Tax Court of Canada Judgments

Docket: 2002-2406(IT)I

BETWEEN:

DAVID GOLDBERG,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

_______________________________________________________________

Appeals heard on common evidence with the appeals of Sarah Goldberg (2002-2405(IT)I) and of Rachelle Goldberg (2002-2401(IT)I) on November 6, 2002 at Vancouver, British Columbia

Before: The Honourable Judge Michael J. Bonner
Appearances:
Counsel for the Appellant:	Salman Bhura
Counsel for the Respondent:	Jasmine Sidhu

_______________________________________________________________

JUDGMENT

          The appeals are dismissed.

Signed at Toronto, Ontario, this 23rd day of January 2003.

" Michael J. Bonner "

T.C.J.

Docket: 2002-2405(IT)I

BETWEEN:

SARAH GOLDBERG,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

_______________________________________________________________

Appeals heard on common evidence with the appeals of David Goldberg (2002-2406(IT)I) and of Rachelle Goldberg (2002-2401(IT)I) on November 6, 2002 at Vancouver, British Columbia

Before: The Honourable Judge Michael J. Bonner
Appearances:
Counsel for the Appellant:	Salman Bhura
Counsel for the Respondent:	Jasmine Sidhu

_______________________________________________________________

JUDGMENT

          The appeals are dismissed.

Signed at Toronto, Ontario, this 23rd day of January 2003.

" Michael J. Bonner "

T.C.J.

Docket: 2002-2401(IT)I

BETWEEN:

RACHELLE GOLDBERG,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

_______________________________________________________________

Appeals heard on common evidence with the appeals of David Goldberg (2002-2406(IT)I) and of Sarah Goldberg (2002-2405(IT)I) on November 6, 2002 at Vancouver, British Columbia

Before: The Honourable Judge Michael J. Bonner
Appearances:
Counsel for the Appellant:	Salman Bhura
Counsel for the Respondent:	Jasmine Sidhu

_______________________________________________________________

JUDGMENT

          The appeals are dismissed.

Signed at Toronto, Ontario, this 23rd day of January 2003.

" Michael J. Bonner "

T.C.J.

Date: 20030123

Docket: 2002-2406(IT)I

BETWEEN:

DAVID GOLDBERG,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent,

AND

Docket: 2002-2405(IT)I

SARAH GOLDBERG,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent,

AND

Docket: 2002-2401(IT)I

RACHELLE GOLDBERG,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

BONNER, T.C.J.

[1]      Rachelle, Sarah and David Goldberg appeal from assessments made under s. 160(1)(b) of the Income Tax Act (the "Act"). The appeals of Sarah and David Goldberg were heard together on common evidence. The parties agreed that the outcome in the appeal of Rachelle Goldberg was to be the same as the other two. All three appeals were governed by the Informal Procedure.

[2]      The assessments were made on the basis that the Goldberg Family Trust (Trust) transferred property to the Appellants when they were under eighteen years of age by paying the Appellants' school and summer camp fees and that, at the time, the Trust was liable to pay income tax in respect of preceding taxation years.

[3]      The Appellants are the children of Dr. Aron Goldberg. David Goldberg was born on April 9, 1987. Sarah Goldberg was born on May 31, 1985. Rachelle Goldberg was born on March 16, 1984.

[4]      The Trust was established on November 1, 1991. Dr. Aron Goldberg was sole trustee. The beneficiaries included the three Appellants. Paragraph 7 of the deed of settlement of the Trust provided in part:

"The trustee will hold the trust fund and until the time of division will pay or transfer to or apply for the benefit of the beneficiaries or such one or more of them, to the exclusion of the other or others and in such portions as the trustee in the trustees uncontrolled discretion may determine, all or so much of the net income, if any, derived from the trust fund and all or so much of the capital thereof as the trustee in the trustee's absolute and uncontrolled discretion from time to time determines."

[5]      At all relevant times, the Appellants were students in attendance at Collingwood School, a private institution. As well, the Appellants were enrolled at a summer camp, Camp Hatikvah.

[6]      In 1998 and 1999, Dr. Goldberg caused the Trust to make payments to Collingwood School on account of the Appellants' tuition and to Camp Hatikvah on account of the Appellants' camp fees. The payments were made without the knowledge or concurrence of any of the Appellants.

