http://decision.tcc-cci.gc.ca/site/tcc-cci/decisions/en/item/62755/index.do 
Pliskow v. The Queen[1] (September 12, 2013) dealt with the transfer of property from a husband to his wife at a time the husband was liable for unpaid GST:[2]
[1] The Appellant appeals an assessment by the Minister of National Revenue (the “Minister”) for $67,318.43 dated August 31, 2010, against her pursuant to subsection 325(1) of the
Excise Tax Act of Canada (the “Act”) involving a non‑arm’s length transfer on November 12, 2008, by her husband to her of his undivided 50% interest in their residence in London, Ontario, at a time her husband had a tax liability owing on account of his joint and several liability as a director of a corporation for such corporation’s GST tax liability. The corporation’s liability was in excess of that amount but the husband’s liability as director was frozen as of the date he made a consumer proposal pursuant to the
Bankruptcy and Insolvency Act of Canada on January 20, 2010.
The Crown contended that at the date of the transfer the value of the husband’s 50% equity in the home was greater than his outstanding GST debt and the wife paid only a nominal consideration for the transfer:
[35] The Minister assumed in its Reply that at the time of transfer the market value of the subject property was at least $355,000, the fair market value of all mortgages and other encumbrances was $200,658.74 and that the transferor’s interest was at least $77,170.63, being one-half of the equity. The Minister also assumed the fair market value of the consideration given for the transfer of her husband’s interest was $2.00.
The principal argument before the court was based on constructive trust.[3] In a nutshell, the wife’s argued that the encumbrances on the property arose out of a line of credit secured against the property. She claimed that most of the expenditures on that line of credit were made without her knowledge and consent and for the benefit of the husband, not for her benefit. Thus she argued that such expenditures gave her a constructive trust over her husband’s 50% interest in the property and that the trust pre-dated the transfer of that interest to her in 2008. As a result there was no transfer of value to her in 2008 since her husband had no beneficial ownership of his 50% share of the home at that time.
The court set out the conflicting arguments on constructive trusts:
[22] As the Appellant has argued, the Supreme Court of Canada in
Pettkus v Becker, [1980] 2 SCR 834, adopted in
Peter v Beblow, [1993] 1 SCR 980, held that the elements of a constructive trust are (1) unjust enrichment; (2) a corresponding deprivation; and (3) a lack of juristic reason for the enrichment.
[23] The Appellant has argued this Court has applied the doctrine of constructive trust on a few occasions since the decision of former Chief Justice Bowman in
Angela Savoie v Her Majesty the Queen, 93 DTC 552, who stated that the doctrine goes to the determination of the true ownership of the property and accordingly is germane in allowing the court to meet its obligation of determining true ownership in a dispute. The Appellant in fact relies on the decision of Webb J. in
Darte v Canada, 2008 TCC 66, 2008 DTC 2567, and Rossiter A.C.J. in
Vidamour v Canada, 2009 TCC 414, 2009 DTC 1279, the latter relying on the first; which in fact decided that the consideration amounted to the Appellant having established that they would have had a right to the declarative relief of constructive trust and hence the surrender of such right amounted to consideration for the transfer.
[24] The Respondent argues that Webb J. in
Darte above considered a more detailed analysis of the doctrine than
Savoie and found in fact that this Court had no jurisdiction to make a declarative relief of constructive trust. In paragraph 21, Webb J. stated:
