Citation: 2012 TCC 6
Nathalie Dion, exECUTOR
OF the ESTATE of René Dion,
HER MAJESTY THE QUEEN,
REASONS FOR JUDGMENT
These are appeals from
reassessments made by the Minister of National Revenue (Minister) pursuant to
the Income Tax Act (Act), whereby there was added to the income of René
Dion (R.D.), among other things, business income of $65,961 and $53,711 for
2003 and 2004 respectively.
R.D. died in September
2009 and his estate took over the appeals against these assessments.
The evidence shows that
R.D. was the sole shareholder and director of the company Entreprises
d’excavations René Dion inc. (company). The company had owned a 10-wheel truck
for a number of years and in May 2002 it purchased a second, 12‑wheel,
truck, which was registered in the company's name with the Société de
l’assurance automobile du Québec (SAAQ) (Exhibit A-1).
The company held a bulk
trucking permit issued by the Commission des transports du Québec (CTQ) for the
10-wheel truck, with respect to which it was registered as an
"operator" with the bulk trucking broker Sous-poste de camionnage en
vrac Terrebonne inc. (Exhibit A-2(2)).
When the second truck
was purchased, the trucking permit for this second truck was requested by R.D.
himself, and once the permit was obtained, it was he who was registered with the
same broker, Sous-poste de camionnage en vrac Terrebonne inc. (Exhibit A-2(1)).
It is the income generated by this second, 12‑wheel, truck that was added
to R.D.'s income and is the subject of this appeal.
According to R.D.'s
explanations in his notice of appeal, he acted as a prête-nom for the
company so that the company could benefit, for the second truck as well, from
the privileges reserved for members of the brokerage service who were on the
priority list. All expenses for both trucks (including wages for the drivers)
were paid by the company and all income from both trucks was reported in the
company's income (according to the company's ledger, Exhibit I-1, Tab 5).
According to the
respondent, the income generated by the second truck should have been included
in R.D.'s personal income, with appropriate expenses being deducted. The Canada
Revenue Agency (CRA) auditor, Abel Nefouci, explained that since the trucking
permit was in R.D.'s name and he was registered with the brokerage service as
the operator of the second truck (see Exhibit A-2(1)), and the brokerage paid R.D.
directly by cheque, R.D. was considered to be operating his own business and
was thus required to include the income from this source in his personal tax
The appellant, for his
part, maintains that the income generated by the second truck should be included
in the company's tax return because it was the company that owned and operated the
truck. Moreover, the appellant provided evidence that the cheques R.D. received
were deposited directly into the company's bank account (see Exhibit A-1) and
that the company paid R.D. a salary and dividends (Exhibits A-3 and I-1, Tabs 1
Gaétan Légaré, Executive Director
of the Association nationale des camionneurs artisans inc. (LANCAI) testified for the appellant. LANCAI
includes all the brokerage services that hold CTQ permits. LANCAI has a uniform
internal code of ethics throughout the province. He explained that all CTQ permit
holders must register with a brokerage service, which cannot deny access to any
applicant, if the applicant has a permit. These brokerage services put their
members on a priority list. A member with more than one truck cannot register
other trucks on this first list. The member’s second or other truck will only
be requested if the first list is exhausted during the day.
Moreover, Mr. Légaré
explained that if a member has interests in several entities, this group of
entities cannot register more than three trucks, and each truck must be
registered under a different entity in order to be included on the first priority
list. He explained that the CTQ verified and managed the truck owners' relationships.
The brokerage services
are non-profit organizations that collect contributions from their members. These
organizations distribute the jobs according to the priority list, and collect the
revenues from the contractors who use the truckers' services. The brokerage services
also collect the taxes and hand over to the members indicated on the trucking
permit the income generated by their trucks as well as the taxes collected.
Statutory provisions on bulk trucking in Quebec applicable in this case
Transport Act, R.S.Q., c. T-12
COMMISSION DES TRANSPORTS
. . .
§ 4.2. — Bulk trucking register
47.9. The Commission [des transports
du Québec] shall keep and maintain a bulk trucking register for the
registration of operators of heavy vehicles to whom a stipulation, contained in
a government contract, for the benefit of small bulk trucking enterprises
The name of an operator and the address of the operator's main
establishment constitute public information.
The Commission may, by regulation, after consulting the
Commission d'accès à l'information, prescribe that the other personal
information contained in the register which it determines constitutes public
The opinion of the Commission d'accès à l'information shall be
tabled in the National Assembly within 15 days of receiving it or, if the
Assembly is not sitting, within 15 days of resumption.
