Citation: 2009 TCC 255
Date: 20090521
Docket: 2004-3945(IT)G
BETWEEN:
GESTION FORET-DALE INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal from the
notice of assessment issued by the Minister of Revenue of Canada
("the Minister") on May 27, 2002, in respect of the
Appellant's taxation year ended June 30, 1996. The notice of assessment
claims $113,289 in tax under Part IV of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.), as amended ("the Act"),
plus a penalty of $56,644 under subsection 163(2) of the Act, plus
$91,724.39 in interest, from the Appellant.
[2]
The context in which
the transactions giving rise to the assessment took place is described at paragraphs
1 to 13 of the Notice of Appeal, which are worth reproducing:
[TRANSLATION]
1.
As part of a reorganization within the Armatures G. Roy Inc. group of companies, the following
transactions were planned and finalized:
(a) the sale, by Gaston Roy to 9022-3512 Québec
Inc., of the shares in the capital stock of 2843-0692 Québec Inc.; and
(b) the redemption by 9022-3512 Québec Inc. of
shares held by 2174‑1269 Québec Inc. (i.e. the Appellant, now known
as Gestion Forêt‑Dale Inc.).
2.
The tax-related aspects of this transaction were
entrusted to the firm of Roy, Tardif, Desrochers, Dumont, Chartered
Accountants (now known as Roy Desrochers Lambert LLP);
3.
In the spring of 1995, the tax consequences were
examined and the parties held negotiations.
4.
An agreement in principle between the parties
involved was reached in or about June 1995.
5.
At that time, it was agreed that the effective
date of the transaction would be July 1, 1995.
6.
The main reason for choosing this date was that
the fiscal year-end of the companies concerned was June 30, so the parties
chose to base the transactions on the financial information of the companies
concerned as at June 30, 1995.
7.
Consequently, in order to finalize the documentation
confirming the agreement in principle, it was necessary to have access to the
financial statements prepared for the fiscal year ended
June 30, 1995.
8.
The notary Jean Boudreau was retained to prepare
the relevant documentation.
9.
It was agreed that the relevant documentation
would be signed later, that is to say, as soon as the financial statements as
at June 30, 1995, became available, but that the signed documents
would be dated July 1, 1995, the effective date of the transaction agreed
upon between the parties.
10.
This situation was presented to the taxpayers,
including Gaston Roy, the principal shareholder of the Appellant, as normal and
commonplace in complex corporate and tax transactions of this kind.
11.
On the fiscal plane, the procedure recommended
by the accountants of Roy, Tardif, Desrochers, Dumont was set out in a document entitled [TRANSLATION] "Corporate Reorganization
Plan". A first version of the document was issued on
April 7, 1995, and an updated version was issued in June 1995.
12.
The financial statements for the fiscal year
ended June 30, 1995, became available on
September 19, 1995, and, in accordance with the parties' wishes, the
documents were signed soon after that date, because the closing meeting took
place on September 26, 1995.
13.
Given the complex nature of the transaction, it
was necessary, for the purposes of the [TRANSLATION] "Corporation Reorganization
Plan" prepared by the accountants, that the documents be signed in
chronological order, so that the documents would all be dated
July 1, 1995, but at different times of day.
[3]
Following the closing meeting
of September 26, 1995, the accountants noticed that a mistake had
been made in the sequence of the documents prepared by the notary Jean Boudreau:
prior to the redemption by 9022-3512 Québec Inc. of shares held by the
Appellant, other voting shares should have been issued so that the companies
concerned would be connected persons within the meaning of the Act at the time
of the redemption by 9022-3512 Québec Inc. of the 26,133 Class E shares
held by the Appellant in consideration of $392,000.
[4]
The issuance and
redemption of 115,000 Class B voting shares of 9022-3512 Québec Inc. — that is to say, the shares used to create
the relationship — were
not part of the corporate reorganization plan prepared by the accountants, but
the accountants claim that the parties intended the companies concerned to be connected
within the meaning of the Act, because the corporate reorganization plan refers
to the calculation of "accrued earned income" in a context involving
the potential application of subsection 55(2) of the Act. According to the
accountants, subsection 55(2) of the Act would not have been applicable if
the companies concerned had not been connected at the time of the redemption of
the Class E shares. In the submission of the Appellant and its
representatives, the Class E shares should have been voting shares instead of non‑voting
shares.
