Aneda Fisher v. Minister of National Revenue, [1979] CTC 2771, 79 DTC 661

Guy Tremblay:—This case was heard at Toronto, Ontario, on June 25, 1979.

1. Point at Issue

The problem is whether the appellant is correct in contending that section 160 of the new Income Tax Act has no application in the present case. In 1975, the appellant maintains that she bought from and paid to her husband the sum of $60,500 for securities and other personal property, the fair market value of which was $55,800. By application of section 160, the respondent considered the appellant liable for the $32,005.55 payable to the respondent by her husband for taxes in respect of the 1970, 1971 and 1972 taxation years. The appellant’s contention is that section 160 applies only when the amount paid by the beneficiary’s spouse is lower than the fair market value and it is not the case here.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof results especially from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in fl W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. The Facts

3.01 The appellant was the wife of Mr Reginald Fisher, who in 1975 was president of Hamilton Trust and Savings Corporation. Mr Fisher died in November 1976.

3.02 On February 27, 1975, a loan was taken from the Royal Bank of Canada to pay a debt of her husband who was in financial difficulties as it is explained in a letter dated February 19, 1976, addressed to the appellant by the manager of the Royal Bank of Canada (Hamilton Branch) produced as exhibit A-1, and which reads as follows:

Pursuant to your recent request, we wish to confirm our understanding of the circumstances regarding loans granted to you 1975 and the subsequent repayment. On February 27, 1975, a loan of $30,000 was arranged to you with the proceeds being paid to the Canadian Imperial Bank of Commerce, Hamilton, Ontario, to repay a loan at that bank in the name of Mr Reginald Fisher. This loan was secured by shares in various corporations hypothecated by you and by Mr Fisher’s guarantee supported by additional corporate shares. A partial repayment of $19,500 was made on April 9, 1975 by Mrs Fisher from a source outside our security with the balance of the loan ($10,500) being paid on July 22, 1975 from the sale of some of the securities held.

The following post scriptum appears at the bottom of the letter:

PS—In paying the loan at the CIBC, we received the various shares held by them as security, subsequently hypothecated to us.

3.03 As exhibit A-4, the photocopy of a cheque dated April 8, 1975, in the amount of $19,500 was filed. It is to the order of the appellant and constituted a loan from her sister Mary Cryder.

3.04 The photocopy of the title of a mortgage, registered on April 9,1975 in the amount of $50,000, was produced as exhibit A-5. It was from the appellant to her sister, Mary Cryder. The mortgage was registered on the land and home owned by the appellant. This amount of $50,000 was to cover the loans made by Mary Cryder to Reginald Fisher in the amount of $33,000 and $19,500 to the appellant, less $3,000 paid in February by the appellant.

3.05 By assessment dated March 6, 1975, the respondent assessed Reginald Fisher, the appellant’s husband, tax and interest in the amount of $32,005.55 in respect of the 1970, 1971 and 1972 taxation years.

3.06 On March 18, 1975, Reginald Fisher transferred 35,000 shares of Hamilton Trust and Savings Corporation Limited owned by him to the appellant. The value of these shares was approximately $35,000.

3.07 On March 24, 1975, Reginald Fisher transferred 1,300 shares of Fidelity Mortgage and Savings Corporation owned by him to the appellant. The said shares had a value of approximately $7,800.

3.08 In her testimony, the appellant said that her husband also transferred to her two cars, one of them being a Cadillac.

3.09 According to the appellant, the fair market value of all the assets transferred to her by her husband is $55,800.

3.10 The appellant said she had paid for her husband $60,500 including $53,000 (see paragraphs 3.02 and 3.04) plus legal fees $3,418.41 and other payments.

3.11 On August 14, 1975, the respondent issued an assessment to the appellant for a total amount of $32,649.53. This amount included the taxes due by her husband, plus interest.

4. Law—Jurisprudence—Comments

4.1 Law

The main subsections of the new Income Tax Act involved in the present case are 74(1) and 160(1), which read as follows:

74. Transfers to spouse.

(1) Where a person has, on or after August 1, 1917, transferred property either directly or indirectly by means of a trust or by any other means whatever to his spouse, or to a person who has since become his spouse, any income or loss, as the case may be, for a taxation year from the property or from property substituted therefor shall, during the lifetime of the transferor while he is resident in Canada and the transferee is his spouse, be deemed to be income or a loss, as the case may be, of the transferor and not of the transferee.

160. Tax on income from property transferred between husband and wife or to minors.

(1) Where a person has, on or after the 1st day of May, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever,

(a) to his spouse or to a person who has since become his spouse, or

(b) to a person who was under 18 years of age,

the following rules are applicable:

(c) the transferee and 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 section 74 or section 75, as the case may be, in respect of income from the property so transferred or from property substituted therefor;

and

(d) the transferee and transferor are jointly and severally liable to pay the lesser of

(i) any amount that the transferor was liable to pay under this Act on the day of the transfer, and

(ii) a part of any amount that the transferor was so liable to pay equal to the value of the property so transferred;

but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.

