Date: 20100923
Docket: A-553-08
Citation:
2010 FCA 239
CORAM: NOËL J.A.
PELLETIER J.A.
TRUDEL J.A.
BETWEEN:
FRANÇOIS GRAVIL
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
TRUDEL J.A.
[1]
This is an appeal from a judgment of
Justice Bédard (the judge) of the Tax Court of Canada (the TCC) [2008 TCC
505] dismissing with costs François Gravil’s appeal from the reassessments made
under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
(the Act), for his 1999 and 2000 taxation years.
[2]
In these reassessments, the Minister added the
following amounts to the appellant’s income:
1999 2000
Fees received from the company $47,000 $60,000
Les produits Déli‑Bon Inc.
Amounts advanced and written off by $136,430
the company Les produits Déli‑Bon Inc.
Benefit received from the company $213,162
Les produits Déli‑Bon Inc. for the
purchase of its shares
Benefit received from the company $110,918
Les produits Déli‑Bon Inc.
A penalty was assessed under subsection 163(2) of the Income
Tax Act for these amounts.
[3]
At the hearing before the TCC, the appellant
conceded that the Minister was correct as regards the $47,000 in 1999; and
the $60,000 and $136,430 in 2000.
[4]
However, three issues remained: (1) the
addition of $213,162 and $110,918 to the appellant’s income for the 2000 taxation
year; (2) the factoring in of $75,000 in calculating a business investment
loss for the year 2000; and (3) the assessment of the penalty under
subsection 163(2) of the Act for all of the income added by the Minister,
including the amounts that the appellant admitted were taxable at the hearing.
[5]
The judge rejected all of Mr Gravil’s arguments.
The issues before this Court are essentially questions of fact. This Court will
intervene only if it is shown that the judge made a palpable and overriding error
in assessing the evidence. I find that the appellant has failed to discharge
his burden.
[6]
It is important to set forth certain relevant
facts to fully understand not only the issues but also the amounts at stake.
[7]
On October 11, 1999, the appellant and Guy
Picard, a financial consultant, purchased as equal shareholders all of the
shares of the company Déli‑Bon Inc. (the company), for which François
Gravil had been operations manager until then. At the time, the company was
owned by The Unimark Group Inc. (Unimark), a Texas corporation that was the company’s sole shareholder.
[8]
The US$1,423,932 purchase agreement stated that
the two men were acting “in trust for the company to be owned and operated by
François Gravil and Guy Picard”, that is, according to the appellant, the
company Déli‑Bon 2000 Inc., which was registered in February 2000, a
few months after the company’s shares were purchased. Neither this agreement
nor any interest of the parties to the agreement could be transferred without
the parties’ consent.
[9]
On October 13 and 21, 1999, payments
of US$320,000 and US$380,000 for the purchase of the company’s shares
were made to Unimark using Déli‑Bon Inc.’s own funds and recorded in its
books as shareholder advances.
[10]
During the fiscal year ending October 2,
2000, the balance of [translation]
“receivables from the shareholders” was only $75,000. This decrease was
explained through accounting entries in the ledger, showing that the company
had transferred, first, $426,324 to the item for [translation] “accrued expenses as fees” and, second, $221,836
to the item for [translation] “consulting
fees”, even though the partners had not rendered any services to the company.
[11]
The Minister allocated half of these amounts
transferred by the company, that is, $213,162 and $110,918, to the appellant.
As the judge noted, the appellant argued that the Minister had not been
justified in adding these amounts to his income because the company Déli‑Bon
2000 Inc. was the purchaser of the shares. The first two payments to Unimark for
the purchase of the company’s shares therefore had to be regarded as advances
made by the company to Les Produits Déli‑Bon 2000 Inc. rather than advances
made to the partners Picard and Gravil. The appellant’s position was based on
the main argument that Déli‑Bon 2000 Inc. had tacitly ratified the
actions undertaken in its interest prior to its incorporation. This point will
be discussed below.
[12]
On June 15, 2000, Mr. Gravil and
Mr. Picard ended their partnership. Their decision took the form of a contract
stating as follows:
[translation]
[The appellant] irrevocably transfers and
renounces any right, title and interest in all the shares owned by him in Les
Produits Déli‑Bon Inc. and/or Les Produits Déli‑Bon 2000 Inc., the
whole in favour of Guy Picard.
(Decision, p. 5, at para. 6)
[13]
The same day, the appellant signed a document acknowledging
that he had received $75,000 from Guy Picard for good and valuable consideration.
At the same time, the appellant resigned as [translation]
“company president, operations manager, financial consultant and/or employee of
Les Produits Déli‑Bon Inc. and/or Les Produits Déli‑Bon 2000 Inc”.
[14]
On October 3, 2000, Unimark brought an
action in Texas against the
company Déli‑Bon 2000 Inc., the appellant and Guy Picard, to recover the
unpaid balance of the sale price of the company’s shares. On October 12,
2001, Déli‑Bon Inc. made an assignment in bankruptcy.
Issues
A. The
addition of $213,162 and $110,918 to the appellant’s income as benefits
conferred on a shareholder for the 2000 taxation year
[15]
As noted above, the appellant submitted that the
company had advanced to Déli‑Bon 2000 Inc. the necessary amounts for the
purchase of the company’s shares, since Déli‑Bon 2000 Inc. had tacitly
ratified the acts done on its behalf prior to its formal incorporation,
including the agreement to purchase the company’s shares dated October 11,
1999.
