Date: 20120307
Docket: A‑254‑11
Citation:
2012 FCA 76
CORAM: NOËL J.A.
GAUTHIER J.A.
MAINVILLE J.A.
BETWEEN:
FIDUCIE FAMILLE GAUTHIER
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1]
This is an
appeal filed by Fiducie Famille Gauthier (the appellant) against a decision by
Justice Archambault of the Tax Court of Canada (the TCC judge) confirming an
assessment made under paragraph 84.1(1)(b) of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.) (the Act) by which tax was levied on a
dividend deemed to have been received by the appellant following a sale of
shares that took place in its 2002 taxation year.
[2]
The
appellant is challenging the amount of the deemed dividend. It contends that
the TCC judge erred in concluding that the consideration the appellant received
following the sale of shares included the amount of $233,786 representing the
amount of professional fees (fees) paid for the appellant in the context of
this sale. The amount of these fees is
sometimes stated as $233,550 in the evidence, but since the parties maintained
that this difference was insignificant, I will refer to the amount of $233,786
throughout the analysis.
[3]
The provisions of the
Act that are relevant to the analysis are appended to these reasons.
BACKGROUND
[4]
The facts that
led to the assessment’s being made are set out in detail in the summary of
facts found in the Notice of Appeal filed by the appellant, which is reproduced
in full at paragraph 1 of the TCC judge’s reasons (2009‑2331(IT)G). For our
purposes, suffice it to say that the transaction which resulted in the deemed
dividend is part of an arm’s‑length sale of all of the shares of Groupe
Orléans Express Inc. (Groupe Orléans Express) to Keolis Canada Inc. (Keolis), a
company owned in part by the appellant. To
obtain certain tax advantages, the 433 shares held by the appellant were
sold to 4041763 Canada Inc. (4041763), a corporation with which the appellant
had a non‑arm’s length relationship, which sold them to Keolis the same
day.
[5]
The dispute
arises from the fact that, according to the price set out in the contract of
sale, 4041763 acquired those shares from the appellant for a price that was
lower than the price for which it sold them to Keolis. At paragraph 9 of the
appellant’s statement of facts, this difference is explained as follows (Reasons,
paragraph 1):
9. The selling price of the 433 shares to
Keolis was $2,836,423, which is $6,550.63 per share. The difference between the
selling price to Keolis and the selling price to the appellant ($2,836,423 –
$2,602,637 = $233,786) consists of professional fees, which were paid by
4041763 upon the disposition, and which would have had to be paid by the
appellant if the appellant had sold the shares directly to Keolis.
[Emphasis added]
[6]
Of the
facts set out in this paragraph, the only one that attracts dispute is the assertion
at the very end. The respondent states in its Reply to the Notice of Appeal
that the appellant remained liable for paying the fees in the context of
the sale to Keolis through 4041763, and that it was for the appellant that 4041763
made this payment (Reasons, paragraph 2).
DECISION UNDER APPEAL
[7]
The TCC
judge agreed with the respondent’s position on this point. It seemed
obvious to him that the reduction in the price of the shares sold by the
appellant to 4041763 was done to reflect that 4041763 had agreed to pay the
fees for the appellant (Reasons, paragraph 14) and that it had, in a
sense, undertaken the appellant’s responsibility by paying the bill (Reasons,
paragraph 16).
[8]
On the
basis of that finding, the TCC judge had no trouble concluding that the
consideration received by the appellant for the purposes of applying paragraph 84.1(1)(b),
or, more precisely, the fair market value of that consideration, included the
amount that it was paid for the shares and the value of the services paid on
its behalf. According to the TCC judge, this did not unduly adjust the
transaction between the appellant and 4041763, but rather took the transaction
into account such as it was conducted between the parties.
[9]
By concluding
that the consideration included the fees, the TCC judge also dismissed the
argument that paragraph 84.1(1)(b) could not allow this addition
without paragraph 69(1)(b) also being applied.
GROUNDS FOR APPEAL
[10]
In support
of the appeal, the appellant is challenging the TCC judge’s conclusion that the
appellant was liable for the fees and that 4041763 had paid those fees on its
behalf (Appellant’s Memorandum, paragraphs 21 and 24). The appellant
emphasizes that the account statements were sent to 4041763 and that it is this
company that sold the shares to Keolis (Appellant’s Memorandum,
paragraph 23). Therefore, according to
the appellant, the fees were not part of the “consideration” it received for
the purposes of Part D of the formula set out at paragraph 84.1(1)(b).
[11]
In any
event, the amount of the consideration identified in the contract of sale
cannot be adjusted unless the fair market value of the shares sold under
paragraph 69(1)(b) of the Act is called into question. The appellant
adds that paragraph 69(1)(b) cannot be applied since the assessment
was made outside the normal assessment period, and paragraph 69(1)(b)
is not among the provisions in respect of which the appellant signed a
waiver (Appellant’s Memorandum, paragraph 26).
ANALYSIS AND DECISION
[12]
Since this is an appeal
of a TCC decision, the applicable standard of review
is the one established in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2
S.C.R. 235: questions of law are reviewable on a standard of correctness, and
this Court must defer to the decision of the TCC for questions of fact and
questions of mixed fact and law unless it can be shown that a palpable and
overriding error has been made.
[13]
The
question of who, between 4041763 and the appellant, was responsible for the
payment of the fees raises a question of fact or, at most, a question of mixed
fact and law. As a result, it was up to the appellant to show, first,
that the TCC judge made a palpable and overriding error by concluding that
4041763 paid those fees on behalf of the appellant.
[14]
It has not
been shown that any such error was made. The TCC judge made the
finding of fact that the appellant agreed to reduce the selling price paid by
4041763 by an amount equal to the fees related to that sale, and that the
appellant was the one who was liable for those fees (Reasons,
paragraph 17). He also relied on the
testimony of the tax professional who acted on behalf of the holders of Groupe
Orléans Express’ shares, who explained that the selling price paid by 4041763
had been voluntarily reduced to take into account the fees that it had paid (ibidem).
[15]
Nothing
would have prevented the parties from allocating the fee charges differently if
that had been their agreement.
However, given the evidence, the onus was on the
appellant to show that the reduction of the share price, as explained by the
tax professional, was not intended to reflect the fact that 4041763 had
made the payment on its behalf. This the appellant has not done.
[16]
Given this conclusion,
it was open to the TCC judge to conclude that the fair market value of the “consideration”
received by the appellant for the shares sold, for the purposes of
paragraph 84.1(1)(b), was equal to the total amount of what it
received following this sale, that is, the price set out in the contract of
sale and the value of the services paid for on its behalf.
[17]
Last, it was neither
necessary nor useful to rely on paragraph 69(1)(b), since the value
of this consideration tallies with the price at which the shares were sold by
4041763 as part of the arm’s‑length transaction that took place the same
day and is therefore equal to their fair market value.
[18]
I would therefore
dismiss the appeal with costs.
“Marc Noël”
“I agree
Johanne Gauthier J.A.”
“I agree
Robert M.
Mainville J.A.”
Certified true
translation
Sarah Burns
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