Date: 20011207
Docket: A-116-00
OTTAWA, Ontario, December 7, 2001.
CORAM: DESJARDINS J.A.
DÉCARY J.A.
NOËL J.A.
BETWEEN:
RICHARD CHABOT
Appellant
and
HER MAJESTY THE QUEEN
Respondent
JUDGMENT
The appeal is allowed in part, the part of the Tax Court of Canada decision that upholds the penalties assessed by the Minister is set aside and the assessment is referred back to the Minister for reconsideration and reassessment in light of the reasons of this judgment. Costs are awarded only on appeal.
"Alice Desjardins"
J.A.
Certified true translation
Sophie Debbané, LL.B.
Date: 20011207
Docket: A-116-00
Neutral citation: 2001 FCA 383
CORAM: DESJARDINS J.A.
DÉCARYJ.A.
NOËLJ.A.
BETWEEN:
RICHARD CHABOT
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Hearing held at Montréal, Quebec, on October 22, 2001.
Judgment delivered at Ottawa, Ontario, on December 7, 2001.
REASONS FOR JUDGMENT BY: DÉCARY J.A.
CONCURRED IN BY: DESJARDINS J.A.
REASONS DISSENTING IN PART: NOËL J.A.
Date: 20011207
Docket: A-116-00
Neutral citation: 2001 FCA 383
CORAM: DESJARDINS J.A.
DÉCARYJ.A.
NOËLJ.A.
BETWEEN:
RICHARD CHABOT
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
DÉCARYJ.A.
[1] This is an appeal from a decision by Judge Lamarre of the Tax Court of Canada (2000 D.T.C. 1795). Judge Lamarre dismissed the appeals filed by the appellant with respect to the assessments made by the Minister of National Revenue for the 1992, 1993 and 1994 taxation years. The appellant had claimed a tax credit for charitable gifts under subsections 118.1(1), (2) and (3) of the Income Tax Act. In addition to disallowing the credit claimed, the Minister had assessed penalties against the appellant in accordance with subsection 163(2) of the Act on the ground that he had made a false statement in his tax returns knowingly, or under circumstances amounting to gross negligence.
[2] Judge Lamarre dismissed the taxpayer's appeal. She was of the opinion that the appellant had not proven his right of ownership in the paintings; that the official receipts issued by the charitable organization with respect to the 1992 and 1994 charitable gifts did not meet the requirements of section 3501 of the Income Tax Regulations (the Regulations); and that the penalties assessed were justified in the circumstances. In obiter, she added that the taxpayer had not established the fair market value of the paintings with the aid of independent experts.
[3] With respect to the requirements under section 3501 of the Regulations, as is noted by Judge Tardif in Nathalie Plante v. The Queen, [1999] T.C.J. No. 51 (Q.L.), at paragraph 46 of his reasons, it is clear that:
[46] The requirements in question are not frivolous or unimportant; on the contrary, the information required is fundamental, and absolutely necessary for checking both that the indicated value is accurate and that the gift was actually made.
Having regard to the foregoing, the Regulations must be applied with some flexibility. In this case, and unlike Judge Lamarre, I am of the view that by appending the certificate of appraisal to the receipt, which was otherwise incomplete, the charitable organization satisfied the requirements of the Regulations.
[4] With respect to the taxpayer's right of ownership in the paintings that he claimed to have donated, I am of the opinion, as is Judge Lamarre, that he failed to establish his right.
[5] The taxpayer claimed to be the owner of the paintings by virtue of a "purchase order" in the amount of $2,800 dated April 22, 1991, for "a lot of paintings by various unidentified artists" (Appendix I, page I); and by virtue of a "subscription" in the amount of $2,500 dated March 8, 1993, for "an interest in the purchase of a set of paintings from the estate of Normand Gingras" (Appendix I, page 6). On June 18, 1993, Mr. Chabot admitted that he had "received paintings from Émile Amireault corresponding to the sum subscribed for the purchase of the works from the Normand Gingras estate, that is, 4.15% or $24,600 of . . . $593,000" (Appendix I, page 7). None of the paintings purchased was identified, nor was any painting identified before the donation was made.