4.2 Jurisprudence

The precedent cases cited by the parties are as follows:

1. Estate of David Fasken v MNR, [1948] CTC 265; 49 DTC 491;

2. Ann McGIaddery v MNR, 13 Tax ABC 330; 55 DTC 471;

3. Roy Otto German v MNR, [1957] CTC 291; 57 DTC 1216;

4. No 605 v MNR, 21 Tax ABC 317; 59 DTC 159;

5. Joseph B Dunkel man v MNR, [1959] CTC 375; 59 DTC 1242;

6. Donald F. Campbell v MNR, 32 Tax ABC 203; 63 DTC 493;

7. M E Rafael v MNR, [1978] CTC 2398; 78 DTC 1300;

8. Dorrine L Payette v MNR, [1978] CTC 3113; 78 DTC 1801.

4.3 Comments

4.3.1 The crux of the matter indeed concerns the interpretation and the application of section 160 on which the respondent based the assessment from which the appeal is brought.

What does the word “transferred” mean in the first line of section 160?

Where a person has, on or after the 1st day of May, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever.

Does that word include sale of property? Both the learned counsels underlined the fact that the same words are used in section 74, also quoted above.

In Dunkelman v MNR, cited above, at 379 [1244], Thurlow, J quoted the cases of David Fasken v MNR, supra, and St Aubyn v Attorney-General, [1952] AC 15, concerning the meaning of the word “transfer”:

In David Fasken Estate v MNR, [1948] Ex CR 580; [1948] CTC 265; 49 DTC 491, the President of this Court, in discussing the meaning of ‘transfer’ in s 32(2) of the Income War Tax Act, said at 592, [279, 497]:

“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. The plain fact in the present case is that the property to which Mrs Fasken became entitled under the declaration of trust, namely, the right to receive a portion of the interest on the indebtedness, passed to her from her husband who had previously owned the whole of the indebtedness out of which the right to receive a specified portion of the interest on it was carved. If David Fasken had conveyed this piece of property directly to his wife by a deed such a conveyance would clearly have been a transfer. The fact that he brought about the same result by indirect or circuitous means, such as the novation referred to by counsel involving the intervention of trustees, cannot change the essential character of the fact that he caused property which had previously belonged to him to pass to his wife. In my opinion, there was a transfer of property from David Fasken to his wife within the meaning of the Act.”

And in St Aubyn v Attorney-General, [1952] AC 15, Lord Radcliffe put the matter in almost the same way when he said at 53:

“If the word “transfer” is taken in its primary sense, a person makes a transfer of property to another person if he does the act or executes the instrument which divests him of the property and at the same time vests it in that other person.”

In the Campbell case cited above, at 495, Assistant Chairman RS W Fordham, QC, of the former Tax Appeal Board, affirms about the word “transfer”:

That term embraces any passing of ownership.

Mr Fordham concluded that the sale of share from Donald Campbell to his wife was a transfer. The difference with the present case, however, was that it was clear according to the evidence that the shares were not paid for.

4.3.2 In his submission, counsel for the respondent contended that even when the spouse transferee pays to spouse transferor, the transferred property, section 160 can serve as a basis to the transferee of the amount of income tax payable by the transferor at the time of the transfer.

On one hand, section 160 is a taxing section; so if the section is not clear, the doubt must be interpreted in favour of the taxpayer.

On the other hand, it is also clear that the legislator’s intention behind that section was to prevent a person with substantial income tax liability from circumventing the claims of the income tax authority by transferring his property to a spouse. At first glance, it is not the case when a spouse pays at the fair market value the transferred property.

The problem, however, is why the legislator has not clearly stated that intention. On the contrary by using the word “transfer” the legislator states that he includes sale. Indeed, as the legislator has not given a special definition of the word “transfer”, the ordinary definition must be used and this means the definition of the dictionary. The Random House Dictionary of the English Language says of the word “transfer”: “15. Law. a conveyance, by sale, gift, or otherwise, of real or personal property, to another”.

It is the Board’s opinion that the word “transfer” contrued in its ordinary meaning as it must be construed, can force a tribunal in many cases to decide against equity. Is it useful to remember that the tax law is not necessarily a law of equity?

4.3.3 The evidence in the present case is not clear that the amount given by the appellant to pay the debts of her husband was given in consideration of the securities and personal property transferred to her by her husband.

There was no written contract which would indeed have been the best proof. Her husband, president of an important financial institution, was certainly an advised businessman. A written contract would have been normal especially to clarify a situation between husband and wife.

The transfer of the securities and personal property was made in March 1975 as the most important part of the payment was done in February 1975 (see paragraphs 3.06 and 3.07 of the Facts). In her testimony, the appellant said she paid the debts to help her husband. It seems that it is more as a member of family unit than as a purchaser of securities.

4.3.4 Considering the evidence;

Considering the interpretation which must be given to the word “transfer”, unfortunately the assessment must be maintained and the appeal dismissed.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.