COURT FILE NO. DC-09-00048-00
DATE: 20091109
ONTARIO
SUPERIOR COURT OF JUSTICE
(DIVISIONAL COURT)
Matlow, Low and Linhares de Sousa JJ.
B E T W E E N:
BRUNO GOTTARDO and DAVID GOTTARDO
Applicants (Respondents in Appeal)
- and -
LAWRENCE GOTTARDO, DENISE GOTTARDO, B. & L. GOTTARDO BROS. EXCAVATING LIMITED and 1043280 ONTARIO LIMITED
Respondents (Appellants)
AND BETWEEN:
LAWRENCE GOTTARDO, DENISE GOTTARDO, GABRIELLA GOTTARDO, B. & L. GOTTARDO BROS. EXCAVATING LIMITED and 1043280 ONTARIO LIMITED
Counter-Applicants (Appellants)
-and-
BRUNO GOTTARDO, DAVID GOTTARDO, NADIA GOTTARDO, ANTONIO MARTINELLO, B. GOTTARDO CONSTRUCTION LIMITED, GANA CONTRACTING INC., GANA PROPERTIES INC., DERRY AND TOMKEN BUSINESS CENTRE INC., 811437 ONTARIO LIMITED and 615146 ONTARIO LIMITED
Counter-Respondents (Appellants)
Ronald Flom, for the Appellants
Martin Greenglass, for the Respondents
HEARD: At Newmarket, September 23, 2009
LOW J.
[1] This is an appeal from the judgment of Salmers J. dated November 15, 2007 following trial of issues set out in a consent order of McDougall J. dated September 25, 1997 (the Order).
[2] This litigation started as an application under the Business Corporations Act, R.S.O. 1990, c. B.16 (the OBCA). It was a shareholder dispute arising from the souring of a long term business relationship between two brothers, Bruno and Lawrence Gottardo.
[3] The Gottardo brothers had carried on business since the early 1970s through a number of corporations. The essence of the relationship was that of an equal partnership. Their businesses included excavation, general contracting and real property development. The family members of both of the brothers were also involved in the companies.
[4] In 1996 Lawrence Gottardo had a stroke. While Lawence was ill, his wife Gabriella largely assumed his role in the business operations of the companies. Bruno and Gabriella did not get along and, as a result, the relationship between Bruno and his family members on one hand and Lawrence and his family members on the other deteriorated first into a breakdown of the business relationship and then into litigation which has now spanned 12 years.
[5] By February of 1997, it was agreed that the families would sever their long standing business relationship and cease to operate the businesses together. There was no final agreement, however, on the terms of separation and, negotiations having failed, both the Bruno family and the Lawrence family launched applications under the OBCA, each side making allegations of misconduct against the other.
[6] By September 26, 1997 (hereinafter referred to as the "valuation date"), the parties achieved a settlement which is reflected in the Order of MacDougall J. of the same date.
[7] Under the Order, the assets would be divided with each family being allocated some of the companies. The Bruno family would be allocated B. & L. Gottardo Bros. Excavating Limited (which carried on the excavation business), 1043280 Ontario Limited and 615146 Ontario Limited. The Lawrence family would be allocated Derry and Tomken Business Centre Inc. (which owned real property and carried on the rental business), Gana Contracting Inc. and Gana Properties Inc. Each family was being allocated the companies with which they were operationally most closely connected.
[8] The Order set out the manner in which shares in the corporations would be transferred to effect the separation. It also required a valuation to be undertaken by a single valuator to determine the fair market value of the shares of all of the corporations and their assets for the purpose of determining the amount of the payment required to equalize the distribution of assets. There was to be an accounting between the parties to effect the result of an equal distribution to each of the families.
[9] One of the issues to be ruled on at trial was "As to the proper method and date of the valuation (being either February 22, 1997 or September 26, 1997) of B. & L. Gottardo Bros. Excavating Limited and, in particular, whether such company has any goodwill associated to it and whether B. Gottardo Construction Ltd. is or is not a continuation of B. & L. Gottardo Bros. Excavating Limited. In that regard, leave is granted to all parties to file further evidence on this issue subsequent to the delivery of the report of BDO Dunwoody."
