Date: 19980416
Docket: 96-503-IT-G
BETWEEN:
LILIANE OBADIA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Garon, J.T.C.C.
[1] This is an appeal from an assessment dated September 9, 1994 made by the Minister of National Revenue pursuant to s. 160 of the Income Tax Act. According to the Minister of National Revenue the obligation to pay the sum of $78,557.51, imposed by that assessment, resulted from the transfer by Robert Obadia to the appellant on or about April 5, 1993 of 25,484 shares in the capital stock of Air Canada and 5,000 shares in the capital stock of Sportscene Restaurant Inc.
[2] In making this assessment the Minister of National Revenue relied on the allegations of fact set out in paragraph 6 of the Amended Reply to the Notice of Appeal, which reads as follows:
6. In so assessing the Appellant, the Minister made the following assumptions of fact:
(a) on or about April 5, 1993, Robert Obadia transferred to the Appellant 25,484 shares of Air Canada and 5,000 shares of Sportscene Restaurant Inc. (the 'Shares');
(b) the Appellant is the spouse of Robert Obadia;
(c) the Appellant and Robert Obadia are not dealing at arm's length;
(d) at the time of transfer, the fair market value of the Shares was as follows:
Market value
par share at
Shares # of Shares time of transfer Total
Air Canada 25,484 $3.30 $ 84,097.20
Sportscene Rest. 5,000 $6.37 $ 31,850.00
$115,947.29
(e) at the time of the transfer, no consideration was given by the Appellant for the Shares;
(f) the aggregate of all amounts that the Transferor was liable to pay under the Act in or in respect of the taxation year in which the Shares was transferred or any preceding taxation year was at least $78,557.51.
[3] The allegations made in subparagraphs (a) to (c) inclusive of paragraph 6 of the Amended Reply to the Notice of Appeal were not disputed by the appellant. Those allegations must be taken as admitted. Shortly after the taking under advisement the parties agreed, regarding the allegation in subparagraph (d), that the fair market value of the two blocks of shares of Air Canada and Sportscene Restaurant Inc. at April 5, 1993 amounted to $103,000. This additional evidence was accepted by the Court. The allegation contained in subparagraph (e) of the same paragraph was disputed on the appellant's behalf. The quantum of this tax debt of Mr. Obadia at the relevant time was not discussed at the hearing.
[4] The appellant was the only person to testify.
[5] The appellant related that in March 1993, through a brokerage house, Scotia McLeod, she and her husband Mr. Obadia each held a portfolio of shares. Patrick Hofman was responsible for their files. In March 1993 Mr. Hofman left Scotia McLeod and joined Burns Fry. Mr. Hofman asked Mr. Obadia at the time whether he could continue being responsible for their portfolios. Mr. Obadia acquiesced in this request and asked him to make up one account in the appellant's name. According to the appellant, Mr. Obadia informed her of this new situation as follows:[1]
[TRANSLATION]
And then when he came he said to me: "Well, Patrick Hofman has moved, he has gone to Burns Fry. I told him to take our portfolios with him, that it was okay and that he should make a single portfolio: it will make less paperwork every month and when I need any you can take them out for me".
So I said: "Sure, okay." I had no choice: it was done.
To the following question by her counsel:[2]
[TRANSLATION]
Q. Can you tell us, madam, what was the consideration you paid at that time for these shares?
the appellant answered as follows:[3]
[TRANSLATION]
A. The consideration was that I made several payments from my personal account to the joint account so that we could . . .
[6] In cross-examination the appellant rephrased the terms of the agreement on the transfer of the shares as follows:[4]
[TRANSLATION]
A. Well, my husband said to me: "So, I told Patrick Hofman to make a single account with the shares and when I needed any you would give them to me as I needed them". Right. I had already taken out . . . I considered that he already owed me money, but I said: "Sure, okay". Then, gradually, each time there was a cheque, like that, for personal needs, I considered that it was . . . I deducted it.
In answer to the following questions[5] regarding the new share account opened in her name, she added the following:
[TRANSLATION]
Q. But the new account, you mean . . . the new account showing the shares belonging to you and your husband's shares . . .
