9101-2310 Québec Inc. v. The Queen

9101-2310 Québec Inc. v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2012-10-18
Neutral citation
2012 TCC 365
File numbers
2009-2880(IT)G
Judges and Taxing Officers
Pierre Archambault
Subjects
Income Tax Act
Decision Content
Docket: 2009-2880(IT)G
BETWEEN:
9101-2310 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on June 12, 2012, at Val-d'Or, Quebec
Before: The Honourable Justice Pierre Archambault
Appearances:
Counsel for the appellant:
Simon Corbeil
Counsel for the respondent:
Simon Olivier de Launière
____________________________________________________________________
JUDGMENT
The appeal from the assessment bearing the number 46859 and made by the Minister of National Revenue under the Income Tax Act on February 5, 2008, is allowed, and the assessment is vacated, with costs to the appellant.
Signed at Magog, Quebec, this 18th day of October 2012.
“Pierre Archambault”
Archambault J.
Translation certified true
On this 15th day of May 2013
François Brunet, Reviser
Citation: 2012 TCC 365
Date: 20121018
Docket: 2009-2880(IT)G
BETWEEN:
9101-2310 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1] 9101-2310 Québec Inc. (2310) is appealing from an assessment made by the Minister of National Revenue (the Minister) under subsection 160(1) of the Income Tax Act (the Act). By this assessment, the Minister holds 2310 jointly liable with Alain-Guy Garneau for the payment of $63,433.46 on account of Mr. Garneau’s tax liability for the 1993, 1994, 1995, 1998 and 1999 taxation years. The two main submissions advanced by 2310 in support of its position that subsection 160(1) does not apply and that the assessment should be vacated are that there was no transfer within the meaning of the subsection, and that Mr. Garneau and 2310 were at arm’s length from each other. Moreover, even if section 160 of the Act applies, 2310 submits that the assessment should be reduced because the Minister received a partial payment of Mr. Garneau’s tax debt after the assessment was made.
Factual background
[2] 2310, a management company, was incorporated on February 19, 2001, but was essentially inactive during the years 2002 and 2003 (see Exhibit A-1). For example, 2310 had no employees, and the financial statements[1] show gross revenues of $22 in 2002 and zero in 2003 (see Exhibit A‑5). The sole shareholder and director of 2310 was Daniel Pratte.
[3] Mr. Pratte is a business acquaintance and friend of Mr. Garneau’s. Although they did not sit together on a board of directors,[2] Mr. Pratte and Mr. Garneau met on many occasions during social activities and at sports, artistic and other events. Mr. Pratte has known Mr. Garneau since the early 1990s when he settled in Val-d’Or, where Mr. Garneau lived. At the time, Mr. Pratte represented Molson’s Brewery, which sponsored several activities and events in the region. Mr. Pratte estimated that they saw each other roughly twice a week in bars or at social or sports activities. Mr. Pratte has a special interest in mining exploration financing and Mr. Garneau is an engineer involved in the financing of exploration activities by means of flow-through share issues.
[4] Mr. Pratte left Molson’s Brewery in the early 2000s to concentrate on his own businesses. Through one of his companies, he looks after kitchens and the supervision of mine workings.
[5] Following litigation regarding entitlement to compensation for damages incurred during a fire, Mr. Garneau received $305,441.32. Upon receiving this amount, Mr. Garneau was experiencing financial problems, including a dispute with the Federal Business Development Bank (FBDB). If Mr. Garneau had deposited this amount into his own bank account, it would have been seized by the FBDB. As a favour to a friend, Mr. Pratte, who was aware of this situation, offered Mr. Garneau to have the amount deposited into the bank account of one of his management companies, namely 2310. The company was not paid for this favour. The objective was to give Mr. Garneau more time to negotiate a settlement with the FBDB.
[6] On March 19, 2002, Mr. Pratte deposited the amount of $305,441.32 into 2310’s only bank account.[3] The balance of that account prior to the deposit was $1,795.70. On the same day, a withdrawal of $28,879.71 was to pay the fees of the lawyers and experts retained by Mr. Garneau for the purposes of the aforementioned litigation. Slightly less than a month later, on April 12, 2002, Mr. Garneau instructed 2310 to pay $150,004.50 to the FBDB. Further amounts were then paid to the FBDB, namely $10,000 on November 12, 2002, and $15,004.50 on December 27, 2002. In addition, on December 27, 2002, there was a payment of $1,668.23 (not $1,663.29 as stated in Exhibit A-4, the cheque reconciliation prepared by Mr. Pratte). The cheque reconciliation discloses that amounts were also paid to Mr. Garneau, some of his children and some of Mr. Garneau’s creditors including Les Foreurs hockey team, a hunting outfitter, Télébec and the SAAQ (see the copies of the cheques at tab 17 of Exhibit I-1 as well).
