BETWEEN:
PAUL KVAS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket:
2014-4518(IT)G
AND BETWEEN:
PETER
KVAS,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bocock J.
I. Introduction
[1]
The appeals concern two brothers, Paul and Peter
Kvas (the “Kvas brothers”). They incorporated a company, Commercial Interior
Alterations Inc. (“CIA”) in 2002. It was dissolved by the Province of Ontario
for failure to file corporate tax returns in January of 2008. The Minister
raised a section 160 assessment against the Kvas brothers in 2014. The Minister
specifically allege in the notices of assessment that “on or about” December
31, 2008 a “transfer of Dividends” was made by CIA to the Kvas brothers. The
Minister relied upon the following: (i) CIA no longer existed; (ii) the balance
sheet completed by an accountant after the dissolution afforded a deductive dissipation
of assets; and, (iii) a T-5 was filed in 2009 by the same accountant describing
dividends paid in 2008 to the Kvas brothers relating to the assets which
roughly corresponded to the assumed dissipated assets. No relevant facts are materially
in dispute; however, whether the facts hold CIA to be a “transferor” of the
“transfer of dividends” or whether a transfer within the meaning of section 160
has occurred are the issues very much in dispute in this appeal.
[2]
The balance of these reasons concern these
primary issues: may an entity, involuntarily dissolved at law and having
undertaken no step on its own, either through incapacity or inaction, be a
transferor and transfer property within the meaning of section 160 where
actions are undertaken by others?
II. Some
additional facts:
[3]
The unique and relevant facts, their sequence
and actors, within these appeals are key to these reasons and related
judgement.
[4]
The Kvas brothers are both carpenters by trade.
They started their own business after 20 years of union jobs. They soon
discovered general contractors on large jobs demand a company rather than
individuals as a contracting party. Therefore they incorporated CIA in 2002
under the Ontario Business Corporations Act, RSO 1990 c. B.16 (the “OBCA”).
Business was slow at first, but, meeting their objective of incorporation, CIA
was placed on pre-approved bidders’ lists.
[5]
CIA won and executed a big contract during 2005.
This proved to be both a blessing and a curse. It generated profits for CIA of
$336,000.00, but exhausted resources and alternative bidding efforts. When it
remained partially unpaid as a sub-trade, CIA turned its attention to other
jobs and bids. It was too late. Losses ensued in years 2006 and 2007.
[6]
Both the Kvas brothers stated during testimony that
as a result of directing efforts towards job completion and lack of accounting
background and skills, CIA’s tax and other filings were in default. Steps were taken
in mid-2007 to begin correcting the situation.
[7]
The Kvas brothers, through inquiries of the
Government of Ontario, were directed to the Canada Revenue Agency (“CRA”). Both
brothers acknowledged they needed “to work with the CRA”. From mid-2007 and
until September of 2009 their efforts were avidly directed towards continuing CIA’s
operations and paying its corporate taxes. However, on February 3rd, 2008, a
notice of dissolution from the Government of Ontario was sent to CIA advising
of its dissolution as of January 21, 2008 (the “Dissolution Date”) for default
in filing its corporate tax returns (“Notice of Dissolution”).
[8]
Before, and especially after the Dissolution
Date, the Kvas brothers acted with due dispatch. They preserved the cash in
CIA’s bank account, used it to fund operations and pay taxes. One brother went
to school to learn accounting software programs. They retained accountants.
From the time of the first meetings in mid-2007 through 2009, materials were
gathered, financial statements for years 2002-2007 were prepared and corporate
tax returns were filed. Again, these efforts were directed towards bringing CIA
into compliance and, after the Dissolution Date, having it revived.
[9]
Ultimately, this course of conduct was in vain.
It was an agreed fact that in November 2009, CRA indicated it would not consent
to CIA’s revival no matter what. Throughout, CRA was aware of the Kvas
brothers’ attempt to revive the company for both CIA’s operational and tax
purposes.
[10]
Once CRA provided the determinative “No” for
CIA’s revival, CIA’s accountant changed tack. Previously issued T-4s reflecting
employment income paid to the Kvas brothers and other amounts remaining on the
financial statements of CIA for the period December 31, 2007 were addressed in
the final stub year-end financial statements and tax filings for CIA ending on
the Date of Dissolution: January 18, 2008. This, chronologically, occurred
retroactively and only after it become known, in the fall of 2009, that revival
was impossible because of CRA’s refusal to consent.
[11]
Therefore, T-4s (totalling $17,000.00) were
cancelled and newly created T-5s (totalling $107,146.00) were issued on October
29, 2009. Corresponding financial statements for CIA were prepared on October
29, 2009 (the “2009 T-5 issuance date”). According to the CIA accountant during
testimony, he created the T-5s on the 2009 T-5 issuance date to record reflective
dividends to each of the Kvas brothers in order to retroactively settle or
reconcile the assets still remaining in the fall of 2009 on the year financial
statements of CIA as at December 31, 2007. He did so in light of the
dissolution of January 21, 2008 becoming irrevocable in 2009.
[12]
For some time after the 2009 T-5 issuance date
and the filing of personal tax returns for the Kvas brothers, the bank account of
the former CIA and its cash simply remained in place. Their mother advanced
some $60,000.00 to the CIA account in May and June 2009 to assist CIA and her
sons. Payments from the account were mainly to the federal and provincial Crowns
and agencies. It was not until March, 2010 that the funds in the former CIA
account were depleted and used by the Kvas brothers.
[13]
In March 2010, CRA began its formal assessment
process. On March 16, 2010, the CRA issued a director’s liability demand for
unpaid source deductions in the amount of $125,450.78. As a result of this
amount remaining unpaid, submissions by the taxpayers and an ensuing CRA investigation,
in December, 2010 CRA threatened the Kvas brothers with two twin section 160 assessments
relating to the unpaid source deductions. In May, 2013, by letter CRA
specifically referenced the unpaid source deductions, the transfer of dividends
in the 2008 tax year which CRA asserted constituted “funds or
property…distributed or appropriated for the benefit of the shareholders on the
winding-up, discontinuance or reorganization of its business” such that, under
subsection 84(2) of the Act, “the corporation shall be deemed to have
paid a dividend”.
[14]
Similarly, the section 160 Notice of Assessment issued
subsequently specifically referenced “the amount of $53,573.00 in respect of
the transfer of Dividends, on or about December 31, 2008 from Commercial Interior
Alterations Inc.”
[15]
The Respondent’s reply specifically references
the November 4, 2009 filed CIA 2008 corporate tax return “reporting dividends
paid to” each Kvas brother who:
(i) withdrew CIA funds to pay personal tax
in the 2008 taxation year totalling $44,590.47;
(ii) withdrew CIA funds in the 2008 taxation
year of $17,000.00 for personal use;
(iii) owed CIA $22,308.00 in the 2008
taxation year which was never repaid; and
(iv) received a transfer of corporate assets
of CIA property and equipment valued at not less than $23,882.00.
[16]
The reply concludes with the statement that each
Kvas brother received a total shareholder benefit from CIA of at least
$53,880.24 (which it is admitted should have read $53,573.00 for each brother).
[17]
During testimony and specifically cross-examination
at trial, CRA team leader, Mr. Yarahmadi, confirmed that he authored the
written response dated September 22, 2014 and delivered to the Kvas brothers during
representations. This letter confirmed CRA’s understanding of the facts and
timing. He acknowledged he knew that CIA had been dissolved, but the 2009 T-5
reflected the payment of a dividend by CIA to Kvas brothers. As the Appellant’s
document, Mr. Yarahmadi flatly asserted at trial “it speaks for itself”.
[18]
Mr. Yarahmadi further conceded that the Kvas
brothers received no benefit or moneys until after the Dissolution Date. Mr.
Yarahmadi was unaware that the $17,000.00 in cancelled T-4s related to personal
wages paid to the Kvas brothers for services rendered to CIA. With respect to
shareholder debt, Mr. Yarahmadi concluded that the disappearance of the amount
owed to the Kvas brothers from the amount of $22,803.00 on December 31, 2007 to
nil on January 18, 2008 constituted a transfer from CIA in favour of the Kvas
brothers and was an “automatic benefit”. Mr. Yarahmadi concluded the Kvas
brothers operated the bank account and likely paid the amount after the Dissolution
Date. Similarly, on the issue of the transfer of corporate assets and
equipment, Mr. Yarahmadi indicated that since there was no sale or write down
of the assets, the dissipation from the value of $23,882.00 to zero deductively
evidenced a transfer and benefit to the Kvas brothers.
