Date:
20080422
Docket:
A-396-07
Citation:
2008 FCA 152
CORAM: NOËL
J.A.
NADON
J.A.
RYER
J.A.
BETWEEN:
JENNIFER
WAUGH
Appellant
and
HER MAJESTY THE QUEEN
REASONS FOR JUDGMENT OF THE
COURT
(Delivered
from the Bench at Vancouver, British Columbia, on April 22,
2008)
RYER J.A.
[1]
This is an appeal
from a decision of Justice Little of the Tax Court of Canada (2007 TCC 494),
allowing, in part, the appeal of Mrs. Jennifer Waugh against a reassessment in
the amount of $132,992.82 that was issued to her in 2004 by the Minister of
National Revenue (the “Minister”), pursuant to subsection 160(1) of the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the
“ITA”).
[2]
Subsection 160(1) of
the ITA provides that where a person has transferred property to that person’s
spouse, or to certain other related parties, at a time when the transferor has
an outstanding liability under the ITA, the transferor and the transferee can
be jointly and severally liable to the Minister for the amount of the liability
of the transferor. Of particular relevance to this appeal are the provisions of
paragraph 160(1)(e) of the ITA which stipulate that the joint and
several liability of the transferor and the transferee will be limited to the
lesser of two amounts. The first amount is the amount, if any, by which the
fair market value of the transferred property at the time of the transfer
exceeds the fair market value, at that time, of the consideration that has been
given by the transferee to the transferor for the property. The second amount
is, essentially, the amount of the outstanding liability of the transferor
under the ITA.
[3]
The relevant
portion of subsection 160(1) of the ITA reads 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:
. . .
(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.
|
(1) Lorsqu’une personne a, depuis le 1er
mai 1951, transféré des biens, directement ou indirectement, au moyen d’une
fiducie ou de toute autre façon à l’une des personnes suivantes:
a) son époux ou conjoint de fait ou une personne devenue depuis son
époux ou conjoint de fait;
b) une personne qui était âgée de moins de 18 ans;
c) une personne avec laquelle elle avait un lien de dépendance,
les règles suivantes
s’appliquent :
[…]
e) le bénéficiaire et l’auteur du transfert sont solidairement
responsables du paiement en vertu de la présente loi d’un montant égal au
moins élevé des montants suivants :
(i) l’excédent éventuel de la juste
valeur marchande des biens au moment du transfert sur la juste valeur
marchande à ce moment de la contrepartie donnée pour le bien,
(ii) le total des montants dont chacun
représente un montant que l’auteur du transfert doit payer en vertu de la
présente loi au cours de l’année d’imposition dans laquelle les biens ont été
transférés ou d’une année d’imposition antérieure ou pour une de ces années;
aucune disposition du présent paragraphe n’est toutefois réputée
limiter la responsabilité de l’auteur du transfert en vertu de quelque autre
disposition de la présente loi.
|
[4]
It is undisputed
that during the period from February 28, 2002 to May 1, 2003, Mr. Waugh
endorsed a number of cheques, which were payable to him, in favour of Mrs.
Waugh and that those cheques were deposited into her personal bank account. It
is equally undisputed that at all relevant times, Mr. Waugh was liable to pay
an amount under the ITA that exceeded the amount specified in the reassessment.
In making and confirming the reassessment, the Minister assumed that no
consideration was provided by Mrs. Waugh to Mr. Waugh in respect of the funds
that were deposited into her account.
[5]
The Tax Court of
Canada confirmed the reassessment in relation to most of the items that were
deposited into Mrs. Waugh’s account. In total, it confirmed the applicability
of subsection 160(1) of the ITA in respect of $105,081.72 and denied the
applicability of that provision in respect of $27,911.10.
[6]
Mrs. Waugh raises
two issues in this appeal. The first is that subsection 160(1) of the ITA
cannot apply with respect to funds in the amount of $75,561.72 that were
provided by Mr. Rodney Schroeder, in essence, because those funds were not the
property of Mr. Waugh. The second issue is that, with respect to any funds that
belonged to Mr. Waugh that were transferred by him to Mrs. Waugh, consideration
of an amount equal to the amount transferred was provided by Mrs. Waugh. As
such, the amount determined under subparagraph 160(1)(e)(i) of the ITA is
zero and, therefore, there is no amount in respect of which subsection 160(1) of
the ITA could apply.
[7]
With respect to the
first issue, counsel for Mrs. Waugh argues that the funds provided by Mr.
Schroeder were loaned by him to Mr. Waugh and such funds were impressed with a
“Quistclose trust”. In effect, the argument is that those funds did not belong
to Mr. Waugh in the sense that he was not free to deal with them because of the
trust condition that attached to them, namely, that he was obligated to use the
funds only in the promotion of a particular business venture.
[8]
The materials in
the record do not support the assertion that the funds provided by Mr.
Schroeder to Mr. Waugh were subject to any trust conditions. There was no
written loan agreement that spells out any trust conditions. More importantly,
in correspondence to the Canada Revenue Agency, Mr. Schroeder characterized
$50,000 of the funds that he provided as consulting fees and the remaining
$20,000 as a personal loan. This evidence belies any suggestion that the funds
provided by Mr. Schroeder were subject to any trust conditions.
[9]
With respect to the
second issue, counsel for Mrs. Waugh contends that she provided consideration
in exchange for the property that was transferred to her by her husband by assisting
him in the business venture.
[10]
In Machtinger v.
Canada, [2001] D.T.C. 5054, [2001] 1 C.T.C. 137, this Court held that in
the face of an assumption by the Minister that no consideration has been
provided in exchange for a transfer of property, as contemplated by subsection
160(1) of the ITA, the transferee has the burden of establishing the fair
market value of any consideration that has allegedly been provided in exchange
for the transferred property.
[11]
In the
circumstances before us, we are unable to conclude that Mrs. Waugh has provided
any evidence that would refute the Minister’s assumption that no consideration
was provided by her in exchange for any of the funds that were deposited into
her account by her husband. We note that if Mrs. Waugh had performed services
in respect of the new business venture, as consideration for funds that were
deposited into her account, such consideration would constitute employment or
business income to her. However, nowhere in the record is there any evidence
that any corresponding amount of employment or business income has been
reported by her in any tax return or returns for the period in which funds were
deposited into her account by her husband.
[12]
Accordingly, for
the foregoing reasons, the appeal will be dismissed with costs in the appeal,
but not in the Tax Court of Canada.
"C. Michael Ryer"
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