Date: 19990520
Dockets: 98-989-IT-I; 98-991-IT-I
BETWEEN:
GEORGIA GALANAKIS, EMMANUEL GALANAKIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Reasons for Judgment
Bowman, J.T.C.C.
[1] These appeals were heard together. Mr. Galanakis represented himself and his wife.
[2] Mr. Galanakis' appeals are from assessments for 1992 and 1993. Mrs. Galanakis' appeal is from an assessment for 1993.
[3] There are two issues. In Mr. Galanakis' case, the Minister of National Revenue added to his business income from operating a taxi $4,119.79 and $2,864.03 in revenue and $2,403.68 and $3,309.39 in tips for 1992 and 1993 respectively.
[4] In the case of both appellants, the Minister taxed them in 1993 on the basis that they had realized a capital gain of $258,195 on the transfer of two houses to their sons for no consideration. This gave rise to a taxable capital gain of $193,646.25 of which 50%, or $96,823.12 was attributed to each appellant. A fairly large capital gains deduction, about $70,000, was allowed.
[5] I shall deal first with Mr. Galanakis' income from the taxi business. His practice was to record on a "trip sheet" where he picked up a passenger, where he took the passenger and how much he was paid, including the tip.
[6] When he started work in the morning he would telephone the taxi company, North Shore Taxi Co. ("NST") and inform them of his location and his starting time. He also informed NST when he completed his shift. This information was recorded by NST on a "running sheet".
[7] In 1992, the appellant declared $24,651 as gross income from the operation of NST cab no. 63. In 1993, he declared $30,650. His expenses were deducted resulting in a net income from the taxi business of $5,970 for 1992 and $7,173 for 1993.
[8] The assessor, Mr. John Marquis, reviewed the time sheets kept by Mr. Galanakis and compared them with the running sheets kept by NST. He found that on a number of occasions no trip sheets were made available by Mr. Galanakis for days when the running sheets of NST showed that cab no. 63 was operating. He removed from his calculations the days when Mr. Galanakis stated he was not working, either because someone else was driving cab no. 63 or because Mr. Galanakis was away ill or on holidays.
[9] For the days for which Mr. Galanakis kept trip sheets, Mr. Marquis accepted his figures. For the days where the trip sheets were missing and Mr. Galanakis had no explanation, such as being away or on holidays, Mr. Marquis assumed that he had worked as indicated on the NST running sheet and applied an average daily revenue. He also assumed that tips averaged 9.23% of the total fares.
[10] I can see no serious error in this method of proceeding. It is admittedly a little arbitrary, but it is I believe as good a method as could be devised in the absence of accurate records for the days when no trip sheets were made available. The evidence of Mr. Galanakis does not refute the figures used on assessing.
[11] I have one minor concern about Mr. Marquis' method. His determination of an average daily revenue appears to be premised on the view that the figures that he used in arriving at that average did not include tips. There is some uncertainty about this and it may be that in applying an assumed average percentage for tips of 9.23% to his daily average, he may have applied that percentage to a figure that already includes a tip. I have, however, no evidence of this and certainly nothing on which I could make a calculation of any excess.
[12] The second issue is the treatment of the transfer of two houses to Mr. and Mrs. Galanakis' sons.
[13] In May 1988, Mr. and Mrs. Galanakis purchased property at 543 East 3rd Street, North Vancouver for $96,500. In June 1988, they purchased property at 1857 Chesterfield Avenue, North Vancouver for $130,000. Their son Markos lived in the 3rd Street property and their son Nick lived in the Chesterfield Avenue property.
[14] In 1990, the 3rd Street property burned down and the appellants received insurance proceeds of about $51,000. They built a new house on the same lot. There is some dispute concerning its cost. It was originally assumed that the cost was $101,240 and that the adjusted cost base was $148,105. The respondent now concedes that the adjusted cost base should be $158,387.28.
[15] In April 1993, Mr. and Mrs. Galanakis transferred the 3rd Street property to Markos for $1.00 and natural love and affection. In the Land Title document of transfer, the value is stated to be $318,000 and the Minister used this figure in the assessments.
[16] In May 1993, they transferred the Chesterfield Avenue property to Nick for $1.00 and natural love and affection.
[17] The Minister assumed the property had a fair market value of $220,000.
[18] No evidence was adduced to cast any doubt on the assumed fair market value of the properties at the time of transfer.
[19] In assessing the Minister applied section 69 and assumed that since the transfers were between persons not dealing at arm's length they took place at fair market value.
[20] The appellants' position is that the properties were bought for their two sons, but that since at that time the sons were too young and immature, it was decided not to put them in their names until they had become older and more mature. Evidently they believed that they had reached that level of maturity in 1993 — they were well into their twenties.
[21] Mr. Galanakis argued that he and his wife from the outset had legal title only, and that the sons always had beneficial title to the properties.
[22] He called two witnesses in addition to himself who corroborated his testimony that he and his wife had always said that they bought the houses "for" Markos and Nick. I accept that this was their intention and that they intended at some future date to transfer title to their sons. The two sons also testified that they lived in the houses and that they had always understood that the houses were purchased for them by their parents. The parents paid most of the expenses, although the sons may have contributed something. I found the witnesses all credible and I formed the impression of a family that was very close and inclined to share its assets generously among themselves.
[23] Nonetheless, I do not think that merely designating a property as one that would be transferred to a particular family member at some time in the future to be chosen by the parents constitutes a declaration of trust. The parents had complete control over when they could transfer title and, for that matter, whether. Had either son got into trouble, or into financial difficulties, or had run up large debts or become involved in a nasty matrimonial dispute the parents could and probably would retain title. I do not think any creditor of the sons would have the most remote chance of seizing the house so long as the parents retained title.
[24] I say this because I do not think that it can be said that the sons had any beneficial interest in the houses or any legal right that could be asserted until the transfer took place in 1993. The most that can be said is that they had possession of the houses and a strong and justified expectation that at some point their parents would transfer the property to them. The case is very similar to Ramey v. The Queen, 93 DTC 791.
[25] The appeal of Mr. Galanakis for 1992 is dismissed. The appeals of both appellants for 1993 are allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the adjusted cost base of the property on 3rd Street was $158,387.28.
Signed at Ottawa, Canada, this 20th day of May 1999.
"D.G.H. Bowman"
J.T.C.C.