Citation: 2010 TCC 371
Date: 20100712
Docket: 2008-1412(GST)G
BETWEEN:
FRANCINE MOREAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
McArthur J.
[1] This is an appeal under the Excise Tax Act
(ETA).
[2] The appellant, Francine Moreau, is disputing
the assessment made by the Minister of Revenue of Quebec (the Minister) on
October 25, 2007, under subsection 325(2) of the ETA, in which
the Minister is claiming the amount of $24,552.
[3] The only issue is whether, throughout the
entire relevant period, the appellant was the true owner of the $56,153 that
was used to pay off the balance of her hypothec with CIBC.
[3] This is a question of law and fact.
[4] The appellant is the wife of Arsène Moreau.
She was the sole owner of an immovable located at 5390 Paname Street in Laval, on which there was a hypothec, the initial
amount of which was $75,000, that had been granted by the appellant to CIBC in
1996.
[5] On June 29, 2005, Mr. Moreau
owed the tax authorities $112,753 under section 323 of the ETA.
[6] On June 29, 2005, Mr. Moreau
deposited in a joint account at CIBC a cheque for $72,452 signed by a Mr.
Beauchamp and payable to Mr. Moreau alone. Of that amount, $56,153 was
used to pay off the balance of the hypothec on the immovable belonging to
Ms. Moreau.
[7] The appellant disputes the assessment on the
ground that the amount of $56,153 used to pay off her hypothec was rightfully
hers since it came from the sale of the shares she held in 9011-6203 Québec
inc. to Mr. Beauchamp.
[8] The respondent's position is that, on
June 29, 2005, Mr. Moreau transferred to his spouse, directly or
indirectly, for no consideration, property in the form of $56,153, which was
used to repay the hypothec taken out by the appellant. Accordingly, pursuant to
subsection 325(3) of the ETA, the appellant is jointly and severally
liable with Mr. Moreau for the amounts owed to the Minister by him under the
ETA, to the extent of the value of the transferred property.
Statutory provisions
[9] Section 325 of the ETA reads 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 . . . .
(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.
. . .
(5) Meaning of "property" – In this section, “property” includes money.
Analysis
[10] The appellant has the burden of proving that
she was the owner of the $56,153 that she used to repay CIBC.
[11] The appellant and her husband testified. In
their testimony, they tried to demonstrate that the amount of $56,153
rightfully belonged to Ms. Moreau because it constituted proceeds from the
sale of her shares to Mr. Beauchamp and that, consequently, her husband
had not made a transfer to her. It is odd that Mr. Beauchamp was not
called as witness. In addition, no documentary evidence concerning the sale of the
shares to Mr. Beauchamp was produced by the appellant.
[12] During her examination, the appellant testified
about the way she had acquired shares in 9011‑6203 Québec Inc. First, she
stated that, in 1994, she had purchased shares for $30,000 and that she had
paid for them with advances on her salary paid by Location de personnel Areau
inc. (Exhibit A-1). It is important to note that Mr. Moreau was not only
that company's owner but also its bookkeeper. Then, she purchased more of that
company’s shares from Mr. Sauriol and Ms. Vallée for $6,500 and paid
for them with advances on her salary (Exhibit A-2). It is strange that the
purchase contract for the shares bought in 1994 (Exhibit A-1) was entered into
by the company Location de personnel Areau inc. and
Mr. and Ms. Moreau but was signed only by Mr. and
Ms. Moreau. In addition, the purchase contract for the shares bought from
Mr. Sauriol and Ms. Vallée (Exhibit A‑2) was also entered
into by Location de personnel Areau inc. and Mr. and Ms. Moreau,
but was signed only by Mr. and Ms. Moreau. The drafting of the documents,
the error concerning the parties, and the absence of the sellers' signatures
cast doubt on the authenticity of the documents. Furthermore, the cheques filed
as proof that Ms. Moreau paid for the shares (Exhibit A-4) were issued by
Mr. Moreau himself, including a cheque for $2,500 issued by Promotions R.A.S.
2000 inc. to La Pommerie and dated December 27, 2000, and a cheque
for $1,000 issued by Promotions R.A.S. 2000 inc. to 9011‑6203 Québec inc.
and dated October 7, 2002.
[13] No documents were produced concerning the sale
of her shares to Mr. Beauchamp by Ms. Moreau for a selling price of
$56,200. The appellant and her husband testified that they had met with Mr. Beauchamp
to discuss the sale of the shares. It is unlikely that the parties would have
signed no documents at all. In addition, despite being one of the key
witnesses, Mr. Beauchamp was not called to testify. What concerns me is that
Mr. Beauchamp issued the cheque for the purchase of Ms. Moreau’s shares to
Mr. Moreau only, not Ms. Moreau.
[14] Counsel for the appellant insisted that
Ms. Moreau had indeed bought the shares, that she had paid for them with
salary advances and that the amount disbursed was about $52,000, which
corresponds to the amount that the appellant withdrew from the joint account to
repay the balance on the hypothec. Even if this was so, which I doubt since
there is no evidence, it would not prove that the sale of the shares to Mr. Beauchamp
took place or that the selling price was $56,200.
[15] The appellant’s failure to call a witness who
has direct knowledge of the facts or to file relevant documents in evidence
allows me to make a negative inference with respect to the appellant's
evidence. The facts do not support the appellant's testimony that she sold her
shares nor do they establish the amount that she sold them for. In light of all
of these circumstances, I do not believe the appellant's testimony.
[16] The Court applied this rule in Schafer v.
The Queen,
where the Court wrote the following:
27. There is a well-recognized
rule that the failure of a party or a witness to give evidence, which was in
the power of the party or witness to give and by which the facts might have
been elucidated, justifies a court in drawing the inference that the evidence
of the party or witness would have been unfavourable to the party to whom the
failure was attributed. See: Murray v. Saskatoon, [1952] 2 D.L.R. 499 at 505-506 . . . .
[17] The judgment rendered by the Court in White
v. The Queen
is helpful. In White, the husband and wife had a joint bank account in
which the husband, the tax debtor, deposited a cheque for a little over
$126,000 issued in his name only by the company belonging to him, but the money
was used to pay off a mortgage on property owned by his wife. The Court stated
the following:
10 . . . At the opening of
business on March 5, 1984, the balance in the joint account was only $7,500. On
that one day, Howard White deposited a cheque for $126,000 payable to
himself, and the Appellant immediately issued a cheque for $126,037.74 to pay
off the mortgage on the house which she owned alone . . . Howard White divested
himself of $126,000 and that amount vested in the Appellant (his wife) as the
sole owner of the house at 61 Shallmar Boulevard. Also, the words of
subsection 160(1) are very broad concerning the transfer of property
"either directly or indirectly, by means of a trust or by any other means
whatever". In my opinion, and having regard to the circumstances of the
transaction, there was a transfer of property (i.e. $126,000) from
Howard White to the Appellant in 1984 within the meaning of
subsection 160(1).
[18] The facts of the instant case are different
from those in White, given that the cheque was issued by a third party.
Despite this, the decision in White applies by analogy.
[19] In the case at bar, the cheque was issued by
Mr. Beauchamp to Mr. Moreau alone. The cheque was deposited in a
joint account, and part of that money was used to repay a hypothec granted by
Ms. Moreau on an immovable of which she was the sole owner. Even if I
accept that Ms. Moreau did in fact buy shares in 9011‑6203 Québec
inc. in 1994 and 2000, there is nothing concrete in Mr. Moreau’s or
Ms. Moreau's testimony that would corroborate either the fact that the
transaction took place or the price at which the shares were sold to
Mr. Beauchamp. The appellant was unable to say whether the contract for
the sale of the shares to Mr. Beauchamp existed. I cite the relevant passages
from the hearing transcript.
Pages 37–38 of the transcript
Jean Lepage cross-examines Ms. Moreau.
[Translation]
Q. Do you know why the cheque dated May 18, 2005, was
issued in Arsène Moreau’s name only?
A. The cheque . . . it was because he was the one who
managed things.
Q. The cheque from Mr. Beauchamp?
A. The one who managed things was the bookkeeper. Mr.
Beauchamp's cheque in total.
Q. The cheque from Mr. Beauchamp?
A. Yes, it's because he was the one who managed
things; he was the bookkeeper.
Q. The bookkeeper?
A. And Mr. Beauchamp made it out in his name.
Q. Okay. Do you have a contract of sale between Mr.
Beauchamp and you for the sale of those shares?
A. We have an agreement between me and my husband.
Q. Between you and your husband?
A. Yes, for the sale of the shares.
Q. For the sale of the shares.
A. Yes.
Q. Between you and your husband? And you did say that
it was Mr. Beauchamp who had bought the shares in 9011-6203?
A. Yes. He was the one who bought our shares.
Q. Okay. But the only agreement you have is with your
husband?
A. But there is, we had, we met with Mr. Beauchamp.
Q. You met with Mr. Beauchamp?
A. Yes.
Pages 61–62 of the transcript
Jean Lepage cross-examines Mr. Moreau.
[Translation]
Q. Mr. Moreau, were you the president of Location
Areau?
A. Yes.
Q. So can you explain why the cheque was made out in
your name, the cheque for $72,452.20?
A. Well, Mr. Beauchamp made out the cheque that way,
maybe without thinking we had undivided shares.
Q. And he knew that?
A. Yes.
Q. You had told him?
A. Yes, he knew that the shares were undivided, but
he did not know about the contract between my wife and me, you know, the number
of shares my wife owned and the number I owned.
[20] The lack of any relevant documentary evidence
regarding that transaction as well as the failure to call Mr. Beauchamp as a witness,
especially since he would have known the facts and should have been willing to
help the appellant in her case, convince me to draw a negative inference with
respect to the appellant's evidence. Obviously, such a failure with respect to
the evidence amounts to an implicit admission that Mr. Beauchamp's
testimony would not be favourable to the appellant, or at least would not
support her case. In addition, parties not dealing with each other at arm's
length must pay attention to how they structure their transactions, because not
only the content thereof but also the form will be considered. In Friedberg
v. The Queen,
Justice Linden wrote the following:
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 these 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.
[21] I find that the appellant's testimony was
self-serving and unconvincing. The share purchases were corroborated by means
of documents of doubtful authenticity, while the sale of the shares to Mr.
Beauchamp was not corroborated by any acceptable documentary evidence. In
addition, Mr. Beauchamp was not called as a witness. The appellant has not
discharged her burden of proof.
[22] For these reasons, the appeal must be
dismissed without costs.
Signed at Ottawa, Canada, this 12th day of July 2010.
"C.H. McArthur"
on this 4th day of
January 2011.
Erich Klein,
Revisor
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