[6] Article 1026 of the Civil Code of Lower Canada and article 1453 of the Civil Code of Québec require, in order for the purchaser of indeterminate paintings to acquire ownership, that the paintings have been determined and the acquirer has been notified that the property is certain and determinate. (The Civil Code of Lower Canada governs the donations made in 1992 and 1993 while the Civil Code of Québec governs the one made in 1994. With respect to the principles involved in this case, there are no material differences between the two Codes.)
[7] As Pourcelet observes in La Vente, 5th edition, Les Éditions Thémis, 1987:
[TRANSLATION]
The object of the obligation in the sale contract must be certain, determinate or determinable. There must be no misunderstanding with regard to the concrete nature of the object of the sale...
(page 7)
The sale contract is formed once the parties reach an agreement on the thing and the price.
(page 13)
Ownership may apply only to a certain and determinate thing. A thing is said to be certain and determinate when it is identified. This is the Roman species, that is, the set of traits that characterize an object and make it recognizable. Ownership is transferred only at the point when the thing is determinate, that is, when it becomes a certain object.
(page 87)
In Les Obligations, 4th edition, Éditions Yvon Blais Inc., 1993, Baudouin states:
[TRANSLATION]
Since the right of ownership is transferred by mere consent, the intention of the parties must have been directed towards a specific object. The material object of the obligation to deliver must therefore have been certain and determinate, that is, specifically identified.
(page 308, no. 551)
[8] The evidence established that Mr. Chabot relied completely on Mr. Amireault, the art dealer, who provided the appraisal, selected the donee and decided which paintings to donate and who alone handled the donation. The taxpayer did not know which paintings he was acquiring at the time of the purchase; he was not the least bit interested in knowing which paintings he was acquiring or which paintings he would be acquiring, let alone in seeing them; the paintings were determined by Mr. Amireault only at the point when the donation was made; the taxpayer was notified that they were certain and determinate, and what their respective value was only when Mr. Amireault had completed the donation, and therefore at a point when, had he been the owner, he no longer was; the taxpayer was informed of the value of his donation only once it was completed.
[9] With respect to the donations made in 1993 and 1994, the evidence also revealed that the taxpayer, who claimed to have purchased an interest in the paintings from the Gingras estate, had donated paintings that were not part of that estate. The taxpayer therefore donated paintings other than those he claimed to have purchased.
[10] In this case, I conclude that there was no sale of the paintings because they were not certain and determinate when they had to be. With respect to the interest in the Gingras estate, the most that can be argued is that the taxpayer acquired ownership of that interest; but this conclusion would be of no use to the taxpayer since he did not donate his interest, he donated determinate paintings that, furthermore, were not part of the estate.
[11] The taxpayer could no doubt have structured his transactions and defined his relationship with Mr. Amireault so as to acquire the right of ownership in certain and determinate paintings. As this Court recently recalled in The Queen v. Friedberg, 92 D.T.C. 6031 (F.C.A.), a taxpayer is entitled to arrange his affairs so as to take advantage of tax benefits, but he must do so in the correct manner. In tax law, as Linden J.A. said, form matters. Here, the form is simply not there.
[12] Having concluded that the taxpayer did not acquire the right of ownership in the paintings, I need not go any further: gifts cannot be made when the donor is not the owner of the items donated. I will therefore dispense with examining the concept of "liberal intent" (animus donandi) and will merely say that in circumstances such as these, it is not apparent to me that the liberal intent that is needed in order for a gift to have been made was present.
[13] Since I have concluded that a gift was not made, there is no need for me to consider the market value of the paintings in question.
[14] Only the question of the penalties remains.
[15] Subsection 163(2) of the Income Tax Act imposes a penalty on "every person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer...."
[16] That paragraph is a penal provision, which must be narrowly construed "so that if there is a reasonable interpretation which will avoid the penalty in a particular case that construction should be adopted" (Strayer J. as he then was, Venne v.The Queen, 84 D.T.C. 6247, at page 6256). And as Strayer J. recalls later on, the onus, under subsection 163(3), is on the Minister to prove that the penalty should be applied.
