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Citation: 2004TCC251
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Date: 20040416
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Docket: 2003-1494(GST)I
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BETWEEN:
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ELLIE JONES,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the
Informal Procedure was heard at Nanaimo, B.C. on March 24, 2004.
The Appellant testified as did her husband, Kenneth Jones, and
Victor Sweett, an appraiser. The Respondent called Warren
Bentley, the collections officer on the file and Parmjeet Uppal,
an appraiser.
[2] Paragraphs 10 to 14 of the Reply
to the Notice of Appeal set out the matters in dispute. They
read:
10. On July 5, 2002, the
Minister reassessed the Appellant to reduce the amount to
$13,845.70 so as to allow the objection in part, and accordingly
issue a notice on that date.
11. In so reassessing the
Appellant, the Minister relied on the following assumptions of
fact:
a) the Company
was incorporated on March 24, 1994;
b) the Company
operated a Payless gas station;
c) the Company
was registered under Part IX of the Act, effective April 20,
1994, and was assigned Registration number 137756805;
d) the Company
was required to file quarterly GST returns and to make
remittances on a quarterly basis;
e) at all
material times, all or substantially all the Company's
supplies were taxable at the rate of 7 percent;
f) for
the reporting periods from April 20, 1994 to August 28, 1997 (the
"Period"), the Company filed GST returns but failed to
remit net tax with them;
g) during the
Period, the Company was required to remit net tax of $26,277.06
respecting GST collected under subsection 228(2) of the Act, but
failed to remit that net tax of $26,277.06 plus applicable
penalty and interest as required (the "Debt");
h) on June 7,
2000, the Minister certified the Debt in the Federal Court and
the execution of the writ respecting the Debt was returned
"unable to locate any exigible assets" on October 3,
2000;
i) On
December 1, 2000, the Minister assessed the Spouse for net tax of
$26,277.06, plus penalty of $9,024.88 and interest of $7,073.45;
respecting the Company's unremitted GST returns during the
Period;
j) the
Spouse was the sole director of the Company at the time the Debt
was accrued;
k) the Spouse
is liable under subsection 323(1) of the Act for the Debt of
$42,375.39, which includes net tax of $26,277.06, penalty of
$9,024.88 and interest of $7,073.45, respecting the Company's
failure to remit net tax;
l) the
Spouse did not file a Notice of Objection to the assessment made
against him as a director of the Company;
m) prior to May 28,
1993, the Spouse and the Appellant owned the Property as joint
Tenants;
n) on or about
May 28, 1993, a mortgage of $104,000.00 from the Royal Bank of
Canada was registered against the Property with the Spouse and
the Appellant, as joint Tenants, being the borrowers;
o) on February
15, 1996, the Spouse transferred to the Appellant his 1/2
interest in the Property for consideration of $1;
p) the Spouse
made an assignment in bankruptcy on March 6, 2001;
q) at the time
that the Spouse transferred his 1/2 interest in the Property to
the Appellant, he was aware of his tax liability;
r) the
Spouse's outstanding liability for net tax, penalties and
interest at the time of transfer was not less than
$13,845.70;
s) the fair
market value of the Property at the time of the transfer, was
$140,000.00;
t) the
outstanding balance owed respecting the Royal Bank mortgage
against the Property at the time of transfer was $98,883.51;
and
u) the
Spouse's 1/2 interest in the equity in the Property at the
time of transfer, was not less than $20,558.245 being 50% of
$140,000 - $98,883.51.
B. ISSUE
TO BE DECIDED
12. The issue is whether
the Appellant is jointly and severally liable with the Spouse for
$13,845.70 plus further assessed interest under subsection 325(1)
of the Act.
C.
STATUTORY PROVISIONS RELIED ON
13. He relies on sections
123, 126, 165, 169, 221, 225, 228, 238, 280, 296, 298, 299, 315,
316, 321, 323 and 325 of the Act and the provisions of the
British Columbia Company Act.
D. GROUNDS
RELIED ON AND RELIEF SOUGHT
14. He respectfully
submits that the Appellant is jointly and severally liable for
$13,845.70 plus applicable interest, because her Spouse
transferred his 1/2 interest in the Property to her at a time
when the fair market value of his equity in the Property exceeded
the consideration given by the Appellant by more than that
amount.
[3] The only assumptions refuted were
11(s) and 11(u). In other words, the net value of the
Appellant's home at 7465 Andrea Crescent, Lantzville, B.C., a
suburb of Nanaimo, on February 14, 1996 when Kenneth transferred
his one-half interest to Ellie.
[4] At the outset, Ellie is believed
when she testified that she wanted the house in her name because
she was afraid that she would lose it if Kenneth was killed in an
accident. She is also believed as to her entire testimony. In
particular, she testified that finances were always tight and
that once Kenneth took over the business operation in his
corporate name, he merely told her that sales were down and there
was no money and did not describe all of his developing
difficulties. For a long period at the worst of these times, the
couple and their three young children dined on macaroni or less
and it is clear that Kenneth's parents helped them out as
best they could. For a long time at the end, the strain was great
and the couple simply weren't speaking to each other. Ellie
finally got a job at Wal-Mart to get some money for the family.
Within a year or so after the house was transferred, the roof and
chimney had to be replaced. Both appraisers testified that the
house's condition was "fair" and was not up to the
standard on the street. The Court finds that this was also the
case at the time of transfer. The couple hadn't the time nor
the money to keep it up. Kenneth was working at least ten hours
per day, seven days a week at the service station business and
Ellie was trying to care for three small children with no money.
Kenneth's father paid $4,700 for the new roof to replace a
leaking one. The chimney was spouting sparks and flames from
their wood burning heating furnace and cost $1,500 to replace.
The family consequence of these events is that Kenneth and Ellie
are now separated and Ellie lives with their children in the
house.
[5] Both appraisers were credible, but
neither saw 7465 Andrea Crescent ("7465") until long
after 1996. The Court finds that Mr. Uppal's selection of the
house across the street at 7464 Andrea Crescent was the best
comparable. It sold for $136,000 in January, 1996. It had a
carport; the Appellant's house had a garage. It had a
fireplace; the Appellant's house did not. Otherwise, they
were similar. A knowledgeable buyer and seller would know about
the roof and chimney problems of 7465. From the evidence of the
Jones' finances at the time, the Court finds that 7465 was
not in good condition at the time of the transfer. For these
reasons, the Court finds that the value of 7465 at the time of
transfer was Mr. Sweett's figure, $131,000. Mr. Sweett made
allowance for the roof replacement, but not the chimney.
Therefore, $1,500 is allowed for the chimney, leaving a value of
$129,500 as the value of 7465 found by the Court at the date of
transfer.
[6] From this $129,500 the Appellant
also claims the value of two mortgages as a further reduction.
Both were actually signed after the date of transfer, but
Ellie's and Kenneth's guarantees of the $12,000 were
executed before that date. They are:
1. $12,000 - Guarantee to
the Royal Bank of Canada in support of a Royal Bank letter of
guarantee to Payless when Kenneth started the service station
business. This guaranteed was called by Shell, which had bought
out Payless, five days after they seized the service station, in
February, 1997. At that time the Royal Bank gave Ellie the option
- grant the mortgage or they would sell 7465. Ellie gave the
mortgage.
2. $10,000 - This was a
loan from the Royal Bank that Kenneth obtained to meet the
payroll, but it appears to have occurred after the transfer of
the house. It was also secured by a mortgage on 7465.
[7] When considering these two items,
a number of matters arise:
1. The Appellant never
filed copies of the title on the mortgages so the dates could be
determined.
2. Ellie was signing
anything she was told to sign, in an effort to hang on to her
home.
3. This Court does not
believe that a lawyer acting for Ellie or examining her
respecting the $12,000 and $10,000 mortgages would let her sign
them in the circumstances unless her guarantees to the Bank
required that, or already formed some kind of an encumbrance.
4. The final consideration
is assumption 11(t) that the Royal Bank mortgage at the time of
transfer was $98,883.51. But neither appraiser searched the title
to 7465.
[8] The Court accepts the
Appellant's various evidence about the $12,000 guarantee
granted to the Royal Bank on behalf of Payless and finds that the
guarantee was drawn and executed as a form of encumbrance against
the house before the time of the transfer on February 14, 1996.
