Date: 19981120
Dockets: 97-1283-IT-G; 97-1285-IT-G
BETWEEN:
JOAN ARLENE PAUL,JOHN HARLEY WILLIAM PAUL,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
McArthur, J.T.C.C.
[1] The Appellants' appeal the assessments of revenue
wherein the Minister of National Revenue determined they are
liable to pay $24,648.33 pursuant to section 160 of the
Income Tax Act (the "Act").
[2] The Appellants owned all of the shares of Gambier
Developments Ltd. (Gambier). The Minister determined that Gambier
was liable in October 1996 to Revenue Canada in respect of its
1980 to 1988 taxation years the amount of $24,648[1] detailed as follows:
Tax $3,130
Penalty $268
Instalment Interest $13
Arrears Interest $21,236
[3] The Appellants deny that Gambier was indebted in any
amount to Revenue Canada. Mr. Paul, who gave evidence,
stated that Gambier's prior indebtedness in the early 1980s
should have been written off in the mid-1980s when Gambier
realized a bad debt. Gambier apparently paid income tax on the
proceeds of a $60,000 sale of which amount it did not receive
approximately $50,000. Gambier did not appeal its assessments. A
tax credit of approximately $6,000 was given to Gambier in 1990.
While it was difficult to follow how the $21,236 was arrived at,
Mr. Paul was not able to provide evidence to the
contrary.
[4] The Appellants' position was that Mr. Paul met
with an Officer of Revenue Canada in Whistler, British Columbia
in the early 1990s when Mr. Paul agreed on behalf of Gambier
to pay $26,000 and it was agreed that no further personal
assessments would be made against the Appellants personally. The
Appellants state that they relied on these statements and
agreements as coming from a person in authority and they relied
on his understanding of the Act. The Appellants could not
remember the name of the Revenue Canada officer and the agreement
was not in writing.
[5] Gambier issued the following dividends to the
Appellants:
March 31, 1987 Dividends Paid $44,000.00
March 31, 1988 Dividends Paid $40,278.00
Allocated as:
Dividend $13,626.00
Capital Dividend $26,652.00
March 31, 1989 Capital Dividend $32,467.00
March 31, 1989 Deemed Dividends $28,048.00
Allocated as:
Deemed Div. 84(2) $22,438.00
Gross up 82(1) $ 5,610.00
[6] Both Appellants each received dividends from Gambier in
excess of Gambier's $25,000 – while Gambier was
indebted to Revenue Canada, subsection 160(1) of the
Act reads in part:
"(1) Where a person has, [...] transferred property,
either directly or indirectly, [...] to
(c) a person with whom the person was not dealing at arm's
length,
[...]
(d) the transferee and transferor are jointly and severally
liable to pay a part of the transferor's tax [...]"
Analysis
[7] The purpose of section 160 is to prevent a taxpayer
who is indebted to Revenue Canada to avoid payment by
transferring property otherwise available to pay the debt to a
person or persons with whom it is not dealing at arm's
length. In the present instance Gambier transferred dividends to
its two shareholders while indebted to Revenue Canada.
Shareholders receive dividends solely because of the right
attributed to their shares, so that no consideration can be said
to be given by them therefor[2]. Accordingly, no consideration passed from
either taxpayer to Gambier in respect of the dividends paid to
them.
[8] The Appellants submitted that no tax was owing by Gambier
when the dividends were paid but were not able to back-up
that position with anything other than general statements. The
Respondent presented two officers of Revenue Canada who had
reviewed the records of Gambier and presented documentation to
establish the amount owing. The Appellants did not refute this
evidence.
[9] Mr. Paul, who is a lawyer no longer practising law,
presented both appeals.
[10] The officers of Revenue Canada stated they were not aware
of any agreement made by other representatives whereby no further
personal assessments would be made against the Appellants
personally. Without further evidence than Mr. Paul's
statement of his understanding of his discussions with a Revenue
Canada representative and with no documentation to support his
oral evidence, I cannot accept that the Appellants were released
from further assessments prior to the assessment which is the
subject of this appeal.
[11] The Appellants also place in issue the amount of interest
and penalties being applied to them personally and plead that
provisions of the Income Tax Act and the
Canada Interest Act because they feel that
$21,250.01 is a large and unfair amount of interest on the
$3,130.31 taxes due.
[12] This Court does not have the jurisdiction to waive or
reduce the interest or penalty unless unproperly levied. The
Appellants have not met the onus of satisfying the Court that the
interest was improperly levied.
[13] No evidence was presented by either party with respect to
the penalty and given all the circumstances and penalty levied in
the amount of $268.01 is waived.
[14] The Minister correctly assessed the Appellants in
accordance with section 160 of the Act, as the
Company transferred the Property to the Appellants for no, or
inadequate, consideration at a time when the Company was liable
to pay an amount under the Act.
[15] The appeal is dismissed. The Appellants are liable to pay
the amount of $24,648 less the penalty of $268 together with
costs.
Signed at Ottawa, Canada, this 20th day of November 1998.
" C.H. McArthur "
J.T.C.C.
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