REASONS
FOR JUDGMENT
Lamarre A.C.J.
[1]
This is an appeal from a reassessment made by
the Minister of National Revenue (Minister) under section 325 of the Excise
Tax Act (ETA). According to the reassessment
dated December 4, 2012 (number F-041196), the assessment amount is $11,287.27
(Exhibit I-1, tab 4). At the hearing,
counsel for the respondent revised the assessment amount to $10,109.67. Martin Rochette, a financial management officer with the
Agence du revenu du Québec (ARQ), explained that amount. The calculations are at tab 7 of Exhibit I-1, and Mr. Rochette
explained that the assessment amount had been reduced in order to take into
account the interest portion only until the date of forfeiture of the property,
which I will discuss below and which is the subject of this appeal.
[2]
The appellant is married to
Jean-Noel Gagné under the regime of separation as to property in the province
of Quebec, pursuant to an agreement signed by them on July 5, 1984
(Exhibit A-1). Under the
agreement, Mr. Gagné made a [Translation]
“gift inter vivos and in fee simple of the amount of [$25,000] to the
[appellant], from the date of the solemnization of their marriage, which [would
become] payable on the death of the future husband. However, he [reserved] the right to pay that amount, in full
or in part, at any time during the marriage, either in money or by transferring
movable or immovable property to the future wife” (clause 5).
[3]
That agreement was amended
on December 18, 1990, following the coming into force of the Act to Amend
the Civil Code of Québec and Other Legislation in Order to Favour Economic
Equality Between Spouses (Exhibit A-2 and the appellant’s testimony). Thus, the spouses expressed their wish to
not be subject to articles 462.1 to 462.13 of the Civil Code of Québec
(CCQ) regarding the family patrimony of spouses. They took advantage of it to amend some clauses of their marriage
contract. Accordingly, clause 5 cited above
now provided, in the same words, that the husband would make a gift of $300,000
(instead of $25,000). Clause 7 provided
that, if a judgment of separation from bed and board or of divorce was rendered
between the spouses, any gifts executed between the spouses under their
marriage contract would be divided in half with the agreement that the spouses’
principal family residence should be considered as being given in half to the
spouse who is not its registered owner.
[4]
On September 26, 2008, Mr.
Gagné made a gift inter vivos to the appellant of the undivided half of
an immovable comprised of a [Translation]
“parcel of land . . . with a building built on the lot” located in St-Ludger,
Quebec. The gift was given in
execution of the gifts set out in the marriage contract, and, in particular, of
a gift of $40,000 (Exhibit A-3).
[5]
When he made that gift, Mr.
Gagné owed $49,962.07 to the Canada Revenue Agency (CRA) under subsection
323(1) of the ETA. Indeed,
according to the assessment dated June 9, 2010, Mr. Gagné was assessed as
a director for the amount of net tax that Construction J.N. Gagné Inc.
(corporation) should have paid for the periods from October 1, 2003, to
October 31, 2008 (Exhibit I‑1, tab 5, pages 1‑2).
[6]
On November 17, 2008, the
ARQ, on behalf of the CRA, requested that a certificate stating that the
corporation was in default of paying $62,488.58 be registered with the Federal
Court under section 316 of the ETA. The certificate was registered on January 22, 2009 (Exhibit
I-1, tab 5, page 3).
[7]
Mr. Rochette explained that
before assessing Mr. Gagné as a director, the ARQ had tried to enforce the
execution of the corporation’s debt. Because the corporation had filed a Notice
of Objection, Mr. Rochette concluded a partial agreement with Mr. Gagné in
March 2009 in which the corporation undertook to pay $200 per month while
waiting for a final settlement. On September 25, 2009, the corporation allegedly gave an NSF cheque
and the partial agreement had ended.
[8]
A writ of seizure and sale
was then served on the corporation on October 2, 2009 (Exhibit I‑1,
tab 5, pages 5‑6) and a nulla bona return of movable
property to be seized was prepared by the bailiff on February 23, 2010
(Exhibit I‑1, tab 5, page 8).
[9]
Mr. Gagné had been the sole
director since May 7, 2002 (according to the amending declaration filed with
the Inspector General of Financial Institutions of Quebec on May 7, 2002,
and after that no amendments were made with regard to Mr. Gagné’s
withdrawal as director in the amending declaration dated September 24,
2008, in which he still appears to be the sole shareholder (Exhibit I‑1,
tab 5, pages 46‑54). He was therefore assessed under
section 323 of the ETA on June 9, 2010 (Exhibit I-1, tab 5, page 1).
