Dussault,
T.C.C.J.:—
The
Issue
This
is
an
appeal
from
an
assessment
dated
June
25,
1986,
for
which
the
notice
bears
No.
569443.
The
assessment
was
issued
under
subsections
160(1)
and
(2)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
In
establishing
this
assessment
in
respect
of
the
company
Groupe
d'investissement
Savoie,
Lavoie
Inc.
(Groupe
SL)
the
respondent
relied,
inter
alia,
on
the
following
facts,
which
are
found
in
subparagraphs
(a)
to
(o)
of
paragraph
3
of
the
reply
to
the
notice
of
appeal,
as
amended
at
the
hearing:
[Translation]
(a)
The
appellant
is
a
corporation
legally
incorporated
on
December
6,
1982
under
the
Canadian
Business
Corporations
Act;
(b)
At
all
times
relevant
to
this
matter,
the
following
persons
were
the
holders
of
common
voting
shares
in
the
appellant:
|
DATE
|
COMMON
VOTING
SHARES
|
NAME
OF
SHAREHOLDER
|
|
01-01-83
|
150
Class
A
shares
|
Pierre
Savoie
|
|
01-01-83
|
500
Class
B
shares
|
Mrs.
Huguette
Savoie
|
|
(spouse
of
Pierre
Savoie)
|
|
05-04-83
|
175
Class
C
shares
|
Pierre
Savoie
(as
trustee
|
|
for
Denis
Savoie,
his
son)
|
|
05-04-83
|
175
Class
D
shares
|
Pierre
Savoie
(as
trustee
|
|
for
Johanne
Savoie,
his
|
|
daughter)
|
(c)
As
a
result
of
an
investigation
carried
out
in
1982,
resulting
in
the
discovery
of
a
gap
according
to
net
assets
of
more
than
$180,000
for
Mr.
Pierre
Savoie's
1977
to
1981
taxation
years,
the
Minister
of
National
Revenue
issued
the
notice
of
assessment
dated
April
17,
1984;
the
unpaid
balance
of
taxes,
penalties
and
interest
amounted
to
$29,087.32
on
April
18,
1985,
the
date
on
which
Mr.
Pierre
Savoie
made
an
assignment
of
property
under
the
Bankruptcy
Act;
(d)
Mr.
Pierre
Savoie's
unpaid
tax
debt
breaks
down
as
follows:
|
Date
of
|
Taxation
|
Income
|
|
|
Assessment
|
Year
|
tax
|
Penalty
|
Interest
|
Subtotal
|
|
17-04-84
|
1977
|
$
7,650.46
|
$
2,070.46
|
$
4,090.03
|
$13,210.95
|
|
17-04-84
|
1978
|
$
4,610.15
|
$
1,341.94
|
$
2,190.34
|
$
8,142.43
|
|
17-04-84
|
1979
|
$
3,604.29
|
$
1,056.35
|
$
1,175.25
|
$
5,835.89
|
|
17-04-84
|
1980
$
2,471.36
$
778.47
$
944.22
$
4,194.05
|
|
17-04-84
|
1981
|
$1,125.04
$
771.64
$
114.09
$
2,010.77
|
|
17-04-84
|
1983
|
(26.68)
|
0.00
|
(1.28)
|
(27.96)
|
|
$18,834.62
$
6,018.86
$
8,512.65
$33,366.13
|
|
Less:
Payment
|
|
|
30-11-84
|
$
1,600
|
|
|
03-01-85
|
$
1,600
|
|
|
30-01-85
|
$
1,600
|
|
|
01-04-85
|
|
$
1,600
|
|
$
6,400
|
|
|
$26,966.13
|
Plus:
Interest
as
of
the
date
of
the
bankruptcy,
|
18-04-85
|
$
2,121.19
|
$29,087.32
|
(e)
At
the
time
of
Mr.
Pierre
Savoie's
bankruptcy
on
April
18,
1985,
the
only
creditors
were
the
Department
of
National
Revenue
and
the
ministère
du
Revenu
du
Québec;
(f)
At
a
time
when
Mr.
Pierre
Savoie
knew
or
ought
to
have
known
that
he
was
being
investigated
by
the
Department
of
National
Revenue,
he
incorporated
the
appellant
company,
control
of
which
was
placed
in
the
hands
of
people
related
to
Mr.
Pierre
Savoie
by
blood
relationship;
(g)
On
January
13,
1983,
Mr.
Pierre
Savoie
transferred
to
the
appellant
a
cottage
(with
lot)
plus
another
lot
situated
on
Lac
St-Eustache
or
Lac
Rose;
at
the
time
of
the
transfer
the
cottage
and
lots
had
a
fair
market
value
of
$32,500
and
at
the
time
of
the
transfer
the
appellant
issued
12,500
class
H
shares
and
20,000
class
G
shares
to
Mr.
Pierre
Savoie,
which
had
no
market
value
whatsoever;
(h)
Moreover,
on
April
14,
1983
Mr.
Pierre
Savoie
transferred
to
the
appellant
the
sum
of
$17,250
in
cash;
at
the
time
of
this
transfer
the
appellant
issued
17,250
class
G
shares
to
Mr.
Pierre
Savoie,
which
had
no
market
value
whatsoever;
(i)
On
June
15,
1983
(pursuant
to
a
promise
of
purchase
and
sale
dated
February
1,
1983)
Mr.
Pierre
Savoie
transferred
his
residence,
situated
at
575
St-Georges
St.
in
Manseau,
to
the
appellant;
at
the
time
of
the
transfer,
the
residence
had
a
fair
market
value
of
$37,500;
at
the
time
of
the
transfer
the
appellant
issued
37,500
class
G
shares
to
Mr.
Pierre
Savoie,
which
shares
had
no
market
value
whatsoever;
(j)
On
July
1,
1983,
Mr.
Pierre
Savoie
remitted
$20,000
in
cash
to
the
appellant;
at
the
time
of
this
transfer,
the
appellant
issued
20,000
class
G
shares
to
Mr.
Pierre
Savoie,
which
shares
had
no
market
value
whatsoever;
(k)
On
July
6,
1983,
Mr.
Pierre
Savoie
remitted
$18,000
to
the
appellant;
at
the
time
of
this
transfer,
the
appellant
issued
18,000
class
H
share
to
Mr.
Pierre
Savoie,
which
shares
had
no
market
value
whatsoever;
(l)
The
transactions
and/or
transfers
described
above
between
the
appellant
and
Mr.
Pierre
Savoie
were
not
at
arm's
length,
there
being
a
non-arm's
length
between
these
persons;
(m)
The
class
G
and
H
shares
in
the
appellant's
capital
stock
issued
in
the
name
of
Mr.
Pierre
Savoie
have
no
market
value,
given
that:
(i)
The
shares
have
no
voting
right;
(ii)
The
dividends
are
not
cumulative;
(iii)
The
shares
have
priority
in
the
event
of
dissolution
but
otherwise
do
not
share
in
the
surplus;
(iv)
Only
the
appellant
has
a
right
of
redemption
at
its
sole
discretion,
on
30
days
notice;
(v)
The
appellant
enjoys
the
right
to
purchase
at
the
best
possible
price
which
might
thus
be
a
price
lower
than
the
par
value
of
the
shares;
(vi)
The
shares
cannot
be
sold,
given,
disposed
of,
traded
or
transferred
without
the
consent
of
100%
of
the
holders
of
shares
in
voting
classes;
(vii)
Given
all
the
conditions
set
out
above,
shares
in
classes
G
and
H
are
not
"saleable";
(o)
Accordingly,
based
on
the
notarized
contract
dated
June
15,
1983,
referred
to
in
subparagraph
(i),
there
was
a
transfer
of
property,
comprising
the
residence
of
Mr.
