Chabot v. The Queen, docket 96-4548-IT-G

Date: 20000127

Docket: 96-4548-IT-G

BETWEEN:

RICHARD CHABOT,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

Lamarre, J.T.C.C.

[1] The appellant is appealing assessments made by the Minister of National Revenue (the "Minister") under the Income Tax Act (the "Act") for the 1992, 1993 and 1994 taxation years. By those assessments, the Minister disallowed the deduction for charitable gifts claimed by the appellant under subsections 118.1(1), (2) and (3) of the Act for each of the years in issue. The appellant determined that the value of the gifts for which he claimed the deduction was $10,000 in 1992, $15,000 in 1993 and $8,000 in 1994. The Minister also assessed the appellant penalties under subsection 163(2) of the Act in the following amounts: $1,302.35 for 1992, $1,833.18 for 1993 and $995.72 for 1994.

Facts

[2] The appellant is a fireman and teaches in his field at the Laval School Board. His employment income was $76,985.33 in 1992, $80,117.53 in 1993 and $66,212.42 in 1994 (see Exhibits I-1, I-2 and I-3).

[3] In the early 1990s, the appellant met Émile Amireault, an insurance broker and owner of the Galerie D'Art Annie-Claude, through a co-worker. The appellant, who has no particular knowledge of art, allegedly gave Mr. Amireault a mandate at that time to purchase works of art on his behalf and to find charities to which he could donate the paintings. Mr. Amireault kept the works between the time of the purchase and that of the donation, since the appellant did not want to have possession of them and did not intend to insure them. The appellant never saw either the works themselves or photos of them. According to the appellant, it was merely an investment for him and his sole intention in purchasing was to dispose of the works for the benefit of charities.

[4] In 1991, the appellant purchased a first lot of paintings by various unidentified artists from Mr. Amireault for $2,800, without receiving any description of the works bought. A purchase order dated August 22, 1991 and prepared by Mr. Amireault in the appellant's name was filed in evidence as Exhibit A-1.

[5] According to this purchase order, the appellant paid in three instalments, the first, of $1,400, on August 22, 1991, the second, of $800, on November 18, 1991 and the third, of $600, on February 14, 1992. He paid these amounts in cash without making any withdrawals from his bank account. The appellant testified that he did not write cheques.

[6] On December 14, 1992, the appellant sent to Entraide-Cancer Jeunesse Estrie in the Sherbrooke area, care of Bertrand Lapalme, a letter in which he informed Mr. Lapalme that he intended to donate a few works of art by various artists (Exhibit A-2). The appellant stated that the total value of the works was $10,000 and requested that the organization issue him a receipt for charitable donations for that amount for 1992.

[7] Enclosed with this letter was a certificate of appraisal from Galerie D'Art Annie-Claude (Exhibit A-3) listing the five artworks being donated. Two of those works were by the artist René Després, the first (a 40" x 40" acrylic) being appraised at $3,750 and the second (a 24" x 36" oil) at $2,650. Two other works were by the artist Guy Lalonde, one being a 30" x 40" oil appraised at $2,350 and the other, a 12" x 16" oil, appraised at $650. The last work, by the artist Louise Scott, was a screen printing appraised at $600. All five works were untitled.

[8] Mr. Amireault testified that he wrote the letter signed by the appellant which was filed as Exhibit A-2. He also handed the works over to the charity and personally did the appraisals. He explained in general terms how he goes about doing appraisals, although he did not specifically deal with each of the artworks in question. He said that he had referred to the prices given by the artists themselves, most of whom he knew personally, to the entries in the Guide Vallée (which reflects the prices asked by living Canadian artists) and to various magazines such as Le Collectionneur and Parcours. For the artists represented by art galleries, Mr. Amireault referred to the appraisals provided by those galleries. Mr. Amireault explained that he had been particularly interested in art since 1966. He has previously represented certain artists and founded his Galerie D'Art Annie-Claude in the 1980s.

[9] Entraide-Cancer Jeunesse Estrie issued the appellant a receipt for charitable donations in the amount of $10,000 for 1992 (see Exhibit A-4). The appellant no longer remembered whether he had received the receipt by mail or whether it had been handed to him by Mr. Amireault.

[10] Bertrand Lapalme is an appraiser for the Sherbrooke Museum and has worked in the art field since 1969 either as an art gallery owner or as an organizer of auctions for charitable organizations and various charities. He stated in giving his testimony that, when he received artworks as charitable gifts for Entraide-Cancer Jeunesse Estrie, he relied on his own knowledge of the artists in accepting or rejecting any appraisal of works that was submitted to him. If he did not know the artist, he generally checked the appraisal of the work with the artist's representative. In this case, Mr. Lapalme accepted as submitted the appraisal provided by Mr. Amireault with whom he had been dealing for a few years.

[11] It was moreover Mr. Lapalme who had recommended to Mr. Amireault the various registered organizations that accepted charitable gifts and issued receipts accordingly. Mr. Lapalme did not know the donors.

[12] On March 8, 1993, the appellant subscribed $2,500 for an interest in the purchase of a set of paintings from the estate of Normand Gingras. By this letter of subscription (Exhibit A-5), the appellant recognized that his interest would be proportionate to the total amount paid to purchase the pictures. He also agreed that [TRANSLATION] "Émile Amireault [would receive] a commission of 10% on the paintings". Mr. Amireault undertook to provide a list of the works purchased after verifying their market value.

[13] The appellant testified that he borrowed $3,500 from the Caisse Populaire Desjardins on March 15, 1993 (Exhibit A-14) and paid Mr. Amireault $2,500 in cash. He apparently repaid that loan in May 1993 using the funds from his tax credit for 1992.

[14] Émile Amireault apparently learned about the sale of the collection of paintings by the Gingras estate through his brother Guy Amireault, who had introduced him to Raymond Larivière. Mr. Larivière, a real estate agent, had been instructed by the Gingras estate to find a buyer for the collection of paintings.

