[OFFICIAL ENGLISH TRANSLATION]
Date: 20020322
Docket: 2000-5156(IT)I
BETWEEN:
MAURICE SAMSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
P.R. Dussault, J.T.C.C.
[1] These are appeals from assessments
made under the Income Tax Act (the "Act")
for 1996 and 1997. By those assessments, the Minister of National
Revenue (the "Minister") added the amounts of $12,966
and of $8,085 to the appellant's income as unreported income
for 1996 and 1997 respectively. Penalties of $1,954.33 and
$1,270.04 were also assessed under subsection 163(2) of the
Act for each of the years.
[2] In making the assessments, the
Minister assumed inter alia the facts stated in
subparagraphs 6(a) to (i) of the Reply to the Notice of
Appeal, which read as follows:
[TRANSLATION]
(a) during the years
in issue, Maurice Samson was employed by P.A. Lessard Inc.,
where he worked approximately 50 hours a week;
(b) during that
period, the appellant also operated a snow removal and
wood-cutting business (hereinafter the "business");
(c) during the audit
of the business's financial statements, the books of account,
the documents in support of the amounts entered into the
financial statements, the appellant's personal bank accounts,
and the appellant's personal and family expenses were
analyzed;
(d) it was shown
during the audit that the sources of the unreported income in
issue was as follows:
1996
1997
- unexplained bank
deposits
$
1,070
$5,085
- unreported
sale
$ 159
- cash
payments
$11,737
$3,000
Total
$12,966
$8,085
(e) the source of
the funds deposited to the appellant's personal account was
checked and identified in part, taking into account, inter
alia, inter-account transfers and the appellant's
salary;
(f) in 1997, a
cash payment of $3,000 was made for subcontracting work, while,
in 1996, cash payments were used to acquire capital property;
(g) for the 1996 and
1997 taxation years, the Minister thus added to the
appellant's income the deposits the appellant made to his
personal bank account, the unreported sale, and the cash payments
for which the appellant was unable to provide sufficient
explanation showing conclusively that those amounts were not
taxable;
(h) in failing to
report income of $12,966 and $8,085 for the 1996 and 1997
taxation years, 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 tax return for each of the taxation years in issue, as a
result of which the tax that he would have been required to pay
based on the information provided in the federal tax returns
filed for those years in issue was less than the amount of tax
payable for those years;
(i) as a
result of the appellant's failure to report all his income,
the Minister, in making the notices of reassessment of
November 16, 2000, assessed him penalties of $1,954.33 for
the 1996 taxation year and $1,270.04 for the 1997 taxation year
under subsection 163(2) of the Income Tax Act
(hereinafter the "Act");
[3] Counsel for the respondent
admitted that a minor error had to be corrected in that the
amount of $5,085 in respect of unexplained bank deposits for 1997
should be reduced to $5,065 and, therefore, that the total of
$8,085 for the year should be reduced to $8,065.
[4] Counsel for the appellant moreover
emphasized that the sum of $159 relating to an unreported sale in
1996 was not in dispute since, as a result of an error, it had in
fact not been accounted for and reported.
[5] The appellant's accountant,
Réjean Champagne, C.M.A., the appellant himself and
his spouse, Suzanne Lachance, testified.
Jean-Paul Fortin testified for the respondent.
[6] Mr. Lachance had represented
the appellant only since the Revenue Canada audit in 1999.
[7] Mr. Champagne explained that,
following the audit, Revenue Canada had considered as unreported
income all the deposits whose origin could not be traced, but
that at the objection stage he had subsequently attempted to show
that a number of deposits had been made twice. Amounts deposited
to a particular account had been withdrawn and deposited to
another account. Mr. Champagne also stated that the fact
that certain deposits represented amounts received as family
allowances, tax benefits or tax refunds had been disregarded. He
said that the result was that Revenue Canada had decided to
reduce the assessments by disregarding all the small deposits,
that is to say, those of less than $500. In fact, as we shall
see, all deposits of $1,000 or less were excluded as a result of
the objection. The result was that the unreported income relating
to the deposits whose source could not be identified was reduced
from $17,709 to $1,070 for 1996 and from $27,135 to $5,085 for
1997.
[8] Mr. Champagne also said he
had observed that the appellant had been paid by cheque for the
woodcutting work done but that he had paid all his expenses,
including the purchase of machinery or equipment and current
expenses in cash. He moreover emphasized that the purchase of
machinery and equipment was entered into the financial statements
and that the appropriate capital cost allowance (CCA) schedules
had been completed by the accountant at the time.
