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.