Citation: 2013 TCC 34
Date: 20130429
Docket: 2011-4062(GST)I
BETWEEN:
SOUAD AHO ABDULNOUR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Docket: 2011-4067(GST)I
BETWEEN:
ABDUL MASSIH ABDULNOUR,
appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
AMENDED REASONS FOR JUDGMENT
Masse D.J.
[1]
These two appeals were
heard on common evidence.
[2]
The appellants are
appealing from two notices of reassessment dated July 29, 2011, made under
subsection 325(2) of the Excise Tax Act, R.S.C., 1985, c. E‑15
(the ETA or the Act), against the appellants, in respect of a transfer of
property on August 30, 2006. The assessments were varied by decision on
the objection on July 29, 2011. The amounts of assessment number F033056 in
respect of Souad Abdulnour and assessment number F033066 in respect of Abdul Abdulnour
are $24,217.02 each.
[3]
The assessments involve
the tax liability already incurred by the appellants’ son, Milad Abdulnour.
The appellants and Milad Abdulnour are obviously persons not dealing at arm’s
length within the meaning of subsection 325(2) of the Act.
Factual background
[4]
The appellants are spouses,
married in Syria on September 19, 1950. They immigrated from Syria to Canada in 1988. They have three adult children here in Canada: two sons, Milad and George, and
a daughter, Maida.
[5]
Milad Abdulnour is
a jeweller. He testified that in 1992, his parents, the appellants, wanted to
purchase a house but had no credit in Canada seeing as they were immigrants. The
bank refused to grant his father, Abdul, a loan as he did not speak either
English or French; he did not work and, therefore, had no income. However, the
father had enough assets in assets in Canada and in Syria to purchase the house.
According to Milad, his father had US$70,000, which is equivalent to about
CAN$90,000 to CAN$95,000 at the time. According to Milad, the bank required
that the house be purchased in the name of the three children, Milad, Maida and
George. It also required that the hypothec be in the name of the three children,
despite the fact that the children did not have any savings to pay for the
hypothec—Maida did not work, Milad and George only
earned a low income.
[6]
On March 27, 1992,
Milad, George and Maida each acquired an undivided one-third interest in the
immovable located at 12684 Place Robert, Montréal North. The price was
$175,000 (see Exhibit A‑3). According to Milad, the father is the
one who paid for everything. The father paid the acquisition price of the house
and since the date of acquisition, he paid all hypothec payments, taxes,
services and maintenance. All payments were given to him or his brother George to
be deposited in their own bank accounts and to then pay the hypothec payments,
taxes and services. Milad told us that he attempted to obtain the account
statements for the relevant periods but to no avail owing to the passage of
time.
[7]
Four years later, Maida
got married. The family wanted to avoid problems with her husband and, thus, on
May 16, 1996, Maida transferred her undivided one-third interest in the
immovable to Milad. Therefore, at that moment, Milad became the owner of an
undivided two-third interest in the immovable. As consideration, Milad accepted
responsibility for all amounts due by Maida to the Royal Bank of Canada pursuant to a deed of loan on the immovable. The contracting parties stipulated that
the amount of the consideration for the transfer of the immovable is $50,866.67 (see
Exhibit A‑1, page 5).
[8]
On August 30, 2006,
Milad Abdulnour and his brother George, described in the notarial act as George
Abdanor, transferred all their interest in the immovable to Abdul Massih Abdelnour
and Souad Aho. Therefore, Milad transferred his undivided two-third interest
in the immovable to his parents. The appellants accepted responsibility for all
amounts due by the transferors to the Royal Bank of Canada pursuant to a deed
of loan on the immovable, the amount not being specified (see Exhibit A‑2).
Indeed, at page 5 of the deed of purchase, it is stated that no consideration
for the transfer of the immovable was stipulated or provided.
[9]
Abdul Massih Abdulnour,
the father, also testified with the help of an interpreter. He was born in Turkey and is 89 years old. He immigrated to Canada in 1989, contrary to what Milad told us.