[10] The trial occupied 20 days and took place over the course of a year, commencing April 4 2005 and concluding April 3. 2006. The trial judge's decision and reasons were released on June 12, 2007. The reasons were balanced, comprehensive and strived to adhere to the principal of fairness and equal distribution set out in the Order of September 26, 1997.
[11] In the result, the trial judge awarded an equalization payment to be made to the Bruno family by the Lawrence family in the sum of $408,000 together with pre-judgment interest. A retroactive salary claim for one million dollars advanced by Gabriella Gottardo was disallowed. The Bruno family was also awarded costs.
[12] The Lawrence family appeals the trial judgment. The notice of appeal seeks an order substituting a judgment requiring the Bruno family to pay to the Lawrence family an equalization payment of $1,418,921.00. This sum represents the aggregate of sums which would be attributed to the credit of the Lawrence family if all of the grounds of appeal were decided in their favour. The appellants also filed a supplementary notice of appeal seeking leave to appeal the question of costs.
[13] At the hearing of the appeal, however, the Lawrence family advanced only four issues. They were as follows:
Whether the trial judge erred in holding that it was unnecessary to decide whether the calculation of the tax burden that would be triggered upon the forgiveness of a debt owed by Derry & Tomken Business Centre Inc. (D & T) to Gana Properties Inc. (Gana Properties) was under s. 246 or s. 80 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.);
Whether the trial judge erred in not finding Bruno Gottardo to be in breach of fiduciary duty and in not requiring the Bruno family to pay over to the Lawrence family all of the profits earned in B. Gottardo Construction Limited up to the valuation date;
Whether the trial judge erred in declining to accrue interest on the amount by which the Lawrence family's shareholder loans to the companies exceeded those of the Bruno family and requiring such interest to be equalized; and
Whether the trial judge made an error of $29,044.27 in calculating the tax that would be triggered in Gana Contracting Inc. (Gana Contracting) upon the forgiveness of its debt owing to Gana Properties Inc. (Gana Properties).
[14] The first issue concerns the valuation of D & T. Under the settlement, the Lawrence family acquired D & T and would continue to operate the rental business in the building owned by that corporation, the Derry & Tomken Business Centre. D & T owes Gana Properties $6,866,955. The debt to Gana Properties has been in existence since 1993.
[15] The debt came into existence and continues to exist as a result of a "debt parking" arrangement put in place following the settlement in 1993 of debt obligations owed by D & T and Gana Contracting to the C.I.B.C..
[16] Before settlement, D & T owed about $9,085,000 and Gana Contracting owed about $2,642,000 to the C.I.B.C.. The debts had been incurred for the acquisition and development of the real property. When the companies ran into difficulties in the early 1990’s, a settlement was made whereby the C.I.B.C. agreed to accept $2,918,000 in satisfaction of the total debt of $11,727,000 owed by the two companies. This resulted in a net benefit of $8,809,000 of forgiven debt.
[17] Gana Properties was incorporated for the purpose of taking an assignment, at a discount, of the debts owed by D & T and Gana Contracting to the C.I.B.C.. By this mechanism, the debt was "parked" and as the same persons now controlled both the creditor corporation and the debtor corporations, they controlled both whether and when the debts would be called and whether and when the debts would be forgiven. As the limitation periods on the debts have long passed, enforcement is not in issue. The sole issue is the tax that would be triggered upon a forgiveness of the debts.
[18] The trial judge found as a matter of law that there was no requirement that the loans ever be forgiven. At para. 108, he wrote:
Further on the evidence and in law, I find that on September 26, 1997, and to trial, there was no requirement for Gana Properties to either demand payment or forgive the parked debts on any particular date. Gana Properties did not have to demand payment or forgive unless either or both D & T and/or Gana Contracting were sold. As of September 26, 1997, there was no evidence to suggest that, at any time, it was the respondents' intention to sell either of D & T or Gana Contracting. There was no evidence that, as at the date of trial, the respondents had sold either of those companies.
