Date: 20010502
Docket: 1999-37-IT-I
BETWEEN:
MONICA SPLINTER
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
TAX COURT OF CANADA
IN RE: The Income Tax Act
--- Held before His Honour Judge Hamlyn of The Tax Court of Canada, in the Council Chamber, City Hall, 216 Ontario Street, Kingston, Ontario, K7L 2Z3, on the 2nd day of May, 2001.
REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Kingston, Ontario, on May 2nd, 2001)
----------------
APPEARANCES:
W. Bishop For the Appellant
Jade Boucher For the Respondent
Dan Burtnick - Registrar
Per: Penny Stewart, CSR (Reporter)
--- Upon commencing at 1:07 p.m.
HIS HONOUR: This is in the matter of Monica Splinter and Her Majesty the Queen. It is an appeal with respect to a Notice of Reassessment number 14831.
By Notice of Assessment number 12758 dated the 31st October 1997 the Minister of National Revenue assessed the Appellant in the amount of $21,964.93 pursuant to section 160 of the Income Tax Act in respect of a transfer of property to the Appellant.
By Notice of Reassessment number 14831 dated October 9, 1998 the Minister reassessed the Appellant in the amount of $17,349.57 pursuant to section 160 of the Act in respect of a transfer of the said property to the Appellant.
In response to the Notice of Reassessment the Appellant's agent filed an informal procedure appeal to this Court. In that appeal document the Appellant submitted:
"The department has based its assessment, and subsequent denial of the appeal, on the transfer of property from Gerald Splinter to Monica Splinter, his spouse.
The department's position is that Gerald Splinter always 'owned' the property.
The Splinters have always believed that the subject property was/is owned by Monica Splinter, beneficially or otherwise.
The property in question was part of the 'family compound' and the 'checker-board ownership' was suggested by legal counsel and left in place to facilitate any future family plans of family ownership and division to the children.
Checker-boarding was implemented, and encouraged by legal representatives and township personnel, to avoid having to apply for severance at a later date, in order to pass on or divide the 'compound' among the children.
Domestic funds were never considered separate, but were 'pooled' and the payment of any domestic bills was completed out of convenience from each other's bank accounts. Either of the Splinters had sufficient funds to finance the purchase of the property.
The Trust Company demanded that all family property be registered in Monica Splinter's name to accommodate refinancing, and therefore, since Monica Splinter was the beneficial owner of the subject property, no 'real' transfer took place. "
That is what is written in the Notice of Appeal.
In response to the Notice of Appeal the Minister in a Reply made the following assumptions of fact:
"In reassessing the Appellant the Minister made the following assumptions of fact:
4(a) on or about the January 18, 1993, Gerald Splinter (the 'Transferor') transferred a vacant land, designated as Part of Lot 12, South Range, Township of Howe Island..."
In terms of the transfer of land as a formal document, the Appellant acknowledged that assumption. And the full description reads:
"Part of Lot 12, South Range, Township of Howe Island in the County of Frontenac, being Parts of 10, 11, 12 and 13 on plan 13R-4707."
The second assumption was that:
(b) at all material times, the Transferor was the spouse of the Appellant".
The Appellant agreed with that.
The third assumption:
"(c) at the time of transfer, the fair market value of the property was not less than $24,000.00".
The Appellant in her evidence disputed that.
The fourth assumption:
"(d) at the time of transfer, the fair market value of the consideration given by the Appellant for the property was $1.00;"
That was agreed to.
The fifth assumption:
"(e) the aggregate of all amounts that the Transferor was liable to pay under the Act in or in respect of the taxation year in which the Property was transferred or any preceding taxation year was $43,236.39."
The Appellant's counsel said that they did not have any knowledge as to the preciseness of this outstanding account but they were not disputing it for the purposes of this hearing.
And, lastly:
"(f) the Transferor filed an assignment in bankruptcy on February 14, 1995."
That was accepted as being a true assumption.
The issue to be decided in this case is whether the Appellant is liable to pay the amount of $17,349.57 pursuant to section 160 of the Act in respect to a transfer of property to the Appellant.
In terms of section 160, in order for subsection 160(1) of the Act to apply, four conditions must be met. First, there has to be a non arm's length dealing; secondly a transfer of property must occur; third, there must be an absence of consideration from the person who received the property; and fourth, the transferor must be liable for tax in which the property was transferred or any preceding year.
On the meaning of the word "transfer" in the well-known longstanding case of Fasken and the Minister of National Revenue, cited at 1949 D.T.C. 491 at page 497, President Thorson of the Exchequer Court stated:
"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..."
