BETWEEN:
and
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on August 30, 2005, at Baie-Comeau, Quebec.
Before: The Honourable Justice Alain Tardif
|
|
|
|
|
|
____________________________________________________________________
JUDGMENT
The appeal from the assessments under the Income Tax Act for the 2000, 2001 and 2002 taxation years is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 5th day of October 2005.
"Alain Tardif"
on this 17th day of May 2006
Monica F. Chamberlain, Reviser
BETWEEN:
RAYNALD VIGNOLA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal for the 2000, 2001 and 2002 taxation years. The issue is whether the Minister of National Revenue (the "Minister") in calculating the income of the Appellant for these years, was correct in adding the the amounts of $17,448, $14,152 and $9,536 respectively as benefits awarded to a shareholder of the corporation "Perfico Sports Inc." arising out of the personal use of the building, the property of the said corporation, located at 112 Beauchemin Street, in the city of Baie-Comeau.
[2] The Minister based his assessments on the following assumptions of facts:
(a) the Appellant, during the taxation years at issue, was the majority shareholder, the chairman of the board and one of the directors of the corporation "Perfico Sports Inc."; (admitted)
(b) the corporation "Perfico Sports Inc." owns a building in which the Appellant and his spouse, Estelle Boulianne, lived during the period at issue; (admitted)
(c) the corporation "Perfico Sports Inc." paid all the costs related to the building in which the Appellant and his spouse, Estelle Boulianne, were living during the period at issue;(admitted)
(d) no rental income was collected as such, except that at the end of each fiscal year, a settlement note was debited to the "shareholder advances account" in respect of costs related to the building paid by the corporation "Perfico Sports Inc."; (admitted)
(e) the balance of the "shareholder advances account" was in credit at the end of the fiscal years 1999 and 2000, and zero in 2002; (admitted)
(f) in light of this situation, the Minister submitted the file to the Property Assessments Section in order to determine the annual benefit in connection with the personal use of the building located at 112 Beauchemin Street in the city of Baie-Comeau; (admitted)
(g) the building located at 112 Beauchemin Street, in the city of Baie-Comeau, is a single family residence built in 1986; (admitted)
(h) the annual benefit related to the personal use of the building located at 112 Beauchemin Street, in the city of Baie-Comeau, was calculated as follows: (denied)
(i)
|
benefit in accordance with the assessment, but before taking operating expenses into account |
2000
15,165 |
2001
12,656 |
2002
10,921 |
|
plus: costs paid by the corporation: electricity insurance land taxes school taxes
|
2,751 262 4,162 308
22,648
|
2,447 262 4,200 320
19,875 |
2,498 262 4,486 315
18,482
|
|
less: settlement notes
benefit
|
5,200
17,448 |
5,723
14,152 |
8,946
9,536 |
(denied)
[3] The Appellant was represented by his accountant, Jean-Louis Martel. All the assumptions of fact were admitted, with the exception of those set out at paragraphs (h) and (i). The only comments made by the Appellant and his representative were to the effect that the calculation method used by the Respondent was totally unreasonable.
[4] At the outset, Mr. Martel admitted that the work prepared by the Respondent's expert witness, Nathalie Locas, whose expertise he, moreover, acknowledged, in the instant case, had been very well done. However, he stated that he simply disagreed with the conclusions reached.
[5] According to Mr. Martel, his client and the company he controlled had agreed several years previously, by means of an oral lease, that the amount of the rent would be $1,000 per month.
[6] Mr. Martel maintained that his client's file had already been the subject of a tax review and that his method of calculating the benefit had been accepted. He accordingly did not understand why the file was now being re-assessed.
[7] Mr. Martel explained in a summary fashion the way in which he had calculated the benefit; he also stated that his client paid many of the expenses, such as maintenance and landscaping, out of his own pocket, that while these were not reflected in any accounting entry, they had to be taken into account.
[8] According to Mr. Martel, the rent established by verbal agreement in the amount of $1,000 a month had remained unchanged for almost 20 years. There was no requirement to adjust it over the years since this was an agreement comparable to a long-term lease.
[9] Mr. Martel repeated on several occasions that he found the Respondent's approach unreasonable. In his view, the procedure used by his client was acceptable and should be accepted by the Department, especially since it had been accepted in the past.
[10] The Appellant, Raynald Vignola, confirmed some aspects of the testimony of Mr. Martel, his accountant, adding that, at the time the residence was acquired by the company, he had contributed $43,000 of his own money, following the sale of his previous residence in 1986. He also listed the various expenses that he paid to maintain the house, which he had not declared. He explained that the residence had been added to the assets of the corporation to make it easier for the corporation to obtain financing. Although there had at one point been discussion as to whether the corporation should transfer the residence to him, no such transfer had ever taken place.
[11] Not only did the evidence submitted by the Appellant and his accountant lack rigor, it was not very credible, in respect of the facts considered for the years at issue.
[12] After acknowledging that his client had received a benefit, the accountant calculated the value of this benefit in a rather amateurish way.
[13] According to the accountant, the value established orally in the early 80s was the same during the taxation years and he did not see why it should have been revised upwards, although he was not unaware that all the costs involved, such as heating, taxes, etc., had of course increased considerably over the years.
[14] For his part, the Respondent put Ms. Locas on the stand, whose status as an expert was acknowledged by the Appellant and his representative. She explained the process she had used to calculate the taxable benefit. Her testimony was not questioned by the Appellant or by his representative. The representative of the Appellant even acknowledged the quality of the work done by Ms. Locas and essentially stated that he did not agree either with her conclusion nor with the way she arrived at it.
[15] The burden of proof rested with the Appellant; this burden of proof required of the Appellant that he prove his assessment of the value of the benefit; in other words, the Appellant was obliged to submit one or more calculations demonstrating the reasonableness of the facts used and above all, the reasonableness of his conclusions. Not only did the Appellant not demonstrate this, the only explanations submitted totally discredit the basis of his claims. How can one justify that an assessment established arbitrarily in the early 80s still corresponds to fair value? The real estate market and the rental market have undergone considerable change, hence the values that prevailed at that time no longer had any meaning in the years affected by these assessments, namely 2000, 2001 and 2002.
[16] In other words, the arguments and explanations submitted by the Appellant to justify his assessment are irrevocable even at face value. More than that, they are totally unreasonable, given that the reasoning does not in any way take into account the relevant data that are contemporaneous with the years to which the assessments apply.
[17] For his part, the Respondent submitted a presentation in which the process was explained in the context of an expert report; the amounts identified in his conclusion, although quite high, are nonetheless not unreasonable.
[18] The data used were valid and relevant and there was nothing arbitrary about them. I have no reason not to accept the conclusions of the Respondent. I accordingly acknowledge that the assessments are justified, as confirmed by the quality of Ms. Locas' work.
[19] For all these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 5th day of October 2005.
"Alain Tardif"
Tardif J.
Translation certified true
on this 17th day of May 2006
Monica F. Chamberlain, Reviser
COURT FILE NO.: 2005-1516(IT)I
STYLE OF CAUSE: Raynald Vignola and Her Majesty the Queen
PLACE OF HEARING: Baie-Comeau, Quebec
DATE OF HEARING: August 30, 2005
REASONS FOR JUDGMENT: The Honourable Justice Alain Tardif
DATE OF JUDGMENT: October 5, 2005
APPEARANCES:
|
For the Appellant: |
Jean-Louis Martel
|
|
Counsel for the Respondent: |
Nadine Dupuis |
For the Appellant:
|
|
|
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada