Date:
20081211
Docket: A-564-07
Citation: 2008 FCA 393
CORAM
: LÉTOURNEAU J.A.
NADON
J.A.
PELLETIER
J.A.
BETWEEN:
MARIO BOILY
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
NADON J.A.
[1]
This is an
appeal from a decision of Justice Bédard of the Tax Court of Canada, 2007 TCC 603, dated January 21, 2008, confirming
the assessment of the Minister of National Revenue (the “Minister”), according
to which the appellant had to add $34,500 in income from a registered
retirement savings plan (“RRSP”) to his income for the 1999 taxation year, in
accordance with paragraphs 146(10) (a) and (c) of the Income
Tax Act (the “Act”).
[2]
The issue
before the Tax Court of Canada arises from the acquisition by the MRS Trust Company
(“MRS Trust”), the trust company for the appellant’s RRSP, of 34,500 class “B”
shares (the “shares”) in a company named Les Immeubles R.V. 1986 (“Immeubles
R.V.”). The judge had to determine whether this acquisition would meet the
criteria for a qualified investment within the meaning of subsection 146(1) of
the Act and sections 4900 and 5100 of the associated Regulations.
[3]
The judge
ruled that MRS Trust had acquired a non-qualified investment because Immeubles
R.V. did not operate a business or hold any interest in a company operating a business
or any type of debt obligation issued by such a company. Accordingly, the judge
ruled that the appellant had to add $34,500 to his income for the taxation year
in question, in accordance with paragraphs 146(10)(a) and (c)
of the Act.
[4]
In spite
of this conclusion, which should have settled the issue, the judge, acting on
his own initiative, raised a second issue at the hearing, namely whether MRS
Trust had acquired the shares of Immeubles R.V. during the 1998 or 1999
taxation year. If the answer to this question was 1998, the judge was of the
opinion that he had to allow the appeal because the Minister had not assessed
the appellant for the 1998 taxation year within the time specified under the
Act.
[5]
After
studying the relevant exhibits filed on record, the judge concluded that MRS
Trust had acquired the shares of Immeubles R.V. in 1999. According to the judge,
the evidence supported the respondent’s submission that Immeubles R.V.’s having
cashed a cheque for $34,500 issued by MRS Trust was the only evidence on record
showing that MRS Trust had been advised of the issue of the shares and that
Immeubles R.V. had accepted its offer to acquire them. More specifically, the judge
reached the following conclusions:
(i)
MRS Trust
was the shares’ subscriber because the share certificate showed that it held
the shares of Immeubles R.V. and that the appellant had instructed it on December 1, 1998, to acquire the shares;
(ii)
the issuance
of the share certificate on December 1, 1998, led him to conclude that, for
lack of better evidence, the offer by MRS Trust to purchase shares had been
accepted by Immeubles R.V. on December 1, 1998;
(iii)
MRS Trust had
been advised by Immeubles R.V. of the acceptance of its subscription until
January 1999, when it cashed its cheque for $34,500 issued on January 25, 1999.
[6]
At
paragraph 23 of his decision, the judge explained his reasoning as follows:
[23] The
first question to ask in this case is: who was the subscriber, or in other
words, who made the offer to purchase the shares in RV? The December 1, 1998, letter
(Exhibit I-1, Tab 1) and the issuance of the share certificate (Exhibit A-3)
attesting that on December 1, 1998, Fiducie MRS held 34,500 class “B” shares,
without more compelling evidence, lead me to believe that the subscriber was
Fiducie MRS. The issuance of the share certificate also leads me to believe,
without more compelling evidence, that the offer by Fiducie MRS to purchase
shares was accepted by RV on December 1,
1998.
However, counsel for the Respondent claimed that Fiducie MRS did not become the
owner of the shares in 1998 because there is nothing in the evidence submitted
indicating that Fiducie MRS was advised of such an issuance in 1998. Counsel
for the Respondent claimed that a subscriber does not become the owner of the
shares even if the offer was accepted by the company unless and until the
subscriber is advised that there was issuance, meaning the purchase offer was
accepted. Counsel for the Respondent claimed that the only evidence submitted
showing that Fiducie MRS was advised there had been issuance of the 34,500
class “B” shares of RV and that RV had accepted its offer to purchase shares
was when RV collected the price of the subscribed shares by Fiducie MRS in
1999. As a result, I find that Fiducie MRS acquired a non-qualified investment
in 1999, in this case, 34,500 class “B” shares in RV, for which the FMV at the
time of acquisition was $34,500 and, therefore, the Appellant must add $34,500
to his income for the 1999 taxation year in accordance with paragraphs 146(10)(a)
and (c) of the Act.
