Citation: 2011 TCC 307
Date: 20110620
Dockets: 2009-2550(IT)G
2009-2551(IT)G
BETWEEN:
MAINTENANCE EURÉKA LTÉE,
SERVICE SANITAIRE FRONTENAC LTÉE,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Hogan J.
[1]
Challenging the
Minister’s submission that they were associated corporations, the appellants Service
sanitaire Frontenac Ltée (“Frontenac”) and Maintenance Euréka Ltée (“Euréka”) are
appealing from the reassessments made by the Minister of National Revenue (“the
Minister”) in respect of their 2004 and 2005 taxation years.
Factual background
[2]
In determining the
income tax payable by Frontenac and Euréka (“the corporate appellants”)
the Minister relied on the following assumptions of fact:
[TRANSLATION]
(a) Gratien Veilleux and Lauréanne Pomerleau were
spouses in 2004. He was 71 years old at the time, and she was 73.
(b) Gratien Veilleux and Lauréanne Pomerleau have
two children: Bruno and Simon.
(c) The [corporate] appellant [Euréka] was
incorporated in 1969 by Gratien Veilleux.
(d) [The corporate appellant] Frontenac was
incorporated in 1977 by Lauréanne Pomerleau.
(e) Bruno Veilleux became a shareholder of the
[corporate] appellant [Euréka] in 1989 and [the corporate appellant] Frontenac
in 1990. He acquired 24% of the shares of both corporations on the advice of
his parents’ tax consultants.
(f) During the years in issue, the share capital of
the [corporate] appellant [Euréka] and [the corporate appellant] Frontenac was
held by the following persons and investment companies:
|
|
[Euréka]
(% common shares)
|
Frontenac
(% common shares)
|
|
Gratien Veilleux
|
65%
|
|
|
Placement Gratien Veilleux
|
11%
|
|
|
Lauréanne Pomerleau
|
|
65%
|
|
Placement Lauréanne Veilleux
|
|
11%
|
|
Bruno Veilleux (son)
|
24%
|
24%
|
|
|
100 %
|
100 %
|
(g) Until 1994, the [corporate] appellant [Euréka] and
[the corporate appellant] Frontenac operated a business that provided
housekeeping services for public, institutional and commercial buildings.
(h) In addition, the [corporate] appellant [Euréka] began
offering security guard services for the same kinds of buildings in 1987, and
Frontenac did the same starting in 1994.
(i) [Euréka] and [the corporate appellant] Frontenac
each provide their services in the same Quebec regions.
(j) On several occasions, [the corporate] appellant
[Euréka] and [the corporate appellant] Frontenac provided the same services to
the same customer on an alternating basis.
(k) On those occasions, the person responsible for
the contract, and the employees who did the work, usually remained the same,
even though the corporate entity changed.
(l) The contractual documents of the [corporate]
appellant [Euréka] and [the corporate appellant] Frontenac list the same
telephone number, fax number and e-mail address.
(m) The [corporate] appellant [Euréka] and [the corporate
appellant] Frontenac do not bid on the same calls for tenders.
(n) Gratien Veilleux is the only designated
representative of both the [corporate] appellant [Euréka] and [the corporate
appellant] Frontenac for the purposes of obtaining the permit issued by the Ministère
de la Sécurité publique.
(o) Bruno Veilleux works primarily for [the corporate
appellant] Frontenac, but is also involved in the [corporate] appellant’s
[Euréka] affairs. He is paid by both corporations, but his vehicle is supplied
solely by the [corporate] appellant [Euréka].
(p) Simon Veilleux works primarily for the [corporate]
appellant [Euréka], but is also involved in [the corporate appellant] Frontenac’s
affairs. He is paid by both corporations, but his vehicle is supplied solely by
[the corporate appellant] Frontenac.
(q) Both corporations’ office work is done on the
same premises and by the same people, who are paid on an alternating basis by the
[corporate] appellant [Euréka] and [the corporate appellant] Frontenac.
