[OFFICIAL ENGLISH TRANSLATION]
2000-1846(IT)G
BETWEEN:
MARTIN RHÉAUME,
appellant,
and
HER MAJESTY THE QUEEN,
respondent.
Appeal heard on September 6, 2001, at Sherbrooke, Quebec, by
the Honourable Judge Louise Lamarre Proulx
Appearances
Counsel for the appellant: Robert Jodoin
and Mélanie Pelletier (Student-at-law)
Counsel for the respondent: Marie-Aimée Cantin
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1997 taxation year is dismissed, with costs to the respondent, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 10th day of January 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020110
Dockets: 2000-1846(IT)G
BETWEEN:
MARTIN RHÉAUME,
appellant,
and
HER MAJESTY THE QUEEN,
respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal for the 1997 taxation year.
[2] The issue is whether a property sold by the appellant on November 27, 1997, was his principal residence.
[3] The facts on which the Minister of National Revenue ("the Minister") relied in making his reassessment are set out as follows in paragraph 16 of the Reply to the Notice of Appeal ("the Reply"):
[TRANSLATION]
(a) In 1997, the appellant provided his professional services at the Centre de Recherche et de Perfectionnement Marcel Langevin (hereinafter "CRPML");
(b) On March 27, 1997, CRPML sold the appellant an immovable property (hereinafter "the property") with the street addresses 834 and 836 56e Avenue, City of Lachine, Province of Quebec, for $70,203;
(c) On November 27, 1997, the appellant sold the property for proceeds of disposition of $132,000;
(d) The property remained CRPML's place of business during most of 1997;
(e) The property was never used for residential purposes during the 1997 taxation year;
(f) The appellant did not inhabit the property or consider it his principal residence;
(g) The appellant did not designate the property as his principal residence in his tax return for the 1997 taxation year;
(h) The appellant did not report the capital gain resulting from the disposition of the property in his 1997 tax return;
(i) Using the figures provided by the appellant, the Minister calculated the taxable capital gain resulting from the disposition of the property in 1997 as follows:
(i) Proceeds of disposition $132,000 minus
(ii) Adjusted cost base ($80,698) and selling expenses ($10,842)
(iii) Capital gain $40,460
(iv) Taxable capital gain $30,344
($40,460 multiplied by 75%)
[4] The appellant set out the following facts in his Notice of Appeal:
[TRANSLATION]
. . .
7. The taxpayer owned the said residence during the 1997 taxation year;
. . .
9. The taxpayer inhabited the property in question the entire time he owned it and therefore ordinarily inhabited it during the 1997 taxation year;
10. The residence was purchased on March 27, 1997;
11. The residence was sold on November 27, 1997;
12. The taxpayer never rented or put up for rent any part of the said property or used it for any purpose other than his own and sole accommodation;
. . .
[5] Marcel Langevin and the appellant testified for the appellant, while Simone Mikhail, an auditor at the Canada Customs and Revenue Agency ("CCRA"), testified for the respondent. A book of documents containing 12 tabs was filed by the respondent as Exhibit I-1.
[6] When the hearing began, counsel for the appellant told the Court that the $70,203.15 referred to in subparagraph 16(b) of the Reply should actually be $80,698, since the taxes payable under the Excise Tax Act and the Act respecting the Québec sales tax must be added to the sale price.
[7] Counsel for the appellant told the Court that he admitted subparagraphs 16(a) to (c) in all other respects; that he denied subparagraphs 16(d) to (f); that he admitted subparagraph 16(g) but later argued that non-filing may be tolerated pursuant to an administrative policy; that he admitted subparagraph 16(h); and that he did not dispute the calculation in subparagraph 16(i) but that the capital gain was not taxable.
[8] Marcel Langevin, a Fellow Chartered Accountant (FCA), was the first witness. He described the Centre de recherche et de perfectionnement Marcel Langevin Ltée ("CRPML") as a company that gives courses to future chartered accountants. The company, of which he is the president, has been operating since 1978.
[9] CRPML began operating out of the house at 834-836 56e Avenue in Lachine after purchasing the property on June 29, 1983. It was where the facilitators, the graders of the future chartered accountants' exams and sometimes the session participants were seen. There was also a secretarial office. The courses themselves were given in hotels, universities or colleges.
[10] Mr. Langevin said that he had a partner, Richard Beaumier, and that he decided to sell the property when Mr. Beaumier left the company.
[11] Mr. Langevin explained the steps that were taken to sell the property. He said that he first put up a sign, and he advertised in the newspapers. His wife apparently contacted real estate agents but that did not lead to anything because the agents said that it was not the right time to sell immovable property. One person offered him $90,000, but the offer was conditional on the vendor providing financing, which was unacceptable to Mr. Langevin and his wife. Only one other purchaser expressed an interest, that is, Martin Rhéaume.
[12] Marcel Langevin explained the circumstances in which Mr. Rhéaume expressed an interest at pages 13, 14 and 17 of the transcript as follows:
Page 13:
[TRANSLATION]
Listen, I think he must have seen the ad, the sign on the property, because we met a few times in early '97. The sign had been there since '96, I think, and I understood that that was why he came to talk to me about the property, because he saw the sign. As I understand it, this was the reason he took that step.
. . .
Page 14:
[TRANSLATION]
He came to see me and asked if I still wanted to sell the property. My wife and I told him we wanted to sell it. He then asked me, if I remember correctly-but it may not necessarily have happened in this order-how much we wanted for the property. I told him to make us an offer, which he did. And I'd talked about it with my wife before receiving the offer, and subsequently, the process got under way of course. We went to see a notary after accepting his offer, and we sold him the property. As simple as that.
. . .
Page 17:
[TRANSLATION]
First of all, this was the first time we had a buyer who was bringing us something serious. Second, it was essential to my wife and me that we sell the property, and we'd decided that the minimum we would sell it for was its book value. That was the minimum we wanted, and it would bring up the numbers.
. . .
[13] The witness said that CRPML had not operated at all out of the house since March 27, 1997, the date the property was sold. CRPML allegedly continued its activities after that date in the home of Mr. and Mrs. Langevin at 225 54e Avenue in Lachine and in some premises owned by Mr. Langevin's uncle.
[14] Counsel for the appellant then asked Mr. Langevin how long he had known Martin Rhéaume. He answered that he had met him in 1989 and 1990 as a student and had subsequently known him as a business associate. Mr. Rhéaume signed a freelance agreement with CRPML for 1995 to 1997.
[15] During its busiest period, CRPML had about 60 people working for it. The freelancers worked writing materials, grading exams or doing facilitation.
[16] During cross-examination, counsel for the respondent referred the witness to Tab 10 of Exhibit I-1, namely Hydro-Québec bills paid by CRPML from March 17 to July 21, 1997, for the house in question. The explanation given by Mr. Langevin was that he had agreed to pay the bills and invoice Mr. Rhéaume for them later.
Page 21:
[TRANSLATION]
. . .
Quite simply because we were in a busy period when we sold the property, and I agreed with my wife that we would take the bills, pay them and settle the items with Mr. Rhéaume later because there were other things owed to the company and we were going to invoice Mr. Rhéaume for all of it later. And the reason was simply one of day-to-day management. Listen, it wasn't important to us. Look at your bills, Ms. Cantin. What are the amounts?
. . .
[17] In addition to the payments made by CRPML to the electric and telephone companies, there were payments to landscaping companies. Counsel for the respondent asked Mr. Langevin why CRPML had claimed the payment of those bills as a business expense if it had not had to lay out those amounts. Mr. Langevin answered that he had included the amounts in CRPML's income when they were repaid.
[18] At Tab 11 are two invoices dated July 25 and August 30, 1997, for sales of electronic products that show CRPML's address as 834 56e Avenue, Lachine. The witness explained that the products were carried out of the store, not delivered. He suggested that the store had simply not changed the address.
[19] At Tab 6 of Exhibit I-1 is the contract for the sale of the property in question entered into by CRPML and Martin Rhéaume. Clause 7 of the contract sets the value of the basis of imposition for transfer duties at $157,900. The witness said that the clause was a surprise to him and that he could not say anything more about it. Counsel for the appellant then told the Court that the Act respecting duties on transfers of immovables provides that the amount that must be mentioned for transfer duties is the greater of the following amounts: the municipal assessment or the price paid.
[20] The appellant has been a chartered accountant since 1995. In 1995, 1996 and 1997, he carried on his professional activities at CRPML. He wrote training texts, met with candidates, gave courses, did facilitation, monitored exam sessions and graded exams. In 2001, he was still working for CRPML.
[21] He learned that the house was for sale by spotting the sign. He had been living with his father for a while and was looking for a place. He offered $80,000. He put everything he had into the house.
[22] At the time of the purchase, the house was in a state of disrepair. He said that he did renovation work, for which he paid. He said that he purchased household appliances, such as a washing machine, dryer, range, refrigerator and built-in dishwasher. He never submitted any invoices or other evidence about this.
[23] The expenses that CRPML paid for the appellant were allegedly repaid with the statement of account at the beginning of January 1998.
[24] When asked by his counsel why he had purchased property on March 27 and resold it on November 27, he answered that he was no longer interested in the renovations once he had finished the work in August and September. They took too much time, and he wanted to devote himself to his profession. The real estate agent suggested listing the house for $135,000. The purchaser offered $132,000.
[25] He explained to his counsel that he did not have to have his mail forwarded by Canada Post because he had been receiving his mail at 834-836 56e Avenue in Lachine since 1995.
[26] As Exhibit A-1, the witness filed a homeowner's insurance policy for March 27, 1997, to March 27, 1998.
[27] On cross-examination, counsel for the respondent asked him how much he estimated the renovations cost. He said $10,000. She then referred back to the appellant's statement that he had used all of his money, $80,000, to purchase the house and his assertion that he was the one who paid for the renovations. She asked him how he could have accumulated so much capital with an annual income of about $20,000.
[28] Counsel for the respondent asked him to confirm that, when he met with Ms. Mikhail in April 1998 and she asked him if he had sold immovable property during the year, he answered no. The appellant answered that she had not asked any questions about the sale of the property. She had asked him where he lived, and he had said that he lived with his father. He pointed out that, at the time of his meeting with Ms. Mikhail, he had not yet filed his tax return for 1997.
[29] With regard to the insurance policy, counsel asked him who had sent the document. He answered that he had. He had not given it to Ms. Mikhail.
[30] Simone Mikhail, the CCRA auditor, had sent the appellant a letter asking him to prepare his records for 1995, 1996 and 1997. The letter was sent on March 23, 1998, and the meeting was held on April 21, 1998. Mr. Rhéaume told her that he had never lived at 834-836 56e Avenue. He lived with his father but, since he did not get along with him, preferred to receive his mail at 834 56e Avenue in Lachine. It was merely a mailing address. The appellant gave her proof of his expenses, but none of the invoices involved the property in question.
[31] Ms. Mikhail said that, when the appellant received her letter in March 1998, he knew that she wanted to question him about 1995, 1996 and 1997. At the meeting in April 1998, she asked him whether he had sold or purchased immovable property, and he answered no. When he filed his 1997 return in August 1999, the property in question was not referred to in any of the documents.
[32] The document that must be completed when a principal residence is sold is the T2091 form. It has been admitted that this document was not filed with the appellant's 1997 return.
[33] The Hydro-Québec bills for March to July 1997 had been claimed by CRPML. Since Ms. Mikhail had not seen the documents, she requested them, and it was CRPML that sent them by fax, along with copies of the cheques, on December 21, 1998.
Conclusion
[34] Section 2 of the Act respecting duties on transfers of immovables defines the basis of imposition for transfer duties as follows:
. . .
The basis of imposition for transfer duties shall be the greatest of the following amounts:
(1) the amount of the consideration furnished for the transfer of the immovable;
(2) the amount of the consideration stipulated for the transfer of the immovable;
(3) the amount of the market value of the immovable at the time of its transfer.
[35] I refer to this provision for rectification purposes. In any event, whether the relevant amount is the market value or the amount of the municipal assessment, it is evident that the price at which the property in question was disposed of, $70,203.15, is much lower than both of those amounts. However, this is not what determines my decision.
[36] Marcel Langevin's testimony is not credible. He explained the facts surrounding the sale of the property by saying that he had put up a sign and that Martin Rhéaume had seen it when passing by. The business relationship between Mr. Rhéaume and Mr. Langevin was such that it cannot be believed that the appellant learned the house was for sale solely by seeing the sign. That existing relationship between the appellant and the vendor had been a constant one since 1995: the appellant earned all of his income from Mr. Langevin's company, CRPML, and used CRPML's address as his mailing address.
[37] It is also very difficult to understand why CRPML continued to pay the electricity costs, municipal taxes and landscape maintenance costs if it did not continue to operate on the premises.
[38] The appellant's testimony is not very credible either. He claimed that he purchased the property and paid $80,000 using the savings he had accumulated. There is no evidence of that payment. He also claimed to have made renovations worth about $10,000. No invoice was filed in this regard. The only exhibit filed was the insurance policy. It came from CRPML's fax machine on April 10, 2000. That document was filed at the hearing and did not appear on the appellant's list of documents.
[39] During his meeting with the Minister's officer, the appellant told her that he had never sold immovable property, that he was still living with his father and that 834 56e Avenue in Lachine was merely a mailing address. The disposition of the property in question was not mentioned in the 1997 tax return filed in August 1998, shortly after the meeting with Ms. Mikhail.
[40] In these circumstances, it is my view that the balance of evidence is such that the only conclusion I can draw is that the facts taken into account by the Minister in assessing the appellant have been shown to be true. The property at 834-836 56e Avenue in the City of Lachine was not the appellant's principal residence from March 27 to November 27, 1997. Since there is no dispute concerning the calculation of the capital gain, the appeal is dismissed with costs to the respondent.
Signed at Ottawa, Canada this 10th day of January 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.