[OFFICIAL ENGLISH TRANSLATION]
Date: 20011024
Docket: 2000-4756(IT)I
BETWEEN:
9072-6019 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
P. R. Dussault, J.T.C.C.
[1] This is an appeal from an
assessment for $10,000 made under section 160 of the
Income Tax Act ("the Act") as a result of
a transfer of a bulk trucking (VR) permit by 2545-3267
Québec Inc. ("2545-3267") to the appellant
on June 17, 1999. The transfer was made for no
consideration and took place even though 2545-3267 had an
unpaid tax liability of $24,711.96 in the taxation year in which
the transfer was made or for a preceding taxation year.
[2] In making the assessment, the
Minister of National Revenue relied on the assumptions of fact
set out in subparagraphs (a) to (t) of paragraph 11 of the Reply
to the Notice of Appeal. Those subparagraphs read as follows:
[TRANSLATION]
(a) 2545-3267
Québec Inc. (hereinafter "the corporation") was
incorporated on December 29, 1987, and still has active status
with the Minister;
(b) the corporation
has not applied to the Inspector General of Financial
Institutions for dissolution;
(c) Luc Beaudry is
the corporation's director, president and majority
shareholder;
(d) the corporation
had an unpaid tax liability of $24,711.96 in the taxation year in
which the transfer was made or for a preceding taxation year;
that amount breaks down as follows:
Federal
tax
$14,021.61
Employment insurance $6,081.54
Interest
$3,621.82
Penalties
$986.99
(e) that amount
represents unremitted source deductions as well as interest and
penalties for the 1998 and 1999 taxation years;
(f) 9072-6019
Québec Inc. (hereinafter "the company") was
incorporated on January 11, 1999, and has active status with the
Minister even though it has never filed a tax return;
(g) no file on the
company was found with the Inspector General of Financial
Institutions;
(h) Nadia Beaudin is
the company's director and majority shareholder;
(i) Luc
Beaudry and Nadia Beaudin are de facto spouses;
(j) Luc
Beaudry made an assignment of his property on
February 22, 2000;
(k) on or about June
17, 1999, 2545-3267 Québec Inc. transferred the lease
agreement for a Mack truck to 9072-6019 Québec Inc.;
(l) around
July 6, 1999, Location MSF Inc. approved that transfer and
authorized the company to change the registration of the said
truck so that the company's name would appear as the
lessee;
(m) the above-mentioned
transaction was conditional on the transfer of the VR permit for
bulk trucking that was tied to the truck;
(n) the corporation
transferred the said permit to the company for no
consideration;
(o) at the time the
permit was transferred, the legislation concerning the Commission
des transports du Québec provided that a truck could not
be sold prior to January 1, 2000, without the VR permit assigned
to it also being transferred;
(p) at the time the
truck was transferred, the appellant could therefore not operate
it without the said permit;
(q) on September 29,
1999, a valuation by the Minister determined that the VR
transport permit involved in the transaction of
June 17, 1999, was worth $10,000.00;
(r) the appellant is
related within the meaning of subsection 251(2) of the Income
Tax Act (hereinafter "the Act") to the
transferor of the permit, 2545-3267 Québec Inc.,
with which it is not dealing at arm's length pursuant to
subsection 251(1) of the Act;
(s) the appellant,
which is the transferee of the permit, and the corporation, which
is the transferor, are jointly and severally liable to pay under
subsection 160(1) of the Act an amount equal to the
lesser of:
(i) Amount by
which (A) exceeds (B)
(A) FMV of property at time of
transfer
$10,000.00
(B)
Consideration
$0.00
(ii) Amount
owed
$24,711.96;
(t) the amount
of the assessment made against the appellant is $10,000, being
the lesser of the amounts calculated in subparagraphs (s)(i)
and (ii).
[3] Subparagraphs (k), (l), (n), (r),
(s) and (t) were denied as worded. The other subparagraphs were
admitted.
[4] Testimony was given by Nadia
Beaudin, the appellant's sole shareholder and director, and
Réjean Asselin, a business valuator for the Canada
Customs and Revenue Agency.
[5] In her testimony, Ms. Beaudin
explained that the lease on the 1999 Mack truck had been assigned
by 2545-3267 to the appellant on June 17, 1999. A document
purporting to be, rather, a contract of sale was adduced in
evidence (Exhibit A-4). It states that the sale was
conditional on the transfer of the permit. In fact,
Ms. Beaudin admitted that only a lease assignment was
involved, since Location MSF Inc. ("MSF") owned
the truck, and that the document in question was drawn up to meet
a requirement of the Commission des transports du Québec
("Commission"). Moreover, MSF expressly approved the
change of lessee (Exhibit A-3).
[6] Before the lease assignment,
2545-3267 used the truck for the bulk transport of earth, sand
and gravel. The permit had to be transferred to the appellant in
order for that type of operation to be able to continue until
December 31, 1999. According to Ms. Beaudin, since the permit
granted was tied to the truck, it had to be transferred if the
appellant was to be able to continue with bulk transport.
However, she explained that the appellant actually used the truck
to transport long-cut timber and wood chips and that a
permit was not necessary for that type of transport.