(r) The employees of the [corporate] appellant
[Euréka] work for both the [corporate] appellant [Euréka] and [the corporate
appellant] Frontenac, regardless of which corporation pays their salary.
(s) Motor vehicle and other expenses incurred by the
[corporate] appellant [Euréka] were paid by [the corporate appellant] Frontenac,
and conversely.
[3]
Gratien Veilleux and
Bruno Veilleux were the corporate appellants’ only witnesses. Lauréanne
Pomerleau, the majority shareholder of Frontenac, did not testify because she
was recovering from a second heart attack, which required a coronary
angioplasty and stent. The evidence shows that throughout the audit process,
Ms. Pomerleau had no discussions with the Canada Revenue Agency (CRA)
auditors because she was recovering from her first heart attack. Moreover, Ms. Pomerleau
was not questioned during the respondent’s examinations for discovery. Thus,
Gratien Veilleux and Frontenac’s accountants were the only persons able to
answer the CRA’s questions about the creation of Frontenac and the reasons for
its existence.
[4]
Gratien Veilleux is
approximately 78 years of age. He testified that he founded Euréka in 1969. At
the time, he was roughly 36 and had five children: Marie‑Claude, 1; Simon,
6; Charlotte, 10; Bruno, 13; and Sylvie, 14.
[5]
According to the
witness Gratien Veilleux, his wife Ms. Pomerleau did administrative work for Euréka.
Around 1974‑1975, his business was expanding, and Ms. Pomerleau asked
him for a stake in Euréka. He refused her request because he wanted to control
his own business. This refusal caused marital problems, and Ms. Pomerleau
decided to found her own business in order to create a separate patrimony of
her own. To corroborate his testimony, Gratien Veilleux noted that the couple
married separate as to property, and renounced the application of articles 462.1
to 462.13 of the Civil Code of Quebec in relation to the spouses’ family
patrimony. In addition, he testified that the couple’s principal residence
was under his name only.
[6]
Diane Moore, the CRA
auditor assigned to both corporate appellants, testified that, at the first
meeting regarding the issue, Gratien Veilleux refused to answer questions about
the reasons for creating Frontenac and for its continued existence. Gratien
Veilleux retained the two corporate appellants’ external accountants, François Gagnon
and Josée Larochelle (“the external accountants”), chartered accountants and
tax specialists with the firm of Raymond Chabot Grant Thornton (“RCGT”), to
answer Ms. Moore’s questions. At the first meeting they attended, the
external accountants said it was possible that Ms. Pomerleau founded Frontenac
on the advice of Gilles Rémillard, a chartered accountant with RCGT who,
at the time, was also the accountant of Euréka, a corporation controlled by Gratien
Veilleux. The corporate appellants adduced Ms. Moore’s notes as Exhibit
A-8. Ms. Moore’s testimony is consistent with the notes she took
concerning the relationship between the two corporate appellants. The external
accountants wrote several letters in which they made representations. None of
these letters, which were adduced in evidence by the corporate appellants,
refer to marital conflicts leading to the creation of Frontenac by Ms. Pomerleau.
[7]
Gratien Veilleux’s
testimony did not detail Ms. Pomerleau’s involvement in Frontenac’s creation.
He said that he did not help her found her own business. In his view, founding
her own business was not a difficult task for her, since she had provided both
him and Euréka with administrative services before.
[8]
Ms. Moore emphasized
that Gratien Veilleux’s testimony on this point is not consistent with the
comments made by the external accountants and by Gratien Veilleux himself
during the meetings between the parties. According to Ms. Moore, at these
meetings, Gratien Veilleux specifically stated that Ms. Pomerleau
accompanied him in his work simply as an observer, and did not hold an
administrative position with Euréka. The notes taken by Ms. Moore at these
meetings are consistent with her testimony on this point.
