Lamarre
Proulx
T
.C
J
.:
This
is
an
appeal
respecting
the
application
of
subsection
160(1)
of
the
Income
Tax
Act
(the
“Act”).
At
the
start
of
the
hearing,
the
parties
filed
a
joint
agreement
on
the
facts
(“the
agreement”),
which
reads
as
follows:
[TRANSLATION]
THE
FACTS
5.
The
appellant
appeals
from
an
assessment
dated
December
22,
1993,
whereby
the
appellant
was
assessed
an
amount
of
$197,222.83
under
subsection
160(1)
of
the
Income
Tax
Act
in
respect
of
a
transfer
of
property,
the
Immoveable,
between
Les
Bâtiments
Fafard
Inc.
and
the
appellant,
the
whole
as
appears
from
the
copy
of
the
notice
of
assessment
and
its
schedule
appended
hereto
as
Exhibit
E-1.
6.
Les
Bâtiments
Fafard
Inc.
and
the
appellant
are
not
dealing
with
each
other
at
arm’s
length.
7.
By
deed
to
guarantee
the
performance
of
an
obligation
by
Les
Bâtiments
Fafard
Inc.
toward
the
appellant,
received
before
Vincent
Morier,
notary,
on
November
26,
1985,
copy
of
which
was
registered
at
the
office
of
the
registration
division
of
Drummond
on
November
27,
1985,
Les
Bâtiments
Fafard
Inc.
acknowledged
that
it
owed
the
appellant
the
sum
of
$300,000
in
respect
of
a
loan
which
the
latter
had
granted
to
it
in
the
form
of
a
revolving
credit
to
a
maximum
of
that
amount,
the
whole
as
appears
from
the
copy
of
the
said
deed
appended
hereto
as
Exhibit
E-2.
8.
Under
the
said
deed
of
obligation,
Les
Bâtiments
Fafard
Inc.
granted
the
appellant
an
hypothec
on
the
Immoveable
in
order
to
guarantee
repayment
of
the
aforementioned
loan
and
performance
of
the
obligations
and
conditions
stipulated
in
the
deed
of
obligation,
the
whole
as
appears
from
the
copy
of
the
deed
of
obligation
appended
hereto
as
Exhibit
E-2.
9.
The
said
deed
of
obligation
contained
a
giving
in
payment
clause
providing
inter
alia
that,
if
Les
Bâtiments
Fafard
Inc.
defaulted
in
the
performance
of
one
of
the
obligations
and
conditions
set
out
in
the
deed
of
obligation,
the
appellant
would
have
the
right
to
demand
immediate
possession
of
the
Immoveable
as
absolute
owner
without
any
other
notice
than
that
provided
for
by
the
Act,
the
whole
as
appears
from
the
copy
of
the
deed
of
obligation
appended
hereto
as
Exhibit
E-2.
10.
As
a
result
of
the
failure
by
Les
Bâtiments
Fafard
Inc.
to
comply
with
the
undertakings
and
obligations
provided
for
in
the
said
deed
of
obligation,
the
appellant
served
on
Les
Bâtiments
Fafard
Inc.
and
on
the
registrar
a
60
days’
notice
in
accordance
with
articles
1040a
et
seq.
of
the
Civil
Code
of
Lower
Canada
and
a
copy
of
the
said
notice
was
registered
on
the
Immoveable
on
December
12,
1988,
at
the
Drummond
registry
office,
the
whole
as
appears
from
the
copy
of
the
60
days’
notice
appended
hereto
as
Exhibit
E-3.
11.
Following
that
60
days’
notice,
Les
Bâtiments
Fafard
Inc.
not
having
remedied
its
default,
the
appellant
instituted
a
giving
in
payment
action
before
the
Superior
Court
of
the
Province
of
Quebec.
12.
On
April
26,
1989,
the
Honourable
Judge
Guy
Arsenault
of
the
Superior
Court,
upon
finding
that
Les
Bâtiments
Fafard
Inc.
had
defaulted
and
that
the
appellant’s
action
was
well
founded,
allowed
its
action
and
declared
the
appellant
absolute
and
incommutable
owner
through
a
giving
in
payment
retroactive
to
November
27,
1985,
the
date
on
which
the
appellant’s
claim
on
the
Immoveable
was
registered,
the
whole
as
appears
from
the
copy
of
the
judgment
appended
hereto
as
Exhibit
E-4.
13.
