Dusablon v. R, [1999] 4 CTC 2398

Watson D.]. T.C.:

In this appeal, which was heard under the informal procedure at Rouyn- Noranda, Quebec, on August 17, 1998, the appellant is contesting assessments for $8,954.56 made by the Minister of National Revenue (“the Minister”) under section 160 of the Income Tax Act (“the Act”), the notices of which are numbered 30735 and 30736 and dated March 6, 1996.

In making the assessments, the Minister relied on the allegations of fact set out in paragraph 5 of the Reply to the Notice of Appeal. They read as follows:

[TRANSLATION]

(a) on August 23, 1993, Marcel Deroy sold the appellant the principal residence located at 19 Rue Dorion in Val D’Or for $66,207;

(b) on August 23, 1993, Marcel Deroy also sold the appellant his cottage located on range A of La Pauze township for $10,000;

(c) when he purchased the above-mentioned property, Marcel Deroy was single;

(d) at the time of the sales, the appellant was married to Marcel Deroy;

(e) at the time of the sales, the fair market value of the residence was $80,600 and that of the cottage was $22,800;

(f) moreover, Marcel Deroy owed $8,954.56 in taxes when the sales in question were made;

(g) at the time of those sales, the appellant was related to Marcel Deroy, since she was his spouse;

(h) the fair market value of the immovable property sold was greater than the consideration paid by the appellant, and the difference between the fair market value and that consideration is at least equal to Marcel Deroy’s tax liability;

(i) the appellant is jointly and severally liable with the transferor for the payment of the $8,954.56 tax liability of the transferor of the property referred to above.

When the appeal was heard, counsel for the appellant admitted subparagraphs (a), (b), (d), (e) and (g), denied subparagraphs (c), (h) and (i) and said he had no knowledge of subparagraph (f).

At the hearing the appellant and her spouse Marcel Deroy (“Deroy”) testified as follows: Deroy was severely injured in a work-related accident in 1992 that prevented him from working. He is still disabled to this date. He had to wait for approximately a year and a half before he started receiving compensation from the C.S.S.T. In the meantime, the appellant worked and she alone covered all family expenses including the mortgage pay-

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ments, house and cottage upkeep, and day-to-day expenses. Before Deroy’s accident, both spouses had contributed on an equal basis. Since the appellant was paying all family expenses, it was decided by both of them to recognize the appellant’s financial burden by transferring the house and cottage to the appellant in her name only; this was done in the conveyances dated August 23, 1993. The appellant and Deroy claim that the purchase prices take into account the appellant’s overcontribution, resulting in a price below the market value of the house and cottage. It is admitted that at the time of this sale, the market value of the house and cottage was $80,600 and $22,800 respectively.

The documentary evidence produced at the hearing reveal the following:

• on December 12, 1985, Deroy purchased the house located at 19, rue Dorion, Val D’Or, Quebec, for $49,000;

• on July 12, 1986, the appellant and Deroy were married without a marriage contract [TRANSLATION] “under the regime of partnership of acquests”;

• on August 17, 1988, Deroy purchased in his name only the cottage located on Range A in the township of La Pauze for $22,000; the conveyance stated that Deroy was married to the appellant as set out above;

• on August 23, 1993, the appellant purchased both the house and the cottage from Deroy under separate conveyances; the sale price of the house was $66,207 including a cash payment of $5,000 with the appellant assuming the balance owing on the mortgage of $61,207; a clause in the conveyance stated: [TRANSLATION] “The vendor declares that at the time of his purchase of the said property he was single and a major and that he has since married Céline Dusablon (the purchaser) under the legal regime of partnership of acquests in the absence of a marriage contract”;

• the conveyance of the cottage stated: [TRANSLATION] “The value of the consideration is TEN THOUSAND dollars ($10,000)” and erroneously indicated that [TRANSLATION] “at the time of his purchase of the said property he [Deroy] was single and a major and that he has since married Céline Dusablon under the legal regime of partnership of acquests in the absence of a marriage contract” (emphasis is mine);

• on March 20, 1995, Deroy filed an objection to the assessment made pursuant to paragraph 227.1(1) of the Income Tax Act;

• on August 31, 1995, Deroy made an assignment of his property in which a debt to Revenu Canada-Taxation in the amount of $9,000 was listed.

There was no documentary evidence to support the claim that the appellant actually paid Deroy $5,000 towards the purchase of the house, that she actually paid $10,000 towards the cottage; nor was there any such evidence as to the amount of her mortgage payments or other family expenses. The question that remains is whether the fair market value of the house and cottage exceeded the consideration given by the appellant by at least the amount of $8,954.56 set out in the assessments under appeal, as contemplated in section 160 of the Act.

I have had the opportunity to study the authorities and case law submitted to me by both counsel. In the light of articles 415 and 416 of the Civil Code of Québec, I am satisfied that both properties formed part of the “family patrimony” at the time of the sale, however, I do not agree with the appellant’s contention that she had a 50% interest in those properties since there was no “separation from bed and board, or ... dissolution or nullity of a marriage” prior to the sale. It seems that this question was clearly settled by the Quebec Court of Appeal in Droit de la famille - 977, [1991] R.J.Q. 904 (Que. C.A.). Judge Baudoin in his analysis at page 909 stated:

[TRANSLATION]

With all due respect to those who hold the opposite view, in my opinion the interest of spouses in “family patrimony” is not a “real right” entailing a right of property but rather constitutes a general and personal claim for the following reasons.

And further on he states:

[TRANSLATION]

…1 see nothing in the wording of the Code which would allow me to conclude that the legislator intended to create, solely on the basis of the existence of a marriage, co-ownership of the assets comprising the “family patrimony”.

Even assuming that the appellant did pay $5,000 towards the house and $10,000 towards the cottage, I am satisfied that, taking into consideration all of the circumstances of this appeal, including the testimony of the witnesses, the admissions and the documentary evidence, in the light of the applicable law and jurisprudence, the appellant has not succeeded in discharging her onus of establishing on a balance of probabilities that the Minister’s assessments were ill-founded in fact and in law. The appellant is liable for the amount of $8,954.56 pursuant to section 160 of the Income Tax Act, having failed to establish that the fair market value of the properties did not exceed the consideration given by her by at least the amount of $8,954.56.

Accordingly, the appeal is dismissed.

Appeal dismissed.