Irené (René) Lefebvre v. Minister of National Revenue, [1984] CTC 2179, 84 DTC 1154

Cardin, TCJ:—The appellant, René Lefebvre, is appealing from an assessment of tax with respect to the 1980 taxation year.

The issue is whether Mrs Evelyn Lefebvre, the appellant’s wife, was an equal shareholder with the appellant in a corporation known as “René Lefebvre Carpentry and Construction Ltd” and whether dividends in the amount of $25,911.52 received by Mrs Lefebvre from the corporation were properly added to the appellant’s 1980 income by the Minister of National Revenue.

Prior to May 1977, the appellant operated a sole proprietorship carpentry business under the name of “René Lefebvre Carpentry’’. On April 30, 1979, the appellant had his carpentry business incorporated under the name of “René Lefebvre Carpentry and Construction Ltd’’ (“the corporation’’). The authorized capital of the newly formed corporation was divided into 40,000 common shares with no par value. One share was issued to the appellant as the incorporator (Exhibit A-1).

On June 1, 1977, the appellant sold the assets of his carpentry business to the newly incorporated company for $42,568.97. In payment of the purchase price, the corporation allegedly issued 4,000 common shares to the appellant with an acknowledgement of debt of $38,569.77. In the corporation’s opening balance sheet as at June 1, 1977, 4,000 common shares with a par value of $1 are recorded as having been issued by the appellant and $38,568.97 is shown as owing to R Lefebvre (Exhibit R-3).

There is no evidence that the appellant’s wife was a partner in the appellant’s former company or that she shared in any way in the revenues from the sale of the appellant’s carpentry business or received any shares in the incorporated company.

In a letter dated October 15, 1977, Mr Neil Campbell, the appellant’s attorney at that time, referred to Mrs Lefebvre as secretary of the corporation. However, that letter is unsigned (Exhibit R-1).

The shareholder’s register (Exhibit A-8) shows René Lefebvre as owning 4,001 common shares and Mrs Lefebvre as owning one common share. There is no evidence as to how the appellant or his wife were issued the shares.

Surprisingly, counsel for the appellant was unable in his pleading and in argument to inform the Court on how many shares were properly issued to the appellant’s wife. Indeed, the evidence is even unclear on the number of shares issued to the appellant.

Some of the corporate records were introduced as exhibits: waivers of notice, minutes of director’s shareholders meetings, share certificates, financial statements. These documents, to say the least are incomplete, contradictory and in very many instances are not executed.

I will not attempt, on the basis of the written evidence, to determine the number of shares that were issued to the appellant and his wife — an exercise which counsel for the appellant himself was incapable of doing.

I can do no better than counsel and I will assume that on the balance of probabilities the appellant was issued 4,001 common shares and the appellant’s one common share.

This allocation of the corporation’s common shares does not support the appellant’s allegation that his wife was an equal shareholder in the corporation. In fact, the appellant relies very little on the company’s books and records, his principal submission is that the appellant and his wife, from the beginning of the new corporation, intended to share equally in the corporation’s profits.

It was alleged that the appellant was unfamiliar with the financial aspects of the business and relied heavily on professional advisors.

One of these advisors was a Mr Morissette who suggested to the appellant that his carpentry business should be incorporated and the revenues could be shared on an equal basis, thereby reducing the appellant’s tax liabilities.

The corporation was incorporated by Mr Campbell, the appellant’s attorney. Very shortly after the incorporation, Mr Morissette left the appellant’s employment and Roy’s Tax & Management Services Ltd was retained by the appellant.

It is Mr Campbell’s evidence that he purchased the corporation’s books and prepared the opening records of the corporation. He testified that he had received instructions from the appellant to incorporate the company in such a way as to split the income so as to “keep as much money as we can’’. He was instructed to consider the appellant and his wife as equal shareholders in the incorporation. However, Mr Campbell also testified that the instructions for providing two directors each with one common share were never received by him (Exhibit R-1). Moreover, the final instructions to enter in the company’s books the sale of the appellant’s assets to the corporation were never received by him, although several meetings with the appellant and his wife had been held. Mr Campbell stated that after May 30, 1977 he had received no further instructions from the appellant (Exhibits A-2 and A-3).

The question of Mr and Mrs Lefebvre being equal shareholders was raised on one of Mrs Lefebvre’s visits to Roy’s Tax Management Services Ltd where she brought operational records of the corporation. Mr Lafrenière, an employee of Roy’s Tax Management Services Ltd, testified that the appellant had advised him that he had a tax problem and wanted to have the corporation’s dividends paid equally to himself and his wife.

Mr Lafrenière, to give effect to the appellant’s wishes which were contrary to the opening minutes of the corporation and to the 1979 and 1980 balance sheets, attempted to have the shares transferred from the appellant to his wife.

In a letter dated August 15, 1980 (Exhibit A-4), Mr Lafrenière advised Mr Campbell that on May 1, 1980, 1999 shares had been transferred from the appellant to his wife. The said fetter reads as follows:

Sudbury, August 15, 1980

MR. NEIL CAMPBELL

BARRISTER & SOLICITOR

218 Lasalle Blvd.,

SUDBURY, Ontario

P3A 1W5

RE RENE LEFEBVRE CARPENTRY

AND CONSTRUCTION LTD.

Dear Sir:

We advise that on May 1st, 1980, Mr. Rene Lefebvre has transferred to his wife Evelynn Lefebvre, 1,999 common sahres of the above Captioned company.

Could you please make the necessary entries in the Company’s minute book, and look after all the legal aspect of the Transaction.

Yours very truly,

(signature)

J.M. Lefreniere.

JML : cd

Mr Campbell testified that he had not heard nor had he been advised of the transfer of shares. Having received no instructions from the appellant to that effect, he did not amend the books and records. The books of the corporation had remained in Mr Campbell’s office and no one but himself could have succeeded in transferring the shares.

Mr Campbell forwarded to the appellant a letter dated March 25, 1981, filed as Exhibit A-7 which reads as follows:

Neil J. Campbell

Sudbury Office

March 25, 1981

Rene Lefebvre Carpentry and

Construction Ltd.,

487 Montague St.,

SUDBURY, Ontario.

Attention: Irene Lefebvre

Dear Sir:

Re: Annual Minutes

We have now completed the Annual Shareholders’ Directors Minutes and Resolutions for the year ending May 31, 1978, 1979 and 1980.

Upon receipt of this letter we would ask that you contact the writer in order to arrange a time convenience for you to attend at our office to execute same.

In the meantime, we enclose herewith our account for services rendered which we trust will be found satisfactory.

Yours very truly,

PAQUETTE, CAMPBELL & LALANDE

Neil J. Campbell

NJC:hl

Ends.

Finally, on June 29, 1982, Mr Campbell wrote to Mrs Eldridge, (formerly employed by Roy’s Tax & Management Services Ltd) then employed by Nord- Ridge Bookkeeping Services, describing the facts and circumstances as they were then:

NEIL J. CAMPBELL

Sudbury Office

June 29, 1982

Nord-Ridge Bookkeeping Services,

208 Elm Street West

Sudbury, Ontario.

P3C 1J3

Attention: Ms. Shirley I. Eldridge

This will once again confirm my instructions from Rene and Evelyn Lefebvre were to incorporate this company with one common share each to Rene and Evelyne. I distinctly recall discussing the matter with Rene in some detail prior to preparation of the incorporation documents. The only indications I had at that time were that they were to be equal shareholders. I subsequently received some instructions from Roy’s Tax Management concerning the issuance of additional shares but at no time did those instructions ever come from Mr. Lefebvre that the documentation was ready pursuant to those instructions, Mr. Lefebvre never attended our offices nor did we ever discuss whether or not those shares were to be issued or not. All of the work in relation to the corporate books has been done by my office and no one else has had any access or authority to them.

Dear Ms. Eldridge:	Re: Rene Lefebvre Carpentry
	and Construction Ltd.

Hoping this meets with your satisfaction.

Yours very truly,

PAQUETTE, CAMPBELL & LALANDE

(signature)

NEIL J. CAMPBELL

NJC/bl

On the basis of the verbal evidence which was not contradicted by any of the witnesses, I can accept that the appellant, in incorporating his company, intended to become an equal shareholder with his wife, and did so with a view of splitting the income with his wife thereby receiving tax benefits.

The question is, in the absence of little, if any, documentary evidence, whether the appellant’s declared intention is sufficient to warrant allowing of the appeal. To do so, it must be quite clear that the taxpayer had done all he could to have his intention and instructions properly executed. It must be equally clear that professional advisors, because of incompetence or negligence, failed to properly carry out the taxpayer’s intention.

In this instance, while accepting that the appellant may have intended to share equally with his wife in the incorporated company did not give to the execution of his goal, the time, the effort, and the attention that such a decision required. I do not find that Mr Campbell was in any way incompetent, negligent and derelict in carrying out the instructions given to him by the appellant.

A review of the documents filed shows that the appellant, to say the least, was unco-operative and indeed very negligent in failing to execute these corporate resolutions which could and would have resulted in the type of corporate shareholding that he now claims he had intended in May 1977.

For these reasons, the appeal is dismissed.

Appeal dismissed.