Wynnyk v. R., [1996] 1 CTC 2659

Sobier J.T.C.C.: — The appellant appeals from the assessments by the Minister of National Revenue (the “Minister”) whereby the Minister assessed the appellant pursuant to the provisions of subsection 160(1) of the Income Tax Act (the “Act”) in respect of the tax liability of Edwynn Holdings Ltd. (“Edwynn Holdings”). The assessments arise from the transfer to the appellant by Edwynn Holdings allegedly for nominal consideration of a condominium owned by it and located at 1500 Haro Street, Vancouver, B.C. (the “Condominium”) at a time when Edwynn Holdings was liable for unpaid taxes amounting to $125,000. The Minister maintains that the Condominium had a fair market value of not less than $125,000.

Edwynn Holdings is a corporation 95 per cent of the shares of which were owned by her spouse Edwin Wynnyk and 5 per cent by their son David. Edwynn Holdings was involved as a one-third partner in the Marquis Hotel in Lethbridge, Alberta. Although Mr. Wynnyk was involved in other hotel ventures this was the only hotel in which Edwynn Holdings had an interest.

It was the evidence of the appellant and her spouse that in about July 1980 renovations were under way at the Marquis Hotel when the partners ran short of money. According to Mr. Wynnyk the contractors refused to continue unless the hotel owners raised about $125,000. Much evidence was adduced in an effort to establish the financial condition of Edwynn Holdings at that time. Respondent’s counsel attempted to demonstrate through Mr. Wynnyk and his accountant that at the relevant time Edwynn Holdings had sufficient funds of its own to provide the $125,000 to the partnership. Whether it could or could not is not the issue. What method of financing the renovations might have been used is moot. The method actually chosen is the issue and this Court must determine whether the method put forward by the appellant and her spouse was in fact the method used.

According to the appellant, she had over $125,000 of her own funds which had as their source a gift from her late father. She stated that she was willing to lend this money to her spouse in order that he could lend it to Edwynn Holdings and Edwynn Holdings would provide the funds to the partnership. According to both of them this was done and Edwynn Holdings took back a mortgage from the partnership for $125,000.

Counsel for the Respondent strongly urged the Court to find that no loan was made by Mrs. Wynnyk and therefore nothing was owed to her by her husband. This is relevant because it is the appellant’s position that Edwynn Holdings through Mr. Wynnyk repaid the loan by transferring the Condominium to Mrs. Wynnyk. If there was no loan Mrs. Wynnyk paid no consideration for the Condominium and these assessments would be correct.

Much evidence was led in an attempt to establish the loan. No cancelled cheque was produced nor was there any loan agreement or other evidence such as a promissory note or acknowledgement of indebtedness. There was a receipt from Mr. Wynnyk’s solicitors acknowledging receipt from him of $125,000. There was also a receipt from Mr. Wynnyk acknowledging receipt from Mrs. Wynnyk of a loan of $125,000 to Edwynn Holdings. They were both dated at the time the loan was said to have been made. While counsel for the Respondent had reservations concerning this latter receipt no evidence was produced to deny its authenticity.

On the preponderance of the evidence I find that a loan of $125,000 was made by the appellant to her spouse which moneys were in turn lent by him to Edwynn Holdings and thereafter made available to the partnership. It is significant that the appellant insisted that the loan was made to her spouse and not to Edwynn Holdings. This is so in spite of other evidence which could lead to the conclusion that the loan might have been made directly to Edwynn Holdings. Had this been the case the transfer of the Condominium directly to her by Edwynn Holdings would have stood on sturdier grounds.

Had the transfer been made by Edwynn Holdings to the appellant via Mr. Wynnyk when Edwynn Holdings was not indebted to her as is the case, the matter would be resolved in favour of the Respondent. However at the time the transfer was made Mr. Wynnyk’s shareholder’s loan account with Edwynn Holdings was in a credit balance; that is to say that Edwynn Holdings owed Mr. Wynnyk more than enough to allow him to cause Edwynn Holdings to transfer the Condominium to the appellant and reduce his shareholder’s loan account by an amount equal to the value of the Condominium at that time. Although there were some inconsistencies in their stories on the whole I accept the evidence adduced on the appellant’s behalf.

For these reasons the appeal is allowed, with costs and the assessments vacated.

Appeal allowed.