Courtois v. The Queen, 80 DTC 6175, [1980] CTC 243 (FCTD)

Dubé, J [TRANSLATION]:—The question here is whether the reassessments made by the Minister of National Revenue with respect to plaintiff for the 1970, 1971,1972 and 1973 taxation years, adding to the computation of his income already reported the sums of $26,049.10, $46,262.76, $14,590.12 and $16,125.15 respectively, are correct.

These additional amounts were established by a capital reconciliation and unexplained withdrawals. After an investigation, in which he was unable to identify the capital amounts, the Minister relied on the increase in the net worth of the taxpayer.

Plaintiff contended that this capital reconciliation statement is erroneous, since it fails to take into account an amount of $87,000 in liquid funds which he had at the start of the period relevant to the case at bar. The burden of proof is of course on the taxpayer, who must show the Minister’s assessments were incorrect. On the other hand, in order to maintain the penalties imposed the Minister must show that appellant committed gross negligence in filing his tax returns incorrectly. The first obligation results from the case law and the second from section 163 of the Income Tax Act.

In other words, plaintiff must show not only that he had this amount before 1970, but in addition that he used it to produce taxable receipts in the four relevant years.

The taxpayer, who is now retired, was a businessman who worked managing nightclubs in Montreal and was involved in the purchase and sale of such clubs. He also bought land, and had interests in racehorses. In 1971, he bought and resold a motel in Florida. The following schedule, filed at the hearing, reflects the nature of the transactions concluded during the years preceding the four taxation years.

CAPITAL GAINS AND LOSS: SUMMARY OF TRANSACTIONS BY MR ALBERT COURTOIS

Year Nature		Nature	Gains (Loss) Balance
1951	Danuble Bleu Sale		$60,000.00	$ 60,000.00
1951	Inheritance		10,876.50	70,876.50
1952	Land Sale		7,000.00	77,876.50
1953	Casino Français Inc sale		22,500.00	100,376.50
1957	Settlement with wife		(13,000.00)	94,876.50
1957	Sale of St-Denis Lounge Inc shares		17,400.00	112,276.50
1958	Final settlement and sale ‘4 share in a
	horse		7,500.00	107,876.50
1960	Sale of Café Domino Ltée shares		6,000.00	118,276.50
1961	St-Michel land transaction		6,256.60	124,533.10
1962	Sale of property, rue Seville		700.00	123,833.10
1968	Expropriation of land		1,000.00	124,833.10
1969	Purchase of Café Dominco Inc shares		(3,470.00)	121,363.10

In the course of his long testimony plaintiff succeeded in establishing all these transactions. Using deeds of sale, share certificates and other documents he was able to demonstrate to my satisfaction that he could indeed have been in possession of liquid assets amounting to $87,000 before the four taxation years.

If that is the case, why did he not report this amount? To begin with, he did not feel that he had a legal obligation to do so since this amount had been honestly accumulated; at that time capital gains were not taxable. Why did he not invest this amount over the years, instead of hoarding it, not in the traditional nest egg, but as we shall soon see behind a mirror?—because he lived in fear of his first wife, who had threatened him that she would take away his money and “put him into the street”.

At first sight this type of explanation appears unlikely, to say the least, and difficult to accept. However, truth is sometimes stranger than fiction; it is essentially a question of credibility.

The only two witnesses at the hearing were plaintiff and his second wife. He testified for several hours, and sustained without wavering the force of a hard and penetrating cross-examination. His story, as improbable as it may seem, was not discredited. His wife was even more convincing and unshakable, especially with regard to the calculations concerning bank notes taken from the safety deposit box in the bank and from the mirror in question.

The taxpayer, who is now 70 years old, entered the world of business when he was very young and had very little education. He also married young, in 1927. After several acrimonious years the couple separated from bed and board in 1949. They came to a settlement in 1949, as may be seen from the foregoing summary. They obtained a divorce from the Canadian Senate in 1961. From 1949 onwards he lived with the lady who became his second wife in 1969.

After his difficulties began with his first wife he came to mistrust her. He especially feared that she would take legal action to acquire his property. He even alleged that at one point she actually seized the balance of the Casino Français selling price. As a protective measure, he took steps to avoid transactions resulting in property that could be seized. He made an effort to operate on a liquid basis. He hid bank notes “in the mirror”, specifically between the glass and the back of the mirror of a dresser located in the children’s room. He explained to the Court how he slipped notes into the mirror. To get them out, he had to unscrew the bolts attaching the back to the furniture. Soon afterwards he began depositing notes in a safety deposit box at the bank.

On July 28, 1969 his son came to ask him for financial assistance to get out of a difficult situation with loan sharks into which he had been drawn. At noon the father went to his safety deposit box, then changed his mind and went home. After lunch he told his second wife everything. At her husband’s request, she then went to the bank to get all the envelopes of money deposited in the safety deposit box.

A copy of the list showing the persons having access to safety deposit boxes, entered in evidence, clearly indicates that on July 28, 1969 Albert Courtois went to the safety deposit box at 1:05 pm and Mrs C Courtois at 2.20 pm.

In the evening, after the children had gone to bed, the couple together counted on the bed the money from the deposit box and the mirror. The total amounted to $87,000. The husband and the wife, who testified in each other’s absence, both described in detail the same circumstances and the Same breakdown of the notes. There was $37,000 from the deposit box and $50,000 from the mirror. The notes from the box were divided into seven packets of $5,000 and one smaller packet of $2,000. There was $7,000 in American currency. All the notes were $100 bills.

Towards the end of his career plaintiff dreamed of buying a motel in Florida and built up a supply of American currency. In 1971 he bought the Granby motel in Hollywood, near Miami, in partnership with other individuals, and expended $33,700 in this transaction. Before leaving for Florida he took $30,000 in American currency, partly from the safety deposit box and partly from the mirror. So that he could go through customs without difficulty, his wife had made him a money belt in white cotton polyester. At the request of the Court, plaintiff entered the belt in evidence. When the wife’s turn came to testify, she immediately recognized the “white corset” and quickly described the incident in exactly the same terms as her husband.

All the same, it is difficult to understand why a businessman, quite skilled and successful in his dealings, would accumulate money over a period of years instead of investing it. The question also arises as to why a frequenter of Montreal’s nocturnal scene would have been so nervous and fearful of his wife. On the other hand, as everyone knows plaintiff would not be the first person to hide his money in a “nest egg”, and not the last to tremble before the “gentler sex”.

I examined plaintiff carefully and watched his reactions closely during his testimony. I observed certain lapses of memory and certain inconsistencies in the details of his allegations, but overall he appeared to be speaking the truth. If he had had to make up a story he would undoubtedly have chosen one less comical and humiliating to himself.

It should also be added that plaintiff is in uncertain health. In recent years he has had to be hospitalized and operated on three times. His counsel even obtained a rogatory commission to question him before his last operation. This examination did take place, but plaintiff nevertheless came to court to testify in person. Learned counsel for the Crown conceded that plaintiff essentially repeated the same testimony before the Tax Review Board, in his examination, and before this Court.

Moreover, the aforementioned Board did not reject the testimony of plaintiff and his wife. Mr Tremblay, a Member of the Board, in fact stated in his judgment that "The image the appellant and his second wife presented at the hearing of the case was not necessarily one of lying and invention, far from it”. Further on he posed the question: "Was there perhaps an omission in the appellant’s evidence?”

The bank’s list confirming the date and times of visits by the couple to the safety deposit box, and the white belt in which the notes were carried, were not filed at the Board’s hearing.

It should also be added that it is not easy to prove the existence of a cash amount which has been hidden over a period of years. Witnesses are necessarily few; there were only two. Not even one of their statements was contradicted by another witness.

As a consequence of the decision of the Board and the admissions filed at the outset of the hearing, plaintiff was obliged to explain the following two "unexplained’ amounts, namely the amount of $10,900 in 1970 and $2,000 in 1973.

Four photocopies of cheques made out to "cash” and signed by plaintiff during 1970, in the amounts of $6,000, $2,500, $2,000 and $400 respectively, were filed at the hearing. The cheques represented amounts exchanged by plaintiff at the bank for American funds with the eventual purpose of buying the motel in Florida. With regard to the sum of $2,000, this was a withdrawal by Mrs Courtois from her own savings account at the bank in November 1973, to purchase Canada savings bonds sold by the government at that time.

After retiring, plaintiff realized from 1970 onwards that he would have to overcome his loathing of his first wife and take his money out in order to invest it and get income from it. These investments were reported and the income was taxed. According to the testimony of the husband and wife, at the end of 1973 an amount varying between $13,000 and $20,000 in liquid funds was left in the safety deposit box.

The appeal is accordingly allowed and the assessments are referred back to the Minister for reassessment, on the basis that the initial capital on January 1, 1970 should be increased by $6,700, namely from $35,970 to $42,670, as admitted by the Minister and affirmed by the decision of the Tax Review Board; that account should be taken of assets of $87,000 as of January 1, 1970 which had been reduced to assets of $20,000 on December 1, 1973; that the unexplained amounts of $14,900, $5,600 and $2,000 added to the computation of plaintiff’s income for 1970, 1971 and 1973 respectively do not constitute income for plaintiff and should not be taxed; and that accordingly the penalties are without basis and must be withdrawn; the whole with costs.