[15] According to Mr. Larivière, Émile Amireault went to see the paintings and offered $50,000 for the entire collection in February 1993. At that time, Mr. Larivière had apparently received two other offers for lesser amounts (in the order of $35,000). Sylvain Gingras, the testamentary executor of the estate, said he also received an offer from Serge Joyal, an art collector, for $25,000 to $30,000 for the lot of paintings constituting the collection. Another offer was also made to him for $80,000, $20,000 payable in cash and the balance in the form of fees on the sale of the paintings. Mr. Gingras rejected this offer since he wanted to close the estate file as quickly as possible. As Mr. Amireault's offer was about to be accepted, a certain Mr. Caron, who had previously offered $35,000, now offered $60,000 to purchase the collection on February 28, 1993 (Exhibit I-16). Mr. Amireault then withdrew his offer. As nothing came of Mr. Caron's $60,000 offer, Mr. Amireault resubmitted his own offer, which was accepted on March 11, 1993 (Exhibit I-8).

[16] According to Mr. Amireault, in laying out $50,000, he was only paying the value of the frames. At the time of the purchase, he himself assessed the 512 paintings in the collection at $609,000 (see Exhibit I-8). The collection included 225 pictures by René Després appraised at $369,325. Mr. Gingras indicated that his father was only a wood merchant and had had to put a fairly large amount of money into purchasing the pictures. He said that his father had spent $100 per canvas to have them framed. I understood from Mr. Gingras's testimony that his father laid out large amounts of money to purchase the collection, yet had no knowledge of the art market. In Mr Gingras's view, the works by Després were worthless. He even said he had sold them for $1. The same was true of half the works in the collection, which comprised a total of 512 pictures and eight sculptures (see Exhibit I-8).

[17] Sylvain Gingras admitted that, on March 17, 1993, he received $53,700 from Émile Amireault for the entire collection of 520 paintings and sculptures belonging to the late Normand Gingras (see Exhibit I-8). In a postscript, Mr. Gingras wrote that Émile Amireault had personally guaranteed cheques of $6,500 and $3,500 issued by a third party. In giving his evidence, Mr. Gingras said that he did not remember who had signed the cheques. He also mentioned that the balance of the $50,000 payment was paid in cash. Mr. Amireault stated that the cheque for $3,500 given to Mr. Gingras had been signed by the appellant. It should be emphasized here that the appellant had previously said that he had paid Mr. Amireault in cash.

[18] In his testimony, Raymond Larivière said that Émile Amireault had offered to pay his commission in artworks. Mr. Larivière charged a commission of $5,000. Mr. Amireault apparently explained to him that, by accepting artworks, he could recover $7,000 instead of $5,000 by making gifts to charities (including Entraide-Cancer Jeunesse Estrie), which would give him receipts for charitable donations which would result in tax savings for him (see Exhibit I-15).

[19] Mr. Larivière declined the offer and had to institute an action against Mr. Amireault in small claims court. He was ultimately paid a $3,000 commission.

[20] According to Exhibit A-6, the appellant admitted that, on June 18, 1993, he received paintings from Émile Amireault corresponding to the sum subscribed for the purchase of the works from the Normand Gingras estate, that is "4.15% or $24,600 of . . . $593,000".

[21] However, according to Exhibits I-8 and I-9, the value of the full list of paintings and sculptures included in the estate, as assessed by Mr. Amireault, amounted to $628,000. The appellant explained that the amount of $593,000 corresponded to Mr. Amireault's final appraisal of the estate's entire collection. The appellant said that Mr. Amireault had sent him a complete history and appraisals of all the estate's paintings. Mr. Amireault even showed him the estate documents so that the appellant could see for himself the list of artworks in which he had an interest.

[22] On December 15, 1993, the appellant sent a letter to the Fondation Don Des Arts (Exhibit A-7) in which he offered to donate a few artworks by various artists. According to this letter, the total value of these works was $15,000 and the appellant asked the Fondation to issue him a receipt for charitable donations for the same amount.

[23] This letter too was drafted by Émile Amireault and signed by the appellant. A certificate of appraisal from the Galerie D'Art Annie-Claude was enclosed with the letter (Exhibit A-8). This certificate listed nine artworks, none of which was part of the Gingras estate collection. The nine are described and appraised as follows:

Feito, Lui 19" x 17 ½" $1,400.00

screen print 25/75

Carcajou- 1975

Feito, Lui 19" x 17 ½" $1,400.00

screen print 25/75

Carcajou- 1975

Putura, Yvan 20" x 27" $1,400.00

pastel

untitled

Hanel, Olaf 40" x 30" $2,150.00

water colour and ink/paper

untitled- 1987

Dufour, Marcellin 24" x 30" $2,650.00

acrylic/canvas

untitled- 1988

Dufour, Marcellin 20" x 24" $1,775.00

acrylic/canvas

untitled- 1988

Hanel, Olaf 40" x 32" $2,150.00

water colour and ink

untitled- 1987

Cosentino, Luigi 14" x 18" $ 600.00

oil/canvas

untitled

Cosentino, Luigi 36" x 30" $1,475.00

oil/canvas

Femme aux oiseaux

[24] The appellant explained that he had purchased an interest in the value of the estate's collection. Consequently, it was not important for him to donate paintings from this collection as long as Mr. Amireault donated artworks of value equivalent to that attributed to the appellant when he purchased his interest in the estate.

[25] A receipt for $15,000 was issued in the appellant's name by the Fondation Don Des Arts on December 22, 1993 (Exhibit A-9). Mr. Amireault stated that he himself had not acted as an appraiser for the Fondation. Jean-Pierre Bénard, who had worked in the arts for many years, was the Fondation's spokesman.

[26] The same scenario occurred in 1994. On December 12, 1994, the appellant sent a letter to Maison d'Art Fra Angelico (Exhibit A-10) offering to donate a few artworks by various artists. He fixed the value of his gift at $8,000 and requested a receipt for that amount. Once again, a certificate of appraisal from the Galerie D'Art Annie-Claude (Exhibit A-11) was enclosed with this letter. The certificate listed six works by artist Lise Gervais and two by artist Daniel Lavoie. Once again, it was Mr. Amireault who described and appraised the works, as follows:

Lavoie, Daniel 25" x 19" $ 850.00

pastel

untitled

Lavoie, Daniel 25" x 19" $ 850.00

pastel

untitled

Gervais, Lise 11" x 14" $1,200.00

pastel

"El aqua con 2 o'clock a.m."