[9] The appellant began working as a
forestry worker at the age of 18. In 1984, he found a regular job
as a miller with P.A. Lessard Inc.
("P.A. Lessard").
[10] In 1996, he started up a wood-cutting
and snow removal business to which he said he had devoted
approximately 15 hours a week. He acquired a tractor and
trailer for this purpose in 1996. He also had the necessary snow
removal equipment installed on the tractor.
[11] During the years in issue, the
appellant had three accounts at financial institutions. The first
account at the National Bank ("Bank") was used for
direct pay deposits by his employer P.A. Lessard.
[12] The appellant's other two accounts
were at the Caisse Populaire Desjardins in Saint-Georges, Beauce
("Caisse Populaire"). The first account
(folio 24410), a joint account with his spouse, was used for
payments on a mortgage loan and current bills. According to the
appellant, the amounts deposited to that account came from cash
withdrawals from the Bank account to which his salary was
deposited and in which he left only the amounts needed to make
certain payments.
[13] The second account at the Caisse
Populaire (folio 36088) was used for business purposes. The
appellant said that the business's woodcutting income came
essentially from the proceeds of the sale of wood to various
mills in the region. The appellant stated that he had always been
paid by cheque and that he had reported all his income from that
business, including an amount between $2,000 and $2,200 for snow
removal work in the fall of 1996. He said he had stopped doing
snow removal work in January 1997 because he did not have the
time for it. As to the cheques from the mills, the appellant said
he had in fact deposited to the business account only the amounts
needed to make his payments on a loan taken out for purchasing
his tractor, a loan that was secured by a second mortgage on his
residence. The surplus amount, he said, was kept in cash.
[14] My understanding of the appellant's
way of proceeding is that he kept everything that was not needed
to repay the various loans and pay current personal bills in cash
amounts. As to business expenses, the appellant testified that
they had all been paid in cash, that he had rarely made out
cheques and that, in that respect, he had proceeded in the same
way as his father had always done, that is to say, that he paid
all his expenses in cash.
[15] The appellant stated that the cash he
had came not only from the surpluses he referred to but also from
his savings of some $30 to $40 a week, savings accumulated since
the age of 20, thus over a period of approximately 14 years.
The appellant said that he kept a box at home containing his
weekly savings and that he had thus accumulated a total of
approximately $34,000, including the surpluses mentioned. In
1988, a portion of that amount, approximately $10,000 to $15,000,
was purportedly used to pay for a lot and for some work done on
the family residence acquired that same year.
[16] In 1996, the appellant said that the
cash he had was used to pay an amount of $11,737 to acquire a
generator and equipment installed on the tractor acquired for the
wood-cutting and snow removal business (Exhibit A-4).
He also said that a sum of $1,070 had also been deposited in
bills to the appellant's account at the Bank
(Exhibit I-12). It is the total of those two amounts,
$12,807, that is in issue for 1996.
[17] In 1997, a cash amount of $5,065 was
apparently used by the appellant to make three payments on his
line of credit in the joint account at the Caisse Populaire
(folio 24410) (see Exhibit A-5). Payments
totalling $3,000 in cash were also apparently made to a certain
Mr. Vachon for wood-cutting work under a contract obtained
by the appellant. Mr. Vachon has since died, but he gave the
appellant a receipt for $3,000 for all the amounts received
(Exhibit A-6). It is the total of those two amounts,
$8,065, which is in issue for 1997.
[18] The appellant stated that he had
reported all his income. He claimed that what was presented as
unexplained deposits resulted from the fact that amounts
withdrawn from one account had subsequently been deposited to
another account and that the cash set aside and the savings
accumulated from a number of years, which were stored in the
safe, had been used to acquire equipment, repay the line of
credit and pay current business expenses, including the payments
to Mr. Vachon for his wood-cutting work.
[19] In her testimony, Suzanne Lachance
said she had been married to the appellant since 1985. She
confirmed his version concerning the bank deposits, withdrawals,
and payment of accounts and confirmed that she had conducted all
the transactions at the financial institutions. She said that
only the money needed for the payments was left on deposit at the
Bank or the Caisse Populaire and that she had withdrawn the
balance in cash, which was kept with the accumulated savings in
the box at home.
[20] On the issue of savings,
Ms. Lachance said that there had always been a box at home,
except in the first year. I suppose that means since the very
start of her marriage to the appellant in 1985, except for the
first year. She said the weekly savings had amounted to $25 or
$30 and that she or the appellant had put the money in the
box.
[21] To the question how much money might
have accumulated in the box since the start, she answered $15,000
and subsequently confirmed the answer given.
