Morin v. The Queen, docket 95-650-IT-G

Date: 19980217

Docket: 95-650-IT-G

BETWEEN:

RÉAL MORIN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

P.R. Dussault, J.T.C.C.

[1] The appellant is challenging an assessment for his 1986 taxation year in which the Minister of National Revenue ("the Minister") added to his income an amount of $125,000 which he allegedly appropriated from the companies 2319-6322 Québec Inc. ("company 2319") and 1864-2470 Québec Inc. ("company 1864"). The assessment was made after the usual reassessment period and a penalty added pursuant to s. 163(2) of the Income Tax Act ("the Act").

[2] The appellant argued that this amount, in cash, was used for the purchase by company 2319 of the Centre commercial Place Duvernay ("Place Duvernay") located at Beloeil, Quebec on June 2, 1986. Until then the building had been the property of Steluta Constantinescu ("the seller"). The appellant began negotiations with the latter's son, Christian Bota, and concluded an agreement on the transaction with him.

[3] The respondent relied on ss. 3, 15(1), 152(4) and (7), 163(2) and 245(2) as well as on ss. 5(1)(a) and 6(1)(a) of the Act as applicable in the 1986 taxation year.

[4] For the purposes of making this assessment the Minister assumed the facts set out in subparagraphs (a) to (q) of paragraph 25 of the Amended Reply to the Amended Notice of Appeal ("the Reply"). Those subparagraphs read:

[TRANSLATION]

(a) in 1986 the appellant was a shareholder in the company 1864-2470 Québec Inc. among others, which was in turn a shareholder in the company 2319-6322 Québec Inc.;

(b) in 1986 the appellant was with Pierre Charron a director of 2319-6322 Québec Inc.;

(c) on June 2, 1986 2319-6322 Québec Inc. purchased a shopping centre, "Place Duvernay", located in Beloeil, Quebec;

(d) the appellant alleged that this shopping centre was purchased by 2319-6322 Québec Inc. for $1,075,000, $195,000 of which was paid to the seller in cash;

(e) the actual price paid by 2319-6322 Québec Inc. for purchasing the shopping centre was $880,000, not $1,075,000 as alleged by the appellant;

(f) on April 25, 1986 2319-6322 Québec Inc. made a purchase offer, accepted the same day, to purchase the Place Duvernay shopping centre for an initial price of $935,000, broken down as follows:

Deposit with purchase offer: $ 10,000

Payment by cheque to notary at

time deed of sale signed $295,000

Assumption of first mortgage

(in favour of General Trust) $425,000

Assumption of second mortgage

(balance of selling price to

129 627 Canada Ltée) $205,000

________

TOTAL $935,000

(g) on May 22, 1986 an addendum was added to the purchase offer of April 25, 1986, to the effect that the seller would repay the second mortgage itself, and in return the buyer would increase the amount payable on signature of the contract of sale by $150,000;

(h) this alteration was made necessary by the second mortgage creditor's refusal to transfer his debt to the new purchaser;

(i) the selling price payable by 2319-6322 Québec Inc. was accordingly reduced to $880,000, broken down as follows:

Deposit with purchase offer $ 10,000

Payment by cheque to notary $445,000

Assumption of first mortgage $425,000

TOTAL $880,000

(j) although the notarial contract of June 2, 1986 indicated a selling price of $1 and other consideration, Pierre Charron, who was at the time authorized to act for 2319-6322 Québec Inc., admitted in the statement of adjustments prepared by the notary that the actual selling price was $880,000;

(k) the seller (whether personally or through its real estate broker or notary) received nothing in cash on the sale of the shopping centre;

(l) on March 13,[1] 1986 the appellant withdrew $100,000 from a bank account of 2319-6322 Québec Inc. (with the National Bank);

(m) in March and April 1986 the appellant also appropriated sums totalling $25,000 belonging to 1860-2470 Québec Inc.;[2]

(n) 1860-2470 Québec Inc. had itself obtained this money from different sources, among which a withdrawal from Bar Salon Chez Aimé Inc. (March 24, 1986) and a loan from Servibec Gestion Alimentaire Inc. (April 25, 1986), two companies in which the appellant was a shareholder and/or director;

(o) the appellant could not justify these disbursements and, in particular, did not show he had paid these amounts in cash to anyone at the time the Place Duvernay shopping centre was purchased by 2319-6322 Québec Inc.;

(p) the appellant did not report in his tax return for the 1986 taxation year income totalling $125,000 appropriated from these companies;

(q) the appellant acted knowingly or in circumstances amounting to gross negligence in failing to report this income, which permits reopening of a prescribed year and imposition of the penalties specified in s. 163(2) of the Income Tax Act.

