[OFFICIAL ENGLISH TRANSLATION]
Date: 20021206
Docket: 2000-4691(GST)G
BETWEEN:
ALAIN DÉZIEL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal from an
assessment issued on July 16, 1999, made under subsection 191(3)
of the Excise Tax Act (the "Act"). Following the
objection, the assessment bearing number 02405434 was issued on
September 27, 2000, confirming, in substance, the first
assessment made on July 16, 1999. The assessment covered the
period from April 1, 1994, to June 30, 1996.
[2] The facts assumed when making the
assessment are as follows:
(a) the appellant
was not a Goods and Services Tax ("GST") registrant;
(b) from 1993 to
1996, the appellant built ten residential complexes, six of which
contained ten units on rue Audet, and four of which contained
eight units on rue Marion in Trois Rivières West;
(c) on rue Audet,
the construction of the complexes was substantially completed and
the first units were leased on:
-
4900:
June 1, 1994;
-
4700:
July 1, 1994;
-
4800:
July 1, 1994;
-
4805:
July 1, 1994;
-
4905:
July 1, 1994;
-
4705:
April 1, 1995;
(d) on rue Marion,
the construction of the complexes was substantially completed and
the first units were leased on:
-
5485:
July 1, 1995;
-
5495:
December 1, 1995;
-
5505:
May 1, 1996;
-
5515:
June 1, 1996;
(e) in so doing, the
appellant was supplying himself with a multiple unit residential
complex, and should have, at that time, performed a
self-assessment based on the fair market value of the complexes,
which he failed to do, while deducting ITC amounts;
(f) it was
following audits conducted by the Respondent that the Respondent
discovered the construction of the complexes and, consequently,
assessed the appellant on the fair market value by awarding him
the ITC amounts;
(g) the ITC amounts
were inadmissible for the following reasons:
(i) invoices
for part of the expenses are missing;
(ii) information on
certain purchase and expense invoices had been crossed out and
changed, making it difficult to determine the supply and tax
amounts initially indicated thereupon, as well as the nature of
the goods and services obtained;
(iii) certain documents do
not correspond to the purchase invoices issued by the supplier,
such as, tender, purchase order and delivery record;
(iv) certain purchases
made are not related to the construction of the complexes;
(v) credit notes
were issued by suppliers but were not provided at the time of the
audit;
(vi) invoices from
"alleged suppliers" contain irregularities with respect to both
the taxation rate and the calculations, thereby creating serious
doubt as to the validity of said invoices;
(vii) GST amounts were included
on some invoices provided by the appellant and issued by non-GST
registrants, even though there was no indication of taxes
collected by said suppliers on the invoices;
[3] The issues in dispute are as
follows:
· What was
the fair market value ("FMV") of the complexes at the time the
appellant was required to perform a self-assessment?
· What was
the amount of the input tax credits ("ITCs") that the appellant
could claim?
· Were the
penalties added to the assessment justified?
· Was the
assessment time-barred?
[4] Under section 123 and subsections
191(3), 238(2) and 286(1) of the Act, the appellant was
required to perform a self-assessment on the FMV of the complexes
he had built in 1994 and 1995.
[5] From 1993 to 1996, the appellant
built ten complexes containing 108 units in
Trois-Rivières. In view of the obligations stipulated by
the Act, he was required to perform a self-assessment on
the FMV of said complexes within the time frames and under the
conditions defined by the Act. In order to properly assume
this responsibility, he was required to keep and retain records
for a period of six years in order to be able to establish his
rights, obligations and liabilities.
[6] Between February 25, 1994, and
November 6, 1995, the appellant applied for and obtained ten
building permits from the municipality responsible for the
territory on which the complexes were located.
[7] The complexes were completed and
available for lease beginning in June 1994, for those built on
rue Audet, and beginning in July 1994, for those built on rue
Marion.
[8] The self-assessment process
should, therefore, have begun in June 1994, but nothing was
done.
[9] The appellant was assessed
following an investigation and audit.
[10] The appellant is appealing the
assessment, is claiming credits and does not accept the
penalties; finally, he submits that the assessment was
time-barred. I will first deal with the issue of the assessment
of the complexes.
