Date: 19990901
Docket: 96-4026-GST-G
BETWEEN:
TRANSPORT TOUCHETTE INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Garon, A.C.J.T.C.C.
[1] This is an appeal from an assessment of goods and services
tax ("GST") the notice of which, dated
January 29, 1996, covers the period from October 1,
1991 to September 30, 1995.
[2] The appellant and Compagnie Syldave Inc.
("Syldave"), were engaged in the general
transportation of goods. The appellant's operations were
concentrated more in Quebec, whereas Syldave mainly did business
in Ontario.
[3] All the appellant's shares were held by Entreprises
Playkid ("Playkid"). Dave Cahill owned
75 percent of the shares of Playkid and
Mr. Cahill's spouse, Sylvie Robiboux, held
25 percent. Ms. Robiboux was Syldave's sole
shareholder.
[4] At the hearing, the argument concerned only a single
issue: whether the appellant was required to collect the goods
and services tax in respect of Syldave's use during the
period under consideration of trailers belonging to the
appellant. The appellant no longer disputed the other issues
stated in the Notice of Appeal. The assessment must therefore be
confirmed in respect of those issues. The amount of the goods and
services tax in issue in the instant appeal was thus reduced to
$36,050.
[5] The Court was informed that the appellant and the Deputy
Minister of Revenue of Quebec were parties to a dispute
concerning a Quebec Sales Tax (QST) assessment which raised
essentially the same issue. That dispute was decided in Revenu
Québec's favour in a judgment dated October 13,
1998 by Michel H. Duchesne J. of the Court of
Quebec. An appeal of that decision is currently before the Quebec
Court of Appeal.
[6] Counsel for the respondent stated that the operations
involving the appellant's trailer rentals to Syldave have no
goods and services tax consequences in that, even if the
appellant were required to collect the tax from Syldave, the
latter would have been entitled to an input tax credit for the
same amount. However, as regards the QST, counsel for the
respondent argued that there were tax consequences since there
was no input tax rebate at the relevant time. Counsel for the
appellant seemed to me to be in complete agreement with counsel
for the respondent as to the tax consequences of the
aforementioned operations as those consequences are described in
this paragraph.
[7] François Blondin, the appellant's
accountant, and Dave Cahill, the majority shareholder of the
corporation that controls the appellant, testified for the
appellant. Nicole Gendron, a Revenu Québec auditor,
was called as a witness for the respondent.
[8] François Blondin, a chartered accountant from
Granby, stated that he had been the appellant's accountant
for a number of years.
[9] Mr. Blondin said that, in his capacity as the
appellant's accountant, he made the adjusting entries in the
appellant's books on a monthly basis. He was also the auditor
of the appellant, for which he also prepared the GST and QST
returns.
[10] In the financial statements, certain amounts are reported
under the heading [TRANSLATION] "Trailer Rentals". The
Minister of National Revenue's assessment of the appellant
concerns those amounts. Mr. Blondin testified that he used
the term "trailer rentals" to represent more accurately
[TRANSLATION] ". . . the reality, which was
that the trailers were often used equally by Transport Syldave
and Transport Touchette, and I [Mr. Blondin] in fact thought
that using the term "trailer rentals" represented part
of the reality, which was that some of Touchette's trailers
had been used by Transport Syldave, among others". According
to Mr. Blondin, [TRANSLATION] ". . . the term
"trailer rentals" was a
representation . . . in fact a simple way, if you
will, of representing a series of expenses which were covered, if
you will, by Transport Touchette and which applied to more than
one business. And we are talking here, in fact, about Transport
Syldave."
[11] Mr. Blondin also stated that no invoices had been
prepared for the operations referred to as "trailer
rentals". When examined on the question of whether there had
been any "trailer rentals", Mr. Blondin answered,
[TRANSLATION] "The trailers were used."
Mr. Blondin described the legal framework in which the
trailers were used [TRANSLATION] ". . . as an
exchange of services".
