Citation: 2012 TCC 365
Date: 20121018
Docket: 2009-2880(IT)G
BETWEEN:
9101-2310 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1]
9101-2310 Québec Inc.
(2310) is appealing from an assessment made by the Minister of National Revenue
(the Minister) under subsection 160(1) of the Income Tax Act (the Act).
By this assessment, the Minister holds 2310 jointly liable with Alain-Guy
Garneau for the payment of $63,433.46 on account of Mr. Garneau’s tax
liability for the 1993, 1994, 1995, 1998 and 1999 taxation years. The two main submissions
advanced by 2310 in support of its position that subsection 160(1) does
not apply and that the assessment should be vacated are that there was no
transfer within the meaning of the subsection, and that Mr. Garneau and 2310
were at arm’s length from each other. Moreover, even if section 160 of the Act
applies, 2310 submits that the assessment should be reduced because the
Minister received a partial payment of Mr. Garneau’s tax debt after the
assessment was made.
Factual background
[2]
2310, a management
company, was incorporated on February 19, 2001, but was essentially inactive
during the years 2002 and 2003 (see Exhibit A-1). For example, 2310 had no
employees, and the financial statements
show gross revenues of $22 in 2002 and zero in 2003 (see Exhibit A‑5). The sole
shareholder and director of 2310 was Daniel Pratte.
[3]
Mr. Pratte is a
business acquaintance and friend of Mr. Garneau’s. Although they did
not sit together on a board of directors, Mr. Pratte and Mr. Garneau met
on many occasions during social activities and at sports, artistic and other
events. Mr. Pratte has known Mr. Garneau since the early 1990s when
he settled in Val-d’Or, where Mr. Garneau lived. At the time, Mr. Pratte
represented Molson’s Brewery, which sponsored several activities and events in
the region. Mr. Pratte estimated that they saw each other roughly twice a
week in bars or at social or sports activities. Mr. Pratte has a special
interest in mining exploration financing and Mr. Garneau is an engineer
involved in the financing of exploration activities by means of flow-through
share issues.
[4]
Mr. Pratte left
Molson’s Brewery in the early 2000s to concentrate on his own businesses. Through
one of his companies, he looks after kitchens and the supervision of mine
workings.
[5]
Following litigation
regarding entitlement to compensation for damages incurred during a fire, Mr. Garneau
received $305,441.32. Upon receiving this amount, Mr. Garneau was
experiencing financial problems, including a dispute with the Federal Business
Development Bank (FBDB). If Mr. Garneau had deposited this amount into his
own bank account, it would have been seized by the FBDB. As a favour to a
friend, Mr. Pratte, who was aware of this situation, offered Mr. Garneau
to have the amount deposited into the bank account of one of his management
companies, namely 2310. The company was not paid for this favour. The objective
was to give Mr. Garneau more time to negotiate a settlement with the FBDB.
[6]
On March 19, 2002, Mr.
Pratte deposited the amount of $305,441.32 into 2310’s only bank account. The
balance of that account prior to the deposit was $1,795.70. On the same day, a
withdrawal of $28,879.71 was to pay the fees of the lawyers and experts
retained by Mr. Garneau for the purposes of the aforementioned litigation. Slightly
less than a month later, on April 12, 2002, Mr. Garneau instructed 2310 to
pay $150,004.50 to the FBDB. Further amounts were then paid to the
FBDB, namely $10,000 on November 12, 2002, and $15,004.50 on
December 27, 2002. In addition, on December 27, 2002,
there was a payment of $1,668.23 (not $1,663.29 as stated in Exhibit A-4,
the cheque reconciliation prepared by Mr. Pratte). The cheque reconciliation
discloses that amounts were also paid to Mr. Garneau, some of his children
and some of Mr. Garneau’s creditors including Les Foreurs hockey team, a
hunting outfitter, Télébec and the SAAQ (see the copies of the cheques at tab
17 of Exhibit I-1 as well).
[7]
Generally, Mr. Garneau
told Mr. Pratte who the payees of 2310’s cheques were to be, and Mr. Pratte
complied without obtaining any details about the reasons for the payments
requested by Mr. Garneau. According to Mr. Pratte, apart from a 10-15 day
period during which Mr. Pratte was not available, Mr. Garneau did not have
access to the ATM card, and Mr. Pratte was the one who signed the cheques and
was the only person authorized to do so. Other than the withdrawal of
March 19, 2002, and the withdrawals to pay the bank fees, I note that
there were no other withdrawals on 2310’s bank statements prior to
February 3, 2003, a date that is subsequent to December
27, 2002, which is when the amount of $305,441.32 was used up. All the
withdrawals from the account are described as “cheques”. In addition, I
found none of the ATM withdrawals in the cheque reconciliation.
[8]
Before accepting the
deposit of the funds belonging to Mr. Garneau, Mr. Pratte consulted
his advisor at the National Bank in order to ensure that it would not pose a
problem for the company. In addition, a letter was requested from Mr. Garneau,
confirming the agreement between him and 2310. The letter (Exhibit A‑2), signed
on March 23, 2002, states as follows:
[translation]
I
hereby request that, through your company, you manage the money that I
deposit into your account for the purpose of paying my accounts due or that
become due in the future.
I
therefore release you from liability for income tax and other implications of
the effects that may result.
[Emphasis added.]
[9]
At the examination for
discovery, Mr. Pratte described the situation as follows:
[translation]
Q. [72] So there is no document stating that the company owed
Mr. Garneau money?
A. Mr. Garneau gave me the mandate to manage the deposited
amount of three hundred and five thousand dollars ($305,000).
Q. [73] But there was no document stating that the company
owed money?
A. The company didn’t owe money, the company managed his money
for him. I do not understand the subtlety in your question, counsel. The
company did not borrow money, the company managed an insurance settlement
cheque at his request.
[Emphasis added.]
[10]
Mr. Pratte stated
that he was not aware of Mr. Garneau’s problems with the federal tax
authorities at the time. He claimed that he only found out about the tax
liability when he received the assessment made on February 5, 2008
under section 160 of the Act (see Exhibit I‑1, tab 1, for a
copy of the notice of assessment). In her testimony, the officer handling the
objection confirmed the existence of the tax liability of $63,433.46 at the
time that the cheque for $305,441.32 was deposited. However, she acknowledged
that the Minister received a partial payment of $17,948.76 in August 2009,
after the 2008 assessment, leaving a balance of $45,484.70 to pay (see
Exhibit I‑1, tab 18, 4th sheet). In her testimony, the officer also
acknowledged that 2310 had cooperated fully with the Minister’s
representatives.
[11]
Mr. Pratte stated
that no part of the amount given by Mr. Garneau was used for 2310’s benefit or
for 2310’s own purposes.
The amount was used solely for Mr. Garneau’s benefit. However, my analysis
of 2310’s banking transactions shows that, during two distinct periods, the
withdrawals or cheques made by that company for its own benefit exceeded the
amount of the deposits of 2310’s own funds. The deficit was $415.55 on
March 27, 2002, the beginning of the first period, and $6,323.42 on
May 9, 2002, the end of that period. The second period begins on
October 2, 2002, when the deficit is $13,599.54, and ends on
December 13, 2002, when the deficit is $6,345.54.
[12]
For this analysis, I have
used 2310’s bank account statements and the cheque reconciliation which Mr.
Pratte prepared at the respondent’s request and which the respondent adduced in
evidence (see Exhibit I-1, tabs 15 and 16; these documents were also adduced by
2310 as Exhibits A-3 and A-4.) This analysis has enabled me to reconcile the
amounts belonging to Mr. Garneau and the amounts belonging to 2310. It has
also enabled me to see that the amount of $305,441.32 received by Mr. Garneau
and deposited into 2310’s bank account on March 19, 2002, had been completely spent,
to Mr. Garneau’s benefit, as at December 27, 2002. In fact, with the payment of
$15,004.50 to the FBDB, the balance remaining from the amount held by 2310 for
Mr. Garneau was exceeded by $7,183.86. In other words, the latter amount could
be viewed as a loan or advance from 2310 to Mr. Garneau.
[13]
This conclusion assumes
that the amounts shown on the cheque reconciliation done by Mr. Pratte, who
identified all the payments made for Mr. Garneau’s benefit, were truly
paid out for Mr. Garneau’s benefit. I note that this conciliation appears
at tab 16 of Exhibit I-1, produced by the respondent, and is corroborated in
part by the cheques produced at tab 17 of the same exhibit. Some of the cheques
show Mr. Garneau’s name or the name of one of his relatives in the memo area.
For example, the memo [translation]
“in full and final payment, box 120 Alain Guy Garneau” on the $1,799.77 cheque
bearing the number 117 and payable to “Les Foreurs de Val‑d’Or” (see
Exhibit I‑1, tab 17; see also cheques #24, #69, #71 and #124). I should
point out that, in Mr. Pratte’s reconciliation, the cheque for $2,160.94,
bearing #24, was said to be part of the amounts paid for Mr. Garneau’s
benefit, when in fact only $1,660.94 was attributable to those amounts. Indeed,
$500 was for an expense of Mr. Pratte’s (see Exhibit I‑1, tab 17). Lastly,
the respondent did not challenge the probative value of the conciliation on
cross-examination.
[14]
I would point out that
the amount of the loans or advances appears to have stood at $11,102.15 as
at February 28, 2003, $22,492.93
as at February 28, 2004, and $28,195.10 as at February 28, 2005, but that these
amounts are not on 2310’s balance sheet. The balance sheet only records
advances to corporations (see the 2004 balance sheet with the 2003 comparative
statement and the 2005 balance sheet, Exhibit A‑5). The same
inconsistency can be found with the bank account balance as at February 28,
2003, which does not match the amount indicated as [translation] “cash”. It should be emphasized that the 2003
balance sheet was prepared by Mr. Pratte himself. At the hearing, held on
June 12, 2012, Mr. Pratte stated that the advances or loans in question
were completely or close to completely reimbursed by Mr. Garneau, in cash
or services.
