[OFFICIAL ENGLISH TRANSLATION]
Date: 20020128
Docket: 2000-2249(IT)I
BETWEEN:
MARCELLIN LAVOIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Docket: 2000-2251(IT)I
BETWEEN:
3102-8483 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] The relevant facts being
analogous, the parties agreed to proceed on common evidence for
both cases.
[2] These are appeals for the 1994
taxation year.
[3] In making and confirming the
reassessments in issue, the Minister of National Revenue (the
"Minister") made the following assumptions of fact:
File 2000-2249(IT)I:
[TRANSLATION]
(a) the corporation
3102-8483 Québec Inc. was incorporated on
December 10, 1993, under the authority of Part 1A of
the Companies Act;
(b) as a result of
the creation of that new business, Ferme
Louis-Hébert Inc. became a management company, and
all its day-to-day operations were transferred to 3102-8483
Québec Inc.;
(c) at all relevant
times, Marcellin Lavoie was the sole shareholder of Ferme
Louis-Hébert Inc., which was the sole shareholder of
3102-8483 Québec Inc.;
(d) during that
period, Marcellin Lavoie was the sole director of both
corporations and managed all the activities of the entities in
place;
(e) Les
Équipements d'Érablière CDL Inc.
(hereinafter the "corporation") signed a contract in
June 1993 with Ferme Louis-Hébert Inc. (hereinafter
the "contract");
(f) the
purpose of that contract was to market the corporation's
equipment in exchange for a sales commission and reimbursement of
expenses relating to that work;
(g)
Marcellin Lavoie was Ferme Louis-Hébert
Inc.'s resource person for the purpose of performing that
work;
(h) during the 1994
taxation year, the corporation paid $26,539 in commissions and
$13,319.26 to reimburse Ferme Louis-Hébert Inc. for
expenses;
(i) all the
amounts received from the contract were credited to the
"Director Advance" account of Ferme
Louis-Hébert Inc.;
(j) twenty-two
entries totalling $39,958.34 were necessary to credit to the
"Director Advance" account all of the cheques issued by
the corporation and cashed by Ferme Louis-Hébert
Inc.;
(k) adjustment entry
no. 7 in the amount of $13,319.26 reads as follows:
"Reversal Travel and Telephone" for all the expenses
reimbursed by the corporation;
(l)
Marcellin Lavoie, the appellant, did not report that benefit
of $26,539 in his federal tax return for the 1994 taxation
year;
(m) in failing to report
the sum of $26,539 as income for 1994, the appellant knowingly,
or under circumstances amounting to gross negligence, made or
participated in, assented to or acquiesced in the making of, a
false statement or omission as a result of which the tax he would
have been required to pay based on the information provided in
the federal tax return filed for that year in issue was less than
the amount of tax payable for that year;
(n) as a result of
the appellant's failure to report all of his income, in the
notice of reassessment of August 10, 1999, the Minister
assessed him a penalty of $2,148.46 under subsection 163(2)
of the Income Tax Act (hereinafter the
"Act") for the 1994 taxation year;
(o) the appellant
having made a misrepresentation attributable to neglect,
carelessness or wilful default in filing his tax return for the
1994 taxation year, the Minister issued the notice of
reassessment of August 10, 1999, under
subparagraph 152(4)(a)(i) of the Act.
File 2000-2251(IT)I:
[TRANSLATION]
(a) the corporation
3102-8483 Québec Inc. was incorporated on
December 10, 1993, under the authority of Part 1A of
the Companies Act;
(b) as a result of
the creation of that new business, Ferme
Louis-Hébert Inc. became a management company, and
all its day-to-day operations were transferred to 3102-8483
Québec Inc.;
(c) at all relevant
times, Marcellin Lavoie was the sole shareholder of Ferme
Louis-Hébert Inc., which was the sole shareholder of
3102-8483 Québec Inc.;
(d) during that
period, Marcellin Lavoie was the sole director of both
corporations and managed all the activities of the entities in
place;
(e) Les
Équipements d'Érablière CDL Inc.
