[OFFICIAL ENGLISH TRANSLATION]
Docket: 2001-1410(IT)G
BETWEEN:
JOHANNE BERGERON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of Lise Goudreault Bergeron (2001-1411(IT)G) on December 11, 2002, in Québec, Quebec
Before: The Honourable Judge Alain Tardif
Appearances:
Counsel for the Appellant: Daniel Bourgeois
Counsel for the Respondent: Janie Payette
JUDGMENT
The appeal from the assessment made under section 160 of the Income Tax Act, notice of which bears number 13394, dated May 3, 2001, is dismissed, the whole with costs to the respondent, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 19th day of September 2003.
|
"Alain Tardif" |
Judge Tardif
Translation certified true
on this 29th day of October 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Docket: 2001-1411(IT)G
BETWEEN:
LISE GOUDREAULT BERGERON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeal of Johanne Bergeron (2001-1410(IT)G) on December 11, 2002, in Québec, Quebec
Before: The Honourable Judge Alain Tardif
Appearances:
Counsel for the Appellant: Daniel Bourgeois
Counsel for the Respondent: Janie Payette
JUDGMENT
The appeals from the assessments made under section 160 of the Income Tax Act, notices of which are dated May 3, 2001, and May 22, 2001, bearing respectively numbers 13393 and 19959, are allowed in part.
The Court officially acknowledges the consent to judgment in respect of the assessment in the amount of $45,000, which assessment is vacated in accordance with the aforesaid consent to judgment. The assessment in the amount of $130,000 is vacated; the case will be returned to the Canada Customs and Revenue Agency for reassessment on the basis that the fair market value (the "FMV") of the property transferred to the appellant was $111,500. An amount of $73,856.40 will have to be deducted from the reassessment to be issued following the determination of a new FMV, reflecting the payments made by the appellant towards the tax liability of her former spouse, the transferor of the property that she received.
The whole with costs to the appellant, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 19th day of September 2003.
|
"Alain Tardif" |
Judge Tardif
Translation certified true
on this 29th day of October 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Citation: 2003TCC286
Date: 20030919
Dockets: 2001-1410(IT)G
2001-1411(IT)G
BETWEEN:
JOHANNE BERGERON,
LISE GOUDREAULT BERGERON,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C
[1] The appellants agreed to proceed on common evidence. At the time of the hearing, Lise Goudreault Bergeron had become the former spouse of Michel Bergeron; as for Johanne Bergeron, she was their daughter.
[2] The appeal concerns the assessments made under section 160 of the Income Tax Act (the "Act").
[3] On October 23, 2000, Michel Bergeron had a balance of $354,261.45 owing in tax assessments, the details of which are given at subparagraph 11(e) of the Reply to the Notice of Appeal (the "Reply"):
[TRANSLATION]
(e) ...
|
For 1991
Fed. tax: $50,954.50 Penalties: $24,503.88 Interest: $87,476.30 Total: $162,934.68 |
For 1992
Fed. tax: $39,142.72 Penalties: $18,113.66 Interest: $53,281.36 Total: $110,537.74 |
For 1993
Fed. tax: $30,091.25 Penalties: $14,585.33 Interest: $36,112.45 Total: $80,789.03 |
[4] On January 8, 2001, the unpaid balance of Michel Bergeron's tax assessments amounted to $362,699.86, according to the details indicated in subparagraph 11(n) of the Reply:
[TRANSLATION]
(n) ...
|
For 1991
Fed. tax: $50,954.50 Penalties: $24,503.88 Interest: $90,181.25 Total: $165,639.63 |
For 1992
Fed. tax: $39,142.72 Penalties: $18,113.66 Interest: $56,001.87 Total: $113,258.25 |
For 1993
Fed. tax: $30,091.25 Penalties: $14,585.33 Interest: $38,125.40 Total: $83,801.98
|
[5] With respect to assessment 13393, the following facts were admitted:
· The appellant Lise Goudreault Bergeron was the spouse of Michel Bergeron until the divorce judgment was rendered on December 31, 1997.
