Date:
200906012
Dockets: A-557-07
A-556-07
Citation: 2009 FCA 188
CORAM: LÉTOURNEAU
J.A.
NADON
J.A.
BLAIS
J.A.
BETWEEN:
A-557-07
ROGER ST-FORT
Appellant
and
HER MAJESTY THE QUEEN
Respondent
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A-556-07
ANTONINE ST-FORT
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
LÉTOURNEAU J.A.
Issue
[1]
The
Court has before it two appeals that have been consolidated for procedural
reasons and for hearing by an order of our colleague, Justice Trudel, on
February 26, 2008.
[2]
The
issue that the appeals raise is the correctness of the decision by Justice
Archambault of the Tax Court of Canada (judge), in which the judge found that,
pursuant to section 160 of the Income Tax Act, 1985, c. 1 (5th Supp.)
(Act), the appellants were jointly and severally liable to pay a part of their
son’s tax liability.
[3]
This
final conclusion by the judge is based on the fact that there was a non-arms’
length transfer of property.
[4]
In
my view, the two appeals must be dismissed for the reasons that follow.
Relevant legislation
[5]
In
addition to sections 160 and 250 of the Act, article 476 of the Quebec Code
of Civil Procedure, R.S.Q., c. C-25, and articles 1651, 1654, 2781, 2941
and 2944 of the Civil Code of Québec, S.Q. 1991, c. 64, must be taken
into consideration to resolve the case at bar.
[6]
These provisions read as
follows:
Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
|
Tax
liability re property transferred not at arm’s length
160. (1) 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
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Transfert
de biens entre personnes ayant un lien de dépendance
160. (1) Lorsqu’une personne a,
depuis le 1er mai 1951, transféré des biens, directement ou
indirectement, au moyen d’une fiducie ou de toute autre façon à l’une des
personnes suivantes :
a)
son époux ou conjoint de fait ou une personne devenue depuis son époux ou
conjoint de fait;
b)
une personne qui était âgée de moins de 18 ans;
c)
une personne avec laquelle elle avait un lien de dépendance,
les règles suivantes s’appliquent :
d)
le bénéficiaire et l’auteur du transfert sont solidairement responsables
du paiement d’une partie de l’impôt de l’auteur du transfert en vertu de la
présente partie pour chaque année d’imposition égale à l’excédent de
l’impôt pour l’année sur ce que cet impôt aurait été sans l’application des
articles 74.1 à 75.1 de la présente loi et de l’article 74 de la Loi de
l’impôt sur le revenu, chapitre 148 des Statuts revisés du Canada de
1952, à l’égard de tout revenu tiré des biens ainsi transférés ou des biens y
substitués ou à l’égard de tout gain tiré de la disposition de tels biens;
e)
le bénéficiaire et l’auteur du transfert sont solidairement responsables
du paiement en vertu de la présente loi d’un montant égal au moins élevé des
montants suivants :
(i) l’excédent éventuel de la juste valeur marchande des biens
au moment du transfert sur la juste valeur marchande à ce moment de la
contrepartie donnée pour le bien,
|
|
Arm’s length
251. (1) For the purposes of this
Act,
(a)
related persons shall be deemed not to deal with each other at arm’s
length;
[…]
Definition
of “related persons”
(2) For the purpose of this Act,
“related persons”, or persons related to each other, are
(a)
individuals connected by blood relationship, marriage or common-law
partnership or adoption;
[Emphasis
added.]
|
Lien
de dépendance
251. (1) Pour l’application de la
présente loi :
a) des personnes liées sont réputées avoir entre elles un lien de
dépendance;
[…]
Définition
de « personnes liées »
(2) Pour l’application de la
présente loi, sont des « personnes liées » ou des personnes liées entre
elles :
a)
des particuliers unis par les liens du sang, du mariage, de l’union de
fait ou de l’adoption;
[Nous
soulignons.]
