Mary Therese Smith v. Her Majesty the Queen, [1996] 3 CTC 2273, [1997] DTC 152

Beaubier J.T.C.C.: — This appeal was heard at Kelowna, British Columbia, pursuant to the General Procedure on June 20, 1996. The Appellant was the only witness.

The Appellant has appealed an assessment pursuant to section 160 of the Income Tax Act that she received a transfer of a one-half interest in her matrimonial home from her husband, Frank Smith, while he owed income tax. The assumptions contained in the Reply read:

5. In so assessing the Appellant with respect to the matters in issue, the Minister relied, inter alia, on the following assumptions of fact:

a) at all material times, Frank Stuart Smith was the Appellant’s spouse;

b) in June of 1985, the Appellant and Frank Stuart Smith purchased property described as 154 Talbot Road, R.R. #1, Wheatley, Ontario (the “Property”), for $103,000.00 and held the Property as joint tenants;

c) by Notices dated June 14, 1988, August 23, 1988, August 23, 1988, October 19, 1989 and July 12, 1990, the Minister assessed Frank Stuart Smith for the 1984, 1985, 1986, 1988 and 1989 taxation years respectively;

d) on January 12, 1989, Frank Stuart Smith transferred his undivided one-half interest in the Property to the Appellant for consideration of $1.00 and “natural love and affection”;

e) no further consideration was provided for the transfer of the Property interest;

f) at the time of the transfer, there was no written separation agreement between the Appellant and Frank Stuart Smith;

g) at the time of the transfer, the fair market value of the Property was approximately $140,000.00;

h) at the time of the transfer, the Property was mortgaged with National Trust Company in the amount of $65,897.53;

i) the equity transferred to the Appellant by Frank Stuart Smith was $37,050.73, calculated as follows:

FAIR MARKET VALUE OF PROPERTY	$140,000.00
ENCUMBRANCES	65,897.53
TRANSFER	74,102.47
CONSIDERATION	Lfiû
DIFFERENCE	74,101.47
1/2 SPOUSE'S SHARE	37.Q3L74
APPELLANT'S SHARE	_37,050,73

j) in August of 1989, the Appellant sold the Property to an arm’s length purchaser for $148,000.00; and

k) on March 8, 1991, Frank Stuart Smith declared bankruptcy and the total amount of his outstanding income tax arrears was $63,326.90.

The Appellant disputes subparagraphs (e), (g) and (i) of the assumptions. The remainder were either undisputed or were established to be true. It was agreed that the value of the Property when Frank Smith’s interest was transferred to the Appellant was $139,000.00. The mortgage owed on the property at that time was $66,661.99. As a result the net value of the Property was $72,338.01. Frank Smith transferred his half to her, which amounted to $36,169.00 in value.

The Appellant claims two deductions from the net value of $36,169.00. The first is a half interest in the farm equipment and furnishings she transferred to Frank Smith. At trial she valued this one-half interest at $19,662.50. In an earlier letter to Revenue Canada she fixed the total value of the same property at $15,100.00 (one-half equals $7,550). The second offset which the Appellant claims is support that she gave up in return for the half interest in the Property.

It should be noted that Frank Smith’s Notices of Assessments began in 1988. The chronology of the remaining matters is informative respecting the Appellant’s opportunities:

1. Date of Transfer of Property by Frank Smith to Appellant - January 12, 1989

2. Date of Assignment in Bankruptcy of Frank Smith - March 8, 1991

3. Date of Discharge from Bankruptcy of Frank Smith - April 24,1992

4. Date of Assessment of Appellant - January 23,1992

5. Date of the Appellant’s final order for Divorce from Frank Smith - June 27, 1993

Thus the Appellant received the assessment in question one and one half years before her final order for divorce. Despite this, she did not claim support from Frank Smith. In these circumstances, it is not for this Court to assume an entitlement to support for the Appellant either at the time of transfer or later. She had a lawyer for her divorce and chose not to claim support.

The Appellant has a second serious problem in her appeal. She signed the following affidavit in the transfer of Frank Smith’s interest in the Property to her:

Form 1 - Land Transfer Tax Act

Affidavit of Residence and of Value of the Consideration ...

