Date: 20000121
Docket: A-813-97
| CORAM: MARCEAU J.A. |
DESJARDINS J.A.
DÉCARY J.A.
BETWEEN:
ANDRÉ LEDOUX, businessman, domiciled and
residing at 1076 Parc Thornhill, Sillery, Quebec,
Appellant,
- and -
HER MAJESTY THE QUEEN,
Respondent.
Hearing held at Québec, Quebec, Monday, January 17 and Friday, January 21, 2000.
Judgment from the bench on Friday, January 21, 2000.
REASONS FOR JUDGMENT OF THE COURT BY: MARCEAU J.A.
Date: 20000121
Docket: A-813-97
| CORAM: MARCEAU J.A. |
DESJARDINS J.A.
DÉCARY J.A.
BETWEEN:
ANDRÉ LEDOUX, businessman, domiciled and
residing at 1076 Parc Thornhill, Sillery, Quebec,
Appellant,
- and -
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the bench at Québec, Quebec,
on Friday, January 21, 2000)
MARCEAU J.A.
[1] The judgment on appeal here comes from the Tax Court of Canada: in its disposition, it affirmed an assessment made by the Minister of National Revenue against the appellant for 1987 pursuant to the Income Tax Act. The appellant disputed whether the Minister could by that assessment allocate to him in their entirety, and treat as business income, profits which he and persons related to him had made from a series of transactions involving the purchase and sale of a building, which they had reported separately as capital gains. The Tax Court judge disposed of the objection by accepting the Minister"s approach. In his opinion the series of complex transactions in 43 stages completed in a few days, involving the participation of artificial persons, trusts and individuals forming partnerships, resulting in the transfer of ownership of the Dorchester building in Québec to investors in Montréal, concealed a profit made by the appellant by disposing of rights he had obtained to the building by an operation of a commercial nature.
[2] We consider that the trial judge came to the right conclusion and that he did so on the basis of an analysis the essential propositions of which we are prepared to accept.
[3] Four of those essential propositions derive from factual conclusions based on the evidence, and there is no basis for disputing them. We can make no ruling on the validity of the judge"s reasoning and assess his conclusion except by taking these four points as a frame of reference.
[4] First, the appellant was acting for himself personally when he submitted his purchase offer of March 2, 1987 to Enrico Inc. ("Enrico"), owner of the Dorchester building in Québec, and obtained its acceptance. The notation "in trust", used by him on his notary"s advice, has no meaning in the circumstances. He was also acting for himself personally when he received the purchase offer of March 18, 1987 from a group of investors and indicated his acceptance.
[5] Second, these purchase and sale promises of March 2 and 18, 1987 at no time lost their legal validity. Only the obligation assumed by the appellant in his offer to purchase of March 2 could be affected by the non-fulfilment of the condition regarding financing, in that the appellant could rely on it to avoid the transaction. In the absence of the notice of withdrawal by the appellant, nothing had changed, and in particular the promise of sale remained fully executory.
[6] Third, it was established and is not open to dispute by this Court that the appellant intended to purchase for the purpose, if not exclusively at least within the very near future, of reselling at a profit, as he had in the past with other buildings, making the profit likely to be so realized as business profit.
[7] Finally, fourth, a fact which was not discussed but which is crucial: minimizing the tax consequences of the overall transaction was the purpose for conceiving and carrying out the series of manoeuvres in 43 stages undertaken by the three groups of interested parties, the owners Enrico, the appellant with the members of his family and the co-purchasers Faucher et al.
[8] Presented on the basis of these factual assumptions, the problem for the judge " and of course it is the same for this Court " was the following. In view of the recent trend in court decisions not to object to a taxpayer who wishes to avoid the payment of tax so far as possible making use as he sees fit of all sorts of transactions, however needlessly complex they may be and whatever their commercial or economic value, should this 43-stage series of manoeuvres used by the parties here to create the rights and obligations resulting from the promises of purchase and sale made by them in the contracts of March 2 and 18 be taken and accepted at its face value in determining the tax consequences implied by the actual transactions concluded between them?
[9] The trial judge gave a negative answer and we feel he was right. The way he reviewed the rulings of the courts and referred to them is certainly less than perfect, although it has to be said that those rulings were not always easy to identify and that the key decision, Shell,1 had not yet been rendered. Essentially, however, his response was based on a necessary conclusion, namely that the series of manoeuvres engaged in not only was artificial in several respects but did not reflect the actual transactions completed and did not correspond to the actual relationships formed between the parties: in short, it constituted a deception, a subterfuge, a sham. He was forced to this conclusion after noting the discrepancy between the selling price of the building and the obligation assumed by Enrico in accepting the offer of March 2; the interposing between the seller Enrico and the final purchasers of a partnership of individuals only having a separate existence apart from those individuals long enough to receive the final purchase price and divide it as instructed by the appellant; the false designation of [TRANSLATION] "deductions" from the amounts distributed by the partnership to its named pseudo-partners; the inexplicable differences in the distributions; and the artificial drop in the value of the shares.
[10] Based on this conclusion, which in our opinion was quite correct, that the series of transactions constituted a deception to conceal the business profit made by the appellant from concluding the contracts of March 2 and 18, 1987 and arranging for distribution of the profit to third parties in the form of capital gains, the judge had to give the various stages their proper interpretation and meaning once again and draw from them the tax consequences required by the Act.
[11] We do not feel it is necessary to discuss here the various aspects of the reconstruction by the judge of the parties" actual transactions. It might even be said that the Minister"s position could have been defended equally well, or even better, by suggesting that the profit made by the appellant could be attached directly to the two offers of March 2 and 18, 1987, without any need to postulate a separate sale of the rights resulting to him from them. In any case, however, our reservations regarding certain aspects of the judge"s analysis are not sufficient to require any intervention in his conclusions.
[12] The appeal will therefore be dismissed with costs.
| Louis Marceau J.A. |
Certified true translation
Bernard Olivier, LL. B.
FEDERAL COURT OF CANADA
APPEAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
| FILE No.: A-813-97 |
| STYLE OF CAUSE: ANDRÉ LEDOUX v. HER MAJESTY THE QUEEN |
| PLACE OF HEARING: Québec, Quebec |
| DATE OF HEARING: January 17, 2000 |
| REASONS FOR JUDGMENT OF THE COURT: BLAIS J. |
DELIVERED FROM THE BENCH BY: Marceau J.A.
APPEARANCES:
| André Blanchet FOR THE APPELLANT |
| Martin Gentile FOR THE RESPONDENT |
SOLICITORS OF RECORD:
| André Blanchet FOR THE APPELLANT |
Attorney
| Morris Rosenberg, Q.C. FOR THE RESPONDENT |
Deputy Attorney General of Canada
__________________1 Shell Canada Ltd. v. Canada (1999), 178 D.L.R. (4th) 26 (S.C.C.).