[15]
According to the
Minister’s data, Mr. Garneau became bankrupt on “2007 09 10” and
Mr. Pratte did not make any claim (see Exhibit I-1, tab 18, 3rd sheet).
Mr. Pratte is not certain whether Mr. Garneau owed him any money at the time.
The respondent’s
position
[16]
Counsel for the respondent
submits that all the conditions set out in subsection 160(1) are met. In
particular, there was a transfer, and the transfer was to a person with whom
Mr. Garneau was not, on the facts, dealing at arm’s length. According to
counsel, the $305,441.32 cheque which Mr. Garneau remitted to 2310
constituted a transfer. In this regard, he bases his position to a large
extent on a case of the Federal Court of Appeal, Livingston v. Canada, 2008
FCA 89, [2008] F.C.J. No. 360 (QL), 2008 3 C.T.C. 230, and, in
particular, on paragraph 21:
21 The
deposit of funds into another person’s account constitutes a transfer of
property. To make the point more emphatically, the deposit of funds by Ms. Davies
into the account of the respondent permitted the respondent to withdraw those
funds herself anytime. The property transferred was the right to require the
bank to release all the funds to the respondent. The value of the right
was the total value of the funds.
[Emphasis added.]
Counsel for the respondent also submits that the
contract of mandate (agency) invoked by 2310 is invalid because it is contrary
to public order. Consequently, he submits that the contract is null.
[17]
In support of his
position that there is a de facto non-arm’s length relationship between
Mr. Garneau and 2310, counsel for the respondent cited several cases, including
a case decided by the Supreme Court of Canada, Canada v. McLarty, 2008 SCC 26,
[2008] S.C.J. No. 26 (QL), [2008] 2 S.C.R. 79, [2008] 4 C.T.C. 221, where, in
the context of a purchase of seismic data, the Court based its reasoning, in
part, on Canada Revenue Agency Interpretation Bulletin IT-419R2 entitled “Meaning
of Arm’s Length” (paragraph 62 of the decision). He also cited another case
of the same court, namely Swiss Bank Corp. et al. v. M.N.R., [1974] S.C.R. 1144.
Analysis
[18]
When addressing an issue
involving the application of the provisions of the Act, it is always useful to
quote the provisions in question. The key provision here is section 160 of the
Act. The most
relevant excerpts of the section are as follows:
|
Tax liability re property
transferred not at arm’s length
160. (1) Where a
person has, on or after May 1, 1951, transferred property, either
directly or indirectly, by means of a trust or by any other means whatever,
to
(a) the person’s
spouse or common-law partner or a person who has since become the person’s
spouse or common-law partner,
(b) a person who was
under 18 years of age, or
(c) a person with
whom the person was not dealing at arm’s length,
the following rules apply:
(d) the transferee and
transferor are jointly and severally liable to pay a part of the transferor’s
tax under this Part for each taxation year equal to the amount by which the tax
for the year is greater than it would have been if it were not for the
operation of sections 74.1 to 75.1 of this Act and section 74 of the Income
Tax Act, chapter 148 of the Revised Statutes of
Canada, 1952, in respect of any income from, or gain from the disposition of,
the property so transferred or property substituted therefor,
and
(e) the transferee and
transferor are jointly and severally liable to pay under this Act an amount
equal to the lesser of
(i) the amount, if
any, by which the fair market value of the property at the time it was
transferred exceeds the fair market value at that time of the consideration
given for the property, and
(ii) the total of all
amounts each of which is an amount that the transferor is liable to pay
under this Act in or in respect of the taxation year in which the
property was transferred or any preceding taxation year,
but nothing in
this subsection shall be deemed to limit the liability of the transferor
under any other provision of this Act.
…
|
Transfert de biens entre
personnes ayant un lien de dépendance
160. (1) Lorsqu’une
personne a, depuis le 1er mai 1951, transféré des biens, directement
ou indirectement, au moyen d’une fiducie ou de toute autre façon à l’une des
personnes suivantes :
a) son époux ou
conjoint de fait ou une personne devenue depuis son époux ou conjoint de
fait;
b) une personne qui
était âgée de moins de 18 ans;
c) une personne avec
laquelle elle avait un lien de dépendance,
les règles
suivantes s’appliquent :
d) le bénéficiaire et
l’auteur du transfert sont solidairement responsables du paiement d’une
partie de l’impôt de l’auteur du transfert en vertu de la présente partie
pour chaque année d’imposition égale à l’excédent de l’impôt pour l’année sur
ce que cet impôt aurait été sans l’application des articles 74.1 à 75.1 de
la présente loi et de l’article 74 de la Loi
de l’impôt sur le revenu, chapitre 148 des
Statuts revisés [sic] du Canada de 1952, à l’égard de tout revenu tiré
des biens ainsi transférés ou des biens y substitués ou à l’égard de
tout gain tiré de la disposition de tels biens;
e) le bénéficiaire et
l’auteur du transfert sont solidairement responsables du paiement en vertu de
la présente loi d’un montant égal au moins élevé des montants suivants
:
(i) l’excédent
éventuel de la juste valeur marchande des biens au moment du transfert sur la
juste valeur marchande à ce moment de la contrepartie donnée pour le bien,
(ii) le total des
montants dont chacun représente un montant que l’auteur du transfert doit
payer en vertu de la présente loi au cours de l’année d’imposition dans
laquelle les biens ont été transférés ou d’une année d’imposition
antérieure ou pour une de ces années;
aucune
disposition du présent paragraphe n’est toutefois réputée limiter la
responsabilité de l’auteur du transfert en vertu de quelque autre disposition
de la présente loi.
…
|
|
Discharge of liability
(3) Where
a particular taxpayer has become jointly and severally liable with another
taxpayer under this section in respect of part or all of a liability under
this Act of the other taxpayer,
(a) a payment by the
particular taxpayer on account of that taxpayer’s liability shall to the
extent of the payment discharge the joint liability; but
(b) a payment by the
other taxpayer on account of that taxpayer’s liability discharges the
particular taxpayer’s liability only to the extent that the payment operates
to reduce that other taxpayer’s liability to an amount less than the amount
in respect of which the particular taxpayer is, by this section, made jointly
and severally liable.
|
 Extinction de l’obligation(3) Dans
le cas où un contribuable donné devient, en vertu du présent article,
solidairement responsable, avec un autre contribuable, de tout ou partie
d’une obligation de ce dernier en vertu de la présente loi, les règles
suivantes s’appliquent :
a) tout paiement fait
par le contribuable donné au titre de son obligation éteint d’autant
l’obligation solidaire;
b) tout paiement fait
par l’autre contribuable au titre de son obligation n’éteint l’obligation du
contribuable donné que dans la mesure où le paiement sert à réduire
l’obligation de l’autre contribuable à une somme inférieure à celle dont le contribuable donné est solidairement responsable en vertu du présent article.
|
[19]
Since paragraph 160(1)(d)
refers to sections 74.1 to 75.1 of the Act and to section 74 of the Income Tax Act, chapter 148 of
the Revised Statutes of Canada, 1952 (the 1952 Act), which sections lay down
what are commonly known as the “attribution rules”, it is
helpful to reproduce certain provisions of those sections:
|
Transfers and loans to spouse
or common-law partner
74.1 (1) If an
individual has transferred or lent property
(otherwise than by an assignment of any portion of a retirement pension under
section 65.1 of the Canada Pension Plan or a
comparable provision of a provincial pension plan as defined in section 3 of
that Act), either directly or indirectly, by means of a trust or by any
other means whatever, to or for the benefit of a person who is the
individual’s spouse or common-law partner or who has since become the
individual’s spouse or common-law partner, any income or loss, as the case
may be, of that person for a taxation year from the property or from property
substituted therefor, that relates to the period in the year throughout which
the individual is resident in Canada and that person is the individual’s
spouse or common-law partner, is deemed to be income or a loss, as the
case may be, of the individual for the year and not of that person.
Transfers
and loans to minors
(2) If an
individual has transferred or lent property, either
directly or indirectly, by means of a trust or by any other means whatever,
to or for the benefit of a person who was under 18 years of age … and who
(a) does not deal with
the individual at arm’s length, or
…
|
Transfert ou prêt à l’époux
ou au conjoint de fait
74.1 (1) Dans le
cas où un particulier prête ou transfère un bien
— sauf par la cession d’une partie d’une pension de retraite conformément à
l’article 65.1 du Régime de pensions du Canada
ou à une disposition comparable d’un régime provincial de pensions au sens de
l’article 3 de cette loi —, directement ou indirectement, par le biais
d’une fiducie ou par tout autre moyen, à une personne qui est son époux
ou conjoint de fait ou qui le devient par la suite ou au profit de cette
personne, le revenu ou la perte de cette personne pour une année d’imposition
provenant du bien ou d’un bien y substitué et qui se rapporte à la période de
l’année tout au long de laquelle le particulier réside au Canada et tout au
long de laquelle cette personne est son époux ou conjoint de fait est
réputé être un revenu ou une perte, selon le cas, du particulier
pour l’année et non de cette personne.