So it is with that background that I conclude that the real issue before this Court, was there a transfer of property within the meaning of Section 160 of the Act, that is, the second condition that I referred to earlier, a transfer of property must occur. The question is, was there a transfer of property.
I will now review what I consider to be the significant evidence.
The Appellant is the widow of Gerald Splinter, the transferor. The Appellant stated that there was a clear division between the family's personal property and the husband's business property, that she owned outright all the family personal property and her husband owned outright all the business property. She did not take an active part in the husband's business or the husband's business property. That she had a career of her own and that she pursued that career as a registered nurse.
She stated that the subject property was part of a family cottage property and from the outset she owned it as it was the personal property of the family and was not the business property of her husband.
In 1993 she stated that she was surprised to find out the subject property was not registered in her name, although she maintained that she still owned the property. At that time the subject property was formally transferred to her and the subject property was mortgaged. As the husband's business was failing the husband came to the Appellant, his wife, and asked her to help out with his failing business in terms of funds and she did so by mortgaging all the property on Howe Island which included the subject property. And she then, upon the execution of the mortgage and the receipt of the funds, gave all of the proceeds to her husband.
There does not appear to be a written trust declaration or a written trust agreement to show the husband prior to the transfer held the property in trust for his wife. But there are several documents that have been filed in evidence as exhibits leading to the conclusion that the husband was holding the property in trust for his wife.
I will review all the exhibits.
Exhibit A-1 is a plan that shows, amongst other properties, the subject property and how the other designated parts of the overall property touched or were contiguous to the subject property. And all these properties were part of the family cottage property.
Exhibit A-2 is a letter from the solicitors for the husband dated the 28th October, 1991 stating the solicitors had prepared a trust declaration and that on the husband's instructions had registered the deed, which will be reviewed later as Exhibit R-2, from the husband in trust to the Appellant of those lands adjacent to the subject property.
The noted trust declaration was not produced at trial and counsel for the Appellant advised the Court that it could not be found.
The next exhibit is Exhibit A-3 which is a letter from the husband and the wife's solicitor dated April 28th, 1993 addressed to Montreal Trust, the mortgage company, explaining the ownership of all the lands on Howe Island of the Appellant. In that letter the lawyer states:
"Further to our earlier telephone conversation, I wish to confirm that certain parcels of land, in the registered mortgage, were in the name of Monica Ann Splinter in trust due to the fact that Ms. Splinter owns adjacent property. In order that these properties can be dealt with separately, either for mortgages purposes or selling purposes, they must be kept separate by adding 'in trust' on one of the parcels."
Exhibit A-4 is the mortgage on all the property from the Appellant to Montreal Trust with the Appellant's husband as the guarantor.
Exhibit A-5 is the deed to the subject property from the husband to the Appellant in trust in 1993.
Exhibit R-1 is a deed of land dated the 30th August, 1985 with respect to adjoining properties to the subject land that were transferred by the vendor at that time to the Appellant.
Exhibit R-2 is the deed of land dated October 2nd, 1991 of other adjoining properties being conveyed to the Appellant by the husband holding the lands in trust for the Appellant and granting her those lands as she was the sole beneficial owner.
In summation, I conclude that the Appellant is a credible witness and that from the time of acquisition in 1985 she believed that she was the beneficial owner of the subject land, and that land was part of several parcels of land on Howe Island used by the Appellant's family as the cottage property. And the Appellant's belief of ownership of the subject lands was in fact reinforced by the exhibits that I have previously reviewed.
Many steps were taken to preserve each parcel standing alone and not merging with adjoining lands so that each parcel could be dealt with individually notwithstanding the benefit of the Appellant's beneficial total ownership.
However, at the time of the mortgage to Montreal Trust it became necessary to acknowledge the Appellant's beneficial ownership, therefore the deed, A-5, was executed which in effect was a formal transfer from Gerald Splinter to the beneficial owner, the Appellant, in trust.
On that basis I conclude the purported transfer of the subject property was not a transfer of land within the meaning of section 160 of the Act as the Appellant from 1985 was the beneficial owner of the property.
The appeal is allowed and the assessment is vacated.
Thank you very much for your attendance and I appreciate the assistance from both parties.
--- Whereupon concluding at 1:23 p.m.
I HEREBY CERTIFY THE FOREGOING
to be a true and accurate
transcription of my shorthand notes
to the best of my skill and ability.
Penny Stewart, CSR
Chartered Shorthand Reporter