Date: 20010605
Docket: 97-32-IT-G
BETWEEN:
ANDRÉ POMERLEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Counsel for the Appellant: Jacques Renaud
Counsel for the Respondent: Bernard Fontaine
Reasons for Judgment
(delivered orally from the Bench on
April 5, 2001, at Montréal, Quebec,
and revised on June 5, 2001)
P.R. Dussault, J.T.C.C.
[1] Although I made some general comments on the applicability of the doctrine of estoppel, I never made a ruling in this case. I merely rejected the argument from the start because it would have required that the Reply to the Notice of Appeal be amended in the middle of the hearing, which I refused to allow at that stage.
[2] Documents were recently filed in this case, which has been dragging on for quite a while. A number of pre-trial conferences were held so that the case could be heard. As a result of the conference on April 6, 2001, the parties signed a document stating the following:
[TRANSLATION]
The appellant has made the following admissions of fact:
A. The following subparagraphs of the Reply to the Notice of Appeal:
- 8(a), (b), (c), (h), (i), (j), (r), (s), (t) and (u);
- in subparagraph (v), "1991" is replaced with "1992".
B. For the purposes of file No. 97-32(IT)G, the appellant admits that Coffrage Universel Limitée owed the Minister of National Revenue at least $70,000 in taxes for the 1986 and 1987 taxation years at the time he received a dividend totalling $70,000 in 1992.
[3] If one wanted to argue that this was merely a factual admission, the various facts would have to be separated. The admission that a liability of at least $70,000 existed was obviously intended to limit the issues, since that point was no longer in dispute.
[4] In the view of counsel for the respondent, the taxpayer was also admitting that he received a dividend totalling $70,000 in 1992. If one wanted to see the admission as relating to both a question of law and a question of fact, the characterization of the amount received as a dividend is, in my view, a question of law.
[5] When the hearing in this case began, both parties submitted documents and questioned the witnesses, and the resulting evidence, which was very clear and in no way contradicted, was that no dividend was declared or paid to Mr. Pomerleau in 1992.
[6] The evidence shows that Mr. Pomerleau received regular paychecks from Coffrage Universel Limitée ("Coffrage") in 1992 and that the usual source deductions were made, as was the case for all the other employees. It was after December 31, 1992, that is, between the beginning of January and April 1993, and on the advice of controllers, external auditors and tax experts that the decision was apparently made to transform what had been a salary into a dividend after the fact.[1]
[7] The problem is that Mr. Pomerleau is not a direct shareholder in Coffrage. The documents submitted make it quite clear that a management company, Gestion André Pomerleau ("Gestion"), is the shareholder in Coffrage and that André Pomerleau himself is the shareholder in Gestion.
[8] What was thus intended was for Coffrage to declare a $70,000 dividend to Gestion and then for Gestion to declare that dividend to Mr. Pomerleau. This is what the only legal documents that exist indicate.
[9] In the two documents before us - the resolutions dated May 11, 1993 - a $70,000 dividend is in fact declared, first by Coffrage to Gestion and, in turn, by Gestion to Mr. Pomerleau (Exhibits A-11 and A-12).
[10] Those documents dated May 11, 1993, make no reference to 1992, and the explanation given by the accountants is that what had been a salary was magically transformed into a dividend, a process that was not even directed at the same person since the recipients of the amounts were not the same. Initially, Mr. Pomerleau had already received his salary in 1992, and subsequently, in 1993, it was alleged that a dividend had been paid by Coffrage to Gestion and then by Gestion to Mr. Pomerleau.
[11] This is obviously a fiction that is completely unacceptable. There was no dividend in 1992. There is no evidence of such a dividend. Instead, all the evidence tends to show that no dividend was declared or paid to Mr. Pomerleau in 1992, and the assessment is based on this.
[12] In his testimony, and at the request of counsel for the respondent, Mr. Gagnière said that he knew from his investigation that the shareholder in Coffrage was Gestion and that the shareholder in Gestion was Mr. Pomerleau himself.
[13] Mr. Gagnière also said that he was not the one who decided to assess the appellant under section 160 of the Income Tax Act ("the Act"). He said that this was done by another person, whose name we do not know. That person may or may not have made the necessary checks. The only documents that can be found concerning the dividends are the documents dated May 11, 1993, and, as I said earlier, they do not even refer to 1992.
[14] Thus, the assessment based on the payment of a dividend by Coffrage in 1992 is wrong, first, because Coffrage never paid a dividend to Mr. Pomerleau directly. Nor could it have done so since Mr. Pomerleau is not the shareholder. As for whether an indirect transfer took place, a dividend would have to have been paid by Coffrage to Gestion and a second dividend by Gestion to Mr. Pomerleau.
[15] This is what the accounting documents indicate, except that they do not reflect in any way what actually occurred, since a dividend was never declared or paid to Mr. Pomerleau directly or indirectly in 1992.
[16] It is indeed how the financial statements were prepared and how a T5 was issued to Mr. Pomerleau, although there was an error with respect to the payer. If we refer to Exhibit I-1, which is Mr. Pomerleau's tax return dated April 29, 1993, with the T5 appended thereto, as well as Coffrage's tax return dated May 31, 1993 (Exhibit A-17), it is clear that the information is inconsistent, since Exhibit A-17 definitely states that the dividend was declared to Gestion rather than to Mr. Pomerleau.
[17] In any event, no dividend was either declared or paid. The assessment based on the receipt of a dividend is accordingly invalid.
[18] The appeal is therefore allowed and the assessment under section 160 of the Act is vacated.
[19] Given the way this case was conducted, the parties will each have to pay their own costs.
Signed at Ottawa, Canada, this 5th day of June 2001.
|
"P. R. Dussault" |
J.T.C.C.
Translation certified true on this 27th day of November 2002.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Docket: 97-32(IT)G
BETWEEN:
ANDRÉ POMERLEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
CERTIFICATION OF TRANSCRIPT
Let the attached copy, as revised, of the Reasons for Judgment delivered from the Bench at the Tax Court of Canada, 500 Place d'Armes, Montréal, Quebec, on April 25, 2001, be filed.
Signed at Ottawa, Canada, this 5th day of June 2001.
|
"P. R. Dussault" |
J.T.C.C.
Translation certified true on this 27th day of November 2002.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
[1] I will add here that counsel for the respondent acknowledged that, when he received the resolutions (Exhibits A-11 and A-12) sent to him quite recently by counsel for the appellant, he noticed that it was not until 1993 that an attempt was made to transform what had been a salary in 1992 into a dividend. He said that he consulted with an official from the Canada Customs and Revenue Agency, who told him that the practice was tolerated. At the hearing, I told the parties that I found this way of handling things totally unacceptable.