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Citation: 2003TCC472
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Date: 20030704
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Docket: 2002-1240(GST)I
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BETWEEN:
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PERCY 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
O'Connor, J.
[1] This appeal was heard on May 30,
2003 at Toronto, Ontario.
[2] The issue is whether or not Percy
Finch, the Appellant, is liable under Section 325 of the
Excise Tax Act ("Act") in the amount of $14,000.
The Minister of National Revenue ("Minister") maintains
that the $14,000 was transferred to the Appellant by one David
Maybee ("David") at a time when David was indebted for
Goods and Service Tax ("GST") in the amount of $45,745;
it being acknowledged that David was not dealing at arm's
length with the Appellant because the Appellant is the common-law
husband of Lorraine McConnell ("Lorraine") and the
mother of Kenneth Maybee ("Kenneth"), who in turn is
the father of David.
[3] The Appellant's submission is
that the $14,000 transferred to him was in fact monies belonging
to Kenneth and not David and therefore there was no transfer by a
person owing GST with the result that the Appellant is not
liable. The Appellant and Kenneth submit further that the
Appellant and his common-law wife, Lorraine had in 1998 purchased
a truck from Kenneth for $39,000, that the said truck was
subsequently confiscated by the police as a stolen vehicle and
that the $14,000 represented the balance owing to the Appellant
by Kenneth after taking into consideration an amount of $15,000
which had been paid to the Appellant by the Motor Dealers
Compensation Fund ("Fund"), being the maximum amount
payable by the Fund under its insurance plan and it being further
acknowledged that at the time of the confiscation, the truck had
a value of $29,000. Thus the $15,000 and the $14,000 compensated
the Appellant for his loss.
[4] Subsections 325(1) and 325(2) of
the Act reads as follows:
Where
at any time a person transfers property, either directly or
indirectly, by means of a trust or by any other means, to
(a) the transferor's
spouse or common-law partner or an individual who has since
become the transferor's spouse or common-law partner,
(b) an individual
who was under eighteen years of age, or
(c) another person
with whom the transferor was not dealing at arm's length, the
transferee and transferor are jointly and severally liable to pay
under this Part an amount equal to the lesser of
(There follows a formula which if applied to the facts in this
Appeal, would impose an indirect liability on the Appellant of
$14,000.)
(2)
Assessment - The Minister may at any time assess a
transferee in respect of any amount payable by reason of this
section, and the provisions of sections 296 to 311 apply, with
such modifications as the circumstances require.
[5] Kenneth testified that he received
an amount of $21,284.13 as his after-tax- bonus from his
employer, Boyer Pontiac and Buick and that the said amount was
deposited into the account of J.K. Auto Sales, a proprietorship
owned by Danielle, the wife of David. The deposit was made on
January 13, 2000 and on January 14, 2000 a cheque was issued to
Kenneth in the amount $1,000 thus making Kenneth's net
deposit $20,284.13. The Appellant and Kenneth maintain that this
represented a temporary loan to Danielle to help her in the start
up of her J.K. Auto Sales business, essentially to assist her to
buy cars. It provided the necessary funds until such time as
Danielle was able to obtain a bank loan. It was understood that
the said amount would be paid back on one week's notice, so
that Kenneth could pay certain debts including the said amount of
$14,000 which Kenneth owed to the Appellant. The Appellant was in
Florida from January to March 2000 and according to the testimony
he only required the $14,000 when he returned from Florida to his
home. When the Appellant returned home in March, 2000 David
signed and delivered the $14,000 cheque to Kenneth, who handed it
to the Appellant. It was the further testimony of Kenneth that a
cheque for $5,000 drawn on the same account was also signed by,
David, payable to Brad Maybee, ("Brad") another
son of Kenneth, to assist Brad in his education at St. Lawrence
College. This $5,000 cheque was also delivered to Kenneth who in
turn delivered it to Brad. So from the original net deposit of
$20,284.13, $19,000 ($14,000 and $5,000) was paid out, leaving a
balance of 1,284.13 which Kenneth left in the same account for
use by Danielle in her business.
