Citation: 2009 TCC 328
Date: 20090716
Docket: 2008-277(IT)G
BETWEEN:
PIERRE GILBERT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
This is an appeal filed
pursuant to the general procedures from a reassessment made November 13, 2007,
against the appellant for the 2000 taxation year. In the reassessment, the
Minister of National Revenue (the Minister) included $85,981 in the appellant's
income calculation under subsection 15(2) of the Income Tax Act (the
Act).
Background
[2]
The appellant and his
spouse have engineering degrees. On May 22, 1996, under Part 1A of the Quebec
Companies Act, the appellant and his spouse created the company Secovac
Inc. ("Secovac"). Secovac operated a wood kiln design and sales
business. It also provided wood-drying consultation services to saw mills in Quebec. The appellant and his spouse were the only
administrators, shareholders, managers and employees of Secovac. Its fiscal
year ended October 31.
[3]
At the beginning of
2000, the US imposed an export tax on softwood, a tax that led to decreased
investments in sawmills and as a result, to the beginning of Secovac's
financial difficulties. On March 30, 2001, Secovac filed a notice of intention
to make a proposal under subsection 50.4(1) of the Bankruptcy and Insolvency
Act (the BIA). On May 3, 2001, Secovac filed a holding proposal. The only
creditors with the right to vote were the Minister and Quebec's
Minister of Revenue. On May 17, 2001, the Canada Customs and Revenue Agency
(the Agency) filed a proof of an unsecured claim for $138,418 representing
Secovac's overdue taxes for the 1999 and 2000 taxation years. Although the
holding proposal received a positive recommendation from the trustee on May 15,
2001, creditors voted against it during an assembly that began on May 17, 2001
and ended May 31, 2001; Secovac was therefore deemed bankrupt on May 31, 2001,
following this negative vote.
[4]
When the assembly of
creditors began, the creditors had asked Secovac to send them the financial
statements for the fiscal year ending October 31, 2000, before May 31, 2001. No
later than May 31, 2001, the appellant sent Secovac's creditors the company's
financial statements to October 31, 2000 (Exhibit A-1, Tab 7). These financial
statements indicate that the advances granted to the administrators (of which
more than 96% were granted by the appellant) represented $729,003 and $814,984,
paid during the fiscal years ending October 31, 1999, and October 31, 2000,
respectively. In fact, from the time Secovac was incorporated until October 31,
2000, the appellant's personal indebtedness and that of his spouse towards
Secovac continually increased:
|
October
31
|
1996
|
1997
|
1998
|
1999
|
2000
|
|
Debt – start
|
$0
|
$0
|
$299,000
|
$739,841
|
$729,003
|
|
Loan on
residence
|
|
|
$350,000
|
($70,000)
|
($280,000)
|
|
Advances
granted
|
$0
|
$299,000
|
$90,841
|
$59,162
|
$365,981
|
|
Debt – end
|
$0
|
$299, 000
|
$739,841
|
$729,003
|
$814,984
|
The table shows that the amounts the appellant owed
Secovac increased by $85,981 in Secovac's 2000 taxation year.
[5]
On May 19, 2004, the
appellant was advised that an audit of his personal tax‑related
information for the 1999, 2000, and 2001 taxation years was being undertaken.
This audit focused on the appellant potentially receiving taxable advantages
resulting from loans (non-reimbursed) granted by Secovac to the appellant from
the start of its activities to its bankruptcy.
[6]
During the audit, Henri
Guerrier (the Agency auditor in charge of the appellant's audit case) and his
supervisor met with the appellant and his spouse at the offices of their
counsel (Fasken, Martineau). Mr. Guerrier wanted explanations about Secovac's
"Advances to Administrators." The appellant testified that he did not
provide any explanation about that because the subject was discussed at length
on May 17, 2001, at a first meeting of the creditors (before the holding
proposal was rejected) and he had provided all the explanations about it to the
trustee and to Marie‑Claude Hébert, the Agency representative at the
Secovac creditors' meetings. The appellant also testified that he could not
give Mr. Guerrier the documents related to the advances because they had been
given to the trustee following Secovac's bankruptcy. The evidence also showed
that the appellant had refused to sign a waiver in respect of the normal
reassessment period.
