Citation: 2011 TCC 323
Date: 20110930
Docket: 2010-482(IT)G
BETWEEN:
MICHELLE LECLAIR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1]
Michelle Leclair is
appealing from an assessment made under subsection 160(1) of the Income Tax
Act (the Act). The assessment was made on the basis that her father
Philippe Joseph Lajeunesse transferred real property (the property) he owned in
Prince Albert, Saskatchewan for no consideration to the Appellant, his
daughter, at a time when he was indebted to the Canada Revenue Agency (CRA).
[2]
The amount of Mr.
Lajeunesse’s indebtedness to CRA is not in dispute nor is the fact that the
amount owed by Mr. Lajeunesse exceeds the amount for which the Appellant was
assessed, namely $53,000 under subsection 160(1) of the Act.
[3]
The Appellant is now 23
years old. From age 3 to 18, she grew up and resided at the property in
question. She has spent the last five years of her life in Saskatoon, with a brief stay in Prince Albert, Saskatchewan and since December 29, 2010 in Calgary, where she is an enrolled student.
[4]
Philippe Lajeunesse was
the registered owner of the property. On June 29, 2006, he caused to be transferred
the said property in the name of the Appellant and stated her address as the
same as the property although she resided in Saskatoon at the time. Philippe Lajeunesse never vacated the property and
continued to reside at the property, paying all the expenses incurred by way of
his residing there, namely, the utilities, property taxes, costs of upkeep,
maintenance and repairs.
[5]
The Appellant at the
time of the transfer was unaware of her father’s indebtedness with CRA nor was
she aware of the fact that the title to the property had been transferred to
her name. She only became aware of the situation when she visited her father in
December 2008 and was shown a letter she had received from CRA addressed to her
father’s address and which contained the November 19, 2008 Notice of
Assessment on appeal.
[6]
She sought legal advice
and, on February 26, 2009, she signed Transfer Authorizations transferring
the property back to her father and thereby, caused the title to the property to
issue to him.
[7]
It is admitted by the
Respondent that the Appellant had no knowledge that her father had transferred
the property into her name and that he did so without her consent. It is also
admitted that she transferred the property back to her father as soon as she became
cognizant of the transfer to her.
[8]
The issue is whether
the Appellant is liable pursuant to section 160 of the Act in
respect of the transfer of property made to her by her father in the amount of
the assessed value of $53,000.
[9]
The conditions for the
application of subsection 160(1) of the Act are: first, the
transferor must be liable to pay tax under the Act at the time of the transfer.
That is not in dispute in this case as it is admitted that the transferor was
indebted to CRA for an amount in excess of the value of the property. Second,
there must be a transfer of property, either directly or indirectly, by means
of a trust or by any other means; third, the transferor and transferee were not
dealing at arm’s length and finally the fair market value of the property
transferred must exceed the fair market value of the consideration given by the
transferee. Here is subsection 160(1) in full:
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.
[10]
The Appellant’s
position is that section 160 assessments are fact driven and since the
transferor transferred the land to the appellant without her knowledge or
consent, the assessment is invalid. The appellant further argues that liability
under section 160 does not attach since the transfer could be set aside as a
fraudulent conveyance.
[11]
The respondent’s
position is that the operation of section 160 is not affected by the appellant’s
absence of knowledge or consent to the transfer or her transfer of the land
back to her father.
[12]
I will first examine
the appellant’s second submission that liability under section 160 does not
attach since the transfer could be set aside as a fraudulent conveyance. The
relevant provision is section 3 of The Fraudulent Preferences Act of
Saskatchewan being Chapter F-21 of the R.S.S. 1978 which reads:
Transfers to defeat creditors
3 Subject to sections 8, 9, 10 and 11 every gift,
conveyance, assignment or transfer, delivery over or payment of goods, chattels
or effects or of bills, bonds, notes or securities or of shares, dividends,
premiums or bonus in a bank, company or corporation, or of any other property
real or personal, made by a person at a time when he is in insolvent
circumstances or is unable to pay his debts in full or knows that he is on the
eve of insolvency, with intent to defeat, hinder, delay or prejudice his
creditors or any one or more of them, is void as against the creditor or
creditors injured, delayed or prejudiced.