Pierre
Savoie,
having
a
fair
market
value
of
$37,500,
to
a
person,
the
appellant,
with
which
Pierre
Savoie
was
not
dealing
at
arm's
length,
which
transfer
was
for
insufficient
consideration,
and
accordingly
the
appellant
is
jointly
and
severally
liable
for
payment
of
Pierre
Savoie's
tax
debt,
which
he
must
pay
by
virtue
of
the
Income
Tax
Act
in
respect
of
his
1977
to
1981
taxation
years,
up
to
the
lesser
of
the
total
tax
debt
and
the
value
of
the
property
transferred,
which
in
this
case
amounts
to
$29,087.32.
Counsel
for
the
appellant
admitted
subparagraphs
(a)
to
(f)
and
subparagraph
(I);
he
took
notice
of
subparagraphs
(g)
to
(k)
but
denied
that
the
class
G
and
H
shares
referred
to
in
these
subparagraphs
had
no
market
value
whatsoever.
Finally,
he
denied
subparagraph
(m),
and
more
particularly
clause
(vii),
and
subparagraph
(o)
By
error,
there
is
no
subparagraph
(n).
In
reality,
the
issue
may
be
summarized
essentially
as
a
question
of
establishing
the
fair
market
value
of
the
37,500
class
G
shares
issued
by
Groupe
SL
in
consideration
of
the
transfer
by
Mr.
Pierre
Savoie
of
his
residence
situated
at
575
St-Georges
St.
in
Manseau,
Quebec,
on
June
15,
1983.
It
is
admitted
that
Mr.
Pierre
Savoie
at
that
time
owed
income
tax,
penalties
and
interest
under
the
Act,
and
that
on
the
date
when
he
made
an
assignment
of
properties
under
the
Bankruptcy
Act,
R.S.C.
1970,
c.
B-3,
on
April
18,
1985,
the
total
owing
amounted
to
$29,087.32.
It
is
also
admitted
that
the
transaction
referred
to
took
place
between
people
who
were
not
at
arm's
length.
Moreover,
counsel
for
the
appellant
contended
that
the
fair
market
value
of
the
37,500
class
G
shares
of
Groupe
SL
capital
stock
issued
in
consideration
of
the
transfer
of
the
residence
was,
at
that
time,
equal
to
their
redemption
value
of
$1
each.
Accordingly,
counsel
said,
section
160
of
the
Act
cannot
apply
since
the
fair
market
value
of
the
consideration
in
shares
was
equal
to
the
fair
market
value
of
the
property
transferred
to
Groupe
SL.
As
for
counsel
for
the
respondent,
he
acknowledged
that
the
residence
had
a
fair
market
value
of
$37,500
at
the
time
of
the
transfer,
but
contended
that
the
fair
market
value
of
the
37,500
class
G
shares
issued
in
consideration
thereof
was
equal
to
zero,
given
the
restrictions
involved.
Accordingly,
he
submitted
that
section
160
of
the
Act
applies
to
the
transaction
referred
to
and
the
other
transactions
referred
to
in
the
reply
to
the
notice
of
appeal
may
provide
a
basis
for
the
assessment
issued
under
section
160
of
the
Act.
Summary
of
the
Facts
The
only
witness
for
the
appellant,
Mr.
Pierre
Savoie,
gave
his
version
of
the
circumstances
surrounding
the
creation
of
Groupe
SL
in
December
1982
and
the
transfer
of
his
residence
in
June
1983.
From
1953
to
the
end
of
1982,
Mr.
Pierre
Savoie
worked
in
the
family
businesses
Savoie
et
Frères
Inc.
and
Savoie
et
Cie.
These
businesses
processed
lumber
to
the
specifications
given
by
customers
who
purchased
it
undressed,
that
is,
sawn
and
squared.
Savoie
et
Frères
Inc.
specialized
in
industrial
lumber,
while
Savoie
et
Cie
concentrated
its
activities
on
construction
lumber.
In
September
1982,
Mr.
Pierre
Savoie
and
two
of
his
brothers
decided
to
redeem
the
shares
of
the
company
Savoie
et
Frères
Inc.
then
held
by
their
father,
in
equal
shares.
However,
the
following
month,
things
were
no
longer
going
as
well
as
before,
and
after
a
while,
Mr.
Pierre
Savoie
was
starting
to
think
about
leaving
the
family
business
and
reorientate
its
activities.
In
December
1982,
he
left
the
business
and
did
not
return
when
it
reopened
after
the
Christmas
holidays.
He
refused
a
subsequent
offer
by
his
brothers
to
redeem
his
shares
for
half
the
price
paid
in
September
1982
because
he
considered
it
ridiculous.
Having
personal
contacts
with
a
Mr.
Keefer,
president
of
Pride
Box
and
Frame,
a
Pennsylvania
company,
he
entered
into
discussions
for
the
purpose
of
becoming
an
intermediary
to
supply
this
company
with
lumber
from
Quebec.
Pride
Box
and
Frame
having
been
acquired
by
a
larger
company,
Leggett
and
Platt
of
Missouri,
the
negotiations
continued
with
it
for
the
purpose
of
buying
undressed
lumber
in
Quebec
on
behalf
of
the
company,
storing
it
and
having
it
processed
into
finished
products
in
sawmills
in
Quebec,
according
to
the
company's
specifications.
Mr.
Pierre
Savoie's
decision
to
set
off
on
these
new
activities
was
made
in
December
1982,
and
the
agreement
with
the
company
Leggett
and
Platt
was
finalized
in
May
1983.
Mr.
Savoie
stated
that
because
the
American
company
was
not
well-known
in
Quebec
at
that
time,
since
it
was
then
getting
its
supplies
largely
in
British
Columbia
and
Texas,
he
had
to
guarantee
the
accounts
opened
with
the
small
sawmills
in
Quebec
with
which
they
intended
to
do
business.
Two
corporations
were
then
formed
by
Mr.
Savoie
relating
to
these
activities:
Bois
Blandford
Inc.
and
119134
Canada
Ltée,
subsequently
described
under
the
name
Groupe
d'investissement
Savoie,
Lavoie
Inc.
While
the
first
corporation,
Bois
Blandford
Inc.,
was
to
be
used
for
dealing
in
lumber
with
the
American
company
Leggett
and
Platt,
Groupe
SL
was
to
be
used
as
a
management
company
for
the
personal
property
of
Pierre
Savoie
and
his
family,
such
as
his
residence,
cottage
and
automobiles,
which
was
decided
to
be
transferred
to
Groupe
SL
in
order
to
shelter
them
from
the
risks
inherent
to
the
new
business
activities
of
Mr.
Savoie
as
intermediary
for
the
American
company.
Groupe
SL
was
therefore
incorporated
on
December
6,
1982.
On
January
1,
1983,
150
class
A
voting
shares
were
issued
to
Pierre
Savoie
and
500
class
B
voting
shares
were
issued
to
Huguette
Lavoie
Savoie,
Pierre
Savoie's
wife.
The
property
transfers
and
subsequent
share
issues
in
the
capital
stock
of
Groupe
SL
carried
out
in
1983
were
described
in
various
subparagraphs
of
paragraph
3
of
the
Reply
to
the
Notice
of
Appeal,
and
established
by
the
documents
submitted
in
evidence.
According
to
Exhibit
A-2,
the
transfer
of
the
residence
at
575
St-Georges
St.
in
Manseau
was
approved
by
resolution
of
the
directors
of
Groupe
SL
on
February
1,
1983.
According
to
Exhibits
A-3
and
I-7,
the
contract
of
sale
and
the
issuance
of
37,500
class
G
shares
took
place
on
June
15,
1983.
The
delay
between
the
two
events
was
explained
by
the
need
to
have
the
residence
appraised
in
order
to
determine
the
amount
of
the
transaction.
This
appraisal
was
performed
by
the
firm
André
Leblanc
et
Ass.
of
Nicolet
in
March
1983.
Exhibit
A-4
shows
that
on
February
1,
1983,
as
well,
a
five-year
lease
for
the
residence
in
Manseau
was
signed
by
Groupe
SL
as
landlord
and
Pierre
Savoie
and
Huguette
Lavoie
Savoie
as
tenants.
