Tax Court of Canada Judgments

Date: 19990125

Docket: 97-2375-IT-G

BETWEEN:

MONIQUE LEBLANC,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on January 12, 1999, at Toronto, Ontario, by the Honourable Judge D. Hamlyn

Reasons for judgment

Hamlyn, J.T.C.C.

[1] By Notice of Assessment No. 06187 mailed on November 27, 1996, the Minister of National Revenue (the "Minister") assessed the Appellant for tax in the amount of $49,331.13 pursuant to subsections 160(1) and 160(2) of the Income Tax Act (the "Act").

[2] A Partial Statement of Agreed Facts was filed. It reads:

1. Madame Monique LeBlanc ("Appellant") is the widow of the late Dr. Alphonse LeBlanc and is a resident of Canada.

2. At all times material to this appeal, and prior to his subsequent illness as hereinafter described, Dr. LeBlanc was psychiatrist practising in Windsor, Ontario.

3. In 1989, Dr. LeBlanc was first diagnosed with aplastic anemia, and subsequently thymoma (cancer of the upper thymus gland) and finally Hepatitis "C" (a viral liver infection).

4. At all material times, the Appellant was the spouse of Dr. LeBlanc.

5. From January 6, 1993, to September 15, 1993, inclusive, cheques from Canada Life payable to Alphonse LeBlanc ("Amounts") were deposited into a Toronto-Dominion Bank ("TD") account and a North American Trust ("NA") account.

6. The Amounts were paid in respect of a Registered Retirement Savings Plan belonging to Dr. LeBlanc.

7. The TD account is a joint account, in the names of both the Appellant and Dr. LeBlanc; the NA account is in the Appellant's name alone.

8. With respect to the Amounts deposited, $8,912.34 was deposited into the NA account and $84,933.26 was deposited into the TD account. The detail of the deposits is set-out in Schedule "A" attached hereto.

9. At the time the Amounts were deposited, the total of all the amounts each of which is an amount that Dr. LeBlanc was liable to pay under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) as amended ("Act") in or in respect of the 1993 taxation year and any preceding taxation year was $44,482.80.

10. By Notice of Assessment No. 06187 mailed November 27, 1996, the Minister of National Revenue assessed the Appellant Federal income tax in the amount of $44,482.80 pursuant to subsections 160(1) and 160(2) of the Act.

SIGNIFICANT VIVA VOCE EVIDENCE

[3] The Appellant gave her evidence in a straightforward, credible manner.

[4] As a consequence of Dr. LeBlanc's illness (1989), he was forced to retire from the practice of psychiatric medicine. At that time, the ability to manage his personal affairs was beyond his capacities. The Appellant had to provide him with 24-hour care including assistance with simple tasks such as dressing and personal hygiene. In particular, he was unable to manage his financial affairs to the point he was unable to sign cheques appropriately. His physical strength was depleted and his previously overall positive mood and demeanour dramatically changed downward. Mme LeBlanc was forced to take over the management of his affairs.[1] Mme LeBlanc opened a joint bank account close to their home so that she could handle Dr. LeBlanc's finances in a similar manner as she had done throughout their married life. Prior to this, Dr. LeBlanc operated his own bank account while Mme LeBlanc followed his directions in relation to the accounts and the record keeping.

[5] During the period in issue, Mme LeBlanc also had another personal account in her name. This account allowed her to pay certain of Dr. LeBlanc's personal expenses and this account did not require attendance at the bank.

[6] In 1993, the source of funds paid to the joint account was RRSP funds paid out on behalf of Dr. LeBlanc.

[7] Throughout her married life with Dr. LeBlanc the Appellant did not have an independent income. Her source of income came from Dr. LeBlanc or the management company serving his professional practice.

[8] Mme LeBlanc, from the two bank accounts, paid with the concurrence of Dr. LeBlanc all the normal things to support the previous and continuing activities of Dr. LeBlanc including the operation of a farm and the normal living expenses of herself and Dr. LeBlanc.

[9] It is of further note she was not a sophisticated business person and specifically did not enter into the joint bank account arrangement as part of any estate plan[2] or any plan to benefit herself beyond the basic necessities of life. It was simply a means to carry out the continuing need to manage the affairs and obligations of her husband.

[10] The most unique feature of the evidence is the completeness of the Appellant's records kept on behalf of Dr. LeBlanc including the Appellant's journal as to deposits received and a record of each cheque that was written. It would appear nothing was hidden or surreptitiously dealt with (Exhibits A-2 and A-3). The intention of the Appellant was clearly to pay debts and obligations on behalf of Dr. LeBlanc.

ISSUES

[11] The issues in this appeal are:

(i) was the Appellant a transferee of any amounts from her late husband during the period from January 11, 1993 to September 13, 1993?

