Date: 19971223
Docket: 97-1498-IT-I
BETWEEN:
THÉRÈSE CÔTÉ-SICÉ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
TREMBLAY, J.T.C.C.
[1] This appeal was heard on November 12, 1997, at
Montréal, Quebec.
Issue
[2] According to the Notice of Appeal and the Reply to the
Notice of Appeal, the issue is whether the appellant is correct
in maintaining that she is not jointly and severally liable for
$2,669.11 under section 160 of the Income Tax Act
(“the Act”) in respect of her spouse’s
liability.
[3] According to the respondent, the appellant’s spouse
sold her his principal residence at 665, rue de Provence,
Longueuil, on August 23, 1993, for $84,376.29 even though it was
worth $128,000 ($88,350 according to the appraiser, Pierre
Fortin) and also transferred to her a commercial building at 899,
rue Verchères, Longueuil, the following September 8 for
$45,000 even though it was, the respondent claims, worth $73,000
($32,000 according to the appraiser, Pierre Fortin).
[4] The appraisal reports by the appraiser, Pierre Fortin,
state that the fair market value (hereinafter “FMV”)
of the residence for which $84,376 was paid was $88,350, and not
$128,000 as claimed by the respondent, and that the FMV of the
commercial building for which $45,000 was paid was $32,000, and
not $73,000 as claimed by the respondent. At the time of the
sales, the spouse owed $5,668.60 in taxes.
[5] According to the respondent, given that the vendor and
purchaser are married and that the sale prices are below the real
values, the consideration paid by the appellant is at least equal
to the spouse’s tax liability.
[6] The appellant argued that the FMVs relied on by the
respondent, namely $128,000 and $73,000, are grossly exaggerated
and unfounded. The appellant said that she hired an appraiser to
determine the FMV of the immovables and that the price paid was
equal to the FMV.
Burden of proof
[7] The appellant bears the burden of showing that the
respondent’s assessments are wrong. This burden of proof
derives from a number of judicial decisions, including the
decision of the Supreme Court of Canada in Johnston v.
Minister of National Revenue.[1]
[8] In Johnston, the Court held that the facts assumed
by the respondent to support assessments or reassessments are
also presumed to be true until proven otherwise. In the case at
bar, the facts assumed by the respondent are described in
subparagraphs (a) to (h) of paragraph 17 of the Reply to the
Notice of Appeal. That paragraph reads as follows:
[TRANSLATION]
17. In making the assessment of August 28, 1996, notice of
which is numbered 01568, the Minister of National Revenue assumed
the following facts, inter alia:
(a) on August 25, 1993, Michel Sicé sold the appellant
the principal residence located at 665, rue de Provence,
Longueuil, for $84,376.29;
(b) on September 8, 1993, Michel Sicé sold the
appellant a commercial building located at 899, rue
Verchères, Longueuil, for $45,000;
(c) at the time of the sales, the appellant was married to the
vendor, Michel Sicé, under the regime of separation as to
property pursuant to a marriage contract entered into on
July 31, 1951;
(d) at the time of the sales, the fair market value of the
immovable at 665, rue de Provence, Longueuil, was $128,000 and
the fair market value of the immovable at 899, rue
Verchères, Longueuil, was $73,000;
(e) moreover, Michel Sicé owed $5,668.60 in taxes at
the time of the sales;
(f) the appellant was related to Michel Sicé at the
time of the sales, since she was his spouse;
(g) the fair market value of the immovables sold was higher
than the consideration paid by the appellant, and the difference
between that fair market value and the consideration paid by the
appellant is at least equal to Michel Sicé’s tax
liability;
(h) the appellant is jointly and severally liable for
$2,669.11 of the taxes owed by the transferor of the immovable
property referred to above.
[9] The appellant admitted subparagraphs (a) to (f) of
paragraph 17 of the Reply to the Notice of Appeal and denied
subparagraphs (g) and (h).
Facts in evidence
[10] After the above admissions were made, the evidence was
completed by the testimony of Pierre Fortin, a chartered
appraiser from the firm of Fortin, Duchesneau &
Associés Inc., Michel Sicé, a surveyor, and the
appellant, and by Exhibits A-1 to A-11 and
I-1.
[11] Mr. Fortin studied the two properties in issue, which are
in Longueuil. Mr. Fortin is quite familiar with that city, since
he owns four residential properties there. He worked for the city
for two years doing property appraisals. During that time, he
appraised 3,000 dwellings. He therefore has special knowledge of
the residential market in Longueuil.
