Date: 20010119
Docket: 1999-1679-IT-G
BETWEEN:
ROBERT EBERLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Counsel for the Appellant: Gregory A. Swanson
Counsel for the Respondent: Gerald Chartier
____________________________________________________________________
Reasons for Judgment
(Delivered orally from the Bench at Regina, Saskatchewan on November 3, 2000)
McArthur J.
[1] This appeal is from an assessment for the Appellant's 1994 taxation year. There are three issues arising and they include: Did the Minister of National Revenue correctly add $110,000 to the Appellant's taxable income pursuant to subsection 15(1) of the Income Tax Act on the basis that the Appellant did not sell land to D & K Properties Ltd. (the corporation) in 1994? Did the Minister correctly apply approximately $8,000 as a standby charge on the basis that the Appellant made personal use of a 1993 GMC 4X4 truck owned by the corporation? And finally, should the Minister have assessed penalties of approximately $17,000 as against the Appellant pursuant to subsection 163(2) of the Act. I shall commence with the land sale or transfer which is the most important question.
[2] The Appellant has been a farmer, businessman, and hotel owner or manager for many years. In 1992, his son Dwayne took title from Farm Credit Corporation to four parcels of farmland, each described as a ¼ section containing approximately 160 acres. The consideration for one parcel partially described as the S.E. ¼ Section 9 was $23,360; and the second parcel, S.W. ¼ Section 23, was purchased for $25,000. I believe the remaining two quarter sections had similar values. A mortgage of $60,000 was granted by Dwayne to the Royal Bank of Canada secured by all four parcels.
[3] The Appellant and Dwayne were the sole witnesses for the Appellant. I have no difficulty in finding as a fact that Dwayne held all the land in trust for the Appellant, his father, for the following reasons. Before 1991, the Appellant had apparently owned the land personally. Farm Credit Corporation took ownership of that land by way of foreclosure in 1991. In 1992, there were writs of execution filed against the Appellant by Shelter Corporation of Canada Limited, Canadian Imperial Bank of Commerce, Agricultural Credit Corporation, and the Minister of National Revenue. The Appellant and not his son, made all the arrangements for the purchase, mortgage and balance due on closing in the purchase transactions. Upon the Appellant's instructions, his son signed as purchaser but obviously had no grasp of the details. The Appellant managed the land leasing all or part of it to his brother who farmed it, sold grain and paid rent to the Appellant. Dwayne was not aware of any sale to the corporation.
[4] About February 1996, Dwayne declared in writing that he held the two remaining parcels (not included in those two parcels that were sold to the corporation) for the Appellant. Upon the Appellant's direction, Dwayne transferred the S.E. ¼ Section 9 to a third party for the sum of approximately $34,000. There was a discrepancy in the amounts since the Appellant's accountant recorded the figure of $38,000. Shortly after the sale, the Royal Bank mortgage was discharged. The primary question in this appeal is whether the Appellant sold or transferred two ¼ sections to the corporation on or before August 31, 1994.
[5] The Appellant was a somewhat evasive witness. Even in direct examination, he answered with hesitation, leading me to conclude that he was searching for a response that placed him in the most favorable light, whether it be accurate or not. The Appellant purchased 50% of the corporation's shares in April 1994 from his daughter. Mr. Karl Hansen, an independent third party, owned the remaining 50% of the shares. The corporation owned and operated an inn with 34 rooms, a lounge, restaurant and banquet facilities. The Appellant operated the inn with his wife and son and daughter. In 1994, the Appellant owed the corporation a shareholder's loan in the amount of $110,000. From previous business experiences, he knew he had to pay it back by the corporation's year end of August 31, 1994 or have it added as a benefit to his taxable income. At some point in time after August 31, 1994, he informed his accountant, who was also the accountant for the corporation, that effective August 31, 1994 he sold two ¼ sections of land to the corporation for $110,000, thus wiping out his shareholder's loan. On January 31, 1995, the accountants requested the Appellant's law firm, specifically Greg Swanson who represented the Appellant in this appeal, to prepare any required legal documentation to reflect the Appellant's sale of the land to the corporation.
