Tax Court of Canada Judgments

Date: 19980609

Docket: 97-228-IT-G

BETWEEN:

SYLVIE LAVOIE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

GUY TREMBLAY, J.T.C.C.

Point at issue

[1] According to the Notice of Appeal and the Reply to the Notice of Appeal, the question is whether the appellant is correct in maintaining that she is not liable under s. 160 of the Income Tax Act ("the Act") to pay tax in the amount of $20,451.78.

[2] According to the respondent the assessment of this amount results from the transfer on September 2, 1992 of an undivided half of an immovable located in Ville de la Baie. This property belonged to Jocelyn Coulombe and the appellant. According to the respondent these two individuals were de facto spouses and so were not dealing with each other at arm's length. The undivided share in the property was worth $45,000.

[3] The appellant submits, first, that she had not been a de facto spouse since late August 1991 and so was no longer in a non-arm's length relationship at the time of the transfer, and second, that she paid the sum of $49,086.43 as can be seen from the notarial contract. The question is whether the appellant is jointly and severally liable for the sum of $20,451.78 owed by Mr. Coulombe to Revenue Canada.

BURDEN OF PROOF

[4] The appellant has the burden of showing that the respondent's assessment is incorrect. This burden of proof derives from a number of judicial decisions, including that of the Supreme Court of Canada in Johnston v. Minister of National Revenue.[1]

[5] In Johnston the Court held that the facts assumed by the respondent in support of assessments or reassessments are also presumed to be true until the contrary is shown. In the instant case the facts assumed by the respondent are set out in subparagraphs (a) to (h) of paragraph 11 of the Reply to the Notice of Appeal. Paragraph 11 reads as follows:

[TRANSLATION]

11. In making the reassessment the Minister of National Revenue assumed inter alia the following facts:

(a) on or about October 31, 1984 the appellant purchased, in undivided co-ownership with Jocelyn Coulombe, an immovable located in the municipality of Ville de la Baie, at 1462-4ième Avenue; [admitted]

(b) on or about September 2, 1992 Jocelyn Coulombe transferred his undivided share in the immovable (hereinafter "the property") to the appellant; [admitted]

(c) at the time of the transfer the fair market value of the undivided share he transferred was $45,000; [denied]

(d) at the time of the transfer the fair market value of the consideration the appellant gave for the undivided share transferred to her was $24,548.22; [admitted subject to amplification]

(e) in the 1992 taxation year the appellant and Jocelyn Coulombe lived in a de facto relationship and Mr. Coulombe accordingly was not dealing with the appellant at arm's length within the meaning of ss. 251(1)(a) and 252(4) of the Income Tax Act; [denied]

(f) additionally, at the time of the transfer of the property the appellant and Jocelyn Coulombe acted in concert for a common purpose and without separate interests, thereby creating a factual non-arm's length relationship in respect of that transaction under s. 251(1)(b) of the Income Tax Act; [denied]

(g) the total of all the amounts the transferor Jocelyn Coulombe was liable to pay under the Income Tax Act in or in respect of the taxation year in which the property was transferred or in any preceding year was $60,660.10; [no knowledge]

(h) the appellant and Jocelyn Coulombe are jointly and severally liable to pay an amount of $20,451.78, which is the lesser of the fair market value of the property transferred over the fair market value of the consideration given for that property and the total of the amounts Mr. Coulombe was liable to pay under the Income Tax Act, in or in respect of the taxation year in which the property was transferred or in any preceding taxation year . . . . [denied]

[6] In addition to the foregoing admissions the evidence consisted of the testimony of the appellant, of Jocelyn Coulombe and of Carl Cloutier, the respondent's collections officer.

[7] It can be seen from the evidence as a whole that the real issue is whether the appellant and her former de facto spouse Jocelyn Coulombe were related within the meaning of s. 251(1)(b) of the Act.

251. (1) Arm's length.

For the purposes of this Act,

(a) related persons shall be deemed not to deal with each other at arm's length; and

(b) it is a question of fact whether persons not related to each other were at a particular time dealing with each other at arm's length.

It was admitted that s. 251(1)(a) does not apply to the instant case.

[8] The appellant ended her cohabitation with Mr. Coulombe on September 1, 1991. They had been living together since 1981.

[9] In 1984 they had purchased in undivided co-ownership the immovable at issue, located in the municipality of Ville de la Baie, at 1462-4ième Avenue, at a cost of $62,000.

