Citation: 2011 TCC 113
Date: 20110301
Dockets: 2008-3955(IT)G,
2008-2580(GST)G,
2008-3954(IT)G
BETWEEN:
LES PRO-POSEURS INC.,
CLAUDE SÉGUIN,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
These three appeals
were heard on common evidence.
Docket 2008-2580(GST)G
[2]
This is an appeal from an assessment of $36,337.15, notice of which is dated June
21, 2007, made under Part IX of the Excise Tax Act (the ETA) for the sixteen
quarterly reporting periods, which are not all consecutive (the 16 periods
at issue), from October 1, 2002, to December 31, 2002, from April 1, 2003,
to June 30, 2003, from July 1, 2003, to September 30, 2003, from October 1,
2003, to December 31, 2003, from January 1, 2004, to March 31, 2004, from
April 1, 2004, to June 30, 2004, from July 1, 2004, to September 30, 2004, from
October 1, 2004, to December 31, 2004, from January 1, 2005, to March 31,
2005, from April 1, 2005, to June 30, 2005, from July 1, 2005, to September 30,
2005, from October 1, 2005, to December 31, 2005, from January 1, 2006, to
March 31, 2006, from April 1, 2006, to June 30, 2006, from July 1, 2006, to
September 30, 2006, and from October 1, 2006, to December 31, 2006.
[3]
The $36,337.15 in
question can be broken down as follows:
|
Adjustments in
the calculation of the reported net tax
[$1,503.42 +
$231.69 + ($98.47) + $364.99 +
$2,243.43 +
$4,287.45 + $3,247.57 + $1,756.36 +
$4,639.76 + $1,293.59
+ $517.22 + $2,230.88 +
$898.04 + $160.02 +
$276.00 + $319.74]
|
$23,871.69
|
|
Late remitting
penalties
[$540.54 +
$78.75 + $111.97 + $512.86 + $960.41 +
$650.74 +
$311.06 + $697.41 + $188.93 + $46.74 +
$190.18 +
$63.39 + $8.22 + $6.97 + $3.12]
|
$4,371.29
|
|
Penalties under
section 285 of the E.T.A.
(25% of $20,835.35)
|
$5,208.84
|
|
Arrears
interest
[$304.44 +
$45.65 + $66.59 + $311.77 + $600.27 +
$420.42 +
$209.00 + $490.08 + $140.76 + $37.56 +
$168.17 +
$62.66 + $9.32 + $10.10 + $8.54]
|
$2,885.33
|
|
Total [amount
owing]
|
$36,337.15
|
[4]
Specifically, the adjustments,
totalling $23,871.69, in the calculation of the net tax reported by the Appellant
for the 16 periods at issue can be broken down as follows:
|
Goods and
Services Tax (“GST”) collected or collectible
|
$2,884.20
|
|
Input Tax
Credits (“ITCs”) over-claimed or claimed and obtained in error or without
entitlement
|
$20,987.49
|
|
Total
|
$23,871.69
|
I note that the GST collected or collectible of
$2,884.20 is not challenged by the appellant. I also note that the appellant’s
challenge to the disallowed ITCs only involves the ITC amount of $20,835.35 related
to the supplies of property and services it acquired from the 13 suppliers
listed in paragraph 19(f) of the amended Reply to the Notice of Appeal
(the dubious suppliers).
[5]
In assessing the
appellant in the amount of $36,337.15, the Minister of National Revenue (the Minister)
relied, inter alia, on the following findings and assumptions of fact set out
at paragraph 19 of the amended Reply to the Notice of Appeal:
[Translation]
(i) The facts admitted below;
(ii) The appellant is a registrant
for the purposes of Part IX of the ETA;
(iii) The appellant operates a business
specializing in interior systems work either as a contractor or subcontractor;
(iv) During the 16 periods at issue, the appellant
acquired taxable supplies of property and services for
consumption, use or supply in the course of both its commercial activities for which the GST, and the GST was paid or
payable by the appellant to the suppliers on those supplies;
(v) The appellant recorded
in its records the GST so paid or payable as an ITC and
claimed, and received, in the calculation of the net
tax that it reported to the Minister for the
16 periods at issue, said ITC amount;
(vi) Of the total ITC amount claimed, and
received, in the calculation of the net tax that it
reported to the Minister for the 16 periods at
issue, the appellant claimed an amount totalling $20,835.35 for supplies of property and services it acquired during
the 16 periods at issue from thirteen (13) distinct suppliers, namely:
|
Construction Lubac Inc. (Lubac)
|
$215.40
|
|
Constructions Générales M.J.P. Inc.
(M.J.P.)
|
$451.07
|
|
9149-3114 Québec Inc. [alfa.com]
(Alfa)
|
$2,205.87
|
|
9137-6483 Québec Inc.
[Cie Gypse.Com Inc.] (Gypse)
|
$2,445.10
|
|
Système Intérieur RASTEL Inc.
(Rastel)
|
$2,717.81
|
|
Système Intérieur Rovac inc.
(Rovac)
|
$1,130.46
|
|
Les Joints Universels Inc.
(Joints Universels)
|
$2,782.53
|
|
J.C.M.J. Rénovation Inc.
(J.C.M.J.)
|
$173.51
|
|
9139-8347 Québec Inc.
[Les constructions G.S.B. Inc.]
(G.S.B.)
|
$677.67
|
|
9158-0258 Québec Inc.
[Méga Maxx Construction]
(Méga Maxx)
|
$160,02
|
|
Système Intérieur Kelowna Inc.
(Kelowna)
|
$6,609.54
|
|
Système Intérieur D.D. Inc.
(D.D.)
|
$666.40
|
|
9031-4410 Québec Inc.
[Système intérieur Dinar Inc.]
(Dinar)
|
$599.97
|
|
TOTAL
|
$20,835.35
|
(vii) The appellant did not provide the Minister,
when required to do so, with information sufficient, including
any such information as may be prescribed, to enable
the amount of $20,835.35 in ITCs mentioned in the previous subparagraph that it
claimed and obtained in the calculation of the net tax for the 16 periods at issue to be determined;
(viii) Specifically, the appellant did not
provide the Minister with any supporting documents that would have enabled said
ITC amount to be determined or provided, to determine said ITC amount,
supporting documents that did not meet the requirements of the ETA and its regulations;
(ix) Essentially, the supporting documents provided
in support of the disallowed ITCs in the amount of $20,835.35 for supplies of property and services it acquired
during the 16 periods at issue are false and constitute invoices of convenience
for the purpose of allowing the appellant to wrongfully claim ITCs in the calculation of its net tax for the
16 periods at issue;
(x) The purpose of the scheme was to claim,
through the use of the so-called invoices “of convenience”, inappropriate ITCs based
on the requirements of the ETA;
(xi) In the case at bar, the appellant, the
“accommodated” person, used the services of third parties, who may or may have
not operated real businesses, the “accommodator” persons, specifically the
thirteen (13) suppliers in question, issued invoices to the appellant for
supplies of goods and services they did not provide to the appellant and which
the appellant did not acquire from any them;
(xii) The appellant did not acquire any of the supplies
of property or services in question from said thirteen (13) suppliers in
question and did not acquire the supplies of property or services in question from
the thirteen (13) suppliers in question; rather, the appellant acquired them
from a completely different supplier than the ones indicated on the supporting
documents provided for. . . the 16 periods at issue;
(xiii) The appellant was not well-known to the Commission
de la construction du Québec (hereinafter CCQ) during the 16 periods at
issue and reported to the CCQ having contracted with only one subcontractor;
(xiv) Based on the information held by the CCQ, the
thirteen (13) suppliers in question are not subcontractors for the appellant;
(xv) Some of the thirteen (13) suppliers in
question cannot be located;
(xvi) Some of the thirteen (13) suppliers in
question are in default to Revenu Québec with respect to several tax statutes;
(xvii) The thirteen (13) suppliers in question do
not have the staff or equipment to make the supplies of goods and services they
undertook to make to the appellant;
(xviii) The cheques written by the appellant to pay
for the supplies acquired from any of the said thirteen (13) suppliers in
question, if not all of the thirteen (13) suppliers, were almost always provided
to cheque cashing businesses by said suppliers to be cashed;
(xix) Some of the supporting documents in support
of the ITCs claimed do not contain a sufficient and detailed description allowing
adequate identification of each of the alleged supplies made by either of the
said thirteen (13) suppliers in question and which were acquired by the appellant;
(xx) Some of the supporting documents provided
in support of the ITCs claimed for a given supplier have an inconsistent
numerical sequence;
(xxi) Although the thirteen (13) suppliers in
question are distinct persons, the invoicing for some of them is almost
identical, in all respects, except for the designation of the supplier and the GST
and QST registration numbers;
(xxii) The appellant therefore owes the Minister
the amount of the adjustments to its reported net tax for the 16 periods
at issue, plus interest and penalties.
