Citation: 2007TCC11
Date: 20070116
Dockets: 2005-2367(IT)G
2005-2368(IT)G
BETWEEN:
CARL JOBIN,
MÉTALLURGIE SYCA INC.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] These appeals pertain to the 2000, 2001 and
2002 taxation years.
[2] In the matter of Carl Jobin (2005‑2367(IT)G), the Court must
determine whether the Minister of National Revenue ("the Minister")
properly
(a) added
the amounts of $29,815, $33,174 and $34,525 to the appellant Carl Jobin's
income as taxable benefits for the 2000, 2001 and 2002 taxation years respectively; and
(b) assessed
penalties of $3,290, $4,017 and $4,180 against the appellant Carl Jobin in
respect of the 2000, 2001 and 2002 taxation years, respectively.
[3] In the matter of Métallurgie Syca Inc. (2005-2368(IT)G),
the Court must decide whether the Minister properly
(a) disallowed the travel allowance deduction
claims, totalling $23,629, $14,506, $33,174 and $34,525, in computing the corporate
appellant's income in respect of the taxation year ended July 31, 2000,
the five-month taxation period ended December 31, 2000, and the 2001
and 2002 taxation years respectively; and
(b) assessed
penalties of $2,640, $2,112, $3,983 and $4,359 in respect of the
taxation year ended July 31, 2000, the five-month taxation period ended December 31, 2000,
and the 2001 and 2002 taxation years respectively.
[4] Carl Jobin, the appellant
in file No. 2005-2367(IT)G, was the sole shareholder and director of Métallurgie
Syca Inc., the appellant in file No. 2005‑2368(IT)G, during the
periods in issue.
[5] Since the facts
that gave rise to the assessments for the same taxation years were the same,
the parties agreed that both matters would be heard on common evidence.
[6] The appellants
called Luc Bélisle, Sylvie Beaurivage and the Appellant Carl Jobin
himself as witnesses, and the parties agreed that Jean‑Marie Beaudin
would have testified that Carl Jobin visited him at his business on
several occasions and that he had driven there in a red Volvo.
[7] Carl Jobin, for
his part, described and explained at length the nature of his business’s operations;
he described himself as the conductor in charge of both product and client
development, strongly emphasizing that he had to make a great many trips in his
Volvo.
[8] It can be inferred
from the mere observation that the number of employees increased in the course
of the years 2000, 2001 and 2002 that the business did indeed experience
considerable growth and that this occurred over a short period of time. The
rapid development of the business, its dynamism, and the exceptional skills
that its director, Carl Jobin, stated that he possessed, have no direct bearing
on the question at issue.
[9] This growth did no
doubt result from the expenditure of energy, from hard work and from personal
involvement, but not necessarily from several hundreds of hours behind the
wheel of a motor vehicle; certainly, the connection between the two is not
clear‑cut, much less automatic, as Mr. Jobin seemed to be claiming.
[10] The assessments
under appeal essentially raise the issue of the business use of the Volvo.
[11] The appellant Carl
Jobin received very large amounts as allowances for the use of his vehicle for
the years in question; he was paid $0.34 per kilometre for long distances travelled,
which are set out in subparagraph 19(c) of the Reply to the Notice of Appeal:
[TRANSLATION]
(c) According to
the Appellant's accounting records, the total amounts paid to Carl Jobin
as travel allowances, and the total corresponding mileage, are as follows:
|
Taxation periods
ended
|
Total
amounts paid
|
Total distances
driven
|
|
July 31, 2000 (12 months)
|
$23,628.98
|
69,497 km
|
|
December 31, 2000 (5 months)
|
$14,506.10
|
42,665 km
|
|
December 31, 2001
|
$33,174.48
|
97,572 km
|
|
December 31, 2002
|
$34,524.96
|
101,544 km
|
[12] Mr. Jobin described
himself as the key person in the business as far as sales and the development
of new products and markets are concerned, and stated that he had to go to
clients and return to see them for follow-ups, and that this justified the
allowances that he was paid for distances driven. Since the amounts were
allowances, Mr. Jobin declared that he kept no supporting documents.
