[OFFICIAL ENGLISH TRANSLATION]
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Citation: 2004TCC558
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Date: 20040830
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Dockets: 2000-587(IT)G
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2000-590(IT)G
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BETWEEN:
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LOUIS MASSICOTTE
and
LES CONSULTANTS PUB CRÉATION INC.,
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Appellants,
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And
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER
Tardif, J.
[1] On appearing in Court before the
hearing began in Louis Massicotte
(2000-587(IT)G) and Les Consultants Pub
Création Inc. (2000-590(IT)G), the Respondent
brought a motion for leave to amend subparagraph 17(o) and
paragraph 23 of the Reply to the Notice of Appeal. That
Reply had previously been amended as a result of certain
amendments made to the Notice of Appeal by the Appellant.[1] The amendment sought is
as follows:
[TRANSLATION]
17.(o) The corporation Pub Création
[amended to "Gestion Amadéus-Amadéus"]
conferred a benefit on the Appellant, within the meaning of
subsection 246(1) of the Income Tax Act, in the
amount of $240,000.
23. He contends that Pub Création [amended
to "Gestion Amadéus-Amadéus"] conferred a
benefit on the Appellant, within the meaning of
subsection 246(1) of the Income Tax Act, in the
amount of $240,000 during the 1995 taxation year.
[2] The Respondent claims that
Louis Massicotte received a claim the fair market value
("FMV") of which was $0. Since the claim was worth
nothing, and an amount of $240,000 was credited against
Louis Massicotte's debt in consideration of the transfer
of that claim,[2]
the Respondent contends that Louis Massicotte received a
taxable benefit within the meaning of subsection 246(1) of
the Income Tax Act ("ITA").
[3] In other words, having claimed
that Les Consultants Pub Création Inc. had conferred
a benefit on Louis Massicotte, the Respondent now wishes to
allege that Gestion Amadéus-Amadéus is the
person that conferred this benefit on Mr. Massicotte.
Although the Appellants have not objected to these amendments,
they contend that the amendment transfers the burden of proof
onto the Minister of National Revenue (the
"Minister").
[4] In their written submissions, the
Appellants state their objections as follows, at
paragraph 13:
[TRANSLATION]
(a) The Respondent told the Court that
subsection 246(1) was the basis of its assessment at the
time the assessment at issue was made. The Respondent is
therefore relying on new facts in support of the assessment at
issue in seeking an amendment on a point fundamental to the
application of subsection 246(1) of the ITA, that is to say,
the identification of the person that allegedly conferred a
benefit within the meaning of that provision.
(b) Subsection 246(1) of the ITA cannot, in fact or
in law, form the subject of a principal argument;
[5] In paragraph 6 of their
submissions, the Appellants also state the following:
[TRANSLATION]
As a result of the Respondent's late declaration on her
position stated in paragraph 24.1 of her Amended Reply to
Louis Massicotte's Notice of Appeal, the Appellant
maintains that he is entitled to claim the reserve provided for
in subsection 40(1) of the ITA so that only the capital gain
on the amount of $144,281 received in the 1995 taxation year can
be included in computing his income. [...]
[6] On October 30, 2003, the
Respondent filed her written submissions and withdrew the
alternative argument based on paragraph 6(1)(a) of
the ITA, which is stated in paragraphs 18 and 24 of the
Amended Reply to the Notice of Appeal filed on April 29,
2003 (see Respondent's comments, paragraphs 11 and
17). The Respondent also withdrew subparagraph 17(o) of her
Reply. The Respondent's arguments are as follows:
[TRANSLATION]
18. The statutory
provision relied upon at the assessment stage was
subsection 246(1) of the ITA. In the Reply to the Notice of
Appeal, that same statutory provision was still cited. Moreover,
the facts in support of that argument remain unchanged.
