Citation: 2013 TCC 179
Date: 20130606
Docket: 2009-3541(GST)G
BETWEEN:
ÉRIC ST-DENIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Rip C.J.
[1]
The
issue in this appeal is whether the assessment issued against Éric St‑Denis
under section 325 of the Excise Tax Act (ETA) is valid.
[2]
On
December 14, 2007, there were executed before notary Pierre Audet three deeds
of sale whereby the appellant and his mother, Ms. Cousineau, acquired
three buildings owned by 9161‑4727 Québec Inc. (the Seller):
(a) The
appellant acquired the property at 404 Ellice Street for $300,000.
(b) Ms. Cousineau acquired the
property at 400 Ellice Street for $175,000.
(c) Ms. Cousineau acquired the
property at 396 Ellice Street for $1.
[3]
According
to the appellant, he, not Ms. Cousineau, was to become the owner of the
property located at 396 Ellice Street (the Property).
[4]
On
September 13, 2007, the appellant had signed a promise to purchase whereby he undertook
to acquire 404 Ellice Street for $300,000 (the Promise to Purchase). In clause 8.1
of the Promise to Purchase, the Seller agreed to [translation] "sell the property at 396 Ellice Street
[the Property] for one dollar."
[5]
Mr. Audet acknowledged
at the hearing that the deed of sale for the Property, dated December 14, 2007
(the Deed of Sale) is erroneous as regards the acquirer of the Property. The
appellant and his father, who was a witness during the negotiations between the
appellant and the Seller and at the signing of the Deed of Sale, gave similar
testimony. Mr. Audet admitted that he was responsible for the error.
[6]
Again
according to the appellant, it was on receiving from the City of Salaberry-de-Valleyfield the transfer tax notices, dated January 11, 2008, that he and Ms.
Cousineau became aware of the error in the Deed of Sale. The appellant claims
to have advised Mr. Audet immediately.
[7]
To rectify
the situation, on January 22, 2008, the appellant and Ms. Cousineau signed
a deed of assignment prepared by Mr. Audet whereby Ms. Cousineau assigned
the Property to the appellant for $1 (the Deed of Assignment).
[8]
As of
January 22, 2008, Ms. Cousineau owed an amount of $170,364.97 for
three non-consecutive quarters starting October 1, 2004, and ending December
31, 2006, pursuant to subsection 228(2) of the ETA.
[9]
As a
result, the Ministère du Revenu du Québec (Revenu Québec) issued against the
appellant, pursuant to section 325 of the ETA, the notice of assessment
dated March 12, 2008, and bearing number BR‑07‑148 for the amount
of $55,754.10 (the Notice of Assessment).
[10]
On April
22, 2008, by a deed executed before Mr. Audet, the appellant, Ms. Cousineau
and the Seller acknowledged that on December 14, 2007, the Property should have
been sold by the Seller to the appellant and not to Ms. Cousineau (the
"Deed of Correction").
[11]
Reduced
to its simplest expression, the appellant's position is that section 325 of the
ETA does not apply in this appeal because there was no transfer of property between
persons not dealing at arm's length. Throughout the hearing, the appellant put forward
many arguments in support of this position.
[12]
First
of all, the appellant maintains that the transfer of the Seller's Property to
Ms. Cousineau through the Deed of Sale was the result of an error by not
only Mr. Audet but also the parties to the Deed of Sale. The appellant contends
that the following elements militate in favour of the recognition of this error:
(1) the testimony of the appellant, the appellant's father and Mr. Audet regarding
the error, (2) the presence in the Promise to Purchase of clause 8.1,
according to which [translation]
"[t]he Seller undertakes to sell the property at 396 Ellice Street [the
Property] for one dollar", and (3) a comparison of the sale price of the Property and
the properties at 400 and 404 Ellice Street and the values shown
on the transfer tax notices for those properties.
[13]
In
his response to the respondent's written submissions, the appellant states that
he is not trying to contradict what Mr. Audet was mandated to record in the
authentic act that is the Deed of Sale. The appellant argues, rather, that
there was an error of consent with regard to the Deed of Assignment between Ms. Cousineau
and the appellant.
