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Citation: 2004TCC431
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Date: 20040622
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Docket: 2002-4945(IT)I
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BETWEEN:
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THE ESTATE OF THE LATE
CLAUDE MÉNARD,
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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]
REASONS FOR JUDGMENT
Angers J.
[1] These are appeals by the estate of
the late Claude Ménard from the assessments for the
1990, 1991, 1992 and 1993 taxation years. The Appellant is
officially represented by Jean-Denis Ménard and
Bertrand Ménard, the two sons of the late
Claude Ménard. For these years, the late
Claude Ménard claimed tax credits for charitable
donations that the Minister of National Revenue (the
"Minister") disallowed. The amount of the donations for
the purpose of calculating tax credits amounts to $9,000, $9,500,
$10,100 and $10,000 for each year respectively. In addition, the
Minister imposed the penalty set out at subsection 163(2) of
the Income Tax Act (the "Act") for each
of the taxation years.
[2]
Jean-Denis Ménard testified for the Appellant.
According to the witness, the late Claude Ménard was,
at the time, under the impression that he was making actual
donations for each of the years at issue. He purchased paintings
from an individual and they were given to a charitable
organization. He obtained a receipt, an appraisal
certificate and a list of the paintings. He acknowledged
that the late Claude Ménard never saw the paintings,
never had them in his possession and did not choose the
charitable organizations that were to receive the donations.
According to the witness, the late Claude Ménard
obtained information from Revenue Canada at the time and from the
individual who prepared his income tax returns. According to the
information collected, this was an acceptable practice.
[3] It was not until 1996 that the
late Claude Ménard allegedly became aware that the
paintings in question were worthless.
Jean-Denis Ménard also added that the late
Claude Ménard had no means of knowing that the
donated goods never reached the recipient in certain cases. He
apparently received copies of the records and believed that the
charitable organizations in question had in fact, received the
donation. In addition, the fact that the individual who took care
of everything had an art gallery prompted him to make these
donations. It must be understood here that this individual took
care of choosing the paintings, determining the purchase price,
appraising the paintings, choosing the charitable organization
and obtaining a receipt for tax purposes.
[4] Claude Gauthier was the
Revenue Canada investigator during the audit. The Appellant's
name appeared on a list of taxpayers suspected of participating
in a scheme in which the fair market value of goods given as
donations to charitable organizations was overestimated. As a
matter of fact, he audited the auction sale of certain goods
given by taxpayers to the Fondation Chemin du Roy and
Entraide-Cancer Jeunesse Estrie. In every case, it appeared
that the goods given to these organizations were resold at
auction and that the price obtained was on average from
approximately 17% to 10.7% respectively of the amount indicated
on the tax receipts. Further, some paintings referred to in this
appeal were traced and the prices obtained will be dealt with
later in my Reasons.
[5] Consequently, Mr. Gauthier
presented a summary of the correspondence he sent to the late
Claude Ménard during his audit. Since the Appellant
admitted these facts, I am going to reproduce
paragraphs 4 (m) to 4 (r) of the Reply to the
Notice of Appeal, which explain the steps undertaken by
Mr. Gauthier with regard to Mr. Ménard.
[TRANSLATION]
(m) On
December 15, 1995, the Revenue Canada Audit Division
asked Claude Ménard to submit proof of purchase and
payment for the goods referred to in the deductions of $9,000,
$9,500, $10,100 and $10,000 as charitable donations made for the
1990, 1991, 1992 and 1993 taxation years, respectively, and
appraisal certificates and proof of possession of these
goods;
(n) On
January 23, 1996, the Audit Division had not received a
reply to its letter dated December 15, 1995, and sent a
letter to Claude Ménard, with a draft assessment in
which it was intended to disallow the claims made for charitable
donations for the 1990, 1991, 1992 and 1993 taxation years; the
letter also informed Mr. Ménard of the possible
application, for each of these tax years, of the penalty set out
in subsection 163(2) of the Act; however,
Mr. Ménard was given 15 days to submit all
relevant records and explanations;
(o) On
January 31, 1996, Claude Ménard's wife
indicated by telephone to the auditor that the
December 15, 1995, letter had probably been lost;
(p) At her request,
the auditor sent a new letter to Claude Ménard on
January 31, 1996, requesting proof of purchase and
payment, appraisal certificates and proof of possession;
(q) On
March 8, 1996, the auditor, who had still not received
any reply, sent Claude Ménard a new draft assessment
disallowing the claims made as credit for charitable donations
for the 1990, 1991, 1992 and 1993 taxation years and
imposing a penalty; however, another 15-day period was
given to Claude Ménard to submit all relevant records
and explanations;
(r) The audit was
completed on March 28, 1996, without any word from
Claude Ménard;
[6] Once the audit was completed, the
late Claude Ménard sent Revenue Canada a series of
records for each of the years at issue, which I will analyze
further on.