|
Code
of Civil Procedure, R.S.Q., c. C-25
|
476. A party may renounce rights arising from a judgment rendered in
his favour, by filing in the office of the court a total or partial
renunciation signed by him or by his special attorney. A total renunciation
accepted by the opposite party places the case in the position it was in
immediately before the judgment.
|
476. Une
partie peut renoncer aux droits qui lui résultent d’un jugement rendu en sa
faveur, en produisant au greffe un désistement total ou partiel, signé
d’elle-même ou de son fondé de procuration spéciale. Le désistement total
accepté par la partie adverse a pour effet de remettre la cause dans l’état
où elle était immédiatement avant le jugement.
|
Civil Code of Québec, S.Q. 1991, c. 64
|
1651. A person who pays in the place of a debtor may be subrogated to
the rights of the creditor.
He does not have more rights than the
subrogating creditor.
1654.
Subrogation may be made by the creditor only at the same time as he
receives payment. It takes effect without the consent of the debtor,
notwithstanding any stipulation to the contrary.
2781. Where the default has not been remedied or the payment has not
been made in the time allotted for surrender, the creditor takes the property
in payment by the effect of the judgment of surrender, or of a deed
voluntarily made by the person against whom the hypothecary right is exercised,
and accepted by the creditor, if neither the subsequent creditors nor the
debtor have required him to proceed with the sale.
The judgment of surrender or the deed
voluntarily made and accepted constitutes the creditor’s title of ownership.
2941. Publication of rights allows them to be set up against third
persons, establishes their rank and, where the law so provides, gives them
effect.
Rights produce their effects between the
parties even before publication, unless the law expressly provides otherwise.
2944.
Registration of a right in the register of personal and movable real
rights or the land register carries, in respect of all persons, simple
presumption of the existence of that right.
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1651. La personne qui paie à la place du débiteur peut être subrogée
dans les droits du créancier.
Elle n’a pas plus de droits que le
subrogeant.
1654. La subrogation consentie par le créancier doit l’être en même
temps qu’il reçoit le paiement. Elle s’opère sans le consentement du
débiteur, malgré toute stipulation contraire.
2781. Lorsqu’il n’a pas été remédié au défaut ou que le paiement n’a
pas été fait dans le délai imparti pour délaisser, le créancier prend le bien
en paiement par l’effet du jugement en délaissement, ou par un acte
volontairement consenti par celui contre qui le droit hypothécaire est
exercé, et accepté par le créancier, si les créanciers subséquents ou le
débiteur n’ont pas exigé qu’il procède à la vente.
Le jugement en délaissement ou l’acte
volontairement consenti et accepté constitue le titre de propriété du
créancier.
2941. La publicité des droits les rend opposables aux tiers, établit
leur rang et, lorsque la loi le prévoit, leur donne effet.
Entre les parties, les droits produisent
leurs effets, encore qu’ils ne soient pas publiés, sauf disposition expresse
de la loi.
2944. L’inscription d’un droit sur le registre des droits personnels et
réels mobiliers ou sur le registre foncier emporte, à l’égard de tous,
présomption simple de l’existence de ce droit.
|
Factual background to the
transfer and these proceedings
[7]
On
June 2, 1992, the appellants’ son, René St-Fort, and his spouse acquired a
house in Chelsea, Quebec.
The purchase price was $250,000. A $50,000 down payment was made to the seller. The balance of the purchase price was financed through two
hypothecs. The first-ranking hypothec amounted
to $150,000 and was granted by the National Bank of Canada (Bank). The second-ranking hypothec,
held by the Bank of Hong Kong, was for $50,000.
Since the second-ranking hypothec was settled, no
further mention will be made of it in these reasons.
[8]
In
December of that same year, René St-Fort’s spouse assigned him her share in the
immovable by notarial act duly registered at the Gatineau registry office:
see tab 10 of the Appellants’ Record.
