Date: 20020409
Docket: 1999-3291-IT-G
BETWEEN:
LISE CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
P.R. Dussault, J.T.C.C.
[1] At issue here are six assessments made under section 160 of the Income Tax Act, the notices of which are dated October 19, 1998. The numbers of the notices and the amounts assessed are as follows:
|
NUMBER |
AMOUNT |
|
13059 |
$80,434.46 |
|
13060 |
$17,850.90 |
|
15878 |
$ 3,556.00 |
|
15879 |
$ 9,814.83 |
|
15880 |
$ 1,944.69 |
|
15881 |
$ 3,227.97 |
[2] In making the assessments, the Minister of National Revenue (the "Minister") assumed the facts stated in subparagraphs (a) to (x) of paragraph 11 of the Reply to the Notice of Appeal. Those subparagraphs read as follows:
[TRANSLATION]
(a) the appellant is André Caron's wife;
(b) on April 11, 1988, the appellant opened bank account number 02-49238 in her own name at the Lévis branch of the CIBC (branch 00495);
(c) in 1992, André Caron transferred funds totalling $80,434.46 to the appellant, without any consideration from her, by depositing nine cheques made out to him in the appellant's bank account at the Lévis branch of the CIBC;
(d) André Caron owed the Minister of National Revenue an amount totalling $98,285.36 for his 1992 taxation year;
(e) the lesser of André Caron's tax liability for his 1992 taxation year and the amounts transferred to the appellant during that year is $80,434.46;
(f) in 1993, André Caron transferred funds totalling $35,180.11 to the appellant, without any consideration from her, by depositing 24 cheques made out to him in the appellant's bank account at the Lévis branch of the CIBC;
(g) André Caron owed the Minister of National Revenue an amount totalling $17,850.90 for his 1993 taxation year;
(h) the lesser of André Caron's tax liability for his 1993 taxation year and the amounts transferred to the appellant during that year is $17,850.90;
(i) in 1994, André Caron transferred funds totalling $43,133.39 to the appellant, without any consideration from her, by depositing 16 cheques made out to him in the appellant's bank account at the Lévis branch of the CIBC;
(j) André Caron owed the Minister of National Revenue an amount totalling $3,556.00 for his 1994 taxation year;
(k) the lesser of André Caron's tax liability for his 1994 taxation year and the amounts transferred to the appellant during that year is $3,556.00;
(l) in 1995, André Caron transferred funds totalling $15,322.46 to the appellant, without any consideration from her, by depositing 23 cheques made out to him in the appellant's bank account at the Lévis branch of the CIBC;
(m) André Caron owed the Minister of National Revenue an amount totalling $9,814.83 for his 1995 taxation year;
(n) the lesser of André Caron's tax liability for his 1995 taxation year and the amounts transferred to the appellant during that year is $9,814.83;
(o) in 1996, André Caron transferred funds totalling $28,368.60 to the appellant, without any consideration from her, by depositing 14 cheques made out to him in the appellant's bank account at the Lévis branch of the CIBC;
(p) André Caron owed the Minister of National Revenue an amount totalling $1,944.69 for his 1996 taxation year;
(q) the lesser of André Caron's tax liability for his 1996 taxation year and the amounts transferred to the appellant during that year is $1,944.69;
(r) in 1997, André Caron transferred funds totalling $5,710.13 to the appellant, without any consideration from her, by depositing 7 cheques made out to him in the appellant's bank account at the Lévis branch of the CIBC;
(s) André Caron owed the Minister of National Revenue an amount totalling $3,227.97 for his 1997 taxation year;
(t) the lesser of André Caron's tax liability for his 1997 taxation year and the amounts transferred to the appellant during that year is $3,227.97;
(u) André Caron deposited all the above-mentioned cheques made out to himself in his spouse's account under a power of attorney which he obtained on May 7, 1992, the day before the very first such deposit he made;
(v) André Caron had bank accounts in his own name in which he could very well have deposited all the cheques he deposited in his spouse's account at the Lévis branch of the CIBC;
(w) from January 22, 1998, André Caron and the appellant had, inter alia, a joint account (number 22-00813) at the Wilfrid-Hamel branch of the CIBC (also called the Fleur de Lys branch), which was used to pay family expenses;
(x) although that account was a joint account, all the money deposited in it came solely from André Caron.
[3] Subparagraphs (c), (e), (f), (h), (i), (k), (l), (n), (o), (q), (r), (t) and (w) were denied as drafted. The appellant had no knowledge of subparagraph (v), and the other subparagraphs were admitted. As regards the subparagraphs that were denied, it was admitted that the amounts referred to had been deposited in the appellant's bank account. However, counsel for the appellant contends on the one hand that the amounts were not transferred to the appellant and, on the other, that if it be determined that they were, the transfers were not made without consideration.
[4] The appellant and her spouse, André Caron, testified.
[5] The appellant's testimony and the documents filed in evidence confirm the facts previously admitted concerning the fact that the appellant had opened the bank account at the Lévis branch of the Canadian Imperial Bank of Commerce ("CIBC") in 1988 and the power of attorney she had given to her spouse, André Caron, in May 1992. The appellant admitted that she had agreed to give him the power of attorney at his request, without really knowing the reason behind it, except that he was working at Lévis at that time. She stated that she herself had made very little use of the account which she said she had initially opened for the purposes of a $5,000 loan to help her spouse. It was therefore mainly, if not exclusively, her spouse who had conducted transactions involving the account. The appellant had another personal account at the Bank of Montreal and a joint account with her husband at another branch of the CIBC, namely the Fleur de Lys branch, in Québec. She said she did not know why her husband had wanted to use her account and simply said that it was as though it were his own account. To cover household expenses, Mr. Caron gave her cheques drawn on that account. The appellant stated that she did not know that the money deposited in her account by her spouse could not be seized by his creditors. However, she admitted that the family residence had been transferred to her by Mr. Caron in 1991 because his affairs were [TRANSLATION] "a bit rocky" at the time and she wanted to protect herself so that she would have something.
[6] The appellant also admitted that she had been aware of her spouse's investments in research and development projects, that they had resulted in large income tax refunds for him, and that the amounts received and deposited in her account by her spouse had subsequently been claimed from him.
[7] André Caron provided exceedingly nebulous explanations regarding the use of the appellant's account at the CIBC branch in Lévis under the power of attorney obtained on May 7, 1992. In fact, a joint account had been opened at the Fleur de Lys branch of the CIBC in Québec, where he had been manager. However, as his real estate office was located in Lévis near the CIBC branch where the appellant had opened her personal account, he said he had decided to use that account rather than open a new one. He testified that by so doing it had been possible to avoid paying certain fees for transfers to the joint account at the Fleur de Lys branch in Québec. However, he said that this particular account was nevertheless maintained until 1997 so that the necessary funds for making payments on his line of credit could be transferred to it. He said it was the manager of the Lévis branch who had suggested that he use the appellant's account through a power of attorney.
[8] Mr. Caron also had a personal account at the Royal Bank. He stated that that account had only been used to make repayments on another line of credit granted for an investment in a shopping centre. Thus, according to Mr. Caron, thanks to the power of attorney obtained from the appellant, her account was used by him for all his professional and personal transactions. He deposited all his salary and commission cheques in that account.
[9] The power of attorney which the appellant gave her spouse is dated May 7, 1992. An amount of $13,478.45, that is, the amount of a cheque dated April 29, 1992, representing a Government of Canada tax refund, was deposited in that same account by Mr. Caron on May 8, 1992.
[10] In the succeeding months, Mr. Caron also deposited several other large amounts representing provincial and federal tax refunds in the appellant's account, as follows: on July 22, 1992, an amount of $17,812.60 representing a Government of Canada cheque dated July 15, 1992; on August 11, 1992, an amount of $27,008.24 representing a Government of Quebec cheque dated August 6, 1992; and on October 19, 1992, an amount of $17,997.77 representing a Government of Canada cheque dated October 9, 1992. Exhibit A-3 provides details concerning the amounts deposited by Mr. Caron in the appellant's account from May 8, 1992, to March 4, 1997. As mentioned by Mr. Caron, included as well are amounts representing salary and commissions he received as a real estate agent during the same years.
[11] Regarding the meaning to be given to the word "transfer", counsel for the appellant referred first to the Exchequer Court's decision in Estate of David Fasken v. Minister of National Revenue, 49 DTC 491, in which Thorson P. commented as follows on the meaning of that term, at page 497:
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. The plain fact in the present case is that the property to which Mrs. Fasken became entitled under the declaration of trust, namely, the right to receive a portion of the interest on the indebtedness, passed to her from her husband who had previously owned the whole of the indebtedness out of which the right to receive a specified portion of the interest on it was carved. If David Fasken had conveyed this piece of property directly to his wife by a deed such conveyance would clearly have been a transfer. The fact that he brought about the same result by indirect or circuitous means, such as the novation referred to by counsel involving the intervention of trustees, cannot change the essential character of the fact that he caused property which had previously belonged to him to pass to his wife. In my opinion, there was a transfer of property from David Fasken to his wife within the meaning of the Act.
[12] Counsel for the appellant essentially contended that there was no transfer of the amounts in question to the appellant because there could not have been any gift as Mr. Caron himself used those amounts for his own purposes. Relying on article 782 of the Civil Code of Lower Canada and article 1822 of the Civil Code of Quebec, depending on the years at issue, he argued that a gift is void to the extent that the donor retains ownership of the property that is the object of the gift. These provisions, he maintained, entrench the principle of the irrevocable nature of gifts and are based on the idea that one cannot validly both give and retain, which prevents the donor from taking back what he has given, even with the donee's consent. Counsel for the appellant contended that the intention of the parties must be considered. Thus, in his view, Mr. Caron's depositing of amounts belonging to him in the appellant's personal account reflected nothing more than a contract of deposit between those individuals or a loan agreement or an agreement for the use of the account, without any transfer taking place.
[13] In the alternative, counsel for the appellant contended that, if it is held that a transfer of the amounts in question took place, the appellant provided an equivalent consideration in the form of the power of attorney whereby Mr. Caron could withdraw all the amounts deposited.
[14] Counsel for the respondent argued that the appellant's spouse, André Caron, indeed transferred to the appellant the amounts he deposited in her bank account and that the power of attorney given by the appellant could not constitute valid consideration in the circumstances. On this point, counsel relied on the decisions in Thalheimer v. M.N.R., 83 DTC 498, Sanger v. Canada, [1994] T.C.J. No. 450; White v. Canada, [1995] T.C.J. No. 86, Sinnott v. Canada, [1996] T.C.J. No. 424, Moss v. Canada, [1999] T.C.J. No. 891, and Raphael v. Canada, [2000] T.C.J. No. 688. Those decisions confirm that a deposit of money made by a person in a bank account belonging to his spouse constitutes a transfer for the purposes of section 160 of the Act.
[15] In my view, André Caron's deposits of cheques made out in his own name or of amounts belonging to him in the appellant's bank account constitute transfers of property within the meaning of section 160 of the Act since he legally divested himself of ownership of those amounts in favour of the appellant, the sole account holder. The power of attorney obtained from the appellant and dated May 7, 1992 (Exhibit A-2) did not transfer ownership of those amounts back to him, but simply gave him a mandate to administer them for and on behalf of the appellant as her agent. Such a power of attorney in no way implies that the appellant gave up her ownership of the amounts deposited in her account since, under the very terms of the power of attorney, all the powers set out therein must be exercised for her and on her behalf.