[7]      In the 1998 and 1999 taxation years, the Trust was indebted to the Crown for income tax which had been assessed in respect of the 1995 and 1996 taxation years.

[8]      S. 160 of the Income Tax Act reads in part:

"(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)         ...

(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."

[9]      The purpose of s. 160 is clear. It is to prevent a taxpayer from obstructing the Minister's efforts to collect tax owing by transferring the taxpayer's property to his spouse, to minors or to persons with whom the taxpayer does not deal at arm's length.

[10]     The argument focussed primarily on the question whether the Trust, by paying the Appellants' tuition and camp fees, "transferred property" to the Appellants within the meaning of s. 160.

[11]     It should be noted at the outset that the word "transfer" is of wide important. The law on the point is clear. The meaning of the word "transfer" was considered in The Executors of the Estate of David Fasken v. The Minister of National Revenue, [1948] Ex. C.R. 580. At page 592 Thorson, P. 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."

[12]     The word "property" is defined in s. 248(1) of the Act as follows:

"248(1) - In this Act,

"property" - "property" means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes

(a)    a right of any kind whatever, a share or a chose in action,

(b)    unless a contrary intention is evident, money, ... "

[13]     Counsel for the Appellants argued that the payment by the Trust of the tuition and camp fees did not effect a transfer of property of the Trust to the Appellants because the property which left the Trust did not vest in the Appellants. In this regard, Counsel relied on the decision of this Court in Leblanc v. Canada, [1999] T.C.J. No. 60.

[14]     As I see it, the language of s. 160, which embraces transfers of property made "...either directly or indirectly, ... by any other means whatever ..." to a transferee falling in one of the classes named in the section, encompasses tranfers of the sort now under consideration despite the fact that the nature of the property may have changed between origin and destination. The point is clearly covered by authority. In Susan Jane Medland v. Her Majesty the Queen, 98 DTC 6358, the taxpayer was sole owner of the home in which she and her husband resided. The husband made mortgage payments in respect of the home at a time when he was indebted to the Crown for income tax arrears. The Federal Court of Appeal held that the husband, in making the mortgage payments, transferred property indirectly to the taxpayer to the extent that the payments were on account of mortgage principal. At paragraphs 20 and 21 of her reasons, Desjardins, J.A. stated

"[20]... when Mr. Medland made the payments to the mortgagee, he specified that such money was to be attributed in diminution of the mortgage on the property on which he had no more interest. While it is true that subsection 160(1) of the Act does not contain the words "for the benefit of" or "on behalf of" as found in subsections 15(1) or 74.1(1) or paragraph 224(1.1)(b) of the Act, the applicant does not deny that she became less indebted by the payments and her equity in the property increased. The means by which this result occurred were monies paid to the Bank which was then transferred by the Bank on the account of the mortgage of a house owned solely by the applicant. The payment to the Bank was simply a conduit through which the funds passed indirectly from her husband to her.

[21]       The applicant's submission, that no transfer or property occurred because what Mr. Medland divested himself was money which monies were never transferred [physically] to the applicant, is without merit. ..."

In my view, when the Trust paid the tuition and camp fees, the money paid was transferred indirectly to the Appellants. It reached the Appellants in the form of the services which were rendered to the Appellants by the school and camp as consideration for the money paid.

[15]     Counsel for the Appellants argued further that they did not exercise control over the transfer of the funds. The payments, it was said, were made entirely without the knowledge or consent of the Appellants.

[16]     There is no doubt that the Appellants were unaware of the fact that the Trust was paying the tuition and camp fees. The Appellants did not know that the Trust existed. Counsel took the position that a transaction effected entirely without the knowledge or consent of the transferee is not within the purview of s. 160(1). In this regard he relied on a decision of the Federal Court Trial Division in Finley Mah v. Her Majesty the Queen, 93 DTC 5267. In Mah the taxpayer's parents executed a transfer of land transferring title to their home to the taxpayer. They did so without the taxpayers knowledge or consent. On appeal by the taxpayer from an assessment under s. 160 the Court held the purported transfer was invalid. At page 5270 Jerome, A.C.J. wrote:

"Can there be divestiture by Mr. and Mrs. Mah and vesting in Dr. Mah here? I think not. Surely a transaction done entirely without the plaintiff's knowledge or consent could not have that effect, nor do I understand why the Minister needs the assistance of section 160 unless the transfer is valid."