He testified that that in Syria he was a merchant and that he had quite
considerable assets. One of his sons, who is still residing in Syria, is in charge of the business affairs and sends him money from time to time. Mr. Abdulnour
does not work here in Canada. According to his testimony, the house in question
is his and does not belong to the children. The children did not have the means
to purchase the house. He paid for everything in order to acquire it. He
testified that he was unable to purchase the house because he did not speak
English or French. Thus, the house was purchased in the children’s name. When
the house was purchased, he said he had $70,000 but that he paid $55,000 and
another $30,000 at the time of acquisition.
[10]
According to Souad Boutahir,
collections officer for the Minister of National Revenue (the Minister), no
one told him anything about a counter letter or an agreement between the appellants
and their children. Therefore, he made the assessment based on the notarial
acts and the information obtained from the bank regarding the balance of the
hypothec on the immovable.
[11]
It is undisputed that
on August 30, 2006, Milad Abdulnour owed the Minister $829,969.17. Milad Abdulnour
was the director of a company, “Bijouterie Vénus”, which had failed to remit amounts
owing to the Minister under the ETA. The Minister made an assessment against Milad
as a director of Bijouterie Vénus pursuant to subsection 323(3) of the ETA. It
is undisputed that two thirds of the balance of the hypothec on the immovable
as of the date of the transfer was $48,205.33. It is undisputed that the fair
market value of the undivided two-third interest in the immovable, as of August
30, 2006, is $167,448.67.
The appellant’s position
[12]
It cannot be disputed
that the deed of acquisition of the immovable by the three children was a
simulation. The appellants submit that despite the apparent contracts of the
deeds of purchase and sale, the real owners of the immovable were, at all
relevant times, the appellants and not their children. The appellants deposited
all sums necessary for the acquisition of the immovable in their son’s bank
account and since the date of acquisition in 1992, the appellants assumed all
hypothecary payments, all taxes, services and maintenance of the immovable. The
immovable was acquired by the three children as nominees for their parents but
the children contributed nothing to the acquisition of the house. When the
appellants were informed of their son Milad’s problems, they required that the
immovable be transferred to them. They were not granted any benefit. Although
Exhibit A‑2 does not indicate the true consideration, the amount given
as consideration was established by the testimonies of Milad Abdulnour and
Abdul Massih Abdulnour.
[13]
Between the parents and
the children, there was a verbal counter letter, that is, the nominee agreement.
The appellants submit that the respondent is not a third person in good faith
within the meaning of article 1452 of the Civil Code of Québec (C.C.Q.) on whom the
verbal agreement between the children and their parents is not enforceable. From
the outset, this house belonged to the parents but by simulation it was put in
the children’s name. At the date of purchase the house in 1992, the respondent
was not a third person having rights or claims enforceable against Milad Abdulnour.
The assessment against Milad Abdulnour involves a period subsequent to the
date of purchase. When the respondent became a creditor, the property belonged
to the parents’ patrimony and not the patrimony of Milad Abdulnour. By
relying on simulation, Milad Abdulnour does not intend to exempt one of
his properties as the property belongs to his parents’ patrimony.
[14]
In the alternative, even
if the agreement between the parents and the children was not enforceable
against the respondent under article 1452 C.C.Q., the appellants submit
that they paid the initial purchase price of the immovable in full and they
assumed all household expenses, including hypothecary payments, property taxes,
services and maintenance. They also assumed the residual value of the hypothec
at the time of the transfer. At the time of the transfer, their patrimony was
not enriched and Milad’s patrimony was not diminished. Therefore, the
appellants submit that the assessment made against them should be vacated as
the fair market value of the immovable is not less than the fair market value
of the consideration paid for the transfer.
The respondent’s position
[15]
The respondent claims
that at all relevant times, Milad had a non-arm’s length relationship with his
parents within the meaning of subsection 325(1) of the Act. On August 30, 2006,
he transferred the undivided two-third interest he held in the immovable to his
parents for a consideration that was $119,243.34 less than the fair market
value of the immovable, that is to say, $167,448.67 less $48,205.33. As of that
date Milad Abdulnour owed the Minister $829,969.17 under the Act. Thus,
under section 325 of the Act, the appellants became jointly and severally
liable, with their son, to pay Milad’s tax liability up to the amount by
which the fair market value of the immovable, at that time, exceeds the consideration paid by the appellants for the transfer of the immovable, in proportion to
the share in the interest held by the appellants in the immovable.
