Citation: 2008 TCC 420
Date: 20080819
Docket: 2007-2132(GST)I
BETWEEN:
MICHEL BEAUCHAMP,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
[1]
This is an appeal from
an assessment made on April 25, 2006, against the Appellant, under
section 325 of the Excise Tax Act (ETA). Subsection 325(2) of
the ETA enables the Minister of National Revenue
("the Minister") to assess a transferee for an amount payable
under section 325. Subsection 325(1) sets out the circumstances under
which it applies. It is worded 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]
It must therefore be
determined whether, in the instant case, the Appellant is jointly and severally
liable for the debt that Groupe Immobilier D.M.A. Inc. ("D.M.A.") owes
the Minister. It is important to note that the Reply to the Notice of Appeal
was not filed within the time allotted by the Tax Court of Canada Rules
(Informal Procedure) and that the Court dismissed the Respondent's motion to
give the Reply the same effect as though it had been filed within the allotted
time.
[3]
D.M.A. is a property
management corporation that also owns and manages some immovables. At all
relevant times, the Appellant and Ronald Duhaime each held 50% of D.M.A's
voting and participating shares, and both were directors of the corporation.
Under a contract of sale dated October 28, 1999, D.M.A. transferred
the ownership of three immovables located in St-Jean-sur-Richelieu to the
Appellant and Mr. Duhaime. According to the Appellant, Ronald Duhaime simply
came to him with the idea, completed transfer document in hand. It was Mr. Duhaime,
in his capacity as D.M.A.'s president, who had the power to sign the transfer.
The consideration recorded in the transfer document is $1,498,609. A
declaration under section 9 of the Act respecting duties on transfers
of immovables, R.S.Q., c. D‑15.1, states that, according to
the parties to the act of sale, the amount constituting the basis of imposition
for the transfer of the immovables was $1,722,000. The basis of imposition
of the transfer duties is whichever of the amounts contemplated in
section 2 of the Act is greater, and in the instant case, the greater
amount is the immovables' market value at the time of the transfer, that is to
say, $1,722,000.
[4]
The notary's
certificate concerning the contract of sale was signed on
July 4, 2001. In the certificate, the notary refers to an application
for registration of the contract of sale by D.M.A., and attests that the
document accurately reflects the parties' intent. The act of transfer (contract
of sale) was published (registered) on April 26, 2002.
[5]
The Appellant testified
that, prior to the transfer of the immovables in October 1999, there was a
third shareholder, who, along with Mr. Duhaime, looked after D.M.A.'s
legal and financial affairs. This third shareholder left after certain
irregularities, about which the Appellant provided no particulars, were
discovered. The Appellant said that his relationship with Mr. Duhaime was
initially good, but that things worsened with time, especially after the
immovables were transferred. It became increasingly difficult for the Appellant
to obtain information about D.M.A.'s activities — so difficult, in fact, that he began to look for
a way out. He also had trouble getting information about the three transferred
buildings because D.M.A. continued to manage them as though nothing had
changed.
[6]
A few months before the
act of sale was signed, the Appellant learned from Mr. Duhaime that the
sale was being suspended and would take place later. However, no document
was signed and the Appellant did not cast doubt on that assertion.
The Appellant had no contact with D.M.A.'s notary or accountant. The Appellant
continued to carry out his duties, but went to the office less and less often.
According to his testimony, the Appellant felt uncomfortable dealing with
Mr. Duhaime and had trouble finding out what was going on.
He described Mr. Duhaime as manipulative and provided a few examples in
support of this characterization. The Appellant said that the situation is the
cause of his health problems.
[7]
It was only in
April 2006, when he was assessed, that the Appellant found out about the
interval between the date that the immovables were transferred and the date
that they were registered. In addition, the Appellant and Mr. Duhaime sold
the immovables in question on October 7, 2002, to a third party in
consideration of $1,875,000, and, on the same day, the Appellant sold all his
shares in D.M.A. to Mr. Duhaime.
[8]
According to the Notice
of Appeal, the Appellant never exercised control over D.M.A., and, since
October 7, 2002, the Appellant has no longer been a shareholder or director of D.M.A.
D.M.A.'s notary was supposed to amend the registers in order to confirm that the
Appellant had withdrawn as shareholder and director of D.M.A., but these
amendments have still not been made to the register.
[9]
The only person called
as a witness for the Respondent was collection officer Guylaine Turbide. Ms.
