[OFFICIAL ENGLISH TRANSLATION]
Date: 20020110
Dockets: 2000-1846(IT)G
BETWEEN:
MARTIN RHÉAUME,
appellant,
and
HER MAJESTY THE QUEEN,
respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal for the 1997
taxation year.
[2] The issue is whether a property
sold by the appellant on November 27, 1997, was his
principal residence.
[3] The facts on which the Minister of
National Revenue ("the Minister") relied in making his
reassessment are set out as follows in paragraph 16 of the Reply
to the Notice of Appeal ("the Reply"):
[TRANSLATION]
(a) In 1997, the
appellant provided his professional services at the Centre de
Recherche et de Perfectionnement Marcel Langevin (hereinafter
"CRPML");
(b) On March 27,
1997, CRPML sold the appellant an immovable property (hereinafter
"the property") with the street addresses 834 and
836 56e Avenue, City of Lachine, Province of Quebec,
for $70,203;
(c) On November 27,
1997, the appellant sold the property for proceeds of disposition
of $132,000;
(d) The property
remained CRPML's place of business during most of 1997;
(e) The property was
never used for residential purposes during the 1997 taxation
year;
(f) The
appellant did not inhabit the property or consider it his
principal residence;
(g) The appellant
did not designate the property as his principal residence in his
tax return for the 1997 taxation year;
(h) The appellant
did not report the capital gain resulting from the disposition of
the property in his 1997 tax return;
(i) Using the
figures provided by the appellant, the Minister calculated the
taxable capital gain resulting from the disposition of the
property in 1997 as follows:
(i) Proceeds of
disposition $132,000 minus
(ii) Adjusted cost base
($80,698) and selling expenses ($10,842)
(iii) Capital gain
$40,460
(iv) Taxable capital gain
$30,344
($40,460 multiplied by 75%)
[4] The appellant set out the
following facts in his Notice of Appeal:
[TRANSLATION]
. . .
7. The
taxpayer owned the said residence during the 1997 taxation
year;
. . .
9. The
taxpayer inhabited the property in question the entire time he
owned it and therefore ordinarily inhabited it during the 1997
taxation year;
10. The residence was
purchased on March 27, 1997;
11. The residence was sold
on November 27, 1997;
12. The taxpayer never
rented or put up for rent any part of the said property or used
it for any purpose other than his own and sole accommodation;
. . .
[5] Marcel Langevin and the appellant
testified for the appellant, while Simone Mikhail, an
auditor at the Canada Customs and Revenue Agency
("CCRA"), testified for the respondent. A book of
documents containing 12 tabs was filed by the respondent as
Exhibit I-1.
[6] When the hearing began, counsel
for the appellant told the Court that the $70,203.15 referred to
in subparagraph 16(b) of the Reply should actually be $80,698,
since the taxes payable under the Excise Tax Act and the
Act respecting the Québec sales tax must be added
to the sale price.
[7] Counsel for the appellant told the
Court that he admitted subparagraphs 16(a) to (c) in all
other respects; that he denied subparagraphs 16(d) to (f);
that he admitted subparagraph 16(g) but later argued that
non-filing may be tolerated pursuant to an administrative
policy; that he admitted subparagraph 16(h); and that he did not
dispute the calculation in subparagraph 16(i) but that the
capital gain was not taxable.
[8] Marcel Langevin, a Fellow
Chartered Accountant (FCA), was the first witness. He described
the Centre de recherche et de perfectionnement
Marcel Langevin Ltée ("CRPML") as a company
that gives courses to future chartered accountants. The company,
of which he is the president, has been operating since 1978.
[9] CRPML began operating out of the
house at 834-836 56e Avenue in Lachine after
purchasing the property on June 29, 1983. It was where the
facilitators, the graders of the future chartered
accountants' exams and sometimes the session participants
were seen. There was also a secretarial office. The courses
themselves were given in hotels, universities or colleges.
[10] Mr. Langevin said that he had a
partner, Richard Beaumier, and that he decided to sell the
property when Mr. Beaumier left the company.
[11] Mr. Langevin explained the steps that
were taken to sell the property. He said that he first put up a
sign, and he advertised in the newspapers. His wife apparently
contacted real estate agents but that did not lead to anything
because the agents said that it was not the right time to sell
immovable property. One person offered him $90,000, but the offer
was conditional on the vendor providing financing, which was
unacceptable to Mr. Langevin and his wife. Only one other
purchaser expressed an interest, that is,
Martin Rhéaume.
[12] Marcel Langevin explained the
circumstances in which Mr. Rhéaume expressed an interest
at pages 13, 14 and 17 of the transcript as follows:
Page 13:
[TRANSLATION]
Listen, I think he must have seen the ad, the sign on the
property, because we met a few times in early '97. The sign
had been there since '96, I think, and I understood that that
was why he came to talk to me about the property, because he saw
the sign. As I understand it, this was the reason he took that
step.
