Dr. Richard Landry v. Her Majesty the Queen, [1996] 3 CTC 2099 (Informal Procedure)

Lamarre J.T.C.C.: — These appeals of assessments for the appellant’s 1990, 1991 and 1992 taxation years were heard under the informal procedure. In assessing the appellant, the Minister of National Revenue (the “Minister”) added to his income interest income earned by his spouse on an amount of $100,000 that he had allegedly transferred to her. This interest income was $12,000, $16,875 and $9,750 in each of the 1990, 1991 and 1992 taxation years respectively. The Minister relied on section 74.1 of the Income Tax Act, c. 63, S.C. 1970-71-72 as amended (hereinafter the “Act”).

Facts

In order to make these assessments, the Minister accepted as true the facts set out in subparagraphs (a) to (e) of paragraph 8 of the Reply to the Notice of Appeal, which read as follows:

8(a) on May 2, 1989, the appellant transferred to his spouse, France Landry, the sum of $100,000;

(b) during the 1990, 1991 and 1992 taxation years, France Landry and the appellant were married and lived at 216 Campagna in Arthabaska;

(c) the interest income generated by the $100,000 transferred by the appellant to his wife totalled $12,000 in 1990, $16,875 in 1991 and $9,750 in 1992;

(d) the $100,000 transferred by the appellant to his wife did not constitute the repayment of a debt to her;

(e) during the period in issue, the appellant did not declare any interest income from the said $100,000 transferred to his spouse;

[Translation.]

Only the appellant testified at the hearing. He admitted subparagraphs (a), (b), (c) and (e) mentioned above. The evidence revealed that the appellant and his wife, France Landry, were married under the regime of the partnership of acquests in the province of Quebec in 1971. At the start of their marriage, the appellant allegedly continued his studies in order to become a veterinarian and shortly afterwards, Ms. landry allegedly worked for the appellant without remuneration. Beginning in 1981, Ms. Landry apparently declared employment income which she allegedly deposited in the appellant’s bank account. According to the appellant’s testimony, this income represented 30 per cent of the total amount deposited in this account. The employment income declared by Ms. Landry was $10,473 in 1981, $18,682 in 1982, $16,603 in 1983, $14,500 in 1984, $18,000 in 1985, $18,700 in 1986, $19,900 in 1987, $20,400 in 1988, $21,930 in 1989, $22,715 in 1990 and $22,440 in 1991.

At the end of April 1988, Ms. Landry opened her own bank account. The evidence did not show whether there remained any funds in the appellant’s account at that time. No bank book was filed in evidence at the hearing. On May 2, 1989, the appellant transferred $100,000 to Ms. Landry. According to the appellant, this sum was rightfully Ms. Landry’s because, over the years, she had accumulated this amount and more by depositing her money in the appellant’s bank account. The appellant explained that he waited a year to transfer the $100,000 to Ms. Landry because he “was not immediately able to repay this amount” [translation]. This part of the appellant’s testimony suggests that there probably were no funds in his bank account at the time Ms. Landry opened her own account in April 1988.

Analysis

The issue in the instant case is whether the appellant is subject to the application of subsection 74.1(1) of the Act, which reads as follows:

(1) Where an individual has transferred or lent property (otherwise than by an assignment of any portion of a retirement pension pursuant to section 65.1 of the Canada Pension Plan or a comparable provision of a provincial pension plan as defined in section 3 of that Act or of a prescribed provincial pension plan), either directly or indirectly, by means of a trust or by any other means whatever, to or for the benefit of a person who is the individual’s spouse or who has since become the individual’s spouse, any income or loss, as the case may be, of that person for a taxation year from the property or from property substituted therefor, that relates to the period in the year throughout which the individual is resident in Canada and that person is the individual’s spouse, shall be deemed to be income or a loss, as the case may be, of the individual for the year and not of that person.

Can it be said that the appellant transferred the sum of $100,000 to his spouse on May 2, 1989?

The appellant claimed that the $100,000 paid to Ms. Landry on May 2, 1989 was money due to her “personally” [translation] because this amount represented all of the income earned by her over the years. According to him, the amount in question represented his wife’s share of the family patrimony. He therefore does not consider that he transferred $100,000 to his spouse within the meaning of section 74.1 of the Act. In the circumstances, he argues that he should not be taxed on the interest income generated by this amount.

Counsel for the respondent objected to any testimonial evidence that might establish the existence of a loan that was allegedly repaid by the appellant to his spouse. She did however acknowledge that Ms. Landry had declared employment income since 1981. Counsel also relied on articles 391, 394 and 396 of the Civil Code of Quebec to argue that the amounts paid by Ms. Landry into the appellant’s bank account must necessarily have been used to contribute towards the expenses of the marriage. She therefore concluded that the $100,000 paid by the appellant to his spouse on May 2, 1989 constituted a transfer within the meaning of section 74.1 of the Act and that the appellant was therefore required to declare in his income tax returns for each of the years in issue the interest income from the investment of the $100,000.