[22] To the question how much money might
there have been in the safe in 1996, she answered that she did
not know. To the same question for 1997, she answered that the
business was the appellant's and provided no further
details.
[23] Ms. Lachance moreover stated that
she herself had made the cash payment to purchase the equipment
for the tractor in 1996. As to the cash payment for the
generator, she did not remember. In addition, the deposit slip
for an amount of $1,070 in cash in 1996 bears her signature. She
was also the one who made the three cash payments on the line of
credit in 1997. The deposit slips moreover bear her signature.
All those payments were purportedly made with the cash kept in
the safe at home.
[24] Jean-Paul Fortin, appeals officer,
was assigned to the case in response to the notice of objection.
Mr. Fortin first had telephone discussions with
Mr. Champagne, the appellant's agent. He then called a
meeting with Mr. Champagne, the appellant, and
Ms. Lachance. In view of the appellant's salary and
cheques obtained as part of his wood-cutting business, the
auditor considered all the deposits whose source could not be
explained to be unreported income, whereas Mr. Fortin
decided to disregard all deposits of $1,000 or less as a result
of the explanations provided, particularly concerning the
withdrawals from one account and deposits to another. According
to the compilation made by the auditor, there were
36 deposits of less than $1,000 in 1996 and 51 in 1997
(Exhibit I-9). Mr. Fortin explained that the
decision was made primarily because the appellant had not devoted
many hours to his business each week and, somewhat arbitrarily,
because it was possible for the appellant to have kept amounts of
$1,000 or less in cash and to have subsequently deposited them to
another account. Furthermore, all those deposits of more than
$1,000 that could have been explained by cheques received by the
appellant were allowed (see Exhibits I-10 to
I-16).
[25] According to Mr. Fortin, the
auditor had also added to the appellant's unreported income
an amount of $11,737 in 1996, the total of two invoices paid in
cash (see Exhibits I-8 and A-4). At the meeting,
the appellant purportedly told him that the cash payments came
from an amount of nearly $34,000, which he had accumulated at a
rate of approximately $40 a week since he began working and which
was available in 1996. Mr. Fortin said that the appellant
was not referring at the time to the total amount he had
accumulated from the start, part of which he had used for the
house in 1988 as stated in his testimony. Mr. Fortin
contended that he had specifically asked the appellant why he had
not been tempted to use the money before, to buy furniture or a
car, for example. He said the appellant simply answered that it
was because he had not wanted to.
[26] Furthermore, Mr. Fortin said the
auditor had previously asked the appellant whether he had a safe
or accumulated cash, and the appellant had answered no. When
confronted over this earlier statement, the appellant purportedly
answered that he had no cash at the time of the interview but had
had some before.
[27] The appellant apparently gave the
auditor and Mr. Fortin the same explanation regarding the
$3,000 payment to Mr. Vachon in 1997.
[28] Mr. Fortin said he had found it
difficult to accept the appellant's version and had thus
decided to confirm the assessments in the amount of $12,966 and
$8,085 for 1996 and 1997 respectively and to confirm the
penalties under subsection 163(2) of the Act.
[29] Counsel for the appellant relied on the
testimony of the appellant and that of the appellant's
spouse. He emphasized that their version of the facts was
corroborated by the various documents filed by the respondent and
contended that their good faith and cooperation with authorities
could not be disputed. He added that, if their way of proceeding
might have caused problems for the audit, the evidence as a whole
supported their testimony. On that point, counsel underscored the
few hours the appellant had devoted to his wood-cutting business
and the fact that the appellant was quite thrifty. He said the
appellant had a fairly modest lifestyle, as shown by the nature
of the property acquired over the years.
[30] While admitting that he had been unable
to adduce direct evidence of the existence of unreported income,
counsel for the respondent contended that it was open to him to
bring indirect evidence by presumption, whereas counsel for the
appellant had presented evidence by witnesses and their testimony
had not been contradicted by other witnesses. He recalled that
the courts are not required to believe witnesses if their
versions seem implausible in light of circumstances put in
evidence or the rules of common sense. He referred on this point
to Jean-Claude Royer in La preuve civile,
2e éd., Cowansville, Éditions
Yvon Blais Inc., 1995, pages 1100 and 1102,
paragraphs 175 and 178, and to the decisions in Canadian
Titanium Pigments Ltd. v. Fratelli D'Amico Armatori,
[1979] F.C.J. No. 206 (F.C.T.B.), paragraphs 11 to 14,
Légaré v. The Shawinigan Water and Power
Co. Ltd., [1972] C.A. 372 (C.A.Q.), at pages 372 and
373, and Abouantoun v. Canada, [2001] T.C.J. No. 653
(T.C.C.), paragraphs 11 and 12.
