Tax Court of Canada Judgments

Date: 20011214

Docket: 2000-383-IT-G

BETWEEN:

CATHERINE LOUISE FALLIS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

McArthur J.

[1]            These appeals concern reassessment numbers 15309, 15310 and 15311, dated January 6, 2000 against the Appellant pursuant to section 160 of the Income Tax Act (the Act). The reassessments added $37,561.41, $11,552.74 and $5,000 to the Appellant's income. The amounts are not in dispute.

[2]            The parties acknowledge, quite rightly, that the issue boils down to whether there was a transfer by Robert Fallis (the Appellant's husband) of his interest in the Westport Avenue home to the Appellant in the summer of 1991. The problem arose following a reassessment in December 1995, when Robert Fallis was advised that he owed $101,063 in taxes and interest thereon dating back to 1992. The Minister of National Revenue (the Minister) disallowed losses previously claimed by him. He declared bankruptcy in 1997. The Minister vicariously assessed the Appellant in 1998 for part of her husband's tax.

[3]            The object of section 160 is to prevent taxpayers from avoiding tax liability by transferring assets to their spouse or to another non-arm's length person. By making the transferee liable, the Minister seeks to make a third person liable for the debt of the taxpayer. The Appellant concedes that the liability for tax arises from the Act and not from the date of the assessment. Robert Fallis' liability for tax arose in 1992. The Respondent's position is that a transfer of property from Robert to the Appellant took place in 1994. The Appellant submits that this transfer was completed in 1991.

[4]            Catherine and Robert Fallis have been married since 1989 and have three children. Robert is a medical doctor carrying on a family practice in St. Catharines, Ontario. The Appellant was a school teacher prior to 1989 and has managed her husband's business since then. In 1991 and 1992, she was earning $25,000 annually. The Appellant and Robert purchased jointly, a home on Westport Avenue in St. Catherines in October 1989. The Westport home was sold in 1994. To accommodate their growing family, the Appellant used the proceeds, together with other blended funds, to purchase a larger home on Bayview Boulevard in Jordan Station in her name alone.

[5]            The Appellant's counsel concedes that the sum of $37,561 from the sale of the Westport property used by the Appellant to purchase Bayview had been Robert's equity prior to the summer of 1991. He argues this was transferred by him to his wife in 1991 prior to Robert's liability for tax. Both the Appellant and Robert testified as to the circumstances of the transfer. In addition to his medical practice which he commenced in 1989, Robert had several investments. He became part owner of a medical building and invested approximately $140,000 through Smart Investments Ltd. (Smart).[1] In deciding that his wife should own their home, Robert stated he was concerned about his business investment risks, including the financial risks with his medical practice.

[6]            The crux of the Appellant's position is the following. The Appellant and Robert decided after conversations between them in the summer of 1991 that the equity in the Westport property from then on belonged to the Appellant. It is this decision communicated orally that the Appellant relies on as a conveyance or transfer of Robert's 50% interest in the Westport real estate. As a result, the net balance paid on the closing of the Westport sale in 1994 was paid to the Appellant exclusively. This position was not pleaded by the Appellant and apparently arose only at trial. The Respondent's counsel did not raise a procedural objection.

[7]            The Respondent's counsel submits that there was no conveyance to the Appellant in 1991 and the gift to her of the Westport proceeds was made in June 1994 when Robert signed a direction authorizing the purchaser to pay the closing proceeds to the Appellant. He notes that the agreement of purchase and sale for the Bayview property in 1994 was made out in the joint names of the Appellant and Robert. The deed was a grant to the Appellant alone.

[8]            In support of his position, counsel for the Appellant cited from Biderman v. Canada[2] and a quotation therein of President Thorson in Estate of David Fasken v. M.N.R.:[3]

                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.

and from McVey et al. v. The Queen:[4]

... He referred to Revenue Canada Interpretation Bulletin IT-209R, at paragraph 3, for the definition of "gifts":

A gift is generally defined as a voluntary transfer of property without consideration. The essential requisites of a gift are: intention and capacity of the donor to make the gift; completed delivery to a donee; and acceptance of the gift by the donee.