The
lease
in
fact
lasted
only
until
June
and
the
residence,
to
which
a
second
apartment
was
subsequently
added,
was
then
rented
to
third
parties
and
finally
sold
in
February
1991.
In
June
1983
Mr.
Savoie
moved
to
Ste-Marie
de
Blandford,
to
his
secondary
residence,
and
did
not
return
to
live
in
Manseau.
According
to
Exhibit
A-5
(filed
jointly),
on
February
4,
1983,
Mrs.
Huguette
Lavoie
gave
Pierre
Savoie
a
notarized
general
and
special
power
of
attorney
to
manage
and
administer
all
her
moveable
and
immoveable
property,
without
limiting
the
general
nature
of
the
powers.
Earlier,
on
December
18,
1982,
a
similar
power
of
attorney
had
been
given
to
Mr.
Pierre
Savoie
by
his
daughter
Johanne.
According
to
Mr.
Pierre
Savoie,
his
son
Denis
had
also
given
him
a
power
of
attorney
on
the
same
terms,
but
he
asserts
that
he
was
not
able
to
find
it.
The
powers
of
attorney
for
the
management
and
administration
of
the
property
of
Mrs.
Huguette
Lavoie
and
Mrs.
Johanne
Savoie,
submitted
as
Exhibits
A-5,
contained
no
restrictions,
and
provided
for
the
following
powers,
inter
alia:
[Translation]
1.
.
.
.
(g)
Deposit
any
moneys
in
any
bank,
trust
company
or
caisse
populaire;
draw
any
cheque
or
issue
any
payment
order
on
any
institution
where
the
mandator
has
moneys
to
her
credit;
draw
bills
or
any
other
payment
order
on
any
person
who
may
be
indebted
to
the
mandator
or
who
may
hold
shares,
securities,
moneys
or
any
other
property
belonging
to
the
mandator;
endorse
any
cheque,
dividend
cheque
or
interest
coupon,
or
any
other
negotiable
instrument
or
bond
payable
to
the
mandator;
(h)
Make
any
use
of
funds
in
shares,
obligations,
debentures
or
other
investment
and
securities
(including
the
purchase
of
immoveable
property)
as
the
mandatary
may
choose,
and
subscribe
for
any
new
shares;
(i)
Accept
the
transfer
or
assignment
of
any
shares,
obligations,
debentures
of
other
investment
and
securities;
(j)
Attend
and
vote
at
any
meeting
of
shareholders
or
holders
of
bonds
of
the
company,
waive
notice
of
convocation,
consent
to
the
reorganization
of
any
company
or
the
reduction
of
its
capital;
exchange
any
bond
or
investment
securities
for
other
bonds
or
investment
securities;
(k)
Sell
and
transfer
any
bond,
share,
obligation,
debenture
or
other
investment
securities,
and
receive
payment
therefor,
in
cash
or
on
terms;
(l)
Make
any
use
of
funds
or
moneys
to
purchase
moveable
or
immoveable
properties,
on
mortgage
or
secured
loan,
with
such
person,
and
for
such
price
and
consideration
and
on
such
terms
and
conditions,
as
the
mandatary
may
deem
suitable
and
reasonable;
(m)
Make
any
loans
of
moneys,
on
such
terms,
at
such
rates
of
interest
and
on
such
conditions
as
the
mandatary
may
deem
suitable,
and
as
security
for
repayment
with
interest,
of
the
moneys
loaned,
or
of
any
debt
owing
by
the
mandator,
to
mortgage,
give
as
security,
pledge
or
otherwise
encumber
or
affect
any
moveable
or
immoveable
property
of
the
mandator;
2.
Sell
or
otherwise
dispose
of
the
moveable
or
immoveable
property
of
the
mandator,
in
favour
of
such
persons,
for
such
price
or
consideration
and
on
such
terms
and
conditions
as
the
mandatary
may
deem
appropriate,
deliver
the
property
sold;
make
any
declaration
of
title
or
other
declaration
relating
to
the
object
sold,
receive
the
price
or
consideration,
and
give
a
receipt;
During
1982
and
1983,
other
events
occurred,
and
should
also
be
noted.
Mr.
Pierre
Savoie
referred
to
them
in
his
evidence,
and
the
evidence
of
several
officials
of
the
Department
of
National
Revenue
and
of
other
people
called
by
counsel
for
the
respondent
rounds
out
the
picture
of
the
situation.
From
1976
to
1981,
at
the
same
time
as
his
activities
in
the
family
businesses
to
which
it
was
already
alluded
to
Mr.
Pierre
Savoie
was
personally
operating
a
business
selling
lumber
under
the
name
Bois
Industriel
P.S.
Enr.
This
business
supplied
undressed
lumber
to
Savoie
et
Frères
Inc.,
which
processed
it
for
the
business's
customers.
After
Revenue
Canada
audited
Savoie
et
Frères
Inc.
in
January
1982
and
discovered
that
no
books
had
been
kept
for
Bois
Industriel
P.S.
Enr.,
the
auditor,
Robert
Lemire,
required
in
January
1982
that
Mr.
Pierre
Savoie
produce
financial
statements
and
other
supporting
documents
for
the
years
1977
to
1980,
inclusively,
as
shown
in
Exhibit
1-3.
In
his
evidence,
Mr.
Lemire
said
that
on
June
10,
1982
he
received
certain
documents
concerning
the
income
and
expenses
of
the
business
for
1980
only,
and
then
decided
to
continue
with
the
audit.
In
view
of
the
failure
to
produce
the
financial
statements
requested,
the
audit
continued,
using
what
is
referred
to
as
the
"net
assets"
method.
Because
significant
gaps
were
soon
found
between
income
and
reported
income
for
a
period
of
five
years,
including
1981,
Mr.
Lemire
decided
on
November
15,
1982
to
refer
the
file
to
the
special
investigations
section.
According
to
Mr.
Robert
Côté,
who
was
at
that
time
an
auditor
in
special
investigations,
his
section
received
the
file
on
November
18,
1982,
and
was
accepted
on
February
11,
1983.
As
shown
in
Exhibit
I-4,
a
search
was
carried
out
and
documents
were
seized
at
the
residence
in
Manseau
on
February
23,
1983.
When
Mr.
Robert
Côté
was
transferred,
the
file
was
assigned
to
Ms.
Lise
Godbout
in
April
1983.
According
to
her
evidence,
there
were
meetings
subsequently
with
Mr.
Pierre
Savoie
both
at
the
offices
of
Revenue
Canada
(on
July
21,
1983)
and
in
Manseau
(on
August
19,
1983),
in
order
to
inquire
into
the
property
transfers
and
the
role
of
Groupe
SL.
A
draft
assessment
on
the
basis
of
net
assets"
was
finally
completed
on
September
15,
1983,
and
a
final
interview
between
Ms.
Godbout
and
Mr.
Savoie
and
his
accountant
took
place
on
September
28,
1983.
According
to
Ms.
Godbout,
the
assessments
for
the
years
1977
to
1981
were
then
prepared
based
on
the
results
of
the
investigation,
and
on
April
17,
1984
notices
of
assessment
for
a
total
additional
amount
of
$33,394.09
in
income
tax,
penalties
and
interest
were
sent
to
Mr.
Savoie.
On
October
26,
1984,
a
criminal
charge
containing
six
counts
was
filed
against
Mr.
Pierre
Savoie.
Ultimately,
only
one
count
proceeded
under
paragraph
239(1)(d)
of
the
Act,
and
the
taxpayer
was
subsequently
found
guilty
and
sentenced
to
pay
a
fine
of
$8,965,
or
six
months
imprisonment
in
default.
The
fine
was
paid.
Mr.
André
Tremblay,
an
official
with
Revenue
Canada,
was
assigned
to
the
collection
of
the
debt
for
income
tax,
penalties
and
interest
owing
by
Mr.
Savoie
under
the
assessments
issued.
Mr.
Tremblay
testified
that
he
had
agreed
with
Mr.
