[OFFICIAL ENGLISH TRANSLATION]
Date: 20020613
Docket: 2001-3165(IT)I
BETWEEN:
GUY DIONNE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal concerning the
1995, 1996 and 1997 taxation years.
[2] The assessments being appealed
from were made on the basis of the following assumptions of
fact:
(a)
Generalities
(i) during the taxation
years at issue, the appellant worked as an electrical
contractor;
(ii) during the 1995 and
1996 taxation years, the appellant did not have a
contractor's licence from the Régie du Bâtiment
du Québec;
(iii) for the 1995 and 1996
taxation years, the appellant stated that he was unable to draw
up financial statements because he had apparently destroyed all
the documentation on income and expenditures;
(iv) for the 1997 taxation year,
the appellant filed his income tax return on time but declared
income for an abbreviated period from August 1 to December 31,
1997.
(b) Notice of
Reassessments dated December 6, 1999
(i) in 1997, the Minister
contacted the appellant in order to request that he file his tax
returns for the 1995 and 1996 taxation years;
(ii) on February 10, 1998,
the Minister received tax returns for the 1995 and 1996 taxation
years in which the appellant reported no business income;
(iii) in April 1998, the
appellant filed his tax return for the 1997 taxation year on time
but declared business income only for the period from August 1 to
December 31, 1997;
(iv) on June 9, 1999, the
Minister sent the appellant a letter informing him that the
Minister intended to reconstruct the tax returns for the 1995,
1996 and 1997 taxation years by adding to them undeclared
business income of $89,981, $111,162 and
$87,781 respectively and to apply to these amounts the
penalty set out in subsection 163(2) of the Act,
conditional on any relevant information the appellant might
kindly send the Minister within thirty (30) days;
(v) the appellant or the agent
for the appellant sent amended tax returns for the 1995 and 1996
taxation years to the Jonquière Tax Centre, instead of
sending them to the auditor working on the file;
(vi) on September 14, 1999, the
Minister reassessed the appellant for the 1995 and 1996 taxation
years, in order to take into account the following amended
declared amounts of gross and net income earned by the appellant
as an electrical contractor:
1995
1996
"Guy Dionne Électricien
enr."
Gross
income
$61,234
$57,443
Net
income
$2,227
$2,558;
(vii) On September 30, 1999, the
Minister sent the appellant a letter informing him of the
Minister's decision to establish the undeclared net business
income in the amount of $28,747, $53,719 and
$86,975 for the 1995, 1996 and 1997 taxation years
respectively and to apply to those amounts the penalty set out in
subsection 163(2) of the Act;
(viii) the Minister computed the undeclared
business income as follows:
1995
1996
Income according to proposal $89,981 $111,161
(bank account deposits
identified)
Declared gross income
according to amended
tax
returns
$61,234
$57,443
$28,747
$53,718;
(ix) for the 1997 taxation year,
the Minister computed the undeclared business income as
follows:
Accounts receivable as at April 30,
1997
$ 6,139
Sales
invoices
$30,192
Deposits
#
19262
$36,339
#
30194
$14,305
$50,644
$86 975;
(x) in a Notice of Reassessment
dated December 6, 199[9], the Minister established the following
amounts of net income from the operation of the business
"Guy Dionne Électricien enr.":
1995
1996
1997
Net income
already
assessed
$2,227
$2,558
$2,829
Undeclared
income
added
$28,747
$53,718
$86,975
Net
income
$30,974
$56,276
$89,804.
