Date: 20050302
Docket: A-312-04
Citation: 2005 FCA 88
CORAM: DESJARDINS J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
BETWEEN:
ANDRÉE LAROCHELLE
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Hearing held at Québec, Quebec, on March 2, 2005.
Judgment from the bench at Québec, Quebec, on March 2, 2005.
REASONS FOR JUDGMENT OF THE COURT: LÉTOURNEAU J.A.
Date: 20050302
Docket: A-312-04
Citation: 2005 FCA 88
CORAM: DESJARDINS J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
BETWEEN:
ANDRÉE LAROCHELLE
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the bench at Québec, Quebec, on March 2, 2005)
LÉTOURNEAU J.A.
[1] Essentially, counsel for the appellant is asking the Court to review and reverse a decision by the Tax Court of Canada, accepting the testimony of the expert witness called by the appellant rather than that of the respondent's expert witness, which was preferred in part by the trial judge.
[2] The Tax Court of Canada judge (the judge) was careful to give the reasons why he accepted one testimony rather than the other. He explained the strengths and weaknesses of each of the expert reports submitted to him. He had the benefit of seeing and hearing the two expert witnesses and assessing their credibility. We are not able to substitute our assessment of the credibility of these two expert witnesses for that of the judge, as that in fact is what the appellant is asking the Court to do. Moreover, it is not surprising that counsel for the appellant could not give us any precedent authorizing us to do so.
[3] It is the judge's function to assess the market value of the sole share of Assurance Gérard Pelchat Inc. which Mr. Pelchat - in financial difficulty which led him to personal bankruptcy - transferred to his wife before the bankruptcy when he had tax debts amounting to $116,940.04. That transfer between persons not dealing at arm's length brought him within the scope of section 160 of the Income Tax Act, making the recipient and the transferor jointly and severally liable to pay an amount equal to the amount by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property.
[4] Quite apart from the credibility of the testimony by the two expert witnesses, assessment of the credibility of the transferor was also at the heart of the matter in view of the circumstances surrounding the said transfer, the management of his company before the share transfer and that of his personal business operating in the same field. Here again, it is not for this Court to interfere in the factual findings of the judge based on questions of credibility.
[5] The method of determining the fair market value of the share which was adopted by the judge is the empirical method that was used by both expert witnesses. He applied the formula of the gross commission income for the four years preceding the transfer. In his calculations, he used a multiple of two, which was admitted by both expert witnesses. To this he added an amount of $10,292, representing the value of the company's shares. He then went on to apply a reduction of 30% to the value he obtained from his calculation, in order to take into account unforeseen events which might affect the value of the business. As he was entitled to do, he also made certain qualifications to the positions taken by the two expert witnesses.
[6] To arrive at the fair market value of the object of the transfer, the judge concluded that the operation had to be "analyzed and assessed as if it were a normal, typical, everyday legal act between two parties at arm's length from one another": see his decision, paragraph 45. To this end, he attached to the transaction a non-competition clause, because he said "The sale of the controlling share has no meaning or raison d'être unless the transferor expressly renounces direct or indirect solicitation of the corporation's clients for a specific time and within a specific area": see his decision at paragraph 51.
[7] In the circumstances of this transfer between persons not dealing at arm's length, and in view of his conclusion that "the purpose and goal of the transfer of the share was indubitably to avoid payment of the tax debt" (decision, paragraph 59), we feel that he properly presumed the existence and presence of such a clause, as if the transaction had been made between a seller wanting to sell at the best price and a buyer wanting to buy with the best possible guarantees.
[8] The Court accordingly cannot conclude that the method he used to arrive at the fair market value of the transferred share and the amount determined for that value are vitiated by any palpable and overriding error that would warrant its intervention.
[9] For these reasons, the appeal will be dismissed with costs.
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"Gilles Létourneau"
J.A. |
Certified true translation
K. Harvey
FEDERAL COURT OF APPEAL
SOLICITORS OF RECORD
DOCKET: A-312-04
STYLE OF CAUSE: ANDRÉE LAROCHELLE v. HER MAJESTY THE QUEEN
PLACE OF HEARING: QUÉBEC, QUEBEC
DATE OF HEARING: March 2, 2005
CORAM: DESJARDINS J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
REASONS FOR JUDGMENT OF THE COURT BY: LÉTOURNEAU J.A.
DATE OF REASONS: March 2, 2005
APPEARANCES:
Robert Marcotte FOR THE APPELLANT
Nathalie Lessard FOR THE RESPONDENT
SOLICITORS OF RECORD:
Robert Marcotte, attorney FOR THE APPELLANT
Cap-Rouge, Quebec
Department of Justice - Canada FOR THE RESPONDENT
Montréal, Quebec