1989

Gervais, Lise 11" x 14" $1,200.00

pastel

"Deux baigneuses à la playa el aqua

con 3 o'clock"

Gervais, Lise 11" x 14" $1,200.00

pastel

"Vue de la playa el aqua"

Gervais, Lise 11" x 14" $1,200.00

pastel

"La playa el aqua Vénézuela"

Gervais, Lise 10" x 8" $ 800.00

ink

"Mon frère cadet André-dédé"

Gervais, Lise 10" x 8" $ 800.00

pastel

"Dominique ma dodo"

[27] None of these works belonged to the Gingras estate collection. The appellant gave the same explanations. La Maison d'Art Fra Angelico issued a receipt for $8,000 in the appellant's name on December 18, 1994 (Exhibit A-12). Mr. Amireault also said that this art establishment run by Michel Jacques had its own appraiser and that Michel Jacques had a sound knowledge of the artistic milieu.

[28] For the last two appraisals, Mr. Amireault billed the appellant appraisal fees of $500.76, tax included, for 1993 and $273.50, tax included, for 1994 (see Exhibit A-13), these fees being charged on the basis of a variable percentage of the appraised value (plus or minus 3%). No appraisal fees seem to have been billed to the appellant for 1992. Mr. Amireault and the appellant appeared to suggest—although they were not convinced of it—that these fees were included in the purchase price paid for the first artworks in 1991 and 1992 (see Exhibit A-1).

[29] The appellant suggested that he had obtained the receipts directly from Mr. Amireault together with the certificates of appraisal. Moreover, he said that he did not learn which paintings he had purchased and disposed of for the benefit of charities until he received the certificates of appraisal. Mr. Amireault was the one who purchased the paintings, found the charities, conducted the appraisals, handed the works over to those charities and gave the receipts to the appellant. Mr. Amireault said that he has conducted this type of transaction since 1989.

[30] In 1995, the appellant began to receive correspondence from Revenue Canada concerning these charitable gifts. On September 29, 1995, an initial notice of assessment for 1994 was sent to the appellant disallowing a tax credit for the charitable donations in question. The appellant subsequently received two other notices of assessment dated March 4, 1996 completely disallowing the donations for 1992 and 1993. The appellant said that he then inquired with the charities to determine whether the artworks in question had in fact been donated. He was apparently told at that time that they had and was informed that those works had been auctioned off. He then consulted the Guide Vallée and certain representatives of various artists. Among others, he met René Harrisson who represents the artist Marcellin Dufour, Stanley Borenstein who represents the artist Lise Gervais, and the artist Guy Lalonde himself. In all three cases, he apparently obtained the same appraisal as Mr. Amireault had given. The appellant emphasized that these three persons did not have the various works in hand because they had already been given to the charities. They did their appraisals solely on the basis of the information concerning the paintings, that is to say, the title, dimensions and descriptions of the paintings. The appellant subsequently stopped making donations. He suggested that he wanted to ensure that he could legally receive a tax benefit before making further donations.

[31] The appellant moreover admitted that he did not provide Revenue Canada with a list of the Gingras estate paintings at the start of its investigation, and merely stated, by way of explaining this failure, that no one had requested such a list.

[32] Additionally, in cross-examination, the appellant admitted that he had not given money directly to the charities because he had purchased [TRANSLATION] "a value" in buying the paintings, and that he had clearly not been interested in donating amounts of money corresponding to the value attributed to the paintings. Furthermore, apart from the Guide Vallée which he consulted, he did not attempt to verify further the assessments given by Mr. Amireault when the donations were made. He trusted Mr. Amireault and did not need to know where the paintings came from.

[33] As to Mr. Amireault's testimony, he appeared to admit in cross-examination that the works which the appellant donated in 1992 and which were listed on the certificate of appraisal (Exhibit A-3) might, surprisingly, have come from the Gingras estate collection, with the exception of that by the artist Louise Scott. As that collection was not purchased until March 1993, Mr. Amireault appeared quite confused on this point and did not elaborate further. None of the works donated by the appellant in 1993 and 1994 came from the estate collection. He explained that the works donated by the appellant might have been exchanged for works from the estate. Mr. Amireault also said that he did not necessarily keep the invoices for each artwork. He destroyed his files as soon as the works were donated. Mr. Amireault also mentioned that he had helped the Fondation Don des Arts and La Maison d'Art Fra Angelico organize auctions to sell the artworks received by those organizations as charitable gifts.

[34] I also heard testimony by the artist Guy Lalonde. Although he did not recall meeting the appellant, he recognized a document signed by him on September 5, 1996 in which he stated that a framed work measuring 30" x 40" done by him was worth $2,200 and that another framed work measuring 12" x 16" was worth $550 (Exhibit A-28). He explained that he had fixed these values on the basis of the price he had had published in the Guide Vallée from his own price list. He also mentioned that it had cost him $500 to advertise in that guide. Mr. Lalonde then said that he did not know the prices at which his works sold on the market, but noted nevertheless that 30" x 40" works did not sell and that he had stopped producing them.

[35] The appellant also called as a witness René Harrisson, an art gallery manager and artists' agent. In giving his own testimony, the appellant indicated that he had met Mr. Harrisson after Revenue Canada disallowed the deduction for charitable gifts.

