Cynthia Sinnott v. Her Majesty the Queen, [1996] 3 CTC 2144, 97 DTC 596

Sobier J.T.C.C.: — The Appellant appeals from the assessment of the Minister of National Revenue (the “Minister”) under section 160 of the Income Tax Act (the “Act”) for transfers made to her by her spouse, Gerald P. Sinnott, at the time when he was indebted for income tax.

In dispute were transfers amounting to approximately $75,000.00 made up as follows: For 1989, the amount of $418.91 with respect to a car payment; and $1,000.00 drawn on Mr. Sinnott’s drawing account at his law firm, but not deposited to the account of the Appellant into which she usually deposited drawing account cheques. For 1990, the amount is $21,900.00 in respect of transfers to the Appellant from the said drawing account. For 1991, the amount is $44,126.00 made up in the same fashion. There were also payments made on account of a loan of $7,500.00, relating to a spousal registered retirement savings plan (“RRSP”).

Dealing with the RRSP, the Appellant borrowed monies from the Royal Bank of Canada and lent them to her husband, who then purchased a spousal RRSP with the Appellant as beneficiary. Mr. Sinnott made payments to the bank on account of this loan. The Minister assessed these loan repayments. The Appellant argues that what should have been assessed was the benefit conferred upon her by transferring the RRSP to her. What is assessed under the Act is the benefit which she received and this benefit was the $7,500.00 RRSP transferred to her. The payments made by Mr. Sinnott on account of the bank loan could be construed as repayment of the loan made by Mrs. Sinnott to Mr. Sinnott. Therefore, the matter will be referred back to the Minister for reconsideration and reassessment on the basis that it was the transfer of the $7,500.00 RRSP, which was the benefit Mr. Sinnott conferred upon her.

With respect to the amount of $1,000.00 referred above, the question of into which account it was deposited is of no concern. The matter will be determined on the basis of the outcome of the remaining portions of the appeal dealing with the transfers from the drawing account in general.

Subsection 160(1) of the Act reads as follows:

(1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to

(a) the person’s spouse or a person who has since become the person’s spouse,

(b) a person who was under 18 years of age, or

(c) a person with whom the person 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 sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted therefore, 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 transfered exceeds the fair market value at that time of the consideration given for the property, and

(ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or 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.

There were no fixed amounts paid by Mr. Sinnott to the Appellant. The transfers were made by a series of cheques of varying amounts drawn on Mr. Sinnott’s drawing account and deposited into an account over which the Appellant had sole authority. Prior to this, the Appellant and Mr. Sinnott had a joint account from which household expenses were paid and into which contributions were made.

It is the Appellant’s contention that of the amounts so transferred to her, a portion was in respect of monies which were used for family household expenses. Some of the funds were used to repay some of Mr. Sinnott’s debts and the balance claimed to be for household expenses.

Prior to losing her position at a local hospital, Mrs. Sinnott made contributions to the household expenses and Mr. Sinnott was contributing approximately $2,000.00 per month. The Appellant urges the Court to allow $2,000.00 per month on account of such expenses even though the amounts varied from month to month.

It is argued on behalf of the Appellant that the amounts of the transfers attributable to the household expenses was consideration given by him to her and is to be deducted from the total transfers. While it was not established that at the time of the transfers there was any specific amount to be paid by Mr. Sinnott on account of household expenses, amounts were established to have been paid on account of such expenses by Mrs. Sinnott and that it is these amounts or $2,000.00 per month which the Appellant maintains should be deducted as being consideration for the transfer. The balance of course would be transfers of the type caught by Section 160 of the Act.

The issue boils down to whether of the amounts transferred from Mr. Sinnott to the Appellant, any amount should be deducted, therefore lowering Mrs. Sinnott’s liability under Section 160.

There are two lines of cases dealing with the issue whether payment of household expenses may be taken into consideration in dealing with Section 160.

On the one hand, in Fine v. Minister of National Revenue, [1990] 2 C. T.C. 2620, 91 D.T.C. 133 (T.C.C.), it was argued that there was no transfer of property but that the husband provided support. This argument was dismissed since there was no evidence of what a family of five required for “support”. [1]

In Dupuis v. R. (sub nom. Dupuis v. Canada), [1993] 2 C.T.C. 2032, 93 D. T.C. 723 (T.C.C.), Judge Lamarre Proulx of this Court, said at page 2034 (D.T.C. 725):

On the third point, that is that the moneys received by the Appellant from her husband, were received for a valid consideration, I am of the view that the evidence showed that it is true. I find plausible that the payments were the Appellant’s husband contributions towards the charges of the house and family, and in some occasions, were repayments of loans, or a way to obtain cash.