[7] The statutory provisions relevant
to this case on proof of gift and content requirements for
receipts are found at subsections 118.1(1) and 118.1(2) of
the Act and at subsection 3501(1) of the Income
Tax Regulations (the "Regulations"):
118.1(1) Definitions - In this section,
. . .
"total charitable gifts" of an individual for
a taxation year means the total of all amounts each of which is
the fair market value of a gift (other than a gift the fair
market value of which is included in the total Crown gifts, the
total cultural gifts or the total ecological gifts of the
individual for the year) made by the individual in the year or in
any of the 5 immediately preceding taxation years (other than in
a year for which a deduction under subsection 110(2) was
claimed in computing the individual's taxable income) to
(a) a
registered charity;
. . .
118.1(2) Proof of gift. A gift shall not be included in
the total charitable gifts, total Crown gifts, total cultural
gifts or total ecological gifts of an individual unless the
making of the gift is proven by filing with the Minister, a
receipt therefore that contains prescribed information.
CONTENTS OF RECEIPTS
3501(1) Every official receipt issued by a registered
organization shall contain a statement that it is an official
receipt for income tax purposes and shall show clearly in such a
manner that it cannot readily be altered,
(a) the name and address in Canada of the organization
as recorded with the Minister;
(b) the registration number assigned by the Minister to
the organization;
(c) the serial number of the receipt;
(d) the place or locality where the receipt was
issued;
(e) where the donation is a cash donation, the day on
which or the year during which the donation was received;
(e.1) where the donation is a gift of property other
than cash
(i) the day on which the donation was received,
(ii) a brief description of the property, and
(iii) the name and address of the appraiser of the property if
an appraisal is done;
(f) the day on which the receipt was issued where that
day differs from the day referred to in paragraph (e) or
(e.1);
(g) the name and address of the donor including, in the
case of an individual, his first name and initial;
(h) the amount that is
(i) the amount of a cash donation, or
(ii) where the donation is a gift of property other than cash,
the amount that is the fair market value of the property at the
time that the gift was made; and
(i) the signature, as provided in subsection (2) or
(3), of a responsible individual who has been authorized by the
organization to acknowledge donations.
1990
[8] This is a statute-barred
taxation year. In his income tax return for this year, the late
Claude Ménard claimed the amount of $9,000 as a
charitable donation pertaining to a receipt from the Fondation du
Chemin du Roy Inc. dated February 26, 1991. The receipt
mentions that it is for paintings, with no indication of how many
or their description and does not specify the name of the
appraiser. The donation was allegedly received on
October 29, 1990, according to a letter bearing this
date filed as evidence.
[9] According to the information
obtained during Revenue Canada's investigation, the goods
given as donations to this organization were resold at auction
and the price obtained was on average approximately 17% of the
amount indicated on the tax receipts.
[10] In April 1996, once the audit was
completed, the Appellant sent certificates of authenticity and
expertise, undated and unsigned, on letterhead from Galerie
d'art J. Richard - 126233 Canada Inc., indicating a
total worth of $9,000 regarding seven paintings that were well
described but without details with regard to the basis of the
appraisal.
[11] The Appellant did not provide purchase
invoices. It filed a cheque payable to Pierre Laberge dated
April 15, 1991, in the amount of $3,600. This cheque
contained no detail about its purpose and its date is later than
the date the donation was received,
i.e. October 29, 1990.
1991
[12] This is also a statute-barred
taxation year. In his income tax return for this year,
Claude Ménard claimed $9,500 as a charitable donation
pertaining to a receipt from the organization
Entraide-Cancer Jeunesse Estrie dated
November 10, 1991. The receipt in question does not
indicate if it is a financial donation or gift in kind. If it is
a gift in kind, the name and address of an appraiser are not
indicated. Moreover, the Appellant did not attach Schedule 3
to his income tax return in order to declare the disposition of
designated personal-use property. According to a letter
signed by the Appellant, the donation was allegedly made on
October 18, 1991.