[6]
The first issue to
address in this appeal is whether the appellant is entitled to an ITC of
$20,835.35 in the calculation of its net tax for the 16 periods at
issue. To answer, the Court will first have to determine
(i) whether the appellant
actually acquired from the 13 dubious suppliers the supplies for which it
claimed an ITC of $20,835.35 in the calculation of its net tax;
(ii) whether the invoices
allegedly prepared by the appellant’s suppliers meet the requirements prescribed
by the ETA and the Input
Tax Credit Information Regulations (the Regulations).
The second question to address in this appeal is
whether the Minister was
correct in imposing a penalty under section 285 of the Act.
Docket 2008‑3955(IT)G
[7]
There are also appeals from
the reassessments made by the Minister under the Income Tax Act (the Act)
for its 2001, 2003, 2004, 2005 and 2006 taxation years.
[8]
In setting the amount payable
by the appellant, the Minister relied
on the following facts set out in paragraph 13 of the Reply to the Notice of Appeal:
[Translation]
(i) The appellant’s fiscal year ends on March 31 of
each year;
(ii) For the years in question, the Minister made
the following changes to the appellant’s income:
|
|
2001
|
2003
|
2004
|
2005
|
2006
|
|
Net income (previous loss
for income tax purposes)
|
$6,384
|
($6,021)
|
$18,724
|
$1,776
|
($6,381)
|
|
Add
|
|
|
|
|
|
|
Disallowed subcontracting
expenses
|
$__
|
$24,868
|
$21,028
|
$55,866
|
$49,542
|
|
Disallowed
rental expenses
|
$__
|
$__
|
$2,484
|
$2,484
|
$__
|
|
Disallowed purchases of materials
|
$__
|
$__
|
$691
|
$6,638
|
$__
|
|
Revised net income for income
tax purposes
|
$6,384
|
$18,847
|
$42,927
|
$66,764
|
$43,161
|
|
Subtract
|
|
|
|
|
|
|
Claimed non-capital loss
|
($6,021)
|
$__
|
($6,381)
|
$__
|
$__
|
|
Cancelled non-capital loss
|
$6,021
|
$__
|
$6,381
|
$__
|
$__
|
|
Revised taxable income
|
$6,384
|
$18,847
|
$42,927
|
$66,764
|
$43,161
|
(iii) The appellant is active in the construction industry;
(iv) The appellant’s sole shareholder is Claude Séguin;
Disallowed subcontracting expenses
(v) In 2003, 2004, 2005 and 2006, the appellant
deducted from its business income the expenses it says it incurred for services
from various subcontractors:
|
•
|
2003:
|
$24,868
|
|
•
|
2004:
|
$21,028
|
|
•
|
2005:
|
$55,866
|
|
•
|
2006:
|
$49,542
|
(vi) The subcontractors are in fact companies
of convenience whose sole purpose was to provide invoices to their clients to
allow them to deduct business expenses they did not actually incur.
(vii) The alleged subcontractors did not render any services to
the appellant.
(viii) The alleged subcontractors cannot be found.
(ix) The alleged subcontractors do not have the
staff or equipment to make the supplies of goods and services which appear on
the invoices submitted by the appellant.
(x) The cheques written by the appellant to
pay the invoices from the alleged subcontractors were provided to cheque
cashing businesses by the subcontractors to be cashed.
(xi) The appellant’s shareholder appropriated the money.
(xii) The invoices submitted do not contain a
sufficient and detailed description to allow adequate identification of each of
the alleged services or supplies provided.
(xiii) Some of the supporting documents provided
in support of the expenses claimed for a given subcontractor have an
inconsistent numerical sequence.
(xiv) Although the subcontractors appear as distinct
persons, the invoices of some of them are almost identical in all respects
except for the designation of the subcontractor and the GST and QST registration
numbers.
Disallowed rental expenses
(xv) In 2004 and 2005, the appellant paid rent
to its shareholder, Claude Séguin, for the use of an office in his personal
home.
(xvi) The appellant paid $4,800 to Mr. Séguin for each of
the years.
(xvii) The rent paid ought to have been $2,316 per
year, as the appellant only used 20% of Mr. Séguin’s residence for business
purposes.
Disallowed purchases of
materials
(xviii) The amounts of $691 in 2004 and $6,638 in
2005 are not supported by appropriate documents or are the personal and living expenses
of the appellant’s shareholder.
[9]
In order to impose the penalty
provided for in subsection 163(2) of the Act, the Minister relied on the following facts set out in paragraph 16
of the Reply to the Notice of Appeal:
[Translation]
(i) The facts mentioned in paragraph 13 above.
(ii) The appellant was aware that it was doing
business with companies of convenience to obtain false invoices in order to
deduct from its income amounts it never incurred for the purpose of gaining or producing income.
[10]
I note that, in regard
to the expenses disallowed, the appellant is challenging the Minister’s
decision only as to the following subcontractors:
(i) Rastel
(ii) D.D.
(iii) Gypse
(iv) Rovac
[11]
The only issues in this
appeal are the following:
(i) did the appellant
have deductible expenses for the supplies provided by Rastel, D.D., Gypse and
Novac in the amount of $24,868 in 2003, $21,028 in 2004, $55,866 in 2005 and
$49,542 in 2006?
(ii) was the imposition
of the penalty under subsection 163(2) of the Act justified?
Docket 2008-3954(IT)G
[12]
This is an appeal from the
reassessments made by the Minister under the Act for his 2002, 2003, 2004, 2005
and 2006 taxation years.
[13]
In setting the amount
payable by the appellant, the Minister relied on the following facts set out in paragraph 9 of the Reply to the Notice of Appeal:
[Translation]
(i) The appellant is the sole shareholder of
Pro-Poseurs Inc. (the Company);
(ii) For the years in question, the Minister
made the following changes to the appellant’s income:
|
|
2002
|
2003
|
2004
|
2005
|
2006
|
|
Total income previously assessed
|
$34,996
|
$35,224
|
$40,367
|
$43,705
|
$46,247
|
|
Add
|
|
|
|
|
|
|
Company benefits
|
-
|
-
|
-
|
-
|
-
|
|
(i) Subcontracting
|
$24,705
|
$14,662
|
$63,886
|
$8,196
|
$11,656
|
|
(ii) Materials and
Restaurant
|
-
|
-
|
$5,661
|
$932
|
-
|
|
(iii) Rent
|
-
|
-
|
$2,484
|
$2,484
|
|
|
(iv) Automobile benefit
|
-
|
-
|
$3,400
|
$3,539
|
|
Subcontracting
(iii) The company works in construction.
(iv) In 2003, 2004, 2005 and 2006, the Company
deducted expenses it says it incurred for services from subcontractors.
(v) The Company rather did business with
companies of convenience whose sole purpose was to provide invoices to their
clients to allow them to deduct business expenses they did not actually incur
and to allow the shareholders or directors of the business clients pocket the money
equivalent to the amounts of the false invoices.
(vi) The alleged subcontractors did not render any services to
the Company.
(vii) The alleged subcontractors cannot be found.
(viii) The alleged subcontractors do not have
the staff or equipment to provide the supplies or services described in the
invoices submitted by the appellant.
(ix) The invoices submitted do not contain a
sufficient and detailed description adequate identification of each of the alleged
services or supplies provided.
(x) Some of the documents provided in support
of the expenses claimed for a given subcontractor have an inconsistent
numerical sequence.
(xi) Although the subcontractors appear as
distinct persons, the invoice of some of them are almost identical in all
respects except for the designation of the subcontractor and the GST and QST registration
numbers.
(xii) The cheques written by the appellant to
pay the services of the alleged subcontractors were provided to cheque cashing
businesses by the subcontractors to be cashed.
(xiii) The appellant appropriated the amounts
received following the cashing of the cheques.
Purchases of materials and restaurant expenses
(xiv) The Company deducted as business expenses
amounts for purchases of materials and restaurant expenses.
(xv) It also deducted amounts for purchases, according
to the ledger, at Costco.
(xvi) None of the expenses made at Costco are
supported by adequate documents.
(xvii) The other expenses claimed for purchases
of materials and restaurant-related items are the appellant’s personal expenses.
Rent
(xviii) In 2004 and 2005 the Company paid rent to
the appellant for the use of an office in his home.
(xix) The appellant received $4,800 from the Company for each
of the years.
(xx) The rent paid ought to have been $2,316 per
year, as the Company only used 20% of the appellant’s residence for business
purposes.
(xxi) In 2004 and 2005, the Company conferred a
benefit of $2,484 on the appellant.
Automobile benefit
(xxii) In 2004 and 2005, the Company put at the
disposal of the appellant a Mazda Tribute.
(xxiii) The vehicle was also used for business purposes.
(xxiv) At the time of the audit, the appellant proposed
to the auditors to consider that the 1000 km per month was the distance he
drove with the Mazda Tribute. The auditors agreed.
(xxv) The automobile benefit conferred on the appellant
was $3,400 in 2004 and $3,539 in 2005.
I note that the appellant is challenging the
Minister’s decision only as to the benefits related to subcontracting expenses.
[14]
In issuing
reassessments for 2002 and 2003 beyond the normal reassessment period and imposing the penalty under subsection 163(2) of
the Act, the Minister relied on the following facts set out in paragraph 10
of the Reply to the Notice of Appeal:
[Translation]
(i) The facts mentioned in paragraph 9 above.
(ii) Only the amounts representing the benefit
conferred on the appellant with respect to the false subcontracting invoices
were subjected to the penalty provided for in subs. 163(2) of the ITA.
(iii) From 2002 to 2006, the appellant did not
claim the respective amounts of $24,705, $14,662, $63,886, $8,196 and $11,656
he appropriated as part of his Company’s participation in a scheme involving
the issuance, by companies of convenience, of false subcontracting invoices to
allow the Company to deduct amounts from his business income and to allow the appellant
to pocket the amounts allegedly paid to the subcontractors.
(iv) The appellant is actively involved in the Companies’
activities.
(v) The appellant was aware that the Company
had not received the services described on the invoices of convenience.
(vi) It was knowingly,
or under circumstances amounting to gross negligence that
the appellant pocketed the amounts mentioned in para. (c) above and that he
did not add them to his income.
[15]
The only issues are the
following:
(i) Did the appellant receive
taxable benefits from the Company from 2002 to 2006?
(ii) Was the issuance
of reassessments for 2002 and 2003 under subsection 152(4) of the Act justified?
(iii) Was the imposition
of the penalty under subsection 163(2) of the Act on the amounts the appellant appropriated
(corresponding to
the total of the subcontracting
invoices) justified?
[16]
The appellant, Claude
Séguin, Francis Gaudreault, George Stouraitis, Jean Vendette, Daniel Pauzé, Hermel
Lanteigne (Mr. Séguin’s brother-in-law), Daniel Preston (an employee of the
appellant Les Pro-Poseurs Inc.), Tony Surprenant (an employee of the appellant Les
Pro-Poseurs Inc.) and Priscilla Séguin (Mr. Séguin’s daughter) testified in
support of the appellants’ position. Daniel Fugère (an audit department head at
Revenu Québec) and Steve Parent (a tax auditor with Canada Revenue Agency) testified
in support of the respondent’s position.
Testimony of the appellant Claude Séguin
[17]
The testimony of Claude
Séguin (majority shareholder and principal officer of Les Pro-Poseurs Inc. during
the periods at issue) may be summarized as follows:
(i) Les Pro-Poseurs
Inc. has been a building contractor specializing in interior systems (installation
of metal partitions, installation of drywall, filling of joints and
installation of acoustic ceiling tiles) since
1988. Also since 1988, the main client of Les Pro-Poseurs Inc. has been Industrie
Vendette Ltée, a general building contractor specializing in office space renovation and fit-up (in commercial buildings) and hotels located
mainly in Montréal.
(ii) Claude Séguin is
52 years old. He has been married since 1981 and has two children. He has
very little education (secondary III). The salary he receives from Les
Pro-Poseurs Inc. is his only source of income. As an employee of Les Pro-Poseurs Inc. during the periods at issue, he
was responsible for the supervision of the work of the employees of Les
Pro-Poseurs Inc. and its suppliers’ employees, the negotiation of the terms and
conditions of contracts awarded by Industrie Vendette Ltée or others
contracting out work and the negotiation of the terms and conditions of
contracts awarded to the suppliers of Les Pro-Poseurs Inc. Mr. Séguin explained
that he performed very few administrative tasks for Les Pro-Poseurs Inc., owing
to his limited skills and knowledge in that area. He added in that regard that Les
Pro-Poseurs Inc. had hired an external accountant to keep its accounting books,
to draft its legal reports, to prepare and file its income tax and GST returns,
and finally to prepare its financial statements. The appellant also explained
that he had asked the bank of Les Pro-Poseurs Inc. to send to the external
accountant the original cheques cashed by the suppliers of Les Pro-Poseurs
Inc. directly so that the bank account of Les Pro-Poseurs Inc. could be
reconciled.
(iii) During the periods
at issue, Les Pro-Poseurs Inc. had on average three employees (including Mr.
Séguin) who regularly worked for it. When Les Pro-Poseurs Inc. had an overflow
of contracts, it would award some to suppliers. The suppliers were generally selected
as follows: Les Pro-Poseurs Inc. contacted (by telephone) the owner of Quincaillerie
Ste‑Hélène (hardware store where numerous contractors or workers specializing
in interior systems work got their supplies during the periods at issue) or with
certain company employees (Marie, Jacques and André) and would let them know
that the appellant needed workers. I note that the appellant did not disclose
that information to the two CRA auditors who asked him, in a meeting held on September
26, 2006, how he contacted the suppliers (see Exhibit I‑3, page 9). I
also note that it would have been very interesting to hear the testimony of the
owner of Quincaillerie Ste‑Hélène or one of its employees in that regard.
The appellants could have called those witnesses to testify but did not. I
infer from this that the evidence would not have been in their favour.
