Citation: 2012 TCC 382
Date: 20130219
Dockets: 2010-3697(IT)G
2010-3489(GST)I
BETWEEN:
RENATE BRAUER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
Bocock J.
[1]
These two matters
involve the assessment of a taxpayer for vicarious liability in respect of
funds transferred to her bank account over an 18 month period by the taxpayer’s
son. It involves two appeals because the liability is for both income tax and
goods and services tax arrears confirmed in the Respondent’s Reply, in both
matters, to be the aggregate sum of $55,529.21 (the “Arrears”).
[2]
For each respective and
concordant section of each Act to apply, namely subsection 160(1) of the
Income Tax Act and subsection 325(1) of the Excise Tax Act
(collectively the “Acts”), the following elements must exist:
a)
the parties must not be
dealing at arm’s length;
b)
the transferor must be
liable for the Arrears to the Minister;
c)
there must be a
transfer of property; and
d)
consideration less than
fair market value of the transferred property shall not have been paid,
tendered or otherwise conveyed by the transferee to the transferor.
I. Facts
[3]
The Appellant lives in Toronto, Ontario and her son lives in Winnipeg, Manitoba. The son, the tax debtor, was
subject to enforcement proceedings undertaken by Minister, in respect of the Arrears.
The Appellant testified that she knew that such proceedings limited her son’s
ability to have and utilize a bank account for his financial dealings. Both she
and her son testified that the utilization of a payroll cheque cashing business
would generate cheque cashing fees and otherwise reduce the amount of the son’s
take-home pay.
[4]
Accordingly, at the
son’s request, the Appellant provided her son with her multi-branch service and
debit card for her bank account. The card permitted her son to access the
account for deposits and withdrawals. Over 18 months the son deposited his pay cheques
and subsequently withdrew amounts almost identical to the full value of the
deposits.
[5]
With respect to the appeals,
the Appellant concedes that the Arrears are owing and that the taxpayer and the
Appellant, as mother and son, are not dealing at arm’s length. Therefore the
two issues in dispute remain whether there was a legal transfer of the funds
and whether there was legal consideration paid by the mother to the son for the
property transfer.
A. Appellant’s
Position
[6]
On the issue of
transfer, the Appellant states that no transfer occurred because of the
existance of an understanding between the Appellant and her that all monies
would be preserved for the son as the fruit of his labours and never were, nor
were ever intended to be, the property of the Appellant. The Respondent did not
dispute this and attributed the scheme to parental love and concern by the Appellant
for her son. The Appellant’s inaction, non-utilization and lack of perception
of any entitlement to the funds, in the mind of the Appellant and her counsel, mean
that there was no transfer within the meaning of the applicable sections of the
Acts.
[7]
On the issue of
consideration, the Appellant contends that the understanding and intention not
to access the funds deposited into her account constituted consideration of a
valuable nature. The Appellant received no net benefit and therefore could not
be vicariously liable on a common sense basis since there was no attempt to
have her permanently shield or use the money and moreover the money would
revert back to the son for his benefit or presumably the benefit of his
creditors.
B. Respondent’s
Position
[8]
The Respondent called
no evidence. Instead counsel relied, inter alia, upon the case of Livingston
v. Canada, 2008 FCA 89, 2008 DTC 6233, as clear authority that the transfer
had taken place and thereby established the third element necessary to invoke
the respective sections of the Acts. The case stands for authority that no
agreement existed establishing the ownership, legal or beneficial, of the
transfer assets simply by inaction or passivity. Specifically at paragraphs
21, 22 and 24 of Livingston the Court states [with emphasis
added]:
21 The deposit of funds into another person’s account
constitutes a transfer of property. To make the point more emphatically, the
deposit of funds by Ms. Davies into the account of the respondent permitted the
respondent to withdraw those funds herself anytime. The property transferred
was the right to require the bank to release all the funds to the respondent.
The value of the right was the total value of the funds.
22 In addition, there is a transfer of property for the
purposes of section 160 even when beneficial ownership has not been
transferred. Subsection 160(1) applies to any transfer of property -- “by means
of a trust or by any other means whatever”. Thus, subsection 160(1) categorizes
a transfer to a trust as a transfer of property. Certainly, even where the
transferor is the beneficiary under the trust, nevertheless, legal title has
been transferred to the trustee. Obviously, this constitutes a transfer of
property for the purposes of subsection 160(1) which, after all, is designed, inter
alia, to prevent the transferor from hiding his or her assets, including
behind the veil of a trust, in order to prevent the CRA from attaching the
asset. Therefore it is unnecessary to consider the respondent’s argument that
beneficial title to the funds remained with Ms. Davies.
[…]
24 The trial judge emphasized in his reasons that the respondent
ultimately received no monetary benefit. The respondent argues that this is a
critical factor in considering whether there has been a transfer of property.
