Simon Wong v. Her Majesty the Queen, [1996] 1 CTC 2655 (Informal Procedure)

Teskey J.T.C.C.: The appellant elected to have his appeals heard pursuant to the informal procedure in his Notice of Appeal, wherein he appeals his assessment of income tax for the years 1991 and 1992.

Issue

The sole issue is whether the appellant was the beneficial owner of shares representing a 40 per cent interest in 2523400 Manitoba Limited, carrying on business as Winnipeg HiFi (“HiFi”).

Facts

The appellant in 1990 was a 22 year old university student in Winnipeg. His family lives in Trinidad, where his father has a business and where he grew up. At the relevant times, his brother was a resident of Trinidad.

An arrangement was made in 1990 that a 40 per cent interest in HiFi would be purchased for $40,000.

The appellant’s father advanced the necessary funds to the appellant and placed it in his bank account. The appellant and his brother attended before a solicitor in Winnipeg who oversaw the share purchase.

The solicitor attended and gave evidence on behalf of the appellant. From his evidence, it is obvious no trust arrangement was discussed and if it had been a trust, an agreement would have been prepared.

A written agreement to purchase the shares in HiFi was duly executed by the brother and the shares were duly transferred to him, all in proper form. Using the money that the father had advanced to him, the appellant put up the $40,000.

The appellant then became an employee.

The solicitor said that if the brother alleged that the shares were held by him in trust for the appellant, it would not surprise him.

The appellant guaranteed HiFi loans from the Canadian Imperial Bank of Commerce (the “C.I.B.C.”) at the following times in the following amounts:

Aug. 22, 1990: $20,000.00

Oct. 26, 1990: $10,000.00

Feb. 11, 1991: $39,167.58

Total: $69,167.58

The C.I.B.C. called in these loans and realized from a seizure of assets the sum of $27,457.06 and the appellant paid up the shortfall on his guarantee to the Bank, again with funds supplied by the father.

The store was closed in February 1991 and the shares became worthless.

Sometime immediately prior to March 31, 1992, when the appellant signed his 1991 TI tax return, which was prepared by his Chartered Accountant (the “C.A.”), he had a discussion with the C.A. as to his losses. The C.A. advised that if the shares were in fact held by the brother in trust for the appellant, he could claim the loss arising from the purchase of the shares in HiFi in his T1 Tax return. This the appellant did.

In October of 1993, Revenue Canada enquired about this loss. As a result of this, the brother signed a statutory declaration in January of 1994.

After a lengthy discussion on the admissibility of this as an exhibit, and offering to adjourn the appeal so that the brother could attend, with the knowledge that the airfare was approximately $1,700.00, and the tax in dispute was only approximately $2,000.00, the Respondent did not object to the statutory declaration being made as an exhibit. The appellant preferred to file the statutory declaration as an exhibit rather than adjourn the trial and have the brother attend here in Canada. The statutory declaration became Exhibit A-1.

The only other piece of evidence at all germane to the issue is a short handwritten note from the brother to the appellant when the first bank draft was forwarded to him. It reads:

Simon, please deposit the cheque into A/C pay Richard $25,000. For now, get all documents for you to carry to lawyer - (1) Salary stipulation, equipment list and Sr#’s.

At present, the appellant is a well educated, respected employee of the Toronto Dominion Bank, holding down a responsible job therein.

His evidence is to the effect that his family is a very close one. His brother was older and more experienced. He says that he was not really aware that the shares were not going into his name, but he was aware of it as they were issued.

He says it was understood the he was the one involved, he had the employment at HiFi. He made the necessary decisions as a 40 per cent owner of Hifi and he was the one who personally guaranteed the HiFi loan from the C.I.B.C. and that he considered himself the beneficial owner of the shares in HiFi.

Analysis

A recent decision of Rothstein J. of the Federal Court-Trial Division, of Holizki v. R (sub nom. Holizki v. Canada, [1995] 2 C.T.C. 420, 95 D.T.C. 5591 (F.C.T.D.) reviewed the law concerning resulting trust. He said therein:

A resulting trust is concerned with intention (as opposed to a constructive trust which is imposed as a matter of equity by a court irrespective of the intention of the parties). In Rathwell v. Rathwell, [1978] 2 S.C.R. 436, [1978] 2 W.W.R. 101, 83 D.L.R. (3d) 289, at page 451 (W.W.R. 110; D.L.R. 303-4), Dickson J. (as he then was) explains, in the context of matrimonial property, when the doctrine of resulting trust is engaged:

If at the dissolution of a marriage one spouse alone holds title to property, it is relevant for the Court to ask whether or not there was a common intention, or agreement, that the other spouse was to take a beneficial interest in the property and, if so, what interest? Such agreements, as I have indicated, can rarely be evidenced concretely. It is relevant and necessary for the Courts to look to the facts and circumstances surrounding the acquisition, or improvement, of the property. If the wife without title has contributed, directly or indirectly, in money or money’s worth, to acquisition or improvement, the doctrine of resulting trusts is engaged. An interest in the property is presumed to result to the one advancing the purchase moneys or part of the purchase moneys.