In my opinion the decision in Mah does not stand for the proposition that knowledge and/or consent of the transferee is necessary to the operation of s. 160. Mah was quite simply a case in which s. 160 was held to be inapplicable to an unsuccessful attempt to transfer which happened to have been made without the knowledge of the transferee.

[17]     Nothing in the language or purpose of s. 160 can justify a conclusion that the transferee must be aware of or understand the mechanics of the transaction by which a transfer is effected. The imposition of such a restriction on the meaning of the word "transfer" would thwart the clear purpose underlying s. 160.

[18]     Counsel for the Appellants argued further that the performance of a legal obligation does not constitute a transfer within the meaning of s. 160. He relied on Michaud v. Her Majesty the Queen, [1998] 4 CTC 2675. He submitted that the payments by the trust to the school and camp were made on the instructions of Dr. Goldberg as part of his legal obligation to support the Appellants during their infancy.

[19]     It is not necessary to discuss what was decided in Michaud (supra). This branch of the Appellants' argument ignores the fact that Dr. Goldberg's obligation to support his children rested on him and not on the Trust. The Trust did not, in making the payment in issue, discharge any obligation which rested on it.

[20]     Finally, as an alternative to submissions that no transfer had taken place in the circumstances, counsel for the Appellants suggested that the Trust received full consideration for the transfer of property in the form of services provided by the school and camp at its request. Since a transfer made without valid consideration is a pre-condition to the application of s. 160, it was said, no liability could be imposed on the Appellants. In my view the reference in subparagraph 160(1)(e) to consideration given for the property must, when the statutory language is read in context, be taken to be a reference to consideration given by the transferee of the property. This branch of the Appellant's argument must therefore fail.

[21]     For the foregoing reasons the appeals will be dismissed.

Signed at Toronto, Ontario, this 23rd day of January 2003.

" Michael J. Bonner "

T.C.J.

COURT FILE NO.:

2002-2406(IT)I

STYLE OF CAUSE:

David Goldberg and Her Majesty the Queen

PLACE OF HEARING

Vancouver, British Columbia

DATE OF HEARING

November 6, 2002

REASONS FOR JUDGMENT BY:

The Honourable Judge Michael J. Bonner

DATE OF JUDGMENT

January 23, 2003

APPEARANCES:

Counsel for the Appellant:

Salman Bhura

Counsel for the Respondent:

Jasmine Sidhu

COUNSEL OF RECORD:

For the Appellant:

Name:

Salman Bhura

Firm:

Harper Grey Easton Vancouver, British Columbia

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

COURT FILE NO.:

2002-2405(IT)I

STYLE OF CAUSE:

Sarah Goldberg and Her Majesty the Queen

PLACE OF HEARING

Vancouver, British Columbia

DATE OF HEARING

November 6, 2002

REASONS FOR JUDGMENT BY:

The Honourable Judge Michael J. Bonner

DATE OF JUDGMENT

January 23, 2003

APPEARANCES:

Counsel for the Appellant:

Salman Bhura

Counsel for the Respondent:

Jasmine Sidhu

COUNSEL OF RECORD:

For the Appellant:

Name:

Salman Bhura

Firm:

Harper Grey Easton Vancouver, British Columbia

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

COURT FILE NO.:

2002-2401(IT)I

STYLE OF CAUSE:

Rachelle Goldberg and Her Majesty the Queen

PLACE OF HEARING

Vancouver, British Columbia

DATE OF HEARING

November 6, 2002

REASONS FOR JUDGMENT BY:

The Honourable Judge Michael J. Bonner

DATE OF JUDGMENT

January 23, 2003

APPEARANCES:

Counsel for the Appellant:

Salman Bhura

Counsel for the Respondent:

Jasmine Sidhu

COUNSEL OF RECORD:

For the Appellant:

Name:

Salman Bhura

Firm:

Harper Grey Easton Vancouver, British Columbia

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada