Rouleau,
J.:—Mrs.
Fluxgold
is
before
the
Court
seeking
an
order
setting
aside
a
1984
assessment
by
the
Minister
of
National
Revenue
for
the
sum
of
$59,099.03.
The
plaintiff
is
a
former
equal
shareholder
with
her
husband
in
a
company
called
Fluxgold
Investments
Ltd.
(F.I.L.).
After
separation
in
1978
and
pursuant
to
an
order
of
the
Supreme
Court
of
Ontario
under
the
Family
Law
Reform
Act,
S.O.
1978,
c.
2,
pertaining
to
the
division
of
family
assets,
she
received
certain
funds
from
her
estranged
husband;
the
Minister
determined
that
part
of
the
moneys
she
received
emanated
from
the
family
corporation
which
was
in
arrears
for
the
taxation
years
1978
and
1979,
thereby
giving
rise
to
the
assessment
pursuant
to
section
160
of
the
Income
Tax
Act,
S.C.
1970-71-72,
C.
63.
Section
160
reads
as
follows:
160.
(1)
Where
a
person
has,
on
or
after
the
1st
day
of
May,
1951,
transferred
property,
either
directly
or
indirectly,
by
means
of
a
trust
or
by
any
other
means
whatever,
to
(a)
his
spouse
or
a
person
who
has
since
become
his
spouse,
(b)
a
person
who
was
under
18
years
of
age,
or
(c)
a
person
with
whom
he
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
to
75.1,
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
aggregate
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
of
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.
MINISTER
MAY
ASSESS
TRANSFEREE
(2)
The
Minister
may
at
any
time
assess
a
transferee
in
respect
of
any
amount
payable
by
virtue
of
this
section
and
the
provisions
of
this
Division
are
applicable
mutatis
mutandis
in
respect
of
an
assessment
made
under
this
section
as
though
it
had
been
made
under
section
152.
RULES
APPLICABLE
(3)
Where
a
transferor
and
transferee
have,
by
virtue
of
subsection
(1),
become
jointly
and
severally
liable
in
respect
of
part
of
all
of
a
liability
of
the
transferor
under
this
Act,
the
following
rules
are
applicable:
(a)
a
payment
by
the
transferee
on
account
of
his
liability
shall
to
the
extent
thereof
discharge
the
joint
liability;
but
(b)
a
payment
by
the
transferor
on
account
of
his
liability
only
discharges
the
transferee's
liability
to
the
extent
that
the
payment
operates
to
reduce
the
transferor's
liability
to
an
amount
less
than
the
amount
in
respect
of
which
the
transferee
was,
by
subsection
(1),
made
jointly
and
severally
liable.
SPECIAL
RULES
RE
TRANSFER
OF
PROPERTY
TO
SPOUSE
(4)
Notwithstanding
subsection
(1),
where
at
any
time
a
taxpayer
has
transferred
property
to
his
spouse
pursuant
to
a
decree,
order
or
judgment
of
a
competent
tribunal
or
pursuant
to
a
written
separation
agreement
and,
at
that
time,
the
taxpayer
and
his
spouse
were
separated
and
living
apart
as
a
result
of
the
breakdown
of
their
marriage,
the
following
rules
apply:
(a)
in
respect
of
property
so
transferred
after
February
15,
1984,
(i)
the
spouse
shall
not
be
liable
under
subsection
(1)
to
pay
any
amount
with
respect
to
any
income
from,
or
gain
from
the
disposition
of,
the
property
so
transferred
or
property
substituted
therefor,
and
(ii)
for
the
purposes
of
paragraph
1(e),
the
fair
market
value
of
the
property
at
the
time
it
was
transferred
shall
be
deemed
to
be
nil,and
(b)
in
respect
of
property
so
transferred
before
February
16,
1984,
where
the
spouse
would,
but
for
this
paragraph,
be
liable
to
pay
an
amount
under
this
Act
by
virtue
of
subsection
(1),
the
spouse's
liability
in
respect
of
that
amount
shall
be
deemed
to
have
been
discharged
on
February
16,
1984,
but
nothing
in
this
subsection
shall
operate
to
reduce
the
taxpayer's
liability
under
any
other
provision
of
this
Act.
The
plaintiff
married
in
1940
and
separated
from
her
husband
in
August
1978.
At
the
time
she
left
the
matrimonial
home,
she
along
with
her
husband
each
held
50
per
cent
of
the
outstanding
and
issued
common
shares
of
Fluxgold
Investments
Ltd.
which
had
been
incorporated
in
1965.
