REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal from an
assessment made on a third party under subsection 325(2) of the Excise
Tax Act, R.S.C. 1985, c. E-15, as amended (the ETA), notice of which is
dated August 23, 2012, and bears number F‑039080, relative to a transfer
of property in the amount of $20,000, made on August 25, 2009, by André
Lefrançois to his daughter, Anik Lefrançois. The amount of taxes payable according to the assessment is
$994.55. When the money was transferred to his
daughter’s bank account, the appellant’s father was a tax debtor in default of
payment.
[2]
According to André
Lefrançois, the amount of $20,000 transferred to his daughter Anik was a
remittal of the excess money that she had given him for the construction of a
condominium unit at 26 Bourget Street in Gatineau.
Facts
[3]
Through a notarial act dated
February 22, 2000, the appellant, then 26 years of age and a student in
communications, acquired from a third party an immovable located at 60 Bourget
Street in Gatineau for the price of $43,333 paid in cash with a final release
from the seller. The
immovable in question was a vacant lot. According
to the appellant, the amount of $43,333 was lent to her by her mother, Lise
Grégoire, André Lefrançois’ spouse.
[4]
The appellant got married in
June 2000 to Antoine Corbeil, an engineer. In 2001, she moved to the United States and lived there
until 2004. On her return to Canada in 2005,
she taught French to federal public servants in the National Capital Region and
lived in the two housing units she had had built during her absence on the lot
at 60 Bourget Street in Gatineau.
[5]
In 2001, the appellant took out
a hypothecary loan at the Caisse Populaire Desjardins Saint-Raymond in Hull
(now Gatineau) in order to finance the construction of two housing units on the
lot at 60 Bourget Street in Gatineau. Based on a bank statement filed with the Court, the balance
of the hypothecary loan at December 31, 2001, was $183,750. The loan was payable
in weekly instalments of $321.09. The interest
rate in effect on the loan was 6.25% annually and the total credit rate,
including life insurance, was 6.863% annually
[6]
The application for building
permits for the two housing units on the lot at 60 Bourget Street was
filed on May 11, 2001, by Lise Grégoire. The plans submitted were for a detached two-family dwelling
(duplex), and the cost of the work was estimated at $125,000.
[7]
On November 15, 2004, the
appellant increased the hypothecary loan with the Caisse Populaire
Saint-Raymond de Hull to $296,250 to complete the construction of the two
housing units.
[8]
On October 26, 2005, through
a notarial act, the appellant sold the two housing units located at 60
Bourget Street in Gatineau to her father for a total price of $654,000, namely,
$326,000 for unit 1 and $328,000 for unit 2. The appellant’s father took over the payment of the
hypothec in principal and interest in the amount of $295,350.24 owed to the
Caisse Populaire Saint-Raymond de Hull starting on January 26, 2005, and the
appellant acknowledged receiving as an advance on October 26, 2005, the amount
of $358,649.76, and giving release for that amount.
[9]
The appellant’s father
resold the two housing units for $535,000, namely, $235,000 for unit 1
sold under a notarial act dated July 29, 2008, and $300,000 for unit 2
sold under a notarial act dated March 18, 2009. The appellant’s father thus realized a loss of $119,000 on
the resale of the two housing units, which was not claimed in his income
tax returns for the taxation years concerned.
[10]
As of October 26, 2005, the
municipal assessment of the two units at 60 Bourget Street was $179,000
for unit 1 and $193,700 for unit 2. Based on appraisal reports filed by the respondent, as of
October 27, 2005, the fair market value of unit 1 was $209,000 and of unit 2 was
$245,000. At the hearing, Mr. Lefrançois
stated that he had based himself on an appraisal report by Laurent Lemieux
to establish the value of $654,000 for the two housing units, but the
report in question was not filed in evidence at the hearing.
[11]
By a contract of sale under
private writing dated October 1, 2004, the appellant’s father transferred
to the appellant, her mother and Martin Lefrançois, the appellant’s
brother, the ownership of a vacant lot at 30 Bourget Street in Hull with the
goal of obtaining a building permit to build three housing units under divided
co-ownership. The sale price
of the immovable was $60,000, while the appellant’s father became its owner
under an act executed before a notary dated August 25, 2000, for a price
of $67,275. Although the sale contract under private writing was dated October
1, 2004, it contained the following note in the second-last paragraph of the
document:
[Translation]
This sale is the written articulation under private writing
of a legal verbal agreement of sale between these same parties that took place
on October 26, 2005.
[12]
A document entitled [Translation] “Contract for the
management of the project at 30 Bourget, now 22, 24, 26 Bourget” dated November
1, 2005, was filed at the hearing by the appellant under which the company
Investar inc. received a mandate to build three co-ownership units at 22, 24
and 26 Bourget Street based on the plans and specifications prepared by Patrick
Fillion’s company Plan et Gestion Plus and accepted by the Ville de Gatineau. The document specified that the project
had to be realized at the actual construction cost and be paid for in cash through
transfers of funds to Investar inc., by each of the three owners of their
respective lots.
|
Lise Grégoire
|
22 Bourget
|
Lot 3522957
|
$22,728
|
|
Martin Lefrançois
|
24 Bourget
|
Lot 3522958
|
$18,636
|
|
Anik Lefrançois
|
26 Bourget
|
Lot 3522959
|
$18,636
|
|
|
|
|
$60,000
|
[13]
By a notarial act dated
January 20, 2006, the appellant’s father transferred to her the part of the
divided co-ownership located at 26 Bourget Street, Gatineau, for the price of
$18,636, the price of which was paid before January 20, 2006, and a general and
final release was given by the seller.
