Roy Otto German v. Minister of National Revenue, [1957] CTC 291, 57 DTC 1216

THURLOW, J.:—This is an appeal from the judgment of the Income Tax Appeal Board, 12 Tax A.B.C. 394, dismissing the appeal of the appellant from an assessment of income tax for the year 1952, whereby the appellant was assessed in respect of a sum of $250 in addition to the income declared in his return. This income was not received by the appellant, but by his wife, and the issue to be determined is whether or not a sum of $5,000, which the appellant’s wife had invested to obtain the income, was property which had been transferred to her by the appellant by a transaction of the kind contemplated by Section 21(1) of the Income Tax Act, S.C. 1948, c. 52.

This section is as follows :

" " 21. (1) Where a person has, on or after the first day of August, 1917, transferred property, either directly or indirectly, by means of a trust or by any other means whatsoever, to his spouse, or to a person who has since become his spouse, the income for a taxation year from the property or from property substituted therefor shall be deemed to be income of the transferor and not of the transferee.’’

On the hearing of the appeal, the circumstances were put before the Court by an agreed statement of facts. This shows that on or about September 7, 1951, the appellant’s wife received $5,000 from one Albert E. Shore "‘by virtue of her consent to the disposition of the premises municipally known in the City of Calgary, in the Province of Alberta, as 2424 Morrison Street’’. Subsequently, she invested the $5,000 in a loan to Arctic Enterprises Ltd., from whom she received the sum of $250 in question as interest on the loan. The property mentioned had been occupied by the appellant and his wife as their residence from the year 1932 to the time of the sale and was a homestead of the appellant as defined in the Dower Act, Statutes of Alberta, 1948,

c. 7. His wife was accordingly entitled to dower rights in or in respect of the property, as conferred by that Act.

Paragraph 7 of the agreed statement of facts is as follows:

"‘7. That the consideration of her consent to the disposition is evidenced by a document dated the 7th day of September, A.D. 1950, and made between the Appellant and Muriel Eva German, such document reading as follows :

‘AGREEMENT made in triplicate this 7th day of September, A.D. 1950.

BETWEEN:

ROY OTTO GERMAN, of the City of Calgary, in the Province of Alberta (Secretary) (hereinafter referred to as the ‘‘ Husband’’),

OF THE FIRST PART, — and —

MURIEL EVA GERMAN of the City of Calgary, in the Province of Alberta, Married Woman, (hereinafter referred to as the "Wife"’)

OF THE SECOND PART.

WHEREAS the Husband is the registered owner of that parcel of land situated in the City of Calgary in the Province of Alberta and more particularly known as Lot 14 in Block A according to a plan of part of the said City of Calgary of record in the Land Titles Office for the South Alberta Land Registration District as Calgary 304V:

AND WHEREAS the Wife has a dower interest in the said lands and premises ;

AND WHEREAS the Husband wishes to sell the said lands and premises to one, Alfred E. Shore, for the sum of $16,800.00 and wishes to obtain the dower consent of the Wife to the said disposition ;

AND WHEREAS the Wife has agreed to give her dower consent on the terms and conditions hereinafter set forth;

NOW THEREFORE THIS AGREEMENT WITNESSETH THAT THE PARTIES HERETO COVENANT AND AGREE EACH WITH THE OTHER AS FOLLOWS:

1. That of the purchase price of the sum of Sixteen Thousand Eight Hundred Dollars ($16,800.00) the sum of Five Thousand ($5,000.00) Dollars will represent the value of the dower interest of the Wife.

2. That the Wife shall be entitled to receive from the said Alfred E. Shore the sum of Five Thousand ($5,000.00) Dollars, provided however that in the event of the said Five Thousand ($5,000.00) Dollars be paid over to the Husband by the said Alfred E. Shore, the said Five Thousand ($5,000.00) Dollars shall be held by the said Husband in trust for the Wife, and that the Husband shall be only entitled to receive the said Five Thousand ($5,000.00) Dollars from the said Alfred E. Shore as agent for the Wife, and the Husband shall have no right, title or interest in the said sum of Five Thousand ($5,000.00) Dollars.

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seals the day and year first above written.’ ??