[5]
In order to correct the
mistake, two new resolutions dated July 1, 1995 were inserted into
the sequence of transactions dated July 1, 1995. The first resolution
was to issue 115,000 Class B shares of 9022-3512 Québec Inc. to the
Appellant at 7:45 a.m. The second resolution of 9022-3512 Québec Inc. contemplated
the redemption, at 5:45 p.m., of the 115,000 Class B shares held by
the Appellant.
[6]
After the taxpayers
concerned signed these new resolutions, the accountants realized that the first
of the two additional resolutions had been inserted too early in the sequence
of transactions of July 1, 1995, and that the transactions would have
resulted in unforeseen and undesired tax consequences: section 84.1 of the
Act might have come into application.
[7]
In order to correct the
situation, a new resolution was adopted by the board of directors of 9022-3512
Québec Inc. to issue 115,000 Class B shares to the Appellant, but this
time, at 4:45 p.m.
[8]
The Minister refused to
give effect to the additional resolutions of 9022‑3512 Québec Inc., and
assessed the Appellant as though it and 9022-3512 Québec Inc. had not been connected
at the time that the Class E shares were redeemed. As far as the
Minister was concerned, the issuance of the Class B shares constituted
retroactive tax planning because it had not initially been contemplated.
[9]
The Respondent submits
that, prior to February 10, 2000, which was the end of the normal
reassessment period for the Appellant's 1996 taxation year, Gaston Roy, the
Appellant's president, falsely stated that he was unaware that a few documents concerning
the 1995 reorganization were redone, and that the accountants who structured
the reorganization and prepared the Appellant's 1996 income tax return were
also unaware of those changes.
[10]
On February 5, 2008,
the Appellant tendered a document containing admissions to the effect that,
unbeknownst to the Appellant and its sole shareholder Gaston Roy, the
accounting firm of Roy, Tardif, Desrochers, Dumont ("RTDD") and the
notary Jean Boudreau provided inaccurate information to Alain Plourde, an auditor
with the Canada Revenue Agency ("the Agency") during its audit,
which took place from 1998 to 2002. The admissions are as follows:
|
Date, name of professional and
transmission method
|
Inaccurate information provided
|
Appropriate information
|
|
November 2, 1998
Mario Désilets, CA
Orally
|
Resolutions of 7:45 a.m. and
5:45 p.m. signed upon closing on September 26, 1995.
No documents signed after the
closing on September 26, 1995
|
Resolutions of 7:45 a.m. and
5:45 p.m. signed in or about November 1996.
Resolution of 4:45 p.m.
signed in or about July 1998
|
|
November 19, 1998
Jean Boudreau, notary
In writing
|
Resolution of 7:45 a.m.
prepared by him and signed at the closing on September 26, 1995.
Resolution of 4:45 p.m.
prepared by him and signed the day after the closing meeting of
September 26, 1995.
|
Resolution of 7:45 a.m.
prepared by accountants RTDD and signed in November 1996.
Resolution of 4:45 p.m.
prepared by accountants RTDD and signed in or about July 1998.
|
|
Date, name of professional, and
transmission method
|
Inaccurate information provided
|
Appropriate information
|
|
February 26, 1999
Marco Baril, CA
Orally
|
Resolutions of 7:45 a.m. and
5:45 p.m. signed at the closing on September 26, 1995, and prepared
and revised prior to the closing meeting.
Mistake re 7:45 a.m. vs.
4:45 p.m. discovered at the closing meeting of
September 25, 1995, and corrected quickly thereafter.
|
Resolutions of 7:45 a.m. and
5:45 p.m. signed in or about November 1996.
Mistake re 7:45 a.m. vs.
4:45 p.m. discovered in July 1998.
|
|
February 26, 1999
Mario Désilets, CA
Orally
|
Called the notary to ask for the
correct time (7:45 a.m. vs. 4:45 p.m.).