[7]
On June 21, 2004, the
Minister made a reassessment (Exhibit A-1, Tab 8) to include $814,894 in
the calculation of the appellant's income for the 2000 taxation year. This
notice of reassessment states:
[translation]
|
Total income previously assessed
|
$79,443.00
|
|
Add
|
|
|
Advances to shareholders included with income
|
$814,984.00
|
|
Total revised income
|
$894,427.00
|
|
Revised net income
|
$894,427.00
|
|
Revised taxable income
|
$894,427.00
|
|
Non-refundable tax credit
No change
|
|
I must point out that the reassessment does not specify
the provision of the Act under which the reassessment was established.
Moreover, the evidence showed that the reassessment was made under subsection
15(1.2) of the Act, the Minister having considered the advances as commercial
loans within the meaning of subsection 15(1.21) of the Act.
[8]
Further to this
reassessment, Paul Ryan submitted a written notice of objection to the
reassessment made June 21, 2004, to the Minister, on behalf of the appellant
(within the time limit prescribed by the Act).
[9]
On November 13, 2007,
the Minister made a reassessment for the appellant for the 2000 taxation year
(Exhibit A-1, Tab 1) to reduce the $814,894 (included in the calculation
of the appellant's income for the 2000 taxation year under the reassessment of
June 21, 2004) to $85,981 (which corresponds to the loan increase granted
by Secovac to the appellant during its financial year ending October 31, 2000).
The notice of reassessment states:
[translation]
Former total income
|
|
$894,427.00
|
|
Deduct
|
|
|
|
Previously disallowed shareholder debt
|
$814,984.00
|
|
|
Revised shareholder debt
|
$85,981.00
|
$729,003.00
|
|
Revised total income
|
|
$165,424.00
|
|
Revised net income
|
|
$165,424.00
|
|
Revised taxable income
|
|
$165,424.00
|
The above-noted information explains the
Minister's Reply to your September 17, 2004, objection, and the reassessment is
issued under subsection 165(3) of the Act.
[10]
I must note that the
notice of reassessment does not specify the provision of the Act on which the
Minister relied to make the reassessment.
Appellant's testimony
[11]
The appellant testified
that he owned a software program (and was still the owner of that program) that
Secovac used from the start of its activities to its bankruptcy. The appellant
explained that he entered into an agreement (a verbal agreement) with Secovac
for compensation of $800,000 for the use of his software and payment after
October 30, 2000. The appellant added that he had told the trustee about this
agreement and his $814,954 debt to Secovac was reduced by the amount of the set-off,
as of October 30, 2000.
Secovac's trustee, Robert Malo's testimony
[12]
I noted the following
from Mr. Malo's testimony:
(i)
he had refused to
undertake proceedings to recover the loans from the appellant and his spouse
(as of October 31, 2000, representing $814,984) granted by Secovac in 2000 and
previous years; this was simply because the assets of the bankrupt company,
Secovac, were not sufficient to cover the costs of such proceedings;
(ii)
the Agency did not ask
the relevant tribunal for an order authorizing it to undertake recovery
proceedings for the amounts owing in its own name and at its own expense and
risk, as provided for under section 38 of the Bankruptcy and Insolvency Act
(BIA);
(iii)
at no time did the
appellant state that Secovac owed him $800,000 for the use of his software
program (from the beginning of Secovac's activities until October 31, 2000) and
that the amount owing, $814,984 should be reduced by that amount.