Transfert ou prêt à un mineur
(2) Lorsqu’un
particulier transfère ou prête un bien — directement
ou indirectement, par le biais d’une fiducie ou par tout autre moyen — à
une personne de moins de 18 ans qui a un lien de dépendance avec le
particulier ou …
|
|
Transfers or loans to a trust
74.3 (1) Where an
individual has lent or transferred property (in
this section referred to as “lent or transferred property”), either directly
or indirectly, by means of a trust or by any other means whatever, to a
trust in which another individual who is at any time a designated person in
respect of the individual is beneficially interested at any time, the
following rules apply:
…
|
Transfert ou prêt à une
fiducie.
74.3 (1) Lorsqu’un
particulier prête ou transfère un bien —
appelé « bien prêté ou transféré » au présent article —, directement ou
indirectement, par le biais d’une fiducie ou par tout autre moyen, à une
fiducie dans laquelle un autre particulier — qui, à un moment donné, est, en
ce qui concerne le particulier, une personne désignée — a un droit de
bénéficiaire à un moment donné, les règles suivantes s’appliquent :
…
|
|
Gain or loss deemed that of transferor
75.1 (1) Where
(a) subsection 73(3)
or (4) applied to the transfer of property (in this subsection
referred to as “transferred property”) by a taxpayer to a child of the
taxpayer,
(b) the transfer was
made at less than the fair market value of the transferred property
immediately before the time of the transfer, and
(c) in a taxation
year, the transferee disposed of the transferred property and did not, before
the end of that year, attain the age of 18 years,
the following rules apply:
…
|
Gain ou
perte présumés pour l’auteur du transfert
75.1 (1) Lorsque :
a) les paragraphes
73(3) ou (4) s’appliquent au transfert de biens d’un contribuable à
son enfant;
b) le transfert a été
fait pour une somme inférieure à la juste valeur marchande que les biens
transférés avaient immédiatement avant le transfert;
c) au cours d’une année
d’imposition, le bénéficiaire des biens transférés en a disposé et n’a pas,
avant la fin de cette année, atteint l’âge de 18 ans,
les règles
suivantes s’appliquent :
…
|
[Emphasis added.]
[20]
Sections 74.1 to 74.5 have,
to a great extent since 1986, replaced subsection 74(1) of the Act. That
subsection, as it read prior to 1975, provided as follows:
|
(1) Where a person has, on or after August 1, 1917, transferred
property either directly or indirectly, by means of a trust or by any
other means whatever to his spouse, or to a person who has since become
his spouse, the income for a taxation year from the property or from property
substituted therefor shall, during the lifetime of the transferor while he is
resident in Canada and the transferee is his spouse, be deemed to be income
of the transferor and not of the transferee.
|
(1) Lorsqu’une
personne a transféré des biens, directement ou indirectement, le 1er
août 1917 ou après, par un acte de fiducie ou par tout autre moyen que ce
soit à son conjoint, ou à une personne qui est depuis devenue son
conjoint, le revenu, pour une année d’imposition, tiré des biens ou de biens
y substitués, est réputée [sic], durant la vie de l’auteur du
transfert, tandis qu’il réside au Canada et que le bénéficiaire du transfert
est son conjoint, être le revenu de l’auteur du transfert et non de celui à
qui le transfert a été fait.
|
[Emphasis added.]
[21]
In Livingston,
supra, the Federal Court of Appeal recalled the interpretation principle
that must guide the courts in applying subsection 160(1) of the Act. At paragraph
15, Justice Sexton writes as follows:
15 The Supreme Court of Canada’s preferred approach to statutory
interpretation remains Dreidger’s modern principle (Elmer A. Driedger, The
Construction of Statutes (Toronto: Butterworths, 1974) at 67):
Today there is only one principle or approach, namely, the words of
an Act are to be read in their entire context, in their grammatical and
ordinary sense harmoniously with the scheme of the Act, the object of the
Act, and the intention of Parliament.
See Re
Rizzo and Rizzo Shoes Ltd., [1998] 1 S.C.R. 27 at 41; Bell
ExpressVu Limited Partnership v. Rex, 2002 SCC 42 at paragraph 26.
[Emphasis added.]
[22]
It is also worth
recalling the comments of Justice Desjardins of the Federal Court of Appeal,
who wrote, in Medland v. Canada, [1998] F.C.J. No. 708 (QL),
98 DTC 6358, 227 N.R. 183, [1999] 4 C.T.C. 293, at paragraph 14, that
the tax policy embodied in, or the object and spirit of subsection 160(1),
is to prevent a taxpayer from transferring his property to his spouse in
order to thwart the Minister’s efforts to collect the money which is
[owed] to him.” [Emphasis added.]
[23]
There is another
principle of interpretation, which holds that a phrase used in a statute should
be presumed to have the same meaning throughout the statute. Justice Corey
of the Supreme Court of Canada wrote, in Thomson v. Canada (Deputy Minister
of Agriculture), [1992] 1 S.C.R. 385, at page 400: “Unless the contrary is
clearly indicated by the context, a word should be given the same
interpretation or meaning whenever it appears in an act.”
[24]
This presumption should
be even stronger where the phrase is used in the wording of two interrelated
provisions. The treatment of the concept of transfer found in subsection 160(1)
of the Act falls into this category.
Indeed, paragraph 160(1)(d) refers to section 74 of the 1952
Act
and to sections 74.1 to 75.1 of the Act, which contain the same concept of
transfer. Not only is the same verb “to transfer” used, the same broader
wording is essentially used as well: “transferred property, either directly
or indirectly, by means of a trust or by any other means whatever” (“transféré
des biens, directement ou indirectement, au moyen d’une fiducie ou de tout
autre façon”). Hence, in my view, it is entirely appropriate to adopt a
judicial interpretation of the verb “transfer” that is the same for the
sections enacting the attribution rules as it is for the sections enacting the
tax collection rule in subsection 160(1) of the Act. In fact, such is the
approach that the courts have taken. They have used the same judicial
interpretation of the concept of “transfer”, both for the purposes of the
attribution rule and for the purposes of section 160, as we shall see further
on.
[25]
Let us apply these
interpretation principles to define the scope of subsection 160(1) of the
Act. The case law describes the conditions of application of subsection 160(1)
in various ways. In Tétrault v. Canada, 2004 TCC 332, [2004] T.C.J.
No. 265 (QL), [2004] 4 C.T.C. 2234, 2004 DTC 2763, a decision that I rendered
on May 11, 2004, I describe these conditions at paragraphs 29-35. Essentially,
one can assert that subsection 160(1) of the Act applies when two conditions
precedent have been met: a transfer of property, and the fact that this
transfer was made to certain designated persons, including a person with whom
the transferor was not dealing at arm’s length. When these two conditions precedent
are met, two distinct rules can apply. I summarized them in Tétrault:
32 When the two aforementioned conditions are assembled, the following
two rules apply. First is the rule set out in paragraph 160(1)(d)
(paragraph 160(1)(d) rule),according to which the transferee and the transferor are jointly and
severally liable to pay a part of the income tax in respect of any income from,
or capital gain from the disposition of, the property transferred to the
transferee, where this income or gain is subject to the attribution rules
laid down in sections 74.1 to 75.1 of the Act and
in section 74 of the Income Tax Act, chapter 148 of
R.S.C. 1952 (1952 Act). It should be pointed out that, in that
case, there is no issue as to whether there is any amount by which the fair
market value (FMV) of the property transferred exceeds the FMV of the
consideration. The joint and several liability is applicable once there is a
tax payable on the income or capital gain subject to the attribution rules. . . .
33 Under the second
rule, the paragraph 160(1)(e) rule, the
transferee and transferor are jointly and severally liable in regard to any
amount that the transferor must pay under the Act during the
taxation year in which the property was transferred. However, the transferee’s
liability is limited to the lesser of the following two amounts: (i) the
possible excess of the FMV of the property at the time of the transfer over the
FMV at the time of the consideration given for the property, and (ii) the
amount of the transferor's tax debt.
[Emphasis added and footnotes omitted.]
[26]
In this instance, we
are interested in the second rule, namely the paragraph 160(1)(e) rule,
which applies to cases where property has been transferred at a time when the
transferor owed the Minister money.
[27]
For the purposes of
deciding the dispute in Tétrault, I analyzed the concept of transfer as
follows at paragraphs 36-40:
36 Before deciding whether there was a transfer, it is important to
define the scope of this notion. In decisions concerning the application
of section 160 of the Act, Fasken Estate v. M.N.R., [1948] Ex. C.R. 580, has often been cited.
In Raphael, my colleague Judge Mogan was no exception, so I will
quote from paragraph 14 of his reasons:
14 When applying subsection 160(1) to particular
circumstances, many judges have cited the Exchequer Court decision of Fasken Estate v. M.N.R., [1948] Ex. C.R. 580 in which Thorsen P. stated:
The
word “transfer” is not a term of art and has not a technical meaning. It is not
necessary to a transfer of property from a husband to his wife that it should
be made in any particular form or that it should be made directly. All
that is required is that the husband should so deal with the property as to
divest himself of it and vest it in his wife, that is to say, pass the property
from himself to her. The means by which he accomplishes this result,
whether direct or circuitous, may properly be called a transfer. . . .
[Emphasis added.]
37
Another relevant decision, albeit cited less often,
is Dunkelman v. M.N.R., 59 DTC 1242, also by the Exchequer
Court of Canada. In that case, as in Fasken Estate, the issue was
whether the attribution rules were applicable. However, in Dunkelman,
it was also necessary to determine whether a loan granted to a trust constituted
a transfer for the purposes of subsection 22(1) of the Income Tax
Act, S.C. 1948, c. 52.After citing Fasken Estate and St. Aubyn v.
