T-4541-73
Jean-Louis Gauthier (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Marceau J. Chicoutimi, Septem-
ber 29 and 30, 1976; Ottawa, October 6, 1976.
Income tax—Appeal against taxation of gift—Whether
delivery and acceptance of moveable property under the provi
sions of article 776 of the Civil Code of Quebec Quebec Civil
Code, art. 776(2).
Plaintiff appealed from the decision of the Tax Review Board
which upheld an assessment of $17,530 in tax due on gifts made
by the plaintiff in setting up a trust fund for the benefit of his
children in 1969, which trust is still in existence. Plaintiff
argued that the setting up of the trust was not a gift since no
benefits were transferred and it merely represented the sum of
a series of gifts made by him to his children between 1958 and
1968. Plaintiff relied on article 776(2) of the Quebec Civil
Code which allows dons manuels.
Held, the appeal is dismissed. The purported "gifts" made by
the plaintiff to his children were intended to avoid taxation of
assets over which he retained control. A gift of moveable
property accompanied by delivery requires an irrevocable inten
tion to give, acceptance by the beneficiary and a real transfer of
the assets making up the gift. None of these three elements was
present in the transactions carried out by the plaintiff. The
plaintiff's claim is self-contradicting: if he had made the gifts
which are the subject of the trust, a continuing trust based on
the same assets could not have been set up.
ACTION.
COUNSEL:
Serge Simard for plaintiff.
Alban Garon, Q.C., and Roger Roy for
defendant.
SOLICITORS:
Begin, Gauthier, Simard, Côté and Simard,
Jonquière, P.Q., for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following is the English version of the
reasons for judgment rendered by
MARCEAU J.: Plaintiff is appealing the decision
of the Tax Review Board (on gifts) upholding the
Minister's assessment dated August 31, 1971,
which required that he pay tax of $17,530 on gifts
which he allegedly made during the 1969 taxation
year, when he established a trust for the benefit of
his seven children.
The trust deed (P-2, A) was signed before a
Quebec notary on February 10, 1969 and regis
tered at Chicoutimi, Quebec the same day. In this
deed plaintiff appointed Messrs. Tremblay and
Wells as trustees and gave them, in this capacity,
the sum of $87,600 for the benefit of his children,
which was to be used and eventually distributed,
together with accretions, in accordance with a
series of provisions and precise specifications. This
trust still exists, since the time provided for dis
tributing the assets has not yet arrived.
Plaintiff maintains that the Minister was in
error when he considered the trust deed as effect
ing a gift, because there was no transfer of assets
at the time it was made. This sum of $87,600,
which it was claimed was given to the trustees, in
fact represented, as he took care to mention in the
deed itself, gifts which he had previously made to
his children in portions over the years: more pre
cisely, $9,000 divided between the three eldest
children from 1956 to 1963; $10,000 distributed
between all seven in 1964; $10,000, $13,000,
$19,000 and $26,000 also distributed to all seven
in 1965, 1966, 1967 and 1968 respectively.
It seems to me that there is no need to analyze
in detail the lengthy evidence, both documentary
and oral, which plaintiff introduced to support his
claims. It is sufficient to mention the main points.
Plaintiff told the Court that from 1959 on he
had thought of setting up a program of gifts for
the benefit of his children, and in that year he had
begun to give debentures payable to bearer to his
wife, specifying that they were "for the children".
However, it was not until 1964 that a definite plan
was drawn up. In that year he paid $40,000 to buy,
together with two partners, control of a business
consisting of a group of companies which he calls
the Couture group, and which was at that time in
poor shape—and he issued shares which were
vested in him, in his name but with the words "in
trust". He intended them for his children, he says,
or for a trust company (which amounted to the
same for him) which he, his sister and a friend
agreed in a trust deed to form. The share certifi
cates thus acquired were sent to his notary, a Mr.
Wells, and when the trust company was finally set
up in 1967 under the name of Les Placements
J.M.L. Gauthier et fils Ltée (P-2, D), a company
over which he retained absolute control, the shares
that were acquired were in fact registered as form
ing part of its assets. The opening balance sheet
(P-12) brought this out clearly by indicating under
the heading "trust", that a number of non-voting
participating shares, which in fact had to be issued
in the name of the notary Wells, the secretary of
the company, and of Guy Tremblay (P-8), were
distributed among the children.
Plaintiff stated that the gifts which he made to
his children were used first to reimburse him for
the cost of acquiring the shares in the Couture
group which were issued, as was stated above, in
his name but "in trust". Before 1966, there was no
written confirmation of the gifts which he made,
but his partners knew that he was acting for his
children, and the notary Wells was informed of the
situation. In 1966 and 1967, as more concrete
proof of his intentions, he even signed promissory
notes on behalf of his children for a total of
$32,000 (P-2, H) which he sent to the notary
Wells. These notes were honoured in 1968 at the
same time as an additional sum of $26,000 was
given to the children, all through the intermediary
of the said notary Wells, as part of a reconciliation
of moneys owed, by which a cheque for the sum of
$38,600 (P-4) was sent to the notary, payable to
him and his partner. This cheque, incidentally, was
used in payment of part of the premium which Les
Placements J.M.L. Gauthier et fils Ltée, the trust
company which had just been established, had
agreed to pay in order to obtain a life insurance
policy for its president, who was naturally plaintiff
himself. In reality, the object of the 1969 trust, as
can be seen, was the non-voting shares of the said
trust company which was, moreover, dissolved
shortly afterwards.
Plaintiff relied on the second paragraph of
article 776 of the Civil Code of the Province of
Quebec which, after establishing the principle of
the solemn nature of a deed of gift, does permit
manual gifts. He claims that the gifts made to the
children were manual gifts, made in good faith and
legally, through the intermediary of his wife before
1964 and later of the notary Wells, who was
familiar with his intentions, as were his partners,
albeit only vaguely, and as were his three older
children because he had spoken to them in gener
al terms of such matters from time to time. He
argues that these gifts were fully valid and cannot
be otherwise interpreted by the Minister.
Plaintiff's argument is not tenable. From the
evidence as a whole it appears to me that this
"program of gifts", which plaintiff sought to carry
out, was aimed at benefitting from existing tax
exemptions in respect to gifts made to children,
without however divesting himself of the assets or
losing control of them, and it is mainly for this
reason that the program could not be carried out.
Manual gifts in Quebec law require a desire for
irrevocable divestiture on the part of the donor, the
desire to accept on the part of the donee and a real
delivery of the assets which are the object of the
gift. In my opinion, none of these three elements
can be found in the deeds which plaintiff is seeking
to call gifts. Before the trust deed was signed,
there was no irrevocable divestiture or loss of
control on his part; nor was there sufficient accept
ance nor a real delivery.
Moreover, plaintiff's claim conceals an insur
mountable contradiction: if he had given the assets
which were the object of the trust deed and that
is his only claim—how could he then, in 1969,
have set up the trust, which is still in existence,
with the same funds?
The Minister was correct in rejecting this claim
on the grounds that the trust was not a gift, since
the assets had already been given. The assessment
which he chose to make was on this basis reason
able. The appeal is accordingly dismissed with
costs.
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