Citation: 2013 TCC 14
Date: 20130122
Docket: 2010-2814(GST)I
BETWEEN:
FIDUCIE ALEX TRUST,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal from
an assessment, notice of which is dated January 26, 2009, and bears the number
PQ 2009 12295, made under Part IX of the Excise Tax Act (ETA).
[2]
The issue in this case
is whether, at the time when the Minister of Revenue of Quebec acting as agent
for the Minister of National Revenue (the Minister) issued a requirement to pay
(the requirement), the appellant was liable to pay the amount of $17,006.83 to
Avak Demirciyan (the tax debtor), and whether, consequently, the appellant must
be held liable for the amount that the Minister is claiming from him, namely,
$6,916.67 as a garnishee under section 317 of the ETA.
[3]
In his assessment of
the appellant, the Minister relied on the following findings and assumptions of
fact, among others, as set out in paragraph 17 of the Reply to the Notice of
Appeal:
[Translation]
(a)
The facts admitted above.
(b)
At the time when the requirement was sent to the
appellant, the tax debtor was liable to pay under the ETA an overall amount in
excess of $17,006.83, which was the tax debtor's portion of the sale price balance
payable by the appellant, the other portion owing to his spouse, Lyubow
Shperun.
(c)
The appellant failed to comply with the
requirement to pay by repaying directly to the tax debtor, after receiving the
requirement, the debt it owed him under the acknowledgement of debt that it
signed in his favour on January 14, 2008;
(d)
Although the appellant asserts that the debt
that it owed to the tax debtor was repaid through a third-party loan on August
6, 2008 (11 days before the requirement was received), no justification or
serious evidence was provided in support of this allegation, and therefore
there is no basis to conclude that it is true.
(e)
Among other things and without limiting the
generality of the foregoing, the appellant was unable to provide proof of the deposit
of the cheque repaying the $18,000 allegedly received by the tax debtor on
August 15, 2008;
[4]
The following facts are
also relevant for the purposes of the case at bar:
(a)
At all times relevant
to the case at bar, the tax debtor was liable to pay the Minister an overall
amount of over ten (10) million dollars under the Ministry of Revenue Act,
the Act respecting the Québec sales tax and the ETA.
(b)
On January 14, 2008,
the tax debtor and his spouse jointly sold an immovable located at 1275 Chénard
Street in Laval (the family residence) to the appellant for a consideration of
$250,000, $34,013.65 of which should have been paid by the appellant as a down
payment (the contract of sale).
(c)
On January 14, 2008,
the appellant signed in favour of the tax debtor an acknowledgement of debt in
the amount of $17,010.83, that is, the part of the sale price that should have
been paid by the appellant to the tax debtor under the contract of sale (the
sale price balance).
(d)
On August 14, 2008, the
Minister sent by registered mail to the appellant the requirement in which he
required the appellant to remit to him all amounts payable to the tax debtor
not exceeding $4,062,850.21.
(e)
The requirement was
received by the appellant on August 18, 2008.
Appellant's position
[5]
The appellant alleges
that on August 18, 2008, it owed no amounts to Avak Demirciyan.
[6]
The appellant alleges
that it borrowed $18,000 from David Bafri on June 26, 2008, in order to pay the
sale price balance owing to the tax debtor and instructed him to personally
give that $18,000 to Avak Demirciyan. The payment was made by a cheque cashed
by the tax debtor in David Bafri's presence.
The testimony
[7]
Avak Demirciyan
testified at the hearing. He explained that at the time he had been having
serious problems with the Quebec tax authorities and that, for that reason, he had
consulted Jacques Matte in order to protect the family residence from
creditors. On Mr. Matte's recommendation, Avak Demirciyan and his spouse agreed
to create a trust so that it would become the owner of the family residence.
[8]
Fiducie Alex Trust was
created through a notarial deed dated December 4, 2007. The settlor was
Arsaluys Demirciyan, the tax debtor's mother, while the trustees were Eyda and
Aline Demirciyan, two sisters of the tax debtor, and Lyubow Shperun, the tax
debtor's spouse. Lyubow Shperun was also the sole beneficiary of the trust. The
trust deed, which was drafted in French, was filed as Exhibit A-3.
[9]
On January 14, 2008,
Fiducie Alex Trust purchased the family residence from the tax debtor and his
spouse for a price of $250,000, paid through a down payment of $34,013.65,
which the sellers acknowledged having received from the trust and for which
they released it, and, with respect to the balance of $215,986.35, through
assuming the hypothec owing to the Scotia Mortgage Corporation. The notarial
deed of sale, which was drafted in French, was filed as Exhibit A-4.
[10]
Although the notarial
deed of sale specified that release was given following receipt of the
$34,013.65 down payment, on January 14, 2008, Fiducie Alex Trust signed an
acknowledgment of debt stating that it owed $17,010.83 to Avak Demirciyan
under the deed of sale entered into before the notary Pierre‑Paul Blais
on the same day. The acknowledgment of debt, which was drafted in French, was
filed by the respondent as Exhibit I-3.
