Jean-Louis Gauthier v. Minister of National Revenue, [1973] CTC 2245, 73 DTC 191

The Assistant Chairman:—This appeal concerns an assessment made on August 31, 1971 in respect of the 1969 taxation year.

In virtue of the said assessment, the Minister of National Revenue has included in the aggregate taxable value the sum of $87,600, a gift made in trust in favour of Jean, Michel, Laval, Denis, Bernard, Jacques and Félix Gauthier, sons of appellant. The deed of trust was registered in Chicoutimi, Quebec on February 10, 1969 under number 221024, in the presence of Messrs Guy Tremblay and Robert Wells.

In his notices of appeal and of objection the appellant claims that he made these gifts, totalling $87,600, during the years 1963 to 1969 in accordance with Department of National Revenue terms and regulations in force at the time, and that the deed of trust does not in itself constitute a gift, but rather a confirmation of gifts made during the aforesaid years 1963 to 1969. The details are as follows:

A gift of $9,000 is claimed to have been made to Jean, Michel and Laval prior to 1964, and to prove this the appellant has produced two affidavits bearing his signature and that of Mrs Gauthier. The affidavit signed by Mrs Gauthier has not been accepted as it was not in the correct form. Mrs Gauthier was summoned as a witness, but the respondent did not consider it worthwhile to question her in this regard.

On November 10, 1964 appellant deposited the sum of $40,000 in the account of “Jean-Louis Gauthier & Léo Lisi in trust”. Through a deed of trust drawn up on December 6, 1964 this sum was invested on behalf of Mr Gauthier’s sons in Industries Couture Ltée and the shares were issued in the name of “Jean-Louis Gauthier in trust”. This $40,000 was given in amounts of $10,000 for each of the years 1964, 1965, 1966 and 1967.

On July 28, 1968 the appellant remitted to Mr Robert Wells the sum of $38,600: $3,000 in payment of the balance of the 1966 gift, acknowledged by note, bringing the total gift for 1966 to $13,000; $9,600 in payment of the balance of the 1967 gift, acknowledged by note, bringing the total gift for 1967 to $19,600; and $26,000 as the gift for 1968.

These gifts totalling $32,600 for 1966 and 1967 were made by means of promissory notes, remitted to Mr Robert Wells.

According to the testimony, it appears that starting in 1964, Mr Jean- Louis Gauthier divided his property by making over each year to his sons the maximum amounts allowed under the Income Tax Act. However, no authenticated deed recording these gifts in favour of Mr Gauthier’s sons was registered before February 10, 1969.

Mr Jacques Riverin, who drew up the February 10, 1969 deed of trust, testified that at the time of signing of this deed no property was trans- ferred from the appellant to his sons and added that he had no knowledge of any transfer of property which might have taken place before February 10, 1969.

The Honourable Justice Guy Tremblay, at the time counsel for the appellant, and Mr Robert Wells, his notary, have both stated that no document existed confirming their status as authorized agents for Mr Gauthier’s sons. Nor does any authenticated deed exist as regards the $30,000 loan made by the appellant, constituting the greater portion of the $40,000 investment in Industries Couture Ltée. Furthermore, most of the transactions in respect of the gifts totalling $87,600 which were numerous and complicated, were made by private agreement.

Guy Tremblay, CJ and Mr Robert Wells clearly indicate in their testimony that they considered the sums thus paid to the children and the transactions made on their behalf as irrevocable, and the appellant’s divestiture of his property as absolute.

The question of the father’s power to divest himself of his property or of the children’s capacity to receive it is not really at issue. The father called his sons, once they had reached the age of 18, to a sort of family council for the purpose of informing them of the transactions made on their behalf. We may conclude that there was acceptance, albeit tacit, on the part of the children.

Although the appellant clearly had control of the investment of the money deemed to belong to the children, who had only a vague idea of their possessions, in my opinion, the sum of the testimonies and documents relating to the amount of $87,600 constitutes prima facie evidence of divestiture of the gifts on the part of the appellant and their acceptance on the part of the children, so that this may well be a case of a donation of moveable property by verbal or private agreement between the appellant and his sons, which would be legal and valid in accordance with the second paragraph of Article 776 of the Civil Code.

The question is whether these private gifts are valid in respect of the third parties, including, of course, the Minister of National Revenue.

The reason for the requirements, set out in the first paragraph of Article 776 of the Civil Code, governing the giving and the acceptance of gifts, is to allow interested parties to take cognizance of a gift and to protect their rights in respect of such gift.

The gifts involved, although they constitute moveable property, are not customary gifts, referred to in the second paragraph of Article 776 of the Civil Code, concerning which third parties have no right. It is a question here of gifts accumulated over a period of about four years, totalling $87,600, in which the Minister has a legal interest and right, of which he would have been defrauded had such large-scale gifts been simply and legally made by private or verbal agreement.

I consider that the method chosen by the appellant for making gifts to his sons is not in conformity with the spirit of the aforesaid Article 776. In order to be valid in respect of interested third parties, the deeds containing gifts should have been notarized. Even if we take the exception contained in the second paragraph of the aforesaid Article 776 as a basis and consider the gifts made by the appellant to his sons valid between the contracting parties at the time, they did not, in my opinion, become valid and legal in respect of third parties until the deed of trust was registered on February 10, 1969.

Therefore the Minister of National Revenue, as an interested third party and based on section 111 of the Income Tax Act, did not err in assessing as a gift in trust dated February 10, 1969, an aggregate taxable value of $87,600.

The appeal is dismissed.

Appeal dismissed.