[16]
Here, the appellant had no choice but to speak
of tacit ratification. The judge noted that the appellant had been unable to adduce
the minutes of Les Produits Déli‑Bon 2000 Inc. showing that it had
expressly ratified the transaction of October 11, 1999 (decision, at
para. 17i).
[17]
It is not disputed that the ratification may be express or tacit. An express
ratification is a formal confirmation by the newly incorporated company that it
considers itself to be bound by the acts done in its interest prior to its
incorporation and that it intends to honour the obligations incurred on its
behalf. A tacit ratification, however, is one that, albeit not formally
expressed, may be deduced from facts, attitudes or acts of the company that
cannot be explained otherwise than by the company’s willingness to be bound by
the contract (Maurice and Paul Martel, La compagnie au Québec: Les aspects
juridiques, Montréal, Éditions Wilson & Lafleur, 2005, at pp. 4‑5
and 4‑6, Raymond Crête and Stéphane Rousseau, Droit des sociétés
par actions: principes fondamentaux, Montréal, Les Éditions Thémis, 2002, at
section 412, Bureau international d’échange commercial (B.I.E.C.) ltée
v. Boutin, J.E. 90-1344 (Sup.Ct.), at para. 31, Place de la Concorde Inc. v. Geday, 2009
QCCS 6435, at paras. 35‑36,
Durepos v. Pakua Shipi Construction Inc., J.E. 2006-1566 (C.Q.), at paras. 56‑57)
[emphasis added].
[18]
In the absence of any
evidence of an express ratification, the judge carefully considered the
appellant’s evidence, searching unsuccessfully for indications that Déli‑Bon 2000 Inc. had ratified the original transaction.
[19]
The judge noted that “neither the appellant nor
Mr. Picard clearly stated that the transaction had been ratified or
. . . when it had been ratified by Les Produits Déli‑Bon 2000
Inc” (decision, at para. 18). He also concluded that the transaction had
not been ratified, since “most of the documentary evidence [indicated] the
contrary” (ibidem).
[20]
Therefore, the appellant has failed to satisfy
me that the judge erred in rejecting his argument. The judge’s conclusion stems
from a finding of fact that is supported by the evidence.
B. The $75,000
business investment loss for the year 2000
[21]
The judge concluded that the $75,000 that Guy
Picard had paid to the appellant in June 2000 was consideration for the
sale to Guy Picard of the appellant’s shares in the company. Before the TCC,
the appellant argued that the payment of that amount had had nothing to do with
the sale of the shares, which he had transferred to his partner gratuitously.
Rather, it was the repayment by François Picard of an amount that the appellant
had entrusted to him in cash, in the summer of 1999, for the joint purchase of
a lot north of the Wendake Indian Reserve (appeal book, vol. II, at pp. 48
et seq.).
[22]
The judge rejected the appellant’s testimony as
“implausible” (decision, at para. 16). On this issue, the judge considered
all of the evidence, which supports his conclusion. I therefore find no error
warranting this Court’s intervention.
C. The penalty under subsection 163(2) of the Act
[23]
The appellant challenged the penalties assessed
by the Minister, arguing that the Minister had failed to [translation] “get in touch with him
prior to rendering his decision; had he done so, he would have discovered [the
appellant’s] lack of education . . . and complete inexperience with
the tax issues raised and with business accounting” (Notice of Appeal, appeal book,
vol. I, tab 1, at p. 4). Before the TCC, the appellant contended
that he had not reported the $47,000, $60,000 and $136,432 because his
accountant had told him, for various reasons, that these amounts were not
taxable.
[24]
The judge did not believe the appellant.
Moreover, he drew a negative inference from the fact that the appellant had
chosen not to call his accountant as a witness to corroborate his version of
the facts. Ultimately, the judge determined that the statements that the
appellant attributed to his accountant were implausible (decision, at
para. 20).
[25]
As for the penalty for the omission of the $213,162
and $110,918, the judge stated that the Minister’s evidence had satisfied him
that the appellant had “knowingly” failed to report those amounts. He therefore
upheld the penalty. While it is true that the judge did not provide reasons
supporting his conclusion, unlike with the penalties for the other amounts
discussed above, I have no difficulty in finding that his conclusion was
justified in light of the factual framework of this case and the evidence
adduced before the judge showing that the appellant had actively participated in
writing off the company’s funds.
Conclusion
[26]
The Supreme Court of Canada, in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R.
235, issued the following reminder:
18. The trial judge is better situated to make factual
findings owing to his or her extensive exposure to the evidence, the advantage
of hearing testimony viva voce, and the judge’s familiarity with the case as a whole.
Because the primary role of the trial judge is to weigh and assess voluminous
quantities of evidence, the expertise and insight of the trial judge in this
area should be respected.
[27]
I am of the opinion that the judge made no palpable
or overriding error in his assessment of the evidence. Accordingly, I would
dismiss the appeal with costs.
“Johanne Trudel”
“I agree.
Marc Noël J.A.”
“I agree.
J.D. Denis Pelletier J.A.”
Certified true
translation
Tu-QuynhTrinh
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