(iv) The contracts with
the suppliers were oral. During the periods at issue, the appellant mainly
awarded drywall and joint filling contracts. The remuneration generally agreed
upon with the suppliers was as follows: approximately $240 per thousand square
feet of drywall installed, approximately $300 per thousand square feet of
drywall installed with joint-filling compounds, and approximately $40 for
repairs. The payment agreement was generally [Translation], “The sooner the work is completed and invoiced, the
sooner one gets paid.” I note that Mr. Séguin told (see Exhibit I‑3) the
two CRA auditors he met with on September 26, 2006, that Les Pro-Poseurs Inc.
usually paid its suppliers two weeks after receiving the invoice. I note that
the cheques drawn on the bank account of Les Pro-Poseurs Inc. and payable to
the suppliers were sent to the suppliers in a different way depending on
whether or not it was one of the 13 dubious suppliers. In the first case, the
cheque was remitted to the dubious supplier’s employee who worked with the
employees of Les Pro-Poseurs Inc. at a given work site; in the other case, the
cheque was sent by mail.
(v) Mr. Séguin was
unaware of the name of the directors, officers, foremen and shareholders of the
dubious suppliers as he had only communicated with their employees. Mr.
Séguin’s “modus operandi” with respect to signing contracts with the dubious
suppliers was as follows: the dubious suppliers’ employees (sent to Les
Pro-Poseurs Inc. by Quincaillerie Ste‑Hélène) would telephone Mr. Séguin to
let him know that they were available to do work for Les Pro-Poseurs Inc. The
employees would therefore show up, at Mr. Séguin’s request, at the work site
designated by him. Mr. Séguin then explained to the employees the nature of the
work to be done, the method of remuneration and the payment terms. After having
verified whether the employees had their trade cards and whether the suppliers
they worked for had their permits, the appellant would orally award the contracts
to the dubious suppliers the employees worked for. In the end, the dubious
suppliers’ employees negotiated and concluded for their employers and in their
name all the contracts Les Pro-Poseurs Inc. awarded to the dubious suppliers
during the periods at issue. In that respect, Mr. Séguin explained that
(1) Hermel Lanteigne (Mr.
Séguin’s brother-in-law) negotiated and concluded for Alfa, Gypse, Rastel,
Rovac and J.C.M.J. and in their name all the contracts Les Pro-Poseurs Inc. had
awarded to them. Mr. Lanteigne also performed (on occasion with the help of an individual
whose first name was Ben) all the contracts awarded by Les Pro-Poseurs Inc. to
the five dubious suppliers. It should be noted that at the meeting of September
26, 2006, with the two CRA auditors, Mr. Séguin was unable to identify or even
describe the person or persons who performed the work for three of the five
dubious subcontractors (see Exhibit I‑3). To explain those lapses in
memory, Mr. Séguin stated that at that point he was so intimidated by the two
CRA auditors that he was completely at a loss. Mr. Séguin’s version of the facts
in that regard (although corroborated by his daughter Priscilla) failed to
convince me. In fact, to be intimidated to the point where he no longer recalled
that his brother-in-law was the one who performed most of the work for the three
dubious suppliers just seems unlikely to me and lacks credibility in the
circumstances. I note that Mr. Séguin’s lapses in memory in that respect only
added to my doubts as to his credibility.
(2) Alain Gagnon negotiated
and concluded for Lubac, M.J.P., G.S.B., Méga Maxx and Dinar and in their name
all the contracts that Les Pro-Poseurs Inc. had awarded them. Mr. Gagnon also
performed all the contracts awarded by Les Pro-Poseurs Inc. to the five dubious
suppliers. It would have been very interesting to hear the testimony of Mr.
Gagnon. The appellants could have called that person to testify but did not. I
infer from this that the evidence would not have been in their favour.
(3) Bob Ryan negotiated
for Joints Universels and Kelowna and in their name all the contracts that
Les Pro-Poseurs Inc. had awarded them (worth approximately $134,000). Mr. Ryan performed
all the contracts awarded by Les Pro-Poseurs Inc. to the two dubious suppliers.
It would have also been very interesting to hear the testimony of Mr. Ryan, a
key player in these disputes. The appellants could have called that person to
testify but did not. I infer from this that the evidence would not have been in
their favour.
(4) Mr. Séguin could not
recall the name of the person who negotiated and concluded for D.D. and in its
name the contracts that Les Pro-Poseurs Inc. had awarded it; nor could he
recall the name of the person or persons who performed the work under the contracts
awarded.
(vi) In 20% of the cases,
Mr. Séguin himself completed the dubious suppliers’ invoices where their
employees were illiterate. It is appropriate to point out that Mr. Séguin did not
identify the invoices he completed. Nor did he identify the illiterate employees.
Finally, I note that when asked to comment
on certain invoices regarding the exact place where the work was performed, the
exact nature of the work performed (installation of drywall, filling of joints),
the number of square feet of drywall installed or installed with joint-filling
compounds, and finally, the method of remuneration, Mr. Séguin was generally
vague and imprecise, and often non-responsive.
Testimony of Francis Gaudreault
[18]
The testimony of Francis
Gaudreault (an electrician) may be summarized as follows:
(i) Mr. Gaudreault has
been an employee of Au Courant Électrique for some 24 years;
(ii) During the years
at issue, he often worked at the same work sites as Mr. Séguin, as Industrie
Vendette Ltée almost always used the same suppliers to perform the contracts awarded
to it;
(iii) He had seen, on
more than one occasion and at a number of work sites, Messrs. Ryan, Lanteigne
and Gagnon work with the employees of Les Pro-Poseurs Inc. I note, however,
that the testimony of Mr. Gaudreault regarding the “situs” of the work sites where
he saw those individuals, how often he saw them, and when he saw them was generally
laborious, vague and imprecise. I note that Mr. Gaudreau was unable to specify
the status (employee or self-employed) of the three individuals when they
worked with Mr. Séguin and the name of the businesses for which they worked.
Testimony of George Stouraitis
[19]
The testimony of Mr. Stouraitis
may be summarized as follows:
(i) Mr. Stouraitis is a
painter and self-employed;
(ii) Industrie Vendette
Ltée used him at almost all its work sites since 1993;
(iii) He knows Mr.
Séguin very well as they frequently worked at the same work sites;
(iv) He had seen, on
more than one occasion and at a number of work sites, Messrs. Lanteigne, Ryan
and Gagnon work with the employees of Les Pro-Poseurs Inc. I note, however,
that the testimony of Mr. Stouraitis regarding the “situs” of the work sites where
he saw the three individuals, how often he saw them, and when he saw them was
generally laborious, vague and imprecise. I also note that Mr. Stouraitis was
unable to specify the status (employee or self-employed) of the three
individuals when they worked with Mr. Séguin and the name of the businesses for
which they worked.
Testimony of Jean Vendette
[20]
The testimony of Mr. Vendette,
the main shareholder and executive of Industrie Vendette Ltée, may be
summarized as follows:
(i) Industrie Vendette Ltée
has been active as a general contractor in the construction industry for the
past 30 years and its annual sales vary between 3 and 5 million dollars;
(ii) Industrie Vendette
Ltée almost always uses the same suppliers to perform the contracts awarded to
it;
(iii) He knows Mr.
Séguin very well through the awarding of numerous subcontracting contracts to Les
Pro-Poseurs Inc. over the past twenty years;
(iv) The contracts
concluded with Les Pro-Poseurs Inc. and the suppliers it frequently uses are
always oral;
(v) He never verifies the
status of its usual suppliers with the RBQ, the CCQ and the CSST. He only conducts
verifications for suppliers with which it does not regularly do business;
(vi) He goes to the work sites of Industrie
Vendette Ltée once a week;
(vii) He knows Mr. Lanteigne
very well as he had seen him (at least a hundred times or so) do drywall
installations with the employees of Les Pro-Poseurs Inc. at the work sites of Industrie
Vendette Ltée. He recalled that Mr. Lanteigne had told him once while on break that
he was self-employed. Mr. Vendette added that he never made any inquiries to
verify whether the Mr. Lanteigne’s statements regarding his status were true. Finally,
he testified that at the periods at issue, he was aware that Mr. Lanteigne was Mr.
Séguin’s brother-in-law;
(viii) He remembered having
seen a person whose first name was Alain at a work site of Industrie Vendette Ltée.
He remembered that person because he pointed out to him that his work (“seam
caulker”) had not been done properly. I note that the physical description that
Mr. Vendette gave of that person corresponds with the physical description that
the other witnesses gave of Alain Gagnon;
(ix) He remembered
having seen Bob Ryan work at the work sites of Industrie Vendette Ltée (as a
drywall installer) with the employees of Les Pro-Poseurs Inc. I note that Mr.
Vendette was unable to specify the status of Mr. Ryan when he worked with the
employees of Les Pro-Poseurs Inc. at the work sites of Industrie Vendette Ltée
and the name of the business for which he worked.
I note that the testimony of Mr. Vendette regarding
the “situs” of the work sites where he saw the three individuals work with Mr.
Séguin and the employees of Les Pro-Poseurs Inc. and regarding when and how
often he saw them was generally vague and imprecise.
Testimony of Daniel Pauzé
[21]
The testimony of Mr. Pauzé
may be summarized as follows:
(i) He has been working
for Industrie Vendette Ltée since 1994 as a project manager;
(ii) He has known Mr. Séguin since
1993;
(iii) He goes to his employer’s work
sites every day;
(iv) He had seen Mr.
Lanteigne do drywall installations with the employees of Les Pro-Poseurs Inc.
at his employer’s work sites on a number of occasions. He is aware that Mr.
Lanteigne was Mr. Séguin’s brother-in-law;
(v) He was unable to
specify the status of Mr. Lanteigne when he worked with the employees of Les
Pro-Poseurs Inc. at his employer’s work sites and the name of the business for
which he worked;
(vi) He does not know Bob
Ryan. I note that the testimony Mr. Séguin that Mr. Ryan had very often worked
for Les Pro-Poseurs Inc. as an employee for a number of dubious suppliers to
which Les Pro-Poseurs Inc. had awarded contracts during the periods at issue.
Testimony of Hermel Lanteigne
[22]
The testimony of Mr. Lanteigne
may be summarized as follows:
(i) He is 60 years old. He is practically
illiterate;
(ii) He has been doing drywall
installations for some 30 years;
(iii) He had to take an
oral exam to obtain his trade cards given his illiteracy. He has had his trade
card for some 30 years;
(iv) During the periods at
issue, he worked for the following dubious suppliers: Alfa, Gypse, Rastel,
Rovac and J.C.M.J. His contact at the five suppliers had almost always been an
individual by the first name of Michel;
(v) He had frequently
worked (as an employee) for the five dubious suppliers during the periods in question.
He had been paid in accordance with the applicable orders. He received about $600 (net)
per week for his 40 hours of work. Any salary received from the five dubious
suppliers during the periods in question was reported as employment income. I
note that the testimony of Mr. Lanteigne in that regard was flatly contradicted
by the testimony of Steve Parent, an auditor with the CRA who audited the appellants.
Mr. Parent testified that his audits confirmed that in 2002, 2003 and 2004, none
of the dubious suppliers for which Mr. Lanteigne had worked had issued a T‑4
slip and that Mr. Lanteigne had not reported any employment income from the
five dubious suppliers for those taxation years. As a result, it would be
hazardous to lend Mr. Lanteigne's testimony any credence without any conclusive
corroborating evidence in the form of documentation or testimony by credible
witnesses;
(vi) Mr. Séguin would communicate
directly with him when Les Pro-Poseurs Inc. needed a drywall installer. After reaching
an oral agreement (on behalf of his employer and in his name) with Mr. Séguin
with respect to the terms and conditions of the drywall contract Les
Pro-Poseurs Inc. wished to award to his employer at that point in time, he would
go to the work site. When he performed the contract awarded to his employer, he
would call Michel and provide him with the information necessary for the dubious
supplier to invoice the work he had performed for Les Pro-Poseurs Inc. Michel hand-delivered
the invoice to him and in turn he hand-delivered it to Mr. Séguin. Les
Pro-Poseurs Inc. immediately drew a cheque on its bank account as payment for
the work, a cheque which Mr. Séguin remitted to Mr. Lanteigne, who, in turn, hand-delivered
it to Michel. He explained that it was when the cheque was remitted to him that
Michel wrote a cheque from the account of the dubious supplier concerned as payment
for his hours of work related to the drywall installation at the work site in question;
(vii) It was not until 2007
that he learned that the five dubious suppliers had a duty to report his hours
of work to the CCQ and that they also had the obligation to pay to the CCQ, to
his benefit, the contributions required from the employers under the applicable
orders regarding their employees vacation pay and pension plan. Mr. Lanteigne
explained that he immediately stopped working for the dubious suppliers (for
which Michel was the contact) as soon as he found out about his rights in that
regard. Therefore, Mr. Lanteigne did not receive from the CCQ the vacation pay
he was entitled to during the periods at issue. Mr. Lanteigne’s ignorance with
respect to his rights just seems unlikely to me, considering that he had been
active in the construction industry for at least 30 years.
Finally, I note that the testimony of Mr. Lanteigne regarding
the “situs” of the work sites where he with Mr. Séguin and the employees of Les
Pro-Poseurs Inc. and regarding how often he performed his hours of work and
when he did so under the contracts awarded by Les Pro-Poseurs Inc. to his employers
was simply vague, imprecise and very often incomprehensible.
Testimony of Daniel Preston
[23]
The testimony of Mr. Preston
may be summarized as follows:
(i) Mr. Preston has been an employee
of Les Pro-Poseurs Inc. since 1993;
(ii) Mr. Preston knew Bob
Ryan as they had worked together during the periods at issue to perform certain
contracts awarded by Industrie Vendette Ltée to Les Pro-Poseurs Inc. Mr.
Preston pointed out that Mr. Ryan was a “seam caulker;”
(iii) Mr. Preston pointed
out that Mr. Ryan worked for Joints Universels as he had seen the company logo on
the truck then used by Mr. Ryan;
(iv) Mr. Preston knew Hermel
Lanteigne as they had worked together on certain contracts awarded by Industrie
Vendette Ltée to the appellant. Mr. Preston also stated having seen
an individual, whose first name was Ben, work with Mr. Lanteigne on certain contracts
awarded by Industrie Vendette Ltée to the appellant. Mr. Preston pointed out
that he did not know the status of the two persons in that he did not know
whether they were employees or self-employeed. Nor he did he know for which companies
the two individuals worked;
(v) He knew Alain Gagnon
as they had worked together during the periods at issue on certain contrats awarded
by Industrie Vendette Ltée to the appellant. Mr. Preston did not not know which
company Mr. Gagnon worked for nor his status within the company for which he
worked.
I note that the testimony of Mr. Preston regarding the
“situs” of the work sites where he saw the four individuals and regarding how
often and the periods during which he saw them were vague and imprecise at best.
Testimony of Tony Surprenant
[24]
The testimony of Mr. Surprenant,
an employee of Les Pro-Poseurs Inc. since 2004, bears an uncanny resemblance to
the testimony of Daniel Preston.
Testimony of Priscilla Séguin
[25]
The testimony of Ms. Séguin
may be summarized as follows:
(i) She is the
daughther of Mr. Séguin and has a university degree in business administration;
(ii) She listened to
the thrust of the discussions between her father and the two CRA auditors
during the meeting of September 26, 2006, held at her father’s residence. She
was in the room adjacent to the kitchen where the meeting was being held. Essentially,
the two auditors suggested to her father that he had committed fraud. Having
the impression that her father did not understand what was happening, she went into
the kitchen to tell her father the following [Translation]: “Dad, they are accusing you of fraud.” After
that intervention, she left her father’s residence. In the end, she explained
that her father was intimidated by the two auditors to the point where he was
left completely at a loss.