47.10. Operators of heavy vehicles who,
on 31 December 1999, were authorized to transport all the bulk materials
described in Group 1 of section 3 of the Regulation respecting bulk trucking
(R.R.Q., 1981, c. T-12, r.3), either as holders of a bulk trucking permit
issued under this Act or as holders of an intra-provincial truck transport
licence issued under Part III of the Motor Vehicle Transport Act, 1987 (Revised
Statutes of Canada, 1985, chapter M-12.01), shall be registered.
Information to be recorded.
The Commission shall, for each registration, record in the register
the number corresponding to the operating region for which the permit or
licence was issued and in which the operator subscribes to the brokerage
service operated by a brokerage permit holder.
Information to be
Where the operator was the holder of more than one permit or licence
issued for more than one region, the Commission shall indicate in the register
the numbers corresponding to those regions; the numbers shall be replaced by
the number corresponding to the region in which the operator registers with the
brokerage service. In addition, the Commission must indicate in the register the
number of trucks operated under the permits or licences; that number shall be
reduced, where applicable, to correspond to the number of trucks registered by
the operator with the brokerage service.
Subject to a removal from the register under section 47.13, the
registration may be transferred by the Commission at the request of the
transferor and the transferee.
. . .
47.12. To maintain registration, an
operator of heavy vehicles must
(1) subscribe to the brokerage service, if any, operated by a
brokerage permit holder in the zone or, where applicable, the territory
determined by regulation, in which his principal establishment is located, and,
where applicable, register his trucks with the inter-zone brokerage service
operated by the regional association recognized in his operating region;
(2) maintain his principal establishment in his operating region or,
where applicable, in the territory determined by regulation or, in the case of
an operator referred to in section 47.11, maintain his principal establishment
(3) register with the brokerage service only trucks registered in
his name and the number of which corresponds to the number furnished to the
Commission for his operating region;
(4) pay annually the duties fixed by regulation to the Commission,
according to the terms and conditions determined by the Government.
47.13. The Commission may, on its own
initiative or at the request of a brokerage permit holder, a recognized
regional association or an interested person, remove from the register
(1) an operator who does not satisfy the requirements of section
(2) an operator referred to in section 47.11 who is a legal person
more than 50% of the voting rights attached to the shares of which are held
directly or indirectly by a person whose principal establishment is in Québec
or in respect of which a majority of the directors can be elected by the latter
person or, in the case of a natural person, who is associated with a person
whose principal establishment is in Québec;
(3) an operator that has been assigned an “unsatisfactory” safety
rating under the Act respecting owners, operators and drivers of heavy vehicles
(4) an operator whose acts or omissions led to his expulsion
from the brokerage service;
(5) an operator who uses intimidation, threats or reprisals, or
causes them to be used, in order to compel an operator or a brokerage permit
holder to refrain from or cease exercising a right arising from this Act or a
(6) an operator who fails to comply with an enforceable decision of
(7) an operator who is an officer of a brokerage permit holder that
fails to comply with an enforceable decision of the Commission, and who
prescribed, authorized, consented to, acquiesced in or participated in the act
or omission contravening the decision.
The Commission may, on its own initiative or on request, take any
other measure it deems appropriate or reasonable in respect of an operator for
the purposes of this subdivision.
Before removing an operator from the register or taking any other
measure in respect of the operator, the Commission shall notify him in writing
as prescribed by section 5 of the Act respecting administrative justice
(chapter J-3) and give the operator at least 10 days to present observations.
The Commission may grant time to enable the operator to remedy the
situation, where the reason for the failure that would entail his removal from
the register or the imposition of any other measure is a reason determined by
§ 4.3. — Brokerage services
47.13.1. Before being approved under
section 8, a by-law concerning transport brokerage services under a government
contract adopted by a brokerage permit holder must be approved by at least two
thirds of the permit holder's subscribers in attendance at a special meeting
where at least one fourth of the subscribers are present.
The special meeting takes place following a notice sent to the
subscribers, at least 15 days before the date of the meeting, at the last
address given to the brokerage permit holder. The notice must state the date,
time and place of the meeting, and the agenda. It must also mention any new
by-law or amendment to a by-law that may be approved at the meeting. The notice
must be accompanied by the by-law to be submitted for approval at the meeting.
