Kathy A.D. White v. Her Majesty the Queen, [1995] 1 CTC 2937, 96 DTC 1552

Hamlyn J.T.C.C.:-This is an appeal from the assessment numbered 27872 and dated August 10, 1992 issued to the appellant informing her that the Minister of National Revenue (the "Minister") had assessed her for liability under subsection 160(1) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the "Act") in the amount of $20,143 in respect of a transfer of property to her from Lewis G. White (the appellant’s spouse).

Facts

From December 1990 to April 1992 Lewis G. White made deposits to the appellant’s personal checking account at the Bank of Nova Scotia in excess of $20,143. During this period of time Lewis G. White was liable to pay to the Revenue Canada in excess of $56,516.31 under the Act in respect of the 1991 and previous taxation years.

The appellant contends the moneys deposited were not transfers to the benefit of the appellant but were to pay certain business and personal bills of Lewis G. White and to pay living expenses for Lewis G. White’s family.

The Court did not have the benefit of Mr. White’s evidence as all the evidence came solely from the appellant.

The appellant and her spouse maintained a joint bank account throughout their marriage until August or September 1990 when Revenue Canada ’’put a freeze on the joint bank account". Thereafter, the joint bank account was closed and Lewis G. White operated his business and personal expenses through the newly opened personal checking account of the appellant. During this same period of time the appellant deposited her own income in this bank account. The funds of the appellant and Lewis G. White were commingled.

The appellant presented her records to the Court wherein she attempted to reconcile the deposits in issue made by Lewis G. White with the bills or payments she paid. It is clear some of the payments were made solely for the benefit of Lewis G. White (e.g., Revenue Canada) while other payments were made for their joint benefit (e.g., mortgage payments on the matrimonial home) and others for the ultimate benefit of the appellant (e.g., a spousal RRSP).

The appellant maintained Lewis G. White gave her absolute instructions as to what was to be paid with the moneys he deposited in the account, however, the total evidence leads to the conclusion that the appellant discussed with Lewis G. White from time to time what had to be paid and it appears there was no absolute distinction between the appellant’s money and Lewis G. White’s money in the account.

It is of note that the appellant has a work and educational history that is directed towards accounting. She has completed university courses in accounting and achieved the third level of what was at that time a registered industrial accountant program (RIA). Her spouse (Lewis G. White) is a chartered accountant (CA) who in part, during the period in question, was a self-employed financial and estate planner.

The appellant's position

The appellant contends that the amounts which were deposited were not "transfers" within the normal usage of the word since the said amounts were not for her benefit, but were rather for the purpose of paying for her husband’s business and personal bills as well as for certain living expenses for his family. The appellant further contends that such bills were in fact always paid and that she never had any discretionary right to use these funds other than as described above.

The respondent's position

The respondent submits that the appellant is jointly and severally liable to pay the amount which Lewis White was liable to pay, pursuant to subparagraph 160(l)(e)(i) of the Act. He states that the deposits were transfers within the meaning of that subparagraph and that the appellant was the sole signing authority on her account and she had complete control of all moneys deposited in the account.

Issue

The issue is whether the bank deposits are transfers within the provision of subsection 160(1) of the Act.

Legislation and jurisprudence

The applicable provision of the Act is subsection 160(1) which 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 a person who has since become the person’s spouse,

(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 the 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, c. 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 therefor, 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 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.

The Federal Court-Trial Division has examined the meaning of "transfer" under the Act. In the case of Fluxgold v. Canada, [1990] 1 C.T.C. 176, 90 D.T.C. 6187, Rouleau J. stated the following at page 179 (D.T.C. 6189):

I am satisfied that Mr. Justice Thurlow, in the Dunkelman v. M.N.R., [1959] C.T.C. 375, 59 D.T.C. 1242, put the definition to rest when he wrote at page 379 (D.T.C. 1244):

The word "transfer" is not a term of art and has not a technical meaning. It is not necessary to a transfer of property from a husband to his wife that it should be made in any particular form or that it should be made directly. All that is required is that the husband should so deal with the property as to divest himself of it and vest it in his wife, that is to say, pass the property from himself to her. The means by which he accomplishes this result, whether direct or circuitous, may properly be called a transfer.

I accept this definition and I conclude that there was in fact a transfer of assets....

Analysis

In this case, the effect was the deposits once transferred from Lewis G. White’s control to the appellant’s personal checking account meant those deposits were not subject to Revenue Canada seizure. The appellant exercised full control over the funds deposited. The benefit that was conferred upon her was over $20,000 and that was used to pay a variety of family and individual debts and expenditures. The appellant and Lewis

G. White’s focus, I conclude, from their marginal circumstances, was whether there was sufficient money in the account to pay the bill or make the payment in question or advance the cash needed and not whose money it was.

The appellant and her spouse collectively were, through their experience and training, sophisticated in matters of accounting and tax.

The moneys that were paid to Revenue Canada during this period of time apparently related to current debts and, from the evidence, appear to be outside the pre-existing identified Revenue Canada debt.

The appellant argues that the money could not be spent at her discretion and had to be used to pay for her husband’s business and personal bills as well as to pay for such expenses as food. I do not accept the appellant’s assertion. Moreover, this argument does not aid the appellant’s thesis to the effect there was no transfer under subsection 160(1) of the Act. Whatever agreement the parties may have had between them, in the absence of any proven grounds to bring the matter outside subsection 160(1) of the Act, [1] has no bearing whatsoever on the Minister or any other third party to the transfer. That some of the money had to have been used to support the appellant’s husband’s affairs only lends credence to the view that the transfer was designed to evade the payment of outstanding taxes.

In summary, I conclude from the evidence, the personal checking account of the appellant was set up to avoid the potential seizure of funds by Revenue Canada. The nature and character of the transfers were absolute vesting control in the appellant and without contractual consideration.

As all the deposits were transfers within the meaning of subsection 160(1) of the Act, the appellant is jointly and severally liable to pay the amount of $20,143 which Lewis G. White is liable to pay and which he transferred to the appellant.

Decision

The appeal is dismissed with costs on a party-and-party basis to the respondent. Appeal dismissed.