Law Times

April 8, 2019

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LAW TIMES COVERING ONTARIO'S LEGAL SCENE | APRIL 8, 2019 15 non-arm's length transfer of property to taxpayer. Taxpayer appealed. Appeal dismissed. S. 160 (1) of Income Tax Act ap- plied to comprehensive range of transfers, which included this transfer under wording "by any other means whatever". Word- ing of section was strikingly broad, which was done to en- able capture of even very cir- cuitous routings in respect of property being moved from tax debtor transferor to non-arm's length transferee. S. 160(1) of Act did not allow for family law or household expenses exception. Accordingly, appeal had to be denied. Mottle v. The Queen (2018), 2018 CarswellNat 3177, 2018 CarswellNat 3408, 2018 TCC 116, 2018 CCI 116, B. Russell J. (T.C.C. [Informal Procedure]). INCOME TAX cApitAl gAins And losses Changes in relative interest of partnership not recognized as acquisition of separate property Corporate taxpayer formed limited partnership with an- other corporation in taxpayer's group of companies. Taxpayer transferred shopping centres to partnership and then taxpayer disposed of its interests in part- nership to another corporation in its group of companies, in ex- change for shares. Subsequently, taxpayer transferred all of its shares in partnership to same corporation, and corporation wound up partner with result that corporation was sole part- ner in partnership. Taxpayer claimed capital loss on basis that that partnership interest increased by both fair market value of property and elected amount, arguing that s. 97(2) (b) of Income Tax Act (ITA) ap- plied at any time after transfer of assets and did not preclude or- dinary adjusted cost base (ACB) rules in s. 54 of ITA at time of transfer. Minister denied capital loss based on taxpayer's reason- ing and reassessed transaction as realization of capital gain instead – Taxpayer appealed. Appeal dismissed. Taxpayer's counsel admitted that result of taxpayer's interpretation of s. 97(2)(b) of ITA was absurd and that this result must not have been intended by Parlia- ment. There was no possibility of successful argument that cost of increase in partnership inter- est should be captured under s. 54 in addition to s. 97(2) ad- justment. Subsections (i) and (ii) under s. 97(2)(b) of ITA did not recognize changes in relative interest of partnership as acqui- sition of separate property nor issuance of additional units in partnership. There was no room for taxpayer's interpretation of text of s. 97(2) of ITA and defi- nition of ACB in s. 54 of ITA, if read in context and having re- gard to their purpose. Iberville Developments Lim- ited v. The Queen (2018), 2018 CarswellNat 2658, 2018 TCC 102, Patrick Boyle J. (T.C.C. [General Procedure]). There was neglect on part of accountant in performance of his duties as executor of estate At time of his death deceased held shares in L Inc., which held shares in G Ltd. and corpora- tion. Accountant was one of ex- ecutors of estate and in charge of filing terminal return. In mak- ing valuation, accountant had to value shares of L Inc. held by deceased on November 12, 2008 and did not take into account value of investments that L Inc. had in G Ltd. and corporation. Accountant calculated fair mar- ket value of L Inc.'s shares to be $2,277,386. Canada Revenue Agency reassessed estate on fair market value of $4,195,715. By way of reassessment, Minister of National Revenue added tax- able capable gain of $959,165 to terminal return, which resulted in increase of tax payable from $292,243.55 to $570,401.40. Es- tate appealed. Appeal dismissed. Section 152(4) of Income Tax Act allows Minister to make reassessment after expiration of normal reassessment period. Evidence was clear that ac- countant made obvious errors in calculating fair market value of shares of L Inc. by not taking into account fair market value of two subsidiaries of L Inc. and by claiming unjustified down- ward adjustment of $1,709,520. Fact that fair market value of shares had been erroneously calculated had not be contested during hearing of appeal. It was clear in jurisprudence that er- ror made when filing tax return whether made in good faith, by inadvertence or by simple cal- culation error was considered to be misrepresentation within meaning of s. 152(a)(i) of Act. Evidence supported conclusion that there was neglect on part of accountant in performance of his duties as executor of estate of deceased to ensure that 2008 income tax return was properly filed. Concerning $1,709,530 adjustment, accountant did not explain why he considered that dividend was not collectible. Nothing supported that treat- ment. Estate had not discharged burden of demonstrating that determination of fair market value of shares of L Inc. made by Minister was not correct. Lewin Estate v. The Queen (2019), 2019 CarswellNat 221, 2019 TCC 21, Réal Favreau J. (T.C.C. [General Procedure]). Ontario Civil Cases Bankruptcy and Insolvency PROVING CLAIM prActice And procedure Claimants failed to consistently state their reasonable expectations Claimants were both real es- tate agents and principals of H Inc.. Appellants claimants (collectively "Claimants"), ap- pealed disallowance of claims in bankruptcy proposal pro- ceeding of debtor. Appeal dis- missed. Claimants have failed to establish proprietary interest in property either by way of ex- press trust or constructive trust, such that property claim was neither valid nor enforceable. Further, claimants have failed to prove that debtor acted in a manner that was oppressive to their interests such that litiga- tion claim was neither valid nor enforceable. Claimants have failed to consistently state their reasonable expectations. They have failed to explain how this remedy was connected to rea- sonable expectations pursuant to agreement or alleged oppres- sive conduct of debtor. Claim- ants' damages would only be based on difference between price in agreement and price the property ultimately sold for if agreement had been for purchase of property. There was no evidence of this. In fact, claimants concluded agreement to purchase 100 percent of C's shares in debtor, not property. If oppressive conduct was found, which it was not, damages would appropriately f low from failed agreement, and would re- f lect impact of