[OFFICIAL ENGLISH TRANSLATION]
Date: 20020402
Docket: 1999-2369(IT)G
BETWEEN:
GÉRARD NÉRON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Docket: 1999-2791(IT)I
BETWEEN:
PASCAL NÉRON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] These appeals were heard on common
evidence. The appeals by the appellant
Gérard Néron for the 1990 to 1994 taxation
years have been brought under the general procedure. The appeals
by the appellant Pascal Néron for the 1992 to 1994
taxation years have been brought under the informal
procedure.
[2] The assessments at issue were made
following an audit conducted using the net worth method, which
showed discrepancies between declared income and income
identified during the audit.
[3] In making the reassessments
regarding the appellant Gérard Néron, the
Minister of National Revenue (''the Minister'')
relied on the following assumptions of fact, set out in
paragraph 5 of the Reply to the Notice of Appeal
(''the Reply''):
(a) during the 1990,
1991, 1992, 1993 and 1994 taxation years, the appellant earned
income from various sources;
(b) during the
taxation years at issue, the appellant was a shareholder in a
corporation operating as Québec imperméabilisation
Enrg.; as well, he operated various businesses in the real
estate, automobile, and cleaning industries by means of a
numbered corporation;
(c) the appellant
did not declare all his income in his income tax returns for the
1990, 1991, 1992, 1993 and 1994 taxation years;
(d) following an
audit conducted using the net worth method and following an
analysis made at the time of the objection, the Minister observed
discrepancies of $43,760 (1990), $30,115 (1991),
$94,518 (1992), $25,418 (1993), and $39,194 (1994) in
the appellant's capital reconciliation (a copy of the balance
sheets and of the capital reconciliation statement prepared by
the Minister's staff are appended to this Reply to the Notice
of Appeal as Schedule I-1 and form an integral part of
the Reply);
(e) the
above-mentioned amounts of $43,760 (1990), $30,115 (1991),
$94,518 (1992), $25,418 (1993), and $39,194 (1994)
constitute income that the appellant failed to declare and must
be taken into consideration in computing his income tax for those
taxation years;
(f) in filing
his income tax returns for the 1990, 1991 and 1992 taxation
years, the appellant made a misrepresentation by voluntarily
failing to declare substantial income;
(g) the appellant,
knowingly or under circumstances amounting to gross negligence,
having made false statements on his income tax returns for the
1990, 1991, 1992, 1993 and 1994 taxation years by failing to
declare income of $43,760 (1990), $30,115 (1991),
$94,518 (1992), $25,418 (1993), and $39,194 (1994),
penalties were assessed under subsection 163(2) of the Income
Tax Act.
[4] At the beginning of the hearing,
counsel for the appellant Gérard Néron
produced a certificate from a physician and a certificate from a
psychologist concerning the state of Gérard
Néron's health. Gérard Néron had an
automobile accident in 1991 and fell from a roof in 1997.
Apparently the most recent accident had the most after-effects
for him, affecting his memory and vision. He has 5 percent
vision. This certificate was produced to explain that, although
Gérard Néron's testimony might be vague, I
should not draw negative conclusions therefrom given the state of
his health.
[5] Gérard Néron was the
first to testify. He stated that, after completing Grade 8, he
went to trade school. He stated that he had had a disability
since March 4, 1991, as a result of an automobile accident.
[6] In 1990, Gérard
Néron owned a cleaning business, 2318-9848
Québec Inc., operating as Nettoyeur Ultra. Apparently his
spouse owned another cleaning business, 2149-9454
Québec Inc., operating as Nettoyeur Léo
Grégoire (1988) Enrg. Gérard Néron worked at
both these cleaning businesses.
[7] Gérard Néron added
that, as a hobby, he and Jacques Lachance were
partners in roof treatment and waterproofing. That
partnership ended at the end of 1990. Gérard Néron
was familiar with roofing work because his father worked in this
type of business.
[8] Gérard Néron also
had rental income from 16 apartments.
[9] Gérard Néron
explained that he had made use of Autos G. N. Enr. in
order to reduce insurance costs. He had three sons who drove the
car, in addition to himself and his spouse, and there were
delivery vehicles for the cleaning businesses. He suggested that
in putting these vehicles in the name of Autos G. N., he had
only to take out an insurance coverage costing $1,500 annually,
and the entire family could drive any vehicle. Apparently, from
time to time, he purchased automobiles at auctions. He stated
that Autos G. N. Enr. never made a profit. It was operated,
not as a public business, but for personal reasons.
[10] Gérard Néron stated that
the second accident occurred in July 1997. He fell headfirst onto
concrete from a 35-foot roof. He suffered severe head trauma and
spent seven and a half months in a coma and a year and a half in
hospital.
[11] Gérard Néron stated that,
after the accident in 1991, he sold the two cleaning businesses.
According to notes to the financial statements of the two
corporations, Corporation 2149-9454 disposed of all its assets
and did not operate after April 1, 1991. Corporation
2318-9848 ceased its cleaning operations on June 25, 1991.
Since that date, this corporation has been in the business of
waterproofing buildings, operating as Québec
Imperméabilisation Enrg.
[12] Gérard Néron stated that,
after 1991, his only other sources of income, aside from rental
income, were disability benefits, for example from the
Société d'assurance automobile du Québec
(''SAAQ''). Apparently he also received
disability benefits from Mutual of Omaha, now RBC Insurance. He
said that he thought this income amounted to $100 per week.
Apparently, he drew these disability benefits until 1994.
[13] As Exhibit A-2, Gérard
Néron produced a letter dated April 4, 2001, from RBC
Insurance, concerning [translation] ''Claims under
Policy #031647276''. This letter reads as
follows:
[translation]
...
Further to our telephone conversation, the following are the
claims you have made under the above-mentioned policy:
...
From March 11, 1991, to June
2, 1994
$15,274.70
[14] Apparently, from 1991 to 1994
Gérard Néron also received disability benefits of
$200 per week from Paul Revere Insurance.
[15] This case was very detailed, but since
the most important aspect of the appellant's net worth was
the money used to pay for the condominium in Florida in 1992, I
shall now present this part of the evidence.
United States (US) bank accounts and condominium in
Florida
[16] According to Exhibit I-1-3 (the
Schedule to the Reply), in 1991 the appellant's net worth
increased by $102,371.08 in assets. In 1992, the amount of
these assets was $136.69. However, the adjustments also indicate
a withdrawal of $106,190.88 from a US bank account and a
condominium costing $60,612.93 recorded under capital property.