19. Only the wording of
the argument based on subsection 246(1) of the ITA, stated
in paragraph 23 of the Reply, is amended to state that the
person that indirectly conferred the benefit on
Mr. Massicotte, within the meaning of subsection 246(1)
of the ITA, was Amadeus, not Pub Création. The
wording of the point at issue in subparagraph 19(b) of the
Reply10 is amended accordingly.
10 Subparagraph 20(c) of the Amended Reply to the
Notice of Appeal of Pub Création is amended in the
same manner.
20. This is not tantamount
to the addition of a new fact to the basis of the assessment. It
is known that, in the facts assumed by the Minister,
Mr. Massicotte transferred a claim with a fair market value
of nil to Pub Création; in consideration thereof, his
"Advance" account was credited by the amount of
$240,000. The legal consequence arising from these facts
is, in the Respondent's view, that a benefit of $240,000 (or
a lesser amount if the fair market value of the claim is greater)
was indirectly conferred on Mr. Massicotte by Amadeus.
21. Should the Court find
that this is a new argument in law, subsection 152(9) of the
Income Tax Act permits it.11 On this point, the
Respondent refers the Court again to Anchor Pointe Energy
Ltd, in which the Federal Court of Appeal states at
paragraph 37:
11 The decision in General Motors Acceptance Corp.
of Canada v. Canada, [1999] 4 C.T.C. 2251, cited in
paragraph 21 of the Appellants' written submissions, was
rendered before subsection 152(9) came into force. We would
emphasize that this provision is applicable after June 17,
1999.
[...]
26. In paragraph 15
of their written submissions, the Appellants claim that
subsection 246(1), like subsection 56(2) of the ITA,
cannot form the subject of a principal argument because these are
anti-avoidance provisions. The Appellants state that these
provisions must be argued only in the
"alternative".
27. The reference to the
term "alternative" is confusing.
28. It is true that
subsections 246(1) and 56(2) are anti-avoidance provisions.
However, under subsection 56(2), the benefit is taxed in the
hands of the person that confers the benefit, whereas, under
subsection 246(1), it is the recipient of the benefit who is
taxed.
29. The intent of
subsection 246(1), by its very terms, is that no amount
shall be taxed in the hands of the person that receives the
benefit, either directly or indirectly, if that amount has
previously been taxed in that person's hands under
Part I of the ITA (more precisely, if the value of the
benefit "is not otherwise included" in computing
that person's income under Part I). In this way, the
legislator prevents double taxation.
30. The wording of
subsection 56(2) of the ITA in fine, according to
which the benefit is taxed in the hands of the person that
confers it to the extent that it would be if it had been made
to that person directly,13 should not be
interpreted as making it possible to double the amount of tax
normally payable (that is to say, both in the hands of the person
that confers the benefit and in those of the person that receives
the benefit). It is in this sense that the passage from the
decision in Smith v. The Queen,14 to which
the Appellants refer, must be read.
13 "A payment or transfer of property made
pursuant to the direction of, or with the concurrence of, a
taxpayer to some other person for the benefit of the taxpayer or
as a benefit that the taxpayer desired to have conferred on the
other person [...] shall be included in computing the
taxpayer's income to the extent that it would be if the
payment or transfer had been made to the taxpayer."
(Emphasis added.)
14 Smith v. The Queen, 93 DTC 5351,
p. 5356.
31. The fact remains that
the same principles apply with respect to the burden of proof, no
matter whether subsection 246(1) or subsection 56(2) or
any other provision of the ITA concerning the taxation of an
amount is in issue: the onus is on the taxpayer to prove that the
facts assumed by the Minister are incorrect. The decisions cited
by the Appellants in their written submissions do not state the
contrary. They do not address the issue.
[7] On November 25, 2003, the
Appellants filed their response to the Respondent's written
submissions. In paragraph 5 of that response, the Appellants
acknowledge the withdrawal of the Respondent's argument based
on paragraph 6(1)(a) of the ITA and state that the
Court must answer a priori the following questions:
[TRANSLATION]
(a) Was the amount of $240,000 provided for in the
separation agreement in the nature of damages that cannot be
included in computing the Appellant's income under the ITA
(windfall gain)?
