[OFFICIAL ENGLISH TRANSLATION]
Date: 20020114
Docket: 2000-3570(IT)I
BETWEEN:
GESTION JEAN-YVES COLLIN LTÉE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2000-3571(IT)I
BETWEEN:
JEAN-YVES COLLIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] The parties agreed to proceed on
evidence common to both cases. The appeals concern unreported
income and penalties assessed for the 1994 and 1995 taxation
years.
[2] The appellant Collin alone
testified in support of the appeals. He first described the
various corporate structures at the centre around which he
operated. He stated that, during the years in issue, the
appellant company, Gestion Jean-Yves Collin
Ltée, owned a woodlot, which it had acquired by notarial
deed dated May 31, 1992 (Exhibit A-4).
[3] He also said that, at the same
time, he himself had owned a woodlot under a notarial deed dated
October 29, 1984 (Exhibit A-8).
[4] On December 27, 1993, he
entered into an agreement with Benoît Deschamps to cut
wood. That contract is cited below (Exhibit A-6).
[TRANSLATION]
Montmagny, December 27, 1993
Agreement
Between:
J.Y. Collin
and Benoît
Deschamps
911
Vancouver
412 Trans-conté
Boucherville,
Qué.
Montmagny, Qué.
J4B
5Z3
G5V 3R9
It is agreed that B. Deschamps will cut, haul and transfer
wood on the lot on the 4th concession to the sawmill offering the
best price for the wood. The work will begin as soon as possible
in January 1994.
In return, J.Y. Collin agrees to pay
Benoît Deschamps half of the earnings, that is
50 percent of sales to defray his costs.
. . .
[5] Under the contract for 1994, wood
sales generated the total amount of $22,715.77
(Exhibit A-7).
[6] Of that amount, he purportedly
paid half, that is $11,357.88, to Mr. Deschamps for expenses
relating to cutting the wood, hauling it to the public road and,
lastly, transporting it to the sawmill. He said he had no receipt
or proof of payment, adding that he moreover had never obtained
any for payments made in cash.
[7] The following year, in 1995, the
same scenario continued, but, this time, the wood was cut and
sold from the woodlot that the appellant Collin personally owned
(Exhibit A-9). This time, he purportedly obtained
$41,257.60, half of which he says he remitted to
Mr. Deschamps, that is $20,628.80, for the same cutting and
transportation services. He testified that in both years he had
paid cash and obtained no receipts or other proof of payment.
[8] In 1995, Mr. Deschamps
apparently received a certain number of payments directly from
the sawmill, which, according to the appellant Collin's
testimony, were deducted from the amount to which he was entitled
under the extended agreement.
[9] With respect to the cutting and
sale of wood from the lot owned by the company, the appellant
Collin stated that he had never handed over the proceeds of the
sale of the wood to the company in 1994; he stated that he had
kept the cash amount of $11,357.88 and had never deposited
it.
[10] On the whole, Mr. Collin admitted
in testimony receiving $11,357.88 for 1994 and $20,628.80 for
1995, adding that he had not reported those amounts as a result
of error or oversight.
[11] After learning of the existence of the
cheques, the Minister of National Revenue (the
"Minister") wanted to obtain information and details on
the cheques from the appellant. Mr. Collin did not cooperate in
any way. In particular, he refused to provide the name of the
contractor who had performed the wood-cutting and selling work.
He refused to provide the contracts of ownership of the woodlots
and kept silent about the existence of the contract concerning
the wood-cutting and selling work and the income-sharing.
[12] Mr. Collin was more talkative
before the Court and testified in a plausible manner. His
explanations concerning the wood cutting, transportation and sale
of wood, as well as those involving the outlays required for the
performance of the work seemed to be consistent with the
practices and customs in the very particular field of the forest
industry.
[13] Mr. Collin, a calm and shrewd
businessman, has always remained in perfect control of the
situation. I have no trouble understanding why, during the audit
interviews, it was difficult, indeed, impossible, to obtain the
information, which was nevertheless highly relevant for the
purpose of analyzing his case and the case of the company.
[14] Mr. Collin was clearly more
talkative at the hearing than in the stages prior to the trial.
What was the purpose of not providing the relevant information?
He said he had wanted to avoid causing problems for the person
who had performed the wood-cutting and selling work. This
behaviour was generous toward that third person but had
significant consequences on his own situation and the situation
of the company. Apart from that ground, there is reason to
believe that the scenario was to his advantage. In other words,
he also benefited from concealing all the logging operations.
