[OFFICIAL ENGLISH TRANSLATION]
Date: 20021218
Docket: 2002-363(IT)I
BETWEEN:
LAURIER PEDNEAULT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This
is an appeal from notices of assessment for the 1996 and 1997 taxation years.
[2] The
assessments were made on the basis of the following assumptions of fact:
[TRANSLATION]
(a) the appellant is the sole shareholder of
“Congébec Ltée” (hereinafter the “Corporation”);
(b) in 1984, the appellant acquired a principal
residence located at 1412 Rue Notre‑Dame in the municipality of
Champlain, more than 80 km from the city of Quebec and less than
40 km from the city of Trois‑Rivières;
(c) that property is located in an agricultural area
and comprises a lot of 1.76 hectares on which there is a three‑storey
house built at the edge of the north shore of the St. Lawrence River, a
garage detached from the main building, a tennis court and an outdoor pool, the
whole surrounded by a security fence;
(d) the property is called “Domaine Champlain”;
(e) in 1989, at the time of the appellant’s divorce,
since the immovable was a property of the family patrimony, it became his
exclusive property when the common patrimony was divided;
(f) during that period, the appellant acquired a
new family residence in Saint‑Augustin‑de‑Desmaures, in
suburban Québec, which he had acquired for his benefit and that of his new
spouse and their two children;
(g) on August 29, 1989, the appellant sold
Domaine Champlain to the Corporation for more than $600,000, which, according
to the Ministère du Revenu du Québec (hereinafter “MRQ”), was a price greater
than its fair market value estimated at $500,000;
(h) the Corporation did not rent or make attempts to
rent or obtain any income whatever from Domaine Champlain from the time it
acquired the property in 1989;
(i) the Corporation did not demonstrate its
intention to sell the property because no mandate was given to a real estate
agent or broker and no regular and continuing advertising was done
demonstrating an intention by the owner to sell directly;
(j) during the years from 1989 to 1995, the
Corporation performed the following work at Domaine Champlain:
(1) landscaping (flowers, shrubs, lawn)
(2) construction of a tennis court
(3) installation of an outdoor pool and fence
(4) purchase of a pool water heating system
(5) installation of a home alarm system
(6) interior decoration and painting of certain
rooms of the Domaine Champlain residence;
(k) since 1989, the date on which the Corporation
acquired the property, the Corporation has employed Gilles Leblanc, a
neighbour, to perform exterior work (lawn-mowing, maintenance of flowers and
shrubs, snow removal and various jobs);
(l) during the years in issue, the appellant owned
movables and personal belongings at Domaine Champlain worth $400,000 and never
showed that he intended to move them to his Saint‑Augustin‑de‑Desmaures
residence, to sell them or to dispose of them in any manner whatever;
(m) the appellant had the exclusive right to use the
property, which belonged to the Corporation, either as a secondary residence or
as a warehouse, for all the years in issue;
(n) the appellant made no payment to the Corporation
for that use, and the Corporation never showed that it had acquired Domaine
Champlain for business or investment purposes;
(o) the MRQ asked its assessment service to
determine the fair market value of Domaine Champlain at the time the appellant
sold it to the Corporation;
(p) that fair market value of $500,000 was used to
calculate the taxable benefit the appellant had received from the Corporation
in 1993 and 1997;
(q) the calculation of the taxable benefit is based
on the average mortgage rate over three years plus a rate of return of 2.4%;
(r) the calculation also takes into account the cost
of insurance, taxes and electricity paid by Congébec Ltée;
(s) for the years in issue, the Canada Customs and
Revenue Agency (hereinafter “CCRA”) used the same basis as the MRQ to calculate
the appellant’s taxable benefit;
(t) the CCRA assessed the taxable benefit received
by the appellant at $70,850 for each of the years in issue;
(u) at the objection stage, there was an
out-of-court settlement according to which the taxable benefit from the
personal use of the property was reduced to a period of four months for the
1993 to 1995 taxation years inclusive;
(v) after the electricity and telephone statements
were audited, Objections concluded that the same basis of four months a year
was justified for the 1996 and 1997 taxation years because power consumption
for those two years had been appreciably the same as for the 1994 taxation
year;
(w) for 1996, the calculation of the taxable benefit
also includes the goods and services tax (hereinafter “GST”).
[3] The
point at issue is as follows:
[TRANSLATION]
The point at issue is whether the Minister correctly added to the
appellant’s income the respective amounts of $25,173 and $23,526 in respect of
a benefit to a shareholder for the 1996 and 1997 taxation years.
[4] The
evidence filed by the appellant established on a balance of probabilities that
the appellant had received no personal benefit from the fact that the company
he controlled owned a lavish residence.
[5] In
essence, it was shown that the company had acquired the residence so as to find
a potential taker at a good price.
[6] To achieve that
objective, the appellant had assigned a number of mandates to real estate
agents, contrary to what is alleged in subparagraphs 13(i) and (l) of the
Reply to the Notice of Appeal.
[7] He
performed a number of jobs to maintain and enhance the facilities. The sole
purpose of his presence on the premises was to ensure that everything went
well.
[8] The
assessments were made on the basis of assumptions, interpretations and
speculations based on certain documentary information.
[9] The
evidence showed that the facts were not consistent with the basis used by the
respondent, although some evidence might have justified the assessments; I
refer in particular to the electricity accounts, the amounts of which were
comparable to those from previous periods for which the appellant had admitted
he had received a benefit based on four months of use for the years 1993 to
1995 inclusive.
[10] Despite
the assumptions based on the documentation consulted by the respondent, it was
shown on a balance of probabilities that the appellant had not used the
residence for personal purposes and that he had derived no benefit from it. The
only purpose of his presence on the premises was to ensure that everything was
done well to ultimately ensure a sale at the best possible price.
[11] For these reasons, the appeal is
allowed. The matter shall be referred back to the Minister of National Revenue
for reconsideration on the basis that, for the 1996 and 1997 taxation years, the
appellant received no personal benefit in his capacity as shareholder of the
company that owns the residence identified as Domaine Champlain, the whole without
costs.
Signed at Ottawa, Canada, this 18th day
of December 2002.
J.T.C.C.
Translation certified true
on this 6th day of February
2004.
Sophie Debbané,
Revisor
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