On
August
10,
1993,
the
Minister
of
National
Revenue
issued
a
notice
of
assessment
under
subsection
160(1)
of
the
Income
Tax
Act
in
the
amount
of
$190,609.75
whereby
it
was
contended
that
there
had
been
a
transfer
of
property,
that
is,
of
the
Immoveable,
between
Les
Bâtiments
Fafard
Inc.
and
the
appellant
during
the
fiscal
year
ending
on
May
31,
1989,
the
whole
as
appears
from
the
copy
of
the
notice
of
assessment
and
its
schedule
appended
hereto
as
Exhibit
E-1.
14.
The
appellant
objected
to
the
said
assessment
within
the
legal
time
limit,
as
appears
from
the
copy
of
the
objection
appended
hereto
as
Exhibit
E-6.
15.
On
December
22,
1993,
the
Minister
of
National
Revenue
issued
a
notice
of
assessment
under
subsections
160(1)
and
(2)
of
the
Income
Tax
Act
in
the
amount
of
$197,222.83
whereby
it
was
contended
that
a
transfer
of
property
had
occurred
between
Les
Bâtiments
Fafard
Inc.
and
the
appellant
on
November
27,
1985,
by
virtue
of
the
judgment
rendered
by
the
Honourable
Judge
Guy
Arsenault,
as
appears
from
the
copy
of
the
notice
of
assessment
and
its
schedule
appended
hereto
as
Exhibit
E-5.
The
giving
in
payment
clause
mentioned
in
clause
9
of
the
agreement
appears
at
page
9
of
Exhibit
E-2
and
reads
as
follows:
[TRANSLATION]
Should
any
one
of
the
events
provided
for
in
the
acceleration
clause,
the
creditor
will
furthermore
have
the
right
to
demand
immediate
possession
of
the
immoveable
as
absolute
owner
with
no
other
notice
than
that
provided
for
by
the
Act.
In
that
case,
the
creditor
will
then
take
the
immoveable
free
and
clear
of
any
debt,
rate,
charge,
right,
lien
or
hypothec
subsequent
to
the
registration
of
this
deed,
without
being
required
to
make
restitution
for
any
deposit
received
up
to
that
time
in
principal
or
interest,
or
to
make
any
compensation
for
maintenance
expenses
or
increases
made
by
anyone
whatever,
the
immoveable
becoming
the
creditor’s
property
by
a
giving
in
payment
by
virtue
of
the
debtor’s
now
abandoning
it,
retroactive
to
this
date
should
the
creditor
exercise
this
clause.
The
Quebec
Superior
Court
judgment
referred
to
in
clause
12
of
the
agreement
and
Exhibit
E-4
indicates
that
the
mis-en-cause
were
the
Commission
de
la
santé
et
de
la
sécurité
du
travail
du
Québec
(the
“CSST”),
the
Minister
of
Revenue
of
Quebec,
Bâtiments
Fafard
International
Inc.
and
the
Registrar
of
the
registration
division
of
Drummond.
The
judgment
also
indicates
that
the
defendant
failed
to
appear
and
present
arguments.
The
judgment
declares
the
plaintiff
as
owner
with
retroactive
effect
to
November
27,
1985,
the
date
on
which
the
plaintiff’s
claim
was
registered,
and
in
particular
orders
the
Registrar,
mis-en-cause,
to
strike
out
the
registration
of
the
CSST’s
liens
for
unpaid
premiums,
the
registration
of
a
legal
hypothec
by
the
Minister
of
Revenue
of
Quebec
for
unpaid
income
tax
and
the
registration
of
a
hypothec
by
Bâtiments
Fafard
International
Inc.
securing
a
$200,000
loan.
The
unpaid
tax
liability
is
$197,222.83,
that
is,
a
federal
tax
of
$68,325.78
owed
in
1983
and
interest
of
$128,897.05
(Exhibit
E-5).