· At the end of 1990 or the beginning of 1991, the appellant and Michel Bergeron together purchased a condominium located in Florida, at 806 Waterside Village, Hypolux, Florida (33452), at a cost of US $134,346.56.
· On August 9, 1991, the appellant and Michel Bergeron took out a mortgage loan in the amount of US $75,000 for the purchase of the condo described in the preceding paragraph.
· On March 4, 1997, Michel Bergeron obtained a mortgage loan from TD Bank in the amount of $115,000 on the residence located at 4696 rue de Courlis in St-Augustin, Quebec.
· On March 10, 1997, an amount of $90,630.02 was debited on Michel Bergeron's bank account to repay the balance of the mortgage of the Florida condominium.
· On or about March 10, 1997, Michel Bergeron repaid the balance of the mortgage of the Florida condominium for an amount of $90,630.02.
· There was no dispute as to the amount of Michel Bergeron's tax liability at the time of the transfer.
Assessment 19959:
· On or about May 7, 1993, Michel Bergeron transferred to the appellant Lise Goudreault Bergeron, by deed of gift registered at the Charlevoix registration division on June 15, 1993, a property (lots 937 and 938) located in the Municipality of La Baleine, Île aux Coudres.
[6] In the case of the appellant Johanne Bergeron (2001-1410(IT)G), the admissions were in reference to the following facts:
· By cheque dated September 10, 1991, Michel Bergeron transferred an amount of $25,000 to her.
· She is the daughter of Michel Bergeron.
· Michel Bergeron received no consideration for the transfer of money.
· Michel Bergeron's tax liability at the time of the transfer is admitted.
· Admission with regard to the amount of $25,000 received on or about September 10, 1991.
[7] The assessment in the case of Johanne Bergeron (docket 2001-1410(IT)G), bearing number 13394, was made on May 3, 2001. In the case of Lise Goudreault Bergeron (docket 2001-1411(IT)G), the assessments were made on May 3, 2001, and May 22, 2001, and bear the respective numbers 13393 and 19959. Assessment number 13393 was in the amount of $45,315.01 and assessment 19959 was in the amount of $130,000.
[8] At the outset of the hearing, the respondent consented to judgment with respect to assessment number 13393 in the amount of $45,315.01, which resulted in vacating the said assessment.
[9] On October 17, 2000, Michel Bergeron, the former spouse of the appellant and the father of Johanne, the other appellant, served on all his creditors, including the respondent, a Notice of Intention to file a proposal, which had the effect of staying all proceedings initiated against him to recover his debts, including his tax liabilities.
[10] Further to the Notice of Intention, a negotiation process began. An initial offer, dated December 21, 2000, was submitted; Mr. Bergeron offered to pay a lump sum of $175,000 in settlement of all his debts, including the tax liabilities owing to the Canada Customs and Revenue Agency (the "CCRA") and Revenu Québec. The offer was conditional on the CCRA's waiving the use of the provisions of section 160 against the appellants, Lise Goudreault Bergeron and his daughter Johanne.
[11] Michel Bergeron's offer was also conditional on his former spouse's authorization to sell the condominium that they owned together. On December 20, Lise Goudreault Bergeron made her consent to the sale of the Florida condominium subject to the respondent's waiving the use of section 160 against her and her daughter Johanne.
[12] On December 28, the CCRA refused the offer and submitted a counter-proposal requiring payment of an amount of $350,000, reserving moreover its rights under the provisions of section 160.
[13] On January 19, 2001, a new proposal was made by Michel Bergeron; he proposed to pay an amount of $250,000, the whole still conditional on having the application of the assessments issued under section 160 against the appellants waived.
[14] On January 24, the CCRA refused this proposal, indicating however that an amount of $300,000 would be acceptable; however, it reiterated its refusal to waive the application of section 160.
[15] On February 6, 2001, Michel Bergeron's proposal offering to pay $300,000 was formally submitted. Following the final proposal, the CCRA returned to the attack on February 9 with regard to its intention to preserve its rights in respect of the appellants. To do this, the respondent wrote as follows:
[TRANSLATION]
...