A. Yes.
Q. . . . was in whose name?
A. In my name.
Q. In your own name?
A. Then my husband said to me: "As I need them you can give them to me".
Q. Okay.
A. But it's not easy to . . .
Q. So, the agreement, it was that you . . . he transferred money to you . . . well, not money but shares.
A. And when he needed any I looked after paying his expenses . . . that type of expense. That was all.
Q. What type of expense?
A. Well, Dôme Communications, the lawyers. He said to me: "It will be used . . .".
Q. Okay.
A. "I will need some of it."
Q. So what was the amount of shares which you agreed should be repaid?
A. He told me he had nearly $100,000.
Q. Okay.
BY THE COURT:
Q. That, that's . . . $100,000 represents the value at that time?
A. Yes, he told me there was nearly $100,000 of shares belonging to him.
Q. In those two companies?
A. Which went from Scotia McLeod to Burns Fry. So I said to him: "Sure, okay".
[7] Certain explanations were given about the way in which she was to repay Mr. Obadia this debt which she had contracted as a result of the transfer of shares and how she recorded the repayment of her debt:[6]
[TRANSLATION]
Q. Okay. If I understand your testimony correctly, you said . . . you agreed that you would pay . . .
A. Yes. Yes. I had already advanced a certain amount, but I said: "Sure . . .".
Q. Certain amounts, okay.
A. Yes.
Q. If I understand correctly, the amounts which were to be repaid were to be credited to an account? How did that work?
A. No, it was not . . .
Q. How did you manage to know what you had repaid?
A. I don't know what he had in mind, if he thought I was going to run every time . . . go and sell some shares for him . . . well; but it was easier for me to . . . from the debt that . . . or sometimes I was paying him and I said to myself "When I need them I will use them". And in fact, when I needed some I had already paid them all to my husband.
Q. Okay. How did you know . . . how could you know if you had repaid the whole amount owing?
A. I told you, I noted it down in a corner of a book and as it went on, $10,000, $20,000, $25,000, I said to my husband "But the way it is going, you won't have much left". You know, I didn't have to have an amazing memory to . . . I did not need to have accounting books.
Q. If I understand your testimony correctly, it was noted down in a booklet.
A. Yes, I noted it in a corner and . . .
Q. What booklet was that?
A. It was a bank book from . . .
BY THE COURT:
Q. A book from?
A. I noted it in two bank books.
Q. Two bank books.
A. From the Royal Bank.
BY CHARLES CAMIRAND:
Q. And the bank books were for what account?
A. The Royal Bank. It was a bank book for a joint account which I was using all the time, but . . .
Q. Okay, it came from a joint account. Was it in the book for the joint account or in the other . . . another account?
A. The joint account.
Q. Was it only in the joint account or were annotations both in the joint account and in another account?
A. No, it was in a joint account.
Q. You might speak a bit louder.
BY THE COURT:
Q. Speak a bit louder.
A. Sorry. No, it was . . . well, it was in the account I used all the time and then when I changed banks I continued writing it in a corner and . . . there weren’t 50 of these annotations, you know.
BY THE COURT:
Q. There were approximately how many annotations?
A. Well, there were about 10. As I took out an amount, I noted it down.
Q. About 10 annotations in the year . . . what year?
A. 1993.
BY CHARLES CAMIRAND:
Q. Okay. Did you keep those booklets?
A. No, unfortunately not. I looked, there was one, I did not find it, I looked; and the other, I found it but it had lost its cover.
Q. Do you have it with you today?
A. Yes. It was . . . I wrote it on the back and then . . .
Q. Take it out. Show it and explain.
A. There it is. I wrote on the back and when I found it - I looked everywhere and when I found it, well, the first page was missing.
Q. If I understand correctly, your annotations were on the back of the first page?
A. That's right.
Q. And now you don't have the back of this first page?
A. The back of the first page is missing.
BY THE COURT:
Q. What could have happened?
A. Eh?
Q. What could have happened? Was there a fire?
A. No. But, you know, it is difficult with old papers . . . You know, sometimes, you think you don't need them anymore, it was lying about, and then one day, it becomes necessary and you . . .
BY CHARLES CAMIRAND:
Q. So, what you're saying is that only the first page which . . . which is no longer there, which has disappeared.
A. But, you know, even if I had not noted it, it was not difficult to see where things stood. You know, sometimes, you keep an account in your head and you say, well, that is $25,000 less, that is $30,000.