(hereinafter the "corporation") signed a contract in
June 1993 with Ferme Louis-Hébert Inc. (hereinafter
the "contract");
(f) the
purpose of that contract was to market the corporation's
equipment in exchange for a sales commission and reimbursement of
expenses relating to that work;
(g)
Marcellin Lavoie was Ferme Louis-Hébert
Inc.'s resource person for the purpose of performing that
work;
(h) during the 1994
taxation year, the corporation paid $26,539 in commissions and
$13,319.26 to reimburse Ferme Louis-Hébert Inc. for
expenses;
(h)[sic]all the amounts received from the contract were
credited to the "Director Advance" account of Ferme
Louis-Hébert Inc. instead of being credited to the
appellant's income;
(i) the only
income reported by Ferme Louis-Hébert Inc. for the
year in issue was management income totalling $7,500 paid by the
appellant;
(j) the
appellant reported gross income of $49,287 from farming
operations;
(k) neither the
appellant nor Ferme Louis-Hébert Inc. reported the
income of $26,539 from the contract with the corporation;
(l) the
unreported income is very significant in relation to the gross
income reported by the appellant and by the management
company;
(m) twenty-two entries
totalling $39,958.34 were necessary to credit to the
"Director Advance" account all of the cheques issued by
the corporation and cashed by Ferme Louis-Hébert
Inc.;
(n) adjustment entry
no. 7 in the amount of $13,319.26 reads as follows:
"Reversal Travel and Telephone" for all the expenses
reimbursed by the corporation and relating to the unreported
income;
(o) in failing to
report the sum of $26,539 as income for 1994, the appellant
knowingly, or under circumstances amounting to gross negligence,
made or participated in, assented to or acquiesced in the making
of, a false statement or omission as a result of which the tax he
would have been required to pay based on the information provided
in the federal tax return filed for that year in issue was less
than the amount of tax payable for that year;
(p) as a result of
the appellant's failure to report all of his income, in the
notice of reassessment of September 13, 1999, the Minister
assessed him a penalty of $1,703.80 under subsection 163(2)
of the Income Tax Act (hereinafter the
"Act") for the 1994 taxation year;
(q) the appellant
having made a misrepresentation attributable to neglect,
carelessness or wilful default in filing his tax return for the
1994 taxation year, the Minister issued the notice of
reassessment of September 13, 1999, under
subparagraph 152(4)(a)(i) of the Act;
(r) at this stage of
the proceedings, the Minister has taken note that the commission
income earned from the corporation under the contract binding on
the corporation and Ferme Louis-Hébert Inc. was not
included in Ferme Louis-Hébert Inc.'s income
but rather in the appellant's income for the 1995 taxation
year, even though the said contract had not changed since
1993.
[4] Robert Cloutier, a chartered
accountant (C.A.), represented the appellants in his capacity as
an accountant. In support of the appeals, he stated that he
wanted to raise four specific points:
- that an error for
which he accepted full responsibility had been committed and that
the assessment was based solely on an error of interpretation by
the person doing the accounting;
- that the appellant
had never benefited or derived an advantage from the error in
question;
- that it was a
simple error having nothing to do with the commission of gross
negligence or any kind of negligence; and
- that the Minister
had not assessed the right company.
[5] Mr. Cloutier explained the
circumstances of the error, emphasizing that the
"advance" account had a large credit balance and that
the appellant therefore had derived no benefit from the increase
resulting from the incorrect accounting entry. He also added that
there was a complete lack of interest in acting in that
manner.
[6] The evidence revealed that the
appellant was the sole shareholder and director of Ferme
Louis-Hébert Inc., which had been in business since
1977. The corporation 3102-8483 Québec Inc. was
incorporated on December 10, 1993; Ferme
Louis-Hébert Inc. was the sole shareholder and the
appellant Lavoie the sole director of that company.
[7] On December 29, 1993, the
corporation 3102-8483 Québec Inc. began its
operations; it purchased the farming operation of Ferme
Louis-Hébert Inc. The bank account of Ferme
Louis-Hébert Inc. was transferred to the name of
3102-8483 Québec Inc., and all the transactions of
both corporations and the appellant's personal transactions
subsequently went through the same bank account.
[8] In June 1993, an agreement was
entered into between Mr. Lavoie and Équipements
d'érablière CDL Inc. ("CDL"). Under
that agreement, the appellant Lavoie rendered consulting services
to CDL in return for a five percent commission on CDL's
sales increases and for a reimbursement of his expenses.
[9] In 1994, CDL transferred to
3102-8483 Québec Inc.'s bank account the fees
owed in consideration of consulting services rendered by
Mr. Lavoie starting in 1993. Those fees were not reported in
any tax return and were credited to the director advance account
of Ferme Louis-Hébert Inc.
[10] On August 10, 1999, a notice of
reassessment for the 1994 taxation year was issued to the
appellant Lavoie for failing to include the taxable benefit
constituted by the inclusion of the amount of $26,539 in the
director advance account of Ferme Louis-Hébert Inc.
