Maria Elizabeth Rafael v. Minister of National Revenue, [1978] CTC 2398

Delmer E Taylor:—This is an appeal against an assessment of income tax for $26,947.35, information for which is to be found on notice of assessment dated April 21, 1976, giving the following details:

This Assessment is raised under the authority of Section 160(2) of the Income Tax Act, and is in respect of a transfer within the meaning of Section 160(1) of the said Act; whereby on 1 July 1974 Jose G Rafael did transfer equity^-in real property to Maria Elizabeth Rafael, his wife.

Facts

The appellant is presently 34 years of age. She immigrated to Canada from Portugal in 1961, lived in Belleville, Ontario, with or near her brother Jose Antonio Rua (hereinafter referred to as “Rua”), and moved to the Toronto area after her marriage on March 21, 1970 to Jose Gonsalves Rafael (hereinafter referred to as “Rafael”). On or about June 22, 1970 lands known municipally as 894 Fletcher Valley Crescent (hereinafter known as the “property”) in the City of Mississauga in the Regional Municipality of Peel, being Lot 40 on Plan 814 for the City of Mississauga, were conveyed to Rua, to uses.

Title to the aforesaid lands and premises was taken in the name of Rua as trustee. A mortgage of the lands and premises was given to the Canada Permanent Trust Company by Rua, and for a time payments on account of the mortgage and other obligations were made appropriately. The mortgage fell into arrears in or about June of 1974 and was eventually discharged on the sale of the lands and premises, which transaction closed on April 30, 1976.

Contentions

It was the position of the appellant, in the notice of appeal, that:

—Rafael has not at any time had any interest in the property and has not transferred any interest in it to Maria Elizabeth Rafael on July 1, 1974, or at any other time.

—The property was conveyed to Rua in June 1970 in trust. He acknowledged that he held the property in trust for Maria Elizabeth Rafael only.

—There has not been a transfer to Maria Elizabeth Rafael within the meaning of subsection 160(1) of the Income Tax Act and there is therefore no authority under subsection 160(2) or any other section of the Act for the assessment.

—There is no indication given by the notice of assessment that the amount of the assessment represents tax which Rafael was liable to pay on or before the date of the alleged transfer.

The respondent, in the reply to notice of appeal, found or assumed as was the fact, that:

(a) the property was purchased for $45,900 by the appellant’s husband, and put in the name of the appellant’s brother who took title to the property “to uses”;

(b) the down-payment, taxes, insurance and mortgage payments on the property were paid directly or indirectly by the appellant’s husband until July 1974;

(c) default on the first mortgage occurred on August 1, 1974, and the property was subsequently sold in April 1976;

(d) the amounts paid by the appellant’s husband, as outlined in paragraph (b) hereof constituted a transfer of property within the meaning of subsection 160(1) of the Income Tax Act:

(e) the appellant’s husband owed the respondent the sum of $26,947.35 for arrears of taxes for the years 1968, 1969, 1970, 1971, 1972 and 1973 which the respondent has so far been. unable to collect from him;

(f) the appellant is therefore liable jointly and severally with her husband to pay the respondent the lesser of the amount of income tax owing by her husband which the respondent has been unable to collect from the husband and an amount equal to the value of the property transferred by the appellant’s husband directly or indirectly to the appellant.

It should be noted that, due to the scheduling difficulties of certain witnesses at particular times, counsel agreed that evidence could be provided by both parties on the basis of availability of witnesses, whether for the appellant or for the respondent. Among the witnesses subpoenaed by the respondent was Mr A Bennett, a partner in: the law firm of Bassel, Sullivan, Lawson & Leake. At the commencement of the hearing, Mr Bennett informed the Board that he was claiming solicitor-client privilege, and that this extended to the documents and files subpoenaed by the respondent. These documents related to matters of both Rafael and Rua, and neither of these gentlemen had provided him with a waiver of such privilege. Counsel for the respondent agreed to leave this point in abeyance, hear evidence from witnesses for the appellant and make a determination at a later time whether he wished to bring the question of solicitor-client privilege before the Board.