[12] The appraisal report for the residence at 665, rue de
Provence, Longueuil, was filed as Exhibit A-1. After
visiting the premises and taking numerous photographs of both the
exterior and the interior (Exhibit A-3), the appraiser
noted a number of defects: cracked foundation and basement floor,
furnace needing replacement, windows needing replacement, land in
poor condition. The interior of the house is not even up to the
standards of the time it was built. The house, which was built in
1962 using limestone brick, and which is thus of lower quality,
has not undergone any major renovations, unlike three other
similar houses, two of which are on the same street. Mr. Fortin
appraised the house at $95,000. He argued that the municipal
assessment of $127,000 ($55,600 for the land and $71,500 for the
building) in no way reflects the property’s value. He also
argued that the municipal assessment is not itself representative
of the FMV. He referred, inter alia, to an immovable in
St-Antoine de Longueuil for which the municipal assessment
was $1,684,800 and the property taxes were $49,772. The immovable
was sold for $400,000 (Exhibit A-5). He also referred to a
residential property on boulevard Lafayette in Longueuil for
which the municipal assessment was $733,000 and which was sold
for $250,000. A study of the market at the time of the sale is
what determines the fair market value
(Exhibit A-4).
[13] According to Mr. Fortin, the $95,000 value represents the
sale price that a vendor not under any compulsion to sell could
have obtained for the item being appraised on August 25, 1993. A
seven percent commission would have had to be paid to the broker,
resulting in a net sale price of $88,350.
[14] The appraisal report for the second property sold, which
is located at 899, rue Verchères, Longueuil, was
filed as Exhibit A-2. According to the municipality, the
value of the land is $38,900 and the value of the building is
$34,100.
[15] The permitted uses are as follows:
C-2 retail business
C-3 heavy retail business
C-4 heavy service business
C-5 recreation business
[16] The current zoning does not authorize the construction of
new residences or the redevelopment of existing premises for
residential purposes.
[17] The property in question is made up of 6,174 square feet
of land on which a former residence now used as a workshop and a
garage and shed have been built.
[18] The main building is a one-storey wooden building
with aluminum siding and sliding vinyl windows. It was built in
1949 on concrete block foundations with a tar and gravel
roof.
[19] The building measures 21 feet by 29 feet, which means
that it has a living space of 609 square feet.
Potential use
[20] The property under consideration is a former residence
converted to a workshop by a land surveying firm.
[21] The appraisal of the property must be based on its
highest and best use.
[22] Determining its potential use is problematic for the
following reasons:
- the main building is now used as a workshop;
the layout of the building is not functional and does not in
any way meet modern standards for use as a workshop or
office;
the heterogeneous neighbourhood, in which car and motorcycle
repair businesses predominate, is not conducive to use as a
workshop or office;
- the current building is designed for low-end
residential purposes but is being used for commercial
purposes;
despite the existing residential layout of the building, the
current zoning apparently does not authorize reconversion to
residential use.
[23] According to the appraiser, there is no question that the
highest and best use would be to demolish the improvements to the
land and the existing buildings so that a new building could be
built and used for a business appropriate to the neighbourhood,
probably in the field of car or motorcycle repairs.
[24] To appraise the property, Mr. Fortin chose the direct
comparison approach after justifiably rejecting the cost approach
and the income approach. For this purpose, he used 13 sales of
similar properties, four of which were rejected and nine of which
were retained. He allotted $6 a square foot to the land, which
resulted in a value of $37,000, from which he subtracted $5,000
for the demolition of the three existing buildings: [TRANSLATION]
“The presence of those buildings limits the highest and
best use of the land in question.” According to
Mr. Fortin, the FMV is therefore $32,000.
[25] A second scenario was considered involving the commercial
use of the existing buildings, having regard to a list of five
property sales of low-end residences in Longueuil. He came
up with an appraisal of $34,400. Under this scenario as well, the
appraiser factored in a seven percent real estate brokerage fee,
which left the vendor with a net sale price of $32,000.
[26] The respondent did not submit an appraisal report. She
based her assessment on the $128,000 municipal assessment for the
house at 665, rue de Provence, Longueuil, and the $73,000
municipal assessment for the immovable at 899, rue
Verchères, Longueuil.
Testimony of Michel Sicé
[27] Michel Sicé, a land surveyor and the
appellant’s spouse, purchased the residence at 665, rue de
Provence, Longueuil, for $74,800 on January 29, 1982. The
purchase of the house was financed in part by a $47,000 loan from
the Caisse populaire de Montréal sud and in part by a
$27,800 loan from the appellant, his spouse, at 13 percent
interest (Exhibit A-6). When he sold the residence to his
spouse in 1993, the hypothec from the Caisse populaire amounted
to $56,573.29. In addition, he had never paid his spouse any
interest or principal in connection with the $27,800. The
appellant confirmed this in her testimony. After he had a heart
attack in 1993, the witness was no longer able to meet his
financial obligations. He would have had to give the immovable to
the Caisse in payment of the hypothec. He would likewise have had
to give the immovable on rue Verchères to the National
Bank if his spouse had not taken everything in hand.
