Citation: 2008TCC13
Date: 20080111
Docket: 2005-1780(IT)G
BETWEEN:
JOANNE LAMOTHE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Rip A.C.J.
[1] Joanne Lamothe is
appealing against two tax assessments, notices of which are dated
August 20, 2004, and bear the numbers 32052 and 32053; the amounts of
these assessments are $20,777.74 and $6,700, respectively. The Minister of
National Revenue ("the Minister") assessed the Appellant under
subsection 160(1) of the Income Tax Act ("the Act") on
the ground that her husband Guy Verreault, who owed $20,777.74 in tax
under Part I of the Act at the time, transferred $6,700 to her on or about
May 16, 1997, and $29,500 to her on or
about May 23, 1997.
[2] Mr. Verreault was
reassessed for 1997, and the amount of the reassessment — tax,
interest and penalties included — was $20,777.74. Ms. Lamothe therefore
owes $20,777.74, not the total of the two assessments against her husband.
[3] Mr. Verreault testified that,
in 1997, his father gave him a property in Longueuil, Quebec, and that he
wanted to sell it as quickly as possible so that he could buy a family
residence in Shefford, which is in that province's Eastern Townships. However,
he had a gambling, alcohol and drug addiction problem at the time and was not
confident that he would be able to keep the money himself.
[4] Mr. Verreault said
that, because of this, he invested the proceeds of the sale of the Longueuil
property in a term deposit. He said that the manager of the financial
institution told him that the money would be held in trust and that he would be
unable to touch it. On or about May 23, 1997, when the term deposit matured, Mr. Verreault
transferred the total amount of $29,500, including interest, to the Appellant's
bank account. Mr. Verreault and Ms. Lamothe both testified that she
held the money for the purchase of a new house in Shefford, which purchase took
place on or about June 25, 1997. The property was registered under
Ms. Lamothe and Mr. Verreault's names as equal co-owners. The
purchase price was $160,000.
[5] Two weeks before the
Shefford property was purchased, Mr. Verreault's father lent him $6,700 to
help him buy it. On May 16, 1997, Mr. Verreault transferred
$6,894.66, which included the $6,700, to Ms. Lamothe's bank account; he
made this transfer for the same reasons that he transferred the $29,500.
[6] Ms. Lamothe confirmed
that the funds for the purchase of the Shefford property came from the proceeds
of the sale of the Longueuil property and from Mr. Verreault. She
emphasized that the reason that she held the funds for the house purchase was
to protect the family due to the addiction problems that her husband was having
at the time. In her view, this money was not hers and she was not free to use
it as she pleased. She held the money for a specific purpose: the purchase of a
house.
[7] The Appellant's
principal argument was that Mr. Verreault never ceased to be the true
owner of the $6,700 or the $29,500. Subsection 160(1) of the Act is
worded, in part, as follows:
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(1) Where a person has, on or
after May 1, 1951, transferred property, either directly or indirectly,
by means of a trust or by any other means whatever, to
(a) the person’s spouse or
common‑law partner or a person who has since become the person’s spouse
or common-law partner,
. . .
the following rules apply:
(d) the transferee and
transferor are jointly and severally liable to pay a part of the transferor’s
tax under this Part for each taxation year equal to the amount by which the
tax for the year is greater than it would have been if it were not for the
operation of sections 74.1 to 75.1 of this Act and section 74 of the Income
Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect
of any income from, or gain from the disposition of, the property so
transferred or property substituted therefor, and
(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,
but nothing in this subsection shall be
deemed to limit the liability of the transferor under any other provision of
this Act.