At counsel’s request, Mr Bennett again appeared before the Board on the second day of the hearing, this time represented by his own counsel, Mr M E Sullivan, QC, also a partner in the firm of Bassel, Sullivan, Lawson & Leake. Mr Sullivan expressed his willingness to turn the subject documents over to counsel for the respondent, but only if ordered to do so by the Board. The point was again left in abeyance, and counsel for the respondent tried to accomplish his objective by further cross-examination of other witnesses. When the hearing was adjourned at the close of the day, counsel did request that the Board grant the Minister an order requiring the production of the documents which had been demanded in the subpoena from Mr Bennett. In declining to grant the order the Board expressed the view that the authority to deal with such a motion could only be found in section 232 of the Income Tax Act, particularly subsection 232(4) which reads as follows:

232. (4) Application to judge.—Where a document has been seized and placed in custody under subsection (3), the client, or the lawyer on behalf of the client, may

(a) within 14 days from the day the document was so placed in custody, apply, upon 3 days’ notice of motion to the Deputy Attorney General of Canada, to a judge for an order

(i) fixing a day (not later than 21 days after the date of the order) and place for the determination of the question whether the client has a solicitor-client privilege in respect of the document, and —'

(ii) requiring the custodian to produce the document to the judge at that time and place;

(b) serve a copy of the order on the Deputy Attorney General of Canada and the custodian within 6 days of the day on which it was made, and, within the same time, pay to the custodian the estimated expenses of transporting the document to and from the place of hearing and of safeguarding it; and

(c) if he has proceeded as authorized by paragraph (b), apply, at the appointed time and place, for an order determining the question.

It was noted by the Board that there had not as yet been any seizure of the subject documents as contemplated by subsection 232(3) of the Act. While the Tax Review Board under its Act in performing its functions is provided with “all such powers, rights and privileges as are vested in a superior court of record”, determination of the question under this section is to be made by a “judge of a superior court having jurisdiction in the province where the matter arises, or a judge of the Federal Court of Canada” (see paragraph 232(1)(a)).

Evidence

The hearing occupied five days, and extended due to necessary adjournments over a period of two weeks. A total of 11 witnesses were heard, and 61 documentary exhibits introduced. Only that evidence which seems pertinent to the decision the Board is required to render will be referenced here. To a major degree matters dealt with in argument by counsel will be noted there, rather than covered under the original evidence, it being assumed that each counsel placed particular stress on those parts of the evidence which tended to be beneficial to his cause.

Exhibits submitted by the appellant:

A-1—Bank pass book—Toronto-Dominion, Belleville, Ont.

A-2—Bank pass book—Victoria and Grey, Belleville, Ont.

A-4—Cancelled cheque—Helena Rua to Maria Rafael.

A-8—Statement of adjustments—Purchase of subject property.

A-15—Supreme Court of Ontario—Order.

A-18—Supreme Court of Ontario—Consent.

A-20—Supreme Court of Ontario—Writ of Summons.

A-21—Supreme Court of Ontario—Statement of Defence.

A-23—Agreement of purchase and sale (d/8/5/70)—Subject

property.

A-24—Mortgage loan statement—Subject property.

Exhibits submitted by the respondent:

R-1—Agreement of purchase and sale (d/10/2/76)—Subject

property.

R-4—Affidavit—Jose Rafael.

R-5—Agreement of purchase and sale (d/26/5/70)—Subject

property.

R-15—Mortgage statement—Subject property.

R-31—Income tax liability statement—Rafael.

Argument

Counsel noted that the particular points at issue under this section of the Act had to date been the subject of only very limited examination and decision. The Board recognizes this and commends counsel for their efforts both in bringing forward evidence and presenting their arguments so that the matter could be addressed as directly and responsibly as possible.

