Date: 19980709
Docket: 96-2688-IT-I; 96-2829-IT-G
BETWEEN:
COLOMBE MARTEL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Guy Tremblay, J.T.C.C.
Point at issue
[1]
According to the Notices of Appeal and the Replies to the Notices
of Appeal, the question is whether under ss. 160(1)
and160(2) of the Income Tax Act ("the Act") the
appellant is jointly and severally liable for a debt of $3,341.65
owed by Les Placements Gaber Inc. for non-remitted source
deductions (case 96-2688(IT)I), and whether she is
also responsible for a tax debt of $20,685.06 owed by Les
Placements Gaber Inc., the whole as a consequence of a transfer
on November 12, 1993 of a property located at
3145 Route du Lac Ouest in Alma, Quebec, whose a value
according to the respondent was $71,500, while the appellant
claims to have only paid $22,000 for the property.
[2]
However, the appellant argued that she had assumed a number of
the transferor company's liabilities and that this should be
taken into account.
Burden of proof
[3]
The appellant has the burden of showing that the respondent's
assessments are incorrect. This burden of proof results from
several judicial decisions, including the judgment of the Supreme
Court of Canada in Johnston v. Minister of National
Revenue.[1]
[4]
In that judgment the Supreme Court held that the facts assumed by
the respondent in support of the assessments or reassessments are
presumed to be true in the absence of proof to the contrary. In
the instant case the facts assumed by the respondent are set out
in subparagraphs (a) to (g) of paragraph 8 of the Reply
to the Notice of Appeal. That paragraph reads as follows:
[TRANSLATION]
8.
In making assessment No. 08 720 of May 2, 1995
pursuant to s. 160 of the Income Tax Act, the
Minister of National Revenue assumed inter alia the
following facts:
(a)
on or about November 12, 1993, by notarial deed, Les
Placements Gaber Inc. transferred [denied] to the
appellant a property located at 3145 Route du Lac Ouest in
Alma; [admitted as to the remainder]
(b)
the said notarial deed stipulated that the consideration given by
the appellant to the transferor ["transfer"
denied], Les Placements Gaber Inc., was $22,000; [admitted
as to the remainder]
(c)
the fair market value of the said property on November 12,
1993 was not less than $71,500; [denied]
(d)
the transfer [denied] on November 12, 1993 of the
property located at 3145 Route du Lac Ouest in Alma
conferred on the appellant a benefit of at least $20,685.06;
[denied]
(e)
the appellant is the spouse of Ghislain Bergeron, who is the
brother of Gaétan Bergeron, the sole shareholder in
Les Placements Gaber Inc., the transferor [denied];
[relationship admitted]
(f)
on May 2, 1995, the date of assessment No. 08 720
issued to the appellant pursuant to s. 160 of the Income
Tax Act, Les Placements Gaber Inc. had a tax liability of
$20,685.06 for the taxation years 1986 to 1988 and 1990, as
confirmed by Notices of Assessment in 1991 and 1993;
[admitted]
(g)
on May 2, 1995, the date of assessment No. 08 720
issued to the appellant pursuant to s. 160 of the Income
Tax Act, Les Placements Gaber Inc. had a tax liability of
$3,341.65 from non-remitted source
deductions . . . . [denied]
[5]
The respondent admitted that following the bankruptcy of Les
Placements Gaber Inc., the trustee paid the respondent the sum of
$1,811.19. A balance of $1,530.46 remained in case
No. 96-2688(IT)I. The balance remained unchanged at
$20,685.06 in case No. 96-2829(IT)G.
[6]
The respondent filed as Exhibit I-1 a book of
16 exhibits, including contracts, judgments and so on, which
will be referred to below.
[7]
The real estate appraisal report on the property located at
3145 Route du Lac Ouest in Alma, Quebec, was filed as
Exhibit I-2. The value arrived at by the chartered
appraiser Gaston Laberge was $69,000 at November 11,
1993. The appellant admitted this was the property's value on
that date.
[8]
Following the foregoing admissions ([5], [6] and [7]), the
evidence was completed by the testimony of
Ghislain Bergeron, the appellant's husband, of
Gaétan Bergeron, the appellant's brother-in-law,
and of the appellant Colombe Martel Bergeron herself.