Attorney-General, [1952] A.C. 15,
Mr. Justice Thurlow stated, at page 1246:
. . . I do not think it can be denied that, by loaning money
to the trustees, the appellant, in the technical sense, transferred money to
them, even though he acquired in return a right to repayment of a like sum with
interest and a mortgage on the Butterfield Block as security, or even though he
has since then been repaid with interest. But, in my opinion, it requires an
unusual and unnatural use of the words “has transferred property” to include
the making of this loan. ... I also think that, if Parliament had
intended to include a loan transaction such as the present one, the words
necessary to make that intention clear would have been added, and it would not
have been left to an expression which, in its usual and natural meaning,
does not clearly include such a transaction. To apply the test used by Lord Simonds,
I do not think this transaction was one which the language of the subsection,
according to its natural meaning, “fairly” or “squarely” hits. I am,
accordingly, of the opinion that the making of the loan in question was not a
transaction within the meaning of the expression “has transferred property” and
that s. 22(1) does not apply.
In reaching this conclusion, I have also considered the wide words “or
by any other means whatsoever,” but I think that
they are directed to the means or procedure by which transfers may be
accomplished, rather than to the scope of the expression “has transferred
property” and that they do not expand that scope beyond the natural meaning of
the expression.
[Emphasis added.]
38 In McVey v. The Queen,
96 DTC 1225, my colleague Judge Rip implicitly acknowledged this as the
appropriate interpretation in the application of subsection 160(1) of
the Act, when he held that the Minister’s assessment was valid, whether
the sums transferred were considered to have been transferred as a gift, in
which case subsection 160(1) of the Act would apply, or
whether they were considered a loan, in which case subsection
224(4) would apply.
39 The Fasken and Dunkelman decisions
indicate, in my opinion, that in order for there to be a transfer of
property for the purposes of the attribution rules, it is essential that the
transferor be divested of his ownership and that the property has vested in the
transferee.
The mere possession of a property that has been loaned with the obligation
to return it does not satisfy this condition. That, I think, is the meaning
that must be given to the expression “pass the property from himself to her”.
That is also the appropriate interpretation of subsection 160(1) of
the Act. As Madam Justice Desjardins said in Medland, supra,
at paragraph 14: “...the tax policy embodied in, or the object and spirit
of subsection 160(1), is to prevent a taxpayer from transferring his
property to his spouse in order to thwart the Minister’s efforts to collect the
money which is owned [sic] to him.” The loan of money would
not constitute a method of thwarting the collection of the tax owed by the
lender. Pursuant to subsection 224(4) of the Act, the
Minister could garnish the sum loaned. This notion of “transfer” is
therefore reconcilable with the purpose intended by subsection
160(1) of the Act.
40 It follows from the analysis of the
notion of transfer used in subsection 160(1) of
the Act that sums paid to a mandatary to be spent for the benefit
of the mandator do not constitute a transfer for the purposes of this
subsection, either. In such circumstances the mandator is not divested of
his ownership of the sums entrusted to the mandatary and they are not vested in
the mandatary. The mandator remains the owner of these sums. For the
purposes of this analysis, at least three distinct scenarios are conceivable.
First, if the sums entrusted by the mandator (for example, the husband) have
not yet been used by the mandatary (for example, the wife) for the purposes of
purchasing goods and services for the family, the mandatary could be required
to reimburse the mandator any sum that has not been used accordingly. A mandator
may at any time terminate the mandate and a seizing creditor could demand that
the mandatary deliver to him the property belonging to the debtor mandator. In
such circumstances, the Minister could carry out a garnishment pursuant
to section 224 of the Act.
[Emphasis added and footnotes omitted.]
[28]
Justice C. Miller of
this Court adopted this interpretation, including the aspect related to the
application of Dunkelman.
He wrote as follows at paragraph 20 of the decision in Merchant v. The Queen,
2005 TCC 161, [2005] T.C.J. No. 101 (QL), [2005] 2 C.T.C. 2169,
2005 DTC 377:
20 (i) Transfer of property. In the case of Tétrault v. The
Queen, Justice Archambault addressed the issue of whether a loan
constitutes a transfer of property for purposes of section 160 of
the Act and concluded, based on the cases of Dunkelman
v. M.N.R. and McVey v. The Queen that it does not. I
agree with that conclusion. As Justice Archambault put it at paragraph 39:
… The loan of money would not constitute a method of thwarting the
collection of the tax owed by the lender.
[Emphasis added and footnotes omitted.]
[29]
It should be noted that
Fasken Estate
and Dunkelman were decided by the Exchequer Court of Canada and were
applied in several cases of the Federal Court of Appeal. Fasken Estate was
thereby applied — notably
in Sachs v. Canada, [1980] F.C.J. No. 611 (QL), [1980] C.T.C. 358, 80
DTC 6291, Boger Estate v. Canada (M.N.R.), [1993]
F.C.J. No. 545 (QL), [1993] 2 C.T.C. 81, 93 DTC 5276, Canada v. Kieboom
[1992] 3 F.C. 488, [1992] 2 C.T.C. 59, 92 DTC 6382 and Paxton v.
Canada (M.N.R.), [1996] F.C.J. No. 1634 (QL), 97 DTC 5012,
1996 CarswellNat 2400 — with respect to the application of the attribution
rules and subsections 70(6), 70(9) and 73(5) of the Act. As far as the
application of section 160 is concerned, Fasken Estate was applied in Medland, supra,
2753-1359 Québec Inc. v. Canada, 2010 FCA 32, 2010 DTC 5031, [2010] 4 C.T.C.
202, Paxton, supra, and Yates v. Canada, 2009 FCA 50,
[2010] F.C.R. 436, [2009] 3 C.T.C. 183, 2009 DTC 5062.
[30]
As for the decision in Dunkelman,
it was applied by the Federal Court of Appeal in Sachs, supra. Here
is what Justice Heald declared in Sachs:
25 Turning now to the first of these three
submissions, I agree that before subsection 75(1) can apply, there must have
been a vesting in the infant children. In dealing with the predecessor
section in the Income Tax Act to subsection 75(1) Thurlow J. (as he then
was) in the case of Joseph B. Dunkleman v. Minister of National Revenue,
expressed the view that all that was necessary for the section to apply was “.
. . that the taxpayer shall have so dealt with the property belonging to him as
to divest himself of it and vest it in a person under 19 years of age.” In
that judgment, Mr. Justice Thurlow cited with approval similar views expressed
by President Thorson of the Exchequer Court in David Fasken Estate v.
Minister of National Revenue ((1948 Ex. C. R. 580) and by Lord Radcliffe in
St. Aubyn v. Attorney General ((1952) A.C. 15).
[Emphasis added and footnotes omitted.]
[31]
Dunkelman has also been applied by other judges of
the Exchequer Court, notably Justice Noël in Robins v. Minister of National
Revenue, [1963] Ex. C.R. 171, [1963] C.T.C. 27, 63 DTC 1012, and
President Jackett in Oelbaum v. Minister of National Revenue, [1968] Ex.
C.R. 380, [1968] C.T.C. 244, 68 DTC 5176.
[32]
In addition to the
decisions of this Court in Tétrault and Merchant, supra,
and the decisions of the Exchequer Court, there is the decision of former Chief
Judge Couture of our Court in Béliveau v. Minister of National Revenue, 91 DTC
669, [1991] 1 C.T.C. 2683. He writes as follows at page 675 (DTC):
A loan cannot legally be a “transfer of property” as required by the
provisions of 56(2), still less a payment, and the
courts have clearly confirmed this interpretation. What the Act means by a
“transfer of property” is not simply a physical transfer but a transfer of the
right of ownership attached to the property.
The decisions on this interpretation could hardly be more specific.
In Joseph B. Dunkelman v. Minister of National Revenue 59 DTC 1242, the
Court had to interpret the provisions of subsection 22(1) of the Act in effect
at that time. That subsection read:
22(1) Where a taxpayer has, since 1930, transferred property to a
person who was under nineteen years of age, either directly or
indirectly, by means of a trust or by any other means whatsoever, the
income for a taxation year from the property or from property substituted
therefor shall, during the lifetime of the taxpayer while he is resident in
Canada, be deemed to be the income of the taxpayer and not of the transferee
unless the transferee has before the end of the year attained the age of
nineteen years.
[Emphasis added.]
[33]
In Harvey v. Canada,
[1994] T.C.J. No. 391 (QL), 1994 CarswellNat 1243, [1995] 1 C.T.C. 2507, 94 DTC
1910, Judge Bowman acknowledges at paragraph 11 (QL Eng.) that Dunkelman
is good law:
The Dunkelman
case is good law in Canada and has been followed on numerous occasions. The appellant relies also on Interpretation Bulletin IT-260R,
paragraphs 3 and 4:
For the purposes
of subsection 75(1), a transfer does not include a genuine loan made by
a taxpayer to a trust for the benefit of a minor. No all-inclusive statement
can be made as to when a loan can be considered to be ‘genuine’, but a written
and signed acknowledgment of the loan by the borrower and agreement to repay it
within a reasonable time ordinarily is acceptable evidence that it was so. If,
in addition, there is evidence that the borrower has given security for the
loan, that interest on the loan has been paid, or that actual repayments have
been made, it is accepted that the loan was genuine. The fact that no interest
is required to be paid does not mean, in itself, that a genuine loan has not
been made.
Where
a loan has characteristics of a genuine loan (see 3 above) and there is no
evidence that the terms of that loan are not being honoured by the minor, the
Department considers that such a loan made directly to a minor is not a
transfer of property for the purposes of subsection 75(1).
[Emphasis added.]