Counsel for the appellant reviewed the onus on his client—to displace the assumptions of facts made by the Minister. While accepting this task, he pointed out that since section 160 of the Act effectively provided for the assumption of one person’s income tax burden by another individual (in this case Rafael to the appellant), that section contained features which should be regarded by the Board as punitive. From this perspective counsel raised the thought that it might well be held that the Minister should support the assessment against the appellant, similar to the requirements under penalty clauses of the Act. He believed the appellant had shown to a considerable degree that the beneficial interest in the property had always belonged to her, and her alone, and that there had never been any ‘transfer of interest from Rafael, nor could there have been any such transfer. Counsel noted the specific date of July 1, 1974 given for the transfer in the notice of assessment, while the reply to notice of appeal from the Minister indicated the transfer to have taken place over a period of time, apparently ending in July 1974. The respondent’s position therefore had been very flexible, a posture which was very difficult for the appellant to confront. Counsel however argued that whatever approach was used by the respondent, it had been adequately met by the evidence—there was no equity held by Rafael and there was no transfer:

(a) No discussion regarding the purchase of a matrimonial home had been carried on between the appellant and Rafael before their marriage.

(b) There had been a substantial transfer of funds from the personal bank account of the appellant in Belleville to the joint bank account in Toronto, as much as $2,165.21 perhaps (Exhibits A-1 and A-2).

(c) There was evidence of the separate existence of a $700 bond or certificate.

(d) The appellant had borrowed at least $1,000 from her sister-in- law (Exhibit A-4).

(e) The appellant stated she had retained in the Toronto apartment a substantial sum of money in cash, which had also been deposited for the purchase of the house.

(f) From the above it could be concluded that the appellant’s evidence she had put up the funds for the down payment on the house was credible.

(g) The reason for not having the house in Rafael’s name was given —he had previously been married.

(h) The appellant as well as Rafael had examined the subject property several times before purchase.

(i) Rafael had stated in his evidence that he had signed the original offer to purchase on behalf of the appellant.

(j) There was no evidence that Rua had dealt with anyone but the appellant and the real estate agent in the purchase of the property. (k) The appellant apparently had complete confidence in Rua.

(l) Rua had signed the second and final offer to purchase the property.

With respect to the payments on the first mortgage allegedly made from the joint bank account, since the larger portion was on account of interest or municipal taxes, by counsel’s calculation only a small amount could have been paid off the principal of the mortgage during the time the appellant held the beneficial interest in the house. In the event the Board held there had been a transfer (by virtue of the mortgage payments), then the amount so transferred should not be more than this amount paid on principal.

A major contention of counsel was that, since the appellant had received no wages while employed by Rafael, even an estimate of $200 a week for a period of almost four years more than covered anything which could have been used from the joint bank account for mortgage payments, interest, maintenance or any other expense related to the property.

Turning to the income tax liability, counsel for the appellant argued that the $3,500 in payments (seven payments of $500) made by Rafael prior to April 21, 1976 (the date of the notice of assessment to the appellant) should have been credited to the very oldest (1968) income tax liability, rather than to that of the more recent year (1974) as indicated on Exhibit R-31. This again would make a considerable difference in interest charges in the event the Board found against the appellant but more importantly, it was uncertain which precise date or dates the Minister would rely upon respecting the alleged transfer, and therefore the exact liability of Rafael at any particular point in time was of great consequence to the appellant.

Commenting again on the dearth of reference cases dealing with the income tax liability which can arise from a transfer between spouses, counsel presented to the Board for review the following: Ann McGIaddery v. MNR, 13 Tax ABC 330; 55 DTC 471; Ocean View Development Ltd v MNR, 15 Tax ABC 204; 56 DTC 286; Coleman C Abrahams (No 1) v MNR, [1966] CTC 690; 66 DTC 5451; No. 605 v MNR, 21 Tax ABC 317; 59 DTC 159; Vera C Dickerson v MNR, [1967] Tax ABC 977; 67 DTC 659; Allison Janet Craig v MNR, [1973] CTC 2119; 73 DTC 116.

A particular section extracted from Income Tax Laws of Canada, published by Prentice-Hall of Canada, Ltd in 1977 which dealt with “Discretionary and Quasi-Penal Sections of the Income Tax Act” was also quoted.

