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Citation: 2003TCC685
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Date: 20030924
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Docket: 2002-3963(GST)I
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BETWEEN:
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RAYNALD DUFOUR,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
Tardif, J.
[1] This is an appeal from an
assessment of the goods and services tax under Part IX of
the Excise Tax Act (the "Act") dated
July 20, 2001, bearing number 0254147, covering the
period from July 1, 1997, to December 31, 2000.
[2] The appellant built two apartment
buildings of four dwellings each, located at 389 and
391 Rue Montée, Ste-Odile, Rimouski.
[3] Construction of the two buildings
was largely completed when the first tenants took possession of
their dwellings on November 1, 1999.
[4] Construction of the buildings was
directed by the appellant himself. In so doing, the appellant
supplied himself with two multiple-unit residential buildings and
therefore was required to self-assess based on the fair market
value ("FMV") of the said buildings.
[5] The appellant, representing
himself, brought evidence consisting solely of his testimony. He
essentially disputed the value of $225,000 attributed to each of
his two buildings.
[6] In support of his claims, he
referred to the sale of an identical building which he owned.
That sale had been part of a transaction involving three
buildings, each of which was assigned a particular consideration.
In the appellant's view, the identical building was assigned
a value of $160,000 by the parties to the transaction.
[7] More or less five years later, in
August 2003, the appellant said he made an offer to the same
purchaser to buy back the three buildings in question; he said he
had offered the same consideration, increased by approximately
$10,000 by repaying expenses incurred for insulation work to one
of the three buildings. He said his offer had recently been
accepted.
[8] On that basis, the appellant
asserted and contended that the two buildings in issue, which are
identical to the one that was sold and eventually bought back,
had the same FMV. The appellant's claims are moreover
consistent with the notice of appeal prepared by his accountant
and written as follows:
(Excerpt from a letter from Raymond Chabot Grant Thornton)
[TRANSLATION]
Rimouski, October 10, 2002
...
SUBJECT: Notice of
Appeal
Informal Procedure
Raynald Dufour
GST: 131325961
Dear Sir or Madam:
...
Grounds of appeal:
Our client is not satisfied
with the notice of assessment of GST issued by Quebec's
Ministère du Revenu on July 20, 2001. In that
assessment, Quebec's Ministère du Revenu determined
that the fair market value of a rental property was $195,609.75.
We believe that value is incorrect for the following reasons.
The taxpayer, Mr. Dufour,
owned a number of identical rental properties in the same area of
Rimouski .... On March 4, 1998, before the assessment of
July 20, 2001, the taxpayer sold one of the properties
identical to those that are the subject of the assessment for
$162,500....
The property was a rental
property identical to those in issue, located in the same area of
the town of Rimouski, and it was sold to a third party dealing at
arm's length for a distinctly smaller amount than the fair
market value established in the assessment. We contend that that
value is incorrect and that it should be the same amount as the
price of the building sold on March 4, 1998.
We therefore claim that the
notice of assessment issued by Quebec's Ministère du
Revenu on the point discussed above is ill-founded, and our
client asks you to assess him on a market value of $162,500.
...
[signature]
Walter Preston
GST/QST Coordinator
[9] Counsel for the respondent
produced four witnesses, including three appraisers, one of whom,
Mr. Tremblay, was the one who had prepared the appraisal for
and on behalf of the appellant and the financial institution at
the time the construction project involving the two properties
was financed.
[10] The value assigned to the buildings was
established at that time at $225,000 each. The appraisal resulted
in financing of approximately $170,000, 75 percent of the
value assigned at the time, the whole in accordance with
practices and regulations in that area.
[11] At the hearing, Mr. Tremblay in
fact reiterated and confirmed his appraised value of $225,000 as
being the FMV of each of the buildings. The two other appraisers
essentially confirmed Mr. Tremblay's conclusions by their own
analyses.