Savoie
that
payment
would
be
spread
over
two
years,
at
the
rate
of
$1,600
per
month,
by
postdated
cheques,
starting
in
November
1984.
Only
four
payments
were
made,
and
the
other
cheques
were
returned
for
insufficient
funds,
and
because
Mr.
Savoie
had
decided
to
make
an
assignment
of
property
shortly
afterward.
The
bankruptcy
then
took
place
on
April
18,
1985,
and
Mr.
Pierre
Savoie
explained
it
in
his
testimony
by
saying
that
it
was
impossible
for
him
to
pay
both
the
fine
of
nearly
$10,000
resulting
from
the
criminal
conviction
and
also
$1,600
per
month
on
the
civil
debt.
Exhibit
I-8
is
a
statement
of
the
income
tax,
penalties
and
interest
owing
by
Pierre
Savoie
at
the
time
of
the
bankruptcy,
prepared
by
Mr.
Tremblay,
indicating
a
balance
which
then
amounted
to
$29,087.32.
As
well,
a
notice
from
the
trustee,
Jean
Roy,
and
the
accompanying
documents
(Exhibit
I-9),
indicate
that
only
two
creditors
had
submitted
claims:
the
Department
of
National
Revenue,
in
the
amount
of
$25,000,
and
the
ministère
du
Revenu
du
Quebec,
in
the
amount
of
$30,000,
and
the
only
assets
declared
by
the
bankrupt
were
common
and
preferred
shares
in
Bois
Blandford
Inc.
and
Groupe
SL,
for
an
"indeterminate"
amount.
Exhibit
I-12
is
a
report
from
the
Official
Receiver
dated
July
8,
1985.
Under
the
heading
"Causes
of
the
bankruptcy”,
this
report
reads:
[Translation]
The
debtor
become
insolvent
by
disposing
of
almost
all
of
his
assets
on
or
about
February
1,
1983,
the
consideration
for
which
was
the
issuance
of
non-voting
shares
of
no
par
value
in
a
company
controlled
by
his
wife
and
his
two
children.
As
well,
under
the
heading
"Explanation
of
the
deficit
and
other
information",
we
can
read
:
The
debtor
has
only
non-voting
shares
having
no
par
value
in
the
Groupe
d'investissement
Savoie
Lavoie
Inc.
and
Bois
Blandford
Inc.,
for
which
he
paid
$185,250,
however
their
value
is
below
[sic]
their
fair
value,
given
their
nature.
The
bankrupt's
deficit
cannot
be
explained
without
this
value,
given
that
they
are
the
debtor's
only
assets.
According
to
Mr.
Tremblay,
the
trustee
was
from
the
beginning
asked
to
undertake
the
necessary
proceedings
to
have
the
sale
agreements
for
the
sale
of
the
residence
cancelled,
the
cottage
and
the
other
property
transferred
by
Pierre
Savoie
to
Groupe
SL
set
aside.
Exhibit
1-10
is
a
letter
to
the
trustee
to
this
effect
dated
September
9,
1985,
with
a
copy
to
the
Official
Receiver.
This
letter
refers
to
another
sent
in
May,
and
to
several
telephone
calls.
Exhibit
I-11
is
the
reply
from
the
trustee,
Jean
Roy,
dated
October
24,
1985.
The
letter
is
to
the
effect
that
he
did
not
intend
to
take
action
to
set
the
contract
aside,
[Translation]
"given
the
risk
inherent
in
such
proceedings
and
the
fact
that
I
do
not
have
in
hand
the
necessary
funds
to
pay
the
cost
of
such
proceedings
in
the
event
of
failure”.
This
letter
also
authorizes
the
Department
to
proceed
itself
"at
its
own
risks
and
benefit”
under
section
20
of
the
Bankruptcy
Act.
Mr.
Jacques
Roy,
a
chartered
accountant
and
trustee
working
in
the
same
office
as
his
father,
Jean
Roy,
said
that
in
fact
difficulties
arose
when
attempting
to
sell
out
the
bankrupt's
assets,
on
the
basis
that
they
consisted
only
of
shares
which
were
not
listed
on
the
exchange,
that
the
voting
shares
represented
only
15
per
cent
of
the
issued
shares
of
each
corporation,
that
the
preferred
shares
were
subject
to
significant
restrictions,
particularly
the
fact
that
in
each
case
they
were
redeemable
only
at
the
discretion
of
the
corporation,
which
it
was
clearly
not
interested
to
do.
Mr.
Roy
ended
by
saying
that
Mr.
Savoie
had
been
discharged
from
the
bankruptcy
on
March
13,
1986,
with
no
objection
by
the
creditors,
and
that
on
March
31,
1988
a
judgment
of
the
court
ordered
the
return
of
the
shares
to
their
owner
pursuant
to
an
application
to
the
court
by
the
trustee
for
directions.
In
reference
to
the
collection
proceedings
undertaken,
Mr.
Tremblay
stated
that
after
receiving
the
reply
from
the
trustee
dated
October
24,
1985,
he
decided
to
assess
Groupe
SL
under
section
160
of
the
Act
rather
than
to
undertake
more
expensive
proceedings
under
the
Bankruptcy
Act.
According
to
Mr.
Tremblay,
the
assessment
was
issued
following
a
valuation
obtained
beforehand
indicating
that
the
shares
received
by
Pierre
Savoie
from
Groupe
SL
in
consideration
for
the
transfers
that
occurred
in
1983
had
no
value
to
a
creditor
or
anyone
else,
in
his
words,
“dealing
at
arm's
length".
Because
Groupe
SL
refused
to
pay,
despite
numerous
notices,
a
peremptory
demand
for
payment
was
sent
to
it
and
payment
was
finally
made
on
January
12,
1987,
out
of
funds
transferred
from
members
of
the
family
and
related
companies,
as
shown
in
Exhibit
A-6.
A
request
for
a
valuation
of
the
97,750
class
G
shares
of
Groupe
SL,
Groupe
d'investissement
Savoie,
Lavoie
Inc.,
issued
on
various
dates—February
1,
April
14,
June
15
and
July
1,
1983—was
subsequently
made
to
Mr.
Roch
Martel,
a
personal
property
appraiser
with
Revenue
Canada.
Mr.
Martel
testified
first
as
to
his
experience
as
an
appraiser
working
for
the
respondent
for
nearly
25
years.
In
his
report
dated
June
16,
1988,
presented
as
Exhibit
1-13,
he
gave
the
opinion
that
[Translation]
"the
fair
market
value
of
these
shares
is
“nil”,
on
the
dates
referred
to
above,
for
the
1983
year".
In
his
report,
Mr.
Martel
referred
first
to
the
concept
of
fair
market
value,
which
he
defined
at
page
2
in
these
words:
[Translation]
For
the
purposes
of
our
opinion,
we
have
considered
fair
market
value
to
be
the
highest
price
expressed
in
cash
or
the
equivalent,
agreed
between
a
vendor
and
a
purchaser
dealing
at
arm’s
length
in
a
free
and
unrestricted
market,
both
parties
having
knowledge
and
being
under
no
compulsion.
He
then
briefly
described
the
nature
and
history
of
the
business,
the
incorporation
in
December
1982
and
the
various
transfers
and
issuances
of
the
97,750
class
C
shares
which
took
place
in
1983,
and
which
are
set
out
as
follows
at
page
3:
This
company
was
formed
specifically
for
the
purpose
of
acquiring
Mr.
Pierre
Savoie's
personal
residence
and
cottage.
Thus
the
cottage
was
transferred
to
the
company
on
February
1,
1983,
in
return
for
20,000
class
"G"
preferred
shares.
The
company
then
acquired
the
residence
on
June
15,
1983,
in
return
for
37,500
class
"G"
preferred
shares.
In
addition,
17,250
of
these
shares
were
issued
on
April
14,
1983,
for
the
sum
of
$17,250.
And
on
July
1,
1983,
the
same
scenario
was
repeated,
for
$20,000.