[19]
On the issue of “transfer of Dividends”, Mr. Yarahmadi
reiterated that the T-5, filed to reflect the dissolution, fit factually within
the ambit of subsection 84(2). He reasoned that such amounts were paid and
satisfied subsequently through the personal tax payments, personal wages,
repayment of shareholder debt and transfer of assets by CIA to the Kvas brothers.
III. Statutory
Conditions Engaging Section 160
[20]
Section 160 shall only be engaged where there is
a transfer, the parties are not dealing at arm’s length, there is an absence or
insufficiency of consideration and the transferor is liable for tax at the time
of transfer.
Aside from the secondary issue and alternative submission of partial
consideration for the transfers related to wages and debts owed to the Kvas
brothers and their alternate source of funds invested in CIA, the Court
determines and counsel agreed that the only other section 160 element in this dispute
is whether a transfer occurred. On the issue of consideration for any transfer,
the reasons below render consideration of that evidence unnecessary.
[21]
The elements of a transfer within the context of
section 160 are themselves somewhat unique jurisprudentially: the transferee
need not consent, be aware of the transfer or benefit from the asset
transferred.
What remain more clear, or at least consistent with the generally received
notion of a transfer, are the elements or actions required of the transferor:
the commission of an act or execution of a document divesting the transferor
and investing the recipient with the property,
the identification of some memorialized event or document which has the legal
effect of conveyance
and the contemporaneous placement of that action at the time the tax debt is
owed.
[22]
Within the context of considering whether a
transfer occurred there are three sub-issues to be considered;
(i) the application of section 84(2): deemed dividend on winding-up;
(ii) the effect of the Notice of Dissolution: Section 241 of the OBCA;
(iii) apart from the legal subsistence of
CIA after the Dissolution Date, did actions occur which constitute a transfer
within section 160.
IV. Application
of deemed dividend under subsection 84(2)
[23]
Although quite present and looming in the Minister’s
original reasons for confirmation and a live issue during testimony, this point
concerning a subsection 84(2) deemed dividend was implicitly conceded by
Respondent’s counsel at the outset of closing argument wherein no further
reference to it was made. Simply, the section provides for a deemed dividend
“where funds or property” have been distributed or appropriated to or for the
benefit of the shareholders on the “winding-up, discontinuance or
reorganization” of a business. Factually, there was no winding-up or
discontinuance undertaken by anyone relevant at the time of assessment.
Factually, CIA was dissolved involuntary by ministerial order without knowledge
or consent of its directors or shareholders on the Dissolution Date. A winding-up
transaction referenced in subsection 84(2) involves a more orderly and
conceived transaction or series of transactions undertaken by the directors during
winding-up, culminating in the final act of dissolution, reorganization or
arrangement. This did not factually occur. Consideration in costs will be given
to the late surrender of this ground for opposing the appeal. This is needed to
address the costs thrown away by the Appellants in the trial preparation of
overcoming this allegation as a live element of the Respondent’s case.
V. The effect
of the Notice of Dissolution on CIA
[24]
Sub-sections 241(1), 241(5) and 244(1) of the OBCA
provide as follows:
Notice of dissolution
241(1) Where the
Director is notified by the Minister of Finance that a corporation is in
default of complying with any of the following Acts, the Director may give
notice by registered mail to the corporation or by publication once in The
Ontario Gazette that an order dissolving the corporation will be issued unless
the corporation remedies its default within 90 days after the notice is given:
0.1
Alcohol and Gaming Regulation and Public Protection Act, 1996.
1.
Corporations Tax Act.
2. Employer Health Tax Act.
3. Fuel Tax Act.
4. Gasoline Tax Act.
5. Land Transfer Tax Act.
6. Retail Sales Tax Act.
6.1
Taxation Act, 2007.
7.
Tobacco Tax Act, 2004, c. 31, Sched. 4, s. 1; 2008, c. 19, Sched. V, s. 1;
2010, c. 1, Sched. 1, s. 12.
Revival
241(5) Where a corporation is dissolved under subsection
(4) or any predecessor of it, the Director on the application of any interested
person, may, in his or her discretion, on the terms and conditions that the
Director sees fit to impose, revive the corporation; upon revival, the
corporation, subject to the terms and conditions imposed by the Director and to
the rights, if any, acquired by any person during the period of dissolution,
shall be deemed for all purposes to have never been dissolved.
Forfeiture of undisposed property
244(1) Any property of a corporation that has not
been disposed of at the date of its dissolution is immediately upon such
dissolution forfeit to and vests in the Crown.