Original resolution of
4:45 p.m. was probably in the notary's file between July 16 and
September 3, 1998.
Original 7:45 a.m. resolution
not found, possibly destroyed.
|
Accountants RTDD prepared these
documents themselves.
Document prepared by accountants
RTDD themselves did not transit through notary's file.
Document subsequently found.
|
|
March 16, 2000
Mario Désilets, CA
Orally
|
Original 7:45 a.m. resolution
not found, possibly destroyed.
Resolutions of 4:45 p.m. and
5:45 p.m. requested prior to the closing meeting of
September 26, 1995.
Handwritten document called [TRANSLATION]
"Meeting with Marco" written before Corporate Reorganization
Program of June 30, 1995, was typed up.
Notary Jean Boudreau contacted to
prepare the resolutions of 4:45 and 5:45 p.m. at the same time as
handwritten document called [TRANSLATION] "Meeting with Marco"
prepared.
|
Document subsequently found.
Resolutions of 7:45 a.m. and
5:45 p.m. signed in or about November 1996.
Resolution of 4:45 p.m.prepared by
accountants RTDD and signed in or about July 1998
Handwritten document called
[TRANSLATION] "Meeting with Marco" prepared in or about
November 1996.
Accountants RTDD prepared
documents themselves.
Resolutions of 7:45 a.m. and 5:45
p.m. signed in or about November 1996.
Resolution of 4:45 p.m.
prepared by accountants RTDD and signed in or about July 1998.
|
|
Date, name of professional, and transmission method
|
Inaccurate information submitted
|
Appropriate information
|
|
May 18, 2000
Marco Baril, CA
In writing
|
Resolution of 4:45 p.m.
prepared and signed shortly after the closing meeting of
September 26, 1995 "to the best of our recollection".
Suggests that the resolutions of
7:45 a.m. and 5:45 p.m. were signed at the closing meeting of
September 26, 1995.
|
Resolution of 4:45 p.m.
prepared by accountants RTDD and signed in or about July 1998.
Resolutions of 7:45 a.m. and
5:45 pm. signed in or about November 1996.
|
[11]
With regard to the
signature of the additional resolutions, paragraphs 19 and 22 of
the Notice of Appeal specify that the inviduals concerned were notified of the
error, and of the correction, which was made in the following manner:
[TRANSLATION]
19.
The accountants presented the situation to the
taxpayers as a correction of a mistake related to the "Corporate
Reorganization Plan" to which the parties had agreed. They said that it
was still normal to date the resolutions as of July 1, 1995 even
though they had not been signed on that date, and this seemed completely normal
to the taxpayers, since, under the circumstances described above at paragraphs
9 and 10, the entire series of resolutions had not been signed on
July 1, 1995, and this had been presented to
them as normal and commonplace.
22. Once again, the taxpayer was invited to sign
the resolutions in the same spirit and with the same explanations as to the normal
nature of the procedure.
[12]
The Respondent submits
that the facts set out in paragraphs 19 and 22 of the Notice of Appeal
constitute two judicial admissions. In a letter dated March 23, 2005,
to counsel for the Respondent, counsel for the Appellant confirmed as follows:
(1) The
individuals to whom Marco Baril presented the situation as normal based on the
statement in paragraph 19 of the Notice of Appeal were Laurent Lemay (who
represented the group of persons referred to in paragraphs 1 and 2 of
Part D of the "Corporate Reorganization Plan" of
June 30, 1995) and Gaston Roy.
(2) At the time that the
new correction was presented, the accountant Marco Baril claimed that the
November 1996 corrections had been drafted hastily: a mistake had been
made in the sequence, so it was necessary to change the time of the first of two
resolutions (the time of the second one was correct). This situation was
presented as normal in the context explained in the Notice of Appeal. As has
been stated, the people who were given this explanation were Laurent Lemay and Gaston
Roy.
[13]
In a subsequent letter
to counsel for the Respondent, dated June 29, 2007, the Appellant's
lawyers qualified their answer to the request for particulars concerning
paragraph 22 of the Notice of Appeal thus:
[TRANSLATION]
The accountant Marco Baril has told us that he
"soft-pedalled" the situation to the taxpayers without actually revealing
that a mistake had been made. Rather, he presented the documents as routine
documents that were needed in order to "complete" the transaction of
July 1, 1995; in fact, these documents were signed at the same time
as the documents required to close out the year.