[10]
According to Mr. Rochette,
Mr. Gagné’s only asset was his undivided half of the property located in
St-Ludger, which he transferred to the appellant on September 26, 2008. That was how the appellant became liable,
under section 325 of the ETA for the amount owed by her husband.
[11]
The appellant knew that the
corporation was having financial difficulties and that it had undergone a tax
audit, but did not think that the corporation’s debt could be collected from their
personal property.
[12]
The nature of the assessment
made in respect of Mr. Gagné was not explained to the appellant either by
Mr. Rochette or by the objections officer, Patrick Palo Fotaras. Mr. Fotaras did not accept that the
transfer of the undivided half of Mr. Gagné’s property to the appellant
was a gift inter vivos under the marriage contract. According to him,
the gift set out in the marriage contract is a gift mortis causa, which
was not payable to the appellant before the death of her husband. Accordingly, the ARQ is of the opinion that the appellant
gave no consideration for the undivided half of the property transferred to her
by her husband.
Statutory provisions
[13]
EXCISE TAX ACT
323(1) Liability of directors. If a corporation
fails to remit an amount of net tax as required under subsection 228(2) or
(2.3) or to pay an amount as required under section 230.1 that was paid to, or
was applied to the liability of, the corporation as a net tax refund, the
directors of the corporation at the time the corporation was required to remit
or pay, as the case may be, the amount are jointly and severally, or
solidarily, liable, together with the corporation, to pay the amount and any
interest on, or penalties relating to, the amount.
323(2) Limitations. A director of a corporation is not liable under subsection
(1) unless
(a) a certificate for the amount of the
corporation’s liability referred to in that subsection has been registered in
the Federal Court under section 316 and execution for that amount has been
returned unsatisfied in whole or in part;
(b) the corporation has commenced
liquidation or dissolution proceedings or has been dissolved and a claim for
the amount of the corporation’s liability referred to in subsection (1) has
been proved within six months after the earlier of the date of commencement of
the proceedings and the date of dissolution; or
(c) the corporation has made an
assignment or a bankruptcy order has been made against it under the Bankruptcy
and Insolvency Act and a claim for the amount of the corporation’s liability
referred to in subsection (1) has been proved within six months after the date
of the assignment or bankruptcy order.
323(4) Assessment. The Minister may assess any person for any amount payable
by the person under this section and, where the Minister sends a notice of
assessment, sections 296 to 311 apply, with such modifications as the
circumstances require.
323(5) Time limit. An assessment under subsection (4) of any amount
payable by a person who is a director of a corporation shall not be made more
than two years after the person last ceased to be a director of the
corporation.
325(1) Where at any time a person transfers property,
either directly or indirectly, by means of a trust or by any other means, to
(a) the transferor’s spouse or common-law partner or an
individual who has since become the transferor’s spouse or common-law partner,
(b) an individual who was under eighteen years of age, or
(c) another person with whom the transferor was not dealing at
arm’s length,
the transferee and transferor are jointly and severally liable to pay under
this Part an amount equal to the lesser of
(d) the amount determined by the formula
A - B
where
A
is the amount, if any, by which the fair market value of the property at that
time exceeds the fair market value at that time of the consideration given by
the transferee for the transfer of the property, and
B
is the amount, if any, by which the amount assessed the transferee under
subsection 160(2) of the Income Tax Act in respect of the property
exceeds the amount paid by the transferor in respect of the amount so assessed,
and
(e) the total of all amounts each of
which is
(i) an amount that the transferor is liable to
pay or remit under this Part for the reporting period of the transferor that
includes that time or any preceding reporting period of the transferor, or
(ii) interest or penalty for which the
transferor is liable as of that time,.
but nothing in this subsection limits the liability of the transferor
under any provision of this Part.
325(2) The
Minister may at any time assess a transferee in respect of any amount payable
by reason of this section, and the provisions of sections 296 to 311 apply,
with such modifications as the circumstances require.
CIVIL CODE OF
QUÉBEC
CHAPTER II
GIFTS
SECTION I
NATURE AND SCOPE
OF GIFTS
.
. .
Art. 1807 A gift inter vivos is one whereby there is actual divesting of the donor, in
the sense that the donor actually becomes the debtor of the donee.
The divesting of the donor is not prevented from
being actual by the fact that the transfer or delivery of the property is
subject to a term or that the transfer is with respect to certain and
determinate property which the donor undertakes to acquire or property
determinate only as to kind which the donor undertakes to deliver.