[9]
Beginning
in April 1996, René St-Fort ceased making the monthly principal and interest
repayments to the Bank.
[10]
On
September 18, 1996, the Bank asserted its rights as creditor. The
Bank served René St‑Fort and his spouse with a prior notice of the
exercise of a hypothecary right under article 2757 of the Civil Code of
Québec: ibid. at tab 11.
[11]
When
the debtors did not respond to the notice, the Bank filed a motion for forced
surrender and for taking in payment in the Superior Court: ibid. The
motion, based on article 795 of the Code of Civil Procedure, was
filed on December 13, 1996.
[12]
By
judgment dated January 10, 1997, the Superior Court, District of Hull,
ordered the debtors to voluntarily surrender the immovable, failing which the
Bank would be placed in possession of the immovable by means of a writ of
possession: ibid. at tab 12.
[13]
The
judgement also declared the Bank the sole owner of the immovable as of the
registration of the notice, mentioned above, given on September 27, 1996. This
judgment in favour of the Bank is not registered in the land register: ibid.
at tab 18, at index of immovables.
[14]
On
January 31, 1997, following discussions with the Bank and its counsel, the
appellants registered a $130,000 hypothec on the immovable in favour of the
Caisse Populaire St-Jean Bosco in Hull: ibid. at tab 13.
[15]
Subsequently,
more specifically on February 13, 1997, the Bank renounced the judgment in
its favour dated January 10, 1997: ibid. at tab 14.
[16]
Following
this renunciation, the Bank subrogated the appellants to all of its rights in
relation to the hypothecary remedies available to it as a result of René
St-Fort’s failure to pay his hypothecary debt to the Bank. The subrogation was
made by notarial act dated April 1, 1997, on payment of $142,016.52: ibid.
at tab 15. The notarial act was published on April 7, 1997, in the Gatineau registration
division: ibid.
[17]
Still in
the same Superior Court file, the Bank and the appellants, represented by the
same counsel, filed an appearance for a continuance of suit on May 27,
1997. In the appearance, the Bank was identified as the original applicant and
the appellants as applicants in the continuance of suit: ibid. at
tab 16.
[18]
The case
having been given new life, the appearance for a continuance of suit was followed
by a notice indicating that the motion for forced surrender and for taking in
payment, which had resulted in the January 10, 1997, judgment that had
been renounced, would be re-filed in the Superior Court for determination on
June 23, 1997: ibid.
[19]
On
June 27, 1997, the Superior Court delivered a new judgment in the file,
ordering that the immovable be surrendered and granting the possession thereof
to the appellants. Furthermore, the Court declared that the appellants took the
immovable in payment and are the sole owners thereof, retroactive to the
registration of the notice of intent on September 27, 1996.
[20]
René
St-Fort never surrendered the immovable, which he has occupied since its
purchase in June 1992. On April 7, 1997, the immovable’s fair market
value was $220,000. René St‑Fort’s liability to the Minister of National
Revenue amounted to $365,238.69.
[21]
On
November 15, 2001, the Minister of National Revenue issued the appellants an
assessment of $77,983.48, representing the difference between the fair market
value of the house, namely $220,000, and the amount they paid in consideration
for the subrogation to the Bank’s rights, namely $142,016.52. The assessment
was based on subsection 160(1) of the Act.
[22]
The
appellants appealed this assessment to the Tax Court of Canada. The judgment
and reasons were delivered orally from the bench on November 5, 2007, but the
reasons for judgment delivered at that time were later “amended for greater
clarity and precision” on January 21, 2008. The finding was that the
appeals should be dismissed. This prompted the appellants’ application for the
Tax Court of Canada’s decision to be overturned.
Analysis of the judge’s decision and the
parties’ submissions
(a) Existence of a non-arm’s length relationship
[23]
The bond of
filiation between the tax debtor, René St-Fort, and the appellants meets the
definition of “related persons”, thus triggering the presumption of non-arm’s
length dealing at section 251 of the Act. The appellants raise no
objection in that respect. Rather, they submit that they acquired the immovable
from the Bank, not from their son, such that there was no transfer between
related persons within the meaning of the Act.
