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Date: 20030123
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Docket: 2002-2406(IT)I
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BETWEEN:
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DAVID GOLDBERG,
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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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AND
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Docket: 2002-2405(IT)I
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SARAH GOLDBERG,
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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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AND
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Docket: 2002-2401(IT)I
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RACHELLE GOLDBERG,
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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
BONNER, T.C.J.
[1] Rachelle, Sarah
and David Goldberg appeal from assessments made under
s. 160(1)(b) of the Income Tax Act (the
"Act"). The appeals of Sarah and David Goldberg
were heard together on common evidence. The parties agreed that
the outcome in the appeal of Rachelle Goldberg was to be the same
as the other two. All three appeals were governed by the Informal
Procedure.
[2] The assessments
were made on the basis that the Goldberg Family Trust (Trust)
transferred property to the Appellants when they were under
eighteen years of age by paying the Appellants' school and
summer camp fees and that, at the time, the Trust was liable to
pay income tax in respect of preceding taxation years.
[3] The Appellants
are the children of Dr. Aron Goldberg. David Goldberg was born on
April 9, 1987. Sarah Goldberg was born on May 31, 1985.
Rachelle Goldberg was born on March 16, 1984.
[4] The Trust was
established on November 1, 1991. Dr. Aron Goldberg was
sole trustee. The beneficiaries included the three Appellants.
Paragraph 7 of the deed of settlement of the Trust provided in
part:
"The trustee will hold the trust fund
and until the time of division will pay or transfer to or apply
for the benefit of the beneficiaries or such one or more of them,
to the exclusion of the other or others and in such portions as
the trustee in the trustees uncontrolled discretion may
determine, all or so much of the net income, if any, derived from
the trust fund and all or so much of the capital thereof as the
trustee in the trustee's absolute and uncontrolled discretion
from time to time determines."
[5] At all relevant
times, the Appellants were students in attendance at Collingwood
School, a private institution. As well, the Appellants were
enrolled at a summer camp, Camp Hatikvah.
[6] In 1998 and 1999,
Dr. Goldberg caused the Trust to make payments to Collingwood
School on account of the Appellants' tuition and to Camp
Hatikvah on account of the Appellants' camp fees. The
payments were made without the knowledge or concurrence of any of
the Appellants.
[7] In the 1998 and
1999 taxation years, the Trust was indebted to the Crown for
income tax which had been assessed in respect of the 1995 and
1996 taxation years.
[8] S. 160 of the
Income Tax Act reads in part:
"(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 a person who has since become the
person's spouse.
(b) a person who
was under 18 years of age, or
(c) a person
with whom the person was not dealing at arm's length,
the following rules apply:
(d) ...
(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."
[9] The purpose of s.
160 is clear. It is to prevent a taxpayer from obstructing the
Minister's efforts to collect tax owing by transferring the
taxpayer's property to his spouse, to minors or to persons
with whom the taxpayer does not deal at arm's length.
[10] The argument focussed
primarily on the question whether the Trust, by paying the
Appellants' tuition and camp fees, "transferred
property" to the Appellants within the meaning of s.
160.
[11] It should be noted at
the outset that the word "transfer" is of wide
important. The law on the point is clear. The meaning of the word
"transfer" was considered in The Executors of the
Estate of David Fasken v. The Minister of National
Revenue, [1948] Ex. C.R. 580. At page 592 Thorson, P.
stated:
"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."
[12] The word
"property" is defined in s. 248(1) of the Act as
follows:
"248(1) - In this Act,
"property" -
"property" means property of any kind whatever whether
real or personal or corporeal or incorporeal and, without
restricting the generality of the foregoing, includes
(a) a right of any kind whatever,
a share or a chose in action,
(b) unless a contrary intention
is evident, money, ... "
[13] Counsel for the
Appellants argued that the payment by the Trust of the tuition
and camp fees did not effect a transfer of property of the Trust
to the Appellants because the property which left the Trust did
not vest in the Appellants. In this regard, Counsel relied on the
decision of this Court in Leblanc v. Canada, [1999] T.C.J.
No. 60.
[14] As I see it, the
language of s. 160, which embraces transfers of property made
"...either directly or indirectly, ... by any other means
whatever ..." to a transferee falling in one of the classes
named in the section, encompasses tranfers of the sort now under
consideration despite the fact that the nature of the property
may have changed between origin and destination. The point is
clearly covered by authority. In Susan Jane Medland v.
