Citation: 2007TCC205
Date: 20070403
Docket: 2002-3798(IT)G
BETWEEN:
EDWARD MILLER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
and
PATRICIA MAEVE WILSON,
Third Party.
REASONS FOR JUDGMENT
Miller J.
[1] Mr. Miller claims to have paid $180,000 in 1995 for the purchase of a property from the Third Party, Ms. Wilson (formerly Railton). She claims to have received only $100,000 as consideration. The difference of $80,000 represents cash Mr. Miller says that he paid to Ms. Wilson in three instalments of $30,000, $48,000 and $2,000, all paid in $100 bills. Ms. Wilson denies receiving such cash. Mr. Miller sold the property in 1998 and the Minister of National Revenue (the Minister) assessed him on the basis that his cost base was $100,000 and not $180,000. Mr. Miller appealed. The Minister seeks a determination of a fact pursuant to section 174 of the Income Tax Act (the Act): what was the price paid by Mr. Miller to Ms. Wilson for the purchase of the property? The Minister has joined Ms. Wilson to these proceedings. The determination of the price paid will resolve Mr. Miller's appeal regarding the assessment of the gain on his subsequent sale. Mr. Miller also had a second issue in his appeal which did not involve Ms. Wilson, but relates to a possible shareholder benefit. At the hearing he stated that he was withdrawing his appeal on that issue.
[2] The section 174 determination is a question of credibility. Do I believe Mr. Miller that he paid $180,000 for the property by cheque of $100,000 drawn on his corporate account, of which there is no dispute, plus three cash payments of $30,000, $48,000 and $2,000, respectively; or, do I believe Ms. Wilson that she only received the $100,000 cheque and no cash? This question seemed relatively straightforward before I heard three days of evidence and concluded that neither Mr. Miller nor Ms. Wilson were paragons of veracity.
[3] The evidence suggests there are three possible versions as to what actually transpired in 1995 in connection with the sale of the property from Ms. Wilson to Mr. Miller: Mr. Miller's version; Ms. Wilson's version as related at trial; and Ms. Wilson's version as related on two separate occasions in 2002, firstly to Mr. Shane McCafferty and secondly to Mr. Timothy Matthews, both officers of Canada Revenue Agency (CRA). I will review each version.
Mr. Miller's version
[4] In early 1995, Mr. Miller was looking for Lake Erie lakefront property for his personal residence. He was shown the Railton's home, being sold as a result of a matrimonial break-up. While not interested in the home, he noticed a severance application, severing the lots on either side of the home. He was interested in one of the vacant lots, the one that was owned (pursuant to the separation agreement between Mr. and Mrs. Railton) by Ms. Wilson (formerly Railton). He met with Ms. Wilson in his office on March 13, 1995. He submitted an offer to her of $200,000, an agreement he drew up on his company letterhead (Trench Canada). Ms. Wilson corrected the spelling of her first name on the agreement. As the severance of the lot had not been completed it was to be her responsibility to look after the costs in finalizing the severance. At this time Mr. Miller paid her $30,000 cash in $100 bills. He, as a matter of course, kept significant amounts of cash in his office. Ms. Wilson wanted the cash as she was interested in buying a sailboat. Mr. Miller paid cash to get access to the property so he could start preparing the site for construction. The substance of the first agreement is copied as Schedule A to these Reasons.[1]
[5] In April 1995, Ms. Wilson approached Mr. Miller to indicate that she was not able to fund the severance costs (which included some significant electrical work), so the deal was renegotiated to $180,000. Mr. Miller was to be responsible for the severance costs, although if he incurred less than $15,000 Ms. Wilson would get a rebate from him. He claimed he incurred greater than $15,000 so no rebate was provided. The second agreement, the substance of which is copied as Schedule B to these Reasons,[2] was prepared on April 24, 1995 and signed on April 28, 1995 by Mr. Miller and Ms. Wilson. (The Respondent's handwriting expert opined that there was a strong probability Ms. Wilson signed the March agreement and April agreement.) Mr. Miller delivered to Ms. Wilson a cheque for $100,000 drawn on Trench Canadaalong with $48,000 in $100 bills shortly after the signing of the April 28 agreement. This is reflected in the bottom two lines of that agreement as shown on Schedule B.
[6] Mr. Miller retained a lawyer, Mr. Marchand, to close the deal as soon as the severance had been finalized. Mr. Miller provided the law firm with a copy of the second agreement dated April 24, 1995. Ms. Betty Ann Hems, a paralegal at the law firm confirmed she handled this real estate deal.