Before dealing with the transaction in question, it may be noted that as the income assessed was not income of the appellant in fact, he is entitled to succeed in this appeal unless the statute renders him liable to tax on this income, notwithstanding the fact that it was not his and was not received by him. On the other hand, in seeking to determine whether or not Section 21(1) applies it should be kept clearly in mind that the question is not what property or rights were relinquished by the appellant’s wife in exchange for the $5,000, but rather whether any and, if so, what property or rights of the appellant were transferred to his wife in the course of the transaction mentioned in the statement of facts, for it is the appellant in respect to whom it is sought by the assessment to apply the provision of Section 21(1), and if the $250 in question was income from property transferred by him to his wife or from property substituted therefor, then regardless of whether or not anything capable of constituting a consideration was given by the wife for the property or rights so transferred Section 21(1) would apply to render the appellant taxable on such income.

The question of whether or not the income was from property substituted for property transferred may be disposed of at once. The $250 was interest on a loan of the $5,000 made by the appellant’s wife to Arctic Enterprises Limited. In making it, she obtained the right to repayment of it in substitution for the $5,000, and the interest on the loan is thus income on property substituted for the $5,000. The problem, therefore, narrows down to the question whether or not the appellant ever had title to the $5,000 or to any right in it which, in the course of the transaction, was transferred to his wife.

The expression ‘‘property’’ is defined in Section 127(1) (af) of the Income Tax Act as meaning:

“property of any kind whatsoever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes a right of any kind whatsoever, a Share or a chose in action;”

In David Fasken Estate v. M.N.R., [1948] Ex. C.R. 580; [1948] C.T.C. 265, the President of this Court discussed the meaning of the expression ‘‘transfer’’ in Section 32(2) of the Income War Tax Act as follows:

“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. The plain fact in the present case is that the property to which Mrs. Fasken became entitled under the declaration of trust, namely, the right to receive a portion of the interest on the indebtedness, passed to her from her husband who had previously owned the whole of the indebtedness out of which the right to receive a specified portion of the interest on it was carved. If David Fasken had conveyed this piece of property directly to his wife by a deed such a conveyance would clearly have been a transfer. The fact that he brought about the same result by indirect or circuitous means, such as the novation referred to by counsel involving the intervention of trustees, cannot change the essential character of the fact that he caused property which had previously belonged to him to pass to his wife. In my opinion, there was a transfer of property from David Fasken to his wife within the meaning of the Act.’’

In my opinion, the expression "‘has transferred’’ in Section 21(1) of the Income Tax Act has a similar meaning. I read that expression as referring to an act whereby the husband has divested himself of property and vested it in his wife; that is to say, has passed the property from himself to her. Had the appellant in this case deeded a share of his homestead property to his wife, whether for consideration or not, there would undoubtedly have been a transfer of such share to her. Had he deeded his property to a purchaser and directed the purchaser to pay the price to his wife, again in my opinion there would have been a transfer. In such a transaction, the property having been his, the price paid for it would also have been his, but for the transfer of it to his wife accomplished by his direction to the purchaser to pay it to her.

The appellant’s contention is that his wife had a present interest in the property; that is to say, her right to prevent disposition of the property by withholding her consent which she relinquished along with her other rights, including her future contingent life interest, in consideration of the $5,000; and that, while that sum was paid to her because of the agreement between her and the appellant, it was not in fact paid to her by the appellant but by the purchaser and was, therefore, not transferred to her by her husband.

f The respondent, on the other hand, contends that the property belonged to the appellant alone, that the only present right held by his wife was a right to veto the proposed sale, that she had no interest in the property, and that the whole of the price for which the property was sold, including the $5,000, belonged to the appellant, who by the agreement transferred that portion of it to her. He further contended that, if the wife had any interest in the property, upon her consenting to a disposition such interest vested in the appellant, who then transferred the property to the purchaser, and that any consideration paid to obtain the wife’s consent moved from the appellant to her.

In the view which I take of the case, it is not necessary to discuss in detail the provisions of the Dower Act or the various rights arising under it. These rights are purely statutory in origin and bear little or no resemblance to the right of dower at common law. Common law dower does not exist in Alberta. Under the Dower Act, immediately before the disposition of the property the appellant’s wife had a statutory right to prevent such disposition by withholding her consent, and she also had the right to an estate in the property for her life, commencing upon the death of the appellant. Had she been illegally deprived of her rights by the registration under The Land Titles Act of a fraudulent disposition made without her consent, a right to damages might have arisen for her under the provisions of the Dower Act, but that situation did not arise, and accordingly the two rights above mentioned are the only ones that need be considered. I am of the opinion that what she had amounted to an interest in the property, though not to a present estate in it, but I do not think this affords a solution to the problem. Despite the present right of the appellant’s wife (prior to the disposition) to prevent the disposition of the property and the future life estate to which she might have become entitled if she survived the appellant, the entire present right to possession and enjoyment of the property at that time belonged to the appellant. His wife had no right to possession of the whole or any part of the property. Had he chosen to let the property rather than to live on it, the income from it would have been his. The relation of life tenant and remainderman did not exist between them, nor was the appellant under any obligation to his wife either to keep the property in repair or pay taxes on it or to protect or maintain it so that she could enjoy it if her contingent life interest should mature into a right to possession. Moreover, subject to the wife’s possible future life interest, the fee simple estate in the premises was vested in the appellant, and if he survived his wife no life estate could come into existence in her favour.

