Laplante v. Canada, 2018 FCA 193

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2018 FCA 193

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Text of decision

Date: 20181023

Docket: A-222-17

Citation: 2018 FCA 193

[ENGLISH TRANSLATION]

CORAM:

PELLETIER J.A.

BOIVIN J.A.

DE MONTIGNY J.A.

BETWEEN:

DANIEL LAPLANTE

Appellant

and

HER MAJESTY THE QUEEN

Respondent

Heard at Montréal, Quebec, on October 22, 2018.

Judgment delivered at Montréal, Quebec, on October 23, 2018.

REASONS FOR JUDGMENT BY:

BOIVIN J.A.

CONCURRED IN BY:

PELLETIER J.A.

DE MONTIGNY J.A.

Date: 20181023

Docket: A-222-17

Citation: 2018 FCA 193

CORAM:

PELLETIER J.A.

BOIVIN J.A.

DE MONTIGNY J.A.

BETWEEN:

DANIEL LAPLANTE

Appellant

and

HER MAJESTY THE QUEEN

Respondent

REASONS FOR JUDGMENT

BOIVIN J.A.

[1] The appellant is appealing from the judgment of Justice Ouimet of the Tax Court of Canada (the TCC judge) dated June 23, 2017 (2017 TCC 118). The TCC judge found that there was a simulation that apparently consisted in the beneficiaries receiving a trust distribution when in reality the appellant, through a mandate, was the true beneficiary of all the distributions. The TCC judge therefore dismissed the appellant’s appeal from the reassessment made by the Minister of Revenue under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the ITA) for the 2008 taxation year.

[2] The standard of review in this case is that of palpable and overriding error for the questions of mixed fact and law, and the standard of correctness for the questions of law (Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33 [Housen]).

[3] The appellant essentially argues that there can be no question of simulation or mandate because the distributed amounts did not belong to him but rather to each of the beneficiaries.

[4] In his decision, the TCC judge properly directed himself in law in applying the principles set out by the Supreme Court of Canada according to which the Minister of Revenue must make an assessment based on the true legal relationship between the parties (Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622). He also correctly identified and defined the material element and the element of intent, which are the two elements that must be present in order to make a finding of simulation under article 1451 of the Civil Code of Québec, C.Q.L.R. c. CCQ-1991. In addition, given the evidence in the record, the TCC judge did not err in finding simulation in this case, that is, that the appellant was the true beneficiary of the amounts distributed by Fiducie DL to the apparent beneficiaries.

[5] Furthermore, I do not detect any error in the TCC judge’s application of the legal standards applicable to mandate (article 2130 of the Civil Code of Québec) in the context of a contract to act as nominee (prête-nom) (Victuni v. Minister of Revenue of Quebec, [1980] 1 S.C.R. 580). His finding of fact is moreover amply supported by the evidence, and the inference-drawing process that he followed does not appear to me to be palpably in error (Housen at paragraph 23).

[6] Counsel for the appellant stated before this Court that the TCC judge, in giving precedence to Ms. Laplante’s testimony, essentially dismissed the other witnesses as liars. However, one has only to read the TCC judge’s reasons to see that he weighed all the testimony but gave more weight to Ms. Laplante’s testimony, as it appeared to him to be more consistent with the evidence in the record. It was therefore open to the TCC judge to find as he did, considering the factual framework revealed by the evidence, in particular that (i) at the meeting of December 25, 2008, Fiducie DL distributed amounts by cheque to the beneficiaries even though they did not intend to accept and deposit the cheques; (ii) the beneficiaries nonetheless subsequently endorsed them to the appellant rather than simply giving them to him; and (iii) in addition, the beneficiaries signed a deed of gift in favour of the appellant.

[7] In light of the above, the TCC judge did not commit any error requiring this Court’s intervention.

[8] It therefore follows that the reassessment made by the Minister of Revenue was justified in the circumstances despite the expiry of the normal reassessment period applicable to the appellant for the 2008 taxation year.

[9] For these reasons, I would dismiss the appeal with costs.

“Richard Boivin”

J.A.

“I agree.

J.D. Denis Pelletier J.A.”

“I agree.

Yves de Montigny J.A.”

Certified true translation

Erich Klein

FEDERAL COURT OF APPEAL

SOLICITORS OF RECORD

DOCKET:

A-222-17

STYLE OF CAUSE:

DANIEL LAPLANTE v. HER MAJESTY THE QUEEN

PLACE OF HEARING:

Montréal, Quebec

DATE OF HEARING:

October 22, 2018

REASONS FOR JUDGMENT BY:

BOIVIN J.A.

CONCURRED IN BY:

PELLETIER J.A.