[8] The appellant testified that she had a personal savings account at the Royal Bank of Canada the money in which came mainly from gifts which her husband had made her, especially in 1990, 1991 and 1992. She expressly mentioned entries in the account showing that on the following dates the deposits indicated below were made to her account:
May 17, 1990 $ 39,456.14
August 10, 1990 $ 75,000.00
December 19, 1990 $ 30,000.00
April 3, 1991 $400,000.00
June 27, 1991 $ 60,000.00
August 27, 1991 $290,000.00
December 17, 1991 $ 40,000.00
July 10, 1992 $160,118.77
October 29, 1992 $250,000.00
November 18, 1992 $ 25,000.00
[9] She gave explanations of each of these deposits, or each of these entries:
(a) as to the deposit dated May 17, 1990 in the amount of $39,456.16, the appellant stated that it represented the balance of another account which the appellant had earlier;
(b) the foregoing deposits of August 10, 1990, December 19, 1990, June 27, 1991, December 17, 1991 and November 18, 1992 represented gifts made to the appellant by Mr. Obadia, although, in the case of some entries, her deposition is not entirely clear;
(c) as to the entries of April 3, 1991, August 27, 1991 and July 10, 1992, she stated that these amounts had largely been used to pay Mr. Obadia's income tax or make a payment to renew the mortgage on the house;
(d) the entry of October 29, 1992 refers to an amount of $250,000 which, as she put it, was [TRANSLATION] "returned to Nationair", without going into further detail.
[10] At the end of December 1992 the balance in the appellant's personal account stood at $61,715.49.
[11] In her testimony the appellant made a connection between the withdrawals from her personal account on the one hand and deposits in the joint account of the appellant and Mr. Obadia on the other, essentially as follows:
(a) on January 7, 1993 there was a withdrawal of $41,500 from the appellant's personal account and on the same day a deposit in the joint account of $40,000; the appellant kept the balance of $1,500 from the $41,500 withdrawal for herself in cash;
(b) on March 23, 1993 there was a withdrawal of $14,000 from the appellant's account and a deposit of $14,000 to the joint account on the same day;
(c) on April 13, 1993 there was a withdrawal of $5,000 from the appellant's personal account and a deposit to the joint account on the same day;
(d) on May 6, 1993 there was another withdrawal of $5,000 and a deposit in the same amount on the same day to the joint account;
(e) on May 10, 1993 there was a withdrawal of $2,111.97 from the personal account and a deposit of the same amount to the joint account on the same day;
(f) on May 18, 1993 there was a withdrawal of $5,000 from the personal account and a deposit to the joint account on the same day in the same amount;
(g) on October 20 and 29, 1992 the appellant made two $5,000 withdrawals and this money was deposited in the joint account.
[12] The total of all the transfers mentioned in the preceding paragraph from the appellant's personal account to the joint account came to $81,111.97.
[13] The appellant then explained that a religious "monument" was put up in memory of Mr. Obadia's mother, Fortuna Obadia. This allegation was supported by a mourning card filed at the hearing. It is a large roll which is dedicated to the memory of a relation or event. As soon as the "monument" is completed, a reception is organized and the "monument" is shown in public. Two cheques in the respective amounts of $20,000 and $2,897.96 made out to Merkaz Stam[7] were used to pay the cost of making this "monument" and certain incidentals. These cheques were drawn on the joint account.
[14] The appellant also mentioned that her husband, who was president of Nationair inter alia in 1993, was the target of bad publicity in the media in that year. To deal with this publicity Mr. Obadia hired the services of a public relations firm, Dôme Communications, and for its services the firm received a $25,000 cheque drawn on the joint account of the appellant and Mr. Obadia. In the same period Mr. Obadia also made use of the services of a firm of accountants, Boisjoli et Associés, to help him put his affairs in order, and the firm received $5,000 for its services. An amount of $10,000 was paid to a law firm, Unterberg Labelle, for services rendered in a class action brought by Nationair employees against Mr. Obadia as director. The $5,000 and $10,000 payments to Boisjoli et Associés and Unterberg Labelle mentioned above were made by two drafts dated June 16, 1993 and joint account funds were used for this purpose. Another cheque for $7,000 was drawn on the joint account of the appellant and Mr. Obadia to the firm Richter Usher & Vineberg and cashed on May 11, 1993, in payment for services rendered to Mr. Obadia in his capacity as director of Nationair. Finally, Mr. Stein, a lawyer, received a payment of $10,000 in the form of a cheque drawn on the joint account on July 28, 1993, which was cashed on July 30 of that year, for services rendered to Mr. Obadia in connection with certain assessments. Two American Express bills were paid using money from the appellant's personal account. These bills, which totalled $2,500, were to do with expenses incurred by Mr. Obadia on Nationair business. The appellant did not hold a card issued by American Express at the time.
[15] The appellant's explanations were not too clear regarding what expenses represented the entries in the bank statement dated January 18, 1993 for the joint account, showing in particular two debits, one for $16,000 and the other for $20,470. However, when a cheque in the amount of $16,000 was shown to her she said that they were payments on the mortgage on the house. In this connection, the appellant mentioned that the monthly mortgage payments on the house were about $7,000 and that the mortgage loan was about $700,000. She indicated that this residence, which was purchased in 1988, had a value of about $3,000,000.
