Citation: 2012 TCC 367
Date: 20121018
Docket: 2010-862(IT)G
BETWEEN:
DANIELLE LEMIRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1]
This is an appeal from
an assessment made under section 160 of the Income Tax Act
(ITA). In order to explain and justify the assessment, the respondent relied on
the following assumptions of fact:
[translation]
14. In
making the assessment in issue, the Minister relied on the following facts:
(a)
Throughout the period in issue (1997 through
2001), Mr. Dupuis was the appellant’s “common-law partner” within the meaning
of subsection 248(1) of the ITA.
(b)
At the time the assessment in issue was made,
Mr. Dupuis remained liable to pay the following amounts under the ITA in
respect of the taxation years 1994 through 2001:
|
Year
|
Tax liability
(tax, penalties and interest)
|
|
1994
|
$18,436.79
|
|
1995
|
$33,951.58
|
|
1996
|
$17,694.35
|
|
1997
|
$38,296.13
|
|
1998
|
$41,328.32
|
|
1999
|
$49,247.28
|
|
2000
|
$45,254.82
|
|
2001
|
$35,275.54
|
|
Total
|
$279,484.81
|
(c)
During the years 1997 through 2001, Mr. Dupuis deposited
the following amounts into the account (EOP folio number 18965 ) that the appellant held at the Caisse
populaire de Chambly (the Deposits):
|
Year
|
Total amount deposited
|
|
1997
|
$104,991.30
|
|
1998
|
$134,739.36
|
|
1999
|
$146,458.18
|
|
2000
|
$154,491.89
|
|
2001
|
$145,821.31
|
|
Total
|
$686,502.04
|
(d)
The appellant gave no consideration for the
Deposits.
(e)
Mr. Dupuis was a chartered accountant during the
relevant period.
(f)
Mr. Dupuis declared bankruptcy a first time on
or about March 12, 1993.
(g)
Mr. Dupuis declared bankruptcy a second time on
July 5, 2007.
15. In support of the assessment in issue, the Deputy Attorney General
of Canada adds the following facts.
(a)
The appellant and Mr. Dupuis acted in concert
with respect to the Deposits.
(b)
As mentioned in paragraph 5 of this Reply, in a
letter written to Franca Timpano, appeals officer with the Canada Revenue
Agency, the representative in the appellant’s matter admitted that the appellant
and Mr. Dupuis were “common-law partners” during the relevant period.
The following facts emerge from the evidence:
[2]
Dupuis was an
accountant and the appellant was a nurse.
[3]
After they met in 1993,
a bond of friendship and trust developed between Dupuis and the appellant. During
the period from 1997 through 2001, they even had a “long-term relationship” in
which Dupuis resided at the appellant’s home from time to time. Indeed, Dupuis
acknowledges signing a lease in which he gave the same address as the appellant’s.
[4]
During the relevant
period, Dupuis owed substantial amounts under the ITA with respect to the
taxation years 1994 through 2001. According to the Minister, Dupuis’ total
liability was $279,484.81 at that time.
[5]
Because of his
financial problems, Dupuis had trouble cashing his cheques at the relevant time;
the bank held cheques for a long time before freeing up the funds.
[6]
These delays made it
difficult for Dupuis to manage his accounting practice, so he turned to the appellant
and asked her to negotiate certain endorsed cheques by clearing them through
her personal account.
[7]
The appellant was
willing to help and agreed to do so. Therefore, throughout the relevant period,
she went to the automated teller machine, deposited the cheques, and withdrew
the amount or amounts equal to the cheques, which she remitted to Dupuis.
[8]
As a general rule, the
amounts obtained after the cheque deposits were registered directly in the appellant’s
personal bank account and then withdrawn in full the same day.
[9]
On rare occasions, the
amounts remained in the appellant’s bank account for a few days. Sometimes, Dupuis
expressly asked her to use some of the deposited funds to pay herself back for
small disbursements that she had had to make. However, this was a very marginal
portion of the total amounts deposited by the appellant. Moreover, they were
essentially expenditures made at Dupuis’ request, such as tickets for shows,
hockey games, etc.
[10]
There was no written
agreement between the appellant and Dupuis. However, things were very
straightforward. The appellant negotiated the cheques for cash, which she
promptly handed to Dupuis. The only exceptions involved small expenditures made
by the appellant at Dupuis’ express request.
[11]
Dupuis never told the appellant
about his financial problems, let alone his tax debts.
[12]
During an audit by
Revenu Québec in 2002, when told about the risks inherent in such a practice,
the appellant immediately stopped changing cheques on Dupuis’ behalf.
[13]
The deposits were
clearly identified by a special and distinctive code. So were the withdrawals.
This characteristic was clearly shown. The following excerpt from the appellant’s
testimony attests to this.
[translation]
. . .
A. My
name is Danielle Lemire.
Q. Now,
Ms. Lemire, there are annotations in this booklet. Sometimes a capital “A”
appears, and at other times, there are names like Canadian Tire, Hydro and
Videotron.
A. Mm-hm.
Q. Who
made these notes in your deposit book?
A. Me.
Q. Pardon?
A. It
was always me.
Q. What
do the capital A’s mean, Ms. Lemire?
A. They
stand for Albert.
Q. For
Mr. Albert Dupuis?
A. That’s
right.
Q. Okay
Ms. Lemire, I handed you the binder which is reproduced. If you go to the first
page 3 of the document, for the period concerned, which is 1997, the code “DGA”
for automated teller deposit (“dépôt au guichet automatique”) appears
for January 6 and the amount is $500.
A. Yes.
Q. You
wrote “A”.
A. Mm-hm.
Q. And
the same day, you wrote “RGA”. What’s written is
“Automated
teller withdrawal (Retrait au guichet automatique), $500” -- As read
Q. What
does that stand for, Ms. Lemire?
A. It
meant that I deposited the cheque, withdrew it right away, and gave him the
money.