(c) Notice of
Reassessments dated June 20, 2001
(i) at the objection
stage, the Minister agreed that the undeclared income should be
reduced by the following amounts:
1995
1996
Net business income
assessed
$30,974
$56,276
Less:
Deposits from sources
other than the business $2,596 $15,432
Deposits already taxed
by means of
invoices
$5,787
Bad
debts
$2,687
Revised net business income
$28,378
$32,370;
(ii) by failing to
declare $26,150, $29,812 and $86,975 for the 1995, 1996 and
1997 taxation years respectively, the appellant knowingly or
under circumstances amounting to gross negligence made a false
statement or omission in the tax returns he filed for those
taxation years or he participated in, assented to or acquiesced
in the making of that false statement or omission, with the
result that the income tax payable according to the information
provided in the tax statements filed by the appellant for each of
those taxation years was lower than the income tax that would
have been payable for each of those taxation years.
(d) Late filing
penalty
(i) the
appellant's tax returns for the 1995 and 1996 taxation years
should have been filed no later than April 30, 1996, and
April 30, 1997, respectively;
(ii) the
appellant's tax returns for the 1995 and 1996 taxation years
were not filed until February 10, 1998;
(iii) in the June 20,
2001, reassessments a total late filing penalty of $517.54 and of
$454.74 for the 1995 and 1996 taxation
years respectively were assessed.
[3] The issues are as follows:
(a) whether in computing the
appellant's income, the amounts of $26,150, $29,812 and
$86,975 were correctly included as undeclared business
income for the 1995, 1996 and 1997 taxation years
respectively;
(b) whether the Minister of National
Revenue was entitled to assess a total late filing penalty of
$517.54 and of $454.73 against the appellant for the
1995 and 1996 taxation years respectively; and
(c) whether the Minister was justified
in assessing the penalty set out in subsection 163(2) of the
Income Tax Act ("the Act") against
the appelant for the 1995, 1996 and 1997 taxation years.
[4] The appellant and Régina
Francoeur, in her capacity as the appellant's bookkeeper
(although only from 1997), testified. Their testimony revealed
that the appellant did not have any accounting records. Until
1997, all transactions concerning the business were processed
through a single bank account that was also used for the
appellant's personal affairs and the transactions of
"Paguy-Hena Inc.", a real estate company controlled by
the appellant.
[5] At the time of the audit, the
appellant had not filed any tax returns for the 1995, 1996 or
1997 taxation years.
[6] As a result of a formal request
that he file tax returns for the taxation years at issue, the
appellant filed returns for the 1995 and 1996 taxation years,
indicating that no income had been earned, thereby contradicting
his initial and oral statements that the business had been
inoperative during those years. For the 1997 taxation year, the
appellant filed a return covering only the period from August to
December 1997.
[7] At the outset, the appellant
admitted and acknowledged that he had not filed tax returns for
the taxation years at issue within the time limits set out in the
Act.
[8] Not having any vouchers or
accounting records concerning the appellant's business, the
auditor was obliged to compute the appellant's income on the
basis of bank deposits, the only method possible under the
circumstances.
[9] During the review, a number of
corrections were made; the respondent accepted nearly all the
explanations provided and reduced the income initially
established for the appellant by the corresponding amounts.
[10] Concerning the 1997 taxation year, the
Appeals Officer indicated that he had repeatedly and
unsuccessfully tried to contact the appellant, and he even
indicated the exact date on which he had notified the appellant
that, unless the appellant co-operate, he would be closing the
file and making final assessments.
[11] At the hearing, I explicitly explained
to the appellant the nature of the burden that he had and that,
in order to discharge it, he would have to establish on the
balance of evidence that his income was consistent with his
claims, by means of documentation, evidence and plausible
information.
[12] Not only did the appellant not adduce
this evidence, he basically criticized the respondent's
method of proceeding. Despite being cautioned that he needed to
establish the accuracy of his claims, the appellant never
adduced, produced or established anything whatsoever that would
discredit the quality of the auditor's work.
[13] Essentially, the evidence adduced by
the appellant consisted in stating that he had done what he
could, in repeating that construction businesses were not
profitable, and in stating that by himself he could not have made
the sales attributed to him and that usually materials accounted
for 40 per cent of costs and labour for 60 per cent.
[14] The appellant criticized the fact that
his business income was computed on the basis of bank deposits,
citing various other possibilities including tax rebates,
reimbursements of expenses, and loan amounts. According to the
appellant, those amounts might have been deposited into his
account without constituting income at all.
[15] Ms Francoeur's testimony
provided nothing whatsoever in support of the appellant's
claims. Essentially, she confirmed that there were no accounting
records and she, too, criticized the arbitrary method used
(computing income on the basis of bank deposits). She provided
examples of amounts that did not constitute income, such as
reimbursement of expenses incurred by the appellant in the course
of volunteer activities, tax rebates, and loan amounts. However,
it was established that all individual deposits that did not
constitute income had been deducted from income at the time of
the review.
[16] In other words, at the time of the
review, all the deposits that had been explained were deducted
from income. As well, the appellant was unable to provide a
single concrete example of any errors whatsoever; he did not
point to any amount recorded as income that did not in fact
constitute income.
[17] The appellant adduced no evidence that
could allow me to accept any or all of his claims.
[18] Varying an assessment is essentially a
rational and mathematical exercise. In this case, I cannot
arbitrarily or intuitively find that the audit was performed in a
wilful or flawed manner or find that the figures forming the
basis for the assessment should have been different since nothing
in the evidence calls for such a correction.
[19] In order to have the assessment being
appealed from amended or reduced, the appellant would have had to
provide this Court with the indispensable material to do so.
Since the appellant has provided nothing of the sort, I must
confirm the merits of the assessment.
The penalties
[20] Concerning the late filing penalties
under paragraph 150(1)(d) of the Act, the
appellant initially acknowledged the justification for those
penalties; he provided all sorts of unacceptable reasons in an
effort to explain his complete negligence and carelessness.
[21] Penalties were also assessed against
the appellant under subsection 163(2), which reads as
follows:
163(2) Every person who, knowingly, or under
circumstances amounting to gross negligence in the carrying out
of any duty or obligation imposed by or under this Act, has made
or has participated in, assented to or acquiesced in the making
of, a false statement or omission in a return, form, certificate,
statement or answer (in this section referred to as a
"return") filed or made in respect of a taxation year
as required by or under this Act or a regulation, is liable to a
penalty of the greater of $100 and 50% of the total of
...
[22] On this point, the burden was on the
respondent. The evidence adduced in order to discharge this
burden showed that there was considerable income, not all of
which had been declared.
[23] After being formally notified of his
obligation to file tax returns for the 1995, 1996 and 1997
taxation years, the appellant first stated orally that his
business had not operated in 1995 and 1996.
[24] Changing his mind, the appellant then
confirmed everything in writing by filing signed statements that
he had earned no income in the 1995 and 1996 taxation years.
Later on, the appellant again filed other statements in which,
this time, substantial income was reported for the same taxation
years.
[25] These points are largely sufficient for
me to find that the appellant knowingly made false statements and
misrepresentations concerning the taxation years at issue in this
appeal.
[26] The evidence has established that the
appellant was a businessperson who had operated a business for
several years. He operated a business that yielded substantial
income; he maintained no accounting records or books and kept
essential vouchers jumbled together in a box.
[27] Furthermore, the appellant's
misrepresentations did not involve trivial amounts¾the
amounts involved were substantial. The appellant's income had
to be determined on the basis of bank deposits because the
appellant was negligent to the point that he had absolutely
nothing that would have made it possible to conduct an audit;
more importantly, a single bank account was used to process all
of the appellant's personal business as well as the
transactions of the business and those of a company that the
appellant controlled.
[28] As a result, the court should not
intervene concerning the justification of the penalties, which
were completely justified in the circumstances.
[29] The appeal is therefore dismissed.
Signed at Ottawa, Canada, this 13th day of June 2002.
J.T.C.C..
Translation certified true
on this 4th day of September 2003.
Sophie Debbané, Revisor
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