[7] In spite of that, the application
to transfer the bulk transport permit was indeed made and signed
by Luc Beaudry for 2545-3267, described as the applicant/assignor
(vendor), and by Nadia Beaudin for the appellant, described as
the applicant/assignee (purchaser). The Commission granted the
application and the transport permit was indeed transferred from
2545-3267 to the appellant on July 6, 1999 (Exhibit
A-5). The processing fees paid to the Commission for the
transfer application amounted to $183 (Exhibit A-6).
[8] Ms. Beaudin explained in her
testimony that bulk transport permits were abolished as of
January 1, 2000, but said that she did not know whether holding a
permit prior to then gave the holder certain rights under the new
system. Ms. Beaudin also said that she did not know how much
2545-3267 paid to acquire the permit in 1990.
[9] Réjean Asselin, CMA, works
for the Canada Customs and Revenue Agency and has held a position
as a valuator since 1990. His status as an expert on business
valuation was not disputed by the agents for the appellant.
[10] Mr. Asselin determined that the bulk
transport (VR) permit transferred by 2545-3267 to the
appellant on June 17, 1999, was worth $10,000.
[11] Mr. Asselin's valuation is
essentially based on information he obtained during telephone
conversations, first with a Raymonde Lévesque from the
Sept-Iles bulk trucking association and then with one
Gilles Couture of the Ministère des transports of
Quebec.
[12] In his notes in the file (Exhibit I-1,
Tab 5), Mr. Asselin stresses the following, inter alia,
from his conversation with Ms. Lévesque:
[TRANSLATION]
Although a permit cannot be sold, she thinks that a value of
between $10,000 and $15,000 is reasonable for this region.
[13] The following notes to file are to be
found regarding the conversation with Mr. Couture (Exhibit
I-1, Tab 7):
[TRANSLATION]
I contacted Gilles Couture of the Ministère des
transports in Québec about the bill or new regulations
concerning VR permits.
There is indeed something in the works concerning the
deregulation of VR permits.
1. Abolition of VR permits.
2. New mandatory registration with the Commission des
transports for all public road works plus registration at the
brokerage substation of the region being served.
3. Completely deregulated
private market.
4. This change is the result of deregulation pursuant to the
federal transportation legislation.
Mr. Couture said that registration with the
Ministère des transports will be allowed only for those
who have a VR permit now and who are members of a truckers'
association-in other words, who are registered at a brokerage
substation in their region.
The effect of all of this is to lower the value of the
permits, although normally no value should be given to such
permits. However, on the market, the permits are traded between
unrelated parties.
I mentioned to him a value of about $10,000, added to the
truck's value, as being representative of the value of the
permit.
Mr. Couture found that very reasonable.
[14] Mr. Asselin explained that his
understanding of the new system that was to be in place starting
in 2000 is that holders of bulk transport (VR) permits were
recognized as having some acquired rights in the area of
transport for public purposes while private transport became
completely deregulated.
[15] Mr. Asselin also noted that
2545-3267 had acquired the permit from Gina Boudreault
on September 1, 1990, for $13,500 (Exhibit I-1, Tab 2). The
T2S(11) and CO-17S.10 forms as at February 28, 1991, refer to
goodwill of $13,500. Note 4 clearly states on the following page
that a transport permit (VR Region 09) was involved (Exhibit
I-1, Tab 3).
[16] The appellant did not provide any
evidence as to the value of the permit at the time it was
transferred by 2545-3267. Its agents merely asserted that there
had been a lease assignment by 2545-3267 to the appellant.
However, if I understand the reasoning correctly, since MSF owned
the truck and section 9 of the Regulation respecting bulk
trucking (R.R.Q. 1981, c. T-12, r. 3
("Regulation")) provided that a bulk trucking
permit was issued in a person's name for a designated truck,
it cannot be argued that there was a transfer between
2545-3267 and the appellant. The transfer was instead
between MSF and the appellant, which were dealing with each other
at arm's length so that section 160 of the Act is
inapplicable in the circumstances.
[17] Section 16 of the Regulation
authorized the holder of a bulk trucking (VR) permit to use a
leased truck provided that the holder met the conditions set out
in that provision. Obviously, MSF was the owner of the 1999 Mack
truck and 2545-3267 was the lessee thereof. The bulk
trucking permit for that truck was held by 2545-3267 for
the purpose of operating a bulk transport business, as attested
by the Commission's decision (Exhibit A-5). There was a
lease assignment from 2545-3267 to the appellant that was
approved by the truck's owner, MSF (Exhibit A-3).
Moreover, the bulk transport permit was transferred from
2545-3267 to the appellant, as shown by the
Commission's decision (Exhibit A-5). The appellant
gave no consideration for that transfer.
[18] Some might consider Mr. Asselin's
valuation quite perfunctory. However, the appellant did not
provide any evidence that the value of the permit at the time it
was transferred was less than $10,000.
[19] As a result of the foregoing, the
appeal is dismissed.
Signed at Ottawa, Canada, this 24th day of October
2001.
J.T.C.C.
Translation certified true
on this 25th day of February 2003.
Erich Klein, Revisor
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