In the case of a by-law referred to in the first paragraph that
accompanies an application for a brokerage permit, and for the purposes of the
first and second paragraphs, “subscribers” means all the operators of heavy
vehicles registered in the bulk trucking register who, during the subscription
period, signed a contract with the applicant for the brokerage services offered
under the permit to which the application refers.
47.13.2. A brokerage permit holder may
submit to the approval prescribed in section 8 a by-law that has been approved
in accordance with section 47.13.1 and that provides that all the permit holder's
by-laws in force concerning transport brokerage services under government
contracts, and only those by-laws, also apply to contracts other than
government contracts to which the permit holder is a party.
If the by-law is approved under section 8, the Commission, each of
its members, any person designated under section 17.8 and any person authorized
to act as an inspector under section 49.2 have the powers provided in this Act
to ensure compliance with the by-law as if the permit holder and the subscribers
were acting under a government contract. The provisions of this Act, and those
of the regulations, that govern brokerage services offered under government
contracts then apply, with the necessary modifications, to services offered
under other contracts to which the permit holder is a party.
47.14. The holder of a brokerage
permit shall establish, at the times determined in the holder's by-laws, a
single priority listing classifying all subscribers' trucks according to their
order of priority and, where applicable, their class. The order of
priority of the trucks belonging to the same subscriber shall be furnished by
the subscriber to the holder of the brokerage permit in accordance with the
operating rules of the brokerage permit holder.
The time worked by a subscriber while operating a truck assigned by
a brokerage permit holder shall be compiled with the working time allocated to
the subscriber pursuant to the operating rules and disciplinary measures
provided for in the by-laws of the brokerage permit holder. The brokerage
permit holder shall allocate to a new subscriber the average working time of
the other subscribers or, in the case of a transfer, the working time of the
The order of the trucks on the priority list gives priority to
subscribers having accumulated the least working time with their first trucks.
47.15. Except to satisfy the specific
requirements of a request made in accordance with his by-laws, the brokerage
permit holder shall distribute the requests for bulk trucking services among
his subscribers according to the order of their trucks on the priority list.
The assignment is valid for the duration of the service requested or, where
applicable, until a new priority list is implemented.
Request not satisfied.
If the subscribers are unable to satisfy the request, the brokerage
permit holder shall call upon the services of another brokerage permit holder
through the recognized regional association, if any.
47.16. The operating rules to which the
second paragraph of section 47.14 refers may, in particular, include
exclusivity rules that, in the contracts of adhesion between the subscribers
and the brokerage permit holder,
(1) impose on the subscriber the obligation to refer to the
brokerage service any request for service received directly from a customer of
the brokerage permit holder or any other person to whom the holder has
submitted a written offer for the supply of the services concerned;
(2) prohibit the subscriber from having a third person transport
bulk material, without first having solicited the services of the brokerage
47.17. For the purposes of sections
47.14 to 47.16, the by-laws of the brokerage permit holder may provide that the
trucks of a group of subscribers who are related corporations within the
meaning of the Taxation Act will be classified as if they belonged to a single
subscriber, and that the group may designate, as first trucks of the group of
related corporations, the number of trucks determined in the by-laws of the
holder, without exceeding three.
Taxation Act (Quebec), R.S.Q., c. I-3
Quebec's Taxation Act defines related
persons and related groups as follows at sections 17 and 19:
17. In this Part a group is
related when each person forming it is related to each other person of the
19.(1) For the purposes of this
Part, related persons or persons related to each other are
connected by blood relationship, marriage or adoption;
(b) a corporation and
a person who controls that corporation.
Section 1 defines "individual"
"individual" means a person other than a corporation.
Section 1.7 is also worth
1.7. In this Act and the
regulations, a legal person, whether or not established for pecuniary gain, is
designated by the word “corporation”.
Could R.D., as the
operator of the second truck (the 12-wheeler) legally act as a prête-nom
for the company? If so, did the income he generated in that manner have to be reported
in his personal tax return, or could the company include it in the calculation
of its income?