[6] The question before me boils down to whether the Appellant effectively sold the land to the corporation on or before August 31, 1994. I find he did not for the following reasons. On August 31st, 1994, (i) there was no transfer, registered or unregistered; (ii) there was nothing in writing whatsoever to reflect the sale; (iii) the 50% owner of the corporation, Mr. Hansen, was not consulted; (iv) there was no evidence that the Appellant had contracted with himself; (v) there were no corporate resolutions; (vi) there was no contract of any kind with Mr. Hansen; (vii) the law cannot accept oral contracts with oneself because they are contrary to basic contract law principles. I believe such contracts should be reduced to writing to be binding; (viii) there was no evidence of a bargain struck between the Appellant and the corporation; (ix) there was no evaluation of the land and the $110,000 value appears to relate more to the Appellant's indebtedness than to fair market value. The only evidence of value is the purchase price of the two parcels in 1992 which totaled less than half the sale price; (x) the purported sale was apparently for the lands clear of encumbrance, yet the Royal Bank of Canada mortgage remained; (xi) the oral contract, if any, fails to satisfy the certainty of the terms requirement of contract law; (xii) it does not make commercial sense that the Appellant would enter into a contract with a company that was equally owned by another partner (shareholder) without his consent and without due diligence as to terms, purchase price, etc. More than a possible intention to transfer is far from enough; (xiii) I do not believe the uncorroborated evidence of the Appellant that he entered into an oral contract with himself prior to August 31, 1994 even if this were sufficient, and it is not; and (xiv) the Statute of Frauds for the Province of Saskatchewan requires a document to be in writing for the sale and transfer of land. Any corroboration in writing was prepared after August 31, 1994 such as the accountant's financial statements, accounts prepared for income tax returns, an unsigned and undated Agreement of Purchase and Sale, and evidence that Mr. Hansen was aware of the transaction. The Appellant and Mr. Hansen had a bitter falling out commencing in 1994-1995 culminating in Minutes of Settlement between them dated 1997.
[7] Counsel for the Respondent referred to the Statute of Frauds as it applies to the sale of land in Saskatchewan. Counsel for the Appellant relied on the doctrine of part performance. The cases submitted for this doctrine can easily be distinguished from the present facts. For instance, in Thompson v. Guaranty Trust Co. of Canada,[1] Spence J. quoted with approval, the House of Lords in Maddison v. Alderson, (1883), 8, APP. Cas. 467 where Earl Selborne states:
... the acts relied upon as part performance must be unequivocally, and in their own nature, referable to some such agreement as that alleged ...
The acts of the Appellant were far from unequivocal for the reasons enumerated earlier. I quote, with approval, some of the passages in the cases referred to by the Respondent and they include: Lefebvre et al. v. M.N.R.,[2] where Mogan J. stated:
... The Respondent submits that, if the Appellants are to succeed in establishing their ownership of an interest in the Subject Land prior to January 23, 1980, they must overcome section 4 of the Statute of Frauds which requires a memorandum in writing signed by the parents, Antoine and Florence. There is no evidence of such memorandum, and so counsel for the Appellants advanced four arguments to overcome section 4 of the Statute of Frauds.
...
In the Law of Real Property by Anger and Honsberger, (2d) 1985, the following statement appears at page 1087:
... the doctrine of part performance evolved on two parallel lines. First, equity would not allow a defendant successfully to plead the Statute of Frauds as a defense where the plaintiff had relied substantially on the defendant's promise. Secondly, the acts of reliance by the plaintiff were evidence that a contract between the parties in fact existed and should be enforced. It is a condition of the application of the doctrine of part performance that 'the acts relied upon ... must be unequivocally, and in their own nature, referable to some such agreement.
Throughout the 1970's, the family farm comprised the 98 acres of Adjoining Land to the north containing the farm house plus the 160 acres of the Subject Land to the south. The Appellants' conduct after 1972 of helping to work the family farm and to repay the $10,000 loan is equivocal in the sense that it could reflect the family tradition of all working together or it could reflect an expectation that the Subject Land would be gifted at some future time. I cannot conclude that such conduct was based unequivocally on the Appellants' reliance on their parents' promise of the Subject Land.
[8] In the case of Rose v. M.N.R.,[3] the Federal Court of Appeal said in circumstances somewhat similar to the present appeal:
... There is no evidence that the contract was executed in the meantime and it must be remembered that the onus of proof was on the appellant.
Furthermore, ... there is a complete absence of any evidence that the partnership ever authorized the five directors to carry on the partnership business. ... In a case where the partners are corporations, ... I should have thought that, before individuals can carry on business on behalf of the partnership, they must have some authority from the corporate partners and that it would ordinarily be given by way of corporate resolutions. ...
There are several other cases cited by counsel for the Respondent of which I approve and will not refer to further in this judgment.
[9] For the above reasons, I find that the Appellant did not sell the land to the corporation at any time material to the appeal. In recording the alleged transfer by adjusting personal entry number 15 of the corporation, it conferred a benefit on the Appellant and the Minister properly assessed the Appellant for $110,000 pursuant to subsection 15(1) of the Act.
[10] I now turn to the standby charge. The following facts are for the most part not in dispute: The corporation purchased a 1993 GMC 4X4 1993 for the amount of $33,300. The truck was made available to the Appellant for his use during the 1994 taxation year. The Appellant did not pay the corporation for his use of the truck. The corporation paid the operating costs, gas, maintenance and repairs of the truck. The Appellant failed to keep records of business and personal mileage. During the 1994 taxation year, I find that the Appellant used the truck in part for personal use. The position of the Appellant is taken from the Appellant's Notice of Appeal as follows:
13. In 1993, the Company purchased a 1993 GMC 4X4 truck (the 'Truck') for $33,300.00 which was made available to the Appellant for his use.
14. The Appellant was required by the Company to use the Truck in the performance of his duties as an employee of the Company. All or substantially all of the travel using the Truck was in connection with purposes related to the business of the Company, including, but not limited to, the following:
(a) taking daily deposits to the Royal Bank in either Wapella or Moosomin;
(b) picking up food and supplies at least once per week from either Regina or Yorkton;
(c) picking up liquor supplies and returning bottles.
15. The Respondent assessed the Appellant a standby charge of $8,103.00 regarding the Truck pursuant to section 15(5) of the Income Tax Act.
16. The Respondent has erred in assessing the Appellant regarding the Truck in that she failed to consider that:
(a) the Appellant was required by the Company to use the Truck in the course of his employment;
(b) all or substantially all of the distance traveled by the Truck was in connection with or in the course of the Appellant's employment;
(c) the Appellant owns a 1993 Buick automobile which he used for his personal driving needs.
[11] The Appellant, for the first six months of 1994, lived with his wife at least part-time in a cottage in White Bear and drove approximately 60 kilometers from time to time to work in Whitewood. In August 1994, they moved to Whitewood to save time in driving back and forth. During the first six months, the Appellant states that they traveled only about six times from White Bear to Whitewood. He obviously was very busy at the hotel, when one considers the gross income which was in excess of $800,000, and did not have time to commute the 120 kilometers round trip. He traveled from Whitewood to Regina and other municipalities to pick up supplies, do banking and other responsibilities.
[12] His son corroborated the Appellant's evidence to the effect that the truck was used primarily for business purposes. There was evidence that other vehicles were available to him for personal use. He kept no logs and other records and his memory was somewhat faulty, but I accept that he used the truck in connection with his work to the extent of 80% of the time. The standby charges shall be adjusted pursuant to subsection 15(5) which states in effect that a shareholder who has an automobile made available to him by the corporation shall include a benefit as the circumstances require. The estimate of 20% for personal use is somewhat rough and ready, but is the most reasonable considering the evidence available to me.
[13] The final point is that of penalty. The onus is on the Minister to justify the penalties imposed under subsection 163(2). I find that the gross negligence necessary to justify penalties pursuant to that subsection has not been established. In the same way as I have concluded that the Appellant failed to meet the onus of proof in challenging the Minister's assumptions with respect to a shareholder benefit, I find that the Minister has failed to establish proof necessary to justify penalties.
[14] In conclusion, the appeal is allowed to reduce the standby charge of $8,103 to $1,620 and to delete the assessed penalties. In all other respects, the appeal is dismissed, and costs are allowed to the Respondent in accordance with the tariff.
Signed at Ottawa, Canada, this 19th day of January, 2001.
"C.H. McArthur"
J.T.C.C.