|
Docket: 2002-2058(IT)G |
|
BETWEEN: |
|
JOANNE DUCHARME, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent. |
____________________________________________________________________
Appeal heard on May 5, 2004 at Prince George, British Columbia
|
Before: The Honourable Justice D.W. Beaubier |
|
|
|
|
|
Appearances: |
|
|
|
|
|
Counsel for the Appellant: |
Glen R. Nicholson |
|
|
|
|
Counsel for the Respondent: |
Karen A. Truscott |
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Income Tax Act, notice of which is November 15, 2000 and bears number 26526, is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 28th day of May 2004.
|
"D.W. Beaubier" |
Beaubier, J.
|
Citation: 2004TCC391 |
|
Date: 20040528 |
|
Docket: 2002-2058(IT)G |
|
BETWEEN: |
|
JOANNE DUCHARME, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent. |
____________________________________________________________________
REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the General Procedure was heard at Prince George, British Columbia, on May 5, 2004. The Appellant testified and called Douglas Ward Allen, Ph.D., who qualified as an expert to testify as to the fair market value of domestic services of a housewife in a traditional marriage. The Respondent called Tracy Head, a Resource Officer of Canada Revenue Agency ("CRA") on the file.
[2] Appellant's counsel asked that the matter of costs be argued after the Court's decision and it is ordered that the Registrar arrange a telephone conference call for that argument to occur within 30 days after this decision.
[3] Paragraphs 8 to 11 of the Reply to the Notice of Appeal outline the matters in dispute. They read:
8. By Notice of Assessment numbered 26526 dated November 15, 2000, the Minister of National Revenue (the "Minister") assessed the Appellant in the amount of $61,878.94, representing her liability in respect of transfers of property to the Appellant by her common-law partner, within the meaning of section 160 of the Income Tax Act (the "Act").
9. In so reassessing the Appellant, the Minister relied on the following assumptions of fact:
a) At all material times, Donald Vienneau ("Vienneau") was the common-law partner of the Appellant;
b) At all material times, Vienneau and the Appellant were not dealing with each other at arm's length;
c) On or about October 19, 1987, the Appellant received property located at 8507 78A Street, Fort St. John, B.C. (the "Property"), which was given to her by her parents for consideration of $1.00;
d) At all material times, the Appellant was the sole legal owner of the Property and was registered on the land title;
e) At all material times, the Property was occupied as the family home by both Vienneau and the Appellant;
f) At the time she received the Property, the Appellant assumed the existing mortgage with the bank;
g) For the period from January 2, 1992 to September 2, 1997, Vienneau transferred property to the Appellant, as he made all of the mortgage payments on the Property, which totalled $61,878.94 (the "Payments");
h) Vienneau accelerated the Payments in order to pay out the mortgage early and clear the title to the Property, and the last Payment was a lump sum amount of $25,452.94 paid to the bank on September 2, 1997;
i) the appellant received no income from employment during the period from January 2, 1992 to September 2, 1997;
j) The fair market value of the consideration given by the Appellant for the Payments made on her behalf was nil;
k) Vienneau failed to file tax returns until 1996, at which point he filed returns for 10 taxation years at one time;
l) Vienneau declared personal bankruptcy on November 27, 1998;
m) Vienneau's liability for federal amounts of tax, penalties and interest under the Act as of January 2, 1992 was no less than $86,047.28 as follows:
federal tax $54,842.79
interest $23,129.04
penalties $8,075.45
n) The aggregate of all amounts that Vienneau was liable to pay under the Act, in respect of the taxation years in which the Payments were made, or any preceding taxation year, was $564,628.08 as of September 2, 1997.
B. ISSUE TO BE DECIDED
10. The issue in this appeal is whether the Appellant is liable to pay the amount of $61,878.94, pursuant to the provisions of section 160 of the Act, in respect of transfers of property to the Appellant by her common-law partner.
C. STATUTORY PROVISIONS RELIED ON
11. He relies on sections 160 and 251, and subsection 248(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (the "Act").
[4] Assumptions 9 a) to i) inclusive and k) to n) inclusive were not refuted by the evidence.