In Shell Canada Ltd.
v. Canada,  3 S.C.R. 622, the Supreme Court of Canada stated the
following at paragraph 39:
39 This Court has repeatedly held that
courts must be sensitive to the economic realities of a particular transaction,
rather than being bound to what first appears to be its legal form: Bronfman
Trust, supra, at pp. 52-53, per Dickson C.J.; Tennant,
supra, at para. 26, per Iacobucci J. But there are at least
two caveats to this rule. First, this Court has never held that
the economic realities of a situation can be used to recharacterize a
taxpayer’s bona fide legal relationships. To the contrary, we have
held that, absent a specific provision of the Act to the contrary or a finding
that they are a sham, the taxpayer’s legal relationships must be respected in
tax cases. Recharacterization is only permissible if the label attached
by the taxpayer to the particular transaction does not properly reflect its
actual legal effect: Continental Bank Leasing Corp. v. Canada,  2
S.C.R. 298, at para. 21, per Bastarache J.
Moreover, in Victuni
v. Minister of Revenue of Quebec,  1 S.C.R. 580, the Supreme Court of
Canada held that the tax authorities must give effect to the prête-nom
agreement between the parties, but at the same time recognized the mandatary's
obligation to inform the tax authorities of his role. The Court stated the
following at pages 584 and 585:
Under the general principles of the law of mandate, it is clear that
the obligation of a mandatary towards the mandator is not a debt. The person
who has bought property on behalf of a third party who wishes to remain unknown
is no more indebted for the price paid than he is the owner of the property.
The true owner is the mandator, and the obligation of the mandatary nominee is
to render an account to the mandator and deliver over what he has received on
his behalf (C.C., art. 1713). What he receives, even if it is money,
does not belong to him: he is obliged to keep it separate from his own
property. It is a crime for him to take control of it so as to make himself a
debtor thereof instead of a mandatary: R. v. Légaré [ 1 S.C.R.
275]. In the recent decision of this Court, Canadian Pioneer
Management Ltd. v. Saskatchewan Labour Relations Board [ 1 S.C.R.
433], Beetz J. pointed out the importance of this distinction, citing inter
alia the decision of the Privy Council on unclaimed deposits: Attorney
General for Canada v. Attorney General for the Province of Quebec [
With regard to the nature of the tax in question, another decision
of the Privy Council respecting the first Quebec statute in this matter clearly
stated that the tax in question is a personal tax not property tax: Bank of
Toronto v. Lambe [(1887), 12
A.C. 575]. This is
therefore not a kind of tax of the same nature as the real property taxes
levied by municipalities, which of course are payable by the apparent owner,
since they are [a] charge on the realty. The tax on the paid-up capital of
companies, like the tax on their income, is on the contrary a levy imposed on
the person exactly like the income tax on individuals. Any mandatary, apparent
or covert, who holds property on another’s behalf is required to report to the
tax authorities what he receives on his mandator’s behalf, but he is not liable
for the tax.
However, if the
simulated deed (counterletter) is used to circumvent a prohibitive legislative
provision or a public order provision, the counterletter will be null and void.
This results from the principle that one cannot do indirectly that which it is
prohibited to do directly (see article 9 of the Civil Code of Québec and
Pierre-Gabriel Jobin and Nathalie Vézina, Baudouin and Jobin: Les
obligations, 6th ed. (Cowansville, Quebec: Éditions Yvon Blais, 2005),
nos. 512 and 519, pages 526, 527, 529 and 530). Thus, an agent cannot have a
legal capacity that exceeds that of the principal. A principal can only appoint
an agent to make a contract which the principal himself has the capacity to
make (1524994 Ontario Ltd v. Canada,  F.C.J. No. 234 (QL), para.
So, although the
counterletter establishes the true agreement between the parties, and while the
tax authorities are required to take it into consideration when making an
assessment (see also Transport Desgagnés v. M.N.R., 91 DTC 270; Caplan
c. Québec (Sous-ministre du Revenu), 2006 QCCA 1322,  R.D.F.Q. 40), if
the counterletter is null and void, it cannot be invoked against the tax
In the present case,
the appellant showed that the company was the registered owner of the second
truck and that, despite the apparent subscription contract, the company was the
true operator (see letter regarding leasing, and the registration in the
company's name (Exhibit A-1); expenses paid and income recognized by the
company (Exhibit I-1, Tab 5); income from the second truck deposited to the company's
bank account (Exhibit A-1)).
evidence and the state of the law, it could be argued that the company was
justified in declaring the income generated by the second truck in its tax
return. This is true, however, only insomuch as I am satisfied that the
apparent deed is not contrary to any legislative provision or to public order.
