REASONS
FOR JUDGMENT
Lamarre A.C.J.
[1]
The appellant is appealing from an assessment
made by the Minister of Revenue of Quebec (Minister) under the Excise
Tax Act (ETA) dated November 20, 2012, in which it is being asked to
pay $14,082.56 for the Goods and Services Tax (GST) plus interest. The
assessment results from the sale of an immovable located at 2560 to 2580 Georges
Avenue, in Montréal, to the appellant’s majority shareholder,
Moheub Ismail, and his spouse for the total amount of $510,000, taxes
included.
[2]
There is no dispute that, since the appellant sold
the property to persons with whom it does not deal at arm’s length, the disposition
was to be at the Fair Market Value (FMV) for GST purposes, under section 155
of the ETA.
[3]
In making the assessment, the Minister considered
that the property’s Fair Market Value at the time of the sale, October 6, 2010,
was at least equivalent to the municipal assessment by the City in the amount
of $575,000 (taxes included) as of July 1, 2009.
[4]
This value therefore exceeds by $65,000 the
proceeds of disposition established by the appellant.
[5]
Mr. Ismail provided the only testimony on
behalf of the appellant. He challenges the Minister’s assumption that the FMV is
equivalent to the municipal assessment.
[6]
He explained that he established the proceeds of
disposition to be $510,000, that is, the assessment arrived at by the bank upon
obtaining financing for the construction of the immovable, on July 10, 2009.
[7]
The bank had at the time granted financing by
assessing the hypothecary security at $510,000 (Exhibit A‑1). The [Translation] ‟immovable
hypothec financing agreementˮ provides, in its terms and
conditions, that the bank makes a loan that must be secured by an immovable hypothec
on the immovable, on forecast rent from the immovable and on insurance benefits
covering said rent (Exhibit A‑1, page 2, 1st condition). Upon
reading the document, there is no indication that the value assigned to the
immovable as such is $510,000.
[8]
The immovable was built in one year and sold by the
appellant to Mr. Ismail and his spouse on October 6, 2010, for $510,000 (Exhibit A‑2,
and Exhibit I‑1, Tab 1).
[9]
Daniel Mann, appraiser for the City of
Montréal, testified on behalf of the respondent. He explained that the City had
received an application for a permit to build the immovable, which was granted
on August 28, 2009.
[10]
A City inspector showed up on April 7, 2011,
to conduct an inspection upon completion of the immovable’s construction and
complete a technical report.
[11]
Mr. Mann then went on to conduct a
municipal assessment of said property, based on the inspection report. He
stated that he then conducted a comparable sales analysis of 11 properties
built between 2003 and 2009. Those sales ranged between $180 per square foot
and $242 per square foot. He assessed the immovable at issue at
$213 per square foot (as opposed to the appellant’s assessment of $188 per
square foot). He stated that he took the lower value of $213 taking into
account the sale of immovables located in comparable locations.
[12]
The property in question here has an area of 250 m2
and is located across from refineries containing storage tanks for oil
and gas.
[13]
In particular, Mr. Mann considered the sale
of two properties located a short distance from Notre‑Dame Street East in
Montréal, in an industrial port and rail area with frequent heavy vehicle
traffic.
[14]
The two immovables were sold in November 2008, had
an area of 182 m2 and sold for $228 per square foot.
[15]
The assessment certificate of the property at
issue on the assessment role for 2011 to 2013 was filed on September 15, 2011,
was effective from May 1, 2011, and indicated a total value of $575,000 established
as of July 1, 2009 (Exhibit I‑2).
[16]
According to said assessment certificate, this was
the actual value, which was defined as the price most likely to be paid in the free and open market, under section 43 of An Act Respecting Municipal Taxation, CQLR,
c F-2.1 (Exhibit I‑2, 4th last page).
[17]
For his part, Mr. Ismail did not dispute the
municipal assessment and paid the property tax accordingly.
[18]
Also, Mr. Ismail filed in evidence the municipal
assessment of another property he owns in an attempt to show that the municipal
assessment in 2015 overvalued the property by comparison with the assessment he
himself had done for this other property (Exhibit A‑8).
Statutory provisions
relied upon by the respondent
ETA
Non-arm’s length
supplies
155. (1) For the purposes of this Part, where a supply of property or a
service is made between persons not dealing with each other at arm’s length for
no consideration or for consideration less than the fair market value of the
property or service at the time the supply is made, and the recipient of the
supply is not a registrant who is acquiring the property or service for
consumption, use or supply exclusively in the course of commercial activities
of the recipient,
(a) if
no consideration is paid for the supply, the supply shall be deemed to be made
for consideration, paid at that time, of a value equal to the fair market value
of the property or service at that time; and
(b) if
consideration is paid for the supply, the value of the consideration shall be
deemed to be equal to the fair market value of the property or service at that
time.