The parties agreed that the amount of $26,539 was accurate.
[11] On September 13, 1999, the
Minister issued a notice of reassessment of 3102-8483
Québec Inc. for its failure to include the amount of
$26,539 in its tax return for the 1994 taxation year. The
Minister assessed the appellants penalties under
subsection 162(3) of the Act.
[12] During those years, Mr. Cloutier
acted as an accountant for both the appellant Lavoie and for the
company and had done so for more than 10 years.
Mr. Cloutier has also been the son-in-law of the appellant
Lavoie for 17 years.
[13] Mr. Cloutier said that he had
prepared the financial statements under a mandate defined as a
compilation mission; he made year-end adjustment entries. He also
acted as a financial adviser.
[14] Although the appellants' cases
should have been structured for easy analysis as a result of Mr.
Cloutier's training and experience, the situation was quite
different, as appears from the following passage from the
transcript, at pages 40 to 45:
[TRANSLATION]
. . .
MR. ARCELIN
Q. But at what point
did you feel the need to correct that?
ROBERT CLOUTIER
A. It's not a
correction, it's a . . . This has always been
done this way and since 1994 . . . the creation of
a numbered company; it was always done that way until 2000. I
didn't feel any need to make an adjustment; it's simply
that Mr. Lavoie sometimes used the numbered company's
credit card for personal expenses. Those expenses were not
allowable within the company; I had to remove them from the
company, and the way to do that was this: I transferred the
advance to Ferme Louis-Hébert and Ferme
Louis-Hébert reduced Mr. Lavoie's advances.
It's as simple as that.
MR. ARCELIN
Q. Can you please
explain to me what the rationale was? You mentioned the decision
to create the numbered company?
A. There were a
number of reasons. Since Mr. Lavoie had a new activity,
which was to render services to CDL at the provincial level,
farming activities must normally be excluded in order to qualify
for a capital tax exemption. Okay? So, that's what we did to
begin with. It was simply from a tax standpoint. And Ferme
Louis-Hébert had carried over losses that were about
to expire. And by conducting this type of transaction, we were
simply creating a capital gain, which we applied against those
losses, and this is perfectly legal. These were mainly tax
issues.
Q. A moment go, you
referred to the fact that your client, Mr. Lavoie,
regularly, or more or less regularly, used - I believe that's
roughly what you said - the business's account for personal
purposes, and you made entries to adjust the situation. Is that
correct?
A. Yes, it is.
Q. Was the account
in question the account of the numbered company or the account of
Ferme Louis-Hébert?
A. I would say it
was Ferme Louis-Hébert's account; when the
account was created, it was created for Ferme
Louis-Hébert.
Q. I would like to
show you a statement of account that was obtained by the audit as
part, by the Agency as part of the audits. You see here on
page 1 . . . this is a statement of account
addressed to the numbered company in question. And we see here,
on page 2, that there is a deposit slip, again with the same
folio number, folio number 3183. And we see that, at
present, the deposit slip is, reference is made to Ferme
Louis-Hébert Inc., again during the same periods.
Can you explain this situation to me?
A. Yes.
Q. Does the account
belong - because we can see on the statement of account - I would
like to file this document, Your Honour.
EXHIBIT I-2: Statement of account
addressed to the numbered company (filed jointly)
STÉPHANE ARCELIN:
Q. We see that all
the transactions were, they all went through an account, which it
seems to me from this document, was the account of the numbered
company.
A. Yes, I'm
going . . . I'm going to try to explain the
account to you briefly. That account, the folio number of which
is 3183, was opened probably 20 years ago by Ferme
Louis-Hébert. In 94, Mr. Lavoie, in good faith,
surely mentioned that the farming operations were transferred to
the numbered company along with certain debts, among other
things. And the Caisse populaire simply changed the name on the
bank statement to that of the numbered company since the debts
followed, the farming debts followed the numbered company. On the
deposit slip, Ferme Louis-Hébert was effectively
still being used, and Ferme Louis-Hébert Inc. also
appeared on the cheques, thus referring to that account, and so
everything was Ferme Louis-Hébert, except the name
at the top, which was . . . Ultimately, there was
one bank account for all the transactions of the two
businesses.
Q. So it was a bank
account that was used for the transactions of both businesses, a
bank account registered at the Caisse populaire.
A. For 20 years
and was opened by Ferme Louis-Hébert.
Q. Was
opened . . .
A. By Ferme
Louis-Hébert.