[36] Mr. Harrisson filed in evidence two certificates of appraisal dated August 27, 1996 (Exhibit A-29) stating, first, that an untitled 24" x 30" acrylic on canvas by Marcellin Dufour that was painted in 1988 was worth $2,300 and, second, that another untitled acrylic on canvas, this one measuring 20" x 24", produced by the same artist in 1988 was worth $1,700. It will be recalled that, according to the certificate of appraisal provided by Mr. Amireault for these two canvases, the appraisals were respectively $2,650 and $1,775 (Exhibit A-8). These two appraisals appear at first glance to be quite close and thus to corroborate the assigned values. The problem, however, is that Mr. Harrisson, who represented Marcellin Dufour exclusively from 1988 to 1993 and has been representing him non-exclusively since 1993, said that when he did the appraisal appearing in Exhibit A-29 he had the works in hand and that it was the appellant who had taken them to him. He said he never did appraisals without seeing the paintings and that he always had to authenticate them beforehand. However, the appellant had earlier testified that he did not have the works with him when he met Mr. Harrisson. This seems obvious since the works had been given to the Fondation Don des Arts in 1993. For these reasons, counsel for the respondent asked that Mr. Harrisson's testimony not be taken into account.

[37] The appellant also called Stanley Borenstein, director of the Galerie d'Arts Contemporains in Montréal, as a witness. Mr. Borenstein filed a document dated January 21, 1998 (Exhibit A-30) in which he had appraised, for a consideration, four 11" x 14" pastel works, one 8" x 10" pastel work and one 8" x 10" ink drawing, all by the artist Lise Gervais. These works appear in the certificate of appraisal which Mr. Amireault handed over to the appellant when he allegedly donated these works to La Maison d'Art Fra Angelico in 1994.

[38] The appraisals of all the works are exactly the same. The appellant went to meet Mr. Borenstein after receiving the assessment disallowing his deduction for charitable gifts. In the appraisal filed as Exhibit A-30, Mr. Borenstein declares that he examined the described works, that he personally inspected the property appraised and that he certified their authenticity. In giving his testimony, he first said that he had appraised the works on the basis of photographs with which the appellant had provided him in order to authenticate them. Then he appeared to be unsure that he had seen the photographs. He said he had appraised the works on the basis of the official price list provided by the artist. He filed in evidence as Exhibit A-31 three price lists for 1985, 1988 and 1989. However, these price lists refer to oils. Mr. Borenstein said that the works in question here are not very important and that he had assigned them a low price. He also mentioned that the 11" x 14" works on paper (which are the main subject of the certificate of appraisal) did not sell well. Mr. Borenstein apparently promoted Lise Gervais for 10 years and stopped selling her works in 1990 as a result of that artist's poor health.

[39] In cross-examination, Mr. Borenstein first said that he had never requested for himself receipts for charitable donations for works by Lise Gervais. However, it may be seen from Exhibit I-12 that an official tax receipt for $6,500 dated December 15, 1990 was issued to Mr. Borenstein by the Théâtre Entre Chien et Loup. The certificates of appraisal accompanying the receipt are dated December 5 and 9, 1990 and are from the Galerie d'Arts Contemporains de Montréal, which belongs to Mr. Borenstein. The works appraised are by Lise Gervais, one being given a value of $2,400 and the other, of $4,800. Mr. Borenstein stated that he had probably also provided independent appraisals when he requested a receipt for charitable donations for himself. This last statement was refuted by Denis Lemieux, a Revenue Canada investigator, who testified for the respondent. According to the documents from the Théâtre Entre Chien et Loup which Mr. Lapalme handed over to him, there were no other, independent, appraisals.

[40] Additionally, Mr. Borenstein apparently also received a receipt for his personal purposes (Exhibit I-11) from Entraide-Cancer Jeunesse Estrie dated December 21, 1992. This was a receipt for $6,800 for a gift of artworks. No certificate of appraisal accompanying this receipt was filed in evidence. Mr. Borenstein also admitted that he had previously prepared a number of appraisals for Bertrand Lapalme, Entraide-Cancer Jeunesse Estrie's representative, for the benefit of various charities. In view of all this evidence, the respondent disputes Mr. Borenstein's objectivity in this case and asks the Court to reject his testimony.

[41] The respondent called Suzelle Lacroix, president of the charity L'Eucan Estrie, which took over the premises and all the documents belonging to Entraide-Cancer Jeunesse Estrie, which was dissolved in May 1996.

[42] Ms. Lacroix was able to trace the receipt for charitable donations for $10,000 issued in the appellant's name on December 28, 1992 as well as the certificate of appraisal for five artworks handed over on December 14, 1992. She also traced Entraide-Cancer Jeunesse Estrie's auction books which had been prepared at auctions held on May 3, 1992 and May 23, 1993 (Exhibits I-17 and I-20). The invoices establishing the sale of artworks of artists who were among the artists listed on the certificates of appraisal submitted by the appellant were also filed in evidence (Exhibits I-18 and I-21). Those sales were at values ranging between 3% and 25% of the values set by that charity in the auction books. The auctioneer at those auctions was Bertrand Lapalme, the very person who approved appraisals for the organization in question.

[43] The respondent also called Carole Stevenson, a Revenue Canada investigator, as a witness. Ms. Stevenson attended an auction organized for La Maison d'Art Fra Angelico in 1994. For sale at that auction were works by various artists, including, among others, artists who had created works donated by the appellant. According to the information gathered by Ms. Stevenson, the average painting sold at 14% of its appraised value. Bertrand Lapalme was the auctioneer at this auction as well.

[44] Michel Jacques, founding president of La Maison d'Art Fra Angelico, testified that he had accepted as submitted the appraisals given by Mr. Amireault for the works donated by the appellant (whom Mr. Jacques, incidentally, did not know). Mr. Jacques noted that he had hired an art student to redo the inventory of paintings, but did not know how he had gone about appraising them. He said that Mr. Lapalme had been referred to them by Mr. Amireault and that Mr. Lapalme had been paid a cash commission for holding the auctions. However, Mr. Lapalme did not act as an appraiser for the organization in question. That organization held three auctions in 1994, 1995 and 1996. It may be seen from the organization's financial statements that the sales of the various artworks were at an average of approximately 10% of their appraised value in 1994 and roughly 5% in 1995.