Assessment deemed
valid
299. (4) An assessment shall, subject to being reassessed or vacated as a
result of an objection or appeal under this Part, be deemed to be valid and
binding, notwithstanding any error, defect or omission therein or in any
proceeding under this Part relating thereto.
An Act
Respecting Municipal Taxation
42. The roll must indicate the value of each unit of
assessment, on the basis of its actual value.
The values entered on the roll of a local municipality must, on the
whole, tend to represent the same proportion of the actual value of the units
of assessment.
No motion or action to quash or set aside the roll or any entries on the
roll may be brought on the ground of a contravention of the second paragraph.
43. The actual value of a
unit of assessment is its exchange value in the free and open market, that is,
the price most likely to be paid at a sale by agreement made in the following
conditions:
(1) the vendor and the purchaser are willing,
respectively, to sell and to purchase the unit of assessment, and they are not
compelled to do so; and
(2) the vendor and the purchaser are reasonably
informed of the condition of the unit of assessment, of the use that can most
likely be made of it and of conditions in the property market.
Arguments of the parties
[19]
The respondent is of the view that the assessment
relied on by the bank to grant financing for the construction of the immovable cannot
be used to establish the property’s FMV once the immovable was built. This argument
is based on the fact that it was not in the bank’s interest to overvalue the property
so as to limit funding.
[20]
The respondent criticized the appellant for not
having provided an assessment once the construction was complete. She also
noted that the appellant did not dispute the municipal assessment. The
respondent stated that, according to Mr. Mann’s testimony, the City
balanced the value of the property in 2012, thus increasing the property’s value
by 9% between July 2009 and July 2012.
[21]
According to counsel for the respondent, the
value established by Mr. Mann as of July 1, 2009, and considered to be the
FMV at the time of disposition on October 6, 2010, is advantageous for the
appellant, as, according to the balancing factor, said value would have normally
increased between July 1, 2009, and October 6, 2010. According to him, the
value used is entirely reasonable, as it was at the lower end of comparable sales.
[22]
Thus, the respondent submits that the appellant’s
evidence did not rebut the presumption that the assessment was valid under
subsection 299(4) of the ETA. Counsel for the respondent relied on a Court of
Québec case, Pennino c. Québec (Sous‑ministre du Revenu),
2008 QCCQ 7987, to argue that the best evidence to rebut the presumption of
validity of a value entered on the roll is generally from assessment experts (the
respondent also referred to Communauté urbaine de Montréal c. 150528 Canada
Inc., 1998 CanLII 12503 (QCCA) and St‑Georges c. Québec (Sous‑ministre
du Revenu), 2007 QCCA 1442).
[23]
The appellant is of the view that the City’s
assessment is not objective as the City has an interest in it being higher for
the purpose of collecting property taxes.
Analysis
[24]
The only issue is the Fair Market Value of the property
as of October 6, 2010. The definition of FMV, as adopted by the courts, can be
found in Henderson Estate v. Canada, [1973] F.C.J. No. 800 (QL), at
paragraph 20, 73 DTC 5471, at page 5476). Judge Cattanach states as
follows:
The statute does not define the expression ‟fair market valueˮ, but the expression has been defined in many
different ways depending generally on the subject matter which the person
seeking to define it had in mind. I do not think it necessary to attempt an
exact definition of the expression as used in the statute other than to say
that the words must be construed in accordance with the common understanding of
them. That common understanding I take to mean the highest price an asset might
reasonably be expected to bring if sold by the owner in the normal method
applicable to the asset in question in the ordinary course of business in a
market not exposed to any undue stresses and composed of willing buyers and
sellers dealing at arm’s length and under no compulsion to buy or sell. . . .
[25]
Although this definition was proposed in the
application of the Dominion Succession Duty Act, R.S.C. 1952,
c. 89, it has been reiterated on a number of occasions by the judges of
this Court, even when the FMV of an immovable property was at issue (see, inter
alia, Qureshi v. The Queen, 2006 TCC 485 (Chief Justice Bowman) at
paragraph 15).
[26]
This definition is also very similar to the definition
of actual value in An Act Respecting Municipal Taxation.
[27]
The case law is clear that both the amount of
the loan obtained with a hypothec guarantee and the municipal assessment can serve
as indicators in establishing the FMV (see Dufour v. The Queen,
2003 TCC 685; Beaudry v. The Queen, 2003 TCC 464).
[28]
In some cases, it was observed that the amount
loaned by the financial institutions was lower than the value of a commercial
immovable (Descormiers v. The Queen, 1999 CanLII 246 (TCC).
[29]
In other cases, it was determined that the municipal
value is generally different from the price at which property will be sold on
the free market (Somers v. The Queen, 2008 TCC 239; Chartrand v.
The Queen, 2010 TCC 92).
[30]
In other situations, it was held that municipal
assessments can be of doubtful probative value if the appraiser who made them is not called (Stafford, Stafford & Jakeman v.
Canada, [1995] A.C.I. no 89 (QL)).
