Payne v. The Queen, docket 97-3468-IT-G

Date: 19990521

Docket: 97-3468-IT-G

BETWEEN:

DAVID PAYNE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

Beaubier, J.T.C.C.

[1] This appeal pursuant to the General Procedure was heard at St. John's, Newfoundland on May 13, 1999. The Appellant's wife, Genevieve, was the only witness.

[2] The Appellant has appealed an assessment pursuant to Section 160 of the Income Tax Act. Paragraphs 4 to 6, inclusive, of the Reply read:

4. By Notice of assessment No. 01747 the Minister of National Revenue ("the Minister") assessed the Appellant in the amount of $24,926.09 in respect of a transfer of property to the Appellant within the meaning of section 160 of the Income Tax Act, R.S.C. 1985, c. 1 (5^th Supp.), as amended (the "Act").

5. In so assessing the Appellant, the Minister relied on, inter alia, the following assumptions:

a) at all material times, Genevieve (Jean) Payne was the spouse of the Appellant and the two were not dealing at arm's length;

b) on or about August 28, 1992 Genevieve (Jean) Payne withdrew $17,073.63 from her Registereed Retirement Savings Plan ("RRSP") with AGF Management Ltd.;

c) on or about September 1, 1992 Genevieve (Jean) Payne withdrew $7,852.46 from her RRSP with the Royal Bank;

d) both amounts ("withdrawn amounts"), totaling $24,926.09, were withdrawn pursuant to the Home Buyers Plan in accordance with subsection 146.01(1) of the Act as Genevieve (Jean) Payne certified that she had entered into a written agreement to acquire a qualifying home and that she intended to occupy this home as her principle place of residence within one year of acquisition;

e) on or about October 14, 1992 Genevieve (Jean) Payne (the "Transferor"), used the withdrawn amounts to purchase of 43 Rutledge Crescent, St. John's, Newfoundland ("the Property") with her husband, David Payne, the Appellant;

f) the consideration paaid by the transferor and the Appellant was $26,534.64, which included the withdrawn amounts and the assumption of the existing mortgage;

g) at the time of transfer, the fair market value of the Property was no less than $24,926.09;

h) the aggregate of all amounts that the Transferor was liable to pay under the Act in or in respect of the taxation year in which the Property was transferred or any preceding taxation year was $67,781.51; and

i) on May 12, 1993 Genevieve (Jean) Payne transferred her interest in the Property to the Appellant for $1.00.

B. ISSUES TO BE DECIDED

6. The issue is whether the Appellant is liable to pay the amount of $24,926.09 pursuant to section 160 of the Act in respect of the transfer of the Property to the Appellant.

[3] Assumptions 5(a), (b), (c), (d), (e), (f), (g) and (h) were not rebutted by the evidence submitted on behalf of the Appellant. The evidence centred around assumption 5(i).

[4] David and Genevieve Payne were married on October 24, 1964. Genevieve testified that David was a fisherman all his life and built and owned his own home in his sole name at Aquaforte, Newfoundland, about 80 km. from St. John's. It became the matrimonial home. David is now retired in St. John's. His only income is the Canada Pension Plan and the Old Age Pension. He did not testify due to a heart condition which will require an operation.

[5] Genevieve became the sole owner and director of three corporations doing business in St. John's. It is through her that the assessment arose. The essential chronology that led to the assessment follows:

1. 7 April 1985 (Exhibit A-2)

David and Genevieve Payne sign a guarantee and postponement of claim in favour of the Royal Bank of Canada for $60,000 on behalf of one of Genevieve's corporations, PCM Group Inc.

2. 7 April 1988 (Exhibit A-3)

David and Genevieve Payne execute a mortgage in favour of the Royal Bank of Canada securing the guarantee of 7 April 1988 to the limit of $30,000 with the Aquaforte property. This was registered on April 14, 1988. The mortgage describes them both as beneficial owners of the land (para. 1). They also covenanted that they have title to the property (Para. 5(a)). The body of the mortgage indicates that Genevieve is not merely a guarantor of the mortgage; rather, she is one of the two mortgagors of the property.

3. October 14, 1992 (Exhibit A-1, Tab 7)

David and Genevieve purchase 43 Rutledge Crescent from Raymond D. Sparkes as Joint Tenants. This was registered on 15 October 1992.

4. May 12, 1993 (Exhibit A-1, Tab 8)

David and Genevieve Payne transfer 43 Rutledge Crescent to David Payne. It describes the consideration paid for the transfer as $1.00.