(b) Is the value of the alleged "benefit" not
moreover included in computing the taxpayer's income under
Part I of the Act?
(c) Should the amount of $240,000 be included in
computing the income of the Appellant Louis Massicotte for
his 1995 taxation year under subsections 39(1) and 40(1) of
the ITA?
(d) Should the Court answer the question in
subparagraph (c) in the affirmative, is the Appellant
Louis Massicotte entitled to seek the reserve provided for
in subsection 40(1) of the ITA so that only the amount of
$144,281 can be subject to tax in the 1995 taxation year?
[8] As an argument, the Appellants
state in paragraph 8 of their response that "the change
in designation of [the person that conferred a benefit] at this
stage of the proceedings constitutes a fundamental amendment of
the facts assumed at the time the assessment was made." In
paragraph 14, the Appellants contend furthermore that the
Respondent's arguments are contradictory: how can the
Respondent still claim that subsection 246(1) of the ITA is
applicable if the $240,000 amount is included as a capital gain
in computing the income of the Appellant Louis Massicotte?
In fact, the Respondent is apparently seeking application of the
capital gains provisions and of subsection 246(1) of the
ITA. This position of the Respondent's is contrary to one of
the conditions for application of subsection 246(1) of the
ITA. Furthermore, the Respondent states in paragraph 7 of
her written submissions that subsection 246(1) of the ITA is
applicable only where the value of the benefit is not otherwise
included in computing the taxpayer's income under Part I
of the Act.
[9] The Appellants claim that the
allegation respecting the benefit conferred on Les Consultants
Pub Création Inc. (2000-590(IT)G) thus
appears moot.
[10] They therefore seek to have
subparagraphs 18(ff) and 20(c) and paragraphs 19 and 25
of the Reply in docket 2000-590(IT)G struck out. Lastly, the
Appellants seek leave to file a second Amended Notice of Appeal
as a result of the changes in the Respondent's position
announced at the hearing of August 28, 2003, and in her
written submissions.
POINTS AT ISSUE
[11] The points at issue are thus as
follows:
(1) Should the amendment of the Reply to the Notice of
Appeal be allowed?
(2) What effect does that amendment have on the burden
of proof?
(3) Does the fact that an assessment is based on
subsection 246(1) of the ITA imply that the burden of
proof is on the Minister?
(4) Should the amendment of the Notice of Appeal be
allowed?
(5) Should subparagraphs 18(ff) and 20(c) as well
as paragraphs 19 and 25 be struck from the Reply to the
Notice of Appeal in Les Consultants Pub Création
Inc. (2000-590(IT)G)?
(1) SHOULD THE AMENDMENT SOUGHT BE ALLOWED?
·
Subsection 152(9) of the ITA
[12] Following the Supreme Court's
decision in Continental Bank Leasing Corp. v. Canada,
[1998] 2 S.C.R. 298, the legislator amended the ITA
to add subsection 152(9). That subsection provides that the
"Minister may advance an alternative argument in support of
an assessment at any time after the normal reassessment
period", except in certain situations.
[13] It is important to emphasize the
confusion that arises from a reading of subsection 152(9) of
the ITA. The marginal note of that subsection reads,
"Alternative basis for assessment", and the
subsection begins by stating that the "Minister may advance
an alternative argument...". However,
paragraphs (a) and (b) refer to
"evidence". The question that thus arises is whether
the term "argument" should be interpreted as an
argument in law or an argument in law and fact.
[14] In March 2003, Associate Chief
Justice Bowman conducted a full analysis of
subsection 152(9) of the ITA in Loewen v.