[5] Dr. Allen's report and testimony are accepted to the effect that, for the purposes of valuing Ms. Ducharme's services in what amounts to a traditional marriage household where she is at home caring for the children and the household, her services have a value equivalent to $55,000 per year based upon Mr. Vienneau's income and the fact that his workplace was away from their home in Fort St. John and for that reason he commonly was engaged in private consumption outside the marriage. The evidence established that, practically speaking, Ms. Ducharme earned no income between 1992-1997 and that Mr. Vienneau performed no household work.
[6] The evidence is that, except for the lump sum paid on the mortgage of $25,452.94 on September 2, 1997 and a lump sum of $3,000, the remaining payments in question were simply the regular monthly mortgage instalments of principal, interest and taxes of about $500 per month when rents for an equivalent (and apparently, average) house for the family in Fort St. John ranged between $1,200 and $1,500 per month.
[7] Ms. Ducharme testified that Mr. Vienneau wanted her to stay at home with the children and he would earn the money to provide for the household on that basis. They discussed this about a dozen times over the years and agreed upon this course of action. Mr. Vienneau worked and lived away from Fort St. John about 80 per cent of the time.
[8] The principal owed on the mortgage was $34,508 on June 2, 1988 (Exhibit A-1, Tab 3). On August 2, 1997 Ms. Ducharme re-mortgaged the house for $95,250 (Exhibit A-1, Tabs 9-11). Out of these proceeds, $25,452.94 paid off the original mortgage; $5,413.14 of this was a pre-payment penalty, so that the actual balance of principal owed and paid on August 2, 1997 was $20,029.80. Thus from June 2, 1988 until August 2, 1997 the actual principal paid by Mr. Vienneau on the mortgage was $14,468.20 according to the mortgage company's records. Tab 3 establishes that the actual principal paid on the original mortgage in the period was:
|
Balance January 2, 1992
|
$31,824.84 |
|
Balance August 1, 1997 |
20,595.57
|
|
Net principal paid |
$11,229.27 |
excepting for the lump sum amount of $25,452.94
[9] The August 2, 1997 re-mortgaging with the Royal Bank of Canada was done by Ms. Ducharme with Mr. Vienneau's guarantee in order to obtain the net balance of the mortgage proceeds, $68,846.56, so that Mr. Vienneau could use them to make an offer of settlement with CRA respecting its claim in his bankruptcy. It was deposited in one of their two joint accounts at the Royal Bank of Canada respecting which there is no other evidence before the Court. Eventually Mr. Vienneau apparently settled with CRA for more than the $68,846.56.
[10] Section 160 of the Income Tax Act reads:
160. (1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to
(a) the person's spouse or common-law partner or a person who has since become the person's spouse or common- law partner,
(b) a person who was under 18 years of age, or
(c) a person with whom the person was not dealing at arm's length,
the following rules apply:
(d) the transferee and transferor are jointly and severally liable to pay a part of the transferor's tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted therefor, and
(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,
but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.
The main thrust of the Appellant's argument turns on the question arising from subparagraph 160(1)(e)(i) as to whether the fair market value of what Mr. Vienneau transferred exceeds the fair market value of the consideration given by Ms. Ducharme at that time. In support of that, Appellant's counsel reviewed sections 88 and 89 of the Family Relations Act, R.S.B.C., 1996, Chapter 128. They read:
88(1) Each parent of a child is responsible and liable for the reasonable and necessary support and maintenance of the child.
(2) The making of an order against one parent for the maintenance and support of a child does not affect the liability of another parent for the maintenance and support of the child or bar the making of an order against the other parent.
89(1) A spouse is responsible and liable for the support and maintenance of the other spouse having regard to the following:
(a) the role of each spouse in their family;
(b) an express or implied agreement between the spouses that one has the responsibility to support and maintain the other;
(c) custodial obligations respecting a child;
(d) the ability and capacity of, and the reasonable efforts made by, either or both spouses to support themselves;
(e) economic circumstances.
(2) Except as provided in subsection (1), a spouse or former spouse is required to be self sufficient in relation to the other spouse or former spouse.
