Date:
20061026
Docket:
A-45-06
Citation:
2006 FCA 353
CORAM: NOËL
J.A.
EVANS
J.A.
MALONE
J.A.
BETWEEN:
JEROME
DOWNEY
Appellant
and
HER
MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
OF THE COURT
(Delivered
from the Bench at Vancouver, British Columbia, on October 26, 2006)
EVANS
J.A.
[1]
This
is an appeal by Jerome Brian Downey from a decision of the Tax Court of Canada,
in which the Judge allowed in part Mr Downey’s appeal from the Minister’s
reassessment of his tax liability for the taxation year 2001. The decision is
reported as Downey v. The Queen, 2005 TCC 810.
[2]
The
Minister’s reassessment assumed that the sale of land by Mr Downey to a company,
in which he and two others were equal shareholders, was not in fact at arm’s
length, and that the fair market value of the land was only $150,000, not the
$420,000 for which Mr Downey had agreed to sell it to the company. The Minister
treated the difference between these two sums, $270,000, as a benefit conferred
by the company on Mr Downey, and included it in his income for 2001, pursuant
to subsection 15(1) of the Income Tax Act, R.S.C. 1985 (5th
Supp.), c. 1.
[3]
The
Tax Court Judge agreed that the fair market value of the land was not $420,000,
but concluded, on the basis of the appraisal evidence, that it was $259,000.
Accordingly, the Judge allowed the appeal, but only to extent of reducing from
$270.000 to $161,000 the amount of the benefit to be included in Mr Downey’s
income for 2001.
[4]
The
basis of Mr Downey’s appeal to this Court is that the sale of the land was an
arm’s length transaction and that, accordingly, its value was the price in fact
paid for it by the company as a willing purchaser, that is, $420,000. Hence, he
says, the company conferred no benefit on him which formed part of his income
in 2001. Mr Downey does not otherwise dispute the Judge’s finding of the fair
market value of the land, or the appropriateness of the penalty imposed on him
by the Minister.
[5]
Unfortunately,
the Judge made no express finding in his reasons on whether the transaction was
arm’s length, even though this had been the subject of evidence and submissions
by the parties before him, and was an issue to which he was clearly alert
during the hearing.
[6]
In
our opinion, it was an error of law for the Judge to have failed to make a
finding on this critical question of mixed fact and law. The appraisal evidence
of fair market value was only relevant if the transaction was not at arm’s
length. If it was an arm’s length sale, the purchase price of $420,000 must
stand as the value of the land.
[7]
Despite
the absence of an express finding by the Tax Court Judge, we are satisfied
that, on the evidence before him, the Judge could not reasonably have found
that Mr Downey had discharged his burden of rebutting the Minister’s assumption
that the transaction was not at arm’s length.
[8]
In
our view, such a conclusion was not reasonably open to the Judge on the record,
particularly in view of Mr. Downey’s failure to call as a witness, Kane
Desmond, the only other shareholder actively engaged in the business, with whom
Mr Downey said that he had negotiated the sale of the land and the purchase
price. Mr Desmond’s evidence on the circumstances in which the sale price was
agreed was critical to a determination of whether the transaction was at arm’s
length.
[1]
For
these reasons, the appeal will be dismissed.
“John
M. Evans”
FEDERAL COURT OF
APPEAL
NAMES OF COUNSEL AND
SOLICITORS OF RECORD
DOCKET: A-45-06
STYLE OF CAUSE: Jerome
Downey v. Her Majesty
The
Queen
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: October
26, 2006
REASONS FOR JUDGMENT OF THE
COURT: Noël J.A.
Evans
J.A.
Malone
J.A.
DELIVERY FROM THE BENCH BY: Evans J.A.
APPEARANCES:
Jerome Downey APPELLANT
ON HIS OWN BEHALF
Carl Januszczak
Victor Caux FOR
THE RESPONDENT
SOLICITORS OF RECORD:
|
John H. Sims, Q.C.
Deputy
Attorney General of Canada
|
FOR THE RESPONDENT
|
Email this Content