Alice Savard v. Her Majesty the Queen (Informal Procedure), [1995] 1 CTC 2858

Tremblay J.T.C.C.:-This appeal was heard pursuant to the informal procedure on March 28, 1994, in Québec City, Quebec.

1. Point at issue

The point at issue is whether the appellant had to include in 1987 the sum of $9,524 in her income as a result of the expropriation by the city of Jonquière of a land belonging to her for which she allegedly received $15,000.

It was alleged that this sum was originally payable to La Compagnie de Rebuts et pièces usagées du Saguenay Ltée (hereinafter called "the corporation") for the relocation of the business which used the said lot.

According to the respondent, the corporation asked the city to make the payment to the appellant, which was done. The appellant was a shareholder and employee of the corporation. The respondent argued that the appellant received a benefit conferred on a shareholder [subsection 15(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act")] or alternatively an employment benefit [subsection 6(1)]. The appellant contended that the respondent erred in fact and in law.

2. Burden of proof

2.01 The burden is on the appellant to show that the respondent’s reassessment is incorrect. This burden arises from a number of judicial decisions, including a judgment by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195, 3 D.T.C. 1182.

2.02 The facts assumed by the respondent in the instant case are described at subparagraphs (a) to (1) of paragraph 3 of the reply to the notice of appeal. The appellant admitted or denied them as indicated. They read as follows:

3. In particular, the Minister took the following facts for granted in order to make this reassessment:

(a) the appellant was a shareholder and employee of La Cie des Rebuts et Pièces Usagées du Saguenay Ltée ("the corporation") during the 1987 taxation year; [admitted]

(b) the appellant is the wife of the corporation’s principal shareholder, Joseph-Henri Savard; [admitted]

(c) the city of Jonquière expropriated lands in order to widen Boulevard St-François during 1987; [admitted]

(d) one of the lands in question was the property of the appellant; [admitted]

(e) the said land is known and designated as part of lot 31B in Range IV, Township of Jonquière, having an area of 846.5 square feet; [admitted]

(f) La Cie des Rebuts et Pièces Usagées du Saguenay Ltée located its business on that land; [admitted]

(g) the appellant had purchased the said land from her husband Joseph- Henri Savard in 1971 for the price of $1; [admitted but to be completed]

(h) the proceeds of expropriation paid directly to the appellant during 1987 by the city of Jonquière break down as follows:

-$5,476 for the 846.5 square feet part of the land;

-$9,524 for damages caused to the business (relocation of La Cie des Rebuts et Pièces Usagées du Saguenay Ltée); [denied]

(i) La Cie des Rebuts et Pièces Usagées du Saguenay Ltée issued a draft agreement dated June 19, 1987, to the effect that the amount of $9,524, which was owed it by the city of Jonquière for damages caused to the business as a result of the expropriation of the land, could be paid directly to the appellant; [denied]

(j) despite repeated requests by the Minister’s officials, no appraisal report of the land’s fair market value was provided by the appellant; [did not know]

(k) the documents filed by the appellant do not make it possible to determine whether the total amount of $15,000 paid by the city of Jonquiére was solely for the disposition of the said land; [false]

(l) the corporation conferred a $9,524 benefit on the appellant in her

capacity as a shareholder during the period in question. [denied]

[Translation.]

3. Facts adduced in evidence

3.01 The appellant, aged 75, defended herself. Her principal witness, Jean-Jacques Angers, today a building contractor, had represented her as counsel in the expropriation action brought by the city of Jonquière against her in respect of the expropriated land which resulted in the $15,000 compensation.

He was present only as a witness, but in light of the appellant’s age and the fact that she was deaf, the Court asked Mr. Angers to assist her as an agent.

3.02 At the start of the expropriation proceeding, the city offered the appellant $3,000 as compensation. The latter requested $28,000. She ultimately agreed to settle for $15,000 six months later.

3.03 According to Mr. Angers who took part in the discussions with the other attorney representing the city, the latter nevertheless objected to paying this sum because of the many other lands expropriated at the same time as that of the appellant in order to widen Boulevard St- Francois. It was hardly justifiable for the city to pay this price, which was equivalent to $17.72 per square foot ($15,000 * 846.5 square feet). However, since the appellant held out for her price and the city was in a pre-election period, it was best to settle the expropriations as soon as possible. Since a business was under lease on the land in issue, however, it was decided to divide the claim between the appellant and the corporation. The $15,000 payment could thus be more easily explained with regard to the other expropriated parties.

