Citation: 2007TCC341
Date: 20070615
Docket: 2006-3809(IT)I
BETWEEN:
PAMELA VERNA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal
pursuant to the Informal Procedure was heard at Kelowna, British Columbia on June 8, 2007. The
Appellant was the only witness.
[2] The particulars in
appeal are set out in paragraphs 5 to 13, inclusive, of the Reply to the Notice
of Appeal. They read:
5. By Notice of Assessment #28580 dated
February 15, 2006 (the “Assessment”), the Minister of National Revenue (the
“Minister”) assessed the Appellant in the amount of $12,002.79 in respect of a
transfer of property to the Appellant within the meaning of section 160 of the Income Tax
Act, R.S.C. 1985, c.1 (5th Supp.)(the “Act”).
6. By Notice of Objection dated May 2, 2006
the Appellant objected to the Assessment.
7. By Notification of Confirmation dated
September 11, 2006 the Minister confirmed the Assessment.
8. In assessing the Appellant and in
confirming the Assessment, the Minister assumed the same facts as follows:
a) The Appellant’s spouse, Emilio Quinn
Verna, passed away on August 27, 2000;
b) Carlo Verna is the brother of the
Appellant’s spouse;
c) Lia Sambrielaz is the sister of the
Appellant’s spouse;
d) Andy Sambrielaz, the Corporation’s
accountant, is married to Lia;
e) Prior to the death of the Appellant’s
spouse, the Appellant, her spouse and her brother-in-law Carlo held the
following percentage of shares of the Corporation:
|
|
% of the shares of the Corporation held
|
|
Appellant
|
25%
|
|
Appellant’s spouse
|
25%
|
|
Carlo
|
50%
|
f) After the death of the Appellant’s
spouse, the Appellant and her brother-in-law each held 50% of the shares of the
Corporation;
g) Prior to the death of the Appellant’s
spouse, the Appellant and Carlo were both directors of the Corporation;
h) Prior to the death of the Appellant’s
spouse, Carlo was an officer of the Corporation, holding the position of
Secretary;
i) The fiscal year end of the Corporation is
August 31st;
j) On or about August 31, 2001, the
Corporation paid dividends to the Appellant and Carlo as follows:
|
|
Actual
|
Taxable
|
|
Recipient
|
Dividend
|
Dividend
|
|
Appellant
|
$24,000.00
|
$33,000.00
|
|
Carlo Verna
|
$24,000.00
|
$33,000.00
|
k) In 2001, the Appellant and Carlo each
received a dividend from the Corporation as stated in paragraph j), above;
l) The Appellant and Carlo acted in concert
to direct the Corporation to issue the dividends to its shareholders in 2001;
m) The Corporation issued the Appellant a T5
information slip for the 2001 taxation year as follows:
|
Actual Dividend
|
Taxable
Dividend
|
Dividend
Tax Credit
|
|
$24,000.00
|
$30,000.00
|
$4,000.00
|
n) On filing her return of income for the
2001 taxation year, the Appellant included the taxable portion of the dividend
she received from the Corporation in the computation of income and claimed the
dividend tax credit to reduce her tax liability;
o) The Corporation did not receive any
consideration in regard to the transfer of property to the Appellant, by way of
paid dividends in 2001 in the amount of $24,000.00 (the “Property”);
p) The aggregate of all amounts that the
Corporation was liable to pay under the Act in respect of the taxation
year in which the Property was transferred or any preceding taxation year was
not less than $12,002.79 as follows:
|
Fiscal
Year End
|
Tax
|
Arrears Interest
|
Instalment Interest
|
Total
|
|
August
31, 2001
|
$7,890.68
|
$3,672.43
|
$439.68
|
$12,002.79
|
q) The Corporation did not owe a debt to the
Appellant immediately prior to the transfer of the Property; and
r) As at fiscal year ending August 31, 2000,
the Appellant’s spouse and Carlo owed the Corporation $151.94 and $41,171.52,
respectively.
B. ISSUE TO BE DECIDED
9. The issue is whether the Appellant is
liable to pay the amount of $12,002.79 pursuant to section 160 of the Act
in respect of the transfer of the Property to the Appellant by the Corporation.
