Date: 19980416
Docket: 96-503-IT-G
BETWEEN:
LILIANE OBADIA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Garon, J.T.C.C.
[1] This is an appeal from an assessment dated
September 9, 1994 made by the Minister of National Revenue
pursuant to s. 160 of the Income Tax Act. According
to the Minister of National Revenue the obligation to pay the sum
of $78,557.51, imposed by that assessment, resulted from the
transfer by Robert Obadia to the appellant on or about
April 5, 1993 of 25,484 shares in the capital stock of
Air Canada and 5,000 shares in the capital stock of
Sportscene Restaurant Inc.
[2] In making this assessment the Minister of National Revenue
relied on the allegations of fact set out in paragraph 6 of
the Amended Reply to the Notice of Appeal, which reads as
follows:
6. In so assessing the Appellant, the Minister made the
following assumptions of fact:
(a) on or about April 5, 1993, Robert Obadia
transferred to the Appellant 25,484 shares of Air Canada and
5,000 shares of Sportscene Restaurant Inc. (the
'Shares');
(b) the Appellant is the spouse of Robert Obadia;
(c) the Appellant and Robert Obadia are not
dealing at arm's length;
(d) at the time of transfer, the fair market value of the
Shares was as follows:
Market value
par share at
Shares # of Shares time of transfer
Total
Air Canada 25,484 $3.30 $ 84,097.20
Sportscene Rest. 5,000 $6.37 $ 31,850.00
$115,947.29
(e) at the time of the transfer, no consideration was given by
the Appellant for the Shares;
(f) the aggregate of all amounts that the Transferor was
liable to pay under the Act in or in respect of the
taxation year in which the Shares was transferred or any
preceding taxation year was at least $78,557.51.
[3] The allegations made in subparagraphs (a) to (c)
inclusive of paragraph 6 of the Amended Reply to the Notice
of Appeal were not disputed by the appellant. Those allegations
must be taken as admitted. Shortly after the taking under
advisement the parties agreed, regarding the allegation in
subparagraph (d), that the fair market value of the two
blocks of shares of Air Canada and Sportscene Restaurant Inc. at
April 5, 1993 amounted to $103,000. This additional evidence
was accepted by the Court. The allegation contained in
subparagraph (e) of the same paragraph was disputed on the
appellant's behalf. The quantum of this tax debt of
Mr. Obadia at the relevant time was not discussed at the
hearing.
[4] The appellant was the only person to testify.
[5] The appellant related that in March 1993, through a
brokerage house, Scotia McLeod, she and her husband
Mr. Obadia each held a portfolio of shares.
Patrick Hofman was responsible for their files. In March
1993 Mr. Hofman left Scotia McLeod and joined Burns Fry.
Mr. Hofman asked Mr. Obadia at the time whether he
could continue being responsible for their portfolios.
Mr. Obadia acquiesced in this request and asked him to make
up one account in the appellant's name. According to the
appellant, Mr. Obadia informed her of this new situation as
follows:[1]
[TRANSLATION]
And then when he came he said to me: "Well,
Patrick Hofman has moved, he has gone to Burns Fry. I told
him to take our portfolios with him, that it was okay and that he
should make a single portfolio: it will make less paperwork every
month and when I need any you can take them out for me".
So I said: "Sure, okay." I had no choice: it was
done.
To the following question by her counsel:[2]
[TRANSLATION]
Q. Can you tell us, madam, what was the consideration you paid
at that time for these shares?
the appellant answered as follows:[3]
[TRANSLATION]
A. The consideration was that I made several payments from my
personal account to the joint account so that we
could . . .
[6] In cross-examination the appellant rephrased the terms of
the agreement on the transfer of the shares as follows:[4]
[TRANSLATION]
A. Well, my husband said to me: "So, I told
Patrick Hofman to make a single account with the shares and
when I needed any you would give them to me as I needed
them". Right. I had already taken out . . . I
considered that he already owed me money, but I said: "Sure,
okay". Then, gradually, each time there was a cheque, like
that, for personal needs, I considered that it
was . . . I deducted it.
