Citation: 2009 TCC 263
Date: 20090522
Docket: 2007-2344(IT)I
BETWEEN:
ANDRÉ BLANCHETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Jorré J.
Issue
[1]
The Minister of
National Revenue (the Minister) reassessed the appellant’s tax return in order
to add $33,625 to his 2002 income and $11,856 to his 2003 income. The Minister
determined these amounts by performing an analysis of the appellant’s and his
spouse’s bank deposits. The Minister also imposed penalties under
subsection 163(2) of the Income Tax Act (the ITA).
[2]
Two witnesses testified
in the appeal: the appellant and the auditor. Eight exhibits were filed.
The facts
[3]
The appellant was a
salaried worker. He also owned a restaurant at an arena in L’Assomption, which
he operated in the evenings and on weekends. Furthermore, he was the majority
shareholder of 9074-7502 Québec inc., which operated an outfitter in Saguenay.
The appellant created the company and was its only shareholder. Later on, his
spouse, Pierrette Lemire, became a shareholder.
[4]
The appellant declared
a net family income of $33,018 in 2002 and $31,171 in 2003. The appellant’s
salary was $44,600 in 2002 and $49,774 in 2003.
[5]
The auditor, Isabelle
Vermette, noted material weaknesses in the accounting and undertook an income
assessment, analyzing the deposits made to the appellant’s and
Ms. Lemire’s bank accounts.
[6]
The auditor described
her work method and produced exhibits 1‑1 and 1‑2.
In short, she added up all of the deposits and subtracted the declared income
and the other amounts that had been explained. She also disregarded any amount
that could be a deposit from the outfitter (9074-7502 Québec inc.).
[7]
In general, the
appellant did not question the auditor’s method. His claim was that he had
received from Ms. Lemire some sums of money that should have been taken
into account. Those sums would explain the deposits and, as a result, show that
there was no undeclared income.
[8]
The appellant’s
explanations were not always easy to follow.
[9]
His notice of appeal
states the following: [Translation]
“. . . my spouse had transferred $38,500 in cash to me, which I used to
compensate for operating deficits after various fast-food chains opened up”. It
also states that [Translation]
“. . . in return for other sums of money . . . ” he handed over 49%
of 9074-7502 Québec inc. to his spouse.
[10]
Before the
cross-examination, the appellant had not testified in regard to the $38,500 he
used to make up for the operating losses of the restaurant.
[11]
The appellant testified
that Ms. Lemire had given him $79,000 over the years 2001 and 2002. She
used that sum to buy 49% of the shares of the appellant’s outfitter. No written
contract of purchase was drawn up for the purchase of the shares.
[12]
The appellant filed
Exhibits A‑1 to A‑6.
[13]
Exhibit A‑4
is Ms. Lemire’s bank statement dated December 31, 2001. The
appellant highlighted in yellow the withdrawals of the sums that
Ms. Lemire had allegedly given to him. These amounts total $52,350, and
the last highlighted withdrawal was made on June 7, 2001. The sums were
part of an inheritance that Ms. Lemire had received and were used to
operate the outfitter.
[14]
The appellant also
filed as Exhibit A‑6 copies of three share certificates for the
outfitter. The first one dated March 4, 1999, for 100 shares is in the
appellant’s name. The second one dated December 31, 2002, for
410 shares is also in the appellant’s name. The third one dated December 31, 2002,
for 490 shares is in Ms. Lemire’s name.
[15]
The appellant also
filed the minutes of a special meeting of the company held on September 23, 2003, at which the
transfer of 490 of the appellant’s shares to Ms. Lemire was proposed
and accepted. That meeting took place almost nine months after the shares
were issued to Ms. Lemire.
[16]
The appellant testified
that the $52,350 were part of the total amount of $79,000 that Ms. Lemire
had paid for the shares. Although Ms. Lemire had made payments on the
shares in 2001, the appellant stated that he issued the share certificates only
after the shares had been paid off in full.
[17]
During
cross-examination, the appellant was asked why Ms. Lemire’s withdrawals
were relevant to 2002 and 2003. The appellant replied that he had saved that
money and used it, at least partially, in 2002 and 2003 to offset the
outfitter’s lack of revenue. Later on in cross-examination, he explained that
he kept significant amounts of money at home to finance purchases for the
outfitter. These purchases were sometimes urgent. For example, on one occasion,
he had to buy a truck in one hour. He was not afraid to keep large sums of
money at home because he had a secure location and three dogs.
[18]
The money received from
Ms. Lemire also helped offset the restaurant’s losses.
[19]
In addition to the
$52,350, the appellant received the rest of the $79,000, that is $26,650, from
Ms. Lemire in 2002.
[20]
When the appellant was
asked about the $38,500 mentioned in the Notice of Appeal, he replied that it
was part of the $79,000 paid for the shares.
[21]
Normally, the
restaurant is open from September to March or to mid‑March. The outfitter
was operated during four months of the year: from June to October.