Further to our telephone conversation of yesterday regarding the proposal of Michel Bergeron filed on February 6, 2001, we would like to add a clause to the proposal in addition to the changes that we discussed with you yesterday. Here is the clause to be included in Mr. Bergeron's proposal:
· The Canada Customs and Revenue Agency shall retain all its remedies under the Income Tax Act.
I thank you in advance for your valuable co-operation in this file and hope to hear from you shortly on this matter.
...
[16] By means of Robitaille Delisle et associés, Michel Bergeron replied in a note sent by fax on February 16 suggesting another way to formulate the clause concerning the tax liabilities assessed under section 160 of the Act. On February 21, the CCRA replied in a letter (Tab 18) the contents of which it seems to me should be reproduced:
[TRANSLATION]
...
Subject: Michel Bergeron - Proposal
...
Québec, February 21, 2001
Dear Sir,
Further to the receipt of your correspondence of February 16, we wish to inform you that the proposed clause is not acceptable to the Canada Customs and Revenue Agency (CCRA).
We also wish to inform you that we are withdrawing our request of February 9, 2001, that the following clause be included in the proposal:
· The Canada Customs and Revenue Agency shall retain all its remedies under the Income Tax Act.
We are informing you that not including in the debtor's proposal the clause we proposed last February 9 in no way limits the remedies available to the CCRA under the Income Tax Act.
I thank you in advance for your valuable co-operation in this file and hope to receive your comments shortly.
Carl Cloutier
Revenue Collection
...
[17] On February 12, the trustees and Robitaille Delisle et associés prepared the report under section 50(10)B of the Bankruptcy and Insolvency Act.
[18] Finally, on February 23, 2001, the proposal submitted by Michel Bergeron was accepted by all of the creditors present.
[19] At the creditors' meeting, Carl Cloutier, the CCRA's representative, informed the meeting that the CCRA would retain all of the remedies provided for in section 160 of the Act.
[20] The exact timing as to when the reservation was submitted to the creditors' meeting was the subject of a spirited discussion; the respondent asserted that it was done before the vote while the appellants claimed that it was recorded after the vote was held.
[21] The first issue is to decide whether the extinguishment of Michel Bergeron's tax liability, as a result of the acceptance of the proposal, had the effect of vacating the assessments made under section 160 of the Act.
[22] The second concerns the fair market value (the "FMV") of the property transferred to the appellant Lise Goudreault Bergeron by deed of gift on May 7, 1993.
[23] Finally, I will have to decide whether the financial contribution of Lise Goudreault Bergeron to the accepted proposal of her former spouse must reduce the assessments owed by her under section 160 by that amount. In other words, does the contribution of Lise Goudreault Bergeron meet the conditions of subsection 160(3) of the Act ?
[24] The appellants first argued that the fact that the transferor's tax liability was extinguished as the result of the creditors' acceptance of a proposal meant that their own tax liability, established under section 160, was also extinguished. According to them, the situation was completely different from one where a tax liability is extinguished as a result of a bankruptcy.
[25] In point of fact, case law has clearly established that, where a tax liability has been extinguished as a result of a bankruptcy, the respondent's right to collect that same tax liability from the transferee to the extent of his enrichment from a transfer of property meeting the requirements of section 160 of the Act is not adversely affected.
[26] The appellants argued that things were different in the case of a proposal; according to them, a tax liability that has been extinguished as a result of the acceptance of a proposal can no longer be assessed under section 160 of the Act.
[27] In bankruptcy, the extinguishment of a debt results from a process provided for by the Act; the bankrupt is not associated with the process followed in liquidating his assets. Furthermore, a bankrupt loses the possession of all his property; the trustee in bankruptcy is given possession of the property and acts as its administrator. He disposes of it in accordance with the provisions of the Act; at no time does the bankrupt become involved or take part in the decisions concerning the liquidation of the assets of his estate; he is totally excluded from the process.
[28] The proposal is a procedure for the liquidation of a substantial part of the assets of the person making the proposal in consideration of which he obtains, if his proposal is accepted, the extinguishment of his debts.
