Federal Court of Appeal - Delage v. Canada

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Date: 20020523

Docket: A-13-01

Montréal, Quebec, May 23, 2002

Coram: LÉTOURNEAU J.A.

NADONJ.A.

PELLETIERJ.A.

BETWEEN:

ÉRIC DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

JUDGMENT

The application for judicial review is dismissed with costs.

"Gilles Létourneau"

J.A.

Certified true translation

S. Debbané, LLB

Date: 20020523

Docket: A-14-01

Montréal, Quebec, May 23, 2002

Coram: LÉTOURNEAU J.A.

NADON J.A.

PELLETIER J.A.

BETWEEN:

GÉRARD DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

JUDGMENT

The application for judicial review is dismissed. The applicant is responsible for paying half of the costs awarded in docket A-13-01.

"Gilles Létourneau"

J.A.

Certified true translation

S. Debbané, LLB

Date: 20020523

Docket: A-13-01

A-14-01

Neutral citation: 2002 FCA 212

CORAM: LÉTOURNEAU J.A.

NADONJ.A.

PELLETIERJ.A.

Docket: A-13-01

BETWEEN:

ÉRIC DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

Docket: A-14-01

BETWEEN:

GÉRARD DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

Hearings held at Montréal, Quebec, on May 21 and 23, 2002.

Judgment delivered from the bench at Montréal, Quebec, on May 23, 2002.

REASONS FOR JUDGMENT OF THE COURT: LÉTOURNEAU J.A.

Date: 20020523

Docket: A-13-01

A-14-01

Neutral Citation: 2002 FCA 212

CORAM: LÉTOURNEAU J.A.

NADONJ.A.

PELLETIERJ.A.

Docket: A-13-01

BETWEEN:

ÉRIC DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

Docket: A-14-01

BETWEEN:

GÉRARD DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

REASONS FOR JUDGMENT OF THE COURT

(Delivered from the bench at Montréal, Quebec,

on May 23, 2002.)

LÉTOURNEAUJ.A.

[1] In both of these applications for judicial review, the applicants, Gérard and Éric Delage, are seeking to have this Court set aside the decision of Judge Lamarre Proulx of the Tax Court of Canada and order a new trial.

[2] Essentially, the issue before the Tax Court of Canada was to determine whether section 160 of the Income Tax Act (Act) applies to the payment of dividends received in 1994 by the applicants with the result that, as shareholders, they are jointly and severally liable to pay the tax liability of Gestion Paraleg Inc., which subsequently became 9014-2464 Québec Inc. Section 160 reads as follows:

Section 160: Tax liability re property transferred not at arm's length.

(1) Where a person has, on or after

May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to

(a) the person's spouse or a person who has since become the person's spouse,

(b) a person who was under 18 years of age, or

(c) a person with whom the person was not dealing at arm's length,

the following rules apply:

Article 160 : Transfert de biens entre personnes ayant un lien de dépendance.

(1) Lorsqu'une personne a, depuis

le 1^er mai 1951, transféré des biens, directement ou indirectement, au moyen d'une fiducie ou de toute autre façon à l'une des personnes suivantes :

a) son époux ou conjoint de fait ou une personne devenue depuis son époux ou conjoint de fait;

b) une personne qui était âgée de moins de 18 ans;

c) une personne avec laquelle elle avait un lien de dépendance,

les règles suivantes s'appliquent:

(d) the transferee and transferor are jointly and severally liable to pay a part of the transferor's tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted therefor, and

(e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of

(i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and

(ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year,

but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.

d) le bénéficiaire et l'auteur du transfert sont solidairement responsables du paiement d'une partie de l'impôt de l'auteur du transfert en vertu de la présente partie pour chaque année d'imposition égale à l'excédent de l'impôt pour l'année sur ce que cet impôt aurait été sans l'application des articles 74.1 à 75.1 de la présente loi et de l'article 74 de la Loi de l'impôt sur le revenu, chapitre 148 des Statuts révisés du Canada de 1952, à l'égard de tout revenu tiré des biens ainsi transférés ou des biens y substitués ou à l'égard de tout gain tiré de la disposition de tels biens;

e) le bénéficiaire et l'auteur du transfert sont solidairement responsables du paiement en vertu de la présente loi d'un montant égal au moins élevé des montants suivants :

(i) l'excédent éventuel de la juste valeur marchande des biens au montant du transfert sur la juste valeur marchande à ce moment de la contrepartie donnée pour le bien,

(ii) le total des montants dont chacun représente un montant que l'auteur du transfert doit payer en vertu de la présente loi au cours de l'année d'imposition dans laquelle les biens ont été transférés ou d'une année d'imposition antérieure ou pour une de ces années;

aucune disposition du présent paragraphe n'est toutefois réputée limiter la responsabilité de l'auteur du transfert en vertu de quelque autre disposition de la présente loi.

[3] The applicants submitted, both before this Court and the Tax Court of Canada, that the payment of dividends was not connected to the capital stock of the corporation but instead constituted consideration for services rendered. In short, it constituted consideration comparable to remuneration. They criticized the trial judge for failing to consider whether there was a difference between the fair market value of the property and the fair market value of the consideration. To support their arguments, they relied on the decision of the Tax Court of Canada in Davis et al. v. The Queen, 94 DTC 1934.

[4] Relying on the decision of the Supreme Court of Canada in Neuman v. M.N.R., [1998]

1 S.C.R. 770, Judge Lamarre Proulx first found that the payment of dividends in this case was payment "in the nature of corporate dividends, that is, a payment resulting from ownership of the corporation's capital stock." She also found from the record before her that the alleged connection between the services rendered and the dividends issued had not been established with the result that it was not necessary to determine, for the purposes of section 160, whether the work presumably performed could constitute valuable consideration for the issuance of dividends.

[5] The applicants did not satisfy us that this decision of the Tax Court of Canada was vitiated by an error in law and that the findings of fact the Court drew from the evidence were unreasonable.

[6] For these reasons, despite the laudable efforts of Mr. Jodoin who has had to contend, in judicial review, with a trial division case that he did not put together, the applications for judicial review in docket A-13-01 and docket A-14-01 will be dismissed with a single bill of costs for both cases since a common hearing was held. A copy of these reasons rendered in docket

A-13-01 will be filed in docket A-14-01 in support of the judgment delivered.

"Gilles Létourneau"

J.A.

Certified true translation

S. Debbané, LLB

FEDERAL COUR OF APPEAL

Date: 20020523

Docket: A-13-01 / A-14-01

Docket: A-13-01

Between:

ÉRIC DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

Docket: A-14-01

Between:

GÉRARD DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

REASONS FOR JUDGMENT OF THE COURT

FEDERAL COURT OF APPEAL

SOLICITORS OF RECORD

DOCKET: A-13-01 / A-14-01

STYLE OF CAUSE: Docket: A-13-01

ÉRIC DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

Docket: A-14-01

GÉRARD DELAGE

Applicant

and

HER MAJESTY THE QUEEN

Respondent

PLACE OF HEARING: Montréal, Quebec

DATE OF HEARING: May 21 and 23, 2002

REASONS FOR JUDGMENT OF THE COURT:

THE HONOURABLE MR. JUSTICE LÉTOURNEAU

CONCURRED IN BY: THE HONOURABLE MR. JUSTICE NADON

THE HONOURABLE MR. JUSTICE PELLETIER

DATE OF REASONS: May 23, 2002

APPEARANCES:

Robert Jodoin FOR THE APPLICANT

Nathalie Labbé FOR THE RESPONDENT

SOLICITORS OF RECORD:

Jodoin Huppé

Granby, Quebec FOR THE APPLICANT

Morris Rosenberg

Deputy Attorney General of Canada

Montréal, Quebec FOR THE RESPONDENT