Testimony of Mr. Parent
[26]
In his testimony, Mr.
Parent essentially confirmed the main elements of the audit reports of Raymond
Roy (Exhibit I‑1, Tab 14), in which he participated, namely:
(i) the dubious
suppliers (in this case D.D., Rovac, Rastel and Gypse) were in non-compliance
with all the tax laws;
(ii) the alleged dubious
suppliers did not have the employees necessary to make the supplies listed on
the invoices filed in evidence by the appellants;
(iii) the cheques
written by the appellant to pay the invoices of the dubious suppliers were provided
to a cheque cashing business by the suppliers to be cashed;
(iv) the invoices filed in
evidence by the appellants do not contain a sufficient and detailed description
allowing adequate identification of each of the alleged services or supplies provided;
(v) certain invoices
filed in evidence by the appellants have an inconsistent numerical sequence;
(vi) although the
suppliers hold themselves out as distinct persons, the invoices of some of them
are almost identical in all respects, except for the designation of the
subcontractor and the GST and Quebec Sales Tax (QST) registration numbers.
[27]
Mr. Parent also
presented, during his testimony, the main answers provided by Mr. Séguin to the
questions posed to him by Raymond Roy and himself during the meeting of September
26, 2006 (see Exhibit I‑3).
Testimony of Mr. Fugère
[28]
In his testimony, Mr.
Fugère essentially confirmed the following elements of the audit report
prepared by Mark‑Louis Roy (Exhibit I‑2, Tab 5a) in which he
participated, namely:
(i) during the periods
at issue, the thirteen dubious suppliers were all in non-compliance with all
the tax laws;
(ii) the dubious
suppliers did not have the employees necessary to make the supplies listed on
the invoices filed in evidence by the appellants;
(iii) the supplies
listed on the invoices filed in evidence by the appelants are not described in
a sufficient and detailed manner;
(iv) some of the
supporting documents provided (in support of the ITCs claimed) by a given
supplier have an inconsistent numerical sequence;
(v) almost all the cheques
written by the appellant and payable to the dubious were cashed at a cheque
cashing business;
(vi) although the
suppliers are distinct persons, the invoicing for some of them is almost
identical, in all respects, except for the designation of the supplier and the
GST and QST registration numbers;
(vii) certain dubious
suppliers do not have permits. The permit number of some of the suppliers had
been cancelled at the time services were rendered. According to the RBQ, the number
appearing on the invoices of certain dubious suppliers dose not appear in its
records.
Appellants’ position
[29]
The appellants claim
that the Minister has wrongfully relied on the profile of the dubious suppliers
to allege that the invoices were fictitious; it was impossible for them to
know, among things, that the suppliers were in default of their tax obligations
and that in practice, they did not report any salary and had no employees. The appellants
claim that they were assured that the dubious suppliers had a registration
number for GST purposes and that it was all they could do, as all information pertaining
to compliance with the tax laws by the supplier of services is confidential information
that cannot be disclosed to the appellants. The appellants also submit that
they made the proper inquiries to verify whether the dubious suppliers had
their permits and if their employees had their trade cards. According to the appellants,
it was the companies’ conduct that contravened the tax laws. The appellants add
that they should
not have to bear the economic burden resulting from a failure to remit to Her
Majesty all the amounts owed
under all the tax laws.
[30]
With respect to the cheques
(drawn on the bank account of Les Pro-Poseurs Inc. and payable to the dubious
suppliers) cashed at cheque cashing businesses that charged an astronomical
commission, the appellants submit that the Minister could not infer from that
fact that they were in bad faith considering that they were not aware of that
practice. Indeed, the appellants claim that all of the cashed cheques had been
sent directly to its external accountant so that he could proceed with the
reconciliation of its bank accounts and that therefore it was practically impossible
for them to notice that the cheques had been cashed at cheque cashing
businesses.
[31]
Finally, the appellants
submit that the invoices, the cheques written by Les Pro-Poseurs Inc. as payment
for the invoices and the credible testimony of Mr. Séguin, corroborated
by the equally credible testimonies of Mr. Gaudreault, Mr. Stouraitis, Mr. Vendette,
Mr. Pauzé, Mr. Lanteigne, Mr. Surprenant and Mr. Preston, according to
which the services were actually rendered to the appellant by the dubious
suppliers, constituted prima facie evidence that the invoices were not
fictitious invoices and that the prima facie evidence is sufficient to demolish
the assumptions the Minister relied upon to make the appellants’ assessments.
[32]
The appellants also
claim that the Minister wrongfully relied on the fact that the invoices
submitted do not contain a sufficient and detailed description to allow
identification of each of the alleged supplies provided to allege that the
invoices were fictitious, in that most of the construction workers do not have a
gift for writing and that the supporting documents are not out of the ordinary in
that industry. The appellants add in that regard that it is a matter of public knowledge
that when suppliers are not in tax default, invoices drafted in much the same way
are not subject to questioning by the Minister, which would suggest that it is
much more the supplier’s identity than the manner in which the invoice was
drafted that underlies the action taken by the Minister.
[33]
As regards the invoices
whose numeric sequence is inconsistent, the appellants claim that there were
very few and that the Minister could not infer from that bad faith on their
part because they did not notice those inconsistencies.
[34]
With regard to the
invoices drafted by Mr. Séguin, the appellants submit that Mr. Séguin had been
tasked by the suppliers in question to draft them and that therefore the Minister
could not hold that the invoices at issue were fictioutious. The appellants
submit that once the assumptions are demolished, the burden of proof shifts to the Minister, who
must accordingly rebut the appellant's prima facie evidence.
Analysis and conclusion
[35]
Under the doctrine of Hickman
Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, the Minister uses assumptions
to make assessments and the taxpayer has the initial burden of demolishing the
Minister's assumptions. This is met where the taxpayer makes out at least a prima
facie case that demolishes the Minister's assumptions. Then, after the
taxpayer has met the initial burden, the onus shifts to the Minister to rebut
the prima facie case made out by the taxpayer and to prove the
assumptions. As a general rule, a prima facie case is defined as one
with evidence that establishes a fact until the contrary is proved. In Stewart
v. M.N.R., [2000] T.C.J. No. 53, Cain J. stated that "[A] prima
facie case is one supported by evidence which raises such a degree of
probability in its favour that it must be accepted if believed by the Court
unless it is rebutted or the contrary is proved.” Moreover, in Orly Inc. v.
Canada, 2005 FCA 425, at paragraph 20, the Federal Court of Appeal stated
that "the burden of proof put on the taxpayer is not to be lightly,
capriciously or casually shifted..." considering "[i]t is the
taxpayer's business." The Federal Court of Appeal also stated in the same
decision that it is the taxpayer who "knows how and why it is run in a
particular fashion rather than in some other ways. . . . He has information
within his reach and under his control." . . . .” Consequently, Les
Pro-Poseurs Inc. had to
establish by prima facie evidence that it actually purchased the supplies from the dubious
suppliers. Furthermore, Mr. Séguin had to establish by prima facie evidence that either he
actually purchased the
supplies from the dubious supplier or that he did not appropriate the amounts
paid to the dubious suppliers. Finally, Les Pro-Poseurs Inc. also had to establish
that the invoices allegedly issued by the dubious suppliers meet the
requirements of the ETA and its regulations.
[36]
At this stage, the
issue is as follows: does the evidence submitted by the appellants constitute
sufficient evidence to demolish the Minister’s assumptions of fact? As the evidence
submitted by the appellants is essentially based on the testimonies of Mr.
Séguin, Mr. Gaudreault, Mr. Stouraitis, Mr. Vendette, Mr. Pauzé, Mr. Lanteigne,
Mr. Preston, Mr. Surprenant and Priscilla Séguin, we will analyze their probative
value.
[37]
Before analyzing the
probative value of the testimonies of the individuals who testified in support
of the appellants’ position, I would like to make certain comments with respect
to the appellants’ failure to have certain important actors in the three
appeals testify. The appellants had the opportunity call the officers of the dubious
suppliers. Those officers could have testified that the services were actually
rendered to the appellant. The respondent could have then cross‑examined
the witnesses the appellants could have had testify and ask them, among other
things, the following questions: At which work sites did they render services? What
was the exact nature of the services rendered? At what point were the services
rendered and by which employees? Why did they cash the cheques at cheque
cashing businesses that charged an astronomical commission rather than
depositing them in their bank accounts? The appellants did not call the persons
they could have had testify. Nor did the appellants prove that they attempted
to have them called as witnesses. I simply infer from this that the evidence
would not have been in their favour. The appellants also had the opportunity to
call Messrs. Ryan and Gagnon to testify, two very important actors in that Mr.
Gagnon had performed for his employers (Lubac, M.J.P., G.S.B., Méga Maxx and
Dinar) all the contracts that had been awarded to them by Les Pro-Poseurs Inc. and
in that Mr. Ryan had performed for his employers (Joints Universels and
Kelowna) all the contracts that had been awarded to them by Les Pro-Poseurs
Inc. The appellants also had the opportunity to call the external accountant to
testify. The appellants did not do so. I also infer from this that the evidence
would not have been in favour of the appellants.
[38]
We will now examine the
probative value of the testimonies of the individuals that supported the
appellants’ position. Mr. Lanteigne testified that he performed (with the individual
whose first name is Ben) for his employers (Alfa, Gypse, Rastel, Rovac and
J.C.M.J.) all the contracts that were awarded to them by Les Pro-Poseurs Inc. It
is difficult for me to give any probative value to the testimony of Mr.
Lanteigne, as his testimony regarding the “situs” of the work sites where he
worked and the periods during which he worked are vague, imprecise and often
incomprehensible, and as he was flatly contradicted by Steve Parent with
respect to the employment income he reported during the years at issue. Finally,
I note that I concluded earlier that his testimony that he was unaware he was
entitled to vacation pay seemed improbable to me to say the least. All in all, I
have no hesitation in calling Mr. Lanteigne a blatant liar. It was certainly
not by calling such a witness that the appellants could have hoped to satisfy
me that the services were actually rendered to the appellant by Alfa, Gypse,
Rastel, Rovac and J.C.M.J.
[39]
Moreover, what we
learned at most from the generally vague and imprecise testimonies of Mr.
Gaudreault, Mr. Stouraitis, Mr. Vendette, Mr. Pauzé, Mr. Preston and Mr.
Surprenant is that they saw Messrs. Ryan, Gagnon and Lanteigne (some of these
witnesses also saw someone named Ben) perform together with the employees of Les
Pro-Poseurs Inc. contracts awarded to it by Industrie Vendette Ltée. However, what
we practically did not learn anything from those testimonies as to the status
of those individuals (were they employees or self-employed?) and the identity of
the companies for which they worked. Indeed, only Mr. Preston pointed out that
he believed that Mr. Ryan worked for Joints Universels as he had seen the
company logo on the truck used by Mr. Ryan. I also note that Mr. Vendette testified
that Mr. Lanteigne had stated to him that he was self-employed. I note that the
appellants had to demonstrate that the services were actually rendered by the
dubious subcontractors. Indeed, the testimonies of those individuals do not at
all exclude the hypothesis that Les Pro-Poseurs Inc. perhaps could have had direct
access to the services of the four workers (as employees or self-employed
workers) and that their services were paid in cash.
[40]
Nor did Mr. Séguin’s testimony
seem to be any more probative and credible, considering the following elements:
(i) The numerous contradictions
between his testimony and the answers provided to the two CRA auditors at the
meeting of September 26, 2006;
(ii) His vague and
imprecise testimony when asked to comment on certain problematic invoices, regarding
the situs of the work sites in question and the exact nature of the work
carried out;
(iii) The fact of never
verifying where the cheques drawn on the bank account of Les Pro-Poseurs Inc.
and payable to the dubious suppliers (about which Mr. Séguin knew almost
nothing) were cashed, even after having received calls from the cheque cashing
businesses who wanted to make some routine verfications (see Exhibit I‑1,
Tab 14, page 7). Those calls should have caused Mr. Séguin to have
some suspicions and led him to verify from time to time where the dubious
suppliers, about which he knew almost nothing, cashed the cheques made out by
Les Pro-Poseurs Inc. A contractor with a modicum of common sense who realizes
that a supplier is cashing all the cheques payable to it at a cheque cashing
business should have serious questions about the honesty of that supplier. Did
Mr. Séguin not state (see Exhibit I‑2, Tab 14, page 7) that
when he learned that a supplier was doing so, he stopped using its services? I
note that the evidence establishes that almost all of the cheques drawn on the
bank account of Les Pro-Poseurs Inc. and payable to the dubious suppliers were
cashed at cheque cashing businesses that charged an astronomical commission. Ultimately,
the appellants cannot rely on good faith in that respect, as they were informed
of that practice;
(iv) The fact that Les
Pro-Poseurs Inc. complied with the payment instructions of Mr. Lanteigne without
asking any questions. Indeed, Mr. Séguin, at the request of Mr. Lanteigne, wrote
cheques payable to Crédit Lanaudière Inc., a cheque cashing
business, when the services were rendered by Alfa. A contractor with a modicum
of common sense would not have agreed to such a payment instruction without receiving
a written direction from the supplier, particularly when the contractor knows
almost nothing about that supplier;
(v) The “modus operandi” of
Les Pro-Poseurs Inc. differs with respect to the terms and conditions of payment
of the suppliers’ invoices depending on whether or not they are dubious
suppliers;
(vi) The fact of not
verifying with the CCQ and the CSST the hours of work of the employees of the dubious
suppliers. I can understand the practice of those contracting out work of not conducting
such checks on suppliers they regularly use and who are aware of their honesty
and financial stability. Nevertheless, a failure to conduct such checks on
suppliers they know almost nothing about seems to me difficult to explain considering
the significant financial repercussions that could result for those contracting
out the work. Indeed, anyone contracting out work who does not seek status letters
from the CCQ and the CSST could be held jointly and severally liable with their
subcontractors for payment of assessments that should have been paid by their subcontractors.
[41]
It now remains to
examine the following question: do the invoices issued by the dubious suppliers
meet the requirements prescribed by the ETA and its Regulations?
[42]
In turn, the two following preliminary
questions must be answered:
1.
What is the purpose of the Regulations?
2.
Are the requirements of the Regulations
mandatory and to be strictly enforced?
[43]
In that regard, I
concur with Bowie J. when he states as follows in Key Property
Management Corp. v. The Queen, 2004 TCC 210:
The whole purpose of paragraph 169(4)(a) and the
Regulations is to protect the consolidated revenue fund against both fraudulent
and innocent incursions. They cannot succeed in that purpose unless they are
considered to be mandatory requirements and strictly enforced. The result of
viewing them as merely directory would not simply be inconvenient, it would be
a serious breach of the integrity of the statutory scheme.
[44]
In that regard, I also accept
the following comments of Campbell J. in Davis v. The Queen,
2004 TCC 662:
Because of the very specific way in which these provisions
are worded, I do not believe they can be sidestepped. They are clearly
mandatory and the Appellant has simply not met the technical requirements which
the Act and the Regulations place upon him as a member of a self-assessing
system.
It is important to note that the Federal Court of Appeal
affirmed, in Systematix Technology Consultants Inc. v. Canada, 2007 CAF 226,
the position of Bowie and Campbell JJ. in that respect.