The
plaintiff
also
held
preference
shares
of
a
value
of
$36,000.
The
principal
objects
of
the
company
were
to
acquire
real
estate,
conduct
repairs
and
resell.
This
activity
had
been
discontinued
some
few
years
prior
to
the
separation
and
only
a
few
properties
remained
in
the
company.
In
January
of
1980,
two
years
after
the
separation
of
the
parties,
a
property
known
as
9-11
Southport
was
conveyed
by
Mr.
Fluxgold.
In
July
of
1982,
a
property
known
as
1458-40
Queen
Street
West
in
the
City
of
Toronto,
was
also
sold
by
Mr.
Fluxgold.
It
is
agreed
by
the
parties
that
these
two
transactions,
although
concluded
by
Mr.
Fluxgold
personally,
were
properties
in
fact
beneficially
belonging
to
Fluxgold
Investments
Ltd.
Upon
their
disposition,
the
proceeds
were
retained
by
Mr.
Fluxgold
personally.
The
plaintiff
in
no
way
was
aware
of
the
transactions,
nor
did
she
participate.
Other
mortgage
transactions
have
been
recorded
by
Mrs.
Fluxgold
personally
and
in
some
cases
with
her
father,
but
these
matters
are
not
in
issue.
Shortly
after
separation,
proceedings
were
instituted
in
the
Supreme
Court
of
Ontario
pursuant
to
the
Family
Law
Reform
Act.
In
May
of
1980,
Mr.
Justice
Labrosse
ordered
that
Fluxgold
Investments
Ltd.
be
wound
up
pursuant
to
section
217
of
the
Business
Corporations
Act,
R.S.O.
1970,
c.
53,
and,
as
a
result,
a
professional
liquidator
was
appointed.
Though
this
order
[was]
issued,
no
action
was
ever
taken
until
finally
the
Ministry
dissolved
the
company
in
October
of
1985
because
of
failure
to
comply
with
directives
issued
under
the
Business
Corporations
Act.
In
June
of
1980,
Mr.
Justice
Labrosse
further
ordered
that
the
division
of
family
assets
be
referred
to
a
family
law
commissioner
for
review
and
recommendation.
Following
a
complex
hearing,
Commissioner
McBride
issued
a
lengthy
report
in
September
of
1981,
followed
by
a
supplemental
report
in
October
of
1982,
recommending
payment
to
the
plaintiff
of
the
sum
of
$118,914.40.
This
partition
was
slightly
amended
in
the
order
of
Mr.
Justice
Labrosse
dated
April
1983
in
which
he
confirmed
that
the
plaintiff
should
receive
$113,360.48
from
her
husband,
and
ordered
payment
by
Mr.
Fluxgold.
This
amount
was
then
reduced
by
the
Ontario
Court
of
Appeal
in
November
of
1983
to
$95,360.48;
payment
followed
the
final
disposition,
I
would
assume
sometime
during
late
1983
or
early
1984.
In
May
of
1984,
the
Minister
of
National
Revenue
assessed
Mrs.
Fluxgold
for
corporate
taxes
owing
by
Fluxgold
Investments
Ltd.
for
the
years
1978
and
1979
pursuant
to
section
160
of
the
Income
Tax
Act;
he
also
relied
on
the
deeming
provision
section
251.
Counsel
for
the
plaintiff
contends
firstly
that
the
payment
by
the
estranged
husband
to
Mrs.
Fluxgold
was
effected
pursuant
to
a
court
order
and
therefore
exempt
under
subsection
160(4)
of
the
Act;
in
the
alternative,
that
the
payment
of
funds
should
not
be
considered
“a
transfer"
within
the
meaning
of
section
160.
Counsel
for
the
defendant
argues
that
this
was
a
transfer
of
property
within
the
meaning
of
section
160.
She
submits
that
had
the
money
realized
from
the
sale
of
properties
in
1980
and
1982
been
properly
deposited
to
the
credit
of
the
corporate
account,
the
moneys
owing
for
taxation
would
have
been
available
to
satisfy
the
Minister
thereby
reducing
the
entitlement
to
the
plaintiff
under
the
Family
Law
Reform
Act;
otherwise
she
has
been
unjustly
enriched.
Further,
counsel
relies
on
the
decision
of
Mr.
Justice
Strayer
of
this
Court
in
the
case
of
Barry
Marshall
Boardman
and
Saskan
Investments
Ltd.
v.
The
Queen,
[1986]
1
C.T.C.
103;
85
D.T.C.
