http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/109216/index.do
De Santis v. The Queen (April 7, 2015 – 2015 TCC 95, Hogan J.).
Précis: Mr. DeSantis made donations of rare wine to a Gatineau charity in each of 2009, 2010 and 2011. The wines were valued in each case by Alain Laliberté, a wine appraiser and sommelier with a degree from the Faculté d’œnologie de Bordeaux. In determining the value of the wine for the purposes of the donations he applied a factor of 3.2 to determine their market value. He based this on a number of factors set out in his reports. The first three wines were sold by auction in 2009 and formed part of a lot including two other bottles of donated wine (from another donor). The five bottles were collectively appraised at $1,700 and sold for $800. CRA rejected the valuations for each taxation year, in each case reducing the value of the wine by a factor of 3.2. Mr. DeSantis appealed to the Tax Court where he was self-represented.
The Court held that Mr. DeSantis had raised a prima facie case that the valuations of M. Laliberté were correct. Since the Crown had introduced no evidence at all on valuation Mr. DeSantis was successful in his appeal. There were no costs as this was an Informal Procedure appeal.
Decision: The amounts at issue in this case were not large:
[1] The appellant is appealing from reassessments in which the Minister of National Revenue (the Minister) reduced the value of donations of bottles of wine for the 2009, 2010 and 2011 taxation years, by the following amounts:
Taxation Year
|
Donation deducted by the appellant
|
Donations disallowed by the Minister
|
| 2009 |
$1,050 |
$697 |
| 2010 |
$1,100 |
$756 |
| 2011 |
$8,550 |
$5,878 |
[2] In addition, for the 2011 taxation year, the appellant reported a capital gain of $5,500 in his income tax return relative to a donation of a bottle of wine appraised at $6,500. In his assessment, the Minister reduced the taxable capital gain by $2,235 in order to take into account the adjustment mentioned above.
The Minister based the reduction in donations allowed on a critique of the valuations relied upon by Mr. DeSantis:
[34] In the above-mentioned letter, the auditor states that the method Mr. Laliberté used to appraise the wine takes into account the international market, while the most relevant market was that of the auction at which the wine was sold. The auditor states the following in the audit report:
. . . The fact is the bottles were donated in the National Capital Region and then auctioned in the National Capital Region. While the National Capital Region may not command the same prices as other major cities, this does not preclude it from being the “relevant market”. The same bottle sold at auction in New York, Toronto and the National Capital Region will fetch vastly different prices because they are each a different market; each with different demographics and economic variables. Over ten charities in the Ottawa area hold fine wine auctions each year. Within a four year period 2001-2004 our auditors took a sample of 3569 bottles – this represents only a fraction of the bottles sold during this period. It is our position that a market has been created by virtue of these annual wine auctions.
[35] Finally, in the audit report, the auditor specifies that, given that the wines in question were sold mainly in lots, the various lots are the property to be appraised:
. . . the courts are clear that one cannot value all assets separately then simply sum the total of each to arrive at a group value – which was done. The courts also recognize that selling assets in groups devalues the assets and a discount factor must be applied – which was not done.
[Footnotes omitted]
Mr. De Santis raised a feisty defence:
[41] Accordingly, the appellant argues that the Minister based his assumption that Mr. Laliberté inflated the market value of the wines by multiplying it by a factor of 3.2 on an unreasonable selective reading and an erroneous interpretation of Mr. Laliberté’s appraisal procedures.
[42] Second, the appellant claims that the Minister erred in not taking into account the SAQ [Société des alcools du Québec] mark up that applies to importing foreign wines. The appellant argues that the average market price used by Mr. Laliberté was a market value on the international market. The appellant maintains that, consequently, a substantial SAQ mark-up must necessarily be added in Quebec.
[43] He relies on the SAQ’s 2014 annual report, which discusses the breakdown of an imported wine’s sale price. It states that the mark-up and the specific tax on any foreign bottle of wine in Quebec represent about 50% of the retail price. However, it is indicated in a footnote that [Translation] “the mark-up makes it possible to assume the costs of sale and marketing, distribution and administration and to make a net profit”.
[44] Third, the appellant claims that the Minister erred in alleging that Mr. Laliberté did not apply an adjustment factor that took into account the fact that the bottles were sold in lots. The appellant argues that the bottles of wine he donated were donated individually to the Foundation even though they were sold in lots at the auction.
[45] He maintains that he had no say in the Foundation’s choice to group certain wines together in lots and that, in any case, his gifts were not massive, and therefore the market adjustment factor set out in the case law does not apply.
[46] Fourth, the appellant claims that the Minister failed to precisely identify the property to be appraised.
[47] The appellant relied on the audit report, which states that “[t]he CRA did not attempt to value the bottles – there were simply too many to undertake such a task”.
[Footnotes omitted]
In the end the Court was persuaded that Mr. DeSantis has raised a
prima facie case supporting the valuations while the Minister had adduced no evidence of value whatever:
[56] Let us recall that one of the Minister’s assumptions in this case is that the appraisals of the bottles of wine donated by the appellant were increased by a factor of 3.2 so that the tax credit could correspond to the fair market value of the wines. The appellant rebutted that assumption by making a prima facie case establishing (i) the incorrectness of the alleged ground for applying a factor as well as the actual factor applied; (ii) the incorrect identification of the property in question; and (iii) the error made in determining the relevant market.
[57] None of the evidence filed by the appellant was contradicted by the respondent. Accordingly, I am of the view that the appellant rebutted the Minister’s assumptions regarding the factor of 3.2.
[58] The burden of proof having thus shifted, it was the respondent’s turn to establish by the preponderance of the evidence that the Minister’s assessments were well-founded. In this case, the respondent filed no evidence and was unable to raise the smallest doubt about the credibility of the appellant’s testimony. Therefore, the appellant appears to be entitled to succeed in this appeal.
Thus the appeal was allowed, but without costs as this was an Informal Procedure appeal.