[11]
Avak Demirciyan
explained that the portion of the sale price balance that was owing to him,
namely, $17,006.83 was paid by Fiducie Alex Trust from a loan of $18,000 granted
by David Bafri, a family friend.
[12]
Through a private loan
agreement dated June 26, 2008, David Bafri loaned $18,000 to Fiducie Alex Trust
to enable it to repay the debt owing to Avak Demirciyan following the
purchase of the family residence. The loan was to be disbursed before August
31, 2008, and was to bear interest of 6% per annum, payable one (1) year after
the last disbursement date. Fiducie Alex Trust authorized David Bafri to
pay the loan amount directly to Avak Demirciyan to whom the trust was in debt. The
loan agreement, which was drafted in French, was filed as Exhibit A-1.
[13]
Avak Demirciyan
explained that David Bafri had written a cheque dated August 6, 2008, in
the amount of $18,000 payable to him, which he had endorsed and cashed on August 15,
2008, at the Place Vertu branch of the Bank of Montreal while he was with David
Bafri. A copy of the cheque was filed as Exhibit A-2 in a bundle.
[14]
Avak Demirciyan
specified that he had cashed the cheque on site in $50 and $100 bills because
his bank accounts had been frozen by the tax authorities. Avak Demirciyan
declared bankruptcy in January 2009.
[15]
David Bafri, a business
analyst, testified at the hearing and acknowledged that he had known Avak
Demirciyan and his spouse since 2001 and that they had introduced him to his
wife. He acknowledged that he had signed the loan agreement at the office of
Mr. Matte, prepared the cheque dated August 6, 2008, and transferred $15,000
from his business account to his personal bank account on August 13, 2008. He
confirmed that he had accompanied Avak Demirciyan to the Place Vertu branch of
the Bank of Montreal, when Mr. Demirciyan cashed the cheque in small denominations
of $100. The signatures on the back of the cheque are those of the teller and
the branch manager on the right, his own in the middle and that of Avak
Demirciyan on the left. A copy of David Bafri's personal bank account statement
for the period ending on August 22, 2008, was filed as Exhibit A-2 in a bundle.
[16]
David Bafri specified
that the loan had been granted to Fiducie Alex Trust without consideration and
without any security. To this date, he has not received any interest or
principal payments for this loan.
[17]
Lyubow Shperun, who is
a designer by profession, also testified at the hearing. She explained that her
husband had told her about Mr. Matte's recommendation to create a trust to
purchase the family residence. She stated that she had signed the trust deed,
drafted in French, which she does not understand very well, after the notary had
explained the main terms and conditions of the deed in question. Lyubow Shperun
stated that she had asked David Bafri to lend her some money in June 2007,
when he was at her house. She stated that she had borrowed money from David
Bafri and given it to her husband. She also stated that she had made the
initial payment of $34,000 when the family residence was purchased by Fiducie
Alex Trust from her personal bank account. She also confirmed that she had
insisted that the loan bear 6% interest and that the loan granted by David
Bafri had not been repaid.
[18]
Lyubow Shperun also
confirmed that no acknowledgment of debt similar to that signed in favour of
her husband (Exhibit I-3) had been given to her. She also stated that the
hypothec payments were made by Fiducie Alex Trust from a bank account
registered in the trust's name to which she transferred money from her personal
bank account.
[19]
Lyubow Shperun
acknowledged that she had received a requirement to provide documents and
information dated July 17, 2008, in which the Minister required that a
double-sided copy of the payment issued to Avak Demirciyan for the balance of
the sale price of the family residence be sent to him. The requirement was
filed as Exhibit I-4. Lyubow Shperun stated that she had given the requirement
to her husband so that he may discuss it with Mr. Matte. Avak Demirciyan
then denied having seen the documents in question. Regardless, Mr. Matte followed
up on that requirement and on those issued to Fiducie Alex Trust and to Ayda
Demirciyan Akcakiryan by sending the loan agreement between Fiducie Alex Trust
and David Bafri. Mr. Matte's letter dated August 14, 2008, was filed as Exhibit
I-5.
[20]
Lyubow Shperun
confirmed that she had never seen or had prepared any financial statements or
tax returns for Fiducie Alex Trust. Avak Demirciyan then confirmed that no
financial statements had been prepared for Fiducie Alex Trust's fiscal years
and no tax return had been filed for Fiducie Alex Trust because neither his
accountant nor Mr. Matte had told him that Fiducie Alex Trust was required to
do so.
[21]
André Berrouard, a
collections officer with the ministère du Revenu du Québec, testified at the
hearing, among other things, to put in evidence the tax assessments issued in
respect of 9142-2899 Québec Inc. on November 22, 2007, filed as Exhibit I-2.