[16] The balance in the joint account at the time the shares were transferred on April 5, 1993 amounted to $2,068.83.
[17] The appellant said she never made exact calculations about the accounts she had with Mr. Obadia. He was responsible for payment of the family's debts: the appellant had no paid employment during the period at issue.
Appellant's position
[18] On the appellant's behalf it was argued that she had not been working for years, that the responsibility for household expenses fell to Mr. Obadia and that the joint account was used for such expenses. It was pointed out that the appellant had a personal account the money in which came from gifts made to her by Mr. Obadia.
[19] Counsel for the appellant relied on the point that during 1992 and 1993 the appellant withdrew funds from her personal account and transferred them to the joint account. This money was used chiefly to pay personal expenses of Mr. Obadia or of Nationair of which he was president.
[20] With supporting case law, counsel for the appellant argued that, in the absence of agreement to the contrary, money from a joint account is the property of the person who puts the money in. He referred to an article by Nicole L'Heureux published in the Collection Monographies Juridiques and to decisions of this Court in Dupuis v. The Queen[8] and Tanguay v. The Queen.[9]
[21] Counsel for the appellant accordingly concluded from the foregoing that Mr. Obadia was indebted to the appellant in the amount of $81,111.97. This amount represented the total of amounts transferred from the appellant's personal account to the joint account of the appellant and Mr. Obadia during the period from October 1992 to May 1993. In his submission, this debt was the consideration paid by the appellant to Mr. Obadia for the transfer of the shares.
[22] Counsel for the appellant noted that until 1992 all the funds in the joint account came from Mr. Obadia. The appellant, for her part, never paid any money into this account: she contributed for the first time in October 1992.
[23] It was argued on the appellant's behalf that as in 1992 and 1993 the appellant had put $81,111.97 into the joint account, which was a little more than was owed to Revenue Canada by Mr. Obadia, it followed that the appellant no longer owed anything to the Government of Canada. In his submission, the law requires that the consideration paid by the party who receives the transfer should be at least equal to the amount owed to Revenue Canada on the date in question.
Respondent's position
[24] It was argued for the respondent that at the time the transfer of the two groups of shares was made to the appellant there was no agreement establishing that consideration should be paid by the appellant.
[25] Counsel for the respondent also pointed out that the appellant had not been able to establish any system or method of repaying her debt to Mr. Obadia, which the missing pages of the bank books could have shown.
[26] Counsel for the respondent maintained that an attempt was made on behalf of the appellant, unsuccessfully in his submission, to find the existence of consideration for the transfer of the shares in the appellant's testimony. At most the amounts paid by the appellant after April 5, 1993, making a total of $17,111.97, could be consideration. Even assuming the existence of consideration amounting to $17,111.97, or perhaps even $19,611.97 as was mentioned at one point, the subject assessment would still be well-founded.
Analysis
[27] To begin with, it has been clearly established by the courts that the existence of a joint account does not make the co-signatories of the account joint owners of the money shown in the account. One should look instead at the original agreement made when the account was opened.
[28] The following comments by Phelan J. of the Quebec Superior Court in Desrosiers c. Héritiers de feu Albert Laroche et une autre[10] are quite clear on this point:
A review of the authorities relating to the nature of joint bank accounts indicates that the existence of such an account is not, in itself, indicative that each co-depositor has a proprietary interest in the funds of the account. As noted by Perrault:(1)
[TRANSLATION]
To determine the mutual rights of depositors reference must be made to the original agreement, the agreement concluded when the joint account was opened. Did they intend to make the sum of money so deposited their joint property? Did one of them intend to make the other depositor his agent or mandatary, whether for consideration or gratuitously? Did he or she intend a gift? In each case it is necessary to look at the intent of the parties and apply the general rules of the civil law on mandate, gift or a stipulation for a third party.
And Falconbridge:(2)
The instructions given to the bank, however, are of course not conclusive of the actual title to the debt represented by the account.
The presumption may be rebutted and the real ownership of the debt must be determined upon all the facts.
It may turn out that the debt really belongs to the estate of the deceased depositor.
Care must be exercised in considering common law authority in view of the concepts of 'joint tenancy' and 'remaindermen' which are not found in our law. However in each jurisdiction it appears accepted that the proprietorship of the funds in a joint account must be determined upon the facts in each case and the intention of the parties in entering into the arrangement.
____________________
(1) A. Perrault, Traité de droit commercial, t.2. Montréal, Lévesque, 1936, p. 387.
(2) J.D. Falconbridge, Banking and bills of exchange, 7th Ed., Toronto, Canada Law Book, 1969, pp. 303 et seq.
[29] It follows from the foregoing that in the instant case the money deposited in the joint account from the appellant's personal account is the appellant's property, as no agreement was entered in evidence establishing any special arrangement between the appellant and Mr. Obadia as to the ownership of this money when the joint account was opened and subsequently.
[30] To begin with, it is not in dispute that Mr. Obadia transferred the blocks of shares in question to the appellant, who became their owner when she accepted them.
[31] A careful review of the appellant's testimony, the most relevant passages of which were reproduced above, did not persuade me that at the time the transfer of shares was made the appellant and Mr. Obadia had reached a sufficiently precise agreement on consideration to be provided by the appellant. In this connection, the appellant's testimony was vague and lacked clarity on the essential aspects of these arrangements, if there were any arrangements, between herself and Mr. Obadia. For example, as appears from the passage of her testimony reproduced at paragraph 6 of these reasons, the appellant said the following: [TRANSLATION] "I considered that he already owed me money". The evidence did not disclose whether at the time the shares were transferred Mr. Obadia was of the appellant's view that he owed her money, and if so, as to the amount of such a debt.
[32] There was the same lack of precision or vagueness about the arrangements for repayment of the appellant's debt to Mr. Obadia resulting from the transfer of the shares in question. To the question [TRANSLATION] "How did you manage to know what you had repaid?", the appellant answered, as appears in the passage cited at paragraph 7 of these reasons, the following:
A. I don't know what he had in mind, if he thought I was going to run every time . . . go and sell some shares for him . . . well; but it was easier for me to . . . from the debt that . . . or sometimes I was paying him and I said to myself "When I need them I will use them". And in fact, when I needed some I had already paid them all to my husband.
In short, the connection between the transfer of shares on the one hand and the existence of consideration given by the appellant on April 5, 1993, or to be given subsequently, was not established on a balance of probabilities.
[33] Additionally, I was not persuaded of the truth of the appellant's testimony regarding these arrangements as a whole. Her story did not seem credible to me, especially regarding the missing cover page of a bank book and, at another point, two bank books, in which she said there was a list of advances to the joint account.
[34] Moreover, the Court did not have the benefit of testimony by Robert Obadia, the other party to the agreement. I was given no satisfactory explanation of his absence.
[35] Although the comments that follow are not necessary in view of the conclusion at which I have arrived, I would like to mention that if I had accepted the appellant's proposition that the consideration given by her consisted of deposits made by her from her personal account to the joint account prior to the date the shares were transferred, I could only allow the appeal in part. Section 160(1)(e) of the Income Tax Act clearly states that the transferee and transferor are jointly and severally liable to pay the latter's tax debt up to the amount by which the value of the property which is the subject of the transfer exceeds the fair market value of the consideration given by the transferee. This conclusion is clearly to be inferred from the language of s. 160(1)(e), which reads as follows:
(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 . . .
[36] It was admitted in the instant case that the fair market value of the property at the time of its transfer was equal to $103,000, while the fair market value of the consideration according to the proposition put forward by the appellant was $81,111.97. The market value of the property transferred thus exceeded the consideration by $21,888.03. On this assumption, the assessment should have been reduced to $21,888.03.
[37] I added the comments made in paragraphs 35 and 36 above because in his argument counsel for the appellant maintained that [TRANSLATION] "all that the Act requires is that consideration was paid and that the consideration be at least equal to the amount owed the Department on the date in question". In my view, that is a misunderstanding of the scope of the two subparagraphs, (i) and (ii), of s. 160(1)(e) of the Income Tax Act. Briefly, in my view, the obligation imposed on the transferee of property under s. 160(1)(e) is as it were equal to the extent of his or her enrichment at the expense of the Revenue Department.
[38] I therefore come to the conclusion that the appellant has not discharged the burden of proof upon her of showing on a balance of probabilities that consideration existed at the time the two blocks of shares in question were transferred.
[39] For these reasons, the appeal is dismissed with costs.
Signed at Ottawa, Canada, this 16th day of April 1998.
Alban Garon
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 14th day of July 1998.
Benoît Charron, Revisor
[1] Transcript, at p. 11, lines 1 to 9.
[2] Transcript, at p. 13, line 6.
[3] Transcript, at p. 13, line 9.
[4] Transcript, at p. 43, line 23 to p. 44, line 5.
[5] Transcript, at p. 46, line 14 to p. 47, line 25.
[6] Transcript, at p. 48, line 5 to p. 52, line 17.
[7] The name of the recipient of these cheques is difficult to decipher: it is possible this is not the correct name.
[8] 93 DTC 723.
[9] 97 DTC 947.
[10] [1977] S.C. 25, at 26.