Citation: 2009 TCC 541
Date: 20091027
Docket: 2009-241(IT)I
BETWEEN:
HELENE PELLETIER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Favreau, J.
[1]
This is an appeal by
way of the informal procedure from an assessment dated November 2, 2007,
numbered 46924, made by the Minister of National Revenue (the “Minister”) under
subsection 160(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.), as amended (the “Act”) whereby it was determined that the
Appellant was liable for an amount of $10,430.46 in respect of transfers of
funds that took place between April 20, 2000 and December 23, 2005
from Mr. Peter D’Arcy Farrell, her spouse.
[2]
During the 2000, 2001
and 2002 taxation years, Mr. Farrell transferred to the Appellant, in total,
$9,400 by way of cheques and, on December 26, 2005, the Appellant
deposited in her bank account cheques totalling $710.46 that were payable to
Mr. Farrell. The amount of the transfers of funds to the Appellant is not challenged
and the Minister accepted that the actual amount of the transfers to the
Appellant is $10,110.46.
[3]
The Appellant and
Mr. Farrell were married in 1976 and were legally separated pursuant to a
judgment of the Superior Court dated October 16, 1986. This judgment
incorporated the terms and conditions of a consent to judgment signed by the
Appellant and her spouse on August 29, 1986 under which the Appellant
obtained the custody of their minor child Michael and Mr. Farrell was required to
pay to the Appellant an alimony allowance of $1,000.00 per month, to continue
to make the monthly payments for the leased car possessed by the Appellant and
to reimburse the Appellant’s car expenses each month upon presentation of
receipts. The transfers of funds referred to hereinabove in paragraph 2
were not provided to the Appellant by Mr. Farrell pursuant to the
separation agreement. The couple lived separated until 2001 when they started
to live together again.
[4]
From 2000 to 2005, Mr.
Farrell lived in the Province of Ontario where he operated a kitchen
cabinet business while the Appellant was living at Mont Saint‑Hilaire
in a residence acquired in 1994. Mr. Farrell declared bankruptcy on May 4,
2006 at which time he owed the Canada Revenue Agency (“CRA”) $209,944.13 for
taxes, interest and penalties for the 1998, 1999, 2000, 2001 and 2005 taxation
years.
[5]
The Appellant appealed
from the assessment on the ground that the transfers of funds from
Mr. Farrell were loans to help her while she was in financial dire straights.
She further invoked the fact that the said loans were reimbursed in full,
mostly in cash. As proof of partial reimbursements, the Appellant provided
copies of three cheques payable to Mr. Farrell for a total amount of
$1,155 respectively dated August 10, 2000 ($55), March 10, 2002
($300) and April 8, 2002 ($800). On the said cheques, there was no memo
indicating that they were drawn to reimburse loans.
[6]
The total incomes
declared by the Appellant for the 2000 to 2005 taxation years were,
chronologically, $15,394 for 2000, $20,202 for 2001, $28,153 for 2002, $34,660
for 2003, $38,546 for 2004 and $41,513 for 2005. In 2000, the Appellant was
unemployed and she started working again in March of 2001. In July of 2002, she
was hired by an insurance company, Sun Life, and earned a higher salary.
[7]
The Appellant testified
at the hearing and stated that there was no documentary evidence of the loans,
except for the cheques of Mr. Farrell payable to her. There was no loan
agreement, no promissory notes, no registry or record of any kind and no
document specifying the terms and conditions of the reimbursements. She
explained that the loans were made pursuant to an informal verbal arrangement and
that the loans were to be reimbursed whenever she could afford it. She said
that her final payment to Mr. Farrell was made in 2008.
[8]
In a letter dated
October 14, 2007 addressed to CRA, the Appellant offered the following explanation
as to why, on December 26, 2005, she deposited cheques payable to
Mr. Farrell in her own bank account:
In December of 2005, Mr. Farrell lost his job in Ottawa and moved to Montreal. I lent him some money so he paid
me back by giving me his pay cheques as he had not yet opened a local bank
account.
[9]
Mr. Farrell also
testified at the hearing and he confirmed the fact that he had made the loans
to the Appellant and that the loans had been reimbursed by her in full. He
further said that he has kept track of the amounts of money loaned and
reimbursed but he did not offer any documentary evidence to that effect.
Analysis
[10]
Paragraph 160(1)
of the Act applies where a person has transferred property, either
directly or indirectly, by means of a trust or by another means whatever, to
the person’s spouse. In the present case, the Appellant was Mr. Farrell’s
spouse (legally separated but not divorced). The Appellant recognized that she received
sums of money from Mr. Farrell. Consequently, the conditions of
paragraph 160(1) of the Act are met. Where paragraph 160(1) of the Act
applies, the transferee and transferor are jointly and severally liable for any
tax that the transferor was liable to pay in or in respect to the year of
transfer or in any preceding taxation years, to the extent that the value of
the property transferred exceeds the fair market value of the consideration
received therefor. To succeed in her appeal, the Appellant had to show that lawful
consideration was given for the property transferred, in other words, that she
reimbursed the loans in full.
[11]
According to
paragraph 152(8) of the Act, an assessment is deemed to be valid
and binding. Hence, the taxpayer has the burden of proof to show that the
assessment is wrong or ill‑founded.
[12]
Under the Civil Code
of Québec, a verbal contract is valid and it confers rights and imposes obligations
on the parties thereto. When third parties are affected by a verbal contract,
the parties often have problems in proving the existence of such a contract.
[13]
In tax matters,
documentary evidence is almost always required from taxpayers where the
evidence submitted is not sufficient or is vague, where the witnesses are not
credible or where there are contradictions in the information provided by the
taxpayers. In this case, CRA was absolutely warranted in requesting documentary
evidence pertaining to the reimbursement of the loans as the Appellant did not keep
any record and as there were contradictions in the information provided by the
Appellant.
[14]
One contradiction noted
concerned the cheques identified in paragraph 5 tendered as evidence of
partial loan reimbursements. Two of them were respectively dated March 10
($300) and April 8, 2002 ($800). In the October 14, 2007 letter that
the Appellant sent to CRA, she said that in 2002, Mr. Farrell had lent her
$3,500 in the following months: March ($1,000), April ($500) and August
($2,000). This means that in the months of March and April of 2002,
Mr. Farrell has lent to the Appellant $1,500 and that the Appellant
reimbursed him $1,100 during the same months. This appeared to me to be very
unusual and I questioned why no set-off of debts occurred.
[15]
Another contradiction was
raised by the October 14, 2007 letter. In the extract reproduced in
paragraph 8 hereinabove, the Appellant referred to the fact that she had
lent money to Mr. Farrell and that the cheques payable to Mr. Farrell
that were deposited in her bank account were to reimburse her for such loans.
In her testimony, the Appellant simply said that the cheques were deposited in
her bank account so that she could withdraw the cash and remit it to
Mr. Farrell. This seems to contradict the reality of the loans supposed to
have been made by the Appellant to Mr. Farrell.
[16]
The contradictions referred
to in the two preceding paragraphs seriously undermine the credibility of the
Appellant. I am not persuaded at all that the three cheques payable to
Mr. Farrell for a total amount of $1,155 constituted partial reimbursement
of loans and I am inclined to think that they could very well reflect loans
made by the Appellant to Mr. Farrell. In view of the insufficiency of the
evidence offered by the Appellant, the assessment must stand. It was the
Appellant’s responsibility to keep proper records of her own personal transactions.
[17]
Consequently, the
appeal is dismissed.
Signed at Montreal, Quebec,
this 27th day of October 2009.
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