5628,
wherein,
she
submits,
it
had
been
determined
that
transfers
pursuant
to
section
160
could
not
defeat
the
tax
owing
by
a
transferor
after
property
had
been
passed
to
a
transferee.
As
I
review
the
facts
in
the
present
litigation,
may
I
say
at
the
outset
that
there
is
no
evidence
before
me
whatsoever
to
indicate
which,
if
any
of
the
assets
possessed
by
the
husband
at
the
time
of
compliance
with
the
court
order,
were
funds
derived
from
the
transactions
he
conducted
on
behalf
of
the
family
corporation
some
years
before.
Though
it
is
alleged
that
these
funds
rightfully
belonged
to
the
corporate
body,
there
is
no
way
of
tracing;
they
may
have
been
dissipated
or
replaced
by
other
acquisitions.
The
issue
to
be
determined
is
whether
or
not
moneys
owing
to
the
Minister
by
F.I.L.
can
and
should
be
paid
by
the
plaintiff;
further,
should
the
Minister
be
allowed
to
attach
moneys
the
plaintiff
received
as
a
result
of
an
order
issued
by
the
Supreme
Court
of
Ontario
resulting
from
the
division
of
the
family
assets
in
an
action
brought
pursuant
to
the
Family
Law
Reform
Act
.
Does
the
transfer
pursuant
to
this
order
bring
the
plaintiff
within
the
exception
created
by
subsection
160(4)
of
the
Income
Tax
Act
And
further,
can
it
be
said
that
moneys
owed
by
a
corporate
body
apparently
illegally
withheld
by
a
transferor
and
purportedly
advanced
to
satisfy
a
debt
owing
to
a
transferee,
be
subject
to
tax
pursuant
to
section
160
of
the
Act.
Plaintiff's
counsel
attempted
to
argue
that
this
was
not
a
transfer
as
contemplated
under
section
160
of
the
Act.
I
am
satisfied
that
Mr.
Justice
Thurlow,
in
the
Joseph
B.
Dunkelman
v.
M.N.R.,
[1959]
C.T.C.
375;
59
D.T.C.
1242,
put
the
definition
to
rest
when
he
wrote,
at
page
379
(D.T.C.
1244):
The
word
'Transfer"
is
not
a
term
of
art
and
has
not
a
technical
meaning.
It
is
not
necessary
to
a
transfer
of
property
from
a
husband
to
his
wife
that
it
should
be
made
in
any
particular
form
or
that
it
should
be
made
directly.
All
that
is
required
is
that
the
husband
should
so
deal
with
the
property
as
to
divest
himself
of
it
and
vest
it
in
his
wife,
that
is
to
say,
pass
the
property
from
himself
to
her.
The
means
by
which
he
accomplishes
this
result,
whether
direct
or
circuitous,
may
properly
be
called
a
transfer.
I
accept
this
definition
and
I
conclude
that
there
was
in
fact
a
transfer
of
assets,
but
the
matter
does
not
end
here.
The
defendant's
counsel
relied
heavily
on
the
Board
man
case,
supra,
and
indicated
that
I
should
be
guided
by
this
decision.
Boardman
was
also
concerned
with
a
division
of
assets
resulting
from
a
matrimonial
dispute
but
a
concise
appreciation
of
the
facts
disclose
obvious
reasons
to
distinguish.
First,
it
should
be
noted
that
the
parties
appealing
the
assessment
were
the
transferor,
Mr.
Boardman,
and
his
personal
corporation
Saskan
Investments
Ltd.;
it
was
not
the
transferee.
Two
houses
owned
by
Saskan
Investments
Ltd.
were
conveyed
directly
to
the
wife
as
ordered
in
the
matrimonial
dispute.
This
came
about
as
a
result
of
Dr.
Boardman's
counsel
requesting
the
trial
judge
in
the
Saskatchewan
Court
to
convey
the
properties
directly
from
the
corporation
to
Mrs.
Boardman
in
order
that
he
may
preserve
other
personal
assets.
There
is
no
doubt
in
my
mind
that
the
Minister
of
National
Revenue
was
quite
correct
in
assessing
Dr.
Boardman
for
having
unjustly
enriched
himself
by
taking
assets
directly
from
the
family
corporation
and
using
them
personally
to
satisfy
the
division
of
the
matrimonial
assets.
Second,
it
should
also
be
noted
that
these
reassessments
were
as
a
result
of
the
transferor
having
appropriated
to
himself
corporate
property;
pursuant
to
subsections
56(2)
and
245(2)
of
the
Act,
it
had
been
determined
that
compliance
with
the
court
order
had
created
a
taxable
benefit
to
the
transferor.
