[OFFICIAL ENGLISH TRANSLATION]
2000-4756(IT)I
BETWEEN:
9072-6019 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on October 15, 2001, at Québec, Quebec, by
the Honourable Judge P. R. Dussault
Appearances
Agents for the Appellant: Martine Savard and Robert Stastny
(Students-at-law)
Counsel for the Respondent: Simon-Nicolas Crépin
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1999 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 24th day of October 2001.
|
"P. R. Dussault" |
J.T.C.C.
Translation certified true
on this 25th day of February 2003.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20011024
Docket: 2000-4756(IT)I
BETWEEN:
9072-6019 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
P. R. Dussault, J.T.C.C.
[1] This is an appeal from an assessment for $10,000 made under section 160 of the Income Tax Act ("the Act") as a result of a transfer of a bulk trucking (VR) permit by 2545-3267 Québec Inc. ("2545-3267") to the appellant on June 17, 1999. The transfer was made for no consideration and took place even though 2545-3267 had an unpaid tax liability of $24,711.96 in the taxation year in which the transfer was made or for a preceding taxation year.
[2] In making the assessment, the Minister of National Revenue relied on the assumptions of fact set out in subparagraphs (a) to (t) of paragraph 11 of the Reply to the Notice of Appeal. Those subparagraphs read as follows:
[TRANSLATION]
(a) 2545-3267 Québec Inc. (hereinafter "the corporation") was incorporated on December 29, 1987, and still has active status with the Minister;
(b) the corporation has not applied to the Inspector General of Financial Institutions for dissolution;
(c) Luc Beaudry is the corporation's director, president and majority shareholder;
(d) the corporation had an unpaid tax liability of $24,711.96 in the taxation year in which the transfer was made or for a preceding taxation year; that amount breaks down as follows:
Federal tax $14,021.61
Employment insurance $6,081.54
Interest $3,621.82
Penalties $986.99
(e) that amount represents unremitted source deductions as well as interest and penalties for the 1998 and 1999 taxation years;
(f) 9072-6019 Québec Inc. (hereinafter "the company") was incorporated on January 11, 1999, and has active status with the Minister even though it has never filed a tax return;
(g) no file on the company was found with the Inspector General of Financial Institutions;
(h) Nadia Beaudin is the company's director and majority shareholder;
(i) Luc Beaudry and Nadia Beaudin are de facto spouses;
(j) Luc Beaudry made an assignment of his property on February 22, 2000;
(k) on or about June 17, 1999, 2545-3267 Québec Inc. transferred the lease agreement for a Mack truck to 9072-6019 Québec Inc.;
(l) around July 6, 1999, Location MSF Inc. approved that transfer and authorized the company to change the registration of the said truck so that the company's name would appear as the lessee;
(m) the above-mentioned transaction was conditional on the transfer of the VR permit for bulk trucking that was tied to the truck;
(n) the corporation transferred the said permit to the company for no consideration;
(o) at the time the permit was transferred, the legislation concerning the Commission des transports du Québec provided that a truck could not be sold prior to January 1, 2000, without the VR permit assigned to it also being transferred;
(p) at the time the truck was transferred, the appellant could therefore not operate it without the said permit;
(q) on September 29, 1999, a valuation by the Minister determined that the VR transport permit involved in the transaction of June 17, 1999, was worth $10,000.00;
(r) the appellant is related within the meaning of subsection 251(2) of the Income Tax Act (hereinafter "the Act") to the transferor of the permit, 2545-3267 Québec Inc., with which it is not dealing at arm's length pursuant to subsection 251(1) of the Act;
(s) the appellant, which is the transferee of the permit, and the corporation, which is the transferor, are jointly and severally liable to pay under subsection 160(1) of the Act an amount equal to the lesser of:
(i) Amount by which (A) exceeds (B)
(A) FMV of property at time of transfer $10,000.00
(B) Consideration $0.00
(ii) Amount owed $24,711.96;
(t) the amount of the assessment made against the appellant is $10,000, being the lesser of the amounts calculated in subparagraphs (s)(i) and (ii).
[3] Subparagraphs (k), (l), (n), (r), (s) and (t) were denied as worded. The other subparagraphs were admitted.
[4] Testimony was given by Nadia Beaudin, the appellant's sole shareholder and director, and Réjean Asselin, a business valuator for the Canada Customs and Revenue Agency.
[5] In her testimony, Ms. Beaudin explained that the lease on the 1999 Mack truck had been assigned by 2545-3267 to the appellant on June 17, 1999. A document purporting to be, rather, a contract of sale was adduced in evidence (Exhibit A-4). It states that the sale was conditional on the transfer of the permit. In fact, Ms. Beaudin admitted that only a lease assignment was involved, since Location MSF Inc. ("MSF") owned the truck, and that the document in question was drawn up to meet a requirement of the Commission des transports du Québec ("Commission"). Moreover, MSF expressly approved the change of lessee (Exhibit A-3).
[6] Before the lease assignment, 2545-3267 used the truck for the bulk transport of earth, sand and gravel. The permit had to be transferred to the appellant in order for that type of operation to be able to continue until December 31, 1999. According to Ms. Beaudin, since the permit granted was tied to the truck, it had to be transferred if the appellant was to be able to continue with bulk transport. However, she explained that the appellant actually used the truck to transport long-cut timber and wood chips and that a permit was not necessary for that type of transport.