[9]
The appellant's husband Ghislain Bergeron, a fur
salesman for 35 years, testified that in 1978, together with
his wife, he bought the land (Exhibit I-1, tab 6)
on which the building whose civic number is 3145 Route du
Lac Ouest, Alma, was built, the whole for the sum of $40,000. At
that time he had to borrow $37,875 from the Caisse de
Dépôt et Placement du Québec
(Exhibit I-1, tab 7).
[10] On
November 28, 1988, for the purpose of paying certain tax and
other liabilities, Ghislain Bergeron and the appellant
borrowed from Les Placements Gaber Inc. the sum of $22,000 at
14½%, repayable in periodic, equal and consecutive
instalments of $512.82 on the first day of each month starting on
January 1, 1989, until payment was made in full
(Exhibit I-1, tab 9).
[11] A series
of 22 cheques or receipts for $512 each was filed as
Exhibit A-1. They are dated from January 7, 1992
to December 20, 1993, the cheques being made out to
Gaétan Bergeron and the receipts signed by
Gaétan Bergeron.
[12]
Gaétan Bergeron is the sole owner of the shares in
Les Placements Gaber Inc.
[13] A series
of photocopies of three drafts and a cheque for $535.40
each, all payable to General Trust of Canada, all signed by
Ghislain and Colombe Bergeron and debited to their account,
was filed as Exhibit A-2. These documents were dated
September 5, October 1, November 1 and
December 1, 1992. They were repayments to the National Bank
on the loan taken out on the residence. The merger of General
Trust and the National Bank and others brought about the change
in the payee.
[14] A request
to the Town of Alma for information as to the amounts paid in
school and municipal taxes from August 1992 to the end of
November 1993 was filed as Exhibit A-3. Those amounts
came to $1,300.09.
[15] A
document from Martin & Gagnon, Assurances
générales, in Alma, was filed as Exhibit A-4.
It showed that a total of $419.66 in monthly premiums of $27.98
had been paid from August 31, 1992 to November 31,
1993.
[16] The
April 29, 1993 Hydro Quebec bill for the residence, in the
amount of $573.90, payable on May 20, 1993 and paid on
May 26, 1993, was filed as Exhibit A-5.
[17] The
statements with respect to the appellant's account at the
Caisse populaire St-Luc d'Alma for the period from
October 20, 1992 to November 30, 1993 were filed as
Exhibit A-6. They showed that each month the sum of
$535.40 was transferred to General Trust of Canada. This was the
monthly payment on the loan on the house.
[18] According
to the witness Ghislain Bergeron, whose testimony was
confirmed by that of his brother Gaétan, the loan payments
to Les Placements Gaber Inc. were made on time in the first
years. However, in late 1991 and early 1992 payments were made
two months late. On August 27, 1981 the National Bank
of Canada had registered a deed of mortgage in the amount of
$15,000 between the bank and Ghislain Bergeron with respect
to the property in question (Exhibit I-1, tab 8).
Further, in 1989 it had registered a mortgage surety deed with an
"event of default" clause (Exhibit I-1,
tab 10) on the residence. Finally, as a legal mortgage in
the amount of $12,715.48 (Exhibit I-1, tab 11)
had also been registered by the Quebec Department of Revenue, Les
Placements Gaber Inc., in order to protect its rights, decided to
register the 60-day notice with respect to the property in
question on January 31, 1992.
[19] On
August 12, 1995 a giving in payment judgment by the Quebec
Superior Court declared Les Placements Gaber Inc. to be the owner
of the property located at 3145 Route du Lac Ouest, Alma
(Exhibit I-1, tab 13):
[TRANSLATION]
DECLARES the plaintiff Les Placements Gaber Inc. to have absolute
and indefeasible ownership by giving in payment retroactive to
November 29, 1988, free of all charges, liens and mortgages
registered after November 29, 1988, of the following
immovable property:
A piece of land or site known and designated as subdivision
ONE of original lot THIRTY-ONE B (31 B-1) in range
EIGHT (rg VIII) in the official land register of the
Township of Sinaï, Registry Division of Lac St-Jean
Est.
With buildings constructed thereon and appurtenances,
including the building whose civic number is 3145 Route du
Lac in Alma.