[17] That paragraph deals with blameworthy conduct on the part of a taxpayer in his or her formal relationship with Revenue Canada. Its purpose is not to punish the taxpayer simply because he or she sought, in good faith, to benefit from a tax advantage that was subsequently disallowed. Its purpose is not to punish the taxpayer because of a substantive disagreement regarding the nature of a transaction, all the relevant facts of which have been brought to the Minister's attention. As Cullen J. stated in Hudson Bay Mining and Smelting Co. v. Canada, [1986] 1 C.T.C. 484, his comments having been specifically approved by the Federal Court of Appeal when it dismissed the appeal from that decision at [1989] 2 C.T.C. 309 (F.C.A.):
Whether a gift or partial consideration, is really a legal characterization to be determined by the Court. As counsel for the plaintiff put it, "The Ministry would have a distinct advantage if he could levy a penalty every time it disagrees with a taxpayer." Each case must be looked at carefully to determine if there is an omission or a false statement upon which to base a penalty. That is not the case here.
Something more than mere disagreement must be determined: a false statement by a taxpayer, as an example, or gross negligence, or a finding by the tax department that an error was made deliberately. I do not believe there is the criminal onus of proving beyond a reasonable doubt, however. One cannot fault the plaintiff for putting the best possible light on the situation, including the suggested two deals, as long as the main feature is not hidden. I cannot find gross negligence here, or any attempt to bury information from the prying look of the Ministry. Even on a "balance of probabilities" burden, the defendant's case fails.
(page 493)
[18] Also relevant are the comments made by Marceau and Strayer JJ. (as they then were), in Cloutier v. The Queen, 78 D.T.C. 6485, at page 6487, and in Venne (supra, paragraph 16) at page 6256:
The question before the Court is whether the circumstances in which the omission occurred are such that gross negligence may be attributed to the taxpayer: "gross negligence" being taken to mean a relatively serious act of negligence, which is difficult to explain and socially inadmissible. The factual circumstances in themselves do not present a problem, they are all established; it is the way in which they should be regarded which is at issue, namely, what can be deduced from them concerning the acts of plaintiff which are at issue. This is not a question of fact in the sense of a question regarding an earlier factual circumstance or an event which took place at an earlier point in time, but a question of legal appraisal and judgment on the actions, which is not subject to proof but depends on the personal conviction of the individual making the decision.
(Marceau J.)
"Gross negligence" must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not.
(Strayer J.)
[19] More recently, this Court applied subsection 163(2) to a case that it characterized as "wilful blindness." Despite numerous warnings served by the Department, the taxpayer had persisted in claiming tax credits for charitable gifts as part of a tax fraud involving an art dealer who had been found guilty of criminal offences (The Queen v. Duguay, 2000 D.T.C. 6620 (F.C.A.) and The Queen v. Côté, 2000 D.T.C. 6615 (F.C.A.)).
[20] What is the false statement or omission in this case for which the Minister is blaming the taxpayer?
[21] The taxpayer filed a tax return for 1992 in which he reported a $10,000 charitable gift to Entraide-Cancer, Jeunesse Estrie. He attached a receipt for $10,000 to his return, which receipt contained no description and no appraisal of any paintings (Appendix l, page 114).
[22] The taxpayer filed a tax return for 1993, in which he reported a $15,000 charitable gift to Fondation Don des Arts. He attached a duly completed receipt to his return, which receipt contained a description and appraisal of the paintings (Appendix 1, page 117).
[23] The taxpayer filed a tax return for 1994, in which he reported an $8,000charitable gift to Maison d'Art Fra Angelico. He attached a receipt for $8,000 to his return, which receipt contained no description and no appraisal of any paintings (Appendix 1, page 122).
[24] I note that in the tax form, the taxpayer is asked to attach receipts for charitable gifts to his or her return.
[25] The 1992 and 1993 tax returns were accepted by Revenue Canada without problem. The taxpayer did not hear anything further until May 31, 1995, at which point he was informed by Revenue Canada that his 1994 tax return was being reviewed and he was asked to provide proof of the purchases and payments as well as his certificates of appraisal for the paintings he donated to La Maison d'Art Fra Angelico (Appendix 1, page 20).