Q. . . .
by Ferme Louis-Hébert at the start and was
subsequently changed . . .
A.
changed . . .
Q. . . .
to the name of the numbered company?
A. Well, they
changed the name. Everything was done under the name of Ferme
Louis-Hébert, except that the name was changed.
Q. And is it not
true to say that that account was also the account through which
Marcellin Lavoie also conducted virtually all his personal
transactions?
A. He
conducted . . ., well, all, . . . he
conducted a few . . . he conducted personal
operations through that account, yes.
Q. So there were
personal transactions; there were transactions of Ferme
Louis-Hébert, and there were also transactions of
the numbered company.
A. That's why I
told you there were expenses that were charged to him
personally.
Q. Uhuh. You
said . . . Can you explain to
me . . .
THE COURT:
Just a moment.
STÉPHANE
ARCELIN:
Yes.
THE COURT:
Q. You are the
accountant of that business?
A. Yes.
Q. And have been for
a very long time. You are also the business's advisor.
A. Normally.
Q. Is it good
practice to have a bank account of this kind for three
entities?
A. Three entities?
No, it's not . . . This is the first time I
have seen this, but, for Mr. Lavoie, it was a way of
simplifying things. So I respected Mr. Lavoie's
decision.
Further on, at pages 63 and 64:
[TRANSLATION]
. . .
ROBERT
CLOUTIER:
Indeed, it seems mixed up, but, look, Mr. Lavoie's
businesses are small businesses that generated income that, from
one year to the next, could vary between $50,000 and $100,000 a
year. To simplify his existence, Mr. Lavoie had one bank
account¾ always had one bank account.
THE COURT: Q. No, I will never accept those arguments.
When you play by major league rules, you have to use the rules in
effect in that league. This business of saving on costs, saving
on expenses because audits are expensive is something I will
never accept.
A. It wasn't necessarily to save on costs, but rather to
spare the effort of transferring amounts from one account to
another. That is my understanding of matters and I obviously
recommended a number of times that Mr. Lavoie open separate
bank accounts, that he have a personal bank account and regularly
transfer amounts to his personal bank account for personal
expenses. But for that year, 93, 94, 95, things were done that
way. I don't really have any other argument to make. This
obviously complicated the accounting for us. It obviously
required an effort every year when we did the bookkeeping. This
obviously resulted in additional surcharges but that was
Mr. Lavoie's decision. I intend to call Mr. Lavoie
as a witness and perhaps he will have reasons to offer you on
this point. I can't speak for Mr. Lavoie.
. . .
[15] Claire Melançon testified
in her capacity as an accounting technician. She explained that
she had done bookkeeping since 1991, and that she had never
received instructions from the appellant Marcellin Lavoie,
but only from the accountant Robert Cloutier. She described
her mandate as follows at pages 66 and 67:
[TRANSLATION]
. . .
ROBERT CLOUTIER:
Q. Can you explain
to me briefly how Ferme Louis-Hébert's
bookkeeping was normally done?
MS. MÉLANÇON:
A. We did the
bookkeeping once a year. It was annual bookkeeping, not
monthly, as it is for certain clients. For him, it was done
annually.
[My emphasis.]
Further on, at pages 74, 75 and 76:
[TRANSLATION]
THE COURT:
Q. You are going to
explain to me what an accounting technician does. I know, but I
would like, I want to know in your case.
MS. MÉLANÇON:
A. In my case?
Q. Yes.
A. Everything
depends on the clients I work for. For some, as I said a moment
ago, it's monthly, others annually. If it's annually, we
have a box, we have all the bank statements, and we usually have
everything we need to do all the bookkeeping for the year.
Q. Okay.
A. For that
client.
Q. Now, I understand
from your answer that you are an employee of
Mr. Cloutier?
. . .
Q. You did that once
a year?
A. Once a year,
always roughly in the spring.
Q. But how was it
done? He came to your place with boxes?
A. No,
Mr. Cloutier brought me that, all the bank statements from
the Caisse populaire, the returned cheques
with . . . I have a pile of cheque stubs and I
took all the cheques. They had to be coded by code because the
bookkeeping is done . . .
[16] The appellant stated that he had hired
an expert to whom he paid fees to handle his accounting affairs.
He said the following at pages 97, 98, 99 and 100:
[TRANSLATION]
. . .
MR. ARCELIN:
Q. And you, at the
end of the year, if I understand correctly, as you are doing it
at present and with Mr. Cloutier, you sign the bank
statements and the income tax returns?