[7] Generally, Mr. Garneau told Mr. Pratte who the payees of 2310’s cheques were to be, and Mr. Pratte complied without obtaining any details about the reasons for the payments requested by Mr. Garneau. According to Mr. Pratte, apart from a 10-15 day period during which Mr. Pratte was not available, Mr. Garneau did not have access to the ATM card, and Mr. Pratte was the one who signed the cheques and was the only person authorized to do so. Other than the withdrawal of March 19, 2002, and the withdrawals to pay the bank fees, I note that there were no other withdrawals on 2310’s bank statements prior to February 3, 2003, a date that is subsequent to December 27, 2002, which is when the amount of $305,441.32 was used up. All the withdrawals from the account are described as “cheques”. In addition, I found none of the ATM withdrawals in the cheque reconciliation.[4]
[8] Before accepting the deposit of the funds belonging to Mr. Garneau, Mr. Pratte consulted his advisor at the National Bank in order to ensure that it would not pose a problem for the company. In addition, a letter was requested from Mr. Garneau, confirming the agreement between him and 2310. The letter (Exhibit A‑2), signed on March 23, 2002, states as follows:
[translation]
I hereby request that, through your company, you manage the money that I deposit into your account for the purpose of paying my accounts due or that become due in the future.
I therefore release you from liability for income tax and other implications of the effects that may result.
[Emphasis added.]
[9] At the examination for discovery, Mr. Pratte described the situation as follows:
[translation]
Q. [72] So there is no document stating that the company owed Mr. Garneau money?
A. Mr. Garneau gave me the mandate to manage the deposited amount of three hundred and five thousand dollars ($305,000).
Q. [73] But there was no document stating that the company owed money?
A. The company didn’t owe money, the company managed his money for him. I do not understand the subtlety in your question, counsel. The company did not borrow money, the company managed an insurance settlement cheque at his request.[5]
[Emphasis added.]
[10] Mr. Pratte stated that he was not aware of Mr. Garneau’s problems with the federal tax authorities at the time. He claimed that he only found out about the tax liability when he received the assessment made on February 5, 2008 under section 160 of the Act (see Exhibit I‑1, tab 1, for a copy of the notice of assessment). In her testimony, the officer handling the objection confirmed the existence of the tax liability of $63,433.46 at the time that the cheque for $305,441.32 was deposited. However, she acknowledged that the Minister received a partial payment of $17,948.76 in August 2009, after the 2008 assessment, leaving a balance of $45,484.70 to pay (see Exhibit I‑1, tab 18, 4th sheet). In her testimony, the officer also acknowledged that 2310 had cooperated fully with the Minister’s representatives.
[11] Mr. Pratte stated that no part of the amount given by Mr. Garneau was used for 2310’s benefit or for 2310’s own purposes.[6] The amount was used solely for Mr. Garneau’s benefit. However, my analysis of 2310’s banking transactions shows that, during two distinct periods, the withdrawals or cheques made by that company for its own benefit exceeded the amount of the deposits of 2310’s own funds. The deficit was $415.55 on March 27, 2002, the beginning of the first period, and $6,323.42 on May 9, 2002, the end of that period. The second period begins on October 2, 2002, when the deficit is $13,599.54, and ends on December 13, 2002, when the deficit is $6,345.54.
[12] For this analysis, I have used 2310’s bank account statements and the cheque reconciliation which Mr. Pratte prepared at the respondent’s request and which the respondent adduced in evidence (see Exhibit I-1, tabs 15 and 16; these documents were also adduced by 2310 as Exhibits A-3 and A-4.) This analysis has enabled me to reconcile the amounts belonging to Mr. Garneau and the amounts belonging to 2310. It has also enabled me to see that the amount of $305,441.32 received by Mr. Garneau and deposited into 2310’s bank account on March 19, 2002, had been completely spent, to Mr. Garneau’s benefit, as at December 27, 2002. In fact, with the payment of $15,004.50 to the FBDB, the balance remaining from the amount held by 2310 for Mr. Garneau was exceeded by $7,183.86. In other words, the latter amount could be viewed as a loan or advance from 2310 to Mr. Garneau.
[13] This conclusion assumes that the amounts shown on the cheque reconciliation done by Mr. Pratte, who identified all the payments made for Mr. Garneau’s benefit, were truly paid out for Mr. Garneau’s benefit. I note that this conciliation appears at tab 16 of Exhibit I-1, produced by the respondent, and is corroborated in part by the cheques produced at tab 17 of the same exhibit. Some of the cheques show Mr. Garneau’s name or the name of one of his relatives in the memo area. For example, the memo [translation] “in full and final payment, box 120 Alain Guy Garneau” on the $1,799.77 cheque bearing the number 117 and payable to “Les Foreurs de Val‑d’Or” (see Exhibit I‑1, tab 17; see also cheques #24, #69, #71 and #124). I should point out that, in Mr. Pratte’s reconciliation, the cheque for $2,160.94, bearing #24, was said to be part of the amounts paid for Mr. Garneau’s benefit, when in fact only $1,660.94 was attributable to those amounts. Indeed, $500 was for an expense of Mr. Pratte’s (see Exhibit I‑1, tab 17). Lastly, the respondent did not challenge the probative value of the conciliation on cross-examination.
[14] I would point out that the amount of the loans or advances appears to have stood at $11,102.15 as at February 28, 2003, $22,492.93[7] as at February 28, 2004, and $28,195.10 as at February 28, 2005, but that these amounts are not on 2310’s balance sheet. The balance sheet only records advances to corporations (see the 2004 balance sheet with the 2003 comparative statement and the 2005 balance sheet, Exhibit A‑5). The same inconsistency can be found with the bank account balance as at February 28, 2003, which does not match the amount indicated as [translation] “cash”. It should be emphasized that the 2003 balance sheet was prepared by Mr. Pratte himself. At the hearing, held on June 12, 2012, Mr. Pratte stated that the advances or loans in question were completely or close to completely reimbursed by Mr. Garneau, in cash or services.[8]
[15] According to the Minister’s data, Mr. Garneau became bankrupt on “2007 09 10” and Mr. Pratte did not make any claim (see Exhibit I-1, tab 18, 3rd sheet). Mr. Pratte is not certain whether Mr. Garneau owed him any money at the time.
The respondent’s position
[16] Counsel for the respondent submits that all the conditions set out in subsection 160(1) are met. In particular, there was a transfer, and the transfer was to a person with whom Mr. Garneau was not, on the facts, dealing at arm’s length. According to counsel, the $305,441.32 cheque which Mr. Garneau remitted to 2310 constituted a transfer. In this regard, he bases his position to a large extent on a case of the Federal Court of Appeal, Livingston v. Canada, 2008 FCA 89, [2008] F.C.J. No. 360 (QL), 2008 3 C.T.C. 230, and, in particular, on paragraph 21:
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.
[Emphasis added.]
Counsel for the respondent also submits that the contract of mandate (agency) invoked by 2310 is invalid because it is contrary to public order. Consequently, he submits that the contract is null.
[17] In support of his position that there is a de facto non-arm’s length relationship between Mr. Garneau and 2310, counsel for the respondent cited several cases, including a case decided by the Supreme Court of Canada, Canada v. McLarty, 2008 SCC 26, [2008] S.C.J. No. 26 (QL), [2008] 2 S.C.R. 79, [2008] 4 C.T.C. 221, where, in the context of a purchase of seismic data, the Court based its reasoning, in part, on Canada Revenue Agency Interpretation Bulletin IT-419R2 entitled “Meaning of Arm’s Length” (paragraph 62 of the decision). He also cited another case of the same court, namely Swiss Bank Corp. et al. v. M.N.R., [1974] S.C.R. 1144.
Analysis
[18] When addressing an issue involving the application of the provisions of the Act, it is always useful to quote the provisions in question. The key provision here is section 160 of the Act.[9] The most relevant excerpts of the section are as follows:
Tax liability re property transferred not at arm’s length 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.