Canada, [2003] T.C.J. 282, underscoring, at
paragraph 41, the problem in that case, which was the
difference between the marginal note and the wording of the
section: "Here we have a marginal note that speaks of an
alternative basis for assessment and the statute itself that
refers to an alternative argument." The other relevant
passages of that decision are as follows:
52 In what way then did subsection 152(9)
modify the judgment of Bastarache J. or for that matter the
law that has existed since the SS. Euphemia case?
Bastarache J.'s comments were not confined to appellate
courts. They appear to apply to all courts, including the Tax
Court of Canada. Subsection 152(9) permits the raising of
new arguments in support of an assessment. An
argument is something that is advanced in support of a
basis of assessing. A basis in the fundamental principle
underlying an assessment.
53 In Schultz v. The Queen, [1996]
2 C.T.C. 127, which was decided before the Supreme Court of
Canada decision in Continental Bank, Stone J., after
referring to a number of cases stated:
24 I do not understand that the law as developed in
these cases prevented the Minister from pleading the alternative
defence before the Tax Court of Canada. It is true that in
pleading he is subject to certain constraints. For example, he
cannot plead an alternative assumption when to do so would
fundamentally alter the basis on which his assessment was based
as to render it an entirely new assessment. In my view, in the
present cases the Minister has not so changed the basis of the
assessments. What he did was merely to assert a different legal
result flowing from the self-same set of facts by alleging that
those facts show the existence of a joint venture or partnership
if they do not show an agency relationship. Even if it could be
said that the Minister has alleged new "facts" by
adopting the alternative posture, the law as developed allowed
him to do so but imposed upon him the onus of proving those
facts: Pillsbury, supra, at page 302-03
(D.T.C. 5188); Continental Bank Leasing Corp. v.
Canada, [1993] 1 C.T.C. 2306, 93 D.T.C. 298
(T.C.C.), at page 2310 (D.T.C. 302).
54 These observations must of course be read in
light of the subsequent comments by Bastarache J. in
Continental Bank but they are useful in that they draw a
distinction between, on the one hand, so fundamental an
alteration in the basis of the assessment that, if accepted,
would lead to a result that is tantamount to an entirely new
assessment and, on the other hand, an assertion of a different
legal result flowing from the same set of facts by alleging that
those facts lead to an alternative legal relationship.
55 In paragraph 10 of his judgment quoted
above Bastarache J. refers with approval to the Federal
Court Trial Division's judgment in The Queen v.
McLeod, 90 D.T.C. 6281, and the Federal Court of
Appeal's judgment in British Columbia Telephone Company
Co. v. Minister of National Revenue, (1994)
167 N.R. 112.
56 These are examples of the type of change in
position by the Crown that Bastarache J. considered
unacceptable. The question of course remains whether the result
would have been the same if subsection 152(9) had been in
force. I do not think that subsection 152(9), speaking as it
does of an alternative argument, goes so far as to permit the
Crown to in effect "appeal its own assessment" or put
its case "on a new footing".
[...]
61 What then does it all boil down to? Any attempt
to find perfect consistency among all of these cases - and there
are others that have not been cited - would be utopian. Some of
the broad principles that have emerged since Continental
Bank are:
1. The decision in Continental Bank stands
for the proposition that the Crown cannot advance, after the
limitation period has expired, a fundamentally different basis of
assessment that amounts in essence to a different assessment.
This is a fortiori true at the appellate level but it also
applies to trial courts.
2. Subsection 152(9) of the Act does not
overrule Continental Bank. It does not sanction the
substitution of a wholly different basis of assessment. It
permits the Crown to put forward new arguments in support of the
existing basis of assessment.
3. Subsection 152(9) is particularly relevant
at the trial level because it contemplates the possibility of an
Appellant adducing evidence. At an appellate level new evidence
is rarely, if ever, adduced and the rule stated in the SS.
Euphemia has been quite adequate to prevent new arguments
being raised in the appeal courts.
[...]