MARCELLIN LAVOIE:
A. Well, we rely on
the accountant, and I think we pay him for that.
Q. Uhuh. But you
look -
A. I mainly look,
yes, at the balance sheet, which is very important.
Q. You look at the
balance sheet?
A. Yes.
Q. The income
statement as well surely because that must
be . . .
A. Well, the
results, the balance sheet pretty much states all the results. I
don't go into the details because I give . . .
Besides, on the statements, it's clearly marked personal or
whatever, so I give that to the accountant.
Q. Okay, but when
you look at the income statement at the end of the year, for
example, you see you have made $50,000, to the
extent . . .
A. Well, I always
look at what's left.
Q. Yes, I know, but
you are able to see what sales you have made? You take note of
that? You look at that?
A. Yes,
well . . . Well, I always look at what
is . . . of course; that's normal.
Q. So explain to me,
Mr. Lavoie, why did this not draw your attention. I am
referring, Your Honour, to Exhibit I-4. We see the
financial statements that you signed and that you filed with the
tax return of 3102-8483 Québec Inc.
reporting income of $49,287. However, that income was understated
by $26,000. That means by approximately 50 percent. Did that
not draw your attention?
A. No, not at all. I
should tell you I look at the balance sheet. Naturally, I
don't compile those things; it's too bad, but I
didn't look at those details, those things, definitely. I see
the balance sheet, period, which (inaudible). What is important
for me is the balance sheet; it's for the bank; it's very
important.
. . .
Q. So you,
when . . . it didn't draw your attention that
$26,000 of income was missing, taking that for granted?
A. No, not at all,
not at all.
Q. You had
completely forgotten the income from CDL?
A. No, no, look, I
did not . . . Look, I rely on an accounting firm,
you know, I did not . . . I'm willing to
believe, but I don't go into, I'm sorry, but I don't
check everything. If I was going to check, I would do the
accounting myself.
. . .
[17] According to the accountant, the fact
that the benefit conferred to the advance account had no
effect¾not benefiting anyone¾confirms the argument
that an inconsequential error was made. This is an unacceptable
interpretation since it completely overlooks the benefit arising
from the ultimate withdrawal of the funds.
[18] As to the argument that the respondent
did not assess the right company, I do not accept it, for two
reasons. First, there was no satisfactory and convincing evidence
on this point, and, second, I believe that the purpose of the
confusion deliberately maintained through rudimentary and
confused accounting was to keep all options open as long as
possible.
[19] To justify himself, the appellant
Lavoie claimed that he had paid substantial fees so that
everything would be done correctly. The accountant, directly
involved by the explanation, recognized that there had been
certain deficiencies in the accounting and answered that he had
made the appropriate recommendations on this matter to the
appellant, who had not seen fit to authorize him to make the
desired changes. These are frivolous explanations. I believe
instead that the method tacitly in place offered the flexibility
that was sought and desired.
[20] The appellant had and was required to
take all measures to ensure that the accounting was transparent
and coherent. Not only was this not the case but everything was
ambiguous. I believe the confusion of information had a
self-serving function.
[21] The accountant contended that he had
not put an adequate system of accounting in place because he had
been instructed to do so. The mandator had nothing to do because
he had handed everything over to an expert. What is more, the
accounting technician who handled the filing operated without
instructions and essentially by intuition.
[22] The fact that such confusion was
allowed, accepted and tolerated, whereas it would have been so
easy to correct it by putting a coherent and transparent system
in place, utterly discredits the argument that an error was
made.
[23] Having regard to the size of the amount
in question relative to the other income, that is $26,539 versus
income of $49,287, it is unreasonable to credit the excuse that
an error was made. The accountant had to act in a particularly
meticulous manner since he was very well acquainted with the
weakness of the accounting system.
[24] The controls should have been carried
out in a very meticulous manner since, first, the information
compiled was vague and unclear, and this the accountant knew.
Second, the person who had been instructed to sort out the
accounting paperwork had no contact with the person who had
incurred the expenses or with the person or persons who had
received the income.
[25] Although the appellant Lavoie claimed
that he did not have the necessary knowledge to understand all
the accounting, I am satisfied that he understood and was very
familiar with the predominant information on his personal affairs
and those of the companies in which he had interests,
particularly since an amount of $26,539, relative to reported
income of $49,287, is not a trivial or marginal amount.
[26] The evidence showed that the appellant
was a shrewd, resourceful and conscientious businessman. He
moreover admitted that he had examined the financial statements
before signing them.