[14]
The
appellant contends that the Deed of Assignment was prepared erroneously by Mr. Audet
for the purpose of avoiding the payment of transfer taxes and that this Deed is
not in accordance with the appellant's intentions. Accordingly, the appellant
relies on articles 1399, 1400, 1407 and 1422 of the Civil Code of Québec
(the CCQ)
to assert that he can validly request the annulment of the Deed of Assignment,
in which case the Deed will be deemed never to have existed. The assessment
should therefore be vacated because the Deed of Assignment on which it is based
will have been annulled. The appellant thus maintains that he is not required
to proceed by improbation to obtain the annulment of the Deed of Assignment.
[15]
The
appellant asserts that the respondent must assess him on the basis of real
transactions and argues, accordingly, that the respondent is required to act in
accordance with the Deed of Correction. The appellant submits that the Deed of
Correction set the facts straight regarding the purchase of the Property, so
that the acquirer of the Property was the appellant and not Ms. Cousineau,
in conformity with the Promise to Purchase. That is tantamount to asking that
the Deed of Correction be given the following effects: (1) the retroactive
annulment of the Deed of the Assignment and (2) the correction of the Deed
of Sale. In other words, the appellant contends that because he, his mother and
the Seller acknowledged in the Deed of Correction that the Property had belonged
to the appellant since December 14, 2007, that being the date the Deed of Sale
was signed, the Property had at that time passed directly from the Seller's patrimony
to the appellant's.
[16]
The
appellant also emphasizes that the Deed of Sale and the Deed of Assignment were
not counterletters or simulations and the Minister therefore cannot benefit
from the protection under article 1452 CCQ afforded third parties who are
in good faith. The
appellant points out as well that Ms. Cousineau never indicated to the tax
authorities that she was the owner of the Property, and that the rental income
from the Property was included in the appellant's tax returns.
[17]
In
the alternative, the appellant contends that the Deed of Assignment is a
transaction within the meaning of article 2631 CCQ, namely a contract by
which the parties prevent a future contestation. Hence, the appellant submits
that through the Deed of Assignment he was able to recover the rights that he
already held in the Property and that its purpose was to ensure that no
proceedings would be instituted by him. The appellant concludes from this that
the consideration he provided to acquire the Property is greater than $1.
[18]
The
respondent presents the following arguments in support of her position that the
Deed of Assignment resulted in a transfer of the Property between Ms. Cousineau
and the appellant on January 22, 2008, for consideration lower than its fair
market value.
[19]
The
respondent submits that the Deed of Sale and Deed of Assignment are authentic acts.
These deeds consequently make proof against all persons of the juridical acts
which they set forth and of those declarations of the parties which directly
relate to the acts. Without improbation, the appellant cannot contradict the
Deed of Sale and Deed of Assignment (art. 2821 CCQ).
[20]
The
Minister relies on Leclerc v. Her Majesty the Queen, [2001] T.C.J. No.
422 (QL), at paras. 26-27, to affirm that the drafting and signature of a new
contract such as the Deed of Correction did not change the tax reality created
by the Deed of Sale and Deed of Assignment.
[21]
The
respondent emphasizes that the Deed of Sale is fully compatible with the wording
of the Promise to Purchase, considering the relationship between the appellant
and Ms. Cousineau. However, no evidence in that regard was provided during
the hearing. The respondent also states that there is no reference in the Deed
of Assignment to the alleged error that supposedly occurred at the signing of
the Deed of Sale.
[22]
Since
the Deed of Correction is posterior in date to the assessment in issue, the
respondent asserts that it cannot be set up against her.
[23]
The
respondent also states that Louise Cousineau acted as the true owner of
the Property, notably by collecting the rent from the Property and by sending
an eviction notice to the tenant.
[24]
Relying
on the assessment roll dated March 11, 2008, the respondent contends that the
fair market value of the Property was $161,400 at the time the Deed of Assignment
was signed. The respondent therefore maintains that Ms. Cousineau transferred
the Property to the appellant for a consideration that was $161,399 less than
its fair market value. Thus, the respondent is of the opinion that the
appellant is jointly and severally liable to pay the amount Ms. Cousineau owed
pursuant to the ETA for the periods in question.