[14]
Based on an offer of
financing presented to the appellant’s father by the Caisse Populaire
Saint-Raymond de Hull and dated August 3, 2007, he refinanced the hypothec on
the two units at 60 Bourget Street through two term loans of $190,000
each.
[15]
The construction of the
three housing units at 22, 24 and 26 Bourget Street in Gatineau began
on October 4, 2004, as corroborated by the building permit issued by the
Ville de Gatineau. The
application for the building permit was filed by the appellant’s father as an
owner for self-building. The building permit
was granted for a three-family detached home whose cost was estimated to be
$240,000.
[16]
The appellant testified to
the effect that she had given her father a total amount of $358,649.76 to pay
the actual construction cost of her housing unit located at 26 Bourget
Street including the amount of $328,000 obtained from the sale to her father of
the housing unit at 60 Bourget Street.
[17]
The [Translation] “actual construction cost” of the housing unit
at 26 Bourget Street was established by the accounting firm PGPM to
be $338,000 including the cost of the lot of $18,636. A new analysis of the actual construction cost of the
appellant’s condominium unit established the cost at $310,440.43. Consequently, André Lefrançois had to give back to the
appellant the total amount of $48,209.33 rather than $20,649.76, of which he
had given her $20,000.
[18]
André Lefrançois was a
guidance counsellor at the University of Quebec in Gatineau and retired in
2003. Following numerous problems
with the tax authorities, he declared bankruptcy on August 30, 2011.
[19]
Investar inc. whose mandate
was to build the housing units at 22, 24 and 26 Bourget Street also declared
bankruptcy in February 2011. André Lefrançois was the sole shareholder and director
of that company.
Applicable statutory provisions
[20]
Subsections 325(1), (2)
and (5) of the ETA are applicable to the case at bar. These
provisions read as follows:
325 (1) Tax liability
re transfers not at arm’s length — 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) Assessment
— 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.
325 (5) Meaning of “property”
— In this section, “property” includes money.
Analysis and conclusion
[21]
To determine whether the transfer
of $20,000 represents the repayment of excess funds advanced by the appellant
to her father for the construction of her condominium unit at 26 Bourget
Street, it is important to first examine when and how the appellant transferred
the money to her father.
[22]
In reality, there is no
documentary evidence on the record to the effect that the appellant had
transferred money for the construction of her condominium unit. However, it was established that the
condominium unit was indeed built and that the appellant really became its
owner.
[23]
According to the appellant
and her father, the funds for the construction of said condominium unit came
from the balance of the sale price of the units at 60 Bourget Street
regarding which the appellant gave her father release for the amount of
$358,649.76. There is no evidence on the record that said amount of $358,649.76
was actually given to the appellant by her father and that she had loaned that
money back to her father afterwards. It is more likely than not that no money was exchanged
between the appellant and her father as part of this transaction.
[24]
The appellant had little to
no income when she purchased the lot at 60 Bourget Street. She indicated that the purchase price of
the lot ($43,000) was lent to her by her mother. No evidence of the loan or transfer of money was filed with the Court.
Just like for the acquisition of the lot, the
appellant did not have the money needed to build her condominium unit. In the circumstances, it seems more than likely to me that
the appellant acted in this transaction as a nominee for her father, who was in
serious financial trouble at the time.
[25]
The sale of the immovable to
her father on October 26, 2005, was made at a price that was clearly higher
than the fair market value of the immovable, the value of which was around
$454,000 based on the appraisal reports filed by the respondent, not $654,000. The resale of the condominium units in
2008 and 2009 for a total price of $533,000 confirms that the value of the
transaction between the appellant and her father was clearly exaggerated.
[26]
The circumstances
surrounding the construction of 26 Bourget Street are also very obscure. There is no evidence that the amount of
$18,636 for the purchase of the lot was paid by the appellant. In addition, there is no evidence that the appellant paid
Investar inc. the amount of $119,000 on November 15, 2004, to begin the
construction of 26 Bourget Street. According
to the version of the appellant and her father, that amount came from
refinancing the hypothec, which was done on November 15, 2004. The new hypothec for an amount of $296,250 minus the
repayment of the old hypothec in the amount of $177,250 made it possible to
create liquidities of $238,000 in total, namely, $119,000 for each of the 2
units in the immovable. That version is in contradiction with the version
stated in paragraph 7 above to the effect that the increase in the
hypothecary loan was for the purpose of completing the construction of the two
housing units at 60 Bourget Street.
[27]
The appellant and her father
claim that she paid him a total amount of $358,649.76 for the construction of
her housing unit at 26 Bourget Street, but no evidence of this transfer of
money was filed with the Court. In her testimony, the appellant could not provide any clarifications
about the advances given to her father or to Investar inc.
[28]
Finally, I would like to
note the confusion surrounding the actual construction cost of the unit located
at 26 Bourget Street; we do not know whether it was $338,000 or $310,440.43 as
the appellant’s father claims. This
only shows the confusion, disorder and lack of reliable accounting records surrounding
the transactions of Mr. Lefrançois.
[29]
Given the inconsistencies in
the explanations provided by the appellant and by her father and given the lack
of tangible evidence that the appellant had advanced to her father the amounts
totalling $358,649.76, I cannot agree that the amount of $20,000 may be
considered as the repayment of an excess amount of the actual construction cost
of the immovable located at 26 Bourget Street.
[30]
For all these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 3rd day
of March 2015.
“Réal Favreau”
Translation certified true
On this 19th day of May 2015
Margarita
Gorbounova, Translator
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