…
Transfert de biens entre personnes ayant un lien de dépendance 160. (1) Lorsqu’une personne a, depuis le 1er mai 1951, transféré des biens, directement ou indirectement, au moyen d’une fiducie ou de toute autre façon à l’une des personnes suivantes :
a) son époux ou conjoint de fait ou une personne devenue depuis son époux ou conjoint de fait;
b) une personne qui était âgée de moins de 18 ans;
c) une personne avec laquelle elle avait un lien de dépendance,
les règles suivantes s’appliquent :
d) le bénéficiaire et l’auteur du transfert sont solidairement responsables du paiement d’une partie de l’impôt de l’auteur du transfert en vertu de la présente partie pour chaque année d’imposition égale à l’excédent de l’impôt pour l’année sur ce que cet impôt aurait été sans l’application des articles 74.1 à 75.1 de la présente loi et de l’article 74 de la Loi de l’impôt sur le revenu, chapitre 148 des Statuts revisés [sic] du Canada de 1952, à l’égard de tout revenu tiré des biens ainsi transférés ou des biens y substitués ou à l’égard de tout gain tiré de la disposition de tels biens;
e) le bénéficiaire et l’auteur du transfert sont solidairement responsables du paiement en vertu de la présente loi d’un montant égal au moins élevé des montants suivants :
(i) l’excédent éventuel de la juste valeur marchande des biens au moment du transfert sur la juste valeur marchande à ce moment de la contrepartie donnée pour le bien,
(ii) le total des montants dont chacun représente un montant que l’auteur du transfert doit payer en vertu de la présente loi au cours de l’année d’imposition dans laquelle les biens ont été transférés ou d’une année d’imposition antérieure ou pour une de ces années;
aucune disposition du présent paragraphe n’est toutefois réputée limiter la responsabilité de l’auteur du transfert en vertu de quelque autre disposition de la présente loi.
…
Discharge of liability (3) Where a particular taxpayer has become jointly and severally liable with another taxpayer under this section in respect of part or all of a liability under this Act of the other taxpayer,
(a) a payment by the particular taxpayer on account of that taxpayer’s liability shall to the extent of the payment discharge the joint liability; but
(b) a payment by the other taxpayer on account of that taxpayer’s liability discharges the particular taxpayer’s liability only to the extent that the payment operates to reduce that other taxpayer’s liability to an amount less than the amount in respect of which the particular taxpayer is, by this section, made jointly and severally liable.
Extinction de l’obligation (3) Dans le cas où un contribuable donné devient, en vertu du présent article, solidairement responsable, avec un autre contribuable, de tout ou partie d’une obligation de ce dernier en vertu de la présente loi, les règles suivantes s’appliquent :
a) tout paiement fait par le contribuable donné au titre de son obligation éteint d’autant l’obligation solidaire;
b) tout paiement fait par l’autre contribuable au titre de son obligation n’éteint l’obligation du contribuable donné que dans la mesure où le paiement sert à réduire l’obligation de l’autre contribuable à une somme inférieure à celle dont le contribuable donné est solidairement responsable en vertu du présent article.
[19] Since paragraph 160(1)(d) refers to sections 74.1 to 75.1 of the Act and to section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952 (the 1952 Act), which sections lay down what are commonly known as the “attribution rules”, [10] it is helpful to reproduce certain provisions of those sections:
Transfers and loans to spouse or common-law partner 74.1 (1) If an individual has transferred or lent property (otherwise than by an assignment of any portion of a retirement pension under section 65.1 of the Canada Pension Plan or a comparable provision of a provincial pension plan as defined in section 3 of that Act), either directly or indirectly, by means of a trust or by any other means whatever, to or for the benefit of a person who is the individual’s spouse or common-law partner or who has since become the individual’s spouse or common-law partner, any income or loss, as the case may be, of that person for a taxation year from the property or from property substituted therefor, that relates to the period in the year throughout which the individual is resident in Canada and that person is the individual’s spouse or common-law partner, is deemed to be income or a loss, as the case may be, of the individual for the year and not of that person.
