Date: 20010329
Docket: 2000-1930-IT-I; 2000-1931-IT-I
BETWEEN:
TERIANN HURD and ROBERT BRUCE JUSTICE,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
For the Appellants: The Appellants themselves
Counsel for the Respondent: Bobby Sood
____________________________________________________________________
Reasons for Judgment
(Delivered orally form the Bench at Toronto, Ontario, on February 6, 2001)
McArthur J.
[1] The Appellants appeal the assessments of the Minister of National Revenue wherein the amount of $9,375 was added to each of their incomes. The question is whether there was a transfer of property pursuant to subsection 160(1) of the Income Tax Act which reads in part as follows:
160(1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly ... to,
...
(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 ...
(e) the transferee and transferor are jointly and severally liable to pay under this Act ...
[2] The facts of these appeals include the following. Ron Gilman and his then spouse, Elaine Gilman, transferred a cottage property to the Appellants in January 1994 for $62,500 at which time Ron Gilman was liable to Revenue Canada in the amount of $64,490. Subsequent to the transfer, Ron declared bankruptcy and I believe Mr. and Mrs. Gilman have since separated or divorced.
[3] The Appellant, Teriann Hurd is the daughter of Elaine Gilman, and the Appellant, Robert Bruce Justice, is Elaine's brother and therefore, Teriann's uncle. The assumptions of fact taken from the Reply to the Notice of Appeal include: on January 14, 1994, the fair market value of the property was $100,000; the difference between the fair market value of the property and the purchase price paid by the Appellants was $37,500, of which one-half or $18,750 was attributable to Ron Gilman. Each Appellants' share of that amount was $9,375.
[4] The Appellants represented themselves and I found their credibility beyond question. In 1994, Ron and, presumably Elaine Gilman, were in serious financial difficulty. They were about to lose their cottage through foreclosure and apparently Ron had a serious drinking problem. Teriann and her husband Scott Hurd agreed to purchase the Gilman cottage for $62,500 which was the existing indebtedness. Being unable to obtain financing on their own, Teriann's uncle, Robert Bruce Justice, gratuitously agreed to guarantee a $65,000 mortgage to the Canadian Imperial Bank of Commerce. Upon directions from CIBC, title was conveyed to the Appellants, as joint tenants, and together they were granted a loan from the bank secured by a mortgage.
[5] Mr. Justice executed an agreement (declaration of trust) dated January 13, 1994 wherein he stated that he had no interest, right or title to the property and held it as a bare trustee for Teriann and her spouse, Brad. Unfortunately, this trust document was produced only three weeks prior to trial. Had the Appellants presented it earlier, I have no doubt that Mr. Justice would not have been assessed. Without hesitation, I accept the authenticity of this document as well as the evidence of Mr. Justice to the effect that he has never had any beneficial interest in the property other than as he described, as guarantor for the indebtedness. He had no idea he was a joint tenant on title and his only intention was to assist his niece by co-signing a bank loan.
[6] The reality is that there was no transfer to Mr. Justice as a beneficial owner and he was a trustee only. I accept the following statement of Teriann in her notice of appeal without reservation:
I would also like to state that Robert Justice's only involvement in this mess was he co-signed a bank loan. He was not aware that he was on title until this came up. ... He has not benefited from the sale of the property in any way.
Applying the doctrine of substance over form and adopting reality and common sense, Mr. Justice was not properly assessed under section 160 of the Act. He was a generous uncle acting in good faith for the benefit of his niece.
[7] The facts in the case of Cooke v. The Queen, 93 DTC 1561, cited by counsel for the Respondent, can easily be distinguished from the present facts. In Cooke, Bonner J. found that the evidence of the taxpayer was totally unreliable and not believable. He found further that he was not persuaded that the registration of title to the home in the joint names was the result of a lawyer's error and that one held in trust for the other. In the present case, Mr. Justice had executed a valid declaration of trust. The evidence of both Appellants was reliable and Mr. Justice's appeal is allowed.
[8] Teriann's appeal presents a different situation. She obtained title to the cottage of her mother and stepfather for $62,500 plus costs at a time when her stepfather was indebted to Revenue Canada and the cottage was valued for mortgage purposes at $100,000. Ron Gilman transferred his 50% interest to a person with whom he was not dealing at arm's length as defined in section 251 of the Act. She was jointly and severally liable with the transferor for his indebtedness. He declared bankruptcy and extinguished his liability but not her liability. I refer to Heavyside v. Canada, [1996] F.C.J. No. 1608. Teriann's liability is the difference between the fair market value of the property and the purchase price.
[9] I found Teriann to be rigorously honest and credible. In trying to assist a self-represented Appellant, I believe it is incumbent upon me as trial judge to balance the playing field or scales to ensure fairness without tilting the scales too far in favour of the Appellant. With this in mind, I will attempt to briefly analyze the fair market value and purchase price.
[10] Teriann acknowledged that an appraisal for mortgage purposes in January 1994 reflected a $100,000 value. This document was not placed in evidence. At times, evaluations for mortgage purposes are inflated to obtain the highest loan possible and no allowance is made for commission payable on the sale together with other sale costs. The Respondent placed in evidence a professional appraisal also reflecting a $100,000 value as of January 1994. This appraisal was prepared in July 1998. Again, this document did not allow for sale costs. Teriann's husband testified that he, as a handyman, made several improvements to the cottage prior to 1994. I find that a more realistic net value as of January 1994 is $90,000.00. This calculation is somewhat rough and ready but more in keeping with reality.
[11] The Appellants tried to sell their cottage in 1998 or 1999 for $95,000 without offers, after having expended approximately $20,000 in improvements. While the transfer to the Appellants reflected $62,500 on the face of the document, considering the purchasing costs, including land transfer tax, mortgage costs, registration and legal fees, $65,000 is more accurate. The difference between the fair market value and the purchase price on January 14, 1994 was $90,000 less $65,000 equalling $25,000. One-half of that amount or $12,500 is attributable to Ron Gilman as a joint beneficial owner and the Teriann's share is 50% of this $12,500 as well, being $6,250.
[12] In conclusion, the appeal of Robert Bruce Justice is allowed. The appeal of Teriann Hurd is allowed on the basis that she received from Ron Gilman $6,250 for inadequate consideration of the property. The assessment is referred back to the Minister for reconsideration and reassessment.
Signed at Ottawa, Canada, this 29th day of March, 2001.
"C.H. McArthur"
J.T.C.C.