Archambault
T.C
J
.:
Gaétan
Paradis
is
disputing
notices
of
assessment
made
under
the
Income
Tax
Act
(Act)
by
the
Minister
of
National
Revenue
(Minister)
for
the
taxation
years
1988
to
1992
inclusive
(relevant
years).
In
computing
his
income
tax
for
those
taxation
years,
Dr.
Paradis
claimed
tax
deductions
in
respect
of
gifts
of
paintings
to
charitable
organizations
or
a
museum
(donees).
The
Minister
disallowed
the
deduction
because
Dr.
Paradis
apparently
did
not
actually
make
gifts
but
rather
was
involved
in
a
scheme
to
acquire
tax
deductions.
Alternatively,
even
if
Dr.
Paradis
had
made
the
gifts,
the
Minister
contends
that
he
was
still
not
entitled
to
the
deductions
because
he
did
not
file
receipts
containing
all
the
required
information.
Even
if
he
was
entitled
to
a
deduction,
the
amount
thereof
must
be
reduced
because
the
value
of
the
gifts
was
far
lower
than
the
amounts
indicated
on
the
receipts.
Having
lowered
the
fair
market
value
of
the
paintings,
the
Minister
also
reduced
the
capital
gain
on
the
disposition
of
some
of
those
paintings.
The
assessment
for
1989
was
made
on
October
23,
1995,
after
the
normal
three-year
period.
Lastly,
the
Minister
assessed
penalties
under
subsection
163(2)
of
the
Act.
Facts
Factual
Context
During
the
relevant
years,
Marc
Levert
operated
an
art
gallery
under
the
trade
name
“La
Galerie
des
Maîtres
Anciens”.
To
stimulate
sales
among
his
clientele,
he
developed
a
marketing
strategy
as
surprising
as
it
was
improbable:
he
promoted
the
sale
of
his
paintings
by
describing
them
as
tax
shelters.
The
gimmick
consisted
in
giving
to
a
museum
or
a
charitable
organization
a
painting
purchased
from
Mr.
Levert,
for
which
the
donee
issued
a
receipt
for
an
amount
representing
three
to
four
times
the
purchase
price.
The
donor
obtained
the
benefit
of
his
“tax
shelter”
by
claiming
a
tax
deduction
for
gifts,
and
if
“cultural
property”
was
involved,
by
means
of
a
capital
gains
exemption.
To
obtain
such
a
receipt,
Mr.
Levert
made
an
advance
arrangement
with
a
charitable
organization
and
often
solicited
gifts
of
paintings
on
behalf
of
that
organization.
He
also
provided
the
organization
with
the
estimated
value
of
the
painting
so
that
the
organization
could
indicate
it
on
the
tax
receipt
forwarded
to
the
donor.
Once
the
painting
was
acquired,
the
charitable
organization
asked
Mr.
Levert
to
resell
it
and,
in
certain
instances,
he
handed
only
10
per
cent
of
the
value
of
the
painting
over
to
the
organization.
It
even
came
out
in
the
evidence
that
some
of
the
paintings
were
resold
to
other
clients
of
Mr.
Levert’s
who
in
turn
gave
them
to
the
same
charitable
organization.
Dr.
Roy,
one
of
Mr.
Levert’s
clients,
described
the
scheme
as
follows:
[TRANSLATION]
So
when
we
were
approached
by
Mr.
Levert,
there
was
a
set
procedure
in
that
he
handled
all
aspects
of
the
transactions
carried
out
with
a
view
to
making
gifts
to
foundations
or,
in
particular,
to
museums.
So,
after
various
contacts
were
made,
the
transaction
might
take
shape
as
follows:
Mr.
Levert
did
all
the
dealing
with
respect
to
a
painting
that
the
museum
wanted
to
obtain.
So,
depending
on
the
amount
that
the
museum
fixed
as
being
its
value,
I
had
to
provide
approximately
...
if
I
remember
correctly,
30
to
35
per
cent
of
the
value
of
the
receipt
issued
to
him.
And
he
—
if
it
was
less,
well,
we
paid
less.
So,
all
he
asked
was
that
we
make
a
deposit
to
show
our
interest
in
the
transaction.
Dr.
Paradis
is
a
physician
whose
medical
career
has
taken
various
turns.
He
first
acquired
his
licence
to
practise
in
1983
while
continuing
his
training
in
general
surgery.
In
1996,
he
abandoned
that
specialty
in
order
to
practise
emergency
medicine.
From
1988
to
1992,
his
gross
annual
income
was
between
$140,000
and
$150,000.
However,
Dr.
Paradis
admitted
that
he
had
few
expenses.
In
1991,
following
an
absence
as
a
result
of
an
illness,
he
decided
to
reorient
his
career
toward
urology.
His
income
fell
to
approximately
$40,000.
Since
1981,
Dr.
Paradis
has
been
interested
in
works
of
art.
During
the
hearing,
counsel
for
the
Minister
moreover
admitted
that
Dr.
Paradis
was
an
art
collector.
Prior
to
1986,
the
acquisition
cost
of
each
of
his
paintings
was
less
than
$1,000.
Dr.
Paradis
stated
that,
between
1981
and
1993,
he
had
acquired
some
50
paintings
and
one
sculpture
the
total
value
of
which
was
between
$100,000
and
$150,000.
During
visits
to
galleries
in
the
Québec
area
in
1988,
Dr.
Paradis
met
Marc
Levert,
who
explained
to
him
the
tax
advantages
that
he
could
derive
from
purchasing
paintings
and
donating
them
to
charitable
organizations
or
museums.
Dr.
Paradis
consulted
Jean
Filion,
a
chartered
accountant
and
tax
specialist,
concerning
the
tax
consequences
of
such
gifts.
In
addition
to
working
for
two
years
as
a
corporate
auditor
for
the
Minister,
Mr.
Filion
earned
a
master’s
degree
in
taxation
from
the
University
of
Sherbrooke
in
1976.
Mr.
Filion
is
also
related
by
marriage
to
Dr.
Paradis,
his
wife
being
Dr.
Paradis’s
wife’s
cousin.
Mr.
Filion
described
Dr.
Paradis
as
an
informed
person
who
was
concerned
with
observing
tax
rules.
He
moreover
confirmed
that
Dr.
Paradis
had
been
purchasing
tax
shelters
for
a
few
years.
Mr.
Filion
understood
that
fair
marked
value
is
one
of
the
most
serious
problems
in
the
type
of
“tax
shelter”
consisting
in
the
purchase
and
donation
of
paintings.
He
stated
the
following
at
the
hearing:
[TRANSLATION]
Your
Honour,
we
were
aware
that
the
problem
was
of
course
the
question
of
the
value
of
the
transaction,
but
since
things
were
done
in
a
manner
...
in
accordance
with
good
practice
in
this
field
and
the
gifts
were
made
and
payment
was
received,
there
were
always
vouchers
supporting
all
transactions.
Whether
he
was
purchasing
or
selling,
my
client
was
explicitly
advised
that
he
had
to
have
documentation
and
that
he
had
to
have
all
his
vouchers
so
that
his
file
could
be
processed
correctly.
[My
emphasis.
]
In
order
to
advise
Dr.
Paradis
on
gifts
of
art
works,
Mr.
Filion
stated
that
he
had
consulted
the
guide
prepared
by
the
Department
of
National
Revenue
in
1986
concerning
gifts
in
kind:
[TRANSLATION]
Q.
...Did
you
in
fact
base
your
opinion
on
the
fair
market
value
based
on
the
document
that
was
filed
as
Exhibit
A-4?
A.
Yes.
You
must
understand
that
we
practitioners
work
with
the
information
provided
by
the
Department
of
Revenue.
We
indeed
based
our
opinion
on
the
interpretation
bulletins
and
on
the
more
detailed
explanations
that
may
be
found
in
the
guides.
And
as
it
is
stated
at
page
5:
[TRANSLATION]
“Fair
market
value”
The
Income
Tax
Act
does
not
define
the
expression
fair
market
value,
but,
as
a
general
rule,
it
means
the
price
that
property
would
command
on
the
open
market
in
a
transaction
between
a
consenting
vendor
and
purchaser
who
are
independent
of
each
other
and
are
acting
with
full
knowledge
of
the
facts.
Where
individuals
are
dealing
with
each
other
at
arm
’s
length,
the
sale
or
purchase
of
property
on
or
about
the
date
of
the
appraisal
generally
confirms
the
value
of
the
property
as
at
that
date.
The
Department
usually
assigns
that
value
to
a
gift
made
for
the
purposes
of
the
deduction.
...So
we
were
of
course
working
with
those
little
guides
in
advising
our
clients,
that
is
quite
certain.
[My
emphasis.]
On
May
30,
1989,
Mr.
Filion
informed
Dr.
Paradis
in
writing
of
the
decision
rendered
by
the
Federal
Court,
Trial
Division,
in
Friedberg
v.
R.,
court
file
no.
T-2004-85
((1989),
89
D.T.C.
5115
(Fed.
T.D.)).
In
his
letter,
he
summarized
the
relevant
facts,
including
the
fact
that
the
works
had
been
appraised
by
independent
experts.
He
explained
in
the
following
terms
why
he
had
sent
Dr.
Paradis
that
letter:
[TRANSLATION]
Q:
But
when
you
wrote
to
your
client,
that
was
not
an
opinion;
that
was
just
information?
A:
Well,
yes,
I
told
him
of
a
court
case
I
had
received
information
about
and
I
forwarded
the
information
to
him
so
that
—
because
I
know
my
client
very
well.
He
is
a
person
who
likes
to
have
all
available
information
so
that
he
has
the
best
possible
guidance
in
his
transactions.
So
I
forwarded
the
information,
telling
him
in
effect:
“A
court
case
has
just
been
heard,
and
here
is
what
was
said
in
that
case
...
and
it
confirms
as
it
were
that
value
is
an
important
consideration.”
[My
emphasis.]
In
his
cross-examination,
counsel
for
the
Minister
asked
Mr.
Filion
to
define
what
in
his
view
constituted
an
“independent
appraiser”.
