TAX
COURT OF CANADA
RE
INCOME TAX ACT
2002-1776(IT)I
2003-99(IT)G
BETWEEN: LISE
GRÉGOIRE
ANDRÉ LEFRANÇOIS
Appellants
-and-
HER MAJESTY THE QUEEN
Respondent
[OFFICIAL
ENGLISH TRANSLATION]
Held before the
Honourable Justice ALAIN TARDIF, Tax Court of Canada, in the offices of
the Courts Administration Service, Montréal, Quebec, on March 12, 2009.
--------------------
REASONS
FOR JUDGMENT
APPEARANCES:
PIERRE
ROBILLARD
For the
appellants
CHRISTINA
HAM
For the
respondent
Registrar/Technician:
Josette Langlois
RIOPEL,
GAGNON, LAROSE & ASSOCIÉS
215
Saint-Jacques St.
Suite
328
Montréal,
Quebec
H2Y 1M6
IT-5258 Per:
JEAN LAROSE
START OF REASONS FOR JUDGMENT: 9:40 a.m.
HIS HONOUR: Listen, from the very beginning, Mr. Lefrançois
indicated that he was a guidance counsellor at the Université du Québec in Hull. He also stated that he was trained as
a real estate agent. His spouse indicated that she was a retired teacher. The
least we can say is these are two people with above-average educations. That
statement is indisputable, inescapable.
One day, this couple decided to invest in the real estate market,
since they not only were obviously educated, but Mr. Lefrançois also had
specialized training in real estate. They knew the rules, they knew the field,
and so they made a purchase of – we don’t exactly know of how many – but I
understood that Mr. Lefrançois had several and Ms. Grégoire had two.
The question is irrelevant and it isn’t being raised, except that,
from what I understood, Ms. Grégoire was more of a figurehead than
anything, because it seems she didn’t care or cared very little about how
things were being managed. She fully trusted her spouse. She said: [Translation] “We talked about it, discussed it,” but, evidently, her spouse made
all the decisions. I believe he had complete power over everything that
concerned the two properties.
At one point, for altogether legitimate reasons, they decided to
take certain actions on the advice of a notary - to refer to his testimony – or
even of a tax specialist. And so a property was transferred to
Ms. Grégoire.
I noticed that, very often in his testimony, Mr. Lefrançois
spoke as if his spouse’s two properties belonged to him. I even remarked on it
once or twice: he spoke about his spouse’s properties as if they were his. That
makes sense since he managed them exactly as though those two properties were
his.
The issue or issues on appeal are related to expenses. As you know,
a person who owns a property and a residence is entitled to some benefits with
respect to his rental property, but not to his residential property. So,
normally, a person with even minimal knowledge, knowing that he is entitled to
expenses, would – even if he doesn’t have a special book for his property –
would have a folder where he would put all his bills. That is not a big problem
while he owns only one property. The only issue that could arise from a
situation like that is whether the expenses claimed for the property are personal
in nature or whether they can be attributed to the rental property. It’s a
relatively simple distinction to make: there is the residence and then there is
the income property.
Thus, in cases like that, especially since people in those types of
situations tend to have little or not much experience, it’s understandable,
although they may not follow the best model, it’s understandable. It may be
acceptable, because it can be verified; it may take a little longer, but it is
likely to give reliable results. In this case, however, it’s not like that, not
like that at all. In this case, there is a couple that owns several properties,
two of which are identified, defined; two of which we know about. There are
apparently other properties, the number of which was never established, but
there are other ones. So, I think it can be assumed that there are several
properties. Mr. Lefrançois manages them exactly as though they were all his.