[31] Counsel for the respondent noted on
this point that it is hard to believe that Ms. Lachance
could have testified against her husband or to his disadvantage
and that the savings issue was implausible and the subject of
inconsistent versions. For example, the appellant told the
auditor that he had no safe or accumulated cash, whereas he told
the appeals officer that in 1996, he had cash savings of nearly
$34,000. When asked why he had not previously used a portion of
that money, he simply answered that he had not wanted to.
Similarly, when the appellant claimed that the amount of $34,000
represented the total amount saved from the start,
Ms. Lachance said that the total savings since the start
came to $15,000. Furthermore, whereas the appellant said he had
saved $30, $40 or $50 a week, Ms. Lachance indicated savings
of $20 to $25 a week. Counsel for the respondent also emphasized
the fact that Ms. Lachance had said she did not know how
much money there was in the safe in 1996 and 1997, when it was
she who had conducted all the transactions at the Bank and Caisse
Populaire.
[32] Lastly, counsel for the respondent
emphasized that the appellant had been given the benefit of the
doubt regarding the bank deposits of $1,000 or less and that it
should have been possible to trace the origin of those exceeding
that amount.
[33] As to the penalties, counsel for the
respondent contended that they were justified in the
circumstances. With regard to the factors that should be
considered, he relied on the decisions in Venne v. The
Queen, 84 DTC 6247 (F.C.T.B.), Patricio v. The
Queen, 84 DTC 6413 (F.C.T.B.), and Abouantoun v.
Canada, supra.
[34] The appellant began operating a
business in 1996. He was responsible for keeping the books and
records of account required by subsection 230(1) of the
Act so that an adequate audit of his operations could be
made for tax purposes. In view of the absence of such records and
books of account and the appellant's particular way of
proceeding, the audit could only be conducted indirectly through
an examination of bank deposits and expense invoices. There is no
doubt that the numerous withdrawals and deposits of unequal cash
amounts from one account to another made it difficult, indeed
impossible, to trace the origin with a modicum of precision. When
one operates a business, proceeding without detailed bookkeeping
is not acceptable.
[35] At the objection stage, Mr. Fortin
gave the appellant the benefit of the doubt by excluding the
amounts of all the deposits of $1,000 or less from the total of
what the auditor had considered as unreported income. Deposits
greater than that amount and for which an explanation was given
were excluded as well.
[36] Only the cash deposits greater than
$1,000 and the equipment purchases, also in cash, remain. The
explanations given by the appellant and his spouse,
Ms. Lachance, are based on the existence and amount of
savings kept in a box at home. If their testimony had been
completely coherent and consistent on this point, the appellant
might have succeeded, but that is not the case. First, the
appellant's answer to the auditor concerning the existence of
accumulated cash or a box was completely different from the
answer given to the appeals officer, Mr. Fortin. Moreover,
there were differences in statements made at the hearing and in
discussions with Mr. Fortin concerning the amount of cash
the appellant had saved since he began working and that he had in
hand in 1996. Ms. Lachance as well did not give the same
version as the appellant as to the moment he began putting his
savings in a box kept at home and as to the amount it contained.
What is most surprising, however, was that she did not know how
much money there was in the box in 1996 and 1997, whereas it was
she who had purportedly conducted all the transactions at the
financial institutions, including the cash withdrawals and
deposits. Furthermore, Ms. Lachance said that, like the
appellant, she had also put savings in the box. It was she who
also purportedly withdrew the large amounts required for most of
the cash deposits and payments in issue. It seems implausible
that she did not know how much money there was in the box at the
time of those transactions. As a result of these various factors,
it is impossible to conclude that the appellant showed on a
balance of probabilities that the cash deposits and payments in
issue in the case at bar did not come from unreported income,
even though some doubt might remain on this point.
[37] As to the penalties assessed under
subsection 163(2) of the Act, I find that the
circumstances are such that the appellant can only knowingly have
failed to report the additional income assessed.
[38] Having regard to the foregoing, the
appeal from the assessment made under the Act for 1996 is
dismissed. The appeal from the assessment made under the
Act for 1997 is allowed, and the assessment is referred
back to the Minister of National Revenue for reconsideration and
reassessment on the basis that the amount of unreported income of
$8,085 shall be reduced to $8,065 and that the interest and
penalty shall be reduced accordingly.
Signed at Ottawa, Canada, this 22nd day of March 2002.
J.T.C.C.
Translation certified true
on this 23rd day of July 2003.
Sophie Debbané, Revisor
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