[25]
As
determined by the Federal Court of Appeal in Raphael v. Canada,
2002 FCA 23, at para. 4 and The Queen v.
Livingston, 2008 FCA 89, at para. 17, four conditions
must be met in order for subsection 160(1) of the Income Tax Act (the
ITA), which is the counterpart to subsection 325(1) of the ETA, to apply:
(i) a
transfer of property took place;
(ii) the
transferor and the transferee were not dealing at arm's length;
(iii) inadequate
consideration was given by the transferee to the transferor; and
(iv) the
transferor had an unpaid tax liability at the time of the transfer.
[26]
The first
condition was dealt with by the appellant in his notice of appeal and the third
condition was addressed briefly by him in his written submissions. Each of these
two conditions will be considered in turn.
[27]
In this
appeal, the Property seems to be have been transferred twice:
(a) On December 14, 2007, pursuant to
the Deed of Sale, Ms. Cousineau acquired the Property from the Seller for
$1;
(b) On January 22, 2008, under the
Deed of Assignment, the appellant acquired the Property from Ms. Cousineau
for $1.
[28]
Since the
Deed of Sale and the Deed of Assignment are two authentic acts, these constitute,
at first glance, valid transfers. Indeed, a duly registered notarized deed of sale
constitutes a valid transfer because, pursuant to articles 2814 and
2819 CCQ, it is an
authentic act that fully makes proof against all persons of the juridical act
which it sets forth and of those declarations of the parties which directly
relate to the act (see Romar v. Canada, [2012] T.C.J. No. 97 (QL), at para. 28,
affirmed by the Federal Court of Appeal at [2013] F.C.J No. 74 (QL), application
for leave to appeal to the Supreme Court filed May 6, 2013).
[29]
The
appellant states that the transfer of the Seller's Property to Ms. Cousineau
through the Deed of Sale resulted from an error by Mr. Audet the notary
and by the parties to the Deed of Sale. Indeed, the appellant claims that he,
and not Ms. Cousineau, was to have become the owner of the Property.
[30]
The
appellant states that a comparison of the sale prices of the Property and the
properties located at 400 and 404 Ellice Street and the values
indicated on the transfer tax notices for those properties shows that the
transfer of the Seller's Property to Ms. Cousineau through the Deed of Sale was
an error. It would not be logical for the appellant to have acquired the property
at 404 Ellice, valued at $142,350 according to the transfer tax notice,
for $300,000 while Ms. Cousineau acquired the Property as well as 400 Ellice,
together worth $238,940 according to the transfer tax notice, for $175,000.
Although at first blush this argument seems convincing, no evidence was
provided regarding the source of the funds that were used to acquire the three
properties. If the appellant had shown that he was the one who provided the
funds and/or that he was the hypothecary debtor, for example, I would have been
better able to accept this argument. Unfortunately, this was not done.
[31]
Moreover,
there is evidence that casts doubt on the truthfulness of the appellant's
statement that the name of the acquirer in the Deed of Sale was erroneous.
First, although Mr. Audet recognized that there was an error in the Deed of
Sale, he also stated that he conducted an explanatory reading of the Deed of Sale
and acted [translation] "in
accordance with good practice" when the various deeds of sale were
signed before him on December 14, 2007. According to the appellant, he himself,
his father, the Seller and Ms. Cousineau were present at Mr. Audet's office
when the deeds of sale were signed on December 14, 2007. It is hard to believe
that none of these individuals noticed such a flagrant error.
[32]
Second,
it seems that Ms. Cousineau acted as the true owner of the Property until
the Deed of Assignment was signed. More specifically, the appellant admitted
that a notice of eviction addressed to the tenant of the Property had been written
by Ms. Cousineau. Also, it was proven that the rental cheques for the
months of December 2007 and January 2008 had been cashed by Ms. Cousineau.
The appellant's testimony in this regard is that he and his mother had decided
to proceed this way since they realized an error had been made in the Deed of
Sale and this error meant that only Ms. Cousineau was authorized to act as
the owner of the Property. Therefore, the appellant stated, Ms. Cousineau had cashed
the cheques and then given him the money, and it was he who reported the rental
income in his tax returns. Three comments are worth making on this subject.