Art. 1808 A
gift mortis causa is one whereby the divesting of the donor remains
conditional upon his death and takes place only at that time.
SECTION V
GIFTS MADE BY MARRIAGE OR
CIVIL UNION CONTRACT
Art. 1839
Gifts made by marriage or civil union contract may be inter vivos or mortis
causa.
They are valid only if the contract takes
effect.
Issues
[14]
The main issue is whether
Mr. Gagné’s gift of his undivided half of the property constitutes a gift inter
vivos pursuant to his marriage contract under the Quebec civil law.
[15]
Indeed, the respondent
agrees in saying that, if the gift set out in the marriage contract is in fact
a gift inter vivos, the assessment against the appellant would not stand
because Mr. Gagné would have transferred his half as consideration for fulfilling
his obligation to make a gift in the same amount. However, the respondent argues that the gift set out in the
contract was a gift mortis causa and was not payable to the appellant
during the husband’s lifetime. According to
the respondent, Mr. Gagné did not irrevocably
divest himself of the gift amount when the marriage contract was signed, which
would have made him the appellant’s debtor for life. Accordingly, Mr. Gagné had no obligation or debt to the
appellant. In giving the appellant his
undivided half, he did so of his own free will, not under a contractual
obligation.
[16]
For her part, the appellant
argues that it was a gift inter vivos because the payment obligation began
on the day that the marriage contract was signed, but that the obligation is
subject to a term in the sense that it may be fulfilled at the time of death.
[17]
Alternatively, the appellant
submits that the onus is on the respondent to prove the existence of
Mr. Gagné’s debt, not on her to prove that the debt does not exist. She cites cases decided by this Court: Gestion
Yvan Drouin Inc. v. The Queen, 2000 CanLII 407, 2001 DTC 72, and Mignardi
v. The Queen, 2013 TCC 67.
Analysis
Alternative argument
[18]
I will first discuss the alternative
argument raised by the appellant. In Gestion Yvan Drouin, the company appellant was
assessed under section 160 of the Income Tax Act (ITA) for a
related company’s unpaid assessment. The Court
accepted the argument that the onus was on the respondent to establish the
existence of the related company’s tax debt. The underlying reasoning is that
the Minister is in a better position than the third party who was assessed
under section 160 of the ITA (since the third party does not have access
to the related company’s documentation) to establish a prima facie case
for the existence of the debt.
[19]
In Mignardi, the
taxpayer was assessed under section 323 of the ETA for the unpaid tax of a
corporation of which he was a director. However, the Court warned against a systematic shifting of the burden
of proof. The burden of establishing the tax
debt is on the Minister only when he has exclusive or particular knowledge of
the facts related to the underlying tax debt. Indeed,
when the taxpayer is able to obtain this information from the original tax
debtor, there is no need to shift the initial burden of proof. The onus is
therefore on the taxpayer to rebut the Minister’s assumptions of fact.
[20]
In this case, the Minister
established in his assumptions of fact that Mr. Gagné owed an unpaid
amount under the ETA. Mr.
Gagné was the sole shareholder and the sole director of the corporation, which
was in default of its tax payments. The appellant is Mr. Gagné’s wife. She was aware of the corporation’s financial difficulties.
Her husband, Mr. Gagné, was present in the courtroom
with her. She was certainly able to obtain the
information needed to challenge the underlying assessment. To quote the Federal Court of Appeal in Orly Automobiles
Inc. v. Canada, 2005 FCA 425, the burden of proof that rests on the
taxpayer to rebut the Minister’s assumptions of fact is not to be lightly,
capriciously or casually shifted. Any shifting
of the taxpayer’s burden to provide and to report information that he knows or
controls can compromise the integrity and the credibility of the system
(paragraph 20).
[21]
In addition, the respondent
has proven that a certificate stating the amount owed by the corporation had
been registered and that execution for the amount had been returned unsatisfied
before an assessment was made in respect of Mr. Gagné under
subsections 323(1) and (2) of the ETA.
[22]
I am therefore of the
opinion that no evidence was submitted to show that the original assessment in
respect of Mr. Gagné was erroneous.
Main argument
[23]
The respondent cites a
landmark case, Hennebury c. Hennebury, Soquij AZ‑81011092, decided
by the Quebec Court of Appeal on April 2, 1981, which discussed the
principles to extract when determining whether a gift by marriage contract is a
gift inter vivos or a gift mortis causa under the Quebec civil
law. The Quebec Court of
Appeal made the following comments regarding the nature of gifts (at page 5):
[Translation]
The nature
of gifts
The nature of the gift must be sought in the actual terms of the
marriage contract given the principles found in the doctrine and jurisprudence.