[7] Mr. Miller recalls that when it came to signing the transfer documents, they indicated a sale at $100,000 and not $180,000. He instructed that the documents be resubmitted for change, which request was rejected. Mr. Miller claimed he had only two options: (i) to sue Ms. Wilson; or (ii) to close the deal at $100,000. Considering the property was intended to be his personal residence he saw no downside in documenting the deal at $100,000. He felt boxed in. Though angry, he swore the land transfer tax affidavit at $100,000 on June 15, 1995. He acknowledged at trial this was a false affidavit.
[8] On June 16, 1995, Mr. Miller went to Ms. Wilson's office and paid her the final $2,000 in cash and she initialled the agreement. The Respondent's handwriting expert could not determine if the initials on this document were indeed those of Ms. Wilson. Curiously, the agreement purportedly initialled (Exhibit A-5) has some slight typing differences from the agreement entered as Exhibit A-2. The Deed of Transfer was registered July 19, 1995. Shortly thereafter, Mr. Miller decided to move away from the area. He subsequently sold the lot in 1998 for $235,000.
Ms. Wilson's version
[9] In 1995 Ms. Wilson was the executive director of Showboat Festival Theatre. She had known Mr. Miller for some years as her organization bought T-Shirts from his organization, Trench Canada. Ms. Wilson was in the throes of a separation from Mr. Railton. They determined to sell their home and sever the two lots on either side of the home, with each one of them taking a lot. The separation agreement stipulated:[3]
(2) Maeve and James acknowledge that they have agreed to sell the matrimonial home, and that the matrimonial home has been listed jointly by them with Niagara View Realty with a listing price as mutually agreed by the parties from time to time on the basis that the property is to be severed into three lots; neither of them is obliged to sign any sale agreement which will provide the parties jointly with less than $400,000 net after commissions, severance costs, survey and legal expenses (not including the value of the lots to be retained).
The matrimonial home sold for $317,000.
[10] In January or February 1995, Mr. Miller met Ms. Wilson on the property and made a verbal offer. Ms. Wilson had asked for $100,000 net, meaning she wanted to clear $100,000 after all realty, legal and severance costs (which she estimated at about $16,000). Ms. Wilson testified that Mr. Miller agreed to that. Ms. Wilson had real estate agents and an appraiser value the lot between $40,000 to $100,000. None of the agents or the appraiser testified.
[11] On February 24, 1995, Ms. Wilson and her new husband, Mr. Wilson, went to Floridawhere Ms. Wilson made an offer on a boat which she eventually purchased for approximately C$83,000. On her return to Canada, she met a couple of more times with Mr. Miller. She denies receiving $30,000 cash, $48,000 cash and $2,000 cash, as she maintains that was not the deal. With respect to the written agreement at $200,000 (Schedule A), and then at $180,000 (Schedule B), she responded that the signature looked like her signature but they were not the terms she agreed to, so she would not knowingly have signed such documents. She recalled there being an agreement but could not recall what it looked like. She presumed there would have been a legal description. She confirmed that she received a cheque for $100,000 on the date she signed the Transfer Deed on May 2. She described how a man in a suit came to her office on May 2 with the Deed, which she refused to sign, as there was only $100,000 being offered and no reimbursement for expenses. Neither in examination-in-chief nor cross-examination did she mention how Mr. Miller was to know how much over $100,000 he was to pay. When I questioned her on this, she suggested she had provided him with a list of the costs. She discussed the closing of the deal with Mr. Wilson who testified he called Mr. Miller to inquire. (Mr. Miller did not recall that conversation.) Mr. Wilson indicated he was advised by Mr. Miller to take it or leave it. Ms. Wilson decided to take the deal and the man in the suit returned to obtain her signature on the Deed and delivered the cheque. She presumed that person was sent by Mr. Miller and also presumed it was his lawyer. She never saw a Deed for $180,000.
[12] Ms. Wilson acknowledged that her former husband, Mr. Railton, a lawyer, handled the legal work for the severance of the lots, but did not handle the sale of the property to Mr. Miller. She claimed Mr. Miller was to take care of all the legalities through his lawyer.
[13] Ms. Wilson testified she did not realize there was a problem with the sale of the property until contacted in the spring of 2002 by Mr. McCafferty of CRA.
Ms. Wilson's version via the CRA representatives
[14] In March 2002, Ms. Wilson was contacted by Mr. McCafferty of the CRA, who asked her to describe the Miller transaction. Mr. McCafferty stated that he was informed by Ms. Wilson that she had been approached by Mr. Miller to trade her lot for another property. She was not interested, so they informally agreed on a sale of $180,000 and that she signed an agreement to that effect. After Mr. Miller assessed the property for his needs and determined that it required some cash input, according to Ms. Wilson's explanation to Mr. McCafferty, Mr. Miller withdrew his $180,000 offer. This created a problem for Ms. Wilson given her interest in buying a boat so she renegotiated the deal to net $100,000 after certain costs Mr. Miller agreed to incur. After this explanation to Mr. McCafferty, Ms. Wilson's description of the events thereafter corresponded to the version she related in Court.