[33]
First
of all, the appellant did not present any evidence that the rent was turned
over to him by his mother, and Ms. Cousineau's bank statement does not show any
withdrawals of amounts identical to those indicated on the rental cheques
deposited to her account. Furthermore, the appellant's income tax return for 2007
was not adduced as evidence, and the fact that the appellant included rental
income in his tax return for 2008, dated April 29, 2010, is not of much help to
him because this tax return was prepared well after the appellant had been
assessed under section 325 of the ETA. Lastly, the sequence of events seems
problematic. According to the evidence in the record, the rent cheques for
December 2007 and January 2008 were cashed by Ms. Cousineau on December 5,
2007, and January 8, 2008, respectively. These dates raise several questions
since the appellant said he realized there was an error in the Deed of Sale
when he received the transfer tax notices. These notices are dated January 11,
2008, which is after Ms. Cousineau had cashed the rent cheques for
December 2007 and January 2008. Moreover, it would seem that the rent cheque
for December had been cashed before the Deed of Sale was even signed, since
that document is dated December 14, 2007. In short, an analysis of the sequence
of events undermines the appellant's credibility.
[34]
Third,
the respondent correctly notes in her reply to the notice of appeal that there
is no reference in the Deed of Assignment to any error in the Deed of Sale. It
was only in the Deed of Correction, drafted after receipt of the Notice of
Assessment, that reference is made to an error.
[35]
Fourth,
a letter was written on March 6, 2008, by Martin Couillard, counsel
representing the appellant at the time, to ask the Revenu Québec debt
management officer in charge of Ms. Cousineau's debt to withdraw the requirement
to pay and garnishment addressed to the tenant of the Property. This letter
makes no mention of the alleged error. Rather, the relevant part of the letter
states: [translation] "In
this regard, our client advises us that he has been the owner of the property
located at 396 Ellice Street in Valleyfield [the Property] since January 22,
2008."
[36]
In
short, these elements lead me to doubt the truthfulness of the appellant's
claims that an error was made in the Deed of Sale. Even if I were wrong and the
acquisition of the Property by Ms. Cousineau was the result of a genuine error,
the appellant would have been required to proceed by improbation to contradict the
Deed of Sale on the matter of the identity of the purchaser since that was a
fact which the public officer had the task of observing (art. 2821 CCQ). This
is moreover acknowledged by the appellant, who is attempting, rather, to have the
Deed of Assignment annulled because of a defect of consent. The appellant
relies on articles 1399, 1400, 1407 and 1422 CCQ to request the annulment
of the Deed of Assignment on grounds of error. Consequently, the appellant contends
that the assessment should be vacated because the Deed of Assignment on which
it is based is deemed never to have existed.
[37]
For
this argument to be accepted, the appellant had the burden of proving that on the
one hand the error was an excusable one and that on the other hand the error
was decisive as regards his consent (Baudoin et Jobin, Les Obligations,
6th edition,
2005, Éditions Yvon Blais, at para. 231). However, absolutely
no evidence was adduced as to the existence of any error vitiating the consent
to the Deed of Assignment, since that argument was only clearly stated in the
appellant's written submissions. The appellant and his notary both testified
that an error was committed in the Deed of Sale with regard to the identity of
the purchaser, but they did not mention the existence of an error of consent
with respect to the Deed of Assignment. It must also be noted that the Deed of
Correction makes no mention of an error in the Deed of Assignment. It simply
states its purpose as being to [translation]
"rectify and clarify the transfers of title that have been published with
regard to the immovable described below". Thus, there is no basis for a
finding that the appellant's consent to the Deed of Assignment was vitiated,
especially since I have come to the conclusion that the identity of the purchaser
indicated in the Deed of Sale was not erroneous.
[38]
Finally,
the appellant states in his written submissions that the Deed of Correction [translation] "effectively annuls the
[Deed of Assignment] retroactively and places the parties involved . . . in the
same situation as that which existed prior to the Deed of Transfer and after the
accepted offers of purchase were signed . . . ." The appellant cites in
support of his contention that the respondent must act in accordance with the provisions
of the Deed of Correction many decisions that have recently allowed documents
to be corrected. With respect, the appellant's position cannot be accepted. The
jurisdiction to correct documents resides with the provincial superior courts on
a motion for a declaratory judgment, and not with the federal courts. Moreover,
correction is permitted for private writings. The Deed of Sale and Deed of
Correction, on the other hand, are authentic acts that require improbation if
the appellant wishes to modify their content.