Therefore, the total encumbrance against 7465 on February 14,
1996 was:
$12,000.00
+ $98,883.51
$110,883.51
[9] The net value transferred by
Kenneth to Ellie on February 14, 1996 was
$129,500.00
-
$110,883.51
1/2
x $ 18,616.49 = $9,308.25
[10] Appellant's counsel raised the
issue that Kenneth had been duly diligent in attempting to pay
the GST in question. The Court finds that he was not at all
diligent when he should have been - at the time the instalments
were due. He only paid one instalment when it was due. He never
paid another and he commonly filed his quarterly returns late.
Respondent's counsel alleged that Kenneth financed the
business on GST. The Court finds that that is not clear. Payless
and Shell exercised tremendous financial control over the
business and it is not clear that Kenneth received much money,
outside of cash sales, over which he had any control. He had to
buy all of his inventory from them or their related companies and
there is no evidence as to how they handled his charges except
that, at the end, he was on weekly collection or inspection by
Shell. Nonetheless, Kenneth was a hands-on operator of the
business and he knew his financial situation from day to day. It
was only when it was clear that his corporation was going to lose
the business that Kenneth began worrying about overdue GST. By
that time it was too late to be "diligent", and the
evidence is clear that there was no chance that the business
could pay any of the GST due. Even then, he filed the GST returns
late.
[11] Appellant's counsel raised a third
issue which deserves consideration. It derives from the following
facts in evidence:
1. May 29, 2000 - Shell
Canada Limited was issued two "Requirement to Pay"
notices by the Minister respecting moneys payable to Jones
Service Station Ltd. (Exhibits A-3 and A-4) One was respecting
the GST in question and the other was respecting payroll
withholdings.
2. June 7, 2000 - The
Federal Court issued a writ of seizure and sale respecting Jones
Service Station Ltd. to the Sheriff of British Columbia. (Exhibit
R-6)
3. October 2, 2000 - The
Sheriff returned the writ inscribed "unable to locate any
assets exigible to this writ". (Exhibit R-6).
4. December 1, 2000 -
Kenneth Jones was assessed for $42,375.39 under the Excise Tax
Act. (Exhibit R-7)
[12] The evidence before the Court is that
the Respondent has no record that Shell Canada Ltd. ever replied
respecting either Requirement to Pay, namely Exhibits A-3 and
A-4.
[13] Kenneth Jones testified that when Shell
Canada Limited seized the assets of Jones Service Station Limited
in February 1997, it had an inventory of $47,000. Shell forced
Kenneth out and it audited an inventory of $25,000. Shell would
not allow Kenneth or his representatives back in to check
Shell's amount. Kenneth then went to a lawyer to sue Shell
respecting this matter. The lawyer advised Kenneth that such a
lawsuit would take years and very large amounts of money, which
Kenneth did not have. The lawyer advised Kenneth to go bankrupt
and Kenneth did.
[14] The result is that, despite the
Sheriff's Certificate (Exhibit R-6), the Respondent did not
receive a reply from Shell Canada Limited to its Requirements to
Pay (Exhibits A-3 and A-4). On Kenneth's evidence, which is
not countered in any way, Shell Canada Limited seized inventory
and allowed Jones Service Station Limited a credit of $25,000,
which is $22,000 less than Jones Service Station Limited's
count. That $22,000 is sufficient to pay the original GST claimed
by the Respondent and would in turn free the Appellant from any
liability as at the date of seizure.
[15] The GST Requirement to Pay (Exhibit
A-3) was issued on May 29, 2000 to Shell Canada Limited pursuant
to section 317 of the Excise Tax Act, which reads:
317. (1) If the Minister has knowledge or suspects that a
particular person is, or will be within one year, liable to make
a payment to another person who is liable to pay or remit an
amount under this Part (in this subsection and subsections (2),
(3), (6) and (11) referred to as the "tax debtor"), the
Minister may, by notice in writing, require the particular person
to pay without delay, if the moneys are payable immediately, and
in any other case as and when the moneys become payable, the
moneys otherwise payable to the tax debtor in whole or in part to
the Receiver General on account of the tax debtor's liability
under this Part.