. . .
Page 14:
[TRANSLATION]
He came to see me and asked if I still wanted to sell the
property. My wife and I told him we wanted to sell it. He then
asked me, if I remember correctly-but it may not necessarily have
happened in this order-how much we wanted for the property. I
told him to make us an offer, which he did. And I'd talked
about it with my wife before receiving the offer, and
subsequently, the process got under way of course. We went to see
a notary after accepting his offer, and we sold him the property.
As simple as that.
. . .
Page 17:
[TRANSLATION]
First of all, this was the first time we had a buyer who was
bringing us something serious. Second, it was essential to my
wife and me that we sell the property, and we'd decided that
the minimum we would sell it for was its book value. That was the
minimum we wanted, and it would bring up the numbers.
. . .
[13] The witness said that CRPML had not
operated at all out of the house since March 27, 1997, the date
the property was sold. CRPML allegedly continued its activities
after that date in the home of Mr. and Mrs. Langevin at
225 54e Avenue in Lachine and in some
premises owned by Mr. Langevin's uncle.
[14] Counsel for the appellant then asked
Mr. Langevin how long he had known Martin Rhéaume. He
answered that he had met him in 1989 and 1990 as a student and
had subsequently known him as a business associate.
Mr. Rhéaume signed a freelance agreement with CRPML
for 1995 to 1997.
[15] During its busiest period, CRPML had
about 60 people working for it. The freelancers worked writing
materials, grading exams or doing facilitation.
[16] During cross-examination, counsel
for the respondent referred the witness to Tab 10 of Exhibit
I-1, namely Hydro-Québec bills paid by CRPML
from March 17 to July 21, 1997, for the house in question. The
explanation given by Mr. Langevin was that he had agreed to
pay the bills and invoice Mr. Rhéaume for them later.
Page 21:
[TRANSLATION]
. . .
Quite simply because we were in a busy period when we sold the
property, and I agreed with my wife that we would take the bills,
pay them and settle the items with Mr. Rhéaume later
because there were other things owed to the company and we were
going to invoice Mr. Rhéaume for all of it later. And
the reason was simply one of day-to-day management. Listen, it
wasn't important to us. Look at your bills, Ms. Cantin. What
are the amounts?
. . .
[17] In addition to the payments made by
CRPML to the electric and telephone companies, there were
payments to landscaping companies. Counsel for the respondent
asked Mr. Langevin why CRPML had claimed the payment of those
bills as a business expense if it had not had to lay out those
amounts. Mr. Langevin answered that he had included the
amounts in CRPML's income when they were repaid.
[18] At Tab 11 are two invoices dated
July 25 and August 30, 1997, for sales of electronic
products that show CRPML's address as 834
56e Avenue, Lachine. The witness explained that
the products were carried out of the store, not delivered. He
suggested that the store had simply not changed the address.
[19] At Tab 6 of Exhibit I-1 is the
contract for the sale of the property in question entered into by
CRPML and Martin Rhéaume. Clause 7 of the
contract sets the value of the basis of imposition for transfer
duties at $157,900. The witness said that the clause was a
surprise to him and that he could not say anything more about it.
Counsel for the appellant then told the Court that the
Act respecting duties on transfers of immovables
provides that the amount that must be mentioned for transfer
duties is the greater of the following amounts: the municipal
assessment or the price paid.
[20] The appellant has been a chartered
accountant since 1995. In 1995, 1996 and 1997, he carried on his
professional activities at CRPML. He wrote training texts, met
with candidates, gave courses, did facilitation, monitored exam
sessions and graded exams. In 2001, he was still working for
CRPML.
[21] He learned that the house was for sale
by spotting the sign. He had been living with his father for a
while and was looking for a place. He offered $80,000. He put
everything he had into the house.
[22] At the time of the purchase, the house
was in a state of disrepair. He said that he did renovation work,
for which he paid. He said that he purchased household
appliances, such as a washing machine, dryer, range, refrigerator
and built-in dishwasher. He never submitted any invoices or
other evidence about this.
[23] The expenses that CRPML paid for the
appellant were allegedly repaid with the statement of account at
the beginning of January 1998.
[24] When asked by his counsel why he had
purchased property on March 27 and resold it on November 27, he
answered that he was no longer interested in the renovations once
he had finished the work in August and September. They took too
much time, and he wanted to devote himself to his profession. The
real estate agent suggested listing the house for $135,000. The
purchaser offered $132,000.
[25] He explained to his counsel that he did
not have to have his mail forwarded by Canada Post because he had
been receiving his mail at 834-836
56e Avenue in Lachine since 1995.