There is already a first . . . there is already a first reaction, a feeling:
does this expense go with 1 McGill, 10 McGill or 30 McGill? This is a
reaction that, in my opinion, is basic, especially if we recall my statement at
the beginning of this judgment. These are not laypersons. These people are not
illiterate. These are two very educated people, who probably have very
extensive knowledge. Despite this, they take their expenses without noting on
the invoices which property they apply to, which property they were incurred
for, and put them all into one folder – not two, three, four or five folders,
which is to say, a folder per property – but one folder, all jumbled together
in one folder. Then, they say: “Look, it’s easy. It takes five gallons (5 gal.)
of paint to do one apartment.” There are ten (10), so it was used for two properties,
but which properties? In other words, expenses are attributed to this property
or that in a very arbitrary and completely unacceptable way. Then it gets more
complicated; then it gets much worse because some of the properties belong to
Mr. Lefrançois and some to Ms. Grégoire, but despite that fact,
everything is confused and everything is jumbled together.
I think that to accept Mr. Lefrançois’s explanations, which,
incidentally, were for the most part rather difficult to understand, confusing,
unclear, and sometimes downright incomprehensible, even though we know that he
is a guidance counsellor at the Université du Québec. He was asked to explain
the situation, and the answers he gave – listen, I intervened, I didn’t
understand the answers. I believe that, in certain situations, even you, who
had prepared this case, based on some of the question you formulated and asked
your client, you could not understand his answers.
Among other things, he completely mixed up the start of the audit,
referring to September, even though the draft assessment was what he had
received in September. He talked about a half‑basement, then he
contradicted himself when counsel wanted to know what a half-basement was. I
wanted to intervene then by saying: “Listen, let’s stop right there and ask for
the transcript.” He definitely said three or four times that there had been a
flood and that all the papers were in the half-basement. It was such an obvious
contradiction, such a surprising kind of confusion that, at one point, I was
thinking that what often happens is people get nervous when testifying. They
are not used to appearing in Court; it’s not something they do on a daily or
weekly basis. That could explain, could justify a certain nervousness. This
nervousness, this discomfort could cause one to be less precise, less
articulate than he would like. But Mr. Lefrançois is not a shy man.
Mr. Lefrançois is not someone to be intimidated. He is not someone who is
quote end quote, a docile person (not in a negative sense). Mr. Lefrançois
is someone who knows what he wants, knows where he is going and exactly what to
expect. Thus, based on the appellant’s personality, it becomes extremely
difficult to understand some of his very unclear explanations.
I understand, I see what happened in this situation. It’s a
situation, which, regretfully, is found regularly in cases like this one. It is
assumed that the confusion, the disorder, the absence of accounting and records
is a behaviour, an approach that works well, that works well and that is very
profitable. Because when they are faced with an audit, and it’s an
indescribable mess, they claim that there was, in his case, a flood, and he
insisted on that a great great great deal, they offer various explanations in
order to try in some way to get a little consideration from the persons
performing the audit. They offer a whole series of explanations, and I have to
tell you that very often this works well for the people who play that card. To
find in favour of Mr. Lefrançois would be to enshrine the principle that
confusion, disorder and the absence of records is the correct approach to tax
matters. And you will understand that I refuse, I outright refuse to condone
such confusion, such incoherence by taking into consideration the explanations
that, in my opinion, remain unclear and confused.
As for section 42, I believe it applies in the exact way that
the auditor applied it. And finally, the question of interest. Concerning the
question of interest, I will openly admit that I never understood
Mr. Lefrançois’s explanations, but one thing is certain, one thing is
clear, one thing is indisputable: the interest that Ms. Grégoire paid to
Mr. Lefrançois was deductible from her income, but it was only deductible
for the period during which she collected rent. As soon as she sold the
property, the admissibility of or the claim for interest deductions became
invalid. In my view, that is absolutely indisputable evidence, and I don’t
understand, I cannot explain to myself – in any case, I certainly did not
understand – the kind of unclear, confused explanations he gave to try to claim
that his spouse was entitled to that interest. But one thing is certain; the
facts are so clear, so transparent, that it’s unquestionable that the auditor
was correct in refusing to take into account the interest for the period after
the property was sold.
For all of these reasons, there is not a doubt in my mind that this
appeal must be dismissed, and that is the finding I will make: the appeal is
dismissed. And since it’s under the informal procedure, it is without costs.
END OF REASONS FOR JUDGMENT
*******************
Translation
certified true
on this 24th day
of June 2009
Margarita
Gorbounova, Translator
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