[45] The respondent also called Denis Lemieux, a Revenue Canada investigator, as a witness. Mr. Lemieux himself attended an auction organized for the benefit of La Fondation Don des Arts on February 27, 1994. Once again, works by the same artists sold at prices far below their appraised value. He traced the prices at which the works by Lise Gervais, which Stanley Borenstein had donated to the Théâtre Entre Chien et Loup, had sold at an auction organized for that theatre. The two Lise Gervais works appraised by Mr. Borenstein at $4,800 and $2,400 were sold at auction for $600 and $230 respectively. The invoices proving this were filed as Exhibit I-36. The Galerie D'Art Annie-Claude, managed by Mr. Amireault, and the Galerie d'Arts Contemporains, managed by Mr. Borenstein, provided appraisals for the Théâtre Entre Chien et Loup and for Entraide-Cancer Jeunesse Estrie.

[46] Bertrand Lapalme testified at the appellant's request. Mr. Lapalme has been an appraiser for 15 or 20 years and has held auctions for the Théâtre Entre Chien et Loup, Entraide-Cancer Jeunesse Estrie and La Maison d'Art Fra Angelico. At Mr. Amireault's request, Mr. Lapalme found charities to which Mr. Amireault or his clients could donate artworks and Mr. Lapalme also acted as auctioneer. Mr. Amireault delivered the works directly to him, and Mr. Lapalme authenticated them and generally accepted the appraisals which Mr. Amireault gave him. Mr. Lapalme dealt as well with Mr. Borenstein and he accepted his appraisals also, Mr. Borenstein being, in his view, a very important art dealer. Mr. Lapalme said that he did not know any of the donors and that he was not paid to do appraisals.

[47] As to his role as auctioneer, Mr. Lapalme said that he did not think he had received a commission when he acted for La Maison d'Art Fra Angelico or for Entraide-Cancer Jeunesse Estrie. However, in an affidavit dated November 16, 1994, Mr. Lapalme stated that starting in 1991 he charged a commission of 10% to 20% of total sales at auctions (Exhibit I-37).

[48] Mr. Lapalme also testified that the purpose of those auctions was to secure a certain budget for the specific campaigns of each of the organizations in question. He explained that no reserve price, that is, a minimum selling price, was set at charity auctions and that it was thus normal at such auctions for selling prices to correspond to 10% or 15% of the value assigned to the works.

Arguments of the Parties

[49] The appellant contends that he indeed donated artworks to various charities and that the fair market value of those works at the time of the donations corresponds to the value stated on the receipts issued by those organizations, which, in his view, are consistent with the requirements of the Act. He argues that he has discharged his burden of proving this through the testimony given at the hearing. The appellant also disputes the penalties assessed under subsection 163(2) of the Act since he contends that he did not under circumstances amounting to gross negligence make a false statement in his returns of income for the years in issue.

[50] The respondent on the other hand contends that the appellant is not entitled to the deduction for charitable gifts which he claims in respect of Entraide-Cancer Jeunesse Estrie, Fondation Don des Arts and La Maison d'Art Fra Angelico for the taxation years in issue. The respondent contends that the appellant cannot claim to have made genuine gifts to those organizations since, first, he did not prove that he had at some point owned the artworks in question, second, he did not show that he had the intent to give them and, third, he did not prove that he physically handed those works over to the various charities. The respondent moreover submits that the appellant did not supply receipts that were in compliance with the Act in the case of the receipts issued by Entraide-Cancer Jeunesse Estrie and by La Maison d'Art Fra Angelico. Lastly, the respondent contends that the appraisals on which the three charities relied in preparing their receipts were not valid since they were not done by an independent appraiser. According to the respondent, Mr. Amireault, who conducted all the appraisals of the artworks in issue herein, had a clear interest in the transactions done with the appellant and consequently could not be considered an independent and impartial appraiser. Furthermore, it is the respondent's view that he overstated the value of the artworks, given the prices paid to purchase them and the prices obtained when they were resold at auction. The respondent ends with the conclusion that in the instant case the Minister was justified in assessing the penalties under subsection 163(2). The respondent therefore requests that the appeals be dismissed (except, with respect to the 1993 taxation year, as regards an amount of $100 donated to another charity—having no connection with the instant case—which should have been considered in computing the credit for charitable donations allowed to the appellant for that year).

Analysis

[51] The first point at issue, which concerns the donations involved in these appeals, is whether the appellant actually donated the artworks listed on the certificates of appraisal submitted to the three charities which issued the receipts in his name. To be entitled to the credit for charitable donations, the appellant must show that he donated the works to the organizations in question. If he succeeds in this, the appellant must then prove that the value stated on the receipts was indeed the market value of those works at the time the donations were made.

[52] The deduction for gifts is provided for in subsection 118.1(3) of the Act, which reads as follows:

118.1(3)

(3) Deduction by individuals for gifts. For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted such amount as the individual claims not exceeding the amount determined by the formula

(A x B) + [C x (D – B)]

where

A is the appropriate percentage for the year;

B is the lesser of $200 and the individual's total gifts for the year;

C is the highest percentage referred to in subsection 117(2) that applies in determining tax that might be payable under this Part for the year; and

D is the individual's total gifts for the year.

[53] An individual's total gifts for the year is defined in subsection 118.1(1) as follows:

ARTICLE 118.1: Definitions.

(1) In this section,

"total charitable gifts" - "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,

[. . .]

"total gifts" - "total gifts" of an individual for a taxation year means the total of

(a) the least of

(i) the individual's total charitable gifts for the year,

(ii) the individual's income for the year where the individual dies in the year or in the following taxation year, and

(iii) in any other case [...] the individual's income for the year and

[. . .]

[54] In the instant case can it be said that the appellant made gifts to the charities in question?

[55] In The Queen v. Friedberg, 92 DTC 6031, the Federal Court of Appeal had to determine whether Mr. Friedberg had made a gift of ancient textiles to the Royal Ontario Museum ("ROM"). Mr. Friedberg had financed the ROM so that it could acquire the collection of ancient textiles from Mrs. Abemayor who wished to donate the collection to the museum. It was held at trial that Mr. Friedberg had owned the Abemayor collection before it was donated to the ROM. The trial judge made this finding because Mr. Friedberg had written cheques in the amounts required to purchase the collection to the order of Mrs. Abemayor, not the museum, and because he had retained ownership of some 30 pieces initially belonging to the collection which he had lent the ROM.