[24]
The
appellants are self-represented. With respect, I believe they are mistaken as
to the legal effect of the various transactions that led to their ownership of
the immovable, or that they are guided by a misapprehension of the consequences
of those transactions.
(b) Validity of the Bank’s renunciation
[25]
The
appellants are challenging the judge’s conclusions that under article 476 of
the Code of Civil Procedure, the Bank could renounce the rights
conferred upon it by the January 10, 1997, judgment, that the renunciation
of that judgment was valid and that this renunciation had the effect of placing
the case in the position it was in before the January 10, 1997, judgment: see
paragraph 11 of the judge’s reasons for decision. According to the appellants,
the renunciation is not valid because the Bank did not sign it. Moreover, it
cannot have the effect that the judge ruled it had because René St-Fort and his
spouse never accepted the Bank’s total renunciation.
[26]
In my
opinion, there is no question that the Bank made a total and valid renunciation
of the January 10, 1997, judgment. It is clear that the renunciation,
signed by the attorneys representing the Bank, [translation] “is, in fact and in law, a true renunciation of
the judgment” since the Bank [translation]
“waived the benefit that would result therefrom”: see paragraph 21 of Justice
Dalphond’s reasons for judgment in Vernet v. Forage expert Québec Inc., J.E. 2007-1095 (C.A.Q.).
[27]
The Bank’s
subsequent actions confirm beyond a shadow of a doubt the validity of the
mandate it gave its attorneys to prepare a renunciation and file it in the record.
I agree with Justice Dalphond that [translation]
“there is no call for us to go any further and attempt to interfere in the
relationship between lawyer and client”: ibid., see also Assurance-vie Desjardins Inc v.
Succession de Richard Proulx,
[1995] R.D.J. 479 (C.A.Q.).
[28]
This
brings me to the matter of determining whether the Bank’s two debtors, René
St-Fort and his spouse, accepted the renunciation.
(c) Acceptance of the renunciation by the Bank’s
debtors
[29]
The
appellants submit that the renunciation cannot be set up against their son,
René St-Fort, because he did not sign it. Under article 476 of the Code of
Civil Procedure, the opposing party need not sign a renunciation; it need
only accept it. A signature may be the best evidence of acceptance; however, it
is not the only means by which that fact may be established. Acceptance may
also be proven from the parties’ conduct, including that of the opposing party.
[30]
In Vernet,
above, Justice Dalphond inferred acceptance of the judgment from the agreement as
to the conduct of the proceedings signed by the parties to continue the suit:
see paragraphs 10 and 21 of his reasons for decision, where he concludes that
it is [translation] “clear that
the opposing parties accepted this total renunciation”.
[31]
In the case
at hand, there is no evidence that the hypothecary debtors objected to the
Bank’s total renunciation of the January 10, 1997, judgment. To the contrary,
in fact, the following evidence in the record leads to the conclusion that the
hypothecary debtors accepted it.
[32]
First of
all, the two debtors were respondents in the renunciation document: see
Appellants’ Record at tab14. They were also respondents in the appearance filed
in the Superior Court in connection with the continuance of suit: ibid.
at tab 16. As well, they were respondents in the continuance of the motion for
forced surrender and for taking in payment re-filed in the Superior Court owing
to the renunciation of the January 10, 1997, judgment: ibid. Last,
the two debtors had the status of respondents in the June 27, 1997,
judgment delivered following the renunciation and the continuance of suit: ibid.
at tab 17.
[33]
In my
understanding, it is significant that throughout this series of events
beginning with the renunciation document, at no time did the debtors oppose, in
any way whatsoever, any of the proceedings subsequent and giving effect to the
renunciation. In the circumstances, it is certainly not unreasonable, let alone
erroneous, to conclude that the two hypothecary debtors accepted the renunciation.
