Mary M Lindsey v. Minister of National Revenue, [1973] CTC 2044, 73 DTC 41

The Assistant Chairman (orally):—The appeal of Mary M Lindsey from an income tax assessment for the taxation year 1969 was heard in Toronto on January 22, 1973.

The appellant married in 1942. Her mother having died in 1940, the appellant’s father made the appellant a joint tenant on the family 200-acre farm. In 1944 the appellant and her husband took over the farm on a rental basis. On May 20, 1954 the appellant’s father, Albert B Smith, released all his interests in his land and transferred the title to the land, subject to certain conditions, to Mary Matilda Lindsey, the appellant (Exhibit R-1).

The appellant assumed her father’s existing liabilities of some $6,000 and succeeded in paying off these debts by selling certain parcels of land from the farmland. The appellant, her husband and their children (two boys and two girls) operated the farm by dividing the chores between them as is normally done on farms. The children went to school after doing their morning farm chores and completed them on their return from school. They were not paid for their work but were lodged, clothed and fed at home.

Although the value of the farm was stated to be $8,500 and there was difficulty in obtaining a $5,000 mortgage on it, from evidence adduced, offers ranging from $70,000 to $200,000 were received by the appellant for the purchase of the farm.

On December 29, 1969, after the receipt of the offer to purchase the farm, the appellant assigned a $70,000 mortgage on the remaining 170 acres of farmland to her four children and registered the mortgage on January 5, 1970. The mortgage was allegedly given in consideration of $70,000 bearing an annual interest of 9%. In fact, no monetary consideration was ever received by the appellant for the mortgage.

The Minister of National Revenue included $62,000 in the aggregate taxable value of gifts made by the appellant to her children in the 1969 taxation year and levied a tax in the amount of $10,570.

Counsel for the appellant contends that the $70,000 mortgage on the property was given to the appellant’s children for work done by them on the farm. The appellant also testified that her husband became ill in 1969. The appellant was unable to operate the farm alone, and unable to work. Consequently, in order to keep the children interested in carrying on the operations on the farm so that she could keep her home, the appellant decided to assign to the children a $70,000 mortgage.

The point to be decided, of course, is whether the $70,000 mortgage on the farm given to the children by the mother constituted a gift or whether the mortgage was given for due consideration and not as a gift to the children.

Counsel for the respondent held that the assessment was based on the assumption that the mortgage was a gift within the meaning of subsection 115E(d) and paragraph 139(1 )(ag) of the Income Tax Act and taxable under subsection 111(1) of the Act. Counsel therefore contended that the granting of the mortgage by the mother transferred a real right in property to the children, and within the meaning of the Act is to be considered as property.

In considering whether the mortgage was assigned to the children as remuneration or payment for work done by the children on the farm, counsel cited the case of Ste-Marie v MNR, 15 Tax ABC 46; 56 DTC 211.

In the case at bar there was no question of pay for work done by the children on the farm and no record of the man-hours was ever kept on which to base a remuneration or compensation. In my opinion, the assignment of the mortgage to the children cannot be considered as payment for work already done by them on the farm, nor can it be considered as compensation for having the children continue to operate the farm after the father’s illness because there is no relationship whatsoever between the work done, or to be done, by each of the children and the length of time which will be required to do the work on the farm and the value of the mortgage. Though the workload of each of the children necessarily differs, the value of the mortgage is to be divided equally among the children, which leads one to conclude that the assignment of the mortgage was in the nature of a gift rather than a remuneration or payment for work done or to be done by the children.

Counsel further referred to subsection 137(2) of the Income Tax Act which creates a presumption to the effect that a person who confers a benefit on another person such as, in this instance, the mortgage to the children — the benefit shall be deemed to be a disposition by way of a gift.

Counsel for the appellant did not offer any evidence which could invalidate the presumption that the assignment of the $70,000 mortgage to her children was by way of a gift.

For these reasons, I hold that the $70,000 mortgage assigned to the appellant’s children conferred on them a benefit and constituted a disposition by way of a gift, and that the $62,000 was properly included in the aggregate taxable value of gifts made by the appellant in the 1969 taxation year.

The appeal is therefore dismissed.

Appeal dismissed.