69 Can the Crown plead a fact that is diametrically
opposed to what the Minister assumed on assessing? I think it can
but it takes on the onus of proving it and it must go further and
specifically repudiate the Minister's assumption. See The
Queen v. Bowens, 96 DTC 6128, discussed in
Holm v. Canada (supra). It is important to
emphasize here the necessity of the Minister's pleading
honestly all assumptions made on assessing, including
those that assist the taxpayer. This was accentuated in the
recent decision of the Federal Court of Appeal in
Grant v. Canada, 2003 F.C.A. 77,
paragraphs 17 and 18. To allege that the parties were not at
arm's length is not, in my view, tantamount to raising a new
assessment or a new basis for the assessment. It is simply an
additional argument supporting the reduction of the cost to
$1,600,000. The reason for the reduction on assessing seems
arguably to have been section 67. Section 69 is another
reason if the Crown can plead and prove facts to support the
application of the section. It does seem a little surprising that
nowhere in the auditor's report are any facts found, assumed
or mentioned that would support the view that the parties are not
at arm's length. Given the thoroughness of
Ms. Jang's review one might wonder if any such facts
exist. This will be however a matter for the trial judge. I might
observe further that the mere bald assertion that the parties are
not at arm's length is an insufficient basis for advancing
the argument. This is, however, not a reason to strike it out.
See Satin Finish Hardwood Flooring (Ontario) Limited v.
The Queen, 96 DTC 1402. However a trial judge may
well refuse to permit the argument to be advanced on the ground
that no facts supporting the conclusion have been pleaded.
[15] Thus, under subsection 152(9) of
the ITA, the Minister may bring new arguments, provided they are
consistent with the basis of the assessment. Should the newly
argued facts contradict those considered at the time of the
initial assessment, Associate Chief Justice Bowman contends
that the burden of proof will then be reversed and that the
Minister will have to discharge that burden in respect of the new
arguments raised.
[16] In the instant case, the Minister
claims that the person that conferred a benefit on
Louis Massicotte was "Gestion
Amadéus-Amadéus", not
"Les Consultants
Pub Création Inc.". This amendment is
consistent with the amendments permitted under
subsection 152(9) of the ITA, since the basis of the
assessment remains unchanged: Louis Massicotte received a
benefit and is thus subject to an assessment based on
subsection 246(1) of the ITA.
[17] By the amendment sought, the Respondent
nevertheless introduces a new fact in addition to those initially
considered. The amendment sought is consistent with the
provisions of subsection 152(9) of the ITA; however, the
onus is on the Respondent to prove this new fact.
[18] By her amendment, the Respondent
substitutes another person for the person that allegedly
conferred a benefit on Louis Massicotte. Although this is a
very significant amendment and change, the amendment sought does
not however alter the amount of the assessment. The value of the
benefit conferred on Louis Massicotte remains $240,000.
[19] In Canderel Ltd. v.
Canada, [1993] F.C.J. No. 777,
Décary J.A. considered the approach that should be
taken to a motion for leave to amend. In paragraphs 10 and
12, he emphasized the importance of keeping the party opposing
the party seeking the amendment in the same position that party
would have been in if the pleading had been correctly drafted at
the outset:
10. As regards injustice to the other party, I
cannot but adopt, as Mahoney J.A. has done in Meyer,
the following statement by Lord Esher, M.R. in
Steward v. North Metropolitan Tramway Company (1886),
16 Q.B.D. 556 (C.A.), at page 558:
[...]
To apply that rule to the present case; if the amendment is
allowed now, will the plaintiff be in the same position as if the
defendants had pleaded correctly in the first instance?
[...]