[34]
It was entirely appropriate
for the Federal Court of Appeal to have applied Fasken Estate and
that the Tax Court of Canada applied Dunkelman to the concept of
transfer in the context of section 160, because the same concept is found in
the sections enacting the attribution rules, namely section 74 of the 1952 Act
and sections 74.1 to 75.1 of the Act. As we have seen, section 160 applies not
only in the context of property transfers where the transferor is indebted to
the tax authorities (the paragraph 160(1)(e) rule), but also where
the attribution rules apply (the paragraph 160(1)(d) rule).
[35]
In Dunkelman, Justice
Thurlow stated that if Parliament wants loans to trigger the attribution rule found
in subsection 22(1) of the 1948 Act, it would need to indicate this clearly.
Parliament only decided to follow that advice 27 years later, in 1986, when it
amended the attribution rules by adding sections 74.1 to 74.5 of the Act,
which extend the attribution rules to loans. It must however be emphasized that
Parliament did not enact an analogous measure for the purposes of subsection
160(1) of the Act. By stating, in section 74.1, that the attribution rule
applies when there is a transfer or a loan, the Parliament
of Canada was accepting the interpretation, adopted consistently by the courts,
that a loan is not a transfer.
[36]
It should also be
emphasized that the interpretation adopted on October 26, 1959, by
the Exchequer Court in Dunkelman has not been rejected by any subsequent
cases, including Livingston, and that the tax authorities have even
publicly accepted it for the purposes of the attribution rules. To
adopt the respondent’s interpretation today would run counter to more than sixty
years of consistent case law. And the courts are not accustomed to overruling
such a consistent line of case law; quite the contrary.
[37]
Under these
circumstances, it seems completely warranted to adopt an interpretation of the
concept of “transfer” that is harmonious, for the purposes of the attribution
rules in section 74 of the 1952 Act and of sections 74.1 to 75.1 of the Act,
and for the purposes of paragraph 160(1)(e), which applies to transfers
of property that occur when the transferor owes the Minister money. The
existence of a “transfer” is a condition precedent to the application both of
the paragraph160(1)(e) rule (where the transferor has a tax liability)
and the paragraph 160(1)(d) rule (where the attribution rules apply).
And the foregoing analysis makes it clear that there can be no transfer when a
lender lends money to a borrower. Consequently, an amount deposited in a
borrower’s bank account will not constitute a transfer for the purposes of the
attribution rules or for the purposes of the paragraph 160(1)(e) rule.
In my opinion, this interpretation is consistent with the rulings of the
Supreme Court of Canada, which has stated that “the words of an Act are to be
read in their entire context . . . .”
[38]
It goes without saying
that there is also no transfer when a mandator (principal) gives money to his
mandatary (agent), as I explained in Tétrault, supra, at
paragraph 40. That doctrine is consistent with the Supreme Court of Canada’s
decision in Victuni v. Minister of Revenue of Quebec, [1980] 1 S.C.R.
580.There, the issue involved the
computation of the tax on the paid-up capital of a company that had acquired an
immoveable in Montréal as a mandatary. Here is what Justice Pigeon wrote at
pages 584-585:
Under
the general principles of the law of mandate, it is clear that the
obligation of a mandatary towards the mandator is not a debt. The person who
has bought property on behalf of a third party who wishes to remain unknown
is no more indebted for the price paid than he is the owner of the property.
The true owner is the mandator, and the obligation of the mandatary
nominee is to render an account to the mandator and deliver over what he has
received on his behalf (C.C., art. 1713). What he receives,
even if it is money, does not belong to him: he is obliged to keep it separate
from his own property. It is a crime for him to take control of it so as to
make himself a debtor thereof instead of a mandatary: R. v. Légaré
[[1978] 1 S.C.R. 275.]
[Emphasis added.]
[39]
It is also interesting
to note that, for the purposes of the Act to authorize municipalities to
collect duties on transfers of immoveables, R.S.Q. 1977, c. M-39, the
courts have held that there was no transfer giving rise to municipal transfer
duties where a mandator transferred ownership of immovable property to a
mandatary while retaining his own right of ownership in the property. For
instance, in Miracle Mile Industrial Park Corporation c. Ville de Montréal,
[1987] J.Q. No. 422 (QL), 10 Q.A.C. 5, [1987] R.D.I. 239, [1987] R.L. 6, 3
A.C.W.S. (3d) 438, the appellant company purchased an immovable located in
Montréal from one of its principals. The evidence, in the form of a
counter-letter between the same parties, showed that there was no true transfer
of ownership. Here is what the Quebec Court of Appeal stated concerning the
absence of transfer in the case of a mandate:
[translation]
11 Moreover,
an examination of the provisions of the statute as a whole shows that the
transfer duties are essentially conditional on transfers of ownership.
12
The definition that the legislator has chosen to
give to the term transfer is fundamental here:
“transfer” means the transfer of the right of ownership on an immoveable as
well as a contract of lease of an immoveable, provided the period running from
the date of transfer to the expiry of the term of the contract of lease,
including any extension or renewal mentioned therein, exceeds 40 years; the
word “transfer” does not include transfer for the purpose only of securing a
debt, nor reconveyance by the creditor.” (Emphasis added)
13 Where,
as here, there is no “transfer of the right of ownership” because there is
merely a change in the name of the owner, or a nominee, no duty is
imposed.
14 If
the analysis needs to be taken further, sections 17 et seq. of the Act,
entitled “Exemptions”, point to the legislator’s concern about exempting not
only transfers preferred for legislative policy reasons (ss. 17 and 20) but
also other transfers, which, while genuine, can be termed purely technical (ss. 18
and 19).
15 All
the more reason to infer that the legislator did not wish to impose duties when
there is no actual transfer.
[Emphasis added.]
[40]
Thus, when an amount is
remitted to a mandatary, it does not belong to the mandatary; the mandator
continues to be its true owner. Therefore, it cannot be concluded that the
mandator has divested himself of it. The appropriate conclusion in these
circumstances is that the mandator does not abandon his right of ownership over
the amounts entrusted to the mandatary and that they do not pass to the
mandatary. In other words, the money does not leave the mandator’s patrimony
and enter the mandatary’s patrimony. Consequently, if the amounts received by
the mandatary are deposited into a bank account, it cannot be concluded that
these amounts constitute a transfer for the purposes of section 160 and the
attribution rules. If a loan of money does not constitute a transfer for the
purposes of these rules, the remittance of money to a mandatary should be even
less so.
[41]
In my opinion, the
decision of the Federal Court of Appeal in Livingston does not help the respondent’s
case, and the respondent is misinterpreting its scope. First of all, the
facts are different. Here, unlike in Livingston, the tax debtor did not
deposit funds into the account of the taxpayer assessed under subsection 160(1)
of the Act. At paragraph 5 of Livingston, Justice Sexton writes as
follows:
5
The account was used only by Ms. Davies,
however. Ms. Davies would deposit cheques into the account, and also
direct other parties to pay amounts owed to her into the respondent’s account.
. . . [Emphasis
added.]
[42]
Here, it was 2310,
through its director, that deposited the $305,441.32 cheque into 2310’s
account (see Exhibit I‑1, tab 14).
[43]
Moreover, Justice
Sexton did not find that there was a mandate or agency relationship, as I do
here. In my opinion, he was satisfied that the amounts that Ms. Davies had
deposited into Ms. Livingston’s account belonged to Ms. Livingston following
the deposits, and that there was no valid agency. This is why he concluded, at
paragraph 21, that “[t]he property transferred was the right to require the
bank to release all the funds to the respondent. The value of the right
was the total value of the funds.”
[44]
At paragraph 28, Justice
Sexton adds: “Why would Ms. Davies give an amount of money to the respondent in
consideration for the ability to withdraw the money, when the respondent
retains the power to take the money?” A bit further on, at paragraph 29, he
writes: “Indeed, contrary to the finding of the Tax Court Judge, there was no
contract. Rather, it is my opinion that the respondent simply acted out of a
sense of moral obligation to Ms. Davies. Such an action does not constitute a
binding agreement . . . .” A similar explanation was provided by Justice Sexton
in Raphael v. Canada, 2002 FCA 23, [2002] F.C.J. No. 82 (QL), 2002 DTC
6798, [2002] 2 C.T.C. 75, 33 C.B.R. (4th) 288, 286 N.R. 389:
7
Before us it was argued by the Appellant that
there was no transfer of the monies within the meaning of section 160(1) of
the Act. The Appellant argued that given the Appellant’s evidence
that she believed she had a moral obligation to use the funds as her husband
directed, which evidence was accepted by the learned Tax Judge, coupled
with the evidence that in fact she used the funds to pay amounts which he
directed, there was not a transfer of funds within the meaning
of subsection 160(1).
8
The Appellant argued, as well, that a trust had
been created for her husband so that there was no transfer of property. However,
the intention of the husband and wife in the present case to put the
husband’s funds where they would be secure from his creditors in not consistent
with the creation of a trust. If indeed a trust was established then the
husband would be beneficially entitled to those funds and they would not be
immune from garnishment proceedings at the instance of his creditors. Thus,
clearly the intention of the parties was not to set up an arrangement whereby
the funds remained beneficially owned by the husband. Thus no trust was created.
[Emphasis added.]
[45]
It should also be noted
that, in Livingston, Ms. Davies, the transferor, did not disclose, at
the time of her bankruptcy, that she was the beneficiary of the trust funds
held by Ms. Livingston (see paragraph 7 of the decision). All of this clearly
suggests that Ms. Davies did not make Ms. Livingston her agent, but rather, that
she gave her the amounts in issue.