Transfers and loans to minors (2) If an individual has transferred or lent property, either directly or indirectly, by means of a trust or by any other means whatever, to or for the benefit of a person who was under 18 years of age … and who
(a) does not deal with the individual at arm’s length, or
…
Transfert ou prêt à l’époux ou au conjoint de fait 74.1 (1) Dans le cas où un particulier prête ou transfère un bien — sauf par la cession d’une partie d’une pension de retraite conformément à l’article 65.1 du Régime de pensions du Canada ou à une disposition comparable d’un régime provincial de pensions au sens de l’article 3 de cette loi —, directement ou indirectement, par le biais d’une fiducie ou par tout autre moyen, à une personne qui est son époux ou conjoint de fait ou qui le devient par la suite ou au profit de cette personne, le revenu ou la perte de cette personne pour une année d’imposition provenant du bien ou d’un bien y substitué et qui se rapporte à la période de l’année tout au long de laquelle le particulier réside au Canada et tout au long de laquelle cette personne est son époux ou conjoint de fait est réputé être un revenu ou une perte, selon le cas, du particulier pour l’année et non de cette personne.
Transfert ou prêt à un mineur (2) Lorsqu’un particulier transfère ou prête un bien — directement ou indirectement, par le biais d’une fiducie ou par tout autre moyen — à une personne de moins de 18 ans qui a un lien de dépendance avec le particulier ou …
Transfers or loans to a trust 74.3 (1) Where an individual has lent or transferred property (in this section referred to as “lent or transferred property”), either directly or indirectly, by means of a trust or by any other means whatever, to a trust in which another individual who is at any time a designated person in respect of the individual is beneficially interested at any time, the following rules apply:
…
Transfert ou prêt à une fiducie. 74.3 (1) Lorsqu’un particulier prête ou transfère un bien — appelé « bien prêté ou transféré » au présent article —, directement ou indirectement, par le biais d’une fiducie ou par tout autre moyen, à une fiducie dans laquelle un autre particulier — qui, à un moment donné, est, en ce qui concerne le particulier, une personne désignée — a un droit de bénéficiaire à un moment donné, les règles suivantes s’appliquent :
…
Gain or loss deemed that of transferor 75.1 (1) Where
(a) subsection 73(3) or (4) applied to the transfer of property (in this subsection referred to as “transferred property”) by a taxpayer to a child of the taxpayer,
(b) the transfer was made at less than the fair market value of the transferred property immediately before the time of the transfer, and
(c) in a taxation year, the transferee disposed of the transferred property and did not, before the end of that year, attain the age of 18 years,
the following rules apply:
…
Gain ou perte présumés pour l’auteur du transfert 75.1 (1) Lorsque :
a) les paragraphes 73(3) ou (4) s’appliquent au transfert de biens d’un contribuable à son enfant;
b) le transfert a été fait pour une somme inférieure à la juste valeur marchande que les biens transférés avaient immédiatement avant le transfert;
c) au cours d’une année d’imposition, le bénéficiaire des biens transférés en a disposé et n’a pas, avant la fin de cette année, atteint l’âge de 18 ans,
les règles suivantes s’appliquent :
…
[Emphasis added.]
[20] Sections 74.1 to 74.5 have, to a great extent since 1986, replaced subsection 74(1) of the Act.[11] That subsection, as it read prior to 1975, provided as follows:
(1) Where a person has, on or after August 1, 1917, transferred property either directly or indirectly, by means of a trust or by any other means whatever to his spouse, or to a person who has since become his spouse, the income for a taxation year from the property or from property substituted therefor shall, during the lifetime of the transferor while he is resident in Canada and the transferee is his spouse, be deemed to be income of the transferor and not of the transferee.
(1) Lorsqu’une personne a transféré des biens, directement ou indirectement, le 1er août 1917 ou après, par un acte de fiducie ou par tout autre moyen que ce soit à son conjoint, ou à une personne qui est depuis devenue son conjoint, le revenu, pour une année d’imposition, tiré des biens ou de biens y substitués, est réputée [sic], durant la vie de l’auteur du transfert, tandis qu’il réside au Canada et que le bénéficiaire du transfert est son conjoint, être le revenu de l’auteur du transfert et non de celui à qui le transfert a été fait.
[Emphasis added.]
[21] In Livingston, supra, the Federal Court of Appeal recalled the interpretation principle that must guide the courts in applying subsection 160(1) of the Act. At paragraph 15, Justice Sexton writes as follows:
15 The Supreme Court of Canada’s preferred approach to statutory interpretation remains Dreidger’s modern principle (Elmer A. Driedger, The Construction of Statutes (Toronto: Butterworths, 1974) at 67):
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context, in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
See Re Rizzo and Rizzo Shoes Ltd., [1998] 1 S.C.R. 27 at 41; Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42 at paragraph 26.
