Cooke v. R., [1997] 2 CTC 254, 97 DTC 5208

Stone J A.:

This appeal is from a judgment of the Tax Court of Canada dated November 15, 1993, by which an appeal from the Minister’s assessment under section 160 of the Income Tax Act (the “Act”) was dismissed.

The central issue in this appeal is whether the learned Tax Court judge erred in finding that the former spouse of the appellant had been a joint owner of matrimonial property at the time it was transferred to the appellant. A subsidiary issue is whether the judge erred by restricting the use by the appellant of evidence of the respondent’s witness on examination for discovery.

Subsection 160(1) of the Act 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 sections 74 to 75.1, 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 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.

The Minister pleaded as the basis of his assessment the assumption that as of June 28, 1982, the appellant and her spouse “legally and beneficially owned” the matrimonial home. The lot on which the building was constructed was purchased in 1980, at which time title was taken in the joint names of the appellant and her spouse. The Tax Court judge concluded on the evidence, both oral and documentary, that the Minister’s assumption had not been shown to be wrong. He expressly rejected the appellant’s positions that she was the sole owner of the matrimonial home and that she had paid for the lot and for the construction of the building out of her own funds. Nor would he accept that the appearance of a spouse’s name on title was due solely to a lawyer’s error.

The appellant testified at trial as did her former spouse and the lawyer who had handled the transfer of the matrimonial home to the appellant. It is obvious that the Tax Court judge had difficulty with the credibility of the appellant and her former spouse. He characterized the latter’s testimony as “totally unreliable”. He described the appellant’s recollection of events as “imperfect” and a “reconstruction, based on wishful thinking, of events which she imperfectly recalled”. His misgivings with her testimony are summed up as follows at page 3 of the reasons for judgment:

I must find that the appellant’s unsupported statements as to events which occurred fifteen years ago are unreliable. Again and again she professed to be unable to remember not only events which occurred before 1978 but also events which occurred after that time.

In our view, no basis has been shown for this Court to interfere either with these adverse findings of credibility or with the overall conclusions that the former spouse did possess joint ownership of the matrimonial home and that this interest was subsequently transferred to the appellant.

The appellant also contends that the Tax Court judge was wrong in his appreciation of the Minister’s release to the former spouse of an attachment of the proceeds of the matrimonial home in 1984 arising from a sale to an arm’s length purchaser. She argues that this action supports her contention that the Minister accepted that the former spouse was never a part owner of the property. The Tax Court judge determined that there was no evidentiary foundation to support this assertion. We agree that the evidence does not reveal the reason or reasons for the Minister releasing the funds to the former spouse of the appellant.

The appellant next contends that the Tax Court judge erred in finding that the transfer of the matrimonial home to the appellant was exempted from the provisions of subsection 160(1) by virtue of subparagraph 160(4)(a)(i) of the Act, which reads:

(4) Notwithstanding subsection (1), where at any time a taxpayer has transferred property to his spouse pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written separation agreement and, at that time, the taxpayer and his spouse were separated and living apart as a result of the breakdown of their marriage, the following rules apply:

(a) in respect of property so transferred after February 15, 1984,

(i) the spouse shall not be liable under subsection (1) to pay any amount with respect to any income from, or gain from the disposition of, the property so transferred or property substituted therefor,

It was the appellant’s position at trial that this exemption applies because of the existence of a handwritten agreement of August 15, 1982 between the appellant and her former spouse, under which the appellant was “to retain 100% ownership” of the matrimonial home. The Tax Court judge decided, however, that the requirements of the subparagraph had not been satisfied because the transfer to the appellant was not made “pursuant to” this agreement. As he put it, at page 5 of his reasons for judgment:

The so-called separation agreement does not contain any provision calling for transfer of the ... property. Thus no transfer can be said to have been made pursuant to it.

We respectfully agree with that view of the matter.

The appellant then complains of unfairness in the trial process itself by virtue of the refusal of the Tax Court judge to allow her to read into the record portions of the examination for discovery of the respondent’s discovery witness. The use of discovery evidence at trial is governed by Rule 100(1) of the Tax Court Rules, which reads

100.(1) At the hearing, a party may read into evidence as part of that party’s Own case any part of the evidence given on the examination for discovery of,

(a) the adverse party, or

(b) a person examined for discovery on behalf of or in place of, or in addition to the adverse party, unless the judge directs otherwise,

if the evidence is otherwise admissible, whether the party or person has already given evidence or not.

It can thus be seen that there is no absolute right in a party to read in at trial any of the discovery evidence of an opposite party or of a person examined as a representative of an opposite party. Such may only be done “unless the judge directs otherwise”. In the case at bar the Tax Court judge ruled that counsel for the appellant could, during his cross-examination of the respondent’s discovery witness, use the discovery evidence “to cross-examine him on the previous inconsistent statement”. We are satisfied on the record before us that this ruling fell within the parameters of the discretion vested in the Tax Court judge by Rule 100(1).

The appellant raises two final points. She contends that the Tax Court judge failed to consider the value of consideration given by her on the transfer of the matrimonial home and thereby deprived her of the benefit of subparagraph 160(l)(e)(i) of the Act. Secondly, she argues that the respondent failed to show the fair market value of the matrimonial home on the date of transfer but, instead, utilized the sale price realized upon the sale of the property in 1984 as establishing the fair market value for the purposes of subsection 160(1). In our view, as neither of these issues was pleaded by the appellant in the Tax Court of Canada, neither may be raised for the first time on this appeal. (See Mohawk Oil Co. v. R., [1992] 2 F.C. 485 (C.A.), at page 501.)

The appeal will be dismissed with costs.

Appeal dismissed.