Turbide tendered in evidence the declaration concerning D.M.A.'s GST
remittances, and, according to that document, D.M.A. had no net tax to pay on
the date that the immovables were transferred. However, the declaration says
that, at the time that the transfer of the immovables was registered, D.M.A. owed
the tax authorities $13,475.82 in tax, interest and penalties, a total
that was subsequently reduced to $10,089.80 because D.M.A. made payments on
October 31, 2002 and April 27, 2004.
[10]
Ms. Turbide testified
that her records contained a copy of the act, signed on
October 7, 2002, in which the Appellant and Mr. Duhaime transferred
the immovables to a third person. She said that when she found out about the
document, she requested a copy of the act of transfer or contract of sale of
D.M.A.'s immovables to the Appellant and Mr. Duhaime. She said that this enabled
her to confirm, in late March 2006, that the transfer actually took place,
and that it enabled her to assess the Appellant on April 25, 2006.
[11]
As for the points in
issue, the first question is whether the transfer of the immovables in question
was at arm's length. The second question is whether there was a time limit for
the assessment under section 325 of the ETA. The second question is quite
important, because the French wording of subsection 325(2) of the ETA does
not specify when the Minister can assess a transferee, whereas the English
version of the same subsection provides that the Minister may "at any time"
assess a transferee. If I find that there was a limitation period, I must
ascertain its duration as well as its starting point: was it the date of the
transfer, namely October 28, 1999, or the date of its publication, namely
April 26, 2002? This requires me to determine when the transfer took
place for the purposes of section 325 of the ETA. Did the transfer occur
on the date of the act of transfer (contract of sale), namely
October 28, 1999, or the date of its publication,
namely April 26, 2002?
[12]
The constituent
elements of section 325 of the ETA are similar to those of section 160 of
the Income Tax Act ("the Act"). They are measures or
mechanisms that facilitate the recovery of one person's principal tax liability
from another person where property has been transferred, there is a non-arm's
length relationship between the transferor and the transferee, and the value of
the consideration is lower than the property's fair market value. The
consequence of such a transfer is to impoverish the transferor's patrimony and
enrich the transferee's patrimony. Thus, first and foremost, there must be
a tax liability at the time of the transfer, and this is why it is important to
determine when the transfer in issue took place. The tax liability for the
purposes of section 325 is the amount that the transferor owes under the
ETA for the reporting period in which the transfer took place and for the prior
reporting periods of the transferor. The ETA provides for monthly and quarterly
reporting periods.
[13]
However, in the case at
bar, D.M.A. did not have any liability under the ETA for the reporting period
corresponding to the October 28, 1999 transfer date or for its prior reporting
periods. Actually, it was only on the date that the transfer was published,
that is to say, in April 2002, that D.M.A. became liable to pay an amount
under the ETA.
[14]
Article 2941 of the Civil
Code of Québec (C.C.Q.) provides:
2941. Publication of rights allows
them to be set up against third persons, establishes their rank and, where the
law so provides, gives them effect.
Rights produce their effects between the parties even before
publication, unless the law expressly provides otherwise.
[15]
Based on the notary's
certificate that the contract of sale reflects the parties' intent, I am
satisfied that, on October 28, 1999, a consensual contract, having
the effect of transferring D.M.A.'s ownership rights to the Appellant and
Mr. Duhaime, was entered into. Based on a transfer date of
October 28, 1999, and on the fact that the transferor had no
liabilities under the ETA for the reporting periods that included or preceded
the time of the transfer, the first condition that must be met in order for
section 325 to apply has not been met.
[16]
However, the Respondent
submitted that such a contract of sale only produces effects if it is
registered or published as prescribed by law, and that, consequently, the transfer
was only effective on the date of its publication, in April 2002, at which
point the transferor had a liability under the ETA.
[17]
In Les obligations,
5th ed. (Yvon Blais), Justice Jean-Louis Beaudoin of the Quebec Court of Appeal
and Professor Pierre‑Gabriel Jobin of McGill University wrote the
following with respect to the effect of publication on a contract of sale of
immovable property:
[TRANSLATION]
. . . However, where third persons, who are not parties to the
contract, are involved, there is an exception for immovable property. In Quebec
law, immovable property has traditionally been considered the most important
type of wealth, and this is why it has been considered important to protect
non-parties by giving them notice of transfers of the ownership of immovables. Thus,
between the parties to the contract, the ownership of immovables is transferred
by mutual consent, just as it is with movables. However, as against third
parties, contracts that transfer ownership of immovable property are effective
only if they are registered in accordance with the land registration
formalities prescribed by law. Thus, registration is not a requirement for
a transfer of immovable property between the parties; it is only required in
order for such a transfer to be set up against third persons who are in good
faith.