[Emphasis added.]
[22] It is also worth recalling the comments of Justice Desjardins of the Federal Court of Appeal, who wrote, in Medland v. Canada, [1998] F.C.J. No. 708 (QL), 98 DTC 6358, 227 N.R. 183, [1999] 4 C.T.C. 293, at paragraph 14, that the tax policy embodied in, or the object and spirit of subsection 160(1), is to prevent a taxpayer from transferring his property to his spouse in order to thwart the Minister’s efforts to collect the money which is [owed] to him.” [Emphasis added.]
[23] There is another principle of interpretation, which holds that a phrase used in a statute should be presumed to have the same meaning throughout the statute. Justice Corey of the Supreme Court of Canada wrote, in Thomson v. Canada (Deputy Minister of Agriculture), [1992] 1 S.C.R. 385, at page 400: “Unless the contrary is clearly indicated by the context, a word should be given the same interpretation or meaning whenever it appears in an act.”[12]
[24] This presumption should be even stronger where the phrase is used in the wording of two interrelated provisions. The treatment of the concept of transfer found in subsection 160(1) of the Act falls into this category.[13] Indeed, paragraph 160(1)(d) refers to section 74 of the 1952 Act[14] and to sections 74.1 to 75.1 of the Act, which contain the same concept of transfer. Not only is the same verb “to transfer” used, the same broader wording is essentially used as well: “transferred property, either directly or indirectly, by means of a trust or by any other means whatever” (“transféré des biens, directement ou indirectement, au moyen d’une fiducie ou de tout autre façon”). Hence, in my view, it is entirely appropriate to adopt a judicial interpretation of the verb “transfer” that is the same for the sections enacting the attribution rules as it is for the sections enacting the tax collection rule in subsection 160(1) of the Act. In fact, such is the approach that the courts have taken. They have used the same judicial interpretation of the concept of “transfer”, both for the purposes of the attribution rule and for the purposes of section 160, as we shall see further on.
[25] Let us apply these interpretation principles to define the scope of subsection 160(1) of the Act. The case law describes the conditions of application of subsection 160(1) in various ways. In Tétrault v. Canada, 2004 TCC 332, [2004] T.C.J. No. 265 (QL), [2004] 4 C.T.C. 2234, 2004 DTC 2763, a decision that I rendered on May 11, 2004, I describe these conditions at paragraphs 29-35. Essentially, one can assert that subsection 160(1) of the Act applies when two conditions precedent have been met: a transfer of property, and the fact that this transfer was made to certain designated persons, including a person with whom the transferor was not dealing at arm’s length. When these two conditions precedent are met, two distinct rules can apply. I summarized them in Tétrault:
32 When the two aforementioned conditions are assembled, the following two rules apply. First is the rule set out in paragraph 160(1)(d) (paragraph 160(1)(d) rule),[15]according to which the transferee and the transferor are jointly and severally liable to pay a part of the income tax in respect of any income from, or capital gain from the disposition of, the property transferred to the transferee, where this income or gain is subject to the attribution rules laid down in sections 74.1 to 75.1 of the Act and in section 74 of the Income Tax Act, chapter 148 of R.S.C. 1952 (1952 Act). It should be pointed out that, in that case, there is no issue as to whether there is any amount by which the fair market value (FMV) of the property transferred exceeds the FMV of the consideration. The joint and several liability is applicable once there is a tax payable on the income or capital gain subject to the attribution rules. . . .
33 Under the second rule, the paragraph 160(1)(e) rule,[16] the transferee and transferor are jointly and severally liable in regard to any amount that the transferor must pay under the Act during the taxation year in which the property was transferred. However, the transferee’s liability is limited to the lesser of the following two amounts: (i) the possible excess of the FMV of the property at the time of the transfer over the FMV at the time of the consideration given for the property, and (ii) the amount of the transferor's tax debt.
[Emphasis added and footnotes omitted.]
[26] In this instance, we are interested in the second rule, namely the paragraph 160(1)(e) rule, which applies to cases where property has been transferred at a time when the transferor owed the Minister money.
