[OFFICIAL ENGLISH TRANSLATION]
Date: 20010319
Docket: 2000-1389(IT)I
BETWEEN:
CAROLINE BOULIANNE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Alain Tardif, J.T.C.C.
[1] This is an appeal from an
assessment made under section 160 of the Income Tax Act
("the Act"). The notice of assessment, numbered
15876 and dated February 1, 1999, concerns the 1996 taxation
year, which corresponds here to the fiscal year ended on January
31, 1997.
[2] Subsection 160(1) of the
Act reads as follows:
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.
[3] The evidence showed that in 1992
the appellant and her former spouse invested in the establishment
of three physiotherapy clinics. The clinics very quickly became
highly successful. The appellant, a physiotherapist by
profession, involved herself completely in the clinics; her
presence was essential, since she alone had the expertise upon
which the smooth operation of the clinics was totally dependent,
as her spouse handled only the management of the clinics.
[4] The appellant said that she worked
very steadily and put in very long hours, which she did
year-round during the first few years because of her very great
availability at that time. At first, since her personal financial
needs and those of the family unit were relatively modest, she
and her spouse having no dependants, any surpluses were
reinvested in the business.
[5] In 1995, the appellant gave birth
to twin girls and therefore had to be away from the clinics for a
long time. When she returned in early 1996, she realized that the
clinics' financial situation had seriously deteriorated
because of her spouse's many withdrawals.
[6] She then became aware that her
spouse was using drugs excessively; he had very seriously
neglected the management of the clinics while at the same time
spending money for his drug use.
[7] She said that she understood at
that point that her spouse had made false representations to her
regarding certain expenses that, in reality, had clearly been
incurred to buy drugs.
[8] Once she had come to this
realization, the situation between her and her spouse very
quickly deteriorated to such a degree that she decided, for both
her own safety and that of her two young children, to leave her
spouse and initiate divorce proceedings in the fall of 1996.
[9] In the course of the divorce
proceedings, she had to accept that her daughters' father
would see them, take them out and have custody of them on the
weekends. He had become very violent and aggressive and had
promised to ruin the appellant. She testified that she was
traumatized by the idea that he would retaliate against her two
very young children if she asserted herself or blocked or
challenged anything at all in the process of liquidating the
clinics' assets.
[10] To avoid such retaliation and to get
things over with as quickly as possible, she agreed to
everything, especially since she was neither familiar with nor
informed about the management side of the clinics. She preferred
to withdraw quietly with the idea of starting all over again once
the liquidation was completed and there was relative calm again
following the divorce.
[11] The appellant stated categorically that
she received absolutely no dividend, even though the accounting
records indicate the contrary. She revealed that the company was
greatly indebted to her by reason of her capital investment, her
involvement in the company, and the work she did for it, and
that, in spite of all that, she came out of the venture ruined.
The Court has no reason not to believe the appellant, who
testified in an irreproachable manner.
[12] The respondent argued vigorously that
the facts were in no way relevant given what is stated in the
following paragraphs of the Amended Notice of Appeal:
[TRANSLATION]
. . .
(7) To begin with,
the appellant and her former husband were equal shareholders in
9006-2290 Québec Inc. during the fiscal year ending on
January 31, 1997;
(8) During the year,
the appellant took advances from the company because she was
running it and working there full time;
(9) At the time she
took the advances, the company was solvent and was making its
various tax payments when required;
(10) During the fiscal year
ending on January 31, 1997, the appellant's former husband,
Martin Tremblay, took, without authorization, considerable sums
of money from the company's account for his personal needs,
as will be shown at the hearing;
(11) At the end of the year, the
company had to be wound up because it was impossible for the
appellant and the said Martin Tremblay to come to an
agreement;
(12) The sums of money taken by
the appellant as advances at the time were reported to Revenue
Canada as dividends;
. . .
[13] The Court concludes from the evidence
that the allegations described as admissions by the respondent
related solely to the wording used by the accountant. Moreover,
the appellant stated that she self-assessed on the basis of
that wording.
[14] She admitted through her counsel that,
by her signature, she had agreed to the wording used by the
accountant. This, however, does not have the effect of precluding
her from proving that she did not receive the amounts
indicated.
[15] Moreover, it is my view that the
appellant could simply have repudiated her signature given the
very unusual circumstances of her relationship with her former
spouse. She did not do so, and she admitted that she
co-operated in an attitude of total submission because of
the potential danger to her children.
[16] I also observed that the fears and
grievances described by the appellant were not exaggerated, since
she also indicated that she had had to face all kinds of problems
as a result of complaints filed by her former spouse with the
physiotherapists' professional corporation, the Commission de
la santé et de la sécurité du travail,
etc.
[17] The weight of evidence indicates that
the appellant never obtained or received the amounts alleged.
Accordingly, there was never any transfer of property such as
would make section 160 of the Act applicable.
[18] Moreover, if the weight of evidence had
made it possible to conclude that a transfer occurred, there
again, it is my view that the evidence provided a sufficient
basis for a conclusion that the transfer was made for real
consideration.
[19] For all of these reasons, the appeal is
allowed without costs.
Signed at Ottawa, Canada, this 19th day of March 2001.
J.T.C.C.
Translation certified true
on this 31st day of July 2002.
Erich Klein, Revisor
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