Appellant's position
[13]
The appellant first
states that his November 13, 2007, reassessment for the 2000 taxation year was
time-barred because the Minister had made it after the normal reassessment
period. On this, the appellant raised the following arguments in his written
submission:
[translation]
23. The MNR made a first
reassessment, adding $814,894 to the income the appellant declared in 2000
under subsection 15(1) of the ITA within the applicable deadlines, on June 21,
2004, the last day of the regular reassessment period;
24. This assessment was clearly without merit
because following the objection by the appellant, the MNR vacated
it with no explanation and made a second reassessment on November 13, 2007, more than three years
later, reducing the additional amount of declared income in 2000. The amount
added to his declared income in 2000 went from $814,894 to $85,981;
25. This second reassessment was made after the
normal reassessment period of three years from the date of the original
assessment. The MNR issued this second reassessment under subsection 165(3) of
the ITA without any explanation, or legislative provision to justify it (A-1,
Tab 1);
26. The appellant produced his notice of appeal
for the second reassessment as if it were a reduction of the amount assessed in
the first reassessment. The appellant states that the second reassessment is
statute-barred but decides to address the whole issue rather than raise just
the issue of limitations because if the assessment is vacated on the sole
ground that it is statute-barred, the MNR could appeal, and since the appellant
only raised the issue of limitations in his notice of appeal, he would not be
able to raise any new arguments in his defence;
27. The MNR, in its reply to the notice of
appeal, informed the appellant for the first time, that he had been
assessed under subsection 15(2) of the ITA, as noted in paragraph 38 of
the reply, in the present issue;
28. If the appellant can no longer submit new
arguments in his notice of appeal, was he required to reinitiate proceedings in
order to change his notice of appeal because the basis of the assessment had
changed with the new legal provision?
29. The appellant questions the MNR's method
and states that it was not Parliament's intention to allow a second
reassessment to be issued after the regular reassessment period on
another basis while relying on subsection 165(5) of the ITA following
an objection to a first reassessment that was clearly invalid and
vacated;
30. Should this method be allowed, the MNR
would be able to bypass subsection 152(4) of the ITA. Indeed, the MNR would
simply be able to issue an arbitrary assessment during the normal
reassessment period and then take the time needed while the assessment is under
objection and then, maliciously issue a second reassessment under
another legislative provision. This would effectively allow the Minister to circumvent
subsection 152(4) of the ITA.
31. The Honourable Chief Justice Bowman
questioned the use of a second reassessment as a reply to an objection in 943372
Ontario Inc. v. The Queen, 2007 TCC 294. He explains at
paragraph 7:
…If the otherwise statute-barred 2001 reassessments cannot be
justified under subsections 152(4) and (4.01), the reassessments in response to
the notices of objection must also fall. The reason is self-evident: assume a
statute-barred assessment is issued and the taxpayer objects on the basis that
the assessment is out of time. Could the Minister of National Revenue cure the
defect by issuing a reassessment in response to the objection under subsection
165(3)? The question answers itself.
32. In Walsh v. The Queen, 2008
TCC 282, at paragraph 15, the Honourable Miller T.C.C.J. ruled that when a
second reassessment has a new basis, it is simply not the same assessment. At
paragraph 20 he states that subsection 152(9) of the ITA can only be
relied on if the new argument supports the first reassessment in question and
distinguishes between the new basis and a new argument, contrary to Justice
Rothstein's comment in Her Majesty the Queen v. Anchor Pointe Energy Ltd.,
2003 FCA 294. He ruled, at paragraph 34, that the respondent ought not to
be allowed to rely on subsection 152(9) to effectively raise a new
assessment;
33. In paragraph 23 of his notice of appeal,
the appellant states that he never waived his rights under the statute of
limitations and was never accused of filing erroneous facts; this statement was
confirmed by counsel for the respondent in paragraph 23 of the reply;
34. For all these reasons, the appellant states
that the second reassessment is statute-barred and must be vacated.
[14]
The appellant also
states that the reassessment established November 13, 2007, is unfounded in law
because the Minister used the provisions of the Act rather than the BIA to
recover assets from Secovac, the bankrupt company, by assessing its
administrator. These arguments the appellant raised in his written arguments
are worth citing:
[translation]
35.
As a second argument of defence, the appellant
submits that the assessment is unfounded in law:
36.
During the March 17 and 19, 2009, hearings, the
following evidence, was established beyond a doubt; each element being
essential for the appellant's defence:
-
on March 30, 2001 Secovac Inc, filed a motion of
intention to make a proposal under subsection 50.4(1) of the BIA with the
trustee Samson Bélair Deloitte & Touche, agreeing to act as trustee;
-
on May 3, 2001, the company filed a proposal.