[27] For the purposes of deciding the dispute in Tétrault, I analyzed the concept of transfer as follows at paragraphs 36-40:
36 Before deciding whether there was a transfer, it is important to define the scope of this notion. In decisions concerning the application of section 160 of the Act, Fasken Estate v. M.N.R., [1948] Ex. C.R. 580, has often been cited. In Raphael, my colleague Judge Mogan was no exception, so I will quote from paragraph 14 of his reasons:
14 When applying subsection 160(1) to particular circumstances, many judges have cited the Exchequer Court decision of Fasken Estate v. M.N.R., [1948] Ex. C.R. 580 in which Thorsen P. stated:
The word “transfer” is not a term of art and has not a technical meaning. It is not necessary to a transfer of property from a husband to his wife that it should be made in any particular form or that it should be made directly. All that is required is that the husband should so deal with the property as to divest himself of it and vest it in his wife, that is to say, pass the property from himself to her. The means by which he accomplishes this result, whether direct or circuitous, may properly be called a transfer. . . .
[Emphasis added.]
37 Another relevant decision, albeit cited less often, is Dunkelman v. M.N.R., 59 DTC 1242, also by the Exchequer Court of Canada. In that case, as in Fasken Estate, the issue was whether the attribution rules were applicable. However, in Dunkelman, it was also necessary to determine whether a loan granted to a trust constituted a transfer for the purposes of subsection 22(1) of the Income Tax Act, S.C. 1948, c. 52.[17]After citing Fasken Estate and St. Aubyn v. Attorney-General, [1952] A.C. 15, Mr. Justice Thurlow stated, at page 1246:
. . . I do not think it can be denied that, by loaning money to the trustees, the appellant, in the technical sense, transferred money to them, even though he acquired in return a right to repayment of a like sum with interest and a mortgage on the Butterfield Block as security, or even though he has since then been repaid with interest. But, in my opinion, it requires an unusual and unnatural use of the words “has transferred property” to include the making of this loan. ... I also think that, if Parliament had intended to include a loan transaction such as the present one, the words necessary to make that intention clear would have been added, and it would not have been left to an expression which, in its usual and natural meaning, does not clearly include such a transaction. To apply the test used by Lord Simonds, I do not think this transaction was one which the language of the subsection, according to its natural meaning, “fairly” or “squarely” hits. I am, accordingly, of the opinion that the making of the loan in question was not a transaction within the meaning of the expression “has transferred property” and that s. 22(1) does not apply.
In reaching this conclusion, I have also considered the wide words “or by any other means whatsoever,” but I think that they are directed to the means or procedure by which transfers may be accomplished, rather than to the scope of the expression “has transferred property” and that they do not expand that scope beyond the natural meaning of the expression.
[Emphasis added.]
38 In McVey v. The Queen, 96 DTC 1225, my colleague Judge Rip implicitly acknowledged this as the appropriate interpretation in the application of subsection 160(1) of the Act, when he held that the Minister’s assessment was valid, whether the sums transferred were considered to have been transferred as a gift, in which case subsection 160(1) of the Act would apply, or whether they were considered a loan, in which case subsection 224(4) would apply.
39 The Fasken and Dunkelman decisions indicate, in my opinion, that in order for there to be a transfer of property for the purposes of the attribution rules, it is essential that the transferor be divested of his ownership and that the property has vested in the transferee.[18] The mere possession of a property that has been loaned with the obligation to return it does not satisfy this condition. That, I think, is the meaning that must be given to the expression “pass the property from himself to her”. That is also the appropriate interpretation of subsection 160(1) of the Act. As Madam Justice Desjardins said in Medland, supra, at paragraph 14: “...the tax policy embodied in, or the object and spirit of subsection 160(1), is to prevent a taxpayer from transferring his property to his spouse in order to thwart the Minister’s efforts to collect the money which is owned [sic] to him.” The loan of money would not constitute a method of thwarting the collection of the tax owed by the lender. Pursuant to subsection 224(4) of the Act, the Minister could garnish the sum loaned. This notion of “transfer” is therefore reconcilable with the purpose intended by subsection 160(1) of the Act.
