Date: 20010329
Docket: 2000-1930-IT-I; 2000-1931-IT-I
BETWEEN:
TERIANN HURD and ROBERT BRUCE JUSTICE,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
For the Appellants: The Appellants themselves
Counsel for the Respondent: Bobby Sood
____________________________________________________________________
Reasons for Judgment
(Delivered orally form the Bench at Toronto, Ontario, on
February 6, 2001)
McArthur J.
[1]
The Appellants appeal the assessments of the Minister of National
Revenue wherein the amount of $9,375 was added to each of their
incomes. The question is whether there was a transfer of property
pursuant to subsection 160(1) of the Income Tax Act which
reads in part as follows:
160(1) Where a person has, on or after
May 1, 1951, transferred property, either directly or indirectly
... to,
...
(c)
a person with whom the person was not dealing at arm's
length,
the following rules apply:
(d)
the transferee and transferor are jointly and severally liable to
pay a part of the transferor's tax ...
(e)
the transferee and transferor are jointly and severally liable to
pay under this Act ...
[2]
The facts of these appeals include the following. Ron Gilman and
his then spouse, Elaine Gilman, transferred a cottage property to
the Appellants in January 1994 for $62,500 at which time Ron
Gilman was liable to Revenue Canada in the amount of $64,490.
Subsequent to the transfer, Ron declared bankruptcy and I believe
Mr. and Mrs. Gilman have since separated or divorced.
[3]
The Appellant, Teriann Hurd is the daughter of Elaine Gilman, and
the Appellant, Robert Bruce Justice, is Elaine's brother and
therefore, Teriann's uncle. The assumptions of fact taken
from the Reply to the Notice of Appeal include: on January 14,
1994, the fair market value of the property was $100,000; the
difference between the fair market value of the property and the
purchase price paid by the Appellants was $37,500, of which
one-half or $18,750 was attributable to Ron Gilman. Each
Appellants' share of that amount was $9,375.
[4]
The Appellants represented themselves and I found their
credibility beyond question. In 1994, Ron and, presumably Elaine
Gilman, were in serious financial difficulty. They were about to
lose their cottage through foreclosure and apparently Ron had a
serious drinking problem. Teriann and her husband Scott Hurd
agreed to purchase the Gilman cottage for $62,500 which was the
existing indebtedness. Being unable to obtain financing on their
own, Teriann's uncle, Robert Bruce Justice, gratuitously
agreed to guarantee a $65,000 mortgage to the Canadian Imperial
Bank of Commerce. Upon directions from CIBC, title was conveyed
to the Appellants, as joint tenants, and together they were
granted a loan from the bank secured by a mortgage.
[5]
Mr. Justice executed an agreement (declaration of trust)
dated January 13, 1994 wherein he stated that he had no interest,
right or title to the property and held it as a bare trustee for
Teriann and her spouse, Brad. Unfortunately, this trust document
was produced only three weeks prior to trial. Had the Appellants
presented it earlier, I have no doubt that Mr. Justice would
not have been assessed. Without hesitation, I accept the
authenticity of this document as well as the evidence of
Mr. Justice to the effect that he has never had any
beneficial interest in the property other than as he described,
as guarantor for the indebtedness. He had no idea he was a joint
tenant on title and his only intention was to assist his niece by
co-signing a bank loan.
[6]
The reality is that there was no transfer to Mr. Justice as
a beneficial owner and he was a trustee only. I accept the
following statement of Teriann in her notice of appeal without
reservation:
I would also like to state that Robert Justice's only
involvement in this mess was he co-signed a bank loan. He
was not aware that he was on title until this came up. ...
He has not benefited from the sale of the property in any
way.
Applying the doctrine of substance over form and adopting
reality and common sense, Mr. Justice was not properly
assessed under section 160 of the Act. He was a generous
uncle acting in good faith for the benefit of his niece.
[7]
The facts in the case of Cooke v. The Queen, 93 DTC 1561,
cited by counsel for the Respondent, can easily be distinguished
from the present facts. In Cooke, Bonner J. found that the
evidence of the taxpayer was totally unreliable and not
believable. He found further that he was not persuaded that the
registration of title to the home in the joint names was the
result of a lawyer's error and that one held in trust for the
other. In the present case, Mr. Justice had executed a valid
declaration of trust. The evidence of both Appellants was
reliable and Mr. Justice's appeal is allowed.
[8]
Teriann's appeal presents a different situation. She obtained
title to the cottage of her mother and stepfather for $62,500
plus costs at a time when her stepfather was indebted to Revenue
Canada and the cottage was valued for mortgage purposes at
$100,000. Ron Gilman transferred his 50% interest to a person
with whom he was not dealing at arm's length as defined in
section 251 of the Act. She was jointly and severally
liable with the transferor for his indebtedness. He declared
bankruptcy and extinguished his liability but not her liability.
I refer to Heavyside v. Canada, [1996] F.C.J. No. 1608.
Teriann's liability is the difference between the fair market
value of the property and the purchase price.
[9] I
found Teriann to be rigorously honest and credible. In trying to
assist a self-represented Appellant, I believe it is
incumbent upon me as trial judge to balance the playing field or
scales to ensure fairness without tilting the scales too far in
favour of the Appellant. With this in mind, I will attempt to
briefly analyze the fair market value and purchase price.
[10] Teriann
acknowledged that an appraisal for mortgage purposes in
January 1994 reflected a $100,000 value. This document was
not placed in evidence. At times, evaluations for mortgage
purposes are inflated to obtain the highest loan possible and no
allowance is made for commission payable on the sale together
with other sale costs. The Respondent placed in evidence a
professional appraisal also reflecting a $100,000 value as of
January 1994. This appraisal was prepared in July 1998. Again,
this document did not allow for sale costs. Teriann's husband
testified that he, as a handyman, made several improvements to
the cottage prior to 1994. I find that a more realistic net value
as of January 1994 is $90,000.00. This calculation is somewhat
rough and ready but more in keeping with reality.
[11] The
Appellants tried to sell their cottage in 1998 or 1999 for
$95,000 without offers, after having expended approximately
$20,000 in improvements. While the transfer to the Appellants
reflected $62,500 on the face of the document, considering the
purchasing costs, including land transfer tax, mortgage costs,
registration and legal fees, $65,000 is more accurate. The
difference between the fair market value and the purchase price
on January 14, 1994 was $90,000 less $65,000 equalling $25,000.
One-half of that amount or $12,500 is attributable to Ron Gilman
as a joint beneficial owner and the Teriann's share is 50% of
this $12,500 as well, being $6,250.
[12] In
conclusion, the appeal of Robert Bruce Justice is allowed. The
appeal of Teriann Hurd is allowed on the basis that she received
from Ron Gilman $6,250 for inadequate consideration of the
property. The assessment is referred back to the Minister for
reconsideration and reassessment.
Signed at Ottawa, Canada, this 29th day of March, 2001.
"C.H. McArthur"
J.T.C.C.
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