[OFFICIAL ENGLISH TRANSLATION]
2000-1389(IT)I
BETWEEN:
CAROLINE BOULIANNE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on February 15, 2001, at Québec, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant: Frédéric Levasseur
Counsel for the Respondent: Dany Leduc
JUDGMENT
The appeal from the assessment made under section 160 of the Income Tax Act, notice of which bears number 15876 and is dated February 1, 1999, is allowed without costs, and the assessment is vacated in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 19th day of March 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 31st day of July 2002.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20010319
Docket: 2000-1389(IT)I
BETWEEN:
CAROLINE BOULIANNE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Alain Tardif, J.T.C.C.
[1] This is an appeal from an assessment made under section 160 of the Income Tax Act ("the Act"). The notice of assessment, numbered 15876 and dated February 1, 1999, concerns the 1996 taxation year, which corresponds here to the fiscal year ended on January 31, 1997.
[2] Subsection 160(1) of the Act reads as follows:
Tax liability re property transferred not at arm's length. 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.
[3] The evidence showed that in 1992 the appellant and her former spouse invested in the establishment of three physiotherapy clinics. The clinics very quickly became highly successful. The appellant, a physiotherapist by profession, involved herself completely in the clinics; her presence was essential, since she alone had the expertise upon which the smooth operation of the clinics was totally dependent, as her spouse handled only the management of the clinics.
[4] The appellant said that she worked very steadily and put in very long hours, which she did year-round during the first few years because of her very great availability at that time. At first, since her personal financial needs and those of the family unit were relatively modest, she and her spouse having no dependants, any surpluses were reinvested in the business.
[5] In 1995, the appellant gave birth to twin girls and therefore had to be away from the clinics for a long time. When she returned in early 1996, she realized that the clinics' financial situation had seriously deteriorated because of her spouse's many withdrawals.
[6] She then became aware that her spouse was using drugs excessively; he had very seriously neglected the management of the clinics while at the same time spending money for his drug use.
[7] She said that she understood at that point that her spouse had made false representations to her regarding certain expenses that, in reality, had clearly been incurred to buy drugs.
[8] Once she had come to this realization, the situation between her and her spouse very quickly deteriorated to such a degree that she decided, for both her own safety and that of her two young children, to leave her spouse and initiate divorce proceedings in the fall of 1996.
[9] In the course of the divorce proceedings, she had to accept that her daughters' father would see them, take them out and have custody of them on the weekends. He had become very violent and aggressive and had promised to ruin the appellant. She testified that she was traumatized by the idea that he would retaliate against her two very young children if she asserted herself or blocked or challenged anything at all in the process of liquidating the clinics' assets.
[10] To avoid such retaliation and to get things over with as quickly as possible, she agreed to everything, especially since she was neither familiar with nor informed about the management side of the clinics. She preferred to withdraw quietly with the idea of starting all over again once the liquidation was completed and there was relative calm again following the divorce.
[11] The appellant stated categorically that she received absolutely no dividend, even though the accounting records indicate the contrary. She revealed that the company was greatly indebted to her by reason of her capital investment, her involvement in the company, and the work she did for it, and that, in spite of all that, she came out of the venture ruined. The Court has no reason not to believe the appellant, who testified in an irreproachable manner.
[12] The respondent argued vigorously that the facts were in no way relevant given what is stated in the following paragraphs of the Amended Notice of Appeal:
[TRANSLATION]
. . .
(7) To begin with, the appellant and her former husband were equal shareholders in 9006-2290 Québec Inc. during the fiscal year ending on January 31, 1997;
(8) During the year, the appellant took advances from the company because she was running it and working there full time;
(9) At the time she took the advances, the company was solvent and was making its various tax payments when required;
(10) During the fiscal year ending on January 31, 1997, the appellant's former husband, Martin Tremblay, took, without authorization, considerable sums of money from the company's account for his personal needs, as will be shown at the hearing;
(11) At the end of the year, the company had to be wound up because it was impossible for the appellant and the said Martin Tremblay to come to an agreement;
(12) The sums of money taken by the appellant as advances at the time were reported to Revenue Canada as dividends;
. . .
[13] The Court concludes from the evidence that the allegations described as admissions by the respondent related solely to the wording used by the accountant. Moreover, the appellant stated that she self-assessed on the basis of that wording.
[14] She admitted through her counsel that, by her signature, she had agreed to the wording used by the accountant. This, however, does not have the effect of precluding her from proving that she did not receive the amounts indicated.
[15] Moreover, it is my view that the appellant could simply have repudiated her signature given the very unusual circumstances of her relationship with her former spouse. She did not do so, and she admitted that she co-operated in an attitude of total submission because of the potential danger to her children.
[16] I also observed that the fears and grievances described by the appellant were not exaggerated, since she also indicated that she had had to face all kinds of problems as a result of complaints filed by her former spouse with the physiotherapists' professional corporation, the Commission de la santé et de la sécurité du travail, etc.
[17] The weight of evidence indicates that the appellant never obtained or received the amounts alleged. Accordingly, there was never any transfer of property such as would make section 160 of the Act applicable.
[18] Moreover, if the weight of evidence had made it possible to conclude that a transfer occurred, there again, it is my view that the evidence provided a sufficient basis for a conclusion that the transfer was made for real consideration.
[19] For all of these reasons, the appeal is allowed without costs.
Signed at Ottawa, Canada, this 19th day of March 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 31st day of July 2002.
Erich Klein, Revisor