IN THE MATTER OF THE CONVEYANCE OF(...) . Part lot 7, 1st Concession, Township of Romney, County of Kent BY (...)Frank Stuart Smith and Mary Therese Smith TO (...)Mary Therese Smith I, (... MARY THERESE SMITH MAKE OATH AND SAY THAT:

1. I am (...)

[ ] (a) A person in trust for whom the land conveyed in the above described conveyance is being conveyed;

[ ] (b) A trustee named in the above described conveyance to whom the land is being conveyed;

[ x ] (c) A transferee named in the above-described conveyance;

[ ] (d) The authorized agent or solicitor acting in this transaction for (...) described in paragraph(s) (a), (b), (c) above; (...)

[ ] (e) The President, Vice-President, Manager, Secretary, Director, or Treasurer authorized to act for (...) described in paragraph(s) (a), (b), (c) above; (...) [ I

(f) A transferee described in paragraph ( ) ... and am making this affidavit on my own behalf and on behalf of (...) who is my spouse described in paragraph ( ) ... and as such, I have personal knowledge of the facts herein deposed to.

2. ... I have read and considered the definition of “single family residence” set out in clause l(l)(ja) of the Act. The land conveyed in the above-described conveyance [ x ] contains at least one and not more than two single family residences. [ ] does not contain a single family residence. ... [ ] contains more than two single family residences. (...)

3. I have read and considered the definitions of “non- resident corporation” and “non-resident person” set out respectively in clauses 1(1 )(f) and (g) of the Act and each of the following persons to whom or in trust for whom the land is being conveyed in the above-described con- veyance is a “non- resident corporation” or a “non-resident person” as set out in the Act. (...) NONE

4. THE TOTAL CONSIDERATION FOR THIS TRANSACTION IS ALLOCATED AS FOLLOWS:

(a) Monies paid or to be paid in cash $1.00

(b) Mortgages (i) Assumed (...)	$ NIL	(ii) Given back to vendor
$ NIL

(c) Property transferred in exchange (...) $ NIL

(d) Securities transferred to the value of (...) $ NIL

(e) Liens, legacies, annuities and maintenance charges to which transfer is subject $ NIL

(f) Other valuable consideration subject to land transfer tax (...) $ NIL

(g) VALUE OF LAND, BUILDING, FIXTURES AND GOODWILL SUBJECT TO LAND TRANSFER TAX (Total of (a) to

(f)) $ 1.00 $ 1.00

(h) VALUE OF ALL CHATTELS - items of tangible personal property (Retail Sales Tax is payable on the value of all chattels unless exempt under the provisions of the “Retail Sales Tax Act”, R.S.O. 1980,

c. 454 as amended) $ NIL

(i) Other consideration for transaction not included in (g) or (h) above $ NIL

(j) TOTAL CONSIDERATION $ 1.00

5. If consideration is nominal, describe relationship between transferor and transferee and state purpose of conveyance. (...) husband and wife to wife alone

6. If the consideration is nominal, is the land subject to any encumbrance? yes

7. Other remarks and explanations, if necessary.

transfer from husband and wife to wife alone for nominal consideration

Sworn before me at the town of Kingsville in the County of Essex this “12” day of January 1989 “illegible” “Mary Therese Smith” A Commission for taking Affidavits, etc.)signature(s)

There are a number of discrepancies in the affidavit:

subparagraph 4(b) - There was a mortgage assumed.

subparagraph 4(c) — The Appellant states that chattels were transferred in exchange.

The Appellant’s counsel describes the affidavit as mere form. But it was sworn at the time of the transfer when the Appellant states the mar- riage was breaking up. However, she did not petition for divorce until after she moved to British Columbia.

In the Court’s view the Appellant decided not to claim for support because the marriage occurred late in life. The Court also finds that the affidavit on the transfer is wrong. This is based on the fact that the mortgage is not mentioned. As a result the Court finds that each took property from the marriage that they thought effected a fair distribution of the matrimonial property between them.

The Appellant’s valuations of the chattels taken by Frank Smith are more than guessed at. But they are not appraised values. The Court accepts her statement that she under-valued rosewood furniture, china and a tractor in her first estimates. As a result the Court finds that the value of her one-half of the chattels Frank Smith took was $14,000.00.

The Court finds that the Appellant gave Frank Smith consideration of $14,000.00 in the form of the chattels in return for his share of the house or Property. Frank Smith’s share of the house or Property which he transferred to the Appellant had a fair market value of $36,169.00. The difference between the two is $22,169.00.

The Appellant is liable to pay $22,169.00 pursuant to section 160 of the Income Tax Act.

This matter is referred to the Minister of National Revenue for reconsideration and reassessment pursuant to these reasons.

Success is divided. Costs are fixed in favour of the Appellant at $1,000.00.

Appeal was varied.