Subsection
160(1)
of
the
Act
reads
as
follows:
(1)
Where
a
person
has,
on
or
after
the
1st
day
of
May,
1951,
transferred
property,
either
directly
or
indirectly,
by
means
of
a
trust
or
by
any
other
means
whatever,
to
(a)
his
spouse
or
a
person
who
has
since
become
his
spouse,
(b)
a
person
who
was
under
18
years
of
age,
or
(c)
a
person
With
whom
he
was
not
dealing
at
arm’s
length,
the
following
rules
apply:
(d)
the
transferee
and
transferor
are
jointly
and
severally
liable
to
pay
a
part
of
the
transferor’s
tax
under
this
Part
for
each
taxation
year
equal
to
the
amount
by
which
the
tax
for
the
year
is
greater
than
it
would
have
been
if
it
were
not
for
the
operation
of
sections
74
to
75.1,
in
respect
of
any
income
from,
or
gain
from
the
disposition
of,
the
property
so
transferred
or
property
substituted
therefor,
and
(e)
the
transferee
and
transferor
are
jointly
and
severally
liable
to
pay
under
this
Act
an
amount
equal
to
the
lesser
of
(i)
the
amount,
if
any,
by
which
the
fair
market
value
of
the
property
at
the
time
it
was
transferred
exceeds
the
fair
market
value
at
that
time
of
the
consideration
given
for
the
property,
and
(ii)
the
aggregate
of
all
amounts
each
of
which
is
an
amount
that
the
transferor
is
liable
to
pay
under
this
Act
in
or
in
respect
of
the
taxation
year
in
which
the
property
was
transferred
or
any
preceding
taxation
year,
but
nothing
in
this
subsection
shall
be
deemed
to
limit
the
liability
of
the
transferor
under
any
other
provision
of
this
Act.
Counsel
for
the
appellant
argued
that
the
immoveable
was
transferred
by
the
operation
of
law
rather
than
by
the
tax
debtor.
The
tax
debtor’s
only
positive
act
in
this
matter
was
to
borrow.
The
lender
demanded
a
giving
in
payment
clause
as
a
guarantee.
What
was
granted
by
the
tax
debtor
was
a
guarantee.
As
a
lender,
the
appellant
did
not
become
the
owner
by
signing
the
deed
of
obligation.
It
became
the
owner
by
the
operation
of
law.
Counsel
for
the
appellant
did
not
dispute
the
fact
that
there
was
a
transfer
of
property,
but
contended
that
that
transfer
had
occurred
through
the
operation
of
law
and
that
the
legal
situation
was
not
that
provided
for
by
subsection
160(1)
of
the
Act.
That
subsection
contemplates
the
situation
in
which
a
person
transfers
property
to
another
person
with
whom
he
is
not
dealing
at
arm’s
length;
it
does
not
provide
for
a
situation
in
which
property
is
transferred
to
another
person
by
the
operation
of
law.
The
tax
debtor
did
not
proceed
with
that
transfer
voluntarily,
but
under
force
of
law.
He
argued
that
there
was
no
reconveyance
signed
voluntarily
by
the
tax
debtor,
but
that
there
had
been
a
judgment
declaring
retroactive
ownership
and
that
that
situation
thus
differed
from
the
legal
situation
existing
in
Riverin
c.
R.,(December
20,
1995),
Doc.
93-542(IT)G
(T.C.C.),
in
which
this
Court
held
that
a
giving
in
payment
by
means
of
a
reconveyance
signed
by
the
borrower
constituted
a
transfer
within
the
meaning
of
subsection
160(1)
of
the
Act.
Counsel
for
the
respondent
contended
that
the
legal
situation
must
be
seen
as
a
whole.
The
parties
willingly
included
a
giving
in
payment
clause
in
the
contract
of
loan.
Counsel
for
the
respondent
also
argued
that
he
saw
no
difference
between
the
effect
of
a
deed
signed
voluntarily
and
a
judgment,
particularly
when
there
was
no
action
by
the
defendant
in
response
to
the
giving
in
payment
action.
Analysis
Articles
1040a
and
1040b
of
the
Civil
Code
of
Lower
Canada
are
the
applicable
articles:
1040a.
Under
a
contract
to
guarantee
the
performance
of
an
obligation,
a
creditor
cannot
exercise
the
right
to
become
the
absolute
owner
of
an
immoveable
or
the
right
to
dispose
thereof
until
sixty
days
after
he
has
given
and
registered
a
notice
of
the
omission
or
breach
by
reason
of
which
he
wishes
to
do
so.
Such
notice
must
be
registered
with
a
designation
of
the
immoveable
and
served
on
the
person
whose
rights
as
holder
of
the
immoveable
as
proprietor
thereof
are
then
registered;
it
takes
effect
against
any
other
interested
person
to
whom
the
creditor’s
rights
are
opposable.
The
notice
may
be
served
on
the
holder
or
his
heirs
in
the
same
manner
as
a
summons
under
the
Code
of
Civil
Procedure.
The
registrar
must,
by
registered
or
certified
mail,
inform
each
hypothecary
or
privileged
creditor
who
has
given
notice
of
his
address
or
of
his
elected
domicile,
of
the
registration
of
the
notice
and
to
each
beneficiary
under
a
declaration
of
family
residence
whose
address
or
elected
domicile
is
the
subject
of
a
notice.