DECLARES the plaintiff Les Placements Gaber Inc. owner of the
said immovable free of any liabilities with respect to
improvements, upkeep or moneys paid as instalments on
principal;
DIRECTS the Registrar of the Lac St-Jean Est Registry
Division to strike and delete the registration of the debt to the
plaintiff registered under No. 178349 as a charge against
the aforesaid immovable, in view of the fact that the owner of
and the creditor with respect to the said immovable are to become
one;
DIRECTS the Registrar of the Lac St-Jean Est Registry
Division to strike and delete the registration of the
60-day notice given pursuant to art. 1040a C.C. and
registered against the aforesaid immovable under
No. 191738;
DIRECTS the Registrar of the Lac St-Jean Est Registry
Division to strike and delete the registration of the legal
mortgage registered by the mis-en-cause the Quebec Department of
Revenue against the aforesaid immovable under
No. 187849;
DIRECTS the Registrar of the mis-en-cause Registry Division to
register this judgment in the Index to Immovables and wherever
else may be necessary;
DIRECTS the defendants to vacate the said immovable within
15 days of service of this judgment, failing which the
plaintiff shall be put in possession by officers of the
Court . . . .
[20] According
to the testimony of Gaétan Bergeron,
Ghislain Bergeron and the appellant, there was a verbal
agreement between them that when the appellant and her husband
had paid all of the debt and interest to Les Placements Gaber
Inc. the immovable would be returned to them.
[21] On
November 11, 1993, Les Placements Gaber Inc. sold the
immovable in question to Colombe Martel
(Exhibit I-1, tab 14). The clauses regarding the
price read as follows:
[TRANSLATION]
This sale is made subject to the purchaser paying any balance
owed on the existing mortgage with the Caisse de
Dépôt et Placement du Québec, registered on
June 23, 1978 as No. 130-916, with which the
purchaser states she is fully familiar as she herself granted it
in 1978 and has continued to make the payments thereon since the
judgment.
The purchaser therefore takes back ownership of the immovable
without having first obtained details of the amounts owed to the
Caisse de Dépôt et Placement du Québec, since
she was herself making the payments and prior authorization from
the said lender was not necessary for the transfer of the
immovable.
This sale is also made in consideration of the repayment of money
owed to the vendor, which the said vendor acknowledges having
received prior to this agreement, and general and final release
is given therefor.
[22] A
resolution of Les Placements Gaber Inc. on October 22, 1993
to sell the immovable to Colombe Martel stipulated
[TRANSLATION] "that the selling price shall be the
assumption of the mortgage granted to the Caisse de
Dépôt et Placement du Québec pursuant to a
deed registered on June 23, 1978 under
No. 130-916, and the repayment of the amounts owed to
the vendor" (Exhibit I-1, tab 15).
[23]
Ghislain Bergeron testified that the reason the appellant
alone acquired the house was that he felt he was not entitled to
it because he had declared bankruptcy in 1992.
[24] On
April 26, 1994, as a result of the economic situation, Les
Placements Gaber Inc. declared bankruptcy as did
Gaétan Bergeron.
Legislation
[25] The
provisions of the Income Tax Act involved in the instant
case are ss. 160(1), 160(2), 160(3) and 160(4). Reference
was also made to the provisions of the Civil Code of Lower
Canada, arts. 1212 and 1234, and arts. 1451, 1452
and 2863 of the new Civil Code of Quebec. These legal
provisions read as follows:
Income Tax Act
160. Tax
liability re property transferred not at arm's
length.
(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)
his spouse or a person who has since become his spouse,
(b)
a person who was under 18 years of age, or
(c)
a person with whom he was not dealing at arm's length,
the following rules apply:
(d)
the transferee and transferor are jointly and severally liable to
pay a part of the transferor's tax under this Part for each
taxation year equal to the amount by which the tax for the year
is greater than it would have been if it were not for the
operation of sections 74 to 75.1, in respect of any income
from, or gain from the disposition of, the property so
transferred or property substituted therefor, and
(e)
the transferee and 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 or in respect of
the taxation year in which the property was transferred or 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.
(2)
Minister may assess transferee.
The Minister may at any time assess a transferee in respect of
any amount payable by virtue of this section and the provisions
of this Division are applicable mutatis mutandis in
respect of an assessment made under this section as though it had
been made under section 152.