3.04 By a resolution of July 13, 1987, the city accepted the draft agreements [sic] of June 19, 1987 made by the appellant and the corporation. The relevant excerpt of that resolution reads as follows:

but with the circumstances and the appurtenances, for a total price of $15,000,

including $5,476 to cover the expropriated part of her property and $9,524 as compensation for the relocation of La Compagnie de rebuts et pièces du Saguenay Limitée payable in cash upon signing of the notarial instrument, the whole pursuant to the terms and conditions of the aforementioned offer of sale dated June 19, 1987, reference to which is made to have effect as if stated at length....

[Translation.]

Also confirming what had been provided in the agreements [sic], the city’s resolution added the following:

THAT the treasurer be hereby authorized to issue a cheque in the amount of $15,000 to the order of Rose-Alice Tremblay-Savard as final payment for the said property and of the aforementioned compensation.

[Translation.]

The business’s draft agreement of June 19, 1987 (Exhibit 1-4) reads in part as follows:

It is understood that the amount owed to the business may be paid in full to the order of Rose-Alice Tremblay-Savard.

[Translation.]

Furthermore, after setting the compensation at $5,476, the appellant’s draft agreement provides as follows:

However, this offer is accepted on the condition that the following clauses be complied with:

(A) The total amount of the compensation of Rose-Alice Tremblay- Savard and of La Compagnie de Rebuts & Pieces du Saguenay Ltée, that is $15,000, is paid solely to the order of Rose-Alice Tremblay- Savard.

(B) All damage caused to the rest of the property during the work shall

be repaired so that the whole is returned to its original state.

[Translation.]

3.05 The offers, counter-offers and agreements may be summarized as follows:

3.06 On November 4, 1987, the following statement (part of Exhibit

I-2) was filed in the Expropriation Division:

CITY OF JONQUIERE, a legally constituted municipal corporation having its headquarters at 2890 Place Davis, city of Jonquiére, District of Chicoutimi,

Expropriating authority

v.

ROSE-ALICE TREMBLAY-SAVARD, domiciled and residing at 3355 Boul. St-Francois, city of Jonquiére, District of Chicoutimi,

Expropriated party

and

LA COMPAGNIE DE REBUTS ET PIECES USAGÉES DU SAGUENAY LTÉE, (SAGUENAY SCRAP & PARTS CO. LTD.), a legally constituted corporation having its principal place of business at 3357 Boul. St-Francois, city of Jonquiére, District of Chicoutimi, duly represented herein, as witnessed by a certified copy of a resolution of the Board of Directors duly signed by its Chairman Henri Savard,

Expropriated tenant.

STATEMENT OF OUT-OF-COURT SETTLEMENT

The expropriating authority, the city OF JONQUIÈRE, the expropriated parties ROSE-ALICE TREMBLAY-SAVARD and LA COMPAGNIE DE REBUTS ET PIECES USAGEES DU SAGUENAY LTEE inform the Expropriation Division, Québec Section, that a transaction has occurred concerning the instant expropriation case for a total amount of $15,000 paid to the expropriated parties as follows:

- Land	$ 2,540.00
- Improvements to land	$ 1,353.00
- Other damages	$ 11,107.00
- TOTAL	$ 15,000.00
Fees paid to the appraiser
of the expropriated parties:	$ 2,190.00

The parties declare the instant case settled for all purposes of law.

SIGNED AT THE CITY OF JONQUIERE, THIS NOVEMBER 4, 1987.

CITY OF JONQUIÈRE

Per:

Alain Ouellet, attorney

DULY AUTHORIZED BY THE EXPROPRIATING AUTHORITY, CITY OFJONQUIÈRE

ROSE-ALICE TREMBLAY-SAVARD

PER:

Rose-Alice Tremblay-Savard

LA COMPAGNIE DE REBUTS ET PIÈCES USAGÉES DU SAGUENAY LTÉE

Per:

Henri Savard, president

DULY AUTHORIZED HEREIN

JEAN-JACQUES ANGERS

Per:

Jean-Jacques Angers

ATTORNEY FOR THE EXPROPRIATED PARTIES

[Translation.]

3.07 The respondent included the sum of $9,524 in the appellant’s income (Exhibit I-5). Despite the appellant’s objection, the respondent confirmed the assessment by explaining that the whole was consistent with the provisions of subsection 15(1) of the Income Tax Act.

3.08 Two contracts filed as Exhibit 1-7 provided that the appellant had purchased the first part of the land in issue from Joseph-Henri Savard for the sum of $1 on October 13, 1971, and the second part from her sons Gilles and Gaston Savard for the price of $5,366.95 on November 17, 1978. The land has a total area of 106,600 square feet.

3.09 The land in issue was commercially zoned at the time of the expropriation. Part of Exhibit 1-3 was the leasing agreement signed between the appellant (lessor) and La Compagnie de Rebuts et pièces usagées du Saguenay Ltée (lessee) on January 1, 1984. It was further to the lease signed on May 1, 1973, but not filed at the hearing of the instant appeal.

The agreement signed in 1984 provided for rent of $10,000 per year and made the following stipulation:

Continuing employment and remuneration for Rose-Alice Tremblay-Savard [the appellant] pursuant to an agreement in principle between the two parties.

[Translation.]

3.10 The corporation’s shareholders are the appellant, her husband and their four children.

3.11 According to the appellant’s evidence, the corporation’s business was never relocated. It is still on the land in 1994. According to Mr. Angers, the expropriated part of the land served at most as parking for a few automobiles.

4. Act-Analysis

4.01 Act

The provision of the Income Tax Act involved in the instant case is subsection 15(1), which reads as follows:

15(1 ) Appropriation of property to shareholder.-Where in a taxation year

(a) a payment has been made by a corporation to a shareholder otherwise than pursuant to a bona fide business transaction,

(b) funds or property of a corporation have been appropriated in any manner whatever to, or for the benefit of, a shareholder, or

(c) a benefit or advantage has been conferred on a shareholder by a corporation, otherwise than

(d) on the reduction of capital, the redemption, cancellation or acquisition by the corporation of shares of its capital stock or the winding-up, discontinuance or reorganization of its business, or otherwise by way of a transaction to which section 88 applies,

(e) by the payment of a dividend or a stock dividend,

(f) by conferring on all holders of common shares of the capital stock of the corporation a right to buy additional common shares thereof, or

(g) by an action described in paragraph 84(1 )(c. 1 ) or (c.2),

the amount or value thereof shall, except to the extent that it is deemed to be a dividend by section 84, be included in computing the income of the shareholder for the year.

4.02 Analysis

4.02.1 If the appellant had proceeded before the Expropriation Division alone, could she have obtained the amount of $15,000? Considering the very small area of the land expropriated (846.5 square feet) and the fact that there was no need to relocate the corporation’s business (3.11), the Court doubts it very much.

However, no evidence of an appraisal of the land was filed before the Tax Court of Canada. Furthermore, this Court is bound by the figures of the agreement, just as it is bound by the expropriated parties that appear in the official agreement of November 4, 1987, entered in the record of the Expropriation Division (3.06), that is Rose-Alice Savard (expropriated party) and La Compagnie de Rebuts et pièces usagées du Saguenay Ltée (expropriated tenant).

What might have occurred if the parties had proceeded otherwise is of little importance. The Court is bound by what was in fact done, thus applying the principle invoked by the Supreme Court of Canada in The Queen v. Bronfman Trust, [1987] 1 S.C.R. 32, [1987] 1 C.T.C. 117, 87 D.T.C. 5059, at page 55 (C.T.C. 129, D.T.C. 5067-68).

According to that principle:

the courts must deal with what the taxpayer actually did, and not what he might have done: Matheson v. The Queen, [1974] C.T.C. 186, 74 D.T.C. 6176 (F.C.T.D.), per Mahoney J., at page 189 (D.T.C. 6179).

4.02.2 The official agreement does not distinguish between the compensation to be paid to each of the expropriated parties (3.06). It was the evidence before this Court that, to a large degree, provided them for us. This evidence is detailed above (3.04, 3.05) allotting $5,476 to the appellant and $9,524 to the corporation. That is the actual situation. The fact that the ultimate intention of the expropriated parties was to hand over the entire compensation to the appellant is another situation.

It is this other situation that falls under the jurisdiction of the Income Tax Act and the application of subsection 15(1). The Court need not elaborate on this point. The evidence is clear; the assessment was valid.

5. Conclusion

The appeal is dismissed.

Appeal dismissed.