[5] Further, paragraph 26 of the said Reply reads:

[TRANSLATION]

26. On October 25, 1994 the company 2319-6322 Québec Inc. pleaded guilty to a criminal charge of attempting to avoid paying tax incurred as a result of the resale in 1989 of the Place Duvernay shopping centre in Beloeil, by overestimating the price paid by it when the said shopping centre was purchased in 1986.

[6] Several documents were entered in evidence to show the origins of an aggregate of $205,000 in cash (including the sum of $125,000 which is the subject of the instant case) which, according to the appellant, was used to purchase Place Duvernay. This amount allegedly came from share subscriptions to the capital stock of company 2319 by Les Investissements Picha Inc. ("the Picha company") ($25,000), company 1864 ($25,000), Servibec (G.A.) Inc. ("the Servibec company") ($55,000) and Investissements Rioca Ltée ("the Rioca company") ($100,000).

[7] Despite the explanations provided by the appellant it is still difficult to establish an exact chronology of the events and to identify through a series of transactions not only the use of various amounts of money but also their origins. In any case, as it is the use of the money which is at issue, I will only discuss in this regard the points which I feel are essential to its solution.

[8] To understand the part played by various individuals it is worth mentioning that Pierre Charron was the sole shareholder and director of the Picha company and the appellant was the sole shareholder and director of company 1864. Further, Mr. Charron, the appellant and one Yves Bourassa were shareholders and directors of the Servibec company. Foreign investors were shareholders in the Rioca company and one Félix Hervé was apparently one of its directors. The Servibec company was a majority shareholder in company 2319 and the appellant was the secretary-treasurer of both companies. He was apparently one of the prime movers in company 2319, in which he was actively involved, and was made responsible by the representatives of other shareholders for locating real estate investments for that company. Despite the fact that the appellant negotiated by himself the purchase of Place Duvernay for company 2319 with the real estate broker, Mr. Bota, it was Mr. Charron who signed the notarial contract of June 2, 1986 and the statement of adjustments and disbursements prepared by the notary Michel Paquette.

[9] In his testimony Mr. Charron maintained that he was himself responsible for locating $80,000 of the total sum of $205,000. Accordingly, $55,000 had to come from him personally or from the Picha company. As he did not have $25,000 at his disposal Mr. Charron stated that it was borrowed from the Rioca company. For his part, the appellant said he was responsible for obtaining $125,000, $25,000 contributed personally or by company 1864 and $100,000 by the Rioca company.

[10] The appellant said he accumulated the sum of $205,000 in $1,000 notes from the following sources:

$ 1,000 already in his possession

$ 9,000 from a withdrawal of cash on March 24, 1986 from the account of Bar Salon Aimé Inc., in which he was also a shareholder and director (Exhibit A-2, tab 13);

$ 15,000 from a withdrawal of cash from the bank account of company 1864 (a loan by the Servibec company, cashed on April 25, 1986) (Exhibit A-2, tab 12);

$100,000 from a withdrawal of cash on May 13, 1986 from the bank account of company 2319 (Exhibit A-2, tab 14);

$ 25,000 delivered in $1,000 bills by Mr. Charron at an unspecified date;

$ 55,000 delivered in $1,000 bills by Mr. Charron on June 2, 1986, the same day as the transaction before the notary and taken from a withdrawal dated May 29, 1986 (Exhibit A-2, tab 15).

[11] The respondent does not dispute that the appellant and Mr. Charron had an amount of $205,000 in their hands, the appellant $125,000 and Mr. Charron $80,000. The respondent maintains that this sum of $205,000 was never delivered to the broker or to the seller of Place Duvernay and was actually kept by the appellant and Mr. Charron personally in the proportions indicated. The respondent's position is therefore that the price paid by company 2319 was $880,000, corresponding to the price mentioned in the document dealing with adjustments and disbursements completed by the notary Michel Paquette and signed by Mr. Charron (Exhibit I-1) in connection with the notarial contract of June 2, 1986. The reconciliation would appear to be as indicated in subparagraph 25(i) of the Reply, except that the $445,000 delivered to the notary was handed over in two separate payments, one of $295,000 (Exhibit A-2, tab 19) and the other of $150,000 (Exhibit A-2, tab 7). To this sum of $445,000 should be added the $10,000 deposited with the purchase offer and the transfer of the first mortgage debt amounting to $425,000, making a total of $880,000.