At
page
4,
under
the
heading"
Part
II—Status
of
the
business”,
he
made
the
following
comment:
In
1983,
the
company
was
just
starting
up
and
there
was
nothing
to
indicate
a
flourishing
and
profitable
future
for
any
potential
investor.
The
value
of
this
company
lay
in
the
value
of
its
assets,
which
were
composed
primarily
of
Mr.
Pierre
Savoie's
personal
residence
and
cottage.
Mr.
Martel
explained
his
approach
to
the
valuation
as
follows,
at
pages
5
and
6
of
his
report:
From
past
experience,
we
believe
that
in
the
case
of
a
private
company,
we
can
ignore
the
valuation
method
based
on
return
on
preferred
shares.
Dividends
are
rarely,
if
ever,
high
enough
to
justify
such
a
valuation.
Our
approach
to
the
valuation
is
based
on
a
thorough
study
of
the
following
points:
(1)
Rights,
privileges
and
restrictions
relating
to
the
preferred
shares.
(2)
Maintainable
profits
after
tax.
(3)
Tangible
net
assets
backing.
(4)
Rate
of
return.
(5)
Circumstances
in
which
such
securities
were
issued
and
the
company's
future
prospects.
His
analysis
of
the
rights,
privileges
and
restrictions
relating
to
the
preferred
shares
ends
at
pages
7
and
8
of
his
report
with
the
following
conclusion:
In
the
context
of
fair
market
value,
we
believe
that
the
non-cumulative
dividend
non-voting
preferred
shares,
which
are
redeemable
at
the
discretion
of
the
issuer,
have
only
very
low
value
in
relation
to
their
issue
price.
The
only
rights
of
significance
to
a
potential
investor
in
this
case
are:
(1)
the
right
to
a
dividend,
up
to
the
rate
set
by
the
directors,
which
is
10%.
(2)
the
right
to
receive
the
amount
on
issue
when
the
shares
are
redeemed
if
the
directors
decide
to
redeem
them.
(3)
The
right
to
receive
the
amount
paid
on
issue
before
class
"A"
to
F"
shares,
if
the
necessary
majority
of
shareholders
holding
voting
shares
voluntarily
agree
to
liquidate.
It
is
therefore
obvious
that
the
holders
of
these
shares
cannot
require
any
return
on
their
investment,
or
redeem
their
investment
if
it
has
been
unproductive.
Mr.
Martel
deals
with
point
(2),
maintainable
profits
after
tax”,
at
pages
8
and
9
of
his
report,
as
follows:
In
his
book
“
Principles
and
Practice
of
Business
Valuation”,
lan
Campbell
states
that
it
is
important
to
take
into
account
the
income
protection
given
to
holders
of
preferred
shares
in
valuing
the
quality
of
such
a
share
issue.
This
protection
is
determined
by
the
number
of
times
the
dividend
on
the
shares
is
earned
or
guaranteed
during
a
year.
In
Groupe
d'investissement
Savoie,
Lavoie
Inc.,
it
is
clearly
established
that
the
maintainable
profits
after
tax
will
be
practically
non-existent,
considering
the
nature
of
the
operations
of
this
business
and
the
few
assets
it
holds.
Accordingly
there
is
no
income
protection
given
to
holders
of
preferred
shares,
which
makes
this
investment
unattractive
to
an
investor.
Point
(3),
"Net
tangible
assets
backing",
is
then
dealt
with
in
the
following
terms,
at
page
9:
In
his
book
"The
Valuation
of
Company
Shares
and
Businesses",
A.V.
Adamson
maintains
that
preferred
shares
should
be
supported
by
a
net
tangible
asset
cover
of
$2
upwards,
for
each
$1
share,
to
provide
safety
for
the
capital
invested.
In
the
case
that
concerns
us,
the
ratio
is
1.0
on
each
of
the
valuation
dates
in
question,
which
makes
the
preferred
shares
unattractive
to
an
investor.
Then,
at
pages
10
and
11
of
his
report,
Mr.
Martel
described
the
circumstances
surrounding
the
issue
of
the
shares,
and
particularly
the
audit
and
then
the
investigation
by
Revenue
Canada
in
1982
and
1983.
He
testified
that
his
valuation
was
not
based
on
these
facts,
but
that
it
is
important
for
a
valuator
to
examine
the
origins
of
transactions.
This
heading
of
his
report
closes
with
the
following
comments,
at
page
11:
It
is
important
to
note
here
that
Pierre
Savoie
is,
with
his
wife
and
children,
part
of
a
family
control
group
in
the
company.
It
is
quite
clear,
in
the
circumstances,
that
the
value
of
the
preferred
shares
to
Mr.
Savoie
may
be
close
to
the
par
value.
However,
the
concept
of
the
special
value
to
the
owner
is
formally
excluded
in
determining
fair
market
value.
In
fact,
the
fair
market
value
must
be
established
in
terms
of
a
transaction
between
people
dealing
at
arm's
length
in
a
free
market.
We
are
therefore
of
the
opinion
that
the
preferred
shares
have
no
market
value
whatsoever
to
an
investor.
At
page
12
of
his
report,
under
the
heading
“Future
prospects
of
the
company
Groupe
d'investissement
Savoie,
Lavoie
Inc.",
Mr.
Martel
makes
the
following
comments:
As
we
have
just
seen,
the
primary
purpose
for
incorporating
the
company
referred
to
above
was
to
protect
Mr.
Savoie's
personal
assets.
We
also
see
that
the
company
has
few
assets
and
that
the
very
nature
of
its
operations
gives
no
indication
of
profitability
which
might,
over
the
years,
result
in
dividends
to
the
holders
of
the
various
Classes
of
shares.
Such
prospects
make
the
preferred
shares
unattractive
and
of
no
value
to
an
informed
investor.
Mr.
Martel's
general
conclusion,
at
pages
12
and
13
of
the
report,
is
in
the
following
words:
Keeping
in
mind
the
definition
of
fair
market
value
as
specified
earlier
in
this
report
(the
highest
price
expressed
in
cash
or
equivalent,
as
agreed
between
a
vendor
and
a
purchaser
dealing
at
arm's
length
on
a
free
and
unrestricted
market,
both
parties
having
knowledge
and
being
under
no
compulsion),
the
combined
analysis
of
all
the
factors
noted
above
shows
that
the
fair
market
value
of
the
preferred
shares
of
the
Croupe
d'investissement
Savoie,
Lavoie
Inc.
is
"nil"
for
each
of
the
dates
in
question.
On
cross-examination,
Mr.
Martel
admitted,
with
respect
to
his
comments
at
page
11
of
his
report
on
the
fact
that"
Pierre
Savoie
is
part
of
a
family
control
group”,
that
the
value
to
the
owner
is
an
important
factor
to
be
considered
when
the
owner
"owns
a
controlling
block”,
in
the
words
of
lan
Campbell
(author
of
Principles
and
Practice
of
Business
Valuation)
to
which
he
referred
in
his
analysis.
On
the
question
of
whether
Groupe
SL
could
redeem
the
shares,
in
view
of
the
2
to
1
safety
ratio,
Mr.
Martel
stated
that
it
would
have
had
to
sell
the
assets,
that
is,
the
residence
and
cottage.
Because
the
ratio
here
is
1
to
1,
he
believed
that
on
a
liquidation
basis
the
ratio
would
have
been
lower
still,
given
the
costs
of
liquidating.
However,
he
admitted
that
the
assets
of
$108,250
indicated
on
the
pro
forma
balance
sheet
dated
July
1,
1983,
attached
to
his
report,
were
sufficient
to
cover
redemption
of
part
and
even
all
of
the
97,750
class
G
shares,
and
that
under
the
Groupe
SL
by-laws
redemption
could
be
effected
in
respect
of
only
one
class
of
shares.