[11] Both parties consulted with an expert
to determine what appeared to them to be the FMV of the
complexes.
[12] Both are familiar with the different
approaches or methods available for determining the FMV of the
complexes.
[13] Each expert stated his/her experience
and qualifications in order to justify the respective choice of
the approach used.
[14] The appellant's expert gave priority to
the income approach, stating that multiple unit rental complexes
have a FMV based exclusively and essentially on the amount of
income generated.
[15] He then took the time to demonstrate
the merits of his claims regarding the value based on this
approach. He briefly discussed the other methods, that is, parity
and replacement cost, but added that neither of these methods was
appropriate under the circumstances given the purpose of the
complexes. He stressed and repeated that a rental complex should
only be assessed based on the income it generates.
[16] He thus determined the FMV based on the
income approach.
[17] In explaining his approach, he drew a
very gloomy picture of the rental market in the region where the
complexes were built. The units were first described as common
and ordinary, located in an open field and difficult to access.
According to expert Leblanc, supply of these types of units
greatly exceeded demand, causing the appellant great difficulties
in renting his units. He had to offer a series of incentives,
such as lower rent, free months, etc.
[18] He initially took into account rental
income for one year only and established a vacancy percentage of
25% in one case and 18% in the other.
[19] He supported the high vacancy rates
with statements and comments but did not have any documentation
to support them. He distinguished between various sectors,
concluding that the vacancy rates were similar or comparable to
other complexes in the relevant region.
[20] He also mentioned that high density
complexes, containing forty or more units, had experienced
vacancy rates of up to 60%. He stated that the vacancy rates
retained had not changed greatly over the past few years, thereby
justifying the fact that he referred to only one year.
[21] Mr. Leblanc also explained that the
high mortgage amounts obtained was the result of the excellent
guarantees provided by the appellant. According to the expert,
the amount of the mortgages was not a relevant factor for
assessment purposes. The same was true for the interest rate paid
on the mortgages.
[22] Expert Leblanc based his analysis on
the rental rates of the complexes in dispute during the first
year of operation. Instead of using certain statistics provided
by reliable agencies working in the field of mortgage financing,
he preferred to use his own intuitive perception of the rental
market.
[23] He excluded from his analysis the
consideration obtained, that is, $377,000, for one of the
complexes sold in the months following the end of the
construction work. The appellant did indeed put the complex
located at 4800 rue Audet up for sale in the months following the
end of the construction work. He was asking $400,000 and obtained
$377,000 (Exhibit I-5).
[24] In order to justify his choices, he
submitted that the statistics available were not applicable to
his specific region. As for the financing, he mentioned that the
appellant had a highly privileged status with lenders. With
respect to the transaction, he claimed that this was a particular
case and brushed it off.
[25] The presentation made by the
appellant's expert was brief and not well documented. Many of the
strategic points were not documented and the bases were rather
intuitively established and justified, in his opinion, by his
vast and long-standing experience in the region. I refer in
particular to the choice of comparisons, vacancy rates in the
rental market, sites sought by tenants, financing conditions and
requirements, and the ordinary quality of the site.
[26] The work done by expert Leblanc was
sloppy, superficial and undocumented. It was obviously done in
order to justify a previously determined FMV.
[27] The findings are in no way consistent
with the usual standards or even with basic logic.
[28] Expert Leblanc preferred to use a very
specific and surprising approach to the vacancy rate. Instead of
taking into account comparable and objective data available from
many agencies that develop these types of statistics, he referred
to the situation of the site in the months following the
construction. He described the rental market as difficult. He
drew a very gloomy picture of the entire market. If the situation
had been as gloomy and difficult as he says, then how and why was
the appellant able to secure financing, with very attractive
terms at that, for an amount over and above the usual
standards?
[29] In light of the approach taken by the
expert and the comments and observations made by the appellant
himself, namely, that he had to grant several months of free rent
in order to interest potential tenants, there is reason to
believe that the income considered by expert Leblanc was
absolutely incorrect since the premises were occupied but did not
bring in any revenue because of the owner's free offer. If the
rental market had been so gloomy, one can bet that the appellant
would have had difficulty obtaining the required financing.