[22]
Based on the financial
statements filed, the outfitter lost $8,201 in 2001, $10,578 in 2002 and
$13,140 in 2003.
The restaurant lost $25,486 in 2002 and $29,336 in 2003.
[23]
The revenue of the
appellant’s business was not always deposited in the bank. Sometimes it was
used to finance business expenses directly.
[24]
During
cross-examination, counsel for the respondent suggested the following to the
appellant:
(a) When the auditor first
presented the appellant with a draft assessment for the additional income, the
appellant’s only explanation was that these were deposits arising from the
outfitter.
(b) The appellant first
spoke of the deposits provided by Ms. Lemire only later on, during a phone
call on November 30, 2004, after the auditor had redone the draft
assessment to ensure that it did not include any deposits that could be part of
the outfitter’s revenues.
(c) The sum provided by
Ms. Lemire that was discussed on November 30 was $30,000, not $79,000
or $38,500.
[25]
The appellant disagreed
with the first two points and stated that the auditor was aware of the sums
provided by Ms. Lemire before November 30, 2004. As for the
third point, he stated that he had asked the auditor whether she had taken into
account the $38,000 provided by Ms. Lemire.
[26]
The auditor testified
that the appellant told her that the discrepancy was in part due to the
outfitter’s revenues on November 22, when she gave the appellant a draft
assessment. The appellant provided no other explanation at that time.
[27]
The appellant told the
auditor that Ms. Lemire had given him $30,000 to cover living expenses
when the auditor phoned him on November 30 to inform him that the deposits
pertaining to the outfitter did not explain all the discrepancies. The
appellant did not say that the $30,000 was used for the outfitter or for the
restaurant.
[28]
Ms. Lemire did not
testify, and the appellant did not produce a bank statement for her accounts
for any period after 2001.
Analysis
[29]
This is a question of
fact.
[30]
The appellant is
claiming that the unexplained deposits totalling $45,481 are part of the
$79,000 that Ms. Lemire paid for the shares: $52,350 paid in 2001 and
$26,650 in 2002. This would mean that, by the end of 2001, the appellant had to
have been keeping at least $18,831 in cash at his house, a sum that would have
become available after 2001.
By the end of 2002, he would have to have been keeping at least $11,856 at
home, which would have become available in 2003.
[31]
The question is why.
According to the appellant, it was to finance the outfitter’s expenses, which
were sometimes urgent, even though the outfitter did not operate from October
to March. However, it was not necessary to keep those large sums at home in
order to finance the expenses in cash, because, according to the appellant,
those sums were later deposited in the bank in several instalments.
[32]
Ms. Lemire did not
testify. Although the appellant produced her bank statement for 2001, he did
not do so for 2002. The appellant’s testimony was not corroborated.
[33]
I accept the auditor’s
testimony stating that it was only on November 30 that the sums provided by Ms.
Lemire were discussed and that the appellant spoke of $30,000, not $79,000.
[34]
The appellant’s
explanations were difficult to follow and seemed to change with time.
[35]
I do not accept the
appellant’s evidence.
[36]
Consequently, the
changes made by the Minister to the appellant’s income will be retained.
Penalties
[37]
There is still the
issue of penalties to be decided. Subsection 163(2) of the ITA applies to
[e]very person
who, knowingly, or under circumstances amounting to gross negligence, has made
or has participated in, assented to or acquiesced in the making of, a false
statement or omission in a return . . ..
[38]
The burden of proof
with respect to penalties is on the Minister, and
“[g]ross
negligence" must be taken to involve greater neglect than simply a failure
to use reasonable care. It must involve a high degree of negligence tantamount
to intentional acting, an indifference as to whether the law is complied with
or not.
[39]
I also have to consider
Justice Nadon’s comments in the Federal Court of Appeal decision in Panini
v. Canada:
. . . the law will impute
knowledge to a taxpayer who, in circumstances that dictate or strongly suggest
that an inquiry should be made with respect to his or her tax situation,
refuses or fails to commence such an inquiry without proper justification.
[40]
In this case, the gross
business revenue declared by the appellant was $26,744 in 2002 and $25,385 in
2003. The Minister added the amounts of $33,625 in 2002 and $11,856 in 2003,
which make up approximately 125% and 45% respectively of the gross business
income declared.
[41]
If we compare the
undeclared amounts to the total amount of the salaries, amounts withdrawn from
an RRSP
and gross business income declared,
the undeclared amounts make up 47% and 15% of the total income for 2002 and
2003 respectively.
[42]
These amounts are too
significant, relatively and in the absolute, to find that there was not, at the
very least, an indifference as to whether
the ITA was complied with or not. Therefore, there is gross negligence and the
penalty is warranted.
[43]
The appeal is dismissed
without costs.
Signed at Ottawa, Canada, this 22nd day of May 2009.
“Gaston Jorré”
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