On the other hand, in White v. R. (sub nom. White v. Canada), [1995] 1 C.T.C. 2937 (T.C.C.), the position of the appellant was somewhat akin to the position of the Respondent in this appeal. [2] At page 2939, Judge

Hamlyn stated as follows dealing with the question of transfers:

The Federal Court-Trial Division has examined the meaning of “transfer” under the Act. In the case of Fluxgold v. Canada [1990] 1 C.T.C. 176, 90 D.T.C. 6187, Rouleau J. stated the following at page 179 (D.T.C. 6189):

I am satisfied that Mr. Justice Thurlow, in the Dunkelman v. Minister of National Revenue [1959] C.T.C. 375, 59 D.T.C. 1242, put the definition to rest when he wrote at page 379 (D.T.C. 1244):

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 accept this definition and I conclude that there was in fact a transfer of assets...

Dealing with the question of the actual transfers in White (supra), Judge Hamlyn said at page 2940:

In this case, the effect was the deposits once transferred from Lewis G. White’s control to the appellant’s personal checking account meant those deposits were not subject to Revenue Canada seizure. The appellant exercised full control over the funds deposited. The benefit that was conferred upon her was over $20,000 and that was used to pay a variety of family and individual debts and expenditures. The appellant and Lewis G. White’s focus, I conclude, from their marginal circumstances, was whether there was sufficient money in the account to pay the bill or make the payment in question or advance the cash needed and not whose money it was.

The appellant and her spouse collectively were, through their experience and training, sophisticated in matters of accounting and tax.

The moneys that were paid to Revenue Canada during this period of time apparently related to current debts and, from the evidence, appear to be outside the pre-existing identified Revenue Canada debt.

The appellant argues that the money could not be spent at her discretion and had to be used to pay for her husband’s business and personal bills as well as to pay for such expenses as food. I do not accept the appellant’s assertion. Moreover, this argument does not aid the appellant’s thesis to the effect there was no transfer under subsection 160(1) of the Act. Whatever agreement the parties may have had between them, in the absence of any proven grounds to bring the matter outside subsection 160(1) of the Act, has no bearing whatsoever on the Minister or any other third party to the transfer. That some of the money had to have been used to support the appellant’s husband’s affairs only lends credence to the view that the transfer was designed to evade the payment of outstanding taxes.

In summary, I conclude from the evidence, the personal checking account of the appellant was set up to avoid the potential seizure of funds by Revenue Canada. The nature and character of the transfers were absolute vesting control in the appellant and without contractual consideration.

As all the deposits were transfers within the meaning of subsection 160(1) of the Act, the appellant is jointly and severally liable to pay the amount of $20,143 which Lewis G. White is liable to pay and which he transferred to the appellant.

Similar conclusions were made by judges of this Court in the unreported case of Sykes v. R., [1996] 2 C.T.C. 2370, and in the case of Thalheimer v. Minister of National Revenue, [1983] C.T.C. 2539, 83 D.T.C. 498 (T.C.C.). There, Judges Beaubier and St-Onge did not allow any deduction for amounts used for legitimate household expenses.

While I do not believe the Appellant and her husband intended to set up her account for the purpose of avoiding potential seizure, the transfers had that effect. The monies were hers once she deposited the cheques.

I am inclined to agree with the reasons of Judge Hamlyn in White and I adopt them. Once the cheques were deposited into her account, the transfer took place. The monies were hers to do with what she wished. Counsel for the Appellant conceded that once she had the money, she could have purchased a mink coat.

The Appellant’s counsel put a good deal of emphasis on the argument that consideration was given for the transfer. But what was that consideration? Can it be said that the paying of household expenses is consideration for the transfers? Subparagraph 160(l)(e)(i) states that the joint liability of the transferor and transferee is an amount equal to the lesser of the amount 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. At the time the transfers were made, no consideration was given.

The appeals are allowed with respect to the $935.65 paid to the Appellant out of her husband’s law firm suspense account and with respect to the amounts conceded by the Respondent in the document entitled Respondent’s Concessions dated February 5, 1996, a copy of which is attached.

In all other respects, the appeals are dismissed with costs.

Appeal was varied.