[16]
In the alternative, if the
appellants have always been the true owners of the immovable, the respondent
submits that she may avail herself of the “apparent contracts”, namely, the
notarial deeds of purchase and sale, and that said documents are proof of their content. The respondent relies on articles 1451,
1452 and 2863 of the C.C.Q. and submits that she is a third person in good
faith and, therefore, the verbal agreement between the appellants and their
children, whether it is qualified as a “counter letter” or “nominee contract”, cannot be set up against her.
[17]
According to the
respondent’s calculations, found in subparagraphs 20(k) to 20(m) of the Reply
to the Notice of Appeal, the appellants each owe the Minister, under the ETA,
$27,417.02, but the Minister only assessed them for the amount of $24,217.02 each.
That assessment is deemed to be valid and the onus is on the appellants to
prove that it is not.
Statutory provisions
[18]
Relevant GST provisions
are set out in subsection 325(2) of the ETA. The relevant excerpts are as
follows:
325. (1) Where at any time a
person transfers property, either directly or indirectly, by means of a trust
or by any other means, to
(a) the transferor’s spouse
or common-law partner or an individual who has since become the transferor’s
spouse or common-law partner,
(b) an individual who was
under eighteen years of age, or
(c) another
person with whom the transferor was not dealing at arm’s length,
the transferee and transferor are jointly
and severally liable to pay under this Part an amount equal to the lesser of
(d) the amount determined by
the formula
A - B
where
A
is the amount, if any, by which the fair
market value of the property at that time exceeds the fair market value at that
time of the consideration given by the transferee for the transfer of the
property, and
B
is the amount, if any, by which the
amount assessed the transferee under subsection 160(2) of the Income Tax Act
in respect of the property exceeds the amount paid by the transferor in respect
of the amount so assessed, and
(e) the total of all amounts
each of which is
(i) an amount that the transferor is
liable to pay or remit under this Part for the reporting period of the
transferor that includes that time or any preceding reporting period of the
transferor, or
(ii) interest or
penalty for which the transferor is liable as of that time,
but nothing in this subsection limits the
liability of the transferor under any provision of this Part.
(1.1) For the purpose of this section, the fair market value at
any time of an undivided interest in a property, expressed as a proportionate
interest in that property, is, subject to subsection (4), deemed to be equal to
the same proportion of the fair market value of that property at that time.
(2) The
Minister may at any time assess a transferee in respect of any amount payable
by reason of this section, and the provisions of sections 296 to 311 apply,
with such modifications as the circumstances require.
(3) Where
a transferor and transferee have, by reason of subsection (1), become jointly
and severally liable in respect of part or all of the liability of the
transferor under this Part, the following rules apply:
(a) a payment by the transferee
on account of the transferee’s liability shall, to the extent thereof,
discharge the joint liability; and
(b) a payment by the
transferor on account of the transferor’s liability only discharges the
transferee’s liability to the extent that the payment operates to reduce the
transferor’s liability to an amount less than the amount in respect of which
the transferee was, by subsection (1), made jointly and severally liable.
. . .
(5) In this section, “property” includes money.
[19]
Articles 1451, 1452
and 2863 of the C.C.Q. provide as follows:
1451. Simulation exists
where the parties agree to express their true intent, not in an apparent
contract, but in a secret contract, also called a counter letter. …
1452. Third persons in good faith
may, according to their interest, avail themselves of the apparent contract or
the counter letter; however, where conflicts of interest arise between them,
preference is given to the person who avails himself of the apparent contract.
2863. The parties to a
juridical act set forth in a writing may not contradict or vary the terms of
the writing by testimony unless there is a commencement of proof.
Analysis
[20]
It is important to
keep in mind the purpose of the Act. In Medland v. Canada,
98 D.T.C. 6358 (F.C.A.), the Court of Appeal found that the object and spirit of
subsection 160(1) of the Income Tax Act (Tax Act), which is the equivalent
of subsection 325(1) of the ETA, “is to prevent a taxpayer from transferring
his property to his spouse [or to a minor or non-arm’s
length individual] in order to thwart the
Minister's efforts to collect the money which is owned to him”.
[21]
Collection powers
are essential to the effective operation of the Act. In Livingston v. R.,
2008 D.T.C. 6233 (Eng.) (F.C.A.), the Court of Appeal held the following at
paragraph 1:
The power to tax means little without the power to collect.