Her Majesty the Queen, 98 DTC 6358, the taxpayer was sole
owner of the home in which she and her husband resided. The
husband made mortgage payments in respect of the home at a time
when he was indebted to the Crown for income tax arrears. The
Federal Court of Appeal held that the husband, in making the
mortgage payments, transferred property indirectly to the
taxpayer to the extent that the payments were on account of
mortgage principal. At paragraphs 20 and 21 of her reasons,
Desjardins, J.A. stated
"[20]... when Mr. Medland made the
payments to the mortgagee, he specified that such money was to be
attributed in diminution of the mortgage on the property on which
he had no more interest. While it is true that subsection 160(1)
of the Act does not contain the words "for the
benefit of" or "on behalf of" as found in
subsections 15(1) or 74.1(1) or paragraph 224(1.1)(b)
of the Act, the applicant does not deny that she became
less indebted by the payments and her equity in the property
increased. The means by which this result occurred were monies
paid to the Bank which was then transferred by the Bank on the
account of the mortgage of a house owned solely by the applicant.
The payment to the Bank was simply a conduit through which the
funds passed indirectly from her husband to her.
[21] The
applicant's submission, that no transfer or property occurred
because what Mr. Medland divested himself was money which monies
were never transferred [physically] to the applicant, is without
merit. ..."
In my view, when the Trust paid the tuition
and camp fees, the money paid was transferred indirectly to the
Appellants. It reached the Appellants in the form of the services
which were rendered to the Appellants by the school and camp as
consideration for the money paid.
[15] Counsel for the
Appellants argued further that they did not exercise control over
the transfer of the funds. The payments, it was said, were made
entirely without the knowledge or consent of the Appellants.
[16] There is no doubt that
the Appellants were unaware of the fact that the Trust was paying
the tuition and camp fees. The Appellants did not know that the
Trust existed. Counsel took the position that a transaction
effected entirely without the knowledge or consent of the
transferee is not within the purview of s. 160(1). In this
regard he relied on a decision of the Federal Court Trial
Division in Finley Mah v. Her Majesty the Queen, 93 DTC
5267. In Mah the taxpayer's parents executed a
transfer of land transferring title to their home to the
taxpayer. They did so without the taxpayers knowledge or consent.
On appeal by the taxpayer from an assessment under s. 160
the Court held the purported transfer was invalid. At page 5270
Jerome, A.C.J. wrote:
"Can there be divestiture by Mr. and Mrs. Mah and vesting
in Dr. Mah here? I think not. Surely a transaction done entirely
without the plaintiff's knowledge or consent could not have
that effect, nor do I understand why the Minister needs the
assistance of section 160 unless the transfer is valid."
In my opinion the decision in Mah does
not stand for the proposition that knowledge and/or consent of
the transferee is necessary to the operation of s. 160.
Mah was quite simply a case in which s. 160 was held
to be inapplicable to an unsuccessful attempt to transfer which
happened to have been made without the knowledge of the
transferee.
[17] Nothing in the
language or purpose of s. 160 can justify a conclusion that the
transferee must be aware of or understand the mechanics of the
transaction by which a transfer is effected. The imposition of
such a restriction on the meaning of the word
"transfer" would thwart the clear purpose underlying s.
160.
[18] Counsel for the
Appellants argued further that the performance of a legal
obligation does not constitute a transfer within the meaning of
s. 160. He relied on Michaud v. Her Majesty the Queen,
[1998] 4 CTC 2675. He submitted that the payments by the trust to
the school and camp were made on the instructions of Dr. Goldberg
as part of his legal obligation to support the Appellants during
their infancy.
[19] It is not necessary to
discuss what was decided in Michaud (supra). This
branch of the Appellants' argument ignores the fact that Dr.
Goldberg's obligation to support his children rested on him
and not on the Trust. The Trust did not, in making the payment in
issue, discharge any obligation which rested on it.
[20] Finally, as an
alternative to submissions that no transfer had taken place in
the circumstances, counsel for the Appellants suggested that the
Trust received full consideration for the transfer of property in
the form of services provided by the school and camp at its
request. Since a transfer made without valid consideration is a
pre-condition to the application of s. 160, it was said, no
liability could be imposed on the Appellants. In my view the
reference in subparagraph 160(1)(e) to consideration given
for the property must, when the statutory language is read in
context, be taken to be a reference to consideration given by the
transferee of the property. This branch of the Appellant's
argument must therefore fail.
[21] For the foregoing
reasons the appeals will be dismissed.
Signed at Toronto, Ontario, this 23rd day of
January 2003.
T.C.J.
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