This case deals with the non-arm’s length transfer rule in ETA s. 325. That rule taxes a non-arm’s length transferee who receives property from a tax debtor. The amount of the assessment is reduced by the amount of consideration given for the transfer.
Here, the appellant’s common law partner’s corporation loaned the appellant money ($27,000.) Throughout the reasons there is no suggestion by the Court or by CRA that we do not believe there was a loan. The sole point is that we do not believe there was repayment. (See paragraph 8 detailing the use of the funds for a down payment on an investment property.)
Yet, nothing in s. 325 or commercial law seems to say that a promise is not consideration. In fact, all commercial law presumes that a promise to pay a debt or purchase price is sufficient consideration for making a valid contract.
If a person has promised to repay a debt, that promise is consideration for the transfer. The repayment is immaterial for purposes of section 325. So, the assessment in this case should have been invalid. And the very good reason for this view is that the debt is still outstanding if not yet repaid. The CRA’s remedy would be to seize all assets of the tax debtor corporation, which assets will include the promised payable from the transferee. CRA could then sue the transferee as any other assignee of the debt could sue the assignment debtor. That would have been CRA’s recourse.
Also, based on the facts of the case, which were not, themselves, rejected by the Court, the president of the lender corporation (and tax debtor) signed a document attesting for himself personally and for the corporate lender that the amount was repaid. The Court explains at para 55 its view of why that document was not a valid receipt: (a) the common law partner could not prove he had been explicitly authorized to act as the corporation’s agent (notwithstanding that the Court accepted that the man was president and sole shareholder of the corporate debtor); and (b) the man signed as president and not as director. Yet neither of these reasons seems to make sense legally as grounds for disputing the validity of the receipt.
A president generally has authority to sign binding corporate documents and commonly the president, not a director, signs contracts. Also, business corporations statutes generally have an “indoor management rule” that validates the authority of officers. (See e.g., the Ontario Business Corporations Act s. 19(d) and (e).
St-Pierre c. La Reine 2016 CCI 146 (Favreau J)