The presumption of a resulting trust is sometimes explained as the fact of contribution evidencing an agreement; it has also been explained as a constructive agreement. All of this is settled law: Murdoch v. Murdoch, supra; Gissing v. Gissing, supra; Pettitt v. Pettitt, supra. The courts are looking for a common intention manifested by acts or words that property is acquired as a trustee.

As to the extent of the interest of the beneficiary of the resulting trust when there is no evidence about the exact amount of the beneficial interest, Dickson J. stated at page 304 (D.T.C. 5593)

If there is a contribution in money or money’s worth but absence of evidence of an agreement or common intention as to the quantum of the interest, doubts may arise as to the extent of the share of each spouse in the property. Lord Reid, in Pettitt’s case, supra, at page 794, said that the respective shares might be determined in this manner: you ask what reasonable people in the shoes of the spouses would have agreed if they had directed their minds to the question of what claim the contributing spouse ought to have”. This is a sensible solution and I would adopt it.

At pages 307-8 (D.T.C. 5593), Dickson J. in addressing whether the doctrine of resulting trust applied to business property as well as matrimonial property, concluded that there was no reason in principle why a wife should not, in a proper case, share in the proceeds of business property, whence the couple operated the property as “one family unit...”

À resulting trust is not possible where the imputation of intention is impossible or unreasonable or where the conduct of the parties is wholly ambiguous. See Pettkus v. Becker, [1980] 2 S.C.R. 834, 117 D.L.R. (3d) 257, 34 N.R. 384 at page 844 (D.L.R. 270-71 ; N.R. 393). That is not the case here.

..Accordingly, I consider that the payment was superfluous. Maureen already beneficially owned the property that was being legally transferred to her. The fact that she paid for it twice is of no consequence.

I have taken account of Dickson’s J. admonition in Pettkus, supra, that a resulting trust is not available where the imputation of intention is impossible or unreasonable or where conduct is wholly ambiguous.

Also, I was referred to my own decision in Kirkland v. R. (sub nom. Kirkland v. Canada), [1993] 2 C.T.C. 2966, 93 D.T.C. 1220 (T.C.C.), where I referred to the decision of my colleague Rip as to five questions I must answer, namely:

1. Is the claim supported by probability?

2. Is it supported by writing in any form?

3. Is it supported by any indisputable facts?

4. Is it supported by disinterested testimony?

5. Is the parol evidence quite satisfactory and convincing?

In this appeal, the answer to questions 2 and 4 is in the negative.

In regard to questions 1 and 3, there are facts that could make the answers go either way. There was really no valid reason for the shares being placed in the brother’s name. The father was putting up the money, the family was close and the appellant was the head of the Winnipeg family as he had his two younger sisters living with him at the time. The guaranteeing by the appellant of $69,167.58 of loans to HiFi by the C.I.B.C. certainly would demonstrate a proprietary interest in HiFi. On the other hand, I can speculate that the brother’s guarantee, as a resident of Trinidad, would not have been acceptable to the C.I.B.C. Therefore the appellant signed the guarantee to protect his brother’s interest in HiFi and his job. Also, it must have been quite evident early on after the purchase that HiFi had deep problems and the share ownership was really not important. The ownership only became important when the appellant’s T1 Tax return was being prepared in March of 1992, a year after the shares became worthless.

In regard to the evidence of the appellant, it is quite convincing, subject to the explanation of the reason for the trust.

The statutory declaration of the brother states as the reason for the alleged trust in paragraphs 3 and 4, which read:

3. That the said shares are being held in trust for Simon (the appellant) the said Simon being my younger brother, while he is attending university;

and

4. That the said shares will be handed over to the said Simon Wong on completion of his studies at the university.

I cannot accept this as a reasonable explanation. The share transfer was completed after the university year was completed (June or July of 1990). The appellant was 22 years of age and immediately took a full-time job with HiFi.

Under all the circumstances herein, and taking into account Dickson J.’s admonition in Pettkus (supra) that a resulting trust is not available where the imputation of intention is impossible or unreasonable, or where conduct is wholly ambiguous, I am not satisfied that the brother held the shares in trust for the appellant.

The appeals are dismissed.

Appeals dismissed.