Darlene Lamarche v. Minister of National Revenue, [1983] CTC 2314, 83 DTC 260

The Chairman:—The appeals of Darlene LaMarche are from notices of reassessment dated June 19, 1978 with respect to the 1974 and 1975 taxation years.

In reassessing the appellant the respondent relied on the following assumptions of fact, as set out in his amended reply to the notice of appeal at paragraphs 3(a) to 3(g), 4, 5, 6 and 7 which read as follows:

3. In assessing the Appellant for tax as aforesaid, the Respondent relied on the following findings or assumptions of fact:

(a) at all material times, the appellant was the spouse of Guy LaMarche;

(b) Guy LaMarche had been assessed for his 1966, 1967, 1968 and 1969 taxation years; no objection or appeal from these assessments was taken by Guy LaMarche; no amounts were paid by Guy LaMarche toward this liability at any time;

(c) as at 21 April, 1978, Guy LaMarche was liable to pay to the Respondent the sum of $64,911.15, computed as per Schedule I, attached;

(d) on or about 7 January, 1975, Guy LaMarche paid the sum of $30,708.00 on account of a down payment towards the purchase by the Appellant of a property known municipally as 442 Diane Crescent, Timmins, Ontario;

(e) during the period 7 January, 1975 to July, 1978, Guy LaMarche paid to Canada Trust the sum of $8,946.00 on account of the first mortgage on 442 Diane Crescent, Timmins, Ontario, as shown on Schedule II, attached;

(f) during the period August, 1977 through May, 1978, Guy LaMarche paid to the Royal Bank of Canada the sum of $2,797.00 on account of a loan made for the purpose of the Appellant purchasing an automobile, as shown on Schedule III, annexed;

(g) Guy LaMarche transferred to the Appellant a sum not less than $52,861.00 between January, 1975 and July, 1978.

4. By assessment, notice of which was dated 8 May, 1978 the Respondent assessed the Appellant for tax in the amount of $5,000.00 transferred to her by her spouse by his payment of this amount with respect to the down payment on 442 Diane Crescent.

5. Statutory Provisions Upon Which The Respondent Relies And The Reasons Which He Intends to Submit:

The Respondent relies, inter alia, upon Section 160 of the Income Tax Act, RSC 1952, Chapter 148 as amended by Section 1, SC 1970-71-72, Chapter 63.

6. The Respondent concedes that the amount of $20,871.55 was not property transferred to the Appellant by her spouse within the meaning of Section 160 of the Income Tax Act, which sum is comprised of:

Down payment on 442 Diane Crescent	$30,708.00
Less: Assessment of May, 1978	5,000.00	$25,708.00
1st mortgage principal payment	4,152.17
Less: payment in July, 1978	112.72	4,039.45
Loan principal payments		2,242.00
		$31,989.45
Amount of assessments:	$52,861.00
Less:	31,989.45
	$20,871.55

7. The Respondent submits that the Appellant’s property has been assessed in the amount of $31,989.45, as her spouse transferred property to her at a time when his liability for taxes, interest and penalty was greater than this amount and therefore the Appellant is jointly and severally liable to pay this amount pursuant to Section 160 of the Income Tax Act.

In her notice of appeal for 1974 the appellant states:

1. The Taxpayer denies having received the sum of $51,388.00 from her husband, Guy LaMarche, during the taxation year 1974.

2. The Taxpayer did purchase a home in 1974 by making a deposit of $1,000.00 and no further monies were supplied towards such purchase until 1975, save and except for $5,000.00 received from her husband, the subject of another assessment under date May 8, 1978 (admitted by the respondent).

3. The Taxpayer alleges that the deposit on the said purchase was made out of funds which the Taxpayer had saved prior to 1974 (denied by the respondent).

4. During most of the year 1974, the Taxpayer was not a resident of Canada, having only returned to Canada from abroad in the Fall of 1974 shortly before agreeing to purchase the aforementioned home (considered by respondent to be irrelevant).

5. The Taxpayer is presently separated from the said Guy LaMarche and does not have access to his records for the relevant taxation year (considered by respondent to be irrelevant).

The above statement of facts and grounds upon which the Taxpayer is appealing is submitted by the undersigned on behalf of the Taxpayer who submits that the assessment should be set aside.

For the 1975 taxation year the appellant, in her notice of appeal, states:

1. The down payment on the home purchased by the Taxpayer at 442 Diane Crescent, Timmins, Ontario, was made from savings of the Taxpayer and a bank loan arranged by the Taxpayer and guaranteed by her husband, one Guy LaMarche, together with a loan secured by promissory note in the sum of $15,500.00. The balance of the purchase price of the home was an assumption of an existing mortgage (respondent admits that the house in Timmins was purchased but denies that the down payment was from the appellant’s savings).

2. All other monies received by the taxpayer from the said Guy LaMarche during the year 1975 were monies required by the Taxpayer for the maintenance of herself and her children and were not of a capital nature (denied by respondent).

3. The Taxpayer requires that the Minister prove the basis on which the assessment was made.

The above statement of facts and grounds upon which the Taxpayer is appealing is submitted by the undersigned on behalf of the Taxpayer who submits that the assessment should be set aside.