The only creditors were Quebec's
ministère du Revenu and the CRA;
-
this proposal received a favourable
recommendation from the trustee on May 15, 2001;
-
the tax creditors voted against the
Corporation's proposal during an assembly that began May 17, 2001, and ended
May 31, 2001; the Corporation was deemed to have made an assignment in
bankruptcy on May 31, 2001, caused by the negative vote;
-
the creditors knew of the "Advances to
Administrators" item that appeared as an asset in the Company's financial
statements of October 30, 2000 (the Company's fiscal year ends October 31) and
"this item" had been discussed at the meetings prior to the vote against
the Company's proposal;
-
on May 11, 2005, further to the application, the
trustee Samson Bélair Deloitte & Touche was discharged without objection;
37.
At paragraph 31 of his reply, counsel for
the Crown stated that the shareholders should have reimbursed the amounts of
the "Advances to Administrators" to the trustee; it states:
[translation]
The audit also leads the MNR to note that Secovac Inc, went bankrupt
in the spring of 2001 and the amounts owing to Secovac Inc by its shareholders
were never paid back despite the trustee's requests.
The appellant claims that counsel for the
Crown is aware that the Company's assignment in bankruptcy was caused by the
creditors' vote against its proposal and that these statements skew the facts
and are in bad faith;
38.
The creditors and the trustee discussed the
"Advances to Administrators" account and the Company's property
before the vote on the proposal. In fact, the vote was delayed specifically to
allow for consultations of the 2000 financial statements and the "Advances
to Administrators" account. It is therefore clear that it is a
pre-bankruptcy obligation;
39.
The tax creditors' vote against the proposal led
to the Company's assignment in bankruptcy as defined under paragraph 57(a)
of the BIA:
57. Where the creditors refuse a proposal in
respect of an insolvent person,
(a) the insolvent person is deemed to have
thereupon made an assignment;
40.
As of the assignment, the divestiture of all the
"bankrupt's property" that is vested in the trustee pursuant to
section 71 of the BIA. The "bankrupt's property" includes the
"Advances to Administrators" account;
41.
The Crown is a unsecured creditor and as such,
is bound by the BIA as stated in section 4.1 of the BIA:
4.1 [Binding on Her Majesty] This Act is
binding on Her Majesty in right of Canada or a province.
42.
The Minister cannot use the BIA to impose fiscal
obligations on The Company's shareholders for debts to the Company contracted
before it became bankrupt because its vote is the juridical act by which it undertook
to abide by the BIA. The Minister must observe the BIA and cannot use the
BIA except for the exceptions provided for in the BIA;
43.
The Minister cannot deliberately ignore its
juridical act and use the BIA to bypass all the other legislation without
consideration for federal or provincial legislation governing the relationship
between creditors and debtors;
III. (C) Civil Code of Québec
44.
The Federal Law -
Civil Law Harmonization Act, No. 1, SC 2001, c. 4 came into force
on June 1, 2001. It is clear that Quebec's civil law provides general rules in
bankruptcy matters. This means that, for situations not provided for by the
BIA, resort must be had to the rules of unjust enrichment and the statute of
limitations in relation to debts;
45.
The CRA vote against the proposal, despite the
trustee's favourable recommendation is a juridical act carried out
voluntarily, in its own personal and exclusive interest and is considered its
choice. The negative vote of all the creditors led to the assignment of the
Company's property as defined at paragraph 57(a) of the BIA;
46.
The Company's assignment in bankruptcy is a juridical
fact, the effects of which are predetermined by the BIA. This juridical
fact in itself represents the consideration. The Minister cannot
rely on another juridical act or "another law" to impose tax
liabilities on the Company's former administrators;
47.
The juridical act carried out by the Minister is
a valid justification for its impoverishment. The Company's administrators
justify their legitimate enrichment on the basis of the juridical fact, the
Company's assignment in bankruptcy, further to the creditors' rejection of the
proposal;
48.
Before the coming into force of the new Civil
Code of Québec January 1, 1994, unjust enrichment was not codified
in a specific provision in the Code although it was a recognized civil law
concept. Articles 1493 and 1949 of the Civil Code of Québec provide as
follows:
1493. A person who is enriched at the expense
of another shall, to the extent of his enrichment, indemnify the other for his
correlative impoverishment, if there is no justification for the enrichment or
the impoverishment.
1494. Enrichment or impoverishment is
justified where it results from the performance of an obligation, from the
failure of the person impoverished to exercise a right of which he may avail
himself or could have availed himself against the person enriched, or from an
act performed by the person impoverished for his personal and exclusive
interest or at his own risk and peril, or with a constant liberal intention.
49.
When the Minister assessed the appellant on June
21, 2004, imposing tax obligations as shareholder, he had to consider the facts
that had arisen between the time of the obligation and the day of the
application. The Minister cannot ignore the Company's May 31, 2001, assignment
in bankruptcy, the juridical fact the effects of which are predetermined by
the BIA;
50.
Indeed, the "applicant's"
impoverishment, as the enrichment, must be reducible to a monetary amount and
is evaluated as of the day of the application, not the day it occurred, as provided
for in article 1495 of the Civil Code of Québec:
1495. An indemnity is due only if the enrichment continues to exist
on the day of the demand.
Both the value of the enrichment and that of the impoverishment are
assessed on the day of the demand; however, where the circumstances indicate
the bad faith of the person enriched, the enrichment may be assessed at the
time the person was enriched.
51.
In other words, the enriched cannot rely on a
juridical fact authorizing it to keep the enrichment. The Company's
assignment or bankruptcy was the juridical fact that justifies the enrichment
of the Company's administrators and is the representation of the compensation. Enrichment
cannot be unfair if it is the result of carrying out of a legally authorized
act;
52.
Allowing the Minister's intervention to impose
tax liabilities on the appellant with the BIA on amounts belonging to the
trustee, when the trustee could go after these same amounts would mean the
appellant could be pursued for the same debt twice, once by the trustee in
bankruptcy and another by the Minister; this is absurd, an abuse of a right and
contrary to the legislator's intent;
53.
In his testimony, the trustee's representative,
Mr. Malo, confirmed that the creditors first voted and then told him that they
would rely on section 38 of the BIA to recover the assets in question and this
is why he did nothing;
54.
These assets belonged to the trustee in
bankruptcy and it was to recover them within three years, as prescribed under
article 2925 of the Civil Code of Québec. It did not.
[15]
During the hearing, the
appellant also claimed that its $814,984 debt to Secovac as of October 30,
2000, had been reimbursed after that date by the $800,000 compensation and that
the $85,981 included in the calculation of its income for the 2000 taxation
year under subsection 15(2) of the Act should have been reduced in
reflection of the reimbursement of the debt after October 30, 2000.
[16]
The appellant also
claimed that part of the $85,981 advance granted to him by Secovac during
its financial year ending October 30, 2000, had been granted in November and
December 1999 and should not have been added to his taxable income for the 2000
taxation year pursuant to subsection 15(2) of the Act.
[17]
Lastly, the appellant
claimed that part of the $85,981 advance (in this case, $17,500) had
already been included in the calculation of its income for the 2000 taxation
year. The appellant offered in evidence its income tax return (A‑1,
tab 10) for the 2000 taxation year, showing at line 130 of the T‑1
2000 that $17,500 had been included in its income as "Other
income."
Analysis and conclusion
Statue of limitations
[18]
We will first review
the issue of whether the reassessment established against the appellant on
November 13, 2007, for the 2000 taxation year is time-barred.
[19]
On this, I note that
the first reassessment, made June 21, 2004, during the normal reassessment
period and the second reassessment, made November 13, 2007, is the Minister’s
reply to the appellant’s notice of objection to the first reassessment.