[26] The taxpayer immediately responded to the letter and sent his appraisal certificates and the subscription contract dated March 8, 1993.
[27] On September 1, 1995, Revenue Canada informed the taxpayer that his donation had been disallowed and that the Department intended to apply the penalty. The reasons given by the Minister were as follows:
[TRANSLATION]
Because we do not consider your disposition of the property in favour of the charitable organization mentioned above to be a gift in the true sense of the word. In order for there to be a gift, the donor must not receive or does not expect to receive any benefit.
Considering the difference between the price paid for the property and the value for which the receipt was given, you received or expected to receive a benefit in return for the disposition of your property in favour of the charitable organization mentioned-above.
Considering that you dealt with a person or a dealer at arm's length and the short time span between the purchase and disposition of the paintings in favour of the charitable organization, it was reasonable to believe that the purchase price of the paintings reflected the fair market value. The facts demonstrate that you received or expected to receive a benefit by making a charitable gift.
We assume that you knew that the amount shown on the receipt was inflated, and that you purchased a receipt or receipts for charitable gifts in exchange for the property, for the following reasons:
You failed to provide us, as requested on 31/05/1995, with your proof of the purchases of and payments for the property relating to the donation made to the charitable organization mentioned above;
You failed to prove that you had possession of the goods that you donated for an extended period of time;
Subsection 163(2) of the Income Tax Act imposes a penalty on any person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer. The penalty is the greater of $100 and 50% of the tax attributable to the false statement or omission.
We propose to apply that penalty for the following reasons:
The difference between the price paid for the property and the amount entered on the receipt for charitable gifts demonstrates that you were trying to secure a benefit by making a charitable donation;
Considering that you dealt with a person or dealer at arm's length and the short time span between the purchase and disposition of the property in favour of the charitable organization, it was reasonable to believe that the purchase price of the property reflected the fair market value. The facts show that you were trying to secure a benefit by making a charitable gift;
You failed to provide us, as requested on 31/05/1995, with proof of the purchases of and payments for the property relating to the donation made to the charitable organization mentioned above.
We assume that you knew that the amount shown on the receipt was inflated and that you had purchased a receipt or receipts for charitable gifts, for the following reasons:
You failed to provide us, as requested on 31/05/1995, with your proof of the purchases of and payments for the property relating to the donations made to the charitable organization mentioned above.
(Appendix 1, pages 22 to 24)
(Emphasis added)
[28] On September 12, 1995, the taxpayer replied to the Department's arguments point by point, in a lengthy letter, (Appendix 1, page 25).
[29] On December 15, 1995, Revenue Canada informed the taxpayer that his 1992 and 1993 tax returns were being reviewed and asked him to provide proof of the purchases of and payments for the paintings, appraisal certificates, proof of possession of the paintings for an extended period of time and a summary of the chronology of events that took place (Appendix 1, page 30).
[30] On January 6, 1996, the taxpayer replied to the letter of December 15, 1995, again point by point (Appendix 1, page 32).
[31] On January 22, 1996, Revenue Canada informed the taxpayer that his 1992 and 1993 charitable donations were being disallowed and that the Department intended to apply the penalty. That letter read as follows:
[TRANSLATION]
The documents that were submitted to us have been determined to be either insufficient or incomplete and they failed to establish, beyond a reasonable doubt, that you acquired ownership of the paintings in question for purely and strictly personal purposes before donating them to the organizations in question.
Moreover, we have concluded from the explanations and documents received that your initial intentions regarding your gifts did not meet the requirements of the Act in the true meaning of the word. In order for there to be a gift, the donor must not receive or expect to receive any benefit.
Subsection 163(2) of the Income Tax Act imposes a penalty on any person who knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer. For returns filed before September 13, 1988, the penalty is equal to 25% of the tax attributable to the false statement or omission. For returns filed after September 12, 1988, the penalty is equal to the greater of $100 and 50% of the tax attributable to the false statement or omission.