In answer to the following questions[5] regarding the new share account
opened in her name, she added the following:
[TRANSLATION]
Q. But the new account, you mean . . . the new
account showing the shares belonging to you and your
husband's shares . . .
A. Yes.
Q. . . . was in whose name?
A. In my name.
Q. In your own name?
A. Then my husband said to me: "As I need them you can
give them to me".
Q. Okay.
A. But it's not easy to . . .
Q. So, the agreement, it was that you . . . he
transferred money to you . . . well, not money but
shares.
A. And when he needed any I looked after paying his
expenses . . . that type of expense. That was
all.
Q. What type of expense?
A. Well, Dôme Communications, the lawyers. He said to
me: "It will be used . . .".
Q. Okay.
A. "I will need some of it."
Q. So what was the amount of shares which you agreed should be
repaid?
A. He told me he had nearly $100,000.
Q. Okay.
BY THE COURT:
Q. That, that's . . . $100,000 represents
the value at that time?
A. Yes, he told me there was nearly $100,000 of shares
belonging to him.
Q. In those two companies?
A. Which went from Scotia McLeod to Burns Fry. So I said to
him: "Sure, okay".
[7] Certain explanations were given about the way in which she
was to repay Mr. Obadia this debt which she had contracted
as a result of the transfer of shares and how she recorded the
repayment of her debt:[6]
[TRANSLATION]
Q. Okay. If I understand your testimony correctly, you
said . . . you agreed that you would
pay . . .
A. Yes. Yes. I had already advanced a certain amount, but I
said: "Sure . . .".
Q. Certain amounts, okay.
A. Yes.
Q. If I understand correctly, the amounts which were to be
repaid were to be credited to an account? How did that work?
A. No, it was not . . .
Q. How did you manage to know what you had repaid?
A. I don't know what he had in mind, if he thought I was
going to run every time . . . go and sell some
shares for him . . . well; but it was easier for
me to . . . from the debt
that . . . or sometimes I was paying him and I
said to myself "When I need them I will use them". And
in fact, when I needed some I had already paid them all to my
husband.
Q. Okay. How did you know . . . how could you
know if you had repaid the whole amount owing?
A. I told you, I noted it down in a corner of a book and as it
went on, $10,000, $20,000, $25,000, I said to my husband
"But the way it is going, you won't have much
left". You know, I didn't have to have an amazing memory
to . . . I did not need to have accounting
books.
Q. If I understand your testimony correctly, it was noted down
in a booklet.
A. Yes, I noted it in a corner and . . .
Q. What booklet was that?
A. It was a bank book from . . .
BY THE COURT:
Q. A book from?
A. I noted it in two bank books.
Q. Two bank books.
A. From the Royal Bank.
BY CHARLES CAMIRAND:
Q. And the bank books were for what account?
A. The Royal Bank. It was a bank book for a joint account
which I was using all the time, but . . .
Q. Okay, it came from a joint account. Was it in the book for
the joint account or in the other . . . another
account?
A. The joint account.
Q. Was it only in the joint account or were annotations both
in the joint account and in another account?
A. No, it was in a joint account.
Q. You might speak a bit louder.
BY THE COURT:
Q. Speak a bit louder.
A. Sorry. No, it was . . . well, it was in the
account I used all the time and then when I changed banks I
continued writing it in a corner and . . . there
weren’t 50 of these annotations, you know.
BY THE COURT:
Q. There were approximately how many annotations?
A. Well, there were about 10. As I took out an amount, I noted
it down.
Q. About 10 annotations in the year . . . what
year?
A. 1993.
BY CHARLES CAMIRAND:
Q. Okay. Did you keep those booklets?
A. No, unfortunately not. I looked, there was one, I did not
find it, I looked; and the other, I found it but it had lost its
cover.
Q. Do you have it with you today?
A. Yes. It was . . . I wrote it on the back and
then . . .
Q. Take it out. Show it and explain.
A. There it is. I wrote on the back and when I found it -
I looked everywhere and when I found it, well, the first page was
missing.
Q. If I understand correctly, your annotations were on the
back of the first page?
A. That's right.
Q. And now you don't have the back of this first page?
A. The back of the first page is missing.
BY THE COURT:
Q. What could have happened?
A. Eh?
Q. What could have happened? Was there a fire?
A. No. But, you know, it is difficult with old
papers . . . You know, sometimes, you think you
don't need them anymore, it was lying about, and then one
day, it becomes necessary and you . . .
BY CHARLES CAMIRAND:
Q. So, what you're saying is that only the first page
which . . . which is no longer there, which has
disappeared.
A. But, you know, even if I had not noted it, it was not
difficult to see where things stood. You know, sometimes, you
keep an account in your head and you say, well, that is $25,000
less, that is $30,000.
[8] The appellant testified that she had a personal savings
account at the Royal Bank of Canada the money in which came
mainly from gifts which her husband had made her, especially in
1990, 1991 and 1992. She expressly mentioned entries in the
account showing that on the following dates the deposits
indicated below were made to her account:
May 17, 1990 $ 39,456.14
August 10, 1990 $ 75,000.00
December 19, 1990 $ 30,000.00
April 3, 1991 $400,000.00
June 27, 1991 $ 60,000.00
August 27, 1991 $290,000.00
December 17, 1991 $ 40,000.00
July 10, 1992 $160,118.77
October 29, 1992 $250,000.00
November 18, 1992 $ 25,000.00
[9] She gave explanations of each of these deposits, or each
of these entries:
(a) as to the deposit dated May 17, 1990 in the amount of
$39,456.16, the appellant stated that it represented the balance
of another account which the appellant had earlier;
(b) the foregoing deposits of August 10, 1990,
December 19, 1990, June 27, 1991, December 17,
1991 and November 18, 1992 represented gifts made to the
appellant by Mr. Obadia, although, in the case of some
entries, her deposition is not entirely clear;
(c) as to the entries of April 3, 1991, August 27,
1991 and July 10, 1992, she stated that these amounts had
largely been used to pay Mr. Obadia's income tax or make
a payment to renew the mortgage on the house;
(d) the entry of October 29, 1992 refers to an amount of
$250,000 which, as she put it, was [TRANSLATION] "returned
to Nationair", without going into further detail.
[10] At the end of December 1992 the balance in the
appellant's personal account stood at $61,715.49.
[11] In her testimony the appellant made a connection between
the withdrawals from her personal account on the one hand and
deposits in the joint account of the appellant and
Mr. Obadia on the other, essentially as follows:
(a) on January 7, 1993 there was a withdrawal of $41,500
from the appellant's personal account and on the same day a
deposit in the joint account of $40,000; the appellant kept the
balance of $1,500 from the $41,500 withdrawal for herself in
cash;
(b) on March 23, 1993 there was a withdrawal of $14,000
from the appellant's account and a deposit of $14,000 to the
joint account on the same day;
(c) on April 13, 1993 there was a withdrawal of $5,000
from the appellant's personal account and a deposit to the
joint account on the same day;
(d) on May 6, 1993 there was another withdrawal of $5,000
and a deposit in the same amount on the same day to the joint
account;
(e) on May 10, 1993 there was a withdrawal of $2,111.97
from the personal account and a deposit of the same amount to the
joint account on the same day;
(f) on May 18, 1993 there was a withdrawal of $5,000 from
the personal account and a deposit to the joint account on the
same day in the same amount;
(g) on October 20 and 29, 1992 the appellant made two
$5,000 withdrawals and this money was deposited in the joint
account.
[12] The total of all the transfers mentioned in the preceding
paragraph from the appellant's personal account to the joint
account came to $81,111.97.
[13] The appellant then explained that a religious
"monument" was put up in memory of
Mr. Obadia's mother, Fortuna Obadia. This allegation was
supported by a mourning card filed at the hearing. It is a large
roll which is dedicated to the memory of a relation or event. As
soon as the "monument" is completed, a reception is
organized and the "monument" is shown in public. Two
cheques in the respective amounts of $20,000 and $2,897.96 made
out to Merkaz Stam[7] were used to pay the cost of making this
"monument" and certain incidentals. These cheques were
drawn on the joint account.
[14] The appellant also mentioned that her husband, who was
president of Nationair inter alia in 1993, was the target
of bad publicity in the media in that year. To deal with this
publicity Mr. Obadia hired the services of a public
relations firm, Dôme Communications, and for its services
the firm received a $25,000 cheque drawn on the joint account of
the appellant and Mr. Obadia. In the same period
Mr. Obadia also made use of the services of a firm of
accountants, Boisjoli et Associés, to help him put his
affairs in order, and the firm received $5,000 for its services.
An amount of $10,000 was paid to a law firm, Unterberg Labelle,
for services rendered in a class action brought by Nationair
employees against Mr. Obadia as director. The $5,000 and
$10,000 payments to Boisjoli et Associés and Unterberg
Labelle mentioned above were made by two drafts dated
June 16, 1993 and joint account funds were used for this
purpose. Another cheque for $7,000 was drawn on the joint account
of the appellant and Mr. Obadia to the firm Richter Usher
& Vineberg and cashed on May 11, 1993, in payment for
services rendered to Mr. Obadia in his capacity as director
of Nationair. Finally, Mr. Stein, a lawyer, received a
payment of $10,000 in the form of a cheque drawn on the joint
account on July 28, 1993, which was cashed on July 30
of that year, for services rendered to Mr. Obadia in
connection with certain assessments. Two American Express bills
were paid using money from the appellant's personal account.
These bills, which totalled $2,500, were to do with expenses
incurred by Mr. Obadia on Nationair business. The appellant
did not hold a card issued by American Express at the time.
[15] The appellant's explanations were not too clear
regarding what expenses represented the entries in the bank
statement dated January 18, 1993 for the joint account,
showing in particular two debits, one for $16,000 and the other
for $20,470. However, when a cheque in the amount of $16,000 was
shown to her she said that they were payments on the mortgage on
the house. In this connection, the appellant mentioned that the
monthly mortgage payments on the house were about $7,000 and that
the mortgage loan was about $700,000. She indicated that this
residence, which was purchased in 1988, had a value of about
$3,000,000.
[16] The balance in the joint account at the time the shares
were transferred on April 5, 1993 amounted to $2,068.83.
[17] The appellant said she never made exact calculations
about the accounts she had with Mr. Obadia. He was
responsible for payment of the family's debts: the appellant
had no paid employment during the period at issue.
Appellant's position
[18] On the appellant's behalf it was argued that she had
not been working for years, that the responsibility for household
expenses fell to Mr. Obadia and that the joint account was
used for such expenses. It was pointed out that the appellant had
a personal account the money in which came from gifts made to her
by Mr. Obadia.
[19] Counsel for the appellant relied on the point that during
1992 and 1993 the appellant withdrew funds from her personal
account and transferred them to the joint account. This money was
used chiefly to pay personal expenses of Mr. Obadia or of
Nationair of which he was president.
[20] With supporting case law, counsel for the appellant
argued that, in the absence of agreement to the contrary, money
from a joint account is the property of the person who puts the
money in. He referred to an article by Nicole L'Heureux
published in the Collection Monographies Juridiques and to
decisions of this Court in Dupuis v. The Queen[8] and
Tanguay v. The Queen.[9]
[21] Counsel for the appellant accordingly concluded from the
foregoing that Mr. Obadia was indebted to the appellant in
the amount of $81,111.97. This amount represented the total of
amounts transferred from the appellant's personal account to
the joint account of the appellant and Mr. Obadia during the
period from October 1992 to May 1993. In his submission, this
debt was the consideration paid by the appellant to
Mr. Obadia for the transfer of the shares.