DE MONTIGNY J.A.

DATED:

October 23, 2018

APPEARANCES:

Serge Fournier

FOR THE APPELLANT

Michel Lamarre

FOR THE RESPONDENT

SOLICITORS OF RECORD:

BCF LLP

Montréal, Quebec

FOR THE APPELLANT

Nathalie G. Drouin

Deputy Attorney General of Canada

FOR THE RESPONDENT

Summaries

Summary Under

Tax Topics - General Concepts - Sham

a purported distribution of QSBCS gains to family trust beneficiaries was a sham

In or about November 2004, the taxpayer (“Laplante”) and the two other shareholders of a small business corporation (“DTI”) each settled a family trust (the “DL Trust”) on the advice of their accounting firm, with the three trusts acquiring a portion of the DTI shares. In January 2008, all the DTI shares (which were qualified small business corporation shares) were sold to a German company, with DL Trust realizing a $5.9 million capital gain. In December 2008, a resolution of the three trustees (Laplante, and two “temporary” trustees, being his mother and a friend) signed a resolution for the allocation and distribution of the taxable capital gain to Laplante and the various members of his family qua beneficiaries of the trust, with the amounts allocated to those beneficiaries equalling their available claim for the taxable capital gains deduction under s. 110.6(2.1) (of $370,487.50). At the same time, Laplante issued a cheque to each beneficiary in an amount equal to the allocated taxable capital gain. The beneficiaries all endorsed their cheques, delivered them to Laplante and signed deeds of gift to him each in the amount of $370,487.50. Laplante paid the alternative minimum tax that was payable by the beneficiaries as a result of their reporting “their” taxable capital gains of $370,487.50 (with the s. 110.6(2.1) deduction claimed).

In finding that the two elements under CCQ s. 1451 for a “simulation” had been established, namely the substantive element (“élément materiel”) and intentional element (“élément intentionnel”), Ouimet J had stated (at 2017 CCI 118, para. 73, TaxInterpretations translation, respecting the first element) that the beneficiaries

had each accepted a mandate from Mr. Laplante whose essential features consisted in receiving from the DL Trust a distribution in the amount of $375,000 and thereupon paying that amount to Mr. Laplante. In so doing, they were required to use their capital gains exemption, which was essential. In consideration, they were permitted to keep the recoveries of alternative minimum tax made by them in the subsequent taxation years.

Respecting the second element, he had found (at para. 82):

[T]he parties did not uncloak the existence of the mandates to the Minister and had no intention of ever doing so.

In affirming the findings below by Ouimet J, including that the reassessment of Laplante made after the normal reassessment period was valid, Boivin JA stated (at para. 4):

He was … correct to identify a substantive element and an intentional element, being the two elements which must be present in order to conclude that there is a simulation under Article 1451 … . Furthermore … the judge … did not err in finding a simulation in this case, i.e., that the appellant was the true beneficiary of the amounts distributed by DL Trust to the seeming beneficiaries.

Words and Phrases

simulation

Summary Under

Tax Topics - Income Tax Act - Section 104 - Subsection 104(13)

a purported distribution of QSBCS gains to family trust beneficiaries was received by them as agent for father

The taxpayer (Laplante) was the dominant trustee of a family trust (DL Trust) that had realized a capital gain of around $6M on the sale of qualified small business corporation shares. He passed a trust resolution for the distribution of the taxable capital gain to the family members in amounts sufficient to use up their capital gains exemption. However, immediately upon their receipt of their distribution cheques, they endorsed them over to Laplante and executed deeds of gift in his favour. He paid all their alternative minimum tax liabilities for that year.

In the Tax Court, Ouimet J had found that the purported distribution of the taxable capital gain to the trust beneficiaries was a sham (or, to be more precise, a “simulation” under Art. 1451 of the Quebec Civil Code), stating (at para. 73) that the beneficiaries

had each accepted a mandate [i.e., agency] from Mr. Laplante whose essential features consisted in receiving from the DL Trust a distribution in the amount of $375,000 and thereupon paying that amount to Mr. Laplante. In so doing, they were required to use their capital gains exemption, which was essential. In consideration, they were permitted to keep the recoveries of alternative minimum tax made by them in the subsequent taxation years.

In affirming this decision, Boivin JA stated (at para. 4) that Ouimet J:

did not err in finding a simulation in this case, i.e., that the appellant was the true beneficiary of the amounts distributed by DL Trust to the seeming beneficiaries.

(The Rulings Directorate took a similar approach in 2011-0424341I7 F, see also 2013-0475501I7 F).

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Laplante v. Canada, 2018 FCA 193

Citations2018 FCA 193

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Citations
2018 FCA 193