[20]
Subsection 165(3)
of the Act allows the Minister to take one of the following four measures after
considering a notice of objection: he can vacate the assessment, ratify the
assessment, modify the assessment or establish a reassessment. Moreover,
subsection 165(5) of the Act clearly provides that the exceptions provided
for in subsection 152(4) of the Act do not apply to the Minister’s measures taken
under subsection 165(3) of the Act. In other words, subsection 165(5) of
the Act allows the Minister, after reviewing the notice of objection, to take
one of the four measures set out at subsection 165(3) of the Act without concern
for the restrictions set out in subsection 152(4) of the Act.
[21]
In this case, in
response to the appellant’s notice of objection from the first reassessment,
the Minister made a new reassessment. When a reassessment is made, that automatically
vacates the former assessment. As a result, I see no use in speculating about
the basis of the reassessment. Indeed, subsection 165(3) of the Act
specifically allows the Minister to modify the assessment, in which case the
amendment may retain the initial basis of the assessment. However, as soon as
there is a reassessment, it necessarily has a new basis because it vacates and
replaces the prior assessment. On this, Canada v. Anchor Pointe Energy Ltd., 2003 F.C.J. No. 1045 (QL), a Federal
Court of Appeal decision, clearly stands for the proposition that it is possible for the Minister to rely on
a new basis to ratify a reassessment or make a reassessment after reviewing a
notice of objection (see paragraphs 33 to 36). This is true even if the second
reassessment is made after the normal reassessment period, as long as the
Minister does not increase the taxpayer’s taxes as required under the first
reassessment, in accordance with the provisions of subsection 156(5) of
the Act. It will be recalled that the reassessment made for the appellant in fact
reduced the taxes owing under the first reassessment. For all these reasons, I am
of the view that the reassessment for the appellant, made November 13, 2007,
for the 2000 taxation year was not time-barred, even if it was made after the
normal reassessment period. Lastly, with regard to the case law cited by the
appellant at paragraphs 31 and 32 of his written arguments, I note that they do
not enlighten the Court in this case because there are important factual and
procedural distinctions.
[22]
In regard to the
appellant’s submissions at paragraphs 24 and 25, that the November 13, 2007,
reassessment does not specify any legislative provision or provide any explanation,
I would note that the Act does not require the Minister to specify in a notice
of assessment or reassessment which section or sections of the Act he is
relying on to assess a taxpayer. Explanations are generally provided to the
taxpayers or their agents before the making of the reassessment. The
appellant's submissions to the affect that he did not receive any explanation
regarding the making of the reassessment cannot be accepted considering that the
notice of objection was submitted by counsel for the appellant and the
reassessment was made following negotiations between counsel for the appellant
and the Minister.
[23]
As to the appellant’s submissions
at paragraphs 26 to 28 of his written arguments, in which he asks the Court to
order entirely new proceedings so as to be able [translation] "to change his notice of appeal because the
basis of the assessment had changed with the new legislative provision," I
would note that the reply to the notice of appeal was sufficiently detailed to
allow the appellant to understand the basis of the reassessment. The appellant
had the opportunity to raise his arguments against the reassessment by filing a
response to the reply to the notice of appeal or by filing an amended notice of
appeal. Moreover, during the hearing of his appeal, the appellant had an
opportunity to offer any valid arguments against the reassessment. The Court
gave the appellant an opportunity to file written submissions so he could
properly formulate and structure his arguments against the reassessment. In my
opinion, the appellant suffered no prejudice in the process. Indeed, the
appellant had ample opportunity to offer valid arguments against the
reassessment and therefore his application to "restart the
proceedings" must be dismissed.
The BIA c. the Act
[24]
We will now address the
issue as to whether the Minister has improperly circumvented the BIA in making
the reassessment against the appellant.
[25]
I am of the view that
the Minister has not done so. The Minister simply made a reassessment so as to
include the $85,981 in the calculation of the appellant’s taxable income for
the 2000 taxation year as an advantage granted to a shareholder and not in
order to claim an asset of Secovac, the bankrupt company. In other words, in
assessing the appellant, the Minister was not indirectly asking him to repay
the $85,981 loan Secovac had granted him. In assessing the appellant, the
Minister was not seeking to indirectly recover an asset of the bankrupt
company. The Minister was asking the appellant to pay taxes on an $85,981
advantage he had received from Secovac. The fact Secovac is a bankrupt company
is simply not relevant to this case. This case is about calculating the
appellant’s taxable income for the 2000 taxation year, not claiming an asset
from a bankrupt company. In other words, in the present case, I do not see the
point in analyzing the interaction of the Act and the BIA.
