Nevidon v. R., [1996] 2 CTC 2509 (Informal Procedure)

Bowman J.T.C.C.: — This appeal is from an assessment for the appellant’s 1993 taxation year. The issue is whether the appellant must include, in the computation of capital gains realized by him on property sold in 1993, the entire gain realized on the disposition of the property or, by reason of the Ontario Family Law Reform Act, only 50 per cent.

In 1993, or possibly before that time, Mr. Nevidon and his wife Yvette split up. So far as is relevant to these proceedings there were two pieces of property in the family assets: a matrimonial home at R.R.#1 Branchton, Ontario, held in their joint names, and a property at 18-20 Grantham Avenue, Cambridge, Ontario, which was owned by Mr. Nevidon alone.

On April 29, 1993, Mr. Justice Mossop of the Ontario Court (General Division) made the following order in an application made by Yvette Nevidon against Vincent Nevidon:

THIS MOTION, made by Applicant for an order holding the Respondent in contempt of court, interim spousal support, that the proceeds of the sale of the property located at 18-20 Grantham Avenue, Cambridge be held in trust and for interim exclusive possession of the matrimonial home was heard this day, at 20 Weber Street East, Kitchener, Ontario,

ON READING THE Motion Record, Respondent’s Motion Record, on hearing the submissions of counsel for the parties, and the consent, filed,

1. THIS COURT ORDERS that the Respondent shall pay to the Applicant an equalization payment of $205,380.00. Upon such payment, the Applicant shall convey her interest in the matrimonial home located at R.R. #1, Branchton, Ontario to the Respondent.

2. THIS COURT ORDERS that the Applicant and the Respondent shall divide in equal value the coins not listed in the handwritten notes of Matthew Nevidon. Such equal division to be determined by an independent valuator or third party agreed upon by the parties.

3. THIS COURT ORDERS that the Respondent shall allow the Applicant to enter the matrimonial home to recover her wedding rings and daughter’s clothing.

4. THIS COURT ORDERS that until such time as the Respondent pays to the Applicant the sum of $205,380.00, the parties agreed that the matrimonial home shall be listed for sale with Ross I. Martin Realty Ltd. at a listing price of $259,900.00 or sold privately. If an offer is received for not less than $245,000.00, the Respondent must pay the equalization pay- ment within 30 days or accept the offer.

5. THIS COURT ORDERS that if an offer is received for less than $245,000.00, the Applicant shall have the right to apply to the court for directions as to the sale of the home.

6. THIS COURT ORDERS that if the matrimonial home sells for less than $250,000.00, the equalization payment shall be adjusted in accordance with the actual purchase price.

7. THIS COURT ORDERS that upon payment of the aforesaid equalization payment and division of coin collection, the parties shall release each other from any further claim for division of assets, equalization of net family property, spousal support, alimony and/or maintenance.

8. THIS COURT ORDERS that the proceeds of the sale of the 18-20 Grantham Street, Cambridge property shall be held in trust by the Respondent’s solicitor until the aforesaid equalization payment has been made.

Mr. Nevidon kept the matrimonial home at Branchton, sold the Cambridge property and paid his wife the $205,380 equalization payment.

On the sale of the Cambridge property a capital gain of about $154,200 was realized, calculated as follows:

Mr. Nevidon’s position is that he should be taxed on only 50 per cent of this amount, or $57,825, and that his wife should be taxed on the other one-half. He bases this contention on a statement in a booklet published by the Ministry of the Attorney General of Ontario, Family Law Reform - Your New Rights reads as follows at page 10:

In the event of marriage breakdown, the law presumes that both spouses have an equal right to share in any property which is a family asset, regardless of which spouse owns it.

The reply to the notice of appeal totally misses the point. It states merely that the assessment was based upon the fact that:

(a) the equalization payment of about $205,000.00 made by the Appellant to his spouse (the “Amount”), was not made on account of alimony or maintenance for his spouse pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement.

Of course it was not. Mr. Nevidon has never suggested that it was. Neither was it any of the multitude of other things that taxpayers can deduct in computing income. Mr. Nevidon is not seeking to deduct 50 per cent of the capital gain under paragraphs 60(b) or (c) of the Income Tax Act. He says that 50 per cent of the gain belongs to his wife and not to him and should be taxed in her hands.

Notwithstanding the fact that the Crown has failed to comprehend the appellant’s point, the question is one of law and I must deal with it. The question is whether the Ontario Family Law Reform Act, on the breakdown of the marriage, makes Mrs. Nevidon a 50 per cent beneficial owner of the Cambridge property, so that 50 per cent of the capital gain belongs to her for the purposes of the Income Tax Act.! [1]

Subsections 4(1) and (2) of the Ontario Family Law Reform Act read as follows:

4(1) Subject to subsection 4, where a decree nisi of divorce is pronounced or a marriage is declared a nullity or where the spouses are separated and there is no reasonable prospect of the resumption of cohabitation, each spouse is entitled to have the family assets divided in equal shares notwithstanding the ownership of the assets by the spouses as determinable for other purposes and notwithstanding any order under section 7.

(2) The court may, upon the application of a person who is the spouse of another, determine any matter respecting the division of family assets between them.

Section 6 of the Family Law Reform Act reads as follows:

6. In an application under section 4, the court may order,

(a) that the title to any specified property directed to a spouse in the division be transferred to or in trust for or vested in the spouse whether absolutely, for life or for a term of years;

(b) the partition or sale of any property;

(c) that payment be made out of the proceeds of sale to one or both spouses, and the amount thereof;

(d) that any property forming part of the share of either or both spouses be transferred to or in trust for or vested in a child to whom a spouse owes an obligation to provide support;

(e) that either or both spouses give security for the performance of any

obligation imposed by the order, including a charge on property; and

(f) that either spouse pay to the other such sum as is set out in the order for the purpose of adjusting the division.

and may make such other orders or directions as are ancillary thereto.

It is by no means clear to me that the Cambridge property was a family asset as defined in section 3 of that Act, but even assuming it is, I do not think that the effect of section 4 is to alter the beneficial ownership of the family assets as between the spouses in a manner that affects the incidence of taxation for the purposes of the Income Tax Act.

Section 4 requires a division of the family assets as between the spouses, and section 6 sets out a number of ways in which this can be accomplished, but I can see nothing in section 4 that automatically makes the spouse the beneficial owner of one-half of property owned by the other spouse. Indeed, subsection 74.5(3) makes a specific and rather narrow exception to the attribution rules in the case of transfers between separated or divorced spouses. While the Income Tax Act cannot affect the civil rights between spouses under applicable provincial legislation it is at least illustrative of a Parliamentary recognition of the effect of interspousal transfers of property on a marriage breakdown.

The appeal is dismissed.

Appeal dismissed.