[22] Counsel for the appellant noted that until 1992 all the
funds in the joint account came from Mr. Obadia. The
appellant, for her part, never paid any money into this account:
she contributed for the first time in October 1992.
[23] It was argued on the appellant's behalf that as in
1992 and 1993 the appellant had put $81,111.97 into the joint
account, which was a little more than was owed to Revenue Canada
by Mr. Obadia, it followed that the appellant no longer owed
anything to the Government of Canada. In his submission, the law
requires that the consideration paid by the party who receives
the transfer should be at least equal to the amount owed to
Revenue Canada on the date in question.
Respondent's position
[24] It was argued for the respondent that at the time the
transfer of the two groups of shares was made to the appellant
there was no agreement establishing that consideration should be
paid by the appellant.
[25] Counsel for the respondent also pointed out that the
appellant had not been able to establish any system or method of
repaying her debt to Mr. Obadia, which the missing pages of
the bank books could have shown.
[26] Counsel for the respondent maintained that an attempt was
made on behalf of the appellant, unsuccessfully in his
submission, to find the existence of consideration for the
transfer of the shares in the appellant's testimony. At most
the amounts paid by the appellant after April 5, 1993,
making a total of $17,111.97, could be consideration. Even
assuming the existence of consideration amounting to $17,111.97,
or perhaps even $19,611.97 as was mentioned at one point, the
subject assessment would still be well-founded.
Analysis
[27] To begin with, it has been clearly established by the
courts that the existence of a joint account does not make the
co-signatories of the account joint owners of the money
shown in the account. One should look instead at the original
agreement made when the account was opened.
[28] The following comments by Phelan J. of the Quebec
Superior Court in Desrosiers c. Héritiers de feu
Albert Laroche et une autre[10] are quite clear on this point:
A review of the authorities relating to the nature of joint
bank accounts indicates that the existence of such an account is
not, in itself, indicative that each co-depositor has a
proprietary interest in the funds of the account. As noted by
Perrault:(1)
[TRANSLATION]
To determine the mutual rights of depositors reference must be
made to the original agreement, the agreement concluded when the
joint account was opened. Did they intend to make the sum of
money so deposited their joint property? Did one of them intend
to make the other depositor his agent or mandatary, whether for
consideration or gratuitously? Did he or she intend a gift? In
each case it is necessary to look at the intent of the parties
and apply the general rules of the civil law on mandate, gift or
a stipulation for a third party.
And Falconbridge:(2)
The instructions given to the bank, however, are of course not
conclusive of the actual title to the debt represented by the
account.
The presumption may be rebutted and the real ownership of the
debt must be determined upon all the facts.
It may turn out that the debt really belongs to the estate of
the deceased depositor.
Care must be exercised in considering common law authority in
view of the concepts of 'joint tenancy' and
'remaindermen' which are not found in our law. However in
each jurisdiction it appears accepted that the proprietorship of
the funds in a joint account must be determined upon the facts in
each case and the intention of the parties in entering into the
arrangement.
____________________
(1) A. Perrault, Traité de droit
commercial, t.2. Montréal, Lévesque, 1936,
p. 387.
(2) J.D. Falconbridge, Banking and bills of
exchange, 7th Ed., Toronto, Canada Law Book, 1969,
pp. 303 et seq.
[29] It follows from the foregoing that in the instant case
the money deposited in the joint account from the appellant's
personal account is the appellant's property, as no agreement
was entered in evidence establishing any special arrangement
between the appellant and Mr. Obadia as to the ownership of
this money when the joint account was opened and
subsequently.
[30] To begin with, it is not in dispute that Mr. Obadia
transferred the blocks of shares in question to the appellant,
who became their owner when she accepted them.