The appellant claimed that the condominium was paid for from the
US$100,000 deposit in the US bank account. The Minister
claimed that all the withdrawals from the bank account, including
those used to pay for the condominium, must be taken into
consideration.
[17] Exhibit I-2 comprises: (a) bank
statements of account No. 220221863800 in the name of the
appellant Gérard Néron and his then spouse,
Chantal Fortier; and (b) a photocopy of a cheque
for US$100,000, issued by Dorothy Fortier to
Gérard Néron and dated
November 12, 1991. That cheque was endorsed by
Gérard Néron to bank account No.
2203208726-06.
[18] According to Exhibit A-9 (the
report by the Minister's auditors, Jean-Claude Delisle
and Nancy Godbout), in early November 1991,
Gérard Néron made an electronic transfer of
US$101,500 to Dorothy Fortier, his ex-spouse's
sister.
[19] Exhibit I-3 is a photocopy of a
November 13, 1991, transfer of US$3,500 by the Caisse
d'économie de la Vallée de l'Amiante
(''CEVA'') to the American Bank,
1811 North Young Circle, Hollywood, Florida. The
recipient was Gérard Néron and his bank
account number was 2203208726-06, the same bank account to
which the above-mentioned cheque was endorsed. According to the
Minister's auditors, no statements of that bank account were
provided.
[20] In the bank statements of account No.
220221863800 (part of Exhibit I-2), the following
transactions were noted. The first transaction was dated December
10, 1991. The balance was US$871.08 on February 11, 1992,
and remained at that amount until May 11, 1992. On
May 21, 1992, a deposit of US$100,000 was made. The
same day, a deposit of US$2,667.67 in interest from account
29018178628 was made; nothing will be known about that bank
account either. The auditors agreed that the
US$100,000 deposit came from the same amount that was
transferred to Dorothy Fortier, remitted by cheque to the
appellant on November 11, 1991, and endorsed by him to bank
account 2203208726-06.
[21] On May 26, 1992, two withdrawals were
made, one for US$35,000 and the other for US$60,000.
[22] On July 7 and 15 and October
6, 1992, deposits of US$1,593, US$11,000 and US$1,000
respectively were made. On October 15, 16, 29, and November
9, 1992, withdrawals of US$2,250, US$2,000, US$8,000, and
US$500 respectively were made. The US$8,000 withdrawal
was considered a payment for the condominium.
[23] Exhibit A-3 is the purchase
contract for the condominium. It shows that a down payment of
US$8,000 was made on October 29, 1992. The balance of
US$40,239.93 was paid on December 8, 1992.
[24] In bank account No. 220221863800, on
December 2, 1992, a deposit of US$34,500 was made. On
November 20 and December 8 and 12, 1992, withdrawals of
US$500, US$1,000, and US$40,239.93 respectively were
made. The last amount was considered a payment for the
condominium. On December 15, 21, and 22, 1992,
withdrawals of US$1,700, US$90, and US$400 respectively were
made.
[25] Exhibit A-4 is a document showing
that a safe deposit box was opened on April 3, 1992.
[26] In his testimony, Gérard
Néron explained that he had transferred US$100,000 to
Dorothy Fortier, the sister of Chantal Fortier, his former
spouse, ultimately in order to purchase a condominium. He
transferred this money to his sister-in-law instead of opening a
bank account directly because he did not know the banks or speak
English. Dorothy Fortier lives in Florida and is an
American citizen. The US$101,500 that he transferred to
his sister-in-law came from the sale of the cleaning businesses.
The cleaning businesses were sold shortly after the accident, but
the negotiations to sell them had been initiated before the
accident.
[27] Gérard Néron explained
the withdrawal of US$35,000 as follows. He was friends with
Hervé Grenier, a businessperson whom he trusted.
After meeting Hervé Grenier in Florida, Gérard
Néron mentioned to him that he was interested in lending
money. Hervé Grenier told him about a potential borrower,
saying that if the appellant wanted to lend $35,000, he too would
lend the same amount and that was the $35,000 that was
repaid six months later. This loan was made on May 26, 1992
in Florida. The interest rate was 10% for six months.
Gérard Néron was reimbursed in one payment plus the
interest on December 2, 1992.
[28] Hervé Grenier testified
that he has been retired for 15 years, that he and the
appellant live in the same neighbourhood in Thetford, and that he
owns a condominium in North Miami, Florida.
Gérard Néron apparently told Hervé
Grenier that he had money to invest. Through another person, they
learned that one Jacques Gauthier needed a loan. They each
lent $35,000 at 10% for approximately six months. When that
term expired, Hervé Grenier was reimbursed for the
principal and interest by cheque; he thought that Gérard
Néron had received a cheque as well. Hervé Grenier
stated that the loan was made in the spring of 1992, in February
because he always left Florida at that time of year. Thus, the
loan was repaid six months later, in the summer, certainly before
April 15.
[29] At another point, the appellant stated
that he purchased the condominium in Florida with $100,000 that
he had brought to the US and placed in a safe deposit box. From
the safe deposit box, he took the $35,000 to lend out
leaving the rest of the money there. When asked in what form was
the rest of the money in the safe deposit box, he answered that
the balance consisted of cash, bank money orders, and bank
drafts. He purchased furniture with that money. The safe deposit
box was opened with Chantal Fortier (transcript,
pages 82 and 83).
[30] I shall present part of additional
testimony concerning the appellant's net worth here.
Jean-Claude Delisle, an investigator with Revenue Canada's
Special Investigations Section, stated that he met with Chantal
Fortier at the end of the year. During that meeting, he asked her
questions about a bank account in Florida. On this point, she
answered: [translation] ''My sister could tell you much
more about that because the transfers were made to her bank
account.'' On February 6, Jean-Claude Delisle
called Dorothy Fortier, who confirmed that Gérard
Néron had transferred over $100,000 to her personal
bank account, and that she had then issued a cheque to
Gérard Néron to repay him this money. Jean-Claude
Delisle asked her to provide copies of both sides of the cheques
used to transfer the money and of the purchase contract for the
condominium.
Testimony by Chantal Fortier
[31] Chantal Fortier was
Gérard Néron's common-law spouse for
13 years, from 1979 until the end of 1992. She described
their lifestyle as follows: [translation] ''We ate out
regularly and travelled two or three times a year. In the spring
and fall we went to Florida, and then in the middle of winter we
travelled south, say, to Acapulco or Jamaica.''