C. STATUTORY PROVISIONS RELIED ON
10. He relies on sections 160 and 251, and
subsection 248(1) of the Act.
D. GROUNDS RELIED ON AND RELIEF SOUGHT
11. He submits that the Minister properly
assessed the Appellant pursuant to subsection 160(1) of the Act on the
basis that the Appellant is jointly and severally liable with the Corporation
for the Corporation’s liability to pay tax under the Act because the
Corporation transferred the Property to the Appellant for no consideration when
there was a tax liability for the Corporation for the year of transfer.
12. He submits that the Corporation was not
indebted to the Appellant immediately prior to the transfer of the Property.
13. He submits that the Appellant was not
dealing with the Corporation at arm’s length in 2001.
[3] The “Corporation”
is 560006 BC Ltd. which operated two bulk Petro‑Canada gas line stations
until September 2001, one in Kelowna and the other in Penticton, British Columbia. In September, Petro-Canada
repossessed them.
[4] Assumptions 8(a) to
(i), inclusive, (m), (n), (p), (q) and (r) were not refuted by the evidence.
[5] Pamela appears to
be in her early 40’s. When her husband, Emilio, died in 2001 she was at home
with their three children aged five, four and two. That day, or the next day,
her former brother-in-law, Andy Sambrielaz, came to her home with a paper,
which she signed upon his demand, giving power over the Corporation to Andy and
her former brother-in-law, Carlo. Carlo was described on page C2 of the
September 11, 2004 edition of The Vancouver Sun (Exhibit A-1) as a
member of the Hell’s Angels. The article described him as a physical
enforcement operator of various unsavoury enterprises in British Columbia. (Exhibit A-1 was
admitted as evidence of Carlo’s reputation among the public.) Pamela stated
that Andy and Carlo gave her orders and she followed those orders. She is
believed.
[6] When Emilio died,
Pamela acquired $2,000 in their joint bank account, Emilio’s 25 shares in the Corporation
and her interest in her home. She had nothing else except her Canada Pension
Plan entitlement. She and her children lived on the Food Bank and charity from
her parents and neighbours.
[7] Carlo and Andy
ordered a funeral for Emilio which cost $27,798.33 and told Pamela to pay for
it. Pamela had no money and Carlo and Andy had contracted for the funeral. At
law, they were liable for the funeral bill. So they had the Corporation pay the
funeral bill.
[8] There was no meeting
of the directors or shareholders to authorize payment of the funeral bill or
the alleged $24,000 dividend. There are no such minutes. Nor was any money,
including the $24,000 dividend, paid to Pamela by the Corporation. Instead,
Andy gave Pamela a T5 slip (Exhibit A-3) describing the dividend and told her
to report it with her 2001 income tax return. Pamela did this.
[9] The minute book of
the Corporation is filed as Exhibit A-2. Pamela can not obtain any bank records
or cancelled cheques of the Corporation. She believes that Andy has them.
[10] Thus, contrary to
assumptions 8(j) and (k), the Corporation did not pay Pamela any dividends in
2001 or at any other time and she did not receive a dividend or any benefit
from the Corporation. Rather, Andy and Carlo received a benefit from the
Corporation of $27,798.33 when it paid their funeral bill. (Pamela is believed
when she stated that she would never have ordered such an elaborate funeral and
she could not have afforded it.)
[11] Contrary to
assumption 8(l), the Court finds that Andy and Carlo acted in concert to cause
the Corporation to pay the funeral bill for their benefit and, further, that no
dividend was authorized or paid by the Corporation according to the evidence
before the Court. Thus, contrary to assumption 8(o), the Corporation did not
transfer any property to Pamela by way of dividend or by any other means in
2001.
[12] For these reasons
the appeal is allowed in its entirety and this matter is referred to the
Minister of National Revenue for reconsideration and reassessment accordingly.
The Appellant is awarded costs which are fixed at $100 on account of
reimbursement of her out-of-pocket expenses, including postage, copying,
telephone charges and parking expenses incurred to prosecute her appeal.
Signed at Saskatoon, Saskatchewan
this 15th day of June, 2007.
"D.W. Beaubier"
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