[45]
Subsection 3 of the Regulations
reads as follows:
3. For the purposes of paragraph 169(4)(a) of the Act, the
following information is prescribed information:
(a) where the total amount paid or payable shown on the
supporting documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the supplies, is less than
$30,
(i) the name of the supplier or the intermediary in respect of the
supply, or the name under which the supplier or the intermediary does business,
(ii) where an invoice is issued in respect of the supply or the
supplies, the date of the invoice,
(iii) where an invoice is not issued in respect of the supply or
the supplies, the date on which there is tax paid or payable in respect
thereof, and
(iv) the total amount paid or payable for all of the supplies;
(b) where the total amount paid or payable shown on the
supporting documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the supplies, is $30 or
more and less than $150,
(i) the name of the supplier or the intermediary in respect of the
supply, or the name under which the supplier or the intermediary does business,
and the registration number assigned under subsection 241(1) of the Act to the
supplier or the intermediary, as the case may be,
(ii) the information set out in subparagraphs (a)(ii) to
(iv),
(iii) where the amount paid or payable for the supply or the
supplies does not include the amount of tax paid or payable in respect thereof,
(A) the amount of tax paid or payable in respect of
each supply or in respect of all of the supplies, or
(B) where provincial sales tax is payable in respect of
each taxable supply that is not a zero-rated supply and is not payable in
respect of any exempt supply or zero-rated supply,
(I) the total of the tax paid or payable under Division II of Part
IX of the Act and the provincial sales tax paid or payable in respect of each
taxable supply, and a statement to the effect that the total in respect of each
taxable supply includes the tax paid or payable under that Division, or
(II) the total of the tax paid or payable under Division II of
Part IX of the Act and the provincial sales tax paid or payable in respect of
all taxable supplies, and a statement to the effect that the total includes the
tax paid or payable under that Division,
(iv) where the amount paid or payable for the supply or the
supplies includes the amount of tax paid or payable in respect thereof and one
or more supplies are taxable supplies that are not zero-rated supplies,
(A) a statement to the effect that tax is included in
the amount paid or payable for each taxable supply,
(B) the total (referred to in this paragraph as the
“total tax rate”) of the rates at which tax was paid or payable in respect of
each of the taxable supplies that is not a zero-rated supply, and
(C) the amount paid or payable for each such supply or
the total amount paid or payable for all such supplies to which the same total
tax rate applies, and
(v) where the status of two or more supplies is different, an
indication of the status of each taxable supply that is not a zero-rated
supply; and
(c) where the total amount paid or payable shown on the
supporting documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the supplies, is $150 or
more,
(i) the information set out in paragraphs (a) and (b),
(ii) the recipient’s name, the name under which the recipient does
business or the name of the recipient’s duly authorized agent or
representative,
(iii) the terms of payment, and
(iv) a description of each supply sufficient to identify it.
[Emphasis added.]
[46]
In the case at bar, the evidence
reveals that the amount paid with respect to each of the supplies by the
dubious subcontractors is $150 or more. As a result, each of the invoices filed
in evidence by the appellants (see Exhibit A‑3, Tab 5) should
have also included a description of each supply sufficient to identify it.
As the purpose of subsection 169(4)(a) of the ETA and its Regulations is the protection of the consolidated revenue fund against
both fraudulent and innocent incursions, I am of the view that a description
is sufficient if it allows the CRA to identify the work carried out by the suppliers.
In my opinion, the invoices filed in evidence by the appellants cannot meet
the condition provided for in subparagraph 3(c)(iv) of the Regulations
unless they include at least the following information:
(i) The exact place where the
supplier at issue installed the drywall or filled the joints. By exact place I
mean the civic address where the work was performed. In the case of a building
with several floors, the invoice must specify the floor where the work was
performed. If the floor in question includes several offices, the invoice must
also identify the office where the work was performed;
(ii) The nature of the supply. In
the case at bar, if we rely on the testimonies of Mr. Séguin and of those who
testified in support of the appellants’ position, almost all of the services
rendered by the dubious subcontractors involved wither the installation of
drywall or the filling of joints. As a result, each of the invoices filed in
evidence by the appellants should indicate, where appropriate, whether the
dubious supplier installed drywall or whether it filled joints. In my view, each
invoice should also indicate the number
of square feet of drywall installed or installed with joint-filling compounds, as appropriate.
[47]
My review of all the invoices put
in evidence by the appellants leads me to conclude that none of them meets section 169
of the ETA and the Regulations, as for each of them, at least one mandatory
piece of information is missing. Accordingly, Les Pro-Poseurs Inc. cannot claim
the ITCs related to those invoices. The appellants’ argument that people in the
construction industry should not be required to enter on their invoices a description of each supply
sufficient to identify it, as they do not have a gift for writing, seems to me weak and untenable. I would add that it
is not necessary to have a gift for writing to indicate the exact place where the
drywall was installed and the number of square feet of drywall installed. As
for the argument that the description of supplies appearing on the invoices
filed in evidence by the appellants is sufficient, as it meets the industry’s
standards, I am of the view that is equally weak and untenable. In that respect,
I first note that the appellants have not proven the alleged industry standard with
respect to the description of supplies. In any case, if we were to agree with that
argument, we would be giving the industry the right to determine what the legislator
means by “description
of each supply sufficient to identify it.”
It is for the Court and not the industry to determine what the legislator means
by “description of
each supply sufficient to identify it.” Furthermore,
I do not see how the appellants’ position that it is common knowledge that when
suppliers are not in tax default, invoices drafted in much the same manner are
not subject to questioning by the Minister of Revenue of Quebec, which would
suggest that that it is much
more the supplier’s identity than the manner in which the invoice was drafted
that underlies the action taken by the Minister of Revenue of Quebec, constitutes a valid argument. I would add in
that regard that the Court, contrary to the Minister, cannot allow itself to be
lax (if such is the case) in the application of the ETA and its Regulations.
[48]
The following question should now
be answered: did the Minister meet his
burden under section 285 of the ETA? Since I am convinced that Les Pro-Poseurs Inc. did not genuinely acquire the supplies for which it claimed ITCs of $20,835.35 in its
net tax calculation, the Minister has met his burden of proof as set out in
section 285 of the ETA.
[49]
The following question should now
be answered as to docket 2008‑3955(IT)G: has the Minister met his burden under subsection 163(2) of the Act? Since
I am satisfied that Les Pro-Poseurs Inc. did not genuinely acquire the supplies in question, the
Minister has met his burden of proof as set out in subsection 163(2) of the Act.
[50]
Are also of relevance the
following questions in docket 2008‑3954(IT)G :
1.
Did Mr. Séguin receive benefits
from 2002 to 2006? Since I am satisfed
that Les Pro-Poseurs Inc. did not genuinely acquire the supplies from Rastel, D.D., Gypse and Rovac and that Mr. Séguin did
not provide evidence that the amounts paid to the dubious suppliers were used
by Les Pro-Poseurs Inc. to earn income from its business, I must conclude that Mr.
Séguin received from Les Pro-Poseurs Inc. taxable benefits corresponding to the total of
the amounts paid by Les Pro-Poseurs
Inc. to the four suppliers.
2.
Was the issuance of the notices of
reassessment for 2002 and 2003 beyond the normal reassessment period justified? In view of my previous conclusions, I am of the view
that the Minister has met his burden of
proof as set out in subsection
152(4) of the Act.
3.
Did the Minister meet his burden
of proof as set out in subsection 163(2) of the Act? Since
I am satisfed that Les
Pro-Poseurs Inc. did not genuinely
acquire the supplies from the four suppliers and that Mr. Séguin appropriated the amounts paid to
them, the Minister has met his burden of
proof as set out in subsection 163(2)
of the Act.
[51]
For these reasons, all of
the appeals are dismissed with costs.
Signed at Ottawa, Canada, this 1st day of March 2011.
“Paul Bédard”
Translation certified true
on this 29th day
of June 2011.
François Brunet,
réviseur
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