[13]
It is submitted that
this Act, which is similar to the Statute of Elizabeth and other
acts, does not render transfers that prefer one creditor over another void, it
merely makes them voidable (see Winsor v. The Queen, 91 DTC 1170 and Bank of
Montreal v. Bray, (1997), 36 OR (3d) 99. In addition, it is submitted
that the act only provides that the transfer is void as against creditors and
not entirely void. I do not find this argument helpful in this case.
[14]
There is no doubt that
the action taken by the appellant’s father in transferring ownership of the
property to the appellant without consideration must be considered, at first
sight, as an outright gift to her, however, a closer examination of the facts
raises doubts.
[15]
In order to determine whether
there was an actual transfer of the property to the appellant, one must
determine whether all the essential requirements of a gift are met. In the
Canada Revenue Agency (CRA) Interpretation Bulletin IT-209R, 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. In Ruling 2000-0059963, the CRA acknowledged the effect
of a valid disclaimer: the disclaiming party is considered as never having
received the proceeds of a disposition.
[16]
The law pertaining to
gifts was reviewed by Justice C. Miller in Benquesus v. The Queen, 2006
TCC 193 where he quoted the following at paragraphs 7 and 8 as to the notion of
acceptance:
7 The Respondent argues that the evidence
that the children were "generally aware" of the terms of their
father's letters to the Foundation is not sufficient to constitute acceptance.
The Respondent further suggests there is no coincidental acceptance by the
Foundation of the arrangements set forth in Mr. Jacques Benquesus'
letters. Yet, the Foundation's behaviour in reflecting the transfer of funds as
a loan on its financial statements, and also in following the Appellants'
instructions to retain part of the funds as a donation and the balance to be
returned to the Appellants, certainly suggests the Foundation accepted the
arrangement in Mr. Jacques Benquesus' letters precisely. But it is acceptance
of the gift by the Appellants that is at issue. Being "aware at the time
that their father transferred the transfers to the Foundation that the
transfers had been made" and "generally aware at that time of the
terms", combined with providing instructions to the Foundation for
charitable donations and to take back monies, clearly point to an acceptance by
the Appellants of the gift. The bar is not set particularly high for finding
acceptance, as indicated by Professor Ziff in his text "Principles of
Property Law" at page 141:
"Acceptance of a gift involves an
understanding of the transaction and a desire to assume title. This is a
requirement that is treated with little rigor: in the ordinary case, acceptance
is presumed to exist. The donee may rebut that presumption by rejecting or
disclaiming the interest."
8
Also Professor
Gillese in her text "Property Law" indicates:
"In circumstances where the gift is
beneficial to the donee, the Courts will normally presume acceptance by the
donee. Thus, a valid gift can be made without the donee's knowledge but is
subject of the donee's right to unilaterally repudiate upon learning of the
gift."
[17]
In Biderman v. The
Queen, 2000 DTC 6149, the Federal Court of Appeal reviewed the law on
disclaimers as they relate to wills and section 160 of the Act. Mr.
Justice Létourneau made detailed remarks in that respect and the relevant passages
may be usefully quoted:
9 Secondly, the Tax Court judge found that Mr.
Biderman had not truly disclaimed under the will because he benefitted from the
assets for almost three years by having a home for himself and his children and
because he used the assets to negotiate a deal with Revenue Canada with respect to his debt.
Did Mr. Biderman validly disclaim
his inheritance under the will of the family home?
10 As previously mentioned,
Mr. Biderman executed two disclaimers, one prior to and the other almost three
years after his wife's death.
11 In the context of wills
and estates, a disclaimer is the act by which a person refuses to accept an
estate which has been conveyed or an interest which has been bequeathed to him
or her. Such disclaimer can be made at any time before the beneficiary has
derived benefits from the assets [Footnote 3: Re Jung (1979), 99 D.L.R. (3d) 65, at p. 70 (B.C. S.C.). See also Mellows, The Law of
Succession, 5th ed., Butterworths, London, 1993, at p. 420; Williams on
Wills, The Law of Wills, vol. 1, Butterworths, London, 1995, at p. 480.].
It requires no particular form and may even be evidenced by conduct [Footnote
4: Id.].