[31]
The fact of not contesting the municipal
assessment was also considered as leading one to believe that the municipal
assessment was not exaggerated (Beaudry, supra, paragraph 49).
[32]
Furthermore, it has already been indicated that the
fact that municipal assessments are not made annually and that they are not as a rule prepared by qualified appraisers
make it so that these assessments are generally not acceptable as appropriate
for the purpose of determining what the property would be worth on the open
market (Arseneau v. The Queen, 2004 TCC 739).
[33]
Thus, this Court has already held that the
taxpayer could not rely solely on a municipal assessment to establish, on a prima
facie basis, that the valuation assumed by the Minister in making the assessment
was different from the FMV (Truong v. The Queen, 2011 TCC 380). In
that case, the municipal assessment established the property’s value a year and
a half prior to the date of the property’s transfer. However, in St‑Denis
v. The Queen, 2013 TCC 179 (affirmed by the Federal Court Appeal, 2014 FCA
217), the Court accepted the FMV established by the Minister through the municipal
assessment, as the taxpayer presented no evidence to the contrary. Chief
Justice Rip (as he then was), wrote as follows at paragraphs 44 and 45:
44 It is well established that the municipal assessment, while
relevant in determining the fair market value of a property, is not by itself
representative of the fair market value of that property. This was the
conclusion reached by Campbell J. in Truong v. Canada, 2011 DTC 1275, at
para. 27 and Webb J. in Somers v. Canada, (QL), at para. 38. However,
the assessment of property taxes may be accepted as one of a number of
indicators of the fair market value of a property (Truong, supra,
at para. 27).
45 The appellant did not present any evidence enabling him to
discharge his burden of showing that the respondent’s assessment of the fair
market value of the Property is erroneous (see, for example, Truong, supra,
at para. 27 and Côté-Sicé v. Canada, [1999] T.C.J. No. 1363 (QL), at
para. 8). As a result, I must accept the Minister’s position that the fair
market value of the Property at the time of the transfer was $161,400.
[34]
The onus is therefore on the appellant to demolish
the Minister’s assumption as to the FMV of the property, and to this end, it
must adduce evidence in that respect.
[35]
In the case at bar, Mr. Ismail submitted as
evidence the document from the financial institution that granted him a loan
and setting the amount of the hypothecary guarantee at $510,000.
[36]
No expert, however, came to explain the basis
for the financial institution’s assessment.
[37]
For her part, the respondent called the City
appraiser, who explained how he arrived at the value. He considered several comparable
sales and chose two that were similar to our property.
[38]
In this particular case, the municipal
assessment was conducted in 2011 and reflected the value on the role in 2009. That
value was subsequently, in 2012, balanced on the basis of a 9% assumed increase
between 2009 and 2012. The property was sold in 2010.
[39]
One of the elements raised by the case law to
discard the municipal assessment is that it is not concomitant with the moment
at which an attempt was made to establish the FMV.
[40]
In my opinion, and after careful reflection, I
believe the appellant has not provided sufficient evidence to demolish the
Minister’s assumption that the FMV was established at the time of the municipal
assessment, namely, July 1, 2009.
[41]
No expert came to support the contention that
the financial institution’s assessment for the purpose of financing the
construction of the immovable is equivalent to the property’s FMV, once the
immovable was built, at the time of disposition of said property.
[42]
Mr. Ismail filed in evidence an assessment he had
done by qualified appraisers on another property, showing that the FMV of that property was lower
than the municipal assessment in 2015 (Exhibit A‑8). Unfortunately
for the appellant, I am of the view that this does not help his cause with
respect to the property at issue. That assessment does not concern either the property
or the year at issue. I am unable to establish, without the assistance of a
witness who has some expertise in the field, that an assessment by qualified appraisers would have yielded a FMV lower than the municipal assessment of the property in
question in 2009.
[43]
In addition, after having reviewed the evidence,
I consider that the respondent has demonstrated, through the City appraiser’s testimony, that
the value assigned was similar to the property’s FMV at the time of the sale. Indeed,
it is my view that said assessment was done at about that very same time, considering
the sales that were quite similar to property in question. The fact that Mr.
Ismail has attempted, unsuccessfully, to sell his property since 2013 cannot affect
the value of the property in 2009. There are too many factors that can come
into play over a period of four years.
[44]
Furthermore, the value established in 2009 was
balanced in 2012, establishing an increase value of 9% between 2009 and 2012. The
value of $575,000 used by the City in July 2009 and assigned by the
respondent to the property at the date of the transfer in 2010 would therefore be
advantageous for the appellant.
[45]
In the circumstances, I think the appellant also
failed to adduce sufficient evidence to demolish the Minister’s assumption that
the property’s FMV was $575,000 at the time of the disposition.
[46]
The appeal is therefore dismissed.
Signed at Ottawa,
Canada, this 8th day of September 2015.
“Lucie Lamarre”
Translation certified true
on this 21st day of October 2015
Daniela Guglietta,
Translator
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