The assessments were not disputed. Avak Demirciyan was the sole shareholder of
9142‑2899 Québec Inc. Avak Demirciyan was also personally assessed as a
director of 9142-2899 Québec Inc. by a notice of assessment dated July 16,
2008, for a total of $4,040,381.15. The notice of assessment was filed as
Exhibit I-2.
[22]
Notices to a garnishee from
the Quebec Minister of Revenue and requirements to pay were issued to Ayda
Demirciyan Akcakiryan and Lyubow Shperun as trustees of Fiducie Alex Trust in a
letter dated August 14, 2008, and received by Ayda Demirciyan Akcakiryan
on August 18, 2008 (Exhibit I-6), and in a letter received by Lyubow Shperun on
September 15, 2008.
[23]
In letters dated
September 22, 2008, the Minister informed Lyubow Shperun and Ayda
Demirciyan Akcakiryan that they had failed to meet their obligation to pay a
tax amount (Exhibit I-7 in a bundle).
[24]
André Berrouard also
stated that, on September 30, 2008, he had received a call from Ayda Demirciyan
Akcakiryan, who told him that she was not aware of the transactions performed
by Fiducie Alex Trust and that her role was limited to being a signing
authority.
Analysis
[25]
The issue centres on
the terms and conditions of cashing the $18,000 cheque made out by David Bafri
to Avak Demirciyan. The cheque was taken out in cash, and there is no
documentary evidence that the money was actually given to Avak Demirciyan.
He could have deposited the cheque or the money in another bank account or
performed any other transaction with the money obtained from David Bafri. In
his testimony, Avak Demirciyan stated that he had needed the money to be able
to work and to be able to purchase property. No such information was put in
evidence.
[26]
The witnesses'
testimony was generally credible, but some contradictions were noted. Lyubow
Shperun was not very involved in the transactions and trusted her husband and his
counsel. She believed that it was she who had borrowed the money from David
Bafri and who had given it to her husband. In his testimony, Avak Demirciyan
said that he had never seen Exhibit I-4, namely, the requirement to provide
documents and information, but his counsel had followed up on it. In his
testimony, David Bafri seemed to remember quite well what had happened on
August 15, 2008, at the bank, but he was not too sure of the purpose of
the loan and he did not remember the details of the transactions performed with
Fiducie Alex Trust. In his testimony, he said that Avak Demirciyan had received
$100 bills when he had cashed the cheque, while Avak Demirciyan said that he
had received $100 and $50 bills.
[27]
David Bafri's
testimony, although credible, was not that of a completely independent person
who had no relationship with the parties involved. Indeed, he is a personal
friend of the family who had agreed to loan $18,000 without security, which was
still not repaid four years later.
[28]
Under subsection 299(4)
of the ETA, an assessment is deemed valid and binding and the taxpayer has an
initial onus to "demolish" the exact presumption of the assessment's
validity by making a prima facie case of its inexactness. A prima
facie case is usually defined as one that is supported by evidence which
raises such a degree of probability in its favour that it must be accepted if
believed by the Court unless it is rebutted or the contrary is proved. When a
taxpayer presents that type of case, the burden of proof is reversed, and the
Minister must then rebut the prima facie case and prove the assessment
by assumptions. To quote the Court of Appeal of Québec in St-George c.
Québec (Sous-ministre du Revenu), 2007 QCCA 1442:
[Translation]
[11]
The taxpayer's evidence must, however, contain a certain degree of precision
and probability in his or her favour as apposed to vague and ambiguous
allegations. In general, simply the taxpayer's statement will not suffice, it
would be better to support it with documentary or circumstantial evidence.
[29]
In the case at bar, the
taxpayer's obligations are not vague or ambiguous and there is documentary
evidence that a loan was granted by David Bafri and that a cheque payable to
Avak Demirciyan by David Bafri was cashed at the Place Vertu branch of the Bank
of Montréal, but there is no documentary evidence showing that Avak Demirciyan
actually obtained the money from the cashing of the cheque. Only David Bafri's
and Avak Demirciyan's testimony tend to support this fact.
[30]
In my view, given the
facts described above, it is just as likely or possible that David Bafri left
the bank with his own money as it is that the money was indeed given to Avak
Demirciyan in accordance with the loan agreement and the acknowledgment of
debt.
[31]
Given the context in which
the transactions were performed, given the testimony of the parties involved
and the documentary evidence filed and given the fact that Fiducie Alex Trust
did not comply with its financial and tax obligations in terms of preparing
financial statements and filing tax returns, which would have confirmed Fiducie
Alex Trust's transactions, the Court finds that the appellant did not rebut the
presumption that the assessment dated January 26, 2009, was valid.
[32]
For these reasons, the
appeal is dismissed and the assessment made under subsection 317(9) of the ETA
for non-compliance with the requirement to pay dated August 14, 2008, and
received August 18, 2008, in respect of Fiducie Alex Trust, is confirmed.
Signed at Ottawa, Canada, this 22nd day of January 2013.
"Réal Favreau"
Translation certified true
on this 5th day of March 2013
Margarita Gorbounova, Translator
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