[34]
Regardless,
according to the Court of Appeal of Québec’s interpretation of article 476 of
the Code of Civil Procedure, [translation]
“renunciation is essentially a unilateral act”. And the beneficiary of a
judgment may renounce it unilaterally, without the other party’s involvement,
if the judgement does not, in and of itself, benefit that other party (2632-8419
Québec Inc. v. 3170578 Canada Inc., J.E. 97-1817, paragraphs 6 to 10; 118372
Canada inc. v. Groupe Tecnum inc., 2007 QCCS 4283; Caisse populaire
Desjardins Saint-Jérôme (reprise d’instance) v. 3099-1947 Québec inc. (reprise
d’instance de), [2002] J.Q. No. 5467).
[35]
In this
case, the January 10, 1997, judgment, which was the subject of the
renunciation, did not benefit the two hypothecary creditors in any way. It
could therefore be renounced unilaterally.
(d) Appellants’ capacity to invoke the invalidity
of the revocation
[36]
Although
it is not necessary to decide this question to resolve the dispute, it is
certainly appropriate to seriously question the appellants’ capacity to
challenge the validity of a renunciation of a judgment in proceedings to which
they were not parties when, furthermore, they benefitted from the renunciation
and accepted it at all times.
[37]
In
retrospect, it would probably have been preferable for the appellants to
proceed differently than in the manner in which they agreed to acquire the
immovable.
(e) Legal effect of the renunciation
[38]
As
provided by article 476 of the Code of Civil Procedure, total
renunciation places the case in the position it was in immediately before the
judgment. That explains the appearance filed in connection with the
continuance of suit, the filing for a rehearing of the motion for forced
surrender and for taking in payment and the judgment dated June 27, 1997,
granting the appellants (who were the applicants in the continuance of suit)
ownership of the immovable.
(f) Legal effect of the subrogation of the appellants
to the hypothecary creditor’s rights
[39]
As
already mentioned, the appellants submit that they acquired the immovable from
the Bank, not their son.
However, the evidence affords no legal basis for this
submission.
[40]
The
appellants acquired the immovable by way of a taking in payment, as was made
possible by the subrogation document dated April 1, 1997. Pursuant
to that document, the appellants acquired the Bank’s claims against the
hypothecary debtors and, more specifically, its right to exercise [translation] “the hypothecary remedies
of taking in payment constituted on December 13, 1996, under file No. 550 05
004282961 of the Superior Court, District of Hull”: see subrogation document,
Appellants’ Record at page 92. They do not
have more rights than the subrogating creditor: see art. 1651, Civil Code of
Québec. In the case at bar, the subrogating
creditors were entitled to take, in payment, the immovable in respect of which
the hypothecary debtors were in default: ibid. art. 2781.
[41]
The
appellants’ taking in payment was confirmed by the June 27, 1997, judgment
with effect as regards the appellants’ ownership of the immovable retroactive
to September 27, 1996, at which time the appellants’ son had possession
and ownership of the immovable.
Therefore, legally, the immovable was not transferred
from the Bank to the appellants, as could have been the case had it been sold
by the Bank, but by a taking in payment, authorized by the Superior Court, from
René St-Fort, then-hypothecary debtor to the Bank and tax debtor to the
Minister of National Revenue.
Conclusion
[42]
In
conclusion, I believe that the judge made no error in finding that the
conditions for applying section 160 of the Act were met and, accordingly, in
dismissing the appellants’ appeals.
[43]
For
these reasons, I would dismiss the appeals, but with a single set of costs
payable by the appellants in equal shares. A copy of
these reasons and another original judgment to this effect will be placed in
file A-556-07.
“Gilles Létourneau”
“I agree.
M. Nadon J.A.”
“I agree.
Pierre Blais J.A.”
Certified
true translation
Sarah
Burns
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