[16] The appellant and Mr. Caron no doubt had their reasons for acting as they did. However, beyond the explanations provided, certain facts are nevertheless revealing and suggest that the arrangement was decided upon for the purpose of enabling Mr. Caron to shelter large amounts from his creditors, including the federal and provincial governments. Mr. Caron, who had been a bank manager, surely knew the effects that this arrangement could have on his creditors' potential and eventual rights with respect to the amounts thus deposited in the appellant's account. I hasten to add, however, that the presence or absence of any intention to shelter his property from creditors in no way influences the application of section 160 of the Act, as long as the conditions stated in that provision are met.
[17] The control that Mr. Caron, through the power of attorney, ensured for himself over the amounts deposited in the appellant's account did not give him back an ownership right over those amounts which he had relinquished, but constituted a mere power of administration on the appellant's behalf. That does not represent a consideration as that term is to be understood for the purposes of section 160 of the Act.
[18] As to the question whether the transfer of property made in the circumstances constitutes a valid gift, I do not believe it is relevant. Mr. Caron effectively and legally relinquished ownership of the amounts of money by depositing them in the appellant's bank account without receiving any consideration. In my view, that was a transfer for no consideration contemplated by section 160 of the Act, as interpreted by the courts. This view is confirmed by the decisions to which counsel for the respondent referred.
[19] The point briefly raised by counsel for the appellant that Mr. Caron's obligations respecting the payment of household expenses represented valid consideration was not brought up in the notice of appeal or in the Reply to the Notice of Appeal, and no evidence was really adduced in that regard, apart from a few general comments by Mr. Caron and the appellant. I do not believe I have to rule on the point.
[20] In closing, I would like to draw attention to certain comments by Linden J.A. of the Federal Court of Appeal in The Queen v. Friedberg, 92 DTC 6031. Although the context of that case bears no resemblance to the circumstances of the instant case, Linden J.A.'s remarks are revealing as regards the importance of arrangements entered into by taxpayers and of their intentions in so doing. Linden J.A. wrote as follows:
In tax law, form matters. A mere subjective intention, here as elsewhere in the tax field, is not by itself sufficient to alter the characterization of a transaction for tax purposes. If a taxpayer arranges his affairs in certain formal ways, enormous tax advantages can be obtained, even though the main reason for these arrangements may be to save tax (see The Queen v. Irving Oil 91 DTC 5106, per Mahoney, J.A.). If a taxpayer fails to take the correct formal steps, however, tax may have to be paid. If this were not so, Revenue Canada and the courts would be engaged in endless exercises to determine the true intentions behind certain transactions. Taxpayers and the Crown would seek to restructure dealings after the fact so as to take advantage of the tax law or to make taxpayers pay tax that they might otherwise not have to pay. While evidence of intention may be used by the Courts on occasion to clarify dealings, it is rarely determinative. In sum, evidence of subjective intention cannot be used to "correct" documents which clearly point in a particular direction.
[21] In view of the foregoing, the appeals are dismissed, with costs to the respondent.
Signed at Ottawa, Canada, this 9th day of April 2002.
"P.R. Dussault"
J.T.C.C.
Translation certified true on this 7th day of June 2002.
[OFFICIAL ENGLISH TRANSLATION]
[OFFICIAL ENGLISH TRANSLATION]
1999-3291(IT)G
BETWEEN:
LISE CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on December 11, 2001, at Québec, Quebec, by
the Honourable Judge P.R. Dussault
Appearances
Counsel for the Appellant: Robert Marcotte
Counsel for the Respondent: Marie-Andrée Legault
JUDGMENT
The appeals from the assessments made under section 160 of the Income Tax Act, the notices of which bear numbers 13059, 13060, 15878, 15879, 15880 and 15881 and are dated October 19, 1998, are dismissed, with costs to the respondent, in accordance with the attached reasons for judgment.
Signed at Ottawa, Canada, this 9th day of April 2002.
|
"P.R. Dussault" |
J.T.C.C.
Translation certified true
on this 7th day of June 2002.
Erich Klein, Revisor
Erich Klein, Revisor