[56] In the trial judge's view, the existence of a document intended to pass title to Mrs. Abemayor's textiles to the ROM did not in any way alter the fact that it was Mr. Friedberg who had purchased the collection in order to lend it and ultimately give it to the ROM.

[57] The Federal Court of Appeal reversed that decision relying on the specific document intended to convey title from Mrs. Abemayor to the ROM and not to Mr. Friedberg. In so doing, the Court found that Mr. Friedberg had not made a gift of the ancient textiles to the ROM. Linden J.A. writes as follows at pages 6032-6034:

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 DTC 5433, at p. 5435:

The word gift is not defined in the statute. 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 DTC 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.

In tax law, form matters. A mere subjective intention, here as elsewhere in the tax field, is not by itself sufficient to alter the characterization of a transaction for tax purposes. If a taxpayer arranges his affairs in certain formal ways, enormous tax advantages can be obtained, even though the main reason for these arrangements may be to save tax (see The Queen v. Irving Oil 91 DTC 5106, per Mahoney, J.A.). If a taxpayer fails to take the correct formal steps, however, tax may have to be paid. If this were not so, Revenue Canada and the courts would be engaged in endless exercises to determine the true intentions behind certain transactions. Taxpayers and the Crown would seek to restructure dealings after the fact so as to take advantage of the tax law or to make taxpayers pay tax that they might otherwise not have to pay. While evidence of intention may be used by the Courts on occasion to clarify dealings, it is rarely determinative. In sum, evidence of subjective intention cannot be used to "correct" documents which clearly point in a particular direction.

The learned Trial Judge concluded that the plaintiff taxpayer had title to the Abemayor and Wilkinson Collections and was legally in a position to donate them to the ROM. He further held that "the existence of a document purporting to pass title of the textiles from Mrs. Abemayor to the ROM does not change my view of the situation." . . .

With respect, this conclusion was based on an error of law, in that the Trial Judge failed to appreciate the importance of the "document purporting to pass title" dated March 16, 1978, which legally transferred the title of the Abemayor Collection to the ROM, not to the taxpayer. . . .

It is clear that it is possible to make a "profitable" gift in the case of certain cultural property. Where the actual cost of acquiring the gift is low, and the fair market value is high, it is possible that the tax benefits of the gift will be greater than the cost of acquisition. A substantial incentive for giving property of cultural and national importance is thus created through these benefits. But not every gift will be found to benefit from these provisions. It all depends on how the transaction is characterized, for one cannot give what one does not own.

. . .

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. This may not have been his subjective intention, but the documentation points inexorably to that legal conclusion. On the Abemayor Collection issue, then, the Trial Judge erred and the appeal will be allowed.

   [My emphasis.]

[58] Applying this reasoning to the instant case, I cannot conclude from the documents filed in evidence and the testimony heard that the appellant donated the works of art listed on the three certificates of appraisal enclosed with the letters which he sent to the three charities requesting that they issue him a receipt accordingly.

[59] The appellant says that in 1991 he paid $2,800 in cash to purchase a set of paintings by various artists. The purchase order filed in evidence (Exhibit A-1) gives no description and identifies none of the paintings allegedly so acquired by the appellant. Mr. Amireault, who allegedly sold him this lot of paintings in 1991, provided the appellant in December 1992 with a certificate of appraisal listing five paintings appraised at $10,000 altogether, that is, almost four times the amount paid by the appellant. At the time of the purchase, the appellant had absolutely no idea what he was buying and, when the gifts were made, was unable to verify whether the paintings listed on the certificate of appraisal corresponded to what he had purchased. The receipt from Entraide-Cancer Jeunesse Estrie dated December 28, 1992 simply states the following:

[TRANSLATION]

Received from Richard Chabot

[Mr. Chabot's address]

The sum of ten thousand dollars

In respect of a charitable gift in 1992

$10,000.

[60] This receipt does not in any way indicate that the appellant donated works of art and, if he did, those works are not specified. It was Mr. Amireault, who knew Mr. Lapalme, Entraide-Cancer Jeunesse Estrie's representative, who had solicited this charity and appraised the artworks which he himself had chosen to donate. The appellant appears to have been kept out of all these dealings. The only important thing for the appellant was to obtain a tax benefit, regardless of how Mr. Amireault went about it.

[61] As Linden J.A. held in Friedberg, supra, a mere subjective intention is not by itself sufficient to alter the characterization of a transaction for tax purposes. The manner in which the transaction is characterized is thus important in determining whether a benefit may be conferred by a gift. In the instant case, the evidence is clearly insufficient to show that the works donated to Entraide-Cancer Jeunesse Estrie previously belonged legally to the appellant. In my view, for him to enjoy such a benefit, the purchase order would have had to state specifically the artworks the appellant was purchasing and the purchase price of each. It would then have been much easier for him to prove that the works that he had bought were the ones subsequently donated to the charity. As Linden J.A. stated, "In tax law, form matters." This first step is essential, in my view, in order to avoid abuses.

[62] Moreover I believe this was also the legislator's purpose in enacting subsection 118.1(2) of the Act, which reads as follows:

(2) A gift shall not be included in the total charitable gifts, total Crown gifts or total cultural gifts of an individual unless the making of the gift is proven by filing with the Minister a receipt therefor that contains prescribed information.

[63] Section 3500 of the Income Tax Regulations ("Regulations") defines an official receipt as a receipt containing the information provided for in section 3501 of the Regulations. The relevant portions of these sections read as follows:

PART XXXV

Receipts for Donations and Gifts

INTERPRETATION

3500. In this Part,

"official receipt" means a receipt for the purposes of subsection 110.1(2) or (3) or 118.1(2), (6) or (7) of the Act, containing information as required by section 3501 or 3502.

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.

[64] Thus, where the donation is a gift of property other than cash, the receipt must show the day on which the donation was received, a brief description of the property, the name and address of the appraiser of the property if an appraisal was done and the fair market value of the property at the time that the gift was made.

