Date: 20001103
OTTAWA, ONTARIO, FRIDAY, NOVEMBER 3, 2000
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
NOËL J.A.
Docket: A-760-98
BETWEEN:
HER MAJESTY THE QUEEN,
Appellant,
AND:
FRANÇOIS LANGLOIS,
Respondent.
Docket: A-761-98
BETWEEN:
HER MAJESTY THE QUEEN,
Appellant,
AND:
FRANÇOIS LANGLOIS,
Respondent.
JUDGMENT
The appeal is dismissed with costs. The cross-appeal is dismissed with costs.
Certified true translation
Suzanne M. Gauthier, LL.L. Trad. a.
Date: 20001103
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
NOËL J.A.
Docket: A-760-98
BETWEEN:
HER MAJESTY THE QUEEN,
Appellant,
AND:
FRANÇOIS LANGLOIS,
Respondent.
Docket: A-761-98
BETWEEN:
HER MAJESTY THE QUEEN,
Appellant,
AND:
FRANÇOIS LANGLOIS,
Respondent.
Hearing held at Québec, Quebec on Thursday, October 19, 2000
Judgment rendered at Ottawa, Ontario on Friday, November 3, 2000
REASONS FOR JUDGMENT BY: LÉTOURNEAU J.A.
CONCURRED IN BY: DÉCARY J.A.
NOËL J.A.
Date: 20001103
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
NOËL J.A.
Docket: A-760-98
BETWEEN:
HER MAJESTY THE QUEEN,
Appellant,
AND:
FRANÇOIS LANGLOIS,
Respondent.
Docket: A-761-98
BETWEEN:
HER MAJESTY THE QUEEN,
Appellant,
AND:
FRANÇOIS LANGLOIS,
Respondent.
REASONS FOR JUDGMENT
LÉTOURNEAU J.A.
[1] Was Judge Garon of the Tax Court of Canada (as he then was) mistaken when he concluded that under s. 118.1 of the Income Tax Act ("the Act") the respondents were entitled to a tax credit for charitable gifts? Did he err in determining the fair market value of the property given for purposes of calculating the deduction allowed by the Act?
[2] Those are the two questions submitted to the Court, the first through an appeal by Her Majesty the Queen and the second through a cross-appeal by the respondent. The two appeals and cross-appeals in these cases were heard concurrently with the appeals and cross-appeals in Duguay (A-756-98 and A-757-98) and Côté (A-758-98 and A-759-98). They were argued on the basis of a number of points common to all, bearing in mind certain factual differences.
Facts
[3] Mr. Langlois was part of a group of several individuals who dealt with Marc Levert, the founder of and principal shareholder in the Galerie des Maîtres Anciens Inc. in Québec. Mr. Levert sold to his clients, generally at 25% of the appraised value, art works (paintings) which the latter transferred to charitable organizations identified and selected by Mr. Levert. It was Mr. Levert who was responsible for finding and selecting the recipient organizations to whom he gave the gifts. To this end, he acted as the donors' mandatary. It was also he who valued the property transferred and provided the receipts necessary to obtain the tax credit. Mr. Levert also acted as mandatary for the recipient organizations. In that capacity, he received the gifts intended for them and immediately resold the gifts, giving the organizations only a minute share of the proceeds of the sale, between 4% and 10%.
[4] By judgment of the Superior Court of Quebec, Criminal Division, on February 28, 1994 Mr. Levert was convicted of destroying documents for the 1984, 1991 and 1992 taxation years. On March 17, 1995 the Court of Quebec, Penal Division, also found him guilty of tax avoidance for the taxation years 1984 to 1988. This judgment was affirmed by the Superior Court on January 11, 1996. Finally, on April 7, 1997 Mr. Levert pleaded guilty in connection with the instant cases to charges of conspiracy to avoid tax and enabling tax of $110,000 to be avoided by taxpayers, including the respondents, for the 1986 to 1988 taxation years. He was sentenced to a term of 10 months' imprisonment. A probation order for two years was also made against him, prohibiting him from acting directly or indirectly as an appraiser, promoter, broker or consultant in connection with gifts of art works to non-profit organizations.
[5] Mr. Langlois applied for a tax credit for charitable gifts for the 1990 and 1991 taxation years. He was alerted by his colleagues at the Sûreté du Québec that it was possible to get a tax benefit by making charitable donations. That is how he came to know Marc Levert of the Galerie des Maîtres Anciens.
[6] The gift made in 1990 consisted of a number of paintings the value of which was set at $10,150. The purchase price of these paintings amounted in that year to 30% of the amount of an undated appraisal signed by Marc Levert.
[7] In 1991 Mr. Langlois transferred the share, estimated at $10,000, which he had in a portfolio containing about 100 drawings. At that time he was a member of a group known as the "Association d'aide aux organismes de charité". This group, consisting essentially of Sûreté du Québec police officers, purchased the portfolio of drawings from Marc Levert. Mr. Langlois had spent $2,500 for his share of the portfolio, that is 25% of the appraisal which once again was given to him by Mr. Levert. No purchase contract was signed by the group and, though duly required to do so by subpoena duces tecum, no invoice was presented by the group to support the purchase.
Whether respondents entitled to tax credit for charitable gift
[8] The Tax Court of Canada judge applied to the transactions in question the rules in the Civil Code of Lower Canada which at the time governed the making of gifts, and in particular arts. 755 and 776. He concluded that the conditions necessary for a gift to exist, namely the intention to give, delivery of the property and acceptance by the donee, had been met. Applying The Queen v. Friedberg, 92 DTC 6031, a judgment of this Court, he found that even though the respondents' primary motivation in the case at bar was to obtain a tax benefit, that did not nullify the donor's intent to give. He was also of the opinion that obtaining a receipt from the recipient organization could not be regarded as consideration that eliminated the gratuitous and liberal nature of the transaction.
