BETWEEN:
HARRIET PALMER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Edited from the transcript of
Reasons for Judgment delivered orally from the Bench on December 18, 2014 at Charlottetown, Prince Edward Island.)
Campbell J.
[1]
Let the record show that I am delivering oral
reasons in the appeal of Harriet Palmer, which began in July and continued and
finished yesterday.
[2]
The Minister of National Revenue (the “Minister”) assessed the Appellant by Notices dated
December 8, 2011, pursuant to Section 160 of the Income Tax Act (the “Act”). The Appellant was assessed as a result of
a transfer of property from Randy Palmer through to their son, Christopher
Palmer, and eventually to the Appellant.
[3]
The issue before me is whether the Minister
properly assessed the Appellant pursuant to subsection 160(2). The liability
initially assessed against the Appellant was $82,964.55.
[4]
The hearing commenced in July 2014, and after
hearing evidence from Patrick Bradley, the Canada Revenue Agency (the “CRA”) auditor, as well as Dwayne MacLeod from
Collections division and evidence from Randy Palmer, I adjourned the hearing to
allow the Appellant an opportunity to obtain an expert report on the fair
market value of the subject property. Although this was an unusual procedural
step, because the Appellant was self-represented and because the fair market
value of the property was one of the key elements in her appeal, I allowed the
Appellant's request. Unfortunately, with respect to the expert report that was
produced, I ruled that it was inadmissible for the reasons set out in my
decision of November 26, 2014.
[5]
At the outset of the recommencement of the
hearing on December 17, 2014, Respondent counsel advised this Court that a
concession in respect to the property value was being made. Assumption (g),
set out in the Reply to the Notice of Appeal, placed a fair market value on the
property as at March 26, 1999 of $90,000. The Respondent now concedes that the
property value is $47,500, leaving the Appellant's half interest at $23,750.
This results in a liability reduction from $82,964 to $61,714 in respect to the
Appellant's assessment.
[6]
The Appellant is married to Randy Palmer. On
March 26, 1999, Mr. Palmer transferred two parcels of land, property
numbers 516880 and 528687 from his sole ownership to the joint ownership of the
Appellant and himself.
[7]
At the time of this transfer, the fair market
value of the consideration was listed as nil. Pursuant to the Respondent's
concession as of the date of this transfer respecting the fair market value,
the Respondent submits that the Appellant's half interest in the fair market
value of $47,500 is now reduced to $23,750.
[8]
On June 1, 1999, the Appellant and her spouse
transferred this property to their son, Christopher Palmer. At the time of
this transfer, the parties listed the fair market value as nil.
[9]
On August 31, 2004, Christopher Palmer
transferred the property to the Appellant in her sole name. The fair market
value was again listed as nil.
[10]
he Respondent assumed, at assumption (l) of the
Reply to the Notice of Appeal, that the fair market value of this property, as
of August 31, 2004, was $140,000.
[11]
The relevant portions of section 160 of the Act
provide as follows:
160(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 common-law partner or a person who has since become the person’s
spouse or common-law partner,
(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) the transferee
and transferor are jointly and severally liable to pay a part of the
transferor’s tax under this Part for each taxation year equal to the amount by
which the tax for the year is greater than it would have been if it were not
for the operation of sections 74.1 to 75.1 of this Act and section 74 of the
Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect
of any income from, or gain from the disposition of, the property so
transferred or property substituted therefore, and
(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
the 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.
…
160(2) The Minister
may at any time assess a taxpayer in respect of any amount payable because of
this section and the provisions of this Division apply, with any modifications
that the circumstances require, in respect of an assessment made under this
section as though it had been made under section 152.
[12]
For this provision to apply, four conditions
must be met:
1. there
must be a non-arm's length transaction or deal;
2. a
transfer of property must occur;
3. there
must be an absence of consideration from the ultimate recipient; and
4. the
transferor must be liable for a tax debt in the year in which the transfer
occurred or any preceding year.