[9]
Gratien and Bruno
Veilleux claim there were commercial reasons for Euréka and Frontenac to be
separate corporations. They said that each corporation sometimes has to abandon
a service contract if its profitability declines too much. This generally
happens after the customer has renewed the contract a few times. In such
instances, the costs of the employees’ benefits ― that is to say, vacations and unused sick
days ― increases, thereby reducing the profit
margin on the contract. After its sister corporation abandons the contract, the
other corporation can be a bidder, because the employees who will perform the
contract for the new service provider will be entitled to lesser benefits, which
will ensure a positive profit margin. The employees of the company that are
short of work following a contract non-renewal might be called upon to work for
the sister company, but since those employees are starting from square one,
their benefits are reduced.
[10]
The evidence
quantifying the financial costs was rather vague. The Court heard several imprecise
explanations about the value of the supposed advantage discussed above. At the
examination for discovery, Gratien Veilleux stated that the advantage could be
$12,000 to $15,000 a year. In the letter to the CRA containing their
representations, the external accountants tried to downplay the significance of
the alternating contract performance, noting that one corporate appellant was
the other’s successor for only six contracts out of a total of 100 during the
years in issue. Gratien Veilleux also explained that not all the employees were
transferred from one corporation to the other after the loss of a contract. First
of all, employees with more seniority can bump other employees from the same
corporation; in other words, they can cause those employees to be assigned to
other contracts. Secondly, after a contract is abandoned, all the competitors
can respond to the call for tenders. Only about 5% of the contracts
abandoned by one of the corporate appellants end up being awarded to the other.
[11]
On re-examination, Bruno
Veilleux, who did not provide any precise information about the value of the
savings obtained by one corporate appellant after it abandons a contract that
is then taken up by the other, asserted that, under government decrees
applicable to the cleaning and housekeeping industry, the employer paid
the value of all unused sick days in excess of eight days. The evidence reveals
that roughly 100 employees worked on an alternating basis for the two corporate
appellants. However, the Court has no way of estimating the savings purportedly
generated by the employee transfers. There is no evidence regarding each
employee’s seniority or the number of unused sick days. The Court has no idea
how many employees, if any, accumulated at least eight unused sick days.
The corporate appellants could have provided information about each employee’s
salary and benefits before and after the transfer. The fact that they did not
provide such evidence causes me to doubt the veracity of the allegation
regarding the savings. Counsel for the corporate appellants adduced the
government decrees that apparently impose an obligation to pay for the unused
sick days. However, he did not explain to the Court how these decrees apply to
the contracts in issue, and, more importantly, he did not determine the amount
of the possible savings. The onus was on the corporate appellants to submit
credible and substantial evidence of this allegation, and they have failed to
do so.
[12]
Ms. Moore also
doubts that there is a genuine commercial advantage for the two corporate appellants.
There was no reference to such an advantage at the meetings between the parties
or in the corporate appellants’ written representations. Ms. Moore took
care to specify that, during a telephone conference, she had invited the
corporate appellants’ representatives to state any commercial reason that might
justify the separate existence of the two corporate appellants. This was
done in connection with a request for opinion submitted to the CRA’s advance
income tax rulings directorate. The parties agreed that they would refer the
matter to the advance rulings directorate for an opinion on the issue in this
case. Surprisingly, there was no mention of the alleged commercial advantage in
the written representations prepared by the corporate appellants’ external
accountants.
[13]
Gratien Veilleux and
Bruno Veilleux explained why the corporate appellants Euréka and Frontenac do
not compete for the same calls for tenders. Ms. Moore stressed that in support
of her finding that the two corporate appellants were associated corporations
within the meaning of subsection 256(2.1) of the Income Tax Act (ITA). The
evidence reveals that the two corporations only responded to the same call for
tenders once. According to the witnesses, Euréka specializes in cleaning and housekeeping
services for school boards. Apparently, Euréka tries to keep its activities
concentrated in the Montréal, Drummondville and Trois‑Rivières area.
Frontenac specializes in the cleaning and housekeeping of public and para-public
buildings in the Québec and Beauce areas, while Euréka provides this type of
services to school board properties. Nonetheless, both witnesses admitted that
there is no water-tight division between the two corporations’ activities, or
between the territories in which they do business. Both Euréka and Frontenac
have contracts in the same sectors and do business in the same territory.
