Jean-Louis Gauthier v. Her Majesty the Queen, [1977] CTC 4, 77 DTC 5009

Marceau, J:—Appellant is appealing the decision of the Tax Review Board (on gifts} upholding the Minister’s assessment dated August 31, 1971, which required that he pay tax of $17,530 on gifts which he allegedly made during the 1969 taxation year, when he established a trust for the benefit of his seven children.

The trust deed (P-2, A) was signed before a Quebec notary on February 10, 1969 and registered at Chicoutimi, Quebec the same day. In this deed appellant appointed Messrs Tremblay and Wells as trustees and gave them, in this capacity, the sum of $87,600 for the benefit of his children, which was to be used and eventually distributed, together with accretions, in accordance with a series of provisions and precise specifications. This trust still exists, since the time provided for distributing the assets has not yet arrived.

Appellant maintains that the Minister was in error when he considered the trust deed as effecting a gift, because there was no transfer of assets at the time it was made. This sum of $87,600, which it was claimed was given to the trustees, in fact represented, as he took care to mention in the deed itself, gifts which he had previously made to his children in portions over the years: more precisely, $9,000 divided between the three eldest children from 1956 to 1963; $10,000 distributed between all seven in 1964; $10,000, $13,000, $19,000 and $26,000 also distributed to all seven in 1965, 1966, 1967 and 1968 respectively.

It seems to ime that there is no need to analyse in detail the lengthy evidence, both documentary and oral, which appellant introduced to support his claims. It is sufficient to mention the main points.

Appellant told the Court that from 1959 on he had thought of setting up a program of gifts for the benefit of his children, and in that year he had begun to give debentures payable to bearer to his wife, specifying that they were “for the children’’. However, it was not until 1964 that a definite plan was drawn up. In that year he paid $40,000 to buy, together with two partners, control of a business consisting of a group of companies—which he calls the Couture group, and which was at that time in poor shape—and he issued shares which were vested in him, in his name but with the words “in trust”. He intended them for his children, he says, or for a trust company (which amounted to the same for him) which he, his sister and a friend agreed in a trust deed to form. The share certificates thus acquired were sent to his notary, a Mr Wells, and when the trust company was finally set up in 1967 under the name of Placements J M L Gauthier et fils Ltée (P-2, D), a company over which he retained absolute control, the shares that were acquired were in fact registered as forming part of its assets. The opening balance sheet (P-12) brought this out clearly by indicating under the heading “Trust”, that a number of non-voting participating shares, which in fact had to be issued in the name of the notary Wells, the secretary of the company, and of Guy Tremblay (P-8), were distributed among the children.

Appellant stated that the gifts which he made to his children were used first to reimburse him for the cost of acquiring the shares in the Couture group which were issued, as was stated above, in his name but “in trust”. Before 1966 there was no written confirmation of the gifts which he made, but his partners knew that he was acting for his children, and the notary Wells was informed of the situation. In 1966 and 1967, as more concrete proof of his intentions, he even signed promissory notes on behalf of his children for a total of $32,000 (P-2, H) which he sent to the notary Wells. These notes were honoured in 1968 at the same time as an additional sum of $26,000 was given to the children, all through the intermediary of the said notary Wells, as part of a reconciliation of moneys owed, by which a cheque for the sum of $38,600 was sent to the notary, payable to him and his partner. This cheque, incidentally, was used in payment of part of the premium which Placements J M L Gauthier et fils Ltée, the trust company which had just been established, had agreed to pay in order to obtain a life insurance policy for its president, who was naturally appellant himself. In reality, the object of the 1969 trust, as can be seen, was the non-voting shares of the said trust company which was, moreover, dissolved shortly afterwards.

Appellant relied on the second paragraph of Article 776 of the Civil Code of the Province of Quebec which, after establishing the principle of the solemn nature of a deed of gift, does permit manual gifts. He claims that the gifts made to the children were manual gifts, made in good faith and legally, through the intermediary of his wife before 1964 and later of the notary Wells, who was familiar with his intentions, as were his partners, albeit only vaguely, and as were his three older children because he had spoken to them in generous terms of such matters from time to time. He argues that these gifts were fully valid and cannot be otherwise interpreted by the Minister.

Appellant’s argument is not tenable. From the evidence as a whole it appears to me that this “program of gifts”, which appellant sought to carry out, was aimed at benefiting from existing tax exemptions in respect to gifts made to children, without however divesting oneself of the assets or losing control of them, and it is mainly for this reason that the program could not be carried out. Manual gifts in Quebec law require a desire for irrevocable divestiture on the part of the donor, the desire to accept on the part of the donee and a real delivery of the assets which are the object of the gift. In my opinion, none of these three elements can be found in the deeds which appellant is seeking to call gifts. Before the trust deed was signed, there was no irrevocable divestiture or loss of control on his part; nor was there sufficient acceptance nor a real delivery.

Moreover, appellant’s claim conceals an insurmountable contradiction: if he had given the assets which were the object of the trust deed —and that is his only claim—how could he then, in 1969, have set up the trust, which is still in existence, with the same funds?

The Minister was correct in rejecting this claim on the grounds that the trust was not a gift, since the assets had already been given. The assessment which he chose to make was on this basis reasonable. The appeal is accordingly dismissed with costs.