Use of software
[26]
The appellant claims
that his $814,984 debt towards Secovac as of October 30, 2000, was
reimbursed in the amount of $800,000 after that date, the effect of set-off,
and the amount of $85,981 included in his calculation of income for the
2000 taxation year pursuant to subsection 15(2) of the Act should be reduced so
that the debt repayment made after October 30, 2000 can be taken into account.
I note that the appellant testified that he and Secovac agreed on a payment
(under a verbal agreement), as compensation for the use of his software, for
$800,000 after October 30, 2000, leading to the alleged set-off. I would also
note that the appellant testified that he informed the trustee of this
agreement and that his $814,954 debt to Secovac as of October 30, 2000, was
reduced by $800,000 because of the set-off.
[27]
I immediately note that
the appellant’s evidence on this subject is supported only by his testimony,
which, in my opinion, lacks credibility. First, the appellant's testimony that
he had informed the trustee of his agreement with Secovac was contradicted by
the trustee's testimony; Mr. Malo's credibility was not questioned. Moreover, I
have difficulty imagining why the appellant did not mention this important fact
during the verification of the objection or even in his notice of appeal.
[28]
I would add that even
if the appellant had convinced me that this was true, I would not have relied
on the appellant's argument regarding set-off, for procedural fairness reasons.
I must note that the appellant did not raise this argument in his notice of
appeal. In fact, the appellant raised this argument for the first time at the
hearing. The respondent was therefore taken by surprise. Therefore, procedural
fairness requires me to dismiss this argument.
[29]
Lastly, I note that the
appellant did not raise this argument in his written submission, probably
because I had mentioned at the hearing that the Minister might attempt to use
his admission to assess $800,000 (as income from Secovac) assuming he did not
declare any such income.
Advance of
$17,500 already included in appellant's income for the 2000 taxation year
[30]
The appellant claimed
that part of the $85,981 advance, specifically $17,500, was already included in
the calculation of his income for the 2000 taxation year.
[31]
In my view, the
appellant's argument must be dismissed first for procedural fairness reasons.
The respondent was again taken by surprise when the appellant raised this
argument for the first time at the hearing. The notice of appeal did not
mention this argument at all. At any rate, the documentary evidence offered by
the appellant (Exhibit A-1, tab 10) in support of his testimony does not seem
very reliable to me since it was a "client copy," unsigned by the
appellant, and since the appellant's income tax report for the 2000 taxation
year (Exhibit I-1), signed by the appellant and offered in to evidence by the
respondent (contrary to the tax report submitted to evidence by the appellant)
does not include, under "Other Income" in the T1-2000 form, a
declaration of $17,500 added to the appellant's income pursuant to
subsection 15(2) of the Act. In short, I have trouble figuring out the
reason the appellant did not raise this rather important fact during the
verification or at the objection stage.
[32]
The appellant also
claimed that part of the $85,981 advance Secovac granted him during its fiscal
year ending October 30, 2000, had been received in November and December 1999
and those advances in 1999 should not have been added to his taxable income in
the 2000 taxation year under subsection 15(2) of the Act.
[33]
In my view, this
argument may be sound in theory, but must be dismissed for the following
reasons:
(i)
the appellant did not offer
evidence of the amount of the alleged advances from Secovac in November and
December 1999;
(ii)
once again, the
respondent was taken by surprise by the appellant, because he raised this
argument at the last minute, at the hearing.
[34]
For these reasons, the
appeal must be dismissed with costs.
Signed at Ottawa, Canada, this 16th day of July 2009.
"Paul Bédard"
Translation
certified true
on this 23rd day
of September 2009.
François Brunet,
Revisor
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