Miconi v. MNR, 85 DTC 696, [1985] 2 CTC 2457 (TCC)

Rip, TCJ:—Mr Miconi appeals his income tax assessments for 1977, 1978 and 1979 on the basis that Cataract Construction Limited (“Cataract”), a company of which he is president and controlling shareholder, did not make any loans to him in the years under appeal.

In 1977 Cataract attempted to acquire two contiguous real estate properties in Barrie, Ontario but the offers it made to the owners were rejected since the owners did not wish to deal with a corporate entity. Subsequently a Mr Domenico Borsa, Mr Miconi's brother-in-law, made offers for the properties at 46 Mary Street for $232,000 and 69-69D Dunlop Street for $62,500. The offers were accepted. Each offer had a right of assignment clause and on closing, deeds of conveyance were prepared between the owner of the Mary Street property and Mr Miconi and between the owner of the Dunlop Street property and Mrs Miconi. Mr Miconi acknowledged that he was aware that he and Mrs Miconi were purchasers of the properties but thought they were purchasing the properties for Cataract who carried on business as “Miconi Construction’'.

Mr Miconi, an Italian immigrant, testified it was his intent that both properties be owned by Cataract from the very outset and that was the reason Mr Borsa made the offers. Mr Miconi stated he did not have money required to purchase the properties, but Cataract did. Cataract paid out all moneys required for the purchases of the properties.

Mr Miconi testified that all rental income he received from the tenants of the properties were deposited in Cataract’s bank account and all expenses were paid by Cataract. This was done, he said, because he thought Cataract owned the properties. However Cataract did not report income from the properties in its returns of income for the years under appeal. No financial statements of Cataract were submitted in evidence. In his income tax returns for 1977,1978 and 1979 Mr Miconi reported the rentals from the properties and deducted expenses. Mr Miconi's tax returns (and those of Cataract) were prepared by Gordon D Spence, a chartered accountant, with the firm Spence & Baldwin. Mr Miconi said he relied on his accountant who, he stated, did not explain to him the contents of the tax returns and he simply signed what was submitted to him. Mr Miconi stated he did not understand what he was signing and only learned that Cataract was not the owner of the properties by letter dated April 7, 1978 when Mr Spence wrote him requesting a meeting “to arrange the transfer of the rental properties to the corporation”.

Mr Miconi went to see his lawyer and accountant to change the ownership of the properties to Cataract. His lawyer, who was not named, told him he would look after this. Mr Miconi thought a simple correction would be all that would be required. Mr Miconi subsequently changed his accountant.

Only in 1980 did Mr Miconi learn that nothing had been done: Revenue Canada advised him in their view that he was the owner of the properties and amounts paid by Cataract in respect of the properties were loans to him which he had not repaid; consequently he was to be assessed under the provisions of subsection 15(2) of the Income Tax Act (“Act”). Mr Miconi now had a new accountant who later in 1980 was replaced by an accountant who spoke Italian and with whom Mr Miconi felt more at ease. Neither Mr Miconi nor his new accountant, Mr Fausto Palambo, CA, have been able to contact Mr Spence.

The real estate agent in the purchase of the two properties, Mr DiLillo, gave evidence corroborating Mr Miconi's testimony that the vendors of the properties originally did not want to deal with a corporation and therefore Mr Borsa made the offers of purchase.

To be successful in this appeal Mr Miconi must show he and Mrs Miconi held the respective properties as trustee, agent or nominee for Cataract on acquisition and in the years of appeal. There is no doubt that it was Mr Miconi’s intention for Cataract to acquire beneficial interest of the properties but I cannot satisfy myself that in the years under appeal Cataract was beneficial owner of the properties. Mr Miconi has the onus of proving his case, that Cataract was the beneficial owner of the properties notwithstanding he and Mrs Miconi were the registered owners.

The question I must answer is whether a trust had been established by Mr Miconi and Mrs Miconi when they acquired the properties. In Bouchard v The Queen, [1983] CTC 173; 83 DTC 5193, there is, at 179 to 188 (DTC 5198 to 5206) inclusive, an exhaustive review of the establishment of a trust by declaration. On 5202 Mr Justice Cattanach states that for a trust to be established by parol despite the Statute of Frauds, sound policy demands that its existence must be brought within reasonable certainty and not left within the realm of conjecture. The Court should ask itself five questions:

(1) is the claim supported by probability?

(2) is it supported by writing in any form?

(3) is it supported by any indisputable facts?

(4) is it supported by disinterested testimony?

(5) is the parol evidence quite satisfactory and convincing?

In this appeal it is reasonable and probable for Mr and Mrs Miconi to have acquired the properties for the benefit of Cataract. Mr Miconi's intent from the very outset appears to be that Cataract owned the properties and this is why Cataract made the original offers and Mr Miconi deposited the rental cheques to Cataract’s bank account.

Unfortunately the claim of the trust is not supported by any writing. No declaration of trust was prepared and Mr Palambo did not see any documentation in the minute book of Cataract or its files indicating either Mr or Mrs Miconi was holding the properties as trustee or as agent or nominee. This, however, should not in and by itself, be fatal.

The facts as outlined at the outset are not in dispute between the parties. The dispute lies in the inference to be drawn from these facts. (see Bouchard, op cit 187 (DTC 5205))

There was no disinterested testimony during the trial by a person privy to events in 1977, 1978 or 1979 that any trust was established, or that Mr or Mrs Miconi were acting as agents or nominees for Cataract. Mr Borsa made the offers to purchase the properties on behalf of somebody. He was not called as a witness. Neither was the solicitor for the purchaser; his records may or may not have clarified the matter. Surely his reporting letter would have indicated his instructions from his client. The evidence of Mr DiLillo, the real estate agent, was of no assistance to Mr Miconi on this matter.

And lastly I found the evidence of Mr Miconi to be truthful. I am convinced that when he was depositing the rental cheques in Cataract’s account he truly believed Cataract was the beneficial owner of the properties since that was his intention. But there was no evidence that this was so. Mr Miconi's intention was not fulfilled.

A person may believe something to be what it is not and unfortunately Mr Miconi finds himself in this situation. Neither Mr Miconi nor Mrs Miconi owned the respective properties in trust for Cataract. There is also no evidence that they were designated by Cataract as agents or nominees to hold the properties as registered owners for the benefit of Cataract. It would appear from the evidence Mr Miconi’s legal and accounting advisers did not ensure their client understood what transpired, or if he did understand what transpired it was different from what today he thought transpired in 1977. Why certain events originating from Mr Miconi's lawyer and accountant concluded as they did is mere conjecture. Mr Miconi appears to have been poorly served by them. But unfortunately Mr Miconi has been unable to satisfy this Court that the assessments are in error except to the extent that Revenue Canada has considered Mr Miconi the owner of both properties. There is no evidence he owned both properties and a reasonable inference is that he was the owner of only one property and Mrs Miconi was the owner of the other property. Accordingly the appeal will be allowed and referred back to the Minister for reconsideration and reassessment on the basis that Mr Miconi only owned the property at 46 Mary Street in Barrie.

Appeal allowed in part.