Tax Court of Canada


Goods and Services Tax

Administration and enforcement

Testimony by taxpayer and spouse as to oral agreement on transfers being loans were credible and reliable

Taxpayer’s spouse was director and shareholder of registrant company. Spouse transferred his 50 per cent interest in matrimonial property to taxpayer. Company ceased operations. Spouse filed assignment in bankruptcy. Spouse was assessed by Minister under Excise Tax Act for company’s failure to remit net tax in amount of $40,277.07. Taxpayer was assessed for $27,306.18 in respect of property transfer. Taxpayer appealed. Appeal allowed. Taxpayer and spouse testified that, in years prior to transfer, she had agreed to transfers of funds from their joint line of credit to company that was having cash flow issues. Taxpayer established, on balance of probabilities, that half of amount of transfers constituted loans by her to spouse and his company such that she gave consideration in exchange for transfer of property interest. Fair market value of that consideration, being half of transfers amounting to $71,500, exceeded fair market value of interest at time of transfer. Testimony by taxpayer and spouse as to oral agreement on transfers being loans were credible and reliable. Company’s financial statements failing to specifically refer to debt owed by taxpayer was not conclusive, as various company ledgers indicated such debt and company’s various payments to taxpayer over years were also indicative of debt. Evidence showed that agreement was that, between taxpayer and spouse, each of them would be responsible for half of money borrowed from bank. Taxpayer’s explanation that she did not initially refer to transfers in correspondence with CRA because of bankruptcy trustee’s view that property interest transfer was null and void was credible.

Nelson v. The Queen (2017), 2017 CarswellNat 4394, 2017 CarswellNat 9107, 2017 TCC 178, 2017 CCI 178, Dominique Lafleur J. (T.C.C. [Informal Procedure]).

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