[28] The National Bank of Canada had a $45,000 hypothec
(Exhibit A-10) on the land and buildings at 899, rue
Verchères, Longueuil, Quebec, that were sold on September
8, 1993. A hypothecary guarantee in favour of the National Bank
was registered the same day in Thérèse
Côté’s name (Exhibit A-9), and a release
was granted to Michel Sicé on October 1, 1993 (Exhibit
A-8).
[29] The renunciation of partition of the family patrimony
signed by Michel Sicé and Thérèse
Côté on August 2, 1990, in accordance with
articles 462.1 to 462.13 of the Civil Code of Québec,
was filed as Exhibit A-11.
[30] To comply with section 9 of the Act respecting duties
on transfers of immovables, the parties to the sales in
question declared that the amount of the consideration was
$120,160 for the immovable on rue de Provence (Exhibit A-7)
and $73,000 for the immovable at 899, rue Verchères.
[31] While cross-examining Mr. Sicé, the respondent
filed Mr. Sicé’s balance sheet as of November 30,
1992. According to that balance sheet, the family home was
appraised at $125,000, with a $75,000 first-ranking
hypothec and a $28,000 second-ranking hypothec, and the
office land at 899, rue Verchères was appraised at
$40,000.
[32] The appellant testified that she was never paid any
interest on the $27,800 she had loaned, which ranked second. She
also said that the money she loaned was her own money.
Analysis
[33] After hearing the evidence, the Court is of the view that
the studies of the two immovables by the appraiser, Pierre
Fortin, and the resulting opinions as to their value are
correct.
[34] The respondent’s reliance on the municipal value
alone, without an appraisal report, cannot legitimately
contradict the detailed studies by the appellant’s
appraiser.
[35] The respondent’s closely conducted
cross-examination did not demolish the appraiser’s
study. However, the Court does not agree with the appraiser that
the seven percent paid to the broker must be considered in
determining the FMV for the vendor. The FMV must be the same for
the purchaser and the vendor. If additions or subtractions have
to be made thereafter for whatever reason, this cannot, in my
view, affect the fair market value.
[36] The Court cannot objectively take account of the
consideration of $120,160 for the residence and $73,000 for the
commercial building that the parties stated in the contracts to
comply with section 9 of the Act respecting duties on
transfers of immovables (Bill 47). Those figures have no
scientific value.
[37] For the principal residence, it is the Court’s
opinion that the appellant paid more than $56,576.29, that is,
the first-ranking hypothec that existed at the time in
favour of the Caisse populaire Desjardins
Montréal-Sud; she also paid the $27,800 principal on
the second-ranking hypothec in favour of the appellant
herself at 13 percent compound interest; over 11 years, the
interest would have come to $39,754 if it had been simple
interest only.
[38] The respondent, who was unaware of the
above-mentioned interest, argued that, on the basis of this
first transaction, the appellant must pay $4,073.81 of her
spouse’s liability: first, $56,576 + $27,800 = $84,376;
this amount must then be subtracted from $88,350, the value
arrived at by the appraiser, Mr. Fortin, in Exhibit A-1:
$88,350 - $84,376 = $4,073.81.
[39] In fact, to determine the actual amount paid by the
appellant, should the Court not take account of the interest she
never received? The Court believes that it should.
[40] The respondent also argued that she does not have to
consider the second transaction involving the commercial building
on September 8, 1993, since it occurred after the transaction
involving the principal residence on August 25, 1993.
Since the sale of the two immovables resulted from the fact that
Mr. Sicé could no longer work and thus generate
income because of a heart attack, since the two immovables would
in any event have been given to the hypothecary creditors in
payment and, finally, since there was only a short time between
August 25 and September 8, 1993, it should be concluded that the
two transactions must be considered as a single event.
[41] The appraisal report on the industrial immovable (Exhibit
A-2) stated that it had an FMV of $32,000 ($34,400 if we
ignore the seven percent fee) when it was sold rather than
$73,000 as suggested by the respondent. The appellant paid
$45,000 for it (hypothec from the National Bank of Canada), and
hence $10,400 too much. Even if no account is taken of the
$39,754 in simple interest that the appellant never received in
the transaction involving the residence, the amount paid by the
appellant would still be higher than the value of the immovables
in question taken as a whole. This is because $34,400 must be
added to $95,000 (see end of [38]), resulting in an FMV of
$129,400, and $45,000 must be added to $84,376 (price actually
paid) = $129,376 (price paid). Therefore, the appellant would
have paid $24 less ($129,400 - $129,376), without considering the
interest owed by the vendor. If that interest did not have to be
considered, the Court would say, in a case of this kind, that for
the $24 “De minimis non curat praetor”.
The appellant cannot be liable in respect of Michel
Sicé’s tax liability.
Conclusion
[42] The appeal is allowed with party and party costs,
including the fees of the appellant’s appraiser, and the
assessment is vacated.
Signed at Québec, Quebec, this 23rd day of December
1997.
“Guy Tremblay”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 16th day of November
1998.
Kathryn Barnard, Revisor
Email this Content