[11] This Court accepts as binding upon it the decision of the Federal Court of Appeal in Medland v. Canada, [1998] F.C.J. No. 708 that the amount of the principal paid by Mr. Vienneau in the period to the mortgage on Ms. Ducharme's property was a transfer of property to Ms. Ducharme. That amount, according to the mortgage records, was:
|
$20,029.80 |
|
+ 11,229.27 |
|
$31,259.07 |
Thus, $31,259.07 is the correct total of the fair market value of the consideration transferred by Mr. Vienneau to Ms. Ducharme during the period.
[12] However, the Court accepts as true, Ms. Ducharme's statement that the re-mortgaging occurred to obtain the money for Mr. Vienneau to settle with CRA. It was for that purpose that the $20,029.80 was paid out of the proceeds of the new mortgage. This negates that sum as a gain in equity by Ms. Ducharme.
[13] Further, on August 29, 1997, $68,846.56 was paid jointly to Mr. Vienneau and Ms. Ducharme as the net proceeds out of the mortgage which Ms. Ducharme executed on August 27, 1997 to assist Mr. Vienneau to pay CRA. As a result, Ms. Ducharme's equity in the house was reduced by $98,250 less the payout of the original mortgage's remaining principal of $20,029.80, a loss of $78,220.20. Even though it was secured in some part by Mr. Vienneau's guarantee, the bank would take the house owned by Ms. Ducharme in the event of default.
[14] Having done these calculations, the fact remains that Ms. Ducharme and her two daughters received the consideration from any unpaid taxes that Mr. Vienneau spent on the family throughout the years forming part of the evidence. As a result her mortgage was paid down by principal of $11,229.27 by Mr. Vienneau during the period for which the assessment was raised. There is no evidence that Mr. Vienneau received a corresponding increase in his property or transfer of calculable fair market value at those times from Ms. Ducharme. To the contrary, he concluded the period in bankruptcy.
[15] The evidence before the Court is that in return for these payments of $11,229.27 on principal, Ms. Ducharme incurred an additional liability of $78,220.20 for the purpose of paying CRA a settlement of Mr. Vienneau's taxes. Thus, on the reasoning in Medland, Ms. Ducharme suffered a personal loss in her capital assets as a consequence of her exchanges of consideration with Mr. Vienneau. On balance, within the period in question, Ms. Ducharme lost equity in her home of:
|
|
$78,220.20 |
|
|
- 11,229.27 |
|
Net loss |
$66,900.93 |
[16] The actual residue of mortgage money of $68,846.56 was placed in the Vienneau-Ducharme joint account, implying that half this sum remained Ms. Ducharme's - still a net deficit in theory. But all of this money was obtained from Ms. Ducharme's property to settle CRA's claim against Mr. Vienneau and was so used.
[17] On the evidence before the Court, Ms. Ducharme gave more consideration than she got.
[18] This Court has also had the privilege of reading the judgment of Lamarre-Proulx, J. in Michaud v. Canada, [1998] T.C.J. No. 908, an Informal Procedure case and in addition to the foregoing, adopts her reasoning in that case which is equally applicable in the Appellant's common-law relationship in this case.
[19] Thus on the facts and on the basis of the separate concepts described in both Medland and Michaud, the appeal is allowed. This matter is referred back to the Minister of National Revenue for reconsideration and reassessment allowing the appeal.
Signed at Ottawa, Canada, this 28th day of May 2004.
|
"D.W."Beaubier" |
Beaubier, J.
|
CITATION: |
2004TCC391 |
|
COURT FILE NO.: |
2003-2058(IT)G |
|
STYLE OF CAUSE: |
Joanne Ducharme v. The Queen |
|
PLACE OF HEARING: |
Prince George, British Columbia |
|
DATE OF HEARING: |
May 5, 2004 |
|
REASONS FOR JUDGMENT BY: |
The Honourable Justice Beaubier |
|
DATE OF JUDGMENT: |
May 28, 2004 |
|
APPEARANCES: |
|
Counsel for the Appellant: |
Glen R. Nicholson |
|
Counsel for the Respondent: |
Karen Truscott |
|
COUNSEL OF RECORD: |
|
For the Appellant: |
|
Name: |
Glen R. Nicholson |
|
Firm: |
Traxler Haines |
|
For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |