REASONS
FOR JUDGMENT
Favreau J.
[1]
This is an appeal from an assessment made under
Part IX of the Excise Tax Act, R.S.C., 1985, c. E-15, as amended
(the ETA), by the Quebec Minister of Revenue as an agent of the Minister
of National Revenue (hereinafter the Minister), notice of which is dated March
19, 2015, and bears number F-057417.
[2]
The assessment at issue is a third-party
assessment issued under subsection 325(2) of the ETA regarding the
transfer of property between the company 9192-9737 Québec Inc. (9192) and the
appellant through a bank draft in the amount of $15,000 dated December 19,
2012. The amount claimed from the appellant is $2,459.25.
[3]
In establishing the appellant’s assessment, the
Minister based his conclusions on, among other things, the following
conclusions and assumptions of fact, stated in paragraph 17 of the Reply
to Notice of Appeal:
a)
the facts admitted above;
b)
on December 19, 2012, the company 9192-9737
Québec Inc. transferred $15,000 to the appellant by cheque;
c)
at the time of the transfer, on December 19,
2012, the ceding company, 9192-9737 Québec Inc., had a non-arm’s length
relationship with the appellant, who is the daughter of the shareholder of the
ceding company, Joaquim Mineiro;
d)
the appellant did not provide any consideration
to the ceding company, 9192-9737 Québec Inc.;
e)
the appellant did not report this amount of
$15,000 on her income tax return for 2012;
f)
at the time of the transfer, on December 19,
2012, the ceding company 9192-9737 Québec Inc. owed an amount of $115,062.14 in
fees, interests and penalties under tax laws, including an amount of $18,941.18
under Part IX of the ETA representing 16.46% of its total tax debt;
g)
the company 9192-9737 Québec Inc. transferred an
amount of $15,000 to the appellant, the shareholder’s daughter, for no
consideration;
h)
therefore, following the transfer, the appellant
received an advantage of $15,000;
i)
therefore, the Minister considered that the
amount by which the FMV of the transferred property ($15,000) at the time of
the transfer exceeded the FMV of the consideration paid ($0) by the appellant
for the transferred property was $15,000;
j)
the appellant is thus jointly and severally
liable to pay the amount the ceding company (9192-9737 Québec Inc.) owes under
the ETA for its reporting period including the time of the transfer,
including interest and penalties.
The issues
[4]
This case raises the following issues:
a)
whether the appellant is jointly and severally
liable to the company 9192 to pay a portion of the amount it owes under the ETA
at the time of the transfer; and
b)
whether the appellant paid fair market value
consideration on the date of transfer equal to or greater than the fair market
value of the transferred property on the transfer date.
[5]
The appellant does not dispute:
a)
that the company 9192 had a tax debt of
$18,941.18 under the ETA on the transfer date, representing 16.46% of
its total tax debt;
b)
that, on the transfer date, she had a non-arm’s
length relationship with the company 9192 because her father owned the company;
and
c)
that on December 19, 2012, she received a bank
draft from the company 9192 in the amount of $15,000, which, on the transfer
date, had a fair market value of $15,000.
The
testimonies
[6]
The appellant and her father, Joachim Mineiro,
testified at the hearing that the amount of $15,000 was for reimbursement of a
loan she had made to her father on March 15, 2004, and that the loan was
partially reimbursed through the bank account of company 9192.
[7]
Marisa Mineiro is currently the principal of an
elementary school in the Montreal area.
[8]
On November 14, 2002, Ms. Mineiro purchased a
condominium with her fiancé, Paolo Pannunzio, with the unit number 306, on the
third floor of a building located at 7536 Maurice-Duplessis Boulevard in
Montreal. The price paid for the condominium was $125,000, to which was added
tax adjustments, transfer tax and notary fees. The buyers made a down payment
of $20,000 and took out a mortgage on November 8, 2002, in the amount of
$107,100 with the Caisse d’économie des Portugais de Montréal. On the mortgage
deed, Ms. Mineiro reported that she was single, an adult and had never been
married and that she resided at 12245 René Chopin Street, apartment 5, in
Montreal. Mr. Pannunzio reported that he then resided at 8122 Maurice-Duplessis
in Montreal.
[9]
The purchase of the condominium on November 14,
2002, coincides with the year when Ms. Mineiro began her career as an
elementary school teacher.
[10]
In 2003, the owners of the condominium had
renovations done by the appellant’s father with the assistance of her
father-in-law. The appellant’s father had a licence from the Régie du Bâtiment
du Québec, but no renovation permit was obtained from the municipality. The
work was completed over a period of over 12 months during spare time,
especially on weekends. The work consisted of laying tile in the kitchen and
bathroom, replacing the toilet and a faucet, improving the soundproofing,
painting the unit and replacing heating and lighting appliances. The cost of
the work was not precisely determined.
[11]
Ms. Mineiro and her fiancé were to marry in June
2014, but the marriage was called off because of difficulties in their
relationship in 2003, apparently caused by Mr. Pannunzio’s financial problems.
Because Mr. Pannunzio was asking for half of all the couple’s assets, the
appellant had to hire a lawyer to reach a settlement on the financial terms of
the separation.
[12]
To help his daughter with the negotiations, the
appellant’s father sent the co-owners of the condominium an invoice for the
renovation work done on the unit and registered a legal mortgage on the
building to secure payment.
[13]
The invoice was dated May 16, 2003, when the
renovation work was not yet complete. The invoice was made by Joachim Mineiro,
operating under the business name “Les Installations Joe Mineiro”. The invoice
was for a total amount of $32,166.51 including taxes and services rendered for
supplies, the laying of ceramic tile, granite and other accessories. It also
includes the purchase and transportation of materials and labour for a total of
238.5 hours at $60 per hour.
[14]
The notice of legal mortgage is dated June 9,
2003, and involves the total amount of the invoice of $32,166.51 for materials
and services provided, which had not yet been paid.
[15]
The renovation work was completed, and the
condominium was sold on March 11, 2004, for $180,000. On the bill of sale, Ms.
Mineiro reported that she lived at 7650 Suzanne Giroux Street, apartment 102,
in Montreal. The seller of the building, defined in the bill of sale as
including Marisa Mineiro and Paolo Pannunzio, made the following statement in
the bill of sale:
The Seller
declares that the building currently being sold is a building occupied
primarily for residential purposes, that no major renovations have been
performed and that the Seller did not claim and will not claim any input tax
credits or input tax refunds for the acquisition of or improvements made to the
building.
Consequently, the sale is exempt under the
provisions of the Excise Tax Act and the Act respecting the Québec
sales tax.
[16]
During her testimony, the appellant stated that
she had never lived in the condominium and did not report her part of the gain
realized from the sale of the condominium on her income tax return for the 2004
taxation year.
[17]
On March 11, 2004, the notary who orchestrated
the sale of the condominium applied the purchase price of $180,000 to the
Groupe Sutton Synergie de l’Est Inc.’s commission ($3450.75), the repayment of
the mortgage with the C.P. d’Économie des Portugais de Montréal ($104,912.62),
the repayment of the legal mortgage ($32,166.51), the payment of school taxes
($310), municipal taxes ($840) and notary fees ($1066.69). The total of the
amounts thus paid is $142,746.57. The difference of $37,253.43 plus adjustments
of $676.06 for a total of $37,929.49 was paid to the appellant with the
agreement of Mr. Pannunzio, who specifically authorized the notary to pay the
sums detailed above on his behalf.
[18]
According to the appellant, the sum of
$32,166.51 paid to her father through the legal mortgage was actually a loan to
be repaid later at his discretion when he was able to do so. However, the
appellant acknowledged that there is no document confirming the existence of
such a loan.
[19]
On August 16, 2010, the appellant solely
purchased a residence at 11 859, 28th Avenue in Rivière-des-Prairies. The
purchase price of $280,000 was financed by a mortgage from the National Bank of
Canada in an amount corresponding to 100% of the purchase price. The residence
was built in the 1980s and needed renovations. The appellant’s father again
helped her perform the necessary renovations.
[20]
The appellant explained that the sum of
$15,007.50 that she received from her father in 2012 was applied in full to pay
for the renovation work on that residence.
[21]
The appellant also explained that, on October
10, 2010, she took out a second mortgage on that residence with CitiFinancial
Canada Inc. in the amount of $26,279.21 to repay a student loan of $17,000 and
to pay the damages and interest resulting from breaking the lease at the
residence where she had been living.