Moreover, the appellant stated that the lenders had encouraged
him to pick up the pace on his project.
[30] Furthermore, the appellant's evidence
failed to show the characteristics justifying his exceptional
credibility in obtaining mortgage amounts greater than the value
of the complexes and lower interest rates. The evidence failed to
show that the appellant had unfailing financial credibility.
Actually, the company he controlled in a related field underwent
an assignment for the benefit of creditors a few years
earlier.
[31] The fact that an appraiser is quite
familiar with and lives and works in the region where the
complexes undergoing assessment are located does not release him
from the obligation to consult and take into account the indexed
information available. Intuition, experience and knowledge of the
site are all qualities, but they are certainly not enough on
which to base an assessment.
[32] For her part, the Respondent's expert
tapped into her knowledge of the field. More importantly, she
also used objective data. I refer in particular to the various
data on which Mrs. Bélanger's work was based:
· choice of
comparables;
· the
Marshall guide;
· amount of
the mortgage loans obtained;
· serious and
valid analysis of the income;
· statistics
indexed by the Canada Mortgage and Housing Corporation
("CMHC");
[33] She performed an in-depth analysis of
the approaches available in order to establish that the best
formula, in her opinion, was the cost approach, given that the
complexes were new. She therefore gave priority to this
approach.
[34] In order to do so, she took into
consideration the manuals most commonly used in determining
costs: the Boeckh Building Cost Modifier, the Marshall Valuation
Service (Marshall and Swift), (the Boeckh cost assessment
software), and the manual for property assessments from the
Quebec ministère des Affaires municipales (Jean-Guy
Desjardins, Traité de l'évaluation
foncière, Wilson & Lafleur, pp. 188 and 522).
[35] She also analyzed the data dealing with
the rental market vacancy percentage, interest rates and
financing percentage. Mrs. Bélanger used statistical data
available, stating that said data was reliable because it was
updated several times a year and was broken down by region.
[36] I found the Respondent's expert's
analysis and findings to be convincing, especially since the
information was taken from relevant data, statistics and records
recognized in the field.
[37] Unlike the work done by expert Leblanc,
the Respondent gave priority to various corrected data, compiled
by independent agencies, thereby leaving less room for subjective
interpretation.
[38] The only problem that may affect Mrs.
Bélanger's work is the fact that she was employed by the
Respondent during the entire process leading up to the
assessments. This situation could taint the basic rules of
independence that all experts are required to follow in the
course of an assessment mandate.
[39] Certainly, an expert whose services are
retained becomes in a sense an officer of the person paying
him/her, but it is a short-lived relationship, without any past
or future. This relationship is completely different from that of
the employee, whose primary and ongoing duty is to perform
assessments for his/her employer.
[40] In this type of matter, the appraiser
is often called upon to participate in the analysis of a file in
his/her capacity as an expert. The appraiser then puts forward an
opinion as to the value. It is most often a brief analysis with
little documentation, in which experience is an important aspect.
If the matter is not settled, the same person is called upon to
review his/her own file and remains bound by his/her first
assessment. Should this exercise be redone for a hearing before
this Court, it may be somewhat tainted by at least apparent bias
that may affect its quality.
[41] In the present case, despite this
apparent weakness, I believe that Mrs. Bélanger's findings
cannot be rejected for this reason alone. In her testimony, she
showed that she was not aiming to reinforce or confirm her first
assessment, but essentially to identify the value through
objectively reliable and credible data, thereby leaving little
room for arbitrariness.
[42] The Respondent's findings have the
benefit of appearing to be consistent with a certain number of
realities, such as the municipal assessment, the consideration
obtained at the time of the sale of one of the complexes and the
financing rate obtained through two agencies with extensive
knowledge of the market concerned. I refer in particular to the
CMHC and the lenders.