[12] Mr. Blondin also explained that the "trailer
rentals" amounts in the appellant's financial statements
declined from year to year because [TRANSLATION] "Syldave
was developing its infrastructure" and thus had less need
for the appellant's trailers. He stated that, when he decided
to use the expression "trailer rentals", he had not
thought that a trailer rental might give rise to a taxable
supply. In response to a question on this subject by counsel for
the appellant, Mr. Blondin made the following comment:
[TRANSLATION]
A. When we did that, I admit this did not enter my mind over
the years because it was always in the context of a
transportation company, and, as regards the GST and the QST, at
the time there were in fact no taxes applicable to transportation
subcontracts.
[Court transcript, page 61, lines 6 to 11.]
[13] According to Mr. Blondin, the term "trailer
rentals" included other types of expenses. Mr. Blondin
stated in his testimony that [TRANSLATION] "Syldave
originally had no facilities, if you will, be they computers or
physical premises. In fact, Syldave used Transport
Touchette's premises"; the appellant and Syldave used
[TRANSLATION] "the same telephones" and [TRANSLATION]
"the same docks".
[14] Mr. Blondin admitted that a number of classes of
expenses had already been allocated between the appellant and
Syldave under other items, as appears from the financial
statements. This was the case with expenses for fuel, insurance,
maintenance and repairs with respect to the trailers, in addition
to administrative expenses and office employees' salaries. On
this question of the allocation of common expenses between the
appellant and Syldave, I think it worthwhile to cite a portion of
Mr. Blondin's testimony:
[TRANSLATION]
Q. You explained the certain reality by saying that the
trailer rentals included other expenses. Expenses were allocated
between the companies. And they conducted the exercise together
in order to determine which expenses had not been shared between
the companies.
So, you note, for example, that insurance was already
allocated. You mentioned fuel . . .
A. Cargo insurance.
Q. . . . you spoke at the time about fuel.
A. Yes.
Q. Again referring to tab 6 in Transport Touchette, Your
Honour, at page 12, fuel, there appears $167,748.
A. Transport Touchette.
Q. And at tab 7 in Syldave, again at page 11, you
also have fuel – $190,507.
A. Uh-huh.
Q. There was already an allocation between the two.
A. . . .
Q. If I turn to maintenance and
repairs . . .
THE COURT:
Q. You answered . . . for the purposes of the
transcript, you must . . . it's recorded; you
answered yes.
A. Yes, yes.
[Court transcript, page 76, line 16, to
page 77, line 23.]
. . .
Q. Maintenance and repairs – tires: is that the same
thing? If we do the same exercise, $179,806 for Touchette.
A. For Touchette.
Q. And you have maintenance and repairs – $80,520 for
Transport Syldave. So there has already been an allocation.
A. Which can be clearly identified.
Q. Clearly.
A. Yes.
Q. You spoke about the telephones . . .
A. Yes.
Q. . . . and the office that might be, that
Touchette might pay the larger portion.
A. That's correct.
Q. Okay. Referring to Transport Touchette, Your Honour, at
page 13 and the following page at tab 6.
A. Yes.
Q. Under the item "administrative expenses", you
have telephones.
A. For $41,000.
Q. $41,000. In Syldave, you also have an allocation of
telephone costs.
A. But the allocation is much smaller.
Q. O.K.
A. Because we're talking about $3,600 here.
Q. Three thousand . . .
A. Three thousand . . .
Q. $3,779.
A. $3,779. Of course, simply stated, if you will, all the
telephone calls are in Transport Touchette.
Q. Uh-huh.
[Court transcript, page 78, line 10 to page 79,
line 23.]
. . .
Q. Referring to salaries . . . the last item we
discussed was office salaries and you also referred to them this
morning when you said that Transport Touchette might pay a large
portion of administration, eh? Is that what you said?
A. Yes.
Q. Referring to office salaries, still on page 13 of
tab 6, Your Honour, Transport Touchette.
THE COURT: Yes.
ANDRÉ LARIVIÈRE:
Q. Office salaries, you have $27,595.
A. That's correct, yes.
Q. If I go to Syldave, office salaries, you have $65,490;
there is more in Syldave than in Touchette.
A. Yes, that's correct.
Q. The allocation has been made there.
A. A portion because . . . in fact,
well . . . yes.
Q. So you remember when I examined you, after going through
this entire exercise, I asked you the question and I now put it
to you again: What else might there be besides trailer rentals,
in the item . . .
THE COURT: Concerning the allocation of expenses.
ANDRÉ LARIVIÈRE:
Q. Right. What else might there be? We're going through
the exercise and you have already apportioned all the other
expenses. What remains apart from trailer rentals?
A. Of course, if you look, there is definitely a
portion . . . there could be a portion of
maintenance, in fact a somewhat bigger portion in Transport
Touchette than in Transport Syldave.
Q. Uh-huh.
A. In fact, there is probably a portion of gas, in the same
way, if everything that has been identified as already allocated,
there is certainly a somewhat larger portion allocated to
Transport Touchette because it could not be identified and that
was in fact used by Transport Syldave. A portion.
[Court transcript, page 80, line 12 to page 82,
line 6.]
. . .
Q. What do you know about the use of the trailers? Were they
actually used? That's what I'd like to know: were the
trailers actually used or is there an error in the financial
statements? To simplify the question, did Syldave use
Touchette's trailers?
A. Yes.
Q. Yes it did or yes you understand the question?
A. Yes.
Q. O.K.
A. Yes first that I understand your question. In my mind,
I'm inclined to say that there was a portion of trailer
use.
Q. Yes.
A. That's why I represented it as trailer rentals.
[Court transcript, page 82, line 9 to page 83,
line 2.]
[15] With respect to the "trailer rentals" item in
the financial statements, Mr. Blondin also reiterated that
it was he [TRANSLATION] "who presented it in that
form". He testified that it was a way [TRANSLATION] "to
balance revenue and expenses between the
two companies". According to Mr. Blondin,
Mr. Cahill and Ms. Robidoux had examined the financial
statements each year, discussed this item with him and did not
object to the use of the expression "trailer
rentals".
[16] Mr. Blondin said that [TRANSLATION] "the
financial statements were prepared from information provided by
the appellant". This information provided by the appellant
was in the form of [TRANSLATION] "sales journals, purchase
journals, the general ledger which is produced with the basic
information". Isabelle Borduas had previously done the
appellant's internal accounting, but Mr. Blondin did not
remember whether she had in fact performed this task for each of
the fiscal years in issue. The financial statements were approved
by the appellant's board of directors. Mr. Blondin
confirmed that there were no obvious or significant errors in the
financial statements and that they reflected the reality. As for
Syldave, its financial statements were unaudited;
Mr. Blondin prepared only the review engagement reports.
[17] Mr. Blondin also asserted that the two
corporations' accounts were kept separately and that each
corporation had its own expenses, customers and billing. Of the
$178,192 figure attributed in the financial statements to
"trailer rentals", an amount of [TRANSLATION]
"roughly $3,192" represented trailer rentals to another
entity, Location Brassard. It is the number representing the
difference between these two amounts that is at issue in
this case.
[18] To the question of whether there had been any trailer
rentals, Mr. Blondin gave the following answer:
[TRANSLATION]
A. I would be inclined to say yes, but that was an item which,
in my mind, encompassed more than just trailer rentals. It was
one way of allocating a set of expenses, as mentioned earlier,
under one heading.
[Court transcript, page 114, lines 20 to 24.]
[19] I now come to Dave Cahill's testimony.
[20] According to Mr. Cahill, the appellant owned 10
tractors and 17 trailers[1] in 1992, whereas Syldave had five tractors and
seven trailers in the same year. In 1993, the appellant still had
17 trailers and Syldave nine, and the number of trailers
remained the same for both corporations in 1994. A list of the
trailers and trucks that Syldave owned in 1992 was filed in
evidence for the appellant. With respect to 1994, a list of
trucks, automobiles and trailers owned by Syldave was also
produced. However, these lists do not indicate the dates on which
the trailers were purchased.