[29] During the process and until his creditors report on a fixed date, the proposing debtor retains control of his assets or possession of his property.
[30] The debtor continues to be active in the process; he participates in formulating the content of the proposal. He can alter its content at any time before it is accepted by the creditors. Throughout the process leading to the final acceptance or refusal, he can negotiate and discuss the extent of the bulk of the assets that will ultimately be divided among the creditors.
[31] For their part, the creditors, especially the major creditors, play a leading role in that they generally make their reactions known before the vote is held, which is why the contents of the proposal are often the subject of various corrections, improvements or arduous negotiations.
[32] In substance, the proposal process may be compared to the actual negotiation process between the creditors and the debtor, brokered by the trustee; if the proposal is accepted, the end result is wholly similar to an actual transaction binding on the parties. If the proposal is refused, the person making the proposal becomes a bankrupt.
[33] What are the effects of the acceptance of a proposal on an assessment made under the provisions of section 160 of the Act? Does the extinguishment of the tax liability resulting from the acceptance of the proposal vacate the assessments issued to the transferee in respect of a transfer subject to section 160 of the Act ?
[34] Section 160 of the Act provides that the transferee is jointly and severally liable with the principal tax debtor and independently of his will. The obligation arises at the time of the transfer and by the sole effect of the Act.
[35] An assessment under section 160 of the Act is made on the basis of the value transferred without adequate consideration. This is a real assessment created by the effect of the Act; it essentially reflects the value added to the transferee's assets or patrimony up to the amount of the tax liability owing by the transferor of the property. It does not impoverish the transferee; it only takes back the amount corresponding to the enrichment of his assets as a result of the transfer that impoverished the transferor.
[36] I have found one decision, Industrial Acceptance Corp. v. Kennedy (1966), 9 C.B.R. (N.S.) 113, in which it was decided that a creditor who voted for a proposal lost his remedies against the surety for the amounts that were owed to him unless he had expressly reserved his remedies against the surety. This judgment was not appealed from and apparently has never been considered. Moreover, the obligations arising from a surety are not comparable to those of a tax debtor whose debt has been established under section 160 of the Act.
[37] Even if I agreed with that decision and wanted to draw a parallel, I could not do so since the evidence showing that the respondent expressly retained all his remedies in respect of recovering the tax liabilities established under section 160 of the Act was determinative.
[38] In fact, the many discussions and systematic repetition of the reservation that is seen in all of the correspondence concerning the improvements to the original proposal leave no doubt as to the respondent's categorical refusal to waive her rights under section 160 of the Act.
[39] I do not see in what way or how the effects of an accepted proposal, which have been the subject of a number of decisions, should differ from those resulting from a bankruptcy. I conclude, therefore, that the acceptance of the proposal had no effect on the assessments giving rise to these appeals. The respondent was therefore fully justified in making the notices of assessment against the appellants.
[40] I will now deal with the issue of the FMV of the immovable that was the subject of a transfer on May 7, 1993. When the immovable was transferred, the gift stipulated two specific clauses. The clauses at issue have been the subject of conflicting interpretations.
[41] The appellants argued that the restrictions provided for in the deed of gift resulted in reducing substantially the FMV. For her part, the respondent submitted that the said restrictions had no effect on the FMV.
[42] Therefore, the impact of the said reservations required by the donor, Michel Bergeron, should be analysed. The deed of gift dated May 7, 1993, stipulated two conditions as follows:
[TRANSLATION]
...
CONSIDERATION
This gift is made gratuitously but subject to the donor's right to occupy the immovable during his lifetime or until the immovable is sold and to the right that shall be granted to him to use the furnishings and household effects contained in the immovable.
SPECIAL CLAUSES
1. The immovable hereby given shall not be sold or otherwise alienated whether for consideration or gratuitously without the written consent of the donor.
...
[43] Did these reservations have an impact on the FMV? According to the respondent's expert, Yvon Ouellet, these clauses had no effect on the FMV. To justify his evaluation, he argued that these rights were conferred on the donor's spouse, adding that they could be cancelled at any time with the collaboration of the parties to the gift.