[15] For the trial, the appellant changed
his mind and decided to answer all the questions. Such an
about-face could have cast doubt on the quality and plausibility
of the explanations given to the Court and have negative effects
since these are cases in which credibility is of great
importance.
[16] To disregard testimony in whole or in
part, it is essential that a number of factors or facts justify
such a course. Irrational, improbable and implausible
explanations often make the task easier. The presence of
contradictions, an absence of direct answers, the discomfort of
the witness, confused answers, evasive answers and double-talk
are also revealing and significant factors in assessing a
witness's credibility.
[17] In the instant case, Mr. Collin
seemed to reply frankly and directly. He gave plausible
explanations, which I found consistent with the various practices
in that field of economic activity.
[18] It seems reasonable that the appellant
necessarily had to pay expenses to have wood cut, removed and
transported to the sawmill, and so on. All those outlays,
according to his testimony, represented 50 percent of the
value of the wood sold. Once again, I find that percentage
plausible and realistic.
[19] However, I do not believe the appellant
when he states that he failed to hand over the net amount of
money from the first contract to the management company, which he
controlled and which owned the wood that was cut and sold.
[20] The appellant is a shrewd businessman
who has experience and highly elaborate knowledge of corporate
organization. He managed a business, which he controlled
perfectly well. Did he not say he had an office in his own
residence for the purpose of exercising very tight control over
all cheques and important documents? He added that he wanted
those various documents and cheques to be sent to his home to
enable him to review them before handing them over to the
accountant or to accounting. Is this not the behaviour of a
meticulous, thorough and highly alert businessman in the
management of his affairs?
[21] Is it possible and plausible that a man
with such a sense of control and as much experience and
administrative knowledge would prepare a contract not referring
to or stating the very object of the contract, the cutting and
selling of wood? My answer is no.
[22] Is it possible that such a shrewd man
would cash a number of large cheques and hand over half of the
proceeds to a third party without obtaining a receipt,
acknowledge and admit that he had not deposited the other half
and plead an oversight or error? I could accept the explanation
if one or two transactions and very small amounts of money had
been involved, but that was not the case.
[23] I refuse to accept error or oversight
as an explanation; all the actions were carried out in the same
way and involved large amounts in the context of special, and
positively non-routine activities.
[24] The fact the appellant candidly
admitted that 50 percent of the net proceeds from the sale
of the wood was never deposited, and especially that he agreed to
pay large amounts to Mr. Deschamps in cash, without
obtaining a receipt, to cover expenses relating to the cutting
and transportation of wood, knowing full well that such expenses
were fully deductible from income, seems to me revealing, and
decisively so, of a firm will to conceal the income in
question.
[25] This assessment is moreover
corroborated by Mr. Collin's initial answers to the
auditor, Marilyne Bourgeois, in which he squarely denied the
facts.
[26] Why did the appellant decide to
acknowledge the existence of unreported income? Simply because of
the undeniable facts emerging from the conclusive documentary
evidence in the respondent's hands.
[27] Although the respondent's evidence
was highly conclusive on certain points and Mr. Collin
refused to cooperate, that is not sufficient, however, to show
that the assessments are valid as made. However, the respondent
did not have much choice since she had to proceed by deduction,
the appellant having refused to provide the documentation
required to prepare the appropriate assessments.
[28] As to the allocation of income, the
evidence did not establish satisfactorily which work sites had
generated the income for the 1994 and 1995 taxation years.
[29] I attach no probative value to the
explanations given with regard to the chronology of the work. I
rely on the contract entered into between the appellant and
Mrs. Deschamps on December 27, 1993, which does not
refer to "Gestion Jean-Yves Collin
Ltée".
[30] It would have been important to hear
Benoît Deschamps. Should his absence from the trial
mean that the expenses relating to the sale of the wood are
ineligible? I refer to the costs to cut, remove and deliver wood
to the sawmill. I do not believe so.
[31] I accept the explanations the appellant
gave under oath to the effect that he had to pay out half the
amounts received. Those outlays were made to Mr. Deschamps
in respect of all costs relating to the marketing of the wood
from his land.
[32] The best evidence would have been to
have Mr. Deschamps testify with regard to the amounts
received from the appellant. Since he may have excluded the
amounts received from his income, it is possible that he in turn
will have to provide certain explanations.