According to the witnesses, the distinction is that Frontenac has more
contracts in the public and para-public sectors, while Euréka has more school contracts
in the Montréal, Drummondville and Montérégie areas.
[14]
Ms. Moore pointed out
that Frontenac gets 25 to 30% of its revenues from contracts performed for
school boards, and that the two corporate appellants perform contracts
throughout Quebec.
[15]
The evidence shows that
the two corporate appellants use the same staff to meet their administrative
service needs. Each bears half the expenses, salaries and other administrative
costs. They share the premises where they are each headquartered, though each
signed a lease under which they paid a separate rent for the premises in
question. In addition, both had the same phone and fax number during the period
in issue.
[16]
Bruno Veilleux testified
that he works mainly for Frontenac. After the illness of his mother, Ms. Pomerleau,
he took on a greater role within the business. However, he specifies that
he also provided services to Euréka. He says that, in 2005, he became more
involved in the operations of Euréka, because his father had an accident that
required four months of convalescence. On cross-examination, he admitted that
his spouse Anne Laflamme helped him carry out his duties, but said that she was
only paid by Frontenac. He said this was because Ms. Laflamme worked only
for Frontenac, even though he himself worked for both Euréka and Frontenac.
[17]
Bruno Veilleux and his
father testified that Simon Veilleux, Bruno’s brother, worked mainly for Euréka,
but provided services to Frontenac too. The evidence discloses that Sandra
Poulin, Simon Veilleux’s spouse, helped him in the performance of his duties.
However, Ms. Poulin was paid entirely by Frontenac, even though, according
to Bruno Veilleux’s testimony, his brother Simon performed services for both
corporate appellants.
[18]
Ms. Moore testified
that Bruno and Simon Veilleux received a salary from both corporate appellants
during the years covered by the audit. She found that Simon Veilleux’s
remuneration did not reflect the fact that he mainly worked for Euréka, since he
received more pay from Frontenac than from Euréka. As for Bruno Veilleux, the
corporate appellants claim that he mainly looked after the management of Frontenac,
while the evidence shows that in 2005, the salary that he drew from Euréka was
higher.
[19]
Based on the audit,
Ms. Moore found that in 2004 and 2005, Frontenac and Euréka (i) provided
the same services to their customers, (ii) operated in the same territory; (iii)
had staff in common for housekeeping, security guard services and
administration, (iv) used Gratien Veilleux as the designated representative in
dealings with the Ministère de la Sécurité publique regarding the security
agency, and (v) consulted each other to decide which of the two would bid
on calls for tenders. In the light of those facts, and in the absence of
evidence regarding Ms. Pomerleau’s duties with Frontenac, Ms. Moore
concluded that it was reasonable to believe that one of the main reasons for
the separate existence of the corporate appellants during the 2004 and 2005
taxation years was to reduce the income tax otherwise payable, by enabling both
entities to claim the small business deduction. Ms. Moore found that, in reality,
both corporations functioned as a single business for the benefit of the Veilleux-Pomerleau
families. Her finding was confirmed by the advance rulings directorate after it
considered the parties’ representations.
The respondent’s position
[20]
The respondent submits as
follows. The assumptions of fact on which the Replies are based, and
Ms. Moore’s testimony, show that the two corporate appellants are very
similar to each other. On the basis of the facts established by
Ms. Moore’s audit, it can be concluded that both corporate appellants are
operated as a single family business for the benefit of the Veilleux family,
notably Gratien Veilleux, Ms. Pomerleau, the Veilleux couple’s two
sons, and their spouses. The facts show that, overall, the businesses are managed
as one whole, and there are no indications that they are independent from each
other. Thus, in view of the facts, one of the main reasons for the existence of
the corporate appellants Euréka and Frontenac in 2004 and 2005 was to reduce
the tax payable by enabling both corporations to take full advantage of the
small business deduction, contrary to subsection 256(2.1) of the ITA. In view
of the circumstances, the two corporations are associated for the purposes of
the ITA and are therefore required to share the business limit and the small
business deduction.