5. June 6, 1994 (Exhibit A-1, Tab 9)

Genevieve Payne executes an assignment in bankruptcy.

6. March 11, 1996 (Reply)

David Payne's Notice of Assessment in this matter is issued.

[6] The Appellant's counsel agreed that the nominal $1.00 was correct according to assumption 5(i). However, he conditioned his agreement and the testimony from Genevieve is that it was merely nominal.

[7] Genevieve testified that the Aquaforte house was David's and that he mortgaged it for $30,000 to support her corporation P.C.M. Group Inc. She said that she had to live in St. John's to be near her business and so 43 Rutledge Crescent was purchased. Then she testified that because David had granted the mortgage on Aquaforte to support her corporation, P.C.M. Group Inc., she withdrew the RRSP money to purchase 43 Rutledge Crescent in David's name. Genevieve stated that she just signed the deed of transfer (Exhibit A-1, Tab 7) because the bank wanted both of their earnings to secure their mortgage. Then Genevieve testified that after she saw the deed in her name she contacted the lawyer's office about the two names on the title. The lawyer's secretary agreed to correct this and the transfer to David followed on May 12, 1993 (Exhibit A-1, Tab 8).

[8] P.C.M. Group Inc. was still in business then. It stopped conducting business in about October, 1993.

[9] There are a number of problems with Genevieve Payne's testimony. The first is that Exhibit A-3 makes it clear that she owned one-half of the Aquaforte property when it was mortgaged to the Royal Bank. This was verified by her indirectly when she testified that she and David shared everything and that some of his money may have been used to contribute to her RRSP.

[10] One of Genevieve's corporations was in the business of stenographic reporting. Another was in the "training" business. Genevieve owned and operated them and she was their sole director. It is difficult to accept that such a person would put her RRSP money into a property being transferred into her and David's name and not know it. Genevieve testified that she signed it and only knew the property was in her name after she received the deed.

[11] There is no document in which Genevieve agreed to repay David $30,000. Her testimony indicates that this idea only occurred when the possibility of purchasing 43 Rutledge Crescent arose.

[12] A final conflicting document was filed. It is a letter filed as Exhibit A-4 and signed by the solicitor who conducted the 43 Rutledge Crescent transaction. The body of it reads:

July 5, 1994

TO WHOM IT MAY CONCERN:

RE: JEAN PAYNE – 43 RUTLEDGE CRESCENT

Dear Sir/Madam:

Please be advised that in October of 1992, I represented Jean Payne with respect to a purchase of the above-captioned property. The transaction closed on October 14, 1992. At that time, I was instructed by my client to transfer title of the subject property into the name of David Payne.

I trust this is satisfactory for your purposes. If you have any questions, please do not hesitate to contact the undersigned.

Yours truly,

It is important to note that the solicitor failed to testify on behalf of the Appellant although he is in St. John's and no reason was given for this failure.

[13] However, the letter can be read as it is expressed:

The transaction closed on October 14, 1992. At that time, I was instructed by my client to transfer title of the subject property into the name of David Payne.

In the circumstances, that letter cannot be read for any more than it says. The last sentence quoted above is juxtaposed to the date of closing; not to the purchase. In other words the positioning of the sentences indicates that Genevieve's ("Jean's") instruction occurred upon closing and not at the time of purchase. This interpretation is verified by the provisions of section 146.01, which is the section that enables a withdrawal from RRSPs to acquire a qualifying home. Subsection 146.01(2) clarifies the meaning of "acquires":

(2) Special Rules

For the purposes of this section

(a) an individual shall be considered to have acquired a qualifying home if the individual acquired it jointly with one or more other persons;

In order for Genevieve Payne to benefit from the Home Buyers’ Plan she had to acquire – alone or jointly – a qualifying home. If, as she testified, the home was mistakenly put into her name and she never intended to acquire it in her own name, she would not have been eligible to withdraw the amounts from her RRSP under section 146.01 as she did.

[14] The result is that the evidence submitted by the Appellant to rebut the presumptions is not consistent. Some of it is conflicting in material ways respecting the subject matter of the appeal. In particular the documents do not support her testimony in many material respects. For this reason she is not believed.

[15] The assumptions have not been rebutted by the evidence.

[16] The appeal is dismissed.

[17] The Respondent is awarded party and party costs.

Signed at Vancouver, Canada this 21^st day of May 1999.

"D.W. Beaubier"

J.T.C.C.