[13] According to information obtained from
Entraide-Cancer Jeunesse Estrie during the investigation,
the goods delivered to this organization were resold at auction
and the average price obtained was 10.7% of the amount indicated
on the receipts issued for tax purposes. Three of the four
paintings apparently referred to in the receipt of
November 10, 1991, were resold for a fraction of the
value mentioned on the appraisal certificate from the Galerie
d'art Annie-Claude enr., which had issued the receipt.
These are one painting by Lise Gervais, appraised at $7,250
and sold for $350, a painting by J. L. Simard,
appraised at $550 and sold for $200, and a painting by
J. P. Lafrance, appraised at $250 and sold for
$100.
[14] In April 1996, the late
Claude Ménard delivered an appraisal certificate
dated October 18, 1991, to Revenue Canada, signed by
Émile Amireault of the Galerie d'art
Annie-Claude enr., establishing a total value of $9,500 for
four paintings. The four paintings are described therein and
three match the paintings referred to in the previous paragraph.
The market value of each painting is established but the basis
for the assessment was not specified.
[15] The Appellant produced an invoice for
appraisal fees of $304.95 addressed to it. This invoice is not
dated and it is impossible to know where it is from, except that
it refers to a value of $9,500. A cheque from the Appellant
payable to Émile Amireault, dated
March 5, 1992, allegedly represented the purchase price
of the paintings at issue for this year. No purchase invoice was
filed in evidence and this cheque postdates the date of the
donation.
1992
[16] In his income tax return for the 1992
taxation year, Claude Ménard claimed the amount of
$10,100 as a charitable donation relating to a receipt from the
Fondation du Mont Notre-Dame de Sherbrooke Inc. dated
December 30, 1992. The receipt attached to the income
tax return reads [TRANSLATION] "work of art" without
specifying more; it does not indicate the name and address of an
appraiser. No Schedule 3 was attached to the income tax
return to declare the deposition of designated personal-use
goods. According to a letter provided by
Claude Ménard after the Revenue Canada audit, the
donation was allegedly made on December 4, 1992.
[17] According to information obtained
during the investigation, this would be a donation of seven
paintings that were receipted on December 30, 1992.
These paintings were resold for much less than the market
value declared by Claude Ménard after the audit. I am
reproducing below the list of the paintings, their appraised
value and their price when sold at auction:
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PAINTING
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APPRAISED VALUE
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SELLING PRICE
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L.P. Vigeant
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$900
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$140
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A. Prevost
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$950
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$220
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A.V. Breau
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$2,875
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$600
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M. Olechovsky
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$1,025
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$80
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E. Desprez
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$1,500
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$275
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E. Desprez
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$1,500
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$225
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L. Feito
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$1,350
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$350
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[18] The information sent to Revenue Canada
after April 1996 contains an appraisal certificate dated
December 4, 1992, signed by Émile Amireault
of the Galerie d'art Annie-Claude enr. Each of the
seven paintings described above is mentioned therein;
however, the certificate does not set out the basis of the market
value. No purchase invoice for these paintings was submitted.
There is a cheque for $3,166.16 written by
Claude Ménard payable to Émile Amireault
dated March 8, 1993. This postdates the receipt from
the Fondation du Mont Notre-Dame de Sherbrooke,
i.e. December 30, 1992.
1993
[19] Claude Ménard claimed an
amount of $10,000 for this taxation year related to a receipt
dated December 28, 1993, from the organization Ensemble
Musica Nova for this amount. The receipt does not mention that
this is a gift in kind. Instead, it indicates the amount of
$10,000. An invoice for appraisal fees was, however, submitted
but does not describe the goods appraised nor the name and
address of the appraiser. Claude Ménard attached no
Schedule 3 to his income tax return to declare the
disposition of designated goods.
[20] In the documents provided by
Claude Ménard in April 1996, there is an
appraisal certificate dated December 19, 1993, signed
by Émile Amireault of the Galerie d'art
Annie-Claude enr. This certificate refers to six
paintings and their total value is $10,000. The certificate gives
no basis for the appraisal. No purchase invoice was filed.