The corporate appellants’ position
[21]
The corporate appellants,
Euréka and Frontenac, submit that the relevant facts do not support the respondent’s
conclusion regarding the application of subsection 256(2.1) of the ITA. Their
counsel argues that Gratien and Bruno Veilleux provided a credible
explanation for the existence of the two corporations. Firstly, according
to the corporate appellants, Ms. Pomerleau incorporated Frontenac to
create a patrimony distinct from her husband’s. The marital problems during
that period made Ms. Pomerleau financially anxious. This unease prompted
her to pursue measures to secure financial independence. This original motivation
never changed over time, and she was always trying to preserve her financial
independence. Secondly, according to the corporate appellants, the
evidence reveals a secondary commercial reason for their continued separate
corporate existence: when a contract becomes unprofitable for one of them, the
other can become a bidder.
[22]
The corporate appellants’
counsel, Mr. Nolan, concedes that the outcome of these appeals largely depends
on the credibility of Gratien and Bruno Veilleux’s testimony.
Analysis
[23]
Subsection 256(2.1) of
the ITA provides as follows:
(2.1) Anti-avoidance ― For the purposes of this Act, where, in the case of two or
more corporations, it may reasonably be considered that one of the main reasons
for the separate existence of those corporations in a taxation year is to
reduce the amount of taxes that would otherwise be payable under this Act or to
increase the amount of refundable investment tax credit under section 127.1,
the two or more corporations shall be deemed to be associated with each other
in the year.
[24]
It should be pointed
out that the reasons for the separate existence of two or more corporations
during the taxation year, not the reasons for which the corporations were
initially created, are what determine whether or not the corporations are associated
during the year.
[25]
The parties have cited
a great number of cases pertaining to the issues in this appeal. Based on
a reading of those decisions, I note that the taxpayers’ appeals tend to
succeed when they provide evidence that, on a balance of probabilities, the
reason for the existence of the two corporations is asset protection, activity
diversification, decentralization for greater profit, a spouse’s intent to
operate his or her own business, or estate planning, to cite some examples. The
outcome depends first and foremost on the credibility of the taxpayers’
witnesses.
[26]
According to the relevant
case law, the Minister may infer, from the facts disclosed by the audit, that
one of the main reasons for the separate existence of two corporations is to
reduce tax, and that the corporations are therefore deemed associated under
subsection 256(1.2). It is then up to the taxpayers to refute the factual
assumptions relied on by the Minister in support of the assessments, or to show
that those assumptions do not support the Minister’s conclusions. It is also
open to taxpayers to prove other facts that contradict the Minister’s
conclusions regarding the main reasons for the corporations’ existence. The
foregoing principles were endorsed by Justice Marceau in Canada v.
Covertite Ltd.:
4 . . . The onus on the taxpayer appellant is complete and
the role of the Court is clear. All that may appear simple but it is so only in
theory and not in practice. The difficulty stems from the very nature of the
conclusion of the Minister that is put into question and must be verified. It
is indeed a conclusion of fact as opposed to a conclusion of law, but one of a
purely psychological content, since it refers to the state of mind and the
intention of those responsible for the creation and the continued separate
existence of the two entities. It is obviously a conclusion that cannot be
the object of direct evidence, at least in the absence of a clear prior
statement of the parties concerned or an admission made by them afterwards. It
must necessarily be based on inferences drawn from a series of material facts
directly ascertainable. The Minister has inferred from a certain number of
facts that the saving of taxes, which was actually realized, was not a mere
side effect but rather one of the main goals contemplated by the individuals
acting behind the corporations. In verifying the conclusion, the Court
cannot but adopt an approach similar to that followed by the Minister. The mere
denial of the taxpayer, whether or not accompanied by a simple indication of
the other causes that could have prevailed, can be given no weight. Being a
mere assertion of a negative fact, and a fact which has to do with the state of
mind of the witness, it can have no convincing probative force; it cannot
constitute the proof required to annihilate the conclusion of the Minister. To
succeed, the taxpayer must: (a) disprove the facts assumed by the Minister in
reaching his conclusion; or (b) convince the Court that the inferences drawn by
the Minister from the facts assumed were un-reasonable and unwarranted; or (c)
add further facts capable of changing the whole picture and leading to
different inferences pointing to the conclusion that the other reasons alleged
have actually been prevalent.