(2) Without limiting the generality of subsection (1), where
the Minister has knowledge or suspects that within ninety
days
(a) a bank, credit union, trust company or other
similar person (in this section referred to as the
"institution") will loan or advance moneys to, or make
a payment on behalf of, or make a payment in respect of a
negotiable instrument issued by, a tax debtor who is indebted to
the institution and who has granted security in respect of the
indebtedness, or
(b) a person, other than an institution, will loan or
advance moneys to, or make a payment on behalf of, a tax debtor
who the Minister knows or suspects
(i) is employed by, or is engaged in providing services or
property to, that person or was or will be, within ninety days,
so employed or engaged, or
(ii) where that person is a corporation, is not dealing at
arm's length with that person,
the Minister may, by notice in writing, require the
institution or person, as the case may be, to pay in whole or in
part to the Receiver General on account of the tax debtor's
liability under this Part the moneys that would otherwise be so
loaned, advanced or paid, and any moneys so paid to the Receiver
General are deemed to have been loaned, advanced or paid, as the
case may be, to the tax debtor.
(3) Despite any other provision of this Part, any other
enactment of Canada other than the Bankruptcy and Insolvency
Act, any enactment of a province or any law, if the Minister
has knowledge or suspects that a particular person is, or will
become within one year, liable to make a payment
(a) to a tax debtor, or
(b) to a secured creditor who has a right to receive
the payment that, but for a security interest in favour of the
secured creditor, would be payable to the tax debtor,
the Minister may, by notice in writing, require the particular
person to pay without delay, if the moneys are payable
immediately, and in any other case as and when the moneys become
payable, the moneys otherwise payable to the tax debtor or the
secured creditor in whole or in part to the Receiver General on
account of the tax debtor's liability under this Part, and on
receipt of that notice by the particular person, the amount of
those moneys that is so required to be paid to the Receiver
General shall, despite any security interest in those moneys,
become the property of Her Majesty in right of Canada to the
extent of that liability as assessed by the Minister and shall be
paid to the Receiver General in priority to any such security
interest.
(4) [Repealed, 2000, c. 30, s. 95]
(5) A receipt issued by the Minister for moneys paid as
required under this section is a good and sufficient discharge of
the original liability to the extent of the payment.
(6) If the Minister has, under this section, required a person
to pay to the Receiver General on account of the liability under
this Part of a tax debtor moneys otherwise payable by the person
to the tax debtor as interest, rent, remuneration, a dividend, an
annuity or other periodic payment, the requirement applies to all
such payments to be made by the person to the tax debtor until
the liability under this Part is satisfied and operates to
require payments to the Receiver General out of each such payment
of such amount as is stipulated by the Minister in a notice in
writing.
(7) Every person who fails to comply with a requirement under
subsection (1), (3) or (6) is liable to pay to Her Majesty in
right of Canada an amount equal to the amount that the person was
required under subsection (1), (3) or (6), as the case may be, to
pay to the Receiver General.
(8) Every institution or person that fails to comply with a
requirement under subsection (2) with respect to moneys to be
loaned, advanced or paid is liable to pay to Her Majesty in right
of Canada an amount equal to the lesser of
(a) the aggregate of moneys so loaned, advanced or
paid, and
(b) the amount that the institution or person was
required under that subsection to pay to the Receiver
General.
(9) The Minister may assess any person for any amount payable
under this section by the person to the Receiver General and,
where the Minister sends a notice of assessment, sections 296 to
311 apply, with such modifications as the circumstances
require.
(10) An assessment of an amount payable under this section by
a person to the Receiver General shall not be made more than four
years after the notice from the Minister requiring the payment
was received by the person.
(11) If an amount that would otherwise have been payable to or
on behalf of a tax debtor is paid by a person to the Receiver
General pursuant to a notice from the Minister issued under this
section or pursuant to an assessment under subsection (9), the
person is deemed, for all purposes, to have paid the amount to or
on behalf of the tax debtor.
(12) Provisions of this Part that provide that a person who
has been required to do so by the Minister must pay to the
Receiver General an amount that would otherwise be lent, advanced
or paid to a particular person who is liable to make a payment
under this Part, or to that particular person's secured
creditor, apply to Her Majesty in right of a province.
[16] Pursuant to subsection 317(3), on
receipt of Exhibit A-3 by Shell Canada Limited the amount
required to be paid to the Receiver General shall become the
property of the Queen and shall be paid to the Receiver General.