As a result, the Income Tax Act R.S.C. 1985, c. 1
(5th Supp.) (the "Act") provides for a myriad of powers to collect
taxes owed that would otherwise not be obtainable when taxpayers attempt to
evade their creditors. These powers must be interpreted in light of their
intended purpose and within the contexts of the factual situations to which
they are applied.
[22]
In the case at bar, the
respondent relies on those collection powers. She claims that there was a
transfer of the undivided two-third interest in the immovable by Milad Abdulnour
to his parents. The respondent submits that all the notarial acts are proof of
their content and the Minister can, therefore, avail himself of the notarial
act dated August 30, 2006, to the effect that Milad Abdulnour was the
owner of the undivided two-third interest in the immovable that he transferred
to the appellants. The respondent submits that she is a third person in good
faith and, therefore, the alleged agreement between the appellants and their
children constitutes a verbal counter letter that cannot be set up against her
under article 1452 C.C.Q. According to the respondent,
all the conditions provided for in section 325 of the ETA are met and, therefore, the appellants are jointly and severally liable for their
son’s tax liability to the extent determined by
subsection 325(1) of the ETA.
The effect of a counter letter
[23]
A
counter letter
is a private written agreement whose purpose is to set out the real intention of the parties who stipulated
otherwise in public. There are two essential components to a
counter letter: the material element and the element of intent. Professor Royer describes these elements in his work, La preuve civile, 2nd ed.,
Cowansville (QC), Yvon Blais, 1995 at No. 1568:
[Translation]
. . .
The material element consists
in the existence of two separate deeds, the apparent deed, which contains what
the parties want the third parties to believe and the secret deed, which
expresses the true agreement. If the latter is articulated in writing, it is
referred to as a counter letter.
The element of intent
consists in the willingness to deceive third parties about the existence or
content of an agreement.
[24]
Thus, it would appear as though a counter
letter is equivalent to somewhat of a sham. A counter letter is a secret
document that reflects the existence of a situation or a relationship between
the contracting parties which is different from the ones expressed in the
apparent contract. The secret or intentional element, to want to deceive third
parties, is an essential element of a counter letter. In Quebec case law, it is
not necessary for a counter letter to be written; a verbal agreement between
the contracting parties is sufficient.
[25]
Articles 1451
and 1452 of the C.C.Q. provide that counter letters are only enforceable between the contracting parties and
not against third parties. Third persons in good faith are may rely on the apparent contract
even if no loss has resulted from the simulation. It is not necessary for
the simulation or subterfuge to be directed against the person relying on the
apparent contract:
see Transport H. Cordeau Inc. v. The Queen, 99 DTC 5765 (F.C.A.),
at paragraph 20. It is not necessary for the third parties to establish that the counter
letter originally caused loss: it will suffice if at the time it is set up
against them they have an interest in rejecting it: see Transport
H. Cordeau, supra, at paragraphs 21 and 23. It is not necessary
to want to deceive the
Revenue Department for article 1452
of the C.C.Q. to apply. As Justice Létourneau stated in Transport H.
Cordeau at paragraph 29:
[29] In
fact, under art. 1452 the third party in good faith has the option of relying
on the apparent contract or the counter-letter, depending on what is in his
interest. This is the penalty for simulation by counter-letter, for as the
writers Mazeaud, supra, mentioned at p. 925, even if the contracting
parties did not try to deceive the Revenue Department or their creditors by
their simulation, it should not be [TRANSLATION] "forgotten that the
parties did not confine themselves simply to not disclosing the contract; they
went further: to ensure the contract remained a secret they created a deceptive
appearance, they concluded an apparent contract which was incorrect; they
deceived everyone who had Encore, on knowledge of that simulated
contract". The legislature wished to protect third parties who relied on
the apparent contract after [TRANSLATION] "placing in appearances a trust
which should not have been deceived.
Again,
you can see that deceit or secrecy are part of a counter letter.