[7]
Accordingly,
the judge confirmed the Minister’s assessment for the appellant’s 1999 taxation
year.
[8]
This
appeal raises only one issue, that is, whether the judge erred in concluding
that MRS Trust had acquired the shares of Immeubles R.V. during the 1999
taxation year.
[9]
A few
preliminary comments are called for. The first is that this case proceeded
before the Tax Court of Canada under the informal procedure. Accordingly, the judge
was not bound by the rules of evidence at the hearing. In fact, subsection
18.15(4) of the Tax Court of Canada Act, R.S.C. 1985, c. T-2, provides
the following:
|
18.15(4)
Notwithstanding the provisions of the Act out of which an appeal arises, the
Court, in hearing an appeal referred to in section 18, is not bound by any
legal or technical rules of evidence in conducting a hearing for the purposes
of that Act, and all appeal referred to in section 18 shall be dealt with by
the Court as informally and expeditiously as the circumstances and
considerations of fairness permit.
|
18.15(4) Par
dérogation à la loi habilitante, la Cour n’est pas liée par les règles de
preuve lors de l’audition d’un appel interjeté en vertu de cette loi et visé
à l’article 18; ces appels sont entendus d’une manière informelle et le plus
rapidement possible, dans la mesure où les circonstances et l’équité le
permettent.
|
[10]
My second
comment concerns the fact that after their respective memoranda were filed, the
parties successively applied to the Court for leave to file new evidence. On
June 9, 2008, Justice Noël granted the respondent leave to adduce new
evidence, and on August
28, 2008,
Justice Létourneau granted the appellant leave to adduce new evidence. Accordingly,
the appeal will be decided not only on the basis of the exhibits before Justice
Bédard, but also on the basis of the new evidence.
[11]
As a third
comment, I would note that neither the notice of appeal nor the amended notices
filed by the appellant in the Tax Court of Canada against the Minister’s
assessment, nor the Minister’s reply to the amended notice of appeal, raise the
issue that is the subject of this appeal. In my opinion, this explains why only
Michel Leduc, an investigator with the Canada Customs and Revenue Agency,
testified at trial. In fact, because the parties did not raise the issue of the
year in which the shares of Immeubles R.V. were acquired, they did not submit
any testimony in support of their respective claims in that regard. Accordingly,
not only did the appellant not testify, but no representative of MRS Trust,
Immeubles R.V. or Peak Investment Services Inc. (“Peak Investment”), the
brokerage firm representing the appellant in dealings with MRS Trust, testified
either. Because of this, the judge did not have the benefit of testimonial
evidence about the documents that were filed at the hearing. Of course, the
same observation applies to the documents that were submitted to us with the
new evidence.
[12]
A brief
summary of the facts assist not only in understanding the issue before us, but
also in placing in their proper context the findings of fact that led the judge
to rule that MRS Trust had acquired the shares during the 1999 taxation year.
[13]
I will
begin my summary of the facts by noting that among the documents that Justice
Létourneau allowed to be filed by his order dated August 28, 2008, is a letter
dated December 6,
2007, from
Jean-Marie Ouellet of Peak Investment to Yvan Tremblay, the appellant’s
accountant. It appears that this letter was to advise the appellant of the
procedure applied [translation] “in
the MRS files concerning the private companies”. I am satisfied on the basis of
the evidence adduced before us that even though Mr. Ouellet’s letter is dated
December 6, 2007, the procedure followed by the appellant in 1998 is the one
explained in Mr. Ouellet’s letter. Accordingly, I reproduce the letter in its
entirety:
[translation]
WITHOUT
PREJUDICE
As discussed by
telephone, this is to advise you of the procedure used in the MRS files
concerning the private companies.
On receipt of
the documents at my office, we check whether all the documents required by MRS have
been completed. These documents are then forwarded to MRS, which has them
checked by its legal department to be sure that the companies are qualified.