The issue is whether an amount of $31,989.45 was transferred to the appellant within the meaning of subsection 160(2) of the Income Tax Act, SC 1970-71-72, c 63 as amended, by her husband Guy LaMarche who, during the 1974 and 1975 taxation years as well as in 1976, 1977 and 1978 was liable for tax in the amount of $64,911.15. Counsel for the appellant does not dispute that Guy LaMarche was liable for tax in that amount in the years 1974 to 1978 inclusively.

While the appellant’s counsel admits that Guy LaMarche provided to the appellant $1,000 used as a down payment for the purchase of a house in 1974 and also admits that the appellant’s husband made subsequent mortgage payments on the home as well as payments on a loan made by the appellant for the purchase of a car in 1977, he contends that such payments made by the appellant’s husband were not transfers within the meaning of subsection 160(2) of the Act and furthermore that payments made subsequent to years for which the appellant was assessed, ie 1974 and 1975, are not relevant to the issue before the Board. Although the pleadings are not as clear as would be desirable, it would appear that the appellant is claiming at least in part that the amounts in issue were repayments of loans made by the appellant to her husband in the years prior to the taxation years in issue.

Considerable confusion with respect to the Minister’s assessments arose at the time of a previous hearing of this appeal. The then presiding member of the Board adjourned the case so that the issues could be clarified. It was the respondent’s understanding that the parties had agreed that the basis of the Minister’s assessments were transfers of moneys made by Guy LaMarche to the appellant in 1974 and 1975 in respect of the down payment on the purchase by the appellant of a house in Timmins, Ontario in the pertinent year, as well as the subsequent mortgage payments made by him in the years 1975 to 1978 inclusively. Also in issue are amounts paid by Guy LaMarche in repayment of a loan for the purchase of a car by his spouse, the appellant, in 1977.

While the unnecessary confusion and loss of judicial time experienced in the hearing of this appeal underlines the importance of clearly identifying the issue in the assessments and in the pleadings, I am satisfied that, as a result of discussions during the adjournment and prior to the hearing of her appeal, the appellant knew that the assessments were based on the Minister’s assumption that funds had been transferred to the appellant by her spouse who, at the time, was a taxpayer subject of a still unpaid tax liability in an amount greater than that of the alleged transfers. Under those circumstances, and in accordance with the provisions of subsection 160(2) of the Act, the taxation years referred to in the assessments are of little relevance and the appellant’s rights were in no way prejudiced.

Findings

The appellant’s spouse, in giving evidence, stated that on many occasions during their marriage he had received moneys from his wife (which he had used) for his own maintenance. However, he also testified that he had never repaid these amounts to the appellant. I am satisfied, on the basis of the evidence, that whatever moneys may have subsequently been given by Mr LaMarche to the appellant were not repayment of loans.

Whether or not the appellant had savings prior to 1974 is immaterial to the issue. The evidence is clear that the appellant had no savings prior to 1974. Indeed she had to sell her two cars and use whatever money she had to finance a trip to Hong Kong with her husband and family. It is also in evidence that on returning to Canada in the autumn of 1974, the appellant had no savings whatever.

It is under these circumstances that the downpayment of $1,000 on the purchase of a home in Timmins, Ontario was made by the appellant’s husband in 1974 and mortgage payments in 1975 and subsequent years were made by him. It is also under the same circumstances that the appellant’s husband repaid the loan made by the appellant for the purchase of a car in 1977.

The evidence is that on December 16, 1974 the appellant purchased a home in Timmins, Ontario for $50,000. The downpayment of $1,000 was provided by the appellant’s husband. The appellant assumed an existing mortgage in the amount of $19,000 @ 9% per annum ($188 per month) and $30,000 cash was required on closing (Exhibit A-1).

To raise the $30,000 the appellant borrowed $14,000 from the bank which eventually was taken out of the account of the appellant’s spouse by the bank and the appellant’s loan was thereby repaid in 1975.

The appellant also borrowed $15,500 from friends, the Chartrands, and a promissory note to repay that amount was signed by the appellant’s spouse on February 3, 1975 (Exhibit A-1 ).

The Chartrand mortgage was repaid by way of a further loan by the appellant of $20,000 from a Mr Kelly, which in turn was paid off with proceeds from the sale of the house in 1978.

In issue, as I see it, are the amounts of the $1,000 downpayment on the Timmins house provided by the appellant’s spouse, the $14,000 loan made by the appellant but repaid by her spouse, the monthly mortgage payments made by the appellant’s spouse on the $19,000 mortgage from 1975 to 1978 inclusively and the payments made by the appellant’s spouse on the loan contracted by the appellant for the purchase of a car.

Conclusion

While the loans made by the appellant for the purchase of the house and the car do not in themselves constitute a transfer, the repayment of these loans by the appellant’s spouse albeit indirectly in my opinion constitutes a transfer of property within the meaning of section 160 of the Income Tax Act.

The appellant has not succeeded in establishing that the Minister was wrong in assessing the appellant in the amount of $31,989.45 as moneys transferred to her by her spouse while he was liable for tax in an amount greater than the amount assessed.

The respondent conceded in paragraph 6 of the amended reply to the notice of appeal that, of the total amount of $52,861 assessed, $20,871.55 was not property transferred to the appellant by her spouse. Judgment will therefore go allowing the appeal to the extent of $20,871.55 and referring the matter back to the respondent for reassessment. The appeals in all other respects are dismissed.

Appeals dismissed.