Date: 19981120
Dockets: 97-1283-IT-G; 97-1285-IT-G
BETWEEN:
JOAN ARLENE PAUL,JOHN HARLEY WILLIAM PAUL,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
McArthur, J.T.C.C.
[1] The Appellants' appeal the assessments of revenue wherein the Minister of National Revenue determined they are liable to pay $24,648.33 pursuant to section 160 of the Income Tax Act (the "Act").
[2] The Appellants owned all of the shares of Gambier Developments Ltd. (Gambier). The Minister determined that Gambier was liable in October 1996 to Revenue Canada in respect of its 1980 to 1988 taxation years the amount of $24,648[1] detailed as follows:
Tax $3,130
Penalty $268
Instalment Interest $13
Arrears Interest $21,236
[3] The Appellants deny that Gambier was indebted in any amount to Revenue Canada. Mr. Paul, who gave evidence, stated that Gambier's prior indebtedness in the early 1980s should have been written off in the mid-1980s when Gambier realized a bad debt. Gambier apparently paid income tax on the proceeds of a $60,000 sale of which amount it did not receive approximately $50,000. Gambier did not appeal its assessments. A tax credit of approximately $6,000 was given to Gambier in 1990. While it was difficult to follow how the $21,236 was arrived at, Mr. Paul was not able to provide evidence to the contrary.
[4] The Appellants' position was that Mr. Paul met with an Officer of Revenue Canada in Whistler, British Columbia in the early 1990s when Mr. Paul agreed on behalf of Gambier to pay $26,000 and it was agreed that no further personal assessments would be made against the Appellants personally. The Appellants state that they relied on these statements and agreements as coming from a person in authority and they relied on his understanding of the Act. The Appellants could not remember the name of the Revenue Canada officer and the agreement was not in writing.
[5] Gambier issued the following dividends to the Appellants:
March 31, 1987 Dividends Paid $44,000.00
March 31, 1988 Dividends Paid $40,278.00
Allocated as:
Dividend $13,626.00
Capital Dividend $26,652.00
March 31, 1989 Capital Dividend $32,467.00
March 31, 1989 Deemed Dividends $28,048.00
Allocated as:
Deemed Div. 84(2) $22,438.00
Gross up 82(1) $ 5,610.00
[6] Both Appellants each received dividends from Gambier in excess of Gambier's $25,000 – while Gambier was indebted to Revenue Canada, subsection 160(1) of the Act reads in part:
"(1) Where a person has, [...] transferred property, either directly or indirectly, [...] to
(c) a person with whom the person was not dealing at arm's length,
[...]
(d) the transferee and transferor are jointly and severally liable to pay a part of the transferor's tax [...]"
Analysis
[7] The purpose of section 160 is to prevent a taxpayer who is indebted to Revenue Canada to avoid payment by transferring property otherwise available to pay the debt to a person or persons with whom it is not dealing at arm's length. In the present instance Gambier transferred dividends to its two shareholders while indebted to Revenue Canada. Shareholders receive dividends solely because of the right attributed to their shares, so that no consideration can be said to be given by them therefor[2]. Accordingly, no consideration passed from either taxpayer to Gambier in respect of the dividends paid to them.
[8] The Appellants submitted that no tax was owing by Gambier when the dividends were paid but were not able to back-up that position with anything other than general statements. The Respondent presented two officers of Revenue Canada who had reviewed the records of Gambier and presented documentation to establish the amount owing. The Appellants did not refute this evidence.
[9] Mr. Paul, who is a lawyer no longer practising law, presented both appeals.
[10] The officers of Revenue Canada stated they were not aware of any agreement made by other representatives whereby no further personal assessments would be made against the Appellants personally. Without further evidence than Mr. Paul's statement of his understanding of his discussions with a Revenue Canada representative and with no documentation to support his oral evidence, I cannot accept that the Appellants were released from further assessments prior to the assessment which is the subject of this appeal.
[11] The Appellants also place in issue the amount of interest and penalties being applied to them personally and plead that provisions of the Income Tax Act and the Canada Interest Act because they feel that $21,250.01 is a large and unfair amount of interest on the $3,130.31 taxes due.
[12] This Court does not have the jurisdiction to waive or reduce the interest or penalty unless unproperly levied. The Appellants have not met the onus of satisfying the Court that the interest was improperly levied.
[13] No evidence was presented by either party with respect to the penalty and given all the circumstances and penalty levied in the amount of $268.01 is waived.
[14] The Minister correctly assessed the Appellants in accordance with section 160 of the Act, as the Company transferred the Property to the Appellants for no, or inadequate, consideration at a time when the Company was liable to pay an amount under the Act.
[15] The appeal is dismissed. The Appellants are liable to pay the amount of $24,648 less the penalty of $268 together with costs.
Signed at Ottawa, Canada, this 20th day of November 1998.
" C.H. McArthur "
J.T.C.C.