Garon
T.C.J.:
These
are
appeals
from
income
tax
assessments
for
the
1988,
1989
and
1990
taxation
years.
In
assessing
the
appellants
for
those
years,
the
Minister
of
National
Revenue
reduced
to
nil
the
deduction
for
charitable
gifts
both
of
them
had
claimed
in
respect
of
certain
works
of
art
in
each
of
the
three
years
at
issue.
The
appellants
are
also
contesting
the
penalties
imposed
in
those
assessments
for
the
same
taxation
years.
The
appeals
were
heard
on
common
evidence.
There
was
also
a
common
hearing
for
part
of
the
evidence
and
argument
in
these
appeals
and
the
appeals
from
income
tax
assessments
of
Amédée
Duguay
(94-1081
(IT)G),
Diane
L.
Duguay
(94-1084(IT)G)
and
François
Langlois
(92-1124(IT)G
and
94-3007(IT)G).
It
should
be
noted
at
this
point
that
the
appellants
in
the
instant
appeals
and
the
three
individuals
referred
to
in
the
preceding
sentence
are
part
of
a
group
of
about
200
people
who
purchased
various
works
of
art
and
other
property
in
order
to
give
them
to
registered
charities.
For
the
purposes
of
these
appeals,
I
consider
it
appropriate
to
begin
by
presenting
a
fairly
detailed
account
of
the
testimony
of
both
appellants,
which
will
be
followed
by
a
detailed
account
of
the
evidence
of
Marc
Levert,
a
key
player
in
the
events
on
which
this
case
is
based.
The
version
of
events
given
by
Julien
Carignan,
a
senior
manager
of
an
organization
that
received
gifts,
will
be
considered
at
some
length.
Finally,
an
exhaustive
account
will
be
presented
of
the
testimony
of
Jacques
Demers,
a
Revenue
Canada
appeals
officer,
because
he
played
a
key
role
in
the
issuing
of
the
assessments
under
appeal.
The
investigation
he
conducted
was
supplemented
by
Réjean
Juneau,
on
one
topic
only.
I
will
begin
with
the
evidence
of
the
appellant
Alain
Côté.
He
had
been
employed
as
a
chief
technician
at
the
Canadian
Broadcasting
Corporation
in
Québec
since
1984
and
had
been
an
employee
of
the
CBC
since
1969.
He
described
the
events
that
led
up
to
his
first
gift
of
works
of
art,
testifying
that
in
1986,
his
wife,
the
appellant
Louise
Marcoux,
told
him
that
Aline
Tremblay,
a
co-worker
of
hers
at
a
Royal
Bank
of
Canada
branch,
had
told
her
about
an
interesting
tax
advantage
that
involved
donating
works
of
art
to
charities.
Mr.
Côté
knew
Ms.
Tremblay
at
that
time
because,
in
her
capacity
as
a
Royal
Bank
loans
officer,
she
handled
the
transactions,
such
as
loans
and
hypothecs,
that
he
conducted
at
that
branch.
Mr.
Côté
stated
that
in
late
September
or
early
October
of
that
year,
he
met
with
Ms.
Tremblay
at
the
bank
to
discuss
gifts
of
works
of
art.
He
said
that
the
first
question
he
put
to
Ms.
Tremblay
was
whether
this
tax
advantage
was
legal.
He
also
mentioned
that
Ms.
Tremblay
showed
him
a
pamphlet
entitled
“Gifts
to
Canada
or
a
Province,
Charitable
Gifts”
which
explained
the
procedure
for
obtaining
a
tax
deduction.
She
gave
him
a
copy
of
the
pamphlet,
but
Mr.
Côté
no
longer
had
it
in
his
possession
at
the
time
of
the
hearing.
Mr.
Côté
testified
that
Ms.
Tremblay
had
told
him
how
to
go
about
making
such
gifts.
She
told
him
she
would
handle
everything
because
she
knew
someone
who
had
an
art
gallery
and
who
conducted
transactions,
bought
works
of
art
from
individuals
at
auctions
and
performed
appraisals
in
accordance
with
professional
criteria
and
specialized
books.
The
figure
established
in
the
appraisal
became
the
amount
on
the
receipt
provided
by
the
charity.
The
receipt
would
then
be
filed
with
Revenue
Canada.
Ms.
Trem-
blay
added
that
the
specialist
concerned,
the
intermediary
who
found
paintings,
purchased
them
and
appraised
them,
was
Marc
Levert.
Mr.
Côté
said
that
he
did
not
know
Mr.
Levert
at
that
time.
Mr.
Côté
added
that
he
met
with
Ms.
Tremblay
once
again
the
following
fall
and
that
she
told
him
that
there
were
auctions
held
every
year
at
which
paintings
by
well-known
painters
were
sold.
Gallery
owners
got
together
at
all
the
auctions
and
bought
paintings
at
“fire
sale”
or
liquidation
prices.
The
paintings
were
reappraised
based
on
guides
and
brochures.
Ms.
Tremblay
then
discussed
Mr.
Levert’s
role
with
him
and
told
him
that
in
1986,
Mr.
Levert
was
associated
with
the
curator
of
the
Musée
du
Québec
and
was
well
known
in
the
Québec
area.
Ms.
Tremblay
also
told
Mr.
Côté
that
in
light
of
his
salary
at
the
time,
he
could
make
approximately
$10,000
in
charitable
gifts.
Mr.
Côté
added
that
Ms.
Tremblay
handled
dealings
with
Mr.
Levert.
She
and
Mr.
Levert
checked
the
works
that
were
purchased
and
identified
those
that
could
be
donated,
and
submitted
a
report
together
with
a
purchase
proposal
which
included
the
selection
of
a
foundation
that
would
issue
a
receipt
for
the
current
year.
Mr.
Côté
stated
that
he
was
intrigued
by
the
fact
that
he
could
pay
$3,000
for
a
work
and
obtain
a
receipt
for
$10,000.
He
explained
that
the
tax
advantage
arose
because
there
was
a
disparity
between
the
amount
on
the
receipt
issued
by
the
organization
in
question
and
the
amount
he
had
paid.
This
difference
was
due
to
the
fact
that
the
works
of
art
were
purchased
at
auctions
or
were
offered
by
artists
or
by
persons
who
owned
the
works
and
were
selling
them
off
for
a
cash
consideration.
Mr.
Côté
also
acknowledged
that
he
had
read
the
tax
guide
entitled
“Gifts
to
Canada
or
a
Province”
at
the
time,
although
he
did
not
remember
reading
that
he
had
to
deal
with
independent
appraisers.
He
admitted
that
Mr.
Levert
was
simultaneously
the
seller,
the
appraiser
and
the
person
who
provided
receipts.
Mr.
Côté
stated
that
the
works
of
art
in
question
were
well
known
and
that
he
was
able
to
consult
the
Guide
Vallée,
which
can
be
found
in
specialized
houses
and
is
like
a
dictionary
in
the
field.
He
did
not
make
these
checks
until
some
unspecified
time
after
1986.
Mr.
Côté
described
how
the
transaction
was
conducted.
After
the
transaction
with
Mr.
Levert
was
completed,
he
met
with
Ms.
Tremblay,
the
intermediary
at
the
Bank,
through
the
appellant
Louise
Marcoux,
at
which
time
Ms.
Tremblay
gave
him
the
document
constituting
the
receipt
from
the
organization
in
question.
A
second
document,
generally
in
writing,
accom-
panied
the
receipt:
it
attested
the
purchase
of
a
work
of
art
and
indicated
the
work’s
origin,
format,
book
value
and
fair
market
value.
The
transaction
was
conducted
by
Ms.
Tremblay
with
the
appellants.
Mr.
Côté
told
Ms.
Tremblay
that
he
wanted
to
acquire
paintings
in
the
fall
of
the
current
year
and
the
transaction
was
in
fact
conducted
in
the
fall.
However,
Mr.
Côté
said
that
he
may
have
issued
cheques
in
January
and
February
of
the
following
year
rather
than
in
the
fall
of
the
current
year.
Mr.
Côté
also
mentioned
that
after
he
had
received
the
receipts,
he
wrote
two
cheques,
one
payable
at
the
start
of
the
following
year
and
the
other
dated
a
few
months
later,
in
late
May
or
early
June.
This
last
payment
represented
the
second
half
of
the
purchase
price
he
owed
for
the
work
of
art
in
question.
Mr.
Côté
added
that
in
a
number
of
cases,
they
were
given
photographs
of
the
donated
works
because
the
works
in
question
were
immediately
delivered
to
the
museums
or
foundations
concerned.
The
appellants
never
had
the
works
in
their
possession,
but
Mr.
Côté
stated
that
he
went
to
Marc
Levert’s
gallery
a
few
times
in
and
after
1989
and
saw
works
of
art
there,
although
they
were
not
necessarily
the
ones
he
had
purchased.
He
said
that
Mr.
Levert
had
only
given
him
photographs
of
the
paintings
for
1988,
1989
and
1990.
Mr.
Coté
testified
that
he
did
not
remember
exactly
when
he
received
the
invoices
for
the
works
given
in
1989
and
1990.
He
knew
that
he
had
as
a
rule
been
given
the
documentation
in
November
or
early
December
of
the
year
concerned,
although
he
did
not
remember
whether
all
the
invoices
had
accompanied
the
documentation.
He
admitted
that
he
would
not
have
been
prepared
to
conduct
the
transactions
with
Mr.
Levert
if
he
had
not
been
given
receipts.
Mr.
Côté
also
mentioned
that
he
made
a
gift
to
the
Fondation
Amérindienne
Tecumseh
in
1989.
He
never
approached
the
organizations
to
which
he
made
gifts
during
the
three
years
at
issue.
It
was
only
after
he
received
the
invoices
that
he
realized
professional
fees
were
included
in
the
amounts
indicated
on
them.
He
found
out
that
these
professional
fees
were
compensation
for
Mr.
Levert’s
work
of
finding,
handling,
acquiring
and
transporting
the
works
of
art.
He
did
not
question
Mr.
Levert
about
this.
Nor
did
he
submit
the
invoices
to
Revenue
Canada.
Mr.
Levert
had
sent
a
circular
to
his
clients
in
which
he
asked
them
not
to
submit
purchase
invoices
or
proof
of
payment
documents.
According
to
Mr.
Côté,
Ms.
Tremblay
told
the
two
appellants
the
total
amount
payable
in
the
fall
of
each
of
the
three
years
in
question
when
giving
them
the
amount
of
the
gifts
they
were
supposed
to
make.
In
each
of
the
years
at
issue,
Mr.
Côté
then
wrote
one
cheque,
dated
March
1
of
the
following
year,
for
half
the
price
of
the
gifts
on
behalf
of
himself
and
the
appellant
Louise
Marcoux
and
a
second
cheque,
dated
the
following
June
1,
also
on
behalf
of
both
the
appellants.
Ms.
Marcoux
wrote
her
own
cheques
for
the
paintings
she
purchased
for
the
1990
taxation
year.
Mr.
Côté
stated
that
he
continued
to
make
gifts
for
the
years
at
issue
even
though
the
amounts
relating
to
the
paintings
he
gave
in
1986
and
1987
had
been
revised
by
the
Minister
of
National
Revenue
in
the
spring
of
1989.
He
mentioned
that
Revenue
Canada’s
position
on
this
revision
concerned
the
appraisal
of
the
works
of
art,
not
the
legality
of
the
gifts.
He
added
that
he
did
not
make
any
gifts
in
1991
because
a
friend
in
his
group,
an
officer
of
the
Sûreté
du
Québec
who
was
also
one
of
those
who
were
giving
works
of
art
to
charities,
told
him
that
charges
had
been
laid
against
Galerie
des
Maîtres
Anciens
Inc.
and
Mr.
Levert.
This
information
led
him
to
stop
making
gifts.
Mr.
Côté
stated
that
prior
to
1991,
he
had
no
doubts
or
suspicions
as
to
the
legality
of
the
gifts
made
in
the
three
taxation
years
at
issue
or
in
the
preceding
two
taxation
years.
He
also
read
in
the
newspapers
in
late
1991
that
Mr.
Levert
was
in
trouble
with
the
law.
After
the
group
of
which
Mr.
Côté
was
a
member
retained
new
lawyers
in
late
1991,
the
appellants,
on
their
new
lawyer’s
recommendation,
discontinued
their
appeals
in
respect
of
the
assessments
for
1986
and
1987,
which
are
not
at
issue
in
the
instant
appeals.
The
evidence
of
the
appellant
Louise
Marcoux
confirms
certain
aspects
of
Mr.
Côté’s
testimony
and
provides
some
additional
information.
Ms.
Marcoux
was
a
receptionist
at
the
Royal
Bank
of
Canada
and
had
been
employed
by
the
Bank
since
1968.
During
the
years
1986
to
1990,
her
work
required
her
to
go
to
various
branches
of
the
Royal
Bank.
She
knew
Ms.
Tremblay,
who
worked
at
the
Bank’s
Charlesbourg
branch,
where
the
appellants
had
an
account.
Ms.
Marcoux
and
Ms.
Tremblay
first
spoke
about
works
of
art
by
telephone.
Ms.
Tremblay
told
her
that
acquiring
works
of
art
might
be
one
way
to
reduce
her
taxes.
After
that,
it
was
mainly
Mr.
Côté
who
took
part
in
the
discussions
with
Ms.
Tremblay.
The
appellants
discussed
the
matter
between
them.
Ms.
Marcoux
said
that
the
appellants
received
documents
such
as
receipts
from
the
charity
during
the
fall,
or
definitely
before
the
end
of
the
year,
although
it
was
Mr.
Côté
who
handled
all
that.
She
also
testified
that
the
appellants
made
payments
for
the
works
of
art
twice
a
year
and
that
either
Mr.
Côté
sent
the
cheques
to
Ms.
Tremblay
or
she
herself
sent
them
to
Ms.
Tremblay
through
the
Bank’s
internal
mail
when
she
and
Ms.
Tremblay
were
working
at
the
same
branch.
Ms.
Tremblay
had
been
Mr.
Côté’s
credit
officer
since
the
appellants
arrived
in
Charlesbourg
in
1975
or
1976.
Ms.
Marcoux
stated
that
Mr.
Levert
was
a
customer
at
the
same
Royal
Bank
branch
but
that
he
had
never
spoken
to
her
about
tax
shelters.
She
said
that
Ms.
Tremblay
first
told
her
about
the
tax
shelter
at
issue
in
these
appeals
in
1986.
Ms.
Marcoux
acknowledged
that
one
quarter
of
the
amount
on
each
receipt
represented
the
amount
the
purchaser
of
the
property
to
be
given
had
to
pay
in
accordance
with
the
arrangements
Mr.
Côté
had
made
with
Mr.
Levert.
For
example,
for
1986,
the
purchase
price
of
the
painting
was
$850
and
the
corresponding
receipt
was
for
$3,400.
Ms.
Marcoux
signed
the
cheque
dated
July
6,
1987,
for
the
first
transaction
in
1986.
She
admitted
that
she
never
saw
the
paintings
that
were
purchased
for
gift
purposes
and
had
no
interest
in
seeing
them.
Invoice
No.
1139
for
the
1989
taxation
year
was
not
dated.
Ms.
Marcoux
testified
that
she
likely
received
that
invoice
and
the
corresponding
appraisal
from
Ms.
Tremblay.
It
did
not
bother
her
that
the
appraisal
indicating
the
market
value
of
the
property
to
be
given
was
not
dated
either.
Ms.
Marcoux
remembered
receiving
a
letter
dated
January
25,
1992,
from
Revenue
Canada
and
answering
it
on
February
25,
1992.
She
admitted
that
she
signed
her
letter,
in
which
she
stated
that
she
could
not
provide
the
documents
requested
by
Revenue
Canada
(invoices,
proof
of
payment
documents
and
certificates
of
appraisal).
She
said
that
it
was
not
Ms.
Tremblay
who
had
suggested
they
not
supply
these
documents.
Ms.
Marcoux
admitted
that
she
never
contacted
the
organizations
that
issued
the
receipts
to
find
out
whether
they
had
actually
received
the
paintings.
She
saw
only
one
photograph
of
a
painting
given
in
1988.
She
also
acknowledged
that
she
chose
neither
the
paintings
nor
the
charities.
I
will
now
look
at
Mr.
Levert’s
evidence.
Mr.
Levert
was
unemployed
at
the
time
he
gave
his
evidence.
He
had
worked
as
an
inspector
for
the
parity
committee
“on
automotive
services”
in
the
Québec
area
from
the
1970s
until
he
quit
that
job
in
1995.
In
1987,
he
established
the
Galerie
des
Maîtres
Anciens
Inc.
and
La
Tourelle,
Maison
d’encans
Inc.,
both
of
which
were
incorporated
in
March
1987.
Starting
in
1987,
he
ran
those
two
firms
with
his
wife,
Denise
Body.
Mr.
Levert
said
that
he
began
to
be
interested
in
works
of
art
as
a
collector
in
the
early
1970s.
He
was
especially
interested
in
oil
paintings
and
watercolours.
He
was
also
interested
in
antiques
such
as
items
made
of
bronze
or
porcelain.
Mr.
Levert
added
that
he
travelled
a
great
deal
to
galleries,
mainly
in
Quebec,
to
learn
about
paintings.
He
also
read
books
on
the
subject.
He
then
began
purchasing
paintings
from
galleries,
including
the
Galerie
Charles
Huot
and
the
Galerie
de
Michel
Décardo.
Using
auction
catalogues
he
received
from
Fraser
and
Sotheby’s,
he
began
going
to
auction
houses
in
Montréal,
such
as
Pinney’s,
Fraser
and
Empire.