[33] The weight of evidence suggests that
the unreported income should have been accounted for and
determined as follows:
|
Company's files
|
Taxation year
|
Unreported gross income
|
Allowable expenses
|
Unreported income
|
Taxable income
|
|
2000-3570(IT)I
|
1994
|
|
|
|
|
|
2000-3570(IT)I
|
1995
|
$41,257.60
|
$20,628.80
|
$20,628.80
|
$20,628.80
|
|
Appellant Collin's files
|
Taxation year
|
Unreported gross income
|
Allowable expenses
|
Unreported income
|
Unreported taxable income
|
|
2000-3571(IT)I
|
1994
|
$22,715.77
|
$11,357.88
|
$11,357.88
|
$11,357.88
|
|
2000-3571(IT)I
|
1995
|
|
|
$20,628.80*
|
$20,628.80
|
* benefits conferred on the appellant shareholder
[34] The appellant Collin contended that the
provisions of subsection 15(1) of the Income Tax Act
(the "Act") did not apply. In support of his
claims, he referred to Les principes de l'imposition au
Canada, December 1998, 12th edition, page 443,
paragraph 2.3.1, which reads as follows:
[TRANSLATION]
Benefits conferred on a shareholder
Subsection 15(1) provides that a shareholder, or a person
in contemplation of the person becoming a shareholder, shall
include the value of a benefit conferred on him by the
corporation in computing his income.
. . .
For subsection 15(1) to apply, the shareholder must have
the intention of obtaining a benefit, a benefit granted
inadvertently is presumably not subject to the application of
that subsection.
[35] The appellant contended that the facts
did not justify the assessment, the basis of which was a
"benefit conferred on the shareholder" because there
had been a simple mistake.
[36] He emphasized the fact that a
shareholder had to intend to obtain a benefit in order to be
subject to the provisions of the Act and to the
application of subsection 15(1) of the Act.
[37] The appellant clearly retained from his
reading only a general statement of principle; he forgot that the
same treatise states that a taxable benefit exists where the
shareholder should have known when the benefit was conferred.
[38] In light of what I saw and heard at the
trial, I have no hesitation in concluding that the net amount for
the 1994 taxation year was not inadvertently excluded from the
appellant company's accounting; the appellant clearly knew
perfectly well what he was doing and was equally aware of the
consequences of his acts. This was, in my view, a situation that
Parliament undoubtedly had in mind when it enacted
subsection 15(1) of the Act.
[39] The evidence does not support such a
broad and generous interpretation of Mr. Collin's
actions. Quite the contrary, I find that things were done in full
knowledge of the facts; Mr. Collin simply hoped that the
respondent would never be informed.
PENALTIES
[40] The respondent completely discharged
her burden of proof with respect to the penalties. The evidence
adduced by the appellants in order to cancel the penalties is
immaterial.
[41] The facts at the time the income was
not declared were largely sufficient to justify the penalties.
The appellant's subsequent behaviour confirms that this is
correct; in particular, I refer, inter alia, to the initial
general denial of the facts, followed by weak and incomplete
cooperation and, lastly, to admission of collusion in failing to
provide the name, address and telephone number of the entity to
which large amounts were paid.
[42] The appellants appear to have forgotten
the context following which the reassessments were made. Having
shown bad faith at the time of the audit, they changed their ways
at trial. This turnaround is essentially the result of the
exceptional quality of the respondent's evidence.
[43] There is no doubt that the penalties in
the assessments to be made are justified and appropriate having
regard to the gross negligence demonstrated by the evidence.
INTEREST
[44] I have no jurisdiction to cancel or
reduce the interest assessed in an assessment; only the Minister
has the power to assess, reduce or cancel the interest arising
from an assessment.
[45] For all these reasons, the appeals are
allowed on the basis that the cases shall be the subject of
reassessments made having regard to the following facts.
[46] It was shown on a balance of
probabilities that the company received and concealed taxable net
income of $20,628.80 for the 1995 taxation year. That income was
not reported and was cashed directly by the appellant, thus
conferring on him a taxable benefit of the same amount. As a
result, reassessments shall be made on the basis that
"Gestion Jean-Yves Collin Ltée"
failed to report income of $20,628.80 for the 1995 taxation
year.
[47] The evidence moreover showed that the
appellant had also excluded from his personal income the net sum
of $11,357.88 for the 1994 taxation year in net income from the
cutting and sale of wood on the land, which he personally owned.
For 1995, the appellant received a benefit of $20,628.80, which
he did not add to his reported income. Consequently,
reassessments shall be made on the basis that the appellant
Jean-Yves Collin failed to report income of $11,357.88
for the 1994 taxation year and $20,628.80 for the 1995 taxation
year.
[48] The penalties provided for in
subsection 163(2) of the Act shall be added to the
reassessments to be made in both cases.
Signed at Ottawa, Canada, this 14th day of January 2002.
J.T.C.C.
Translation certified true
on this 1tst day of April 2003.
Sophie Debbané, Revisor
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