[46]
Furthermore, it should
be noted that, in Livingston, Ms. Davies transferred her funds several
times to new bank or brokerage accounts before the Canada Revenue Agency
managed to trace and recover the amounts due. Here, Mr. Pratte was unaware of
the existence of Mr. Garneau’s tax liabilities. Mr. Garneau wanted to
shelter the $305,441.32 from seizure by the FBDB in order to have time to
negotiate a settlement. Later, the FADED received significant payments from Mr. Garneau.
[47]
The only comment that
Justice Sexton made about a possible agency or mandate in Livingston was
in reference to Leblanc v. The Queen, [1999] T.C.J. No. 60
(QL), 99 DTC 410, in respect of which he asserts, at paragraph 23,
that the finding of the judge at first instance “in and of itself is suspect:
there was certainly a transfer of property.” However, he did not say that there
is always a transfer for the purposes of section 160 when a mandator or
principal remits funds to a mandatary or agent so that the funds can be spent
for the mandator or principal’s benefit. The Federal Court of Appeal did not analyze
the concept of transfer in the context of mandate or agency by applying the case
law, such as Fasken Estate and Dunkelman, which the Court itself
had applied in the past.
[48]
In the instant case, there
was a contract of mandate in accordance with the provisions of the Civil Code
of Québec (the Code or C.C.Q.). Here is how article 2130 of the Code
defines this type of contract:
2130. Mandate is a
contract by which a person, the mandator, empowers another person, the
mandatary, to represent him in the performance of a juridical act with a third
person, and the mandatary, by his acceptance, binds himself to exercise the
power.
The
power and, where applicable, the writing evidencing it are called the
power of attorney.
[Emphasis added.]
[49]
According to Professor
Claude Fabien, “[t]he term [juridical act] is used here in its broadest
classical sense: any manifestation of intention designed to produce legal
effects. . . . But the definition need not be strictly applied. It also
covers cases where the mandatary performs a unilateral act such as a payment
or registration.”
(Emphasis added.) Here, Mr. Garneau gave 2310 the mandate to pay his
debts, and payment is a legal mode by which obligations are extinguished. Thus,
there is a legal effect.
[50]
Here are some of the
rules in the Code that are relevant to the instant case:
2132. Acceptance of
a mandate may be express or tacit. Tacit acceptance may be inferred from
the acts and even from the silence of the mandatary.
2133. Mandate is
either by gratuitous title or by onerous title. A mandate entered into
between two natural persons is presumed to be by gratuitous title but a
professional mandate is presumed to be given by onerous title.
2146. The
mandatary may not use for his benefit any information he obtains or any property
he is charged with receiving or administering in carrying out his mandate,
unless the mandator consents to such use or such use arises from the law or the
mandate.
If the mandatary
uses the property or information without
authorization, he shall, in addition to the compensation for which he may be
liable for injury suffered, compensate the mandator by paying, in the
case of information, an amount equal to the enrichment he obtains or, in the
case of property, an appropriate rent or the interest on the sums used.
[Emphasis added.]
[51]
Professor Fabien
acknowledges that the “mandatary’s powers are determined first by the contract
. . . . The Code’s rules on mandate and the administration of the property
of others[29] complete the picture.” [Emphasis
added.]
[52]
Here, the scope of the
mandate was described well in a letter specifying that 2310 was to use the
funds in question to pay Mr. Garneau’s creditors. Under article 2146
C.C.Q., 2310 was not entitled to use the amounts deposited into its account for
its own purposes, unless the mandator consented to such use. In the instant
case, the mandate letter did not recognize the existence of such a right. It is
true that, in reality, 2310 temporarily appropriated moneys belonging to Mr. Garneau,
and that it used those amounts for purposes other than those contemplated in
the contract of mandate. However, these amounts were reimbursed by 2310, and
the full amount of $305,441.32 was used to pay Mr. Garneau’s debts or was
remitted to him. In fact, 2310 paid out a greater amount.
[53]
The contract in the
case at bar is governed by the Code, and the Supreme Court of Canada clearly
confirmed in Victuni, supra, that the mandatary does not become
the owner of the amounts of money remitted to him; consequently, in such cases,
the courts have long settled that there is no conveyance of property that could
constitute a transfer.
[54]
I repeat: if a loan is
not a transfer for the purposes of the attribution rules and subsection 160(1)
of the Act, the remittance of a sum of money to a mandatary so that it can be
paid to Mr. Garneau’s debtors is not a transfer for those purposes either.
To avoid any ambiguity, even if, in the instant case, Mr. Garneau had
personally deposited the money into 2310’s bank account as part of the mandate
that he had conferred to pay his creditors, there would not have been a
transfer for the purposes of subsection 160(1) of the Act.
[55]
In Livingston, the
Federal Court of Appeal held that the property transferred was the right to
demand that the bank give Ms. Livingston the full amounts deposited. The
value of this right was the total value of those amounts. Here, I cannot
conclude that such a transfer took place. Indeed, the right to demand from the
National Bank that all the sums deposited into 2310’s bank account be remitted
to it existed well before the amount of $305,441.32 was deposited into the
account. The right was created by virtue of the agreement between 2310 and
the National Bank. Indeed, the account was opened before March 19, 2002,
and there was a balance of $1,795.79 (Exhibit A-3) before the cheque belonging
to Mr. Garneau was deposited. Consequently, Mr. Garneau did not transfer
any property to 2310.
[56]
Moreover, even if one
could consider that there was a transfer of such a right under the contract of
mandate that authorized 2310 to manage Mr. Garneau’s money deposited into the
company’s bank account, I cannot conclude that the value of that right was the
total value of the amount remitted by Mr. Garneau, that is to say, $305,441.32,
because 2310’s only right was to withdraw this amount for Mr. Garneau’s
benefit. No mandatary of sound mind would pay $305,441.32 for the right to
withdraw this amount for the sole benefit of his mandator. Unless the mandator
allowed him to retain the interest income — which is not the case here — a mandatary would pay nothing for such a
right. On the contrary, one could expect the mandatary to demand remuneration
for the service that he is rendering to the mandator.
[57]
Consequently, not only
did 2310’s patrimony not increase, but, far more significantly, Mr. Garneau’s
did not diminish. The Minister could have garnished the funds under section 224
of the Act in order to recover Mr. Garneau’s unpaid taxes and demand that 2310
give it a part of the balance of the $305,441.32 held by 2310, but he did not
do so.
[58]
In my opinion, counsel
for the respondent has also ascribed too great a scope to the doctrine propounded
in Livingston. It is possible that a deposit into a third party’s bank
account constitutes a transfer, but all deposits of money into bank accounts
are not necessarily transfers. The scope of Livingston must be limited
to the facts of that case.
[59]
It should also be added
that the position that I am adopting is consistent with the position enunciated
in Livingston by Justice Sexton, who writes, at paragraph 27:
. .
. The very purpose of subsection 160(1) is to preserve the value of the
existing assets in the taxpayer for collection by the CRA. Where those
assets are entirely divested, subsection 160(1) provides that the CRA’s
rights to those assets can be exercised against the transferee of the property.
. . .
[Emphasis added.]
But here, due to the existence of a
contract of mandate, the property was not removed from Mr. Garneau’s
patrimony. Mr. Garneau did not divest himself of the property because, as
mandator, he continued to be the owner of the funds in question. Consequently,
there is no reason to apply section 160. The Minister could have seized the
amounts held by 2310 and belonging to Mr. Garneau. His recovery efforts were
not thwarted by a transfer of property to a third party.
[60]
That interpretation is
also consistent with the purpose pursued by Parliament in enacting the
attribution rules, namely sections 74.1 to 75.1 of the Act and section 74 of
the 1952 Act. Indeed, it is not necessary to resort to the attribution rules to
tax the interest income that might have been generated by the $305,441.43. As
mandatary, 2310 would not have had to report that income. Rather, the mandator,
as the true owner of the amount in question, would have had to report the
interest income, if there had been any. Since he did not divest himself of this
amount, Mr. Garneau remained its true owner, and he is the one who would
have had to report the income derived therefrom.
[61]
Both for the purposes
of the attribution rules and for the purposes of the collection rules in
subsection 160(1) of the Act, the interpretation of the term “transfer” which
the courts have consistently adopted and which I adopt here, is consistent with
the Supreme Court of Canada’s doctrine that “the words of an Act are to be read
in their entire context, in their grammatical and ordinary sense
harmoniously with the scheme of the Act, the object of the Act, and the
intention of Parliament.” (See paragraph 21 above.)
[62]
The word “transfer” can
undoubtedly have a very broad meaning; it can mean the moving from one place to
another, as in the case of a transfer of capital from one country to another,
in which case “transfer” has the same meaning as the French word “virement”.
A transfer can also mean an act whereby a person conveys a right to another
person, such as where ownership is conveyed, for example. The latter meaning is
analogous to the French words “aliénation” (alienation) “cession”
(cession) or “transmission” (transmission) (see the Petit Robert).
For the purposes of section 160 and the attribution rules, it is clear that the
concept of “virement”, or movement, is not the one accepted by the case
law, nor does it correspond to the aim that Parliament seeks to achieve.
[63]
If Parliament wants any
movement of funds from one person’s account to another to be caught by section
160 for the purposes of applying the paragraph 160(1)(d) and paragraph 160(1)(e)
rules, it will have to amend the Act by adding a new principle broadening the
concept of “transfer” for the purposes of those rules. In the absence of such
an amendment, making a person liable for a third party’s income tax merely
because he has come into contact with funds or because funds have been
deposited into his bank account would constitute a grave excess. Here, 2310 received
$305,441.32 and disbursed the entire amount on behalf of and for the
benefit of Mr. Garneau as his mandatary. 2310 was in no way enriched.