oppressive con- duct on price of debtor's shares. Hussaini v. Crowe Soberman Inc. (2019), 2019 CarswellOnt 1337, 2019 ONSC 642, V.R. Chi- appetta J. (Ont. S.C.J. [Commer- cial List]). Civil Practice and Procedure ADMISSIONS WithdrAWAl of Admission Allowing appellant to withdraw admission would prejudice other injured parties Appellant's son was convicted of criminal negligence causing bodily harm and aggravated as- sault as result of his actions in deliberately ramming vehicle driven by plaintiff with truck. Passenger in plaintiff 's vehicle commenced action against drivers and owners of both ve- hicles and plaintiff sued his own insurer claiming relief in event parties legally responsible were uninsured or underinsured. Motion judge found appellant was actual owner of truck and based on agreement between parties that appellant's owner would respond to claim if she was owner of truck and that because limits of policies were same, action against plaintiff 's insurer could be dismissed, he dismissed action against plain- tiff 's insurer. After action was dismissed, appellant moved to withdraw her agreement to en- able her to argue that s. 192(2) of Highway Traffic Act made her vicariously liable for negli- gent driving of her son, but not for intentional assault using ve- hicle. Motion judge dismissed appellant's motion concluding that her son's conviction for criminal negligence conclusive- ly established he was negligent, and that appellant as owner was therefore liable pursuant to s. 192(2) of Act. Appellant appealed arguing that motion judge erred in finding son's con- viction for criminal negligence foreclosed argument that son's actions were intentional and not negligent and that he applied wrong test. Appeal dismissed. Allowing appellant to withdraw admission would prejudice other injured parties as action against plaintiff 's insurer was dismissed based on her admis- sion and therefore that policy was no longer available to re- spond to loss, and prejudice could not be remedied by order for costs. Interests of justice did not require that appellant be al- lowed to advance her proposed arguments. Liu v. The Personal Insur- ance Company (2019), 2019 CarswellOnt 1745, 2019 ONCA 104, Doherty J.A., Janet Sim- mons J.A., and G. Pardu J.A. (Ont. C.A.); affirmed (2017), 2017 CarswellOnt 10606, 2017 ONSC 4232, P.W. Sutherland J. (Ont. S.C.J.). (Ont. C.A.); af- firmed (2018), 2018 Carswel- lOnt 380, 2018 ONSC 324, P.W. Sutherland J. (Ont. S.C.J.). Equity RELIEF FROM UNCONSCIONABLE TRANSACTIONS unconscionAble or improvident trAnsActions Issue of whether release was unconscionable and unenforceable was genuine issue requiring trial Defendant employer R Co. ter- minated plaintiff employee S's employment while he was ap- pealing long-term disability (LTD) benefits decision with de- fendant insurer S Co.. Employee accepted severance offer, which included release of all claims in- cluding LTD benefits. Motion judge dismissed employer's and insurer's motions for summary judgment dismissing employ- ee's action for LTD benefits on ground that release was enforce- able. Judge held that release was unconscionable as it related to LTD claim. Employer appealed. Appeal allowed in part. Judge erred by finding unconsciona- bility on summary judgment. Issue of whether release was unconscionable and unenforce- able was genuine issue requiring trial, so matter was referred for determination at trial. Record was insufficient to determine that severance transaction was grossly unfair and improvident. Severance amount was fair and there was no specific amount designated to compensate for loss of potential success of LTD claim, so fairness of transaction could not be considered. Judge did not consider whether em- ployee's failure to closely read release impacted analysis. Swampillai v. Royal & Sun Alliance Insurance Company of Canada (2019), 2019 Carswel- lOnt 3587, 2019 ONCA 201, K. Feldman J.A., L.B. Roberts J.A., and Fairburn J.A. (Ont. C.A.); reversed (2018), 2018 Carswel- lOnt 10574, 2018 ONSC 4023, Cavanagh J. (Ont. S.C.J.). Family Law DIVISION OF FAMILY PROPERTY events After sepArAtion Spouse must have existing claim, but need not be " judgment creditor" to invalidate transfer Husband and wife met in 2005, when husband was 42 and wife was 25, and married in 2007 after wife sent letter stipulating that she would not make any claim against husband's busi- nesses or physical assets used in businesses. Husband and wife separated after 7 years. In civil action against wife, her mother and her sister, husband obtained injunction preventing sale of cars and one day later transferred cars, for no con- sideration, to S Inc. which was owned by B. Husband made assignment in bankruptcy and preservation order was made. On appeal, it was found that finding that husband had ben- eficial interest in vehicles at time of his bankruptcy was unassail- able. Wife applied for divorce, spousal support, equalization of net family property and other relief. Wife brought successful motions for leave to examine several non-parties and for pres- ervation of assets pursuant to s. 12 of Family Law Act (FLA). S Inc. and B brought motion to set aside preservation order. Mo- tion dismissed. B in his personal capacity and as representative of S Inc. was given proper notice of motion for preservation order. In present case, it was found that cars were property of B or com- pany in name only. Presence of badges of fraud created infer- ence of fraudulent intent. Court of Appeal for Ontario had held that Fraudulent Conveyances Act (FCA) and FLA may work together to invalidate fraudulent transactions even where claim- ant spouse was not judgment creditor. Court of Appeal had also permitted claimant spouse to use FCA and FLA together to invalidate transactions entered into for purpose of shielding as- sets from equalization. Spouse must have existing claim, but need not be " judgment credi- tor" to access benefit of FCA to invalidate transfer. Wife could reasonably be regarded as per- son whose claim for equaliza- tion payment, or unequal di- vision of family property, was entitled to protection by preser- vation order under s. 12 of FLA. Fatahi-Ghandehari v. Wil- son (2018), 2018 CarswellOnt 15692, 2018 ONCA 728, 2018 ONSC 5587, Price J. (Ont. S.C.J.). CASE LAW

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