The documents
required are the following:
§
Opening
of an MRS account (registered plan application)
§
A
form entitled “Admissibilité des actions de sociétés fermées” (qualification of
shares of private companies)
§
A
letter of indemnity for the investment of assets of a small company in a self-directed
RRSP
§
A
letter signed by the accountant of the company subject to the application
§
A
letter signed by an officer confirming that the company meets government
standards
§
A
share certificate from the company in which the customer wants to invest.
Following a
study of these documents and if everything is in order, the customer’s request
is processed.
You must
realize that a certain amount of time is necessary to study each file, which
may explain certain delays between when the documents are received and when the
cheque is issued (SWAP).
[Emphasis
added]
[14]
On October 25, 1998, the appellant signed an RRSP
application and transferred the RRSP he held with the Royal Bank of Canada, in the amount of $34,500, to
a self-directed RRSP account with MRS Trust. This application clearly shows
that the appellant appointed Jean-Marie Ouellet from Peak Investment to act as
his mandatary in dealings with MRS Trust. Clauses 11(b) and 11(c), under the
heading [translation] “Account
Agreement”, read as follows:
[translation]
11. Account
Agreement
In consideration
of the acceptance of this account by Compagnie de Fiducie, M.R.S. (the Trustee)
and by Multiple Retirement Services Inc. (MRS), I agree
. . .
b) That for
their own protection and without any obligation on their part, the Trustee
and/or MRS are entitled to refuse any direction or to sell any securities in my
account,
c) That the directions
I give are valid until the end of the day, unless specified otherwise, and I am
responsible for any order placed, regardless of the date on which I receive
confirmation of the transaction.
. . .
[15]
On
December 1, 1998, the appellant forwarded to Mr. Ouellet a letter to MRS Trust
with directions to immediately purchase 34,500 shares of Immeubles R.V. and issue
a cheque in an amount of $34,500 payable to that company. Along with his letter,
the appellant sent Mr. Ouellet the following documents:
(a)
a letter
signed by the appellant and dated December 1, 1998, exonerating MRS Trust from
liability for any non-qualified investment in a small business and a growing business;
(b)
a letter
of indemnity signed by the appellant on December 1, 1998, releasing MRS Trust
from any liability resulting from the purchase of the shares in Immeubles R.V.;
(c)
a
certification letter, dated December 1, 1998, from Lucie Lauzon, Chartered
Accountant, certifying that the shares of Immeubles R.V. are a “qualified
investment” for the purposes of the relevant sections of the Act, along with a
questionnaire entitled [translation] “Qualification
of shares of private corporations in registered MRS accounts”, duly filled out
by Ms. Lauzon;
(d)
a letter
dated December 1, 1998, from Lucie Lauzon, Chartered Accountant, stating that in
her opinion the shares of Immeubles R.V. are a “qualified nvestment” within the
meaning of subsection 4900(12) of the Regulations, that following the purchase
of the shares in Immeubles R.V., the appellant is not a specified shareholder ,
that following the acquisition of the shares of Immeubles R.V. by the appellant’s
RRSP, the total assets of Immeubles R.V. would not exceed $10 million and,
finally, that the fair market value of the shares in Immeubles R.V. when the
shares were deposited on December 1, 1998, was $1 per share.
(e)
an offer
to purchase shares between Immeubles R.V. and the appellant, dated December 1,
1998, signed by the appellant;
(f)
a contract
for the sale of shares between the same parties, dated December 1, 1998, signed by the appellant;
(g)
a
certificate issued by Immeubles R.V. on December 1, 1998, confirming that the
appellant held 34,500 shares in Immeubles R.V.;
(h)
a share
certificate dated December
1, 1998, issued
by Immeubles R.V., certifying that [translation]
“ the company MRS Trust Inc., a trustee for Mario Boily, RRSP No. 6043927,
holds 34,500 class “B” shares in Immeubles R.V.”;
(i)
a document
entitled [translation] “Delivery”,
confirming receipt of the share certificate by the appellant; and
(j)
an MRS
Trust questionnaire completed by accountant Lucie Lauzon, dated December 1,
1998, concerning the qualification of [translation]
“private company shares in the MRS registered accounts”.