In the present case, R.D.
and the company seem to have contravened the regulations on bulk transportation
in certain respects. Indeed, the bulk trucking register, in which operators of
trucks under a government contract are registered, was created for the benefit
of small bulk trucking enterprises (section 47.9 of the Transport Act). Thus,
under that Act, the holder of a brokerage permit (the brokerage service) must establish
a single priority listing classifying all subscribers' trucks according
to their order of priority. A subscriber with more than one truck must give the
brokerage service the order of priority of its trucks, in accordance with the
operating rules of the brokerage service. The order of the trucks on the
priority list gives priority to subscribers having accumulated the least
working time with their first trucks (section 47.14). This section, combined
with Gaétan Légaré's explanations, presupposes that the owner of several trucks
cannot register more than one first truck on the priority list. This is logical
to the extent that I understand from the Act that it is aimed at regulating
bulk transportation in order to evenly distribute work among the various
In this context, it
seems to me that the company, which was controlled by R.D., did not have the
right or ability to register the second truck (the 12-wheeler) in its name as a
first truck on the priority list since it had already registered a first truck
(the 10-wheeler) on the list. The company could not mandate R.D. to register
the second truck on the priority list in his own name either. Moreover, under
section 47.12, an operator must register with the brokerage service only trucks
that are registered in the operator's own name, and a violation of this
provision may lead to the operator's removal from the register (section 47.13).
In this case, R.D. was
clearly in violation of that provision because the truck was not registered in
Moreover, section 47.17
seems to allow "a group of subscribers who are related corporations"
within the meaning of the Taxation Act to designate as first trucks the
number of trucks determined in the by-laws of the brokerage service, without
exceeding three. I note in this regard that the by-laws of Sous-poste de
camionnage en vrac Terrebonne inc. were not filed in evidence, making it
difficult for me to determine whether a group of subscribers having such a related
corporations relationship could register more than one truck with this
brokerage service. In any event, the section would not have prevented R.D. from
registering a truck he owned, since section 47.17 is aimed only at corporations
(which do not include individuals).
The problem R.D. faced
was that he was not the owner of the truck and that, in the circumstances, he
could not personally register as an operator. Nor could he register as a
mandatary of his company under a prête-nom agreement, because the
company itself did not have the right to register a second truck on the
Counsel for the
appellant submitted that it was for the CTQ to issue or revoke permits and if
one was issued to R.D., then he acted lawfully. I cannot subscribe to this
argument. As the Quebec Court of Appeal stated in Association
des transporteurs en vrac de l’Outaouais c. 3503623 Canada Inc., 2011 QCCA
1206, at para. 18, the Transport Act is a public statute setting out
government policy on bulk transportation in relation to government contracts.
This Act implemented a preferential system for independent truckers and small
transportation companies in the context of public works, a system which is
aimed at giving them financial security. Dalphond J.A. stated the following at
paragraphs 3 and 4:
3 In Quebec, the 5,000 independent truckers benefit from some preferences in
the context of public works, which are aimed at giving them financial security.
4 This preferential system is based on two
elements. First, there is the presence in each region of the province of one or
two brokerage permit holders responsible for fairly distributing bulk transport
needs for government contracts among member truck drivers. Second, there is the
requirement for the giver of work (ministry, municipality, etc.) to the
successful bidder to give at least a predefined percentage of the bulk
transportation work to members of the brokerage services; this requirement is often
called a stipulation for the benefit of independent truckers.
Since the Transport
Act is a statute enacted in the public interest, it follows that its
provisions are public order provisions (see Garcia Transport Ltée v. Royal
Trust Co.,  2 S.C.R. 499, p. 524).
In these circumstances,
the appellant cannot invoke against the tax authorities the counterletter between
R.D. and the company. The CRA was therefore justified in adding to R.D.'s
income the amounts he received from operating the second truck because it was he
who was officially registered as the operator of the truck, and on that basis
the brokerage service paid him the amounts that were attributed to that truck.
R.D. was the beneficiary and owner of the income and he was therefore obligated
to include them in the computation of his income (even though, theoretically,
he was not legally entitled to that income (see R. v. Poynton, 1972
CarswellOnt 205, para. 8 (Supreme Court of Ontario); Smith v. Canada (Attorney
General), 1924 CarswellNat 5, paras. 8 and 9, [1917-27] C.T.C. 240, p. 242,
(Exchequer Court of Canada)).
For these reasons, the
appeals are dismissed with costs to the respondent.
Signed at Ottawa,
Canada, this 9th day of January 2012.
on this 21st day
of February 2012.
Erich Klein, Revisor