Counsel for the respondent in reply contended that none of the reference cases presented gave support to this appellant’s case; that the Minister had assumed and discharged a very substantial onus in bringing forward a great deal of evidence—some even in favour of the appellant; that the lack of co-operation and the vagueness of testimony given by some witnesses supporting the appellant’s position cast serious doubt upon the credibility of such witnesses; and that for any portion of evidence, oral or documentary, which could be viewed as helpful to the appellant’s case, there was an equivalent or greater amount which conflicted with or even contradicted the appellant’s testimony, adding further to the question of credibility.

To the degree that the appellant might rely upon a proposition that the transfer of money (ie, mortgage payments) or that a voluntary transfer as opposed to transfer for consideration (ie, unpaid wages) would be excluded from the application of section 160 of the Act, counsel pointed out that the terminology “property” and ‘directly or indirectly” therein refuted any such argument which counsel for the appellant might raise.

On the alleged “punitive” aspects of section 160, counsel’s position was that it could not be so held, since both parties were liable, “jointly and severally”, for the tax, and this section provided only an alternative method of assessing—in this case assessing the appellant. The appellant’s husband Rafael had no longer rights of appeal; the liability thereunder (now also that of the appellant) was fixed; the Minister is not required to produce documents such as those supporting Rafael’s assessments (to which reference had been made by counsel for the appellant); and the Tax Review Board is not empowered to determine matters wherein the Minister’s discretion has been exercised.

The major issue with regard to the evidence presented to the Board during the hearing must be one of the credibility of the witnesses, according to counsel, and the Board should note the difference in the attitude expressed by the witnesses for the appellant and those giving evidence for the respondent. From the latter the Board received complete and candid information in a serious attempt to arrive at the facts; from the former the evidence was confusing, difficult to elucidate, and often unavailable due to the lack of recollection of salient events by the witnesses. The Board’s attention was drawn to the question of solicitor-client privilege raised by Mr Bennett, and that both Rafael and Rua had refused to provide a waiver of such privilege to that solicitor—a situation which did not assist in providing all the information which might have been of value. Of specific importance, the following facts were noted:

(1) Rafael signed the original offer to purchase (Exhibit R-1).

(2) Rua did not put up the original $1,000 deposit.

(3) Rua had some experience with real estate matters—yet, according to his evidence, he didn’t interest himself too much in the transaction; he trusted his sister.

(4) The evidence on transfers of bank funds to Toronto from Belleville, or the holding of the money at home by the appellant, is contradictory.

(5) No evidence of the “joint bank account”, showing deposits or withdrawals, has been made available.

(6) The $700 bond to which reference was made has not been evidenced.

(7) Even allowing that the appellant might have deposited some funds in the joint account and had certain other moneys, this would not account for the required down-payment.

(8) The “joint account” was just that—signing authority held by both the appellant and Rafael, so if the down-payment came from there, it could not be regarded as all from the appellant’s funds.

(9) The reason advanced that the property would be for the beneficial interest of the appellant and not Rafael (to avoid any possible involvement from Rafael’s first marriage) is not sufficient. There would have been many other ways to avoid such a problem and the real reason might well have been Rafael’s inability to obtain credit clearance due to outstanding third party obligations.

(10) Rafael had shown in connection with separate court actions (Exhibits A-15, A-18 and A-21), and in the memorandum of agreement (Exhibit R-4) that he had a beneficial interest in the property.

(11) The evidence would indicate that Rafael was the intended purchaser of the property originally and that when it was determined he could not obtain credit clearance, he decided to place the property in the name of Rua and that it could not be alleged this gave to the appellant the beneficial interest she now claimed.

(12) The evidence is that now the present home of the Rafaels (a Karen Park, Toronto address) is in the name of the appellant, and the business address of Rafael at 991 Dundas St is also in her name. These two situations suggest a course of events by which assets used and probably owned by Rafael are maintained in the name of the appellant.