[Emphasis added.]
[27]
That case involved subsection 247(2) of the
ITA, which has been replaced by subsection 256(2.1). There have been no
substantial changes to the wording of the provision; hence the prior case law remains
relevant.
[28]
The corporate appellants’
witnesses have not satisfied me that subsection 256(2.1) is inapplicable. Gratien
Veilleux sought to give the impression that the incorporation of Frontenac was
exclusively his wife Ms. Pomerleau’s idea, and that tax considerations were not
behind the creation of that second corporation. He claims that he never offered
Ms. Pomerleau any help, and that she started up the business solely in
order to establish a separate patrimony for herself. In addition, he stated
that the accountants did not play an important role in the decision to
incorporate a business that would carry out activities in the same industry as
the corporate appellant Euréka. I find that there are several contradictions
between these explanations and the explanations given earlier by Gratien
Veilleux and by the external accountants during the audit. This causes me to
doubt the veracity of Gratien Veilleux’s allegations.
[29]
Ms. Moore testified
that the initial answer to the question the accountants were asked concerning
the creation of Frontenac was that Ms. Pomerleau might have gotten advice
from Gratien Veilleux’s tax accountant. There was no mention of marital problems
that allegedly led Ms. Pomerleau to want to establish her own patrimony.
Neither Ms. Moore’s testimony nor her notes on this point were disputed by
counsel for the corporate appellants. As a follow-up to the questions the
accountants were asked at the first meeting, Gratien Veilleux claimed that Ms. Pomerleau
accompanied him as a mere observer while he carried out his duties on Euréka’s
contracts. At the trial, he said the opposite: Ms. Pomerleau provided him
with administrative services that enabled her to acquire the experience necessary
to go into business herself.
[30]
There was no
independent evidence of Ms. Pomerleau’s supposed role in Frontenac.
Counsel for the corporate appellants asked me not to draw any unfavorable
conclusions from the fact that Ms. Pomerleau’s health prevented her from
attending the audit or trial. Euréka and Frontenac could have called
independent witnesses who are members of the Veilleux‑Pomerleau families
in order to explain Ms. Pomerleau’s role within the business. France
Lehoux, an internal accountant for Euréka and Frontenac, answered the first
questions asked by the auditor, Ms. Moore. The corporate appellants
did not see fit to call Ms. Lehoux to the witness stand, preferring to
rely exclusively on the testimony of the interested persons.
Unfortunately, Gratien Veilleux and Bruno Veilleux have not succeeded in
convincing me of the merits of their positions.
[31]
I have noted two other
statements made by Gratien Veilleux that seem implausible to me given the
circumstances. He claims that he had no role within Frontenac, despite his
undeniable experience in the cleaning and housekeeping service industry.
He knew the suppliers, the customers, the market, and how to recruit
qualified personnel to perform the obligations set out in the contracts. How
can it be claimed that he did not give Frontenac the benefit of his experience
when Frontenac is located on the same premises as Euréka? What husband would
not assist his wife who is starting up a business in a field that he knows
well? Gratien Veilleux’s explanations are simply not credible.
[32]
There is no doubt in my
mind that the corporate appellants’ shareholders knew the implications of the
rules regarding associated corporations and took advantage of tax consultants’
advice at the time that corporate appellant Frontenac was created and shares
were issued to Bruno Veilleux. How can one explain the fact that Bruno Veilleux
received shares representing 24% of Frontenac’s share capital as opposed to 25%?