[39]
The need
for improbation in order to contradict the terms of a transfer recorded in a
notarial act was moreover recognized in tax matters in Giguère v. Canada,
[1992] T.C.J. No. 400 (QL). As in this appeal, the appellant in that case
relied in particular on a document subsequently executed before a notary to
argue that a notarized contract of sale did not represent the reality of the
transaction between him and his mother. More specifically, the appellant
attempted to show that his mother had sold an immovable to him and his brother,
and not solely to him as stated in the contract of sale. Former Chief Justice
Couture rejected this evidence, in particular because the appellant had not brought
any improbation proceedings.
[40]
Leclerc
v. Canada, supra,
also has significant similarities with the present appeal. In that case, Judge Dussault
did not accept that an essential element of a notarial act could be modified by
a subsequent notarial act. The appellant and her husband had signed a notarial
act entitled [translation] "Rectification
and Acquittance" whose purpose was to modify the consideration indicated
in the original notarial act so as to reflect what they claimed was the true
intention of the parties at the time. Judge Dussault stated that they should
have proceeded by improbation, failing which the consideration indicated in the
original notarial act could not be modified (at para. 28).
[41]
In
short, the Deed of Correction cannot be given the retroactive effect that the
appellant would attribute to it. The Property was therefore transferred from
Ms. Cousineau to the appellant when the Deed of Assignment was signed on
February 22, 2008.
[42]
In
the alternative, the appellant submits that the Deed of Assignment constitutes
a transaction as defined in article 2631 CCQ, namely a contract by which
the parties prevent a future contestation. The appellant argues that the value
of the consideration is not $1, as stated in the Deed of Correction, but is,
rather, equal to the fair market value of the Property, because by signing the
Deed of Assignment, the appellant was amicably resolving the error that
occurred in the Deed of Sale and was waiving the exercise of his rights to the
Property against the Seller and Ms. Cousineau. Since I have found that the
identity of the acquirer shown in the Deed of Sale was erroneous, this argument
cannot be accepted. Moreover, as discussed above, Judge Dussault, in Leclerc v.
Canada, supra, rejected the idea that the
consideration indicated in a notarial act could be modified other than by an
improbation proceeding.
[43]
To
establish the fair market value of the Property at the time of the transfer,
the Minister relied on the municipal assessment roll dated March 11, 2008.
According to this document, the standardized assessment value of the Property
for the 2008‑2010 triennial roll is $161,400.
[44]
It
is well established that the municipal assessment, while relevant in determining
the fair market value of a property, is not by itself representative of the
fair market value of that property. This was the conclusion reached by Campbell
J. in Truong v. Canada, 2011 DTC 1275, at para. 27 and Webb J.
in Somers v. Canada, [2008] T.C.J. No. 217 (QL), at para. 38. However,
the assessment of property taxes may be accepted as one of a number of
indicators of the fair market value of a property (Truong, supra,
at para. 27).
[45]
The
appellant did not present any evidence enabling him to discharge his burden of
showing that the respondent's assessment of the fair market value of the
Property is erroneous (see, for example, Truong, supra, at
para. 27 and Côté-Sicé v. Canada, [1999] T.C.J. No. 1363 (QL), at
para. 8). As a result, I must accept the Minister's position that the fair
market value of the Property at the time of the transfer was $161,400.
Conclusion
[46]
For
all these reasons, the appeal is dismissed and the assessment is confirmed.
[47]
Counsel
for the respondent failed to appear at the trial set to take place on December
4, 2012. On February 28, 2013, I allowed a motion by the respondent seeking a suspension
of the deliberation and the reopening of the hearing in order to allow the
respondent to adduce her evidence. I did, however, order the respondent to pay
the appellant's costs with regard to the preparation for and hearing of the February
26, 2013 motion to reopen the hearing, and with regard to the reopening of the hearing
on March 18, 2013.
The costs relating to the hearing of December 4, 2012, shall be borne by
the appellant.
Signed at Ottawa, Canada, this 6th day of June 2013.
"Gerald J. Rip"
Translation
certified true
on this 31st day
of July 2013.
Erich Klein,
Revisor
Email this Content