[44] For her part, the appellant Lise Goudreault Bergeron maintained that the reservations imposed by the transferor considerably reduced the FMV of the immovable transferred in that this was likely to cause any potential purchaser to lose interest or, at the very least, considerably reduce the market value.
[45] To answer this question, it seems important to me to start by determining the time at which the FMV should be evaluated. In other words, should the FMV be established at the last moment, when the property transferred is still part of the transferor's financial assets or at the very moment it becomes part of the transferee's assets?
[46] Section 160 of the Act reads as follows:
Tax liability re property transferred not at arm's length.
160. (1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to
(a) the person's spouse or common-law partner or a person who has since become the person's spouse or common-law partner,
(b) a person who was under 18 years of age, or
(c) a person with whom the person was not dealing at arm's length,
the following rules apply:
(d) the transferee and transferor are jointly and severally liable to pay a part of the transferor's tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted therefor, and
(e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of
(i) the amount, if any, 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, and
(ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year,
but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.
(Emphasis added.)
[47] I believe that the FMV should be assessed immediately before the transfer of the property, that is, before the property becomes part of the transferee's assets. This interpretation appears to me consistent, moreover, with the spirit of section 160 of the Act.
[48] Indeed, the purpose of the Act is to ensure that a tax debtor may not transfer his assets or a part of them so as to reduce the value of his financial assets by receiving a consideration that is less than the value of the property transferred.
[49] Furthermore, the tax liability of a transferee to whom section 160 applies is essentially limited to the value added to his assets as a result of the transfer. This interpretation is consistent with the decision in Hewett v.Canada, [1996] T.C.J. No. 355 (Q.L.).
[50] The Honourable Judge McArthur in Hewett (supra), whose judgment was affirmed by the Federal Court of Appeal, [1997] F.C.J. No. 1541 (Q.L.), dealt with this issue in a very interesting fashion and his conclusions can be used to determine the time at which the FMV should be assessed. He wrote as follows:
48. I have given careful consideration to the appellant's counsel's submissions with regard to the meaning of "fair market value" as it is contained in section 160. Is the fair market value to be interpreted as the fair market value of the property in the hands of the transferor or the transferee?
49. The fair market value of the grant of the home in the hands of the appellant is $80,000 as agreed by both parties. She then retains, after the transfer, 100 per cent ownership of the home, with a total fair market value of $160,000. If the words in section 160, "fair market value", means the value of the asset to the husband at the time of the transfer, then, according to the evidence of Mr. Lee, which I accept, the value is $40,000.
50. To determine the intention of the legislature, it is of assistance to consider the purpose of paragraph 160(1)(e). The purpose of that section is to prevent a person, such as the husband in the present case, with substantial income tax liability from defeating the claim of the Minister by transferring his assets or his interest in property to a spouse at a low or nil consideration. The claim by the Minister was against the husband and not the appellant.
51. It flows from that that the Minister has a claim against the financial interest of the husband who transferred his equity in the home while indebted to the respondent.
[...]
56. I find common sense dictates that the Minister should find himself with no greater financial interest than that of the appellant spouse at the time of the transfer. I accept the evidence of Mr. Lee that that amount was the discounted sum of $40,000 and not $80,000.
[51] In the same case ([1997] F.C.J. No. 1541 (Q.L.)), the Honourable Judge Strayer of the Federal Court of Appeal wrote as follows:
2. We agree with the learned Tax Court judge that the purpose of section 160 of the Income Tax Act is to prevent a taxpayer from defeating the claim of the Minister to unpaid taxes by transferring his assets to a spouse, or certain other persons, for little or no consideration. In our view, this means that the "property" referred to in the section must be that property interest of the taxpayer that would have been available to the Minister for attachment had the transfer not taken place. [...] In this case that interest was the taxpayer's joint tenancy interest in the family home as it existed immediately prior to its release to his wife.
(Emphasis added.)