The agreement between the appellant and his wife was made in this setting. It recites that the appellant is the owner of the property, that he wishes to sell it for $16,800 and that he (not the purchaser or anyone else) wishes to obtain the dower consent of his wife to "‘the said disposition”. ‘ ‘The said disposition” refers to the sale Which he, the appellant, wishes to make. The appellant then proceeds to covenant and agree that of the purchase price of $16,800, $5,000 shall represent the value of his wife’s dower interest, that she shall be entitled to receive that sum from the purchaser, and that he, the appellant, shall have no. right, title, or interest in it.

The reference in the agreement to the " " dower consent ’ ’ of the wife raises a question as to what it is and what are its purpose and effect. By Section 3 of the Dower Act, a married person is prohibited from disposing of his or her homestead without the consent of his or her spouse. By Section 5(1), it is provided that such consent shall be contained in or annexed to the instrument of transfer, and then Section 5(2) provides as follows:

(2) The consent in writing of the married person’s spouse to any disposition shall state in Form A in the Schedule or to the like effect, that the spouse consents to the disposition of the homestead and has executed the same for the purpose of- giving up the spouse’s life estate and other dower rights in the homestead to the extent necessary to give effect to the disposition.”

The form referred to is as follows :

“Form A.

{Section 5.)

“CONSENT OF SPOUSE.

“I,being married to the above named do hereby give my consent to the disposition of our homestead, made in this (or the annexed) instrument, and I have executed this document for the purpose of giving up my life estate and other dower rights in the said property given to me by The Dower Act, 1948, to the extent necessary to give effect of the said disposition.

{Signature of Spouse.) ’ ’ By Section 6(1)(c), it is further required that the spouse acknowledge apart from the married person :

"(c) that the spouse consents to the disposition for the purpose

of giving up the life estate and other dower rights in the homestead given by The Dower Act, 1948, to the extent necessary to give effect to the said disposition ; ‘ ‘

From the foregoing, it appears that the purpose of the consent is to give up (rather than to convey to anyone) the rights which the spouse has in the homestead by virtue of the provisions of the Dower Act. In my opinion, the effect of the spouse giving up these rights is that the owner’s title to the property, which he is thereby enabled to convey, becomes freed of the restriction on his right of alienation and of the outstanding future contingent life interest of the spouse. The consent, in my opinion, operates by way of a waiver of the right of the spouse to prevent the proposed disposition and as a bar or waiver of her possible claim to a life estate. I doubt very much that it can be said that the spouse’s rights in the property by virtue of a consent are transferred to anyone, but if they are so transferred I think it is even more doubtful that they can, by a consent, be transferred to anyone other than the married person who owns the property. However, in the view I take of the case it is unnecessary to determine these questions, for as I interpret the agreement between the appellant and his wife it was the appellant who bargained for his wife’s consent, and it was the appellant to whom that consent was given. What he then sold and conveyed to the purchaser was his own. It was his own entirely, either because his wife’s rights in the property had become his by virtue of her consent or because, by virtue of the consent, her rights in the property had simply terminated or ceased to exist. In either case, the consideration for that consent moved, not from the purchaser to her, but from the appellant, who by the agreement bargained for and obtained that consent and gave the consideration therefor. The consideration was his assignment to her, by the covenant above mentioned, of $5,000 of the price paid by the purchaser for property which belonged solely to the appellant. By completing the sale with that covenant in effect the appellant divested himself of his right to that portion of the consideration to be paid for what had been his property and vested it in his wife.

In this view, the fact that the payment was made by the purchaser to the wife is of no importance. She gave nothing to the purchaser. What she gave, namely her consent to the disposition, she gave to the appellant, in return for which by virtue of the covenant which he made with her she became entitled to $5,000 of the proceeds of property that had belonged to him. In my judgment, regardless of the consideration moving to the appellant from his wife, by making the covenant with her and by bringing it into operation by the completion of the sale the appellant transferred to $5,000 to her within the meaning of Section 21(1) of the Income Tax Act.

The appeal therefore fails and will be dismissed with costs.