Date: 19990302
Docket: 97-2583-IT-I
BETWEEN:
PASCAL CHIASSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Lamarre Proulx, J.T.C.C.
[1] The appellant has appealed under the informal procedure the assessment made by the Minister of National Revenue (the “Minister”) pursuant to section 160 of the Income Tax Act (the “Act”).
[2] Section 160 of the Act provides that where a person has transferred property to a person with whom he or she was not dealing at arm’s length, the transferee and transferor are jointly and severally liable for the transferor’s tax liability in an amount equal to the lesser of the amount by which the market value of the property transferred exceeds the consideration paid and the amount of the tax liability.
[3] The issue in this appeal is therefore whether or not an immovable owned by Alstep Inc. (“Alstep”), 90 per cent of whose shares are held by Stéphane Chiasson, the appellant’s brother, was transferred to the appellant for valuable consideration.
[4] The facts on which the Minister relied are set out in paragraph 7 of the Reply to the Notice of Appeal (the “Reply) as follows:
[TRANSLATION]
(a) by notarized contract dated December 20, 1994, Alstep Inc., the transferor, sold a piece of land on rue Bolivar in Boisbriand to the appellant for $25,000;
(b) Stéphane Chiasson is the majority shareholder in Alstep Inc.;
(c) the appellant is Stéphane Chiasson’s brother;
(d) at the time of the transfer, the benefit conferred on the appellant amounted in total to the following:
(i) fair market value
of the property transferred: $25,000
(ii) consideration paid $ 0
(iii) value of the benefit $25 000
(e) on January 29, 1996, the transferor was indebted to the Minister under the Income Tax Act, in respect of the fiscal years ending on July 31, 1990 and 1991, respectively, for a total amount of $10,861.22:
. . .
(f) on January 29, 1996, the Minister issued against the appellant under section 160 of the Act a notice of assessment for an amount of $10, 861.22, which is equal to the lesser of the transferor’s tax liability ($10,861.22) and the benefit calculated as a result of the transfer of December 20, 1994 ($25,000):
. . .
[5] The amount of the tax liability, the non-arm’s length relationship and the value of the property transferred were not disputed at the hearing. The only issue is whether valuable consideration was given when the property was transferred.
[6] Stéphane Chiasson, Lorraine (Noël) Chiasson, Léonide Chiasson and the appellant were called to testify by counsel for the appellant. Mark Bergamin and Johanne Desfossés were called as witnesses by counsel for the respondent.
[7] Stéphane Chiasson has been the president of Alstep since 1986 and holds 90 per cent of its shares. The business, located in Boisbriand, does residential construction and renovation. The contract for the sale of the lot on rue Bolivar referred to in subparagraph 7(a) of the Reply was filed as Exhibit A-1. The purchaser, namely the appellant, is described as a draftsman who has his own business under the trade name Habitations Pacha. The price was $25 000, which the vendor acknowledged receiving in full, and for which it gave a complete discharge.
[8] Stéphane Chiasson explained that Alstep was having financial difficulties and that his mother had lent Alstep some money. According to him, the lot was sold to the appellant in consideration of the money his mother had lent to Alstep to pay Alstep’s bills. His mother had allegedly asked that the land be transferred to the appellant for the value of the debts owing to her by Alstep.
[9] Stéphane Chiasson filed as Exhibit A-2 a cheque dated January 9, 1995, in the amount of $12,500, signed by Lorraine N. Chiasson and drawn on her joint account with her husband Léonide Chiasson. The cheque was written by Stéphane Chiasson The witness said that the cheque was dated after the sale of the lot because they had to wait for a term deposit to mature. Exhibit A-3, which is a computer printout of Alstep’s account, shows that a cheque for $12,500 was cashed.
[10] The same witness, who is the president of Alstep, filed as Exhibit A-5 three cash deposit slips which, he said, prove other loans his mother made to Alstep. The date of the first deposit, of fifty $100 bills for a total of $5,000, is September 27, 1994, and the slip was signed by Léonide Chiasson. The second is dated December 30, 1994, and indicates ten $20 bills, twenty-six $50 bills, thirty-five $100 bills and one $1,000 bill, for a total of $6,000. The signature is Stéphane Chiasson’s. The third, dated December 16, 1994, shows a deposit of eighteen $50 bills and eighteen $100 bills, for a total of $2,700. It was signed by Christine Mailhot, Stéphane Chiasson’s wife.
[11] Stéphane Chiasson maintained that these cash amounts, totalling $13,700, and the cheque for $12,500, came from his mother. The cash was money that his mother had saved out of money her husband gave her; this was allegedly how she had been able to set aside these large sums. Exhibits A-3 and A-4 are computer printouts of Alstep’s account showing the cash deposits.
[12] Stéphane Chiasson, the president of Alstep, gave as an explanation of Alstep’s financial difficulties that had necessitated his mother’s financial assistance the fact that in April 1994 he had hurt his back on a construction site and was as a consequence unable to work. The firm’s affairs suffered as a result, and it had difficulty paying the bills. However, this did not prevent Alstep from employing the appellant as a salesperson for a salary of $20,800, according to a T4 issued by Alstep (Exhibit I-5), while he was a full-time student at the Cégep du Vieux-Montréal.
[13] Stéphane Chiasson declared personal bankruptcy in 1997. Alstep filed no returns for 1994 and subsequent years.
[14] Pascal Chiasson explained that he had acquired the lot for the purpose of building a house and selling it. As the price of real estate failed to improve, he did not think it appropriate to go ahead with his project and resold the land to Construction S. Chiasson Inc., in which his father holds 90 per cent of the shares. That business was incorporated on August 16, 1995. The sale took place on August 25, 1995, the price being $25,000. Exhibit I-1 is the document effecting the resale to his father’s corporation.
[15] The contract for the sale of the lot on rue Bolivar by Alstep to the appellant (Exhibit A-1) contained a clause which stated with respect to the declarations concerning the goods and services tax and the Quebec sales tax:
[TRANSLATION]
. . .
The purchaser declares that he has applied to the Minister of National Revenue and the Minister of Revenue of Quebec for registration and that his registration numbers are in the process of being obtained.
Consequently, the purchaser shall be responsible for collecting the G.S.T. and the Q.S.T.
. . .
Pascal Chiasson admitted that he had never applied to the governments referred to in that clause for registration.
[16] Exhibit A-6 is entitled [TRANSLATION] “Contractual agreement for a loan to purchase land”. The parties to the agreement were Lorraine (Noël) Chiasson and Pascal Chiasson. By it the lender undertook to grant a loan of $25,000 and the borrower to repay the sum borrowed; the date given is December 5, 1994. Stéphane Chiasson had heard nothing about this agreement until the day of the hearing itself, nor had the mother, whose testimony was somewhat vague, heard anything about it.
[17] Lorraine (Noël) Chiasson explained that she had put together the large sums that were lent to Alstep by saving small amounts out of the money that her husband gave her for the family’s living expenses. She spoke of small denominations. She was subsequently re-examined by her counsel, and explained that she had eventually exchanged these small bills for larger ones. She did not remember how much she had lent to Stéphane. She recalled a figure of $12,500. She remembered having lent money to Pascal so that he could start up a small business. She remembered signing papers with him.
[18] Léonide Chiasson gave more or less the same account of the facts as Stéphane with respect to the cheque and the cash deposits at the bank. He said he was pleasantly surprised that his wife had been able to save up such large sums out of the money he gave her for the family’s food and clothing. He himself had declared bankruptcy on June 20, 1990, and was discharged on February 21, 1992, and so those had been difficult years for him. Alstep paid his credit cards for him instead of paying him a salary. In 1992 or 1993, he purchased Stéphane’s house, for which he paid $130,000. He said that he paid $30,000 in cash and took out a $100,000 mortgage loan. He said that he had to make mortgage payments of $800 a month. Exhibits I-2, I-3 and I-4 are tax returns filed by Léonide Chiasson. They show income of $27,146.24, $16,908.18 and $17,337.69 respectively. Those returns were filed in evidence to show that Stéphane Chiasson’s father did not have the means to lend $25,000 to Alstep in addition to meeting his mortgage payments.
[19] At that time, Mark Bergamin was a collection agent with Revenue Canada. An audit was done on Alstep because a complaint had been made by Alain Chiasson, Stéphane’s brother, alleging that Stéphane had issued a false T4 in his name. In addition, Alstep was being audited because credit card payments had been made for the father without any corresponding entries.
[20] Mr. Bergamin said that Stéphane Chiasson told him that the land had been paid for by three cheques for $12,000, $7,000 and $5,000 respectively in December 1995. He said that Pascal Chiasson told him that he had contracted an obligation toward his parents, but that there was no loan document. Pascal Chiasson said that he had been put in a tight spot for wanting to do his father and brother a favour.
[21] Johanne Desfossés, an appeals officer with Revenue Canada, contacted Pascal on November 22, 1996, and he told her that he had not paid the $25,000. He never mentioned Lorraine N. Chiasson. He spoke only of his father. The various people involved in this affair never said anything to her about the cheque for $12,500, or about the cash deposits totalling approximately $12,000 (Exhibits A-2 to A-5).
Conclusion
[22] The only document that is of any probative value is the cheque for $12,500 that Mrs. Chiasson wrote to the order of Alstep and that was cashed by Alstep. However, the cheque was written after the conveyance to the appellant. In addition, Alstep’s financial statements were not introduced to establish that Alstep was indeed indebted to Mrs. Chiasson, and that the effect of the sale of the land had been to erase that debt. The loan agreement, and the repayment of the loan by means of the transfer of the land, should have been reflected in the financial statements. That would be the best evidence, since otherwise how is one to determine with any certainty that money was lent? The money could just as well, for example, have been handed over to compensate for the credit card payments or some other expenditure that Alstep may have made for the benefit of the issuer of the cheque.
[23] However, despite the lack of financial statements for 1994, I am of the opinion, having regard to the testimonial evidence and the documentary evidence submitted, that there was a certain consistency in the evidence. Therefore it can be accepted that a $12,500 loan to Alstep was made by Mrs. Chiasson.
[24] As for the cash deposits made to Alstep’s bank account, they prove nothing. Mrs. Chiasson and Mr. Chiasson said that the money came from what Mrs. Chiasson had saved and kept in cash at her home. The testimony was not consistent in that regard, and it is not possible to give any credence to that account. I am of the opinion that the evidence failed to establish the source of the cash deposited in Alstep’s bank account.
[25] Because the land was appraised as being worth at least the sale price of $25,000 and since there is no evidence of payment of any consideration other than an amount of $12,500, there remains an amount of $12,500 that was transferred to the appellant without valuable consideration. Given that the amount in dispute is $10,861.22, the appeal must be dismissed.
Signed at Ottawa, Canada, this 2nd day of March 1999.
“Louise Lamarre Proulx”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]