[9]            The Respondent's counsel was unprepared for the Appellant's new position and submitted simply that Robert could not transfer or convey his interest in the Westport real estate by forming an intention to do so during the summer of 1991. I agree.

[10]          Before terminating the hearing, I referred the parties to Barnabe Estate v. The Queen.[5] In Barnabe, the taxpayer met with his accountant to discuss the transfer of his assets to a corporation of which he was the sole shareholder. Ten days later, before taking any further action, he died. Sexton J. with Strayer J. concurring, concluded that there was a valid disposition of the taxpayer's assets to comply with section 85 of the Act. Robertson J. wrote a strong dissent. I have no difficulty distinguishing the facts in Barnabe from the present. In Barnabe, the Federal Court of Appeal relied on the uncontradicted evidence of Barnabe's accountant "and the supporting facts". The property transferred was farm equipment and not real property. The Barnabe mode transfer was accepted for the purposes of section 85. Mr. Barnabe was contracting with himself.

[11]          Ordinary contract rules apply to a contract for the transfer of land. I do not accept the evidence of the Appellant and Robert that there was a transfer of Robert's interest in Westport to his wife in 1991. It takes more than an intention or uncertain conversation to transfer an interest in real estate. The law of contract requires a clear statement of transfer, acceptance and delivery. Robert and the Appellant may have decided at some time during the period from 1991 to 1994 that the Appellant alone would take title to their second home. There was no crisis or need to transfer Westport in 1991. I believe this is an instance where the memory of honest witnesses have been molded after the passage of many years to suit their present circumstances.

[12]          Even accepting their evidence explicitly with respect to a 1991 transfer of an interest in real estate, I have no difficulty in concluding at law, there was no disposition of property.

[13]          The disposition may have been in the minds of Robert and the Appellant in 1991 but that is not sufficient to transfer real property. The only way I can envision a disposition of his joint tenancy is by a deed of conveyance or transfer. Robert did not give up his possession in 1991, he continued to occupy the home as he had before. He kept paying at least one-half of the carrying costs. In arranging personal business matters between husband and wife for tax purposes, form matters as provided for in The Queen v. Friedberg[6] wherein Linden J.A. stated the following:

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.

There was no completed delivery of Robert's joint interest in the home. It was still registered in their joint names when sold in 1994.

[14]          The Appellant is liable to pay the amounts of $37,561.41, $11,552.74 and $5,000 in accordance with section 160. The appeals are dismissed with costs.

Signed at Ottawa, Canada, this 14th day of December, 2001.

"C.H. McArthur "

J.T.C.C.

COURT FILE NO.:                                                 2000-383(IT)G

STYLE OF CAUSE:                                               Catherine Louise Fallis and

Her Majesty the Queen

PLACE OF HEARING:                                         St. Catharines, Ontario

DATE OF HEARING:                                           November 21, 2001

REASONS FOR JUDGMENT BY:                      The Honourable Judge C.H. McArthur

DATE OF JUDGMENT:                                       December 14, 2001

APPEARANCES:

Counsel for the Appellant:                  H.A. Patrick Little

Counsel for the Respondent:              Charles Camirand

COUNSEL OF RECORD:

For the Appellant:                

Name:                H.A. Patrick Little

Firm:                  Heelis Williams & Little

For the Respondent:                             Morris Rosenberg

                                                                Deputy Attorney General of Canada

                                                                                Ottawa, Canada

2000-383(IT)G

BETWEEN:

CATHERINE LOUISE FALLIS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on November 21, 2001, at St. Catharines, Ontario, by

the Honourable Judge C.H. McArthur

Appearances

Counsel for the Appellant:          H.A. Patrick Little

Counsel for the Respondent:      Charles Camirand

JUDGMENT

            The appeals from reassessments made under section 160 of the Income Tax Act, notices of which are dated January 6, 2000 and bear numbers 15309, 15310 and 15311 are dismissed, with costs.

Signed at Ottawa, Ontario, this 14th day of December, 2001.

"C.H. McArthur"

J.T.C.C.

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