While
the
appellant
submitted
the
financial
statements
of
Groupe
SL
for
January
1,
1983
to
the
year
1990,
no
comment
was
made
on
them
and
counsel
for
the
appellant
did
not
choose
to
call
any
expert
witness
to
establish
evidence
of
the
fair
market
value
of
the
shares.
Summary
of
Argument
Apellant's
submissions
Counsel
for
the
appellant
submitted
first
that
the
only
transaction
affected
by
the
assessment
concerns
the
transfer
of
Pierre
Savoie’s
residence
on
June
15,
1983,
and
that
the
issue
is
essentially
the
determination
of
the
value
of
the
consideration,
that
is,
the
value
of
the
37,500
class
G
shares
received
in
exchange.
If
I
understand
well
his
argument,
he
then
submits
that
the
cost
to
the
corporation
of
the
share
issue
is
the
"par
value”
of
the
shares
issued,
in
so
far
as
the
value
of
the
property
in
issue
is
such
that
the
shares
are
not
issued
at
a
discount
and
the
transaction
is
not
fraudulent
or
colourable.
Recalling
the
main
elements
of
Mr.
Pierre
Savoie's
testimony
concerning
his
new
career
direction
and
the
new
brokerage
activities
contemplated
in
1982,
he
noted
that
he
found
it
necessary
to
protect
his
property,
given
the
business
risk
incurred
by
a
person
acting
as
a
commissioned
agent.
He
referred
more
specifically
to
Article
1738
of
the
Civil
Code
of
Lower
Canada,
which
provides
that
a
factor
whose
principal
resides
in
another
country
is
personally
liable.
According
to
counsel,
the
incorporation
of
Groupe
SL
and
the
transactions
that
took
place
may
in
fact
be
explained
by
Mr.
Savoie's
desire
to
shelter
the
family
property
from
the
business
risks
inherent
in
his
new
activities,
and
not
to
evade
tax
by
divesting
himself
of
his
assets,
which
might
ultimately
be
seized
by
the
tax
authorities.
Moreover,
he
submitted
that
the
decision
to
transfer
the
residence
was
made
before
the
search
and
seizure
at
Mr.
Savoie’s
home
and
more
than
a
year
before
the
assessments.
Counsel
for
the
appellant
then
argued,
based
essentially
on
the
recent
decision
of
Judge
Tremblay
of
this
Court
in
Marina
Québec
Inc.
v.
M.N.R.
[1992]
1
C.T.C.
2015,
92
D.T.C.
1392,
that
the
determination
of
the
fair
market
value
of
the
shares
must
be
made
on
the
basis
of
the
"value
to
the
owner",
in
view
of
the
control
exercised
by
Mr.
Savoie
over
Groupe
SL.
In
so
arguing,
he
relied
specifically
on
the
following
passage,
found
at
page
2085
of
the
judgment:
Considering
the
principle
that
control
which
may
ultimately
lead
to
redemption
of
the
preferred
shares
is
the
main
factor
in
valuing
such
shares,
I
believe
that
the
value
of
these
preferred
shares
is
equal
to
their
redemption
value,
to
the
extent
that
the
person
who
may
decide,
directly
or
indirectly,
to
redeem
the
preferred
shares
is
the
same
person
who
has
control
of
the
common
shares.
It
is
obvious
that
this
procedure
can
apply
only
if
the
company
is
solvent.
Similarly,
he
referred
to
the
conclusion
found
at
page
2086,
in
the
following
terms:
I
therefore
find
that
because
it
is
possible
to
redeem
the
shares
the
value
to
the
owner
(in
the
broad
sense,
that
is,
the
person
who
ultimately
controls
redemption)
is
equal
to
the
redemption
value.
The
fair
market
value
is
equal
to
that
value
(4.08.2(2)(a)).
According
to
counsel
for
the
appellant,
control
here
lies
in
the
fact
that
Mr.
Savoie
was
the
moving
spirit
of
the
business,
that
he
held
powers
of
attorney
from
his
wife
and
his
children
giving
him
very
broad
powers,
and
that
accordingly
he
had,
in
short,
full
authority
to
have
Groupe
SL
redeem
the
shares.
He
noted
that
Mr.
Savoie
was
authorized
as
sole
signing
authority
for
cheques
and
that
it
was
also
he
who
directed
the
transfers
of
funds
belonging
to
members
of
his
family
and
to
two
related
companies
in
order
to
pay
the
assessment
issued
against
Groupe
SL,
which
is
the
subject
matter
of
this
appeal.
Finally,
counsel
for
the
appellant
submitted
that
in
valuing
the
37,500
class
G
shares
issued
in
consideration
of
the
transfer
of
the
residence
we
must
take
into
account
the
capacity,
and
not
the
desire,
of
Groupe
SL
to
redeem
the
shares.
He
argued
that,
given
the
financial
statements
submitted,
and
particularly
the
asset
level,
Groupe
SL
was
perfectly
capable
to
proceed
to
these
share
redemptions
while
meeting
the
solvency
test.
Respondent's
submissions
In
reply,
counsel
for
the
respondent
submitted
first
that
section
160
of
the
Act
refers
to
the
fair
market
value
at
the
date
of
the
transaction.
Accordingly,
he
said,
the
issue
does
not
in
any
way
involve
the
cost
of
the
shares
or
the
value
of
the
property
transferred,
so
that
certain
decisions
to
which
it
was
sought
to
refer,
inter
alia,
Osborne
v.
Steel
Barrel
Co.
Ltd.,
[1942]
24
T.C.
293
(C.A.),
Craddock
v.
Zevo
Finance
Co.
Ltd.
(1946),
27
T.C.
267
(H.L.)
and
Tuxedo
Holdings
Co.
Ltd.
v.
M.N.R.,
[1959]
C.T.C.
172,59
D.T.C.
1102
(Ex.
Ct.),
have
no
impact
on
this
case.
In
any
event,
he
submitted
that
the
principles
set
out
in
those
decisions
are
subject
to
the
exception
relating
to
a
fraudulent
or
("colourable")
transaction.
Counsel
then
submitted
that
section
160
of
the
Act
does
not
take
intention
into
account,
and
that
it
applies
“
mathematically”,
as
he
put
it.
He
noted,
however,
that
he
ought
to
reply
to
the
appellant's
submissions
on
this
point.
He
then
said
that
the
transactions
were
clearly
motivated
by
the
desire
of
the
taxpayer,
Pierre
Savoie,
to
shelter
his
property
from
tax,
in
view
of
the
audit
and
the
investigation
that
was
underway,
and
he
argued
that
the
new
business
activities
Mr.
Savoie
was
contemplating
in
1982
and
1983
involved
no
more
risk
than
those
which
any
director
of
a
business
must
face.
He
concluded
on
this
point
by
stating
that
if
the
decisions
referred
to
above
were
indeed
relevant,
consideration
should
then
be
given
to
the
exception
dealing
with
the
transaction
referred
to
in
the
case
law
as
"colourable".
Counsel
for
the
respondent
then
insisted
on
the
necessity
under
section
160
of
the
Act
to
establish
the
fair
market
value
of
the
consideration,
that
is,
of
the
shares.
He
submitted
that
the
appellant
had
given
here
no
direct
evidence
of
value,
merely
relying
on
the
principle
set
out
in
Marina
Québec
Inc.,
supra.
Referring
first
to
the
decision
of
Addy,
J.
of
the
Federal
Court-Trial
Division,
in
Lacroix
v.
National
Capital
Commission,
17
L.C.R.
289,
he
stated
that
the
valuation
should
be
based
on
proven
facts
in
each
case.
Moreover,
referring
to
the
argument
by
counsel
for
the
appellant
that
in
law
the
value
of
the
shares
must
be
equal
to
the
price
established
for
the
share
issue,
he
submitted
that
the
result
in
law
must
reflect
the
result
in
fact.
Accordingly,
he
submitted
that
because
the
trustee
in
bankruptcy
considered
that
in
fact
the
shares
were
worth
nothing,
it
is
this
result
which
must
also
prevail
in
aw.
