Date: 20010119
Docket: 1999-1679-IT-G
BETWEEN:
ROBERT EBERLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Counsel for the Appellant: Gregory A. Swanson
Counsel for the Respondent: Gerald Chartier
____________________________________________________________________
Reasons for Judgment
(Delivered orally from the Bench at Regina, Saskatchewan on
November 3, 2000)
McArthur J.
[1]
This appeal is from an assessment for the Appellant's 1994
taxation year. There are three issues arising and they include:
Did the Minister of National Revenue correctly add $110,000 to
the Appellant's taxable income pursuant to subsection 15(1)
of the Income Tax Act on the basis that the Appellant did
not sell land to D & K Properties Ltd. (the corporation) in
1994? Did the Minister correctly apply approximately $8,000 as a
standby charge on the basis that the Appellant made personal use
of a 1993 GMC 4X4 truck owned by the corporation? And finally,
should the Minister have assessed penalties of approximately
$17,000 as against the Appellant pursuant to subsection 163(2) of
the Act. I shall commence with the land sale or transfer
which is the most important question.
[2]
The Appellant has been a farmer, businessman, and hotel owner or
manager for many years. In 1992, his son Dwayne took title from
Farm Credit Corporation to four parcels of farmland, each
described as a ¼ section containing approximately 160
acres. The consideration for one parcel partially described as
the S.E. ¼ Section 9 was $23,360; and the second parcel,
S.W. ¼ Section 23, was purchased for $25,000. I believe
the remaining two quarter sections had similar values. A mortgage
of $60,000 was granted by Dwayne to the Royal Bank of Canada
secured by all four parcels.
[3]
The Appellant and Dwayne were the sole witnesses for the
Appellant. I have no difficulty in finding as a fact that Dwayne
held all the land in trust for the Appellant, his father, for the
following reasons. Before 1991, the Appellant had apparently
owned the land personally. Farm Credit Corporation took ownership
of that land by way of foreclosure in 1991. In 1992, there were
writs of execution filed against the Appellant by Shelter
Corporation of Canada Limited, Canadian Imperial Bank of
Commerce, Agricultural Credit Corporation, and the Minister of
National Revenue. The Appellant and not his son, made all the
arrangements for the purchase, mortgage and balance due on
closing in the purchase transactions. Upon the Appellant's
instructions, his son signed as purchaser but obviously had no
grasp of the details. The Appellant managed the land leasing all
or part of it to his brother who farmed it, sold grain and paid
rent to the Appellant. Dwayne was not aware of any sale to the
corporation.
[4]
About February 1996, Dwayne declared in writing that he held the
two remaining parcels (not included in those two parcels that
were sold to the corporation) for the Appellant. Upon the
Appellant's direction, Dwayne transferred the S.E. ¼
Section 9 to a third party for the sum of approximately $34,000.
There was a discrepancy in the amounts since the Appellant's
accountant recorded the figure of $38,000. Shortly after the
sale, the Royal Bank mortgage was discharged. The primary
question in this appeal is whether the Appellant sold or
transferred two ¼ sections to the corporation on or before
August 31, 1994.
[5]
The Appellant was a somewhat evasive witness. Even in direct
examination, he answered with hesitation, leading me to conclude
that he was searching for a response that placed him in the most
favorable light, whether it be accurate or not. The Appellant
purchased 50% of the corporation's shares in April 1994 from
his daughter. Mr. Karl Hansen, an independent third party, owned
the remaining 50% of the shares. The corporation owned and
operated an inn with 34 rooms, a lounge, restaurant and banquet
facilities. The Appellant operated the inn with his wife and son
and daughter. In 1994, the Appellant owed the corporation a
shareholder's loan in the amount of $110,000. From previous
business experiences, he knew he had to pay it back by the
corporation's year end of August 31, 1994 or have it added as
a benefit to his taxable income. At some point in time after
August 31, 1994, he informed his accountant, who was also the
accountant for the corporation, that effective August 31, 1994 he
sold two ¼ sections of land to the corporation for
$110,000, thus wiping out his shareholder's loan. On January
31, 1995, the accountants requested the Appellant's law firm,
specifically Greg Swanson who represented the Appellant in this
appeal, to prepare any required legal documentation to reflect
the Appellant's sale of the land to the corporation.