Article 396 (formerly article 445) of the Civil Code of Quebec reads as follows:

Art. 396. The spouses contribute towards the expenses of the marriage in proportion to their respective means.

The spouses may make their respective contributions by their activities within the home.

In Droit de la famille-167, [1984] C.S. 1047 (Qué) Benoît J. of the Superior Court of Quebec analysed the former article 445 as follows:

This article indicates that activities within the home constitute a contribution equivalent to the payment of family expenses by the other spouse. It indicates that if both spouses work, they must contribute proportionally to family expenses. I [1]

[Translation.]

It must therefore be concluded that under Quebec law, both spouses must contribute according to their respective capabilities towards the expenses of the marriage. In the instant case, Ms. Landry allegedly contributed both by her activities in the home and by her income. Beginning in 1981, she deposited her employment income in the appellant’s bank account. Although it was not a joint account, I believe it can be concluded from the evidence that one-third of the funds deposited therein was the property of Ms. Landry. [2] However, this bank account as it existed prior to Ms. Landry’s opening her own bank account would normally have fluctuated with the contributions made by each spouse and the withdrawals made for expenditures relating to the expenses of the marriage. In my opinion, only the contents of the appellant’s bank account at the time Ms. Landry opened her own account could have been redistributed between the appellant and his wife. It is my view that it must be assumed that the difference between what was in the appellant’s account at that time and what Ms. Landry had deposited in it had simply been used to meet the needs of the family in proportion to the contribution of the spouses. Therefore, the appellant cannot claim that he was required to repay to Ms. Landry the whole of the amounts she had contributed throughout their married life. That calculation might, for the purpose of determining the distribution of property (article 476 C.C.Q.), be made at the dissolution of the marriage for the contribution of both the appellant and Ms. Landry during the marriage. But that is not the case with which we are dealing here. However, there is a fairness measure in civil law the purpose of which is to redress any economic injustice suffered during a marriage by one spouse who through his or her contribution enriched the patrimony of the other spouse. It is referred to as a compensatory allowance. This allowance can be awarded upon dissolution of the marriage or during the marriage where the application is founded on the end of cooperation in an enterprise of the other spouse if this results from the alienation, dissolution or liquidation of the enterprise (article 427 C.C.Q.). One of the spouses may, during the marriage, also agree with the other spouse to make partial payment of the compensatory allowance. In such case, the payment received must be deducted when the time comes to fix the value of the compensatory allowance (article 430 C.C.Q.).

Although the $100,000 payment made by the appellant to Ms. Landry might have been similar to the payment by the appellant of a compensatory allowance to Ms. Landry during the marriage, no formal evidence was adduced to establish that this was such an allowance. There was no evidence to show that the appellant had been enriched to the detriment of his spouse during the marriage. Apart from the testimony of the appellant who based his argument on very approximate calculations, no document other than Ms. Landry’s tax returns was submitted as evidence in support of the appellant’s position. Rather it appears, as I mentioned earlier, that Ms. Landry’s contributions were simply applied over the years towards the expenses of the marriage. No tangible evidence was adduced to show that the payment of this sum could have constituted payment of a compensatory allowance.

If the evidence had shown that, at the time Ms. Landry’s bank account was opened, there was a credit balance in the appellant’s bank account, it would have been possible to consider that one-third of that balance belonged to Ms. Landry and that the appellant was justified in returning it to her. However, the evidence was silent on this point. Indeed, from the appellant’s testimony I infer that the balance in his account was not very high since he was unable to turn over the $100,000 he claimed to have owed his wife until the following year. I cannot speculate on evidence that was not adduced. The burden of proof was on the appellant to show on the balance of probabilities that there had not really been a transfer of property but merely repayment of a debt to his wife. It is my view that this has not been demonstrated.

On the notion of transfer, I will simply cite the analysis of Thorson P. of the Exchequer Court of Canada in Fasken Estate v. Minister of National Revenue, [1948] C.T.C. 265, 49 D.T.C. 491 (Ex. Ct.), at page 497:

The word “transfer” is not a term of art and has not a technical meaning. It is not necessary to a transfer of property from a husband to his wife that it should be made in any particular form or that it should be made directly. All that is required is that the husband should so deal with the property as to divest himself of it and vest it in his wife, that is to say, pass the property from himself to her. The means by which he accomplishes this result, whether direct or circuitous, may properly be called a transfer.

I therefore conclude that the appellant transferred from his own bank account the sum of $100,000 to his wife, France Landry, on May 2, 1989. I further conclude that the appellant has not shown on the balance of probabilities that this transaction was simply the repayment of a debt owed his wife or the remittance of a sum which belonged to her at that time. The appellant is therefore subject to the application of section 74.1 of the Act for the years in issue.

For these reasons, the appeals are dismissed.

Appeals were dismissed.