Subsection 317(7) imposes the liability on Shell Canada
Limited if it does not comply with the Requirement to Pay.
Thereupon the Minister may assess Shell Canada Limited
within four years after it received Exhibit A-3. There is no
evidence that Shell Canada limited has been assessed as yet.
Rather, the Appellant was assessed. It appears that the Minister
has the right to make that choice.
[17] In his argument, Appellant's
counsel also raised the provisions of British Columbia's
Court Order Enforcement Act, [RSBC 1996] Chapter 78, as it
affects the transfer of the value of $9,308.22 from Kenneth to
Ellie on February 14, 1996. Sections 71 to 71.2 of that Act
read:
Personal property of debtor
71(1) Subject to subsections (2) and (4) of
this section and section 71.2, the following goods and chattels
of a debtor, at the option of the debtor, are exempt from forced
seizure or sale by any process in law or in equity
(a) necessary
clothing of the debtor and the debtor's dependants;
(b) household
furnishings and appliances that are of a value not exceeding a
prescribed amount;
(c) one motor
vehicle that is of value not exceeding a prescribed amount;
(d) tools and other
personal property of the debtor, not exceeding in value a
prescribed amount, that are used by the debtor to earn income
from the debtor's occupation;
(e) medical and
dental aids that are required by the debtor and the debtor's
dependants;
(f) any
personal property prescribed by the regulations that is of a
value not exceeding a prescribed amount.
(2) This section
must not be construed as exempting any property from seizure in
satisfaction of a debt incurred for the purpose of acquiring
property otherwise exempt under subsection (1).
(3) This section
must not be construed as permitting a trader to claim as an
exemption any of the goods and merchandise which form a part of
the stock in trade of his or her business.
(4) This section
does not apply to a corporate debtor.
Principal residence of debtor
71.1(1) Subject to section 71.2, the principal residence of a
debtor is exempt from forced seizure or sale by any process at
law or in equity if the value of the debtor's equity in the
principal residence does not exceed a prescribed amount.
(2) This section
does not apply to
(a) a corporate
debtor, or
(b) a debtor who is
party to a proceeding in respect of a mortgage.
Property exceeding exempted values
71.2(1) If the value of the property referred to in section
71(1) or 71.1(1) exceeds the prescribed amount of the exemption
for the property, that property is subject to seizure and sale
under this Act.
(2) If property to
which subsection (1) applies is sold under this Act, a sheriff or
other officer must unless otherwise provided by law or by the
agreement of all interested parties, distribute any of the
proceeds of the sale as follows:
(a) pay firstly to a
secured creditor the amount owed by the debtor to the secured
creditor if the secured creditor
(i) has, at
the time of seizure, a financing statement registered under the
Personal Property Security Act, or
(ii) has a charge
registered under the Land Title Act;
(b) pay secondly to
the debtor an amount not exceeding the prescribed amount of the
exemption.
(3) The sum received
by the debtor under subsection (2)(b) is exempt from
attachment.
(4) This section
must not be construed as affecting the priority of a maintenance
order the Family Maintenance Enforcement Act.
(5) The priority of
the claim of any person referred to in subsection (2) is not
prejudiced by a payment to anyone made in accordance with that
subsection.
The applicable Court Order Enforcement Exemption
Regulation (B.C. Reg. 28/98) is subsection 3(b) which
prescribes the amount of equity to be $9,000. However, the
question of an execution on this judgment and its realization
turns on subsection 321(7) of the Excise Tax Act and its
application in British Columbia having regard to the Federal
Court of Appeal decisions in Marcoux v. Canada [2001]
F.C.J. No. 493 (F.C.A.) and Millette v. Canada [2001]
F.C.J. No. 492 (F.C.A.).
[18] In these circumstances, this matter is
remitted to the Minister for reconsideration and reassessment of
Ellie Jones in the amount of $9,308.25.
[19] The Appellant is awarded her taxable
costs respecting this proceeding. Because the hearing lasted from
9:30 a.m. until approximately 7:07 p.m. the Appellant's
hearing costs are to be taxed on the basis that the hearing
lasted for one and one-half days.
Signed at Saskatoon, Saskatchewan this 16th day of April
2004.
Beaubier, J.
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