[43] As for the assessment method to be
used, I fully subscribe to the references identified by the
Respondent:
[TRANSLATION]
Indeed, in Évaluation municipale et la valeur
réelle, Jacques Forgues, Les éditions Yvon
Blais inc., Cowansville, 1995, pp. 158, 159, and 167:
[UNOFFICIAL TRANSLATION]
This technique can always be used, unlike the two others,
namely parity and income, which are sometimes unusable ... It is
therefore, in principle, preferable to always use this technique,
at least as a means of corroborating the result obtained by
others.
Certain complexes are easy to assess using the depreciated
replacement cost technique. These include, for example, new
complexes, as stated by the Board of Revision in Hilton Place
Québec inc v. Ville de Québec, affirmed, on
this point, by the Provincial Court. Based on the legal doctrine,
the Board finds, along with Paul F. Wendt, that since
the motel is new, the cost technique should be used and the
result thereof retained. (pp. 158-159)
...
In brief, the depreciated replacement cost technique can
always be used. It is particularly reliable for new buildings.
(p. 167)
[44] The author Jean-Guy Desjardins writes
in his book regarding the scope of the cost approach [UNOFFICIAL
TRANSLATION] "that the cost approach should only be used in
the following cases: ... relatively new buildings"
because "when buildings are new or relatively new and have
optimal usage, the possibilities of errors in calculating
depreciation are significantly reduced." (p. 170)
[45] Also, in Principes et concepts
généraux en évaluation foncière,
ministère des Affaires municipales, 1974, vol. 1 (p.
14/3), the appraisers come to the same conclusions. Finally,
since this is a new building, the cost approach should be given
priority as previously shown.
[46] Also, in Sira Enterprises Ltd. v.
Canada, [2000] T.C.J. No. 804 (Q.L.), page 12, Justice
Margeson reiterates Justice Taylor's comments and writes:
... Of course there would be little if any value to a
restructuring of an amount to accomplish "replacement or
reproduction costs," and no purpose would be served in going
through that exercise. But to eliminate, ignore, or denigrate the
usefulness for appraisal purposes of that very total actual cost
which had been accumulated during construction and culminated on
that very day leaves me in serious disagreement.
...
For me, barring any direct and incontestable variation in that
amount of cost, it should also serve as value, and indeed as fair
market value.
[47] He also refers to the case of
Charleswood Legion Non-profit Housing Inc. v. Canada,
[1998] T.C.J. No. 503 (Q.L.)and reiterates Justice
Archambault's comments:
I believe that the Cost Approach should not have been
ignored by the two experts. In circumstances such as those in
this case, the fair market value should be very close to the cost
paid by the Appellants because the two buildings were brand new
at the relevant valuation date. This is the approach followed by
my colleague judge Taylor in Timber Lodge Limited v. The Queen,
[1994] G.S.T.C. 73.
[48] The appellant criticized the
Respondent's expert for considering as accurate the vacancy rate
data published by the CMHC without first analyzing the relevance
of said data.
[49] He also criticized the Respondent for
basing calculations of the economic value on a nonconforming
interest rate, for failing to visit the inside of the units and
for deciding on the quality of the appellant's units on the basis
of intuition.
[50] He also criticized her for not taking
into account the situation of the complexes at the time of their
assessment, namely their location in a new
open-field development.
[51] All of these criticisms are groundless
and particularly surprising coming from a party who submitted a
file with little documentation and which contained several major
weaknesses. I refer in particular to the following items:
· How does
one explain that serious lenders could have granted the financing
needed to build 108 units when similar units were available and
vacant at a rate of 20-60%.
· How can one
place any trust in an assessment based on income that only takes
into account the first year and submit, at the same time, that
free months of rent were granted.
· How does
one explain that the appellant could have obtained above-standard
financing at a preferred rate in a region where the quality of
the tenants, according to the expert and the appellant, was
debatable, especially in a market where supply greatly exceeded
demand.
· How does
one explain that the appellant, having an expertise in and a
passion for construction, indicated on the permit applications a
construction cost that was substantially higher than the actual
cost.
· How does
one explain that a third party agreed to pay such a high amount
for a complex that was worth much less.
· Why would
one ask for so high a price ($400,000) for a complex with a much
lower value.