[22]
The appellant’s net income for each year from 1995
to 2015 was submitted into evidence. For the years 2002 to 2012, her net income
was as follows:
|
Year
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
|
Net income ($)
22,376
22,882
34,857
42,384
36,989
36,637
40,092
47,048
40,363
53,831
53,051
|
[23]
Joachim Mineiro also testified at the hearing,
and he explained that the sum of $32,166.51 he received as reimbursement for
the legal mortgage registered on the condominium his daughter and her ex-fiancé
owned did not belong to him because he had agreed to do the renovation work for
free and because she had paid for the materials used for the renovation work
with her credit card. When he received the sum in question in 2004, his
daughter apparently told him that she did not need the money. On March 15, 2004,
he deposited in the bank account of his sole proprietorship, Les Installations
Joe Mineiro, $15,000 and the sum of $32,166.51 he had previously deposited into
his personal bank account.
[24]
On February 18, 2008, Mr. Mineiro incorporated
the company 9192-9737 Québec Inc., a corporation established under Part 1A of
the Quebec Companies Act, of which he became shareholder with Jose
Alberto Agostinho. The company 9192-9737 Québec Inc. began operating in 2008,
and the end of his first fiscal year was April 30, 2009. The registration of
the sole proprietorship Les Installations Joe Mineiro was struck out on
December 10, 2008, and Mr. Mineiro then stopped using it but did not transfer
the assets and liabilities of the sole proprietorship to the company 9192-9737
Québec Inc.
[25]
One year after the company 9192-9737 Québec Inc.
began operating, Mr. Agostinho was in a serious accident and retired from
business. Subsequently, Mr. Mineiro continued operating 9192-9737 Québec Inc.
on his own.
[26]
During his testimony, Mr. Mineiro explained that
between 2004 and 2012 he did not reimburse anything to his daughter. The only
amount reimbursed is the sum of $15,007.50 paid on December 19, 2012, through a
bank draft withdrawn from the bank account of company 9192-9737 Québec Inc.
Applicable
law
[27]
Section 325 of the ETA sets out rules
according to which the transferee of property (money being equivalent to
property under subsection 325(5)) may be liable for the transferor’s unpaid
taxes if the two parties were not dealing at arm’s length. The amount the
transferee may owe is limited to the amount 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.
[28]
Subsections 325(1), (2) and (5) read as follows:
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
a)
(e) the total of all amounts each of which is
(i)
(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)
(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.
...
Assessment
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.
325(5) Meaning of property
In this section, property
includes money.
Analysis
[29]
For the purposes of the ETA, an
assessment is deemed valid and binding, notwithstanding any error, defect or
omission therein or in any proceeding relating thereto (see subsection 299(4)),
a presumption that may be rebutted by the taxpayer.
[30]
The taxpayer’s initial onus is to “demolish” the
presumption by presenting a prima facie case, which has the effect of
reversing the burden of proof on the respondent, who must then refute the prima
facie case and prove the merit of the assessment.
[31]
In Stewart v. Canada, [2000] T.C.J. no.
53, the Tax Court of Canada defined a prima facie case as follows:
A prima facie case is one “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. It may be
contrasted with conclusive evidence which excludes the possibility of the truth
of any other conclusion than the one established by that evidence.”
[32]
In House v. Canada, [2011] F.C.J. no.
1220, the Federal Court of Appeal recognized that a credible testimony can
rebut the presumption of an assessment’s validity even if the assertions are
not supported by documentation.
[33]
In Hickman Motors Ltd. v. Canada, [1997]
2 S.C.R. 336, Madam Justice Claire L’Heureux-Dubé accepted evidence based on a
testimony that was clear and was not shaken in cross-examination from a witness
with whom no question of credibility was ever raised and where the respondent
did not adduce any evidence whatsoever (see paragraphs 51 and 91).
[34]
In this case, the onus is on the appellant to
prove the existence of a loan to her father and her father’s repayment of part
of that loan.
[35]
The appellant’s arguments are based essentially
on the merit of her testimony and that of her father, which are consistent but
do not create such a degree of probability for the Court to accept them.
[36]
There are no documents to support the existence
of a loan from the appellant to her father specifying the conditions of the
loan, i.e., the term, the interest rate and the method of repayment. The verbal
agreement made between the appellant and her father on the renovation work
could also be considered a gift rather than a loan.