[10] In the spring of 1991 a new loan was obtained from the Royal Bank of Canada to cancel the balance of the old debt ($12,000) and obtain a credit line of some $38,000 for "Place Lorenzo", an investment of Mr. Coulombe.

[11] On September 1, 1991 (Exhibit A-7), after several months of stormy cohabitation, Mr. Coulombe left the residence at 1462-4ième Avenue, terminating their cohabitation, and went to live with someone else a few blocks away.

[12] The appellant remained in the house at issue with her son David, aged nine, the child of the union.

[13] On August 31, 1992, when they had been separated for a year, the appellant acquired the undivided half of the immovable held by Jocelyn Coulombe in consideration for assuming the balance of the hypothecary loan granted by the Royal Bank of Canada, which stood at $49,086.43 on the date of the transaction.

[14] The appellant never benefited from of the second loan. At the time of the transaction a balance of $49,086.43 remained which she had to pay to the bank.

[15] Until 1993 she received no support from Mr. Coulombe. It was not until 1993, following legal proceedings, that she received $600 a month for 16 months, or a total of $9,600. She never received anything more. Mr. Coulombe's testimony did not contradict that of the appellant on this point (Exhibit A-8).

[16] Mr. Coulombe declared bankruptcy on March 22, 1993. The appellant works for Alcan in La Baie as a cook in the canteen. In 1992 she earned $4,145. She also had an income of $400 a month from the rental of an apartment in the house at issue at 1462-4ième Avenue in Ville de la Baie. This house, the appellant said, was her [TRANSLATION] "pension fund".

[17] According to Mr. Coulombe, in transferring his share of the value of the house at issue to the appellant he was taking into account the fact that their son lived with the appellant.

[18] It remains to determine whether at the time of the transaction in question a factual non-arm's-length relationship existed between the parties under s. 251(1)(b), in which case s. 160(1) would apply.

[19] On the question of a factual non-arm's-length relationship, Judge Dussault of this Court summarized the problem as follows in François Fournier v. The Minister of National Revenue (91 DTC 746, at pp. 747-48):

It is therefore paragraph 251(1)(b) of the Act that may be applied, provided the evidence establishes that the parties were in fact not dealing at arm's length.

The concept of an arm's length transaction has been the subject of many decisions of our courts.[2] When the parties to a transaction act in concert, when they have similar economic interests or they act with a common intent, it is generally admitted that they are not dealing at arm's length.

I will take the liberty of citing in this regard Cattanach, J. of the Exchequer Court (as he then was), who said in Minister of National Revenue v. Estate of Thomas Rodman Merritt, 69 DTC 5159, at 5165:

In my view, the basic premise on which this analysis is based is that, where the "mind" by which the bargaining is directed on behalf of one party to a contract is the same "mind" that directs the bargaining on behalf of the other party, it cannot be said that the parties are dealing at arm's length. In other words where the evidence reveals that the same person was "dictating" the "terms of the bargain" on behalf of both parties, it cannot be said that the parties were dealing at arm's length.

For his part, Thurlow, J. of the Exchequer Court (as he then was) said in Swiss Bank Corporation et al. v. M.N.R., 71 D.T.C. 5235, at 5241:

To this I would add that where several parties — whether natural persons or corporations or a combination of the two — act in concert, and in the same interest, to direct or dictate the conduct of another, in my opinion the "mind" that directs may be that of the combination as a whole acting in concert or that of any one of them in carrying out particular parts or functions of what the common object involves.

[20] The instant case concerns two people one of whom, the appellant, has to repay a debt from which she did not benefit, namely the $38,000 which was invested by Mr. Coulombe, whereas Mr. Coulombe has a general interest with regard to his son, who is living with his mother and to whom he is no longer paying support, and did not pay any from 1991 to 1993.

[21] In Ann Craig Dupuis v. Her Majesty The Queen (93 DTC 723), the appellant showed that the payments made by her husband were a combination of his contributions to household and family expenses and the repayment of a debt owed by him. In the view of Judge Lamarre Proulx, this was not a transfer of property within the meaning of s. 160(1) of the Act.

[22] The Court comes to the same conclusion in the instant case.

Conclusion

[23] The appeal is allowed with costs and the assessment referred back to the Minister of National Revenue for reconsideration and reassessment.

Signed at Québec, Quebec, June 9, 1998.

"Guy Tremblay"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 21st day of October 1998.

Stephen Balogh, revisor

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