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(1) Lorsqu’une personne a, depuis le 1er mai 1951,
transféré des biens, directement ou indirectement, au moyen d’une fiducie ou
de toute autre façon à l’une des personnes suivantes :
a) son époux ou conjoint de fait ou une personne
devenue depuis son époux ou conjoint de fait;
[...]
les règles suivantes
s’appliquent :
d) le bénéficiaire et l’auteur du transfert sont
solidairement responsables du paiement d’une partie de l’impôt de l’auteur du
transfert en vertu de la présente partie pour chaque année d’imposition égale
à l’excédent de l’impôt pour l’année sur ce que cet impôt aurait été sans
l’application des articles 74.1 à 75.1 de la présente loi et de
l’article 74 de la Loi de l’impôt sur le revenu,
chapitre 148 des Statuts révisés du Canada de 1952, à l’égard de tout
revenu tiré des biens ainsi transférés ou des biens y substitués ou à l’égard
de tout gain tiré de la disposition de tels biens;
e) le bénéficiaire et l’auteur du transfert sont
solidairement responsables du paiement en vertu de la présente loi d’un
montant égal au moins élevé des montants suivants :
(i) l’excédent éventuel de la juste
valeur marchande des biens au moment du transfert sur la juste valeur
marchande à ce moment de la contrepartie donnée pour le bien,
(ii) le total des montants dont chacun
représente un montant que l’auteur du transfert doit payer en vertu de la
présente loi au cours de l’année d’imposition dans laquelle les biens ont été
transférés ou d’une année d’imposition antérieure ou pour une de ces années;
aucune disposition du présent
paragraphe n’est toutefois réputée limiter la responsabilité de l’auteur du
transfert en vertu de quelque autre disposition de la présente loi.
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[8] In her counsel's
submission, the Appellant never owned the funds transferred to her bank
account. Ms. Lamothe never considered the money as her own. She held
the funds so that her husband would not waste them. The funds were put
somewhere that her husband would be unable to touch them, so that they would be
available for the anticipated purpose: the purchase of a house in Shefford.
[9] Counsel for the Appellant
acknowledges that there was a transfer of property but submits that it was not
a legal transfer within the meaning of subsection 160(1) of the Act
because the husband remained the owner of the money. She received no benefit as
a result of the transfer.
[10] At the beginning of his
oral submissions, counsel for the Appellant produced, on consent, a report by
Mr. Verreault's trustee in bankruptcy. Mr. Verreault went bankrupt on
April 19, 2002. As part of the
administration of the bankrupt's estate, the trustee sold Mr. Verreault's
share of the family home to Ms. Lamothe for $3,000. Counsel for the
Appellant submitted that her debt should therefore be reduced by $3,000.
[11] I do not accept that
argument. First of all, it is not relevant; the sale took place in 2002, five
years after the transfers. Secondly, Ms. Lamothe did not purchase the
share in question from her spouse; she purchased it from the trustee, and the
proceeds of the sale were applied toward the trustee's expenses and the
creditors' claims. The Minister received only $410.32. And nothing proves
that the amount of $410.32 relates to Mr. Verreault's assessment for the
year 1997.
[12] I accept Ms. Lamothe
and Mr. Verreault's testimony that Mr. Verreault was unable to avoid
spending money on drugs and alcohol and that the funds in issue were held by
Ms. Lamothe in order to ensure that Mr. Verreault would be unable to
spend it on his addictive behaviour and that the money would be used for the
purchase of a house. According to the Appellant, subsection 160(1) of the
Act does not apply to such circumstances.
[13] The Minister's position is
that nothing in the Notice of Appeal questions that the money was transferred
to the Appellant. The intent of the transferor, which was to protect him from
himself, is not relevant for the purposes of subsection 160(1) of the Act.
Counsel referred to the decisions in Wannan v. Canada, [2002] T.C.J. No. 653
(QL), and Raphael v. Canada, [2000] T.C.J. No. 688 (QL). In
his submission, nothing prevented the Appellant from using the money for any
other purpose.
[14] I am troubled by the fact
that these appeals could have been avoided if Ms. Verreault's father had
given the property and the $6,700 to the Appellant instead of
Mr. Verreault. According to the evidence adduced before me,
Mr. Verreault and Ms. Lamothe would have purchased the Shefford
property and the matter would probably not be before me at this time. However,
even though what happened cannot be changed, an analysis of the true facts and
of Mr. Verreault and the Appellant's intentions might help alleviate their
tax problem.