21. As this Court is not a court of equity, the equitable remedy of constructive trust cannot be granted by this Court.
The court opted for the reasoning of Webb J., i.e., there was no jurisdiction to recognize a constructive trust:
[25] It seems there is some confusion in this Court on the matter. While I acknowledge
Savoie directly relied on the doctrine in a tax matter and
Darte and
Vidamour acknowledge the doctrine but found the giving up of a right to secure such declarative remedy was sufficient consideration, I personally am of the view this Court has no jurisdiction pursuant to section 12 of the
Tax Court of Canada Act to determine property rights between two parties, particularly when one of the parties is not a party to the action. This jurisdiction in my view falls to the Superior Court of each province or designated competent Court. I agree with the conclusion of Webb J. in
Darte that this Court cannot grant the remedy of constructive trust but not because of a general statement it is not a court of equity, as in my opinion, equitable doctrines often pervade decisions of this Court, including those of estoppel, counter attack and abuse of process, but because such property matters involve two parties, one of whom is not before this Court, in determining matters within the exclusive jurisdiction of the Superior Courts as indicated and that require consideration of a totality of evidence from both such parties. I share the view expressed by Sarchuk J. as early as in his 1990 decision of
Nelson v The Minister of National Revenue, 91 DTC 37 at paragraph 22 and again in his decision
John Karavos v R, 96 DTC 1001 where he stated at paragraph 28:
28. A constructive trust is a mechanism by virtue of which a court with equitable jurisdiction can grant redress to an unjustly deprived person. In determining whether unjust enrichment exists and restitution through the invocation of a constructive trust is appropriate a court may take into account the deprived person’s actual financial contributions, (which may properly include the contributions of earnings towards household bills and maintenance), all work performed in relation to the property, both physical and otherwise, and other factors as the performance of housekeeping duties, the raising of children etc. The result is that effectively a court is required to embark on an examination of the totality of the marital relationship extending over a period of 30 years to determine whether an unjust enrichment occurred and whether it would be appropriately remedied by a declaratory order vesting the claimant with title to property or by granting a monetary award. In my view such an inquiry is inappropriate in an income tax context. The use of a restitutory device to remedy situations of unjust enrichment should not be equated with the determination of a collateral issue necessary in order for this Court to carry out its statutory function, that is, to dismiss or allow an appeal or vacate or vary an assessment.
In addition the court concluded that even if it had jurisdiction to find a constructive trust, such a finding would not be merited on the facts before the court:
[28] Notwithstanding my opinion however, it is not necessary for me to determine this issue in more detail as even if I were to give the Appellant the benefit of applying Savoie, I could not possibly find in the facts herein that there was any unjust enrichment to the Appellant’s husband nor deprivation to the Appellant as a result. The evidence is clear that the Appellant and her husband pooled their incomes for the benefit of their families and divided their family and financial responsibilities by agreement. The testimony of both the Appellant and her husband was consistent in that the financial responsibility for the oversight and control of the Manulife line of credit was with the husband with the Appellant’s expressed approval. She testified that not only did he start off with this responsibility but that she elected to continue to allow him to keep the cheque book even after she became aware that he had been writing cheques; had maximized the use of the line of credit and then had paid it down to approximately $88,000 in 2007. She failed to take any steps to avoid risk nor took the opportunity to remedy the situation when the line of credit had returned close to the initial amount used to pay off the TD Canada Trust line of credit it replaced. I fail to see how a party can be unjustly enriched when he is given carte blanche to draw on a line of credit with the tacit approval of the party alleging she was deprived especially when the party deprived agrees to risk being deprived again after being given the chance to avoid the deprivation.
The divergent lines of authority on this issue in the Tax Court would seem to call for some further guidance from the Federal Court of Appeal.
Comment: One could make a strong case on either side of this issue. On the one hand the Tax Court regularly makes determinations on matters normally within the jurisdiction of provincial superior courts, e.g., contracts, ownership of property, domestic status, etc. On the other hand the doctrine of constructive trust is a remedy, i.e., a constructive trust does not exist unless and until it is imposed upon property by a superior court. Until there is more clarity on this issue the best advice to taxpayers would seem to be to seek a declaration from a superior court before the tax appeal is heard. In an appropriate case the Tax Court might be willing to grant an adjournment of a tax appeal pending the superior court’s finding.
[1] 2013 TCC 283.
[2] The GST was payable by a corporation of which the husband was a director; his liability arose because of his position as a director of the corporate debtor: subsection 323(1) of the
Excise Tax Act, R.S.C. 1985, c. E-15.
[3] The wife raised two other arguments. Her contention that she had made a loan to her husband that was unpaid and thus could be treated as consideration for the transfer was rejected on an evidentiary basis. Her second argument was that the house was only worth $332,000 at the date of the transfer, not $355,000 as contended by the Crown. This argument was accepted by the court which reduced the value of the husband’s equity at the date of the transfer from $77,170.63 to $65,670.63.