A main point presented by counsel for the respondent was that the Minister had not suggested that the appellant did not have some beneficial interest in the property, only that hers was not the sole interest and that there was an interest also held by Rafael. Only an examination of all the evidence could determine the extent of these two interests, but it was the Minister’s contention that Rafael’s interest was not less than 50% and probably more than that. It was for the Board to determine that percentage and give its decision regarding the amount held by Rafael.

With reference to the outstanding income tax liability, the suggestion made by counsel for the appellant that the $3,500 should be credited to an earlier year would not change anything materially. At all times of significance the equity of Rafael in the property was at least equal to the tax liability.

Counsel also contended that the Board should and could take into account any payments made on the Karen Park property subsequent to July 1974, since the evidence showed that such payments probably came from funds controlled by Rafael.

The Minister presently held in trust an amount of $8,488.55 received on behalf of the appellant after April 21, 1976 (the date of the notice of assessment), and this amount, together with the proceeds of whatever equity in the property was held by Rafael (either originally at 894 Fletcher or currently at Karen Park), should go to extinguish the tax liability.

Essentially counsel for the respondent argued that under the circumstances there had been a trust created for the benefit of Rafael by Rua holding the property in his own name. Further, counsel argued that transfers from Rafael to the appellant occurred each and every time any payments on account of the property were made from funds controlled by Rafael. The ownership of Karen Park and the control of residual funds from the sale of the subject property in 1976 resulted from these two factors, and the Board should reconstitute for purposes of elimination of the income tax liability, the equity position of Rafael.

A detailed examination and comparison of liability, assessment, and notice of assessment as they should be applied in income tax law was provided to the Board by counsel for the respondent. This was designed to offset any effort by counsel for the appellant to challenge the basic validity of the tax payable by the appellant at issue in this appeal.

The argument for the Minister had been divided into several areas, as Outlined above, and in support of these, the following references were provided to the Board:

Confidentiality of income tax returns and non-production of documents (subsection 241(3))—Clemens v Clemens Estate, 52 DTC 1128 (Ont SC); MNR et al v Die-Plast Company Limited et al, [1952] CTC 175; 52 DTC 1082 (Que QB); Weber v Pawlik, [1952] CTC 32; 52 DTC 1059; Miles v Miles, [1960] CTC 37; 60 DTC 1035; Helen Gordon McPherson v Alfred Vang, [1967] CTC 39; 67 DTC 5041; /n re Geldart’s Dairies, [1950] CTC 434; 4 DTC 727; Duncan v Cammell Laird & Co, Ltd, [1942] 1 All ER 587.

Assessment process—Pure Spring Company Limited v MNR, [1946] CTC 169 at 198; 2 DTC 844 at 857; Georges Laurin v MNR, [1960] CTC 194; 60 DTC 1143 (Exch.)

Liability for tax—Claude Belle-Isle v MNR, [1966] CTC 85; 66 DTC 5100; MNR v Beatrice Minden, [1962] CTC 79 at 89; 62 DTC 1044 at 1050; In re Carnat Construction Company Limited (1958), 37 CBR 47.

Liability of assessment, irregularity in notice of assessment—Terra Nova Properties Ltd \I MNR, [1967] CTC 82; 67 DTC 5064; Jacob John Morch v MNR, [1949] CTC 250; 4 DTC 649; Northland Utilities Limited v MNR, 12 Tax ABC 321; 55 DTC 181; MNR v United Auto Parts Limited, [1961] CTC 439; 61 DTC 1259.

Minister not bound to produce documents—René Lafleur v MNR, 30 Tax ABC 65; 62 DTC 471.

Parol trusts are enforceable despite the Statute of Frauds—Forster v Hale (1800), 31 ER 603; Rochefoucauld v Boustead, [1897] 1 Ch 196 (CA); Hutchins v Lee; 26 ER 284; McKibbon v Welbanks (1918), 15 OWN 153.

Secret trust—Carter v Green (1857); 69 ER 1245.

Constructive trusts—Taylor v Davies (1917), 41 DLR 510; Cole v Deschambault (1914), 6 OWN 359; Ankcorn v Stewart (1920), 54 DLR 74; St John and Quebec R Co v Bank of British North America and The Hibbard Co (1921), 67 DLR 650; Espin v Pemberton (1859), 44 ER 1380.