When the clause does not include an actual obligation and an actual
divestment, even if the parties made the effort to specify that it was a gift inter
vivos, the gift is considered to be a gift of future property mortis
causa (Roger COMTOIS, Essai sur les donations par contrat de mariage,
Montréal, 1968). According to
the same author, the criteria for distinguishing between these two types of
gifts are associated with divestment, irrevocability, the terms used and the
facts and circumstances relative to the transaction to determine the parties’
intention (Ibid., p. 124).
Merely mentioning death in a gift, however, is not sufficient for it to
be regarded as a gift mortis causa. A gift inter vivos may require death as a term of
becoming exigible (Ibid., p. 132).
[24]
In that case, the marriage
contract stipulated, among other things, that the gift inter vivos was
irrevocable and payable at any time after the solemnization of the marriage
(except for the gift of movable property, for which a term of 10 years was
stipulated). The right of
return in favour of the donor was also provided in case the donee predeceased
the donor. In consideration, the donee (the
wife) forfeited the dower.
[25]
The Quebec Court of Appeal, on
the basis of the wording of the marriage contract, eventually concluded that
this was a gift inter vivos by which the donor had actually irrevocably
divested himself of the amounts in question. The Court held that there was no pure condition precedent.
It also stated that the right of return was
incompatible with a gift mortis causa. The
Court stated the following (at page 6): [Translation]
“It was only because the donor stopped being the owner that he wants to ensure
that the property will come back to him after the donee’s death”.
[26]
The Court concluded that the
donor became the debtor for the amounts in question and that the donee could
collect them starting after the solemnization of the marriage and after the
term of 10 years expired for the movable property.
[27]
The Court also stated that
the forfeiture of the dower, agreed to by the wife as consideration, was
significant in that the dower was a survival benefit; it was more logical to
forfeit it for an immediate benefit than a benefit on death.
[28]
It is also worth recalling
that in Hennebury there was no clause providing that the amount provided
for was payable on death.
[29]
In Droit de la famille –
2806, Soquij AZ-97011827, dated October 14, 1997, the Quebec Court of
Appeal analyzed a gift by marriage contract the terms of which were analogous
to those in this case. The
Court summarized the doctrine and the case law as follows at page 6:
[Translation]
- A gift is not necessarily mortis causa
just because the clause mentions the donor’s death.
- Even though the words “gift inter
vivos” are written, the clause will be interpreted as being mortis causa
if:
- it does not include an actual obligation;
-
it does not include an actual divestment; or
-
there is a pure condition precedent.
- The facts and circumstances must be examined to
determine the parties’ intention;
- Even if the gift becomes exigible at the time of death,
it can still be inter vivos.
[30]
In that case, the Quebec
Court of Appeal concluded that the gift set out in the marriage contract (in
similar terms to those in this case) did not result in any divestment or create
any immediate obligation for the donor and that the condition of becoming
exigible was the donor’s death. Death was not simply a term of performance. The fact that the parties to the contract had stipulated
that this was a gift inter vivos could not override the actual terms of
the obligation. The Court held therefore that
this was a gift mortis causa.
[31]
In this case, the appellant,
citing a more recent case of the Quebec Court of Appeal, Follows v. Follows,
2012 QCCA 1128, wanted to show that death was not a condition of the gift becoming
exigible but simply a term. She
argues that death in this case is the term by which the gift becomes exigible,
not a formal condition of the gift’s existence. The
gift is therefore a gift inter vivos with death as the term of becoming
exigible, not a gift mortis causa conditional on death.
[32]
Follows describes the characteristics of a gift inter
vivos, namely, divestment, irrevocability, the terms used and the
designation of the contract, the determinative facts and the parties’
intention. It is acknowledged that the fact that a gift is described as being inter
vivos may be a potential but not necessarily determinative indication of
the parties’ intention. A gift described by the parties as being inter vivos
can, however, be a gift mortis causa (paragraph 51, which quotes
Professor Pierre Ciotola). That
case was not about a gift by marriage contract, however. It was about a discharge from debt. The Court found that the donor (creditor) had not made the
discharge from debt subject to her death occurring before a certain date.
The Court considered that death was a term and that
it was, therefore, a gift inter vivos.
[33]
Regarding other cases to
which the appellant referred, I am of the view that they are of no assistance in
her case. I will analyze some
of them.
[34]
In issue in Droit de la
famille – 131134, 2013 QCCS 2167, was a gift inter vivos clearly
stipulated as being irrevocable, which is not the case here.
