Date: 20000519
Docket: 98-2150-IT-G
BETWEEN:
CHERYL QUINTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] This appeal was heard at Ottawa, Canada on April 20, 2000 pursuant to the General Procedure of this Court.
Issue
[2] The issue is whether the Appellant is liable, jointly with her husband, William Quinton ("Mr. Quinton"), under section 160 of the Income Tax Act ("Act"), for an amount of $21,323.47, representing income tax owing by Mr. Quinton at the time he transferred property to the Appellant for no or inadequate consideration.
Facts
[3] The material facts are as follows:
1. At all material times the Appellant was the spouse of Mr. Quinton and consequently they were not dealing with each other at arm's length. Moreover, at no time did they separate or divorce.
2. In April 1991 Mr. Quinton transferred to the Appellant property at 2 Bennett Street, Pembroke, Ontario ("property") for $1.00, apart from natural love and affection, plus the assumption of a mortgage of approximately $18,000.00 then registered on the property. Prior to that transfer, Mr. Quinton was the sole owner of the property.
3. The fair market value of the property at the time of the transfer was approximately $90,000.00.
4. At the time of the transfer, Mr. Quinton was liable to pay income tax in the 1991 year or any preceding year in an amount of not less than $21,323.47.
5. At the time of the transfer, the Appellant placed a first mortgage on the property in the amount of $65,000.00 with the Royal Bank of Canada. This mortgage was guaranteed by Mr. Quinton.
6. The $65,000.00 mortgage proceeds were disbursed as follows – approximately $18,000.00 to Metropolitan Trust to discharge the pre-existing mortgage, various amounts to creditors of the Transferor and the balance of $18,278.00 to the Appellant.
7. One of the principal reasons for the transfer was to put the matrimonial home into the name of the Appellant and thus protect it from the various business creditors of Mr. Quinton.
Submissions of the Appellant
[4] The Appellant submits that what she and her husband did in 1991 was to simply follow the advice of counsel and put the property into the name of the Appellant. It was not to defraud Revenue Canada of any taxes owed by Mr. Quinton. Further, the Appellant contends that the assessment against her only occurred in 1997, a full six years after the transfer and that this took the Appellant by surprise. No explanation was given as to why some of the mortgage proceeds were not used to pay Revenue Canada but, from the testimony of Mr. Quinton, it appears he considered that the issue of his past income taxes was behind him and that he had no need to worry.
[5] The Appellant also submits that she and Mr. Quinton were joint owners of the property and that what in fact was transferred to her was a mere 50% interest, having a value of $45,000.00, that she in effect paid more than $45,000.00 and that consequently the transfer was for valid consideration, i.e., was not simply a transfer for no consideration.
Submissions of the Respondent
[6] Counsel for the Respondent submits that section 160 of the Act is applicable, that there is nothing in that section to provide a time limit for assessing the Transferee (Appellant) and it is not necessary to prove fraud on Revenue Canada for the application of section 160. Counsel further submitted that under The Ontario Family Law Act, the ownership of the matrimonial home was vested in the husband solely, although for marital purposes, the wife, prior to the transfer had a right to use same.
Analysis and Decision
[7] Subsections 160(1) and (2) of the Act provide as follows:
(1) Where a person has, on or after May 1, 1995, 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,
...
the following rules apply:
...
(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.
(2) The Minister may at any time assess a transferee in respect of any amount payable by virtue of this section and the provisions of this Division are applicable, with such modifications as the circumstances require, in respect of an assessment made under this section as though it had been made under section 152.
[8] It is clear that Mr. Quinton, at the time of the transfer, was the sole owner of the property. The consideration given for the transfer was $1.00 and love and affection. Thus, the consideration given was far less than the $21,323.47 owing in taxes at the time of the transfer by Mr. Quinton.
[9] Moreover, there is nothing in subsections 160(1) and (2) to the effect that that the transfer must be an attempt to defraud the Minister. Also, there is nothing in the subsections which limits the time for an assessment thereunder. The authorities submitted by counsel for the Respondent support these conclusions. In particular, see the decision of the Federal Court of Appeal in Her Majesty the Queen v. Heavyside, 97 DTC 5026, where the Court stated at page 5028:
The object of section 160 is to prevent a taxpayer from avoiding his tax liability by simply transferring his assets to his or her spouse or to any other person described in this section. Section 160, in making the transferee personally liable for the tax due by the transferor, allows the Minister to seek payment from a taxpayer who is not the original taxpayer.
Once the conditions of subsection 160(1) are met, as they are in the present case, the transferee becomes personally liable to pay the tax determined under that subsection ... That liability arises at the moment of the transfer ... and is joint and several with that of the transferor. The Minister may "at any time" thereafter assess the transferee (subsection 160(2)) and the transferee's joint liability will only disappear with a payment made by her or by the transferor in accordance with subsection 160(3)).
The moment chosen by the Minister to assess the transferee is of no consequence. It is trite law that liability for tax results from the Act and not from the assessment and that in the instant case it is the transfer that triggers the liability. The respondent, therefore, was personally liable, in her 1989 taxation year, for income tax in respect of the gains from the disposition of the property transferred and her liability being joint and several with that of her husband, it had a life of its own and survived the eventual extinguishment through bankruptcy, in 1994, of her husband's own tax liability. The fact that she was assessed only in 1994 and only after her husband's discharge is irrelevant as far as her own liability is concerned.
As to the Appellant's contention that only a half interest was transferred, see Royal Bank of Canada v. King et al., 82 DLR (4th) 225 wherein the Ontario Court (General Division) stated at page 236:
... it is agreed that Mr. King is the sole registered owner of the property. I am unable to find on the evidence that Mrs. King had any proprietary interest in it. Since the advent of the original Family Law Reform Act [S.O. 1975, c. 41] and the repeal of the dower interest of wives, Mrs. King is left with whatever interest may be conferred on her by the Family Law Act, 1986 in its present form. I cannot find that it confers any proprietary interest on her nor is there any evidence from which to infer a constructive trust or other equitable interest: see Blackman v. Davison (1987), 64 C.B.R. (N.S.) 84, 12 B.C.L.R. (2d) 24, 3 A.C.W.S. (3d) 370 (C.A.). As a spouse, Mrs. King has a personal right of possession as against her husband by s. 19, but that is not a right in rem; it does not apply as against a creditor or a trustee in bankruptcy. The matter would be different if Mr. and Mrs. King were separated or divorced: cf. Re Escher (1984), 52 C.B.R. (N.S.) 168, 55 B.C.OL.R. 10 (S.C.). In that triggering event, Mr. King's assets and those of Mrs. King would be valued separately and would be equalized and adjusted in accordance with Part I of the Act; part of Mr. King's assets would for that purpose be the matrimonial home of which he is the sole owner subject to the mortgage. Until such an event occurs, however, (the triggering event), Mrs. King does not have any proprietary interest in it and then she has only a right to equalization of net assets under Part I in the event of separation.
[10] For the above reasons, subsections 160(1) and (2) of the Act are applicable and consequently the appeal must be dismissed.
[11] I add however that, considering the innocence and honesty of the Appellant, plus the fact that the assessment only occurred approximately six years after the transfer, this would be an appropriate case for the Appellant to refer to the Fairness Committee under the Act for a waiver of all interest on the taxes owing.
Signed at Ottawa, Canada this 19th day of May 2000.
"T.P. O'Connor"
J.T.C.C.