Q. If
I turn to page 4, the first page 4, you see January 7?
A. Yes.
Q. $800.
A. Mm-hm.
Q. And
you can see...
HIS HONOUR: $800, because you’re adding the two
deposits there?
Mr. FOURNIER: No, it’s a deposit… If you look, your
Honour, the $800---
HIS HONOUR: Oh, no! Okay.
Mr. FOURNIER: ---the DGA is the deposit.
HIS
HONOUR: Okay. I see. And then $300, plus $500, were withdrawn.
Q. Is
that correct?
A. Yes,
that’s right.
Q. I’m
moving ahead now. On January 14, there’s a deposit of $1,000.
A. Mm-hm.
Q. You
have two withdrawals on the same day?
A. Yes,
that’s right.
Q. Now
on January 14, you have a $1,000 deposit and two $500 withdrawals.
A. Mm-hm.
Q. On
January 15, a $122 deposit and a $120 withdrawal, is that correct?
A. Yes.
Q. Can
you explain to me again how that worked? When you see a deposit, you were
depositing a cheque for Mr. Dupuis?
A. Yes.
And I always withdrew the money right away and gave it to him. Quite simply. I
was always the one who went to the Caisse. It was my card.
Q. Did
it sometimes happen, Ms. Lemire, that the amounts were not remitted
immediately, but were kept for a certain time, a certain number of days?
A. Yes,
and that was at his request.
Q. Could
you explain what you mean by “at his request”, Ms. Lemire?
A. Okay.
Sometimes I put things on my Visa card, like a theatre reservation, a
reservation for a play, and to pay me back, he told me: . . .
. .
.
Q. On
the same day, you have two withdrawals?
A. Yes,
that’s right.
Q. And
on January 14, you have a $1,000 deposit and two $500 withdrawals.
. .
.
[14]
It was also shown, on a
balance of probabilities, that the deposits were subject to clear and precise
instructions that the appellant followed to the letter:
[translation]
. .
.
A. So
he asked me if I could help him out by changing his cheque.
Q. When
you say changing his cheque, what do you mean?
A. I
went to the machine, I changed it and I gave him the money right away. Well,
right away… as soon as I saw him again.
Q. But
how did you withdraw it?
A. At
the machine, completely.
Q. How
would it happen? He would give you the cheque, say, on Monday afternoon?
A. Yes,
he would sign it. He would endorse it. He would ask me if I could do him that
favour and the next time I saw him, I gave him the money. In fact, I took note
of it each time in my deposit book.
. .
.
. .
.
Q. That
was the agreement you had with him?
A. Yes,
that’s right.
Q. Ms.
Lemire, did you use, for personal reasons, any portion whatsoever of the
amounts or the cheques that you cashed for Mr. Dupuis?
A. Never.
Q. Ms.
Lemire, you put an end to this accommodation for Mr. Dupuis in 2002. Can you
give us the background for that?
A. Revenu
Québec questioned me. I don’t know if that’s the right way of saying that. They
looked at all that, they met with me, and Mr. Dupuis too — both of us — and they told me that if I wanted to avoid problems, I should stop
that, and I never changed a single cheque for Mr. Dupuis again.
Q. During
the ten years, or, roughly, let’s say the seven years that you had a special
relationship, to suggest a word that avoids confusion, did you have discussions
with Mr. Dupuis regarding his financial situation?
A. I
had absolutely no idea about it. We didn’t talk about money.
Q. You
weren’t interested in knowing his financial situation?
A. I
was never the questioning type about the subject. I trusted him.
Q. Just
to go back a little, Ms. Lemire, wherever there’s an “A” next to “DGA” in
Exhibit A-2, the book in front of you, it means you deposited a cheque payable to
Mr. Dupuis?
A. Yes.
Q. And
where the entry “RGA” appears, it’s an automated teller withdrawal, and where
there’s an “A” next to it, it means you gave the money to Mr. Dupuis?
A. Exactly.
Q. Were
there limits on the amounts that you could withdraw from the automated teller
machine during the years ’97 to 2001? Per day or per transaction, Ms. Lemire?
A. Per
day, I believe… That’s far back; that’s many years ago, but it seems to me it
was $1,000. But that’s far back.
Q. And
per transaction, per visit?
A. Per
visit? A visit, that’s it, that’s $1,000, I imagine.
Q. It’s
because I’m trying to understand why, when there’s an $800 cheque, there’s a
$500 withdrawal and a $300 withdrawal on the same day in your booklet.
A. Because,
if I deposited $800, I withdrew $800.
Q. But
why didn’t you withdraw $800 in one shot? Why does the book say…
A. Oh!
No, it’s because you can’t do that at the machine. I think that in those years,
you couldn’t put $800. That’s why it was $500 and then $300. That’s far back,
it’s 15 years ago.
Q. Mm-hm.
A. I
don’t think you could put $800, or else I would have done that.
. .
.
[15]
A few cases concerning
assessments made under section 160 of the ITA were rendered very recently:
(1) Stéphanie Lapierre
v. Her Majesty the Queen, docket 2010-1542(IT)G, Justice Angers,
September 11, 2012.
(2) Sylvia Imola
Bragg-Smith v. Her Majesty the Queen, docket 2009‑3124(IT)G,
Justice Hogan, July 12, 2012.
(3) 9101-2310 Québec
Inc. v. Her Majesty the Queen, docket 2009‑2880(IT)G,
Justice Archambault, October 2012.
[16]
These new cases hold
that a transfer of property contemplated by section 160 that is simultaneously
subject to precise obligations as part of a specific mandate related to the
property in question does not constitute a transfer within the meaning of
section 160 of the Act.
[17]
In other words, if, as
part of a mandate, a transfer of property referred to in the notice of
assessment is subject to clear and precise conditions agreed to by the two
parties, the transfer does not have the effect of impoverishing the
transferor’s patrimony or enriching the transferee’s patrimony, and therefore
cannot be caught by an assessment under section 160 of the ITA.
Applicable law
[18]
Subsection 160(1) of
the ITA reads:
160.
(1) Where a person has, on or after May 1, 1951,
transferred property, either directly or indirectly, by means of a trust or by
any other means whatever, to
(a)
the person’s spouse or common-law partner or a person who has since become the
person’s spouse or common-law partner,
(b)
a person who was under 18 years of age, or
(c)
a person with whom the person was not dealing at arm’s length,
the
following rules apply:
(d)
the transferee and transferor are jointly and severally liable to pay a part of
the transferor’s tax under this Part for each taxation year equal to the amount
by which the tax for the year is greater than it would have been if it were not
for the operation of sections 74.1 to 75.1 of this Act and section
74 of the Income Tax Act, chapter 148 of the Revised Statutes
of Canada, 1952, in respect of any income from, or gain from the disposition
of, the property so transferred or property substituted therefor, and
(e)
the transferee and transferor are jointly and severally liable to pay under this
Act an amount equal to the lesser of
(i)
the amount, if any, by which the fair market value of the property at the time
it was transferred exceeds the fair market value at that time of the
consideration given for the property, and
(ii)
the total of all amounts each of which is an amount that the transferor is
liable to pay under this Act in or in respect of the taxation year in which the
property was transferred or any preceding taxation year,
but
nothing in this subsection shall be deemed to limit the liability of the
transferor under any other provision of this Act.
[19]
As the Federal Court of
Appeal (FCA) stated in Canada v. Livingston, 2008 FCA 89, the application
of subsection 160(1) is subject to the following four conditions:
(1)
The transferor must be liable to pay tax under the Act at the time of transfer.
(2)
There must be a transfer of property, either directly or indirectly, by
means of a trust or by any other means whatever.
(3)
The transferee must either be
i.
the transferor’s spouse or common-law partner at the time of transfer or a
person who has since become the person’s spouse or common-law partner;
ii.
a person who was under 18 years of age at the time of transfer; or
iii.
a person with whom the transferor was not dealing at arm’s length.
(4)
The fair market value of the property transferred must exceed the fair market
value of the consideration given by the transferee.
The concept of transfer
[20]
The concept of transfer
was applied very strictly by the FCA in Livingston, supra.
[21]
Before the Federal
Court of Appeal, Ms. Livingston argued that there had been no transfer, because
the transferor did not part with the funds deposited into the account,
The FCA rejected this argument and held that a deposit made by one person
into another person’s bank account constitutes a transfer within the meaning of
subsection 160(1):
21 The deposit of funds into another person’s
account constitutes a transfer of property. To make the point more
emphatically, the deposit of funds by Ms. Davies into the account of the
respondent permitted the respondent to withdraw those funds herself anytime.
The property transferred was the right to require the bank to release all
the funds to the respondent. The value of the right was the total value of
the funds.
22 In addition, there is a transfer of
property for the purposes of section 160 even when beneficial ownership has not
been transferred. Subsection 160(1) applies to any transfer of property – “by
means of a trust or by any other means whatever”. Thus, subsection 160(1)
categorizes a transfer to a trust as a transfer of property. Certainly, even
where the transferor is the beneficiary under the trust, nevertheless, legal
title has been transferred to the trustee. Obviously, this constitutes a transfer
of property for the purposes of subsection 160(1) which, after all, is
designed, inter alia, to prevent the transferor from hiding
his or her assets, including behind the veil of a trust, in order to prevent
the CRA from attaching the asset. Therefore it is unnecessary to consider the
respondent’s argument that beneficial title to the funds remained with Ms.
Davies.
23 The respondent cites the Tax Court of Canada’s
decision in Leblanc v. The Queen 99 DTC 410
(T.C.C.). In that case, Tax Court Justice Hamlyn found that following a deposit
into a jointly held bank account the property did not vest in or pass to the
wife as the wife was acting as agent for her ill husband. That finding in and
of itself is suspect: there was certainly a transfer of property. Because
Justice Hamlyn concluded that there was no transfer of property, he did not
consider whether the wife had provided consideration.
[22]
Thus, the Livingston case seems to overrule a well settled line of cases standing for the
proposition that there is no transfer where a mandate or agency between the
transferor and the transferee exists.
[23]
Since it is the
keystone of a remedy under section 160 of the ITA, it is of course important to
specify the scope of the concept of “transfer” as used in that provision. It
should be noted that the term “transfer” is not defined in the ITA.
[24]
As a starting point,
numerous cases regarding the application of section 160 of the ITA cite Fasken
Estate v. Minister of National Revenue, [1948] Ex. C.R. 580,
where President Thorsen of the Exchequer Court stated at paragraph 12:
[FRENCH TRANSLATION]
Le
mot “transfert” n’est pas un terme technique et n'a pas de sens technique. Il n’est
pas nécessaire qu'un transfert de biens d'un mari à sa femme revête une forme
particulière ou qu'il soit fait directement. Il suffit que le mari se
départisse [sic] des biens en faveur de sa femme, c'est-à-dire qu'il lui
cède les biens. Le moyen par lequel il parvient à ce résultat, que ce soit
directement ou indirectement, peut à juste titre être appelé un transfert. ...
[25]
The original English
version of this passage is even more telling:
. .
. 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. . . .
[Emphasis added.]
[26]
In St. Aubyn v.
Attorney-General, [1952] A.C. 15, Lord Radcliffe circumscribed the concept
of “transfer” in a manner very similar to President Thorsen when he wrote:
If
the word ‘transfer’ is taken in its primary sense, a person makes a transfer of
property to another person if he does the act or executes the instrument which
divests him of the property and at the same time vests it in that other person.
(page 53)
[27]
Another relevant case concerning
the concept of transfer is Dunkelman v. Minister of National
Revenue (1959), 59 D.T.C. 1242 (Can. Ex. Ct.), also decided by the
Exchequer Court of Canada. There, as in Fasken Estate, supra, the
issue to be determined was whether the attribution rules were applicable. However, Dunkelman
also raised the issue of whether a loan to a trust constituted a transfer for
the purposes of subsection 22(1) of the ITA. After citing St. Aubyn, supra,
Justice Thurlow stated as follows at paragraph 11:
The
expression “has transferred” in Section 22(1) has, in my opinion, a similar
meaning. All that is necessary is that the taxpayer shall have so dealt with
property belonging to him as to divest himself of it and vest it in a person
under 19 years of age. The means adopted in any particular case to transfer
property are of no importance, as it seems clear that the intention of the
subsection is to hold the transferor liable for tax on income from property
transferred or on property substituted therefor, no matter what means may have
been adopted to accomplish the transfer. Nor is the scope of the provision
affected or qualified by expressions such as “as if the transfer had not been
made”, which appeared in the corresponding section of the Income War Tax Act.
Vide McLaughlin v. Minister of National Revenue, [1952]
Ex. C.R. 225, [1952] C.T.C. 104. On the other hand, it is also clear that the
subject matter of a transfer that is within the section must be property of the
transferor, not that of some other person, and if the subsection is to
apply, such property must have been vested by him in a person under 19 years of
age.
[Emphasis added.]
[28]
The doctrine
of the Exchequer Court of Canada in Fasken Estate, supra, have been applied by the Tax Court of
Canada, notably in Raphael v. The Queen, [2000] 4 C.T.C. 2620,
affirmed [2002] 2 C.T.C. 75 (F.C.A.). In addition, see the
decision of the Federal Court of Appeal in Medland v. Canada, [1999]
4 C.T.C. 293.
[29]
The remarks of
President Thorsen were also cited with approval by Justice Archambault in Tétrault v. The
Queen, [2004] 4 C.T.C. 2234, where, after providing a
particularly thorough overview of the relevant case law concerning the concept
of “transfer” used in subsection 160(1) of the ITA, he added as follows at
paragraph 39:
The Fasken and Dunkelman decisions
indicate, in my opinion, that in order for there to be a transfer of property
for the purposes of the attribution rules, it is essential that the transferor
be divested of his ownership and that the property has vested in the transferee.
The mere possession of a property that has been loaned with the obligation
to return it does not satisfy this condition. That, I think, is the meaning
that must be given to the expression “pass the property from himself to
her”. That is also the appropriate interpretation of subsection
160(1) of the Act. . .
[Emphasis
added.]
[30]
Thus, it appears that,
under the doctrine propounded in Fasken, St. Aubyn and Dunkelman
that in order for there to be a transfer of property for the purposes of the
attribution rules, it is indispensable that the transferor relinquish his
ownership and that the property pass to the transferee. Mere possession of
property does not satisfy this condition because a transfer “is a juridical act
the consequence of which is the transfer of the ownership of the property which
is the subject of the transfer. In other words, the transferred property
changes patrimonies. The property leaves the patrimony of the transferor to
become part of the patrimony of the transferee . . .” (see Doucet v. The Queen, 2007 D.T.C. 1029
at paragraphs 23-24).
[31]
In Livingston, supra,
the Federal Court of Appeal made comments that are somewhat difficult to
reconcile with the rich case law on the subject of “transfer”.
At paragraph 21 of the decision, Justice Sexton commented that a deposit
of funds into another person’s bank account is a transfer within the meaning of
section 160 of the ITA. With respect to the conditions required for a transfer,
it is interesting to consider paragraph 22 of the decision, which is quoted
above.
[32]
Thus, the
Federal Court of Appeal appears to hold the categorical view that deposits of
money into another person’s bank account are automatically transfers of
property. In this regard, in circumstances such as the deposit of cheques by a
loved one, Justice Sexton justifies his legal syllogism by stating that the
transferred property is not the proceeds of the cheque as such, but the
right to demand from the bank the total amount deposited. The value of that
right is the total value of that amount.
[33]
The Federal Court of
Appeal appears to have distanced itself from the doctrine laid down earlier in Fasken,
St. Aubyn and Dunkelman, according to which, as we have seen, in
order for there to be a transfer of property for the purposes of the
attribution rules, it is indispensible for the transferor to have renounced his
right of ownership. In Livingston, the Federal Court of Appeal appears
instead to make the application of section 160 contingent on the effective
control exercised or theoretically exercisable by the appellant over the
amounts of money that have been transferred, without it necessarily being found
that the right of ownership over these amounts has changed hands. See Livingston,
supra, at paragraph 21.
[34]
Is it in keeping with
the essence of subsection 160(1) to allow it to apply to situations that simply
involve a transfer of effective control over property? Subsection 160(1) is
meant to protect the integrity of a tax debtor’s patrimony against measures
taken by the debtor to frustrate the tax authorities. Hence, if there is a
transfer, consideration equal to the fair market value of the transferred
property is essential, or else the transferee becomes liable for the
transferor’s tax liability, up to the value of the advantage or benefit
obtained upon the transfer. See Larouche v. The Queen,
[2010] 4 C.T.C. 202 (F.C.A.).
[35]
The fact that an item of property is simply in the possession or
control of a third party does not have the effect of removing it from the tax
debtor’s patrimony. Although
the scope of the word “transfer” is broad, a transfer still requires the
transferor to meet a condition precedent, namely, to have actually vested the
property in the alleged transferee or recipient.
[36]
Moreover, following
the transfer, the mechanics of section 160 limit the transferee’s joint and
several liability to an amount equal to the value of the property transferred
to him, less the value of the consideration given in exchange, up to the amount
of tax owed by the transferor. The purpose of the logic behind the calculation
in paragraph 160(1)(e) with regard to the quantum of the transferee’s
liability is to place the transferee in the position that he was in prior to
receiving the transfer. It is nonetheless a requirement that the transferee’s
patrimony actually receive the property in question, and that the transfer
result in an enrichment. If the effect of the alleged transfer is neutral, the
transferee will not be liable to the tax authorities.
[37]
A few
months after Livingston, the Tax Court of Canada, per Justice P. Boyle, made
certain remarks in a case where the Crown had referred abundantly to the
comments of Justice Sexton.
These remarks were made in Gambino v. The Queen,
[2009] 3 C.T.C. 2129.
[38]
There, Mrs.
Gambino cashed seven $1,500 disability cheques issued to her son by Manulife
Financial. Mrs. Gambino was instructed by her son to cash the disability
cheques as they came in. Accordingly, she walked to a nearby Canada Trust
branch with the cheques endorsed by her son, endorsed them herself at the
branch, and then cashed the cheques. She returned home with the cash value of
the cheques and gave the cash to her son.
[39]
At
paragraphs 29 and 30 of his reasons in Gambino, Justice P. Boyle states
as follows:
29 No
such tax collection avoidance motives exist here. Nor, given the chance, could
the Crown describe any way the CRA could have been prejudiced by
Mrs. Gambino cashing her son’s cheques before he spent them instead of
cashing them himself before spending the money. Had CRA been aware that
Manulife was sending regular payments to Francesco Gambino, it could have
effectively garnished the amounts by issuing a requirement to pay to the
financial institution. . . .
30 The
Minister’s position is completely lacking in common sense. Its obvious fallacy
is that the Minister could make the same arguments against Mrs. Gambino
even if her son had used the cash to pay CRA to reduce his tax debt. Even more
ridiculous is that the Crown’s technical arguments could be advanced had
Mrs. Gambino’s son given her his endorsed Manulife cheques and asked her
to walk them to the CRA taxation office and credit the amounts towards his much
larger tax liability.
[Emphasis added.]
[40]
In another case involving
fact pattern similar to this case, Justice C.J. Miller adopted the
reasoning of his colleague Justice P. Boyle. See Pearson v. The Queen,
2009 TCC 338, at paragraph 16.
[41]
Although Livingston is of precedential value, several cases of the Tax Court of Canada
stand for the proposition that amounts paid to a mandatary for the sole benefit
of the mandator, or according to the mandator’s specific instructions, do not
constitute a transfer within the meaning of subsection 160(1).
[42]
Firstly, in LeBlanc v. The Queen, 99 D.T.C. 410 (T.C.C.),
Justice Hamlyn held that amounts deposited into the spouses’ joint bank account
had not been transferred because the appellant used the amounts to look after
the finances of her sick husband. Justice Hamlyn found that the moneys did not
vest in or pass to the appellant. The Court also accepted the argument made by
counsel for the appellant, to the effect that, during the relevant period, his
client was acting as the representative of her frail husband and that it was
only in her capacity as his agent that she withdrew the funds from Dr.
Leblanc’s accounts and used them. See LeBlanc, supra, at
paragraph 24.
[43]
Similarly,
in Tétrault, supra, Justice Archambault expressed the view that
if there is a valid mandate between the transferor and transferee, and the
mandatary does not use the amounts for his or her benefit, the money does not
pass to the mandatary’s patrimony and there is no transfer. In this regard, he
specifies as follows at paragraph 40 of his reasons:
40 It
follows from the analysis of the notion of transfer used in subsection
160(1) of the Act that sums paid to a mandatary to be spent for
the benefit of the mandator do not constitute a transfer for the purposes of
this subsection, either. In such circumstances the mandator is not
divested of his ownership of the sums entrusted to the mandatary and they are
not vested in the mandatary. The mandator remains the owner of these sums. . .
.
[44]
However, the Federal
Court of Appeal appears to have put a damper on this line of cases in Livingston, supra. In fact, Justice Sexton specifically refers to Justice
Hamlyn’s holding in LeBlanc that a mandate or agency can mean there is
no transfer:
23 The
respondent cites the Tax Court of Canada’s decision in Leblanc v. The Queen 99
DTC 410 (T.C.C.). In that case, Tax Court Justice Hamlyn found that
following a deposit into a jointly held bank account the property did not vest
in or pass to the wife as the wife was acting as agent for her ill husband.
That finding in and of itself is suspect: there was certainly a transfer of
property. Because Justice Hamlyn concluded that there was no transfer of
property, he did not consider whether the wife had provided consideration.
[45]
Nonetheless, since Livingston, some cases of the Tax Court of Canada have continued to take the concept
of mandate or agency into account in determining whether there has been a
transfer under section 160. The reasoning of Justice C.J. Miller in Pearson,
supra, is interesting in this regard:
[14] But even if I found she did return the monies to her father, did
she do so as she was simply his agent, akin to an arm’s length employee
conducting her employer’s banking? The stories from the Pearsons are just not
cohesive enough for me to find an agency arrangement: no employment contract,
no banking documents, no trace of funds – just not enough.
[46]
In fact, in
Gambino, Justice Boyle found that there was sufficient consideration. Ms.
Gambino cashed her son’s disability cheques at the bank and then brought
him the cash obtained:
[31] I accept that Mrs. Gambino
intended to and did oblige herself to bring the cash from the cashed cheques
promptly back to her son. I also accept that Mrs. Gambino intended for her
son to repay the $500 she had loaned him. I accept that she did not
understand her son was intending to make a gift to her of any of the amounts. I
am satisfied that there was consideration as that term is used
in section 160 for all amounts that briefly passed through her
hands. I am also satisfied that her commitment to do that, or in any event,
her actually doing that, was at the time of the transfer of the endorsed
cheques to her.
[Emphasis
added.]
[47]
In Pearson,
Justice C. Miller accepted Justice Boyle’s interpretation in Gambino and
cautioned against the overly strict interpretation that the Crown was seeking
to apply:
[16]
Somewhat to my surprise, respondent’s counsel suggested this was wrongly
decided, implying that the clear wording of section 160 had been met, and
that the Court ruled from sympathy in the Gambino situation.
Such a strict interpretation by the Crown would not only lead to excessively
harsh results, it would lead to broader collection powers than section
160 was ever intended to provide. No, Gambino was
wisely decided. There was consideration flowing from mother to son in the form
of an obligation to return the full amount. . . .
[Emphasis added.]
[48]
However, he
concluded that the evidence in that case was not sufficient for it to be
asserted that there was an obligation that could warrant a finding that
Ms. Pearson gave adequate
consideration:
[16] . . . Maybe she would return some, maybe she would not.
Maybe she did, maybe she did not. Too many maybes and not enough credible
concrete evidence. On balance, I find there was no adequate consideration. Thus
all four requirements of section 160 have been met and Ms. Pearson is
indeed jointly and severally liable for the cash she received from the father.
[49]
Miller v.
The Queen,
2011 TCC 412, is also a very interesting case; a husband deposited funds
in his wife’s bank account. She withdrew nearly $60,000 in order to cover
expenses associated with her husband’s dental practice. Justice Little decided
that there was a legally enforceable obligation to reimburse the expenses.
[50]
Most of the
cases that have been cited involved transfers of cheques, which were most often
deposited into the alleged transferee’s account. Money is fungible property
which is subject to a special rule concerning the transfer of ownership.
[51]
The Civil Code of Québec
(C.C.Q.) provides as follows at article 1453(2):
§ 3. —
Special effects of certain contracts
I. — Transfer of real
rights
1453. The transfer of a real
right in a certain and determinate property, or in several properties
considered as a universality, vests the acquirer with the right upon the
formation of the contract, even though the property is not delivered
immediately and the price remains to be determined.
The
transfer of a real right in a property determined only as to kind vests the
acquirer with that right as soon as he is notified that the property is certain
and determinate.
[Emphasis added.]
[52]
In Chua c. Von Braun,
J.E. 93-1872, (Que. S.C.), Justice Croteau noted that in order for a person to
establish a right to a sum of money, the money in question must be
identifiable, since it is fungible property. From the moment money is mingled
with the funds of a particular account, the deposited money loses all its
identity.
[53]
In Les Boutiques San
Francisco Inc. c. Claudel Lingerie Inc, J.E. 2004-1359 (Que. S.C.), at
paragraph 57, Justice Clément Gascon came to the same conclusion:
[translation]
As everyone knows, money is fungible property. In order for
ownership to be claimed, it must be clearly identifiable. It is not enough for
it to be merely quantifiable. Our Court has said this several times.
[54]
The Supreme Court of
Canada laid down this principle as early as 1989 in British Columbia v.
Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24. There, a seller collected
provincial sales tax and mingled those amounts with his other income. Although
it would seem beyond doubt that the money did not belong to the bankrupt, the
Supreme Court held that since the amounts were mingled with the other assets of
the bankruptcy, the tax authorities could not claim ownership of those amounts
under a common law trust. Justice McLachlin, as she then was, wrote:
. . . If, on the other hand, the money has been converted
to other property and cannot be traced, there is no “property held . . . in
trust” under s. 47(a). The Province has a claim secured only
by a charge or lien, and s. 107(1)(j) applies.
. . .
. . . The Province has a
trust interest and hence property in the tax funds so long as they can be
identified or traced. But once they lose that character, any common law
or equitable property interest disappears. . . .
[Emphasis
added.]
[55]
The Quebec Court of
Appeal reiterated this principle in 9083-4185 Québec Inc. (Syndic de),
2007 QCCA 1837. Justice Duval Hesler, citing the remarks of Professor Louise
Lalonde,
wrote:
[translation]
[59] Hence,
it must be concluded that [translation]
“from the moment the funds are intermingled with all the other funds in an
account, they are no longer identifiable and the mandator can no longer assert
his right of ownership.”
[56]
In the same
decision, Justice Duval Hesler cited British Columbia v. National Bank, 30 C.B.R. (2d) 358. There, Justice Hollingrake
of the British Columbia Court of Appeal wrote:
[52] . . . There is a difference between calculating
what one is owed over a set period of time as opposed to tracing the funds that
initially represented that debt in the form of money in the hands of the
debtor.
. . .
[56] .
. . With SDM and Red Carpet having intermingled the “tax money” with all their
other funds, and the time frame being as it is, I cannot see how this “tax
money” could possibly be identified to permit successful tracing.
[57]
This was
another tax collection case and it could not be claimed that the bankrupt owned
the money collected on behalf of the government.
[58]
The case of Fonds
Norbourg Placements équilibrés (Liquidation de), 2006 QCCS 4072, affirmed by
the Quebec Court of Appeal, 2007 QCCA
1076, would seem to be of great interest under the circumstances:
[59]
The dispute
in that case was essentially about the merits of the liquidator’s proposed
choice of fund distribution method upon the liquidation and distribution of the
property of Fonds Norbourg. Essentially, the case pitted the holders of certain
trust funds that been pillaged, against the holders of funds that had been
spared to some extent.
[60]
At first instance,
Justice Mongeon held as follows:
[translation]
[203] Indeed, in
the case at bar, we know the names of the given Fund’s unitholders, and the
number of units held by each. The issue is to ensure that the cash remaining in
the same fund is not from other sources, so that it can be concluded that the
cash in question cannot belong to anyone other than the unitholders. This would
mean that they are entitled to a share of the cash prorated to the number of
units that they hold.
. . .
[207] Indeed, the reality, in which the Groupe Norbourg
records make it possible to assign to each Fund its very precise list of
investors and the number of units that each investor holds, must be distinguished
from a situation in which all the investors’ money is intermingled in a single
Fund, making it literally impossible to trace each person’s investment. The
only problematic element that remains is the reliability of the remaining
balances of each Fund. Once again, if these remaining balances are reliable in
terms of the source or origin of the cash therein, the only way they can be
distributed is rateably based on the number of units held by the unitholders of
each Fund in question.
[221] The Supreme Court held that the amounts in
question could not be clearly identified, meaning that it was not possible to
distinguish between the property belonging to the debtor and the property held
in trust on behalf of Her Majesty. At common law, there is no longer
a trust when the tax amount is mingled with the other amounts, such that it is
impossible to trace or identify it.
[224] According to the Supreme Court, the segregation
of the amount in a separate account is certainly very helpful, but is not essential.
What needs to be analysed, however, is the content of the bank or securities
account, so that one can determine whether the amounts therein can be
identified or traced back to deposits of tax amounts in accordance with
generally accepted accounting principles applicable to such circumstances. If
the account can be reconstructed without uncertainty, the identification and
tracing operation can be carried out.
[Emphasis added.]
…
[232] Portus confirms that
(72) Where trust assets can be
traced, there must be an equitable reason to deprive the beneficiaries of the
property of the trust. Once trust property can be traced and is
ascertainable, it too will be trust property. (See Eron Mortgage Corporation,
Te 1999 CanLII 6283 (BC SC),
(1999), 10 C.B.R. (4th) 257 per Tysoe J. of the British
Columbia Supreme Court at paragraph 52 and Ontario (Securities Commission) v.
Consortium Construction Inc. (1993), 1
C.C.L.S. 117 per Rosenberg J. of this Court at paragraph 64.).[54]
[233] This decision not only confirms the legal rule
that the Court applies in this instance, but also the fact that, in the final
analysis, it is the proof of the reliability of the balances (identification
and traceability) that must guide the Court in its choice.
[61]
The Quebec
Court of Appeal, per Justice Brossard,
confirmed the approach followed at first instance:
[translation]
[68] It
is true that the amounts paid by the investor clients were provisionally
deposited into a general trust fund. However, by the end of the day in
which they were deposited, they were immediately converted into units or shares
in a specific Fund, with a determinate value, and were credited to each
investor client.
[Emphasis added.]
[69] In
addition, as the respondent notes and as the judge at first instance found, the
fact that each client’s cash was put into the same trust account is not
decisive because the names of the investor clients, the amount paid, and the
number of units purchased by each, are known and properly recorded.
[Emphasis added.]
[70] This
situation is therefore very different from the facts of some of the cases cited
by the appellant, where money was simply deposited with financial institutions
or in trust accounts held by professionals, and where the money lost all of its
specific identity merely by virtue of the deposit. This is the distinction
that the judge at first instance made, by way of example, when he referred to In
Re Major Trust Co., where it was impossible to identify in any way the
amounts deposited by clients into a single account with a view to purchasing
guaranteed investment certificates which were ultimately never issued before
the Funds were misappropriated.
[Emphasis added.]
. .
.
[76] In
other words, the accounting and transfer books and records in this case, which
prevent any confusion regarding the cash and make it possible to identify and
trace the amounts and the transactions, are just as valuable as the simple legal
fiction resulting from section 18(1)(b) of the statute in question in Henfrey
Samson Bélair Ltd.
[77] Here,
the uncontradicted evidence shows an absence of any confusion of the cash
between the different trusts or investment funds, or between the specific
trusts and the overall general assets of the various Groupe Norbourg
corporations.
[Emphasis added.]
[62]
Thus, in Norbourg,
the fact that the accounts could be traced made it possible to consider the
amounts separately based on the owners of each amount that could be identified
and traced.
[63]
The Quebec Superior
Court applied the Norbourg doctrine in GE Financement
commercial aux détaillants Canada c. Banque Nationale du Canada, 2009 QCCS 5843. At paragraphs 79 and 81, the Court held:
[translation]
[79] GE
cannot be content merely to note that the $79,000 entered the account. It
must succeed in separating and distinguishing it from the other deposits and
transfers which were clearly made into the account during the same period.
[81] This,
in the Court’s opinion, is the doctrine that Norbourg really stands for.
Unless the $79,000 can be separated from the other deposits into the account,
GE’s ownership of the amount cannot be recognized. In Norbourg, it
was because the different mutual funds were clearly separated or separable that
it was possible to acknowledge the true owners of each deposit.
[64]
In GE Financement commercial aux détaillants Canada, Justice Pierre Dallaire ultimately found that
the amounts in question could not be identified or traced in a manner similar
to the way that they were in Norbourg.
[65]
The first step is
undoubtedly to ask whether there has been a “transfer” as defined by the case
law.
[66]
To begin with, it
should be recalled that Fasken, St. Aubyn and Dunkelman stand
for the proposition that in order for there to be a transfer for the purposes
of the attribution rules, it is indispensable for the transferor to have
renounced his right of ownership.
[67]
That being said, the
Federal Court of Appeal seems to have categorically held that a deposit of
funds into another person’s bank account automatically constitutes a transfer
of property. In Livingston, Justice Sexton appears to agree with the
Quebec Court of Appeal’s past remarks to the effect that [translation] “from the moment the funds
are intermingled with all the other funds in an account, they are no longer
identifiable.”
[68]
On the other hand, the
recent decision of the Quebec Court of Appeal in Norbourg, supra,
specifies that a distinction should be drawn between a situation where deposited
funds are mingled into an account such that it is literally impossible to trace
the origin of the different deposits and withdrawals, and a situation where the
chequebooks and bank books make it possible to precisely follow the funds
deposited and withdrawn.
[69]
Admittedly, the
proceeds of the cheques deposited by the appellant were provisionally deposited
into her personal account. However, in view of the evidence, the same amounts
were withdrawn in full on the very same day and were then remitted to Dupuis.
[70]
In the case at bar, the
appellant’s chequebooks and bank books enable us to trace the money deposited
and then withdrawn. As a general rule, these amounts only remained in the appellant’s
account for a few hours before being withdrawn and brought back to Dupuis.
