944787 Ontario Inc. o/a Victoria Tavern v. The Queen, docket 96-1753-IT-G

Date: 19980318

Docket: 96-1753-IT-G

BETWEEN:

944787 ONTARIO INC.,

O/A VICTORIA TAVERN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Brulé, J.T.C.C.

[1] This is an appeal from an assessment of tax by the Minister of National Revenue (the "Minister") pursuant to the anti-avoidance provision found in section 160 of the Income Tax Act (the "Act"). The amount involved is $84,571.48 and the year is 1993.

Facts

[2] These became rather complicated with the property involved, including mortgages, the people involved, and the value of the property transferred. The property consists of the business known as Victoria Tavern and situated on the land plus building at 400 Chilver Road in Windsor, Ontario. On or about January 14, 1993, Rick Morrison (an owner of the property along with the appellant) transferred the property to the appellant. At the time of the transfer Morrison felt the property had a value of $200,000 while the Minister, in the assumptions given in the Reply to Notice of Appeal indicated the fair market value to be $295,000. Neither party adduced any evidence of a professional valuation of the fair market value of the property as of the date of transfer.

Issue

[3] If the appellant fails to adduce sufficient evidence to demolish the Minister's assumption of fact regarding the fair market value of the property, then does the assumption stand necessarily or can it be challenged on some other basis?

Analysis

[4] In M.N.R. v. Pillsbury Holdings Limited, 64 DTC 5184 at 5188 (Ex. Ct.), Cattanach, J. quoted from the decision of the Supreme Court of Canada in Johnston v. Minister of National Revenue, [1948] S.C.R. 486 [3 DTC 1182] per Rand, J., delivering the judgment of the majority, at p. 489:

"...Every such fact found or assumed by the assessor or the Minister must then be accepted as it was dealt with by these persons unless questioned by the appellant..."

[5] Cattanach, J. then observed that a taxpayer will meet the assumptions of fact pleaded by the Minister by:

(a) challenging the Minister's allegation that he did assume those facts,

(b) assuming the onus of showing that one or more of the assumptions was wrong, or

(c) contending that, even if the assumptions were justified, they do not of themselves support the assessment.

[6] These three possibilities should be taken as exhaustive of a taxpayer's options for overcoming assumptions of fact pleaded by the Minister. The appellant in the present matter has not availed itself of option (a) or (c). Accordingly, the Minister's assumption must stand if the appellant fails to adduce sufficient evidence to show that the Minister's assumption is wrong.

[7] Has the appellant adduced sufficient evidence to show that the Minister's assumption of fact was wrong? In Hickman Motors Limited v. Her Majesty the Queen, [1997] 2 S.C.R. 336, 97 DTC 5363 (S.C.C.), L'Heureux Dubé, J. recently set out the law regarding the onus of proof in taxation matters. The principles may be further summarized as follows:

• This initial onus of demolishing the Minister's exact assumptions is met where the appellant makes out at least a prima facie case;

• Where the Minister's assumptions have been demolished by the appellant, the onus shifts to the Minister to rebut the prima facie case made out by the appellant and to prove the assumptions;

• Where the burden has shifted to the Minister, and the Minister adduces no evidence whatsoever, and no question of credibility is ever raised by anyone, the taxpayer is entitled to succeed.

[8] In Sekhon v. Canada, [1997] T.C.J. No. 1145 (Q.L.) (T.C.C.), heard pursuant to the Court's Informal Procedure for unemployment insurance appeals, Rowe, J. made the following comments with regard to the meaning of prima facie in the context of burden of proof:

"As discussed by the authors, Sopinka, Lederman, Bryant in The Law of Evidence in Canada (Toronto: Butterworths, 1992) at 70-73 the term prima facie has two meanings. First, establishing a prima facie case has been held to mean that, in the absence of contradictory evidence from the other side, the evidence adduced is found to be true. This has been referred to as a compelled fact determination. Second, establishing a prima facie case has been held to mean that, in the absence of contradictory evidence from the other side, the evidence adduced might, not will, be held to be true and this view is referred to as a permissible fact inference. I prefer the latter as the trier of fact should always have the right, and indeed, must on occasion, in the discharge of duty, pronounce both versions a load of codswallop. As Jean-Paul Sartre once observed: Sometimes no choice is a choice."

[9] In the present matter, the Minister's assumption of fact is in respect of the fair market value of the buildings, land and business. The evidence submitted by the appellant is that the fair market value of the "capital property" was $210,000 at the time of transfer. The appellant relies upon the amount of consideration given in exchange for the property as indicated in the transfer document. By "capital property", then, the appellant should be taken to mean, in my opinion, the property transferred pursuant to the transfer document. This would appear to be the land and buildings known as the Victoria Tavern.

[10] The appellant's evidence does not address the question of the fair market value of the business at the time of the transfer. The transfer document is evidence only of the value of the consideration given for the land and building. Further, with regard to the land and building, the transfer document is evidence of their value based on consideration given for them. It does not appear to be evidence of their fair market value.

[11] Accordingly, the appellant may very well have made out a prima facie case regarding the value of the land and buildings at the time of transfer. This, however, does not, in my opinion, suffice to demolish the Minister's exact assumption. To defeat the Minister's assumption regarding the fair market value of the land, buildings and business at the time of transfer, the appellant needed to adduce evidence in that regard. This it has not done. In Kamin v. M.N.R., 93 DTC 62 at 64 (T.C.C.), the Court said:

"The Minister does not have a carte blanche in terms of setting out any assumption which suits his convenience. On being challenged by evidence in chief he must be expected to present something more concrete than a simple assumption."

[12] The appellant's evidence simply does not challenge the Minister's exact assumption of fact. The Minister's assumption regarding the fair market value of the property at the time of transfer should stand.

[13] The only other consideration was whether or not Morrison was at arm's length with the other owner of the property, the appellant Elaine Brousseau who incorporated 944787 Ontario Inc. There is little doubt that Morrison is a non-arm's length party and no evidence was introduced to the contrary. No more need be said of this.

[14] The result is that the Minister's assumption that the property was worth $295,000 is accepted and the appeal is dismissed.

[15] Counsel for the respondent is entitled to make her submission in writing respecting costs which are hereby awarded to the Respondent.

Signed at Ottawa, Canada, this 18th day of March 1998.

"J.A. Brulé"

J.T.C.C.