[52] If this were not so, it is easy to imagine all kinds of possible scenarios that would substantially reduce, if not totally eliminate, the FMV of a property transferred that was subject to the provisions of section 160 of the Act. A recipient of a transfer to which section 160 of the Act applies could thus reduce, if not forestall, any possible assessment under section 160 of the Act.
[53] In the case at bar, the appellant claims that the acceptance of the restrictive conditions provided for in the gift constituted a consideration that affected and considerably reduced the FMV of the property transferred.
[54] If there was a specific consideration granted by the transferee, it must be evaluated and, above all, it must reflect the value corresponding to the transferor's assets that may be seized. Thus, the consideration received by the transferor must have the same value as the reduced value of the property transferred to the transferee's assets. It must, furthermore, have an objective value that can be assessed in the ordinary course of business and not a subjective value of no interest to a third party.
[55] What about the value of the reservations in the deed of gift, that is, the right of occupancy and the prohibition against selling without the donor's consent? A partial answer to this question is found at articles 494 and 497 of the Civil Code of Québec and also at articles 1172 and 1173, which read as follows:
1172. A right of use is the right to enjoy the property of another for a time and to take the fruits and revenues thereof, to the extent of the needs of the user and the persons living with him or his dependants.
1173. The right of use may not be assigned or seized unless the agreement or the act establishing the right of use provides otherwise.
If the agreement or act is silent as to whether the right may be assigned or seized, the court may, in the interest of the user and after ascertaining that the owner suffers no damage, authorize the assignment or seizure of the right.
[56] Since the right of occupancy was personal to the transferor, Michel Bergeron, it had no seizable value for his creditors among his assets. The same was true with respect to the prohibition against selling without his consent, which, again, was not a right to which a monetary value could be assigned or that had any value whatsoever for a third party in terms of Michel Bergeron's assets.
[57] Consequently, the FMV of the Île aux Coudres residence, transferred by deed of gift on May 7, 1993, must be established by completely disregarding the essentially subjective value of the two benefits conferred on the donor, Michel Bergeron, since the benefits obtained had no value for his potential creditors. This is consistent with the judgment of the Honourable Judge Strayer, a passage of which was reproduced earlier.
[58] With respect to the FMV, the respondent's expert reached the conclusion that it was $135,500. To arrive at that FMV, the expert had to consider a host of factors since the immovable that was transferred had been the subject of major repair, renovation and expansion work, in three separate phases¾when he first visited the premises, two of the phases had already been carried out.
[59] The expert's mandate was to establish the FMV on the date of the transfer, that is, before the major work was done.
[60] It was apparent from Mr. Ouellet's testimony that, despite major constraints, his work was reliable and based on the information available.
[61] The expert did acknowledge, however, that the comparables he used were not ideal in that they used sales that took place on May 10, 1995, for the first case; November 8, 1995, for the second case; and August 22, 1995, for the third case.
[62] In addition, the date of construction of the comparables varied a great deal: comparable number 1 was built in 1975; comparable number 2, in 1994 and, comparable number 3, in 1981. A photograph of the three comparables was attached to the expert's report.
[63] For her part, the appellant did not use any experts but relied on a description of the premises and the various municipal and school assessments. However, there was a detailed account of the numerous and significant jobs that were done after the gift, which completely transformed the premises and especially the FMV of the premises in the years following the transfer.
[64] Michel Bergeron produced two photographs in evidence showing the condition of the residence at the time of the gift. I noted that the residence, which was built in 1982, bore a surprising resemblance to comparable number 3 in terms of the date of construction and general appearance. However, there was a very sharp distinction between the two immovables in terms of the area of the lot.
[65] The area of the lot holding the property at the heart of this dispute is 1,020,314 square feet, whereas the area of comparable number 3 is 25,067 square feet.
[66] On the issue of land, the respondent's expert assumed that the municipal assessment of the land was appropriate and reflected the FMV. He accordingly assigned a value of $32,800 to the immovable that was the subject of the gift; for comparable number 3, the municipal assessment was $16,300.
[67] The consideration given for comparable number 3, on August 22, 1995, was $54,900, whereas the municipal assessment was $58,100: $16,300 for the lot and $41,800 for the building. It is incidentally very interesting to note that the consideration received for all three of the comparables in 1995 was less than the municipal assessment.
|
|
SUBJECT
|
SALE No. 1 |
SALE No. 2 |
SALE No. 3 |
|
Address No. |
234 |
40 |
579 |
82 |
|
Street |
Principale |
Principale |
Des Coudriers |
Principale |
|
Date of sale |
07/05/93 |
10/05/95 |
08/11/95 |
22/08/95 |
|
Sale price |
$0 |
$170,000 |
$60,000 |
$54,900 |
|
Land area |
1,020,314 |
96,552 |
25,962 |
25,067 |
|
Mun. assessment |
|
|
|
|
|
Land |
$32,800 |
$50 200 |
$14,600 |
$16,300 |
|
Building |
$94,000 |
$123,100 |
$61,500 |
$41,800 |
|
Total |
$126,800 |
$173,300 |
$76,100 |
$58,100 |
|
% equal Mun./price |
|
102 % |
127 % |
106 % |
[68] The average differential between the sale price for the three comparables and the municipal assessment is 11.66 per cent. Under the circumstances, I think it is reasonable to apply the same average differential of 12 per cent to the municipal assessment established at $126,800 for the immovable that was the subject of the gift. I therefore set the FMV of the immovable at $111,500.
[69] With regard to the last issue, it must be decided whether the appellant's financial contribution to the accepted proposal should reduce, by a corresponding amount, her own tax liability determined in the two assessments under section 160 of the Act. The appellants submitted that all of the amounts that the appellant had paid in order that Michel Bergeron's proposal be accepted should be deducted because they were payments made pursuant to subsection 160(3) of the Act, which reads as follows:
(3) Rules applicable. Where a transferor and transferee have, by virtue of subsection (1), become jointly and severally liable in respect of part or all of a liability of the transferor under this Act, the following rules apply:
(a) a payment by the transferee on account of the transferee's liability shall to the extent thereof discharge the joint liability; but
(b) a payment by the transferor on account of the transferor's liability only discharges the transferee's liability to the extent that the payment operates to reduce the transferor's liability to an amount less than the amount in respect of which the transferee was, by subsection (1), made jointly and severally liable.
[70] The evidence disclosed that the appellant Lise Goudreault Bergeron had been continuously and actively involved with the process leading to the final acceptance of the proposal. This moreover is very clear from the consent to judgment submitted at the outset of the hearing with respect to assessment number 13393 in the amount of $45,315.01, issued on October 23, 2000.
[71] This consent to judgment arose, according to the explanations provided by the respondent at the time of her submissions, from the fact that during the various discussions in the negotiations relating to the proposal, it had been understood or assumed that the financial participation of the appellant Lise Goudreault Bergeron would have direct effects in terms of her own tax debt consisting of an assessment in the amount of $45,315.01, at the origin of the consent to judgment, and a second assessment in the amount of $130,000, issued as a result of the transfer of the property, whose FMV was dealt with earlier on.
[72] The evidence has clearly established that the appellant had assumed that her financial participation in improving the offer, followed by the acceptance of the proposal, would have a direct impact on her own tax liability. Furthermore, the Minister, through Carl Cloutier, responsible for the case for collection purposes, had discussions to that effect with the appellant's financial representative from which it emerges that her claims were not essentially intuitive. She had real reason to believe that her financial participation and collaboration would have a direct impact on her own tax liability.
[73] In addition, during the negotiations preceding the accepted offer, it clearly emerged from all the correspondence that the issue of the tax liability of the appellant and her daughter, also an appellant, was a pervasive and fundamental concern. Indeed, the respondent never agreed to the requirement that she and her daughter would be exempt from any assessments issued under section 160 of the Act.
[74] A number of wordings or formulations were used. On the one hand, the Minister clearly did not want to waive his rights to ultimately recover his debt; on the other hand, he was clearly interested that the proposal become acceptable and be accepted.