12. As regards interests of justice, it may be said
that the courts and the parties have a legitimate expectation in
the litigation coming to an end and delays and consequent strain
and anxiety imposed on all concerned by a late amendment raising
a new issue may well be seen as frustrating the course of
justice. The principles were in our view best summarized by
Lord Griffiths, speaking for the majority, in
Ketteman v. Hansel Properties Ltd:
This was not a case in which an application had been made to
amend during the final speeches and the court was not considering
the special nature of a limitation defence. Furthermore, whatever
may have been the rule of conduct a hundred years ago, today it
is not the practice invariably to allow a defence which is wholly
different from that pleaded to be raised by amendment at the end
of the trial even on terms that an adjournment is granted and
that the defendant pays all the costs thrown away. There is a
clear difference between allowing amendments to clarify the
issues in dispute and those that permit a distinct defence to be
raised for the first time.
Whether an amendment should be granted is a matter for the
discretion of the trial judge and he should be guided in the
exercise of the discretion by his assessment of where justice
lies. Many and diverse factors will bear on the exercise of this
discretion. I do not think it possible to enumerate them all or
wise to attempt to do so. But justice cannot always be measured
in terms of money and in my view a judge is entitled to weigh in
the balance the strain the litigation imposes on litigants,
particularly if they are personal litigants rather than business
corporations, the anxieties occasioned by facing new issues, the
raising of false hopes, and the legitimate expectation that the
trial will determine the issues one way or the other.
Furthermore, to allow an amendment before a trial begins is quite
different from allowing it at the end of the trial to give an
apparently unsuccessful defendant an opportunity to renew the
fight on an entirely different defence.
Another factor that a judge must weight in the balance is the
pressure on the courts caused by the great increase in litigation
and the consequent necessity that, in the interests of the whole
community, legal business should be conducted efficiently. We can
no longer afford to show the same indulgence towards the
negligent conduct of litigation as was perhaps possible in a more
leisured age. There will be cases in which justice will be better
served by allowing the consequences of the negligence of the
lawyers to fall on their own heads rather than by allowing an
amendment at a very late stage of the proceedings.
and by Bowman T.C.J. in Continental Bank Leasing
Corporation et al. v. The Queen:
. . . I prefer to put the matter on a broader
basis: whether it is more consonant with the interests of justice
that the withdrawal or amendment be permitted or that it be
denied. The tests mentioned in cases in other courts are of
course helpful but other factors should also be emphasized,
including the timeliness of the motion to amend or withdraw, the
extent to which the proposed amendments would delay the
expeditious trial of the matter, the extent to which a position
taken originally by one party has led another party to follow a
course of action in the litigation which it would be difficult or
impossible to alter and whether the amendments sought will
facilitate the court's consideration of the true substance of
the dispute on its merits. No single factor predominates nor is
its presence or absence necessarily determinative. All must be
assigned their proper weight in the context of the particular
case. Ultimately it boils down to a consideration of simple
fairness, common sense and the interest that the courts have that
justice be done.
[20] A taxpayer should not suffer prejudice
as a result of an amendment to the Reply to the Notice of Appeal.
There is no question of any prejudice in the instant case,
particularly since the Appellants do not object to the
amendment.
[21] Their reservations are essentially
based on the potential impact of the amendment on the burden of
proof, which they would like to see reversed. However, the
Appellants seek leave to amend their Notices of Appeal as a
result of the amendments sought by the Respondent. In that way,
in the event of any prejudice, if the Court allowed the amendment
sought by the Appellants, that leave would have effect of
eliminating any risk of prejudice against them.
[22] Below I will answer the question
whether the Appellants must obtain leave to reamend their Notices
of Appeal. For these reasons, I allow the amendment of the Reply
to the Notice of Appeal.
(2) WHAT EFFECT DOES THIS AMENDMENT HAVE ON
THE BURDEN OF PROOF?
[23] A purely technical amendment has no
effect on the burden of proof, which remains on the taxpayer. For
example, a correction to an ordinary error of syntax cannot
reverse the burden of proof. On the other hand, the effect will
be quite different if the Minister seeks to amend the Reply to
the Notice of Appeal with respect to the facts assumed to be
true.