[12] The contract itself indicated that the sale was made for a price of $1 and other good and valuable consideration as indicated in the offer of April 25, 1986. However, in the clause relating to the real estate transfer tax, it is mentioned that the transferor and transferee set the value of the consideration at $800,000 (Exhibit A-2, tab 10).[3]

[13] As we know, the appellant maintained that the total price paid was $1,075,000, that is, the price shown in the first purchase offer dated April 23, 1986 and accepted on April 24, 1986 (Exhibit A-2, tab 4). In his submission, an envelope containing 195 $1,000 bills was given to Mr. Bota and then by him to the seller in the notary's anteroom on signature of the deed of sale on June 2, 1986. The $10,000 balance was used to pay the notary's fees and expenses of some $6,000 to $7,000, and the remainder retained by the appellant to cover expenses incurred in connection with purchasing the property.

[14] The initial agreement with Mr. Bota was allegedly to pay $140,000 to the seller in cash. The appellant later agreed to pay an additional amount of $55,000.

[15] The appellant stated that when the envelope containing the 195 $1,000 bills was delivered to Mr. Bota the latter examined its contents without counting the bills and handed the envelope to the seller, who simply put it in her handbag. Mr. Bota then tore up a sealed envelope containing a counter-letter which the appellant had himself signed and in which he undertook to pay this amount of $195,000.

[16] In an extrajudicial examination held on April 25, 1996 the appellant mentioned that the agreement with Mr. Bota to initially pay the sum of $140,000 in cash was strictly verbal. The following is a passage from his testimony in this connection:

[TRANSLATION]

129. Q. Was there any document which bound you to pay that amount of $140,000?

A. No.

130. Q. It was just on a handshake, right?

A. It was agreed that the payment would be made when the notarial contract was signed.

131. Q. Okay - but the agreement was verbal?

A. Right.[4]

[17] Although there were no direct questions on the existence of a counter-letter, at no time in this extrajudicial examination did the appellant allude to the existence of any document regarding an agreement to first pay the sum of $140,000 in cash and then a further sum of $55,000, or a total of $195,000.

[18] According to Yvon L'Ecuyer, a Revenue Canada investigator, it was $205,000, not $195,000, that the appellant told him he handed over in cash when the agreement was signed before the notary. A sheet setting out the total amount paid was given to him at that time by the appellant (Exhibit I-4). Further, as the appellant stated that the total price paid was $1,075,000 he concluded that the latter had made an error of $10,000 since an equivalent amount had already been handed over as a deposit at the time of the first offer at the price of $1,075,000, which would thus have made the total price paid $1,085,000. Further, according to Mr. L'Ecuyer, the appellant did not give him the right documentation to support the contribution by the Servibec company. These documents were filed as Exhibit I-3. There was cheque No. 1438 from the Servibec company for $50,000, dated May 29, 1986 and made out to company 2319, and cashed by it on May 30. The other cheque from the Servibec company made out to "Servibec G.A. Inc." on May 15, 1986 for $5,200 was deposited the same day. In actual fact, it was another cheque from the Servibec company (No. 1439) dated May 29, 1986 for $55,000, and not discovered until a search was made in 1992 (Exhibit A-2, tab 15), which was allegedly used in the transaction. This cheque, made out to "Cash", bore on the reverse the stamp "2319-6322 Québec Inc." and the handwritten notations "RE: B.V. Beloeil" and "bank draft 38410749". According to Mr. L'Ecuyer, the draft was purchased on June 2, 1986, the same day as the transaction. This point was not disputed.

[19] Further, according to Mr. L'Ecuyer the $25,000 contribution by the Picha company could not be supported by the document given to him by Mr. Charron. The document was a cheque drawn on the Rioca company's account, payable to "Cash", dated June 25, 1986 and cashed on June 27. The cheque bore the notation "Loan". The transaction requiring the $25,000 contribution by the Picha company or Mr. Charron took place on June 2, 1986. If Mr. Charron or the Picha company had actually borrowed from the Rioca company in order to make a contribution, there was no evidence that the proceeds of this loan were given to the appellant in cash before the transaction.

[20] This leads me to briefly discuss the criminal proceedings brought against company 2319, Mr. Charron and the appellant, referred to by Mr. L'Ecuyer in connection with the transaction which is at issue in this Court.

