Date: 20000411
Dockets: 98-2395-IT-I; 98-2396-IT-I
BETWEEN:
GHISLAIN LAROUCHE, RENÉ LAROUCHE,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered orally from the bench on March 9, 2000, at Ottawa, Ontario)
Lamarre Proulx, J.T.C.C.
[1] These appeals were heard on common evidence.
[2] The point at issue is whether a benefit was conferred on the appellants under subsection 15(1) of the Income Tax Act (the "Act") by the corporation of which they were the shareholders.
[3] The facts on which the Minister of National Revenue (the "Minister") relied in making his reassessments are set out in paragraph 6 of the Replies to the Notices of Appeal (the "Replies"). These paragraphs are virtually identical. I reproduce that in the appeal of Ghislain Larouche:
[TRANSLATION]
(a) during the 1993 taxation year, the appellant and his brother René each held 40 percent of the shares of Léo Larouche Construction Inc. (the "Company");
(b) on or around December 2, 1993, the Company sold the appellant and René a lot located at 40 de Beauvallon in Gatineau, Quebec, designated as Lot 3B-229 Range 7, Township of Hull (the "Lot") for proceeds of disposition of $1;
(c) on that date, the fair market value of the Lot was not less than $40,000;
(d) that same day, the appellant and René sold the Lot to Carole Strasbourg for proceeds of disposition of $40,000;
(e) the proceeds of disposition of $40,000 were deposited to the Company's account and the "Shareholder Advances" accounts of the appellant and René were credited with $20,000 each; and
(f) during the 1993 taxation year, the Company conferred on the appellant as a shareholder a taxable benefit of $19,999.50, being his 50 percent share of the proceeds of disposition of the Land less its cost of $1.
[4] The appellants admitted the facts set out in subparagraphs 6(a) to 6(e) of the Replies.
[5]Ghislain Larouche explained that, in 1986 and 1987, he and his brother René were partners in a construction business, "R.G. Construction enr.". Their father Léo Larouche was president of another construction business, Léo Larouche Construction Inc. In 1987, the father proposed that his two sons join him in that corporation. Ghislain Larouche said that at that time he and his brother owned trucks and tools which they assigned to the corporation. In exchange, the corporation gave them two lots, namely 38 and 40 Beauvallon. Ghislain Larouche apparently received 40 Beauvallon, and René Larouche, 38 Beauvallon.
[6] The two lots had been purchased by Léo Larouche Construction Inc. for a total price of $38,000 on May 16, 1985. The contract of sale was filed as Exhibit I-1.
[7] On July 9, 1987, Léo Larouche Construction Inc. sold 38 Beauvallon to René Larouche and Johanne Boyer for a consideration of $20,000. That contract was filed as Exhibit A-4. The witnesses explained that there was a written document for that sale to René in 1987 and that there was none in Ghislain's case because René wanted to build a residence on the lot while Ghislain had not decided what he wanted to do with the lot that his father had assigned to him (40 Beauvallon).
[8] On December 2, 1993, Léo Larouche Construction Inc. sold 40 Beauvallon to Ghislain and René Larouche for $1 (Exhibit A-2). No explanation was given concerning the corporation's tax treatment of this sale for $1 of a property for which it had paid at least $20,000. Whatever the case may be, on December 2, 1993, the same day that 40 Beauvallon was sold to the brothers Ghislain and René, they, as purchasers at $1, sold it to Carole Strasbourg, a real estate agent, for $40,000. The contract of sale was filed as Exhibit A-1.
[9]Ghislain Larouche claims that this sale did not take into account the fact that he already owned 40 Beauvallon. Why then was the lot assigned to both brothers, not just to Ghislain? The appellants' answer was that the bank had requested advances from both shareholders and that the two shareholders had reached an agreement in that regard: René Larouche would hand over an immovable worth $20,000 to Ghislain to compensate him. This is what he purportedly did on July 16, 1997. A contract of sale was filed as Exhibit A-5. The price shown was $1. However, the actual value of the property sold was $84,750. It is therefore hard to believe that this was the payment of the $20,000.
[10] The evidence also showed that the property taxes were always paid by the corporation, which took out a mortgage on 40 Beauvallon in 1991. It was the corporation, not Ghislain Larouche, that conducted itself as the owner.
[11] The appellants' agent argued that the corporation of which the appellants are shareholders had conducted transactions involving many other lots and that this had always been done in accordance with the Act.
[12] Counsel for the respondent argued that there was no documentary evidence of a transfer of ownership. The appellants cannot by their testimony alone contradict valid written instruments, particularly in cases where they were the originators of those instruments. Furthermore, the appellants always conducted themselves as though the corporation was the owner.
Conclusion
[13] The appellants did not prove that 40 Beauvallon was assigned to Ghislain Larouche in 1987. The corporation paid the taxes on the lot and conducted itself as the owner. Exhibit A-2, which is the contract of sale of 40 Beauvallon for $1, describes Léo Larouche Construction Inc. as the owner and does not mention that the title had been assigned to Ghislain Larouche. At the time of that sale, Ghislain Larouche himself was the corporation's vice-president and acted for the corporation. He was entirely at liberty to indicate his title to the property. He even signed the document twice. Therefore, on a balance of evidence, I can only find that the argument advanced by the appellants cannot be accepted.
[14] The appeals are accordingly dismissed.
Signed at Montréal, Quebec, this 11th day of April 2000.
"Louise Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]