(3)
Rules applicable.
Where a transferor and transferee have, by virtue of
subsection (1), become jointly and severally liable in
respect of part or all of a liability of the transferor under
this Act, the following rules are applicable:
(a)
a payment by the transferee on account of his liability shall to
the extent thereof discharge the joint liability; but
(b)
a payment by the transferor on account of his liability only
discharges the transferee's liability to the extent that the
payment operates to reduce the transferor's liability to an
amount less than the amount in respect of which the transferee
was, by subsection (1), made jointly and severally
liable.
(4)
Special rules re transfer of property to spouse.
Notwithstanding subsection (1), where at any time a taxpayer
has transferred property to his spouse pursuant to a decree,
order or judgment of a competent tribunal or pursuant to a
written separation agreement and, at that time, the taxpayer and
his spouse were separated and living apart as a result of the
breakdown of their marriage, the following rules apply:
(a)
in respect of property so transferred after February 15,
1984,
(i)
the spouse shall not be liable under subsection (1) to pay
any amount with respect to any income from, or gain from the
disposition of, the property so transferred or property
substituted therefor, and
(ii)
for the purposes of paragraph (1)(e), the fair market
value of the property at the time it was transferred shall be
deemed to be nil, and
(b)
in respect of property so transferred before February 16,
1984, where the spouse would, but for this paragraph, be liable
to pay an amount under this Act by virtue of subsection (1),
the spouse's liability in respect of that amount shall be
deemed to have been discharged on February 16, 1984,
but nothing in this subsection shall operate to reduce the
taxpayer's liability under any other provision of this
Act.
Civil Code of Lower Canada
Art. 1212. Counter-letters have effect between the
parties to them only; they do not make proof against third
persons.
Art. 1234. Testimony cannot in any case, be
received to contradict or vary the terms of a valid written
instrument.
New Civil Code of Quebec
1451. Simulation exists where the parties agree to
express their true intent, not in an apparent contract, but in a
secret contract, also called a counter
letter. . . .
1452. Third persons in good faith may, according to
their interest, avail themselves of the apparent contract or the
counter letter; however, where conflicts of interest arise
between them, preference is given to the person who avails
himself of the apparent contract.
2863. The parties to a juridical act set forth in a
writing may not contradict or vary the terms of the writing by
testimony unless there is a commencement of proof.
[26] It was
admitted by the appellant that throughout the period of the
transfer no rental was paid to Les Placements Gaber Inc.
Case law
[27] The case
law cited by the parties is the following:
1-
Marlow Enteprises Ltd. v. M.N.R., 67 DTC 26;
2-
Angela Savoie v. Her Majesty the Queen, 93 DTC 552
(T.C.C. 91-372(IT));
3-
Mervin Holizki v. Her Majesty the Queen, 95 DTC 5591
(F.C. T-2296-89);
4-
Céline Delisle v. Her Majesty the Queen,
95 DTC 650 (T.C.C. 94-505(IT)I);
5-
106443 Canada Inc. v. Her Majesty the Queen, 94 DTC
1663 (T.C.C. 91-1911(IT)G);
6-
Pierre Montreuil, Nicole Montreuil, Claire Montreuil and
Benoit Montreuil, Jr. v. Her Majesty the Queen, 94 DTC
1821 (T.C.C. 91-2684(IT)G, 91-2685(IT)G,
91-2686(IT)G and 91-2687(IT)G);
7-
Liliane Fournier Jennewein v. The Minister of National
Revenue, 91 DTC 600 (T.C.C. 87-1560(IT)).
Analysis
[28] Counsel
for the appellant argued that essentially there was a verbal
agreement between Les Placements Gaber Inc. (the lender) and the
appellant (the borrower) that when the debt was completely
repaid, with interest, the immovable property would be returned
to the borrower. This contention was confirmed by the testimony
of the three witnesses ([20]). Additionally, the resolution
by Les Placements Gaber Inc. ([22]) of October 22, 1993
(Exhibit I-1, tab 15) and the clauses of the
contract regarding the selling price (Exhibit I-1,
tab 14) confirm the testimony of the witnesses.