[6] The Respondent maintains that J.K.
Auto Sales was in fact a business owned and operated by David,
that the proprietorship was only put in the wife's name as
protection so that creditors of David could not seize assets of
that business, it being in his wife's name.
[7] David had signing authority on the
bank account of J.K. Auto Sales and in fact he did sign the
cheques for $14,000 payable to the Appellant and the $5,000
payable to Brad.
[8] The question arises as to why
Kenneth did not pay the sum of $14,000 directly to the Appellant.
Kenneth testified that he wanted to help his sister-in-law,
Danielle, in the start up of her business as described above.
[9] The Respondent maintains, as
mentioned, that J.K. Auto Sales was in fact the business of
David, that he had signing authority over the bank account of
that business and consequently the $14,000 which came out of that
account represents money that was truly owned by David and not
Kenneth.
[10] On being asked why the $14,000 cheque
was signed by David, Kenneth replied as follows:
HIS
HONOUR:
Well, could you explain why the cheque is signed by David?
THE
WITNESS:
Because Dave drove the two truck up to Boyer Pontiac all the time
to pick up cars that I'd sold Danielle. So when she opened
the account she gave him signing authority on her account so that
he could issue cheques to me at Boyer Pontiac or at CNC Auto
Exchange, or where we bought cars. So he didn't own the
business. He didn't run it. He just - he had signing
authority when he'd come to pick up cars for me.
HIS
HONOUR:
Why would he sign a cheque for 14,000?
THE
WITNESS:
Because he was paying back a loan that I had made to his wife,
and that was the deal. As soon as I needed the money back, he
would pay me back. And as soon as my parents came home from
Florida, I said, pay them the 14,000 from the 20,000 that I'd
lent them, so he did, and then I said I need $5,000 for my son
for his tuition, so he gave him a cheque as well.
I didn't have signing authority on the account, or I'd
have done it myself, which would have been a lot simpler. Like,
the money was my money form my income at Boyer Pontiac. It was
not Dave's.
ANALYSIS
[11] The bottom line in resolving this issue
is to ask the question whose money was it, i.e. did the $14,000
represent monies which were the property of Kenneth rather than
David?
[12] In my opinion it is abundantly clear
that the $14,000 formed part of the $21,284.13 representing the
bonus that Kenneth had received (and paid taxes on) from his
employer, Boyer Pontiac. and Buick. Thus it is clear that Kenneth
was the owner of the $21,284.13 and that that sum provided the
funds for the $14,000 cheque loaned to the Appellant.
[13] It is also clear that Kenneth owed
$14,000 to the Appellant and that the origin of this debt was
established as being caused by the vehicle which Kenneth had sold
to the Appellant and which was subsequently confiscated as a
stolen vehicle, as explained above.
[14] The mere fact that David had signing
authority and may have exercised certain powers and control over
J.K. Auto Sales is not sufficient to establish that the monies in
question were his.
[15] The fact of a cheque for $5,000 for
Brad being signed and delivered in the same manner as the $14,000
cheque is consistent with the other facts which demonstrated that
the $14,000 and $5,000 represented part of the sum of $21,284.13
which was the property of Kenneth, notwithstanding that it had
been deposited in the account of J.K. Auto Sales for the reasons
explained above.
[16] It is to be noted that the $14,000
which the Appellant received was subsequently invested in a
one-third ownership of 52 Hibbard Drive, Ajax, Ontario, which
property was rented out. The other two-thirds ownership belonged
to Brad and Lorraine equally.
[17] In my opinion it is abundantly clear
that the $14,000 represented monies that belonged to Kenneth and
not to David and consequently there was no transfer as
contemplated in subsection 325(1) of the Act. Consequently
the appeal is allowed and the assessment dated August 23, 2001,
numbered 58870 is vacated.
[18] There shall be no costs.
Signed
at Ottawa, Canadathis 4th day of July, 2003.
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