http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/143039/index.do
M. Soutar Décor 2000 Ltd. v. The Queen (March 14, 2016 – 2016 TCC 62, Bocock J.).
Précis: This is an unusual case. The principal of the corporate taxpayer, Michael Soutar, received the help of his father, Ronald Soutar, in 2001 to guarantee a portion of the corporate bank debt. By 2007 the guarantee took the form of a $75,000 GIC deposit. Ronald died in February 2007 and the bank realized on the GIC deposit in June of 2007. Ronald’s estate had an income tax debt at that time in the amount of roughly $20,000 arising from his 2002 and 2005 taxation years. CRA assessed the corporate taxpayer for Ronald’s unpaid tax on the basis that the transfer in 2007 by the bank realization of the GIC deposit was a benefit for the purposes of subsection 160(1) of the Income Tax Act (the “Act”) (i.e., reducing the outstanding corporate bank debt).
Despite some “consternation” the Tax Court upheld the assessment. There was no order as to costs as this was an informal procedure appeal.
Decision: The decision is beast summarized by the two concluding paragraphs:
[19] Soutar Décor certainly received the full benefit of the property on the Loan Repayment Date. It received it as a result of executory power and authority exclusively held by the Bank, not from Ronald or his estate. Factually, the Bank was not a “mere” short-term conduit or depository in contrast to the facts within certain authorities: Medland. This causes the Court some consternation because the transferor’s motives do not march along with the purposive reasoning of section 160: Livingston at paragraph 18 itself referencing Raphael v. Her Majesty The Queen, 2000 DTC 2434 at paragraph 19.
[20] Ultimately however, there was a clear benefit gained by Soutar Décor, albeit in the absence of any intention by either Ronald or Soutar Décor to thwart the collection of the Tax Debt owed to the Minister. How could there have been? When BNS mandated its conditions of lending, no Tax Debt existed. Similarly, no benefit to a transferee at the time of transfer is required where the Minister’s ability to collect the Tax Debt is prevented by the deliberate and intended act of the transferor. The Court is satisfied that the plain wording of section 160 has been engaged in the present case. Moreover, equitable reconciliation occurs through the presence of a quantifiable material benefit conferred upon the transferee at the time of transfer which fairly requires the Appellant-transferee to satisfy the Tax Debt then, and because of the transfer, still owing to the Minister.
There was no order as to costs as this was an informal procedure appeal.