[26]
Although article 1452 of the C.C.Q. provides that a
counter letter is not enforceable on a third person, in the case law, a
distinction has been drawn between the role of the Minister as “tax assessor” and his role as
“tax collector”. In Bolduc v. The Queen, 2003 DTC
221, Judge Archambault of this Court ruled that when the Deputy Minister acts
as “assessor”, the Deputy Minister shall not be considered as a third person
for the purposes of article 1452 of the C.C.Q. In such circumstances, the
Deputy Minister must determine the taxpayer’s liability based on the real
situation. However, when the Deputy Minister acts as “collector”, he shall be
considered as a third person under article 1452 of the C.C.Q. The
decisions rendered in Richelieu c. Québec (Sous‑ministre du
Revenu), [2001] J.Q.
No. 8037, [2002] R.D.F.Q. 303 (rés.) (C.Q.), Dussault‑Zaidi c.
Québec (Sous‑ministre du
Revenu,) [1996] J.Q. No. 2969, [1996] R.D.F.Q. 73 (C.A. Qc.) (Justice
Deschamps, dissenting), and Haeck c. Québec (Sous-ministre du Revenu),
[2001] J.Q. No. 8038, [2002] R.D.F.Q. 73 (C.Q.), are cited in support of
this argument. Moreover, Judge Archambault concluded that section 160 of
the Income Tax Act, which is equivalent to section 325 of the ETA,
provides for collection and not assessment action. Furthermore, it is not
necessary, in order for these collection actions to apply, that the transferee
received a benefit. All the statutory provisions provide is that [Translation] “the
transferee’s liability is limited to the amount by which the fair market value of the property transferred exceeded the
fair market value of the consideration given by the transferee”: see Bolduc, supra, at paragraph 13.
[27]
However, as I noted in ZT22
Holding Inc. v. The Queen, 2012 TCC 17, on January 21, 2013, it would appear as though the distinction
between the role of the Minister “assessor” and “collector” is less important
than it was before: see Caplan
c. Québec (Sous-ministre du Revenu), 2006 QCCA 1322 (CanLII) (C.A. Qc.). In
Caplan, Justice Dufresne of the Quebec Court of Appeal relied on the general principle set out by Justice
McLachlin in Shell Canada
Ltd. v. Canada, [1999]
3 S.C.R. 622., at
paragraph 39, where she holds that, in tax cases, the courts
must respect the taxpayer’s legal relationships,
regardless of what appears to be their legal form,
provided that they are not contrary to a specific
provision of the Act and that they are not a sham. Justice Dufresne ruled that in the absence
of a sham or
proven attempt that the taxpayer “played both sides” by claiming the advantages
the apparent contract may have offered and also those of the counter letter against the Minister, the Minister must, in accordance with Shell,
supra, make an assessment based on the actual legal situation between
the parties, regardless of the content of the apparent contract or counter
letter.
[28]
It seems to me, the courts
must be sensitive, in tax cases, to the economic realities between the taxpayers
unless there is unlawfulness or deceit. As I stated ZT22 Holding v. The Queen, supra,
in my opinion, the analysis of
Justice Dufresne should not be restricted to cases where the Minister acts in his role as “assessor”. Regardless of the
Minister’s role, as “assessor” or “collector”, the taxpayers’ legal
relationships must be respected by
the Courts and by the Minister
in tax cases, unless there is unlawfulness or deceit that consequently
prejudices the interests of the Minister.
[29]
However, and despite my
opinion, the case law is such that, in this case, the respondent must be
considered as a third person, who, acting as a
collector, may avail herself of the apparent deeds, that is to say, Exhibits A‑1, A‑2 and A‑3. By way
of Exhibit A‑2, Milad Abdulnour transferred his undivided interest
in the immovable to his parents. Seeing
as there was a transfer of property and that there was a non-arm’s length
relationship between Milad and
the appellants, the conditions
for the application of section 325 of the ETA have all been met. Thus, the appellants are jointly and severally liable, with Milad Abdulnour, to pay the tax liability of Milad Abdulnour up to the amount by which the fair market
value of the
immovable exceeds
the fair market value of the consideration paid by the appellants.
[30]
The appellants claim
that the respondent is not a third person in good faith owing to the fact that at
the date of purchase of the house in 1992, the respondent had no rights or
claims enforceable against Milad Abdulnour and that the assessment against
Milad Abdulnour involves a period subsequent to the date of purchase. I
cannot accept that argument. The respondent was certainly a third person in
good faith at the point when the appellants set up the verbal agreement between them and their children against the
respondent’s interests.