[21] The information obtained by Mr. L'Ecuyer from the seller in a telephone conversation and from her son Mr. Bota, whom he met with several times, was that the price paid was $880,000. This information was also confirmed by the notary Paquette, who made adjustments and disbursements on this basis. As company 2319 stated that it paid $1,075,000, it, Mr. Charron and the appellant were prosecuted under s. 239(1)(a) and (d) of the Act.

[22] Subsequently, during a search at the premises of the broker Les Immeubles Gloria Realties ("Immeubles Gloria"), for which Mr. Bota worked, a document was seized indicating the selling price as $880,000, but under the notation "Highly Confidential" a price of $935,000. Further, cheque No. 1439 from the Servibec company, dated May 29, 1986 and for $55,000, used to purchase a draft and bearing the notation "RE: B.V. Beloeil", obtained in 1992 (Exhibit A-2, tab 15), also suggested that the price actually paid was $935,000, not $880,000. In his testimony Mr. L'Ecuyer suggested that perhaps the draft so purchased was given to the seller or to one Jean Fortin, who held an advantageous lease for several years, and whose rights the seller, in the addendum signed on May 22, 1986 (Exhibit A-2, tab 7), had undertaken to buy back and that this was done officially for the sum of $1 (Exhibit A-2, tab 9).

[23] On the same day as the criminal proceeding, as part of an agreement negotiated by counsel and accepted by Mr. Charron and the appellant, among others, company 2319 pleaded guilty to an offence under s. 239(1)(d) of the Act and had to pay a fine of a little over $17,000. The prosecution under s. 239(1)(a) was dropped, as were the charges against Mr. Charron and the appellant. In the civil proceeding the assessment against Mr. Charron was reduced by $55,000, and he agreed for what he said were personal and business reasons to be assessed on the sum of $25,000. The appellant's assessment for an appropriation of $125,000 was maintained, as he wished to exercise his right of appeal on the total amount assessed: hence the proceeding in this Court.

[24] In the appellant's submission, the market at the time was a "sellers' market" and the price asked for Place Duvernay was $1,250,000. In support of his position that a price of $1,075,000 was paid the appellant referred also to a valuation by Canada Life Mortgage Services Ltd. ("Canada Life") in January 1987 for refinancing purposes which indicated a value of $1,217,000 (Exhibit A-2, tab 11). The document also indicated a purchase price of $1,075,000. The appellant admitted that he had himself provided this information.

[25] The appellant argued that only the first offer, at a price of $1,075,000, dated April 23, 1986 and accepted the following day, was valid. That offer, of which he was the only one to retain a copy, accompanied by a $10,000 deposit, he said was accepted despite the fact that the price asked was $1,250,000, on condition that part of the price would be paid in cash. He said Mr. Bota initially asked him to pay $140,000, and this explained why on April 25, 1986 another offer, of $935,000 this time, was made and accepted the same day. According to the appellant, the reason given by Mr. Bota for asking for cash to be paid was that he did not want the price officially paid to appear too high to the preceding owner, Jean Fortin, whom he had represented when Place Duvernay was sold to his mother a few months earlier (see Exhibit A-3, tab 6, examination for discovery, pp. 13 et seq.).

[26] He said a further amount of $55,000 in cash was subsequently requested, so that the price officially paid was lowered to $880,000. This amount was needed in order to buy back the rights to an advantageous lease given by the seller to the preceding owner, Mr. Fortin. According to the appellant, Mr. Fortin had a lease for several years at an advantageous price and was himself subletting to a third party, a company, at a much higher price.

[27] Initially company 2319 was interested in having the two existing mortgages transferred to it, including a second mortgage of $205,000 to the preceding owner, Mr. Fortin. When the latter refused, an addendum to the offer of April 25, 1986 was signed by the parties on May 22, 1986 (Exhibit A-2, tab 7). It indicated that the purchaser would pay an additional $150,000 on signature of the deed of sale and that the seller undertook to have the balance of $205,000, secured by a second mortgage, struck out. Further, in this addendum the seller undertook to buy back the rights to the lease signed between herself and the former owner Mr. Fortin, as well as a lease signed between the latter and a third party.

[28] At my express request Mr. Bota also testified. However, his testimony certainly did not throw any light on the events that occurred. While admitting that his mother had initially accepted a purchase offer of $1,075,000, when the asking price was $1,250,000, he stated that the selling price was $880,000 since there was a lot of negotiation up to the time the agreement was signed before the notary. While he admitted that it was "a sellers' market" at that time, he gave as a reason for the reduction in price the fact that Mr. Fortin had refused the transfer of his mortgage debt, the issue of Mr. Fortin's advantageous lease had been resolved and that there was also a problem of illegal views. Apart from that, he could not explain the various changes made to the initial offer and the precise effects on the purchase price. He said he did not remember the details and could not explain the reason for the notation in a document from Immeubles Gloria of a price of $880,000 and a "Highly Confidential" price of $935,000. He further stated that he did not receive any cash or see an envelope containing it. He then said he did not remember whether his mother had received cash, but it was possible just as there may have been an envelope, but he finally concluded that this was not so.