[29] Counsel
for the appellant argued that there had not been a real transfer
between the appellant and Les Placements Gaber Inc., and vice
versa. In the submission of counsel for the appellant, what
should be considered is the intent of the parties - this was
a sale with an intention to repurchase or a sale with a right
of redemption. In 106443 Canada Inc. ([27] 5-)
at page 1665 this Court said the following:
The transferor must not have the intention of absolutely
giving up ownership to the property transferred. He must retain
the power of recovery. It must be possible to infer from the
circumstances of the transfer of ownership that the
transferor's intention was not to give up the ownership of
property and that he only gave it up temporarily and in order to
provide security for a loan.
According to counsel for the appellant, in taxation matters
substance prevails over form.
[30] However,
there is nothing in the registration of the mortgage and the
transfer of the immovable to Les Placements Gaber Inc., as
ordered in the Superior Court judgment, to indicate the
possibility of repurchase upon payment of the mortgage in
full.
The passage from the judgment cited above in paragraph [19]
is clear. There was a full and final transfer making Les
Placements Gaber Inc. the sole owner, striking out other
mortgages and directing the defendants to vacate the immovable
within 15 days.
[31] As the
repurchase agreement was relied on by the parties it may be
regarded as a counter-letter.
A counter-letter is a private writing for the purpose of
recording the true intent of parties who have indicated a
different intent to the public. In the instant case, there is no
indication in the deed of transfer to Les Placements Gaber Inc.
of such a repurchase agreement clause. That intent appears in the
resolutions of Les Placements Gaber Inc. and is not apparent to
the public, namely third parties ([28]).
[32] As
Parliament has been so strict in protecting the rights of third
parties against a counter-letter, which is a writing, the
Court must a fortiori protect third parties against a
mere verbal agreement, which is in any case regarded as a
counter-letter by legal writers.
Articles 1212 of the Civil Code of Lower Canada and
1451 and 1452 of the Civil Code of Quebec provide that
counter-letters have effect between the parties to them only -
that is, in the present case, between Les Placements Gaber Inc.
and the appellant -, and not against third parties. The
respondent claims to be a third party - which is not in
dispute - as already established by this Court in Liliane
Fournier Jennewein ([27] 7-). The basis of the
rule in art. 1234 of the Civil Code is, inter
alia, the need for legal stability, and hence economic and
social stability, in contractual relations.
Article 1212 of the Civil Code of Lower Canada and
arts. 1451 and 1452 of the Civil Code of Quebec are
the counterparts of art. 1321 of the Code
Napoléon. The latter reads as follows:
[TRANSLATION]
Counter-letters can only be effective between the contracting
parties: they have no effect against third parties.
[33] In
Liliane Fournier Jennewein, in paragraph 4.03.5, the
Court referred to the following comment by
Beaudry-Lacantinerie:
[TRANSLATION]
However, the purpose of the lawmakers in art. 1321 was to
prevent possible prejudice to the general public from the
application of an unknown counter-letter, so their provision
protects not only those against whom the act is directed with a
fraudulent intention but also all those whose interests, assessed
from the point of view of the apparent situation of the author,
it happens to infringe.
[34] This
purpose of protection enables third parties to rely on the
effects of the apparent contract. The holder of the rights
recognized in the counter-letter, namely the appellant, acted in
good faith but must suffer the tax consequences of the simulated
transaction and the indebtedness of Les Placements Gaber Inc. to
the respondent.
[35] The terms
of ss. 160(1), 160(2) and 160(3) of the Income Tax
Act are clear. Any transfer of property between two persons
not dealing at arm's length, when one of those persons owes
tax, makes them jointly and severally liable for the amount owed
to the Department of National Revenue.
As the notarial deeds are proof of their contents in the instant
case and establish the transfer of the immovable from the
appellant to Les Placements Gaber Inc., the appellant is liable
for payment of the $22,215.52 ($1,530.46 + $20,685.06) ([5])
in tax owed by Les Placements Gaber Inc.
[36] It may be
asked whether, if the facts here had occurred in another province
where the Civil Code and counter-letters did not exist,
the appeal would have been allowed. The answer is no, because the
theory of estoppel by representation would be applied.
Conclusion
[37] The
appeal is dismissed for the foregoing reasons.
Signed at Québec, Quebec, this 9th day of July,
1998.
"Guy Tremblay"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 30th day of December
1998.
Erich Klein, Revisor
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