Fair market value of the
consideration
[31]
Having decided that the conditions for the application of section 325
have been met, the issue to be determined in this case is the
amount by which the fair market value of the immovable exceeds the fair market value of the
consideration paid at the time of the transfer.
[32]
The respondent submits
that the fair market value of the consideration paid for
the immovable is more or less the price indicated in the
deed of sale, that is to say,
the notarial act dated August 30, 2006. Although the consideration was
neither stipulated therein nor provided, the transferees agreed to assume all hypothecary payments owed to the bank. The
balance of the hypothec as of the date of the transfer was $72,308, which is
not in dispute. Hence, the consideration is two thirds of the balance, that is,
$48,205.33. The respondent, by relying again on article 1452 C.C.Q., claims
that the verbal agreement between the appellants and their children cannot be
set up against her to disprove
the assessment.
[33]
The appellants submit for their part that it is the real
value of the consideration, as indicated by the testimonies of Milad Abdulnour and
Abdul Missah Abdulnour, which must be taken into account.
[34]
It is important to note
that the appellants’ liability is limited to the amount by which
the fair market value of the immovable exceeds the fair market value of the consideration
paid by the appellants for the
transfer of the immovable. What
does the expression “fair market value of the consideration” found
in paragraph 325(1)(a) of the ETA mean? The definition
of “fair market value” in subsection 123(1) of
the Act reads as follows:
Fair market value of property or a service
supplied to a person means the fair market value of the property or service
without reference to any tax excluded by section 154 from the consideration for
the supply.
[35]
As noted by
Justice Lamarre-Proulx in 9004-5733 Québec Inc. v. The Queen, 2003 TCC 327 (CanLII),
this definition is of no help in understanding this legal concept.
[36]
The definition of
“consideration” in subsection 123(1) of the Act is more specific:
Consideration
includes any
amount that is payable for a supply by operation of law.
[Emphasis added.]
[37]
Thus, when determining
the adequacy or inadequacy of the consideration, it is necessary to consider “any
amount” that was paid. The term “consideration” in paragraph 325(1)(a)
of the ETA is qualified by the terms “fair market value”.
In my view, when determining the adequacy of the consideration for the purpose
of establishing the amount by which the fair market value of a property exceeds
the fair market value of the consideration paid for the property, it is
necessary to refer to “any amount” paid and not only to the fictitious
amount indicated in the deeds of sale. This is what paragraph 325(1)(a)
of the ETA requires us to do—no more, no less.
[38]
The intention
of the contracting
parties at the time of the transfer
of the property is of considerable importance and perhaps the key consideration.
In Livingston, supra, the Court of Appeal held that the intention of the parties to defraud the CRA is
of relevance but
not determinative in gauging the adequacy of the consideration given. The Court stated as follows at paragraph 19:
[19] As
will be explained below, given the purpose of subsection 160(1), the intention
of the parties to defraud the CRA as a creditor can be of relevance in gauging
the adequacy of the consideration given. However, I do not wish to be taken as
suggesting as there must be an intention to defraud the CRA in order for
subsection 160(1) to apply. The provision can apply to a transferee of property
who has no intention to assist the primary tax debtor to avoid the payment of
tax: . . . .
Thus, a deceitful intention is certainly
determinative. The absence
of a deceitful intention, while relevant, is not necessarily determinative.
[39]
Who has the
burden of establishing the fair market value of the consideration? Hickman
Motors Ltd. v. Canada, [1997] 2 S.C.R. 336 (S.C.C.), states that
the Minister proceeds
on assumptions to make assessments and the taxpayer has the initial onus of
demolishing the Minister's assumptions. This is met where the taxpayer makes out at
least a prima facie case that demolishes the Minister’s exact
assumptions. Then, after the taxpayer has met
the initial burden, the onus shifts to the Minister to rebut the prima facie
case made out by the taxpayer and to prove the assumptions. A prima
facie case is defined as one with evidence that
establishes a fact until the contrary is proved. A prima facie case
is one supported by evidence which raises such a
degree of probability in its favour that it must be accepted if believed by the
Court unless it is rebutted or the contrary is proved: see Stewart v.