They dressed well. They both smoked. Expenses were paid for using
credit cards or cash. They travelled for pleasure.
[32] Chantal Fortier stated that, after the
automobile accident in 1991, Gérard Néron had
a number of jobs. He operated the cleaning business and a home
roofing company as well. The roofing business had two or three
employees and Gérard Néron's son Pascal. When
asked whether Gérard Néron worked, Chantal Fortier
answered affirmatively, stating that he left every morning for
work.
[33] Chantal Fortier has a sister who has
lived in Florida for 15 years. Chantal Fortier stated that
she was aware that Gérard Néron had apparently
transferred $100,000 to her sister Dorothy Fortier in
November 1991 and that the money was subsequently repaid to
him.
[34] Chantal Fortier purchased the property
in Florida on December 4, 1992. She was the one who signed
the contracts and issued the cheques; Gérard Néron
was not present.
[35] Chantal Fortier did not recall opening
a safe deposit box. She stated that she did some research and
located a bank account in both names at the First Union (not one
of the bank accounts mentioned earlier).
[36] Chantal Fortier stated that the assets
of the cleaning businesses were sold for $200,000 in 1991.
[37] I will go over auditor
Jean-Claude Delisle's testimony, part of which is
reported in paragraph 29 above. He was assigned the files of
the appellants and of Chantal Fortier to audit the financial
records and income tax returns. He began this investigation
around mid-October 1995. He telephoned the appellant
Gérard Néron, who told him to call his accountant,
saying: [translation] ''I don't have any documents; I
don't have anything.'' The auditor replied:
[translation] "You must have documents. They're your
business." The appellant then said: [translation]
''No, no, I don't have anything; I have nothing at
all.'' Jean-Claude Delisle told him: [translation]
''I would still like to meet with you regarding two very
important matters: the first is to discuss your personal
expenses, and the second concerns a bank authorization signature
relating to your bank accounts.'' Gérard
Néron was adamant that he did not want to meet with
Jean-Claude Delisle and gave him Gaétan
Giguère's telephone number.
[38] That same day, Jean-Claude Delisle
tried to contact Gaétan Giguère. He left him a
message and called him again on November 2, 3 and 6, 1995; there
was no response.
[39] At that point, Jean-Claude Delisle
contacted Chantal Fortier and met with her on November
6, 1995. She told him that she acted as a nominee for
Gérard Néron in various transactions.
[40] Since there was no response to the
telephone messages, on November 7 or 8, 1995, Revenue Canada
served requirements on the Caisse populaire de Thetford and on
the CEVA. Jean-Claude Delisle and Nancy Godbout, another
auditor, reviewed the accounts at these two financial
institutions. The two auditors must have spent three weeks
compiling the withdrawals and deposits.
[41] On November 16, 1995, Jean-Claude
Delisle once again called Gaétan Giguère, who
finally returned his call. At that point, Gaétan
Giguère told Jean-Claude Delisle that he completely
disagreed with the audit of Gérard Néron's
records, wanted Jean-Claude Delisle to limit himself to the
corporation and Gérard Néron's rental income,
and stated that there were no books of account or records either
for the company or for the real properties. When asked by
Jean-Claude Delisle on what basis was the accounting work done,
Gaétan Giguère replied that it was done using the
deposits, cheques and invoices. When asked to provide a copy of
his spreadsheets and entries, he answered that there were no
spreadsheets or entries. When asked for the deposits, cheques and
invoices, Mr Giguère replied that he could not provide
them for the time being. He was then asked to provide the
contracts for the vehicles and the documentation he had
concerning the disability insurance.
[42] On January 17, 1996, once again
Jean-Claude Delisle telephoned Gaétan Giguère,
asking him if he had any documents or evidence to provide. When
asked whether he had found anything, Gaétan Giguère
answered that he had no documents or evidence to provide. He had
not obtained them and had absolutely no documents concerning the
vehicles. He suggested that Jean-Claude Delisle obtain the list
of vehicles from the vehicle registry.
[43] On January 23, 1996, Jean-Claude
Delisle met with Chantal Fortier a second time. Nancy Godbout was
also present. Jean-Claude Delisle discussed Québec
Imperméabilisation with Chantal Fortier. He asked her
about the Mercedes. She stated that that car belonged to
Gérard Néron. She had a counter letter proving that
fact. They then discussed the $19,000 in advances to
Gérard Néron shown on Chantal Fortier's
financial records for 1989. She told Jean-Claude Delisle that she
knew nothing about those amounts of money and that Gaétan
Giguère along with Gérard Néron had taken
care of that. The financial records had been made on April 4,
1994. Jean-Claude Delisle also discussed 2149-9454
Québec Inc., of which Chantal Fortier was the
principal shareholder according to the documents. She told
Jean-Claude Delisle that she only signed when Gérard
Néron asked her to do so, that she knew absolutely nothing
about that company. As for the family home located at 1138, rue
Lamonde, it was in Chantal Fortier's name at Gérard
Néron's request.
[44] The respondent produced as Exhibit
I-4 a notarized agreement dated November 17, 1992,
between Chantal Fortier and Gérard Néron,
acknowledging that the personal and real properties listed
therein belonged to Gérard Néron,
notwithstanding any contract or clause to the contrary. The
properties referred to were those located at 1138, rue
Lamonde; 66, rue Notre-Dame; 104 and 106, rue
Blais; and the one in Florida. On May 16, 1995, the
appellant signed another document, acknowledging that he was the
only actual shareholder in 2149-9454 Québec Inc.
[45] On March 25, 1996, a meeting was held
with Chantal Fortier during which she signed a solemn
declaration, which was produced as Exhibit I-8.
[46] On the basis of the audit work done on
the Canadian bank accounts and the documents received from
Florida, a draft assessment was prepared that included a sizeable
adjustment, something that Jean-Claude Delisle said needs to be
done unfortunately in the absence of co-operation. The draft
assessment was mailed on May 14, 1996. The appellant
had 30 days in which to respond. On July 2, 1996, a telephone
call was received from Gaétan Giguère, requesting
an extension of the deadline in order to present a proposal for
discussion. On July 25, 1996, Gaétan Giguère
appeared at the auditor's office with his own draft. It
reported a negative amount of $68,000 as income when
Gaétan Giguère himself had reported income of
$33,000 in filing Gérard Neron's income tax returns
for the 1992 to 1994 taxation years. In the auditors'
opinion, therefore, this proposal was not reasonable.
[47] With respect to the condominium in
Florida, Gaétan Giguère claimed that it had cost
$50,000. He was assured that a problem could be corrected and was
asked for the contract. With respect to the withdrawals made to
exchange social assistance cheques, even though Jean-Claude
Delisle was far from being convinced, he said:
[translation]''Well, I need something.''
[48] According to Jean-Claude Delisle, the
analysis of cheques deposited at the bank did not show any social
assistance cheques from the Quebec government. If Gérard
Néron had exchanged cheques, he would have deposited them
but they were not found.
[49] The discussion then turned to the
possibility that some of the unexplained withdrawals might have
been for property maintenance expenditures. Gaétan
Giguère was assured that there was no problem and was
asked for the invoices.
[50] The discussion then turned to the
personal expenditures, then set out in Schedule A comprising
Statistics Canada expenditure figures and actual cost-of-living
expenditures, and in Schedule C listing the large unexplained
withdrawals of $500 and over. Jean-Claude Delisle then told
Gaétan Giguère that he had a list of the
withdrawals under $500 and that, in light of Schedule A, he had
not taken them into consideration.
[51] On August 27, 1996, Jean-Claude
Delisle telephoned Gaétan Giguère, who said he had
not met with his client and planned to do so in early September.
Jean-Claude Delisle called back Gaétan Giguère on
September 10, 12, 23, and 26, 1996. Gaétan Giguère
returned his call on September 26, 1996. An initial appointment
was made for October 1, 1996; this appointment was cancelled.
Further calls were made to Gaétan Giguère on
October 7 and 8, 1996. On October 8, 1996, Jean-Claude
Delisle delivered a revised draft assessment to
Gaétan Giguère's secretary. Gaétan
Giguère flatly refused to talk and told Jean-Claude
Delisle that he would settle the matter at the appeal level.
[52] The next witness to testify was
investigator Nancy Godbout. She stated that the auditors
limited the review of the cheques issued during the 1990 to 1994
taxation years to the largest amounts, that is, $500 and over.
The unexplained withdrawals were set out in Schedule C. With
respect to the schedule referred to as FT910, comprising the
withdrawals under $500, Nancy Godbout did not look at the details
of the cheques. She noted that the banks kept all bank statements
on microfiches and cheques on microfilm. She was sent all the
cheques issued and deposited by Gérard Néron, and
therefore, everything must have been viewed on film.
[53] Exhibit I-1 is made up of four
series of documents, numbered I-1-1 to
I-1-4, prepared by the respondent for the purposes of
assessing the appellant's net worth. Schedule FT910 is found
in the first series of documents; Schedule C is found in
the second series. The third series includes the schedules
written by Appeals Officer Christiane Desroches following
the objection and they form part of the Reply. The fourth series
provides details about the credit cards.
[54] The personal expenditures set out in
Schedule A were initially estimated on the basis of Statistics
Canada expenditure figures. They were estimated to total $170,424
from 1990 to 1994. Since the taxpayer's accountant was
discussing the amounts of the taxpayer's personal
expenditures, the Minister sent him photocopies of the small
withdrawals made by the taxpayer from his bank accounts. These
small withdrawals make up Schedule FT910, which supports
Schedule A.
[55] Christiane Desroches testified. She
worked on the appellants' files as an Appeals Officer for the
Appeals Division in Québec. Exhibit I-1-3
is the schedule she prepared. Page 1 has to do with the cash on
hand in the bank accounts. The increase made in order to express
US bank account balances in Canadian dollars was subject to the
following admission: the balance should be reduced by $1,690 in
1991; by $19.45 in 1992; by $27 in 1993; and by
$35 in 1994.
[56] In order to avoid considering the
personal expenditures as being paid out of the large withdrawals,
Christiane Desroches set aside Schedule A and considered only
Schedule FT910 and Schedule C. In other words, she considered the
total of the small withdrawals, plus the large actual
cost-of-living expenditures and the large unexplained
withdrawals, that is, Schedule C.
[57] Gaétan Giguère, a
chartered accountant, testified for the appellants. Although at
the hearing he testified before the Minister's auditors
testified, I have referred to his testimony after theirs because,
chronologically, he played his role after they played theirs.
[58] Gaétan Giguère began
looking after the affairs of the appellant
Gérard Néron at the end of 1992. He prepared
the income tax returns of the appellant and his spouse, as well
as the financial statements and income tax returns of the
businesses. In October 1993, the appellant received a request
from Revenue Canada to produce information regarding his balance
sheets and the capital discrepancy for the period from
December 31, 1989, to December 31, 1992. The documents
were produced on September 29, 1994.
[59] Gaétan Giguère heard from
Revenue Canada again around the end of 1995 or the beginning of
1996. On February 8, 1996, Jean-Claude Delisle
telephoned him to request information concerning
Pascal Néron's file: a financial statement,
balance sheets, and capital continuity records. The request was
made at that time in order to obtain evidence on maintenance and
repairs for the 1992 and 1993 taxation years. That information
was produced on March 29, 1996. On April 15, 1996,
Jean-Claude Delisle contacted Gaétan Giguère about
Pascal Néron's file, for which he wanted to know
the cost of the property located at
302, rue St-Alphonse.
[60] Gaétan Giguère first met
with Jean-Claude Delisle on July 25, 1996, to discuss the
draft assessments he had received: one for $414,015 in the case
of Gérard Néron and one for $73,234 in
the case of Pascal Néron. Gaétan
Giguère met again with Jean-Claude Delisle and Nancy
Godbout on October 18 and November 5, 1996. The notices
of reassessment were issued on December 9, 1996. On November
25, 1997, Christiane Desroches telephoned to say that she
was in charge of the objection file. Following a meeting between
Gaétan Giguère and Christiane Desroches on
June 19, 1998, Schedule FT910 was sent to Gaétan
Giguère by facsimile on June 22, 1998.
[61] Gaétan Giguère presented
a summary of all the changes that he considered should be made to
the net worth calculated by the Minister. For 1990, instead of an
additional income of $43,760.24, he calculated an additional
income of $8,339; for 1991, instead of $30,115.24, a negative
income of $7,985; for 1992, instead of $94,517.61, a negative
income of $4,732; for 1993, instead of an additional income of
$25,418.09, a negative income of $7,343; and for 1994, instead of
$39,193.70, an additional income of $2,686. As a result, he
obtained a negative income of $9,035 instead of an
additional total income of $233,005.