[6]
The question before me boils down to whether the Appellant
effectively sold the land to the corporation on or before August
31, 1994. I find he did not for the following reasons. On August
31st, 1994, (i) there was no transfer, registered or
unregistered; (ii) there was nothing in writing whatsoever to
reflect the sale; (iii) the 50% owner of the corporation,
Mr. Hansen, was not consulted; (iv) there was no evidence that
the Appellant had contracted with himself; (v) there were no
corporate resolutions; (vi) there was no contract of any kind
with Mr. Hansen; (vii) the law cannot accept oral
contracts with oneself because they are contrary to basic
contract law principles. I believe such contracts should be
reduced to writing to be binding; (viii) there was no evidence of
a bargain struck between the Appellant and the corporation; (ix)
there was no evaluation of the land and the $110,000 value
appears to relate more to the Appellant's indebtedness than
to fair market value. The only evidence of value is the purchase
price of the two parcels in 1992 which totaled less than half the
sale price; (x) the purported sale was apparently for the lands
clear of encumbrance, yet the Royal Bank of Canada mortgage
remained; (xi) the oral contract, if any, fails to satisfy the
certainty of the terms requirement of contract law; (xii) it does
not make commercial sense that the Appellant would enter into a
contract with a company that was equally owned by another partner
(shareholder) without his consent and without due diligence as to
terms, purchase price, etc. More than a possible intention to
transfer is far from enough; (xiii) I do not believe the
uncorroborated evidence of the Appellant that he entered into an
oral contract with himself prior to August 31, 1994 even if this
were sufficient, and it is not; and (xiv) the Statute of
Frauds for the Province of Saskatchewan requires a document
to be in writing for the sale and transfer of land. Any
corroboration in writing was prepared after August 31, 1994 such
as the accountant's financial statements, accounts prepared
for income tax returns, an unsigned and undated Agreement of
Purchase and Sale, and evidence that Mr. Hansen was aware of
the transaction. The Appellant and Mr. Hansen had a bitter
falling out commencing in 1994-1995 culminating in Minutes
of Settlement between them dated 1997.
[7]
Counsel for the Respondent referred to the Statute of
Frauds as it applies to the sale of land in Saskatchewan.
Counsel for the Appellant relied on the doctrine of part
performance. The cases submitted for this doctrine can easily be
distinguished from the present facts. For instance, in
Thompson v. Guaranty Trust Co. of Canada,[1] Spence J. quoted with
approval, the House of Lords in Maddison v. Alderson,
(1883), 8, APP. Cas. 467 where Earl Selborne states:
... the acts relied upon as part performance must be
unequivocally, and in their own nature, referable to some such
agreement as that alleged ...
The acts of the Appellant were far from unequivocal for the
reasons enumerated earlier. I quote, with approval, some of the
passages in the cases referred to by the Respondent and they
include: Lefebvre et al. v. M.N.R.,[2] where Mogan J. stated:
... The Respondent submits that, if the Appellants are to
succeed in establishing their ownership of an interest in the
Subject Land prior to January 23, 1980, they must overcome
section 4 of the Statute of Frauds which requires a
memorandum in writing signed by the parents, Antoine and
Florence. There is no evidence of such memorandum, and so counsel
for the Appellants advanced four arguments to overcome section 4
of the Statute of Frauds.
...
In the Law of Real Property by Anger and Honsberger, (2d)
1985, the following statement appears at page 1087:
... the doctrine of part performance evolved on two parallel
lines. First, equity would not allow a defendant successfully to
plead the Statute of Frauds as a defense where the
plaintiff had relied substantially on the defendant's
promise. Secondly, the acts of reliance by the plaintiff were
evidence that a contract between the parties in fact existed and
should be enforced. It is a condition of the application of the
doctrine of part performance that 'the acts relied upon ...
must be unequivocally, and in their own nature, referable to some
such agreement.
Throughout the 1970's, the family farm comprised the 98 acres
of Adjoining Land to the north containing the farm house plus the
160 acres of the Subject Land to the south. The Appellants'
conduct after 1972 of helping to work the family farm and to
repay the $10,000 loan is equivocal in the sense that it could
reflect the family tradition of all working together or it could
reflect an expectation that the Subject Land would be gifted at
some future time. I cannot conclude that such conduct was based
unequivocally on the Appellants' reliance on their
parents' promise of the Subject Land.
[8]
In the case of Rose v. M.N.R.,[3] the Federal Court of Appeal said in
circumstances somewhat similar to the present appeal:
... There is no evidence that the contract was executed
in the meantime and it must be remembered that the onus of proof
was on the appellant.
Furthermore, ... there is a complete absence of any evidence
that the partnership ever authorized the five directors to carry
on the partnership business. ... In a case where the
partners are corporations, ... I should have thought that,
before individuals can carry on business on behalf of the
partnership, they must have some authority from the corporate
partners and that it would ordinarily be given by way of
corporate resolutions. ...
There are several other cases cited by counsel for the
Respondent of which I approve and will not refer to further in
this judgment.
[9]
For the above reasons, I find that the Appellant did not sell the
land to the corporation at any time material to the appeal. In
recording the alleged transfer by adjusting personal entry number
15 of the corporation, it conferred a benefit on the Appellant
and the Minister properly assessed the Appellant for $110,000
pursuant to subsection 15(1) of the Act.
[10] I now
turn to the standby charge. The following facts are for the most
part not in dispute: The corporation purchased a 1993 GMC 4X4
1993 for the amount of $33,300. The truck was made available to
the Appellant for his use during the 1994 taxation year. The
Appellant did not pay the corporation for his use of the truck.
The corporation paid the operating costs, gas, maintenance and
repairs of the truck. The Appellant failed to keep records of
business and personal mileage. During the 1994 taxation year, I
find that the Appellant used the truck in part for personal use.
The position of the Appellant is taken from the Appellant's
Notice of Appeal as follows:
13.
In 1993, the Company purchased a 1993 GMC 4X4 truck (the
'Truck') for $33,300.00 which was made available to the
Appellant for his use.
14.
The Appellant was required by the Company to use the Truck in the
performance of his duties as an employee of the Company. All or
substantially all of the travel using the Truck was in connection
with purposes related to the business of the Company, including,
but not limited to, the following:
(a)
taking daily deposits to the Royal Bank in either Wapella or
Moosomin;
(b)
picking up food and supplies at least once per week from either
Regina or Yorkton;
(c)
picking up liquor supplies and returning bottles.
15.
The Respondent assessed the Appellant a standby charge of
$8,103.00 regarding the Truck pursuant to section 15(5) of the
Income Tax Act.
16.
The Respondent has erred in assessing the Appellant regarding the
Truck in that she failed to consider that:
(a)
the Appellant was required by the Company to use the Truck in the
course of his employment;
(b)
all or substantially all of the distance traveled by the Truck
was in connection with or in the course of the Appellant's
employment;
(c)
the Appellant owns a 1993 Buick automobile which he used for his
personal driving needs.
[11] The
Appellant, for the first six months of 1994, lived with his wife
at least part-time in a cottage in White Bear and drove
approximately 60 kilometers from time to time to work in
Whitewood. In August 1994, they moved to Whitewood to save time
in driving back and forth. During the first six months, the
Appellant states that they traveled only about six times from
White Bear to Whitewood. He obviously was very busy at the hotel,
when one considers the gross income which was in excess of
$800,000, and did not have time to commute the 120 kilometers
round trip. He traveled from Whitewood to Regina and other
municipalities to pick up supplies, do banking and other
responsibilities.
[12] His son
corroborated the Appellant's evidence to the effect that the
truck was used primarily for business purposes. There was
evidence that other vehicles were available to him for personal
use. He kept no logs and other records and his memory was
somewhat faulty, but I accept that he used the truck in
connection with his work to the extent of 80% of the time. The
standby charges shall be adjusted pursuant to subsection 15(5)
which states in effect that a shareholder who has an automobile
made available to him by the corporation shall include a benefit
as the circumstances require. The estimate of 20% for personal
use is somewhat rough and ready, but is the most reasonable
considering the evidence available to me.
[13] The final
point is that of penalty. The onus is on the Minister to justify
the penalties imposed under subsection 163(2). I find that the
gross negligence necessary to justify penalties pursuant to that
subsection has not been established. In the same way as I have
concluded that the Appellant failed to meet the onus of proof in
challenging the Minister's assumptions with respect to a
shareholder benefit, I find that the Minister has failed to
establish proof necessary to justify penalties.
[14] In
conclusion, the appeal is allowed to reduce the standby charge of
$8,103 to $1,620 and to delete the assessed penalties. In all
other respects, the appeal is dismissed, and costs are allowed to
the Respondent in accordance with the tariff.
Signed at Ottawa, Canada, this 19th day of January, 2001.
"C.H. McArthur"
J.T.C.C.
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