40 It follows from the analysis of the notion of transfer used in subsection 160(1) of the Act that sums paid to a mandatary to be spent for the benefit of the mandator do not constitute a transfer for the purposes of this subsection, either. In such circumstances the mandator is not divested of his ownership of the sums entrusted to the mandatary and they are not vested in the mandatary. The mandator remains the owner of these sums. For the purposes of this analysis, at least three distinct scenarios are conceivable. First, if the sums entrusted by the mandator (for example, the husband) have not yet been used by the mandatary (for example, the wife) for the purposes of purchasing goods and services for the family, the mandatary could be required to reimburse the mandator any sum that has not been used accordingly. A mandator may at any time terminate the mandate and a seizing creditor could demand that the mandatary deliver to him the property belonging to the debtor mandator. In such circumstances, the Minister could carry out a garnishment pursuant to section 224 of the Act.
[Emphasis added and footnotes omitted.]
[28] Justice C. Miller of this Court adopted this interpretation, including the aspect related to the application of Dunkelman.[19] He wrote as follows at paragraph 20 of the decision in Merchant v. The Queen, 2005 TCC 161, [2005] T.C.J. No. 101 (QL), [2005] 2 C.T.C. 2169, 2005 DTC 377:
20 (i) Transfer of property. In the case of Tétrault v. The Queen, Justice Archambault addressed the issue of whether a loan constitutes a transfer of property for purposes of section 160 of the Act and concluded, based on the cases of Dunkelman v. M.N.R. and McVey v. The Queen that it does not. I agree with that conclusion. As Justice Archambault put it at paragraph 39:
… The loan of money would not constitute a method of thwarting the collection of the tax owed by the lender.
[Emphasis added and footnotes omitted.]
[29] It should be noted that Fasken Estate[20] and Dunkelman were decided by the Exchequer Court of Canada and were applied in several cases of the Federal Court of Appeal. Fasken Estate was thereby applied — notably in Sachs v. Canada, [1980] F.C.J. No. 611 (QL), [1980] C.T.C. 358, 80 DTC 6291, Boger Estate v. Canada (M.N.R.), [1993] F.C.J. No. 545 (QL), [1993] 2 C.T.C. 81, 93 DTC 5276, Canada v. Kieboom [1992] 3 F.C. 488, [1992] 2 C.T.C. 59, 92 DTC 6382 and Paxton v. Canada (M.N.R.), [1996] F.C.J. No. 1634 (QL), 97 DTC 5012, 1996 CarswellNat 2400 — with respect to the application of the attribution rules and subsections 70(6), 70(9) and 73(5) of the Act. As far as the application of section 160 is concerned, Fasken Estate was applied in Medland,[21] supra, 2753-1359 Québec Inc. v. Canada, 2010 FCA 32, 2010 DTC 5031, [2010] 4 C.T.C. 202, Paxton, supra, and Yates v. Canada, 2009 FCA 50, [2010] F.C.R. 436, [2009] 3 C.T.C. 183, 2009 DTC 5062.
[30] As for the decision in Dunkelman, it was applied by the Federal Court of Appeal in Sachs, supra. Here is what Justice Heald declared in Sachs:
25 Turning now to the first of these three submissions, I agree that before subsection 75(1) can apply, there must have been a vesting in the infant children. In dealing with the predecessor section in the Income Tax Act to subsection 75(1) Thurlow J. (as he then was) in the case of Joseph B. Dunkleman v. Minister of National Revenue, expressed the view that all that was necessary for the section to apply was “. . . that the taxpayer shall have so dealt with the property belonging to him as to divest himself of it and vest it in a person under 19 years of age.” In that judgment, Mr. Justice Thurlow cited with approval similar views expressed by President Thorson of the Exchequer Court in David Fasken Estate v. Minister of National Revenue ((1948 Ex. C. R. 580) and by Lord Radcliffe in St. Aubyn v. Attorney General ((1952) A.C. 15).
[Emphasis added and footnotes omitted.]
[31] Dunkelman has also been applied by other judges of the Exchequer Court, notably Justice Noël in Robins v. Minister of National Revenue, [1963] Ex. C.R. 171, [1963] C.T.C. 27, 63 DTC 1012, and President Jackett in Oelbaum v. Minister of National Revenue, [1968] Ex. C.R. 380, [1968] C.T.C. 244, 68 DTC 5176.
[32] In addition to the decisions of this Court in Tétrault and Merchant, supra, and the decisions of the Exchequer Court, there is the decision of former Chief Judge Couture of our Court in Béliveau v. Minister of National Revenue, 91 DTC 669, [1991] 1 C.T.C. 2683.