[29] The appellant's argument that he accumulated $205,000 in $1,000 bills rested in part on his version of a banking transaction which took place on May 13, 1986 at the Lyon service centre ("Lyon centre") connected to the Place Désormeaux branch of the National Bank of Canada ("the National Bank") in Longueuil. In return for a receipt signed by him for the sum of $100,000 and indicating the bank account of company 2319 (Exhibit A-2, tab 14; Exhibit I-5), the appellant said he obtained 100 $1,000 bills. He said these bills had been ordered directly from the manager about two weeks before. He stated that it was she, or possibly a cashier, who gave him the bills on May 13, 1986.

[30] Counsel for the respondent called Danielle Savard to testify regarding this transaction. Ms. Savard, who now holds a position of manager - cash flow for the Fédération Richelieu-Yamaska, worked for the National Bank for 16 years, until 1988. In 1986 she was in charge of the Lyon centre. At that time the Lyon centre had six or seven employees and Ms. Savard was assisted in her duties by Ms. Denise Comeau, an assistant accountant at the time.

[31] Regarding the transaction of May 13, 1986, Ms. Savard admitted that the receipt or withdrawal slip in question did indicate from the numbers shown on the stamps that the transaction took place at the Lyon centre. However, she noted that the document was not initialled by herself, which would ordinarily have been the case if she had been at work on that day. She could not identify the person whose initials appeared on the front of the document. At the same time, she readily recognized her own initials on a cheque for $100,000 drawn on an account in the name of the Rioca company at the Canadian Imperial Bank of Commerce ("the Bank of Commerce") and deposited at the Lyon centre two days later, namely May 15, 1986 (Exhibit I-6).

[32] Ms. Savard stated that the Lyon centre did not keep $1,000 bills in reserve and, although it was possible to have a transaction of this size in cash, the bills had to be ordered in advance from the main branch after the relevant information was obtained from the customer, since control had to be maintained over large transactions in $1,000 bills.

[33] After having explained the procedure for ordering cash, the signatures of two persons required, including that of Denise Cotnoir-Comeau ("Ms. Comeau"), or her own, the checking of the delivery of bills at the centre by at least two people and the control over the cash reserve, Ms. Savard concluded that she would ordinarily have been aware of such a transaction even if she was away on the day itself. Without stating categorically that such a transaction never occurred, she said she did not remember delivering 100 $1,000 bills to the appellant, nor did she remember the appellant. On the other hand, she said she remembered details and even the name of a customer who had had a transaction involving $50,000 in $1,000 bills, the largest that she had witnessed. Finally, Ms. Savard stated that if there had been 100 $1,000 bills in the reserve she would certainly have seen it because of the controls in place. She suggested that if the withdrawal was not made in cash it was done by the issuing of a bank draft. Although she admitted that it was a more common type of transaction, Ms. Savard did not remember issuing a draft for this amount on May 13, 1986. As Ms. Savard's initials do not appear on the receipt or withdrawal slip of May 13, 1986, although they should have been there if she was at work, it can certainly be inferred that she may have been absent on the day in question. However, as she was at work two days later her comments regarding the various controls exercised over the cash reserve at the centre managed by her are more consistent with the assumption that a cash transaction of that size could not have passed unnoticed without her being directly or indirectly aware of it. The controls are applied at various stages over several days.

[34] Ms. Comeau also testified. Ms. Comeau has worked for the National Bank since 1970 and is currently the Director of Financial Services. In May 1986 she held the position of assistant accountant at the Lyon centre, where she had begun her duties a short time earlier.