[16]
The new
evidence shows that documents (b), (c), (d) and (j), above, were received by
Peak Investment on December
9, 1998. This
evidence also shows that these documents were sent by Peak Investment to MRS
Trust, which received them on December 17, 1998. As regards the other documents
mentioned above, there is no direct evidence of their receipt by Peak
Investment and MRS Trust. Notwithstanding this lack of evidence, it is probable
that all of these documents, including the share certificate, which I will address
farther on, were received by peak Investment and MRS Trust on the dates stated
above.
[17]
On December 22, 1998, Lisette Lalancette, the president
of Immeubles R.V., signed a letter to MRS Trust certifying that she had held this
position for two years and that her interest in Immeubles R.V totalled 6% of its
shares. She also certified that she did not have any family or business
relationship with the persons investing part of their RRSPs in the shares of
her company.
[18]
On
December 30, 1998, MRS Trust sent a document to the broker Peak Investment
(which is part of the new evidence) entitled [translation]
“One-Time Notice”, requesting a letter of direction from the appellant
authorizing it to purchase the shares of Immeubles R.V. On January 19, 1999, after MRS Trust sent that
letter of direction, the appellant signed a second letter authorizing MRS Trust
to send a cheque for $34,500 to Immeubles R.V. [translation] “in exchange for a share certificate for 34,500
class “B” shares in the company.”
[19]
On January
25, 1999, MRS Trust issued a cheque payable to the order of Immeubles R.V. in
the amount of $34,500. The cheque was cashed by Immeubles R.V. a few days later.
Analysis
[20]
There is
no doubt that on December
1, 1999, the
appellant firmly intended to have his RRSP acquire shares in Immeubles R.V. In
fact, he did make an offer to purchase the shares, and this offer was accepted
on December 1, 1998. However, since the$34,500 that he planned to use to
purchase these shares was invested in a self-directed RRSP with MRS Trust, the
trustee’s consent to this purchase was required. In addition, as specified in
clause 11(b) of the registered retirement savings plan application signed by
the appellant on October
25, 1998, the
trustee was entitled to [translation] “refuse
any direction or to sell any securities” in the appellant’s account.
[21]
In fact,
as the trustee of the appellant’s RRSP, MRS Trust had to ensure before
purchasing the shares in Immeubles R.V., that they were a qualified investment
by a trust. This is why before respecting the appellant’s directions to
purchase the shares, MRS Trust required a certain number of documents,
including a letter of indemnity, a letter signed by Ms. Lalancette confirming
that Immeubles R.V. complied with government standards and a letter from the
accountant Lucie Lauzon according to which the shares in Immeubles R.V. were a
qualified investment within the meaning of the Act.
[22]
When its
documentary requirements had been met at the end of December 1998, MRS Trust
sent Peak Investment a document entitled [translation]
“One-Time Notice”, requesting that the appellant forward a letter of direction
so that it could [translation] “proceed
with the transaction in this file”, namely the purchase of the shares in
Immeubles R.V.
[23]
In my
opinion, this request for new directions by the appellant is explained by
clause 11(c) of the registered retirement savings plan application, which
provides the following: [translation] “that
the directions I give are valid until the end of the day . . .”. Accordingly,
the directions given by the appellant in his letter of December 1, 1998, to
purchase the shares in Immeubles R.V., were no longer valid. Therefore, new directions
were required to allow MRS Trust to proceed with the purchase of the shares in
Immeubles R.V.
[24]
New directions
were given by the appellant to MRS Trust in a letter dated January 19, 1999, and as mentioned above, on
January 25, 1999, MRS Trust issued a cheque in an amount of $34,500 payable to
the order of Immeubles R.V. (considering clause 11(c) of the RRSP application,
the appellant’s letter was likely received by MRS Trust on January 25, 1999).
[25]
Although I
do not entirely agree with the reasoning of Justice Bédard, I cannot conclude on
the basis of all the evidence that he erred in determining that MRS Trust had
acquired the shares of Immeubles R.V. during the 1999 taxation year. Allow me
to explain.
[26]
Justice
Bédard concluded that MRS Trust was the subscriber of the shares in Immeubles
R.V. He came to this conclusion because the share certificate issued on
December 1, 1998, certified that on this date MRS Trust held 34,500 shares. In
my opinion, the evidence on record did not allow the judge to reach this
conclusion.
[27]
In fact,
the evidence shows that on December 1, 1998, the appellant had made an
offer to purchase 34,500 shares in Immeubles R.V. and that this offer was
accepted by Immeubles R.V., as appears from the contract of sale of shares dated
December 1, 1999, under which Immeubles R.V. agreed to sell those shares to the
appellant.
