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Citation: 2004TCC353
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Date: 20040520
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Docket: 2003-4054(IT)I
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BETWEEN:
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DAVID ANDREW FINCH,
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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
Bowman, A.C.J.
[1] These appeals are from assessments
of non-resident withholding tax imposed in 1997, 1998, 1999 and
2000 against the appellant under paragraph 212(1)(d)
of the Income Tax Act. The income on which the tax was
imposed was rent from property at 59 Bricker Avenue,
Waterloo, Ontario. The issue boils down to the question: who was
the beneficial owner of the property on Bricker Avenue?
[2] The property was bought in 1990
when the appellant was a university student in Waterloo. It was
registered in the appellant's name. He lived in the property
until he moved to Scotland in 1994. During that period he rented
part of the property to other students. He collected the rent and
used it to pay expenses, including the mortgage payments under a
second mortgage to Canada Trustco Mortgage Company ("Canada
Trustco").
[3] The property, as stated, was
registered in the appellant's name. Nowhere is there any
document, registered or unregistered, stating that the appellant
held the property as trustee, bare trustee or nominee for Finch
Travel Ltd. ("Finch Travel"), a company owned by his father
Graham Finch and his mother.
[4] When the property was purchased
the down payment was provided by Finch Travel in the amount of
$47,645.38. The appellant is shown as the chargor and Finch
Travel is shown as the chargee. A second mortgage in favour of
Canada Trustco in the amount of $136,500.00 was put on the
property. The appellant signed as chargor and his father
Graham Finch signed as guarantor.
[5] Before the appellant moved to
Scotland he gave his father, Graham Finch, a power of
attorney. The property continued to be rented to students. A form
of lease was put in evidence and it was between Graham Finch
and the lessee. The rents were collected by Graham Finch
and, if they were paid by cheque, the cheques were made payable
to Graham Finch. The moneys were deposited to the account of
Finch Travel, which, starting in 1992, declared them as forming
part of its rental income or loss. In its financial statements it
showed the property as forming part of its fixed assets. The
income or loss declared was as follows:
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1992
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Loss
($ 2,296.00)
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1993
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Loss
($ 26,720.00)
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1994
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Loss
($ 5,907.00)
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1995
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Loss
($ 101.00)
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1996
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Income
$
6,787.00
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1997
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Loss
($ 4,563.00)
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1998
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Income
$
1,629.00
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1999
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Income
$
4,288.00
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2000
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Income
$ 10,149.00
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[6] In 2000 the property was sold. A
loss of $4,415.00 on the Waterloo property is shown, presumably
on the land, and recapture of capital cost allowance of
$12,234.00 was declared.
[7] In 1993 Finch Travel's chartered
accountants wrote to the company's lawyers about updating the
corporate minute book. They stated:
PURCHASE OF PROPERTY
On September, 1990, the company purchased a rental property in
Waterloo, Ontario for $184,145. This property was purchased by
David Finch held in trust for the company. Please execute a
trust agreement between parties.
This request seems to have been ignored.
[8] When the property was sold, the
appellant's lawyers wrote to Revenue Canada in Kitchener and
requested a Non-Resident Clearance Certificate. The first
paragraph of their letter of February 25, 2000
reads:
We are the Solicitors for the vendor herein who is selling the
above mentioned property with scheduled closing date of
May 3rd, 2000 and he is a resident of
Scotland.
Schedule A to the request reads:
Finch Travel Ltd. did not pay any money to
David Andrew Finch during the whole of the time it has
managed the property up to the date of closing and he has not
earned any income from the property.
Finch Travel Ltd. did include all income earned in managing
the property in its annual Tax Returns.
[9] The appellant, through his
counsel, now argues that he should not be assessed non-resident
withholding tax for two reasons:
(a)
the property belonged to Finch Travel;
(b)
nothing was paid or credited to him.
[10] The only witness was the appellant's
mother, who was a shareholder of Finch Travel as well as its
secretary and its bookkeeper. She stated that it was her
understanding and intent that Finch Travel was the owner and that
her son held the property for it.
[11] The inconsistencies are obvious. On the
one hand we have the property being bought in the name of the
appellant who gives a mortgage to Finch Travel, which advances
the down payment. The appellant signs nothing indicating the
existence of a trust. We have the accountants treating the
property as belonging to Finch Travel and the income as being
that of Finch Travel. Moreover they write to the lawyers and ask
them to prepare a trust document. The lawyers ignore the request
and when the property is sold they write to Revenue Canada
("CCRA") requesting a Non-Resident Clearance Certificate. If the
property belonged to Finch Travel taking a mortgage would be
inconsistent with that position, as would the request for a
clearance certificate.
[12] The short answer is that the clients
find themselves in this situation because the lawyers and
accountants were unable to get their acts together.
[13] Where the evidence is equivocal I think
the form of the documents must take precedence over vague and
unexpressed intents. In Collins v. The Queen, 96 DTC
1034 (affirmed 98 DTC 6281) I said:
While Mr. Collins
described the complex legal structure that his advisors developed
for the holding of the business as "a bunch of mumbo-jumbo", both
he and his wife are too intelligent to be oblivious to the fact
that each owned different portions of the corporate empire and
that they did so for good reasons. Whatever notion of "share and
share alike" they may have had, their real intent was that
reflected in the legal structure that they knowingly adopted on
the advice of their lawyers and accountants. That intent is borne
out as well in the manner in which dividends and salary were paid
by the various corporate entities. The income from the various
corporations was treated as the income of the spouse to whom it
was paid. Similarly the corporate minutes reflect the carefully
structured ownership. If one knowingly and intentionally adopts
one legal structure to achieve a particular fiscal or commercial
result it would take far more cogent evidence than I have seen
here to permit a taxpayer to discard one portion of that
structure when that portion turns out to be fiscally
inconvenient. It is not, after all, as if the Sherkston shares
were acquired by Mr. Collins and thereafter quickly disposed
of. The shares were held over three years during which the
shareholdings changed. Mr. Collins was no stranger to
corporate reorganizations. In the same year as he acquired the
shares in Sherkston, there was a reorganization of the share
ownership of GCC and CCC.
[14] The same is true here. The legal form
of the documents points to beneficial ownership in the appellant
but the accounting treatment is inconsistent with that position.
The legal form prevails in my view.
[15] Counsel for the appellant argued that
nothing had been paid or credited to the appellant and that
accordingly paragraph 212(1)(d) was inapplicable. The
relevant portion of that provision reads:
212(1) Every non-resident person shall pay an income tax
of 25% on every amount that a person resident in Canada pays or
credits, or is deemed by Part I to pay or credit, to the
non-resident person as, on account or in lieu of payment of, or
in satisfaction of,
. . . . .
(d) rent, royalty or similar payment,
including, but not so as to restrict the generality of the
foregoing, any payment
. . . . .
[16] I agree that no amounts were physically
transmitted to the appellant in Scotland. However, rent was paid
to the appellant's father who was his agent and since I have
found that the legal and beneficial owner was the appellant,
payment to the appellant's agent constitutes payment to the
appellant. Accordingly it is unnecessary to consider counsel's
submissions on the meaning of the word "credit".
[17] Counsel for the appellant argued that
by accepting the inclusion of the rent in the income of Finch
Travel, the Minister was in fact taxing the same amounts in two
persons' hands. I agree that double taxation is undesirable and
should be avoided if possible but here the double taxation arises
not by any act of the CCRA but rather because of the acts of the
professional advisors.
[18] In any event double taxation in this
case is more apparent than real. The total losses declared by
Finch Travel over the period 1992 to 2000 were $39,587.00. The
income declared in four of the years totals $22,853.00 for a net
loss of $16,734.00 over the period. If the appellant had elected,
as a non-resident, to be taxed on a net basis, as
section 216 permits, he would have declared those losses but
they would probably have been no use to him as a
non-resident unless he had other Canadian sources of
income. The company seems to have been able to take advantage of
those losses. Quite apart from the legal position, the double
taxation hypothesis, as a matter of economics, is illusory.
[19] Finally, the appellant's counsel argues
that it would have been impossible to describe the appellant as
trustee in the deed because it could not have been registered
under the Land Titles Act. Section 62 of the Land
Titles Act, R.S.O. 1990, c. L.5 reads:
62.--(1) A notice of an express, implied or constructive trust
shall not be entered on the register or received for
registration.
Description of owner as a trustee
(2) Describing the owner of
freehold or leasehold land or of a charge as a trustee, whether
the beneficiary or object of the trust is or is not mentioned,
shall be deemed not to be a notice of a trust within the meaning
of this section, nor shall such description impose upon any
person dealing with the owner the duty of making any inquiry as
to the power of the owner in respect of the land or charge or the
money secured by the charge, or otherwise, but, subject to the
registration of any caution or inhibition, the owner may deal
with the land or charge as if such description had not been
inserted.
Owners described as trustees to be joint
tenants
(3) Where two or more owners
are described as trustees, the property shall be held to be
vested in them as joint tenants unless the contrary is expressly
stated.
Saving
(4) Nothing in this section
prevents the registration of a charge given for the purpose of
securing bonds or debentures of a corporation, but the
registration of such a charge is not a guarantee that the steps
necessary to render the charge valid have been duly taken, R.S.O.
1990, c. L.5, s. 62.
[20] I do not read that section as
preventing the appellant from being a trustee of the property for
Finch Travel. The fact that subsection (1) may prevent him from
being shown as a trustee on title would not prohibit his being a
trustee. Whether he is or is not must be determined objectively
independently of the rules under the Ontario Land Titles
system. If he had been shown as trustee under
subsection (2) it would at least have been some evidence
that he was not the beneficial owner.
[21] At all events, regardless of the way
title is described in the registry office, I think the appellant
was the beneficial owner of the property and of the rents arising
from it. Accordingly, amounts paid to his agent,
Graham Finch, are subject to withholding tax under
subsection 212(1)(d).
[22] The appeals are dismissed.
Signed at Montréal, Quebec, this 20th day of
May 2004.
Bowman, A.C.J.
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