[15] Mr. Matthews of CRA spoke to Ms. Wilson in April 2002 and heard a similar story to that related to Mr. McCafferty.
Patricia Hems' Testimony
[16] Ms. Hems worked as a real estate paralegal in Mr. Marchand's office in 1995. She recalled handling the sale of the property from Ms. Wilson to Mr. Miller. She was uncertain as to how the offer came into the office, but presumed it arrived one month or two before closing in July 1995. The first letter in her file is a request from her to the City of Port Colborne dated June 8, 1995. The only agreement in her file with respect to the sale was the April 24, 1995 agreement (Schedule B) but with the figure of $180,000 altered to $100,000 and the bottom two lines ripped off. Ms. Hems was not definite whether she received the offer showing $180,000, or the one in which the $180,000 was overwritten by the number 100,000, and the bottom part of the page ripped off. The bottom part of the page contained the two lines dealing with the payment of $148,000 and $2,000. In cross-examination, she confirmed that she had received the unripped $180,000 agreement, though could not explain how or when it would have been altered to $100,000 and ripped. Her file only contained the one at $100,000, though she testified she understood the deal to have originally been at $180,000. She also stated that Mr. Miller had informed her that the purchase price was the same as the deposit, and that it had been paid.
[17] Ms. Hems believed Ms. Wilson's estranged spouse, Mr. Railton, was handling the deal, as she recalled phoning his office to advise how Mr. Miller wished to be described on title. She also received a copy of a discharge of mortgage from Mr. Railton's office. Finally, she recalled calling that office when she received the Deed of Transfer as it stipulated consideration of $100,000, not $180,000, as she believed it should be. She was advised by someone in Mr. Railton's office that the consideration was $100,000. She therefore spoke to her boss, Mr. Marchand, who spoke to Mr. Miller, and later Mr. Marchand advised Ms. Hems to make the affidavit out for $100,000. She did so and took Mr. Miller's oath, thinking nothing untoward about the lesser consideration, for, as she put it, deals change. Curiously she had sworn an affidavit in May 2002 stating:[4]
I was aware that the $80,000 paid by Mr. Miller to the Vendor therein was not reflected on the purchase documents as the Vendors refused to do same.
She testified she would not have taken Mr. Miller's oath had she thought he was swearing a false affidavit.
[18] Ms. Hems acknowledged that the first entry in her file were notes from Mr. Marchand which indicated "Deposit $100,000". Although she prepared a Deed of Transfer, it was a Deed received from Mr. Railton's office that was ultimately registered. The Deed registered appears to be a copy of the Deed severing the property, whited out and altered to reflect the Railton-Miller sale. This Deed showed the price of $100,000. Also, on one of the draft deeds she had written on the back "the agreed price for property was $100,000". Finally, Ms. Hems testified that in her view, her boss, Mr. Marchand, would never do anything improper.
Analysis
[19] Did Mr. Miller pay to Ms. Wilson $80,000 in cash? Mr. Miller said he did. Ms. Wilson said he did not. Black or white - no grey or middle ground. Unfortunately, there are scant facts surrounding the actual transfer of the cash. There were no witnesses to the transfer of cash. There are no bank records from Ms. Wilson that might have indicated deposits during the periods in question. Likewise, there were no business records from Mr. Miller or Trench Canadacorroborating his habit of retaining large amounts of cash. There was the testimony of Ms. Hems confirming Mr. Miller's contemporaneous advice to her that the deposit was the same as the purchase price and that it had been paid. This evidence, however, seems somewhat contradictory of Ms. Hems' later evidence regarding taking Mr. Miller's affidavit, in which she swore the consideration was only $100,000. Ms. Hems testified she would never take anyone's affidavit if she believed it was false. The only explanation is that by the time she took Mr. Miller's affidavit she believed the deal had changed to a deal for $100,000. There was also Ms. Hems' evidence that Mr. Miller had used cash in other transactions. Those are all the facts directly in connection with the purported cash transaction. Not much to go on.
[20] It becomes necessary, therefore, to assess the credibility of Mr. Miller and Ms. Wilson. My impression is that neither was fully forthright.
[21] Why does Mr. Miller's position lack credibility? Because:
(i) he has already admitted to swearing a false affidavit; notwithstanding his explanation this action was justified by feeling boxed in, I remain suspicious of the testimony of someone who acknowledges lying under oath.