[14]
Gaston Roy testified at
the hearing. He went over the history of Armatures G. Roy Inc. He
explained that eight years earlier he had sold 49% of the shares of that company
to roughly ten employees who had agreed to a ten‑year salary freeze. The
relationship between the parties was governed by a shareholders' agreement. The
business was managed according to the "one person, one vote"
principle, even for Gaston Roy, who controlled the business. After a union was
certified and a collective agreement was signed, Gaston Roy agreed to divest
his 51% of the shares of that company, and to acquire 49% of the sugar bush and
the school bus division from Armatures G. Roy Inc. Gaston Roy retained Marco
Baril, a chartered accountant at RTDD, to explore the possibility of
carrying out the transactions in question and making a net profit of $800,000
from them. Marco Baril was the accountant who had prepared Gaston Roy's and his
companies' tax returns for several years, and had fulfilled a similar mandate upon
the sale of Mr. Roy's 49% stake to a group of employees. Following discussions
with the various employee groups, Marco Baril said that the employees had expressed
an interest in the proposed transactions and that the transactions could be
carried out on the desired financial terms. Marco Baril then received a
definitive mandate to structure and finance the transactions.
[15]
A first "Corporate
Reorganization Plan" was prepared by the accountants on
April 7, 1995. A revised version was dated June 30, 1995.
Mr. Baril told his client Gaston Roy that, under the corporate
reorganization plan, he would have to pay roughly $100,000 in income tax, 50%
of which could be recouped.
[16]
The closing meeting of
the corporate reorganization was held at the accountants' offices on
September 26, 1995, but the effective date of the transactions was
July 1, 1995. The additional time was necessary in order to finalize
the financial statements of Armatures G. Roy Inc. as at
June 30, 1995, and to compute the accrued earned income as at that
date. The legal documentation for the transactions was prepared by Jean
Boudreau, a notary based in Princeville.
[17]
In the course of his
testimony, Gaston Roy confirmed that he was the Appellant's sole shareholder
and director. He explained that, following the signing of the documents
related to the sale of his interest in Armatures G. Roy Inc., he made an
investment of $100,000 to $110,000 at the local Caisse populaire to cover his
estimated income tax liability. When the Appellant's tax returns for the year
ended June 30, 1996, which had been prepared by the accountants at
RTDD, were signed, Gaston Roy said that he questioned the fact that $100,000 of
income tax was not payable. He checked with the accountants, who confirmed
that he could sign the Appellant's tax returns as submitted, and that the
$100,000 that he had set aside could be used for other purposes. On the basis
of the information provided by the accountants, there was no tax to pay because
the "accrued earned income" of Armatures G. Roy Inc. as at
June 30, 1995, was higher than anticipated. Gaston Roy signed
the Appellant's tax returns for the 1996 taxation year on
November 13, 1996, and the transaction by which the 26,133 Class E
shares of 9022-3512 Québec Inc. were redeemed was treated as though the
Appellant was connected to 9022-3512 Québec Inc.
[18]
In the course of his
testimony, Mr. Gaston Roy also asserted that he had not signed documents regarding
the transaction following the closing meeting, and that he had not been notified
in any way by Mr. Boudreau or RTDD that a mistake had been made in the
transaction and that additional resolutions had to be signed in order to issue
and redeem 115,000 Class B shares of 9022-3512 Québec Inc. Following
the meeting of November 2, 1998 with Agency auditors Gagnon and
Plourde, Gaston Roy knew that an audit of the transactions was in progress,
and he was generally aware of the developments in the matter and of the tax
authorities' requests for documents.