[21] Mr. Cahill testified that the appellant's and
Syldave's accounting [TRANSLATION] "is supposed to be
kept separate, but it is together". He confirmed that
Mr. Blondin remitted the taxes, and declared that he did not
know enough to be able [TRANSLATION] "to really
discuss" the financial statements. He said he had noticed
the "trailer rentals" item for the first time when the
Revenu Québec auditor went to the appellant's
offices.
[22] Mr. Cahill stated that [TRANSLATION] "there
were never any trailer rentals". The two corporations
[TRANSLATION] "worked together" and "subcontracted
to each other". He described how things worked between the
appellant and Syldave as follows:
[TRANSLATION]
. . . Touchette picked up merchandise or
. . . for Syldave, then it was taken back for Touchette
or Syldave to the dock; we have one dock in Granby and another
here in Montréal. The Syldave truck then came back and it
was loaded and left again for Ontario.
[Court transcript, page 137, lines 18 to 23.]
Mr. Cahill testified that Syldave had not claimed the
input tax credit because there were no "trailer
rentals", but rather [TRANSLATION] "transportation
subcontracts".
[23] In cross-examination, Mr. Cahill insisted a number
of times that, despite what was reported in the financial
statements, the appellant did not rent trucks, but rather
[TRANSLATION] "entered into transportation
subcontracts". According to him, a subcontract could include
[TRANSLATION] "the tractor, the trailer, the driver and so
on". The services of the drivers and other employees used by
the appellant and Syldave were provided and paid for by Playkid,
as may be seen from the financial statements, and Playkid
collected the tax on these rentals. Even though Mr. Cahill
was informed at the time of the audit that Syldave could claim
the input tax credit, he decided that the appellant would not
bill Syldave.
[24] Nicole Gendron was an auditor with Revenu
Québec. In reviewing the appellant's file, she noted
the "trailer rentals" item in the financial statements
and confirmed the accuracy of this information by referring to
the appellant's books of account. She also checked with the
Société de l'assurance automobile du
Québec (SAAQ), which informed her that Syldave had owned
two trailers at the start of 1992 and nine in December 1994. The
data compiled by the SAAQ on this matter of the number of
trailers were adduced in evidence. Those data show that the
appellant had [TRANSLATION] "many more trailers" than
Syldave during the years in issue.
[25] In addition, Ms. Gendron provided Mr. Blondin,
Ms. Robidoux and the appellant's former lawyer,
Robert Jodoin, with explanations concerning the assessment.
She also noted that the penalty assessed against the appellant
had been reduced and that Syldave could claim the input tax
credit.
[26] In cross-examination, Ms. Gendron admitted that,
during her audit, she did not find any invoices establishing that
there had been trailer rentals. She also admitted that the only
evidence of trailer rentals was contained in the financial
statements and the adjusting entries which were made once a year.
However, she deduced that there might have been trailer rentals
since the appellant had reported income of that nature in its
financial statements and because it had many more trailers than
Syldave.
Analysis
[27] The point at issue here is whether Syldave used the
appellant's trailers under a lease agreement between the
appellant and Syldave, as the respondent claims, or whether it
did so in the context of a subcontracting arrangement between the
appellant and Syldave.
[28] First of all, it is not in dispute that Syldave used
trailers owned by the appellant during the period under
review.
[29] Paragraph 8 of the Reply to the Notice of Appeal
states that the Minister of National Revenue [TRANSLATION]
"relied on the conclusions and assumptions of fact" set
out in subparagraphs (a) to (h) of that paragraph. Apart
from subparagraph (a) of paragraph 8 of the Reply to
the Notice of Appeal, which states that [TRANSLATION] "the
appellant is a registrant for the purposes of the Excise Tax
Act", subparagraphs (h) and (i) of that paragraph
are the only relevant subparagraphs for the purposes of the
instant case. Those subparagraphs read as follows:
[TRANSLATION]
. . .