There is a photocopy of a cheque dated March 22, 1994,
signed by the Appellant and payable to
d'Émile Amireault in the amount of $2,166.16.
This date is clearly later than the receipt from the Ensemble
Musica Nova, i.e. December 28, 1993.
[21] The Appellant's agent acknowledged
that for the last three taxation years, where the Galerie
d'art Annie-Claude enr. is at issue,
Émile Amireault is not an independent expert. He
acted simultaneously as seller, appraiser and intermediary for
the purposes of obtaining tax receipts. He did not testify at the
hearing. In fact, the Appellant's agents acknowledged at the
hearing that there was a scheme but they declared that
Claude Ménard, during the four years at issue,
believed in the legitimacy of this procedure because of the steps
he had taken to reassure himself of it.
[22] These factual situations raise a number
of questions. First of all, we must determine whether the 1990
and 1991 taxation years are statute-barred. If not, it must then
be determined whether, during the 1990 to 1993 taxation years,
there really were donations, whether the tax receipts at issue
represent the fair market value of the donated property and
whether the receipts are in compliance with sections 3500
and 3501 of the Regulations.
[23] The onus is on the Respondent to
justify the Notice of Reassessment for 1990 and 1991. The
Respondent must establish, on the balance of probabilities, that
the Appellant has made any misrepresentation that is attributable
to neglect, carelessness or wilful default or has committed any
fraud in filing his income tax returns or in supplying any
information under the terms of
subparagraph 152(4)(a)(ii) of the Act.
[24] In Venne v. Canada (Minister of
National Revenue) (F.C.T.D.),
[1984] F.C.J. No. 314 (Q.L.)
84 DTC 6247, Justice Strayer described the burden
of proof as follows:
I am satisfied that it is sufficient for the Minister, in
order to invoke the power under
sub-paragraph 152(4)(a)(i) of the Act to show that,
with respect to any one or more aspects of his income tax return
for a given year, a taxpayer has been negligent. Such
negligence is established if it is shown that the taxpayer has
not exercised reasonable care. This is surely what the words
"misrepresentation that is attributable to neglects"
must mean, particularly when combined with other grounds such as
"carelessness" or "wilful default" which
refer to a higher degree of negligence or to intentional
misconduct. Unless these words are superfluous in the section,
which I am not able to assume, the term "neglect"
involves a lesser standard of deficiency akin to that used in
other fields of law such as the law of
tort. . . .
[25] The Appellant's Agents informed the
Court of the steps undertaken by Claude Ménard with
Revenue Canada in order to have reassure himself of the
legitimacy of his actions. According to his estate's Agents,
Claude Ménard was convinced that all was in order.
The evidence, however, does not demonstrate the exact nature of
the questions asked or the facts supporting the answers that were
given. The case at bar is nonetheless, at the very least, an
unusual factual situation. The individual from whom the paintings
were purchased for donation purposes is the same individual who
does the appraisal and finds the charity to give them to. It is
also strange that a taxpayer should make a gift of artwork before
even knowing how much these paintings would cost him. All the
cheques used to purchase works of art bear a date later than that
of the receipt issued by the charitable organization. The letter
signed by Claude Ménard that accompanies the gift
describes neither the number nor nature of the works. It is clear
that Claude Ménard did not know what he was buying
and did not know what it would cost him until the following
spring. One thing is certain, at the time of payment and before
the deadline for filing his income tax return, the Appellant knew
the real cost of his purchase in relation to the amount of the
receipt obtained. This substantial deviation, in my opinion,
should be sufficient to alert a reasonable person to the fact
that this was too good a deal. In 1990, the Appellant paid $3,600
for a $9,000 receipt and in 1991, he paid $3,037.05 for a $9,500
receipt.
[26] The Appellant's Agents stated that
it is not illegal to purchase goods at reduced prices for
consumer use. However, when the same merchant who sells his
merchandise at a reduced price simultaneously appraises it at
three times the amount paid, looks after getting a receipt for
tax purposes for the buyer for the value of his appraisal and
takes care of selling it, this seems to me to be a far cry from
the context of the discount retail sale of consumer goods. This
type of situation should raise doubts in a reasonable and even
minimally informed individual regarding the legitimacy and
reasonableness of the scenario. In my opinion,
Claude Ménard did not show due diligence in the
circumstances. The Minister was therefore justified in
assessing the two years at issue.