Counsel's
comments
were
based
on
the
remark
by
Pigeon,
J.
of
the
Supreme
Court
(as
he
then
was)
in
Dauphin
Plains
Credit
Union
v.
Xyloid
Industries
Ltd.
and
the
Queen,
[1980]
1
S.C.R.
1182,
[1980]
C.T.C.
247,
in
which
he
stated
at
page
1191
(C.T.C.
250):
At
the
hearing,
I
said
to
the
appellant's
counsel:
"You
contend
that
the
deductions
made
from
the
wages
enure
to
the
benefit
of
the
creditor?"
His
answer
was:
"That
is
the
practical,
but
not
the
legal
result".
I
just
cannot
see
how
what
is
true
in
fact,
may
be
false
in
law.
Counsel
for
the
respondent
then
submitted
that
the
approach
that
must
be
taken
to
the
valuation
is
to
assume
that
the
shares
are
sold,
and
not
redeemed,
and
then
to
ask
what
an
informed
third
party
would
be
prepared
to
pay
for
the
shares.
He
then
distinguished
the
fair
market
value
from
the
value
to
the
owner
and
suggested
that
the
decision
in
Marina
Québec
Inc.,
supra
did
not
apply
to
this
case
since
Mr.
Pierre
Savoie
was
a
minority
shareholder
who
held
only
15
per
cent
of
the
voting
shares.
Accordingly,
he
submitted
that
Mr.
Savoie
did
not
personally,
directly
or
indirectly,
hold
enough
voting
shares
to
support
the
conclusion
that
he
owned
a
controlling
block.
He
submitted
that
the
powers
of
attorney
in
no
way
changed
this
situation,
since
they
were
essentially
revocable
and
therefore
conferred
only
a
transitory
right.
According
to
him,
the
175
class
C
shares
and
175
class
D
shares
held
by
Pierre
Savoie
as
trustee
for
his
children
did
not
give
him
control
either.
Finally,
counsel
for
the
respondent
submitted
that
under
section
160
of
the
Act,
the
joint
liability
of
the
transferor
and
the
transferee
was
created
by
the
transfer
of
property,
and
the
bankruptcy
discharge
order
granted
to
the
transferor,
Mr.
Pierre
Savoie,
did
not
discharge
the
transferee,
Groupe
SL,
from
the
liability
established
by
section
160
of
the
Act.
The
arguments
submitted
by
counsel
for
the
respondent
were
based
on
a
number
of
decisions,
to
which
I
shall
refer
as
necessary
in
the
following
analysis.
Analysis
The
assessment
issued
under
subsection
160(2)
of
the
Act
is
based
on
subsection
160(1),
the
relevant
part
of
which,
as
it
applied
in
1986,
reads
as
follows:
(1)
Where
a
person
has,
on
or
after
the
1st
day
of
May,
1951,
transferred
property,
either
directly
or
indirectly,
by
means
of
a
trust
or
by
any
other
means
whatever,
to
(a)
(b)
(c)
a
person
with
whom
he
was
not
dealing
at
arm's
length,
the
following
rules
apply:
(d)
(e)
the
transferee
and
the
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
aggregate
of
all
amounts
each
of
which
is
an
amount
that
the
transferor
is
liable
to
pay
under
this
Act
in
respect
of
the
taxation
year
in
which
the
property
was
transferred
or
of
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.
On
June
15,
1983,
Mr.
Pierre
Savoie
transferred
to
Groupe
SL
his
residence
situated
at
575
St-Georges
St.
in
Manseau,
Quebec,
appraised
at
$37,500,
in
consideration
for
37,500
class
G
shares
in
the
company,
having
no
par
value.
The
reference
to
a
par
value
by
counsel
or
in
certain
documents
submitted
in
evidence
is
incorrect.
While
this
comment
is
not
in
itself
of
any
importance,
it
is
made
to
avoid
any
confusion.
These
shares,
having
no
par
value,
give
no
voting
right,
entitle
only
to
a
non-cumulative
dividend
of
10
per
cent
and
to
no
other
interest,
are
redeemable
only
at
the
discretion
of
the
issuer,
at
a
price
covering
the
amount
paid
and
dividends
declared
and
unpaid,
and,
finally,
cannot
be
sold
or
transferred
unless
the
holder
has
first
obtained
the
consent
of
100
per
cent
of
the
holders
of
class
A,
B,
C,
D,
E
and
F
shares.
The
facts
which
result
in
the
application
of
the
presumption
of
a
non-arm's
length
relationship
under
paragraph
251
(1)(a)
of
the
Act
and
the
facts
relating
to
the
tax
liability
and
the
value
of
the
residence
were
admitted,
and
so
the
only
question
to
be
decided
by
this
Court
is
the
fair
market
value
of
the
37,500
class
G
shares
of
Groupe
SL
issued
as
consideration
on
the
date
of
the
transfer,
June
15,
1983.
First,
it
must
be
recalled
that
property
valuation
is
essentially
a
question
of
fact
which
must
be
decided
on
the
basis
of
the
evidence
submitted
in
each
case.
The
concept
of
fair
market
value
has
been
defined
by
the
courts
on
numerous
occasions,
and
I
believe
that
the
definition
used
by
Mr.
Roch
Martel
at
page
2
of
his
valuation
report
conveys
the
substance
of
the
concept,
as
follows:
For
the
purposes
of
our
opinion,
we
have
considered
fair
market
value
to
be
the
highest
price
expressed
in
cash
or
the
equivalent,
agreed
between
a
vendor
and
a
purchaser
dealing
at
arm's
length
in
a
free
and
unrestricted
market,
both
parties
having
knowledge
and
being
under
no
compulsion.
As
submitted
by
counsel
for
the
respondent,
this
concept
assumes
negotiations
for
the
purpose
of
a
sale
on
an
open
and
unrestricted
market.
Moreover,
in
view
of
the
decision
of
the
Federal
Court
of
Appeal
in
National
System
of
Baking
of
Alberta
Ltd.
v.
The
Queen,
[1980]
C.T.C.
237,
80
D.T.C.
6179
(particularly
at
page
240
(D.T.C.
6181))
it
may
be
said
that
the
value
of
a
property
in
the
eyes
of
an
owner
who
is
in
a
privileged
position
is
not
what
should
be
meant
by
the
expression
fair
market
value.
From
this
point
of
view,
it
seems
obvious
that
we
must
ask
what
a
third
party
would
be
prepared
to
pay
for
the
property
in
question,
irrespective
of
what
the
vendor
would
like
to
get
for
it.
This
was
the
approach
taken
by
Denault,
J.
of
the
Federal
Court-Trial
Division
in
Sweeney
v.
The
Queen,
[1990]
2
C.T.C.
342,
90
D.T.C.
6505,
when
required
to
analyze
the
value
of
a
right
under
a
contract,
he
stated
at
page
347
(D.T.C.
6511):
I
rather
agree
with
the
Crown's
expert
that
in
view
of
the
numerous
limitations
in
the
agreement,
the
fair
market
value
of
the
plaintiff's
right
had
to
be
determined
from
the
perspective
of
a
third
party
in
a
bona
fide
offer
and
that
these
limitations
rendered
the
right
without
value.
We
have
here
a
corporation,
Groupe
SL,
which
operates
absolutely
no
business,
which
owns
nothing
but
the
personal
assets
and
money
transferred
to
it
by
Mr.
Pierre
Savoie
in
the
circumstances
described
at
length
earlier
for
the
acknowledged
purpose
of
sheltering
the
assets
in
his
estate
from
his
creditors,
which
he
in
fact
succeeded
in
doing.
The
37,500
class
G
shares
issued
by
Groupe
SL
in
consideration
for
the
transfer
of
his
residence
were
without
par
value,
gave
no
right
to
vote
and
could
entitle
only
to
a
non-
cumulative
dividend,
but
most
importantly,
were
subject
to
significant
restrictions
in
that
they
could
be
redeemed
only
at
the
discretion
of
Groupe
SL
and
they
could
be
transferred
only
with
the
consent
of
100
per
cent
of
the
shareholders
holding
voting
shares.
