Date: 20000131
Docket: A-237-98
CORAM: THE CHIEF JUSTICE
ROBERTSON J.A.
SEXTON J.A.
BETWEEN:
GUERINO MOLINARO
Appellant
-and-
HER MAJESTY THE QUEEN
Respondent
Heard at Toronto, Ontario, Wednesday, January 26, 1000
Judgment delivered at Ottawa, Ontario, on Monday, January 31, 2000
REASONS FOR JUDGMENT BY: SEXTON J.A.
CONCURRED IN BY: THE CHIEF JUSTICE
ROBERTSON J.A.
Date: 20000131
Docket: A-237-98
CORAM: THE CHIEF JUSTICE
ROBERTSON J.A.
SEXTON J.A.
BETWEEN:
GUERINO MOLINARO
Appellant
-and-
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
SEXTON J.A.
[1] The appellant taxpayer, through his holding company, Bluevest Holdings Limited, owned a pizza manufacturing company called Canadian Pizza Crust Company Limited (Pizza Crust). Catelli Inc., which is in much the same business, agreed to buy Pizza Crust.
[2] The letter of intent provided that the taxpayer would sell Pizza Crust for $10,000,000 to Catelli. Under the letter of intent, Catelli agreed to retain the taxpayer as an employee for at least 3 years after closing with an approximate salary of $1,800,000. Subsequently, the parties entered into a Share Purchase Agreement whereby Catelli agreed to pay approximately $6,3000,000 to Bluevest in exchange for its shares in Pizza Crust. Pursuant to that agreement Catelli also agreed to enter into an employment agreement with the taxpayer whereby he would be paid approximately $1,8000,000 over 3 years. An employment agreement was entered into which entitled the taxpayer to $1,800,000 if he worked continuously for Catelli for 3 years but in any event he would be entitled to $1,500,000 even if he died or was terminated for "good reason". In order to obtain the remaining $300,000, the taxpayer was obliged to actually work for Catelli. The agreement called for him to be paid at the rate of $100,000 per year for these services. The employment agreement provided that:
| Any and all previous agreements, arrangements and understandings, written or oral, between the parties hereto or on their behalf relating to the employment of the Executive by Catelli or the Company are hereby terminated, cancelled and superseded... |
[3] The deal closed and the taxpayer worked less than 3 years for Catelli and received $1,600,000 from Catelli pursuant to the employment agreement.
[4] Revenue Canada sought to include the full $1,600,000 in the income of the taxpayer. The taxpayer objected, arguing that $1,500,000 of the total should be treated as a capital payment to the taxpayer, representing payment for his interest in the business.
[5] The Tax Court Judge decided in favour of Revenue Canada. He concluded that the parties had carefully negotiated the terms of the employment agreement and that the taxpayer could not disavow the legal relationship when it suited him.
[6] The taxpayer appealed to this Court arguing that the $1,500,000 represented proceeds of disposition of his capital interest in Pizza Crust rather than employment income, and that in substance the employment agreement amounted to a promissory note assuring him of this payment. The taxpayer also argued that the appeal should be allowed because of reasonable apprehension of bias on the part of the Tax Court Judge.
[7] We find no palpable or overriding error in the findings made by the Trial Judge. The Judge had the benefit of seeing and hearing the witnesses as well as seeing the documents in issue.
[8] The taxpayer"s argument that the payment of $1,5000,000 represents a capital payment to him ignores the fact that he was owed no capital payment by Catelli. Catelli bought the Pizza Crust shares from Bluevest. It was Bluevest which was entitled to receive payment for the Pizza Crust shares.
[9] The taxpayer argued nevertheless that the substance and not the form of the employment agreement should be taken into account and that the substance represented partial payment of his interest in Pizza Crust. In addition to the problem already noted with respect to this submission, the taxpayer is met with the argument that the substance of the employment agreement is that it is really just that. It contains most of the terms of usual employment agreements. It is lengthy and was seriously negotiated with both lawyers and accountants representing the taxpayer. In this case, the form and substance appear to be the same thing.
[10] This Court has, in the past, emphasized the importance of form in tax matters. In The Queen v. Friedberg 92 DTC 6031, Linden J.A. speaking for the Court said:
| In tax law, form matters. A mere subjective intention, here as elsewhere in the tax field, is not by itself sufficient to alter the characterizations of a transaction for tax purposes. If a taxpayer arranges his affairs in certain formal ways, enormous tax advantages can be obtained, even though the main reason for these arrangements may be to save tax (see The Queen v. Irving Oil 91 DTC 5106, per Mahoney, J.A.). If a taxpayer fails to take the correct formal steps, however, tax may have to be paid. If this were not so, Revenue Canada and the courts would be engaged in endless exercises to determine the true intentions behind certain transactions. Taxpayers and the Crown would seek to restructure dealings after the fact so as to take advantage of the tax law or to make taxpayers pay tax that they might otherwise not have to pay. While evidence of intention may be used by the Courts on occasion to clarify dealings, it is rarely determinative. In sum, evidence of subjective intention cannot be used to "correct" documents which clearly point in a particular direction. |
[11] Every taxpayer is entitled to arrange his affairs so as to minimize tax, but the taxpayer cannot disavow written agreements which he has entered into on the basis that a different arrangement would have been more advantageous. In the present case the taxpayer cannot avoid the result of his having signed the Employment Agreement. It called for him to receive salary and he did so. Thus he must pay the tax on this salary.
[12] The taxpayer alleges bias based on some comments of the Tax Court Judge. The comments complained of, while somewhat colourful, were motivated by the Tax Court Judge"s concern that the taxpayer was taxed twice on the same monies. In my view, the Tax Court Judge"s genuine concern for the taxpayer"s interests negates any suggestion of bias. I am of the view that an informed person, viewing the matter realistically and practically, and having thought the matter through, would not reasonably apprehend that the Tax Court Judge was biased.
[13] I would dismiss the appeal with costs.
"J. Edgar Sexton"
J.A.
"I agree
J. Richard C.J."
"I agree:
J.T. Robertson J.A."