12 In the present instance,
the first and informal disclaimer made in 1991 by Mr. Biderman is, I believe,
legally ineffective and of no avail to him. Not unlike the civil law in Quebec, the common law requires that a
disclaimer in order to be effective be made after the death of the legator,
that is to say when the legatee is entitled to inherit. While the Civil Code
of Quebec has a specific provision expressly prohibiting a disclaimer with
respect to a succession not yet opened [Footnote 5: See art. 631. See also
Germain Brière, Le nouveau droit des successions, 2e ed., Wilson et Lafleur Ltée, Montréal, 1997, at
p. 115.], the nature of a disclaimer at common law and its retroactive effect
to the date of death of the deceased lead to the same result. In Bence v.
Gilpin [Footnote 6: (1868) L.R. & Ex. 76.], cited in Re McFaden
[Footnote 7: [1937] O.W.N. 404 (O.H.C.).] and in McLean & Kerr v. Hrab [Footnote
8: (1998), 75 O.T.C. 24 (Ont. Gen. Div.).], Kelly, C.B. wrote:
A disclaimer to be worth anything must be an act whereby
one entitled to an estate immediately and before dealing with it renounces it
whereby in effect he says: “I will not be the owner of this property”.
13 There is no entitlement to
an estate until it is opened since a testamentary gift can always be revoked
until death. Once made, the disclaimer is retroactive to the date of the death
of the deceased [Footnote 9: Re Jung (1979), 99 D.L.R. (3d) 65, at p. 70 (B.C. S.C.). See also A.H. Oosterhoff on
Wills and Succession, 4th ed., Carswell, Toronto, 1995, at p. 492; Williams
on Wills, The Law of Wills, vol. 1, Butterworths, London, 1995, at p.
481.].
14 Moreover, the subsequent
conduct of Mr. Biderman is wholly inconsistent with his disclaimer. While he
purported to renounce both the gift and the powers of administration, he began
and continued to act subsequently to it as executor to his wife's estate. In
such capacity, he probated the will on May 15, 1992 [Footnote 10: Appeal Book,
tabs 7 and 20, at p. 134.]. Furthermore, he signed on October 6, 1994, the
Transfer/Deed of Land with respect to the family home [Footnote 11 : Id.,tab
9.] as well as a Transfer of the shares and a Declaration of transmission of
those shares on September 30, 1994 [Footnote 12: Id., tabs 12 and 13.] .
[18]
At the end of his
decision, Justice Létourneau made the following remarks about section 160 of
the Act and disclaimers, and the relevant case law:
45 However,
the situation is different in the case of a valid disclaimer of a gift. The
disclaimer is retroactive to the date of death of the deceased [Footnote 34:
Re Jung, supra, note 3, 65, at p. 70 (B.C. S.C.); Mellows, supra,
note 3, at p. 420. See also under footnote 9.]. As stated in Sembaliuk et
al. v. Sembaliuk [Footnote 35: (1984), 15 D.L.R. (4th) 303, at pp. 309-310
(Alta C.A.).], the nature of a valid disclaimer is such that the gift is
never accepted:
There is no donee of a disclaimed gift in a real sense. The bequest
lapses. It may go to the creditors or other claimants, it may go to other
beneficiaries, or it may go to a residuary beneficiary.
46 Therefore, the intended beneficiary is not the owner of the gift
because of the valid disclaimer and the disclaimed gift is not his to transfer
or give. In other words, “a disclaimer operates by way of avoidance and not by
way of disposition” [Footnote 36: Re Paradise Motor Co. Ltd., [1968] 2
All. E.R. 625, at p. 632 (C.A.).]. This statement of the law by the English
Court of Appeal was accepted by the Alberta Court of Appeal in the Sembaliuk
case and leave of appeal to the Supreme Court of Canada was refused on February
18, 1985. A disclaimer does not involve a vesting and divesting of property. Consequently,
where there is a valid disclaimer, there is, in my view, no transfer of
property, direct or indirect, and paragraph 160(1)(c) cannot apply to the
person who so disclaims.
47 If we were to accept the contention of the respondent, we would
arrive at an unfair if not absurd result. A tax debtor would not be able to
execute a valid disclaimer before the death of his spouse. Nor would he be able
to execute one after because he could never disclaim his right to inherit the
property. Such right which has the net value of the property would be
transferred and such transfer would be caught by subsection 160(1). The overall
effect of this contention is to radically alter the common law by deeming that
a person has taken an interest in an estate against his or her will while
judicial precedents clearly state that “the law is not so absurd as to force a
man to take an estate against his will” [FOOTNOTE 37: Townson v. Tickell
(1819), 3 B & Ald. 31, 106 E.R. 575, at 576-577 (K.B.); Bence v. Gilpin
(1868), L.R. & Ex. 76, at p. 82.]. As a result, the residuary beneficiary
under the will, within the limits of subsection 160(1), becomes liable to pay
the taxes owed by the tax debtor who disclaimed the gift.