[12] The work done by the three appraisers
was generally consistent with good practice. The appellant
criticized them for assuming that the two buildings in issue were
income properties in which the owner occupied one of the
dwellings, which could substantially increase the FMV of the two
buildings since the owner-occupant's unit is generally more
spacious and luxurious than the others, which are essentially
intended for rental.
[13] The appellant emphasized that these
were not buildings in which the owner occupied one of the
dwellings. He explained that he had made no distinction in the
quality of the four dwellings in each of his two buildings. In
his view, the apartments were identical in all ways with respect
to the quality of materials used, whereas owner-occupants often
fit up their own dwellings in a much more luxurious manner. He
admitted, however, that one of the four apartments was much
larger than the others.
[14] The other criticism levelled at the
three appraisers was the failure to consider the transaction in
which the appellant had been the purchaser. The selling price in
the transaction in question had been set at $160,000.
[15] In August 2003, the appellant made an
offer to the purchaser to buy back the same building at the same
price of $160,000.
[16] Relying on these facts, the appellant
strongly argued that the two buildings in issue could not be of
greater value since they were identical.
[17] At first glance, these are relevant
arguments. However, I must note that the building sold and
eventually bought back was bought back in a transaction involving
three buildings of very different quality, one in fact being much
older. On the other hand, did the appellant have tax reasons for
assigning a consideration of $160,000? There was no evidence or
explanation on this point, and the accountant did not testify to
answer that question.
[18] He also stated that the dwelling
defined as the one to be occupied by the owner-occupant was
rented for consideration much greater than the other three
dwellings, which were smaller. As a result of these facts, the
appellant's grievances over the three appraisals are much
less relevant.
[19] Furthermore, I cannot disregard
evidence that the appellant himself accepted and subscribed to
the FMV that had been assigned to the buildings at the time of
the financing negotiations and that had then been prepared by Mr.
Tremblay.
[20] In addition, the appellant stated that
he had sold his three buildings in order to obtain the cash he
needed to build the two properties in issue. That remark thus
creates a strong presumption that the cost of construction was
greater than the one he stated since the financing obtained would
have covered all construction costs.
[21] I must also consider that the appellant
himself directed the construction work on the two buildings, thus
saving a significant amount on expenses regarding a realized
turnkey project in which the contractor does everything in
exchange for a significant commission.
[22] Lastly, the appellant stated that his
construction costs had amounted to approximately $170,000 for
each of the buildings, to which must be added the value of the
lots of about $20,000 each, for a total of approximately
$190,000. The FMV of $225,000 attributed to each of the two
buildings includes taxes, as a result of which the before-tax
value is relatively close to the value revealed by the
appellant's statements.
[23] The savings realized by the
appellant's taking charge of the work site, the amount of the
mortgage-backed loan obtained and the relevance of the vast
majority of comparables considered by the appraisers are decisive
factors in support of the FMV of $225,000 assigned to each of the
buildings.
[24] As to the penalties, it was adduced in
evidence that, a few years earlier, the appellant had experienced
a completely similar situation in which he had been assessed in
comparable circumstances. He therefore could not claim to be
beyond reproach at the time the buildings in issue were
constructed. The appellant of course raised sympathetic
arguments, which might have had a significant effect if they had
been supported by substantial evidence.
[25] The appellant's claims were neither
justified nor supported by his deficient and incomplete evidence.
With regard to FMV, it is not enough to express one's
disagreement; it is essential to base one's conclusions on
objective facts.
[26] To win his case, the appellant had to
submit substantial, convincing and coherent evidence, not merely
make unsubstantiated criticism of the three appraisers'
work.
[27] On this point, the appellant did not
discharge his burden of proof, whereas counsel for the respondent
clearly explained and, especially, properly justified the basis
of the assessment.
[28] For these reasons, the appeal is
dismissed.
Signed at Ottawa, Canada, this 24th day of September 2003.
Tardif, J.
Translation certified true
on this 5th day of August 2004.
Sophie Debbané, Revisor
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