[75] The appellant's understandable desire to have the assessments that she was responsible for vacated and the respondent's equally understandable desire to preserve his remedies are very clear from Exhibits A-8, A-9, A-10, A-11, A-12, A-13, A-14, A-15, A-16 and A-21.
[76] Some excerpts from the testimony of Carl Cloutier and the appellant are just as meaningful on this point.
[77] The explanations that accompanied the filing of the judgment for the appellant with respect to the assessment of $45,315.01 are a significant indication of the expectations stated by the appellant.
[78] The appellant had no reason to contribute to the enrichment of the patrimony of her former spouse, Michel Bergeron, and had nothing to gain from doing so since she and her daughter had already received Notices of Assessment totalling $200,315.01 ($45,315.01, $130,000 and $25,000). She never obtained the guarantees she wanted that the respondent would waive recourse to the provisions of section 160 of the Act. It was therefore probable that the respondent would eventually assert her rights to recover her debt.
[79] She would have agreed to contribute without reason and without consideration to more than $119,171.40, according to the following details:
|
Undivided share in the Florida condo US $121,395.31 ¸ 2 |
= |
US $60,696.65 |
|
Transfer in Canadian dollars $66,949.51 ¸ 2 |
= |
$33,474.75 |
|
Deposit of personal cheque |
= |
$25,000.00 |
|
TOTAL |
|
$119,171.40 |
[80] This interpretation is plainly unreasonable and is the product of a fertile imagination.
[81] She deeply believed that her financial participation would reduce by the same amount her tax liability and that of her daughter, even hoping that their liabilities would simply be cancelled. She in fact contributed a substantial and significant amount to the proposal ¾$119,171.40, as described in paragraph 79.
[82] The total tax liabilities established under the provisions of section 160 of the Act are $200,315 and are broken down as follows:
|
Lise Bergeron file |
|
|
Assessment 13393 |
$45,315 |
|
Assessment 19959 |
$130,000 |
|
|
$175,315 |
|
Johanne Bergeron file |
|
|
Assessment 13394 |
$25,000 |
|
TOTAL |
$200,315 |
[83] The respondent consented to judgment in respect of assessment number 13393 in the amount of $45,315.01. As for the assessment in the amount of $130,000, it is vacated. A reassessment will have to be made on the basis that when the transfer of May 7, 1993, took place, the appellant received property whose FMV was $111,500 at the time. When the reassessment is made as a result of the redetermination by this judgment of the FMV, the amount of $73,856.40 will also have to be considered to reflect the payments made by the appellant towards the tax liability owing by her former spouse. The appellant disbursed a total amount of $119,171.40. From this amount, the equivalent of the amount that was the subject of the consent to judgment, that is, $45,315, must be deducted, thereby resulting in a contribution of $73,856.40.
[84] This is the amount of the financial contribution the appellant Lise Goudreault Bergeron made to the accepted proposal's content. This amount meets the requirements of section 160(3) of the Act. A reassessment will have to be made in the amount of $37,643.60, the whole with costs to the appellant.
[85] With respect to the case of Johanne Bergeron, since the claims and arguments of the appellant herself¾that the tax liability was extinguished as a result of the respondent's acceptance of the proposal made by her father, Michel Bergeron¾were not accepted by the Court, I therefore confirm that the assessment is correct, the whole with costs to the respondent.
[86] With respect to the case of the appellant Lise Goudreault Bergeron, the Court officially acknowledges the consent to judgment with respect to the assessment in the amount of $45,000; vacates the assessment in the amount of $130,000; and returns the case to the Canada Customs and Revenue Agency for reassessment on the basis that the FMV of the immovable at the time of the transfer was $111,500 and that $73,856.40 must be deducted from the reassessment to be made as a result of the determination of a new FMV, reflecting the payments made by the appellant towards the tax liability of her former spouse, the transferor of the property she received, the whole with costs to the appellant.
Signed at Ottawa, Canada, this 19th day of September 2003.
|
"Alain Tardif" |
Judge Tardif
Translation certified true
on this 29th day of October 2003.
Sophie Debbané, Revisor