[OFFICIAL ENGLISH
TRANSLATION]
Date:
20021212
Docket:
2001-170(IT)I
BETWEEN:
ROBIN
VILLENEUVE,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre
Proulx, J.T.C.C.
[1] These are appeals under the
informal procedure concerning the 1989 to 1993 taxation years.
[2] The points at issue concern
the refund of tax credits incorrectly claimed and the assessment of penalties
and interest under subsection 163(2) of the Income Tax Act (the "Act").
[3] The facts on which the
Minister of National Revenue (the "Minister") relied in making his
reassessments are described in paragraphs 2, 3, 4 and 8 of the Reply to the Notice of Appeal
(the "Reply") as follows:
[TRANSLATION]
2. By notices of
reassessment dated June 22, 2000, the Minister disallowed, among other
things, the equivalent-to-married and dependent tax credits in computing
non-refundable tax credits and the child tax credit in computing federal
credits, which credits had previously been allowed for the 1989, 1990, 1991 and
1992 taxation years.
3. By notices of
reassessment dated June 22, 2000, in computing non-refundable tax credits,
the Minister disallowed the equivalent-to-married credit previously allowed for
the 1993 taxation year.
4. By notices of
reassessment dated June 22, 2000, in computing the appellant's income, the
Minister disallowed, among other things, the amounts of $374, $381, $388 and
$399 in respect of family allowance for the 1989, 1990, 1991 and 1992 taxation
years.
...
8. In making and
confirming the notices of reassessment dated June 22, 2000, the Minister
assumed, in particular, the following facts:
(a) the case arises
from an internal investigation of certain employees at the Jonquière Tax Centre
who had established a scheme to provide certain persons with fraudulent tax
refunds in consideration of a commission based on a percentage of the said
refunds;
(b) on June 5,
1995, the appellant received a total tax refund of $12,260.05 for the 1989,
1990, 1991, 1992 and 1993 taxation years as a result of reassessments dated
May 30, 1995;
(c) that same day,
June 5, 1995, the appellant deposited a net amount of $4,260.05 at the
Saint-François Xavier Caisse populaire, Rivière-du-Moulin service centre, after
withdrawing a cash amount of $8,000;
(d) the notices of
reassessment dated May 30, 1995, for the 1989, 1990, 1991 and 1992
taxation years established that the appellant was the father of two children
and, among other things, allowed the equivalent-to-married and dependent tax
credits in computing non-refundable tax credits;
(e) the notices of
reassessment dated May 30, 1995, for the 1989, 1990, 1991 and 1992
taxation years established that the appellant was the father of two children
and, among other things, allowed a child tax credit in computing federal
credits;
(f) the notice of
reassessment dated May 30, 1995, for the 1993 taxation year established
that the appellant was the father of one child and allowed an
equivalent-to-married credit in computing non-refundable tax credits;
(g) the appellant
told the Minister's investigators that he was not married and had never had a
child during the taxation years in issue;
(h) the appellant
told the Minister's investigators that he had met Mario Boucher at a bar
in the region and that he had repaired Mr. Boucher's motorcycle a number of
times;
(i) the appellant
told the Minister's investigators that Mario Boucher had informed him that
he was employed by Revenue Canada and told him that he was entitled to a tax
refund;
(j) the appellant
admitted that, when he received the tax refund cheque, he had not understood
why he was entitled to such a tax refund for the 1989, 1990, 1991, 1992 and
1993 taxation years;
(k) the appellant
made no attempt to inquire of the Minister as to the reasons for a total tax
refund such as that for the 1989, 1990, 1991, 1992 and 1993 taxation years;
(l) it is the
Minister's view that the negligence displayed in this matter was tantamount to
complicity;
(m) in support of the
reassessments dated May 30, 1995, for the 1989, 1990, 1991, 1992 and 1993
taxation years, the appellant made a misrepresentation attributable to neglect,
carelessness or wilful default or committed any fraud in filing a return or in
supplying any information under the "Act";
(n) the claim of
non-refundable tax credits, in respect of the equivalent-to-married and
dependent credits, and of federal credits, in respect of the child tax credit,
for the 1989, 1990, 1991 and 1992 taxation years and the claim of only a
non-refundable tax credit, in respect of the equivalent-to-married credit for
the 1993 taxation year, led the Minister to believe that the appellant
knowingly or under circumstances amounting to gross negligence, made or
participated in, assented to or acquiesced in the making of, a false statement
or omission in the returns of income filed for the 1989, 1990, 1991, 1992 and
1993 taxation years, as a result of which the tax that he would have been
required to pay based on the information provided in the tax returns filed for
those years was less than the amount of tax payable for those years.
