Citation: 2008TCC169
Date: 20080326
Dockets: 2006-824(IT)G
2006-786(IT)G
BETWEEN:
9060-8795 QUÉBEC INC. (FERME OASIS),
GAZ PROPANE RAYMOND (1996) INC.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] These are appeals
from assessments established under section 160 of the Income Tax Act (the
"Act").
[2] The facts
surrounding the establishment of the assessment against the Appellant 9060‑8795 Québec Inc. (Ferme Oasis),
and then Ferme Oasis, are described at paragraph 10 of the Reply to Notice
of Appeal (the "Reply") as follows:
[translation]
(a) Réjean Laliberté was the
administrator and shareholder of the company SU‑RÉ Inc.;
(b) the debt for the company SU‑RE Inc.
for the 1989, 1990, 1991, 1994, 1995, 1996 and 1997 taxation years was
$81,930.46 to December 31, 2001;
(c) the Appellant's administrators are
Sylvain Laliberté, Normand Lefrançois and André Lefrançois;
(d) Sylvain Laliberté holds 50% of the
Appellant's shares, Normand Lefrançois holds 25% of the Appellant's shares and
André Lefrançois holds 25% of the Appellant's shares;
(e) Sylvain Laliberté is
Réjean Laliberté's son;
(f) Normand Lefrançois is Réjean Laliberté's
son-in-law;
(g) Normand Lefrançois and
André Lefrançois are brothers;
(h) income for the company SU‑RÉ Inc.
was generated through a subcontract with the company Miroirs Laurier Limitée,
until 1999 when the company SU‑RÉ Inc. ceased operations;
(i) between 1997 and 1999, income from SU‑RÉ
Inc. totalling $188,892.06 was deposited to the joint account held by
Réjean Laliberté and Suzanne Laliberté, his spouse;
(j) a review of the deposits to and
withdrawals from this account between 1998 and 1999 showed that the cheques on
this account were made out to related persons, including the Appellant;
(k) between May 1998 and April 1999, the
company SU‑RÉ Inc. transferred funds indirectly to the Appellant through
Réjean Laliberté and Suzanne Laliberté for $28,500;
(l) during the audit, no evidence was
submitted by the Appellant that would lead to the conclusion that any
consideration was given to benefit SU‑RÉ Inc.
[3] As for the facts
taken into consideration by the Minister of National Revenue (the
"Minister") to establish the assessment against the Appellant Gaz Propane Raymond (1996) Inc. (Gaz
Propane), the facts that differ from those of the other Appellant concern the
shareholders, Normand and André Lefrançois, and the amount of the transfer,
which was $10,881.
[4] The amount of the
tax liability of SU‑RÉ
Inc. was not challenged.
[5] Normand Lefrançois testified. He
explained that the Appellant Ferme Oasis acquired a large piece of land with
buildings, bearing civic number 3833 Chemin St‑Charles, in the city
of Lachenaie. According to the witness, the buildings were originally used as
stables and a clubhouse for members of a riding club. In 1994, the property was
rented by Réjean Laliberté, the witness' father-in-law, to raise ostriches.
[6] The property deed
was submitted as one of two documents in Exhibit A‑1. At pages 29 et. seq. of
the bill of sale is a long clause called, "Intervention". This clause
states that Réjean Laliberté and Autruches, Émeus les Chenaies Inc., of
which Réjean Laliberté is the president and secretary, were beneficiaries of a
lease on a building and they agreed to cancel that lease and the purchase
option therein in their favour.
[7] The second document
in Exhibit A‑1 is a
lease dated March 4, 1998, between Ferme Oasis and SU-RÉ for storage space for
a monthly rate of $2,000. This document states:
[translation]
Lachenaie, March 4, 1998
SU‑RÉ
Inc.
152, Trésor de l’Ile, apt 302
Charlemagne, Québec
J5Z 4P7
Lease for rental of storage
space
To Whom It May Concern:
The company Ferme
Oasis inc. (9060‑8795 Québec inc) rents, in the Municipality of
Lachenaie, to the company SU‑RÉ Inc. space for storage.
The monthly
rental fee is $2,000.00.
This lease comes
into effect on March 15, 1998, and is of an indeterminate period, except upon
notice by one of the parties to terminate the lease by certified mail within 90
days of the desired termination date.
Signed at
Lachenaie, March 4, 1998
_____________________ __________________________
Normand Lefrançois Réjean
Laliberté
9060‑8795 Québec inc. SU‑RÉ
Inc.