[37]
The testimonies of the appellant and her father
contradict a notarial act, i.e., the legal mortgage intended to guarantee
payment for the renovation work, which is itself based on a false invoice. The
appellant’s father performed the renovation work free of charge, and, according
to the facts reported by her father, the appellant paid for the materials used
for the work using her credit card.
[38]
The invoice and legal mortgage were part of a
strategy to protect the appellant’s property in the context of her separation.
The appellant’s ex-fiancé did not testify at the hearing, and the separation
agreement was not submitted into evidence.
[39]
Moreover, the appellant did not obtain a
renovation permit from the municipality to perform the work, and no proof that
the appellant covered the cost materials used was produced in court.
[40]
The credibility of the testimonies of the
appellant and her father was called into question during the hearing. The
appellant did not report the gain or profit generated by the sale of the
condominium on her income tax return for taxation year 2004 even though, by her
own admission, she never lived in the condominium in question. The appellant’s
father was audited for the taxation years 2004 to 2007, inclusively, and
reassessments were issued for each of those years for unreported income, and a
penalty for gross negligence was imposed because Mr. Mineiro’s accounting was
deficient in several regards. Mr. Mineiro challenged these reassessments in the
Court of Quebec, but they were upheld despite some adjustments. Furthermore,
Mr. Mineiro provided information in his notice of objection that contradicts
reassessments issued for taxation years 2006 and 2007 and the explanations
provided at the hearing. In the notice of objection, Mr. Mineiro reported the
following:
In 2004 upon
the sale of her home, Mr. Mineiro’s daughter repaid the sum of $47,166
deposited into the company account and transferred into his personal account.
On March 15, he transferred $15,000 into the company account and $13,783 on
August 6.
[41]
The respondent submitted into evidence the
statement from the Caisse d’économie des Portugais dated March 15, 2004,
showing a net deposit of $47,166.51 consisting of a cheque of $15,000 from the
appellant and a cheque from the notary Silvano Gabrielli, who formalized the
sale of the appellant’s condominium in the amount of $32,166.51.
[42]
The cheque of $15,000 from the appellant appears
to be the reimbursement of the sum of $15,000 loaned by her father to help her
purchase the condominium in 2002 even though, according to her testimony, her
father never helped her with the purchase.
[43]
Regardless of whether or not the appellant made
a loan to her father, the amount of $15,000 that was transferred to the
appellant on December 19, 2012, came from the company 9192-9737 Québec Inc.,
with which the appellant had no privity and which did not exist in 2002, 2003
and 2004.
[44]
In 2008, Mr. Mineiro closed and struck out his
sole proprietorship, Les Installations Joe Mineiro, and formed the company
9192-9737 Québec Inc. with another shareholder to continue his business
activities in 2009 and the following years. No assets or liabilities were
transferred between Les Installations Joe Mineiro and the company 9192-9737
Québec Inc. The financial statements of 9192-9737 Québec Inc. for the years
2009 to 2012 show no amount owing to a shareholder or administrator except for
a sum of $3700 on the opening balance sheet dated April 30, 2009, a sum of
$1596 on April 30, 2010, and a sum of $4682 on April 30, 2011.
[45]
Consequently, the transfer to the company
9192-9737 Québec Inc. of the debt Mr. Mineiro could have owed to the appellant
was not shown, which means that the appellant paid no consideration for the
transfer of the amount of $15,000 from the company 9192-9737 Québec Inc.
[46]
Lastly, the respondent demonstrated that the
appellant did not have the financial resources to loan her father $32,166.51 in
2004. The appellant’s net income for the years 2002, 2003 and 2004 was only
$22,376, $22,882 and $34,857, respectively, and her ex-fiancé had spent a large
amount of the savings in a joint account to pay for the marriage and make a
deposit to purchase the condominium where the couple was going to live.
[47]
In 2012, the appellant had to take out a
mortgage of $280,000, an amount equivalent to 100% of the purchase price of the
residence as well as an additional loan of $26,279.61 to repay a student loan
of $17,000 and to pay the damages and interest for breaking her lease at her
residence.
[48]
For all of these reasons, the appeal is
dismissed.
Signed at Ottawa, Canada, this 16th day of June 2017.
“Réal Favreau”
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