[62] Exhibit A-6 is the working paper
prepared by Gaétan Giguère. It has eight schedules,
identified as Schedules A through H. I shall now review each
disputed point raised by Gaétan Giguère and
counsel, providing each witness's point of view.
[63] One important point of the objection
was that the appellant apparently made monthly cash withdrawals
in order to exchange cheques from his tenants, most of whom, he
said, were welfare recipients.
[64] Schedule G to Exhibit A-6 produced by
Gaétan Giguère dealt with these alleged withdrawals
for rental payments, amounting to $8,719.44 in 1990;
$9,916.87 in 1991; $12,100 in 1992; $10,795.75 in
1993; and $13,779.85 in 1994, for a total of $55,311.91.
[65] The rental properties are located at
80-84, 88-92, and 66, rue Notre-Dame,
Thetford and represent approximately 14 apartments in all.
[66] According to Gérard
Néron, the monthly rents payable to him amounted to
between $225 and $300. Between 1990 and 1994, he was the one who
collected the rents. He stated that he had to check tenants'
mailboxes to be sure that they remitted their cheques to him when
their cheques came in. He went to the bank for cash and exchanged
tenants' pay, unemployment, or social assistance cheques.
Sometimes he had $1,500 or $1,000 in his pockets to
exchange cheques as requested.
[67] Gérard Néron had a
superintendent who was responsible for the building. The
superintendent did not collect rents but accompanied the
appellant when he collected them.
[68] Testifying for the appellant was
Johanne Héon who said that she had been on welfare
for three years. From the fall of 1993 to the end of June 1994,
she lived in one of the apartments owned by the appellant. She
was receiving welfare at that time. She thought that more than
half the tenants were on welfare. The appellant would come at the
beginning or the end of the month and exchange her welfare
cheque. According to her conversations with the other tenants, he
proceeded essentially the same way with them.
[69] Another witness was Sonia Parent
who did not have an occupation at the time of the hearing. She
lived in one of the appellant's apartments in 1996. She was
not receiving social assistance. She paid cash at the beginning
of every month. More than half the tenants were welfare
recipients. She saw Gérard Néron near the
mailboxes. He exchanged people's cheques, giving them back
the balance from the rent. She always asked for receipts.
[70] During her review of the bank
documents, auditor Nancy Godbout saw no cheques from either the
Quebec or the federal government. For example, the deposits made
during January and February 1994 included a detailed list of all
the cheques deposited; none of those cheques was from a
government. As well, withdrawals were made regularly throughout
the month.
[71] With respect to the allegation that
most of the appellant's tenants were welfare recipients,
Christiane Desroches noted that she was able to trace the tenants
living in the apartments two years later, none of whom were
welfare recipients. On the basis of an analysis of the deposits
and withdrawals in the file, she found nothing that would enable
her to conclude that there was such a system.
[72] One requested adjustment involved the
increase from $38,000 to $39,900, in the cost of the house
located at 1138, rue Lamonde, Thetford; this increase was
from 1990 to 1991 and is indicated under capital property in
Exhibit I-1-3. Nancy Godbout explained that the increase from
$38,000 to $39,900 from 1990 to 1991 was based on the
financial records produced by the accountant. She stated that,
according to certain estimates, the improvements for the 1990
taxation year should have amounted to $20,000 (she did not
specify the source of these estimates). While leaving this amount
at $14,543, the auditors accepted the calculation by the
accountant himself that the cost of the property had increased
from $38,000 to $39,900. Nonetheless, the accountant noted that
this cost included repairs and that the amount of
$39,900 should be reduced to $38,000.
[73] One adjustment involved the interest
payments in bank account 81741 PR5, the appellant's
personal account, which were included in the appellant's
personal expenditures. These interest payments amounted to
$566.88, $750.70, $2,534.09, $1,823.75, and $939.33 for the
1990 to 1994 taxation years respectively. In Schedule B-2
to Exhibit A-6, the accountant suggested deducting these amounts
from the total personal expenditures, arguing that they were
interest expenditures incurred for the rental properties.
[74] Nancy Godbout compiled all the loans
taken out for the rental properties and obtained approximately
the same amounts as those claimed in the income tax returns for
each of the taxation years at issue. She therefore considered
that the interest paid from the line of credit was not incurred
to earn rental income but was incurred for personal reasons.
[75] One requested adjustment was to deduct
from the personal expenditures the amounts paid using personal
credit cards during the 1990 to 1993 taxation years. The
accountant requested that the total of these expenditures, less
the deductions already agreed to at the time of the objection, be
deducted. He argued that the amounts paid using the credit cards
were used for the cleaning businesses, since the highest amount
of these expenditures, $7,989, occurred in 1990. These
expenditures amounted to $2,792 in 1991 and decreased further in
subsequent years. The supporting document produced by the
accountant was Schedule B-5 to Exhibit A-6. The expenditures were
described in Exhibit I-1-4. They involved trips, for example to
Acapulco, restaurant meals, and gasoline. No credit cards for the
businesses were found.
[76] The accountant requested that the total
of $5,536 in NSF cheques be deducted. These cheques are described
in Exhibits B-6 and B-9. The auditors verified the
cheques mentioned in Exhibit B-6 with the Caisse populaire;
only the cheques mentioned in Exhibit A-7 were
returned NSF. A number of the other cheques referred to in
Schedule B-6 proved to be not NSF but entirely valid
cheques.
[77] Another point raised dealt with Paul
Revere insurance. The accountant arrived at a total reduction of
$18,533: $6,480 in 1991; $9,653 in 1992; and
$2,400 in 1993. The supporting document produced by the
accountant was Schedule B-7 to Exhibit A-6. According
to the accountant, the list of bank deposits stated in Schedule
B-7 was drawn up on the basis of the dates and amounts
indicated on the cheque stubs produced as Exhibit A-5. He noted
the $800 deposits in particular.
[78] Nancy Godbout explained that the
information about the Paul Revere insurance payments was
received after the draft assessment was mailed, thus a long time
after their research had been completed. The cheque stubs
accompanying the disability insurance cheques were sent to her on
September 12, 1996. Her job was to consider the cheques
individually and to verify whether the corresponding deposits
were included in the schedules. She found no cheques from
Paul Revere insurance. During her audit, she found cheques
from the SAAQ and others from Assurance-vie Desjardins;
these cheques were noted and deducted.
[79] With respect to insurance benefits from
RBC Insurance, formerly Mutual of Omaha, at issue is whether,
when, and in what amount these benefits were paid.