[27] The evidence established that the
appellant had organized, structured and planned his affairs so as
to minimize his tax burden. This was an entirely lawful and
legitimate concern for a businessman of the appellant's
calibre, who was moreover advised by an accountant.
[28] That being the case, he had to assume
all the consequences and especially comply in full with the logic
of the vehicle chosen to minimize the tax payable. Apparently,
despite his accountant's advice and recommendations, he chose
to satisfy himself with a deficient and inadequate system.
[29] Such behaviour shows beyond a shadow of
a doubt that he colluded in the commission of what he
characterized as an error. So gross an error was tantamount to
gross negligence, responsibility for which is equally
attributable to the appellant himself and the accountant.
[30] On this point, I think it relevant to
cite a passage from the judgment by Judge Strayer in
Venne v. Canada [1984] F.C.J. No. 314
(Q.L.):
... "Gross negligence" must be taken to involve
greater neglect than simply a failure to use reasonable care. It
must involve a high degree of negligence tantamount to
intentional acting, an indifference as to whether the law is
complied with or not....
[31] In the instant case, did the evidence
not show that the accountant had recommended that the appellant
make the appropriate corrections to his accounting? That same
evidence also showed that the appellant had given no instructions
to the person who attended to the clerical aspect of the
accounting; lastly, the evidence never indicated that the
appellant had made any effort whatever to comply with the
accountant's instructions, if indeed any instructions were
actually given.
[32] Finally, the appellant had an
obligation to ensure that the tax returns were in order before
signing them. He could not discharge himself from his
responsibility by holding responsible the accountant to whom he
paid fees.
[33] The appellant did not discharge the
burden that was on him to show that the respondent had made an
error in assessing 3102-8483 Québec Inc.
instead of Société Ferme Louis Hébert
Inc. for the mere reason that the available documentation simply
did not make it possible to adduce such evidence. There was only
one bank account in which all the income and expenses of the
appellant and the two companies went through.
[34] The accountant Cloutier referred to the
decision in Chopp v. Canada, [1995] T.C.J No. 12
(Q.L.), at paragraph 15, where Judge Mogan wrote as
follows:
I cannot accept the Respondent's argument so broadly stated
that a bookkeeping error which benefits a shareholder to the
disadvantage of his corporation is a benefit within subsection
15(1) even if the error was not intended and was not known to the
shareholder. In my opinion, if the value of a benefit is to be
included in computing a shareholder's income
under subsection 15(1), the benefit must be conferred with the
knowledge or consent of the shareholder; or alternatively, in
circumstances where it is reasonable to conclude that the
shareholder ought to have known that the benefit was
conferred....
[35] The evidence in the instant case simply
does not support the conclusion that the benefit was conferred on
the shareholder without his knowledge or that he was not aware of
the error, mainly for three reasons:
· first, the
appellant Lavoie is a shrewd businessman, very much aware of his
affairs;
· second, he
signed all the accounting documents;
· third, the
amount represented more than half of the reported income of
$49,287.
[36] Lastly, I think it appropriate to
recall a passage widely cited in cases of this kind. It is a
passage from the judgment by Linden J.A. of the Federal
Court of Appeal in Friedberg v. Canada, [1991] F.C.J.
No. 1255 (Q.L.), in which the honourable judge wrote as
follows:
...
In tax law, form matters. A mere subjective intention, here as
elsewhere in the tax field, is not by itself sufficient to alter
the characterization of a transaction for tax purposes. If a
taxpayer arranges his affairs in certain formal ways, enormous
tax advantages can be obtained, even though the main reason for
the arrangements may be to save tax (see The Queen v. Irving Oil
91 D.T.C. 5106, per Mahoney J.A.). If a taxpayer fails to take
the correct formal steps, however, tax may have to be paid. If
this were not so, Revenue Canada and the courts would be engaged
in endless exercises to determine the true intentions behind
certain transactions. Taxpayers and the Crown would seek to
restructure dealings after the fact so as to take advantage of
the tax law or to make taxpayers pay tax that they might
otherwise not have to pay. While evidence of intention may be
used by the Courts on occasion to clarify dealings, it is rarely
determinative. In sum, evidence of subjective intention cannot be
used to 'correct' documents which clearly point in a particular
direction.
...
[37] For all these reasons, the appeals are
dismissed, with costs.
Signed at Ottawa, Canada, this 28th day of January 2002.
J.T.C.C.
Translation certified true
on this 30th day of April 2003.
Sophie Debbané, Revisor.
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