· How does
one explain such a significant difference between the municipal
assessment amount and the FMV for brand new units.
· How can one
understand that a project involving over 100 new units could be
subject to economic obsolescence of 20% in the first year.
[52] On the whole, all of these elements
lead to one conclusion. The assessment retained by expert Leblanc
makes no sense, is illogical, and is insulting to the
intelligence.
[53] The appellant essentially retained the
income approach because this method enabled him to state whatever
he wanted under the pretext of his knowledge of the area and of
his intuition.
[54] In order to subscribe to the quality of
the work done by the appellant's expert, one would have to
believe in his intuition wholeheartedly and disregard in the
analysis the basic and obvious data required to produce a job of
irreproachable quality.
[55] In contrast, all of the elements that
disqualify the work of the appellant's expert confirm and enhance
the work done by the Respondent's expert. Indeed, the findings
made by Mrs. Bélanger are coherent and, above all, much
more reliable.
[56] Consequently, the market values of the
complexes on rue Audet at $250,000, and those on rue Marion at
$210,000 in no way correspond to the FMV.
[57] I am more inclined to subscribe to the
FMVs of $370,000 and $295,000 established by the Respondent's
expert (Exhibit I-5) and determine that these values should have
been used when making the self-assessment.
[58] I will next deal with the issue of the
ITCs. In principle, this is a relatively easy exercise. In order
to ensure this, the relevant documents would need to be
available, accessible and comprehensible.
[59] On the pretext that he was unfamiliar
with the provisions of the Act under which he was required
to perform a self-assessment, when it was time to claim ITCs, the
appellant submitted a rather confusing and jumbled file. He
provided confusing and incoherent explanations. He apparently
dealt with an accountant who knew neither the rules of
self-assessment nor the basic rules for acceptable
bookkeeping.
[60] The evidence submitted resulted
primarily from the work of Mr. Ronald Gagnon. Mr. Gagnon did what
he could, but given the complete absence of proper accounting and
of most of the appropriate supporting documents, he was unable to
do a very convincing job.
[61] At the very most, the evidence
submitted resulted in raising certain doubts, which were
indeterminative and, above all, insufficient to justify the
merits of the appellant's claims. Mr. Gagnon worked under a
special mandate based on incomplete and inadequate information,
documents and invoices. The result produced was, therefore,
largely shaped by the very poor quality of its bases.
[62] Ronald Gagnon testified in his capacity
as the person responsible for the file, given that he had worked
on the appellant's tax returns. I understood from his testimony
that he has a C.M.A. degree and did the bookkeeping for different
clients from his home. He did about 1,500 tax returns per
year.
[63] At a certain time, he was apparently in
charge of the appellant's bookkeeping. His work was done from the
appellant's home, where the documents for the bookkeeping were
kept.
[64] At one point, he lost his mandate. His
services were once again called upon when the Court issued an
order dated February 13, 2002, allowing the appellant to produce
new documents. He then compiled the documents and forwarded the
result of his work and all of the documents used to the auditor
(Exhibit A-14).
[65] Undoubtedly unaware of the scope and
complexity of the mandate he had accepted, he was forced to work
with a file where everything was jumbled and incomplete. His work
showed that he had done what he could to improve the quality of
the appellant's file. However, all of this could have been
avoided had the appellant shown some cooperation and a minimum
amount of transparency.
[66] Clearly not having all of the tools,
information and documents required to do an impeccable job, he
acknowledged that the appellant had an unsuitable accounting
system. He also admitted that he was unaware that a taxpayer who
was building for himself had to perform a self-assessment.
[67] Mr. Lachance, tinsmith by trade,
testified that he had been employed by the appellant during the
construction of the complexes as a job supervisor. As such, he
supervised the arrival of materials to ensure that they were
adequate; he controlled the quality of the work; and he
occasionally paid sub-contractors and for deliveries.
[68] In that respect, he mentioned having
paid certain contractors in cash a few times. During the
cross-examination, he increased the number of cash payments
made.
[69] If the purpose of Mr. Lachance's
intervention was to show that paying cash was common practice in
the construction field, his testimony was neither sufficient nor
decisive in proving this. I am therefore not retaining Mr.