Unlike
the
Boardman
case,
this
is
not
an
assessment
against
the
transferor
but
an
assessment
against
the
transferee
pursuant
to
section
160.
Though
the
origin
of
the
claim,
the
corporate
body,
may
in
some
way
be
parallel
to
the
Boardman
situation,
it
was
not
the
issue
in
that
litigation.
In
the
present
case
the
Minister's
assessment
against
the
plaintiff
must
fail
on
a
number
of
grounds
and
for
a
number
of
reasons.
As
I
commented
earlier,
there
is
no
evidence
whatsoever
that
the
estranged
husband
may
not
have
accumulated
other
assets
subsequent
to
the
disposition
of
the
corporate
property
and
his
compliance
with
the
court
order
some
six
years
later.
The
tracing
of
the
funds
is
impossible.
I
am
satisfied
that
the
plaintiff
falls
within
the
exception
created
by
subsection
160(4)
of
the
Income
Tax
Act.
This
was
dealt
with
in
the
case
of
Madeleine
Charrier
v.
M.N.R.,
[1989]
1
C.T.C.
2214;
89
D.T.C.
108.
Briefly,
in
the
former
case,
the
taxpayer's
spouse,
while
indebted
to
Revenue
Canada,
transferred
two
properties
to
the
estranged
wife,
one
in
1980
and
one
in
1981.
Those
conveyances
were
concluded
to
make
up
arrears
of
alimony
awarded
in
a
matrimonial
dispute.
In
1985,
the
Minister
attempted
to
tax
Madeleine
Charrier
for
the
full
value
of
the
benefit
conferred
to
her
by
the
spouse,
thereby
attempting
to
satisfy
outstanding
tax
owed
by
the
husband.
It
was
held
that
there
was
no
doubt
that
the
purpose
of
section
160
of
the
Act
was
to
prevent
a
taxpayer
from
avoiding
the
payment
of
taxes
by
transferring
property
to
his
spouse.
However,
the
Court
found
that
any
payment
to
a
spouse
concerning
alimony
or
the
division
of
family
assets
falls
within
the
purview
of
the
exception
in
subsection
160(4);
further,
it
also
held
that
so
long
as
the
amount
paid
did
not
exceed
what
was
owing
pursuant
to
a
formal
separation
agreement
or
a
court
order,
it
could
not
be
seized
by
the
Minister
of
National
Revenue
for
moneys
owing
by
the
transferor.
It
should
be
underlined
that
the
Minister
has
assessed
Mrs.
Fluxgold
pursuant
to
section
160,
and
relies
on
section
251
concerning
non-arm's
length
transactions,
i.e.
transfer
to
a
spouse,
or
from
a
corporation
to
a
controlling
member.
It
is
admitted,
and
I
find
as
a
fact,
that
the
plaintiff
did
not
participate
in
the
two
transactions
which
were
concluded
by
Mr.
Fluxgold
on
behalf
of
the
corporation.
She
derived
no
direct
or
immediate
benefit
at
the
time
of
the
sale.
There
is
also
no
doubt
that
Commissioner
McBride,
in
determining
the
quantum,
took
these
two
properties
into
account
as
being
owned
by
the
corporation.
Nevertheless,
I
am
satisfied
that
the
Commissioner's
responsibility
was
to
look
into
quantum,
and
suggest
a
division
of
assets
to
the
Court;
I
must
confine
the
enquiry
to
the
court
order,
not
the
Commissioner's
report,
in
determining
whether
the
transferor
is
F.I.L.
or
Mr.
Fluxgold.
It
is
beyond
any
doubt
that
the
order
directing
payment
was
against
Mr.
Fluxgold
and
not
the
corporate
body.
I
must
therefore
conclude
that
the
transferor
is
the
husband,
and
not
the
party
in
arrears
for
taxation
years
1978
and
1979.
The
Minister
argued
that
under
paragraph
160(1)(c)
and
section
251
of
the
Act,
it
can
be
said
that
by
operation
of
law
transactions
between
spouses,
or
between
a
corporation
and
a
controlling
shareholder
are
deemed
to
be
"nonarm's
length”.
There
is
evidently
no
transaction
between
the
corporation
and
the
plaintiff.
I
must
therefore
conclude
that
the
Minister
cannot
succeed
on
this
ground.
Let
us
now
examine
the
purview
of
the
exception
under
subsection
160(4).