[9] Finally, the subject-matter of the gifts seemed sufficiently clear to him and he was satisfied that the items given had become the property of the charitable organizations that issued the receipts for tax purposes.
[10] In my opinion, the judge correctly directed himself on the legal principles applicable in the case at bar. Similarly, I was not persuaded that he erred in applying these principles to the facts before him. Consequently, I would dismiss the appeal with costs.
Whether judge erred in determining fair market value of property donated
[11] By a cross-appeal the respondent argued that the judge, in determining the fair market value of the property, placed too much emphasis on the prices of that property at auction and systematically disregarded their retail selling price in art galleries. He also objected that the judge ignored the objective indicators relied on by Mr. Levert in determining the appraised values.
[12] Counsel for the respondent suggested that this Court undertake a fundamental re-valuation of the fair market value based on an average of the amount appearing on the receipt, the value of similar property at an auction sale and the retail price paid by purchasers in galleries.
[13] I do not think that the basis of calculation suggested by counsel for the respondents is appropriate in the case at bar and that the Court should adopt any procedure other than that used by the trial judge: many paintings were not saleable in galleries, the circumstances surrounding the transactions, by any yardstick, were to say the least strange and unusual, not to say suspicious, and the prices were routinely inflated. Such facts do not lend themselves to a general standard or rule of the kind proposed by the respondents.
[14] The judge had then to assess the fair market value of the property at issue in light of its distinctiveness and specific characteristics. "Fair market value" means that obtained in the ordinary market, namely a market not distorted by special economic factors, in which sellers ready but not too anxious to sell deal with purchasers ready and able to purchase: [1945] S.C.R. 267">Attorney General of Alberta v. Royal Trust Co., [1945] S.C.R. 267, at 288. To do this, he relied in part on the testimony of expert witnesses and in part on the fact that the property itself could not even fetch at auction a reserve price well below the appraised value submitted, in part on prices currently paid at auction for works which had no other market than sale at auction, in part on prices currently paid for works by the same artist that were comparable both in terms of size and of subject-matter and period covered, and in part on the sale or buy-back price of property immediately resold at auction by the donee. The judge took into account the relevant market, in which the forces of supply and demand operated, and in which the work could be sold, or in fact had been resold, shortly thereafter: his assessment is not open to criticism.
[15] Thus, for example, in the case at bar the respondent in 1990 donated a painting by Fielding Downes for which the fair market value claimed was $3,750. Relying on the testimony of three expert witnesses (Messrs. Gagnon, Harvey and Rinfret) and on the actual and contemporary selling prices of comparable works by the same artist, the prices of which varied between $90 and $467, the judge set the fair market value at $400. He also took into account Mr. Rinfret's testimony that very few of these works are found in galleries and prices had changed very little between 1985 and 1995 (A-761-98, vol. IV, p. 1040, paras. 11 and 14).
[16] The judge adjusted the fair market value of the drawings transferred in 1991 to $2,500. These drawings also came from the artist Fielding Downes. I certainly cannot say, in the circumstances and in view of the evidence he had before him, that the judge assigned a value not reflecting the fair market value to the property donated.
[17] The judge was also sensitive to the limits placed by the experts on the factors used by Mr. Levert in his appraisals. For example, according to the testimony of Messrs. Harvey, Gagnon and Rinfret, the prices in the Guide Vallée, on which Mr. Levert relied heavily in making his appraisals, did not represent actual selling prices but rather prices displayed for advertising purposes by the artists mentioned in it. Those prices are calculated by the square inch, based on the size of the painting, and do not take into account important factors that influence fair market value, such as the period when the painting was done, the artist's subject and the quality of the painting (see Côté, file A-759-98, vol. VIII, at p. 1968, vol. XI, at pp. 2610-11, 2848-57 and 2867-69 and vol. X, at pp. 2508-16).
[18] The judge had the delicate and very difficult task of determining the fair market value of the gifts acquired and resold by Mr. Levert on the auction market, for which the respondent did not provide any retail gallery sale invoice. The judge did this conscientiously for each item of property, referring to the evidence before him. I see no error in his approach that would warrant our intervention. Accepting the valuation method proposed by the respondents would amount to reasoning in the abstract and ignoring both the evidence in the record and the judge's analysis of it. I would dismiss the cross-appeal.
[19] For the reasons stated I would dismiss the appeal and the cross-appeal with costs.
I concur.
Robert Décary J.A.
I concur.
Marc Noël J.A.
Certified true translation
Suzanne M. Gauthier, LL.L. Trad. a.
FEDERAL COURT OF CANADA
APPEAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
FILE: A-760-98 & A-761-98
STYLE OF CAUSE: HER MAJESTY THE QUEEN
and
FRANÇOIS LANGLOIS
PLACE OF HEARING: QUÉBEC, QUEBEC
DATE OF HEARING: OCTOBER 19, 2000
REASONS FOR JUDGMENT BY: LÉTOURNEAU J.A.
DATED: NOVEMBER 3, 2000
CONCURRED IN BY: DÉCARY J.A.
NOËL J.A.
APPEARANCES:
Chantal Jacquier FOR THE APPELLANT
France Bonsaint FOR THE RESPONDENT
Timothé Huot
SOLICITORS OF RECORD:
Morris Rosenberg FOR THE APPELLANT
Deputy Attorney General of Canada
Ottawa, Ontario
McCarthy, Tétrault FOR THE RESPONDENT
Québec, Quebec
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