[19] There is, in my view, no basis for attacking those factual findings by the trial judge and no legal authority was cited to us to challenge his conclusion of law.
[20] Insofar as the finding of fact is a projection of future behaviour, the fact that the appellants adduced no evidence to show that they had any intention of selling is consistent with and supports the trial judge's finding. There is no palpable and overriding error in the finding of fact.
[21] There is no benefit to the appellants in causing Gana Properties to forgive the debt in the absence of a sale to an arms length purchaser either of the shares of the company or of the real property. There has been no forgiveness of the debt since 1993 and no change of circumstance since that time that would militate forgiveness of the debt.
[22] The Lawrence family called no tax expert at trial. The valuation evidence adduced by them was from Ms Russell who opined that the fair market value of D & T was zero notwithstanding that it owned the real property and had an income stream from rents. She founded this opinion on the basis that the parked debt to Gana Properties should be assumed to be forgiven as of the valuation date and she arrived at her valuation on the basis that tax would be triggered on the whole amount of the forgiven debt as income under s. 246 and that s. 80 would not be applicable.
[23] Section 246 of the Income Tax Act provides:
246.(1) Where at any time a person confers a benefit, either directly or indirectly, by any means whatever, on a taxpayer, the amount of the benefit shall, to the extent that it is not otherwise included in the taxpayer's income or taxable income earned in Canada under Part I and would be included in the taxpayer's income if the amount of the benefit were a payment made directly by the person to the taxpayer and if the taxpayer were resident in Canada, be
(a) included in computing the taxpayer's income or taxable income earned in Canada under Part I for the taxation year that includes that time; or
(b) where the taxpayer is a non-resident person, deemed for the purposes of Part XIII to be a payment made at that time to the taxpayer in respect of property, services or otherwise, depending on the nature of the benefit.
Arm's length
(2) Where it is established that a transaction was entered into by persons dealing at arm's length, bona fide and not pursuant to, or as part of, any other transaction and not to effect payment, in whole or in part, of an existing or future obligation, no party thereto shall be regarded, for the purpose of this section, as having conferred a benefit on a party with whom the first-mentioned party was so dealing.
[24] The relevant portions of section 80 of the Income Tax Act are:
- (1) In this section,
"commercial debt obligation" issued by a debtor means a debt obligation issued by the debtor
(a) where interest was paid or payable by the debtor in respect of it pursuant to a legal obligation, or
(b) if interest had been paid or payable by the debtor in respect of it pursuant to a legal obligation,
an amount in respect of the interest was or would have been deductible in computing the debtor's income, taxable income or taxable income earned in Canada, as the case may be, if this Act were read without reference to subsections 15.1(2) and 15.2(2), paragraph 18(1)(g), subsections 18(2), 18(3.1) and 18(4) and section 21;
"commercial obligation" «dette commerciale»
"commercial obligation" issued by a debtor means
(a) a commercial debt obligation issued by the debtor, or
(b) a distress preferred share issued by the debtor;
"excluded obligation" means an obligation issued by a debtor where
(d) the principal amount of the obligation would, if this Act were read without reference to sections 79 and 80 and the obligation were settled without any amount being paid in satisfaction of its principal amount, be included in computing the debtor's income because of the settlement of the obligation;
"forgiven amount" at any time in respect of a commercial obligation issued by a debtor is the amount determined by the formula
A - B
where
A is the lesser of the amount for which the obligation was issued and the principal amount of the obligation, and
B is …
(j) such portion of the principal amount of the obligation as represents the principal amount of an excluded obligation,
(3) Where a commercial obligation issued by a debtor is settled at any time, the forgiven amount at that time in respect of the obligation shall be applied to reduce at that time, in the following order,
(a) the debtor's non-capital loss for each taxation year that ended before that time to the extent that the amount so applied
(4) Where a commercial obligation issued by a debtor is settled at any time, the applicable fraction of the remaining unapplied portion of a forgiven amount at that time in respect of the obligation shall be applied to reduce at that time, in the following order,
(a) the debtor's non-capital loss for each taxation year that ended before that time to the extent that the amount so applied
(5) Where a commercial obligation issued by a debtor is settled at any time, the remaining unapplied portion of the forgiven amount at that time in respect of the obligation shall be applied, in such manner as is designated by the debtor in a prescribed form filed with the debtor's return of income under this Part for the taxation year that includes that time, to reduce immediately after that time the following amounts:
(a) the capital cost to the debtor of a depreciable property that is owned by the debtor immediately after that time; and
(b) the undepreciated capital cost to the debtor of depreciable property of a prescribed class immediately after that time.
[25] In its simplest expression, if the amount of the forgiven debt is properly characterized and taxable as income elsewhere in the Act, the more favourable treatment under s. 80 which permits the application of the forgiven amount to reduce past capital losses and any surplus to be applied against (inter alia) depreciation on undepreciated capital property does not apply.
[26] Although the Order contemplated valuation by a single impartial valuator, by the time of trial, valuation on that basis was no longer realistic with the result that each side called its own valuation evidence.
[27] The Lawrence family called the valuation opinion of Ms Russell. Ms Russell opined that the fair market value of D & T was zero. This was premised on forgiveness of the entire debt from D & T to Gana Properties as of the valuation date with the amount of the debt forgiven being brought into income and taxed as such.
[28] The trial judge rejected her evidence for the several reasons expressed in para. 113 of the reasons:
The assumption of parking debt forgiveness was contrary to the determinations of values, issues, and equalization contemplated and directed by MacDougall J.'s orders. The assumption of parking debt forgiveness was also contrary to the fairness and reasonableness contemplated and directed by MacDougall J.'s orders and expected by all parties, including the respondents. Also, Ms. Russelll testified that D & T had zero fair market value. This made no sense for a company that owned significant assets, with significant equity, that generated significant net income each year. For her to say that such a company had zero fair market value made no sense and significantly decreased the weight to be given to all of her evidence.
[29] It was open to the trial judge to reject Ms. Russell's valuation of D & T on the grounds that it was premised on tax advice from a non-impartial quarter (D & T's accountant). It was open to the trial judge to reject expert evidence on the basis that it was not impartial. It was equally open in the context of this case for the trial judge to reject expert evidence on the basis that it runs contrary to the fundamental assumptions and principles in the controlling court order, the consent order of MacDougall J. It is always open to a trial judge to reject expert evidence on the basis that it makes no sense.
[30] At para. 121 of the reasons, the trial judge went on to say:
Ms. Russell's assumption, of immediate forgiveness of the parked debts, resulted in the position that was most favourable to the respondents. Her position, as set out earlier, was contrary to MacDougall J.'s orders. Further, as also stated above, her position is unfair to the applicants. Also, Ms. Russell's opinion was based on non-independent tax advice. Lastly, it may never have been necessary to forgive the parked debts.
[31] The trial judge preferred the valuation evidence of Ms. Glass, who was called by the Bruno family. Her valuation did not adopt a position that was most favourable to either party. He found (at para. 122) that Ms Glass's valuation "balanced the realities of the situation to arrive at an opinion that took into account the fact that while forgiveness might never be necessary, it would likely occur at some time. In doing so, she acted as a proper, independent expert witness. Further, unlike Ms. Russell, the approach of Ms. Glass did not create a large, immediate, and unpayable income tax liability and realistically allowed for future tax planning and savings should circumstances or the law change. Also, Ms. Glass relied on independent tax advice. Lastly, although she testified that she did not consider these facts in arriving at her opinion, the approach of Ms. Glass also more accurately reflected facts not considered by either expert, namely the ages and health of Lawrence and Gabriella and the income generated by D & T."
[32] I find no palpable and overriding error in the trial judge's rejection of the opinion of the appellants' expert and his preference for the opinion of the respondents' expert. His reasons for so doing are cogent and tenable.
[33] In the result, however, and notwithstanding his finding that there was no requirement that the debt be forgiven on any particular date, the trial judge accepted and applied Ms Glass's valuation which assumes a forgiveness of the debt in 20 years' time. Given that there was no evidence before the trial judge of any intention to sell, acceptance of a valuation made on the basis of forgiveness of the debt in 20 years is reasonable and supportable as it recognizes that despite the absence of any present intention to sell, it is conceivable that circumstances and the wishes and objectives of the members of the Lawrence family may change over time..
[34] The appellants argue that regardless of the projected timing of the forgiveness of the debt, the trial judge erred in accepting the opinion of Ms. Glass because the tax burden should be calculated as income under s. 246 of the Income Tax Act and not as a recapture of capital under s. 80.
[35] I am not persuaded that that is the case.
[36] If the question of which section of the Income Tax Act is a matter for expert evidence, the only evidence before the court (although the trial judge states at para. 124 that he did not use the evidence) was that of the expert called by the respondents, Mr. Kolinsky. If the question is a question of law, and I am of the view that that the proper approach, I am persuaded that taxation of the forgiveness of the debt, if and when it occurs, is under s. 80 and not under s. 246 of the Income Tax Act.
[37] The appellant’s position is that s. 246 is applicable to bring the entire amount of the forgiven debt into income, resulting in a tax burden to Derry and Tomken of $990,500. It is their position that the tax burden should have been treated as having taken place at the valuation date, resulting in an equalization payment by the Bruno family to the Lorenzo family of $495,250 on that item.
[38] The trial judge held that Ms. Russell's valuation of D & T treating the tax burden on forgiveness of the debt as having been suffered on the valuation date would not be fair. I would agree with that. Such a treatment has no basis in the reality of the circumstances of these parties. Had it been a reasonable step for the Lawrence family to have caused Gana Properties to forgive the debt and trigger the tax burden, it would have done so. There was no rational basis for so doing. The purpose of the debt parking arrangement was to delay the tax liability for a long as possible and there was no impediment to the arrangement, having been put in place prior to February 1994, continuing to be effective for an indefinite period of time.
[39] I am satisfied also that the forgiveness of the debt in issue would not be properly characterized as income under s. 246 and therefore an excluded amount under s. 80. That circumstance would arise only if the forgiven debt "would be included in the taxpayer's income if the amount of the benefit were a payment made directly by the person to the taxpayer…"
[40] The distinction between forgiveness of a trade debt and reduction of capital cost resulting from forgiveness of a capital debt is significant. Prior to the enactment of s. 80 effective 1972, the taxation jurisprudence drew the distinction between trade debts, whose forgiveness is properly characterized as income, and capital debts, whose forgiveness was not characterized as income and did not attract tax. See Minister of National Revenue v. Enjay Chemical Co. Limited, 71 D.T.C. 5293 citing British Mexican Petroleum Company, Limited v. Jackson (H.M. Inspector of Taxes), 16 T.C. 570 and Geo. T. Davie and Sons Limited v. The Minister of National Revenue, (1954) 1954 695 (CA EXC), Ex. C.R. 280 [54 DTC 1045]. The principle in the cases is that the abatement of a capital liability is not something received in the course of a taxpayer's normal trading operations and is therefore not income.
[41] Prior to the enactment of s. 80 of the Income Tax Act, forgiveness of a capital debt attracted no tax burden. The enactment of s. 80 did not obliterate the distinction between trade debts and capital debts. The excluded amounts proviso in s. 80 preserves the distinction. Section 80 does, however, recapture the benefit represented by the forgiveness of capital debt that under the pre-existing case law would not have been characterized as income and therefore would not be taxed.
[42] The relationship between D & T and Gana Contracting and the C.I.B.C. was that of lender and borrower. The borrowings were capital borrowings. The ultimate effect of forgiveness of the debt owed by D & T and Gana Contracting to the C.I.B.C. was to reduce the capital cost of the property to D & T. The fact that the benefit of the obligation owed by D & T was assigned by the C.I.B.C. to Gana Properties does not change the nature of the debt, which was a capital debt.
[43] Section 80 of the Income Tax Act brings back into the taxation fold what otherwise would have gone as an unrecognized reduction of capital cost and it applies where capital cost is de facto reduced by forgiveness of a capital debt. The forgiveness by Gana Properties of the debts owed to it by D & T and Gana Contracting would have that effect.
[44] For the foregoing reasons I would hold in favour of the respondents on the first issue.
[45] The second issue advanced by the appellants is that the trial judge erred in not holding Bruno Gottardo to be in breach of fiduciary duty to B. & L. Gottardo Bros. Excavating Limited and in not requiring the Bruno family to pay over to the Lawrence family all of the profits earned in the new company up to September 26, 1997.
[46] The appellants urge that the amount of $357,758 is owed to the appellants on account of this item.
[47] Even assuming that B. Gottardo Construction Limited is merely a continuation of B. & L. Bros. Excavating Limited, this figure does not reflect an equalization of assets but rather calls for a transfer of the Bruno family's share to the Lawrence family. As well, the figure is arrived at by adding back into profit the $293,333 shown in the financial statement for management salaries, $107,577 for depreciation, and $50,286 for professional fees but without factoring in a reasonable amount for economic salaries for management, permissible capital cost allowance, and taxes payable.
[48] In my view, the trial judge made no error in declining to opine on whether or not Bruno was in breach of fiduciary duty. The issues for trial were set out in detail in the Order. That issue was not among them.
[49] It is significant that the Order was the result of a settlement. The Order was crafted by the parties and was not the result of a ruling by the court. Allegations of wrongdoing against Bruno were at the heart of the appellants' complaints at the initial stages of the proceedings. If the parties had intended that the issues to be tried included whether Bruno was in breach of fiduciary duty and what consequences should flow in the event of a positive finding in that regard, it is, in my view, inconceivable that they would not have articulated those issues and placed them squarely and unambiguously in the Order.
[50] In my view, the trial judge made no finding as to whether Bruno was in breach of fiduciary duty because, on a fair and informed reading of the Order, it was not an issue upon which he was required to make a finding.
[51] The Order was very specific as to the nature of the inquiry to be made in relation to B. Gottardo Construction Limited. The relevant portion of the order is set out above at paragraph 9.
[52] In assessing whether or not B. Gottardo Construction Limited was merely a continuation of B. & L. Gottardo Bros. Excavating Limited (B. & L.), it was appropriate to examine whether the capital assets used were identical to the capital assets of B. & L., whether the risk undertaken in the operation of the business of B. Gottardo Construction was undertaken by the same persons that undertook the risk in B. & L., whether work in progress belonging to B. & L. was taken over and invoiced by B. Gottardo Construction, whether B. Gottardo Construction took advantage of and used B. & L.'s credit facilities, if any, and whether continuing goodwill belonging to B. & L. was being used by B. Gottardo Construction to obtain contracts. Also relevant were any agreements between the parties at the time of their agreement to go their separate ways as well as representations made by the appellants to the respondents relative to the commencement by Bruno of business operations in B. Gottardo Construction Limited.
[53] The reasons show that the trial judge was alive to these factors and that in arriving at the equalization figure, he took into account the use by B. Gottardo Construction of certain assets of B. & L. and the duration of use. I am not satisfied that the trial judge erred in principle or that he made any palpable and overriding error in the quantum of credit he assigned for the use of certain assets of B. & L. after B. & L. ceased to carry on the excavation business. There was evidence to support the finding that there was agreement that B. & L. would cease its business operations after completion of its work in progress. Similarly, there was evidence of either agreement or acquiescence by Lawrence that Bruno would go his own way and carry on an excavating business for his own account in a new company after seeing to completion of the projects that B. & L. had in hand.
[54] The appellants' position that all of the profits of B. Gottardo Construction Limited up to the valuation date should be paid over to the Lawrence family is inconsistent with the Order that there be equal distribution of the assets. It is also inconsistent with the principle of fairness which the trial judge found to be the overarching theme in the Order.
[55] The third issue advanced by the appellants is that the trial judge erred in rejecting an adjustment for interest on the imbalance between the shareholder loans to the companies from the Lawrence family and those from the Bruno family. The Lawrence family was owed a significantly higher amount in shareholder loans.
[56] The trial judge rejected the appellants’ position that interest should be accrued on the differential and that the interest should be subject to equalization. He did so on the basis that historically there had not been any agreement for payment of interest on the discrepancy.
[57] Whether it was because he considered it immaterial or whether he merely failed to recall the evidence that unfolded over the course of a year, the trial judge did not deal with the evidence given by Bruno himself that, in his view, it would be fair to adjust for an amount for interest on the discrepancy. That piece of evidence was of central importance on this issue as it pertains to the reasonable expectations of both the parties on the devolution of the assets
[58] In this respect, I am persuaded that the trial judge misapprehended the evidence, resulting in a palpable and overriding error on this point.
[59] The figure advanced by the Lawrence family on account of interest on the discrepancy of shareholder loans is $217,000 calculated at prime plus 1%. That figure must be equalized, however, with the result being a credit in favour of the Lawrence family in the amount of $108,500 and the appeal is allowed to that extent.
[60] With respect to the fourth issue, the Bruno family accepts that the trial judge made an error with respect to the income tax effect of the debt forgiveness in favour of Gana Contracting by Gana Properties. The trial judge was of the view that in the case of Gana Contracting, an active construction company which Lawrence had been running prior to his illness but which his family members would not likely continue in the long term, Lawrence’s age and poor health and age made it reasonable to treat the debt owed by it to Gana Properties as forgiven at valuation date.
[61] In treating the debt as having been entirely forgiven as of the valuation date and thus triggering 100% of the tax burden, the trial judge did not take into the account the fact that the level of Gana Contracting's loss carry forwards was insufficient to absorb the entirety of the forgiven debut, thus leaving a sum $130,185 which would be subject to tax. The tax burden generated would be $58,088.54, half of which is $29,044.27 which should be to the credit of the Lawrence family.
[62] The respondents agree that the trial judge made the calculation error of $58,088.54 but point out that there is a second calculation error, in favour of the appellants, in the amount of $57,891.00 which, but for a negligible sum, offsets the error of $58,088.54. The error occurs in the valuation of D & T wherein there is an error in foregone tax shield of $58,088.54 resulting in a diminished value of D & T in like amount. The difference in the two calculation errors is $197.54. I accept the respondent's submission that there is an offsetting error, the result of which nullifies the effect of the calculation error of $58,088.54 on the rounded equalization award.
[63] For the reasons above, the appeal is allowed in part as set out in paragraph 59. The balance of the judgment is confirmed.
[64] If the parties are unable to agree on costs, submissions may be made in writing and delivered to the Registrar at Newmarket within 30 days.
Low J.
Matlow J.
Linhares de Sousa J.
Released: November 9, 2009
COURT FILE NO.: DC-09-00048-00
DATE: 20091109
ONTARIO
SUPERIOR COURT OF JUSTICE
Matlow, Low and Linhares de Sousa JJ.
B E T W E E N:
BRUNO GOTTARDO and DAVID GOTTARDO
Applicants (Respondents in Appeal)
- and -
LAWRENCE GOTTARDO, DENISE GOTTARDO, B. & L. GOTTARDO BROS. EXCAVATING LIMITED and 1043280 ONTARIO LIMITED
Respondents (Appellants)
AND BETWEEN:
LAWRENCE GOTTARDO, DENISE GOTTARDO, GABRIELLA GOTTARDO, B. & L. GOTTARDO BROS. EXCAVATING LIMITED and 1043280 ONTARIO LIMITED
Counter-Applicants (Appellants)
-and-
BRUNO GOTTARDO, DAVID GOTTARDO, NADIA GOTTARDO, ANTONIO MARTINELLO, B. GOTTARDO CONSTRUCTION LIMITED, GANA CONTRACTING INC., GANA PROPERTIES INC., DERRY AND TOMKEN BUSINESS CENTRE INC., 811437 ONTARIO LIMITED and 615146 ONTARIO LIMITED
Counter-Respondents (Appellants)
REASONS FOR JUDGMENT
Low J.
Released: November 9, 2009