[19]
Gaston Roy's testimony
was corroborated by that of Marco Baril, the accountant retained to carry out the
transactions, who said that he kept Gaston Roy informed about the status
of the audit file without referring to the specific steps of the
reorganization. Mr. Baril confirmed that the disputed resolutions had been
drafted by his firm and that there had been no resolution passed by the
Appellant for the subscription and redemption of the 115,000 Class B
shares of 9022‑3512 Québec Inc., so as to avoid having to get Gaston
Roy to sign them. Moreover, he confirmed that a share certificate for
the 115,000 Class B shares had been issued and that an entry had been made
in the share ledger. However, Mr. Baril acknowledged that the $115 subscription
price of the 115,000 Class B shares had not been paid by the
Appellant. Lastly, Mr. Baril acknowledged that he had Laurent Lemay and
Daniel Roy sign the disputed resolutions for 9022‑3512 Québec Inc. at
the same time as the other year-end resolutions witout formally notifying them
that said resolutions pertained to the 1995 reorganization.
[20]
Laurent Lemay and
Daniel Roy also testified at the hearing and acknowledged signing the disputed
resolutions in the belief that no one would thereby be harmed and with the
intent to give effect to the accountants' corporate reorganization plan.
Analysis
[21]
Since the notice of
assessment for the Appellant's taxation year ended June 30, 1996, was
issued by the Minister beyond the normal reassessment period, we must consider
whether the provisions of subparagraph 152(4)(a)(i) of the Act are
applicable under the circumstances.
[22]
Subparagraph 152(4)(a)(i)
of the Act reads as follows:
(4) Assessment and reassessment. Subject
to subsection (5), the Minister may at any time assess tax for a taxation year,
interest or penalties, if any, payable under this Part by a taxpayer or notify
in writing any person by whom a return of income for a taxation year has been
filed that no tax is payable for the year, and may
(a) at any time, if
the taxpayer or person filing the return
(i) has made any
misrepresentation that is attributable to neglect, carelessness or wilful
default or has committed any fraud in filing the return or in supplying any
information under this Act . . .
. . .
reassess or make additional assessments, or assess tax,
interest or penalties under this Part, as the circumstances require . . .
[23]
By virtue of subsection
187(3) of the Act, section 152 is applicable to Part IV of the Act
with such modifications as circumstances require.
[24]
In the light of the
facts referred to above, and the admissions tendered by the Appellant, I have
no difficulty finding that the Appellant and the accountants RTDD made a
misrepresentation in filing the Appellant's income tax return for its taxation
year ended June 30, 1996, that the notary Jean Boudreau and the
accountants RTDD made a misrepresentation in supplying information under the
Act, and that these misrepresentations were attributable to neglect,
carelessness or wilful default.
[25]
Gaston Roy signed the
Appellant's tax return on November 13, 1996, on the basis that the
Appellant was connected to 9022‑3512 Québec Inc. at the time that the
26,133 Class E shares were redeemed, when in fact it was not.
[26]
Upon preparing the Appellant's
income tax return, the accountants RTDD knew that the companies were not
connected and that new shares would have to be issued in order to create the
connection, hence the resolutions of 7:45 a.m. and 5:45 p.m. According
to the handwritten notes of accountant Mario Désilets in a document entitled
[TRANSLATION] "Armatures G. Roy Inc. Meeting with Marco", it is
acknowledged that the plan as it then existed did not contemplate a connection
between the companies. According to the same notes, it was agreed, following
discussions, to issue shares and redeem them at the appropriate time, even
though it was known that this might be considered an anti-avoidance transaction
that ran afoul of the Act. In the course of the audit, the accountant Mario
Désilets asserted that the document in question had been drafted before
the corporate reorganization program was typed up, when, in reality, as per the
Appellant's admissions, it was prepared in November 1996.
[27]
In a letter dated
November 19, 1998, the notary Jean Boudreau confirmed that he had
drafted the resolutions of 7:45 a.m. and 4:45 p.m. when, in reality, as
per the Appellant's admissions, they were prepared by the accountants RTDD. Moreover,
Mr. Boudreau asserted that the 7:45 a.m. resolution had been signed at the
closing session of September 26, 1996, and that the resolution of
4:45 p.m. had been signed the day after that meeting, when, in reality, as
per the Appellant's admissions, the 7:45 a.m. resolution had been signed
in November 1996 and the 4:45 p.m. resolution had been signed in or
about July 1998.