[80] The request to reduce the
appellant's net worth by a total amount of $15,275 is
based on a letter received on April 4, 2001, referred to in
paragraph 13 of these Reasons. Gérard Néron
admitted moreover that he had been obliged to hire a lawyer in
relation to these claims.
[81] Also at issue is whether the 1991 GMC
Sierra was sold to Pascal Néron for $7,250 in
the 1994 taxation year. Nancy Godbout explained that, having
accepted that these vehicles were purchased and resold at the
same amounts, she did not take this vehicle into consideration.
There might have been between 15 and 20 transactions from
1990 to 1994. However, she noted the vehicles remaining at the
end of each year. She did not include this vehicle in
Gérard Néron's net worth since Pascal
Néron had purchased it in 1994, the year it was acquired.
She included the value of this vehicle in Pascal
Néron's net worth.
[82] The accountant requested that the
$4,950 value of the 1989 Volkswagen Golf, listed as an asset in
Schedule I-1-3, be reduced by the $3,100 cost of repairs
found among the small withdrawals. Apparently this vehicle was
purchased for $1,500, and the amount of $4,950 was an
estimate taken from the ''Red Book''.
[83] The value of the 1992 Dodge Caravan was
estimated at $13,275 in the 1993 taxation year (Exhibit
I-1-3). Gaétan Giguère claimed that this amount
should be reduced by $2,290. He did not provide the invoice, but
the taxpayer's bank account indicated that the Caravan was
apparently purchased on September 28, 1993 for $8,185.
The work sheets produced as Exhibit A-7 include an excerpt
from the bank account of Autos G. N. Enr. indicating a
withdrawal of $8,185 on September 28, 1993, and withdrawals of
$1,038.79 and $1,750 on September 29 and
October 27, 1993, respectively, which were apparently
made for repairs to the Caravan. When asked how he could know
that these withdrawals were used for this specific vehicle, the
witness answered that he had discussions with the client and that
the costs of the vehicles were paid in this manner. When asked
whether he had seen the cheques, he answered: [translation]
''No, these withdrawals were paid to the
bearer.'' Counsel for the respondent immediately
pointed out that the amount of $1,750 was a cheque issued to
Bélanger, Tardif et associés, an insurance agency.
The witness responded: [translation] ''That's right,
they're transactions that went through Autos G. N., so if
it's not a vehicle expenditure...''
[84] Also concerning Exhibit A-6, for the
1992 taxation year the accountant requested a $2,000 reduction
with respect to the purchase of a Mazda vehicle. The documents
produced as Exhibit A-7 include a receipt for Autos G.
N. for $2,000 dated July 10, 1992, from
Gérard Néron for a 1988 brown Mazda 929.
The Minister did not include this vehicle in the net worth he
calculated. It does not appear on the balance sheet under net
assets because it was purchased and sold in the same year.
According to Gaétan Giguère, this amount formed
part of the unexplained withdrawals set out in Schedule C.
The accountant requested an $8,435 reduction in 1993 for
withdrawals apparently made to pay for car repairs. For 1994,
another request was made for $2,696 also with respect to a
vehicle; no real explanation was given for this request.
[85] Another point raised by the accountant
dealt with errors in Schedule C. Only the errors concerning the
amount of $495 in 1992 and the amount of $500 in 1993
were established.
[86] We shall now consider bank account
83383 at the CEVA, a joint account in the names of
Jacques Lachance and Gérard Néron for a
joint venture in roof treatment and waterproofing. Gérard
Néron stated that he lent equipment to
Jacques Lachance and occasionally worked with him. This
business had no other employees; however, if the appellant was
not working, Jacques Lachance worked with someone else, for
example his brother.
[87] Schedule E to Exhibit A-6 describes the
entries in bank account 83383 at the CEVA. In this instance, the
data is accurate and taken from the correct account. The
accountant proposed that in calculating the net worth, the amount
of all withdrawals from this account be removed except for the
large withdrawals made by Gérard Néron, which would
mean a reduction of $11,746.28 for the 1990 taxation
year.
[88] The accountant also suggested that
Gérard Néron might have declared $4,936 of this
income in his 1990 income tax return on the ''Other
income'' line. This suggestion is an assumption since
there is no statement of income and expenditure to support it.
Gérard Néron testified that this activity was a
hobby.
[89] Nancy Godbout did not take the large
withdrawals by Gérard Néron into consideration
because, in her opinion, they must have been included in his
other bank accounts. In Gérard Néron's net
worth, she took into consideration the large withdrawals made by
Jacques Lachance. The evidence showed that these large
withdrawals were shared equally by the two persons since they
were profits taken.
[90] In 1994, the appellants jointly
acquired a property located at 486, 4e rue,
Thetford Mines. The purchase price was $31,900. At the time of
the audit, the cost of repairs was estimated at $32,500, for a
total cost of $64,400. Half of that amount, or $31,200, was
allocated to each appellant under capital property in the
Schedule to the Reply. In terms of the objection, repair costs of
$15,470 were accepted. Of that amount, Nancy Godbout
accepted that $9,972 had not been paid in 1994 and deducted
this amount from Gérard Néron's personal
expenditures. As a result, the cost of repairs in 1994 was
$5,498.
[91] In the case of Pascal Néron,
according to the Reply, the amount recorded under capital
property for this house was reduced by $8,515.
[92] The accountant requested a $5,498
reduction in the small or large withdrawals by Gérard
Néron, arguing that this amount was used to repair this
house and was included in the amount recorded under capital
property for this house.
[93] The appellant Pascal Néron,
whose appeal was heard with that of Gérard Néron,
testified. He has been a driving teacher and owner of a driving
school for four years. Counsel for the appellant referred me to
the Notice of Objection (Exhibit A-8) for further
information about the appellant.
[94] Pascal Néron was born in April
1974 and turned 18 in 1992. During the years at issue, he
apparently lived either with his mother in Sherbrooke or with his
father in Thetford. Around the fall of 1994, he periodically
lived in the house located at 486, 4e rue, which
he and his father owned jointly.
[95] Pascal Néron and his father
borrowed more than the purchase price, which gave them cash for
materials and unforeseen expenditures. The repairs took over
10 months or nearly a year. Sometimes the repairs were done
during their spare time; at other times they were done on a
full-time basis.