[27] Was there, in the case at bar, a gift
in the legal sense? This question was dealt with in a number of
this Court's decisions in factual situations that are
substantially similar to those in the case at bar.
Justice Lamarre Proulx summarized this question in
Décarie v. Canada,
[1998] T.C.J. No. 412 (Q.L.), at
paragraphs 20, 21 and 22 of her Reasons and I quote:
20 In The Queen
v. Friedberg, supra, Linden J.A. speaking for the
Court explained that the Act does not define what a gift is and
that the general principles of law with regard to gifts must be
applied. I quote, at p. 2 of the English version:
The Income Tax Act does not define the word
"gift", so that the general principles of law with
regard to gifts are utilized by the Courts in these cases. As
Mr. Justice Stone explained in The Queen v.
McBurney, 85 D.T.C. 5433, at p. 5435:
The word gift is not defined in the statue. I can find nothing
in the context to suggest that it is used in a technical rather
than its ordinary sense.
Thus, a gift is a voluntary transfer of property owned by a
donor to a donee, in return for which no benefit or consideration
flows to the donor (see Heald, J. in The Queen v. Zandstra
[74 D.T.C. 6416] [1974] 2 F.C. 254, at
p. 261). The tax advantage which is received from gifts
is not normally considered a "benefit" within this
definition, for to do so would render the charitable donations
deductions unavailable to many donors.
21 In
Friedberg, supra, there was no evidence of a prior
transfer of ownership to the alleged donor for one of the two
gifts. The Court concluded that one cannot give what one does not
have, and I quote, at p. 6 of the English version:
The only legal conclusion that one can draw from the documents
concerning the Abemayor Collection is that the taxpayer made a
gift of the money to the ROM, with which it acquired the
collection. He did not hold the title to the textiles, nor did he
ever acquire the title, and one cannot give what one does not
have.
22 In Quebec as
elsewhere, ownership of the property is an essential condition
for a gift. A person cannot give what he or she does not own.
Article 1806 of the Civil Code reads as follows:
1806. Gift is a contract by which a person, the
donor, transfers ownership of property by gratuitous title to
another person, the donee; a dismemberment of the right of
ownership, or any other right held by the person, may also be
transferred by gift.
Gifts may be inter vivos or mortis causa.
[28] The Federal Court of Appeal also dealt
with this matter in Chabot v. Canada,
2001 F.C.A. 383, in which it was a matter of
determining whether the taxpayer was actually the owner of the
donated property. Just as in this case, it was a matter of
determining when the buyer of unspecified paintings became their
owner:
6
Article 1026 of the Civil Code of Lower Canada and
article 1453 of the Civil Code of Québec
require, in order for the purchaser of indeterminate paintings to
acquire ownership, that the paintings have been determined and
the acquirer has been notified that the property is certain and
determinate. (The Civil Code of Lower Canada governs the
donations made in 1992 and 1993 while the Civil Code of
Québec governs the one made in 1994. With respect
to the principles involved in this case, there are no material
differences between the two Codes.)
7 As
Pourcelet observes in La Vente, 5th edition, Les
Éditions Thémis, 1987:
[TRANSLATION]
The object of the obligation in the sale contract must be
certain, determinate or determinable. There must be no
misunderstanding with regard to the concrete nature of the object
of the
sale...
(page 7)
The sale contract is formed once the parties reach an
agreement on the thing and the price.
(page 13)
Ownership may apply only to a certain and determinate thing. A
thing is said to be certain and determinate when it is
identified. This is the Roman species, that is, the set of
traits that characterize an object and make it recognizable.
Ownership is transferred only at the point when the thing is
determinate, that is, when it becomes a certain object.
(page 87)
In Les Obligations, 4th edition, Éditions Yvon
Blais Inc., 1993, Baudouin [sic] states:
[TRANSLATION]
Since the right of ownership is transferred by mere consent,
the intention of the parties must have been directed towards a
specific object. The material object of the obligation to deliver
must therefore have been certain and determinate, that is,
specifically identified.
(page 308 no. 551)
[29] In the case at bar, the Civil Code
of Lower Canada is the relevant code. According to the
evidence put forward, Claude Ménard fully trusted
Émile Amireault and Pierre Laberge to choose the
paintings, appraise them and choose a recipient. During the four
taxation years at issue, none of the paintings was in
Claude Ménard's possession. At the time of
purchase, the Appellant did not know what he was buying nor the
price he was going to pay. It was not until the following spring
that he would make out a cheque to effect payment.