[26] As Exhibit A-1, the witness filed
a homeowner's insurance policy for March 27, 1997, to March
27, 1998.
[27] On cross-examination, counsel for the
respondent asked him how much he estimated the renovations cost.
He said $10,000. She then referred back to the appellant's
statement that he had used all of his money, $80,000, to purchase
the house and his assertion that he was the one who paid for the
renovations. She asked him how he could have accumulated so much
capital with an annual income of about $20,000.
[28] Counsel for the respondent asked him to
confirm that, when he met with Ms. Mikhail in April 1998 and
she asked him if he had sold immovable property during the year,
he answered no. The appellant answered that she had not asked any
questions about the sale of the property. She had asked him where
he lived, and he had said that he lived with his father. He
pointed out that, at the time of his meeting with
Ms. Mikhail, he had not yet filed his tax return for
1997.
[29] With regard to the insurance policy,
counsel asked him who had sent the document. He answered that he
had. He had not given it to Ms. Mikhail.
[30] Simone Mikhail, the CCRA auditor,
had sent the appellant a letter asking him to prepare his records
for 1995, 1996 and 1997. The letter was sent on March 23, 1998,
and the meeting was held on April 21, 1998.
Mr. Rhéaume told her that he had never lived at
834-836 56e Avenue. He lived with his
father but, since he did not get along with him, preferred to
receive his mail at 834 56e Avenue in
Lachine. It was merely a mailing address. The appellant gave her
proof of his expenses, but none of the invoices involved the
property in question.
[31] Ms. Mikhail said that, when the
appellant received her letter in March 1998, he knew that
she wanted to question him about 1995, 1996 and 1997. At the
meeting in April 1998, she asked him whether he had sold or
purchased immovable property, and he answered no. When he filed
his 1997 return in August 1999, the property in question was not
referred to in any of the documents.
[32] The document that must be completed
when a principal residence is sold is the T2091 form. It has been
admitted that this document was not filed with the
appellant's 1997 return.
[33] The Hydro-Québec bills for
March to July 1997 had been claimed by CRPML. Since Ms. Mikhail
had not seen the documents, she requested them, and it was CRPML
that sent them by fax, along with copies of the cheques, on
December 21, 1998.
Conclusion
[34] Section 2 of the Act respecting
duties on transfers of immovables defines the basis of
imposition for transfer duties as follows:
. . .
The basis of imposition for transfer duties shall be the
greatest of the following amounts:
(1) the amount of
the consideration furnished for the transfer of the
immovable;
(2) the amount of
the consideration stipulated for the transfer of the
immovable;
(3) the amount of
the market value of the immovable at the time of its
transfer.
[35] I refer to this provision for
rectification purposes. In any event, whether the relevant amount
is the market value or the amount of the municipal assessment, it
is evident that the price at which the property in question was
disposed of, $70,203.15, is much lower than both of those
amounts. However, this is not what determines my decision.
[36] Marcel Langevin's testimony is not
credible. He explained the facts surrounding the sale of the
property by saying that he had put up a sign and that Martin
Rhéaume had seen it when passing by. The business
relationship between Mr. Rhéaume and
Mr. Langevin was such that it cannot be believed that the
appellant learned the house was for sale solely by seeing the
sign. That existing relationship between the appellant and the
vendor had been a constant one since 1995: the appellant earned
all of his income from Mr. Langevin's company, CRPML, and
used CRPML's address as his mailing address.
[37] It is also very difficult to understand
why CRPML continued to pay the electricity costs, municipal taxes
and landscape maintenance costs if it did not continue to operate
on the premises.
[38] The appellant's testimony is not
very credible either. He claimed that he purchased the property
and paid $80,000 using the savings he had accumulated. There is
no evidence of that payment. He also claimed to have made
renovations worth about $10,000. No invoice was filed in this
regard. The only exhibit filed was the insurance policy. It came
from CRPML's fax machine on April 10, 2000. That
document was filed at the hearing and did not appear on the
appellant's list of documents.
[39] During his meeting with the
Minister's officer, the appellant told her that he had never
sold immovable property, that he was still living with his father
and that 834 56e Avenue in Lachine was
merely a mailing address. The disposition of the property in
question was not mentioned in the 1997 tax return filed in
August 1998, shortly after the meeting with
Ms. Mikhail.
[40] In these circumstances, it is my view
that the balance of evidence is such that the only conclusion I
can draw is that the facts taken into account by the Minister in
assessing the appellant have been shown to be true. The property
at 834-836 56e Avenue in the City of
Lachine was not the appellant's principal residence from
March 27 to November 27, 1997. Since there is no dispute
concerning the calculation of the capital gain, the appeal is
dismissed with costs to the respondent.
Signed at Ottawa, Canada this 10th day of January 2002.
J.T.C.C.
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