Paragraph 160(1)(e) does not seek to give the Minister a tool to make up
for his lack of diligence in carrying out a garnishment process in a timely
fashion; rather, it seeks to permit the Minister to hold the transferee
accountable where a tax debtor has divested himself of a part of his patrimony
to the detriment of the Minister’s interests. If there is no divesting,
impoverishment or diminishment of patrimony, there is no ground to apply the
paragraph 160(1)(e) rule.
[64]
Here, to illustrate the
abuse that could occur if the Minister’s interpretation were adopted, is the
example described by Justice Boyle in Gambino v. Canada, 2008 TCC
601, [2008] T.C.J. No. 538 (QL), [2009] 3 C.T.C. 2129, at
paragraph 30:
30 The Minister’s position is completely lacking in common sense. Its obvious fallacy is that the Minister could make the same
arguments against Mrs. Gambino even if her son had used the cash to
pay CRA to reduce his tax debt. Even more ridiculous is that the Crown’s
technical arguments could be advanced had Mrs. Gambino’s son given her his
endorsed Manulife cheques and asked her to walk them to the CRA taxation office
and credit the amounts towards his much larger tax liability.
[Emphasis added.]
[65]
It should be mentioned
that, in Gambino, as here, the Minister relied to a great extent on the doctrine
of the Federal Court of Appeal propounded in Livingston. At
paragraph 24, Justice Boyle writes: “As stated, the Crown relies heavily
on the Federal Court of Appeal’s decision in Livingston.”
[66]
Justice C. Miller, in Pearson
v. The Queen, 2009 TCC 338, at paragraphs 14 and 16, also endorses Justice Boyle’s
reasoning, cited above.
[67]
There is no doubt that,
if Mr. Garneau had represented to the tax authorities that the amount remitted
to 2310 was no longer in his patrimony because there had been a transfer of
ownership, and if he had given them an apparent contract or a document
supporting this description of the transaction even though a counter-letter
created a contract of mandate, the situation would have been different. In such
an event, the Minister could have relied on the apparent contract to recover
the amounts owed to him by making an assessment under subsection 160(1) of the
Act, and, under articles 1451 et seq. of the Code, he could have disregarded
the hidden contract. In this regard, see inter alia my decision in Bolduc
v. The Queen, [2002] T.C.J. No. 664 (QL), 2003 DTC 221,
affirmed by the Federal Court of Appeal, 2003 FCA 411, 2003 DTC 5735, [2004] 2 C.T.C.
173. It should be noted here that the Reply to the Notice of Appeal alleges no
simulation on Mr. Garneau’s part in handing over the sum of $305,441.32 to
2310. Nor did the evidence adduced at the hearing disclose the existence of
such a simulation.
[68]
It is important to note
that the amount deposited into 2310’s bank account was used to pay off debts of
Mr. Garneau or of certain members of his family. Under such circumstances,
it is difficult to see how a third party could have believed that the payments
made by 2310 were being made on its own behalf, since the creditor knew
perfectly well that the debtor was Mr. Garneau or a member of his family, not
2310. Thus, there is no ground to find that a simulation existed here.
[69]
Counsel for the respondent
attempted to challenge the validity of the contract of mandate by arguing that
one of the conditions of its existence had not been fulfilled because its
object ran counter to public order. Counsel has cited no cases in support of
his claims in this regard. I see nothing illegal or against public order in the
fact that Mr. Garneau gave 2310 the mandate to manage his funds and spend the
amount that he entrusted to it. Those contracts can be found in the business
world, notably where certain employers use the services of companies
specializing in the payment of salaries to employees. Even if
the contract of mandate were invalid, this would not help the respondent’s
cause because the annulment of the mandate would not give rise to a gift
equivalent to a transfer or to any other transaction of the same nature. Mr. Garneau
never had the intention of transferring ownership of the insurance proceeds to
2310. The parties’ intention was clear: Mr. Garneau was giving 2310 the
mandate to spend the amount of the proceeds, that is to say, $305,441.32, and
that is what 2310 did; indeed, it spent the entire amount between the months of
March and December 2002. It should also be added that this intention of the
parties is reflected in the letter of March 23, 2002, in which Mr.
Garneau gives 2310 the mandate to manage his money and make expenditures in
accordance with his instructions. In fact, a similar argument was made,
unsuccessfully, in Victuni. Here is how Justice Pigeon of the Supreme
Court of Canada describes the situation at page 586:
Additionally,
the Provincial Court judge properly observed:
[TRANSLATION]
…if the contract R-10 is void, as learned counsel for the respondent contends,
it does not automatically follow that Victuni thereby becomes the
absolute owner of the land which is the object of the contract. If the
contract is void, it produces no effect and each party to the contract is
restored to its prior position: Victuni recovers bond R-13 and
Place Victoria land R-12.
[Emphasis added.]
[70]
Applying strictly the
interpretation of the word “transfer” adopted by the case law, I cannot
conclude that there was a transfer of property or that Mr. Garneau divested
himself of the amount at issue in favour of 2310. As mandator, he kept the
power to give instructions regarding the expenditure of this amount. As Justice
Pigeon of the Supreme Court of Canada noted in Victuni, it would have
been a crime for 2310 to appropriate it.
[71]
In many respects, the
facts of this appeal resemble those in Armenti v. The Queen,
2007 TCC 389, a decision rendered by Justice Bédard. I adopt his
conclusion, which he worded as follows:
[17]
We will begin by considering the issue of whether there was a transfer of
the first two cheques from the Corporation to the Appellant, that being the
first condition for the application of subsection 160(1) of the Act stated
in Raphael, supra. The Respondent submits that it was the
Corporation, through its authorized agent, Enzo Armenti, who gave the
first two cheques, endorsed in blank, to the Appellant, and not the father in
his personal capacity who did so. In other words, the Respondent argues that
there was no transfer between the Corporation and the father. The issue of
whether it was the Corporation or the father who gave the two cheques to the
Appellant would require a determination if giving these two cheques endorsed in
blank constituted a transfer within the meaning of subsection 160(1) of
the Act. However, in my opinion, giving a cheque endorsed in blank
does not automatically constitute a transfer for the purposes of subsection 160(1)
of the Act. The Respondent, invoking relevant provisions of the BEA, contends
that giving over a cheque endorsed in blank does constitute a transfer because
the person thus acquiring possession of the cheque automatically becomes the
owner of the cheque or the holder of the right to cash it. In my opinion, the
relevant provisions of the BEA merely allow third parties to assume that the
person who has possession of a cheque endorsed in blank is the owner thereof
and is also entitled to cash it. The BEA does not enable one to characterize
the nature of the transaction that occurred in this case between the person
who gave the cheque endorsed in blank and the person who received it. In
this case, the evidence showed that the father, regardless of whether he
was acting in his personal capacity or as the Corporation's authorized agent, never
wanted to transfer ownership of the two cheques to the Appellant, nor did
he want ownership of these cheques to pass to the Appellant. At no time did
the Appellant have the right to use, enjoy or dispose of these two cheques as
he saw fit. Thus, contrary to the Respondent’s position that there could
not be a mandate here, I am of the opinion that the transaction that
occurred between the father ─ whether acting in his
personal capacity or as the Corporation’s authorized
agent ─ and the son was in the nature of a mandate within
the meaning of the Civil Code of Québec. Indeed, the evidence very
clearly showed that in this case, the father, whether personally or as the
Corporation’s authorized agent, at most gave the Appellant the mandate to
cash the two cheques and to hand over to him the amounts thereof, which mandate
the Appellant carried out gratuitously. Since in this case there was
never a transfer of ownership of these two cheques to the Appellant, I am
of the opinion that with regard to these cheques, the Appellant cannot be held
jointly and severally liable with the Corporation for its tax debt.
[Emphasis added.]
[72]
In a very recent case, Lapierre
v. The Queen, 2012 TCC 299, Justice Angers reached a similar
conclusion. Here is what he wrote at paragraph 22:
[22]
In my view, the father never personally, or as representative of 9077,
intended to transfer ownership of the money in question, that is to say, the
$100,000, or an even larger amount, given that he demanded that $114,000 be
returned to him. He never intended the property of the amount to be
transferred the Appellant, with the exception of the $10,000, which was for
her. Therefore, she could not use this amount as she pleased, and in my
opinion, she was simply acting as mandatary of her father, who represented
9077. What transpired between 9077 and the appellant was in the nature of a
mandate within the meaning of the Civil Code of Québec.
[Emphasis added.]
[73]
Although the respondent
did not make the argument in her oral submissions, I would like to discuss
an argument that might be advanced in support of the respondent’s position.
According to this argument, one can accept that amounts remitted to a mandatary
do not constitute a transfer so long as the money remains in a trust account
separate from the mandatary’s other bank accounts. If the mandatary deposits
the money into a common account where it is mingled with the mandatary’s other
funds or with other mandators’ funds, the mandator loses the right of
ownership, and, consequently, a transfer has occurred. This argument is based
on the nature of money, which constitutes fungible property. In several
decisions, it has been recognized that where fungible property like money is
mingled with the property of other persons, the owner of the property loses all
rights to claim it. The argument is based, in part, on the following comment
by Justice Hesler of the Quebec Court of Appeal in 9083-4185 Québec Inc., at
paragraph 59, where she cites an author for the proposition that [translation] “from the moment the funds
are intermingled with all the other funds in an account, they are no longer
identifiable and the mandator can no longer assert his right of ownership.”
[74]
In my opinion, this
argument is attractive but erroneous. Indeed, the issue to be decided here is
not whether a person has the right to claim ownership of certain amounts in the
context of a seizure before judgment, a bankruptcy or a similar arrangement,
but, rather, whether there has been a transfer for the purposes of
subsection 160(1) of the Act. Furthermore, the fact that a person cannot
claim fungible property does not necessarily mean that there has been a
transfer of ownership.