48 The respondent relied upon two old English cases to support her
contention that the appellants had a right up to the moment of disclaimer: Re
Stratton's Deed of Disclaimer, Stratton and Others v. Inland Revenue
Commissioners [Footnote 38: [1957] 2 All. E.R. 594 (C.A.).] and Re Parsons,
Parsons v. Attorney-General [Footnote 39: [1942] All. E.R. Annotated
496 (C.A.).]. With respect, I do not think that those cases are of much
assistance to her.
49 The Parsons case dealt with the issue as to whether the
husband was “competent to dispose” of the legacy within the meaning of
paragraph 22(2)(a) of the Finance Act, 1894, during the period between
the death of the testatrix and the date of the disclaimer by the husband. The
Court of Appeal was required to interpret the words “competent to dispose”
which, in the context of a deeming provision, were to be given, the Court said,
their broad and popular meaning. Therefore, the husband was found competent to
dispose by disclaimer. The Court expressly stated that their interpretation of
these words had nothing to do with the law on disclaimer of legacies which
holds that a person has no estate in a disclaimed legacy and that the gift is
void ab initio [Footnote 40: Id., at p. 497. See also the Editorial
Note at p. 496.] .
50 In Stratton's Deed of Disclaimer, the Court of Appeal
relied upon the decision in Re Parsons. Again, the Court had to
interpret a specific provision (subsection 45(2) of the Finance Act, 1940)
which imputed to the deceased, for estate duty purposes, a disposition in favour
of the person for whose benefit the right was extinguished. In that specific
context, it was found that a disposition included a disposition by waiver
because it extinguished the right of the person who executed the disclaimer.
The peculiarity and the specificity of the context is illustrated by this
statement of Jenkins, L.J., at p. 602, where he wrote:
It might be said to be, to say the least, anomalous that a benefit
conferred by transfer should be dutiable in the event of the donor's death
within five years, while a precisely similar benefit conferred by disclaimer
should not attract duty on the death of the disclaiming party however soon
after the date of the disclaimer that event might occur.
51 As the Tax Appeal Board rightly noted in Plaxton v. M.N.R.
[FOOTNOTE 41: 60 DTC 38, at p. 41.], these two cases were dealing with a
section of an English statute that has no counterpart in Canadian corresponding
statutes. With respect to the Stratton's Deed of Disclaimer case, the
Alberta Court of Appeal in Sembaliuk, supra, noted that the English
Court of Appeal was careful to use the term 'extinguish' rather than a term
implying any conveyance or transfer.
52 I believe it would take a much more specific and a much clearer
provision than the actual subsection 160(1) in order to effect the drastic
change sought by the respondent.
[19]
The Federal Court of
Appeal makes it clear that failed testamentary gifts are not caught by section
160 and that the section does not alter the common law. There is nothing in section
160 that indicates that different rules or potential alteration of the common
law applies to different types of transfers such that its application to
inter-vivos gift should be the same as to testamentary gifts. A transfer of an
inter-vivos gift must be a completed transfer, not a failed or void transfer;
intent and delivery by and of one party alone is insufficient. In my opinion,
section 160 should not be read as to apply to a failed inter-vivos gift.
If a gift lacks any of the three requirements, it is void ab initio. In
the case at bar, what is asserted is that there was no knowledge or acceptance
of the gift and once the gift was known, it was repudiated within an acceptable
time by transferring back the property to her father. In my opinion, this
transfer back constitutes, in these circumstances, a valid disclaimer and, as
such, there was no transfer, direct or indirect of the property; hence
paragraph 160(1)(c) cannot apply to the Appellant. The word "dealing"
in subsection 160(c) of the Act connotes actual action and not a state
of relationship. In my view, that provision will not apply unless there is
knowledge on the part of the transferee. Therefore, the transfer in issue
herein is not caught by section 160.
[20]
The appeal is allowed
with costs.
Signed at Ottawa, Canada, this 30th day of September 2011.
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