[71]
In the case at bar, the
evidence showed that Dupuis never wanted to transfer ownership of the cheques
to the appellant, any more than he wanted ownership of the cheques to vest in
the appellant. At no time did the appellant have the right to use, enjoy or
dispose of the proceeds of the deposited cheques as she saw fit.
The evidence has established unequivocally that she never took any
initiative; she followed Dupuis’ strict and precise instructions.
[72]
Ownership of the
cheques was never transferred to the appellant in the case at bar. If the
property had been individualized, I do not believe there would have been any
dispute, since the absence of transfer would have been clear or obvious.
[73]
The difficulty lies in
the fact that the property in question is fungible. In order for a transfer of
ownership to exist, regardless of the nature of the property, it is essential
that the two parties to the transaction give their consent, and this requires
true consent, which, I acknowledge, can be tacit.
[74]
The appellant, an
intelligent and educated person, agreed to help her friend; Dupuis’
explanations were plausible and she saw no problem in agreeing to do him a
favour. In her assessment as an honest and reasonable person, her involvement
in the transaction solicited by Dupuis did not make her the owner of the money
that transited through her bank account.
[75]
She never gave her
express or tacit agreement to any transfer of clearly identified property. At
most, she agreed to act as depositary of property which was subject to a
contract of mandate that she complied with, to the letter, as a mandatary.
She never did anything whatsoever that would permit another
interpretation. On the contrary, she did things that validate and confirm the
absence of a transfer, notably through codes indicated on each transaction,
strict compliance with Dupuis’ instructions, and, lastly, the immediate
cessation of the transactions when cautioned by Revenu Québec auditors.
[76]
Was she an associate or
accomplice in a scheme intended to deprive the State of an exigible tax
liability?
[77]
Was the appellant
negligent, careless, neglectful and/or even wilfully blind? I do not
believe that she was. At most, she was a bit naïve in acceding to the requests
of her friend, who clearly abused her good faith. Dupuis was trained as an
accountant and undoubtedly was perfectly aware of all the potential
consequences of his request of the appellant. But he knew that he could count
on the absolute honesty of the appellant, who considered herself a temporary
depositary of her property.
[78]
The amounts deposited
into the appellant’s account were substantial; as a general rule, the deposited
money was very quickly withdrawn and remitted to Dupuis in cash. There is no
doubt that the appellant never believed the deposits would profit her, or even
that she could appropriate them, in whole or in part.
[79]
On very rare occasions,
she kept small amounts at the express request of Dupuis, to cover expenses
and/or disbursements that she had already incurred for him.
[80]
The appellant was
misinformed, misled and essentially used by Dupuis, an accountant, who did not
hesitate to make incomplete representations to the appellant, who agreed to do
him a favour.
[81]
It is clear beyond a
doubt that the appellant’s consent was essentially to an act that consisted in
depositing cheques in order to obtain cash in return and then remit it
forthwith to its owner Dupuis. Indeed, the appellant always acted as a
depositary, in that she precisely noted all the transactions so that she could account
for them. Moreover, the methodology was simple, clear and easily
verifiable by any person, including a third party that might have been
interested in enforcing a writ of seizure. In such circumstances, I am
convinced that the appellant would have collaborated and remitted the property
to the creditor that initiated the seizure proceedings.
[82]
This interpretation of
the facts is confirmed by the rapid, clear and spontaneous reaction of the appellant,
who, after a tax audit by Revenu Québec which raised the issue of the possible
consequences of the strategy, immediately ceased depositing any of Dupuis’
cheques into her account.
[83]
The appropriate
conclusion, based on these very specific facts, is that the assessment must be
vacated, since there were never any true transfers, and transfers constitute an
essential foundational element of an assessment under section 160 of the ITA.
[84]
If I had found that a
true transfer existed, I would still have vacated the assessment under appeal
despite Livingston, based on the recent case law of the courts of the
province of Quebec.
[85]
In any event, I believe
that this case is special in that it is very different from Livingston. Indeed,
not only was the appellant not associated with a questionable scheme, she
unequivocally made a firm commitment — a commitment she scrupulously honoured — to remit the full amounts deposited, in
accordance with Dupuis’ instructions. She took no initiative regarding the
amounts deposited into her bank account. She constantly, and without exception,
kept very valid accounting, which enabled her to account reliably for what had
been done in every instance.
[86]
In the case at bar,
there is no doubt as to the appellant’s undertaking vis-à-vis the supposed
transferor. The same evidence also established, on more than a balance of
probabilities, that she never obtained a benefit, never enriched herself, and
expressly followed the instructions of the supposed transferor, and this, based
on the decisions of the Federal Court of Appeal, constituted consideration
which was valid and sufficient to defeat an assessment under section 160.
[87]
Consequently, if my
analysis or interpretation of the facts that have emerged from the evidence had
caused me to conclude that the very numerous deposits into the appellant’s bank
account had constituted veritable transfers, I would nonetheless have allowed
the appeal and vacated the assessment because there is no doubt that the
transfers, if they existed, were done as part of a mandate whose object was
very well defined, and because the obligations of the mandatary, that is, the appellant,
were equally clear and precise; and, in view of the facts, the appellant
quickly complied with all her obligations and undertakings without ever deriving
any benefit, thereby supplying valid and sufficient consideration.
[88]
As for whether the appellant
was Dupuis’ common-law partner, I would respond to this question in the
affirmative; indeed, based on the significance of the services rendered, the
fact that Dupuis gave the appellant’s address as a personal address, and the
entire set of facts and circumstances of the relationship between Dupuis and
the appellant, I am satisfied that they were common-law partners.
[89]
For all these reasons,
the appeal is allowed and the assessment made under section 160 of the Act is
accordingly vacated, with costs to the appellant.
Signed at Ottawa,
Canada, this 18th day of October 2012.
“Alain Tardif”
Translation certified true
on this 6th day of
February 2013
François Brunet, Revisor
Email this Content