Gratien Veilleux claims that he was the one who decided on the percentage that
would go to corporate appellant Euréka. I did not find his testimony on
this point to be credible. No witness explained why Ms. Pomerleau, who,
according to the corporate appellants, was the directing mind of Frontenac,
chose the same percentage of share capital as Gratien Veilleux. I find that
this is because the Veilleux-Pomerleau couple took advantage of the technical
advice of tax consultants. Moreover, in 2004 and 2005, the corporate appellants’
management was in all likelihood fully cognizant of the effect of the rules
governing associated entities, because they had taken part in the settlement of
the prior assessments, as settlement that was based on the fact that the two corporate
appellants were under the same de facto control. For all these
reasons, the Court does not accept Gratien Veilleux’s evidence that tax
considerations were not a factor in the decision as to the separate existence
of the two corporate appellants.
[33]
The Court also gave
little credibility to Bruno Veilleux’s testimony. On cross-examination,
counsel for the respondent asked Bruno Veilleux to confirm that
Ms. Pomerleau’s signature was frequently affixed to documents by
administrative personnel using a stamp. He tried to dodge the question,
ultimately answering that he was unaware of whether such a stamp existed. Given Bruno Veilleux’s
involvement in the business, the Court is of the view that only two answers
were possible: either the stamp exists and is used to affix Ms. Pomerleau’s
signature to documents, or the stamp does not exist. Bruno Veilleux’s
answer was that of a person who does not want to admit any fact that might undermine
the corporate appellants’ appeals.
[34]
As one can see from the
following excerpt from his testimony, Bruno Veilleux adopted the same attitude
when he tried to explain his spouse’s and his sister-in-law’s role within the
two corporate appellants:
[TRANSLATION]
[693] Q. You, you work primarily with Service sanitaire
Frontenac.
A. Yes, madam.
[694] Q. Is that correct?
A. Yes.
[695] Q. And occasionally you work for Maintenance Euréka.
A. Yes.
[696] Q. Your spouse, Anne Laflamme...
A. Yes?
[697] Q. ... is your assistant.
A. Uh-huh.
[698] Q. O.K. During the years 2004 and 2005, she worked at your
home, I believe.
A. Yes.
[699] Q. O.K. The salary of your spouse Anne Laflamme is paid by Service sanitaire
Frontenac.
A. Yes.
[700] Q. Regardless of whether she assists you in your duties for
Maintenance Euréka or Service sanitaire Frontenac.
A. She does not assist me in the duties of Maintenance
Euréka, she assists me in the duties of Frontenac.
[701] Q. Frontenac only.
A. Yes.
[702] Q. Who assists you in your duties with Maintenance Euréka?
A. In Quebec City, it’s me.
[703] Q. Just you.
A. Yes.
[704] Q. Your spouse does no work for that corporation.
A. No.
[705] Q. That’s what you’re saying to us today?
A. For me, she ... no, I would say no.
[706] Q. Well, I will re-read an excerpt from your examination
for discovery at page 24. At page 24 I asked you:
Your spouse worked with you, I believe?
And you answered:
Yes.
PHILIP NOLAN: On what line are you?
ANNE-MARIE BOUTIN: 24, line... sorry, line 10.
Q. Your spouse worked with you, I believe?
A. Yes.
Q. What were her duties?
A. Those of an assistant, I would say. Staffing assistant, contract
liaison assistant, commencement, contract commencement; she does a little bit…
she provided me with support in what I did. What she did was…
Then, I asked:
Q. She was your assistant?
And you added:
A. The similarity.
Q. All right. Essentially, she followed you?
To which you answered:
A. Exactly.
I asked you:
Q. Who pays her salary?
A. The salary is paid by Frontenac.
Q. Yes. During those years, your salary was sometimes paid by Frontenac
but was also sometimes paid by Maintenance Euréka.
And I asked you:
Q. I understand that regardless of whether you personally worked for
Maintenance or for Maintenance... ― correction:
for Service sanitaire Frontenac … for Maintenance Euréka or for Frontenac ― you spouse’s salary was paid by Frontenac at all times?