The
wording
in
the
statute
is:
SPECIAL
RULES
RE
TRANSFER
OF
PROPERTY
TO
SPOUSE
(4)
Notwithstanding
subsection
(1),
where
at
any
time
a
taxpayer
has
transferred
property
to
his
spouse
pursuant
to
a
decree,
order
or
judgment
of
a
competent
tribunal
or
pursuant
to
a
written
separation
agreement
and,
at
that
time,
the
taxpayer
and
his
spouse
were
separated
and
living
apart
as
a
result
of
the
breakdown
of
their
marriage,
the
following
rules
apply:
(a)
in
respect
of
property
so
transferred
after
February
15,
1984,
(i)
the
spouse
shall
not
be
liable
under
subsection
(1)
to
pay
any
amount
with
respect
to
any
income
from,
or
gain
from
the
disposition
of,
the
property
so
transferred
or
property
substituted
therefor,
and
(ii)
for
the
purposes
of
paragraph
1(e),
the
fair
market
value
of
the
property
at
the
time
it
was
transferred
shall
be
deemed
to
be
nil,
and
(b)
in
respect
of
property
so
transferred
before
February
16,
1984,
where
the
spouse
would,
but
for
this
paragraph,
be
liable
to
pay
an
amount
under
this
Act
by
virtue
of
subsection
(1),
the
spouse's
liability
in
respect
of
that
amount
shall
be
deemed
to
have
been
discharged
on
February
16,
1984,
but
nothing
in
this
subsection
shall
operate
to
reduce
the
taxpayer's
liability
under
any
other
provision
of
this
Act.
We
are
confronted
with
a
transfer
pursuant
to
a
court
order
dividing
family
assets
under
the
Family
Law
Reform
Act,
on
marriage
breakdown,
which
appears
to
exempt
the
transferee
from
liability
for
payment.
It
is
my
view
that
even
had
Mr.
Fluxgold
been
the
party
in
arrears,
the
plaintiff
would
be
exempt
as
a
result
of
the
operation
of
the
exception
in
subsection
160(4).
Section
160
has
been
specifically
inserted
into
the
Act
to
obviate
tax
avoidance
schemes
by
means
of
transfer
of
property
between
certain
enumerated
categories.
The
legislators
were
prepared
to
recognize
certain
exceptions
to
this
strict
rule,
and
enacted
subsection
(4)
to
provide
relief
in
circumstances
of
marriage
breakdown.
To
support
the
Minister's
contention
would
not
fall
within
this
rationale.
Admittedly,
transfers
between
husband
and
wife
are
deemed
to
be
at
"nonarm's
length",
but
in
this
factual
situation,
the
passing
of
property
was
as
a
result
of
a
court
order
under
the
Family
Law
Reform
Act,
and
therefore
exempt.
I
am
hereby
setting
aside
the
1984
assessment
by
the
Minister
of
National
Revenue
vis-a-vis
this
plaintiff.
I
would
like
to
briefly
comment
on
the
deeming
provisions
of
section
251.
This,
as
we
know,
is
an
irrebuttable
presumption
and
all
transfers
of
property
between
husband
and
wife
are
considered
to
be
"not
at
arm's
length".
The
Income
Tax
Act
does
not
define
the
expression
"married"
for
the
purposes
of
this
section;
it
is
obvious
that
only
parties
that
are
the
subject
of
a
solemnized
marriage
are
included.
The
Income
Tax
Act
fails
to
take
into
account
"common-law"
relationships,
which
are
accepted
as
a
part
of
every
day
life
in
modern
society;
these
relationships
are
clearly
recognized
in
most
jurisdictions.
Parties
who
co-habit,
without
the
benefit
of
solemnized
marriage,
are
acknowledged
as
having
acquired
certain
rights
as
if
a
formal
pro-
nouncement
of
vows
had
been
entered
into;
such
parties
would
not
be
included
within
the
deeming
provisions
of
section
251.
On
the
other
hand,
parties
solemnly
married,
but
having
lived
apart
for
several
years,
and
not
having
pursued
divorce
or
other
legal
remedies
to
declare
the
marriage
at
an
end,
are
still
presumed
to
be
acting
in
concert.
May
I
suggest
that
this
deeming
provision
should,
at
the
very
least,
be
made
rebuttable,
and
brought
into
conformity
with
current
thinking
and
the
prevailing
family
law.
This
archaic
notion
begs
for
amendment.
This
appeal
is
allowed
with
costs.
Appeal
allowed.
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