If
we
ask
what
a
prudent
and
well-informed
purchaser,
other
than
a
member
of
the
family
or
another
person
not
dealing
at
arm's
length,
would
be
prepared
to
pay
for
these
shares,
the
answer
is
nothing,
in
the
view
of
the
respondent's
expert,
Mr.
Roch
Martel.
The
fact
that
he
held
150
of
1,000
voting
shares
did
not
give
Mr.
Pierre
Savoie
control
of
Groupe
SL.
The
restrictions
encumbering
the
preferred
shares
and
the
absence
of
control
thus
prevented
anyone,
including
anyone
who
were
to
seize
all
of
the
shares
held
by
Mr.
Pierre
Savoie,
from
recovering
any
value
whatever
in
respect
of
the
property
transferred
to
Groupe
SL,
since
the
redeeming
of
class
G
shares
received
in
consideration
could
not
have
been
obtained
by
a
holder
who
did
not
have
legal
control,
whether
direct
or
indirect.
The
objective
of
proceeding
in
this
manner
was
to
transfer
property
having
a
certain
value
in
exchange
for
other
property,
the
shares,
which
had
no
value
for
anyone
else
at
all
other
than
the
person
involved
himself
or
people
with
whom
he
was
not
dealing
at
arm's
length.
The
objective
was
achieved,
as
demonstrated
by
Mr.
Pierre
Savoie's
subsequent
bankruptcy.
To
reiterate
the
argument
made
by
counsel
for
the
respondent,
we
cannot
accept
that
the
shares
be
found
on
the
facts
to
have
no
value
in
the
eyes
of
the
trustee
and
the
Official
Receiver
in
Pierre
Savoie's
bankruptcy
and
at
the
same
time
be
assigned
a
market
value
of
$37,500
as
their
value
in
the
eyes
of
the
owner.
Mr.
Pierre
Savoie
did
not
legally
have
control
of
Groupe
SL,
nor
did
he
want
to
have
control.
How
can
it
now
be
argued
that
he
had
control
for
the
purpose
of
assigning
a
certain
value
to
the
class
G
shares
received
in
exchange
for
the
residence?
The
powers
of
attorney
he
held
from
his
wife
and
children
do
not
make
any
difference
to
this
situation.
They
were
essentially
revocable
and
they
were
not
transferable.
While
they
undoubtedly
gave
Pierre
Savoie
all
the
latitude
he
wanted
in
terms
of
managing
and
disposing
of
property
belonging
to
them,
they
gave
him
no
title
to
the
property.
I
cannot
accept
the
argument
that
what
are
essentially
personal
powers
of
attorney
could,
because
of
the
status
of
the
person
who
held
them,
give
significant
market
value
to
shares
which,
in
view
of
the
restrictions
on
them,
could
not
be
worth
their
full
redemption
value.
The
value
in
the
eyes
of
the
owner
alone
is
not
the
fair
market
value,
as
has
been
stated
on
several
occasions.
I
must
reject
the
argument
submitted
by
counsel
for
the
appellant
that
in
order
to
determine
the
value
of
the
class
G
shares
we
must
consider
the
possibility
of
the
shares
being
redeemed
by
Groupe
SL,
and
the
company's
financial
capacity
to
redeem
the
shares.
In
fact,
on
June
15,
1983,
Groupe
SL,
on
the
one
hand,
could
not
have
proceeded
to
the
redemption
unless
the
personal
assets
which
had
just
then
been
transferred
were
liquidated,
and,
on
the
other
hand,
even
if
such
a
redemption
has
taken
place,
it
was
not
plausible
that
it
would
have
happened,
and
in
fact
it
was
totally
improbable
in
the
circumstances,
since
it
would
have
turned
out
to
be
squarely
contrary
to
the
transactions
which
had
just
been
carried
out.
The
trustee
in
Pierre
Savoie's
bankruptcy
also
ran
up
against
the
company's
refusal
to
redeem
the
shares
in
1984.
With
respect
to
the
facts,
those
described
in
Marina
Québec
Inc.,
supra
are
completely
different
from
those
to
be
decided,
particularly
in
that
we
have
here
a
corporation
which
is
not
operating
any
business
and
has
no
activities.
The
financial
situations
of
the
corporations
involved
are
not
comparable.
What
appears
to
me
to
be
the
most
significant
distinction
between
this
and
the
situation
described
in
Marina
Québec
Inc.
(supra)
is
the
fact
that
Mr.
Pierre
Savoie
did
not
have
legal
control,
either
direct
or
indirect.
In
that
case,
the
decision
to
assign
a
value
to
the
preferred
shares
was
based
on
the
existence
of
such
control.
Mr.
Pierre
Savoie's
bankruptcy
and
the
impossibility
of
recovering
any
value
from
the
shares
which
then
comprised
the
only
assets
in
his
estate
also
appear
to
me
to
be
differences
which
might
confirm
the
fact
that
the
shares
here
had
little
if
any
value.
The
facts
of
the
present
case,
while
not
identical
to
those
reported
in
Rodgers
and
493800
Ontario
Ltd.
v.
M.N.R.,
[1989]
1
C.T.C.
2181,
89
D.T.C.
78,
are
very
similar
and
may
suggest
a
similar
conclusion.
Moreover,
in
the
present
case
we
cannot
ignore
that
the
transfers
of
assets
to
Groupe
SL
and
particularly
that
of
the
residence
were
carried
out
at
a
time
when
Revenue
Canada
had
been
auditing
for
more
than
a
year
and
Mr.
Pierre
Savoie,
who
was
familiar
with
his
own
business,
might,
rightly
so,
well
have
feared
the
consequences
for
his
own
estate.
The
argument
that
he
wanted
to
shelter
his
assets
from
potential
creditors
in
view
of
his
new
business
activities,
and
on
the
basis
of
Article
1738
of
the
Civil
Code
of
Lower
Canada,
cannot
convince
me
otherwise,
since
these
new
activities
had
in
fact
been
undertaken
by
another
corporation
created
specifically
for
that
purpose:
Bois
Blandford
Inc.
The
entire
corporate
structure
used
was
essentially
designed
to
exchange
assets
of
a
certain
value
for
shares
which
had
no
value
except
to
their
owner
and
his
family.
To
a
third
party,
whoever
it
might
be,
these
shares
had
nothing
but
nuisance
value
in
the
circumstances.
In
this
context,
if
we
return
to
the
hypothesis
of
a
transaction
on
a
free
and
unrestricted
market,
a
well-informed
third
party
would
to
a
large
extent,
if
not
totally,
have
discounted
the
redemption
value
of
such
shares.
The
appellant
having
not
submitted
any
direct
evidence
of
any
value
other
than
the
full
redemption
value
which
is
not
accepted
for
the
foregoing
reasons,
I
find
that
the
37,500
class
G
shares
issued
in
consideration
for
the
transfer
of
the
residence
in
Manseau
on
June
15,
1983
had
a
fair
market
value
of
nil
on
that
date,
as
the
respondent
assumed
in
making
his
assessment.
This
conclusion
makes
it
unnecessary
for
me
to
discuss
the
other
transfers
to
Groupe
SL
as
possible
justifications
for
the
assessment.
With
respect
to
the
subsidiary
question,
as
to
whether
Groupe
SL
is
liable
under
subsection
160(1)
of
the
Act
despite
the
fact
that
Pierre
Savoie
was
discharged
following
his
bankruptcy,
which
was
raised
by
counsel
for
the
respondent,
section
149
of
the
Bankruptcy
Act
provides
a
clear
answer
in
the
affirmative.
On
this
point,
we
might
also
refer
to
the
decision
of
Judge
Sarchuk
of
this
Court
in
Garland
v.
M.N.R.,
[1988]
1
C.T.C.
2398,
88
D.T.C.
1271.
For
these
reasons,
the
appeal
is
dismissed.
Appeal
dismissed.
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