[25]
The Respondent submits that the subsisting,
filed T-5 reflecting the dividend engages section 160. It reflects a transfer
between CIA and the Kvas brothers in tax year 2008, which by definition for CIA
pre-dates the Dissolution Date. The parties were not at arms’ length during
that period, a tax debt was owed and no consideration was tendered or flowed
from the Kvas brothers to CIA.
[26]
Further that Respondent contends that the
creation and filing of the T-5 after the Dissolution Date is sufficient because,
by the hand of the Appellants’ own professional adviser, it memorializes the
existence, quantum, and transfer of the dividends by CIA to the Kvas brothers.
[27]
The Respondent further asserts that no
limitation exists on when the Minister may assess under subsection 160(2). Further, there need not be an
intention on the part of the transferee to defraud the Minister. The simple
receipt of the transferred property is sufficient. The T-5 reflected this
transfer and the other statutory conditions have been met.
[28]
Factually, this case reaches the tipping point of
the definition of a transfer within section 160. The statutory requirement of a
transfer has not been satisfied under this ground or the ground dealt with
subsequently. First and foremost, section 160 requires a transfer by a
transferor. The alleged transferor, CIA, did not exist after the Dissolution
Date. While CIA had all the powers of a natural person, it ceased to do so upon
its involuntary dissolution. The reference in subsection 160(1) to a transferor
having “transferred property, either directly or indirectly, by means of a
trust or by any other means whatever” is expansive and broad. However, there is
no case law that suggests a transferor includes a person who ceases to exist
and has not otherwise undertaken some act or omission which transfers property
prior to its, her or his demise or dissolution, as the case may be. This was
discussed by Justice Lamarre of this Court in Kiperchuk, supra
when she identified documents such as a will and RRSP beneficial designation as
documents of transfer which, prior to death (in that case), would constitute a
transfer. At paragraph 20, Justice Lamarre, as she then was, states:
Thus, the
respondent concluded — rightly, in my view — in the present case that, because
the appellant was the designated beneficiary of the RRSP owned by her former
husband, there was a transfer of property which took place at the time of his
death. From that moment, the appellant had a right to claim the RRSP to which
she had become entitled as the designated beneficiary.
[29]
In Kiperchuk, the “dissolving” of the
relationship by death was held to end the “non-arm’s length” condition. The
consequence of that logic follows at paragraph 24 through 28:
[24] The
question, therefore, is whether the transferor and transferee were dealing with
each other at arm’s length.
[25]
Assuming that the transferor is the former husband, he was not related to the
appellant by marriage at the time she became entitled to the RRSP. Indeed, the
status of marriage is ended by death or by a decree absolute of divorce (Kindl
Estate, Re 1982 CarswellOnt 340, paragraph 10 (Ontario Supreme Court)).
[26]
Therefore, the appellant was not related by marriage to her former husband at
the time of the transfer as she was then no longer his spouse (paragraphs
251(1)(a) and 251(2)(a) of the ITA). Nor was she deemed not to have dealt at
arm’s length with her former husband under paragraph 251(1)(b) of the ITA, as
the RRSP did not devolve to her through the estate.
[27]
Finally, there remains the question whether the appellant was in fact, for the
purposes of paragraph 251(1)(c) of ITA, related to her former husband on the
basis of circumstances existing at a particular time. The respondent argued
that the relevant particular time was the time at which the appellant was
designated as the beneficiary of the RRSP, that is, in 1990, at which time she
was married to her former husband. The respondent relied on the conclusion
reached by Angers J. in Homer at paragraph 25.
[28] I
have difficulty adopting here that same conclusion, which, moreover, was not
really elaborated upon by Angers J. On close examination, it can be seen that
the relevant portion of subsection 160(1) states that “where a person has . . .
transferred property, either directly or indirectly, by . . . any . . . means
whatever, to (a) the person’s spouse or . . . a person who has since become the
person’s spouse . . . (c) a person with whom the person was not dealing at
arm’s length, the following rules apply:
. . .
(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 proceeding taxation year”.
[30]
On the basis of CIA’s involuntary dissolution
and the absence of any prior “transfer documentation”, there simply was no
transfer possible after the Dissolution Date. To paraphrase paragraphs 25 and
26 above in the present context: CIA is the dissolved corporation, it did not
exist and was not “non-arms’ length” to the Kvas brothers at the time of
transfer, all assumed by the Minister to have occurred on December 31, 2008,
well after the Dissolution Date.