The cheque does not explain the reason for payment and no
purchase invoices were filed in evidence. The letters filed in
evidence, which allegedly accompanied the gifts, do not specify
the paintings. They refer to some works by certain artists or
some works of art by various artists. The very simple reason for
this type of letter is that the Appellant did not, as a matter of
fact, know which work of art was involved because everything was
left to the discretion of the owners of the involved art
galleries. In my opinion, Claude Ménard never
acquired ownership of the paintings and thus there were no
donations for all the years at issue.
[30] Because I have arrived at this
conclusion, I do not need to look into the market value of the
paintings. I will, however, comment that the evidence presented
in this case did not meet the Appellant's burden of proof. An
appraisal, first of all, must be done by an independent appraiser
and be based on objective criteria. To that effect, I quote
Justice Dussault of this Court in Gagnon v. Canada,
[1991] T.C.J. No. 655 (Q.L.):
20 In establishing
the fair market value of an item, the courts have several times
noted that an expert must not only demonstrate competence and
impartiality or professional independence, but must provide an
opinion based on objective criteria. Reference may be made
in this regard inter alia to the decision of Judge
Brulé of this Court in Conn v. M.N.R.,
86 D.T.C. 1669. The decisions in Auciello v.
M.N.R., 88 DTC 1739, and Friedberg v. The
Queen, 89 DTC 5115, also recognize these
requirements, which I would characterize as minimal.
21 The definition of what
is meant by fair market value has also been well established by
the courts since the judgment of McIntyre J. of the British
Columbia Supreme Court in Re Mann Estate, [1972]
5 W.W.R. 23, a judgment affirmed by the Court of Appeal
of that province, [1973] C.T.C. 561, and by the Supreme
Court of Canada, [1974] C.T.C. 222. In the recent
judgment of the Federal Court Trial Division in Friedberg
(supra), reference is made to the definition given by
Mr. Richard Wise in an article on the point which
essentially restates the tests indicated by the courts. In the
judgment, the Court refers to this definition as follows, at
p. 5120:
The highest price, expressed in terms of money or money's
worth, obtainable in an open and unrestricted market between
informed and prudent parties, acting at arm's length, neither
party being under compulsion to transact.
[31] This is not the case here, since the
appraisals were prepared by the owner-seller of the
paintings, who chose the paintings and the recipient.
[32] I must also stress, despite my
conclusion regarding the validity of the gift, that the receipts
do not comply with the requirements in
paragraphs e.(l) and (h) in
subsection 3501 (1) of the Regulations.
[33] Was the Minister justified, in the case
at bar, in imposing a penalty for each of the taxation years at
issue? Subsection 163(2) of the Act imposes a penalty
on "Every person who, knowingly, or under circumstances
amounting to gross negligence, has made or has participated in,
assented to or acquiesced in making of, a false statement or
omission in a return, form, certificate, statement or
answer" . . .
[34] In Chabot, supra,
Justice Décary summarized the relevant case law with
regard to the application of subsection 163(2):
16 That paragraph is
a penal provision, which must be narrowly construed "so that
if there is a reasonable interpretation which will avoid the
penalty in a particular case that construction should be
adopted" (Strayer J. as he then was, Venne v. The
Queen, 84 DTC 6247, at page 6256). And as
Strayer J. recalls later on, the onus, under
subsection 163(3), is on the Minister to prove that the
penalty should be applied.
17 That paragraph
deals with blameworthy conduct on the part of a taxpayer in his
or her formal relationship with Revenue Canada. Its purpose is
not to punish the taxpayer simply because he or she sought, in
good faith, to benefit from a tax advantage that was subsequently
disallowed. Its purpose is not to punish the taxpayer because of
a substantive disagreement regarding the nature of a transaction,
all the relevant facts of which have been brought to the
Minister's attention. As Cullen J. stated in Hudson
Bay Mining and Smelting Co. v. Canada, [1986]
1 C.T.C. 484, his comments having been specifically
approved by the Federal Court of Appeal when it dismissed the
appeal from that decision at [1989] 2 C.T.C. 309
(F.C.A.):
Whether a gift or partial consideration, is really a legal
characterization to be determined by the Court. As counsel
for the plaintiff put it, "The Ministry would have a
distinct advantage if he could levy a penalty every time it
disagrees with a taxpayer." Each case must be looked at
carefully to determine if there is an omission or a false
statement upon which to base a penalty. That is not the case
here.