[31] A careful review of the appellant's testimony, the
most relevant passages of which were reproduced above, did not
persuade me that at the time the transfer of shares was made the
appellant and Mr. Obadia had reached a sufficiently precise
agreement on consideration to be provided by the appellant. In
this connection, the appellant's testimony was vague and
lacked clarity on the essential aspects of these arrangements, if
there were any arrangements, between herself and Mr. Obadia.
For example, as appears from the passage of her testimony
reproduced at paragraph 6 of these reasons, the appellant
said the following: [TRANSLATION] "I considered that he
already owed me money". The evidence did not disclose
whether at the time the shares were transferred Mr. Obadia
was of the appellant's view that he owed her money, and if
so, as to the amount of such a debt.
[32] There was the same lack of precision or vagueness about
the arrangements for repayment of the appellant's debt to
Mr. Obadia resulting from the transfer of the shares in
question. To the question [TRANSLATION] "How did you manage
to know what you had repaid?", the appellant answered, as
appears in the passage cited at paragraph 7 of these
reasons, the following:
A. I don't know what he had in mind, if he thought I was
going to run every time . . . go and sell some
shares for him . . . well; but it was easier for
me to . . . from the debt
that . . . or sometimes I was paying him and I
said to myself "When I need them I will use them". And
in fact, when I needed some I had already paid them all to my
husband.
In short, the connection between the transfer of shares on the
one hand and the existence of consideration given by the
appellant on April 5, 1993, or to be given subsequently, was
not established on a balance of probabilities.
[33] Additionally, I was not persuaded of the truth of the
appellant's testimony regarding these arrangements as a
whole. Her story did not seem credible to me, especially
regarding the missing cover page of a bank book and, at another
point, two bank books, in which she said there was a list of
advances to the joint account.
[34] Moreover, the Court did not have the benefit of testimony
by Robert Obadia, the other party to the agreement. I was
given no satisfactory explanation of his absence.
[35] Although the comments that follow are not necessary in
view of the conclusion at which I have arrived, I would like to
mention that if I had accepted the appellant's proposition
that the consideration given by her consisted of deposits made by
her from her personal account to the joint account prior to the
date the shares were transferred, I could only allow the appeal
in part. Section 160(1)(e) of the Income Tax
Act clearly states that the transferee and transferor are
jointly and severally liable to pay the latter's tax debt up
to the amount by which the value of the property which is the
subject of the transfer exceeds the fair market value of the
consideration given by the transferee. This conclusion is clearly
to be inferred from the language of s. 160(1)(e),
which reads as follows:
(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 . . .
[36] It was admitted in the instant case that the fair market
value of the property at the time of its transfer was equal to
$103,000, while the fair market value of the consideration
according to the proposition put forward by the appellant was
$81,111.97. The market value of the property transferred thus
exceeded the consideration by $21,888.03. On this assumption, the
assessment should have been reduced to $21,888.03.
[37] I added the comments made in paragraphs 35 and 36
above because in his argument counsel for the appellant
maintained that [TRANSLATION] "all that the Act requires is
that consideration was paid and that the consideration be at
least equal to the amount owed the Department on the date in
question". In my view, that is a misunderstanding of the
scope of the two subparagraphs, (i) and (ii), of
s. 160(1)(e) of the Income Tax Act. Briefly,
in my view, the obligation imposed on the transferee of property
under s. 160(1)(e) is as it were equal to the extent
of his or her enrichment at the expense of the Revenue
Department.
[38] I therefore come to the conclusion that the appellant has
not discharged the burden of proof upon her of showing on a
balance of probabilities that consideration existed at the time
the two blocks of shares in question were transferred.
[39] For these reasons, the appeal is dismissed with
costs.
Signed at Ottawa, Canada, this 16th day of April 1998.
Alban Garon
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 14th day of July
1998.
Benoît Charron, Revisor
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