[96] Pascal Néron's mother paid
for the groceries. In 1994, Pascal Néron sometimes paid
for groceries but most often ate at his father's home. He
rarely ate out; in any case, if he ate out with his father, his
father paid for the restaurant meal. Pascal Néron did not
pay the telephone bill. He did not purchase many clothes in 1992;
he might have purchased a few more in 1993. In 1992, 1993 and
1994, he hardly paid anything for gasoline or insurance premiums.
He was unsure whether he paid for repairs and maintenance. He
first owned a vehicle in 1994.
[97] Pascal Néron estimated his
personal expenditures at not more than $50 weekly. In 1994,
when his father was in prison after pleading guilty to perjury,
Pascal Néron looked after the rents. He looked after all
his father's affairs to his father's satisfaction.
[98] Pascal Néron's pick-up truck
was worth $6,000 or $7,000. He and his father purchased it
at auction. The truck was in Pascal Néron's name;
however, Pascal Néron did not recall paying for the
insurance. Gérard Néron paid for the Sierra
pick-up. Pascal Néron stated that the money came from his
father. His father never formally lent him money; his father gave
him money because Pascal worked for him.
Analysis and conclusion
[99] Counsel Bétournay for the
appellant has reiterated and accepted to some extent the
explanations provided by Chantal Fortier and the appellant
about the source of the money. The money came from the sale of
the assets of the cleaning businesses, which apparently generated
several thousands of dollars.
[100] Hervé Grenier's testimony was supposed
to confirm that in 1992 he and Gérard Néron had
lent equal amounts of money to the same person, but the dates did
not coincide. According to Hervé Grenier, the loan was
made in February; he always left Florida in mid-April. The loan
to Jacques Gauthier was apparently made on May 26, 1992,
since that was the date of the withdrawal from the
appellant's US bank account.
[101] Despite the discrepancy in the testimony
concerning the dates, counsel Bétournay has maintained
that the $35,000 withdrawal on May 26, 1992, was justified
by the loan made by Gérard Néron to Jacques
Gauthier. The $34,500 deposit on December 2, 1992,
represented the repayment of this loan. The purpose of the other
withdrawal for $60,000 was to put the money in a safe
deposit box. Exhibit A-4 has established the existence of
this safe deposit box. The various subsequent deposits came from
that money.
[102] According to counsel for the respondent, the
taxpayer, who knows the truth, has the burden of explaining the
facts accurately. The audit was started in 1995. The first draft
assessment was mailed on May 14, 1996. If the facts alleged by
the auditors were wrong, the appellant could and should have
found the US bank account deposit slips. Gérard
Néron fell from a roof in 1997, and therefore he still had
his memory during the years at issue. He never met with the
Revenue Canada officers.
[103] Concerning the withdrawals from the US bank
account, I consider that it was for the appellant to establish
the continuity and sources of the bank documents, and I conclude
for the reasons stated below that there are no grounds to change
the respondent's position.
[104] There is one certain source of income: the
proceeds of the sale of the cleaning businesses. There is also
the waterproofing business. Thus the respondent's position is
plausible. I must assume that these possible sources of income
were not given the appropriate tax treatment. In other words,
these amounts did not become tax-paid or tax-exempt at the
outset.
[105] Counsel for the appellant argued neither that
Gérard Néron was financially unable to make the
investments included in the net worth nor that he had available
significant amounts of tax-exempt money; instead, they claimed
that he made a loan and used a safe deposit box.
[106] First, the loan has not been established. The
testimony was not consistent at all, and there was no documentary
evidence. Second, the argument that Gérard Néron
used the safe deposit box because he was uncomfortable about bank
deposits in the US does not correspond with his ongoing use of
bank accounts. He already had a US bank account, No.
2203208726-06, to which he deposited the cheque from his
sister-in-law Dorothy Fortier. He produced no statements of this
bank account or of the other bank accounts stated at the
beginning of these Reasons. Moreover, Chantal Fortier had
forgotten that this safe deposit box even existed.
[107] The accountant prepared a list of possible cash
withdrawals made in order to exchange tenants' cheques; this
list was produced as Schedule G to Exhibit A-6. In 1990, for
example, it lists five withdrawals from bank account 83383, the
joint account of the appellant and Jacques Lachance. At another
point, Gaétan Giguère stated that no withdrawals
were made from this account other than for the joint venture.
Other possible withdrawals that were suggested proved to be
clearly erroneous as well. This list must therefore be set aside
as being unfounded. The auditors noted that, in the accounts
verified, there was no indication of a consistent pattern of
withdrawals at the beginning or at the end of the month. It
should also be recalled that some tenants, including Sonia
Parent, paid cash. As well, no documentary evidence, such as a
sampling of deposited tenants' cheques, was produced. I must
therefore conclude that, given the unfounded assumptions in the
proposed list of possible withdrawals and the absence of relevant
documentary evidence, the respondent's position cannot be
challenged.
[108] With respect to the reduction from $39,900 to
$38,000 of the cost of the house located at 1138, rue
Lamonde for the 1991 and subsequent taxation years, because the
increase took repairs into account, I consider that the
accountant's reasoning is correct. The cost of the house must
therefore be $38,000 for all the taxation years at
issue.
[109] With respect to the interest deduction claimed,
counsel for the respondent pointed out that there was no reason
the appellant apparently used his personal line of credit to pay
interest on the rental properties when there was a separate
account for each property. Counsel Roy for the appellant
questioned whether the interest paid should have been included in
the calculation of net worth. It must be immediately pointed out
that, if the interest was paid for personal reasons, why would it
not be included in the calculation of net worth?
Furthermore, I am surprised that the accountant did not raise or
was not asked this question earlier.
[110] Statements of rental income from real properties
for the 1992 and 1993 taxation years, during which Gaétan
Giguère was the accountant, would have constituted
sufficient evidence of the interest. Gaétan Giguère
produced these statements for 1994 and he indicated a total
amount of $19,809.42 for that taxation year. However, there
are no invoices proving this amount and thus nothing to prove
that the $939.33 claimed as a deduction was included in that
amount. Concerning the 1992 and 1993 taxation years, for which
$2,534.09 and $1,823.75 respectively were claimed,
there is no statement of rental income from real property and
certainly no supporting documents in the form of receipts.
[111] As a result, the amounts of interest referred to
in Exhibit B-4 cannot be accepted as interest payments on
the rental properties.