[35] Ms. Comeau explained that it was she who looked after cash orders each week and that if the withdrawal of May 13, 1986 was made by the issuing of 100 $1,000 bills, she would certainly have been informed and would remember a transaction of that size, as it would have required a special order for which she was responsible, even though the order might have been signed by the accounting assistant if she had been away temporarily. Ms. Comeau stated that the largest transaction involving $1,000 bills that she witnessed in her career involved 10 or 12 bills of that denomination. She therefore concluded that the withdrawal of May 13, 1986 "absolutely" could not have been made in cash and indicated that the only possibility could have been the issuing of a draft that required the signature of a manager and of another authorized person. Ms. Comeau further explained that the withdrawal slip itself had to be initialled by a manager. As an assistant accountant, she did not have the power to do it. She said she did not recognize the initials on the receipt or withdrawal slip (Exhibit I-5), adding that at the time she had been performing her duties at the Lyon centre for only a short time. She said they might be the initials of a replacement manager because, when the director of the service centre, the only official manager, was absent, the branch to which the centre was attached sent another manager to replace her. According to Ms. Comeau, as there always had to be a manager at the centre, this was a procedure which was used regularly if the responsible manager was on training or was ill.

[36] To conclude on this point, it may be noted that the bank statement of company 2319 for the period in question (Exhibit A-7) does indicate the withdrawal of $100,000 on May 13, 1986, but no administration fees are shown for that date. However, as Ms. Comeau pointed out, the fees for issuing a draft at that time might vary between $7.50 and $15 and could have been paid in cash.

[37] Ms. Comeau's testimony, though more forthright, nonetheless essentially supported that of Ms. Savard.

[38] On March 2, 1992 Revenue Canada sent a requirement for information and the production of documents to the director of the Place Désormeaux branch in Longueuil with respect to company 2319, Mr. Charron and the appellant (Exhibit I-7) with a view to locating the draft. The answer given was that the branch had no records in the case of Mr. Charron and the appellant and that, in the case of company 2319, the documentation had been destroyed (Exhibit I-8). My only comment on this point is that as a draft was issued by the financial institution and drawn on itself the request to locate the documents in the names of Mr. Charron, the appellant or company 2319 was clearly made to the wrong addressee or in the wrong way.

[39] In the recent Supreme Court of Canada judgment in Hickman Motors v. Canada, [1997] 2 S.C.R. 336, L'Heureux-Dubé J. noted the following at 378:

It is trite law that in taxation the standard of proof is the civil balance of probabilities: Dobieco Ltd. v. Minister of National Revenue, [1966] S.C.R. 95, and that within balance of probabilities, there can be varying degrees of proof required in order to discharge the onus, depending on the subject matter: Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164; Pallan v. M.N.R., 90 D.T.C. 1102 (T.C.C.), at p. 1106.

[40] In Pallan, referred to by L'Heureux-Dubé J., taxpayers sought to submit oral evidence to contradict what they had agreed on in documents prepared to achieve certain business objectives but entailing adverse tax consequences. Judge Christie of this Court emphasized that the evidence presented was insufficient and dismissed the appeals. His conclusion was in the following language, taken directly from the wording of the reasons for judgment at p. 1107 (adding the text of the official French translation at p. 13):

It must be understood that if taxpayers create a documented record of things said and done by them, or by them in concert with others, to achieve a commercial purpose and then seek to repudiate those things with evidence of allegations of conduct that is morally blameworthy in order to avoid an unanticipated assessment to tax, they face a formidable task. And that task will not be accomplished, in the absence of some special circumstance, an example of which does not occur to me, by their oral testimony alone. That evidence must be bolstered by some other evidence that has significant persuasive force of its own. The appellants have not done this.

Il faut comprendre que, si les contribuables créent un dossier écrit de choses qu'ils ont dites et faites, que ce soit seuls ou de concert avec d'autres, pour atteindre un but commercial et qu'ils cherchent ensuite à répudier ces choses en alléguant que la conduite était moralement blâmable afin d'éviter une cotisation d'impôt qui n'avait pas été prévue, ils auront fort à faire pour réussir. De plus, en l'absence de circonstance spéciale dont aucun exemple ne me vient à l'esprit, ils ne pourront le faire en présentant uniquement leur témoignage. Cette preuve doit être appuyée par d'autres éléments qui ont eux-mêmes une grande force persuasive. Les appelants ne l'ont pas fait.

[41] Although the situation was different in Kiliaris et al. v. The Queen, 97 DTC 7 (T.C.C.), a similar approach could nevertheless be seen on the part of the taxpayers, who adopted a position contrary to their earlier contentions. Referring to Judge Christie's decision in Pallan, supra, I said in that case that in such circumstances:

. . . it is natural not only that their testimony be accepted with the greatest caution, but also that the facts adduced in evidence carry a high degree of probability independently of their testimony.