Resulting trust, purchase in the name of another—Taylor v Wallbridge (1876), 2 SCR 616, 682; Moore v Clark, [1942] 4 DLR 560.

Gratuitous grant, presumption of advancement, husband and wife— McLeod v Curry, [1923] 4 DLR 100; Ingersoll v Nettleton and Fonagy, [1956] OWN 738.

Re section 160, transfer by delinquent taxpayer to wife—The Queen v Simard-Beaudry Inc et al, 71 DTC 5511; Ann McGIaddery v MNR, 13 Tax ABC 330; 55 DTC 471; Joseph B Dunkelman v MNR, 3 Tax ABC 378; 51 DTC 107; Vera C Dickerson v MNR, [1967] Tax ABC 977; 67 DTC 659; No 605 v MNR, 21 Tax ABC 317; 59 DTC 159.

Transfer, definition—Estate of David Fasken v MNR, [1948] CTC 265; 4 DTC 491; Joseph B Dunkelman v MNR, [1959] CTC 375; 59 DTC 1242; Max Rubenstein v MNR, 39 Tax ABC 7; 65 DTC 494.

Re the requirement of ownership—R O German v MNR, [1957] CTC 291; 57 DTC 1216; Catherine M O'Brien v MNR, 18 Tax ABC 189; 57 DTC 580.

Re the requirement of vesting—Potts’ Executors v Inland Revenue Commissioners, [1951] 1 All ER 76.

Onus of proof—MNR v Pillsbury Holdings Limited, [1964] CTC 294; 64 DTC 5184.

Gifts of the legal or beneficial title fall within subsection 74(1)— George H Bethune v MNR, [1958] CTC 89; 58 DTC 1038; Harry McLaughlin v MNR, [1952] CTC 104; 52 DTC 1074.

Gifts by way of transfer to a trustee fall within subsection 74(1)— John A Meade v MNR, 34 Tax ABC 155; 63 DTC 997-33.

Some of the final comments of counsel for the appellant were on: Ministerial discretion—There had been no issue raised regarding ministerial discretion and it did not seem to enter into this section of the Act—the only question was the necessity for the appellant, in preparing her case, to know precisely the assumptions made by the Minister.

Validity of assessment—The validity of the assessment itself had not been challenged by the appellant (although in counsel’s opinion it might have been). That which had been questioned was the basis of crediting any amounts paid on it (the $3,500).

Credibility of witnesses—Credibility should not be an issue only for the appellant’s witnesses. Everyone had experienced difficulty in recalling or reconstructing events that could shed light on the appeal, and some of the evidence of the witnesses for the respondent had been challenged.

Section 160, another method of assessment.—He could not agree that it was for assessment; in his opinion it was another method of collection, and it was in this light that he saw the punitive characteristics of the section.

Findings

It would indeed be in order to say that this appeal has been complex in several particular ways. It deals with transactions which occurred (or did not occur) years ago; there is little documentary evidence of substance (although there is a great deal of quantity); the appellant’s husband Jose Rafael has been the subject of interest, and continues to be, from various aspects of government/business involvement, including that of income tax; three of the main parties (the appellant, Rafael and Rua) were the subjects or originators of conflicting and competing court actions flowing from the property; the appellant and Rafael commenced, and apparently ceased, during the same time frame as the above-noted court actions, separate efforts at divorce or separation; one court action included attempts by the appellant to obtain alleged unpaid wages from Rafael; the various business activities of Rafael seem to have been either sold or wound up, until now according to the evidence, neither he nor the appellant have any funds or sources of income; the present residence of the appellant and Rafael and their 5-year old son is in Karen Park and it is encum- bered by three mortgages in addition to some income tax lien in connection with the tax liability at issue here (it is probably totally encumbered up to or well in excess of its current value); and of course the subject property itself in this appeal was never at any time held in the name or names of either the appellant or Rafael. This has not provided a very stable base from which to review the matter and, as noted earlier, it has not been a simple task for either party, particularly when it is recognized that the thrust of the appeal—against the application of section 160 of the Act—is in itself of a rather unusual and untried nature. To the degree therefore that the Board has taken the course of summarizing evidence and argument, it has been in the interest of as much brevity as possible, while attempting to provide reasonable coverage.

