Date: 19980618
Docket: 96-397-IT-I
BETWEEN:
MARLENE BARKER and
GEORGE WILLIAM BARKER,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1] This appeal pursuant to the Informal Procedure was heard at Cranbrook, British Columbia on June 9, 1998. The Appellant was called to give testimony by counsel for the Queen. George William Barker was called to give testimony by Marlene Barker's agent. Mr. Barker was joined into the appeal of Marlene Barker by an Order under section 174 of the Income Tax Act.
[2] Paragraphs 6 and 7 of the Reply to the Notice of Appeal read:
6. In reassessing the Appellant for the 1993 taxation year, the Minister of National Revenue (the "Minister") included in computing income a taxable dividend in the amount of $68,117.00 and allowed as a dividend tax credit an amount totalling $9,082.26.
7. In so reassessing the Appellant, the Minister made the following assumptions of fact:
(a) in September, 1990 the Appellant separated from her spouse, George William Barker (hereinafter, "Barker");
(b) Barker was holder of the one issued share (the "Share") of W. Barker Contracting Ltd., (the "Corporation"), a corporation incorporated under the Companies Act of the Province of British Columbia;
(c) the Supreme Court of British Columbia, by order registered at the Cranbrook Registry on October 29, 1992 (the "Order"), declared that the Share was a family asset and the Court further declared that the value of the Share was $220,000.00 as at November 30, 1990;
(d) the Order further ordered that the Share or the assets of the Corporation be sold and the net proceeds remaining after such sale, be divided equally between the Appellant and Barker;
(e) Barker caused the sale of the assets of the Corporation in the 1993 taxation year and the net proceeds of this sale were put in a trust account in March, 1993;
(f) the Corporation declared a dividend on December 12, 1993, payable to the Appellant and to Barker;
(g) the balance of $108,988.72 in the trust account referred to in paragraph 7(e) herein., was paid out in the 1993 taxation year, as a dividend with $54,494.36 being paid to the Appellant and $54,494.36 being paid to Barker;
(h) the taxable dividend paid to the Appellant, was calculated at 125% of $54,494.36 equalling $68,117.00; and
(g) the Appellant, under the Family Relations Act of British Columbia, became a beneficial owner of one half (1/2) of the one issued Share of the Corporation and her rights and interest in that Share became enforceable by the Order referred to in paragraph 7(c) herein.
[3] Subparagraphs 7(a), (b), (c), (e), (f), (g) and (h) are correct. Paragraph (d) is better expressed in the following paragraphs of the Order of Melnick, J. of the Supreme Court of British Columbia dated 31 January 1992 and 26 February 1992 and registered October 29, 1992 at the Cranbrook Registry:
AND THIS COURT FURTHER DECLARES that the share of the Defendant, George William Barker, in the Defendant company, W. Barker Contracting Ltd. (the "Share"), is a family asset;
AND THIS COURT FURTHER DECLARES that the value of the Share is $220,000 as at November 30, 1990;
...
AND THIS COURT FURTHER ORDERS that all other family assets namely the Wasa Property, the Cranbrook Home, the Midland Account and the Share or the Assets of the Defendant company, W. Barker Contracting Ltd., (the "Company Assets") be sold and the net proceeds remaining after such sale be divided equally between the parties;
...
AND THIS COURT FURTHER ORDERS that the Defendant, George William Barker, shall have exclusive conduct of sale of all other assets ordered sold, including the Cranbrook Home, the Midland Account and the Share or the Company Assets;
...
AND THIS COURT FURTHER ORDERS that the Defendant, George William Barker, need not account for bonuses received from the Defendant company, W. Barker Contracting Ltd., since the date of separation and the Plaintiff, Marlene Gwen Barker's claim for compensation relating thereto is hereby dismissed;
AND THIS COURT FURTHER ORDERS that the Plaintiff, Marlene Gwen Barker's claim for compensation from the Defendant, George William Barker, for loss of use of the assets of the Defendant company, W. Barker Contracting Ltd., is hereby dismissed; ...
(Exhibit R-1)
[4] There is a further "Report and Recommendation" of Master Joyce of November 9, 1993 (Exhibit R-3) which was reviewed extensively in Court. Paragraphs 7, 8, 13 to 17 inclusive and 19 discuss the Corporation within the confines of Melnick, J.'s Order.
[5] Mr. Barker owned the only share outstanding of the Corporation. Melnick, J. ordered that to be a family asset. He then ordered sale of that share or the assets of the Corporation and that the net proceeds remaining after the sale be divided equally between the parties. Mr. Barker was also the Corporation's sole director.
[6] The assets of the Corporation were sold. One half of the net proceeds were paid to the Appellant. The paragraph of the director's minutes dated December 12, 1993 declaring the dividend to the Appellant reads:
Be it resolved that a dividend be declared in the amount of $109,092,59 payable to George William Barker and Marlene Gwen Barker as legal and beneficial owners of the share of the Company, to be paid in the sum of $54,494.36 to Marlene Gwen Barker and $54,494.36 to George William Barker payable December 12, 1993 pursuant to the Order of Mr. Justice Melnick made January 21 and February 26, 1993 and pursuant to the direction of Master Joyce on November 9, 1993.