[28]
Accordingly,
in my opinion, there is no doubt that as of December 1, 1998, the subscriber of these
shares was the appellant himself. This explains why Immeubles R.V. delivered a
share certificate for 34,500 shares to the appellant on December 1, 1998.
[29]
The second
conclusion reached by the judge was to the effect that MRS Trust’s offer to
purchase the shares had been accepted by Immeubles R.V. on December 1, 1998. Once again, I consider that
the evidence does not support the judge’s conclusion in this regard. The only offer
to purchase shares received by Immeubles R.V. on December 1, 1998, was the one
made by the appellant. Therefore, on December 1, 1998, MRS Trust had not made any
offer to purchase shares to Immeubles R.V.
[30]
The only inference
that could be drawn from the preceding is that the appellant, as subscriber of
the shares, asked Immeubles R.V. to allot the shares to MRS Trust. At page 262
of Précis de droit sur les compagnies au Québec, Montréal, Wilson &
Lafleur, Martel ltée, 2000, author Paul Martel writes the following:
[translation]
Definition:
issue and allotment – Issue means that shares are taken from
the authorized share capital to be remitted to someone. At that time, these
shares become issued capital, and then paid-up capital once they are fully paid.
Allotment means the
issued shares are assigned or attributed to persons. These persons are not
necessarily the subscribers themselves, as one person may subscribe to shares
and request that these shares be allotted to one or more other persons. Allotment
means that shares are attributed to persons for whom the subscription is made.
[31]
The record
clearly shows that it was only around December 30, 1998, that the examination
of the documents required by MRS Trust was completed. Accordingly, satisfied
that it could proceed with the purchase of the shares in Immeubles R.V., MRS
Trust forwarded the One-Time Notice to the appellant, requesting directions.
After it received the appellant’s letter on January 19, 1999, MRS Trust consented to his directions
by sending a cheque for $34,500 to Immeubles R.V.
[32]
According
to the last finding of fact reached by the judge, MRS Trust was not advised of
the acceptance of the subscription by Immeubles R.V. until Immeubles R.V. had
cashed its cheque issued on January 25, 1999. In reaching this conclusion, the judge
seems to have taken for granted that MRS Trust had not received the certificate
during the 1998 taxation year. The letter sent by the appellant to MRS Trust on
January 19, 1999, seems to suggest that the
share certificate would not be delivered to MRS Trust until the shares in
Immeubles R.V. had been paid for. The letter reads as follows:
[translation]
On receipt of
this letter, I ask you to send a cheque in the amount of $34,500 to Les
Immeubles R.V. (1986 Inc.) at the following address: 1174 Sacré-Cœur Blvd., St-Félicien
G8B
2R2.
This is in exchange for share certificates for $34,500 in class B shares in the
company.
[33]
However,
at paragraph 16 of my reasons, I conclude that the share certificate had
probably been received by MRS Trust on December 17, 1998. This conclusion is
based on my assessment of the documents filed as new evidence, although this
evidence is far from being satisfactory. In my opinion, whether the share
certificate was received by MRS Trust before the end of the 1998 taxation year
or in January 1999 does not change the outcome of the appeal because there can
be no doubt, given all the evidence, that it is impossible to conclude that MRS
Trust acquired the shares in Immeubles R.V. in 1998. In fact, the first and
only contact between MRS Trust and Immeubles R.V. took place when MRS Trust sent
its cheque dated January
25, 1999.
Accordingly, in spite of a certificate showing that it was the owner of 34,500
shares in Immeubles R.V., it was not until January 25, 1999, that MRS Trust
acquired these shares.
[34]
In
addition, the appellant, who had never raised the issue of the taxation year against
the Minister’s assessment, had the burden of persuading Justice Bédard and this
Court that MRS Trust had acquired the shares of Immeubles R.V. during the 1998
taxation year. The appellant did not persuade the judge of that, nor did he persuade
me.
Disposition
[35]
For these
reasons, I would dismiss the appeal with costs.
“M.
Nadon”
“I agree.
Gilles
Létourneau J.A.”
“I agree.
J.D.
Denis Pelletier J.A.”
Certified
true translation
Michael
Palles
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