[35]
In Droit de la Famille -
092725, 2009 QCCS 5127, the judge referred to a Quebec Court of Appeal case
(Droit de la famille - 2369, dated February 26, 1996,
200-09-000454-956) which analyzed a gift by marriage contract that stipulated
the future husband made a gift inter vivos after the solemnization of
the marriage, which [Translation]
“[would] become exigible after the future husband’s
death unless, in the event of the future spouses’ divorce, it [was] ruled by a competent tribunal that said amount [would] become exigible before the future husband’s death”. The future husband reserved the right to
pay the amount at any time during the marriage. The
contract specified that the gift was thus made by the future husband to the
future wife on the express condition that, should the marriage be dissolved by
divorce, the gift would become a gift inter vivos between the spouses, exigible
immediately, except for the right of a court to postpone or reduce its payment
or declare it forfeit. The future spouses agreed that, should their marriage
end in divorce, they would then be able to establish between them a new due
date for the gift, which would then become a gift inter vivos.
[36]
The Quebec Court of Appeal
concluded in that case that it was clear that, without that part of the clause
concerning potential divorce, the wife was not entitled to request the payment
of the gift before the husband’s death. The Court concluded that there was no actual divestment or
obligation to make the gift. The Court added that, before the term of the
donor’s death, the donee could not require its payment. Citing Hennebury, supra, the Court held that
it was a gift mortis causa.
[37]
The appellant also referred
to O c. V., [1997] RL 590 (S.C.). In that case, there was in issue a stipulation analogous to
the one in issue herein. The Superior Court
came to the conclusion that there was a gift inter vivos since there was
divestment and a real obligation for the future husband. Before making that ruling, the judge referred to a case
decided by the Quebec Court of Appeal in Droit de la famille - 2538,
dated November 1, 1996 (J.E. 96-2179). In that
case, the future husband made the future wife a gift inter vivos in fee
simple starting from the solemnization of the marriage of a sum of money that
he promised to pay her [Translation]
“at any time after the solemnization of the future marriage”. If that gift was not made during the husband’s lifetime, it
would be payable on his death. In addition,
the husband had a right of return if the wife predeceased him. The Court of Appeal concluded in that case that the option
reserved by the husband to pay on his death did not affect the nature of the
gift, which did not become a gift mortis causa as would have been the
case if he had undertaken to pay it on his death but with the option of paying
before it.
[38]
In my view, the decision
rendered by the Superior Court of Québec in O. c. V. does not reflect
the doctrine propounded by the Quebec Court of Appeal. It states that if the donor undertakes to pay on his death,
but with the option of paying before death, as is the case here and in O. c.
V., it is a gift mortis causa.
[39]
To return to the issue in
the present case, upon reading the two contracts filed in evidence (the most
recent amending only a few clauses of the original marriage contract, the other
provisions of which remained in force as long as they did not contradict the
amendments), I note the following points: there is no mention that the gift is
irrevocable; the wife does not forfeit the dower in consideration of the gift;
there is no right of return in favour of the husband in case his wife
predeceases him; it is clearly stipulated that the gift will become exigible only
upon the husband’s death (even though he reserves the right to pay the gift
amount during the marriage). With
respect to the clause in article 7 of the contract, which provides that
the family residence will have to be considered as having been given one-half
to the spouse who was not its registered owner, in case of a judgment of
separation from bed and board or of divorce, it can give rise to a gift inter
vivos only when a judgment of separation or divorce is handed down, not
before (see Droit de la famille - 092725 (QCCS), supra, page 11);
B. (F.) c. L. (C.), 1997 CarswellQue 977, paragraphs 3 and 4).
[40]
In my view, in the absence
of a judgment of separation or divorce, this is a gift mortis causa
within the meaning given to that phrase by the doctrine and the case law. In the present case, death is not a term,
as the appellant submits, but a condition of exigibility.
[41]
Accordingly, Mr. Gagné’s
transfer to the appellant of his undivided half of the property located in
St-Ludger was not made in consideration of the discharge of his obligation to
make a gift inter vivos to his wife under a marriage contract.
[42]
The appeal is allowed for
the sole purpose of reducing the assessment amount as requested by the
respondent at the start of the hearing. The appellant is therefore liable for an amount of
$10,109.67 under section 325 of the ETA.
[43]
The respondent is entitled to her costs.
Signed at Ottawa, Canada, this 13th
day of July 2015.
“Lucie Lamarre”
Translation certified true
On this 8th day of January, 2016
François Brunet,
revisor
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