The matter, in my view, breaks down into three general areas which may be posed as questions:

(1) Does the assessment fall within the parameters of section 160 of the Act, and is it supported against the appellant?

(2) Was there a transfer of property from Rafael to the appellant?

(3) Did Rafael have at any time a beneficial interest in the property?

It would appear that question (1) has raised in the eyes of counsel for the appellant the spectre of the punitive characteristics of section 160, and has at the same time been the cause of a major portion of the argument of counsel for the respondent. Taken in its simplest form, the position of the respondent on this point is that this appellant (Maria Isabel Fernandez Rafael) has no right in her appeal to determine or have determined the basis, not just the calculation, of the income tax liability of her husband Jose Rafael—the genesis of this issue before the Board. While it is indeed an intriguing question, counsel for the appellant did not press this specific issue but more importantly in the opinion of the Board, the crux of this particular appeal rests elsewhere.

Question (2) leads to an examination of the basis by which any alleged transfer could have taken place. Counsel for the appellant essentially disregarded this factor, resting his case upon the beneficial interest of the appellant alone in the property. Counsel for the respondent asserted that a series of transfers took place, particularly at the times and dates when mortgage payments were made. At the same time, counsel conceded that the appellant had some beneficial interest (presumably resulting from a contribution to the down payment) but urged upon the Board, as I followed it, that the totality. of all the various payments (mortgage, etc) should be determined as that which Rafael had transferred to the appellant—albeit while the property in question was being held in trust by Rua. It was not perfectly clear to me whether this should mean that Rafael transferred money (the various actual payments made) to the appellant, or that by making the payments (extent he so did), to whatever he developed thereby an equity in the property which was by virtue of subsequent events (the foreclosure and sale) transferred to the appellant. While some of the case law presented by counsel might support the view that in either eventuality (or indeed both) a transfer took place—it could well be that the transfer(s) could be at different times, depending on whether the property involved was the funds or the equity. This was a significant point at issue in the mind of counsel for the appellant— in effect, while not conceding that any transfer took place (because Rafael had no equity), the precise date and amount of any alleged transfer was important in determining if any liability existed for the appellant.

Leaving aside for the moment the mortgage payments, etc, the Board should like to address the position taken in argument by counsel for the respondent—“that the Minister has never denied that the appellant held some beneficial interest in the property’’. While this was put forward by counsel as simply a recognition and acceptance by the Minister of the facts as they arose at the hearing, it does go to the very root of the question at stake in this appeal, a point more and more frequently raised by appellants—that is the responsibility which the appellant accepts when appealing an assessment. It is certainly a fundamental precept upon which this Board functions that no constraints may be placed upon the Minister in putting forward the basis of an assessment—and sometimes these vary substantially from the abbreviated explanations originally provided to the taxpayer. In the instant case, counsel for the respondent has urged the Board to disregard the July 1, 1974 fixed transfer date in the notice of assessment in favour of the facts or assumptions found in the reply to notice of appeal. In my view, from that perspective counsel’s position is sound—and the Board agrees that the thrust of the appellant’s effort must be against the assumptions detailed in the reply to notice of appeal. However, I am unable to see how the first and main assumption therein can be equated with the position now taken by counsel. That assumption was: “the property was purchased for $45,900.00 by the appellant’s husband . . .”