[65] The receipt issued by Entraide-Cancer Jeunesse Estrie appears instead to indicate a cash donation and provides none of the aforementioned details. However, it is clear that the appellant did not make a cash donation to this organization. The appellant said that he was not interested in making a cash donation since what he wanted was a receipt for a value greater than the cash amount he invested.

[66] I subscribe to the remarks by Judge Tardif of this Court in Nathalie Plante v. The Queen, [1999] T.C.J. No. 51 (Q.L.) on the importance of issuing receipts that are appropriate in the circumstances. Judge Tardif said at page 9 of his judgment:

[46] The requirements in question are not frivolous or unimportant; on the contrary, the information required is fundamental, and absolutely necessary for checking both that the indicated value is accurate and that the gift was actually made.

[47] The purpose of such requirements is to prevent abuses of any kind. They are the minimum requirements for defining the kind of gift that can qualify the taxpayer making it for a tax deduction.

[48] If the requirements as to the nature of the information that a receipt must contain are not met, the receipt must be rejected, with the result that the holder of the receipt loses tax benefits. Accordingly, even though a taxpayer may have made a gift of a painting, he or she cannot claim the potential deduction if the appraisal and the receipt issued for the gift do not comply with the requirements of the Act and the Regulations made thereunder.

[67] In the instant case, the testimony given by the appellant, Mr. Amireault and Mr. Lapalme did not sufficiently explain all the deficiencies with respect to the documentation.

[68] Mr. Amireault merely said that he had made a selection of works for the purposes of making a gift of them on the appellant's behalf. He was even confused during his testimony when he observed that four of the five works listed on the certificate of appraisal dated December 14, 1992 likely came from the Gingras estate and thus would not have been purchased until the following year, 1993. If Mr. Amireault acted as the appellant's mandatary, it was his duty to inform the appellant of the exact works that he purchased and the purchase price of each of those works. He could not merely select any work at all without any supporting documentation.

[69] I conclude from all this that the appellant did not show on the balance of probabilities that he was the owner of the five paintings which he claims to have donated to Entraide-Cancer Jeunesse Estrie in 1992. To borrow Linden J.A.'s words in Friedberg, supra, that may have been his subjective intention, but the documentation filed in evidence points inexorably to this legal conclusion: that the appellant did not own the works.

[70] As to 1993 and 1994, the evidence does not establish any more clearly that the appellant was the legal owner of the artworks listed on the certificates of appraisal dated December 15, 1993 and December 12, 1994.

[71] The appellant testified that he donated the artworks that he had purchased for $2,500 through his interest in the Gingras estate. In the months after he purchased his interest in that estate, Mr. Amireault provided the appellant with a list of all the paintings and sculptures belonging to the collection. Moreover, the certificate of appraisal dated December 15, 1993 prepared by Mr. Amireault lists nine artworks by Lui Feito, Marcellin Dufour, Olaf Hanel, Luigi Cosentino and Yvan Putara. An official receipt for $15,000 listing each of these works was issued to the appellant by the Fondation Don des Arts on December 22, 1993. The certificate of appraisal dated December 12, 1994 prepared by Mr. Amireault lists six works by Lise Gervais and two by Daniel Lavoie. In this last case, an official receipt dated December 18, 1994 was issued to the appellant by La Maison d'Art Fra Angelico; it stated simply: [TRANSLATION] "[. . .] received $8,000".

[72] None of these works belonged to the estate collection. Mr. Gingras confirmed this. Furthermore, none of these works appears on the complete handwritten list of the paintings that was provided by the estate. Mr. Amireault tried to explain that he exchanged paintings with other art gallery owners and that this would explain why the appellant donated works that did not belong to the estate collection.

[73] Once again, this evidence is insufficient to show that the appellant was the legal owner of the donated works. If Mr. Amireault actually made such exchanges, he should have informed the appellant of the fact and provided a more accurate report on those various transactions. Although it is permissible to go about things informally in this particular milieu, such conduct is unacceptable where the specific purpose of the transactions is to secure a tax benefit, which the appellant admitted on a number of occasions was in fact the case. The appellant was not interested in buying paintings, but solely in the tax benefit that donating the paintings could afford him. It is in evidence that, for 1993 and 1994, he requested receipts for amounts equal to nine times the amount he had invested. While it is true that the paintings he claims to have donated were worth this amount, in view of the price paid, he should at least have made satisfactory and somewhat more formal arrangements to ensure that he actually owned the paintings.

[74] In Paul Robert Décarie v. The Queen, [1998] T.C.J. No. 412 (Q.L.), Judge Lamarre Proulx writes as follows at page 6:

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.

[75] In addition, the receipt issued by La Maison d'Art Fra Angelico also appears to indicate a cash donation as it provides no details on the paintings donated. In this instance as well the evidence shows clearly that the appellant did not make cash donations to this organization. Moreover, only the receipt issued by the Fondation Don des Arts in 1993 meets the requirements of the Regulations. However, as counsel for the respondent emphasized, the descriptions given in the Fondation's auction catalogues after the receipt was issued in December 1993 (Exhibits I-34 and I-35) are not sufficiently similar to those given by Mr. Amireault in his certificate of appraisal to allow one to conclude that the works that the appellant claims to have donated were in fact clearly given to and accordingly owned by that organization.

[76] I therefore conclude that the appellant did not show on the balance of probabilities that he donated the artworks listed on the certificates of appraisal provided by the Galerie D'Art Annie-Claude in 1993 and 1994. The evidence is insufficient to show that the appellant was the legal owner of the works at the time the gift was made. Furthermore, the evidence is clear that the appellant made no cash donation to either of the two charities concerned.