In my opinion it is irrelevant whether or not the respondent ultimately
received a “benefit.” It does not matter that the funds went back to Ms.
Davies. The respondent certainly received property at the time of transfer
which is the relevant time for the purposes of subsection 160(1). That the
money happened to go back to Ms. Davies in the end is not sufficient to reverse
the triggering of the provision. As was stated by this Court in Heavyside,
supra at paragraph 9:
Once
the conditions of subsection 160(1) are met... the transferee becomes
personally liable to pay the tax determined under that subsection ... That
liability arises at the moment of the transfer ... and is joint and several
with that of the transferor. The Minister may “at any time” thereafter assess
the transferee (subsection 160(2)) and the transferee’s joint liability will
only disappear with a payment made by her or by the transferor in accordance
with subsection 160(3)).
[9]
The Federal Court of
Appeal has clearly stated that a transfer occurs at the point of deposit for
the purposes of subsection 160(1).
[10]
On the issue of
consideration the Court was directed to paragraphs 27 and 28 of the same
decision.
[27] Under subsection 160(1), a transferee of property will be
liable to the CRA to the extent that the fair market value of the consideration
given for the property falls short of the fair market value of that property.
The very purpose of subsection 160(1) is to preserve the value of the existing
assets in the taxpayer for collection by the CRA. Where those assets are
entirely divested, subsection 160(1) provides that the CRA’s rights to those
assets can be exercised against the transferee of the property. However,
subsection 160(1) will not apply where an amount equivalent in value to the
original property transferred was given to the transferor at the time of
transfer: that is, fair market value consideration. This is because after such
a transaction, the CRA has not been prejudiced as a creditor. Applying such
principles to the case at bar, it is clear that the transaction between Ms.
Davies and the respondent left Ms. Davies without anything equivalent to the
property transferred that could be collected by the CRA, and thus there
couldn't possibly be consideration.
[28] The Tax Court Judge erred in law by failing to conduct any
analysis of the fair market value of the consideration. He simply concluded
that it was “adequate.” I fail to see how the fair market value of the
consideration, if any did exist, would be equivalent to the funds deposited.
Why would Ms. Davies give an amount of money to the respondent in consideration
for the ability to withdraw the money, when the respondent retains the power to
take the money? No prudent, arm's length purchaser not motivated by the
prospect of evading collection of their tax debt would pay the full value of
funds in exchange for the right of access that Ms. Davies received. There was
no evidence on which the Tax Court Judge could conclude that what was provided
by the respondent was equal to the fair market value of the money put into the
account.
In the absence of
tangible consideration or value, adequate consideration for the purposes of
subsection 160(1) may be not implied or imputed.
II. Analysis
and Decision
[11]
The Appellant is a
dutiful and concerned parent. Factually, the Court finds that she knew of the
Canada Revenue Agency (the “CRA”) debit and enforcement proceedings in respect
of the Arrears (which fact was admitted on examination for discovery and confirmed
by the Appellant during cross-examination). She permitted her son to have her
bank card in order to utilize her account for the joint purposes of cashing his
payroll cheques in order to prevent accessibility to such funds by the CRA as
creditor and in order to avoid incurring cheque cashing fees.
[12]
Her inaction with
respect to the money does not defeat the notion of a transfer. Livingston is clear authority on this point. At the time of transfer, relinquishment
of dominion and control by the son to the Appellant occurred. The Appellant,
should she have chosen, had the legal right and power to (a) present herself at
the branch, (b) revoke the old bank card, and (c) withdraw the money. The fact
she did not is exactly provided for in the facts of Livingston which constitutes
clear authority that notwithstanding such inaction, a transfer has nonetheless
occurred.
[13]
Similarly the
suggestion that the understanding contributed to a genuine business transaction
is not legally sufficient. Inaction cannot provide evidence of an agreement to
defeat the section nor provide evidence of consideration on the Appellant’s
part. Her possibly laudatory maternal act coupled with her mere moral
obligation not to access the funds does not create a recognizable legal prohibition
from doing do. To constitute legal consideration for the purposes of the
subsection, an enforceable obligation which has value must be created and
tendered by her to her son. In this case such consideration did not legally
exist. The absence of any consideration under subsection 160(1) of the Income
Tax Act and the concordant subsection 325(1) of the Excise Tax Act provides
the final component permitting the Minister’s assessment.
[14]
While it may perhaps be
incongruous at first glance to determine why the Appellant should have to repay
monies received by her son, utilized by her son and to which the Appellant gained
no net benefit; nonetheless, the conditions necessary for the invocation of the
subsections of the Acts as refined by established case law, have been
satisfied and, accordingly, the appeals are dismissed.
These Amended Reasons for Judgment are issued in
substitution of the Reasons for Judgment dated November 2, 2012 in order to
correct the words and figures underscored in paragraph 8 hereof.
Signed at Ottawa, Canada, this 19th
day of February 2013.
“R.S. Bocock”
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