[4] The reasons in the Notice
of Appeal are as follows:
[TRANSLATION]
...
My godfather, Hector Villeneuve, had
always done my taxes since I had been in the labour market, and had done so
free of charge, being a Hydro-Québec pensioner. He died in 1993.
In 1994, I met Mario Boucher and,
after I made a few repairs to his motorcycle, he informed me that he was
employed by the Department of Revenue Canada. He offered to prepare my income
tax return for 1994. I accepted and he subsequently told me that I was entitled
to an additional amount of $12,000, which had not been claimed.
He himself completed the form, which he had
me sign. Being very naive and trusting that person, particularly since he was
an employee of the Department of Revenue and had told me he was a tax
specialist, I did not hesitate. I received this cheque, which I cashed without
asking any questions. I was in good faith; he told me I was entitled to it.
I received $12,000 in 1995, retroactive
five years, that is, for 1989 to 1994, believing that that was normal. Why
are you now claiming $29,800, which is due to an error by your employee at the
Department of Revenue?
Responsibility for this claim is mostly
attributable to Mario Boucher, your employee at the Department of Revenue,
who, out of gratitude for repairing his motorcycle, offered to prepare my taxes
and to obtain this grant, without my being aware of the type of grant or of
what right. If I was not entitled to the grant at the time, the Minister
should simply not have awarded it. That is not my responsibility.
Being in good faith, I am prepared to repay
the amount received, but the penalty and interest are not my responsibility.
Attached please find the information requested.
...
[5] The appellant is a
welder-fitter. At the time of the hearing, he was not working because he had
had a car accident, which had apparently triggered post-traumatic arthritis in
him.
[6] He admitted
subparagraphs 8(b), (c)
and (g) to (k) of the Reply. He said that he knew nothing of the facts stated
in subparagraph 8(f) of the Reply because he did not know why he had
received a refund. Mr. Boucher had simply told him that he was entitled to
tax refunds.
[7] The appellant stated that
repairing Harley-Davidson
motorcycles had been a hobby for 15 years. He had done that for
Mr. Boucher. Mr. Boucher asked him for his social insurance number to
enable him to check his taxes because he purportedly told him that his uncle,
who had prepared his tax returns, might not have claimed everything he was
entitled to claim. The appellant said he trusted Mr. Boucher because he
was a tax specialist. He himself knew nothing at all about it.
[8] The appellant received a
cheque for $12,000 in 1995. He
contends that he did not give Mr. Boucher $8,000. He immediately withdrew
$8,000 in cash in order to repay a friend a loan.
[9] The appellant stated that,
in 1994, he had begun to build
himself a house and had to borrow money. When the tax refund arrived, he took
advantage of it to repay his loans. He said that he would not have given
Mr. Boucher a cent. He had made a major repair to his motorcycle
easily worth $2,000. However, while the appellant had supplied his time,
Mr. Boucher had paid for the parts.
[10] The appellant confirmed
that Mr. Boucher had
completed a number of his tax returns. He had charged $40 for that, but the
appellant nevertheless contends that he gave Mr. Boucher nothing for the
tax refund:
[TRANSLATION]
A. The time the
substantial amount arrived, that time I didn't pay him. He gave it to me and
said, "Here, this is an amount you're entitled to..."
...
A. You know, if I had
known that before, do you think I would have done something like that? Risk
losing my house, which I worked my heart out to build? I would never have
played at that.
...
[11] The appellant concluded his
testimony by saying that the affair had been a scam. He had been a victim like
the other appellants whose testimony he had heard before his own. He also
argued that he had never had any debts with Revenue Canada and had always
wanted to comply with the Act.
[12] Rolland Pelletier, the respondent's witness,
testified at the hearing of the first appeal heard that same day, that of
Dany Houde (2001‑824(IT)I). The appellant heard that testimony. I
have quoted a passage from it concerning the fraudulent refund recipients, who
said they had not paid any amount of money in return, at pages 23 and 24
of the transcript in the said appeal:
[TRANSLATION]
Q. And then earlier,
Mr. Pelletier, we heard that there was an amount handed over either to
Mario Boucher or to Réjean Simard in most of the cases. Can you give
an approximate figure, in how many cases you think that was done? Was it the
majority? Was that the pattern of the fraud that was carried out in this way?
A. Yes.
Q. Can you explain?
A. Well, most of the
people told us that they had handed over a certain amount of money, while
others told us they had handed over nothing. However, when we checked their
bank accounts, an amount equivalent to 66 percent had been withdrawn a few
days later.
...
Arguments
[13] Counsel for the respondent
observed that this case was different from the other two and that the appellant
did not admit handing over two-thirds of the amount received to Mr. Boucher. He recalled that
Mr. Pelletier had stated in his testimony that nearly two-thirds of the
taxpayers involved in this matter had admitted paying back a significant sum.
As to those who made no admission, nevertheless, there was always a large
withdrawal from their bank account of approximately two-thirds of the amount a
few days after the deposit. Counsel for the respondent argued that
Mr. Boucher could not have done so without receiving payment in return and
that it must be presumed that the $8,000 withdrawal made by the appellant,
purportedly to repay a loan for the construction of his house, was made to pay
the originator of the tax refund.
Conclusion
[14] The appellant did not admit
that he had made a payment to the originator of the refund, but he did admit
that he had immediately withdrawn two-thirds of the amount. He claimed that it
had been to repay a loan that he had contracted with a friend in order to build
his house.
[15] The evidence presented in
this case by the respondent is evidence by presumption of fact. Presumption of
fact is defined as follows in La preuve civile, Jean‑Claude Royer,
Les Éditions Yvon Blais Inc., 1987, at page 296:
[TRANSLATION]
798 – Definition
- A presumption of fact is the conclusion the tribunal draws from one or more
known facts to an unknown fact.
[16] Article 2849 of the Civil
Code of Quebec, which appears in the book on evidence, reads as follows:
Presumptions which are
not established by law are left to the discretion of the court which shall take
only serious, precise and concordant presumptions into consideration.
[17] I refer to a decision by
Marceau J., as he then was, of the Federal Court - Trial Division, in Canadian
Titanium Pigments Ltd. v. Fratelli D'Amico Armatori, [1979] F.C.J.
No. 206 (Q.L.), more particularly to paragraphs 12 to 15:
12. As I mentioned, plaintiff is not able to
present direct evidence for either of its two propositions: I explained in my
introductory remarks on the case that it only became aware after the fact that
its pipes had been broken, and was only able to associate this with the passage
of the Mare Placido some time afterwards. Plaintiff sought to prove its
assertions solely by indirect evidence, that is by presumptions on two
levels, so to speak, for as we shall see certain of the facts which, in its
submission, support its conclusions can themselves only be proven by
presumptions.
13. There is certainly no need to
emphasize that evidence demonstrating the existence of a fact through
presumptions is admissible: in practice, it is even a means of proof which, in
an area such as civil liability, can often be more effective than any other.
There is also no need to dwell at any length on the principles in accordance
with which evidence of this kind must be analyzed. This is all well
established. The rules applicable in this area, which are derived from logic as
well as from legal theory, are all essentially the same in civil law as in the
common law, and that is why, be it noted in passing, I do not place any
importance on the question of whether the case should be dealt with exclusively
in accordance with Quebec law -- as counsel for both parties assumed,
undoubtedly on the assumption that the cause of action arose in Quebec and that
the trial took place there -- or with the law which this Court, in its
admiralty jurisdiction, received from the Courts which preceded it -- as might
be argued.
14. It is well recognized that in
order to win its case plaintiff must put forward presumptions that command
acceptance in number as well as in weight, in the exactness of their
application and their concurring effect -- here I adopt concepts used by
commentators and the courts in Quebec and derived from Art 1353 of the
French Code. However, we should not forget that this acceptance does not
need to be based on incontrovertible evidence: such a level of certainty goes
beyond the requirements of the civil law; it will be based merely on a relative
conviction, derived from a rational deduction from the facts and circumstances.
15. I must therefore examine these
facts and circumstances, disclosed by the hearing, and consider whether
sufficiently convincing evidence can be rationally deduced from them of the
truth of the two propositions on which the action is based.
[18] I have emphasized the
passages I find most enlightening.
[19] Reference should also be
made to the decision of the Supreme Court of Canada in Lévesque v.
Comeau et al., [1970] S.C.R. 1010, at pages 1012 and 1013:
... She alone could
bring before the Court the evidence of those facts and she failed to do it. In
my opinion, the rule to be applied in such circumstances is that a Court must
presume that such evidence would adversely affect her case....
[20] The appellant admitted
subparagraph 8(c) of the Reply regarding the fact that the appellant
withdrew $8,000 in cash the same day the deposit was made. That is standard
procedure under this scheme. The statement that he did not pay a cent for the
service rendered by the originator of the refund is not plausible. The evidence
of the repayment of an $8,000 loan made by a friend for the construction of his
house is not supported by any supporting document.
[21] I am convinced on the basis
of a rational deduction from the facts and circumstances, that is, the
immediate withdrawal of $8,000 corresponding to two-thirds of the amount of the
refund and the absence of valid evidence of the repayment of a loan from a
friend, that the appellant was not an exception to the system of paying
two-thirds of the amount of the refund received, an organized scheme proven by
the respondent.
[22] The appellant must remit the amount of the tax refund overpayment
made to him in full and with interest.
[23] As to the penalty assessed under subsection 163(2) of the Act,
in Jean‑Marc Simard v. Canada, [2002] T.C.J.
No. 265 (Q.L.), I found that the Court had discretion to adjust the amount
assessed on the basis of the taxpayer's ability to pay, his wrongful intent and
his previous behaviour. The respondent appealed from that decision.
[24] Pending the decision of the Federal Court of Appeal, I believe it
more prudent for the moment to follow the example of that Court of Appeal in a
recent decision in Chabot v. Canada, [2001] F.C.J. No. 1829
(Q.L.). In that decision, it did not evaluate the degree of the taxpayer's
wrongful intent but completely excluded him from any application of subsection 163(2)
of the Act on the ground that the taxpayer had been caught in an ambush.
That particular taxpayer had claimed tax credits for charitable gifts. In 1992,
he made a charitable donation of $10,000 for which he had in fact paid $2,800
and, in 1993 and 1994, gifts of $15,000 and $8,000, whereas he had paid a total
of $2,500.
[25] Paragraphs 40 and 41 are reproduced:
40. I also note that Denis Lemieux,
an investigator with Revenue Canada, explained to the Court that no action had
been taken against the foundations involved themselves because, in the
Department's view:
[TRANSLATION]
... they had been caught in an ambush. It had
grown completely out of proportion for them. They were genuinely ... they are
not specialists when it comes to artwork. They found the offer very
appealing....
These are foundations; there was no criminal
intent on the part of these people. They realized themselves that they were in
the wrong.
(Appendix 6, pages 25 and 26)
In his own way, Mr. Chabot too "got
caught in an ambush" and, in his own way, he too "found the offer
appealing."
41. In these circumstances, I find it difficult
to understand why Revenue Canada would assess penalties against such small
taxpayers who, in good faith, tried to benefit from a tax credit that Revenue
Canada itself dangled in front of their eyes and which, according to the guide,
seemed so easy to obtain.
(My emphasis.)
[26] I believe that the appellant also got caught in an ambush. It was
not he who had developed the scheme. The proposition was put to him by a
Revenue Canada employee. No mention was made to him of fraudulent acts. He was
told that it was possible he had not claimed all the tax refunds to which he
had been entitled. He received a substantial amount of money in the form of a
tax refund.
[27] He claims he gave Mr. Boucher nothing in return, which the
Court does not believe for the reasons given above. Moreover, like the other
appellants, he stated that he had been the victim of cunning predators. I agree
with that view of the situation. This was indeed a situation in which the
appellant was caught in an ambush. There was no sign of a deliberate decision
by the appellant to violate the Act.
[28] There is always a share of responsibility in actions taken, except
for purely accidental acts. It is a serious act to hand over money to
government officials when they are performing their duties.
[29] Subsection 163(2) of the Act, however, requires that
false statements or omissions be made knowingly or in circumstances amounting
to gross negligence. In other words, that subsection requires wrongful intent.
It is my view that the Court must be all the more certain of wrongful intent
where the resulting penalty is an extremely large amount and would be
particularly onerous for the taxpayer, as is the case here.
[30] As I stated in Jean-Marc Simard, supra, for
taxpayers with moderate incomes, the repayment of tax refund overpayments, plus
interest, is in itself highly onerous; I must therefore be all the more
convinced of the taxpayer's wrongful intent in order to add penalties and
interest which, in this case, amount to very large sums.
[31] The appellant has a good trade, but he is neither an accountant
nor a legal expert. Based on what he said in his testimony and in his Notice of
Appeal, he has always filed his tax returns every year and has always wanted to
be in compliance with the Act. That statement was not contradicted by
the respondent.
[32] In my view, the act he committed at the outset resulted from a
lack of awareness or an error in judging the trust that should be placed in a
Revenue Canada employee and not from wrongful intent. He was then caught in an
ambush. As he said, he was prey to cunning predators who knew how to play on
trust and on the lure of tax overpayments.
[33] The more educated a person is, the harder it will be for that
person to avoid the application of subsection 163(2) of the Act on
the ground of an error in judgment in circumstances such as those in the
instant case. In this instance, however, I find that the appellant did not form
the wrongful intent required by subsection 163(2) of the Act.
[34] Accordingly, the appeal is
allowed on the basis that the penalties and related interest shall be
cancelled.
Signed at
Ottawa, Canada, this 12th day of December 2002.
J.T.C.C.
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