Citation: 2010 TCC 191
Date: 20100415
Docket: 2009-1571(GST)I
BETWEEN:
BHARATI SHAH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
-
REASONS FOR JUDGMENT
Lamarre J.
[1]
The appellant is the
spouse of Mr. Bhagwat Shah. Bhagwat Shah, who represented the appellant in this
appeal, was personally assessed pursuant to subsection 323(1) of the Excise
Tax Act (ETA), on June 13, 2007, for amounts of net tax owed by a
corporation (124688 Canada Inc.) of which he was a shareholder during the
period from January 1, 2002 to April 30, 2004. Mr. Shah was assessed for an
amount of $23,630.32, including penalties and interest (Exhibit R‑2).
On the basis that he was not a director of the corporation, Mr. Shah
objected to that assessment and subsequently instituted an appeal before this
Court, which dismissed his appeal in a judgment dated November 4, 2008 (Exhibit
R-1). Bhagwat Shah did not appeal that decision.
[2]
On March 11, 2003, Bhagwat
Shah transferred an immoveable property located in Dollard-des-Ormeaux, Quebec, to his spouse Bharati Shah (the appellant) for $1.00
(see deed of sale, Exhibit R-3). At the time of the transfer, the fair market
value of the property was, according to the municipal evaluation, $237,000 (Exhibit R-5).
[3]
At that time, Mr. Shah was
jointly and severally liable with the corporation, under the ETA, for the
amount of net tax owed by the latter for the reporting period from
January 1, 2002 to the date of the transfer.
[4]
On that basis, a notice
of assessment was issued against the appellant on June 13, 2007 in
accordance with the provisions of subsection 325(2) of the ETA. The amount of the
assessment was $13,623.30. That is the assessment under appeal before me.
[5]
Ms. Ginette Fiset, the
agent for the Quebec Minister of Revenue (Minister) explained that the
amount assessed was the amount owed by Bhagwat Shah for the period from January
1, 2002 to the date of the transfer of the property, that is, March 11, 2003.
She recognized, however, that the tax portion was calculated to March 31,
2003 (Exhibit R-2) and now acknowledges that the net tax assessed against the appellant
should be reduced by an amount of $869.49. Mrs. Shah should thus be
assessed an amount of $12,753.81 instead of $13,623.30.
[6]
Subsections 325(1), (2)
and (3) of the ETA read as follows:
325. (1) Tax liability re transfers
not at arm’s length ‑ Where at any time a person transfers
property, either directly or indirectly, by means of a trust or by any other
means, to
(a) the transferor’s spouse or
common-law partner or an individual who has since become the transferor’s
spouse or common-law partner,
(b) an individual who
was under eighteen years of age, or
(c) another person with whom the
transferor was not dealing at arm’s length,
the transferee and transferor are jointly and severally liable to
pay under this Part an amount equal to the lesser of
(d) the amount
determined by the formula
A - B
where
A is the amount, if any, by which the fair
market value of the property at that time exceeds the fair market value at that
time of the consideration given by the transferee for the transfer of the
property, and
B is the amount, if any, by which the amount
assessed the transferee under subsection 160(2) of the Income Tax Act in
respect of the property exceeds the amount paid by the transferor in respect of
the amount so assessed, and
(e) the total of all
amounts each of which is
(i)
an amount that the transferor is liable to pay
or remit under this Part for the reporting period of the transferor that
includes that time or any preceding reporting period of the transferor, or
(ii)
interest or penalty for which the transferor is
liable as of that time,
but nothing in this subsection limits the liability of the
transferor under any provision of this Part.
. . .
(2) Assessment ‑ The
Minister may at any time assess a transferee in respect of any amount payable
by reason of this section, and the provisions of sections 296 to 311 apply,
with such modifications as the circumstances require.
(3) Rules applicable ‑ Where
a transferor and transferee have, by reason of subsection (1), become jointly
and severally liable in respect of part or all of the liability of the
transferor under this Part, the following rules apply:
(a) a payment by the
transferee on account of the transferee’s liability shall, to the extent
thereof, discharge the joint liability; and
(b) a payment by the transferor on
account of the transferor’s 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.
[7]
Bhagwat Shah stated
that he objected to his spouse’s assessment on the basis that the assessment by
which he himself was held personally liable should be declared invalid. He said
that when the latter assessment was appealed before this Court, his accountant
was ill and could not testify regarding the correct amount of net tax owed by
the corporation.
[8]
I have read the judgment
rendered by this Court on November 4, 2008, and that particular point does not
appear to have been raised at the time. Indeed, the only argument dealt with in
the judgment is Mr. Shah’s contention that at the relevant time he was not
the director of the corporation as he had sold all of the corporation’s shares
and accordingly should not have been held liable for the debt of the
corporation.
[9]
Mr. Shah did not appeal
that judgment. Before me, he argued that the net tax for which he was held
liable was wrongly calculated.
[10]
As I explained to Mr.
Shah in court, I have no jurisdiction to review the assessment that was upheld
by this Court on November 4, 2008. The argument that Mr. Shah raised before me
should have been raised before the judge of this Court who heard his appeal.
The next step for Mr. Shah would have been to appeal this Court’s decision to
the Federal Court of Appeal.
[11]
Mr. Shah’s own appeal
is now res judicata and I am bound by the result, namely that Mr. Shah
was jointly and severally liable with the corporation for amounts of net tax
not remitted to the Receiver General for the period from January 1, 2002
to April 30, 2004. During that period, Mr. Shah transferred to his spouse, the appellant
in the present case, for $1, his immoveable property.
[12]
Bharati Shah thus became
jointly and severally liable with her spouse for the amount of net tax owed by
him for the reporting period that includes the time of the transfer or for any
preceding reporting period, including the period from January 1, 2002
to March 11, 2003. The total amount owing, as recalculated above, is
$12,753.81.
[13]
With respect to the
argument that Mr. Shah and his spouse are being taxed twice, it is negated by
subsection 325(3) of the ETA.
[14]
Ms. Danielle Duffy
Desrosiers, a collection agent for the Minister, testified before the Court
that the amount owed has not been paid, but said that when payment is received,
the assessment will be reduced or cancelled accordingly.
Decision
[15]
For these reasons, the
appeal is allowed and the assessment is referred back to the Minister for
reassessment on the basis that the net tax owed by the appellant pursuant to
section 325 of the ETA is to be reduced by $869.49, so that the appellant is jointly
and severally liable with Bhagwat Shah for an amount of $12,753.81 in net tax,
penalties and interest.
Signed at Ottawa, Canada, this 15th
day of April 2010.
"Lucie Lamarre"
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