(h) For the period in issue, the appellant received the
following trailer rental income on which no tax was
collected:
|
|
JUNE 1994
|
JUNE 1993
|
JUNE 1992
|
|
|
$80,000.00
|
$175,000.00
|
$260,000.00
|
|
GST DETERMINED (7%)
|
$ 5,600.00
|
$ 12,250.00
|
$ 18,200.00
|
(i) The said trailer rentals were between the appellant and
Compagnie Syldave Inc., which are not closely related.
[30] It should be noted at the outset that the financial
statements of the appellant and Syldave for certain fiscal years
in the period in issue expressly indicate that the appellant
received rental income in the amounts shown and that Syldave
incurred rental expenses in the same amounts during the same
fiscal years. A review of the appellant's income statements
for the fiscal years ended June 30, 1992, 1993 and 1994
shows that the second item of each of those statements is
entitled "Trailer Rentals". As to Syldave's
unaudited financial statements, I note that the income statements
for the fiscal years ended June 30, 1992 and June 30,
1993 each contain an item entitled [TRANSLATION] "Cost of
Contracts (Schedule A)" and, in Schedule A, the
first item under the heading "Cost of Contracts" is
"Trailer Rentals". The same item, "Cost of
Contracts (Schedule A)", appears for Syldave's
fiscal year ended June 30, 1994. However, the terminology
used in the third item in that schedule is different, as it reads
[TRANSLATION] "Trailer Rentals and Subcontracts". The
aforementioned financial statements were approved by the boards
of directors of the appellant and Syldave.
[31] With respect to the appellant's financial statements
discussed above and the "trailer rentals" items
appearing therein, the Court was informed at the start of the
hearing that the respondent objected to any testimony being
produced by the appellant to contradict the aforementioned items.
In support of this position, the respondent referred to
article 2863 of the Civil Code of Quebec[2] (CCQ), which provides
as follows:
The parties to a juridical act set forth in a writing may not
contradict or vary the terms of the writing by testimony unless
there is a commencement of proof.
[32] In support of its objection, the respondent argued in
particular that the items in question are not the result of a
clerical error and that they are found in financial statements
audited by a chartered accountant and approved by the
appellant's board of directors.
[33] In my view, there is clearly no basis for this
objection.
[34] In his well-known work, Précis de la
preuve, 4th edition, Wilson & Lafleur
Ltée, at pages 340 ff., Léo Ducharme
correctly describes the state of the law regarding the scope of
article 2863 C.C.Q., as follows.:
[TRANSLATION]
1044. Article 2863 C.C.Q. clarifies a condition
underlying the rule contained in article 1234 of the
C.C.L.C., namely that it is only the terms of writings setting
forth a juridical act that may not be contradicted or varied by
testimony. This condition may be explained by the reason for the
prohibition as such. The law presumes that, if the parties to a
juridical act have, of their own free will in order to satisfy an
obligation which the law imposes on them, expressed their wishes
in a writing, it may be assumed that that writing is a faithful
reflection of those wishes, hence the prohibition against them
from contradicting that writing through witnesses.
1045. For this reason, even in the present state of the
law, only private written instruments are governed by
article 1234 C.C.L.C. This article does not apply, in
particular, to domestic records and papers, pleadings, ordinary
advertising flyers and returns of income made under taxing
statutes. Thus it has been found that article 1234 C.C.L.C.
does not prevent a taxpayer from proving through witnesses income
greater than that reported in his return of income. Similarly it
has been held that article 1234 C.C.L.C. does not apply to
the minutes of a meeting of a board of directors or of a
shareholders' meeting, and this is true even in respect of
those who signed the minutes as president and
secretary-treasurer. In another case, a business was permitted to
resort to testimony to show that, contrary to what was indicated
by the entries in its records, its employees had received the
minimum wage for their services.