[42] In my opinion, the circumstances of the instant case justify requiring the same thing from the appellant, although it must be admitted that the respondent had the burden of establishing on a balance of probabilities the facts forming the basis for an assessment after the usual reassessment period and for adding a penalty pursuant to s. 163(2).

[43] Counsel for the appellant maintained that the approach taken by counsel for the respondent and the Revenue Canada representatives can only be described as "biased" throughout this matter, since he said they immediately accepted the version of the seller and of Mr. Bota and, in the face of all logic, rejected that of the appellant. What is more, according to counsel for the appellant, this attitude was reflected in the fact that counsel for the respondent did not initially bother to call the seller and Mr. Bota to testify.

[44] It is important to restore some perspective here. First, the appellant himself signed not only the initial purchase offer of $1,075,000, an offer which he said was the only valid one, but also the second offer at $935,000 and the addendum of May 22, 1986, the effect of which was to reduce the price in the transaction to $880,000. Additionally, it was his business partner Mr. Charron who signed the notarial contract of June 2, 1986, in which it was mentioned that both the transferor and transferee set the value of the consideration for purposes of the transfer tax at $800,000. It was also Mr. Charron, not merely the seller, who in signing the statement of adjustments and disbursements prepared by the notary certified that the price actually paid by company 2319 was $880,000. Mr. Charron and the appellant subsequently sought to repudiate all these documents by alleging that the price had been $1,075,000. In such circumstances, the position taken by the respondent, who acted on the basis of the documents signed by the interested parties themselves, is not surprising.

[45] As to the question of testimony, I will simply mention that Mr. Bota was summoned and remained available to testify. Counsel for the respondent explained that he had decided not to call him because he considered the evidence already submitted to be sufficiently persuasive. In response to my request, he agreed to call him without hesitation. It was thus not at the request of counsel for the appellant that Mr. Bota testified. As to the seller, none of the parties saw fit to summon her to testify. In any case it is uncertain that we might learn anything from her testimony, since the appellant said he had only seen her once when the contract was signed before the notary and had always negotiated exclusively with Mr. Bota and reached an agreement solely with him.

[46] Having said that, a review of the evidence as a whole leads me to the conclusion that on a balance of probabilities I must accept the version of the facts submitted by the respondent, at least as regards the greater part of the amount assessed. Certain evidence is undoubtedly at variance with the respondent's argument that the selling price of Place Duvernay was $880,000. The document seized at the premises of Immeubles Gloria (Exhibit A-2, tab 3) indicating under the notation "Highly Confidential" a price of $935,000 instead of $880,000 mentioned in the same document is the first clue to this effect. Cheque No. 1439 from the Servibec company made out to "Cash" for $55,000 (Exhibit A-2, tab 15) is another. It will be recalled that the back of the cheque bears a stamp identifying company 2319 and the handwritten notations "RE: B.V. Beloeil" and "bank draft 38410749". These two points suggest that, in addition to $880,000, an amount of $55,000 was paid. I would add that the sum of $935,000 corresponds also to the second purchase offer made and accepted on April 25, 1986, which in my view officially superseded the one accepted for $1,075,000 on April 24, 1986. While it is true that at first glance the reduction in price may seem illogical, certain problems arising following the first offer, such as illegal views, which were referred to, might justify a reduction in price to $935,000. If the price paid was $935,000, not $880,000, was the additional amount of $55,000 paid to the seller herself or actually to Jean Fortin to compensate him for surrendering his rights under the lease mentioned above? It is impossible for me to answer this question, and in fact it is not necessary to do so since it does not alter the appellant's position in any way. On the evidence, this sum was under the control of Mr. Charron and was not taken into account in determining the appellant's assessment. It was Mr. Charron who was initially assessed for this amount.

[47] Cheque No. 1439 from the Servibec company, with the notations it contained, does however cast serious doubt on the statement that $1,000 bills were received in consideration, an initial clue tending to undermine the plausibility of the appellant's position. To begin with, as the cheque was made out to "Cash", it is surprising to find a stamp on the back showing company 2319 and then the notation "bank draft 38410749". Mr. Charron stated that he obtained 55 $1,000 notes in return for the cheque and gave them to the appellant on the same day as the transaction. It is somewhat difficult to see why a withdrawal from the Servibec company's account bore the stamp of the company 2319, and then a notation of the number of a bank draft, if the intention at the outset was to obtain $55,000 in $1,000 bills. As no adequate explanation of this was provided, I am inclined to think that it is more likely that a draft was simply issued for the amount.