We propose to apply that penalty having regard to the following reasons:
You failed to provide us with concrete evidence that you had possession of the property that you donated for an extended period of time;
According to your letter of January 6, 1996, you purchased receipts for charitable donations, rather than artworks, since the facts establish that:
On August 22, 1991, you paid $2,800 to Émile Amireault for a receipt for charitable donations in the amount of $10,000 for the 1992 tax year.
For the 1993 tax year, you subscribed $2,500 to Émile Amireault on March 8, 1993, for paintings having a value of $24,600, according to the appraisal by Émile Amireault himself. You therefore donated an interest in those paintings valued at $15,000 for which you paid $1,708 ($15,000/ $24 600 X $2,500 = $1,524).
The manner in which this matter was arranged demonstrates your intention to secure a benefit by making charitable gifts;
(Appendix 1, pages 37 and 38)
[32] Further discussions followed, including a letter from Revenue Canada dated April 11, 1996, in which the Department offered to cancel the penalties if the taxpayer waived his right of "objection and appeal" (Appendix 1, page 43).
[33] The taxpayer refused to give up the battle. However, as of 1995, when he became aware of the doubtful status of his donations, he decided to stop donating paintings.
[34] I have commented at length on the correspondence and discussions that took place between Revenue Canada and the taxpayer to show that the taxpayer was not made aware that the donations did not satisfy the tax authorities' requirements, in Revenue Canada's opinion, until long after the donations were made; that he acted in good faith and was particularly responsive to the Department's requests throughout the process, conducting his own research on the applicable law and the value of the paintings in the hope of meeting Revenue Canada's requests and of convincing the Department that these were in fact eligible gifts; and that essentially, the penalties were assessed against him not because of false statements or omissions but because, in Revenue Canada's opinion, these were not gifts.
[35] I note, in particular, that the reasons given by the Minister for refusing the tax credit are substantially the same as those he gave for assessing a penalty. In essence, the taxpayer is being penalized because of the disagreement between himself and the Minister with respect to a question which, at the time and until very recently--in other words, until the judgments of this Court in Duguay and Côté (supra, paragraph 19)--bothered Revenue Canada,: the validity for taxation purposes of implementing systems for donating paintings that are undervalued at the time of purchase and overvalued at the time of donation. Revenue Canada stated its opinion that there had never been any gifts in these circumstances--an argument that was rejected ultimately by this Court in Duguay and Côté-- and considered all taxpayers who had tried to benefit from those systems to be in the same category, regardless of the particular circumstances of their case.
[36] The only criticism the judge had for the taxpayer, which related not to the merits of the case but to the taxpayer's conduct in his discussions with Revenue Canada, concerned the fact that he "deliberately failed to show the Minister the list of paintings purchased when he was asked for proof of purchase" (paragraph 82). According to the judge, the taxpayer "merely stated, by way of explaining this failure, that no one had requested such a list" (paragraph 31).
[37] First, that criticism does not apply with respect to the 1992 taxation year. The penalty assessed with respect to 1992 should therefore be vacated.
[38] Second, that criticism does not take into account the reasons that the taxpayer gave to justify his actions. Revenue Canada requested proof of purchase. The list of paintings in the Gingras estate did not, strictly speaking, constitute proof of purchase. Mr. Chabot testified as follows, at page 102 of Appendix 3:
[TRANSLATION]
A. Well that's not what the Department had asked for. They had asked me for documents, proof of purchase; they had asked for the appraisal certificates. That's what I sent them. The documents, the other one is an agreement, and it was the list that I had in relation to Mr. Amireault, but ... I didn't think it had a direct connection with what I was asked to provide because that's not what they were asking for at the time.