[24] The facts the Minister considers in
making his assessment are assumed to be true as a result of the
decision in Johnston v. M.N.R., [1948]
S.C.R. 486. As the facts are assumed to be true, the onus is
on the taxpayer to prove that the assessment is incorrect.
[25] However, where those facts are amended
after the assessment, there is no longer any presumption of
truth. The burden is then twofold: the Minister must establish
that the amended facts are true, and the taxpayer must prove that
the assessment is incorrect. In Marina Québec
Inc. v. M.N.R., 92 D.T.C. 1337, [1990]
T.C.J. No. 1124, Judge Tremblay stated at
point 4.03.1:
[...] The burden on the taxpayer is to demolish the
fundamental facts on which the notice of assessment was based at
the time it was issued. The taxpayer accordingly does not have
the burden of destroying facts which were not considered at the
time of the assessment. It is therefore for the Respondent to
prove the alternative facts which he puts forward.
[26] In Holm v. Canada,
[2002] T.C.J. No. 641, at paragraphs 17 ff., Associate
Chief Justice Bowman cites the concerns of a number of
judges of this Court regarding the circumstances of the burden of
proof where the Minister pleads assumptions of facts that were
not known or were disregarded on assessing. Such assumptions made
after the fact should thus not be assumed to be true.
Consequently, any amendment to the assumptions of fact results in
the reversal of the burden of proof in respect of the new
facts.
[27] In the instant case, the Respondent
wishes to amend subparagraph 19(b) and paragraph 23,
which appear respectively under the headings "Points at
Issue" and "Statutory Provisions, Grounds Relied on and
Relief Sought". These are thus not amendments of the facts
assumed to be true. The Respondent, who would in any case have to
bear the burden of proof in respect of that subparagraph and
paragraph prior to the said amendments, will therefore still bear
that burden.
(3) DOES AN ASSESSMENT BASED ON
SUBSECTION 246(1) OF THE ITA MEAN THAT THE BURDEN OF PROOF
IS ON THE MINISTER?
[28] Subsection 246(1) of the ITA is
drafted as follows:
Where at any time a person confers a benefit, either directly
or indirectly, by any means whatever, on a taxpayer, the amount
of the benefit shall, to the extent that it is not otherwise
included in the taxpayer's income or taxable income earned in
Canada under Part I and would be included in the
taxpayer's income if the amount of the benefit were a payment
made directly by the person to the taxpayer and if the taxpayer
were resident in Canada, be:
(a) included in computing the taxpayer's
income or taxable income earned in Canada under Part I for
the taxation year that includes that time; or
(b) where the taxpayer is a non-resident person,
deemed for the purposes of Part XIII to be a payment made at
that time to the taxpayer in respect of property, services or
otherwise, depending on the nature of the benefit.
[29] It may be seen from a reading of
subsection 246(1) of the ITA that this provision sets out
three conditions, that:
(1) a person must confer a benefit, either directly or
indirectly, by any means whatever;
(2) the value of the benefit must not be otherwise
included in the taxpayer's income under Part I of the
Act;
(3) the value of the benefit must be included if it was
a payment that that person made directly to the taxpayer.
[30] Once these conditions have been met,
the taxpayer must include the benefit in computing his income.
Does this provision cause a reversal of the burden of proof such
that it is on the Minister?
[31] The Appellants are of the view that
subsection 246(1) of the ITA is an anti-avoidance provision,
since it appears in Part XVI, entitled "Tax
Avoidance". They argue that these provisions are of
alternative application and that the burden of proof is
consequently on the Respondent.
[32] The Appellants confuse the notions of
"alternative application" and "alternative
argument". An alternative argument reverses the burden of
proof if it is not presumed to be valid. This will be the case if
the argument is at odds with the facts assumed to be true by the
Minister at the time of the initial assessment and is added after
the Reply to the Notice of Appeal.
[33] On the other hand, a taxing provision
of alternative application simply means that that provision
applies where other provisions do not.