[Footnotes omitted.]
[35] This question of the scope of article 1234 C.C.L.C.,
which is the counterpart of article 2863 of the new Code,
was decided by Dumoulin J. of the Exchequer Court of Canada
in M.N.R. v. Thibault, 62 DTC 1114, who writes in
part as follows at page 1118:
. . . The appellant invokes article 1234
in opposition to all oral evidence. This article forbids the use
of oral evidence to contradict or alter the terms of a validly
executed instrument. It seems elementary to recall that this
restrictive text applies only as between the parties to the
instrument and does not at all apply to third parties for whom
this instrument falls into the category of "res
inter alios acta".
. . .
Consequently, if it is correct to hold that the appellant is a
third party as concerns this deed, he cannot place himself into
the position of the signatories, to claim the rights of
inadmissibility which the latter could have done. I do not feel,
therefore, that the admissibility of the oral evidence is
restricted at all in this case.
[36] In his judgment in M.N.R. v. Ouellette and Brett,
71 DTC 5094, Walsh J. relies in particular on the
decision in Thibault, supra, and states the following
general proposition which he deduces from the case law, at
page 5103:
The jurisprudence is very clear that it is not what parties
call a payment in a contract which determines the nature of it
but the real character of the transaction.
[37] More recently, in Tanguay v. The Queen,
97 DTC 947, my colleague Judge Dussault succinctly
stated the law respecting the application of article 1234
C.C.L.C. as follows at page 950:
. . . I will simply take the liberty of adding
that the prohibition enacted by article 1234 of the Civil
Code of Lower Canada against testimony for the purpose of
contradicting the terms of a valid written instrument does not
apply in tax matters.
[Footnote omitted.]
[38] On the question of the scope of article 1234
C.C.L.C., I would also like to refer to the very interesting
comments by Maurice Régnier and
Gérard Coulombe in an article published in the
Revue du Barreau, volume 31, number 4, September
1971, at page 474, where the authors state in part the
following:
[TRANSLATION]
We would point out before closing that this restoring of the
balance between the taxpayer and the Minister of National Revenue
comes just at the right time. Recent tax decisions demonstrate a
certain refusal to be restricted by the terms of contracts and
seek instead the real and true character of the transactions
between the parties. In view of this trend, it goes without
saying that a technical and narrow construction of
article 1234 is hardly satisfying and even tends to grant
tax authorities an undeniable advantage. Indeed, it gives those
authorities the upper hand in all circumstances: either they rely
on the terms of the writing where doing so is in their interest
or, in the opposite case, they prove through witnesses that the
writing does not reflect the actual juridical situation.
It may be good that this is so because holding the tax
authorities to the strict provisions of article 1234, as the
court notes in Ouellette, is tantamount to rewarding
taxpayers' endless efforts to avoid paying their taxes. It
would be easy for them to disguise the reality, and to do so
entirely legally, through a series of transactions the entire
scope of which could not be grasped except by disregarding the
writings and confining oneself to the actual financial
consequences.
However, the balance can be maintained only if taxpayers enjoy
the same rights. How many times, for personal reasons and without
regard to the tax consequences, or even as a result of errors or
inaccuracies in preparing a writing, has that writing turned out
not to be a faithful reflection of what the parties actually
intended to agree upon? It was therefore fundamentally important
that the new case law trend confer in evidentiary matters the
same benefits on the taxpayer as on the Minister of Revenue,
something which necessarily required a more flexible
interpretation of article 1234 of the Civil Code.
These comments apply equally to article 2863 of the new
Civil Code.
[39] In light of the case law cited above and the comments of
the aforementioned authors, it seems to me that article 2863
C.C.Q. unquestionably does not prevent a taxpayer from using
testimonial evidence against tax authorities to contradict the
terms of a writing setting forth a juridical act even if there
has not been a commencement of proof.
[40] It therefore follows that testimonial evidence may be
admitted in this case to contradict the financial statements (and
the adjusting entries), hereinafter called financial statements,
if they constitute a juridical act.