You said:
A. Yes.
At that time, you told us that your spouse was your assistant and
that she helped you in your duties; so that is indeed her work?
A. I said that yes, she assisted me in my duties. You
didn’t ask me if she assisted me in my duties with Euréka and Frontenac.
[707] Q. No. Generally.
A. I answered, because she was paid by Frontenac, I
concluded that it was for Frontenac.
[708] Q. Your brother Simon’s spouse...
A. Yes?
[709] Q. ... Sandra Poulin. She’s your brother Simon’s assistant?
A. Yes.
[710] Q. O.K. Your brother Simon mainly works for Maintenance
Euréka?
A. Yes.
[711] Q. Maintenance...
A. Yes.
[712] Q. Maintenance Euréka, sorry.
A. Yes.
[713] Q. Maintenance Euréka, sorry. For Maintenance Euréka, O.K.
A. Yes.
[714] Q. She is paid by Service sanitaire Frontenac, correct?
A. Ms. Poulin?
[715] Q. Sandra Poulin.
A. Yes.
[716] Q. How do you explain the fact that...
HIS HONOUR: Sandra Poulin is paid by whom?
ANNE-MARIE BOUTIN: By Service sanitaire Frontenac.
[717] Q. How do you explain the fact that Service sanitaire
Frontenac pays...
PHILIP NOLAN: Can we just specify that we are talking
about the years at issue in this case?
ANNE-MARIE BOUTIN: Always about the years at issue,
naturally.
PHILIP NOLAN: In the case at bar. O.K.
ANNE-MARIE BOUTIN: All the questions are about the years
at issue in the case at bar.
[718] Q. I would like to know how it’s possible for Service
sanitaire Frontenac to pay the salary of a woman who works mainly for Maintenance
Euréka.
A. If some of her salaries were paid by Service
sanitaire Frontenac, it’s necessarily, or, it means that she rendered services
to Service sanitaire Frontenac.
[35]
I strongly suspect that
Bruno Veilleux did not want to admit that Sandra Poulin and Anne Laflamme worked
for both corporate appellants, fearing that it would help the respondent’s case
that the two corporations are managed like a single corporation for family
benefit. For all these reasons, the Court accords no credibility to Bruno
Veilleux’s testimony.
[36]
The Court has determined
that Ms. Moore is very credible witness. In cross‑examining
her, counsel for Euréka and Frontenac did not try to show that her notes
were inaccurate. More specifically, I note that he did not succeed in
contradicting her on the following facts to which the external accountants
admitted: Ms. Pomerleau may have obtained advice from her husband
regarding the incorporation of the corporate appellant Frontenac; and both
corporate appellants operated in the same territory, shared the same
administrative staff, and consulted each other to decide which of the two would
bid on new calls for tenders and what Simon Veilleux and Bruno Veilleux’s
salaries and bonuses would be, regardless of the hours they spent working for
each of the two corporations. In the Court’s opinion, these facts are
sufficient to enable the Minister to infer that it is reasonable to believe
that one of the main reasons for the separate existence of the two corporations
during the 2004 and 2005 taxation years was to reduce the income tax otherwise
payable. Given my findings on the credibility of the corporate appellants’ two
witnesses, there is, at the very least, an absence of evidence to the contrary.
[37]
The evidence also reveals
that the corporate appellants are not managed as businesses that are
independent from one another. They do not bid on the same calls for tenders
even though they essentially have the same expertise which enables one of them
to succeed the other when it does not renew a contract because it is not
profitable enough. The corporate appellants are not competitors. The decisions
to bid or to replace each other after a contract is abandoned appear to be
taken jointly, on the basis of the common interest of the two corporations and
of the Veilleux‑Pomerleau family members.
[38]
For all these reasons,
the Court dismisses the corporate appellants’ appeals, with costs to the respondent.
Signed at Ottawa, Canada, this 20th day of June 2011.
“Robert J. Hogan”
Translation certified true
On this 15th day of September 2011
François Brunet,
Revisor
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