(ii) the one person, Mr. Marchand, Mr. Miller's lawyer, who might have confirmed Mr. Miller's story, was not called to testify. The Respondent's counsel suggested it is understandable that Mr. Marchand would be reluctant to testify if he advised his client that a viable option was to swear a false affidavit. This explanation presumes the worst of a member of the legal profession. It is also inconsistent with Ms. Hems' assessment of her boss as someone who would never do anything improper. There is another possible and plausible explanation, which would not suggest any inappropriate behaviour on the part of Mr. Marchand, and which would not cause him any embarrassment to testify. The other explanation is that the deal really was at $100,000 and Mr. Marchand knew it and instructed his paralegal to prepare the affidavit accordingly. This is supported by Mr. Marchand's note at the very outset of the file handled by Ms. Hems. The first entry in that file is his handwritten notes indicating a deposit of $100,000. I do not accept that Mr. Marchand did not testify to avoid embarrassment, but on balance did not testify as the story would not have supported a deal of $180,000.
(iii) The only agreement in Ms. Hems' file is a photocopy of the agreement signed by Mr. Miller and Ms. Wilson dated April 24. This copy had $180,000 overwritten by $100,000 and also has the bottom two lines of the agreement ripped off (recall those were the two lines indicating payments of $148,000 and $2,000). Ms. Hems did not recall how or when these changes were made. If Mr. Miller, Mr. Marchand and Ms. Hems all believed Mr. Miller paid $180,000, it makes no sense that anyone in Mr. Marchand's office would have altered the $180,000 to $100,000 and then ripped off the portion of the agreement indicating $148,000 had been paid. I am left with the only conclusion that Ms. Hems was mistaken in recalling the agreement arrived intact for $180,000. I find it did not. Mr. Miller may at some point have mentioned $180,000 to Ms. Hems, but there is absolutely nothing in her file that suggests the deal was other than $100,000. Indeed, her notes on the back of one of the draft transfers state the agreed price for the property was $100,000.
(iv) It is not customary in our society to transact deals with large amounts of cash in $100 bills. If such is Mr. Miller's habit, and I have not been convinced by the testimony of Ms. Hems that she knew sufficient about his commercial practices to substantiate his claim, then I would expect some tangible support - company's ledgers, bank withdrawals or deposits, customers' statements, bookkeepers' corroboration, auditors' corroboration, monthly or yearly financial statements - something to suggest that Mr. Miller transacted business with $100 bills.
[22] If this were simply Mr. Miller's appeal, I would end my Reasons at this point and find that he has not, on balance, satisfied me that he paid the additional $80,000 cash. But this is the determination of a fact and I must also deal with Ms. Wilson's story, and I therefore ask the same question - why does Ms. Wilson's position lack credibility?
[23] Because:
(i) She refused to acknowledge she signed the letter agreements of March 13 and April 24, when I am satisfied that she did.
(ii) She changed her story from what she told the CRA officials in 2002 and what she told me.
(iii) She claims to have signed an agreement of $100,000 though none was produced.
(iv) She claims to have provided a list of expenses to Mr. Miller for reimbursement, but again no such list was produced.
(v) She claims to have been visited on two occasions by a man in a suit with a Deed of Transfer, who she could not describe, though who was not Mr. Marchand. There is no explanation as to who this mystery man might be.
(vi) She denies anyone acted for her with respect to the transfer, yet I am satisfied Mr. Railton's office was involved in the preparation of the Deed of Transfer. I accept Ms. Hems' evidence on this point.
[24] To put as kind a spin as possible on Ms. Wilson's testimony, her memory has played tricks on her to the point of confusion.
[25] So, I am faced with the conundrum of not fully believing either of the two protagonists' stories. I am therefore going to place considerable weight on certain documents, being those documents put forward by Ms. Hems. Her file contained no record of a deal closing at $180,000. The April 24 agreement, as amended, the Deed, the affidavit of value and consideration, Ms. Wilson's notes and Mr. Marchand's notes all point to the ultimate sale being at $100,000. This evidence, combined with my earlier comments regarding lack of corroboration of Mr. Miller's cash transactions, leads me to the conclusion the price paid was $100,000.
[26] Whichever conclusion I come to would leave questions unanswered, circumstances unexplained and a mystery remaining surrounding what truly happened. This has indeed been an odd case. Only Mr. Miller and Ms. Wilson know the truth - a concept neither one embraces.
[27] In conclusion, the answer to the section 174 question of fact is that the purchase price for the subject land was $100,000. Accordingly, Mr. Miller's appeal is dismissed. Costs in connection with the appeal are to be borne by Mr. Miller. Costs in connection with the section 174 determination, which include the three days of hearing, are to be borne equally by Mr. Miller and Ms. Wilson, for reasons that should be apparent from my comments in these Reasons. If the parties cannot agree on the appropriate Bills of Costs they should submit written representations to me within 60 days of the date of these Reasons.
Signed at Ottawa, Canada, this 3rd day of April 2007.
"Campbell J. Miller"
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