[8] The explanations
given at the hearing do not really correspond to the type of lease, namely
storage rental. Mr. Lefrançois
spoke of ostriches. It is hard to understand what was stored and how the rental
price was determined.
[9] In
cross-examination, the witness admitted that the Appellant's financial
statements, tab 3 of Exhibit I-1,
are not indicative of this rental income but of another rental income from a
different source. The witness said that the rental income was not included in
the product but was included in the capital paid by Sylvain Laliberté. He
could not provide additional explanations.
[10] Gaz Propane received $5,000 around
November 8, 1999. It was a cheque from Réjean Laliberté, (tab 5 of Exhibit
I-2). Then, a cheque dated December 2, 1999, from Miroirs Laurier Ltée for
$5,881.03 was signed by the beneficiaries of SU-RÉ Inc. and Réjean Laliberté,
and given to Gaz Propane, which deposited it to its account (tab 6 of Exhibit
I-2).
[11] As for the first
cheque, Mr. Lefrançois
explained that it was a payment by his father-in-law to invest in a golf club.
The second was a service he carried out for his father-in-law by giving him
cash for the amount of the endorsed cheque.
[12] Regarding Ferme
Oasis, at tab 1 of Exhibit I-1, we find the reason for the assessment:
[translation]
…
The obligation under subsection 160(1) of the Income Tax Act
for $28,500.00 regarding a transfer of funds between May 15, 1998, and April
23, 1999, from "SU‑RE INC.", via "Réjean
Laliberté " to "Ferme Oasis Inc. (9060‑8795 Québec
Inc.) "…
[13] In the notice of
confirmation, at tab 2,
we read again that it is the company SU‑RÉ Inc. that is the tax debtor
and that carried out the transfer.
[14] At tabs 1 and 2 of Exhibit I-2,
regarding the Appellant Gaz Propane, the assessment and confirmation notices
say the same thing except with a different name for the assessed person.
[15] Pascal Lapriore, collection officer
for the Minister in the SU‑RÉ Inc. case, testified. He stated that during
the analysis of this case, he realized that the company SU‑RÉ Inc. did
not have a bank account, or at least none that he could identify. All payments
from Miroirs Laurier Ltée. were deposited to Réjean Laliberté's personal
account. The witness stated that he spoke by phone with the administrator of
Miroirs Laurier Ltée., who told him the agreement was entered into with the
corporation, SU‑RÉ Inc.
[16] However, the witness
did not explain why the two names appeared on each of the cheques from Miroirs Laurier Ltée, one above the other,
as if the cheque had been made out to one or the other. The two names were SU‑RÉ
Inc and, right underneath, Réjean Laliberté. On the back of the cheques,
the two names could also usually be found (tab 9 of Exhibit I-1 and tab 6 of
Exhibit I-2).
[17] Mr. Lapriore made note of all the names to
whom cheques were written by Mr. Laliberté from his personal account (tab
5 of Exhibit I‑1 and tab 4 of Exhibit I‑2). He noted that
Ferme Oasis received $16,500 in 1998 and $10,000 in 1999, and Gaz Propane,
$5,000 and $5,881.03 in 1999.
[18] At the hearing, the
main argument of counsel for the Appellants was that the author of the transfers in question was
not SU-RÉ but Réjean Laliberté. It was for his tax liability the
Appellants could have been held jointly responsible. According to counsel, the
documentary evidence clearly shows that the payments did not come from SU-RÉ,
the tax debtor in question for establishing the assessment, but from
Réjean Laliberté.
[19] Counsel added that
in case this main argument was not accepted, during the hearing, the Appellants
continued to claim valuable compensation and provide supporting evidence.
[20] Counsel for the
Appellants referred to a decision by this court, Jurak v. R., 2002
DTC 1236, confirmed by the Federal Court of Appeal, 2003
DTC 5145.
[21] I cite paragraphs 14 and 38 of Jurak from
this court:
14 Counsel for the appellant referred to the decision
by Judge Tremblay of this Court in Nanini v. Canada, [1994]
T.C.J. No. 426 (Q.L.), in which a corporation had paid a dividend to
another corporation, which was assessed under section 160 of the Act.
The shareholders of the second corporation were subsequently assessed under
section 160 in respect of a dividend received from that second
corporation. It was the judge's view that the first transferee could not
himself become a transferor, rendering another transferee jointly and severally
liable. According to counsel for the appellant, the facts of the instant case
are identical in that they involve a cascading application of section 160.