1040b.
The
debtor
or
any
other
interested
person
may
prevent
the
exercise
by
the
creditor
of
his
right
to
become
the
absolute
owner
of
the
immoveable
or
to
dispose
thereof,
by
remedying
the
omission
or
breach
mentioned
in
the
notice
and
any
subsequent
omission
or
breach,
and
by
paying
the
costs,
at
any
time
during
the
delay
for
notice
and,
thereafter,
before
the
creditor
has
been
declared,
by
deed
signed
voluntarily
or
by
judgment,
absolute
owner
of
the
immoveable,
or,
in
the
case
of
a
right
to
dispose
of
it,
before
the
creditor
has
exercised
such
right.
Counsel
for
the
appellant
referred
to
pages
487,
490,
491
and
492
of
the
article
by
Maurice-M.
Goulet,
published
in
Revue
du
Notariat,
vol.
68,
no.
10,
May
1966,
p.
485:
page
487:
[TRANSLATION]
(B)
-
A
distinction
must
be
drawn
between:
(1)
-
a
voluntary
giving
in
payment,
in
which
the
creditor
exercises
not
the
right
to
become
owner,
but
only
his
ability
to
receive
the
immoveable
and
to
grant
a
release
and
(2)
-
a
giving
in
payment
imposed
on
the
debtor
by
the
creditor,
who
becomes
the
owner
in
spite
of
the
debtor,
or
without
his
consent,
by
exercising
the
right
that
he
has
previously
been
given
to
become
the
owner
of
the
immoveable
solely
by
a
unilateral
decision
by
him.
This
is
a
forced
or
unilateral
giving
in
payment,
which
is
conditioned
and
limited
by
articles
1040a
et
seq.
page
490
[TRANSLATION]
(3)
...
However,
when
the
creditor
“exercises
the
right
to
become
owner
...
under
a
contract
entered
into
in
order
to
secure
an
obligation”,
he
acts
alone
and
does
not
act
by
virtue
of
the
general
rules
of
law,
with
the
bilateral
agreement
of
the
voluntary
giving,
but
by
virtue
of
a
right
that
he
opposes
to
the
debtor.
That
right
moreover
is
made
enforceable
by
a
right
of
action,
but
no
action
corresponds
to
the
voluntary
giving,
which
takes
place
by
the
sole
meeting
of
the
minds.
page
491
[TRANSLATION]
(A)
-
A
creditor
who
wishes
to
claim
the
benefit
of
a
contract
or
a
giving
in
payment
clause,
after
observing
formalities
of
the
notice
under
art.
1040a,
enjoys
the
right
to
become
owner
granted
by
the
contract
to
guarantee
the
performance
of
an
obligation,
which
is
opposable
to
the
debtor
and
“subsequent
creditors”,
but
the
voluntary
giving
in
payment
not
preceded
by
a
notice
does
not
release
the
immoveable
from
subsequent
charges
and
hypothecs.
(D)
-
It
should
be
noted
that,
after
the
60-day
period,
the
owner-debtor
may
indeed
assign
the
immoveable
concerned
by
means
of
a
giving
in
payment.
It
will
be
to
his
benefit
to
do
so
if
he
anticipates
that
he
will
be
unable
to
remedy
the
defaults.
If
the
creditor
must
take
title
by
an
action,
he
will
be
entitled
to
the
costs
of
the
action
against
the
debtor
if
the
judgment
awards
title...
(E)
-
Sixty
days
after
the
notice
is
given
and
registered,
the
creditor’s
rights
obtained
by
the
contract
to
guarantee
the
performance
of
an
obligation
may
be
fully
exercised.
Whether
the
owner-debtor
assigns
voluntarily
or
does
not
sign
voluntarily,
the
creditor
is
entitled
to
receive
title
and
may
obtain
it
if
necessary
by
an
action.
If
his
registered
contract
entitles
him
to
a
title
“free
and
clear
of
all
subsequent
charge,
etc.”,
he
is
entitled
to
have
struck
out
all
subsequent
charge,
etc.
If
a
subsequent
creditor
refuses
to
give
release
and
to
strike
out
his
claim
in
these
conditions,
the
creditor
may
institute
an
action
to
strike
out
based
on
the
registered
contract
to
guarantee
the
performance
of
an
obligation,
the
notice
given
and
registered
and
the
voluntary
giving
executed
in
his
favour,
the
whole
being
opposable
to
the
subsequent
creditor.
If
he
has
observed
all
the
formalities,
the
creditor
exercising
a
right
with
reason
may
even
claim
the
costs
of
the
action
to
strike
out
against
the
recalcitrant
subsequent
creditor.
I
add
this
comment
to
emphasize
the
difference
between
a
voluntary
giving
and
a
giving
that
is
forced
or
imposed
on
a
debtor
and
on
the
creditors
concerned
after
notice
has
been
given
in
accordance
with
articles
1040a
et
seq.
(The
emphasis
is
mine.)
Counsel
for
the
appellant
also
referred
to
Banque
canadienne
nationale
c.
Paquette,
[1976]
C.S.
1338
(C.S.
Qué.),
at
page
1340:
[TRANSLATION]
It
may
thus
be
assumed
that,
so
long
as
there
has
been
no
voluntary
assignment
by
him
or
a
judgment
has
not
been
rendered,
the
debtor
remains
the
owner
and
the
immoveable,
which
is
still
part
of
his
patrimony,
constitutes
a
pledge
to
his
creditors.
Counsel
for
the
respondent
referred
in
particular
to
this
Court’s
decision
in
Montreuil
c.
R.,
(1994),
94
D.T.C.
1821
(T.C.C.),
at
page
1830:
In
addition,
the
definitions
noted
above
indicate
that
transferring
property
or
a
right
is
the
equivalent
of
distributing
it.
Such
distribution
is
always
from
a
person
who
is
the
owner
or
proprietor
to
another
who
becomes
the
beneficiary,
whether
by
an
act
between
the
parties
or
by
operation
of
law.
In
this
sense,
transferring
does
not
necessarily
imply
a
positive
act
by
the
transferor
and
neither
does
it
require
that
a
specific
action
be
performed
when
alive.
The
position
taken
by
counsel
for
the
appellants
to
the
effect
that
the
wording
of
subsection
160(1)
assumes
such
a
requirement
is
even
less
acceptable
given
that
in
the
instant
case
Benoît
Montreuil
Sr.
effectively
provided
for
the
transfer
of
his
property
when
alive
by
writing
a
will,
which
is
considered
a
deed
of
gift
of
his
property
in
contemplation
of
death
to
take
effect
after
his
death.
(The
emphasis
is
mine.)
In
Riverin
c.
La
Reine,
this
Court
held
that,
by
signing
the
reconveyance,
the
tax
debtor
had
transferred
his
immoveable.
In
that
same
judgment,
the
Court
stated
at
page
9
that
its
decision
would
have
been
the
same
if
the
transfer
had
taken
place
following
a
judgment
because
it
was
the
tax
debtor
who
signed
the
deed
of
obligation
containing
the
giving
in
payment
clause.
The
Court’s
role
was
to
force
the
tax
debtor
to
perform
the
obligation
which
he
had
undertaken.
It
is
my
view
that
the
legal
analysis
conducted
by
my
colleagues
covers
and
answers
all
the
points
raised
by
counsel
for
the
appellant.
There
was
a
transfer
within
the
meaning
of
subsection
160(1)
of
the
Act,
even
if
that
transfer
resulted
from
the
operation
of
law.
Although
the
transfer
took
place
by
the
operation
of
law
it
was
nevertheless
set
in
motion
by
the
deed
of
obligation
and
guarantee
signed
by
the
tax
debtor.
Furthermore,
I
see
no
substantial
legal
distinction
between
the
situation
of
a
person
who,
after
the
60
days’
notice,
executes
a
reconveyance
signed
voluntarily
or
submits
to
the
effect
of
a
judgment.
I
refer
again
to
the
following
passage
from
the
Revue
du
Notariat
article
cited
above:
[TRANSLATION]
(E)
-
Sixty
days
after
the
notice
is
given
and
registered,
the
creditor’s
rights
obtained
by
the
contract
to
guarantee
the
performance
of
an
obligation
may
be
fully
exercised.
Whether
the
owner-debtor
assigns
voluntarily
or
does
not
sign
voluntarily,
the
creditor
is
entitled
to
receive
title
and
may
obtain
it
if
necessary
by
action.
If
his
registered
contract
entitles
him
to
a
title
“free
and
clear
of
all
subsequent
charge,
etc.”,
he
is
entitled
to
have
struck
out
all
subsequent
charge,
etc.
The
appeal
is
accordingly
dismissed
with
costs.
Appeal
dismissed.
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