I can only interpret the above to mean, in the simplest language, that the beneficial interest in the property rested with Rafael, not the appellant. That is inconsistent, in my opinion, with the position now accepted by counsel that the appellant held some beneficial interest in the property. In a later part of his argument, counsel proposed that the Board make some determination of the proportionate equity of the two parties—it being asserted by the respondent that the appellant could not have put up all the original funds for the down payment and, since these apparenty came from the “joint account”, some of the down payment money must have belonged to Rafael. The Board respectfully declines the invitation to assess the source of the original funds—the down-payment—since it has been established, apparently to the respondent’s satisfaction, that the appellant de- posited at least some funds in the joint account, and there is the assertion that she deposited sufficient funds for the total down payment. The thrust of the Minister’s primary assumption here has been met—the property was not “purchased . . . by the appellant’s husband”. At the very least, it was purchased by both the appellant and her husband. Neither the appellant nor the Board should now be faced with the new responsibility of proving or determining whether the appellant put up all the down payment or merely a part of it. In my view, the requirement shifts to the respondent to show that any of the funds for the down payment (or a portion of the funds) belonged to Rafael.

It must then be assumed, to dispose of question (3) earlier, that at the date of purchase (on or about June 22, 1970) the beneficial interest in the property was held by the appellant while title was in the name of her brother Rua. In reaching this conclusion, the Board is fully conscious of the salient points in the evidence which might lead to a determination that the property was held at that date “in common” or “jointly” rather than solely by the appellant—but since the appellant has refuted the Minister’s original assumption and the three most interested parties (the appellant, Rafael and Rua) all gave sworn testimony that the beneficial interest was for her alone, the Board takes that position:

The evidence supports the second and third assumptions of the Minister—but these are not decisive of the matter.

The Minister’s fourth assumption brings the Board back to the question of transfers, and having already disposed above of any allegation of “transfer” in the down payment, the only remaining point to be considered is whether the payments made directly or indirectly by Rafael constituted “a transfer of property”. I am not impressed by the view that since the property cost $45,900 in 1970 and was sold for $86,000 in 1976, the alleged equity of Rafael should in some way take into account this dramatic increase in value. First, there is no evidence that such a great change in the value of the property had occurred by July 1974, although it could be reasonably concluded that some such accretion had been experienced. At a minimum, it would be necessary, if any values other than original cost and known encumbrances were to be considered at that date, to provide adequate real estate valuations, considering that mortgage foreclosure proceedings were being conducted and clear title to the property (including beneficial interest) was at least somewhat in doubt. This was not done, and the Board is therefore faced with the factual information that in July 1974, the mortgage principal was $43,435.29 (Exhibit R-15), in addition to which there would have been accrued interest and municipal taxes. As at the date of purchase, the similar outstanding obligation would have been $41,400 (Exhibit A-8). It is difficult to reach the conclusion that any. equity had been developed by anyone in the property under these circumstances.

To further conclude that such an “equity” was transferred from Rafael to the appellant does not follow logically. Turning therefore to the only other possibility remaining to the respondent—that the “property” transferred was indeed the money used to pay the house obligations, particularly the mortgage commitments—the Board faces essentially the same question. It is taken for granted that the Minister is not proposing that payments made by a husband in fulfillment of his obligations to provide food, shelter and clothing for his family, whether made directly or indirectly, without any accumulation of assets or equity, should be regarded as “transfer of property” under section 160. Counsel for the appellant put forward rather tenuously that such payments made by Rafael might be regarded as on account of wages owing to the appellant by Rafael, or as gifts to her. I am not impressed by the merit of either of these propositions and suggest that the Minister’s assumptions fails on a different ground—simply that there was no asset transferred, there were only expenditures and obligations met, or more properly not met but allowed to accumulate. The fact that the payments for shelter were through a mortgage obligation to Rua, who was holding in trust a property for the appellant, does not seem to me to be pertinent in itself.

The series of transactions examined in this appeal shows that some funds which might have been applied by Rafael against an income tax liability have been used instead in payment of mortgage obligations on a property owned by his wife. The evidence, however, does not support a conclusion that there was a transfer of property since there was no equity held by Rafael in the property at the date of purchase, he did not develop any equity therein by virtue of the above-noted mortgage payments, nor were assets in any other form dedicated from his proprietorship to that of the appellant during the years material.

Decision

The appeal is allowed and the matter referred back to the respondent for reassessment accordingly.

Appeal allowed.