
to
avoid
the
reach
of
Revenue
Canada.
I
have
already
indicated
my
opinion
of
Friesen's
credibility.
In
particular
I
do
not
accept
her
testimony
that
the
dispositions
of
her
assets
and
in
particular
the
transfer
of
the
Metcalfe
property
to
the
appellants;
the
transfer
by
way
of
registration
of
the
Audi
5000
to
her
daughter
and
the
transfer
of
the
sum
of
$5,000
to
her
daughter,
all
of
which
took
place
in
or
about
May
of
1985,
were
not
related
to
the
inquiries
and
demands
being
made
by
Revenue
Canada.
The
appellants'
counsel
argued
that
even
if
that
were
Friesen's
motivation
the
appellants
were
not
aware,
and
I
will
use
the
words
Mr.
Dioguardi
put
to
his
witnesses
”.
.
.
on
the
date
of
the
transfer,
June
19,
1985,
that
Gertrude
Isaiah
Landreville
was
liable
to
pay
any
taxes
to
the
Department
of
National
Revenue,"
and
for
that
reason
it
could
not
be
said
they
were
not
acting
in
their
own
interest.
The
issue
as
I
see
it
is
not
whether
the
appellants
knew
the
precise
details
of
Friesen's
difficulties
with
Revenue
Canada
but
whether
on
the
evidence
before
me
it
is
probable
that
they
knew
nothing
whatsoever
of
Friesen’s
affairs,
which
would
have
called
into
question
the
bona
tides
of
her
offer.
I
have
read
and
reread
the
testimony
of
the
appellants
and
have
concluded
that
on
balance
they
have
failed
to
establish
the
"absence
of
knowledge"
they
asserted
regarding
Friesen’s
difficulties
and
motivation.
This
failure,
since
it
relates
to
the
key
issue
of
arm's
length,
is
fatal
to
their
appeal.
A
number
of
factors
lead
me
to
this
conclusion.
For
example
an
Audi
5000
was
transferred
by
Friesen
to
her
daughter,
allegedly
when
she
reached
the
age
of
16
in
May
of
1985.
Friesen
explained
this
transaction
as
follows:
Mr.
Dioguardi:
Q.
Now
it
says
you
later
transferred
this
car
to
your
16-year
old
daughter
Charmaine
Friesen.
Is
that
true?
A.
Yes,
sir.
Q.
Why
did
you
do
that?
A.
It
was
at
my
husband's
suggestion
and
because
she
had
wanted
a
vehicle
when
she
became
16
and
he
wasn't
willing
to
buy
one
for
her.
So
he
said
to
transfer
the
car
to
her.
Even
at
that
time,
because
I
basically
still
loved
my
husband,
I
had
hoped
the
marriage
would
come
together
again.
Q.
What
were
you
to
use
for
transportation?
A.
Well,
as
long
as
I
was
in
Ottawa
I
would
be
driving
it,
and
then
when
I
got
out
west
she
would
be
taking
it
over
and
we
would
be
probably
sharing
it.
His
Honour:
Q.
I
am
sorry.
You
transferred
the
car
to
her
but
kept
it
in
Ottawa?
A.
Well,
at
that
particular
point
when
she
became
16,
I
said
to
her,
you
know,
"I
will
transfer
the
car
—"
His
Honour:
Q.
The
question
was
simple.
You
transferred
the
car
to
her
but
kept
it
in
Ottawa?
A.
For
the
time
being,
yes.
His
Honour:
Q.
How
long
was
"time
being"?
A.
I
guess
it
was
almost
a
year,
Your
Honour.
In
this
context
Jacqueline
Lindsay's
responses
are
significant.
Mr.
Gibson:
Q.
Okay.
Are
you
aware
of
the
1983
Audi
automobile
that
Gertrude
drove?
A.
Yes.
Q.
Are
you
aware
that
she
transferred
it
to
her
16-year
old
daughter?
A.
Yes.
Q.
Shortly
before
she
transferred
the
property
to
you
and
your
husband?
A.
I
don't
remember
whether
it
was
before
or
after.
I
am
sorry,
I
don't,
but
I
know
she
transferred
it
at
one
point.
Q.
You
knew
at
the
time
that
she
had
done
this,
didn't
you,
in
fairly
close
proximity
to
when
it
happened?
A.
I
don't
know
if
she
mentioned
it
before
the
fact
or
after
the
fact.
Q.
How
would
that
have
come
up
in
a
conversation?
A.
I
don't
rightly
recall,
but
I
think
it
had
something
to
do
with
her
trying
to
reconcile
with
her
husband
even
though
there
was
a
divorce.
I
am
not
sure
of
the
details.
I
have
a
vague
recollection.
Q.
Would
you
agree
with
me
that
it
is
fairly
unusual
for
somebody
to
transfer
that
type
of
automobile
to
a
16-year
old
child
who
lives
3,000
miles
away?
A.
I
am
afraid
I
didn't
give
it
any
second
thought.
What
other
people
do
with
what
they
have
is
no
concern
of
mine
and
I
never
spend
time
—
Q.
That
is
not
my
question.
A.
I
know
it
is
not
your
question,
but
it
is
not
something
that
I
have
given
any
thought
to
whether
it
is
usual
or
unusual.
In
May
of
1985
Friesen
also
gave
her
daughter
$5,000.
This
transaction
was
explained
by
her
as
follows:
Mr.