That explanation is all the more plausible since it is consistent with the reasoning of the taxpayer, to whose mind a gift was made, regardless of what artworks were purchased and then donated. He never claimed the paintings that were donated in 1993 and 1994 came from the Gingras estate. Rather he claimed that he had purchased those paintings as part of the interest he acquired in the value of the paintings in the estate. According to his testimony, he in fact understood the nature of his ownership right in a $24,600 interest in the Gingras collection to be as follows:
[TRANSLATION]
... the agreement was not that I have the paintings or that I have the paintings that were part of the estate. The agreement was that I had a share. He therefore had custody of them. I could dispose of them when the time was right. My goal at that time was set since I had done this back in 1992: to dispose of them as charitable gifts to charitable organizations. (Appendix 3, page 24)
...even though I participated, for instance, in the purchase from the Normand Gingras Foundation it was not essential for me that I have paintings that came from it. What mattered was that I have the value that corresponded to the amount I was entitled to, if you will, so that was what was most important to me.
(Appendix 3, page 93)
A. Because, as I said earlier, I dealt with Mr. Amireault and he operated by lots. I had a percentage but it wasn't necessarily the paintings that were there that he gave me when I needed them. He gave me the paintings, or in any case, the paintings that corresponded directly to the amount I was entitled to. So, if he decided that he preferred to keep those .... Mr. Amireault had an art gallery so he had a lot of paintings, not just those. And, at the time, as long as I had paintings that corresponded to the amount I was entitled to, that was fine by me. If he chose to keep one painting or another, the painting was not all that important to me.
(Appendix 3, page 98)
A. No, not ... It's that what is recognized by this is that I have an amount worth $24,600. Okay. Of course it has to do with my share of the Normand Gingras estate. But our agreement was that those were not necessarily the paintings I could have; I could have had other paintings as long as I had paintings equivalent to $24,600 that came directly to me.
(Appendix 3, page 100)
[39] It must also be pointed out that Revenue Canada publishes a guide entitled Gifts and Income Tax which it updates yearly (Appendix 1, page 60). This guide more or less invites "individual taxpayers" ("Are you an individual planning to give money to your favourite charity? Do you own an oil painting ... that you would like to give to a gallery or museum? Are you having your gift appraised?" (page 63)) to make a gift so that "if you give money or property to certain institutions, you may be able to claim tax credits." The guide also allows for "a qualified staff member of the institution" to appraise the gift, to avoid an "unreasonable expense" (page 72).
[40] I also note that Denis Lemieux, an investigator with Revenue Canada, explained to the Court that no action had been taken against the foundations involved themselves because, in the Department's view:
[TRANSLATION]
... they had been caught in an ambush. It had grown completely out of porportion for them. They were genuinely ... they are not specialists when it comes to artwork. They found the offer very appealing. It required a lot of work and profits were virtually nil.
These are foundations; there was no criminal intent on the part of these people. They realized themselves that they were in the wrong.
(Appendix 6, pages 25 and 26)
(Emphasis added)
In his own way, Mr. Chabot too "got caught in an ambush" and, in his own way, he too "found the offer appealing."
[41] In these circumstances, I find it difficult to understand why Revenue Canada would assess penalties against such small taxpayers who, in good faith, tried to benefit from a tax credit that Revenue Canada itself dangled in front of their eyes and which, according to the guide, seemed so easy to obtain.
[42] It may seem easy today for the Minister or a court to say that the taxpayer should have assessed, at the outset, that the technique that he was using in good faith to benefit from a tax advantage was valid. And yet it took Revenue Canada three years to ask questions about the gifts listed in Mr. Chabot's 1992 and 1993 tax returns. Revenue Canada resigned itself only last year, as a result of the decisions in Duguay and Côté, to recognizing the principle that there could be a gift even though the taxpayer ultimately received a benefit by claiming tax deductions. Revenue Canada never argued that Mr. Chabot was engaged in tax avoidance. This is a far cry from the "circumstances amounting to gross negligence" required by subsection 163(2) of the Act and the wilful blindness that this Court sanctioned in Duguay and Côté.
[43] I therefore conclude that Judge Lamarre erred in her "legal appraisal" (in the words of Marceau J. in Cloutier, supra, paragraph 18) of the taxpayer's conduct for the purposes of assessing a penalty.
[44] I would allow the appeal in part, dismiss the part of the Tax Court of Canada decision that upholds the penalties assessed by the Minister, and refer the assessment back to the Minister for reconsideration and reassessment on the basis of these reasons. I would award the appellant his costs only on appeal.
"Robert Décary"
J.A.
"I concur with these reasons.
Alice Desjardins, J.A."
Certified true translation
Sophie Debbané, LL.B.
NOËL J.A.(dissenting in part)
[45] I had the opportunity to read the reasons of my colleague, Décary J.A. I share his view that Judge Lamarre was correct to deny the appellant the tax credit for charitable gifts since he was unable to establish that he was the owner of the paintings that he claimed to have donated.
[46] With respect to the penalties assessed under subsection 163(2) of the Act, I am of the opinion that it was open to the trial judge to conclude from the evidence that there was gross negligence, despite the contrary opinion of my colleague.
[47] Beyond the fact that the appellant did not acquire ownership of the works that he claimed to have donated, the trial judge noted the following facts in her reasons:
The appellant says that in 1991 he paid $2,800 in cash to purchase a set of paintings by various artists. The purchase order filed in evidence (Exhibit A-1) gives no description and identifies none of the paintings allegedly so acquired by the appellant. Mr. Amireault, who allegedly sold him this lot of paintings in 1991, provided the appellant in December 1992 with a certificate of appraisal listing five paintings appraised at $10,000 altogether, that is, almost four times the amount paid by the appellant.
[48] With respect to 1993 and 1994, the trial judge states, at paragraph 71 of her reasons, that the appellant:
... testified that he donated the artworks that he had purchased for $2,500 through his interest in the Gingras estate. In the months after he purchased his interest in that estate, Mr. Amireault provided the appellant with a list of all the paintings and sculptures belonging to the collection. Moreover, the certificate of appraisal dated December 15, 1993, prepared by Mr. Amireault lists nine artworks by Lui Feito, Marcellin Dufour, Olaf Hanel, Luigi Cosentino and Yvan Putara. An official receipt for $15,000 listing each of these works was issued to the appellant by the Fondation Don des Arts on December 22, 1993. The certificate of appraisal dated December 12, 1994, prepared by Mr. Amireault lists six works by Lise Gervais and two by Daniel Lavoie. In this last case, an official receipt dated December 18, 1994, was issued to the appellant by La Maison d'Art Fra Angelico; it stated simply: [TRANSLATION] "[. . .] received $8,000."
[49] As these passages indicate, the evidence before the trial judge established that the credit claimed by the appellant for 1992 was nearly four times greater than the price paid for the works he claimed to have donated, and in 1993 and 1994 the credit claimed was more than nine times greater than the price. Those credits, which were at first sight clearly inflated, were claimed pursuant to appraisals provided by Mr. Amireault who acted simultaneously as art dealer, appraiser and supplier of the tax receipts submitted by the appellant. The appellant was aware of the multiple roles played by Mr. Amireault and knew or ought to have known that Mr. Amireault was an appraiser with an interest in the appraisal (see, for example, the conclusion drawn by the trial judge at paragraph 77 of her reasons). Despite this, his attempts to verify the appraisals provided by Mr. Amireault were limited to consulting the Guide Vallée: [TRANSLATION] "At one point, ... during the first year, ..." (cross-examination of the appellant, Appeal Book, Appendix 3, page 120).
[50] The appellant tried in vain to make Mr. Amireault's appraisals look credible by calling a number of witnesses to testify at the trial. None of them was recognized as an expert and the trial judge flatly rejected the testimony of each of them for reasons that the appellant failed to even challenge in his appeal (the reasons in question are found in paragraphs 77 to 81 of the judgment and the appellant's arguments are found in paragraphs 59 to 73 of his memorandum).