Minister of National Revenue, [2000] T.C.J. No. 53 (QL). The Federal
Court of Appeal stated that the burden of proof put
on the taxpayer is not to be lightly, capriciously or casually shifted: see Orly Automobiles Inc. v. Canada, 2005 FCA 425, [2005] G.S.T.C. 200. The Federal Court of Appeal held that it is the taxpayer who knows how
and why it is run in a particular fashion. The
taxpayer has information within his reach and under
his control. Thus, we
can see that it is trite law that the burden of proof rests with the appellant to
show, in this case, that the consideration paid by them for the transfer of the
immovable is not what the respondent claims it is but is rather that which the appellants
claim it to be. Otherwise, the respondent’s assumptions shall be accepted by
the Court.
[40]
In considering
all of the evidence, I find that the appellants did not meet their burden of proof as to the amount that should, according
to them, be considered the fair market value of the consideration, for the
purposes of section 325 of the Act. There are a number of factors that lead me
to this conclusion. Here are
but a few:
a.
It is clear that a counter letter
is a secret agreement. The supposed agreement between the appellants and the
children is a secret that was only revealed at trial. It is a secret that was kept
for about twenty years. Throughout the entire assessment and collection process in respect of “Bijouterie Vénus” and, subsequently, Throughout the entire assessment and collection process
in respect of Milad Abdulnour as director and until the trial date, Revenu
Québec had never been informed of the existence of a counter letter that contradicted
the apparent deeds produced at trial as Exhibits A‑1, A‑2 and A‑3.
b.
The existence of this secret
agreement was never articulated in writing. The evidence of the counter letter
is presented by the oral testimonies of the father and Milad—their testimonies are certainly self-serving and
were given 20 years later. Neither Maida nor George confirmed the existence
of said secret agreement. Nor did Maida or George confirm that they did not
have the means to contribute to the purchase of the house or that all the funds
necessary for its purchase came from the father.
c.
I find it difficult to accept
that the bank refused to grant the father a loan because he did not speak
either official language of Canada. None of the bank’s employees testified to
that effect.
d.
In 1992 Maida was not
working, Milad and George earned low incomes and the three did not have the savings
to purchase a house worth $175,000. If, as the father and Milad claim, the
children did not have the means to purchase the house, it seems illogical to me
that the bank would loan them money.
e.
It is difficult to establish
the exact amount supposedly disbursed by the father at the time of the house’s
acquisition in 1992. The evidence in this regard is vague and contradictory.
Milad referred to $95,000 whereas his father referred to $50,000 and to a
second amount of $30,000, a difference of $15,000. In this context, it is
difficult to establish an exact consideration, if any. Furthermore, there is no
documentary evidence to support that the necessary amounts disbursed for the
purchase came from Abdul Missah Abdulnour.
f.
In 1996, when Maida got married,
she transferred her undivided one-third interest in the immovable to her brother, Milad, and not her parents.
If the house actually belonged to the parents, why not give them what belonged
to them?
g.
There is a lack of
documentary evidence showing that those amounts came from the father; indeed, except
for the apparent deeds, there is a total lack of documentary evidence to
support each aspect of the appellants’ position; there is only testimonial evidence,
which is certainly self-serving evidence, and, therefore, suspicious.
h.
It should also be noted that Milad always lived
in the house. The transfer to the parents did not take place until 14 years after
the acquisition of the house, and not until Milad incurred significant fiscal
hardship. No consideration value was either stipulated or provided. It appears,
therefore, that the intention of Milad and his parents was to defraud the tax authorities
as creditors—that
is uncontested. Milad’s tax
problems occurred after he acquired his undivided two-third interest in the
immovable. It is difficult to resist the conclusion that he transferred his
interest to prevent his property from being seized by the tax authorities. The transfer of property shows a deceitful intention to defraud the tax authorities. As indicated above, an intention to defraud the tax authorities is very important and often determinative. The transfer consequently
prejudiced the interests of the respondent.
Conclusion
[41]
I cannot give any
weight to the testimonies of Milad Abdulnour and Abdul Missah Abdulnour. Accordingly,
I find that the appellants did not meet the burden of proof resting upon them.
[42] For these reasons, the appeals are dismissed.
Signed at Kingston, Ontario, this 29th day of April 2013.
“Rommel G. Masse”
Translation certified true
on this 21st day of May 2013
Daniela Guglietta,
Translator
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