[15] The events in the instant
appeals took place in Quebec. And the word "transfer" is not defined in the Civil
Code of Québec.
[16] In Fasken v. M.N.R., Thorson P. explained:
The word "transfer" is not a
term of art and has not a technical meaning. It is not necessary to a transfer
of property from a husband to his wife that it should be made in any particular
form or that it should be made directly. All that is required is that the
husband should so deal with the property as to divest himself of it and vest it
in his wife, that is to say, pass the property from himself to her. The means by which he accomplishes this
result, whether direct or circuitous, may properly be called a transfer.
[17] As Thorson P. explained,
the words "transferred" and "transfer" in
subsection 160(1) mean that the transferor divests himself of the property.
This resembles the concept of a gift, which is described as follows at
articles 1806 and 1807 of the Civil Code of Québec:
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Art. 1806. Gift is a contract by which a person,
the donor, transfers ownership of property by gratuitous title to another person,
the donee; a dismemberment of the right of ownership, or any other right held
by the person, may also be transferred by gift.
Gifts may be inter
vivos or mortis causa.
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Art. 1806. La
donation est le contrat par lequel une personne, le donateur, transfère la
propriété d’un bien à titre gratuit à une autre personne, le donataire; le
transfert peut aussi porter sur un démembrement du droit de propriété ou sur
tout autre droit dont on est titulaire.
La donation peut être faite
entre vifs ou à cause de mort.
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Art. 1807.
A gift which entails actual divesting of the donor in the sense that the
donor actually becomes the debtor of the donee is a gift inter vivos.
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Art. 1807. La
donation entre vifs est celle qui emporte le dessaisissement actuel
du donateur, en ce sens que celui‑ci se constitue actuellement débiteur
envers le donataire.
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[18] Let us now consider what
happened in the instant case. Although the evidence is not absolutely clear, it
is my opinion that the two transactions, namely the gift of the land and the
gift of $6,700 by Mr. Verreault's father, reflected the father's intention
to contribute financially to the purchase of a family home by his son and the
Appellant. Ms. Lamothe and Mr. Verreault purchased the family home as
equal undivided co-owners. The purchase price of the property was $160,000,
plus a transfer tax of $1,350. Although the Amended Notice of Appeal refers to
a hypothec in favour of a creditor to whom Mr. Verreault and
Ms. Lamothe were solidarily liable, the evidence does not disclose the
amount of the hypothec. It would appear that the amount of $36,200
($29,500 + $6,700) was the down payment on the purchase of the property, and
that the balance, $125,150, was
secured by hypothec.
[19] The evidence at
my disposal strongly suggests to me that when Mr. Verreault
transferred the $29,500 and the $6,700 to Ms. Lamothe, he divested
himself of only half of these amounts and that this half served to purchase an
undivided half of the same property that Ms. Lamothe's half was applied
to. Consequently, within the meaning of subsection 160(1) of the Act, Mr. Verreault
appears to have transferred one-half of $36,200 (or $18,100) to Ms. Lamothe.
In practice, $18,100 was applied to Mr. Verreault's purchase of an
undivided half of an immovable; he "retained" $18,100 in assets. The
amount that he transferred to Ms. Lamothe was $18,100. As a result,
Ms. Lamothe is liable for up to $18,100 of Mr. Verreault's tax debt.
[20] Consequently, these appeals
are allowed. The assessment of which notice bears the number 32052 is reduced
to $18,100, and the assessment of which notice bears the number 32053 is
vacated. The Respondent shall be entitled to half her costs if she so requests.
Signed at Ottawa, Canada, this
11th day of January 2008.
"Gerald J. Rip"
Translation certified true
on this 8th day of May 2008.
Brian McCordick, Translator
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