[41] Furthermore, I am of the opinion that the financial
statements of a legal or natural person do not constitute
juridical acts on the ground that they do not have the effect of
producing juridical consequences. These financial statements
neither create rights nor generate obligations.
Paragraph 1045 cited above from Mr. Ducharme's
Précis de la preuve appears to confirm this
approach.
[42] Based on the above remarks, the respondent's
objection to the evidence on the basis of article 2863
C.C.Q. must be rejected.
[43] It follows that the weight of the entries in the
appellant's financial statements respecting the trailer
rentals must be assessed in relation to the whole of the
testimony on this question.
[44] In the instant case, it has been established that these
items in the financial statements were entered by the
appellant's chartered accountant, who made the adjusting
entries once a month and was responsible for preparing the
financial statements of the appellant and Syldave. That
accountant was thus quite familiar with the appellant's
operations since he had devoted the equivalent of two working
days each month for a number of years to reviewing the operations
of the appellant and Syldave.
[45] The accountant Mr. Blondin did not say that these
"trailer rentals" items in the appellant's
financial statements in particular were the result of an error.
Nor can we ignore the fact that they appear three times in the
appellant's financial statements for three separate fiscal
years. The same item is also entered in certain financial
statements of Syldave. It should also be noted that these audited
financial statements of the appellant are documents intended for
use by the public, in particular financial institutions.
[46] Furthermore, Mr. Cahill stated that there had never
been trailer rentals. He testified that the appellant and Syldave
"subcontracted to each other". However, Mr. Cahill
filed no exhibits establishing that there had been any
subcontracting of work, including the use of trailers. I did not
find his testimony very convincing. In particular, despite the
explanations he gave, I have trouble believing that
Mr. Cahill had not seen the "trailer rentals"
entries in the financial statements of the appellant and Syldave
before those entries were pointed out to him by the Revenu
Québec auditor.
[47] All the possible elements of a subcontract, that is,
fuel, insurance, maintenance and repairs, administrative expenses
and drivers' salaries, were already included under various
items in the financial statements or, in other words, were
allocated between the appellant and Syldave. It therefore follows
that the amounts Syldave paid to the appellant related mainly, if
not exclusively, to the use of trailers. No other service was
provided under these so-called subcontracts. On this point, I
note near the end of the passage from Mr. Blondin's
testimony cited in paragraph 14 of these reasons, that
Mr. Blondin appeared to admit that the trailer rentals
amounts reported in the financial statements related almost
exclusively to the use of trailers. Consequently, there could not
have been any subcontracting between the appellant and Syldave
involving the use of the trailers in question.
[48] The evidence does not even establish whether it was the
appellant or Syldave that performed the "subcontracts"
to which the various "trailer rentals" entries
appearing in the financial statements of the appellant and
Syldave refer.
[49] The weight of the evidence leads me to conclude that, in
the instant case, the payments which Syldave made to the
appellant represent the consideration paid for the use of
property. This state of affairs corresponds precisely to the
definition of lease appearing in article 1851 C.C.Q., which
reads as follows:
Lease is a contract by which a person, the lessor, undertakes
to provide another person, the lessee, in return for a rent, with
the enjoyment of a movable or immovable property for a certain
time.
The term of a lease is fixed or indeterminate.
[50] The corresponding provision in the former Code
(article 1600) is to the same effect.
[51] In any event, it was not contended for the appellant that
another type of contract besides a lease could apply here if I
were to find that the use of the appellant's trailers by
Syldave was not governed by subcontracts.
[52] In my view, the appellant did not show on a balance of
probabilities that the income in question was not income from the
rental of trailers. The burden was on the appellant to do so.
[53] For these reasons, the appeal is dismissed, with costs,
and the assessment by the Minister of National Revenue is
confirmed.
Signed at Ottawa, Canada, this 1st day of September 1999.
"Alban Garon"
A.C.J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 30th day of June
2000.
Erich Klein, Revisor
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