Dioguardi:
Q.
It
says
in
May
of
1985
you
gave
Charmaine
$5,000.00
cash.
Is
that
true?
A.
I
sent
her
a
cheque
for
$5,000.00.
Q.
Did
you
give
her
$5,000.00
cash?
A.
Yes,
sir.
Q.
By
cheque.
A.
Yes,
sir.
Q.
Why
did
you
do
that?
A.
Because
in
1974
I
had
used
$2,000.00
of
hers
that
was
in
the
bank.
Her
father
had
accused
me
of
stealing
her
money
and
I
didn't
like
that
allegation
because
basically
I
am
not
a
thief.
I
had
indicated
that
I
would
repay
that
money
to
her
specifically.
So
I
phoned
the
bank
and
found
out
what
would
have
been
the
interest
that
$2,000.00
would
have
generated
over
that
period
of
time.
It
was
very
close
to
the
figure
of
$5,000.00,
so
I
sent
her
back
the
money
to
satisfy
Mr.
Friesen's
—
to
basically
say,
"I
didn't
steal
her
money.
I
used
it,
borrowed
it,
however
you
want
to
call
it.”
So
I
repaid
her
basically
money
that
was
hers.
Q.
Did
the
government
have
a
judgment
against
you
at
that
time
in
May
of
1985
for
taxes?
A.
They
had
a
judgment
against
me
—
a
reassessment
judgment
since
the
reassessment
in
1975
or
1976,
Mr.
Dioguardi.
With
respect
to
this
transaction
Jacqueline
Lindsay
testified
as
follows:
Mr.
Gibson:
Q.
Are
you
aware
that
in
May
of
1985
Gertrude
gave
her
daughter
$5,000.00
cash?
A.
Yes,
she
told
me
that
she
was
repaying
a
loan.
Q.
How
would
this
have
come
up
in
conversation?
A.
Gosh,
I
don't
remember.
I
honestly
don't
remember
how
it
might
have
come
up.
Q.
Do
you
agree
with
me
that
is
a
fairly
intimate
and
personal
detail
about
one's
financial
affairs.
"Look,
I
am
giving
my
daughter
$5,000.00.
I
am
paying
back
a
loan.”
A.
Not
really
because
I
knew
her
daughter
and
had
met
her
daughter
and
was
very
fond
of
her
daughter,
as
she
was
of
our
children.
It
might
have
just
been
in
that
sort
of
context.
The
flurry
of
activity
on
the
part
of
Friesen
which
took
place
in
May
was
accounted
for
on
the
following
basis.
The
house
was
being
transferred
to
the
Lindsays
because
she
was
going
to
India
on
a
crusade;
the
car
was
being
transferred
to
her
daughter
because
her
ex-husband
insisted
on
it;
the
$5,000.00
was
sent
to
her
daughter
because
she
owed
it
to
her
and
did
not
want
her
ex-husband
to
believe
that
she
was
a
thief.
These
events
were
all
occurring
at
the
same
time;
Friesen's
"explanations"
were
known
to
the
appellants,
but
if
their
assertions
are
to
be
accepted,
none
of
this
gave
them
any
cause
for
concern.
The
appellants
were
also
aware
of
the
fact
that
a
correction
deed
was
required
because
of
the
manner
in
which
Friesen
had
taken
title
to
the
Metcalfe
property.
That
gave
them
no
cause
for
concern.
Nor
were
they
concerned
that
the
correction
and
subsequent
transfer
to
them
was
transacted
in
the
name
of
Gigi
Isaiah,
another
alias.
Much
was
made
by
counsel
of
the
fact
that
a
sheriff's
certificate
(part
of
Exhibit
A-2)
disclosed
no
writs
of
execution
attachment
or
certificates
of
lien
against
Isaiah
Creations
Ministry
International
and
Gigi
Isaiah.
But
no
concern
is
expressed
that
the
search
did
not
include
the
names
Gertrude
Friesen
or
for
that
matter
Gigi
Isaiah
Landreville,
the
name
used
by
Friesen
at
that
time.
In
my
view,
the
conduct
of
the
appellants
in
these
circumstances
can
only
be
described
as
deliberate
and
wilful
blindness.
It
has
been
said
that
in
determining
whether
parties
have
distinct
economic
interests,
it
is
necessary
to
consider
whether
the
parties
or
any
of
them
are
indifferent
to
the
terms
of
the
agreement
being
made.
In
this
particular
case
I
am
satisfied
that
there
was
a
bond
of
friendship
between
the
parties
which
led
to
an
abdication
by
the
appellants
of
their
exercise
of
any
independent
interest.
In
agreeing
to
the
transaction
as
structured
by
Friesen
they
did
so,
in
my
view,
solely
as
an
accommodation
to
Friesen,
and
with
sufficient
awareness
of
her
purpose.
I
am
satisfied
that
the
appellants
and
Friesen
were
not
dealing
with
one
another
as
strangers
would.
The
transaction
does
not
reflect
“ordinary
commercial
deal-
ings
between
parties
acting
in
their
separate
interests"
the
test
used
by
Laskin,
J.
in
Swiss
Bank
Corporation
and
Swiss
Credit
Bank
v.
M.N.R.,
supra.
The
inevitable
conclusion
is
that
in
fact
they
were
not
dealing
at
arm's
length.
The
appeals
are
accordingly
dismissed.
Appeals
dismissed.
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