Something more than mere disagreement must be determined: a
false statement by a taxpayer, as an example, or gross
negligence, or a finding by the tax department that an error was
made deliberately. I do not believe there is the criminal
onus of proving beyond a reasonable doubt,
however. One cannot fault the plaintiff for putting
the best possible light on the situation, including the suggested
two deals, as long as the main feature is not hidden. I
cannot find gross negligence here, or any attempt to bury
information from the prying look of the Ministry. Even on a
"balance of probabilities" burden, the defendant's
case fails.
(page 493)
18 Also
relevant are the comments made by Marceau and Strayer JJ.
(as they then were), in Cloutier v. The Queen,
78 D.T.C. 6485, at page 6487, and in Venne
(supra, paragraph 16) at page 6256:
The question before the Court is whether the circumstances in
which the omission occurred are such that gross negligence may be
attributed to the taxpayer: "gross negligence" being
taken to mean a relatively serious act of negligence, which is
difficult to explain and socially inadmissible. The factual
circumstances in themselves do not present a problem, they are
all established; it is the way in which they should be regarded
which is at issue, namely, what can be deduced from them
concerning the acts of plaintiff which are at issue. This is not
a question of fact in the sense of a question regarding an
earlier factual circumstance or an event which took place at an
earlier point in time, but a question of legal appraisal and
judgment on the actions, which is not subject to proof but
depends on the personal conviction of the individual making the
decision.
(Marceau J.)
"Gross negligence" must be taken to involve greater
neglect than simply a failure to use reasonable care. It must
involve a high degree of negligence tantamount to intentional
acting, an indifference as to whether the law is complied with or
not.
(Strayer J.)
19 More recently,
this Court applied subsection 163(2) to a case that it
characterized as "wilful blindness." Despite numerous
warnings served by the Department, the taxpayer had persisted in
claiming tax credits for charitable gifts as part of a tax fraud
involving an art dealer who had been found guilty of criminal
offences (The Queen v. Duguay, 2000 D.T.C.
6620 (F.C.A.) and The Queen v.
Côté, 2000 D.T.C. 6615 (F.C.A.)).
[35] In the case at bar, the Minister takes
the appellant to task for not having provided concrete evidence
of possession of the goods that were donated. He is criticized
for not knowing what he was buying, for not having personally
chosen the charitable organization and for not having made
payments until the year following that in which the gift was
made. He is also taken to task for his lack of cooperation with
regard to the auditor's repeated requests for records
regarding the donations.
[36] The Appellant's Agents explain this
delay in responding to the auditor's requests by the fact
that the initial request was just before the holidays.
They state that Claude Ménard complied with the
requests and sent everything he had in his possession.
Jean-Denis Ménard, son of the late
Claude Ménard, stressed that if his father had known
at the time that the paintings had been sold at such low prices,
he would not have made the donations. Allegedly, he was not
informed of this fact until 1996. He also added that his father
trusted the fact that these were reputable art galleries and that
their methods were proper. He also obtained information from
Revenue Canada and from the person who prepared his income tax
returns.
[37] Since Claude Ménard is
deceased, it is impossible to know his version of the facts and
rule on his credibility. However, his son,
Jean-Denis Ménard, has convinced me that if
there was any carelessness or default, they were insufficient for
me to charge his father with gross negligence. The case at bar is
not a matter of egregious behaviour in which it is possible to
detect indifference on his part with regard to the law. The
explanations provided do not allow me to conclude that the
Appellant was acting intentionally. He believed, according to the
information gathered and the records that he filed with his
income tax returns and subsequently, that everything was properly
done. I do not believe these circumstances are of gross
negligence. The penalties imposed by the Minister are therefore
without merit.
[38] The appeals are allowed to the extent
that the penalties imposed by the Minister are nullified. The
assessments are therefore referred back to the Minister for
reconsideration and reassessment in accordance with these
Reasons.
Signed at Edmundston, New Brunswick, this
22nd day of June 2004.
Angers J.
Translation certified true
on this 8th day of November 2004.
Sharon Winkler Moren, Translator
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