[48] If Mr. Charron did not actually hand over 55 $1,000 bills to the appellant the version of the facts given by the latter of course cannot stand, since it would then have been impossible for him to accumulate the 205 $1,000 bills needed for the transaction.

[49] There is other evidence pointing in the same direction. In this case it is the sum of $25,000, again in $1,000 bills, which Mr. Charron allegedly gave the appellant on a date which neither one could identify exactly. The amount was allegedly borrowed by Mr. Charron or by the Picha company from the Rioca company. The only document entered in evidence to support this fact was cheque No. 0013, made out to "Cash" and drawn on an account of the Rioca company with the Bank of Commerce for the sum of $25,500 on June 25, 1986, cashed on June 27, 1986 with the notation "Loan". It is quite clear that Mr. Charron could not have handed over the sum of $25,000 in $1,000 bills which he would have obtained through this transaction before the contract of sale was signed at the notary's office on June 2, 1986. Incidentally, Mr. Charron was assessed on this amount.

[50] There is no need to go over the main points of the testimony given by Ms. Savard and by Ms. Comeau here. I have no reason to question their credibility. In my opinion, Ms. Comeau's testimony in particular made it highly unlikely that there was a withdrawal of $100,000 in $1,000 bills by the appellant on May 13, 1986.

[51] Additionally, the appellant's testimony regarding the existence of a counter-letter by which he undertook to pay the sum of $195,000 in cash, when he had only mentioned a verbal agreement with Mr. Bota in an extrajudicial examination, also raises questions. Differing stories regarding a fact which must have been of considerable importance in the circumstances also has an effect on the credibility which I can attach to the comments made by the appellant on this point.

[52] I attach little significance to Mr. Bota's testimony as, for the reasons I have indicated, I am persuaded that it is more than likely that a sum of $55,000 was paid in addition to the sum of $880,000 for the purchase of Place Duvernay.

[53] In view of the evidence already mentioned, I would add that the valuation obtained by the appellant from Canada Life for refinancing purposes in January 1987, based on information supplied by himself, including the purchase price, has no direct bearing on the transaction of June 2, 1986 and cannot be accepted as persuasive evidence that the price paid was $1,075,000 in view of the other points I have just noted, which make the transaction on which the appellant sought to rely somewhat unlikely.

[54] However, although I consider that the respondent has shown on a balance of probabilities that the appellant could not have given Mr. Bota $195,000 in $1,000 bills in the transaction of June 2, 1986, no evidence was presented by the respondent regarding the use of an additional amount of $10,000 which the appellant said he used to pay the notary's fees and expenses and to pay his own incidental expenses. It may be noted here that the statement of adjustments and disbursements prepared by the notary (Exhibit I-1) contains no mention of his fees and expenses. As it is reasonable to assume that he was paid for this transaction and that company 2319 was the purchaser, in the absence of additional evidence there can be no question of appropriation. Further, the appellant undoubtedly incurred actual expenses for his efforts and the respondent did not see fit to challenge his statements in this connection. The appellant further indicated that he had $1,000 in cash at the outset which was also used for purposes of the transaction. This point was not disputed by the respondent and it is hard to see how it could have been. Overall, therefore, I feel that there was insufficient evidence to conclude that the appellant appropriated this additional amount of $10,000.

[55] For these reasons, I consider that the amount of $125,000 assessed should be reduced by $10,000 and the penalty reduced accordingly. On the remainder, and without making any claim to have clarified all the, to say the least, doubtful points relating to the transaction of June 2, 1986, I consider that the respondent, certainly indirectly and by inference, but on a balance of probabilities nevertheless, has shown that the balance of the amount assessed actually was the subject of an appropriation by the appellant. It is not important to say exactly under which statutory provision, of those relied on by the respondent, such a sum could be assessed. It is admitted that it is in the nature of income: see in particular The Queen v. Poynton, 72 DTC 6329 (Ont. C.A.). Further, in the circumstances I consider the penalty under s. 163(2) justified since the failure to report could not have been the result of any negligence by the appellant, but was instead due to a deliberate omission.

[56] In such circumstances, and with the same evidence, it goes without saying that the assessment after the usual reassessment period must be held valid under s. 152(4) of the Act.

[57] The appeal is accordingly allowed and the assessment referred back to the Minister for reconsideration and reassessment on the basis that the sum assessed should be reduced by $10,000, with corresponding adjustments to the penalty and interest.

[58] The whole with costs to the respondent.

Signed at Ottawa, Canada, February 17, 1998.

P.R. Dussault

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 4th day of June 1998.

Mario Lagacé, Revisor

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