[13]
The Federal Court of Appeal, in discussing the
purpose and intent of Section 160 in its decision in The Queen v Livingston,
2008 FCA 89, 2008 DTC 6233, referred to the case of Medland v Canada, 98
DTC 6358 (FCA). The application of this provision can admittedly produce harsh
results, but it is contained in the Act as a tax collection tool to
prevent taxpayers from transferring property to a spouse or other non-arm's
length party in order to avoid collection efforts respecting a tax liability.
[14]
Caselaw is also clear that the tax liability may
be followed through several transfers. In other words, as stated at paragraph
38 of the case of Jurak v The Queen, 2003 DTC 557:
[38] … The
transferee may himself become a transferor subject to subsection 160(1) of the
Act if, at the time of the second transfer, he himself is a tax debtor liable
either on his own account or jointly and severally with the first transferor. …
[15]
Those comments are particularly applicable to
the facts before me where a number of transfers of the subject property
occurred. However, the tax debt flows through the series of transfers among
those non-arm's length parties.
[16]
In addition to attempting to attack the fair
market value of the property, the Appellant also questioned the underlying
assessment. However, with the onus or burden of proof squarely on the
Appellant's shoulders in this appeal, I have nothing in the documentary
evidence or the oral testimony that would allow me to correct any alleged
errors in the Minister's assessment.
[17]
Although the Appellant subpoenaed and re‑called
the auditor at the second stage of the hearing in December, there was no
evidence introduced through Patrick Bradley that changes or demolishes the
Minister's assumptions. There were no business records, banking documents, or
third party evidence produced to support the Appellant's contentions. In
addition, the Appellant herself declined to testify although invited to do so. Although
Mr. Palmer contended that he and the Appellant were not given an opportunity by
the CRA to submit additional information on items extending from the personal
expenditures to the encumbrances against the property, it is apparent from the
proposal correspondence of January 7, 2003, that discussions were occurring
between Patrick Bradley and the Palmers and that Mr. Bradley invited them to
present any further records, comments, and so forth during the net worth audit.
[18]
In his oral submissions, Respondent counsel
referenced the particulars of the assessment contained in Tab 2 of Exhibit
R-1. In that document, the CRA calculated the equity in the property at
$124,869. That is the property value referred to on August 3, 2004, of
$140,000, less encumbrances totalling $15,130. With an assessed benefit amount
of $37,964, the Appellant would have to produce reliable evidence of encumbrances
against the subject property in the vicinity of $102,000 in order to affect the
outcome of the assessment. Unfortunately, the Appellant failed to connect the
amount of any of the encumbrances to the specific properties. Two of the
collateral mortgages are against an additional property in Ellerslie as well as
the subject property in Bideford, but I have no evidence of which part of the
specific total mortgage amount might relate to the value of the subject property.
In addition, I have no evidence before me that indicates whether the first
collateral mortgage in the amount of $47,000 and registered in April 2000 may
have been satisfied prior to registering the next collateral mortgage of
$80,000 in September 2001 against the same properties. That factor would also affect
the amount of the potential encumbrances as the principal outstanding on the
prior mortgage may have been combined with additional funds borrowed on the
subsequent mortgage. I simply have no way of ascertaining this. The third
encumbrance, in the amount of $25,000 and registered April 2002, does not
appear to be in respect to the same parcels that are contained in the first two
registered mortgages and, without accompanying survey plans, I have no means of
determining this.
[19]
The Appellant did not produce evidence that
would answer the questions outlined in my aforereferenced comments. In
addition, without expert evidence, the Appellant failed to demolish the
Minister's assumptions respecting the fair market value of the property. With
the onus on the Appellant, she has failed to demolish the Minister's
assumptions contained in the Reply to the Notice of Appeal. With an absence of
evidence, those assumptions stand. Consequently, I am allowing the appeal, but
only to permit the Respondent's concession respecting the reduction in the fair
market value of the property as of March 26, 1999 from $90,000 to $47,500,
which results in an overall tax liability reduction from $82,964 to $61,714.
Costs are awarded to the Respondent.
[20]
That concludes my reasons in the appeal of
Harriet Palmer.
Signed at Ottawa, Canada, this 5th day of February 2015.
“Diane Campbell”
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