[51] Ultimately, the trial judge assessed the appellant's conduct as follows:
[82] The evidence showed that the appellant had no other intention than to purchase a tax credit. He clearly let it be known that he would not have donated amounts of money equivalent to the amount he claimed as a credit. He was content to entrust the entire matter to Mr. Amireault without further concerning himself with the works he was buying, what was donated and the origin of the works and especially without asking himself too many questions about the values assigned by Mr. Amireault, which were almost four times greater in the case of the first lot and nine times greater in the case of the second lot than what he had paid. (Emphasis added)
[52] After noting that the appellant had also deliberately failed to provide the Minister with a list of the paintings in the Gingras collection, a finding that my colleague questions, she went on to quote a lengthy passage from the decision of Judge Dussault in Réjean Gagnon v. The Queen, [1991] T.C.J. No. 655 (Q.L.) before concluding that "for the same reasons," the penalties were justified in the circumstances (reasons for judgment, paragraph 84). A part of the passage that she quoted reads as follows:
The evidence submitted clearly shows that the appellant was told of what he referred to as a "tax shelter" that would enable him to obtain a tax credit, and he accepted a transaction organized by a colleague at work which essentially consisted of buying and then donating stained-glass windows for a church. Although the appellant said he checked with some colleagues to see if such a practice was common and legal, his statement and his evidence clearly show that he accepted the proposal with the assurance that the receipt he would be given for tax purposes would be much greater than the amount spent. I do not believe that a reasonable and even slightly well-informed person could accept such a proposal concocted by third parties, suggesting at the outset that the value and the amount of the receipt will be obviously falsified. I do not think a reasonably intelligent and prudent person could seriously claim to have made an honest gain through a charitable donation in such circumstances. While this may be a standard method of planning to some, it seems to me to be legally unsupportable and completely unacceptable.
[53] The trial judge's conclusions regarding the appellant's conduct seem justified to me, even apart from the fact that the appellant allegedly also deliberately failed to produce a list of the paintings in the Gingras collection.
[54] Nonetheless, I must also add, on that last point, that the contrary inference that my colleague drew on this aspect does not seem more coherent to me than the inference drawn by the trial judge. In fact, it is less so: why would the appellant not have provided a list of the paintings in the Gingras collection in response to the auditor's request, if only because none of the paintings described in Mr. Amireault's certificates was on that list?
[55] First, the list in question was the only piece of evidence available to the appellant to identify the paintings which he claimed to have purchased or in which he claimed to have acquired an interest. Second, it must be recalled that at the time the appellant was required to respond to that request, the assessments for the latest years were at the discussion stage and the cat was not yet out of the bag: Revenue Canada did not know that the works the appellant claimed to have purchased had never been identified, and most importantly that Mr. Amireault had "donated" works on his behalf that were not even among those the appellant claimed to have purchased (i.e. among the Gingras collection).
[56] It is in this context that the trial judge concluded that the appellant had deliberately failed to provide the list he had in his possession. In her view, the appellant knew that this list would enable the auditor to identify the flaws concerning his alleged donations, and that is why he chose not to submit it.
[57] That is an inference that the trial judge could reasonably have drawn in light of the evidence, especially since she had the advantage of hearing the appellant's testimony. My colleague would have reached the opposite conclusion. Speaking for myself, I am of the view that the trial judge was justified in concluding as she did and that there is no ground for intervention.
[58] For these reasons, I would dismiss the appeal with respect to both the penalties and the credit for charitable gifts, with costs.
"Marc Noël"
J.A.
Certified true translation
Sophie Debbané, LL.B.
FEDERAL COURT OF APPEAL
SOLICITORS OF RECORD
COURT FILE NO.: A-116-00
STYLE OF CAUSE: RICHARD CHABOT
and
HER MAJESTY THE QUEEN
PLACE OF HEARING: MONTRÉAL, QUEBEC
DATE OF HEARING: OCTOBER 22, 2001
REASONS FOR JUDGMENT: DÉCARY J.A.
CONCURRED IN BY: DESJARDINS J.A.
DISSENTING REASONS IN PART BY: NOËL J.A.
DATE OF REASONS: DECEMBER 7, 2001
APPEARANCES:
Jean-Yves Therrien FOR THE APPELLANT
Mélanie Valiquette
Chantal Jacquier FOR THE RESPONDENT
SOLICITORS OF RECORD:
Jean-Yves Thérrien L.L.B. FOR THE APPELLANT
Montréal, Quebec
Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada
Ottawa, Ontario