[77] In view of my conclusion, I need not conduct a thorough analysis of the issue of market value. I will simply say that the burden was on the appellant to prove, with the aid of independent experts, the market value that he assigned to each of these works (see Réjean Gagnon v. The Queen, [1991] T.C.J. No. 655 (Q.L.) and Gaétan Paradis v. The Queen, [1996] T.C.J. No. 1638 (Q.L.)). I agree with counsel for the respondent that Mr. Amireault's testimony cannot be considered that of an independent, impartial expert. He profited through his dealings with the appellant. For example, Mr. Amireault was to receive [TRANSLATION] "a 10% commission on [the appellant's] paintings" when the estate collection was purchased. It was also Mr. Amireault who himself took care of finding the charity, decided on the paintings he would donate and appraised them. For this, he also charged the appellant appraisal fees based on a percentage of the appraisal. His conduct with the broker Larivière clearly shows that he profited by selling tax benefits, taking advantage of charities for that purpose. In light of all this, he certainly cannot be considered an objective expert witness in the instant case.

[78] As to the testimony given by Messrs. Harrisson and Borenstein, it appears from the evidence adduced that the two appraised the various artworks without seeing them, simply from price lists provided by the artists and based on the dimensions of each work. I believe Mr. Harrisson's testimony must be rejected. He was unable to testify as an expert witness because he did not receive a mandate to do so and did not provide an expert report as he was required to do under section 145 of the Tax Court of Canada Rules (General Procedure) ("Rules"). Furthermore, his testimony loses all credibility as a result of the contradictions cited above in my reasons for judgment. Nor do I accept the testimony of Mr. Borenstein, who cannot qualify as an expert in the circumstances. On the evidence adduced, he was clearly in conflict of interest since he himself had appraised works of Lise Gervais so that he could personally obtain a benefit from the Canadian tax authorities. It is also in evidence that the works he appraised for his own benefit were sold at auction at far lower prices. Furthermore, Mr. Borenstein was not instructed by the appellant to prepare an expert report on the works in question here and did not file a report that met the requirements of the Rules. In addition, his appraisal was not based on any specific analysis of the works in question, which he clearly had not been able to inspect personally or to authenticate, as he stated in his appraisal.

[79] The artist Guy Lalonde said himself that he did not know the market value of his works. He also mentioned that he no longer produced 30" x 40" paintings (like one of the paintings here in issue) because there were no buyers for this type of painting. His testimony therefore cannot be of any help to the appellant's case.

[80] Michel Jacques and Bertrand Lapalme both said that they accepted the appraisals by Mr. Amireault and Mr. Borenstein without any other verification. They therefore cannot be considered independent experts. Moreover they were not called to testify in that capacity. In addition, based on the resale value at auction of the works by the various artists concerned, the appraisals would appear to have been over-optimistic. Although Mr. Lapalme emphasized that resale values at auction could be 10% or 15% of the value assigned to the works, the evidence before me is clearly insufficient—not to mention its being devoid of any objectivity—for me to conclude that the market value of the paintings in issue was that which the appellant wishes to assign them. I therefore find that the appellant did not prove the market value he assigned to each of the works he claims to have donated during the years in issue.

Penalties

[81] The Minister assessed the appellant penalties under subsection 163(2) of the Act on the ground that he knowingly, or under circumstances amounting to gross negligence, made false statements in his returns of income.

[82] The evidence showed that the appellant had no other intention than to purchase a tax deduction. He clearly let it be known that he would not have donated amounts of money equivalent to the amount he claimed as a deduction. He was content to entrust the entire matter to Mr. Amireault without further concerning himself with the works he was buying, what was donated and the origin of the works and especially without asking himself too many questions about the values assigned by Mr. Amireault, which were almost four times greater in the case of the first lot and nine times greater in the case of the second lot than what he had paid (assuming that the appellant actually paid the amounts he says he paid in cash without making any withdrawals from his bank account). In the case of the Gingras estate, he deliberately failed to show the Minister the list of paintings purchased when he was asked for proof of purchase. This suggests that the appellant was aware of the deficiencies with respect to the donation of artworks which he claims to have made in order to benefit from a tax credit.

[83] Judge Dussault's remarks in Réjean Gagnon, supra, apply here:

The evidence submitted clearly shows that the appellant was told of what he referred to as a "tax shelter" that would enable him to obtain a tax deduction, and he accepted a transaction organized by a colleague at work which essentially consisted of buying and then donating stained-glass windows for a church. Although the appellant said he checked with some colleagues to see if such a practice was common and legal, his statement and his evidence clearly show that he accepted the proposal with the assurance that the receipt he would be given for tax purposes would be much greater than the amount spent. I do not believe that a reasonable and even slightly well-informed person could accept such a proposal concocted by third parties, suggesting at the outset that the value and the amount of the receipt will be obviously falsified. I do not think a reasonably intelligent and prudent person could seriously claim to have made an honest gain through a charitable donation in such circumstances. While this may be a standard method of planning to some, it seems to me to be legally unsupportable and completely unacceptable.

If the appellant did not know the exact amount of the valuation until after he had agreed to his colleague's proposal, as he claimed, and despite the fact that his cheque was dated after both the valuation and the dates on the invoice and receipt, a value of five times the amount spent should have alerted him. [. . .]

I conclude from the entire conduct of the taxpayer as revealed in the evidence that there is certainly room for some serious doubts as to his good faith and his credibility in this whole affair. I believe that, if he did not knowingly take risks with full knowledge of the facts, he at least closed his eyes to circumstances which should both have alerted him and made him act with greater caution, to say the least. As I see it, the fact that the appellant conducted no more thorough examination before or after the transaction amounts in the circumstances to more than simple negligence. It constitutes gross negligence. I therefore consider that the penalty assessed was correct.

[84] For the same reasons I find that the penalties are justified in the circumstances. Accordingly, the appeals for the 1992 and 1994 taxation years are dismissed. The appeal from the assessment made for the 1993 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant is entitled to an amount of $100 donated to another charity (having no connection with the instant case) which should have been taken into account in computing the credit for charitable donations granted to the appellant for that year. The assessment for

the 1993 taxation year remains unchanged in all other respects. The respondent is entitled to all her costs.

Signed at Ottawa, Canada, this 27th day of January 2000.

"Lucie Lamarre"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Traduction certifiée conforme ce 13^e jour de mars 2000.

Erich Klein, réviseur