[34] Subsection 246(1) of the ITA is a
provision of alternative application since it must be shown that
the amount is not otherwise included (for example, under
subsection 15(1) of the ITA) and that it would be included
if the payment made to the taxpayer was made to him directly.
[35] In the instant case, the amount was
paid to Louis Massicotte. As a result, it is not a benefit
conferred on a shareholder in accordance with
subsection 15(1) of the ITA since Louis Massicotte is
not a shareholder of Pub Création. However,
Mr. Massicotte is a shareholder of Gestion
Amadéus-Amadéus Inc., which holds 100 percent
of the shares of Pub Création.
[36] Consequently, subsection 246(1) of
the ITA will be applied "alternatively". That does not
mean that the Respondent may not assess solely on the basis of
subsection 246(1) of the ITA, since that provision is
sufficient basis for an assessment.
[37] It is enough simply to establish that
the amount is not otherwise included, whereas it would be
included were it not for the fact that the payment was made
indirectly. The way to prove this is to enumerate the facts
constituting the basis of the assessment in the Reply to the
Notice of Appeal. This proof should normally show that the amount
is not included in computing the taxpayer's income, but would
have been if the payment had been made directly.
[38] The Minister's proof will thus be
made since the facts on which the assessment is based are assumed
to be true. The onus, as usual, will thus be on the taxpayer to
establish that the assessment is incorrect. An assessment based
on subsection 246(1) of the ITA does not have the effect of
placing the burden of proof on the Respondent.
(4) SHOULD THE MOTION TO AMEND THE NOTICE OF APPEAL
BE GRANTED?
[39] As the Respondent has expressed her
consent in this matter, I allow the amendment of the Notice of
Appeal sought by the Appellants.
(5) SHOULD SUBPARAGRAPHS 18(ff) AND 20(c) AND
PARAGRAPHS 19 AND 25 BE STRUCK FROM THE REPLY TO THE NOTICE
OF APPEAL IN LES CONSULTANTS PUB CRÉATION INC.
(2000-590(IT)G)?
[40] It goes without saying that
subparagraphs 18(ff) and 20(c) and paragraphs 19 and 25
in Les Consultants Pub Création Inc.
(2000-590(IT)G) should be struck out. As the Respondent now
contends that Gestion Amadéus-Amadéus is the person
that conferred a benefit on Louis Massicotte, not Les
Consultants Pub Création Inc., the latter thus becomes a
third party in respect of the question of the benefit conferred
on Louis Massicotte, and subparagraphs 18(ff) and 20(c)
and paragraphs 19 and 25 become moot.
[41] By way of recapitulation, the
Court:
· allows the
amendment of the Reply to the Notice of Appeal, which is
consistent with subsection 152(9) of the ITA;
· grants the
Appellants leave to amend their Notices of Appeal, given that the
Respondent does not object;
· orders that
subparagraphs 18(ff) and 20(c) and paragraphs 19 and 25
of the Reply to the Notice of Appeal in docket
2000-590(IT)G, which are moot since Les Consultants
Pub Création Inc. is no longer the person that allegedly
conferred a benefit on Louis Massicotte, be struck out;
those subparagraphs and paragraphs shall therefore be struck from
the Reply to the Notice of Appeal in Les Consultants Pub
Création Inc. (2000-590(IT)G);
· finds that
the onus shall be on the Respondent to prove the new fact
introduced by the amendment granted, that is, that Gestion
Amadéus-Amadéus is allegedly the corporation
that conferred a benefit, not Pub Création Inc;
· finds that
the fact that the assessment is based on subsection 246(1)
of the ITA has no effect on the burden of proof, which shall
remain on the Appellants, except however as regards the new fact
introduced by the amendment granted.
Signed at Ottawa, Canada, this 30th day of August 2004.
Tardif J.
Certified true translation
Colette Dupuis-Beaulne
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