Lachance's testimony as a useful element in the decision I am
required to render.
[70] The appellant stated that he had a lot
of experience in construction such that it was a real passion for
him. In the early 1990s, he owned a construction company. This
company underwent an assignment for the benefit of creditors
given that the real estate market was in a pitiful state.
[71] According to his testimony, he first
wanted to build just one complex on a huge plot of land he had
acquired, which could not be accessed by roads suitable for motor
vehicles, although it was located very close to a new commercial
complex in Trois-Rivières, that is, a COSTCO.
[72] Despite the difficult context and all
of the accessibility-related problems, the appellant asserted
that his lenders encouraged him and prompted him to build other
complexes by supporting him financially. This led him to complete
the entirety of his project comprised of six complexes with ten
units and four complexes with eight units.
[73] He described the situation as being
very painstaking because it was extremely difficult to find
tenants for his units. In order to lease them, he had to offer
free months of rent and often, after taking advantage of the free
months and occupying the premises for a few more months, the new
tenants would leave the premises without paying or had to be
evicted for failure to pay. Since these complexes were financed
by financial institutions, he indicated that he had to quickly
produce leases outlining the previously described incentives.
[74] As for his financial credibility, he
essentially mentioned that he and his family were known in
financial circles. He did not go into detail on the extent of his
financial wealth, other than to say that things were hard, as
could be seen from his income tax returns. The rental amounts
were barely enough to meet his mortgage payments.
[75] The appellant was in an accident on
August 14, 1995, and stated that he had suffered very serious
injuries and continued needing psychiatric treatment. As a
result, he was required and continues to take a large quantity of
drugs.
[76] On the issue of the injuries and
subsequent after-effects, the cross-examination revealed that the
appellant had been under observation for 24 hours. As for the
period of total disability, the evidence revealed that he himself
had signed a large number of cheques after the accident.
Furthermore, there is no evidence that one or more third parties
were required to take over in order to manage the administration
of the projects.
[77] The appellant submitted that he
suffered very serious injuries resulting in severe and permanent
physical and intellectual after-effects, which prevented him from
doing manual work, and also, administrative work in particular.
He submitted that he lost an incredible amount of supporting
documents at the time of the accident and was never able to
recover the documents needed to submit a complete file.
[78] Based on his testimony, I did not
notice anything to establish that Mr. Déziel was suffering
from a permanent partial intellectual disability.
[79] I understand that I have neither the
skills nor the knowledge to make such a diagnosis. However, I was
able to notice that the appellant, present in the courtroom
during the testimonies that preceded his own, and at the time
that I made certain observations, identified the weaknesses of
his case. During his testimony, he very subtly tried to correct
the situation by using clever expressions.
[80] Once it became difficult, not to
mention impossible, to correct the situation, or once the
coherence of the explanations given became doubtful, he hid
behind the after-effects of his accident.
[81] The appellant tried to demonstrate his
good faith, his lack of knowledge and his physical and
intellectual disability. Instead, the hearing clearly established
that the appellant deliberately chose the route of confusion and
refused to cooperate, with the obvious intention of evading his
obligations.
[82] Mrs. Langlois, in charge of ITC audits,
first described her training and experience with respect to
auditing. She testified at length on the number of steps that
preceded the audit and finally explained, in detail, the process
of her work. She provided in-depth details; she gave several
concrete examples clearly showing the quality of her work. Her
testimony revealed the following elements:
- the obvious bad
faith on the part of the appellant and of his representatives
during several attempts to obtain the relevant documents required
for the audit;
- the absence of
consistent and proper accounting;
- the hiring of a
person in charge of working with the auditor, who had neither the
information nor the cooperation of the appellant who had retained
his services himself;
- several altered
invoices;
- numerous invoices
on which incorrect calculations of taxes owed were made by a
person other than the one who had prepared the invoice, as was
apparent from the different ink or handwriting;
- several
handwritten notes added to the invoices;
- the use of
standard invoices without any indication of the supplier of the
service or goods or of the tax number used to identify said
supplier;
- the use of
identical invoices with consecutive numbers describing supplies
made by different suppliers;
- the few documents
available were in a completely muddled and disorderly state;
- a very large
number of cash payments supposedly made to suppliers of goods,
the amounts of which were rounded off, making the entire
situation appear suspicious with respect to the payment of
taxes;
- the appellant had
obviously kept a secret computer-based accounting system because
the auditor saw clues leading her to believe this;
- the appellant had
neither a proper accounting nor bookkeeping system, as was
confirmed by Mr. Gagnon, whose services were retained by the
appellant himself;
- systematic and
repeated refusal to cooperate;
- attempt to produce
the same documents more than once;
- use of a tax
number belonging to a completely different entity;
- transactions
showing knowledge of the effects of the tax number;
- tax calculation
using a rate not corresponding to the period in effect.
[83] Mrs. Langlois' testimony was perfectly
clear and exceptionally detailed. This testimony was a
determining factor in establishing that several invoices had been
glaringly changed, doctored and falsified. Several documents
involved substantial amounts. The taxes on several invoices were
improperly calculated using the wrong rates.
[84] The burden of proof was on the
appellant. In order to meet it and to justify the merits of his
ITC claims, the appellant submitted proof that was not only
inadequate on several levels but that was also incomplete and,
above all, implausible on fundamental aspects.
[85] All of these elements were introduced
as evidence through simple statements, which were neither
supported nor confirmed.
[86] A considerable number of questions have
remained unanswered. The appellant could have submitted more
reliable evidence by having different parties, such as bankers,
testify. I understand, however, why such evidence was not
submitted, because those people in a position to provide it would
have obviously shown the complete aberration of most of the
appellant's claims. I absolutely did not believe the appellant
with respect to the seriousness of the after-effects resulting
from his accident.
[87] The appellant basically used this
accident to hide certain annoying aspects or elements of his case
and to explain certain inconsistencies and numerous memory
lapses.
[88] The burden of proof rested on the
appellant. Being entitled to ITCs takes more than creating
presumptions or affirming a right thereto. The merits must be
shown through convincing and decisive evidence. The evidence
submitted by the appellant was absolutely inadequate and I have
no valid reason to grant an ITC amount greater than the one the
Respondent has awarded him.
Penalties
[89] The appellant was an astute
businessman, who obviously had exceptional knowledge in
construction matters, and also in related fields, such as
construction costs, financing conditions and possibilities, and,
above all, in the rental market, (tenants' interests, vacancy
percentage, cost of rent, etc.).
[90] He had set up a management company. He
owned real estate and had several bank accounts. In order to
convince lenders to become involved in such a large project, one
has to assume that the appellant had the skills, experience and
moral credibility to carry it out.
[91] Undertaking a project comprised of 10
complexes with over 100 units in one place, where streets had to
be developed and the necessary mortgage financing obtained,
proves that the appellant was not the neighbourhood craftsman
with limited knowledge, helpless when faced with what needed to
be done to obtain the proper information.
[92] Is it possible that this type of
businessman is unaware of the self-assessment rules and his ITC
rights? Is it possible that such a businessman has not developed
a structure providing him with the cooperation and support of a
clerical staff in charge of handling the file? Is it possible
that a businessman of this calibre would entrust mandates on
essential issues to strangers? I think not.
[93] The appellant has provided very few
details regarding the management and administration of the
various sites at the origin of the dispute. He did not make
reference to any type of accounting. He had little to say about
any type of accounting system except to state that he hired
people with difficulties, who were sponsored to take care of his
bookkeeping. He emphasized his inability to take care of his
business affairs himself. He also used the fact of having been
involved in an accident to claim that he had suffered major
after-effects and had lost a great deal of ITC supporting
documents.
[94] The evidence submitted by the appellant
with respect to all of the matters in dispute was brief,
incomplete and, above all, inadequate, not to mention poor. The
explanations were often implausible and incoherent, and, at
times, contradictory.
[95] The appellant was always in perfect
control of the situation. He did whatever he could to avoid
complying with the requirements of the Act. He also
obviously refused to cooperate by using a whole slew of red
herrings with the obvious goal of circumventing his
obligations.
[96] The appellant was not a novice in the
business world; he had worked in the field of construction well
before the start of construction on the complexes in dispute. He
had managed a company involved in building complexes, which
underwent an assignment for the benefit of creditors in February
1995, after having ceased operations in 1993.
[97] The appellant cannot invoke his
negligence and carelessness to excuse his completely
inappropriate conduct. He chose to plead lack of knowledge of the
rules, which, in the present case, were or should have been
basic, that is, to keep records and a proper accounting system
given the scope of the project.
[98] All of the elements used by expert
Leblanc to support the merits of his assessment lead to one
single conclusion: it would have been risky, reckless and even
irresponsible to grant any type of financing to build the
complexes in dispute.
[99] All the evidence submitted by the
appellant regarding the matters in dispute clearly showed
systematic bad faith, unjustified obstinacy and recourse to all
kinds of schemes to avoid his obligations. Under the
circumstances, there is no doubt that the penalties were fully
justified.
Limitation of Actions
[100] The appellant was supposed to produce his net tax
return monthly and not from the dates of the assessments of the
complexes subject to the returns.
[101] The appellant never produced said returns.
Consequently, the limitation of actions did not and could not
begin to run. Subscribing to the appellant's claims would create
absolutely perverse and ridiculous situations.
[102] Indeed, it would be sufficient not to comply with
certain obligations stipulated in the Act by pleading lack
of knowledge and claiming, after the time had lapsed, the
benefits of the limitation of actions. First of all, lack of
knowledge of the Act is an inadmissible argument,
especially when used for self-serving purposes.
[103] This type of reasoning does not pass the basic
test of good sense.
[104] I therefore fully subscribe to the judgment of the
Honourable Justice P. R. Dussault in the case of Trudel v.
Canada, [2001] T.C.J. No. 82 (Q.L.), rendered on February 8,
2001, in which he expressed his opinion as follows:
19. Paragraph 296(1)(a) provides that the
Minister may assess, reassess or make an additional assessment of
the net tax of a person under Division V for a reporting period
of the person. With regard to a person's net tax for a
reporting period, subparagraph 298(1)(a)(i) provides that an
assessment may not be made more than four years after the later
of the day on or before which the person was required under
section 238 to file a return for the period and the day the
return was filed. However, the appellant never filed a return
pursuant to paragraph 191(1)(e) of the Act, according to which
she is deemed to have collected the GST when she rented her
complex in April 1991. Thus, the time limit for assessing the
appellant had not expired on October 24, 1997. The assessment
was therefore validly made on that date.
...
25. In short, I consider
that the assessment of October 24, 1997, is valid under
subparagraph 298(1)(a)(i) of the Act because the appellant never
filed a return as she was required to do pursuant to subsection
191(1) of the Act.
[Emphasis added]
[105] There is no reason to continue analyzing this
issue. I therefore find that the appellant's arguments regarding
the limitation of actions are groundless.
[106] The Respondent submits that the appellant should,
in addition to the usual costs stipulated in subsection 147(4),
Schedule II, Tariff B of the Tax Court of Canada Rules
(General Procedures) ("Rules"), be required to pay the costs
stipulated in section 5 of the Rules, on a
solicitor-client basis.
[107] The evidence has clearly shown that the appellant
deliberately and systematically did everything he could to
sidestep his responsibilities and that, moreover, he acted in an
arrogant, cynical and glib manner. All of this resulted in the
Respondent's representatives having to do a colossal amount of
work in order to prepare the file. The evidence has actually
revealed that a large part of this work resulted from the
appellant's obstinacy and many unjustified whims in failing
to cooperate. He did whatever he could to systematically obstruct
the situation.
[108] Consequently, I dismiss the appeal and award the
costs claimed by the Respondent, as stipulated in subsection
147(4), Schedule II, Tariff B and section 5 of the
Rules.
Signed at Ottawa, Canada, this 6th day of December
2002.
J.T.C.C.
Translation certified true
on this 8th of April 2003
Sophie Debbané, Revisor
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