Date: 19991110
Dockets: 97-2134-IT-G; 97-2142-IT-G
BETWEEN:
JOYCE NEILL, WALLASEY HOLDINGS LTD.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered Orally from the Bench at Vancouver, British Columbia, on Friday, September 10, 1999)
Margeson, J.T.C.C.
[1] I thank counsel for her submissions and the fair way that she has put forward the case, as difficult as it was for her and for the Court as well. It is a tough situation that the Appellant finds herself in. The Court is dealing with a substantial amount of money, with a company that was substantial, with a company that has substantial assets, a company which employed a lawyer; an Appellant who employed a lawyer and the husband of the Appellant, during the divorce matter, who employed a lawyer. One would have thought that the significance of these transfers would have been made manifest to the Appellant when the transfer in issue took place.
[2] The Court has to interpret the Act as it is. There is no issue as far as the Court is concerned about the meaning of subsection 15(1), the shareholder benefit, or paragraph 69(1)(b) which affects the company. The company has to claim the money when it has transferred property without consideration. Those are the two sections which are significant here and there is no evidence before the Court which would indicate that those sections have not been properly applied or interpreted by the Minister.
[3] Counsel for the Minister referred to several I.T. Bulletins, I.T. 405 dated January 23rd, 1978 and I.T. 216 dated May 20th, 1975. Those, of course, are merely statements by the Minister as to how the Minister will look at certain transactions. They are not binding upon the Court, although they do give the Court some insight as to what the Minister was thinking about. Income Tax Bulletin 216, seems to be the reverse of the situation here. It talks about the situation where a corporation holds in trust, as agent for a shareholder, property that was acquired specifically to be held in this way. The Minister has indicated that he will conclude that the property was actually still being held for the beneficial ownership of the shareholder.
[4] Now, we have the reverse here. The Appellant says that the property was held by the company originally and then was transferred over to her only for the purposes of protecting it against the interests of her husband in a pending divorce action. The Bulletin is broad enough to indicate to the Court that this reverse situation is also to be included, given the proper documentation, that there had been a trust agreement in place, that there had been some other evidence to indicate that the property was really being transferred for some purpose other than ownership. If nothing had happened to the property after the transfer had taken place such as the use of the property by the transferee, the placing of a trailer upon it, the renting of the property or the paying of taxes, then the Court might have been able to look at this situation a little more favourably for the Appellant.
[5] The bulletin makes it clear that the Minister would require that a trust agreement or declaration be completed, when the property was acquired, between the corporation and shareholder, which clearly defines the intention of the parties to the agreement and the degree of participation of the shareholder in the property so held in trust.
[6] In the case at bar, had these prerequisites been in place, the Minister may have concluded that the beneficial interest in the property was still in the company and therefore there was no tax effect upon the Appellant.
[7] We do not have such evidence in this case. We do not have a declaration of trust. We do not have any independent or corroborative evidence which indicated that that took place. Indeed, we have some other indications that would seem to point to the fact that the parties should have known what they were doing when this took place, and if they had intended that the property would only be transferred to the Appellant in trust for the company, there should have been and there would have been a declaration of trust. There would have been a trust deed given. There would have been a trust document created.
[8] The Appellant, in this particular case, had the advice of an accountant and two lawyers. One lawyer was an expert, presumably, in matrimonial matters and the other lawyer was an expert in corporate matters. She also had an accountant. The evidence before the Court today was documentary evidence of a financial nature which showed that this company was a substantial company. It had a substantial amount of assets and, yet, in the year in question the Appellant says that the Company only transferred over these two properties to her to be held in trust for the corporation to protect them against the claims of her husband in the divorce.
[9] There were $214,906 worth of assets in the corporation during that period of time and there was no attempt made by the Appellant to transfer any of those assets over to protect them. One would have to ask the normal question, if the real reason for the transfer was to protect these assets against the husband, (the properties) why wouldn't she have transferred over all of the other assets? If the properties were in jeopardy, then surely the remainder of the assets were in jeopardy also.
[10] Again, normally if property is transferred over for no consideration or for the purpose of protecting it against creditors, such transactions are usually struck down. One would have thought that the Appellant, faced with the available advice of two lawyers and an accountant, would have been so appraised. This would substantiate the position of the Minister that the purpose of the transaction must have been to transfer the properties to the Appellant for her personal use. Subsequent actions by the Appellant, of course, would lead to that conclusion as well.
[11] The Court takes note of Mrs. Neill's evidence where she disputed some of the presumptions contained in the Reply, but those which she disputed were not major or significant presumptions. She denied that she was a beneficial owner of the lots. She said that she held them for Wallasey. She disputed the presumption that the lots were not transferred back to Wallasey by Neill and that there was no intention to do so, but she admitted that they were not transferred back. That is a fact I have to consider.
[12] There was no consideration paid to the company. At no time did any money actually exchange hands between the Appellant and the company. Mrs. Neill did rent at least one of the properties to somebody else, so in that sense she was acting as an owner of the property. That is something that the Court has to take into account.
[13] Mrs. Neill denied that she paid the taxes and other expenses for the lots and was not reimbursed by Wallasey. She said that she did not do that. There was no evidence before the Court to substantiate that. Where this is a disputed item evidence should be presented to resolve the issue.
[14] She denied that she had personal use of the lots beyond simply holding them for a subsequent sale and future use. There certainly was some evidence before the Court that she had the lots for purposes other than that. These transactions had the earmarkings of a transfer which took place from the company to her. She was the beneficial owner, not the company. There was no document to indicate that the company remained the beneficial owner. The subsequent actions by the company and the Appellant would indicate that the transfer that did take place was a real transfer and it was not for consideration.
[15] Under such circumstances, then, it would be the duty of the Appellant to establish before the Court on a balance of probability that there was such a trust in effect, be it either by producing something in writing, which could not be done here, because it never took place, or producing some evidence which would satisfy the Court that the Appellant had overturned the presumptions that are contained in the Reply. There is that burden on the Appellant which the Court is satisfied she has not met.
[16] Unfortunately, it does have significant consequences for the Appellant and the company, but subsection 15(1) is clear and paragraph 69(1)(b) is clear. The Court is satisfied that the Minister acted in accordance with the Act and interpreted the sections correctly, not only according to the Act but in accordance with the Interpretation Bulletins that have been referred to, although those would not be binding upon the Court. They do seem to be fair and fairly indicative of what the Minister would do. Unfortunately, the Court will have to confirm the Minister's assessment and dismiss the appeals.
[17] Now that does not prevent the Appellant, as I indicated before, for seeking some redress with the Minister on the basis of the fairness package, but that is something that she will have to take up with Revenue Canada. This Court does not administer that. It has been pointed out that neither the Appellant nor the company were charged penalties. Interest was charged because where Income Tax is owing and the money is not paid interest flows automatically under the statute.
Signed at Ottawa, Canada, this 10th day of November 1999.
"T.E. Margeson"
J.T.C.C.