He
also
went
to
auctions
in
Toronto
and
received
catalogues
of
works
of
art
from
New
York.
Mr.
Levert
said
that
he
has
been
appraising
paintings,
mainly
for
insurance
purposes
and
for
gifts,
since
beginning
to
work
in
the
art
field.
In
1983
and
the
following
years,
he
appraised
paintings
as
a
Québec
representative
of
Pinney’s
of
Montréal.
Mr.
Levert
said
that
he
was
especially
interested
in
the
periods
that
include
the
17th,
18th
and
19th
centuries,
and
the
early
20th
century
up
to
about
1930.
He
had
to
adapt
to
the
market’s
requirements,
since
people
in
the
Québec
area
were
more
familiar
with
artists
from
the
contemporary
period,
which
runs
from
1920
to
the
present.
He
is
still
consulted
today
about
the
earlier
period,
inter
alia
to
determine
whether
it
is
really
the
period
involved,
whether
a
painting
can
be
restored
or
whether
there
is
a
good
market
for
an
artist’s
works.
He
often
used
to
be
consulted
by
antique
dealers.
Based
on
his
experience,
Mr.
Levert
noted
that
there
are
two
markets,
the
gallery
market
and
the
auction
market,
which
are
totally
separate
from
each
other.
The
gallery
market
involves
far
more
paintings
by
contemporary
artists
who
are
currently
working
or
have
died
fairly
recently.
For
example,
Jean-Paul
Lemieux
is
a
contemporary
artist
even
though
he
is
dead.
Fielding
Downes
is
also
a
contemporary
artist,
although
he
is
[TRANSLATION]
“on
the
borderline”.
The
auction
market
for
paintings
includes
international
auction
houses
like
Sotheby’s
in
Toronto,
which
has
offices
in
London
and
New
York;
these
auction
houses
use
a
very
sophisticated
system.
For
such
auctions,
catalogues
of
colour
photographs
provide
an
estimate
of
the
price
a
painting
would
ordinarily
be
expected
to
command
at
the
auction,
not
its
market
value.
The
second
category
of
auctions
involves
local
auction
houses,
in
Montréal
or
Toronto
for
example,
that
are
not
in
the
same
league
as
the
big
auction
houses.
Their
catalogues
are
not
in
colour;
instead,
they
publish
a
list
of
auctions.
The
third
category
is
made
up
of
small
auction
houses
that
hold
auctions
occasionally.
The
difference
between
these
auction
houses
is
that
the
larger
the
house,
the
more
extensive
the
advertising
done,
the
greater
the
number
of
clients
reached
and
the
closer
the
price
will
be
to
the
gallery
price
for
certain
artists.
Paintings
by
local
artists
are
not
sold
at
major
auctions.
Mr.
Levert
said
that
in
1988,
1989
and
1990
his
two
businesses,
the
Galerie
des
Maîtres
Anciens
and
La
Tourelle,
Maison
d’encans,
were
operated
out
of
the
same
building.
After
the
building
was
sold,
the
Galerie
des
Maîtres
Anciens
moved
to
another
location.
Mr.
Levert’s
business
objective
was
to
operate
an
auction
house,
contacting
various
people
to
ask
them
to
bring
him
paintings
they
wished
to
resell.
The
Galerie
des
Maîtres
Anciens
also
purchased
paintings
from
time
to
time,
and
they
were
sent
to
La
Tourelle,
Maison
d’encans,
to
be
resold
at
public
auctions.
The
Galerie
des
Maîtres
Anciens
also
made
private
sales.
Mr.
Levert’s
explanation
of
why
he
sold
paintings
for
gift
purposes
was
basically
as
follows:
I.
he
himself
made
gifts
and
sales
directly
to
governments
and
various
other
organizations
before
1986;
2.
when
his
employer,
the
parity
committee,
temporarily
ceased
operations,
his
friends
asked
him
to
sell
paintings
for
gift
purposes.
Mr.
Levert
and
his
wife
therefore
went
to
the
office
of
a
Revenue
Canada
official
in
Ottawa
in
1986
to
find
out
whether
the
process
was
lawful.
A
Mr.
Boutet
(apparently
a
lawyer
for
the
federal
government)
told
them
that
[TRANSLATION]
“it’s
perfectly
legal”.
It
was
then
that
Mr.
Levert,
before
opening
his
business,
began
selling
paintings
openly
to
people
he
knew.
Before
Mr.
Levert
opened
his
gallery,
he
had
already
dealt
with
the
two
appellants
in
1986
and
1987
at
Ms.
Tremblay’s
request.
In
1987,
Mr.
Levert
opened
La
Tourelle,
Maison
d’encans
and
the
Galerie
des
Maîtres
Anciens.
The
sales
for
gift
purposes
that
he
was
making
at
that
time
were
not
the
main
aspect
of
his
activities.
He
was
convinced
that
purchasing
paintings
to
make
gifts
was
perfectly
legitimate.
He
said
that
from
1987
to
1991
the
portion
of
his
total
sales
associated
with
charitable
gifts
was
no
more
than
10
or
15
percent.
Mr.
Levert
also
testified
that
he
never
did
any
advertising
in
relation
to
gifts;
although
there
is
a
document
bearing
the
logo
of
the
Galerie
des
Maîtres
Anciens
that
does
contain
such
advertising,
he
said
that
his
partners
were
responsible
for
it.
In
general,
the
way
Mr.
Levert
proceeded
with
clients
to
whom
he
sold
paintings
for
gift
purposes
was
as
follows:
the
clients
were
referred
to
him,
and
he
then
contacted
a
charity
and
asked
the
person
in
charge
whether
he
or
she
was
interested
in
a
given
type
of
painting.
When
he
found
a
painting
that
was
acceptable
to
the
museum
or
other
charity,
he
informed
the
donor
of
the
possibility
of
acquiring
a
few
paintings
that
Mr.
Levert
could
resell.
The
amount
was
usually
set
in
advance
at
25
percent
of
the
normal
value
of
the
painting
in
a
gallery.
Mr.
Levert
included
the
professional
fees
charged
to
his
clients
in
the
total
amount
on
the
invoices
showing
the
sale
prices
that
had
been
negotiated.
Mr.
Levert
also
told
the
donors
what
they
should
do
and
encouraged
them
to
check
the
legitimacy
of
the
process
with
Revenue
Canada.
He
added
that
a
number
of
people
asked
him
questions
about
the
legitimacy
of
the
process,
specifically
as
regards
the
difference
between
the
amount
at
which
a
work
of
art
was
appraised
and
its
sale
price.
According
to
Mr.
Levert’s
evidence,
his
appraisals
were
based
on
the
main
reference
works,
in
particular
the
Guide
Vallée.
When
he
was
in
doubt
about
the
value
of
a
painting
as
shown
in
a
particular
guide,
he
called
the
gallery
that
represented
the
artist
or
consulted
other
galleries,
for
instance
in
Montréal.
However,
he
acknowledged
that
the
prices
of
paintings
vary
significantly
in
the
guides,
including
the
Guide
Vallée.
He
also
said
that
the
Guide
Vallée
is
simply
a
“guide”
that
suggests
prices.
Mr.
Levert
admitted
that
he
generally
gave
his
clients
the
receipt,
the
appraisal
and
the
invoice,
as
was
the
case
with
the
painting
by
Ludger
Larose
sold
to
the
appellant
Alain
Côté.
He
added
that
there
was
no
particular
reason
why
he
rather
than
the
organization
concerned
sent
the
donor
the
organization’s
receipt.
He
said
that
in
most
cases
he
was
the
one
who
gave
the
donor
the
receipt.
He
placed
the
said
painting
by
Ludger
Larose,
which
Mr.
Côté
had
given
to
Univers
du
Rail
Inc.,
with
Pinney’s
on
consignment
because
he
wanted
it
to
be
resold
for
the
benefit
of
the
owner
Univers
du
Rail
Inc.
Mr.
Levert
did
not
dispute
the
fact
that
the
same
paintings
ended
up
at
various
charities
a
number
of
times,
since
the
charities
resold
them
at
auctions
or
even
privately.
The
paintings
could
be
given
again
to
other
charities.
Mr.
Levert
met
Mr.
Côté
through
Ms.
Tremblay
of
the
Royal
Bank
of
Canada.
He
did
not
remember
whether
he
personally
met
Mr.
Côté
when
he
purchased
paintings
for
the
first
time.
However,
he
stated
that
he
surely
met
him
at
some
point
because
he
met
99
percent
of
his
clients.
With
respect
to
one
particular
sale
by
Mr.
Levert
to
Mr.
Côté,
there
is
no
Invoice
according
to
which
Mr.
Côté
purchased
paintings
in
November
and
December
1990,
but
the
two
cheques
were
dated
March
1991
and
June
1991.
Mr.
Levert
testified
that
the
reason
for
the
delay
in
payment
was
that
he
wanted
to
allow
the
purchaser
to
receive
his
income
tax
refund
before
paying.
With
respect
to
the
terms
of
payment
agreed
upon
between
Mr.
Levert
and
Mr.
Côté
for
the
sale
of
the
painting
by
Ludger
Larose,
Mr.
Levert
stated
that
in
March
1989,
Mr.
Côté
paid
$1,838,
which
was
probably
the
unpaid
balance
at
that
time.
Mr.
Levert
did
not
have
a
clear
recollection
of
the
terms
of
payment.
He
added
that
when
he
dealt
with
clients,
he
did
not
tell
them
that
a
certain
amount
covered
his
professional
fees.
His
clients
did
not
ask
him
to
explain
this.
Mr.
Levert
stated
that
his
business’s
main
activity
was
purchasing
very
large
quantities
of
paintings
at
low
prices
and
selling
them
wholesale
rather
than
selling
them
retail
at
their
full
price
through
the
Galerie
des
Maîtres
Anciens.
Auctions
were
his
business’s
main
activity.
He
added
that
he
also
sold
to
dealers,
galleries
and
collectors,
who
in
turn
resold
the
paintings
at
20
to
40
times
their
purchase
price.
He
explained
that
he
sold
paintings
at
a
quarter
of
the
gallery
value
or
the
value
stated
in
the
Guide
Vallée
because
he
had
set
a
rate
of
25
percent
in
that
regard
for
the
sale
price
of
paintings
that
would
be
given
as
gifts.
He
added
that
he
had
steered
clients
to
about
15
different
charities
over
the
years.
Mr.
Levert
said
that
he
met
Ms.
Tremblay,
who
was
in
charge
of
the
loans
department
at
the
Royal
Bank
of
Canada,
several
years
ago.
She
referred
clients
to
him
who
wanted
to
purchase
paintings
to
make
gifts.
He
added
that
Ms.
Tremblay
sent
him
clients
in
her
private
capacity
and
not
as
a
representative
of
the
Royal
Bank.
In
reviewing
Mr.
Levert’s
tax
returns
in
the
early
1980s,
Ms.
Tremblay
noticed
the
gifts
he
had
made.
She
asked
him
whether
she
and
her
friends
could
take
advantage
of
this
process.
In
some
cases,
Mr.
Levert
gave
the
receipts,
appraisals
and
invoices
to
Ms.
Tremblay
and
she
sent
them
to
the
clients
concerned.
There
were
also
cases
in
which
Ms.
Tremblay
gave
him
the
cheques
written
by
clients
to
purchase
paintings.
In
December
1988,
Mr.
Levert
sent
a
letter
to
all
those
who
had
purchased
paintings
from
him
for
gift
purposes
with
a
view
to
forming
a
group.
It
was
at
that
time
that
Revenue
Canada
had
begun
assessing
people
who
claimed
a
deduction
for
gifts
of
paintings.
On
June
5,
1989,
Mr.
Levert
sent
another
letter
to
those
who
had
made
gifts
in
the
past
to
tell
them
that
the
Income
Tax
Act
had
not
been
amended
and
to
assure
them
that
he
would
not
abandon
them
as
clients.
However,
some
clients
asked
him
to
reimburse
them
because
of
the
problems
they
were
having
with
the
tax
authorities.
Mr.
Levert
agreed
to
either
reimburse
them
or
give
them
paintings
as
compensation.
In
the
case
of
the
appellants,
Mr.
Levert
chose
not
to
cash
one
of
their
cheques.
Mr.
Levert
said
that
Gaston
Lamy
of
Univers
du
Rail
Inc.
approached
him
in
1989
to
ask
if
he
was
interested
in
organizing
a
fundraising
campaign
and
holding
an
auction
to
benefit
Univers
du
Rail
Inc.
Mr.
Lamy
was
a
collector
of
paintings,
and
Univers
du
Rail
Inc.
had
already
started
accumulating
paintings.
Mr.
Lamy
asked
Mr.
Levert
if
he
would
handle
the
appraisals
and
try
to
find
people
who
would
make
gifts
to
Univers
du
Rail
Inc.
Mr.
Levert
subsequently
reached
an
oral
agreement
with
Univers
du
Rail
Inc.
under
which
he
would
run
auctions
for
it,
as
he
had
done
for
the
Société
protectrice
des
animaux.
Mr.
Levert
guaranteed
Univers
du
Rail
Inc.
a
minimum
price
of
10
percent
at
the
auctions.
Mr.
Levert
said
that
the
condition
that
Univers
du
Rail
Inc.
get
a
minimum
price
of
10
percent
for
paintings
at
the
auctions
was
not
always
met.
At
one
point,
Univers
du
Rail
Inc.
asked
Mr.
Lamy
to
store
paintings
it
had
been
given
in
the
basement
of
a
facility
owned
by
Mr.
Levert.
Mr.
Levert
described
the
procedure
by
which
gifts
were
made
to
Univers
du
Rail
Inc.
as
follows.
He
called
the
charity’s
president
and
explained
to
him
that
he
had
someone
who
wanted
to
give
a
certain
painting
and
that
the
gift
would
be
for
a
certain
amount.
The
president
then
issued
a
receipt,
and
Mr.
Levert
forwarded
it
to
the
person
concerned.
Mr.
Levert
added
that
he
was
the
one
who
prepared
the
appraisal
for
Univers
du
Rail
Inc.
A
copy
of
the
appraisal
was
given
to
Univers
du
Rail
Inc.
along
with
a
list
showing
that
a
specified
person
had
made
a
gift
of
a
specified
painting
for
a
specified
price.
Mr.
Carignan
of
Univers
du
Rail
Inc.
went
to
see
the
paintings
in
only
some
cases.
A
requirement
to
provide
documents
concerning
these
gifts
was
issued
to
Mr.
Levert.
He
admitted
that
he
had
destroyed
the
lists
just
referred
to,
which
he
had
kept
for
a
while
and
given
to
Univers
du
Rail
Inc.
As
regards
the
Fondation
Amérindienne
Tecumseh,
Mr.
Levert
was
approached
by
Jacques
St-Laurent,
who
asked
if
he
could
send
him
some
clients.
The
same
kind
of
process
was
involved
as
with
Univers
du
Rail
Inc.
However,
Mr.
Levert
said
that
in
the
days
or
weeks
following
the
gift,
either
a
representative
of
the
Fondation
Amérindienne
Tecumseh
came
to
get
the
paintings
or
Mr.
Levert
delivered
them
to
the
Fondation.
The
paintings
were
not
stored.
Mr.
St-Laurent,
the
president
of
the
Fondation,
had
his
own
appraiser,
although
Mr.
Levert
acknowledged
that
he
had
certainly
performed
appraisals
for
the
Fondation.
Mr.
Levert
said
that
an
auction
house’s
market
is
established
at
a
specific
point
in
time.
Those
who
are
interested
have
one
or
two
days
to
visit
and
see
the
paintings,
and
the
sale
then
takes
place.
The
warranty
is
limited
to
15
or
30
days
to
confirm
the
painting’s
value.
In
the
gallery
market,
there
is
an
exhibit
and
clients
can
visit
the
gallery
at
their
leisure.
Clients
are
not
required
to
pay
for
a
painting
in
full
when
they
buy
it
but
can
work
out
arrangements
regarding
payment
terms.
The
warranty
is
also
better
than
that
provided
by
auction
houses.
The
auction
market
is
one
in
which
people
buy
for
the
purpose
of
reselling.
The
auction
price
can
be
up
to
25
times
lower
than
the
normal
gallery
price
for
both
famous
artists
and
other
artists.
The
lower
a
painting’s
value,
the
greater
the
difference
between
the
auction
price
and
the
gallery
price.
The
gallery
price
is
suggested
by
either
the
artist
or
the
gallery.
A
gallery’s
clients
are
not
necessarily
the
same
people
who
go
to
auctions.
Mr.
Levert
said
that
in
the
spring
of
1988,
a
search
was
conducted
at
his
home,
the
premises
of
his
businesses,
his
accountant’s
office
and
the
premises
of
other
people
in
Quebec,
including
appraisers
and
dealers.
The
search
was
part
of
an
investigation
into
what
Revenue
Canada
considered
a
tax
scheme.
Mr.
Levert
wrote
to
Ms.
Boucher
of
Revenue
Canada
in
Ottawa
on
November
14,
1988.
Before
doing
so,
he
had
spoken
with
Ms.
Boucher
by
telephone
after
an
official
from
Revenue
Canada’s
Charities
Division
referred
him
to
her.
He
added
that
he
later
contacted
Carl
Juneau
of
Revenue
Canada,
to
whom
he
had
been
referred
by
someone
in
charge
at
the
Charities
Division.
He
also
contacted
Laval
Mailhot
of
Revenue
Canada’s
Québec
office
to
ask
him
what
he
considered
to
be
the
fair
market
value
of
property.
Mr.
Mailhot
told
him
that,
according
to
the
law,
the
fair
market
value
is
the
highest
price
that
would
be
negotiated
by
a
willing
seller
under
no
compulsion
to
sell
and
a
willing
buyer
under
no
compulsion
to
buy.
Mr.
Levert
said
that
he
continued
to
sell
paintings
for
gift
purposes
despite
the
Department’s
investigation
because
he
was
convinced
that
the
whole
pro-
cess
was
consistent
with
and
even
encouraged
by
the
Act.
He
also
denied
access
to
Revenue
Canada’s
investigators
a
number
of
times,
since
he
had
asked
them
to
put
down
in
writing
what
they
wanted
to
obtain
and
Revenue
Canada
had
not
complied
with
his
requests.
According
to
his
evidence,
he
was
harassed
by
Revenue
Canada.
Before
ending
this
summary
of
Mr.
Levert’s
evidence,
it
is
important
to
note
that
four
separate
charges
were
laid
against
him.
Pursuant
to
arrangements
made
with
counsel
for
the
Government,
it
was
agreed
that
there
would
be
only
one
trial
on
the
following
basis:
if
Mr.
Levert
were
acquitted,
that
would
end
the
proceedings;
if
he
were
convicted,
he
would
plead
guilty
to
the
other
charges.
The
Court
of
Quebec,
Criminal
Division,
found
Mr.
Levert
guilty
on
the
basis
that
he
had
not
reported
all
his
income
for
1986.
On
April
7,
1997,
Mr.
Levert
was
sentenced
to
10
months
in
prison
and
two
years
on
probation.
He
was
prohibited
from
acting
directly
or
indirectly
as
an
appraiser,
promoter,
broker
or
consultant
in
connection
with
gifts
of
works
of
art
to
non-profit
organizations,
such
as
charities,
and
in
particular
museums
and
fabriques.
The
probation
order
was
not
to
take
effect
until
the
expiry
date
of
Mr.
Levert’s
prison
sentence,
which
he
has
not
yet
served
in
full.
Mr.
Levert
added
that
his
guilty
plea
related
more
to
“backdating”,
as
he
put
it,
than
to
the
issue
of
appraising
paintings.
Julien
Carignan’s
testimony
is
interesting
because
his
version
of
events
is
from
the
perspective
of
a
senior
manager
of
an
organization
that
benefited
from
the
gift
system
at
issue
in
these
appeals.
Mr.
Carignan
became
a
member
of
Univers
du
Rail
Inc.
in
1986
and
a
member
of
the
corporation’s
board
of
directors
in
1987.
Univers
du
Rail
Inc.
owned
a
kind
of
railway
museum,
which
had
been
established
in
Charny
in
1978.
Its
members
were
former
railway
company
employees
or
railroad
enthusiasts.
From
1978
to
1986,
the
main
source
of
financing
was
the
sale
of
coins,
which
brought
in
about
$4,000
or
$5,000
a
year.
In
1987,
Univers
du
Rail
Inc.
acquired
two
railway
cars
with
money
provided
by
five
members.
Univers
du
Rail
Inc.
became
a
registered
charity
in
1987
after
Jacques
Lamy,
a
director
and
a
former
engineer
for
Canadian
Pacific
Limited,
was
told
that
the
organization
could
receive
charitable
gifts
and
issue
receipts.
This
would
enable
it
to
operate
on
a
larger
scale.
According
to
Mr.
Carignan,
although
he
was
a
director
at
the
time
in
question,
it
was
Alain
St-Amand,
the
president
of
Univers
du
Rail
Inc.,
who
submitted
the
application
for
registration
to
the
tax
authorities.
Mr.
Carignan
met
Mr.
Levert
in
1988
when
Mr.
Levert
was
visiting
Mr.
St-Amand’s
home.
Mr.
Levert
told
them
that
he
could
obtain
gifts
for
Univers
du
Rail
Inc.
Mr.
Carignan
said
that
an
oral
agreement
was
reached
pursuant
to
which
Mr.
Levert
would
solicit
gifts
for
Univers
du
Rail
Inc.
and
Univers
du
Rail
Inc.
would
receive
10
percent
of
the
value
of
the
paintings.
It
was
Jacques
Lamy
who
took
the
initiative
of
contacting
Mr.
Levert.
Mr.
Levert
sold
paintings
to
donors,
not
to
Univers
du
Rail
Inc.,
and
it
was
he
who
appraised
the
paintings.
Mr.
Carignan
testified
that
he
trusted
Mr.
Levert
implicitly
and
relied
on
the
Revenue
Canada
pamphlet,
which
discussed
the
legality
of
charitable
gifts.
No
one
at
Univers
du
Rail
Inc.
had
any
reason
to
think
that
it
was
unlawful
or
fraudulent
to
make
gifts
until
Revenue
Canada
informed
the
organization’s
management
that
it
should,
as
a
rule,
be
receiving
90
percent
of
the
proceeds
from
the
sale
of
the
paintings.
Mr.
Carignan
told
Revenue
Canada
that
Univers
du
Rail
Inc.
was
receiving
only
10
percent
of
the
proceeds.
Since
no
one
at
Univers
du
Rail
Inc.
was
familiar
with
art,
its
senior
managers
had
left
it
up
to
Mr.
Levert
to
handle
the
financial
aspect
of
the
transactions
relating
to
the
acquisition
of
works
of
art.
Mr.
Levert
had
told
them
that
the
Guide
Vallée
was
a
catalogue
that
showed
the
fair
market
value
of
paintings.
Mr.
Carignan
said
that
he
thought
the
amounts
stated
on
the
receipts
represented
the
fair
market
value
of
the
paintings.
Mr.
Carignan
testified
that
the
senior
managers
of
Univers
du
Rail
Inc.
could
have
seen
the
paintings
given
to
the
organization
if
they
had
wanted
to.
He
went
to
the
Galerie
des
Maîtres
Anciens
a
number
of
times
but
was
unable
to
identify
the
paintings
given
to
his
organization.
The
paintings
in
question
were
stored
at
the
Galerie
des
Maîtres
Anciens
because
Univers
du
Rail
Inc.
did
not
have
appropriate
storage
facilities.
Mr.
Carignan
added
that
the
Galerie
des
Maîtres
Anciens
held
auctions
in
the
fall
and
that
a
portion
of
the
auction
proceeds
was
sent
to
Univers
du
Rail
Inc.
Five
or
six
paintings
were
given
to
Univers
du
Rail
Inc.
in
1987;
that
number
rose
to
about
30
a
few
years
later.
In
January
1992,
Revenue
Canada
found
fault
with
the
senior
managers
of
Univers
du
Rail
Inc.
for
having
no
control
over
the
gifts
made
to
their
organization.
They
therefore
decided
to
rent
a
heated
warehouse
where
they
would
store
all
the
paintings
before
returning
them
to
Mr.
Levert
in
the
fall
to
be
sold
by
auction.
Univers
du
Rail
Inc.
never
put
that
plan
into
effect,
since
Revenue
Canada
took
possession
of
the
paintings
in
February
1992
and
stored
them
at
the
Champlain
Harbour
Station.
Mr.
Carignan
was
no
longer
the
president
of
Univers
du
Rail
Inc.
at
that
time.
The
paintings
were
eventually
returned
to
Univers
du
Rail
Inc.
and
sold
at
a
flea
market
for
a
ridiculously
low
price.
Mr.
Carignan
said
that
during
the
years
when
he
was
one
of
the
senior
managers
of
Univers
du
Rail
Inc.,
a
police
officer
contacted
him
to
inquire
about
the
legality
of
the
gifts.
He
told
the
officer
that
he
believed
everything
was
legal.
Univers
du
Rail
Inc.
never
issued
fraudulent
receipts.
Mr.
Carignan
admitted
that
he
did
some
television
advertising
for
Univers
du
Rail
Inc.
in
November
1991
and
by
this
means
successfully
solicited
gifts
of
works
of
art
for
it.
Univers
du
Rail
Inc.’s
registration
was
revoked
by
Revenue
Canada
in
1992.
Mr.
Carignan
also
said
that
Mr.
Levert
told
him
what
had
to
be
written
on
the
receipts,
to
whom
they
were
to
be
made
out
and
what
works
of
art
they
concerned.
For
some
time,
the
appraisals
were
given
to
Univers
du
Rail
Inc.
together
with
certain
other
documents
relating
to
the
transactions
in
question.
Univers
du
Rail
Inc.
later
had
to
ask
to
be
given
the
appraisals.
Mr.
Carignan
said
that
Univers
du
Rail
Inc.
trusted
Mr.
Levert
implicitly.
For
two
or
three
years,
it
obtained
10
percent
of
the
proceeds
from
the
sale
of
the
paintings,
as
had
been
agreed.
The
situation
subsequently
deteriorated.
Based
on
Univers
du
Rail
Inc.’s
financial
statements
for
the
years
listed
below,
Mr.
Carignan
said
that
the
total
amounts
shown
on
the
receipts
were
as
follows:
Taxation
year
|
Receipts
|
1988
|
$100,000
|
1989
|
$250,000
|
1990
|
$500,000
|
1991
|
$1,000,000
|
Mr.
Carignan
told
the
Court
that
the
sale
of
the
paintings
that
Univers
du
Rail
Inc.
had
received
as
gifts
brought
in
the
following
amounts
in
the
years
listed
below:
Taxation
year
|
Amount
|
1989
|
$10,020
|
1989
|
$5,000
|
1990
|
$23,500
|
1991
|
$15,400
|
The
receipts
issued
by
Univers
du
Rail
Inc.
were
generally
given
to
Mr.
Levert.
Mr.
Carignan
added
that
he
did
not
know
the
two
appellants.
The
evidence
given
by
Jacques
Demers
sheds
light
on
the
nature
of
Revenue
Canada’s
investigation
and
on
the
factual
and
legal
basis
for
the
assessments
made
against
the
appellants
in
respect
of
the
years
in
question.
Mr.
Demers
has
been
an
appeals
officer
for
Revenue
Canada
since
April
1994.
His
previous
job
was
as
an
investigator
for
that
department’s
Special
Investigations
Section.
Mr.
Demers
became
familiar
with
the
appellants’
files
for
the
1986,
1987,
1988,
1989
and
1990
taxation
years.
The
investigation
conducted
by
Revenue
Canada
had
three
phases.
Phase
I
related
to
the
1986
and
1987
taxation
years,
Phase
II
to
the
1988,
1989
and
1990
taxation
years
and
Phase
III
to
the
1991
and
1992
taxation
years.
Phase
I
of
the
investigation
concerned
charities
such
as
the
Société
protectrice
des
animaux,
the
Musée
Louis-Hémon
in
Péribonka
and
the
Musée
Pierre-Boucher
in
Trois-Rivières.
The
Department
decided
to
investigate
after
realizing
that
a
tax
scheme
had
been
set
up
by
promoters
to
sell
works
of
art
whose
value
had
been
inflated
for
the
purpose
of
making
gifts
to
charities.
According
to
Revenue
Canada,
the
scheme
specifically
involved
the
sale
of
charitable
receipts
at
20
or
25
percent
of
the
amounts
shown
on
the
receipts.
The
experts
retained
by
Revenue
Canada
determined
that
the
appraisals
of
the
works
of
art
were
excessively
high.
In
assessing
the
taxpayers
who
made
gifts
during
the
1986
and
1987
taxation
years
and
participated
in
the
type
of
arrangement
described
in
the
preceding
paragraph,
Revenue
Canada
reduced
the
value
of
the
gifts,
although
it
acknowledged
that
the
gifts
were
genuine.
As
regards
the
assessments
for
the
1988,
1989
and
1990
taxation
years
in
respect
of
the
taxpayers
covered
by
this
investigation
who
made
gifts
during
those
years,
Revenue
Canada
took
the
position,
based
on
this
Court’s
decisions
in
Dat'd
v.
R.
[(1991),
95
D.T.C.
281
(T.C.C.)]
and
Gagnon
v.
Canada
[(July
25,
1991),
Doc.
91-38(IT)
(T.C.C.)],
Both
of
which
were
rendered
on
July
25,
1991,
that
there
was
no
intent
to
give
at
the
time
of
the
gifts.
According
to
Mr.
Demers,
Mr.
Levert
was
one
of
the
promoters
under
investigation.
He
said
that
Mr.
Levert
sold
works
of
art
at
prices
that
generally
represented
20
percent
of
the
amounts
stated
on
the
receipts.
Mr.
Demers
believed
that
the
charities
involved
were
not
aware
of
all
the
facts
and
were
being
manipulated
by
Mr.
Levert.
The
fact
that
Mr.
Levert
was
both
the
seller
and
the
appraiser
of
the
works
of
art
strongly
influenced
Mr.
Demers.
The
names
of
the
appellants
were
discovered
during
Phase
I
of
this
investigation
because
they
had
made
gifts
to
the
Musée
Louis-Hémon
and
the
Musée
Pierre-Boucher.
In
Phase
II
of
the
investigation,
Revenue
Canada
focused
on
the
charities
and
put
together
files
on
taxpayers
in
order
to
set
up
a
database
recording
receipts,
proof
of
purchase
documents,
invoices,
proof
of
payment
documents
and
cheques.
These
data
were
gathered
to
determine
which
taxpayers
were
involved
in
the
scheme
to
sell
tax
receipts
and
which
of
them
were
genuine
donors
or,
in
other
words,
had
owned
the
works
of
art
for
a
number
of
years.
In
the
case
of
the
genuine
donors,
Revenue
Canada
would
contest
only
the
value
of
the
works
of
art,
while
in
the
case
of
the
other
taxpayers,
Revenue
Canada
would
refuse
to
find
that
genuine
gifts
were
made.
Mr.
Demers
said
that,
on
the
basis
of
Dutil
and
Gagnon,
supra,
a
distinction
had
to
be
drawn
between
taxpayers
who
had
owned
works
for
some
time
and
were
thus
their
real
owners,
and
taxpayers
who
purchased
works
in
order
to
make
gifts.
He
expressed
the
view
that,
to
make
a
gift,
ownership
and
possession
of
the
property
and
an
intent
to
give
are
all
necessary.
The
assessments
under
appeal
were
based
on
two
factors:
there
was
no
intent
to
give
and
the
organization
did
not
become
the
owner
of
the
paintings
so
that
it
could
dispose
of
them
as
it
liked.
Revenue
Canada
challenged
the
process
under
which
Mr.
Levert
sold
paintings
and
acted
as
mandatary
for
the
consignment
of
the
paintings
for
resale,
while
the
donors
did
not
choose
the
charities.
Mr.
Demers
said
that
his
investigation
from
1987
on
found
no
cases
in
which
a
donor
had
paid
the
amount
indicated
on
the
tax
receipt
for
a
work.
According
to
Mr.
Demers,
gifts
made
to
the
Fondation
Amérindienne
Tecumseh,
the
Société
protectrice
des
animaux
and
Univers
du
Rail
Inc.
were
investigated.
The
investigation
involving
the
Fondation
Amérindienne
Tecumseh
ended
after
the
death
of
its
president,
Alain
St-Laurent.
The
investigation
of
Univers
du
Rail
Inc.
ended
with
the
revocation
of
its
registration
as
a
charity.
No
criminal
proceedings
were
brought
against
any
of
the
three
charities.
No
charity
was
assessed
under
Part
V
of
the
Act,
which
provides
for
the
payment
of
tax
in
certain
circumstances
by
a
charity
whose
registration
has
been
revoked.
Mr.
Demers
testified
that
his
investigation
of
the
Fondation
Amérindienne
Tecumseh
led
him
to
conclude
that
the
prices
of
the
works
of
art
were
based
on
unofficial,
numbered
receipts
(which
could
have
been
obtained
at
a
stationery
store)
indicating
[TRANSLATION]
“the
file
number,
the
type
of
system
sold
and
the
sale
price”.
The
appraisals
on
the
basis
of
which
the
tax
receipts
were
issued
were
obtained
following
a
subsequent
meeting
between
Mr.
Demers
and
Mr.
St-Laurent.
Mr.
Demers
said
that
after
he
asked
for
them,
Mr.
St-Laurent
of
the
Fondation
Amérindienne
Tecumseh
provided
him
with
50
receipts,
the
organization’s
minute
book
and
the
donors’
files,
although
these
did
not
contain
the
appraisals.
The
works
of
art
were
no
longer
at
the
Fondation
at
the
time
of
his
audit.
In
August
1991,
Mr.
Demers
reviewed
the
Fondation’s
books
of
account
and
noted
that
50
receipts
had
been
issued
in
1988
for
a
total
of
$373,984,
that
108
receipts
had
been
issued
in
1989
for
$731,158
and
that
290
receipts
had
been
issued
in
1990
for
a
total
of
$1,728,593.57.
Mr.
Demers
obtained
information
from
Guy
Drolet
of
Revenue
Canada’s
Special
Investigations
Section,
who
had
been
instructed
by
his
department
to
investigate
the
Galerie
des
Maîtres
Anciens
six
months
after
the
audit
of
Univers
du
Rail
Inc.
Based
on
that
information,
Mr.
Demers
found
that
there
was
a
link
between
the
Galerie
des
Maîtres
Anciens
and
the
Fondation
Amérindienne
Tecumseh,
as
he
connected
some
sales
invoices
from
the
former
with
receipts
from
the
latter.
The
sales
invoices
from
the
Galerie
des
Maîtres
Anciens
for
1988
related
to
works
of
art
that
had
been
given
to
the
Fondation
Amérindienne
Tecumseh
and
sold
for
prices
representing
25
percent
of
the
amounts
stated
on
the
receipts.
Mr.
Demers
was
unable
to
obtain
invoices
from
the
Galerie
des
Maîtres
Anciens
for
1989
and
1990.
He
said
that
attempts
to
obtain
documentation
from
the
Galerie
des
Maîtres
Anciens
on
the
sale
of
works
of
art
were
in
vain.
Requirements
to
provide
documents
were
issued
by
Revenue
Canada,
but
they
too
were
unsuccessful.
Charges
were
subsequently
laid
against
the
entities
that
owned
the
Galerie
des
Maîtres
Anciens
and
La
Tourelle,
Maison
d’encans,
and
against
Mr.
Levert
as
a
director
of
those
entities.
The
court
found
them
guilty
of
destroying
records.
The
investigation
of
Univers
du
Rail
Inc.
began
in
the
fall
of
1989.
For
the
purposes
of
that
investigation,
Mr.
Demers
met
with
Alain
St-Amand
and
Julien
Carignan,
who
were
respectively
the
president
and
a
manager
of
Univers
du
Rail
Inc.
The
organization’s
income
statement
for
the
year
ending
December
31,
1988,
showed
$10,000
in
income
from
auctions.
Mr.
St-
Amand
told
Mr.
Demers
that
there
was
an
oral
agreement
under
which
the
works
of
art
given
to
Univers
du
Rail
Inc.
were
to
be
sold
at
prices
no
lower
than
10
percent
of
the
amounts
stated
on
the
receipts.
That
arrangement
was
a
source
of
funding
for
Univers
du
Rail
Inc.
It
was
Mr.
Levert
who
found
the
persons
who
gave
works
of
art
to
Univers
du
Rail
Inc.,
and
the
senior
managers
of
that
corporation
did
not
meet
them.
Mr.
Levert
provided
the
receipts
and
appraisals
in
the
name
of
the
Galerie
des
Maîtres
Anciens.
Mr.
Demers
also
said
that
a
requirement
letter
was
sent
to
Univers
du
Rail
Inc.
and
that
other
action
was
taken
in
relation
to
that
organization.
Despite
those
initiatives,
he
obtained
little
information
from
Univers
du
Rail
Inc.
In
particular,
he
was
unable
to
see
any
of
the
paintings
it
had
been
given
when
he
visited
its
premises.
Mr.
Demers
also
made
a
connection
between
invoices
from
the
Galerie
des
Maîtres
Anciens
and
Univers
du
Rail
Inc.
Univers
du
Rail
Inc.
had
issued
14
receipts
on
one
day,
December
7,
1988.
The
appraisals
were
also
dated
December
7,
1988.
The
amounts
on
all
the
invoices
for
the
property
acquired
by
the
appellants,
like
those
relating
to
a
number
of
other
taxpayers,
represented
the
same
proportion
of
25
percent
of
the
amounts
stated
on
the
receipts.
In
August
1991,
Mr.
Demers
again
met
with
Julien
Carignan,
who
gave
him
Univers
du
Rail
Inc.’s
financial
statements
for
1989,
1990
and
1991.
Mr.
Demers
reviewed
the
receipts
issued
by
the
organization
in
1988.
He
concluded
that
34
receipts
had
been
issued
in
1988
for
a
total
of
$207,200
and
that
the
consideration
shown
in
Univers
du
Rail
Inc.’s
financial
statements
at
the
time
was
$10,000,
which
represented
four
percent
of
the
amounts
received.
For
1989,
he
noted
that
39
receipts
had
been
issued
for
a
total
of
$215,895
and
that
the
consideration
shown
in
the
financial
statements
was
$10,020,
or
four
percent
of
the
amounts
shown
on
the
receipts.
Finally,
he
noted
that
59
receipts
had
been
issued
in
1990
for
a
total
of
$621,394
and
that
the
consideration
received
by
the
organization
was
$23,500,
which
represented
three
percent
of
the
amounts
shown
on
the
receipts.
Mr.
Demers
then
explained
how
the
tax
advantage
received
by
the
two
appellants
as
a
result
of
their
participation
in
the
transactions
at
issue
here
was
calculated.
The
appellant
Alain
Côté
was
allowed
a
deduction
of
$3,160
under
the
Income
Tax
Act
for
each
of
the
three
years
at
issue.
The
provincial
tax
deduction
was
set
at
$2,809.
The
total
gain
realized
by
Mr.
Côté
from
the
transaction
in
1988
was
$3,021.
For
1989,
he
was
allowed
a
deduction
of
$2,640
under
the
provincial
statute
with
a
total
incidence
of
$5,800
and
a
total
gain
(under
both
the
federal
and
provincial
statutes)
of
$2,937
over
the
acquisition
cost
of
the
property
he
had
given.
For
1990,
the
provincial
deduction
was
$2,640,
for
a
total
incidence
of
$5,800
and
a
net
gain
of
$2,960,
computed
on
the
same
basis
as
for
the
previous
years.
In
computing
the
return
on
the
tax
shelter,
Mr.
Demers
took
into
account
both
the
deduction
for
charitable
gifts
and
the
capital
gains
exemption.
During
his
investigation,
Mr.
Demers
did
not
concern
himself
with
establishing
the
fair
market
value
of
the
works
of
art
that
were
given
to
charities
from
the
point
of
view
of
the
taxpayers
concerned
because
Revenue
Canada
did
not
acknowledge
the
validity
of
these
gifts.
According
to
the
Department,
what
the
taxpayers
purchased
were
not
works
of
art,
but
receipts.
The
appellants
had
no
intent
to
give.
Revenue
Canada
did
not
conduct
a
counter-appraisal
in
respect
of
the
value
of
the
works
of
art
established
by
Mr.
Levert.
As
a
result,
the
value
of
the
works
of
art
was
not
established
by
Revenue
Canada
at
the
relevant
times
during
the
investigation
in
question.
Lastly,
during
his
testimony,
Mr.
Demers
presented
the
key
information
on
which
Revenue
Canada
relied
in
assessing
penalties
against
the
appellants.
He
first
mentioned
that
the
facts
on
which
this
decision
was
based
were
derived
from
data
gathered
when
auditing
the
charities.
The
scheme
set
up
by
Mr.
Levert
led
Mr.
Demers
to
believe
that
the
appellants
had
been
grossly
negligent
in
taking
part
in
transactions
in
which
they
had
obtained
receipts
for
amounts
four
times
greater
than
the
purchase
price
of
the
property,
whereas
the
amount
on
each
receipt
was
supposed
to
reflect
the
market
value
of
the
property
in
question.
Among
other
aspects
of
the
scheme,
the
taxpayers
did
not
choose
the
charities
and
very
often
did
not
even
see
the
works
of
art
they
were
supposed
to
have
given.
The
appellants
did
not
deliver
the
works
to
the
charities.
In
Mr.
Côté’s
case,
Revenue
Canada
reduced
the
value
of
the
work
of
art
he
had
given
by
78
percent
for
the
1986
taxation
year.
As
an
additional
factor,
the
appraiser,
who
was
the
promoter
of
this
scheme,
was
also
an
art
dealer.
Mr.
Côté
was
aware
of
Revenue
Canada’s
position
after
a
meeting
he
had
in
1987
with
representatives
of
that
department.
Mr.
Demers
also
discussed
the
assessment
issued
in
1989
and
the
gifts
made
after
that
date.
As
Mr.
Demers
saw
it,
Mr.
Côté
continued
to
make
gifts
in
the
same
circumstances
with
his
eyes
shut
regardless
of
Revenue
Canada’s
position.
The
work
of
investigator
Réjean
Juneau
of
Revenue
Canada’s
Special
Investigations
Section
added
to
the
investigation
by
Mr.
Demers.
His
work
focused
on
the
Fielding
Downes
drawings.
Revenue
Canada
had
noted
the
large
amounts
on
the
receipts
for
the
charitable
gifts
involving
these
drawings.
Mr.
Juneau
was
the
only
person
to
investigate
this
matter.
His
research
into
the
value
of
the
Fielding
Downes
pictures
was
limited
to
the
Guide
Vallée.
He
determined
that
the
total
of
the
amounts
on
the
receipts
for
the
gifts
of
the
pictures
by
the
artist
Fielding
Downes
was
$1,058,050
for
the
1989,
1990
and
1991
taxation
years.
The
charities
that
received
these
gifts
were
Univers
du
Rail
Inc.,
the
Fondation
Amérindienne
Tecumseh,
the
Société
protectrice
des
animaux
and
the
Fondation
Artrix.
All
the
appraisals
of
these
pictures
referred
to
the
Guide
Vallée
and
mentioned
the
Galerie
1’Oeuvre,
the
owner
of
which
was
John
Sanchez.
During
a
visit
to
that
gallery,
Mr.
Juneau
noted
that
four
pictures
by
Fielding
Downes
were
on
sale,
that
the
largest
of
these
pictures
measured
14
inches
by
18
inches
and
that
the
stated
price
for
it
was
$325.
The
posted
price
for
this
watercolour
was
slightly
lower
than
the
price
mentioned
in
the
Guide
Vallée.
Mr.
Sanchez
told
him
that
the
price
indicated
in
the
Guide
Vallée
must
be
reduced
by
20
percent
to
arrive
at
the
[TRADUCTION]
“right
price”.
Mr.
Juneau
did
not
go
to
other
galleries
to
check
that
the
prices
of
the
pictures
established
as
indicated
by
Mr.
Sanchez
were
accurate.
He
did
not
introduce
himself
as
a
Revenue
Canada
officer
during
that
visit.
Mr.
Juneau
subsequently
met
with
Félix
Vallée,
the
publisher
of
the
Guide
Vallée,
and
told
him
that
he
was
a
Revenue
Canada
officer.
Mr.
Vallée
was
accompanied
by
his
lawyer
and
refused
to
show
his
files.
A
few
weeks
later,
Mr.
Juneau
met
with
Jacques
Morin,
Fielding
Downes’
agent
according
to
the
Guide
Vallée.
Mr.
Morin
told
him
that
he
had
agreed
to
sell
pictures
by
Fielding
Downes,
with
the
help
of
John
Sanchez,
for
Suzanne
Moisan
and
that
most
of
them
had
been
sold
to
Mr.
Levert.
Mr.
Morin
did
not
provide
Mr.
Juneau
with
lists
of
sales
of
the
Fielding
Downes
pictures,
but
one
document
indicated
that
Mr.
Morin
had
sold
pictures
for
$7,519
and
that
he
had
received
a
commission
of
20
percent
of
that
amount,
although
no
details
were
provided.
Mr.
Juneau
returned
to
the
Galerie
1’Oeuvre
a
little
later
and
this
time
identified
himself
as
a
Revenue
Canada
investigator.
Mr.
Sanchez
provided
him
with
sales
invoices,
but
none
of
those
invoices
concerned
the
pictures
by
the
artist
Fielding
Downes.
Mr.
Juneau
concluded
that,
since
he
had
not
received
invoices
from
either
Mr.
Morin
or
Mr.
Sanchez
for
the
Fielding
Downes
pictures,
there
had
been
no
sales.
Mr.
Juneau
acknowledged
that
he
had
not
conducted
a
thorough
investigation
into
the
sales
by
Mr.
Morin
and
Mr.
Sanchez.
He
also
acknowledged
that
he
had
not
tried
to
determine
whether
the
prices
of
paintings
in
other
galleries
compared
to
those
appearing
in
the
Guide
Vallée.
No
other
Revenue
Canada
investigator
conducted
a
more
thorough
review
than
his
into
pictures
by
the
artist
Fielding
Downes.
He
mentioned
that
according
to
Fielding
Downes’
will,
much
of
Mr.
Downes’
property
was
bequeathed
to
Suzanne
Moisan.
In
addition
to
the
testimony
of
the
appellants,
Mr.
Levert,
Mr.
Carignan,
Mr.
Demers
and
Mr.
Juneau,
who
are
the
key
figures
in
these
appeals,
the
testimony
of
certain
other
witnesses
must
be
briefly
summarized
in
order
to
round
out
the
evidence.
From
the
testimony
of
Pierre
L’Allier,
a
curator
at
the
Musée
du
Québec,
it
should
be
noted
that
Mr.
Kramer
offered
to
sell
a
painting
by
Ludger
Larose
to
the
Musée
du
Québec
for
$5,000
in
late
1986.
No
appraisal
was
provided.
The
Musée
du
Québec
was
not
interested
in
acquiring
the
painting.
According
to
a
document
adduced
in
evidence,
Mr.
Levert
offered
to
sell
the
same
painting
by
Ludger
Larose
to
the
Musée
du
Québec
for
$14,000.
The
testimony
of
Philippe
George,
an
ardent
collector,
revealed
that
his
wife
acquired
one
of
the
paintings
at
issue
in
this
case
in
April
1989.
The
purchase
price
was
$300
plus
a
10
percent
commission
and
provincial
sales
tax.
The
witness
Thomas
Kramer
told
the
Court
that
he
purchased
a
painting
by
Ludger
Larose
entitled
“Funérailles
d’une
jeune
fille
à
Venise”
for
$1,200
in
March
1983
from
a
neighbour,
Dorothée
Lefrançois,
who
was
experiencing
financial
difficulties
at
that
time.
He
offered
to
sell
the
painting
to
the
Musée
du
Québec,
but
it
was
not
interested.
The
painting
was
subsequently
left
on
consignment
with
Encans
Pinney’s
and
was
sold
for
$2,200
less
a
10
percent
commission.
The
following
points
from
the
testimony
of
expert
witness
Charles
Rin-
fret
are
relevant:
(a)
sales
of
pictures
by
the
artist
Fielding
Downes
took
place
mainly
in
auction
houses,
and
portraits
by
this
artist
sold
for
lower
prices
than
landscapes;
(b)
oil
paintings
are
generally
more
expensive
than
watercolours,
while
pastels
and
watercolours
have
similar
values;
(c)
he
admitted
that,
before
the
Galerie
Zanettin
closed,
the
artists
represented
by
that
gallery
advertised
in
the
Guide
Vallée
and
said
that
artists
at
times
consulted
the
gallery
before
establishing
their
prices;
(d)
he
stated
that
there
are
differences
between
the
prices
indicated
in
the
Guide
Vallée
and
the
actual
prices;
and
(e)
he
mentioned
that
an
artist’s
market
can
be
either
the
gallery
market
or
the
auction
market
and
that
the
appropriate
market
is
the
one
where
the
most
paintings
by
a
given
artist
can
be
obtained.
The
Court
also
had
the
benefit
of
hearing
the
evidence
of
David
Kelsey,
an
auctioneer
at
Pinney’s.
According
to
Mr.
Kelsey,
that
auction
house
holds
two
catalogue
sales
per
year.
The
price
list
for
these
sales
refers
to
auction
prices.
For
such
items,
the
market
is
a
resale
market,
whereas
prices
in
art
galleries
are
retail
prices.
Gallery
prices
can
be
higher
than
auction
prices.
The
usual
practice
in
the
industry
is
to
set
the
reserve
price
for
a
painting
at
15
or
20
percent
below
the
price
at
which
it
is
felt
that
the
painting
can
be
sold.
Mr.
Kelsey
added
that
the
reserve
price
is
not
always
known
and
that
some
works
of
art
do
not
even
have
one.
Mr.
Kelsey
recognized
two
paintings
that
were
discussed
at
the
hearing.
He
had
prepared
the
catalogue
in
which
they
both
appeared.
One
of
them
was
“Funérailles
d’une
jeune
fille
à
Venise”
by
Ludger
Larose;
its
consignor
was
Mr.
Kramer
and
its
reserve
price
was
$2,000.
The
price
indicated
in
the
catalogue
was
between
$2,500
and
$3,500.
He
confirmed
that
the
price
at
which
it
was
actually
sold
was
$2,200
plus
a
10
percent
commission
and
provincial
sales
tax.
The
purchaser
was
the
Galerie
des
Maîtres
Anciens.
As
for
the
painting
by
the
artist
Albert
Edouard
Cloutier
entitled
“Watching
the
Harbour
Traffic”,
which
appears
in
Pinney’s
catalogue,
Mr.
Kelsey
estimated
its
price
at
between
$500
and
$700.
It
was
sold
for
$300.
The
consignor
was
Denise
Body,
Mr.
Levert’s
wife.
The
testimony
of
Jules
Harvey,
who
has
owned
an
art
gallery
for
25
years,
provided
some
information
on
the
art
market.
Mr.
Harvey
testified
as
an
expert
witness.
To
determine
the
value
of
paintings,
he
relies
on
guides
which,
in
many
cases,
give
prices
fixed
by
the
artist.
He
stated
that
the
price
at
which
a
painting
is
sold
in
a
gallery
determines
its
market
value.
On
April
22,
1992,
at
Mr.
Levert’s
request,
Mr.
Harvey
appraised
two
paintings
by
Fielding
Downes
at
$2,800
and
$2,500,
respectively,
relying
on
the
Guide
Vallée
to
arrive
at
these
appraised
values.
He
stated
categori-
cally
that
the
auction
price
is
not
decisive
in
establishing
the
market
value
of
a
painting
and
added
that
most
paintings
sold
in
Quebec
are
sold
in
art
galleries.
He
also
mentioned
that
he
sells
the
paintings
of
artists
listed
in
a
guide,
such
as
the
Guide
Vallée,
at
the
price
indicated
in
the
guide.
Guy
Gagnon
also
testified
as
an
expert
witness.
Mr.
Gagnon,
who
was
a
firefighter
with
the
Department
of
National
Defence
beginning
in
1966,
began
to
collect
paintings
in
1972.
In
1985,
he
opened
an
art
gallery,
the
Galerie
Feuille
d’Érable,
which
he
operated
until
June
1995.
The
gallery
was
open
seven
days
a
week.
Mr.
Gagnon
worked
at
the
gallery
in
the
evenings
and
on
weekends.
It
sold,
in
roughly
equal
proportions,
works
by
two
types
of
artists:
those
who
were
not
very
well
known
or
were
starting
out,
and
well-known
contemporary
artists.
When
the
gallery
opened,
its
inventory
included
approximately
150
paintings
from
his
personal
collection.
Most
of
his
gallery’s
inventory
came
from
art
galleries,
although
one
third
of
it
was
purchased
at
auctions
in
Québec
and
Montréal.
Mr.
Gagnon
was
active
in
the
Quebec
art
market
between
1987
and
1992.
In
particular,
he
visited
galleries
and
went
to
auctions
in
Québec
and
Montréal.
He
was
often
one
of
the
buyers.
He
also
went
to
two
flea
markets
in
the
Québec
area.
Mr.
Gagnon
said
that
his
gallery
was
a
small
one.
He
estimated
that
he
sold
approximately
35
paintings
a
year
between
1987
and
1993,
either
in
his
gallery,
at
auction
houses
or
through
other
galleries.
Annual
receipts
from
his
sales
amounted
to
approximately
$20,000.
He
said
that
the
prices
at
which
he
sold
paintings
at
his
gallery
were
generally
double
the
prices
paid
at
auctions.
Thus,
if
he
paid
$1,000
for
a
painting
at
an
auction,
he
tried
to
resell
it
for
$2,000
at
his
gallery.
However,
there
were
cases
in
which
the
resale
price
was
three
times,
or
less
than
double,
the
price
paid
for
the
painting.
He
said
that
two
thirds
of
the
sales
at
auctions
were
made
to
gallery
owners.
Mr.
Gagnon
mentioned
that
in
setting
the
prices
of
the
paintings
in
his
gallery,
he
considered
the
prices
indicated
in
the
Guide
Vallée
at
the
request
of
the
artists.
The
guide
was
not
always
up
to
date
and
he
kept
abreast
of
price
developments
by
consulting
magazines
such
as
“Le
Collectionneur”
or
by
visiting
art
galleries.
As
regards
unlisted
artists,
such
as
those
who
had
died,
he
relied
on
the
quality
of
the
paintings
and
on
his
own
experience
in
establishing
prices.
Mr.
Gagnon
also
appraised
one
painting
by
Jean-Paul
Lemieux
and
another
by
Ludger
Larose
based
on
the
same
criteria
as
those
used
for
the
Fielding
Downes
drawings.
He
went
to
the
Galerie
des
Maîtres
Anciens
to
perform
these
appraisals.
The
Jean-Paul
Lemieux
painting
was
appraised
on
January
20,
1989.
Mr.
Gagnon
said
he
did
not
see
Mr.
Levert’s
appraisal
of
the
Jean-Paul
Lemieux
painting.
Mr.
Levert’s
appraised
value
was
higher
than
his.
Mr.
Gagnon
appraised
the
Ludger
Larose
painting
on
June
17,
1989.
Mr.
Gagnon
appraised
a
portfolio
of
a
series
of
drawings
by
Lionel
Fielding
Downes
for
Mr.
Levert.
Mr.
Levert
was
able
in
this
way
to
obtain
a
certified
appraisal
from
another
gallery.
Mr.
Levert
went
to
Mr.
Gagnon
to
obtain
this
appraisal.
Following
a
one-hour
examination,
Mr.
Gagnon
performed
a
general
appraisal
based
on
his
expertise,
the
Guide
Vallée,
prices
established
at
auctions
and
the
renewed
interest
in
pictures
by
Fielding
Downes
in
the
early
19903.
He
did
not
bill
Mr.
Levert
for
this
appraisal
and
took
no
photographs
of
the
pictures.
According
to
Mr.
Gagnon,
there
was
a
little
of
everything
in
this
portfolio
of
pictures.
The
average
size
of
the
pictures
was
between
18
and
24
inches.
They
were
works
on
paper,
not
canvas.
Some
of
the
drawings
were
preparatory
sketches,
and
the
paper
of
some
of
the
drawings
may
have
yellowed.
Mr.
Gagnon
was
visited
twice
by
Revenue
Canada
representatives
concerning
the
appraisals
he
had
prepared.
He
turned
all
his
appraisals
over
to
the
investigators
and
they
were
subsequently
returned
to
him.
It
was
also
adduced
in
evidence
that
Mr.
Gagnon
prepared
approximately
35
appraisals
for
Mr.
St-Laurent
of
the
Fondation
Amérindienne
Tecumseh.
The
invoices
were
in
the
name
of
that
organization,
which
wrote
him
a
cheque
for
$875
for
his
work
on
the
appraisals
($25
per
appraisal).
At
Mr.
St-Laurent’s
suggestion,
Mr.
Gagnon
cancelled
his
cheque
in
exchange
for
a
tax
receipt
for
the
same
amount.
He
also
purchased
paintings
from
the
Fondation
Amérindienne
Tecumseh.
Mr.
Gagnon
added
that
he
did
not
know
that
the
appraisals
of
the
drawings
in
the
Fielding
Downes
portfolio
concerned
the
ADOC
group.
He
testified
that
he
had
never
met
Robert
Wright
or
Jacques
Morin.
He
was
also
aware
that
there
were
people
who
purchased
paintings
for
the
purpose
of
making
gifts,
but
all
he
did
was
sell
paintings
in
his
inventory.
The
Court
learned
from
Nicole
Moisan’s
testimony
that
her
sister
Suzanne
Moisan,
who
lived
in
Florida
after
the
death
of
her
husband,
the
artist
Fielding
Downes,
entered
into
an
agreement
under
which
Mr.
Morin
and
Mr.
Sanchez
were
to
sell
Fielding
Downes’
paintings
for
Suzanne
Moisan,
who
had
inherited
them.
Nicole
Moisan
mentioned
that
Mr.
Morin
and
Mr.
Sanchez
worked
together
until
1991.
Mr.
Sanchez
was
the
one
who
took
care
of
the
pictures.
Ms.
Moisan
testified
that
she
received
the
following
amounts
from
the
sale
of
the
pictures:
$4,300,
$1,670
and
$1,484.
Neither
she
nor
her
sister
Suzanne
Moisan
knew
the
identities
of
those
to
whom
the
pictures
were
sold.
Nicole
Moisan
also
mentioned
that
she
had
recovered
certain
works
when
she
and
Suzanne
Moisan
terminated
the
agreement
with
Mr.
Sanchez.
Some
of
the
works
could
not
be
recovered
and
Mr.
Sanchez
told
them
that
he
was
having
financial
problems
and
had
had
property
seized
and
that
he
could
not
therefore
return
the
remaining
pictures
to
her.
Nicole
Moisan
said
she
was
aware
that
other
paintings
by
Fielding
Downes
had
been
sold
by
a
gallery,
but
she
was
unable
to
find
anything
out
about
the
transactions
in
question.
Jacques
Morin’s
testimony
provided
certain
facts
relating
to
the
Fielding
Downes
pictures.
After
working
as
a
real
estate
agent,
then
as
a
writer
and
journalist,
Mr.
Morin
was
an
art
consultant
from
1989
to
1991
or
1992.
He
managed
some
galleries
for
a
certain
period
of
time.
In
the
1989
edition
of
the
Guide
Vallée,
Mr.
Morin
is
identified
as
the
agent
of
the
artist
Fielding
Downes,
who
died
in
1992.
He
testified
that
he
had
received
a
telephone
call
from
Suzanne
Moisan
in
response
to
an
advertisement
he
had
placed
in
a
newspaper
to
sell
a
painting.
Mr.
Morin
had
no
art
gallery
at
the
time
and
was
merely
a
collector
of
paintings.
Mr.
Morin
stated
that
Suzanne
Moisan
authorized
him
to
sell
the
pictures
belonging
to
the
estate
of
the
artist
Fielding
Downes.
She
left
some
50
pictures
with
him
on
consignment;
he
stored
them
at
the
Galerie
1’Oeuvre,
which
was
owned
by
Mr.
Sanchez.
According
to
the
agreement
reached
between
Ms.
Moisan,
Mr.
Sanchez
and
Mr.
Morin,
the
proceeds
from
the
sale
of
these
pictures
were
to
be
divided
as
follows:
Mr.
Morin
and
Mr.
Sanchez
would
receive
20
percent
each
and
60
percent
would
go
to
the
estate.
Mr.
Morin
mentioned
that
the
prices
he
proposed
were
those
listed
in
the
Guide
Vallée
and,
in
his
view,
represented
the
fair
market
value
of
the
pictures.
He
added
that
he
had
established
their
fair
market
value
based
on
information
obtained
from
people
in
the
art
community,
although
he
could
not
remember
their
names.
Mr.
Morin
referred
to
two
documents
in
his
possession,
one
of
which
shows
that
the
aforementioned
agreement
was
complied
with
as
regards
Suzanne
Moisan,
who
received
a
portion
of
the
proceeds
from
the
sale
of
the
pictures,
while
the
other
records
the
sales
of
the
pictures
from
the
Fielding
Downes
portfolio.
It
seems
that
only
Mr.
Morin
received
his
20
percent
commission.
There
is
no
indication
that
Mr.
Sanchez
obtained
his
20
percent
commission
from
the
proceeds
of
the
sales.
Mr.
Morin
did
not
remember
exactly
to
whom
the
sales
had
been
made,
although
he
stated
that
most
of
the
pictures
were
purchased
by
Mr.
Levert.
He
added
that
the
sales
prices
mentioned
in
the
Guide
Vallée
were
higher
than
the
prices
Mr.
Levert
actually
paid
for
the
pictures.
Mr.
Morin
also
indicated
that
in
March
1991,
or
perhaps
earlier,
he
was
no
longer
authorized
to
sell
the
pictures
from
the
Fielding
Downes
portfolio.
He
mentioned
that
the
stated
price
for
each
picture
was
raised
by
approximately
10
percent
over
the
price
listed
in
the
1989
edition
of
the
Guide
Vallée.
The
prices
in
the
second
edition
of
the
Guide
Vallée
no
longer
reflected
the
market
and
the
third
edition
had
not
yet
been
published.
Mr.
Morin
also
stated
that
he
told
Suzanne
Moisan
that
he
was
no
longer
selling
the
Fielding
Downes
portfolio.
Mr.
Sanchez,
who
was
a
self-employed
framer
and
owner
of
the
Galerie
1’Oeuvre
at
the
time
in
question,
confirmed
that
his
relations
with
Mr.
Morin
were
limited
to
providing
premises
where
Mr.
Morin
could
exhibit
the
pictures
by
Fielding
Downes.
He
acknowledged
that
he
sold
pictures
from
the
Fielding
Downes
portfolio
in
1989
and
1990,
but
most
of
the
clients
contacted
Mr.
Morin
to
conduct
the
transactions.
His
commission
on
these
sales
was
approximately
20
percent
of
the
sale
price.
He
mentioned
that
he
and
Mr.
Morin
had
decided
together
on
the
prices
at
which
the
Fielding
Downes
pictures
were
to
be
sold.
When
Mr.
Morin
decided
to
stop
selling
the
Fielding
Downes
pictures,
he
returned
them
to
Suzanne
Moisan.
Appellants’
arguments
In
their
pleadings,
the
appellants
argued
that
they
had
made
gifts
of
works
of
art
during
the
taxation
years
in
question.
They
argued,
inter
alia,
that
tax
receipts
for
each
of
the
gifts
had
been
issued
to
them
by
charities.
The
charities
had
official
registration
numbers
and
were
authorized
to
issue
receipts
for
the
purposes
of
the
Income
Tax
Act.
The
appellants
also
argued
in
their
pleadings
that
the
value
of
the
works
of
art
in
question
as
appraised
by
their
experts
reflected
their
fair
market
value.
The
appellants
submitted
that
the
value
as
determined
by
the
respondent
does
not
take
into
account
the
heritage
value
of
the
works
or
other
criteria
such
as
the
reputation,
credibility
and
fame
of
the
artists
who
produced
them,
the
artistic
quality
of
the
works
or
supply
and
demand
in
the
Quebec
and
Canadian
art
markets.
The
appellants
objected,
inter
alia
in
their
pleadings,
to
the
fact
that
penalties
were
assessed
against
them
under
subsection
163(2)
of
the
Income
Tax
Act.
They
argued
that
in
no
way
and
on
no
occasion
did
they
knowingly,
or
under
circumstances
supporting
a
finding
of
gross
negligence,
make
a
false
statement
or
omission
in
their
tax
returns
or
in
any
other
document
referred
to
in
that
subsection.
In
the
appellants’
oral
argument,
one
of
their
counsel
noted
that
the
market
for
works
of
art
is
different,
since
it
is
possible
to
obtain
such
works
in
various
ways,
at
various
places
and
at
various
prices.
Counsel
argued
that
the
appellants
obtained
a
tax
advantage
because
they
dealt
with
sellers
of
paintings
who
were
prepared
to
give
up
a
substantial
portion
of
their
profit
to
build
up
a
volume
of
transactions
from
which
they
would
benefit.
Dealers
in
paintings
like
Mr.
Levert
simply
passed
on
their
professional
discount
to
their
clients.
When
the
clients
gave
paintings
to
charities,
they
therefore
made
a
profit.
Counsel
added
on
the
appellants’
behalf
that
they
had
purchased
consumer
goods
at
the
wholesale
price,
practically
at
cost
price,
and
that
they
had
used
the
market
price
in
making
gifts.
Counsel
for
the
appellants
further
argued
that
the
paintings
were
first
identified
by
Mr.
Levert,
who
sold
them
to
the
appellants.
Ownership
of
property
was
then
transferred
for
a
price
in
money.
A
gift
agreement
was
then
entered
into.
In
the
case
of
the
appellants,
the
agreement
was
between
two
parties:
the
donor,
that
is,
each
appellant,
and
the
donee,
that
is,
the
charity
in
question.
Ownership
of
property
was
transferred
between
the
parties,
and
no
consideration
was
paid
by
the
charity
that
received
the
property.
One
of
the
appellants’
counsel
referred
in
this
regard
to
R.
v.
Lagueux
&
Frères
Inc.
(1974),
74
D.T.C.
6569
(Fed.
T.D.),
in
which
it
was
held
that
to
determine
the
tax
consequences
of
a
transaction,
the
nature
of
the
transaction
must
be
determined
under
the
civil
law.
The
fact
that
the
donors
were
able
to
incidentally
derive
a
monetary
benefit
from
the
transactions
is
of
no
consequence,
since
the
donees
paid
no
consideration.
Reference
was
also
made
to
this
Court’s
decisions
in
R.
c.
Construction
Bérou
Inc.
(1996),
96
D.T.C.
6177
(T.C.C.),
and
Francoeur
v.
R.,
[1993]
2
C.T.C.
2440
(T.C.C.).
Counsel
for
the
appellants
relied
in
particular
on
the
following
passage
from
the
Federal
Court
of
Appeal’s
decision
in
Friedberg
v.
R.
(1991),
92
D.T.C.
6031
(Fed.
C.A.),
at
page
6033:
It
is
clear
that
it
is
possible
to
make
a
“profitable”
gift
in
the
case
of
certain
cultural
property.
Where
the
actual
cost
of
acquiring
the
gift
is
low,
and
the
fair
market
value
is
high,
it
is
possible
that
the
tax
benefits
of
the
gift
will
be
greater
than
the
cost
of
acquisition.
A
substantial
incentive
for
giving
property
of
cul-
tural
and
national
importance
is
thus
created
through
these
benefits.
But
not
every
gift
will
be
found
to
benefit
from
these
provisions.
One
of
the
appellants’
counsel
noted
that,
according
to
the
Federal
Court
of
Appeal,
the
system
for
making
gifts
of
cultural
property
was
designed
to
produce
a
greater
tax
advantage
than
the
one
that
exists
for
ordinary
gifts.
However,
the
circumstances
are
what
produces
the
advantage.
ft
was
stated
that,
pursuant
to
section
69
of
the
Act,
property
given
is
disposed
of
at
its
fair
market
value.
The
appellants
thus
realized
a
capital
gain
on
their
gifts,
and
that
gain
can
be
exempted.
It
was
also
stated
that
the
art
market,
unlike
other
markets,
has
a
fairly
stable
source
of
supply
of
works
of
art
at
prices
below
their
fair
market
value
and
that
the
appellants
benefited
from
that
fact.
In
the
case
of
the
appellants,
Mr.
Levert
knew
the
market
well
and
knew
how
to
obtain
works
of
art.
He
bought
them
at
a
low
cost
and
sold
them
quickly
at
a
low
price,
and
the
purchasers
made
gifts.
He
profited
from
this
even
though
he
sold
at
a
price
that
included
a
lower
profit
margin.
According
to
counsel
for
the
appellants,
the
case
at
bar
is
similar
to
Friedberg,
supra,
since
the
donors
were
able
to
derive
a
monetary
benefit
from
the
paintings
they
gave
to
charities.
According
to
the
appellants,
there
was
a
dual
intention
behind
the
gifts,
but
as
regards
each
donor
and
donee,
the
intention
was
pure
and
consistent
with
article
1806
of
the
Civil
Code
of
Québec.
As
for
the
factual
aspect
of
the
transactions,
it
was
pointed
out
to
the
Court
that
the
appellants
understood
what
they
were
doing.
They
knew
that
they
were
buying
paintings
at
a
price
below
their
fair
market
value,
since
Mr.
Levert
had
explained
this
to
them.
The
appellants
had
checked
the
prices
in
the
Guide
Vallée.
They
knew
where
the
paintings
came
from
and
realized
that
they
were
getting
a
bargain.
They
could
not
have
thought
that
it
was
illegal
to
participate
in
the
transactions
at
issue
here.
One
of
the
appellants’
counsel
referred
to
the
decision
of
Judge
Mogan
of
this
Court
in
Whent
v.
R.,
[1996]
3
C.T.C.
2542
(T.C.C.),
which
concerned
lawyers
who
had
purchased
a
fairly
large
collection
of
paintings.
As
regards
the
fair
market
value
of
the
paintings,
the
appellants
took
the
precaution
of
ensuring
that
the
receipts
issued
to
them
were
not
issued
for
an
amount
higher
than
the
fair
market
value
of
the
works
of
art
in
question.
They
obtained
appraisals
of
the
paintings
that
confirmed
the
basic
principle
of
the
transactions
they
were
entering
into.
As
well,
the
issue
of
the
independence
of
the
appraisals
is
quite
simply
a
matter
of
judgment.
It
was
ar-
gued
that
the
Income
Tax
Act
does
not
say
that
the
appraiser
can
have
no
interest
whatsoever
in
the
appraisal
of
the
property.
The
appellants
argued
that
the
respondent
had
adduced
little
evidence
on
the
issue
of
the
fair
market
value
of
the
works
of
art.
Some
of
the
respondent’s
witnesses
felt
that
auctions
provide
an
indication
of
fair
market
value.
On
this
point,
there
was
a
basic
difference
of
opinion
between
the
parties.
The
appellants
argued
that
the
gallery
market
is
the
most
usual
market
and
the
one
that
must
be
considered
to
represent
the
fair
market
value
of
a
work
of
art.
The
gallery
market
is
the
largest
market.
It
was
added
that
very
few
people
have
the
assurance,
time
or
interest
to
follow
auctions,
which
constitute
a
very
minor
market.
All
the
witnesses
agreed
with
this.
The
Guide
Vallée
is
above
all
a
catalogue
of
gallery
prices.
The
gallery
market
is
the
one
that
best
reflects
the
definition
of
“fair
market
value”.
The
appellants
argued
that
the
Minister
of
National
Revenue’s
conduct
gave
them
every
reason
to
believe
that
they
were
justified
in
making
gifts
if
they
made
sure
that
the
value
of
the
property
was
accurate
for
the
purposes
of
the
receipt.
According
to
them,
the
basic
issue
of
the
case
concerns
the
appraisals.
The
appellants
argued
that
it
is
clear
from
the
evidence
that
the
appraisal
was
all
that
was
discussed
at
Mr.
Côté’s
meeting
with
the
Revenue
Canada
auditors.
With
regard
to
the
issue
of
penalties,
the
appellants
argued
that
the
Minister
of
National
Revenue’s
conduct
was
unacceptable.
Reference
was
made
to
Mr.
Levert’s
correspondence,
which
established
an
indirect
relationship
between
Mr.
Levert’s
clients
and
the
Minister
of
National
Revenue.
The
situation
is
no
different
from
that
of
a
promoter
of
tax
shelters
who
has
obtained
an
advance
ruling
before
carrying
out
his
or
her
transactions.
The
appellants
do
not
agree
with
the
respondent’s
position
that
the
transactions
were
part
of
a
scheme
involving
the
purchase
of
receipts.
That
argument
by
the
Minister
of
National
Revenue
implies
that
the
appellants
did
not
purchase
paintings.
According
to
the
appellants,
it
was
shown
beyond
any
doubt
that
the
property
given
was
purchased
and
that
gifts
were
made
of
that
property.
No
one
purchased
tax
receipts,
and
the
appellants
did
not
obtain
any
consideration
or
anything
else
from
the
registered
organizations.
The
appellant
Alain
Côté
gave
a
Ludger
Larose
in
1988
and
the
respondent
adduced
no
direct
evidence
respecting
the
appraisal
of
that
painting.
The
same
comment
applies
to
the
pastel
by
Iacurto
in
1989,
an
oil
painting
by
K.M.
Hamilton
in
1989,
an
oil
painting
on
metal
by
J.
Hilpert,
a
watercolour
by
Madeleine
Laliberté
and,
in
1990,
oil
paintings
by
Marie
Claire
and
Adrien
Hébert.
In
the
case
of
the
appellant
Louise
Marcoux,
no
evidence
was
adduced
respecting
the
value
of
the
painting
by
Albert
Cloutier
in
1988
or
an
oil
painting
by
Graham
and
the
Jean-Paul
Lemieux
in
1989.
In
conclusion,
on
the
penalty
issue,
the
appellants
did
not
behave
like
someone
who
has
been
grossly
negligent
or
has
attempted
to
evade
taxes.
Their
conduct
was
no
different
from
that
of
thousands
of
other
taxpayers
who
make
use
of
all
kinds
of
tax
shelters.
Respondent’s
arguments
Counsel
for
the
respondent
began
by
arguing
that
the
appellants
had
not
made
genuine
gifts
in
respect
of
the
three
taxation
years
at
issue.
After
referring
to
the
elements
essential
to
the
existence
of
a
gift,
one
of
the
respondent’s
counsel
argued,
as
can
be
seen
from
the
notes
submitted
to
the
Court
in
support
of
her
oral
argument,
that
the
first
essential
element
of
a
gift,
namely
the
donor’s
intent
to
give,
was
not
present
because
the
appellants
in
the
case
at
bar
acquired
the
property
and
agreed
to
pay
for
it
only
on
condition
that
it
be
immediately
or
almost
simultaneously
given
to
a
charity
for
an
amount
four
times
higher
than
the
price
paid;
this
was
done
for
the
sole
purpose
of
obtaining
a
tax
advantage.
On
this
point,
the
respondent
relied
on
the
decisions
of
Judge
Dussault
of
this
Court
in
Dutil
v.
R.
and
Gagnon
v.
Canada,
both
of
which
were
rendered
on
July
25,
1991,
and
the
Federal
Court
of
Appeal’s
decision
in
Friedberg
v.
R.
(1991),
92
D.T.C.
6031
(Fed.
C.A.).
The
decisions
of
Judge
Mogan
of
this
Court
in
Whent
v.
The
Queen,
[1996]
3
C.T.C.
2542
(T.C.C.),
and
of
Judge
Archambault,
also
of
this
Court,
in
Paradis
c.
R.
(1996),
[1997]
2
C.T.C.
2557
(T.C.C.),
were
also
referred
to.
Based
on
a
review
of
the
evidence
relating
to
the
lack
of
an
intent
to
give,
the
respondent
argued
that
the
facts
show
that
the
only
intention
of
the
appellants
Alain
Côté
and
Louise
Marcoux
was
to
reduce
their
taxes
by
means
of
receipts
for
charitable
gifts
and
that
there
was
no
philanthropic
intention
associated
with
their
intention
to
reduce
their
taxes.
According
to
the
respondent,
the
alleged
gift
was
conditional
on
a
tax
advantage
being
obtained.
Counsel
for
the
respondent
stressed
the
following
factors
extracted
from
the
evidence:
[TRANSLATION]
l.
the
pictures
in
question
were
chosen
not
by
the
appellants
but
by
Mr.
Levert,
and
the
appellants
never
had
them
in
their
possession
aside,
perhaps,
for
the
Ludger
Larose;
2.
the
appellants
did
not
choose
the
organizations
that
were
the
alleged
donees
and
did
not
approach
them
at
all;
3.
the
appellant
Alain
Côté
would
not
have
entered
into
the
transactions
with
Mr.
Levert
were
it
not
for
the
receipts;
and
4.
Mr.
Levert,
through
Ms.
Tremblay,
was
the
seller
and
the
appraiser
in
addition
to
being
the
person
who
provided
tax
receipts.
The
respondent
also
argued
that
the
delivery
of
movable
property,
which
is
another
essential
element
of
a
don
manuel
when
the
gift
is
not
attested
by
a
notarial
act,
did
not
take
place
because
the
property
in
this
case
was
not
physically
delivered
to
the
donee,
which
must
be
given
unequivocal
possession.
With
respect
to
the
delivery
and
possession
of
the
paintings,
the
respondent
relied,
inter
alia,
on
the
following
evidence:
I.
The
appellants
Côté
and
Marcoux
did
not
deliver
the
paintings
to
Univers
du
Rail
Inc.,
and
Univers
du
Rail
Inc.
never
had
physical
possession
of
them.
Univers
du
Rail
Inc.’s
representative,
Mr.
Carignan,
never
saw
the
paintings.
2.
Univers
du
Rail
Inc.
entered
into
an
oral
agreement
with
Mr.
Levert
under
which
he
solicited
donors
with
paintings
and
Univers
du
Rail
Inc.
would
receive
a
minimum
of
10
percent
of
the
amount
on
the
receipts.
According
to
Mr.
Carignan,
Mr.
Levert
had
been
retained
for
this
aspect
of
Univers
du
Rail
Inc.’s
funding
activities.
Mr.
Levert
said
what
should
be
put
on
the
receipts
and
gave
Univers
du
Rail
Inc.
his
appraisals,
sometimes
at
the
same
time
as
his
instructions,
sometimes
later.
The
receipts
were
then
given
to
Mr.
Levert.
The
paintings
did
not
go
to
Univers
du
Rail
Inc.
at
that
time.
They
were
at
the
Galerie
des
Maîtres
Anciens
prior
to
the
purchase,
were
still
there
after
the
purchase
and
stayed
there
after
the
alleged
gifts
had
been
made.
3.
There
was
no
list
of
paintings
left
on
consignment
with
Mr.
Levert
or
his
gallery
by
Univers
du
Rail
Inc.
Univers
du
Rail
Inc.
had
no
control
over
the
paintings.
4.
Univers
du
Rail
Inc.
received
only
a
few
cheques
from
time
to
time,
and
they
did
not
even
correspond
to
10
percent
of
the
total
amounts
appearing
on
the
receipts.
Based
on
these
facts,
the
respondent
concluded
that
the
property
in
question
was
never
delivered
to
Univers
du
Rail
Inc.
and
that
if
Mr.
Levert
did
have
possession
of
the
property
on
behalf
of
Univers
du
Rail
Inc.,
it
was
equivocal
possession
in
the
circumstances.
Concerning
the
property
allegedly
given
to
the
Fondation
Amérindienne
Tecumseh,
the
respondent
argued
that
the
evidence
shows
that
Jacques
Demers
found
only
an
empty
room
when
he
went
for
a
field
audit
in
March
1989.
The
receipts
were
kept
at
the
accountant’s
office,
and
no
appraisal
report
was
available
when
Mr.
Demers
went
to
see
the
accountant
in
March
1989.
Mr.
St-Laurent
subsequently
provided
only
files
that
contained
no
information,
and
he
claimed
that
all
the
property
had
been
resold.
Mr.
Demers
said:
[TRANSLATION]
“The
only
sales
identified
thus
corresponded
to
just
11
percent
of
the
amounts
shown
on
the
receipts.”
The
purchasers
were
not
identified
either.
The
following
was
added
in
the
notes
submitted
in
support
of
the
oral
argument
of
counsel
for
the
respondent:
[TRANSLATION]
Mr.
Demers
conducted
another
audit
in
August
1991.
Very
few
appraisals
were
available,
and
Mr.
St-Laurent
said
that
all
the
property
had
been
resold.
The
total
sales
shown
in
the
financial
statements
represented
only
two
to
three
percent
of
the
amount
shown
on
the
receipts.
Counsel
for
the
respondent
directed
the
Court’s
attention
to
subsection
118.1(2)
of
the
Act,
which
provides
that
no
gift
can
be
claimed
unless
the
making
of
the
gift
is
proven
by
filing
with
the
Minister
of
National
Revenue
a
receipt
therefor
that
contains
prescribed
information.
The
prescribed
information
is
set
out
in
subsection
3501(1)
of
the
Income
Tax
Regulations,
while
subsection
3501(6)
of
the
Regulations
adds
that
every
receipt
on
which
the
day
the
gift
was
received,
the
year
of
the
gift
or
the
amount
of
the
gift
is
incorrect
must
be
regarded
as
spoiled.
The
respondent
argued
that
the
existence
of
a
receipt
does
not
entitle
its
holder
to
the
deduction
for
gifts
if
the
content
of
the
receipt
is
incorrect
or
incomplete.
In
this
regard,
counsel
for
the
respondent
made
the
following
comments
(footnotes
omitted):
[TRANSLATION]
1.
Receipts
No.
53458
and
No.
53466
from
Univers
du
Rail
dated
December
7,
1988,!
do
not
give
the
address
of
the
organization
or
that
of
Alain
Côté
and
Louise
Coté.
Nor
do
they
indicate
the
name
and
address
of
the
appraiser
even
though
there
was
one:
Marc
Levert.
The
receipts
do
not
state
when
the
works
were
received.
2.
Receipts
No.
98
and
No.
101
dated
December
4,
1989,
from
the
Fondation
Amérindienne
Tecumseh
do
not
give
the
name
and
address
of
the
appraiser
(al-
though
receipt
No.
101
mentions
that
there
was
a
certificate)
and
do
not
state
when
the
works
were
received.
3.
Receipts
No.
277
dated
November
24,
1990,
and
No.
272
dated
November
21,
1990,
from
the
Fondation
Amérindienne
Tecumseh
do
not
give
the
name
and
address
of
the
appraiser,
although
they
mention
that
there
was
a
certificate
of
appraisal.
The
receipts
do
not
state
when
the
works
were
received.
Based
on
the
foregoing,
the
respondent
concluded
that,
assuming
that
genuine
gifts
were
made,
subsection
118.1(2)
of
the
Act
means
that
they
cannot
be
included
in
total
gifts
because
the
receipts
do
not
contain
all
the
prescribed
information.
Furthermore,
one
of
the
respondent’s
main
arguments
was
that
the
amounts
stated
on
the
receipts
did
not
reflect
the
value
of
the
property
involved.
The
respondent
referred
to
the
Federal
Court
of
Canada’s
decision
in
Henderson
v.
Minister
of
National
Revenue
(1973),
73
D.T.C.
5471
(Fed.
T.D.),
with
regard
to
the
definition
of
“fair
market
value”.
On
the
basis
of
that
decision,
particular
reliance
was
placed
on
the
direct
comparison
approach.
In
determining
the
value
of
property,
reference
was
also
made
to
the
purchase
price
paid
by
the
owner
of
the
property.
With
regard
to
the
Guide
Vallée,
the
respondent
stated
the
following
in
the
notes
submitted
at
the
time
of
the
oral
argument:
[TRANSLATION]
174.
The
prices
shown
in
guides
like
the
Guide
Vallée
are
not
necessarily
real
sale
prices.
175.
The
Guide
Vallée
is
an
advertising
tool
in
which
anyone
can
buy
a
full
page
in
colour
for
between
$300
(according
to
Guy
Gagnon)
and
$400
to
$500
(according
to
Jules
Harvey).
176.
The
guide
does
not
take
account
of
the
period
during
which
the
works
were
created,
the
artist’s
subject,
the
intrinsic
quality
of
the
works
or
their
conservation
condition.
The
prices
are
based
on
a
calculation
per
square
inch,
which
does
not
make
the
necessary
distinctions
(testimony
of
Mr.
Rinfret).
177.
In
addition,
this
type
of
guide
is
not
reliable,
since
the
information
in
it
is
not
controlled.
Artists
or
their
agents
sometimes
overstate
the
prices
shown
for
works
in
the
hope
that
the
market
will
follow.
The
artist
Lionel
Fielding
Downes
provides
the
best
illustration
of
this.
The
facts
proven
about
him
show
the
extent
to
which
real
sale
prices
do
not
correspond
to
the
prices
set
out
in
the
Guide
Vallée.
It
is
therefore
necessary
in
each
case
to
check
whether
the
information
is
accurate,
as
Mr.
Rinfret
stated
several
times.
The
oral
argument
of
counsel
for
the
respondent
also
addressed
the
importance
to
be
attached,
for
appraisal
purposes,
to
gallery
sales
and
auction
sales.
With
regard
to
gallery
sales,
the
respondent
argued
the
following:
[TRANSLATION]
“if
the
market
identified
by
the
expert
for
a
given
artist
is
the
gallery
market,
then
the
expert
has
to
clearly
identify
the
galleries
in
question
and
comparable
paintings
in
those
galleries
and
to
check
whether
the
galleries
really
sold
comparable
paintings
at
the
prices
they
listed.
Recent
or
new
paintings
by
a
living
artist
may
sell
for
more
in
a
gallery
if
the
artist
is
represented
by
that
gallery
(testimony
of
Mr.
Kelsey).”
The
notes
submitted
by
the
respondent
state
the
following,
inter
alia,
about
auction
sales:
[TRANSLATION]
179.
If
the
market
identified
by
the
expert
for
a
given
artist
is
the
auction
market
(resale
market),
the
indexes
that
list
sales
(such
as
the
Canadian
Art
Sales
Index
or
the
International
Art
Price
Annual
from
Bordas)
and
the
sale
invoices
from
the
sales
rooms
provide
objective
proof
of
such
sales.
180.
Assuming
that
the
indexes
contain
fictional
auction
sales
to
promote
sales
for
an
artist,
as
suggested
by
Mr.
Levert,
then
it
must
be
proved
that
this
was
the
case
for
the
artists
in
question.
This
seems
doubtful,
since
auction
prices
would
then
be
much
higher
(testimony
of
Mr.
Rin-
fret).
In
his
testimony
on
May
22,
1997,
Mr.
Kelsey
said
that
Encans
Pinney’s
does
not
allow
sellers
to
bid
on
their
own
paintings,
which
is
illegal.
In
making
the
assessments,
the
respondent
assumed
that
the
value
reported
by
the
appellants
for
the
works
of
art
did
not
reflect
their
fair
market
value.
The
respondent
also
assumed
in
making
the
assessments
under
appeal
that
Mr.
Levert
was
not
an
independent
expert,
since
he
appraised
the
paintings
in
question.
According
to
the
respondent,
that
conclusion
was
based
on
Mr.
Levert’s
conduct
in
1985,
1986
and
1987,
[TRANSLATION]
“when
the
amount
paid
by
the
taxpayers
was
observed
to
be
systematically
20
or
25
percent
of
the
amount
of
the
appraisals
on
which
the
tax
receipts
were
based.”
A
systematic
overvaluing
of
the
property
described
in
the
tax
receipts
was
noted
by
Revenue
Canada
and
by
independent
experts.
With
regard
to
Mr.
Levert,
it
was
noted
that
following
a
lengthy
trial,
he
pleaded
guilty
to
charges
of
wilfully
evading
the
payment
of
income
tax
in
1986
and
1987
by
enabling
a
number
of
taxpayers,
including
the
appellants,
to
deduct
gifts
of
overvalued
works
of
art
in
their
tax
returns.
Mr.
Levert
was
also
convicted
of
failing
to
report
income
from
his
transactions
with
“donors”
in
1985,
1986
and
1987.
The
respondent
further
noted
that
Mr.
Levert
was
not
objective:
[TRANSLATION]
“According
to
Mr.
Levert,
the
amount
to
be
paid
by
his
clients
was
fixed
in
advance
at
25
percent
of
the
property’s
value
as
listed
in
the
Guide
Vallée
or
of
its
gallery
value.”
Mr.
Levert
contrasted
the
gallery
market
with
the
auction
market.
He
assumed
that
any
artist’s
paintings
can
be
sold
in
a
gallery.
He
also
considered
that
the
prices
suggested
in
the
Guide
Vallée
are
real
prices
for
gallery
sales
and
need
not
be
checked.
According
to
the
respondent,
[TRANSLATION]
“in
doing
so,
he
suggested
completely
artificial
values
that
bore
no
relationship
to
the
real
market”.
The
respondent
adopted
the
comment
by
Mr.
Rinfret,
an
expert
witness
for
the
respondent,
that
what
must
in
fact
be
done
is
to
situate
the
market
for
a
given
artist
and
a
given
work:
gallery,
auction,
flea
market
or
elsewhere.
Within
that
market,
it
must
be
determined
whether
there
are
comparable
real
sales,
which
Mr.
Levert
did
not
do.
Counsel
for
the
respondent
also
noted
that
Mr.
Levert
and
Galerie
des
Maîtres
Anciens
Inc.
were
convicted
of
wilfully
destroying
records
for
the
gallery’s
taxation
years
ending
March
31,
1989,
March
31,
1990,
March
31,
1991,
and
March
31,
1992.
The
respondent’s
argument
that
Mr.
Levert
was
not
an
independent
expert
was
based
on
the
fact
that
Mr.
Levert
was
a
party
to
all
the
transactions
involving,
in
particular,
the
appellants,
as
the
person
who
sold
the
property,
appraised
it
for
the
purpose
of
drawing
up
receipts
and
provided
the
receipts.
The
respondent
made
the
following
comment
about
Mr.
Levert’s
statement
that
the
auction
price
would
only
occasionally
be
close
to
or
higher
than
the
fair
market
value:
[TRANSLATION]
“this
statement
is
based
on
a
false
premise,
namely
that
the
auction
price
is
never
the
fair
market
value.
This
completely
disregards
the
resale
market
for
a
purpose
that
is
all
too
evident:
justifying
appraisals
that
are
systematically
inflated.”
On
the
issue
of
penalties,
the
respondent
concluded
that
the
appellants
were
guilty
of
gross
negligence,
or
at
least
of
wilful
blindness,
for
five
years
in
conducting
the
same
type
of
purchase
transaction,
conditional
on
obtaining
a
receipt
for
approximately
four
times
more
than
the
value
of
the
work
in
question,
for
the
sole
purpose
of
obtaining
a
tax
advantage,
even
though
they
knew
that
the
seller,
the
appraiser
and
the
person
who
provided
them
with
receipts
were
one
and
the
same.
In
support
of
this
conclusion,
the
respondent
noted
in
particular
that
Mr.
Côté’s
meeting
of
September
1987
with
Revenue
Canada’s
investigators
should
have
warned
him
that
something
was
amiss.
He
nevertheless
continued
to
request
receipts
for
himself
and
for
Ms.
Marcoux
even
after
the
amounts
claimed
by
the
two
appellants
for
gifts
in
their
1986
tax
returns
were
revised
downwards.
The
two
appellants
persisted
in
claiming
a
deduction
for
gifts
of
works
of
art
even
though
they
did
not
choose
the
property
given
or
the
recipient
organization,
had
no
interest
in
the
organization
and
did
not
have
to
deliver
the
property
they
gave.
The
respondent
added
that
they
did
not
co-operate
when
asked
to
provide
proof
of
purchase
and
payment
documents
for
the
works
in
question.
They
made
no
effort
to
provide
explanations
or
comments
to
Revenue
Canada.
Analysis
Based
on
the
arguments
made
by
the
appellants
and
the
respondent,
it
is
clear
that
there
are
three
main
issues
in
this
case:
1.
whether
the
appellants
made
gifts
of
the
property
in
question
or
whether
the
gifts
were
a
sham;
2.
assuming
that
genuine
gifts
were
made,
whether
the
value
indicated
by
the
appellants
for
each
item
of
property
given
represents
the
item’s
fair
market
value;
and
3.
whether
the
Minister
of
National
Revenue
validly
assessed
penalties
against
the
appellants
for
the
1988,
1989
and
1990
taxation
years
under
subsection
163(2)
of
the
Act.
It
is
necessary
to
begin
with
the
first
issue,
that
is,
whether,
in
the
circumstances,
the
appellants
made
gifts
of
the
property
in
question
to
Univers
du
Rail
Inc.
and
the
Fondation
Amérindienne
Tecumseh.
As
was
clearly
established
in
Lagueux
&
Frères
Inc.,
the
first
thing
that
must
be
done
is
to
determine
the
nature
of
the
transactions
entered
into
by
the
appellants
with
Univers
du
Rail
Inc.
and
the
Fondation
Amérindienne
Tecumseh
in
light
of
the
Civil
Code
of
Lower
Canada.
It
is
thus
necessary
to
refer
to
articles
755
and
776
of
the
Civil
Code
of
Lower
Canada,
which
read
as
follows:
Art.
755.
Gift
inter
vivos
is
an
act
by
which
the
donor
divests
himself,
by
gratuitous
title,
of
the
ownership
of
a
thing,
in
favor
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.
Art.
776.
Deeds
containing
gifts
inter
vivos
must
under
pain
of
nullity
be
executed
in
notarial
form
and
the
original
thereof
be
kept
of
record.
The
acceptance
must
be
made
in
the
same
form.
Gifts
of
moveable
property,
accompanied
by
delivery,
may
however
be
made
and
accepted
by
private
writings,
or
verbal
agreements.
Gifts
validly
made
out
of
Québec
need
not
be
in
notarial
form.
As
this
Court
noted
in
Paradis,
supra,
three
essential
conditions
must
be
met
for
a
gift
to
exist:
intent
to
give,
delivery
of
the
property
and
acceptance
by
the
donor.
With
regard
to
the
first
condition,
I
am
in
complete
agreement
with
the
view
expressed
by
Judge
Archambault
in
Paradis
that
this
question
must
be
decided
strictly
in
the
context
of
the
legal
relationship
established
between
each
of
the
appellants
and
the
organizations
that
were
to
receive
the
gifts
in
question.
In
the
case
at
bar,
the
evidence
is
clear
that
neither
of
the
appellants
received
any
consideration
whatsoever
from
the
organizations
to
which
the
property
was
to
be
given.
In
my
opinion,
it
does
not
matter
that
the
principal
motivation
for
each
of
the
appellants
was
to
obtain
a
tax
advantage.
This
approach
has
been
confirmed,
at
least
to
some
extent,
by
the
Federal
Court
of
Appeal’s
decision
in
Friedberg
v.
R.
(1991),
92
D.T.C.
6031
(Fed.
C.A.).
The
following
passage
from
page
6032
of
that
judgment
is
particularly
interesting:
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.
A
receipt
obtained
from
the
recipient
organization
cannot
be
viewed
as
consideration
even
though
the
taxpayer
must
file
the
receipt
to
be
entitled
to
the
deduction
for
gifts.
In
the
circumstances,
the
receipt
simply
attests
a
physical
fact,
namely
that
the
designated
property
has
been
received
by
the
organization
in
question.
It
is
therefore
my
view
that
the
appellants
had
the
necessary
intent
to
give
the
works
of
art
to
the
organizations
in
question.
The
appellants
owned
the
works
of
art
before
making
gifts
of
them.
This
was
not
in
dispute.
The
evidence
shows
that
the
appellants
left
it
up
to
Mr.
Levert
to
choose
the
charity
that
would
receive
the
gifts
in
question.
After
carefully
reviewing
the
evidence,
I
have
concluded
that
the
works
of
art
at
issue
in
these
appeals
were
identified
clearly
enough
and
came
into
the
possession
of
the
charities
through
Mr.
Levert.
The
evidence
shows
that
Mr.
Levert
played
a
dual
role.
He
worked
both
for
the
appellants,
who,
as
donors,
agreed
to
transfer
the
property
in
question
to
the
charities
he
had
chosen,
and
for
the
donees,
which
entrusted
him
with
possession
thereof.
These
findings
of
fact
are
based
in
particular
on
the
testimony
of
Mr.
Carignan,
whom
I
found
to
be
an
entirely
credible
witness,
as
regards
the
property
given
to
Univers
du
Rail
Inc.
The
procedure
adopted
in
respect
of
the
property
given
to
the
Fondation
Amérindienne
Tecumseh
was
the
same,
and
I
have
come
to
the
same
conclusions
regarding
Mr.
Levert’s
role
and
the
identification
of
the
property
at
issue.
The
property
given
was
clearly
identified
on
the
receipts
provided
to
the
donors.
Thus,
in
the
case
of
the
appellant
Alain
Côté,
the
works
of
art
in
question
are
identified
as
follows
in
paragraph
8
of
the
Amended
Reply
to
the
Notice
of
Appeal
for
each
of
the
years
at
issue:
for
the
1988
taxation
year,
an
oil
painting
on
canvas
by
Ludger
Larose
given
to
Univers
du
Rail
Inc.;
for
the
1989
taxation
year,
four
paintings
given
to
the
Fondation
Amérindienne
Tecumseh,
namely
a
pastel
by
F.
Iacurto,
an
oil
painting
by
W.
Hamilton,
an
oil
painting
on
metal
by
J.
Hilpert
and
a
watercolour
by
Madeleine
Laliberté;
and
for
the
1990
taxation
year,
two
paintings
given
to
the
Fondation
Amérindienne
Tecumseh,
namely
an
oil
painting
by
Marie-Claire
and
an
oil
painting
by
Adrien
Hébert.
In
the
case
of
the
appellant
Louise
Marcoux,
the
works
of
art
in
question
are
identified
as
follows
in
paragraph
8
of
the
Reply
to
the
Notice
of
Appeal:
for
the
1988
taxation
year,
an
oil
painting
on
hardboard
by
Albert
Cloutier
given
to
Univers
du
Rail
Inc.;
for
the
1989
taxation
year,
an
oil
painting
by
Graham
given
to
the
Fondation
Amérindienne
Tecumseh;
and
for
the
1990
taxation
year,
an
oil
painting
by
Fielding
Downes
given
to
the
Fondation
Amérindienne
Tecumseh.
The
charities
accepted
these
paintings
through
their
representatives
and
acknowledged
that
they
had
never
paid
the
appellants
any
consideration
for
their
gifts.
Even
though
I
believe,
as
I
will
explain
later
in
these
reasons,
that
the
appellants
were
seriously
negligent
as
regards
their
tax
obligations,
I
do
not
consider
the
sham
doctrine
applicable
here.
The
appellants
genuinely
intended
to
make
gifts
to
charities
and
did
in
fact
make
those
gifts,
although
in
doing
so
they
may
have
been
negligent
in
using
receipts
based
on
inflated
appraisals
in
order
to
obtain
the
deduction
for
charitable
gifts.
I
will
turn
now
to
the
second
issue,
which
concerns
the
fair
market
value
of
the
property
given
to
Univers
du
Rail
Inc.
and
the
Fondation
Amérindienne
Tecumseh
in
the
years
at
issue.
The
concept
of
fair
market
value
has
been
considered
by
the
courts,
inter
alia
in
Henderson
v.
Minister
of
National
Revenue
(1973),
73
D.T.C.
5471
(Fed.
T.D.).
The
following
passage
at
page
5476
strikes
me
as
highly
relevant:
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.
[Emphasis
added.]
First
of
all,
I
attach
little
weight
to
Mr.
Levert’s
appraisals.
He
was
a
party
to
these
transactions
and
had
a
definite
interest
in
the
sales
being
closed.
He
was
both
the
seller
and
the
appraiser.
In
his
tax
return
for
1988,
Mr.
Côté
indicated
that
a
painting
described
as
an
oil
painting
on
canvas
by
Ludger
Larose,
which
was
given
to
Univers
du
Rail
Inc.,
was
worth
$11,000
for
the
purposes
of
the
deduction
for
charitable
gifts.
This
painting
was
sold
by
telephone
for
$2,200
at
the
auction
of
December
15,
1987;
the
reserve
price
was
$2,000.
It
was
purchased
by
the
Galerie
des
Maîtres
Anciens.
A
review
of
all
the
evidence
relating
to
this
painting
has
persuaded
me
that
its
value
must
be
set
at
$2,200.
There
is
no
serious
basis
for
Mr.
Levert’s
appraised
value
of
$11,000
for
this
painting.
In
his
tax
return
for
the
1989
taxation
year,
Mr.
Côté
indicated
a
value
of
$11,000,
for
the
purposes
of
the
deduction
for
charitable
gifts,
for
four
paintings
given
to
the
Fondation
Amérindienne
Tecumseh:
a
pastel
by
F.
lacurto,
an
oil
painting
by
W.
Hamilton,
an
oil
painting
on
metal
by
J.
Hil-
pert
and
a
watercolour
by
Madeleine
Laliberté.
The
pastel
by
F.
lacurto
was
appraised
at
$6,000.
This
appraisal
was
based
on
the
Guide
Vallée,
which
gave
a
value
of
$5,500,
to
which
Mr.
Levert
added
$500
for
framing.
Three
auction
sales
of
portraits
by
lacurto
are
listed
in
the
Canadian
Art
Sales
Index
and
they
give
a
good
idea
of
the
resale
market
value
of
portraits
of
unknown
persons
done
by
this
artist:
—
portrait
of
a
man,
pastel,
23’A
inches
by
18
inches,
sold
for
$380
at
the
Hôtel
des
Encans
de
Montréal
on
October
16,
1990
(an
oil
painting
would
have
been
twice
the
price,
according
to
Mr.
Levert);
—
portrait
of
Dr.
Adrien
Sarens,
pastel,
25
inches
by
19
inches,
sold
for
$400
at
the
Hôtel
des
Encans
de
Montréal
on
April
7,
1992;
and
—
portrait
of
a
man,
14
inches
by
10
inches,
pencil
crayon,
sold
for
$175
at
Fraser-Pinney’s
on
November
24,
1993.
Mr.
Levert
admitted
that,
at
the
Encans
Pinney’s
auction
on
February
14,
1989,
he
had
purchased
a
portrait
of
a
man,
1774
inches
by
1374
inches,
by
Iacurto
for
$500;
the
portrait
was
an
oil
painting,
not
a
pastel.
After
reviewing
the
evidence
relating
to
the
value
of
this
painting
and
to
framing,
I
have
come
to
the
conclusion
that
the
painting
could
be
appraised
at
$800.
As
regards
the
painting
by
W.
Hamilton,
the
evidence
shows
that
Mr.
Côté
bought
it
for
$475.
Mr.
Levert
appraised
the
painting
at
$1,900.
No
other
information
was
provided
in
support
of
this
appraisal.
I
would
set
its
value
at
$500
at
the
relevant
time.
As
for
the
watercolour
by
Madeleine
Laliberté,
Mr.
Levert’s
appraisal
of
$2,000
is
not
dated
or
well
documented.
He
based
his
appraisal
on
the
fact
that
an
oil
painting
depicting
an
orchard
sold
for
$2,000
at
an
auction
at
Sotheby’s
in
Toronto
on
November
12,
1987.
The
medium
is
not
the
same.
I
conclude
that
the
value
of
this
painting
was
likely
no
more
than
$500.
As
for
the
8-inch
by
10-inch
oil
painting
on
metal
by
J.
Hilpert,
the
subject
of
the
portrait
at
issue
has
not
been
identified.
No
photographs
were
submitted
by
either
Mr.
Côté
or
Mr.
Levert.
Mr.
Levert
estimated
the
normal
gallery
price
at
$1,100
and
contended
that
his
estimate
was
based
on
auction
sales.
He
made
certain
adjustments
to
the
normal
price
at
which
Hilpert
portraits
should
sell
in
a
gallery.
Mr.
Levert
said
he
had
relied
on
reference
books.
However,
the
only
document
provided
consisted
of
texts
from
1935
and
1957
on
Josef
Hilpert,
who
was
the
Director
of
the
Saisset
Art
Gallery
at
the
University
of
Santa
Clara
in
California,
where
a
series
of
portraits
painted
by
him
were
kept.
The
document
in
question
was
an
old
piece
of
publicity
for
the
artist
that
did
not
discuss
values.
For
Mr.
Levert,
this
document
shows
that
Josef
Hil-
pert
is
not
a
local
artist.
However,
there
is
no
proof
that
this
has
had
any
impact
whatever
on
the
value
of
these
portraits
in
Quebec.
Mr.
Levert
did
confirm
that
most
sales
have
been
at
auctions.
The
listed
sales
of
paintings
by
Hilpert
(including
miniatures
and
landscapes)
do
not
exceed
$325,
contrary
to
what
Mr.
Levert
appeared
to
contend.
Mr.
Levert
purchased
a
Hilpert
oil
painting
for
$50
at
Fraser-Pinney’s
on
September
8,
1992.
He
admitted
that
the
largest
paintings
are
not
necessarily
more
expensive
than
miniatures
and
that
miniatures
are
not
really
comparables,
especially
those
that
are
not
portraits.
However,
the
miniature
he
said
he
had
used
as
a
basis
for
his
appraisals
depicts
Niagara
Falls
and
is
thus
not
a
portrait.
I
would
appraise
this
painting
at
$300
at
the
relevant
time.
In
his
tax
return
for
the
1990
taxation
year,
Mr.
Côté
indicated
a
value
of
$11,000,
for
the
purposes
of
the
deduction
for
charitable
gifts,
for
two
paintings
given
to
the
Fondation
Amérindienne
Tecumseh:
an
oil
painting
by
Marie
Claire
and
an
oil
painting
by
Adrien
Hébert.
Mr.
Levert’s
appraised
value
of
$6,000
for
the
Marie
Claire
painting
is
based
solely
on
the
Guide
Vallée.
It
is
a
24-inch
by
30-inch
oil
painting
on
canvas,
and
Mr.
Côté
paid
Mr.
Levert
$500
for
it.
I
have
concluded
that
this
painting
was
worth
no
more
than
$1,000
at
the
time
of
the
donation.
The
painting
by
Adrien
Hébert
is
a
harbour
scene.
Mr.
Levert
admitted
that,
according
to
the
1990
International
Art
Price
Annual
from
Bordas,
two
oil
paintings
on
similar
subjects
were
sold
for
$375
and
$2,000.
On
the
basis
of
the
evidence
adduced
before
me,
I
set
the
value
of
this
painting
at
$1,000.
In
her
tax
return
for
the
1988
taxation
year,
Ms.
Marcoux
indicated
a
value
of
$2,750,
for
the
purposes
of
the
deduction
for
charitable
gifts,
for
an
oil
painting
on
hardboard
by
Albert
Cloutier
given
to
Univers
du
Rail
Inc.
The
amount
indicated
on
the
invoice
from
the
Galerie
des
Maîtres
Anciens
for
this
painting
is
$450.
David
Kelsey
of
Encans
Pinney’s
estimated
the
value
of
the
painting
at
between
$500
and
$700.
The
painting
was
sold
at
auction
for
$300
on
April
4,
1989.
In
light
of
the
evidence,
I
estimate
the
value
of
this
painting
at
$500.
In
her
tax
return
for
the
1989
taxation
year,
Ms.
Marcoux
indicated
a
value
of
$2,750,
for
the
purposes
of
the
deduction
for
charitable
gifts,
for
an
oil
painting
by
Graham
given
to
the
Fondation
Amérindienne
Tecumseh.
She
bought
this
painting
for
$387.50.
It
is
described
as
a
10-inch
by
12-inch
oil
painting
on
hardboard
by
James
Lillie
Graham
entitled
“Pâturage”.
The
basis
for
this
appraisal
was
that
a
10.5-inch
by
14.25-inch
oil
painting
by
this
artist
depicting
a
winter
scene
(“Winter
at
La
Malbaie”)
sold
for
$2,100
at
Sotheby’s
in
Toronto
(Canadian
Art
Sales
Index
1987-88,
p.
83)
and
that,
according
to
Mr.
Levert,
the
gallery
price
should
be
higher.
Mr.
Levert
admitted
that
he
had
never
seen
works
by
James
Lillie
Graham
in
galleries.
He
also
admitted
that
the
subject
of
the
painting
in
question
was
a
pastoral
scene
and
that
oil
paintings
of
pastoral
scenes
had
sold
at
Fraser
Bros.
auctions
in
Quebec
at
the
following
prices:
•
in
December
1979,
“Cattle
in
a
Field”,
11
inches
by
9
inches,
$375;
and
•
on
March
12,
1987,
“Pastoral
Scene”,
18
inches
by
24
inches,
$650.
Mr.
Levert
stated
that
the
difference
between
the
prices
obtained
in
Quebec
and
those
obtained
in
Ontario
can
be
explained
by
the
fact
that
Graham
is
an
Ontario
artist
and
is
therefore
more
popular
in
Ontario
than
in
Quebec.
In
light
of
the
evidence,
I
would
set
the
value
of
this
painting
at
$600.
Lastly,
in
her
tax
return
for
the
1990
taxation
year,
Ms.
Marcoux
indicated
a
value
of
$2,750
for
an
oil
painting
by
Fielding
Downes
given
to
the
Fondation
Amérindienne
Tecumseh.
Ms.
Marcoux
paid
$250
for
this
painting,
the
title
of
which
was
given
by
Mr.
Levert
as
“Les
Draveurs”.
Mr.
Levert’s
appraisal
is
not
dated
but
was
apparently
based
on
the
price
of
$3,000
suggested
in
the
Guide
Vallée
for
a
16-inch
by
20-inch
oil
painting.
This
appraised
value
was
reduced
somewhat
to
take
into
account
the
fact
that
the
painting
was
a
12-inch
by
16-inch
oil
painting.
This
appraisal
was
not
consistent
with
market
prices,
as
Mr.
Morin’s
sales
list
indicates
that
the
average
sale
price
of
12-inch
by
16-inch
oil
paintings
was
$204,
frames
included.
On
December
12,
1989,
Guy
Gagnon
of
the
Galerie
Feuille
d’Érable
purchased
another
oil
painting
by
Fielding
Downes
of
the
same
dimensions
and
on
a
similar
subject
entitled
“Les
Avironneurs”
at
the
Hôtel
des
Encans
de
Montréal
for
$180.
He
offered
it
for
sale
at
his
gallery
but
was
unable
to
sell
it.
Charles
Rinfret
showed
that
the
relevant
market
in
1989
and
1990
for
landscapes
by
the
artist
Lionel
Fielding
Downes
was
the
auction
market,
not
the
gallery
market,
since
most
of
the
artist’s
works
were
to
be
found
in
auction
halls.
The
prices
of
landscape
oil
paintings
by
this
artist
changed
little
between
1985
and
1995.
Mr.
Rinfret
testified
that
the
prices
of
the
artist’s
oil
paintings
at
the
Galerie
Zanettin
varied
between
$100
and
$400.
I
conclude
from
the
evidence
that
a
value
of
$250
should
be
set
for
this
painting.
In
her
notes
in
support
of
her
oral
argument
on
the
second
issue
as
worded
by
her,
the
respondent
also
brought
up
the
fact
that
the
receipts
did
not
comply
with
the
/ncome
Tax
Act
and
the
Income
Tax
Regulations.
However,
this
argument
was
not
made
in
the
replies
to
the
notices
of
appeal
in
these
two
appeals.
I
will
make
only
a
few
comments.
First
of
all,
subsection
118.1(2)
of
the
Act
provides
that
a
gift
cannot
be
included
unless
the
making
of
the
gift
is
proven
by
filing
with
the
Minister
a
receipt
therefor
that
contains
prescribed
information.
Subsection
3501(1)
of
the
Income
Tax
Regulations
sets
out
the
information
that
must
appear
on
the
receipt.
It
provides,
inter
alia,
that
an
official
receipt
must
contain
10
separate
items
of
information.
In
addition,
subsection
3501(4)
of
the
Regulations
provides
for
situations
where
an
official
receipt
is
issued
to
replace
an
official
receipt
previously
issued.
Finally,
subsection
3501(6)
of
the
Regulations
provides
that
an
official
receipt
form
on
which
information,
limited
to
three
specified
items,
is
entered
incorrectly
or
illegibly
must
be
regarded
as
spoiled.
The
above-mentioned
provisions
of
the
Income
Tax
Regulations
appear
to
make
it
possible,
at
least
in
some
cases,
to
replace
a
receipt
that
is
incorrect,
illegible
or
perhaps
even
incomplete.
In
any
event,
I
do
not
think
that
I
am
obliged
to
rule
on
this
question.
I
still
have
to
consider
the
issue
of
the
penalties
assessed
against
the
two
appellants
by
the
Minister
of
National
Revenue
in
the
assessments
for
the
1988,
1989
and
1990
taxation
years.
Counsel
for
the
appellants
stressed,
inter
alia,
the
following
facts:
(a)
The
appellants
were
told
by
Aline
Tremblay,
a
financial
advisor
at
their
bank
whom
they
trusted,
that
they
could
reduce
their
taxes
by
giving
art
objects
to
registered
charities.
Ms.
Tremblay
put
the
appellants
in
touch
with
Mr.
Levert
and
told
them
that
he
was
associated
with
the
Musée
du
Québec.
The
appellants
were
told
that
Mr.
Levert
could
purchase
paintings
at
auctions
or
private
sales
at
very
attractive
prices.
Ms.
Tremblay
also
told
them
that
the
appraisals
on
which
the
receipts
were
based
had
been
prepared
by
competent
individuals
in
accordance
with
professional
criteria
and
on
the
basis
of
specialized
books.
(b)
The
appellants
continued
to
make
gifts
in
1989
and
1990
despite
the
fact
that
the
value
of
the
gifts
they
had
made
in
1986
and
1987
was
reduced
by
the
Minister
of
National
Revenue
because
Mr.
Levert
reassured
them
that
all
the
appraisals
were
correct.
(c)
Counsel
for
the
appellants
also
argued
that
Ms.
Tremblay
was
trustworthy,
that
Mr.
Levert
appeared
to
be
competent
and
that
the
charities
in
question
were
accredited
by
the
Minister
of
National
Revenue.
Counsel
for
the
respondent
stressed,
inter
alia,
the
following
evidence:
(a)
Mr.
Côté
claims
he
read
a
1986
Revenue
Canada
pamphlet
at
the
time,
but
he
did
not
remember
that
the
guide
stated
that
taxpayers
must
deal
with
independent
appraisers.
(b)
Mr.
Côté
admitted
that
Mr.
Levert
was
simultaneously
the
seller,
the
appraiser
and
the
person
who
provided
him
with
receipts.
The
two
appellants
used
tax
shelters
for
five
consecutive
years.
(c)
In
spite
of
Mr.
Côté’s
September
1987
meeting
with
Revenue
Canada
investigators,
which
should
have
warned
him
that
something
was
amiss,
Mr.
Côté
continued
to
request
receipts
for
the
1987
taxation
year
for
himself
and
his
wife
through
Aline
Tremblay.
Thus,
Ms.
Tremblay
provided
Mr.
Côté
with
a
receipt
from
the
Société
protectrice
des
animaux
and
the
appraisal
on
which
the
receipt
was
based
was
performed
by
Mr.
Levert.
(d)
The
only
contact
Mr.
Côté
had
with
Revenue
Canada
was
a
vague
telephone
call
he,
Ms.
Tremblay
or
Mr.
Levert
made
to
the
main
Revenue
Canada
number
following
the
transactions
and
the
assessments.
He
was
unable
to
provide
any
specific
information
on
this
subject.
Ms.
Marcoux
did
nothing.
Mr.
Côté
subsequently
discontinued
his
appeals
to
the
Tax
Court
of
Canada
from
the
assessments
for
the
1986
and
1987
taxation
years.
(e)
Mr.
Côté
continued
to
ask
Ms.
Tremblay
to
provide
him
with
receipts
for
the
1988,
1989
and
1990
taxation
years
for
the
same
amounts
—
$11,000
for
himself
and
$2,750
for
his
wife
each
year
—
in
exchange
for
payments
corresponding,
minus
the
tax
on
the
paintings,
to
25
percent
of
the
receipts
that
were
made
in
two
instalments:
the
first
on
March
1
and
the
second
on
June
I
of
the
following
year.
(f)
The
appellants
did
all
this
without
choosing
or
seeing
the
property,
without
choosing
or
checking
up
on
the
charity,
without
showing
the
slightest
interest
in
the
charity
and
without
going
to
the
offices
of
the
charity
to
deliver
the
property.
They
did
nothing
other
than
to
receive
official
receipts
for
charitable
gifts.
(g)
When
the
two
appellants
received
draft
assessments
for
the
1986
taxation
year,
that
did
not
prevent
them
from
continuing
for
1989
and
1990,
although
they
agreed
with
Mr.
Levert
not
to
pay
the
full
amount
agreed
upon
for
the
1988
taxation
year.
(h)
When
the
two
appellants
received
a
letter
from
the
Department
of
National
Revenue
requesting
proof
of
purchase
and
payment
documents,
they
claimed
they
could
not
provide
them.
When
the
Department
of
National
Revenue
sent
them
a
draft
assessment
for
the
1988,
1989
and
1990
taxation
years,
they
did
nothing
to
provide
the
Department
with
comments
or
explain
the
situation.
The
two
appellants
were
guilty
of
gross
negligence,
or
at
least
of
wilful
blindness,
for
five
years
in
conducting
the
same
kind
of
purchase
transaction,
conditional,
according
to
the
respondent,
on
obtaining
a
receipt
for
approximately
four
times
more
than
the
value
of
the
work
in
question,
for
the
sole
purpose
of
obtaining
a
tax
advantage
even
though
they
knew
that
the
seller,
the
appraiser
and
the
person
who
provided
them
with
the
receipt
were
one
and
the
same.
Based
on
a
careful
review
of
the
evidence
relating
to
the
assessment
of
the
penalties,
I
have
come
to
the
conclusion
that
the
respondent
has
discharged
the
burden
of
proof
she
bore
under
subsection
163(2)
of
the
Act.
In
light
of
all
the
evidence,
I
have
been
persuaded
by
the
appellants’
behaviour
that
they
were
extremely
reckless
or
at
least
grossly
negligent
in
respect
of
their
tax
obligations.
It
seems
to
me
that,
particularly
after
Mr.
Côté’s
meeting
with
Revenue
Canada’s
investigators,
the
appellants
should
have
reconsidered
their
position
in
relation
to
the
tax
authorities.
They
should
have
wondered
about
the
true
nature
of
the
arrangements
pursuant
to
which
they
were
obtaining
tax
receipts
for
amounts
four
times
higher
than
the
prices
of
the
works
of
art
they
had
just
acquired.
That
fact
alone
—
the
fact
that
there
was
so
great
a
difference
between
the
prices
paid
by
the
appellants
for
the
paintings
and
the
amounts
that
appeared
on
the
tax
receipts,
which
supposedly
represented
the
market
value
of
the
paintings
at
the
same
point
in
time
—
leads
me
to
believe
that
the
appellants
knew
or
ought
to
have
known,
if
they
had
been
mindful
of
their
tax
obligations,
that
the
amounts
indicated
on
the
receipts
were
greatly
inflated
or
excessive
and
did
not
represent
the
market
value
of
the
paintings
in
question.
Mr.
Levert’s
role
at
every
stage
of
these
transactions
should
have
raised
serious
suspicions
in
their
minds.
The
fairly
passive
role
of
the
charities
to
which
the
works
of
art
were
given
should
have
prompted
the
appellants
to
be
careful.
The
facts
that
the
charities
were
for
all
practical
purposes
chosen
by
Mr.
Levert
and
that
the
appellants
displayed
a
total
lack
of
interest,
as
donors,
in
the
organizations
that
received
their
gifts
are
also
strange
and
unusual
aspects
of
the
transactions
in
question.
Generally
speaking,
the
appellants’
failure
to
co-operate
with
the
tax
authorities
when
they
were
asked
to
provide
proof
of
purchase
and
payment
documents
regarding
the
works
of
art
in
question
also
persuades
me
that
they
may
have
thought
their
conduct
was
not
beyond
reproach.
I
therefore
conclude
that
the
Minister
of
National
Revenue
was
correct
to
assess
penalties
against
the
appellants.
The
amounts
of
the
penalties
must
be
adjusted
to
take
account
of
the
value
I
established
for
each
of
the
gifts.
For
these
reasons,
the
appeals
from
the
assessments
for
the
1988,
1989
and
1990
taxation
years
are
allowed
and
the
assessments
are
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
the
basis
that
the
appellants
are
entitled
to
the
deduction
for
gifts
provided
for
in
section
118.1
of
the
Income
Tax
Act,
taking
into
account
the
value
of
the
gifts
as
established
in
these
reasons.
The
capital
gains
exemption
must
be
taken
into
account
where
applicable.
Costs
will
be
awarded
later
following
a
common
hearing
in
these
appeals
and
the
appeals
of
Amédée
Duguay
(94-1081
(IT)G),
Diane
L.
Duguay
(94-1084(IT)G)
and
François
Langlois
(92-1124(IT)G
and
94-3007(IT)G).
The
procedure
in
and
date
of
the
common
hearing
on
the
issue
of
costs
will
be
determined
in
consultation
with
counsel
for
the
parties.
Appeal
allowed.