[28]
Several times in the
course of the audit, the accountants Mario Désilets and Marco Baril provided
false information to Agency auditors regarding the people who drafted the
disputed resolutions, the dates on which they were signed, and the date on
which the mistake concerning the 7:45 a.m. resolution was discovered.
[29]
In order to identify
the person who prepared the controversial resolutions and ascertain the dates
on which they were signed, the Agency auditors had to have laboratory analyses done
of the ink and paper used for the said resolutions. The ink analysis was not
conclusive, but the paper analysis revealed that the paper used for the 4:45
p.m. resolution was Marque d'Or "Walter Mark" that was first
used in January 1997. On the basis of this analysis, there was no way that
the 4:45 p.m. resolution could have been prepared and signed in 1995 as the
accountants and the notary had claimed. These analyses were ordered by the
Agency auditors because they noted differences in typeface between the three
disputed resolutions and the other resolutions that were part of the
reorganization.
[30]
The exact date on which
the 7:45 a.m. and 5:45 p.m. resolutions were signed was not specified. According
to the Appellant's admissions, they were signed in November 1996. Since the
Appellant's tax returns for the 1996 taxation year were signed by Gaston Roy
on November 13, 1996, the evidence does not disclose whether or not the
disputed resolutions had already been signed when the Appellant's tax returns
were signed and filed.
[31]
In order for
subparagraph 152(4)(a)(i) of the Act to apply, the misrepresentation
must be attributable to neglect, carelessness or wilful default.
[32]
According to counsel
for the Respondent, the misrepresentation must have occurred when the
Appellant's tax returns were filed or that information was supplied under the
Act, including representations made to the Agency by the Appellant or by agents
or accountants acting on the Appellant's behalf.
[33]
Counsel for the
Appellant submit that the relevant time to look at in order to determine
whether a person has made in a misrepresentation attributable to neglect,
carelessness or wilful default in filing the person's tax return must be the
time at which the return was filed. They submit that the standard of care that
must be followed by a taxpayer in preparing a tax return is that of a
reasonably prudent person, and that the return must be presented in a manner
that the taxpayer truly believes is correct.
[34]
Regardless of the point
in time from which the question whether the Appellant made a misrepresentation
is to be determined, the evidence that has been adduced clearly shows that the
Appellant made a misrepresentation attributable to wilful default upon filing
its income tax return for the 1996 taxation year and that the Appellant's
agents, namely the accountants RTDD and the notary Jean Boudreau, supplied
false information to the Agency in connection with the audit, thereby
contravening subsection 152(4) of the Act.
[35]
In preparing the
Appellant's tax returns for the 1996 taxation year, the accountants at RTDD noticed that the
accrued earned income of Armatures G. Roy Inc. as at June 30, 1995,
was greater than the amount estimated in the [TRANSLATION] "Corporate
Reorganization Plan", and that, consequently, it was possible to
avoid the tax under Part IV upon the redemption of the Class E shares
by causing the companies to be connected, for the purposes of the Act, through
the issuance of Class B shares. RTDD prepared the Appellant's tax returns
for the 1996 taxation year on the assumption that the Appellant was connected
to 9022-3512 Québec Inc.
[36]
In reviewing the
Appellant' tax returns for the 1996 taxation year, Gaston Roy notice that
the tax payable by the Appellant was roughly $100,000 less than what had been estimated,
and he questioned the accountants in this regard. The accountants then
explained to him why no tax was payable under Part IV. According to Gaston Roy's
testimony, the accountants reassured him and convinced him to sign the tax
returns as submitted.
[37]
As a meticulous
professional who had Gaston Roy's full confidence and with whom Gaston Roy had
been dealing for several years, the accountant Marco Baril certainly explained
to him how the connection between the companies concerned was established,
namely, through the adoption of two resolutions providing for the issuance and
redemption of voting shares of 9022‑3512 Québec Inc., the absence of
consequences for the purchasers, and the risk that the tax authorities would
apply the general anti-avoidance rule to the transaction. I cannot believe that
the accountants at RTDD could have made the decision to create a connection
between the companies on their own —
a transaction which, in their view, was subject to the general anti‑avoidance
rule — without first obtaining Gaston Roy's
consent or approval.