[75]
The context in which
the right to revendicate property becomes important requires explanation. To
cite an example, here is how Justice Hesler framed the issue and the stakes
involved in 9083-4185 Québec Inc.:
[translation]
20 The sole question that must be decided in order to dispose of these
appeals is as follows: is the Deputy Minister of Revenue the owner of the
sums of money collected or collectible as GST and QST by the bankrupt, or,
on the contrary, is he merely a creditor of the bankruptcy who is
subject to a collocation in accordance with the provisions of the Bankruptcy
and Insolvency Act? If the Deputy Minister has a right of ownership in
the money, as opposed to a claim against the bankruptcy, the trustee of the
bankruptcy is not statutorily seized of the amounts concerned and those
amounts are not part of the bankruptcy estate. Otherwise, he is
merely an unsecured creditor of the bankruptcy, in which case the trustee
will eventually distribute his share of the estate.
[Emphasis added and footnote omitted.]
[76]
Justice Hesler then
zeroes in on the issue of revendication in the following terms:
[translation]
25 Secondly, we
must examine the conditions under which a right to revendicate a sum of money
exists.
26
We must do so because money is fungible property. A bank account holder, for
example, is not the owner of the funds in the account. He or she has a claim
against the bank for the amount on deposit. It must therefore be determined
whether the Deputy Minister of Revenue is entitled to claim the amounts
collected as GST and QST by the bankrupt debtor as the true owner of
these amounts.
[Emphasis added.]
[77]
Justice Hesler concluded
that the Deputy Minister was merely an unsecured creditor. In Les Boutiques
San Francisco incorporées c. Claudel Lingerie inc., [2004] J.Q.
No. 6606 (QL), J.E. 2004-1359, 2004 CanLII 639, Justice Gascon of the Quebec
Superior Court had to decide whether a party that supplies property under a
consignment contract has a [translation]
“right to revendicate the proceeds of the sale of the consigned property . . .
In other words, is the consignor the owner or a creditor of these sums of
money?”[36]
Justice Gascon cited the answer provided by a Canadian doctrinal work:
[translation]
52 For
their part, Houlden and Morawetz have written as follows concerning ownership
of the proceeds of the sale of consigned property:
If there is a valid consignment
agreement and the consignee goes into bankruptcy, the consignor will be
entitled to the following remedies:
(a) possession of
any goods which can be identified: Cocks v. Consort Trading Co.,
[1921] 3 W.W.R. 434, 65 D.L.R. 778 (Alta. K.B.). If the trustee sells the
goods, the consignor will be entitled to the proceeds: Re Adanac
Grain Co. (1922), 2 C.B.R. 376 (Man. Q.B.); Cocks v. Consort
Trading Co., supra;
(b) amounts owing by
customers of the bankrupt who purchased goods on credit: Cocks v.
Consort Trading Co., supra;
(c) proceeds of the
sale of consigned goods. If the proceeds have been kept in a trust account, the
consignor will be entitled to the money in the account. If the proceeds
have been used by the bankrupt but can be traced into some identifiable form,
the consignor will be entitled to them in that form: Cotter v. Mason
(1870), 30 U.C. Q.B. 181. If the proceeds have been so intermingled as not
to be identifiable, the consignor will only be an unsecured creditor of the
bankrupt estate: Oglivie [sic] Flour Mills Co. v.
C.C.M.T.A. (1925), 7 C.B.R. 31 (Sask. C.A.); Re Yachting & Sports
Pigeon Inc. (1995), 2 C.B.R. (4th) 236, 1995 CarswellQue 221
(Que. S.C.)
[Emphasis added and footnote omitted.]
[78]
He pursues his analysis
as follows:
[translation]
56 .
. . The right to claim the consigned goods before their sale does not
necessarily entail the right to claim the proceeds of their sale afterwards,
since each constitutes distinct property.
57 The
reason is very simple. It is common knowledge that money is fungible
property. In order to be able to claim ownership of money, it must be clearly
identifiable. It is not enough that it be merely quantifiable. Our Court
has said this one more than one occasion.
58 In
Chua c. Von Braun, Justice Croteau emphasized that, in
order for a person to establish a right in a sum of money, it must be shown
that the money claimed can be identified, because it is fungible property. From
the moment the money is mingled with the funds of a particular account, the
deposited money loses all its identity.
59 In
Yachting & Sports Pigeon inc., Justice Chaput came to
the same conclusion. When called upon to determine whether a creditor owned a
sum of money invested in a trust fund, he made the following remarks:
. . . Between and after these deposits, other deposits
were made into the account and several cheques were drawn. All the amounts were
mingled in the same account, the balance of which fluctuated as the money came
and went.
(page 7 of the full text)
. . .
Whether a trust or a mandate is involved, the important element in
keeping property from coming under the bankruptcy trustee’s administration is
that the property be held for the bankrupt by a third party, that it be
identifiable as such in his hands, and that it not be available to the third
party for any purposes other than the performance of the mandate.
[Emphasis added and footnotes omitted.]
At paragraphs 4 and 5, Justice Gascon specifies:
[translation]
Here, the consequence is major because BSF is currently under the
protection of the Companies’ Creditors Arrangements Act (CCAA).
Thus, if Claudel and Vanessa are merely creditors of the funds, the
funds will be part of the arrangement plan that BSF must submit to all of its
many creditors. But if Claudel and Vanessa own the funds, the amounts to which
they are entitled do not get caught in the workings of the CCAA.
[Emphasis added and footnote omitted.]
[79]
In all three cases, Les
boutiques San Francisco, Yachting & Sports Pigeon inc. and 9083-4185
Québec inc., the parties were unsuccessful in their claims of ownership but
were nonetheless considered creditors.
[80]
Chua,
referred to in paragraph 78 above, involved a seizure before judgment under the
Code of Civil Procedure (C.C.P.). In order for a judge to authorize such
a seizure, there must either be ground to fear that, without this remedy the
recovery of the debt may be put in jeopardy, or the property must be movable property
that the person has a right to revendicate. The judge annulled the seizure because
the plaintiff did not succeed in showing that he had a right of revendication.
The judge stated as follows:
[translation]
24 In
Montgomery, [1977] C.S. 862, cited above, Justice Dugas wrote:
[translation]
In order to be
entitled to the writ of seizure before judgment referred to in article 734, one
must be aiming at identified (or identifiable) movable property, and the deposited
property lost all its identity when it was mingled in the banks’ mass of funds.
26 Thus, since the plaintiff is unable to identify the
movable property that he revendicated in his seizure by garnishment before
judgment, and this is a very important legal fact that must be established in
order to be entitled to such a remedy, the Court has no choice but to declare
that the two affidavits in support of the applications are insufficient within
the meaning of article 738 C.C.P.
[Emphasis added.]
[81]
Thus, where a person
has lost all rights to revendicate property in a bankruptcy or a seizure before
judgment, that does not mean that he has transferred ownership of his property
to someone else. It merely means that he will have to be treated like all other
creditors and rateably share in the mass of the bankruptcy estate, or wait
until he obtains the judgment in order to have his rights enforced.
[82]
In order for there to
be a transfer under subsection 160(1) of the Act, the transferor must intend to
transfer the right of ownership in his property to the transferee. When a
mandator remits a sum of money to a mandatary so that it can be disbursed to
pay off the mandator’s debts or given back to the mandator upon request, there
is clearly no intention to transfer ownership of the money. Moreover, in cases
where persons have an interest in revendicating property and that revendication
is rejected, the case law holds that the person claiming the property is a mere
creditor, not that ownership has been transferred. Under such circumstances,
the person claiming the property is in the same situation as a person who has
lent money to a borrower. In both cases, there is neither an
impoverishment of the lender or mandator’s patrimony, nor an enrichment of the
borrower or mandatary’s patrimony. Consequently, the tax authorities can carry
out a garnishment in order to obtain the payment of the amount remitted to the
mandatary, whether he be an owner or a mere creditor. Thus, for the purposes of
subsection 160(1) of the Act, there is no valid distinction to be drawn between
a case where the funds conferred on the mandatary are mingled with the
mandatary’s other funds, and a case where they are not. Moreover, in the
instant case, I have been able to trace Mr. Garneau’s funds within 2310’s
account thanks to the evidence adduced by 2310.
[83]
Since it has been concluded
that there was no transfer between Mr. Garneau and 2310, it is unnecessary to discuss
with the question whether the parties were dealing with each other at arm’s
length. In any event, since there has been no transfer of ownership between the
two parties, it is difficult to determine how the existence of a de facto
non-arm’s length relationship between 2310 and Mr. Garneau could be
established. There was no statutory non-arm’s length relationship between the
parties, since Mr. Garneau and Mr. Pratte were unrelated to each other. Under
the contract of mandate, 2310 was required to carry out Mr. Garneau’s
instructions — specifically, to pay his debts. Under such
circumstances, there is no reason to be concerned with the concept of non-arm’s
length relationship because, by definition, a mandatary must always follow his
mandator’s instructions and because, for income tax purposes, no transfer has
been made between the mandator and the mandatary.
[84]
For all these reasons,
I find that the Minister’s assessment is unfounded and must be vacated due to
the absence of one of the essential conditions for the application of
subsection 160(1) of the Act, namely, a transfer of property.
[85]
The appellant shall
have its costs.
Signed at Magog, Quebec,
this 18th day of October 2012.
“Pierre Archambault”
Translation certified true
On this 15th day of May 2013
François Brunet,
Reviser
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