He
replied
as
follows:
[TRANSLATION]
Q:
When
we
speak
of
“independent
appraisals”,
what
does
that
mean
for
you?
A:
...
Q:
Independent
of
whom
or
of
what?
A:
Well,
“independent
appraisals”
means
getting
the
information
from
a
person
who
works
in
the
field
of
art,
who
knows
art
and
who
will
refer
to
a
guide
or
to
some
sort
of
reference
work.
Q:
Is
that
what
an
independent
appraisal
is?
A:
Well,
for
me,
as
a
person
having
knowledge
in
the
field
of
art
...
as
an
ordinary
individual,
in
my
view,
the
idea
was
to
check,
yes.
A
little
further
on,
counsel
for
the
Minister
returned
to
the
same
line
of
questioning
and
asked:
Q:
so,
in
your
view,
is
someone
who
sells
an
art
work
and
at
the
same
time
does
the
appraisal
an
independent
appraiser!
R:
l
have
no
idea
[My
Emphasis.]
And
yet
the
guide
that
Mr.
Filion
consulted
provided
the
following
information
on
page
5:
[TRANSLATION]
Who
may
appraise
a
ift?
The
appraiser
must
be
independent,
that
is
to
say,
he
must
not
be
related
either
to
the
donee
or
to
the
beneficiary
institution.
Dealers,
appraisers
or
other
persons
who
know
the
market
value
of
the
donated
property
may
make
a
valid
appraisal.
Mr.
Filion
subsequently
stated
that
he
had
not
explained
to
Dr.
Paradis
what
an
independent
appraiser
was:
[TRANSLATION]
Q:
But
at
the
time
did
you
explain
to
Dr.
Paradis
what
an
independent
appraiser
was!
A:
No.
Q:
Even
though
you
were
his
adviser
in
this
field
by
virtue
of
the
fact
that
he
had
consulted
you,
you
went
no
further
than
to
give
him
the
information?
That’s
all
you
did?
A:
I
forwarded
the
information
so
that
he
could
make
the
right
decisions
based
on
the
facts.
But
he
personally
approached
people
whom
he
trusted
in
that
particular
field
and
in
the
area
of
transactions.
I
was
there
to
give
him
the
fiscal
parameters
so
that
he
could
operate
properly.
[My
emphasis.]
1988
Gifts
On
August
3,
1988,
Dr.
Paradis
purchased
two
drawings
by
Andy
Warhol
(Warhol
paintings)
and
one
by
Salvador
Dali
(Dali
painting)
from
La
Galerie
des
Maîtres
Anciens
for
a
total
of
$17,440.
In
addition
to
the
invoice,
there
is
a
copy
of
his
bank
statement
which
shows
that
the
sum
of
$17,440
was
debited
on
August
4,
1988.
Mr.
Levert
said
that
he
gave
Dr.
Paradis
an
appraisal
of
$15,000
for
the
Warhol
paintings
a
few
weeks
or
months
later.
In
that
document,
Mr.
Levert
certified
that
the
paintings
were
original
works
and
that
the
stated
value
represented
market
value
at
the
time
of
the
appraisal.
The
appraisal
bore
no
date.
He
gave
a
similar
appraisal
of
the
Dali
painting,
the
market
value
of
which
was
estimated
at
$5,000.
That
appraisal
was
not
dated
either.
Dr.
Paradis
stated
that
he
donated
the
Warhol
paintings
to
UDR
and
the
Dali
painting
to
the
Foundation
amérindienne
Tecumseh
(Tecumseh)
in
December
1988.
He
filed
copies
of
the
official
receipts
issued
by
those
two
charitable
organizations,
the
UDR
receipt,
dated
December
7,
1988,
being
for
$15,000,
and
the
Tecumseh
receipt,
dated
December
22,
1988,
being
for
$5,000.
Dr.
Paradis
claimed
in
respect
of
those
three
paintings
a
deduction
for
charitable
gifts
of
$20,000
for
1988.
The
UDR
receipt
is
incomplete:
it
does
not
mention
Dr.
Paradis’s
first
name
or
his
address,
nor
does
the
name
or
address
of
the
appraiser
appear
thereon.
It
describes
the
paintings
as
“two
water
colours
by
Andy
Warhol”.
The
Tecumseh
receipt
does
not
indicate
the
appraiser’s
name
or
address
and
describes
the
painting
as
“an
ink
drawing
by
Salvator
[sic]
Dali,
collection
piece
dated
1965”.
Michael
Bigué,
owner
of
Galerie
Michael
Bigué
in
Saint-Sauveur,
purchased
the
Dali
painting
from
Tecumseh
on
April
10,
1989,
for
$5,500.
This
was
the
same
painting
that
Dr.
Paradis
had
donated
to
Tecumseh
in
December
1988.
In
addition,
Mr.
Bigué
received
on
consignment
the
Warhol
paintings
that
Dr.
Paradis
had
given
to
UDR.
Mr.
Bigué
had
doubts
about
the
authenticity
of
the
latter
paintings
and
asked
one
of
his
employees
to
go
to
the
head
office
of
the
Warhol
Foundation
in
New
York.
Vince
Freemont,
director
of
that
foundation,
dismissed
the
Warhol
paintings
as
forgeries.
Following
his
misfortune
with
the
forged
Warhol
paintings,
Mr.
Bigué
went
to
Paris
to
meet
Robert
Ducharme,
an
expert
on
Salvador
Dali.
According
to
Mr.
Ducharme,
the
alleged
Dali
painting
was
also
a
forgery.
Tecumseh
refunded
to
Mr.
Bigué
the
$5,500
paid
for
the
forged
Dali
and
reimbursed
him
his
travelling
expenses
of
$500
incurred
for
the
trip
to
New
York
to
verify
the
authenticity
of
the
Warhol
paintings.
1989
Gifts
On
July
21,
1989,
Dr.
Paradis
purchased
an
oil
painting
signed
by
Gabrielle
Messier
and
Ozias
Leduc
(Messier-Leduc
painting).
The
title
appearing
on
the
reverse
of
the
canvas
is
“Mireille
Gagné
4
1/2”.
The
purchase
price
indicated
on
the
invoice
dated
July
21,
1989,
is
$8,750
or
$9,537.50
with
tax.
The
work
is
described
as
a
“painting
begun
by
Gabrielle
Messier
on
July
17,
1940
and
completed
by
Ozias
Leduc
on
December
29”.
A
copy
of
Dr.
Paradis
bank
statement
confirms
that
an
amount
of
$9,537.50
was
debited
on
August
1,
1989.
On
that
date,
the
Galerie
des
Maîtres
Anciens
estimated
the
market
value
of
the
painting
at
$38,000.
However,
in
this
written
opinion,
Mr.
Levert
identified
the
artist
as
Mr.
Leduc,
whereas,
on
his
invoice,
he
had
identified
the
artists
as
Ms.
Messier
and
Mr.
Leduc.
Mr.
Levert
admitted
that
he
had
purchased
the
Messier-Leduc
painting
from
L’Hôtel
des
Encans
de
Montréal
Inc.
on
May
17,
1988,
for
$7,215,
that
is,
$6,500
plus
auction
charges
of
11
per
cent.
When
informed
by
Mr.
Levert
about
the
possibility
of
donating
this
painting
to
the
Musée
d’art
de
Joliette
(Musée
de
Joliette)
as
a
“cultural
property”,
Dr.
Paradis
asked
Mr.
Levert
to
make
the
necessary
arrangements.
On
November
28,
1989,
the
acquisitions
committee
of
the
Musée
de
Joliette
determined
that
the
gift
of
the
Messier-Leduc
painting
met
its
selection
criteria
and
communicated
that
decision
to
Dr.
Paradis.
He
was
asked
in
that
same
communication
to
sign
the
agreement
respecting
the
gift.
On
December
29,
1989,
Dr.
Paradis
signed
the
^agreement
and
the
Musée
accepted
the
gift
on
February
12,
1990.
On
February
23,
1990,
the
Musée
de
Joliette
sent
Dr.
Paradis
a
receipt
dated
December
20,
1989
for
an
amount
of
$36,500.
There
appears
on
the
receipt
neither
a
brief
description
of
the
donation
in
kind,
nor
the
date
on
which
the
gift
was
received,
nor
the
name
and
address
of
the
appraiser
of
the
property.
Dr.
Paradis
stated
that
he
had
not
been
surprised
that
the
market
value
of
the
Messier-Leduc
painting
was
four
times
the
price
he
had
paid.
At
its
meeting
of
January
25,
1990,
the
Canadian
Cultural
Property
Export
Review
Board
(Board)
reviewed
the
application
for
certification
of
the
Messier-Leduc
painting.
The
following
is
stated
in
the
application:
[TRANSLATION]
The
onus
is
on
the
owner
to
get
the
fair
market
value
of
the
cultural
property
accepted
by
Revenue
Canada
(Taxation)
for
the
purposes
of
the
Income
Tax
Act
(Canada);
in
issuing
a
tax
certificate,
the
Review
Board
is
in
no
way
ruling
on
the
appraised
fair
market
value
entered
in
paragraph
7
of
the
application.
Furthermore,
Revenue
Canada
(Taxation)
reserves
the
right
to
ask
the
applicant
to
submit
to
it
the
opinion
of
an
independent
third
party
as
to
the
value
of
the
cultural
property
for
which
the
Review
Board,
on
an
application
for
certification,
has
issued
an
income
tax
certificate.
Two
appraisals
were
attached
to
the
above-mentioned
application,
one
provided
by
Mr.
Levert
and
the
other
obtained
at
Mr.
Levert’s
request
from
a
certain
Guy
Gagnon.
The
average
of
the
two
appraisals
was
$36,500.
The
Board
concluded
that
the
painting
met
the
criteria
stated
in
paragraphs
23.3
(b)
and
(c)
of
the
Cultural
Property
Export
and
Import
Act
(Cultural
Property
Act).
However,
one
Board
member
believed
that
the
appraised
value
was
high
and
informed
the
committee
that,
according
to
the
National
Gallery,
this
particular
oil
painting
had
received
a
bid
of
only
$6,500
at
an
auction
in
May
1988.
It
was
concluded
that
the
Department
of
National
Revenue
should
be
relied
upon
to
establish
its
value.
On
the
income
tax
certificate
respecting
cultural
property,
an
“estimated”
market
value
of
$36,500
was
indicated
and
the
Musée
de
Joliette
was
described
as
a
“designated
institution”.
Dr.
Paradis
used
the
value
of
$36,500
in
computing
his
tax
deduction
for
the
gift
of
the
Messier-Leduc
painting.
1990
Gifts
On
May
9,
1990,
Dr.
Paradis
purchased
from
Maison
d’Encans
Tourelle
(Tourelle),
a
company
belonging
to
Mr.
Levert,
an
oil
painting
by
Suzor-
Côté
(Suzor-Côté
painting),
the
subject
of
which
was
a
work
by
Botticelli.
Although
the
voucher
filed
at
the
hearing
is
identified
as
an
auction
slip,
the
sale
was
in
fact
a
sale
by
private
agreement.
On
the
slip,
a
value
of
$32,000
is
indicated
and
the
consideration
is
described
as
a
cash
amount
of
$8,000,
20
paintings
and
a
diamond
brooch
with
an
exchange
value
of
$20,000,
for
a
total
of
$28,720,
including
tax.
Dr.
Paradis
filed
a
copy
of
a
cheque
for
$8,000
dated
June
15,
1990,
made
payable
to
Tourelle.
No
document
was
filed
describing
the
20
paintings
given
by
Dr.
Paradis
in
exchange
for
the
Suzor-Côté
painting
and
no
appraisal
of
those
paintings
was
filed.
However,
Mr.
Levert
stated
that
he
resold
those
20
works
at
a
profit,
although
he
filed
no
voucher
in
support
of
this
claim.
Dr.
Paradis
stated
that
the
20
paintings
given
in
exchange
came
in
large
part
from
his
collection
purchased
prior
to
1986.
Mr.
Levert
filed
an
appraisal
of
the
Suzor-Côté
painting
in
which
he
certified
that
it
was
an
original
work
and
noted
that
its
value
of
$35,000
represented
“fair
market
value
at
the
time
the
appraisal
was
made.”
It
also
contained
the
following:
“Prices
are
constantly
fluctuating
and
are
therefore
subject
to
change.”
The
certificate
bears
no
date.
On
December
10,
1990,
Jacques
St-Laurent
of
Tecumseh
sent
Dr.
Paradis
an
official
receipt
dated
December
3,
1990,
in
which
he
acknowledged
receipt
of
the
Suzor-Côté
painting
valued
at
$35,000.
The
official
receipt
refers
to
an
appraisal
certificate
that
was
not
filed.
Neither
the
appraiser’s
name
nor
his
address
appear
thereon.
1991
Gifts
On
May
23,
1991,
Dr.
Paradis
purchased
from
Tourelle
two
water
colours
by
Marc-Aurèle
Fortin
(Fortin
paintings)
and
an
anonymous
early
nineteenth
century
painting
(anonymous
painting)
depicting
an
Indian
scene.
According
to
the
auction
slip,
the
total
acquisition
cost
of
these
three
paintings
was
$15,654.
The
sum
of
$4,000
was
apparently
paid
as
a
deposit,
followed
by
a
cheque
for
$6,654
in
May
1991
and
the
balance
of
$5,000
on
January
1,
1992.
The
slip
indicates
auction
charges
of
$1,154.
The
Fortin
paintings
required
restoration
work
which
Mr.
Levert
himself
performed
for
Dr.
Paradis.
Dr.
Paradis
said
he
made
the
$4,000
cash
payment
in
order
to
encourage
Mr.
Levert
to
give
him
a
better
price.
Mr.
Levert
filed
an
appraisal
of
$8,500
for
each
of
the
Fortin
paintings.
In
that
certificate,
which
is
not
dated,
Mr.
Levert
indicated
that
the
appraisal
had
been
made
expressly
for
Dr.
Paradis
and
was
not
transferable.
Mr.
Levert
admitted
that
he
had
purchased
the
Fortin
paintings
at
an
auction
held
by
Les
Encans
Fraser-
Pinneys
on
May
14,
1991,
and
had
paid
$550
and
$525
respectively
for
them.
Jacques
St-Laurent
of
Tecumseh
admitted
that,
on
August
15,
1991,
he
received
the
gift
of
the
Fortin
paintings,
and
the
official
receipt
dated
August
15,
1991,
shows
a
value
of
$17,000.
The
receipt
refers
to
an
appraisal
certificate
that
was
not
filed
with
the
receipt.
The
receipt
provided
neither
the
name
nor
the
address
of
the
appraiser.
In
his
returns
of
income
for
the
1991
and
1992
taxations
years,
Dr.
Paradis
claimed
as
a
carryover
a
deduction
for
gifts,
based
on
the
receipt
for
$17,000
from
Tecumseh.
Dr.
Paradis
could
not
obtain
an
appraisal
for
the
anonymous
painting
and
thus
convinced
Mr.
Levert
to
take
it
back.
Mr.
Levert
said
he
refunded
a
sum
of
approximately
$4,500
to
Dr.
Paradis,
who
in
turn
claims
to
have
received
less
than
$1,000.
In
a
letter
from
counsel
for
Dr.
Paradis
to
counsel
for
the
Minister
pursuant
to
an
undertaking
given
in
Dr.
Paradis’s
examination
for
discovery,
it
is
stated:
[TRANSLATION]
We
wish
to
emphasize
that
the
resale
price
to
Mr.
Levert
of
the
nineteenth
century
water
colour
consists
of
the
amounts
of
$2,000
and
$2,500
of
January
9,
1992.
A
bank
statement
of
Dr.
Paradis’s
shows
two
deposits,
one
of
$2,000
and
the
other
of
$2,500
on
January
7,
1992.
Dr.
Paradis
stated
that
he
would
still
have
given
these
paintings
to
the
donees
even
if
he
had
not
obtained
tax
deductions.
Analysis
No
Real
Gift
For
Dr.
Paradis
to
be
able
to
deduct
a
tax
deduction
for
gifts
in
computing
his
tax,
he
had
to
meet
a
number
conditions
set
out
in
the
Act,
the
first
of
these
being
that
the
transfer
of
the
painting
must
represent
a
“gift”
within
the
meaning
of
subsections
118.1(1)
and
(3)
of
the
Act.
These
subsections
read
as
follows:
(1)
In
this
section,
“total
gifts’
—
“total
gifts”
of
an
individual
for
a
taxation
year
means
the
total
of
(a)
the
lesser
of
(i)
the
individual’s
total
charitable
gifts
for
the
year,
and
(ii)
1/5
of
the
individual’s
income
for
the
year,
(b)
the
individual’s
total
Crown
gifts
for
the
year,
and
(c)
the
individual’s
total
cultural
gifts
for
the
year.
(3)
Deduction
by
individuals
for
gifts.
For
the
purpose
of
computing
the
tax
payable
under
this
Part
by
an
individual
for
a
taxation
year,
there
may
be
deducted
such
amount
as
the
individual
may
claim
not
exceeding
an
amount
determined
by
the
formula
(A
x
B)
+
[C
x
(D
-
B)]
where
A
is
the
appropriate
percentage
for
the
year;
B
is
the
lesser
of
$250
and
the
individual’s
total
gifts
for
the
year;
C
is
the
highest
percentage
referred
to
in
subsection
117(2)
that
is
applicable
in
determining
tax
that
might
be
payable
under
this
Part
for
the
year;
and
D
is
the
individual’s
total
gifts
for
the
year.
In
this
instance,
the
Minister
made
his
assessments
for
the
relevant
years
on
the
assumption
that
the
transfers
of
paintings
to
the
beneficiaries
did
not
constitute
gifts
for
the
purposes
of
section
118.1
of
the
Act.
As
the
Act
does
not
define
this
expression,
we
must
rely
on
the
usual
meaning
of
the
expres-
sion.
Counsel
for
the
Minister
relied
on
article
755
of
the
Civil
Code
of
Lower
Canada
(C.C.L.C.),
which
provides
the
following
definition:
[TRANSLATION]
755
—
Gift
inter
vivos
is
an
act
by
which
the
donor
divests
himself,
by
gratuitous
title,
of
the
ownership
of
a
thing,
in
favour
of
the
donee,
whose
acceptance
IS
requisite
and
renders
the
contract
perfect.
This
acceptance
makes
it
irrevocable,
saving
the
cases
provided
for
by
law,
or
a
valid
resolutive
condition.
Where
there
is
no
gift
by
notarial
deed,
the
second
paragraph
of
article
776
of
the
C.C.L.C.
acknowledges
gifts
of
moveable
property
as
valid
where
they
are
accompanied
by
delivery.
This
paragraph
reads
as
follows:
Gifts
of
moveable
property,
accompanied
by
delivery,
may
however
be
made
and
accepted
by
private
writings,
or
verbal
agreements.
The
doctrine
and
case
law
identify
three
essential
conditions
for
the
existence
of
a
gift
by
hand:
intent
to
give,
physical
delivery
and
acceptance
by
the
donor.
Here,
the
Minister
submits
that
the
first
condition
was
not
met
with
respect
to
the
donation
of
any
of
the
paintings.
Furthermore,
the
second
condition
was
not
met
with
respect
to
the
donation
of
the
Warhol
paintings.
Let
us
begin
by
addressing
the
first
condition.
The
Minister
claims
that
Dr.
Paradis’s
principal
motivation
in
acquiring
the
paintings
and
transferring
them
to
the
donees
was
strictly
to
obtain
a
tax
benefit,
not
to
divest
himself
of
them
in
their
favour.
I
do
not
deny
that
this
motivation
played
an
important
role
in
Dr.
Paradis’s
actions
during
the
relevant
years.
However,
I
do
not
believe
it
is
pertinent
to
consider
the
tax
advantage
in
order
to
determine
the
validity
of
a
gift
in
Quebec
law.
I
believe
this
question
must
be
decided
strictly
in
the
context
of
the
legal
relationship
established
between
Dr.
Paradis
and
each
of
the
donees.
Take
the
case
of
the
gift
of
the
Messier-Leduc
painting.
Dr.
Paradis
became
the
owner
of
this
painting
by
purchasing
it
from
Galerie
des
Maîtres
Anciens.
Under
the
gift
agreement,
Dr.
Paradis
disposed
of
the
painting
without
receiving
any
consideration
from
Musée
de
Joliette,
which
as
a
consequence
was
enriched
by
the
acquisition
of
a
new
painting
and
Dr.
Paradis
was
impoverished
by
an
amount
equal
to
the
value
of
that
painting.
I
do
not
believe
that
the
receipt
for
tax
purposes
can
be
looked
upon
as
consideration
for
the
painting.
The
receipt
is
merely
a
document
establishing
that
a
gift
was
received
by
Musée
de
Joliette.
True,
that
document
is
necessary
in
order
to
claim
the
value
of
the
gift
for
the
purposes
of
the
deduction
for
gifts.
However,
the
extent
to
which
Dr.
Paradis
is
entitled
to
that
benefit
does
not
depend
on
the
Musée
de
Joliette.
That
is
determined
by
the
Act.
In
my
view,
this
tax
advantage
should
not
be
considered
in
determining
whether
Dr.
Paradis
was
impoverished.
If
such
advantage
were
to
be
taken
into
account,
a
number
of
gifts
might
not
qualify
for
the
purposes
of
computing
the
deduction
for
gifts.
I
do
not
believe
such
an
approach
to
be
consistent
with
the
spirit
of
the
Act.
This
moreover
is
the
point
of
view
adopted
by
the
Federal
Court
of
Appeal
in
Friedberg
v.
R.,
((1991),
92
D.T.C.
6031
(Fed.
C.A.))(December
5,
1991),
A-65-89.
Linden
J.A.
wrote
as
follows
at
page
6032:
Thus,
a
gift
is
a
voluntary
transfer
of
property
owned
by
a
donor
to
a
donee,
in
return
for
which
no
benefit
or
consideration
flows
to
the
donor
(see
Heald,
J.
in
The
Queen
v.
Zandstra
{74
DTC
6416]
[1974]
2
F.C.
254,
at
p.
261).
The
tax
advantage
which
is
received
from
gifts
is
not
normally
considered
a
“benefit”
within
this
definition,
for
to
do
so
would
render
the
charitable
donations
deductions
unavailable
to
many
donors.
Nor
was
the
gift
a
sham.
The
Musée
genuinely
acquired
ownership
of
the
painting.
Furthermore,
Dr.
Paradis
attached
no
condition
to
the
donation
of
the
painting.
I
do
not
believe
that
Dr.
Paradis
could
ask
the
Musée
de
Joliette
to
return
the
painting
to
him
on
the
basis
that
he
had
not
obtained
all
the
tax
advantage
that
he
had
expected.
It
goes
without
saying
that
it
would
have
been
an
entirely
different
matter
if
he
had
made
the
gifts
conditional
upon
obtaining
tax
advantages.
I
am
satisfied
in
this
instance
that,
in
respect
of
each
of
the
gifts
for
which
he
claimed
a
tax
deduction,
Dr.
Paradis
wished
to
benefit
the
donees
by
depriving
himself
of
the
value
of
those
paintings.
The
transfers
of
paintings
to
the
donees
constituted
gifts
within
the
meaning
of
the
Act.
As
to
the
gift
of
the
Warhol
paintings
to
UDR,
counsel
for
the
Minister
argued
that
the
second
condition
for
the
existence
of
a
gift,
namely
physical
delivery,
was
not
met.
I
cannot
share
this
view.
The
evidence
shows
that
these
paintings
were
delivered
to
Mr.
Levert,
who
was
acting
as
UDR’s
agent.
The
following
is
an
excerpt
from
Mr.
Carignan’s
testimony
establishing
this
fact:
[TRANSLATION]
Q.
I
don’t
mean
in
a
fortuitous
way
here;
I
mean
with
a
view
to
completing
the
transaction,
to
making
the
donation.
Were
you
ever
involved
in
the
donation?
A.
No.
Q.
It
was
Marc
Levert
who
did
all
that?
A.
It
was
Marc
Levert
who
did
all
that.
Q.
He
was
your
agent,
as
it
were?
A.
Yes,
exactly,
he
was
acting
as
an
agent.
In
conclusion,
all
the
gifts
in
respect
of
which
Dr.
Paradis
claimed
a
deduction
constituted
gifts
under
the
Acct.
Improper
Receipts
Another
condition
that
Dr.
Paradis
had
to
meet
in
order
to
deduct
his
gifts
is
that
they
had
to
be
proven
by
filing
with
the
Minister
a
receipt
therefor
containing
prescribed
information.
Subsection
118.1(2)
of
the
Act
provides
as
follows:
118.1(2)
A
gift
shall
not
be
included
in
the
total
charitable
gifts,
total
Crown
gifts
or
total
cultural
gifts
of
an
individual
unless
the
making
of
the
gift
is
proven
by
filing
with
the
Minister
a
receipt
therefor
that
contains
prescribed
information.
[My
emphasis.]
Section
3500
and
subsections
3501(1)
and
(1.1)
of
the
Income
Tax
Regulations
(Regulations)
provide
as
follows:
3500.
In
this
Part,
“official
receipt”
means
a
receipt
for
the
purpose
of
paragraph
110(l)(a),
(6)
or
(6.1)
or
subsection
110(2.2)
of
the
Act,
containing
information
as
required
by
section
3501
or
3502;
“other
recipient
of
a
gift”
means
a
person
referred
to
in
any
of
subparagraphs
110(l)(a)(iii)
to
(vii),
paragraph
110(1)(b)
or
(b.1)
or
subparagraph
110(2.2)(fl)(ii)
of
the
Act
to
whom
a
gift
is
made
by
a
taxpayer;
3501.
(1)
Every
official
receipt
issued
by
a
registered
organization
shall
contain
a
statement
that
it
is
an
official
receipt
for
income
tax
purposes
and
shall
show
clearly
in
such
a
manner
that
it
cannot
readily
be
altered,
(a)
the
name
and
address
in
Canada
of
the
organization
as
recorded
with
the
Minister;
(b)
the
registration
number
assigned
by
the
Minister
to
the
organization;
(c)
the
serial
number
of
the
receipt;
(d)
the
place
of
locality
where
the
receipt
was
issued;
(e)
where
the
donation
is
a
cash
donation,
the
day
on
which
or
the
year
during
which
the
donation
was
received;
(e.l)
where
the
donation
is
a
gift
of
property
other
than
cash
(i)
the
day
on
which
the
donation
was
received.
(ii)
a
brief
description
of
the
property,
and
(iii)
the
name
and
address
of
the
appraiser
of
the
property
if
an
appraisal
is
done;
(f)
the
day
on
which
the
receipt
was
issued
where
that
day
differs
from
the
day
referred
to
in
paragraph
(e)
or
(e.1);
(g)
the
name
and
address
of
the
donor
including,
in
the
case
of
an
individual,
his
first
name
and
initial;
(h)
the
amount
that
is
(i)
the
amount
of
a
cash
donation,
or
(ii)
where
the
donation
is
a
gift
of
property
other
than
cash,
the
amount
that
is
the
fair
market
value
of
the
property
at
the
time
that
the
gift
was
made;
and
(i)
the
signature,
as
provided
in
subsection
(2)
or
(3),
of
a
responsible
individual
who
has
been
authorized
by
the
organization
to
acknowledge
donations.
(1.1)
Every
official
receipt
issued
by
another
recipient
of
a
gift
shall
contain
a
statement
that
it
is
an
official
receipt
for
income
tax
purposes
and
shall
show
clearly
in
such
a
manner
that
it
cannot
readily
be
altered,
(a)
the
name
and
address
of
the
other
recipient
of
the
gift;
(b)
the
serial
number
of
the
receipt;
(c)
the
place
or
locality
where
the
receipt
was
issued;
(d)
where
the
donation
is
a
cash
donation,
the
day
on
which
or
the
year
during
which
the
donation
was
received;
(e)
where
the
donation
is
a
gift
of
property
other
than
cash.
(i)
the
day
on
which
the
donation
was
received,
(ii)
a
brief
description
of
the
property,
and
(iii)
the
name
and
address
of
the
appraiser
of
the
property
if
an
appraisal
is
done;
(f)
the
day
on
which
the
receipt
was
issued
where
that
day
differs
from
the
day
referred
to
in
paragraph
(d)
or
(e);
(g)
the
name
and
address
of
the
donor
including
in
the
case
of
an
individual,
his
first
name
and
initial;
(h)
the
amount
that
is
(i)
the
amount
of
a
cash
donation,
or
(ii)
where
the
donation
is
a
gift
of
property
other
than
cash,
the
amount
that
is
the
fair
market
value
of
the
property
at
the
time
that
the
gift
was
made;
and
(i)
the
signature,
as
provided
in
subsection
(2)
or
(3.1),
of
a
responsible
individual
who
has
been
authorized
by
the
other
recipient
of
the
gift
to
acknowledge
donations.
[My
emphasis.]
The
Regulations
state
that
the
name
and
address
of
the
appraiser
must
appear
on
the
receipt
if
an
“appraisal
is
done”.
For
this
requirement
to
be
met,
I
believe
that
the
donee,
who
is
the
party
issuing
the
receipt,
must
have
been
aware
that
an
appraisal
was
done
and
that
he
must
have
relied
on
that
appraisal
in
order
to
establish
the
value
of
the
gift.
The
fact
that
an
appraisal
was
delivered
to
the
donor
without
the
donee
having
any
knowledge
of
it
is
not
relevant
for
these
purposes.
It
seems
fairly
clear
to
me
that
the
Act
seeks
to
provide
the
Minister
with
a
means
of
verifying
whether
the
value
indicated
on
the
receipt
by
the
“donee”
is
accurate.
In
the
instant
case,
the
receipt
for
the
donation
of
the
Messier-Leduc
painting
filed
with
the
Minister
does
not
contain
the
following
information:
(i)
the
day
on
which
the
donation
was
received,
(ii)
a
brief
description
of
the
property
and
(iii)
the
name
and
address
of
the
appraiser
of
the
property.
The
receipt
issued
by
UDR
for
the
Warhol
paintings
that
was
filed
by
Dr.
Paradis
with
the
Minister
is
also
incomplete.
It
contains
neither
the
name
nor
the
address
of
the
appraiser.
The
evidence
clearly
shows
that
UDR
received
appraisals
from
Mr.
Levert
in
order
to
determine
the
amount
of
the
receipt
to
be
issued
by
that
organization.
As
to
the
receipts
issued
by
Tecumseh,
the
only
evidence
of
appraisals
is
in
respect
of
the
Suzor-Côté
and
Fortin
paintings.
The
evidence
is
silent
as
to
the
Dali
painting.
Consequently,
it
cannot
be
determined
whether
Tecumseh
relied
on
an
evaluation
in
order
to
determine
the
value
of
that
painting.
It
might
be
assumed
that
it
did
because
the
amount
of
the
receipt
is
consistent
with
the
appraisal
given
by
Mr.
Levert.
However,
there
is
insufficient
evidence
on
this
point.
It
is
thus
not
certain
whether
Tecumseh
had
to
provide
the
name
and
address
of
the
appraiser
on
the
receipt
in
accordance
with
section
3501
of
the
Regulations.
As
the
receipts
for
the
Warhol,
Messier-Leduc,
Suzor-Côté
and
Fortin
paintings
do
not
contain
all
the
information
prescribed
in
subsections
3501(1)
or
(1.1)
of
the
Regulations,
those
gifts
may
not
be
included
in
“total
gifts”
and
“total
cultural
gifts”
under
subsection
118.1(2)
of
the
Act.
However,
the
receipt
for
the
gift
of
the
Dali
painting
constitutes
an
“official
receipt”
for
the
purposes
of
that
subsection
and
of
section
3500
of
the
Regulations.
Fair
Market
Value
of
Gifts
Preliminary
Remarks
It
remains
to
be
determined
what
amount,
if
any,
Dr.
Paradis
might
claim
in
respect
of
the
donation
of
the
Dali
painting.
For
reasons
that
will
become
apparent
below,
it
is
also
necessary
to
establish
the
fair
market
value
of
the
other
paintings
donated
by
Dr.
Paradis
during
the
relevant
years.
Before
determining
the
fair
market
value
of
each
of
these,
a
few
preliminary
remarks
would
be
useful.
The
courts
have
frequently
had
to
define
what
“fair
market
value”
represents
for
the
purposes
of
the
Act.
In
particular,
in
Henderson
v.
Minister
of
National
Revenue
(1973),
73
D.T.C.
5471
(Fed.
T.D.),
Cattanach
J.
of
the
Federal
Court
wrote
as
follows:
The
statute
does
not
define
the
expression
“fair
market
value”
...
I
do
not
think
it
necessary
to
attempt
an
exact
definition
of
the
expression
as
used
in
the
statute
other
than
to
say
that
the
words
must
be
construed
in
accordance
with
the
common
understanding
of
them.
That
common
understanding
I
take
to
mean
the
highest
price
an
asset
might
reasonably
be
expected
to
bring
if
sold
by
the
owner
in
the
normal
method
applicable
to
the
asset
in
question
in
the
ordinary
course
of
business
in
a
market
not
exposed
to
any
undue
stresses
and
composed
of
willing
buyers
and
sellers
dealing
at
arm
’s
length
and
under
no
compulsion
to
buy
or
sell.
I
would
add
that
the
foregoing
understanding
as
I
have
expressed
it
in
a
general
way
includes
what
I
conceive
to
be
the
essential
element
which
is
an
open
and
unrestricted
market
in
which
the
price
is
hammered
out
between
willing
and
informed
buyers
and
sellers
on
the
anvil
of
supply
and
demand.
[My
emphasis.
I
Determining
the
fair
market
value
of
property
is
an
arduous
task
for
any
appraiser.
In
this
fundamentally
subjective
determination,
one
must
take
the
most
objective
approach
possible.
What
methods
or
techniques
have
the
courts
adopted
in
carrying
out
this
task?
They
vary
according
to
the
type
of
property
to
be
appraised.
The
parity
technique
is
often
used
both
for
real
property
and
for
works
of
art.
The
idea
here
is
to
use
as
a
reference
point
the
selling
price
of
assets
which
have
attributes
similar
to
those
of
the
property
to
be
appraised,
which
are
located
as
near
as
possible
to
that
property
and
which
have
been
sold
as
close
as
possible
to
the
date
of
the
relevant
appraisal.
It
goes
without
saying
that
location
may
play
a
less
decisive
role
in
the
appraisal
of
a
work
of
art
depending
on
how
well
known
the
artist
is
and
the
degree
of
mobility
of
the
work
itself.
In
the
application
of
this
method,
the
more
the
attributes
of
the
property
to
be
appraised
differ
from
those
of
the
similar
property
and
the
further
away
that
similar
property
is
from
the
location
of
the
property
to
be
appraised
or
the
further
removed
the
date
of
the
appraisal
is
from
the
date
the
similar
property
was
sold,
the
more
uncertain
the
undertaking
becomes.
However,
the
more
similar
the
attributes
are,
the
closer
the
similar
property
and
the
property
to
be
appraised
are
located
to
one
another,
and
the
nearer
the
date
of
sale
of
the
similar
property
is
to
the
date
of
the
appraisal,
the
easier
it
is
to
estimate
the
value
of
the
property
to
be
appraised.
But
what
if
this
property
was
itself
purchased
around
the
appraisal
date?
Unless
the
attributes
have
been
altered,
the
appraiser
has
in
that
case
one
less
parameter
to
consider,
which
proportionately
reduces
the
arbitrariness
of
his
determi-
nation.
The
usefulness
and
appropriateness
of
the
agreed-upon
price
for
the
property
is
thus
clear
to
the
appraiser.
However,
must
the
price
of
such
a
property
be
disregarded
as
irrelevant
because
the
purchaser
still
owns
the
property
on
the
date
of
the
relevant
appraisal?
In
other
words,
should
the
purchase
price
paid
by
the
owner
of
the
property
that
is
the
subject
of
the
appraisal
be
disregarded?
Personally,
I
believe
the
purchase
price
paid
by
the
owner
of
the
property
to
be
appraised
can
be
a
significant
and
in
certain
instances
even
decisive
reference
point
in
determining
the
property’s
fair
market
value.
This
was
also
the
approach
that
my
colleague
Judge
Mogan
adopted
in
Whent
v.
R.,
[1996]
3
C.T.C.
2542
(T.C.C.),
92-423(IT)G
(T.C.C.),
(July
12,
1996),
at
page
39:
The
best
first
hand
evidence
of
arm’s
length
transactions
in
1984,
1985
and
1986
were
the
27
purchases
by
the
Appellants
at
an
aggregate
cost
of
$130,000
(See
Exhibit
A-152).
Appellants’
counsel
cited
a
number
of
authorities
for
the
proposition
that
the
cost
of
property
is
not
relevant
in
determining
its
fair
market
value
but,
when
the
property
itself
is
purchased
in
arm’s
length
transactions
close
to
the
valuation
dates,
cost
may
become
relevant.
Obviously,
one
must
consider
the
other
two
parameters,
namely
time
and
place,
and
check
as
well
that
the
property
was
acquired
in
circumstances
that
met
the
standards
stated
by
Cattanach
J.
in
Henderson
Estate.
In
particular,
one
must
check
that
the
purchaser
and
the
vendor
were
dealing
with
each
other
at
arm’s
length,
that
they
were
not
in
any
way
compelled
to
buy
or
sell
and
that
there
were
no
other
special
circumstances.
In
my
view,
these
checks
must
be
performed
in
any
case,
no
matter
whether
the
reference
price
is
that
paid
by
the
taxpayer
for
the
property
to
be
appraised
or
that
paid
by
a
third
party
for
the
same
property
or
that
paid
for
similar
property.
For
example,
if
an
individual
who
had
received
a
painting
by
way
of
inheritance
sold
it
without
knowing
that
it
was
a
Marc-Aurèle
Fortin
or
a
Suzor-Côté,
in
other
words
without
knowing
the
true
value
of
the
painting,
no
probative
value
could
be
attached
to
that
sale
price.
However,
where
an
art
collector
goes
to
an
art
gallery
owner
to
purchase
a
painting,
the
agreed-
upon
price
then
becomes
an
excellent
reference
point
for
determining
that
painting’s
fair
market
value.
It
may
be
supposed
that
the
art
dealer
and
the
collector
were
very
well
aware
of
the
value
of
the
painting
and,
barring
any
special
reasons
to
do
otherwise,
we
may
rely
on
the
price
fixed
in
those
circumstances.
In
Friedberg,
supra,
at
p.
5120,
the
Federal
Court
(Trial
Division)
judge
cited
the
following
remarks
by
Judge
Brulé
of
this
Court
in
Conn
v.
Minister
of
National
Revenue,
(1986),
86
D.T.C.
1669
(T.C.C.),
which,
at
first
glance,
appear
to
express
a
view
contrary
to
the
approach
I
have
just
described:
Counsel
for
the
Minister
argues
that
the
purchase
price
can
be
taken
as
the
fair
market
value,
however
such
an
approach
is
not
supported
by
the
jurisprudence.
In
Conn
v.
M.N.R.
after
a
lengthy
review
of
the
authorities
the
Judge
stated
at
page
1677:
Fair
market
value
does
not
seem
to
pay
any
attention
to
cost
of
acquisition,
only
what
might
be
obtained
in
the
market
at
the
time
of
disposition.
Costs
of
acquisition
can
vary
greatly,
as
has
been
illustrated,
even
for
the
same
item,
and
such
a
cost
or
an
adjusted
cost
base
might
affect
income
tax
but
in
my
opinion
does
not
affect
fair
market
value.
However,
if
Judge
Brulé’s
remarks
are
viewed
in
the
context
in
which
they
were
made,
one
sees
that
the
approach
I
have
adopted
and
his
own
are
not
incompatible.
In
Conn,
Judge
Brulé
considered
the
question
of
costs
relating
to
acquisition
(such
as
transportation,
telephone,
etc.),
not
the
matter
of
purchase
price.
When
Judge
Brulé
used
the
expression
“cost
of
acquisition”
in
the
passage
cited
above,
he
was
referring
rather
to
the
costs
relating
to
acquisition.
Mr.
Conn
wanted
the
Court
to
take
into
account,
in
determining
the
fair
market
value
of
his
large
collection
of
coins
and
bank
notes,
significant
expenses
that
he
had
incurred
in
order
to
build
it
up,
in
particular
the
cost
of
numerous
plane
tickets
for
travel
across
America.
I
believe
Judge
Brulé
rightly
considered
the
costs
relating
to
the
acquisition
of
property
as
irrelevant
to
the
determination
of
its
fair
market
value.
However,
nowhere
did
he
state
that
the
purchase
price
paid
by
the
taxpayer
should
not
be
considered
in
determining
fair
market
value.
In
any
event,
the
purchase
price
paid
by
the
taxpayer
in
that
case
could
not
have
been
considered
because
his
purchases
were
spread
over
a
30-year
period!
Dali
Painting
The
Court
must
now
determine
the
fair
market
value
in
December
1988
of
the
Dali
painting
that
Dr.
Paradis
“donated”
and
for
which
he
filed
an
“official
receipt”
with
the
Minister.
The
evidence
showed
that
the
Galerie
Michel
Bigué
paid
$5,500
for
the
painting
a
few
months
later
in
April
1989.
The
gallery
was
an
art
dealer
and
there
is
no
indication
that
the
parties
were
not
dealing
with
each
other
at
arm’s
length
at
the
time
of
the
purchase.
This
price
might
have
been
a
good
reference
point.
However,
that
amount
was
paid
for
an
authentic
work.
When
Mr.
Bigué
learned
that
it
was
a
forgery,
he
obtained
a
full
refund
of
the
price
in
addition
to
compensation
for
the
trip
to
New
York.
Nothing
in
the
evidence
indicates
that
Dr.
Paradis
knew
the
painting
was
a
forgery.
We
may
therefore
suppose
that
he
would
not
have
paid
$17,440
for
that
painting
and
the
Warhol
forgeries.
The
Dali
forgery
clearly
was
not
worth
$5,000
or
$5,500.
Not
only
did
Dr.
Paradis
not
adduce
any
evidence
proving
that
these
three
paintings
were
not
forgeries,
but
he
did
not
adduce
any
evidence
establishing
their
fair
market
value
as
forgeries.
It
is
reasonable
to
conclude
in
these
circumstances
that
the
fair
market
value
of
the
Dali
painting
is
very
low,
indeed
virtually
nil,
for
gift
purposes,
and
that
Dr.
Paradis
is
not
entitled
to
a
deduction
for
gifts
in
respect
of
the
Dali
painting.
Messier-Leduc
Painting
Only
the
Minister
called
an
expert
witness
to
testify
as
to
the
value
of
the
Messier-Leduc
painting.
Laurier
Lacroix,
a
professor
at
the
Université
du
Québec
in
Montréal,
wrote
his
master’s
thesis
in
art
history
on
the
work
of
Ozias
Leduc.
The
subject
he
teaches
at
the
Université
du
Québec
includes
the
period
of
this
painter.
He
was
also
the
curator
of
a
number
of
travelling
exhibitions
of
works
by
that
artist
at
various
museums.
In
addition,
he
was
written
articles
and
given
lectures
on
the
artist.
Mr.
Lacroix
is
familiar
as
well
with
the
artist
Gabrielle
Messier,
for
whose
ninetieth
birthday
he
in
fact
organized
a
small
exhibition.
In
his
testimony,
Mr.
Lacroix
explained
that
the
Gagné
painting
had
been
done
by
Gabrielle
Messier
and
that
Ozias
Leduc
had
merely
done
some
inpainting
on
the
legs,
the
fold
of
the
dress
and
the
face.
Counsel
for
the
Minister
summed
up
as
follows
Mr.
Lacroix’s
opinion
and
the
criteria
on
which
he
based
it:
[TRANSLATION]
Mr.
Lacroix
estimated
the
market
value
of
the
painting
in
1989
at
between
$8,000
and
$9,000
at
most.
Mr.
Lacroix’s
opinion
is
based
on
an
examination
of
the
painting
itself
and
on
the
market.
The
objective
criteria
he
used
are
as
follows:
-as
already
indicated,
it
is
more
a
Gabrielle
Messier
than
an
Ozias
Leduc;
-the
painting
was
sold
the
previous
year,
on
May
17,
1988,
at
the
Hôtel
des
Encans
de
Montréal
for
$6,500
plus
auction
charges
of
11
per
cent
(see
1-25
and
1-26);
-Gabrielle
Messier’s
works
are
not
exhibited
in
any
gallery;
she
is
not
very
highly
regarded
and
that
state
of
affairs
has
changed
very
little:
she
was
asking
between
$1,000
and
$1,200
a
painting
about
15
years
ago;
today
she
is
asking
$2,000
for
her
largest
(16
x
24
inches)
and
most
sought
after
paintings
(landscapes
and
seascapes);
the
market
for
Gabrielle
Messier’s
paintings
consists
of
friends,
students
and
admirers
of
the
Saint-Hilaire
area
and,
more
recently,
of
the
Gaspé
Peninsula
where
she
now
resides;
-the
painting
in
question
depicts
the
artist’s
niece
and
is
thus
a
family
portrait;
portraits
are
not
generally
in
very
great
demand
in
the
market
and
this
one
in
particular
is
of
no
real
interest
to
collectors
from
the
standpoint
of
either
its
psychological
qualities
or
the
formal
treatment
of
the
work,
as
the
artist
has
retained
the
fairly
stiff
pose
of
the
photograph
and
has
not
intervened
in
any
way
to
make
the
model
a
little
more
lifelike;
-however,
as
Ozias
Leduc
has
added
his
own
touch
in
certain
places,
this
adds
something
more
to
the
painting,
which
fact
was
considered
in
the
appraisal;
-it
is
also
an
old
work,
slightly
larger
than
Gabrielle
Messier’s
usual
sizes,
a
fact
that
Mr.
Lacroix
has
also
taken
into
account;
-even
supposing
that
the
painting
were
an
Ozias
Leduc
done
with
the
collaboration
of
Gabrielle
Messier,
it
is
Ozias
Leduc’s
landscapes
and
still
lifes,
not
his
portraits,
that
fetch
high
prices;
for
example,
one
painting
by
Ozias
Leduc
(done
without
collaboration)
depicting
a
landscape
and
smaller
in
size
than
the
painting
here
in
question
sold
by
auction
for
$18,000
on
May
17,
1988.
(See
1-25)
I
find
Mr.
Lacroix’s
approach
entirely
appropriate
and
the
range
he
suggests
for
the
painting’s
market
value
equally
reasonable.
What
remains
to
be
determined
is
the
exact
figure.
Here
I
believe
that
the
most
objective
and
most
decisive
reference
point
for
the
painting’s
value
is
the
sale
by
auction
at
the
Hôtel
des
Encans
de
Montréal
on
May
17,
1988,
where
the
painting
sold
for
$6,500.
In
Friedberg,
supra,
the
Federal
Court,
Trial
Division,
recognized
that
auction
prices
formed
an
excellent
basis
for
determining
the
fair
market
value
of
property
because
such
sales
generally
occur
in
an
open
and
unrestricted
setting.
Jerome
J.
wrote
as
follows
at
page
5120
of
that
judgment:
Auction
prices
provide
an
excellent
basis
for
determining
fair
market
value
since
auction
sales
occur
in
an
open
and
unrestricted
setting
where
both
purchaser
and
vendor
can
be
assumed
to
be
informed,
prudent
and
acting
at
arm’s
length.
There
is
also
the
price
of
$8,750
paid
by
Dr.
Paradis
to
Galerie
des
Maîtres
Anciens
on
July
21,
1989.
That
date
is
closer
to
the
relevant
date
of
the
appraisal
than
is
the
date
of
the
purchase
by
Mr.
Levert
at
an
auction.
I
believe,
however,
that
little
probative
value
should
be
given
to
the
price
paid
by
Dr.
Paradis.
Although
the
evidence
did
not
reveal
any
family
relationship
between
Dr.
Paradis
and
Mr.
Levert,
I
think
that
non-arm’s
length
dealing
can
be
detected
between
these
two
individuals.
As
Dr.
Paradis’s
cheque
for
$9,537.50
was
cashed
on
the
same
day
Mr.
Levert
gave
him
an
appraisal
representing
four
times
the
price
that
Dr.
Paradis
had
paid,
it
would
be
fair
to
say
Dr.
Paradis
was
prepared
to
pay
a
higher
price
than
the
fair
market
value
in
order
to
obtain
such
an
appraisal
that
would
help
him
obtain
the
tax
advantage
he
sought.
I
do
not
believe
the
circumstances
were
conducive
to
the
setting
of
a
price
in
accordance
with
the
normal
laws
of
supply
and
demand.
Accordingly,
I
do
not
find
that
the
figure
of
$8,750
was
sufficiently
reliable
and
probative
as
a
reference
point.
It
is
self-evident
that
I
attach
no
probative
value
of
the
appraisals
performed
by
Mr.
Levert,
which
were
contemporaneous
with
Dr.
Paradis’s
purchases.
Not
only
did
Mr.
Levert
not
testify
as
an
expert
witness
in
defence
of
his
opinion,
but,
even
if
he
had,
I
would
have
given
no
credence
to
his
opinion
because
he
had
a
conflict
of
interest
and
because
he
had
set
up
a
tax
evasion
scheme.