(ii) if amounts were transferred, was the fair market value of services provided by the Appellant equal to or of greater value than the transfers?

THE APPELLANT'S POSITION

[12] The Appellant argues that the sum in question is exempt from tax liability because there was never a "transfer" within the meaning of subsection 160(1). The Appellant takes the position that in relation to the funds she was an agent of necessity acting on behalf of her incapacitated husband. Alternatively, the Appellant argues that, if the sum was transferred, it was transferred for valuable consideration consisting of the fair market value for the nursing care and housekeeping services provided. Further, many payments that were made were to discharge spousal obligations to provide the necessities of life.

THE RESPONDENT'S POSITION

[13] The Minister argues that Dr. LeBlanc transferred property to the Appellant during the period from January 6, 1993, to September 15, 1993, at which time Dr. LeBlanc was liable to pay an amount under the Act. Therefore, the Appellant is jointly and severally liable to pay $49,331.13 pursuant to subsections 160(1) and 160(2).

[14] The Minister argues further that, as the fair market value of the consideration given for the property transferred was 'nil' and as the total of all the amounts each of which is an amount that Dr. LeBlanc 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 $49,331.13. The Appellant's liability has been properly calculated in accordance with subsection 160(1).

LEGISLATION AND JURISPRUDENCE

[15] Subsection 160(1) reads:

160(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) 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 sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statues of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or properly substituted therefor, and

(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.

LEGISLATIVE PURPOSE

[16] In Medland v. The Queen, 98 DTC 6358 (F.C.A.), Desjardins J.A. said of the legislative purpose behind subsection 160(1) at paragraph [14], page 6362:

It is not disputed that the tax policy embodied in, or the object and spirit of subsection 160(1), is to prevent a taxpayer from transferring his property to his spouse on order to thwart the Minister's efforts to collect the money which is owned to him.

ANALYSIS

[17] During 1993, Dr. LeBlanc's condition had deteriorated and his ability to function and handle his financial affairs was greatly diminished.

[18] The Appellant set up the banking arrangements as a means to an end, that is, to do whatever was necessary to carry out her 24-hour task of looking after her husband including his financial obligations. Her apparent unsophisticated understanding of the banking arrangements did not extend beyond her need to have the ability to negotiate monies on behalf of Dr. LeBlanc.

[19] The Appellant did not treat the monies as her own but applied the funds towards Dr. LeBlanc's several obligations.

[20] For the funds paid out beyond those to sustain the necessities of life of Dr. LeBlanc and the Appellant there was no intention to appropriate funds to the personal benefit of the Appellant nor was there an intention to direct funds away from the taxing authority.

[21] These findings from the viva voce evidence are supported by the detailed journal entries of the Appellant as to the use of the funds.

[22] The Appellant was aware of some indebtedness for taxes by Dr. LeBlanc however the exact sum was indeterminate as there was ongoing litigation. Eventually, that litigation ended up in Dr. LeBlanc's favour. It is of note a relatively large portion of the funds obtained from the RRSP sources was used to pay the legal costs of the successful legal action. The detailed journal accounts of the Appellant indicate payments being made during this period of time to the "Receiver General".

[23] Although the ambit of the term "transfer" is broad, it is a necessary precondition of any "transfer" that property actually vest in the hands of the alleged transferee. In Fasken Estate v. Minister of National Revenue, 49 DTC 491, Thorson P. of the Exchequer Court of Canada wrote:

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.[3]

(emphasis added)

[24] I find on the facts of this case that the property in question did not vest in or pass to the Appellant. I accept the argument of Counsel for the Appellant that during the relevant period the Appellant was acting as an agent for her ill husband and that it was only in her capacity as agent that the Appellant withdrew and used funds from Dr. LeBlanc's accounts. I also accept that the Appellant used the funds exclusively in the discharge of Dr. LeBlanc's legal obligations. She used them to pay his legal fees and other personal debts, as well as to fulfil his obligation to support himself and his wife. This latter obligation exists by virtue of common law[4] as well as the Family Law Act.[5] Therefore, the property never vested in the Appellant in her personal capacity but only in her capacity as agent for Dr. LeBlanc. She never exercised the kind of personal control over the property necessary to find that there was a transfer of property within the meaning of subsection 160(1) of the Act.

[25] Counsel for the Respondent argued that, in the absence of evidence to the contrary, section 14 of the Family Law Act deems funds in a joint bank account to be the joint property of the spouses. I find that there is sufficient evidence to the contrary to overcome this deeming provision. While the funds may have been transferred to a joint account, they were used by the Appellant exclusively for the purpose of discharging Dr. LeBlanc's legal obligations.

DECISION

[26] The appeal is allowed and the assessment is vacated.

[27] The Appellant is entitled to her costs.

Signed at Ottawa, Canada, this 25th day of January 1999.

"D. Hamlyn"

J.T.C.C.

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