[31]
The dissolution was not undertaken by CIA or the
Kvas brothers as part of a winding-up transaction (lately conceded by the
Minister). It does not constitute a precise plan directed and caused by the
transferor, CIA, to thwart the Minister.
[32]
In conclusion, in Kiperchuk, Justice
Lamarre wrote:
[29] There
is nothing in the wording of that subsection that relates the relationship
between the transferor and the transferee to any moment other than that of the
transfer of the property (or a moment after the transfer in a case where the
transferee has since become the transferor’s spouse). The subsection refers throughout
to the act of transferring and the time of the transfer, without specifying
that other moments in time, previous to the transfer, could be contemplated for
the purpose of its application to the transferee.
[30]
Further, in Livingston, supra, the Federal Court of Appeal stated as one of the
applicable criteria that the transferee must be one of the following: the
transferor’s spouse at the time of the transfer, a person who was under 18
years of age at the time of the transfer, or a person with whom the transferor
was not dealing at arm’s length (paragraph 17).
[33]
Ceasing to exist, as CIA did on the Dissolution
Date by virtue of the Notice of Dissolution, required the pre-existence of an
act of transfer or authoring a subsequent transfer for section 160 to be
engaged: some declaration, direction and/or payment of dividends by its
directors and CIA respectively and/or articles of dissolution or winding-up agreement
which reflected some act by CIA to transfer assets to the Kvas brothers, its
shareholders. These or similar facts do not exist. After its dissolution, CIA
could not legally, and as discussed below, did not factually direct, author or
contemplate such a transfer, particularly on or about December 31, 2008.
VI.
Were there actions of CIA constituting a transfer under
section 160
[34]
Consistent with the finding above, on the basis
of the evidence adduced by the Appellants, the Minister’s assumption that a
transfer of dividends was made by CIA to the Kvas brothers “on or about
December 31, 2008” has been demolished. The Court has analyzed below each of
the Respondent’s submissions to the contrary quite apart from the non-existence
of the transferor any time after the Dissolution Date.
[35]
Respondent’s counsel quite ably marshalled
submissions to de-emphasize the issues of dissolution and actual transfer at
the assumed date of transfer. Focus was instead trained on the unrevoked, subsequently
issued T-5s, the company’s closing balance sheet and the Minister’s deductive
assumption from these and other taxpayer created filings and returns that property
previously held by a tax debtor, CIA, was transferred to the transferees, the
Kvas brothers, who received, used and/or benefitted from the tax debtor’s
assets.
[36]
Counsel for the Respondent further submitted that
section 160 applies to dividends which are transfers of property, themselves definitially made
without consideration.
Further, subsequent repayment by a transferee after the transfer does not
reverse the benefit, once received.
[37]
Respondent’s counsel states that the “deductive
dissipation” of assets is sufficient to support the Minister’s conclusion that
a transfer of assets occurred coincident with the reported dividends. No retraction
of such dividends ever occurred, notwithstanding that the Kvas brothers were
well aware of the collection proceedings against CIA. It is noted that the
Minister denied such a request during representations. The Kvas brothers chosen
course of action, according to the Respondent, was to wind-up CIA, issue the
T-5s and reflect the withdrawal of the net assets upon wind-up, all of which actions
were confirmed at trial by the accountant for the Kvas brothers.
[38]
Lastly, Respondent’s counsel submitted there was
no evidence of an effective forfeiture to the provincial Crown. Moreover, the Kvas
brothers need not have had any intention to defraud the Minister or thwart the Minister’s
collection process. Section 160 is solely a collection mechanism under the Act.
[39]
However draconian a provision section 160 is,
where it is invoked by the Crown, it shall be engaged if the statutory
conditions are met.
The first criteria is that there must be a transfer. The primary element of a
transfer occurs where “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 the other person”. This includes the payment of
dividends as previously stated. Moreover, for the purposes of section 160,
relevant to this appeal, the “transfer of Dividends” must have occurred at the alleged
time of transfer.
[40]
CIA never “transferred property” by way of a
“transfer of Dividends” on or about December 31, 2008. Unlike in MacDonald,
supra, there was no transaction or a series of transactions directed
towards the planned, anticipated or desired dissolution or winding-up CIA. The
normal hallmarks of such a taxpayer initiated goal were non-existent in this
appeal: authorizing resolutions, declarations of dividends, articles of
dissolution or a ministerial consent to dissolve (a pre-condition of which
ironically is the filing of all tax returns and payment of all corporate tax).
Instead, the OBCA Director of Companies, upon notification from the
Ontario Ministry of Finance, dissolved CIA. The Kvas brothers were stunned.
They worked for half a year before to prevent involuntary dissolution and for
18 months afterward to revive CIA. Moreover, upon such dissolution, the
property of CIA technically and legally escheated to the provincial Crown. CIA, the critical section
160 transferor and tax debtor, took no act or proximately omitted nothing that
can factually comprise a plain-meaning, common-sense and widely-understood
“transfer of property”. There is no jurisprudence which suggests that the act
or intention of a transferor (as opposed to that of a transferee) is
unnecessary in order to engage section 160. Quite the opposite is true: the
overall purpose of section 160, expressed multiple times, is to prevent the
transferor qua tax debtor from conveying property to avoid tax. Plainly, some act of
conveyance or, arguably deliberate omission, must be undertaken or caused,
directly or indirectly, by or attributable to the transferor/tax debtor.
[41]
The date of transfer by the transferor is also
relevant to a section 160 assessment. Relevant again to this argument is the
fact CIA could undertake no such act after the Dissolution Date and before
December 31, 2008 (the assumed transfer of dividends date). Moreover, the
Minister’s assessment references multiple (in excess of 25) assumed transfers
from the Dissolution Date until December 31, 2008. Factually, such payments are
not a “transfer of Dividends” at the relevant “time of transfer”, namely, on or about December
31, 2008, but multiple assumed “mini transfers”, all of which, from uncontroverted
testimony, were effected to third parties in order to allow CIA to continue its
business, pay its taxes and revive and were funded, at least partially, by
contributions of capital.
[42]
Based upon the evidence before the Court, the
Minister through the CRA was well aware of these clear goals. The CRA, in
combination with the Ontario Government authored, directed and, ultimately, effectively
controlled when CIA was involuntary dissolved and ultimately determined that it
was never revived. The CRA, itself, suggested the creation of a successor
partnership in September, 2009. At that time, CRA issued BIN and GST numbers to
such partnership retroactive to January 1, 2008. This direction and suggestion by
CRA led to the need to retroactively reflect conforming accounting steps to
give the partnership provenance back in time once revival was no longer
possible. That impossibility itself was dictated by the CRA’s refusal to grant
consent. In turn, the revised financial statements and T-5s in October 2009 were
effected by a well-meaning, but independently-acting, accountant in order to
“clean up” the irrevocably defunct CIA’s balance sheet.
[43]
These ironies are not lost on the Court. As
stated by Respondent’s counsel, the “pink elephant in the room” in October,
2009 were the retroactive T-5s and revised financial statements as referenced
by Respondent’s counsel. However, the earlier “pink elephants in the room” are
the involuntary dissolution of CIA for failure to file its corporate tax
returns, initiated by the CRA and followed by demands for payments, tax returns
and other “catch up” compliance steps, culminating 18 months later in a refusal
by CRA to consent to its revival, its directed conversion of CIA to a
partnership and a section 160 assessment in respect of the “former” corporate
assets. Curiously as well, the section 160 assessment relates to unremitted
source deductions which appear not to have been pursued in the more usual and
direct manner.
[44]
CIA’s property was not “transferred” by CIA, but
ascribed by CRA through a deemed dividend under subsection 84(2) which itself
initially formed the basis for the section 160 assessment by virtue of a
deductive dissipation of assets. However, the fact remains that a retroactive
T-5 and post-facto financial statements, necessitated by CRA’s “managed
enforcement” cannot create a transfer where none exists. That transfer is an essential
element to a section 160 assessment. It must be undertaken or effected at the
relevant time by the tax debtor/transferor, not constructed through multiple
third party payments, deductive dissipation of assets over many months or the
“deeming” of dividends or the “conjecture” of a benefit. Moreover, the
assessment, when raised, must accurately depict these “quantitative” and
“timing” components.
[45]
For these reasons, the bridge too far was not
reached. No transfer of property under section 160 occurred. Since such a
transfer must occur, the section was not engaged. Therefore, the appeal
is allowed.
[46]
As previously referenced, the Court shall
receive submissions from the parties within 30 days concerning all costs,
unless the parties are able to resolve that issue among themselves before that
time.
Signed at Ottawa, Canada, this 15th day of September 2016.
“R.S. Bocock”
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