Moreover,
there
is
more
sleight
of
hand
in
his
appraisal
than
there
is
application
of
objective
criteria.
More
than
a
year
and
a
half
elapsed
between
the
date
of
the
auction
held
by
the
Hôtel
des
Encans
de
Montréal
in
May
1988
and
the
relevant
appraisal
date,
December
29,
1989
(i.e.
the
date
of
the
donation).
It
is
therefore
possible
that
the
market
value
may
have
increased.
As
the
Minister’s
appraiser
estimated
the
fair
market
value
at
between
$8,000
and
$9,000,
I
will
adopt
the
figure
of
$8,000,
which
represents
a
reasonable
increase
of
$1,500
over
the
price
paid
at
the
auction
in
1988.
Suzor-Côté
Painting
Neither
the
Minister
nor
Dr.
Paradis
called
an
expert
witness
to
establish
the
fair
market
value
of
the
Suzor-Côté
painting.
The
only
evidence
is
the
price
Dr.
Paradis
paid
to
Mr.
Levert.
As
this
painting
was
acquired
as
part
of
a
scheme
to
inflate
the
painting’s
value,
it
is
scarcely
reliable
as
a
reference
point.
Furthermore,
the
only
probative
fact
serving
to
establish
the
price
is
the
cheque
for
$8,000
dated
June
15,
1990.
I
was
not
convinced
by
Dr.
Paradis’s
evidence
to
the
effect
that
he
had
given
some
20
paintings
and
a
diamond
brooch
in
exchange.
Dr.
Paradis
knew
full
well
that
it
was
important
to
retain
all
vouchers
to
support
his
entitlement
to
the
deduction
he
was
going
to
claim.
His
accountant
Mr.
Filion
emphasized
in
his
testimony
that
he
had
informed
Dr.
Paradis
of
this
obligation.
I
therefore
accept
the
figure
of
$8,000
as
representing
the
value
of
the
Suzor-Côté
painting.
On
the
balance
of
probabilities,
I
find
this
figure
reasonable
since
it
represents
25
per
cent
of
the
value
indicated
on
Dr.
Paradis’s
invoice
and
nearly
23
per
cent
of
the
market
value
indicated
on
Mr.
Levert’s
appraisal.
It
should
be
remembered
that
Mr.
Levert
was
in
the
habit
of
selling
his
paintings
for
one-quarter
of
their
fair
market
value
as
determined
by
him.
In
the
case
of
the
Messier-Leduc
painting,
the
fair
market
value
that
I
have
accepted
represents
21
per
cent
of
that
indicated
by
Mr.
Levert.
Fortin
Paintings
The
parties
did
not
call
expert
witnesses
to
establish
the
fair
market
value
of
the
Fortin
paintings
either.
In
my
view,
the
best
reference
point
for
determining
that
value
is
the
price
paid
by
Mr.
Levert
when
he
purchased
the
paintings
at
an
auction
held
by
Les
Encans
Fraser-Pinneys
on
May
14,
1991,
nine
days
before
the
purchase
by
Dr.
Paradis
and
only
a
few
weeks
prior
to
the
date
of
the
gift
on
August
15,
1991.1
therefore
estimate
the
total
fair
market
value
of
those
paintings
at
$1,075.
I
attach
no
probative
value
to
the
price
paid
by
Dr.
Paradis
because
it
was
fixed
as
part
of
a
tax
scheme.
Time
Limitation
and
Penalties
The
onus
is
on
the
Minister
to
prove
the
facts
in
support
of
a
reassessment
for
the
1989
taxation
year
—
which
was
outside
the
normal
three-
year
period
—
and
the
assessment
of
a
penalty
for
each
of
the
relevant
years.
With
respect
to
the
first
point,
the
Minister
must
show
on
the
balance
of
probabilities
that
Dr.
Paradis
made
a
misrepresentation
that
was
attributable
to
neglect,
carelessness
or
wilful
default,
as
contemplated
in
subparagraph
152(4)(«)(i)
of
the
Act.
In
Venne
v.
R.,
[1984]
C.T.C.
223
(Fed.
T.D.),
Strayer
J.
of
the
Federal
Court,
Trial
Division,
as
he
then
was,
wrote
as
follows
on
this
burden
of
proof:
I
am
satisfied
that
it
is
sufficient
for
the
Minister,
in
order
to
invoke
the
power
under
sub-paragraph
152(4)(«)(i)
of
the
Act
to
show
that,
with
respect
to
any
one
or
more
aspects
of
his
income
tax
return
for
a
given
year,
a
taxpayer
has
been
negligent.
Such
negligence
is
established
if
it
is
shown
that
the
taxpayer
has
not
exercised
reasonable
care.
This
is
surely
what
the
word
“misrepresentation
that
is
attributable
to
neglect”
must
mean,
particularly
when
combined
with
other
grounds
such
as
“carelessness”
or
“wilful
default”
which
refer
to
a
higher
degree
of
negligence
or
to
intentional
misconduct.
Unless
these
words
are
superfluous
in
the
section,
which
I
am
not
able
to
assume,
the
term
“neglect”
involves
a
lesser
standard
of
deficiency
akin
to
that
used
in
other
field
of
law
such
as
the
law
of
tort.
As
to
the
second
point,
namely
the
assessment
of
penalties,
the
Minister
applied
subsection
163(2)
of
the
Act,
which
states:
163(2)
Every
person
who,
knowingly,
or
under
circumstances
amounting
to
gross
negligence
in
the
carrying
out
of
any
duty
or
obligation
imposed
by
or
under
this
Act,
has
made
or
has
participated
in,
assented
to
or
acquiesced
in
the
making
of,
a
false
statement
or
omission
in
a
return,
form,
certificate,
statement
or
answer
(in
this
section
referred
to
as
a
“return”)
filed
or
made
in
respect
of
a
taxation
year
as
required
by
or
under
this
Act
or
a
regulation,
is
liable
to
a
penalty
of
the
greater
of
$100
and
50%
of
the
aggregate
of
(a)
the
amount,
if
any,
by
which
(i)
the
amount,
if
any,
by
which
(A)
the
tax
for
the
year
that
would
be
payable
by
him
under
this
Act
exceeds
(B)
the
amount
that
would
be
deemed
by
subsection
120(2)
to
have
been
paid
on
account
of
his
tax
for
the
year
if
his
taxable
income
for
the
year
were
computed
by
adding
to
the
taxable
income
reported
by
him
in
his
return
for
the
year
that
portion
of
his
understatement
of
income
for
the
year
that
is
reasonably
attributable
to
the
false
statement
or
omission
and
if
his
tax
payable
for
the
year
were
computed
by
subtracting
from
the
deductions
from
the
tax
otherwise
payable
by
him
for
the
year
such
portion
of
any
such
deduction
as
may
reasonably
be
attributable
to
the
false
statement
or
omission
exceeds
(ii)
the
amount,
if
any,
by
which
(A)
the
tax
for
the
year
that
would
have
been
payable
by
him
under
this
Act
exceeds
(B)
the
amount
that
would
have
been
deemed
by
subsection
120(2)
to
have
been
paid
on
account
of
his
tax
for
the
year
had
his
tax
payable
for
the
year
been
assessed
on
the
basis
of
the
information
provided
in
his
return
for
the
year,
In
Venne,
Strayer
J.
made
the
following
remarks
on
the
notion
of
gross
negligence:
“Gross
negligence”
must
be
taken
to
involve
greater
neglect
than
simply
a
failure
to
use
reasonable
care.
It
must
involve
a
high
degree
of
negligence
tantamount
to
intentional
acting,
an
indifference
as
to
whether
the
law
is
complied
with
or
not.
It
is
my
view
that
in
the
instant
case
the
Minister
demonstrated
on
the
balance
of
probabilities
that
Dr.
Paradis
not
only
made
a
misrepresentation
attributable
to
neglect,
carelessness
or
wilful
default
in
1989,
but
that
he
also,
knowingly,
or
under
circumstances
amounting
to
gross
negligence,
made
a
false
statement
in
his
returns
of
income
for
the
years
1989,
1990,
1991
and
1992.
With
respect
to
1989,
Dr.
Paradis
was
not
only
negligent
in
claiming
a
deduction
for
gifts
of
$36,500
in
respect
of
the
Messier-Leduc
painting,
but
he
also
knowingly,
or
at
least
under
circumstances
amounting
to
gross
negligence,
made
a
false
statement.
I
believe
Dr.
Paradis
took
part
in
a
scheme
to
enable
him
to
claim
unwarranted
tax
deductions
in
respect
of
the
donation
of
the
Messier-Leduc
painting,
the
value
of
which
indicated
on
the
receipt
from
the
Musée
de
Joliette
considerably
exceeded
the
fair
market
value
of
that
painting.
One
would
have
had
to
have
been
credulous
and
naive
to
have
believed
that
the
appraisal
prepared
by
Mr.
Levert
could
be
a
reasonable
determination
of
that
painting’s
fair
market
value.
I
do
not
believe
Dr.
Paradis
fits
that
description.
First
of
all,
he
has
had
the
benefit
of
an
excellent
university
education
and
is
practising
a
profession
requiring
considerable
intellectual
ability.
He
has
also
been
an
art
collector
for
a
number
of
years.
And
to
his
university
training
and
knowledge
in
the
field
of
art
there
must
be
added
his
knowl
edge
of
tax
matters.
He
has
been
purchasing
tax
shelters
for
several
years.
He
even
consulted
an
accountant/tax
specialist
to
inquire
about
the
purchase
of
works
of
art
as
tax
shelters.
The
accountant/tax
specialist
confirmed
that
Dr.
Paradis
was
very
much
interested
in
tax
matters
and
that
he
had
given
Dr.
Paradis
advice
on
such
matters.
To
that
end,
he
had
consulted
the
guide
on
gifts
in
kind
prepared
by
the
Minister
in
which
it
is
explained
that
taxpayers
must
have
the
property
they
wish
to
donate
to
a
museum
appraised.
It
is
also
clearly
indicated
that
the
appraiser
must
be
“independent”.
The
guide
explains,
for
example,
that
the
donor
must
not
use
the
services
of
a
person
who
is
related
to
the
donee
or
to
the
beneficiary
institution.
However,
I
do
not
believe
all
of
the
tax
specialist’s
testimony.
Some
of
his
answers
were
lacking
in
frankness.
I
find
it
quite
improbable
that
he
was
unable
to
determine
whether
the
seller
of
a
painting
could
provide
an
“independent”
opinion
as
to
the
value
of
that
painting.
He
was
an
expert
who
held
a
master’s
degree
in
taxation
and
had
worked
for
the
Minister
for
two
years.
In
his
letter
dated
May
30,
1989,
the
accountant/tax
specialist
stated
that,
in
Friedberg,
supra,
the
judge
had
taken
the
value
to
be
the
average
of
the
“independent”
appraisals.
Nor
do
I
give
any
credence
to
his
testimony
to
the
effect
that
he
had
never
informed
Dr.
Paradis
of
the
necessary
attributes
of
an
independent
appraiser.
We
are
dealing
here
with
a
taxpayer
who
was
very
familiar
with
the
ground
rules
for
completing
and
filing
his
returns
of
income.
Dr.
Paradis
knew,
or
ought
to
have
known
that
he
had
to
obtain
at
least
one
“independent”
opinion.
As
Mr.
Levert
was
the
seller
of
the
Messier-Leduc
painting
and
had
an
economic
interest
in
completing
the
sale,
it
is
conceivable
that
he
was
not
sufficiently
independent
to
provide
a
proper
appraisal.
Even
if
there
had
been
no
obligation
on
Dr.
Paradis’s
part
to
obtain
an
independent
appraisal,
the
fact
that
Mr.
Levert
claimed
the
Messier-Leduc
painting
was
worth
four
times
the
price
Dr.
Paradis
had
paid
for
it
should
have
raised
a
doubt
in
his
mind
as
to
the
validity
of
such
an
appraisal.
There
are
no
“magic
or
miraculous”
tax
shelters
in
our
tax
system.
I
cannot
understand
how
Dr.
Paradis
could
claim
not
to
have
been
surprised
by
the
appraisal
made
by
Mr.
Levert
on
August
1,
1989.
I
do
not
believe
Dr.
Paradis
could
have
failed
to
doubt
the
legitimacy
of
Mr.
Levert’s
appraisal
in
light
of
the
very
high
value
placed
on
the
painting
relative
to
its
acquisition
cost.
I
cannot
imagine
that
Dr.
Paradis,
an
“art
collec-
tor”,
could
have
been
so
credulous
and
naive
as
to
believe
that
Mr.
Levert,
an
“art
dealer”
aware
of
the
true
value
of
his
paintings,
would
have
given
him
a
“gift”
of
$27,750
by
selling
the
Messier-Leduc
painting
to
him
for
far
less
than
its
fair
market
value.
There
is
no
evidence
that
Mr.
Levert
was
in
financial
difficulties
or
that
there
were
any
other
special
circumstances
that
might
explain
why
Dr.
Paradis
was
given
a
price
below
fair
market
value.
I
am
convinced
that
a
person
acting
in
good
faith
would
have
consulted
at
least
one
independent
expert
to
make
sure
that
Mr.Levert’s
appraisal
of
the
market
value
of
the
painting
was
realistic.
In
the
Friedberg
case,
with
which
Dr.
Paradis
was
familiar,
the
average
of
the
values
determined
by
“three”
independent
expert
witnesses
was
used.
Dr.
Paradis
was
looking
for
excuses
when
he
attributed
his
decision
not
to
obtain
an
independent
appraisal
to
high
costs.
Michel
Bigué,
the
owner
of
an
art
gallery
in
Saint-Sauveur,
estimated
the
cost
of
such
an
appraisal
at
approximately
$100.
As
he
was
about
to
claim
a
tax
deduction
calculated
on
the
basis
of
a
value
of
$36,500,
when
in
fact
he
had
paid
an
art
gallery
only
$8,750,
he
should
at
the
very
least
have
felt
it
necessary
to
obtain
an
appraisal
from
an
independent
gallery
instead
of
being
satisfied
with
that
of
his
seller
who
clearly
had
a
conflict
of
interest.
Furthermore,
he
could
not
rely
on
his
seller
to
obtain
a
second
appraisal
given
the
clearly
excessive
nature
of
Mr.
Levert’s
own
appraisal.
Not
only
did
Dr.
Paradis
not
ask
Mr.
Levert
to
testify
as
an
expert
witness
in
defence
of
his
appraisal
of
the
Messier-Leduc
painting,
but
he
did
not
call
Mr.
Gagnon,
who
performed
the
second
appraisal,
to
come
and
describe
the
circumstances
surrounding
the
preparation
of
his
appraisal.
Either
Dr.
Paradis
knew
that
the
Messier-Leduc
painting
was
not
worth
any
more
than
the
price
of
$8,750
that
he
had
paid
or
he
buried
his
head
in
the
sand
with
respect
to
the
true
value
of
the
painting.
In
either
case,
Dr.
Paradis
committed
gross
negligence.
He
displayed
the
sort
of
indifference
described
by
Strayer
J.
in
Venne.
I
also
believe
that
the
conclusion
reached
by
my
colleague
Judge
Dussault
in
Dutil
is
perfectly
applicable
to
the
instant
case:
The
taxpayer’s
conduct
overall
...
leads
me
to
conclude
that
there
may
well
be
serious
questions
as
to
his
good
faith
and
credibility
throughout
this
matter.
I
feel
that,
if
he
did
not
knowingly
take
risks
with
full
knowledge
of
the
facts,
he
at
least
closed
his
eyes
to
circumstances
which
should
both
have
alerted
him
and
made
him
act
with
greater
caution,
to
say
the
least...
[T]he
fact
that
the
appellant
conducted
no
more
thorough
examination
before
or
after
the
transaction
amounts
in
the
circumstances
to
more
than
simple
negligence.
It
constitutes
gross
negligence.
[My
emphasis.]
Consequently,
the
Minister
was
able
not
only
to
make
a
reassessment
beyond
the
normal
three-year
period
but
also
to
assess
a
penalty
under
subsection
163(2)
of
the
Act.
It
is
also
my
view
that,
in
claiming
tax
deductions
for
the
donations
of
the
Suzor-Côté
and
Fortin
paintings
in
his
returns
of
income
for
the
1990
to
1992
taxation
years,
Dr.
Paradis
made
false
statements
under
circumstances
also
amounting
to
gross
negligence.
For
each
of
those
years,
Dr.
Paradis
claimed
tax
deductions
in
respect
of
gifts
of
paintings
the
values
of
which
were
unduly
inflated.
The
reasons
stated
as
to
why
the
penalty
should
apply
for
1989
also
apply
to
the
years
1990
to
1992.
Judge
Dussault’s
remarks
in
Arvisais
c.
Ministre
du
Revenu
national,
(1992),
[1993]
1
C.T.C.
2473
(T.C.C.),
90-3540(IT),
(October
19,
1992),
are
equally
appropriate
in
these
circumstances:
While
one
may
believe
in
good
deals,
one
wonders
why
a
number
of
people
are
not
at
all
surprised
to
hit
the
jackpot
so
systematically,
year
after
year,
without
raising
serious
questions.
The
search
for
tax
shelters
appears
to
me
seriously
to
affect
the
capacity
for
discernment
of
some
taxpayers,
who
would
be
better
off
not
believing
just
what
they
want
to
believe.
[My
emphasis.]
However,
the
amounts
of
these
penalties
cannot
be
computed
as
the
Minister
has
done
in
the
instant
case.
Although
I
confirm
the
Minister’s
assessments
for
the
years
1989
to
1992
and
that
Dr.
Paradis
is
entitled
to
no
tax
deduction
in
respect
of
those
four
taxation
years,
I
do
so
for
other
reasons.
I
have
disallowed
the
deduction
for
gifts
because
Dr.
Paradis
did
not
file
receipts
meeting
all
the
conditions
set
out
in
the
Act.
I
do
not
believe
it
can
be
concluded
that
incomplete
receipts
were
filed
knowingly
or
under
circumstances
amounting
to
gross
negligence.
I
do
believe
however
that
receipts
whose
unduly
inflated
amounts
exceeded
by
far
the
fair
market
value
of
the
gifts
were
filed
under
circumstances
amounting
to
gross
negligence.
The
amount
of
the
penalty
shall
therefore
be
computed
on
the
basis
that
Dr.
Paradis
was
entitled,
solely
for
the
purposes
of
computing
the
penalties,
to
deductions
for
gifts
calculated
using
the
fair
market
value
of
the
gifts
that
I
have
determined
above.
As
to
the
year
1988,
there
is
no
evidence
that
the
value
appearing
on
the
receipts
for
the
gifts
to
UDR
and
Tecumseh
was
artificially
inflated.
The
amount
paid
by
Mr.
Bigué
for
the
Dali
painting
approximates
the
appraisal
value
arrived
at
by
Mr.
Levert
and
the
evidence
did
not
show
that
Dr.
Paradis
knew
the
Warhol
and
Dali
paintings
were
forgeries.
Dr.
Paradis
paid
$17,440
for
those
paintings
and
obtained
two
receipts
for
a
total
value
of
$20,000.
The
penalty
for
1988
should
therefore
be
set
aside.
For
these
reasons,
Dr.
Paradis’s
appeals
are
allowed
and
the
assessments
are
referred
back
to
the
Minister
for
reconsideration
and
reassessment
on
the
basis
that
he
was
not
entitled
to
a
deduction
for
gifts
for
each
of
the
relevant
years
and
that
the
penalties
for
the
years
1989
to
1992
are
to
be
calculated
on
the
basis
that
Dr.
Paradis
was
entitled
to
a
tax
deduction
calculated
in
accordance
with
the
fair
market
value
determined
in
these
reasons.
The
penalty
for
1988
is
set
aside.
Appeal
allowed.
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