[7] In spite of that, the application to transfer the bulk transport permit was indeed made and signed by Luc Beaudry for 2545-3267, described as the applicant/assignor (vendor), and by Nadia Beaudin for the appellant, described as the applicant/assignee (purchaser). The Commission granted the application and the transport permit was indeed transferred from 2545-3267 to the appellant on July 6, 1999 (Exhibit A-5). The processing fees paid to the Commission for the transfer application amounted to $183 (Exhibit A-6).
[8] Ms. Beaudin explained in her testimony that bulk transport permits were abolished as of January 1, 2000, but said that she did not know whether holding a permit prior to then gave the holder certain rights under the new system. Ms. Beaudin also said that she did not know how much 2545-3267 paid to acquire the permit in 1990.
[9] Réjean Asselin, CMA, works for the Canada Customs and Revenue Agency and has held a position as a valuator since 1990. His status as an expert on business valuation was not disputed by the agents for the appellant.
[10] Mr. Asselin determined that the bulk transport (VR) permit transferred by 2545-3267 to the appellant on June 17, 1999, was worth $10,000.
[11] Mr. Asselin's valuation is essentially based on information he obtained during telephone conversations, first with a Raymonde Lévesque from the Sept-Iles bulk trucking association and then with one Gilles Couture of the Ministère des transports of Quebec.
[12] In his notes in the file (Exhibit I-1, Tab 5), Mr. Asselin stresses the following, inter alia, from his conversation with Ms. Lévesque:
[TRANSLATION]
Although a permit cannot be sold, she thinks that a value of between $10,000 and $15,000 is reasonable for this region.
[13] The following notes to file are to be found regarding the conversation with Mr. Couture (Exhibit I-1, Tab 7):
[TRANSLATION]
I contacted Gilles Couture of the Ministère des transports in Québec about the bill or new regulations concerning VR permits.
There is indeed something in the works concerning the deregulation of VR permits.
1. Abolition of VR permits.
2. New mandatory registration with the Commission des transports for all public road works plus registration at the brokerage substation of the region being served.
3. Completely deregulated private market.
4. This change is the result of deregulation pursuant to the federal transportation legislation.
Mr. Couture said that registration with the Ministère des transports will be allowed only for those who have a VR permit now and who are members of a truckers' association-in other words, who are registered at a brokerage substation in their region.
The effect of all of this is to lower the value of the permits, although normally no value should be given to such permits. However, on the market, the permits are traded between unrelated parties.
I mentioned to him a value of about $10,000, added to the truck's value, as being representative of the value of the permit.
Mr. Couture found that very reasonable.
[14] Mr. Asselin explained that his understanding of the new system that was to be in place starting in 2000 is that holders of bulk transport (VR) permits were recognized as having some acquired rights in the area of transport for public purposes while private transport became completely deregulated.
[15] Mr. Asselin also noted that 2545-3267 had acquired the permit from Gina Boudreault on September 1, 1990, for $13,500 (Exhibit I-1, Tab 2). The T2S(11) and CO-17S.10 forms as at February 28, 1991, refer to goodwill of $13,500. Note 4 clearly states on the following page that a transport permit (VR Region 09) was involved (Exhibit I-1, Tab 3).
[16] The appellant did not provide any evidence as to the value of the permit at the time it was transferred by 2545-3267. Its agents merely asserted that there had been a lease assignment by 2545-3267 to the appellant. However, if I understand the reasoning correctly, since MSF owned the truck and section 9 of the Regulation respecting bulk trucking (R.R.Q. 1981, c. T-12, r. 3 ("Regulation")) provided that a bulk trucking permit was issued in a person's name for a designated truck, it cannot be argued that there was a transfer between 2545-3267 and the appellant. The transfer was instead between MSF and the appellant, which were dealing with each other at arm's length so that section 160 of the Act is inapplicable in the circumstances.
[17] Section 16 of the Regulation authorized the holder of a bulk trucking (VR) permit to use a leased truck provided that the holder met the conditions set out in that provision. Obviously, MSF was the owner of the 1999 Mack truck and 2545-3267 was the lessee thereof. The bulk trucking permit for that truck was held by 2545-3267 for the purpose of operating a bulk transport business, as attested by the Commission's decision (Exhibit A-5). There was a lease assignment from 2545-3267 to the appellant that was approved by the truck's owner, MSF (Exhibit A-3). Moreover, the bulk transport permit was transferred from 2545-3267 to the appellant, as shown by the Commission's decision (Exhibit A-5). The appellant gave no consideration for that transfer.
[18] Some might consider Mr. Asselin's valuation quite perfunctory. However, the appellant did not provide any evidence that the value of the permit at the time it was transferred was less than $10,000.
[19] As a result of the foregoing, the appeal is dismissed.
Signed at Ottawa, Canada, this 24th day of October 2001.
|
"P. R. Dussault" |
J.T.C.C.
Translation certified true
on this 25th day of February 2003.
Erich Klein, Revisor