Elander v. R. – TCC: Subsection 160(1) assessment not defeated where funds used for household expenses

Elander v. R. – TCC:  Subsection 160(1) assessment not defeated where funds used for household expenses


Elander v. The Queen (September 28, 2017 – 2017 TCC 196, Pizzitelli J.).

Précis:  The taxpayer’s husband was a tax debtor.  He transferred funds (roughly $62,000) over a period of 5 years either into their joint account or the taxpayer’s personal account.  The funds were primarily used for normal household expenses, including mortgage payments on the home which was owned by the taxpayer.  The taxpayer argued, unsuccessfully, that $9,500 of the amount at issue had been taken back by her husband immediately and used in his law practice.  As to the balance of the funds the taxpayer argued that she gave adequate consideration by providing her husband with a home and necessities.  Relying on the prior Federal Court of Appeal decision in Yates, the Tax Court dismissed the appeal holding that the provision of basic necessities did not constitute “consideration” for the purposes of subsection 160(1) of the Income Tax Act.  Costs were awarded to the Crown.

Decision:   This was a decision where the Court was clearly bound by precedent:

[12]         With respect to the Appellant’s main argument that she gave consideration for the multiple transfers of funds to her respective accounts in both tax appeals, I simply cannot agree. The Appellant’s position is that before she married her husband in 2003, they discussed financial contribution to living expenses including the payment of mortgages for the houses they would live in. The Appellant held sole title to the homes they occupied throughout the periods in question, first in Alberta then in British Columbia. The Appellant testified that her husband was starting a new practice of law and would need funds to do so, so it was agreed she would put all her earnings towards living expenses, the largest expense being the mortgage on the family home, and that he was to contribute $1,000.00 per month if able. The evidence the Appellant led was that he contributed far less than her each year and certainly less than her for the 2001 to 2004 years anyway when comparative deposits were submitted by the Appellant. In essence, the Appellant argues that the consideration given for his agreement to deposit $1,000.00 a month towards living expenses was her agreeing to deposit all her earnings towards such expenses.

[13]         Certainly, based on her earnings from 2001 to 2008 versus the transfers found to be made by her husband to her, she appears to have contributed over twice as much to family expenses. There was of course no evidence submitted as to what funds the husband may have directly contributed to the arrangement without going through the joint or her sole account. After all, he was reassessed a tax liability in excess of $500,000.00 for the same period so one can reasonably assume he had the means.

[14]         Regardless of the levels of different contributions however, the Federal Court of Appeal in Yates v The Queen, 2009 FCA 50, 2009 DTC 5062, made clear two important points:  firstly, that the nature of expenses incurred with the transferred funds, such as household, mortgage or other family expenses are irrelevant to the determination of whether there was a transfer and secondly, that allowing a husband to live in the family residence is not considered the provision of consideration at fair market value.

[15]         As required in Livingston and Yates, there must be proof at the time of each transfer that consideration was given. There was no such proof here and merely agreeing in advance to pay more of the family living expenses than your spouse over a period of time, does not constitute giving fair market consideration at the time of each transfer.

[16]         Let me say that I can understand the concerns of the Appellant and even all still married couples, or formerly married couples, of having to deal with losing the benefit of prior transfers intended and used for family expenses during their marriage pursuant to moral and even legal obligations to support each other and children under provincial family laws; particularly when payments ordered by a Court between no longer married couples living separate and apart may be exempted when paid under subsection 160(4) of the ITA. Having to repay such amounts may be harsh in certain circumstances and spouses may be left to wonder why the need to preserve the value of existing assets of a taxpayer for collection by the CRA as the rationale for section 160 should take precedence over a family’s essential needs, but amendments to legislation including to section 160 are the purview of Parliament, not the Courts.

Thus the appeal was dismissed, with costs to the Crown.

Comment:  The award of costs seems somewhat harsh in light of the modest amounts involved (roughly $12,000 on an annual basis), the fact that the taxpayer was self-represented and the length of the hearing (1 day).