[38]
According to the
admissions contained in paragraphs 19 and 22 of the Notice of Appeal and the
letter by counsel for the Appellant dated March 23, 2005, Gaston Roy
was also notified by Marco Baril that additional resolutions in connection
with the [TRANSLATION] "Corporate Reorganization Plan" were supposed
to have been signed on July 1, 1995. It is odd that the accountant
Marco Baril told Gaston Roy about the signing of the additional
resolutions, but that the same accountants did not have him sign resolutions by
the Appellant contemplating the subscription for the Class B shares of 9022‑3512
Québec Inc. and authorizing their subsequent purchase or redemption, and
did not have him sign a cheque from the Appellant in payment of the
subscription price of those shares. Lastly, no evidence was tendered to show
that the Appellant received the purchase or redemption price of the
Class B shares.
[39]
The facts surrounding
the issuance and cancellation of the Class B shares of 9022‑3512
Québec Inc. tend to show that these measures constituted retroactive tax
planning, not the correction of a mistake in the implementation of the
[TRANSLATION] "Corporate Reorganization Plan". It is more than doubtful
that the Class B shares were validly issued, given that the subscription
price was not paid. Moreover, the $115 subscription price for the 115,000
Class B voting shares of 9022‑3512 Québec Inc. did not reflect the
fair market value of the shares. The resolution of 5:45 p.m. referred
to a redemption of the Class B shares, but those shares were not
redeemable under the corporation's articles. The certificate for the
Class B shares was not endorsed by Gaston Roy with a view to authorizing
the transfer following their purchase or redemption.
The penalty
[40]
The penalty assessed
against the Appellant is the penalty provided for in subsection 163(2) of
the Act. The part of subsection 163(2) of the Act that precedes
paragraph (a) reads:
(2) [False statements or omissions] Every
person who, knowingly, or under circumstances amounting to gross negligence,
has made or has participated in, assented to or acquiesced in the making of, a
false statement or omission in a return, form, certificate, statement or answer
(in this section referred to as a "return") filed or made in respect
of a taxation year for the purposes of this Act, is liable to a penalty of the
greater of $100 and 50% of the total of
. . .
[41]
When imposing a penalty
under subsection 163(2) of the Act, the Minister has the burden of proof,
as provided for in subsection 163(3) of the Act, which reads:
(3) [Burden of proof in respect of penalties] Where, in an appeal under this Act, a penalty assessed by the
Minister under this section or section 163.2 is in issue, the burden of
establishing the facts justifying the assessment of the penalty is on the
Minister.
[42]
I have already found,
for the purposes of subsection 152(4) of the Act, that Gaston Roy knew, on
the date that he signed and filed the Appellant's income tax returns for the
1996 taxation year, that the Appellant was not connected to 9022‑3512
Québec Inc. upon the redemption of the Class E shares; that it was
necessary to issue voting shares of 9022‑3512 Québec Inc. to the Appellant
in order to create the connection; and that the Appellant ran the risk of the
transaction being disallowed by the tax authorities based on the general
anti-avoidance rule.
[43]
The judicial admissions
contained in paragraphs 19 and 22 of the Notice of Appeal, to which
details were added but which were not denied, prove that Gaston Roy knew that
the additional resolutions were signed in order to issue voting shares of
9022-3512 Québec Inc. to the Appellant.
[44]
The Appellant, through
its sole shareholder and director Gaston Roy, knowingly participated in,
assented to or acquiesced in a scheme involving the retroactive creation of a
connection between the Appellant and 9022‑3512 Québec Inc. for the
purpose of avoiding the payment of tax under Part IV of the Act.
[45]
Consequently, I am
satisfied that the Respondent has shown, on a balance of probabilities, that the
imposition of the penalty provided for in subsection 163(2) of the Act on
the Appellant in respect of its 1996 taxation year was warranted.
[46]
For these reasons, the
appeals are dismissed, with costs.
Signed at Ottawa, Canada, this 21st day of May 2009.
"Réal Favreau"
Translation
certified true
on this 29th day
of June 2009.
François Brunet,
Revisor
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