(Exhibit A-1)
[7] Sections 43 and 45 of the Family Relations Act of British Columbia provides that the share ordered by Melnick, J. to be a family asset was owned by Mr. and Mrs. Barker as tenants in common. That order legally vested Mrs. Barker with her half of the share (section 51 and paragraph 52(2)(a)). These provisions read as follows:
43. (1) Subject to this Part, each spouse is entitled to an interest in each family asset on or after March 31, 1979 when
(a) a separation agreement;
(b) a declaratory judgment under section 44;
(c) an order for dissolution of marriage or judicial separation; or
(d) an order declaring the marriage null and void
respecting the marriage is first made
(2) The interest under subsection (1) is an undivided half interest in the family asset as a tenant in common.
(3) An interest under subsection (1) is subject to
(a) an order under this Part; or
(b) a marriage agreement or a separation agreement.
(4) This section applies to a marriage entered into before or after this section comes into force.
45. (1) Subject to section 46, this section defines family asset for the purposes of this Act.
(2) Property owned by one or both spouses and ordinarily used by a spouse or a minor child or either spouse for a family purpose is a family asset.
(3) Without restricting the generality of subsection (2), the definition of family asset includes
(a) where a corporation or trust owns property that would be a family asset if owned by the spouse;
(i) a share in the corporation; or
(ii) an interest in the trust
owned by the spouse;
(b) where property would be a family asset if owned by a spouse, property
(i) over which the spouse has, either alone or with another person, a power of appointment exercisable in favour of himself; or
(ii) disposed of by the spouse but over which the spouse has, either alone or with another person a power to revoke the disposition or a power to use or dispose of the property;
(c) money of a spouse in an account with a savings institution where that account is ordinarily used for a family purpose;
(d) a right of a spouse under an annuity or a pension, home ownership or retirement savings plan; or
(e) a right, share or an interest of a spouse in a venture to which money or money's worth was, directly or indirectly contributed by or on behalf of the other spouse.
(4) The definition of family asset applies to marriages entered into and property acquired before or after March 31, 1979.
51. Where the provisions for division of property between spouses under section 43 or their marriage agreement, as the case may be, would be unfair having regard to
(a) the duration of the marriage;
(b) the duration of the period during which the spouses have lived separate and apart;
(c) the date when property was acquired or disposed of;
(d) the extent to which property was acquired by one spouse through inheritance or gift;
(e) the needs of each spouse to become or remain economically independent and self sufficient; or
(f) any other circumstances relating to the acquisition, preservation, maintenance, improvement or use of property or the capacity or liabilities of a spouse,
the Supreme Court, on application, may order that the property covered by section 43 or the marriage agreement, as the case may be, be divided into shares fixed by the court. Additionally or alternatively the court may order that other property not covered by section 43 or the marriage agreement, as the case may be, of one spouse be vested in the other spouse.
52. (1) In proceedings under this Part or on application, the Supreme Court may determine any matter respecting the ownership, right of possession or division of property under this Part, including the vesting of property under section 51, and may make orders which are necessary, reasonable or ancillary to give effect to the determination.
(2) In an order under this section, the court may, without limiting the generality of subsection (1), do one or more of the following:
(a) declare the ownership of or right of possession to property; ...
[8] Melnick, J.'s order of sale was for sale of the share or assets. He anticipated the practical problems of selling a share in a small contracting company located in Cranbrook and so ordered an alternative: sale of the Corporation's assets and division of the net proceeds. The sale of assets occurred. Mrs. Barker received her one-half share of proceeds of the assets. She testified that she was unhappy because they were not one-half of $220,000 and because they were paid to her as a dividend from a share in Mr. Barker's name. Mr. Barker testified that he was unhappy because she pressured for a quick sale which did not give him an opportunity to obtain the best price. He also testified that the Corporation offered Mrs. Barker or her lawyer a share or one-half share in her name and the offer was refused. All of this is believed. It confirms the wisdom of Melnick, J.'s Order.
[9] Mrs. Barker was vested with a one-half of the only share of the Corporation. She was entitled to receive one-half of the dividend from that share. Thus she was a shareholder within the definition of "shareholder" in section 247 of the Income Tax Act. The Corporation sold its assets pursuant to Melnick, J.'s Order. The proceeds were distributed as a dividend. One-half of the proceeds were paid to Mrs. Barker and she received them. A dividend of the proceeds was properly declared, paid, received and accepted by Mrs. Barker. The Corporation sent her accountant a T-5 for the dividend which was returned by the accountant on the basis that the proceeds were not a dividend.
[10] The Appellant appealed the assessment on the basis of the Charter of Rights and Freedoms ("Charter") and on the basis that she was not a shareholder of O.E.M. and did not receive a dividend from O.E.M.
[11] That portion of the appeal based upon the Charter is dismissed. It is based upon, firstly, the matrimonial property orders and their consequences which are the cause of the assessments before the Court and, secondly, the assessment pursuant to the Income Tax Act. Neither of these proceedings or the law on which they are based are in violation of the Charter. Nor has the Appellant demonstrated that any rights she has have been violated by the assessment in question or the hearing before this Court.
[12] With respect to the assessment of the Appellant and the reference under subsection 174(1) of the Income Tax Act for the determination of a question, the Court finds:
(a) Marlene Barker acquired ownership of a one-half interest in the share of W. Barker Contracting Ltd. by virtue of the Court Order of Melnick, J. dated 21 January, 1992 and 26 February 1992 and was vested with a one-half interest in the share as a tenant in common with George William Barker.
(b) The payment received by Marlene Barker in the amount of $54,494.36 was a dividend to Marlene Barker.
(c) The dividend received by Marlene Barker is included in her income pursuant to subsection 82(1) of the Income Tax Act.
[13] The appeal of Marlene Barker is dismissed.
Signed at Ottawa, Canada this 18th day of June 1998.
"D.W. Beaubier"
J.T.C.C.