[112] According to counsel for the respondent, the
expenditures paid for using the credit cards were personal
expenditures. According to counsel for the appellant, they were
business expenditures. The Appeals Officer accepted some of these
amounts as possible business expenditures. I consider that the
same reasoning could apply to the expenditures for gasoline: they
can be considered expenditures for the purposes of the cleaning
businesssince they occurred only in the 1990 taxation year when
the appellant still had his cleaning business. Concerning the
other expenditures for business purposes, such as the trip to
Acapulco, the appellant's testimony alone is
insufficient.
[113] The auditors allowed deduction of two of the NSF
cheques. I allow deduction of the others that were proven, that
is, the ones indicated in Exhibit A-5. (It may seem
that the cash on hand already took the NSF cheques into account,
but since the validity of this reduction was not discussed, I
rely on the fact that the auditors already allowed a similar
reduction.)
[114] With respect to the benefits paid by the
Paul Revere insurance company, at issue is whether these
benefits were deposited into the bank accounts that were audited.
The accountant's claim that Paul Revere insurance
benefits were deposited into Gérard Néron's
accounts proved to be unfounded. Here again, the list of possible
deposits proposed by the accountant had too many errors to be
credible.
[115] With respect to RBC Insurance, the total
amount appears to be $15,274. The letter quoted in
paragraph 13 of these Reasons is unclear. The fact that a
person makes claims on certain dates does not mean that the
claims have been paid and it is not evidence of the amounts or
the dates of payments. That letter is not sufficient evidence. At
the hearing, we learned that there was a dispute between
Gérard Néron and RBC Insurance. A lawyer
represented his interests with Mutual of Omaha. The appellant
could have obtained a letter from that lawyer. Based on the
wording of the letter, I cannot accept the appellant's
request at all.
[116] With respect to the 1991 GMC Sierra, at issue is
in which of the two statements of net worth the value of this
vehicle should ultimately be included. Both appellants stated
that Pascal Néron did not pay his father for this vehicle.
This explanation is plausible. The value of this vehicle must
therefore be included in the father's net worth. Unlike the
other vehicles he acquired and disposed of at cost, Gérard
Néron acquired the GMC Sierra but did not resell it. Thus
the purchase price of $8,555 should be included in his net worth.
However, the amount that was included in Pascal
Néron's net worth will be sufficient.
[117] With respect to the allegations about the 1989
Volkswagen Golf, the 1992 Dodge Caravan, and the 1988 Mazda, the
evidence is really too vague and unclear for me to change the
respondent's position. Concerning the alleged errors in
Schedule C, only those noted in paragraph 85 of these
Reasons are accepted.
[118] The joint account at the CEVA with Jacques
Lachance for the waterproofing business shows that the profits
were withdrawn in identical amounts. Thus we must conclude that
the partners were in this business in equal shares. It would be
surprising if either partner could withdraw personal spending
money from this account. It seems that it was Gérard
Néron's $5,575 share in profits that should have been
included in his statement of net worth. However, Nancy Godbout
stated that she had included Jacques Lachance's share,
thinking that the profits taken by Gérard Néron
would be included in his other accounts.
[119] The accountant also suggested that the amounts set
out in the schedules of small and large withdrawals and the
withdrawals from that account be deducted and that only the share
of profits taken by Gérard Néron be included. I
consider this position the most accurate one. As a result, the
amount of $11,746.28calculated by the accountant on the basis
(this time) of the exact figures from bank
account 83383 is to be deducted.
[120] The accountant asked that $5,498 be excluded
from the amount of Gérard Néron's personal
expenditures, arguing that this amount was spent on repairs to
the house located at 486, 4e rue, Thetford.
Initially I saw no reason to deduct this amount from the net
worth. At that point I considered that, if this amount were
deducted from the personal expenditures, it should in any case be
added to the capital expenditures as improvements.
[121] My difficulty in understanding that arose from the
fact that the auditors (Exhibit A-9) immediately added
the estimated value of the improvements ($32,500) to the cost of
the property ($31,900). Normally, it seems to me-at least, that
is what the auditors did for the house on rue Lamonde-the
cost of the property is indicated and below that amount are the
costs of the improvements by year.
[122] As a result, for Pascal Néron, the cost of
the property must be $15,950 and not $32,200. However, the
reduction of $8,515 already allowed him must be considered. As
well, half of $5,498 should be indicated as improvements to
this property in 1994.
[123] The same method should be applied to
Gérard Néron. As well, half of
$5,498 should be deducted from his total personal
expenditures since that amount has been included in capital.
[124] Pascal Néron's personal expenditures
were estimated at $11,599.68, $11,770.08, and $13,013.08 for
the 1992, 1993 and 1994 taxation years respectively. He estimated
his personal expenditures at $50 per week. We must take into
consideration that he lived at the home of his parents. I
consider that $100 per week would be reasonable in these
circumstances.
[125] The years from 1990 to 1992 fell outside the
normal assessment period. The evidence has clearly shown that the
appellants made misrepresentations through neglect, carelessness
or wilful default in filing their income tax returns for those
years.
[126] With regard to the penalties assessed under
subsection 163(2) of the Income Tax Act, concerning
Gérard Néron, I consider the comments by Marceau J.
in the decision in Cloutier v. The Queen, 78 DTC
6485, at page 6487, appropriate:
The question before the Court is whether the circumstances in
which the omission occurred are such that gross negligence may be
attributed to the taxpayer: ''gross negligence''
being taken to mean a relatively serious act of negligence, which
is difficult to explain and socially inadmissible.
These are the circumstances of this case, in which there is a
complete absence of documents. No records were provided to the
auditors. The appellant produced no documents, in particular, the
deed of sale of the cleaning business, the invoices, or the bank
account statements. The appellant's conduct during the
taxation years at issue shows an intention to elude application
of the provisions of the Act. This conduct constitutes
gross negligence and gives rise to the assessment of penalties
under subsection 163(2) of the Act.
[127] As for Pascal Néron, I consider that it was
not knowingly or under circumstances amounting to gross
negligence that he failed to declare all his income for the
taxation years at issue. Therefore, the penalties must be
cancelled.
[128] The appellants made some gains as a result of this
hearing. I could have considered awarding only some of the costs
to the respondent. However, the appellants wasted a great deal of
time with proposals drawn up by an accountant, which at first
glance provided credibility, but those proposals did not stand up
under cross-examination because they were based on theory and not
on fact. Under these circumstances, the costs must be awarded in
total to the respondent.
Signed at Ottawa, Canada, this 2nd day of April 2002.
|
''Louise Lamarre
Proulx''
|
J.T.C.C.
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