…
38 With all due deference to Judge Tremblay, I
cannot follow his decision in Nanini, supra. That interpretation
has not been adopted by the judges of this Court. The transferee may himself
become a transferor subject to subsection 160(1) of the Act if, at
the time of the second transfer, he himself is a tax debtor liable either on
his own account or jointly and severally with the first transferor.
[22] Counsel for the
Respondent addressed the second argument, valuable consideration. I must say
that the main argument presented by counsel for the Appellants, that the author
of the transfer was not the corporation but its shareholder, and the
shareholder was not assessed for appropriation so therefore his tax liability
had not been established, was not clear at all in the Notice of Appeal.
However, counsel for the Respondent did not complain.
Analysis and conclusion
[23] Subsection 160(1) of the Act states:
160(1) Tax liability re property
transferred not at arm’s length
Where a person has, on or after May 1,
1951, transferred property, either directly or indirectly, by means of a trust
or by any other means whatever, to
(a) the person’s spouse or common-law
partner or a person who has since become the person’s spouse or common- law
partner,
(b) a person who was under 18 years of
age, or
(c) a person with whom the person was not
dealing at arm’s length,
the following rules apply:
(d) the transferee and transferor are
jointly and severally liable to pay a part of the transferor’s tax under this
Part for each taxation year equal to the amount by which the tax for the year
is greater than it would have been if it were not for the operation of sections
74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter
148 of the Revised Statutes of Canada, 1952, in respect of any income from, or
gain from the disposition of, the property so transferred or property
substituted therefor, and
(e) the transferee and transferor are
jointly and severally liable to pay under this Act an amount equal to the
lesser of
(i) the amount, if
any, by which the fair market value of the property at the time it was
transferred exceeds the fair market value at that time of the consideration
given for the property, and
(ii) the total of
all amounts each of which is an amount that the transferor is liable to pay
under this Act in or in respect of the taxation year in which the property was
transferred or any preceding taxation year,
but nothing in this subsection shall be
deemed to limit the liability of the transferor under any other provision of
this Act.
[24] In my opinion, this
provision indicates that the words "directly or indirectly" apply to
the author of the transfer and the beneficiary. There may be intermediaries,
steps or measures taken between the author and the beneficiary. An intermediary
acts on behalf of another person, not on his or her own. A legal example is a mandatary. If a person acts on
his or her own behalf, as the owner of amounts appropriated then transferred,
this person is the author of the transfer and a tax liability must be
established. The taxation of appropriated amounts must be calculated. It is the
tax liability of the true author of the transfer for which the beneficiary
becomes jointly responsible. It is therefore important to determine who is the
author of the transfer, then establish their tax liability.
[25] The description of
facts in the Reply to Notice of Appeal and the documentary evidence show that
the transfer of funds occurred from Réjean Laliberté to the Appellants, not from SU‑RÉ Inc. to
the Appellants.
[26] However, the tax
liability at the basis of the Appellants' assessment under section 160 is that of SU‑RÉ Inc.
[27] It is true that Réjean Laliberté was the main
shareholder of SU‑RÉ Inc. but it is also true that he is a separate
person from SU‑RÉ. The company did not have a bank account. Payments came
from Réjean Laliberté's personal account. He did not act as mandatary of SU‑RÉ
Inc. He was the owner of the amounts found in this account. If there was an
appropriation of SU-RÉ's income by its shareholder, the tax liability of the
shareholder must be determined by assessing based on the appropriation or based
on the transfer under section 160.
[28] I must therefore
accept that Mr. Laliberté
was the author of the transfers and his tax liability must be determined before
assessing the Appellants. The main argument by counsel for the Appellants is
therefore valid.
[29] As for the secondary
argument of valuable consideration, I find there is no need for me to make a
finding on it because I accept the main argument. However, my understanding of
the evidence in this case would be that the evidence regarding the lease is not
very credible. The evidence regarding an investment and cash being returned is
more credible.
[30] To conclude, during
an assessment under section 160,
the author of the transfer must be determined, along with their tax liability.
The author of a transfer is the individual who parts from property for the
benefit of another. In this case, the person who parted from his property
during the transfers in question was not SU‑RÉ Inc. but
Réjean Laliberté. A determination should therefore have made as to whether
he was a tax debtor and what the scope of his debt was.
[31] As a result, the
appeals must be allowed. Since the main argument was not clearly explained in
the legal grounds of the Notice of Appeal, I grant half the costs to the
Appellants.
Signed at Ottawa,
Canada, this 26th day of March 2008.
"Louise Lamarre Proulx"
on this 9th day of May 2008.
Elizabeth Tan, Translator
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