[18]
In light of this
statement, with which I agree, registration or publication is not necessary in
order for ownership of an immovable to be transferred. Publication is
necessary in order for the rights to be set up against third persons, such as
outsiders who have acquired rights in the immovable under a judgment.
In my opinion, section 325 of the ETA confers no right to the Canada
Revenue Agency in the immovables themselves, and the publication of the
transfer is not a condition that must be fulfilled in order for
section 325 of the ETA to apply. Failure to publish the contract of sale
does not prevent the Minister from assessing the transferee. It is the
knowledge of the existence of a transfer that meets the requirements of
section 325 of the ETA and causes an assessment of a transferee to be
valid, regardless of the type of property transferred. In the case at bar, the
Minister was notified of the transfer of the immovables through the publication
of the contract of sale, but the discretion to assess the transferee under
section 325 of the ETA does not give the Minister a right in the immovable
in question and thereby enable the Minister to challenge the transfer.
[19]
In fact, this issue was
raised at the hearing because the French version of subsection 325(2) of
the ETA differs from the English version in that it does not expressly empower the
Minister to assess under that subsection at any time. If, under the French
version, the Minister cannot assess at any time, counsel for the Respondent submits
that the applicable assessment period is four years, because
subsection 325(2) refers to sections 296 to 311 of the ETA. Here are
both the English and French versions of subsection 325(2).
325. (2) 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.
325. (2) Le ministre peut établir une cotisation à
l’égard d’un cessionnaire pour un montant payable en application du présent
article. Dès lors, les articles 296 à 311 s’appliquent, compte
tenu des adaptations de circonstances
[20]
However, counsel for
the Respondent submits that Parliament's intent was to empower the Minister to
assess a transferee at any time, and that this intent can be seen from
corollary legislation, that is to say, the English and French versions of
section 160 of the Act and the English version of subsection 325(2)
of the ETA.
[21]
Since I have found that
D.M.A. had no liability to the Minister at the time of the transfer, and,
therefore, that section 325 does not apply, it is unnecessary for my
reasons to go beyond this. However, based on the principles of interpretation
applicable to tax statutes, which were articulated by the Supreme Court of
Canada in Imperial Oil Ltd. v. Canada, 2006 SCC 46, per
Lebel J., the strict rule of interpretation is no longer applicable, and is
replaced by the modern method of statutory interpretation, in which the wording
of the enactment is interpreted as a whole, having regard to the ordinary
meaning of words as well as the context in which they appear.
[22]
In the case at bar, the
context and purpose of the statute are clear, as is Parliament's intent. The English
version of subsection 325(2) of the ETA specifies that the Minister can
assess "at any time". In addition, its counterpart, section 160
of the Act, clearly shows that Parliament had no intention of subjecting
assessments to a limitation period, because the English version contains the words
"at any time" and the French version contains the words "à
tout moment".
[23]
Justice Rothstein, then
a justice of the Federal Court of Appeal, discussed Parliament's intent in
enacting subsection 160(1) of the Act in Addison & Leyen Ltd. v.
Canada, [2006] F.C.J. No. 489 (QL), even though he
was dissenting on the issue of whether the Minister's delay in issuing a notice
of assessment under section 160 of the Act is reviewable by the Federal
Court of Appeal. He wrote as follows at paragraph 92 of his decision:
92. While in the sense identified
by the majority, subsection 160(1) may be considered a harsh collection remedy,
it is also narrowly targeted. It only affects transfers of property to persons
in specified relationships or capacities and only when the transfer is for less
than fair market value. Having regard to the application of subsection 160(1)
in specific and limited circumstances, Parliament's intent is not obscure.
Parliament intended that the Minister be able to recover amounts transferred in
these limited circumstances for the purpose of satisfying the tax liability of
the primary taxpayer transferor. The circumstances of such transactions makes
it clear that Parliament intended that there be no applicable limitation period
and no other condition on when the Minister might assess.
[24]
Reading the words of
the statute in their entire context and in their grammatical and ordinary sense
harmoniously with the scheme of the statute, I am of the opinion that one
cannot conclude that the French version prevails. Rather, preference must
be given to the persuasive arguments in support of the position that the English
version reflects Parliament's true intent. Consequently, there is no limitation
period for an assessment under subsection 325(2).
[25]
Neither the issue of
non-arm's length relationships at the time of the transfer, nor the issue of
the fair market value of the immovables, need be addressed. The appeal is
allowed, and the assessment against the Appellant is vacated.
Signed at Edmundston, New Brunswick, this 19th day of
August 2008.
"François Angers"
Translation certified true
on this 14th day of October 2008.
Brian McCordick, Translator
Email this Content