George S Waterman v. Minister of National Revenue, [1982] CTC 2206, 82 DTC 1206

D E Taylor:—This decision regarding the appeal of George S Waterman is given orally October 23, 1981, at Vancouver, British Columbia. It concerns his appeal for the 1976 taxation year. Prior to 1976, the appellant was the sole beneficial owner of a certain business property in Burnaby, BC. In or about 1975, the appellant caused to be transferred to his wife, a joint interest in the property. Marguerite Waterman was the spouse of the appellant at all times material. During the year in question, a business operated by a limited company and equally owned by Mr and Mrs Waterman paid rent for the use of the real property in question in this appeal. One-half of the income derived from the property in 1976 was $6,444.16 and the appellant reported only this one-half of the income. The Minister has included in his income the full amount of that rental income and increased thereby the income of the appellant by $6,444.16.

Evidence was led by counsel for the appellant from both the appellant, his wife and their accountant, Mr Latta. It generally covered the fact that they jointly owned and operated the business, not the land on which a lumber business was situated. Evidence from Mrs Waterman also indicated the possible availability of her own funds separate from that of the appellant. The availability to Mrs Waterman of the funds to contribute may have been the case. The Minister appears ready to admit that it was possible.

But the mere availability of such funds is not proof that any of the funds were used in the purchase of the property in question and even if so used, that the use by the appellant was not by way of a loan or a gift from his spouse, rather than by way of a contribution to capital. And even if, as a contribution to capital, that would not necessarily form a partnership or certainly not necessarily in a 50/50 relationship. The same holds true for labour or management contribution to the business involved, even equivalent contribution. It is not a criterion in itself upon which such a retroactive change in ownership for income tax purposes can be based. The same comment is applicable with respect to joint participation in other businesses or residential properties. They would have little if any bearing upon a specific and separate venture and the legal nature of that particular business.

The appellant was a businessman in this matter and could have decided to retain the real estate property in his own name, either at purchase or transfer to the limited company, while the business itself situated thereon was operated jointly by a separate limited company. That procedure is regularly followed in business and it is not at all unusual. The simple fact is that is precisely what did happen and nothing occurred for many years to alter that position. Indeed, it would appear that nothing was done to alter it or attempt to alter it until it appeared that it might be advantageous from an income tax viewpoint so to do. In the words of the appellant himself in testimony, the land was of little value at the start. When it became ridiculously valuable, then the problem developed. This concern about the increasing size of the problem was supported by the testimony of Mr Latta.

While there may be other inheritance matters which the 1975 transfer at issue may improve or alter, the matter before this Board is only that which has an effect on the taxable status of the appellant as a result of the 1975 transfer. There is no doubt in my mind that the registered legal arrangements for ownership of the property in question could have been done differently than solely in the name of the appellant. However, there is no substantive evidence available to the Board which would permit ownership to be based on some form of beneficial entitlement by his wife, rather than the lack of any such property intent as is the case in this instance. Such retroactive changes based on beneficial, rather than legal, relationships are ex- tremely difficult to prove and it has not been accomplished in this case. I find little if any of the relevant jurisprudence which can provide comfort to appellants wishing to do so. The impact and effect of taxation is a fact of life for all businessmen and must be taken into account at the time of transaction or event. There is available to businessmen a full supply of expertise in legal and accounting matters bearing on this. It is my view that it is incumbent upon a taxpayer at the critical time to obtain the necessary advice and so arrange his affairs to minimize his liability for income tax, not at a subsequent time when a changed proprietorship arrangement might appear more advantageous in doing so. The Minister is entitled in matters of taxation to assume that a taxpayer has made available to himself such advice and assistance.

In summary, the significant factor in income tax matters is rarely, if ever, that what we wished we had done or what we could have done; it is what we did that must be taken into account. In this case the appellant retained the Subject property in his own name.

Reference is made to the case of Samuel Feder v MNR, [1981] CTC 2330; 81 DTC 307, and included by counsel for the appellant in his jurisprudence (although I will agree, not relied upon by him), in which in a similar situation, the appeal was allowed by the Board. That decision by the Board (Feder) is now under appeal by the Minister of National Revenue to the Federal Court.

The appeal is dismissed. Thank you.

Appeal dismissed.