[13] Mr. Jobin was asked
to explain why an officer who had such onerous responsibilities, and whose time
was so precious, had to spend hundreds of hours on the road, hours whose number
may be determined by means of a basic calculation in which the kilometres
driven are divided by an average speed of 90 km/h. This simple, basic
calculation would lead to the conclusion that the appellant Carl Jobin spent an
average of 30 hours of work per week driving. In order to justify this figure,
the appellant Carl Jobin asserted:
·
that
he likes concrete and asphalt;
·
that
he hired extraordinarily competent people to operate the business while he was
on the road; and
·
that
he did not always observe speed limits, and that this would skew the
mathematical result obtained by dividing the kilometres driven by an average
speed of 80 km/h.
[14] A person who drives
such distances generally has to stop to eat and tank up, thereby creating a
paper trail in the form of such things as meal bills, gasoline bills, long‑distance
call bills, and various statements. In this regard, Mr. Jobin stated that he
had no vouchers in his possession. In addition, he said that, since his time
was very precious, more often than not he would stop at a convenience store and
buy a soft drink, a bag of chips and cheese, which he would eat while driving.
[15] As for his
cellphone, undoubtedly an extremely important, if not indispensable, work tool
the use of which could again be proven by means of a record of his calls, there
was little if any mention of its use.
[16] Mr. Jobin claimed to
have given one of his employees the Dodge vehicle early in 2000. However, in
2004, the vehicle was still registered in his name.
[17] In July, the vehicle
in question was repaired, and the appellant corporation paid for the repairs in
September. The explanation was that there must have been an error by the
controller. The Court wondered whether that controller was one of those people
of exemplary ability who held the fort while Mr. Jobin was driving his Volvo.
[18] The first
explanation given to justify the number of kilometres for which he received
reimbursement was that the auditor's odometer readings were misleading because
the vehicle's odometer was defective and had to be replaced.
[19] In support of this
assertion, Mr. Jobin tendered an invoice from the Garage Uni‑pneus.
Having found the description on the invoice insufficiently clear, he added his
own handwritten annotation.
[20] Mr. Jobin's second
explanation was that he would regularly disconnect the vehicle's odometer cable
in order to produce a false reading with a view to extending the vehicle's
warranty by concealing a significant part of the kilometres driven. In other
words, the appellant claims to have driven more than 200,000 km without an
odometer or speedometer.
[21] Mr. Jobin also
produced a stack of weekly reports in support of his assertions concerning the
distances that he drove. He stated that, every Thursday or Friday, he made
a note of the kilometres that he had driven, having reset his odometer to zero
the previous Monday morning.
[22] He also said that it
was not essential that he do it this way, since he was perfectly familiar with all
the distances between the various places; in fact, this knowledge was very
helpful when the vehicle's odometer was defective or disconnected, which it was
the vast majority of the time. Thus, he could rely on his knowledge of the
distances in order to determine the exact number of kilometres driven.
[23] There is quite a
chasm between the parties' respective submissions. The evidence that Mr. Jobin
adduced in support of his claims was essentially circumstantial, and consisted chiefly
of his own testimony.
[24] As for the respondent,
to substantiate her conclusions she relied on the vehicle repair and
maintenance bills, which clearly showed the odometer readings at the time that
the vehicles were brought to the garages. Thus it was easy to do simple
calculations using the readings from various visits to garages, and to draw conclusions
regarding the average number of kilometres driven.
[25] In addition to the
written information on the various maintenance and repair bills, the respondent
attempted to obtain the vouchers for the fuel and other expenses relating to
Carl Jobin's numerous business trips in order to try to validate his
assertions. Only a few insignificant bills were submitted. The respondent also
discovered that the insurance policy for the Volvo did not cover business travel.
[26] Confronted with the
facts considered by the auditor, Carl Jobin submitted a whole series of
explanations. First of all, with respect to the insurance, he stated that the
broker no doubt made a mistake, that the person responsible for his account had
never asked him whether the vehicle was being used for business purposes.
[27] Trained as an
engineer and speaking several languages, Carl Jobin is a very imaginative
businessman. He has an answer for everything; an unscrupulous person, he
is capable of concocting explanations that could support his assertions.
[28] Upon cross-examining
the auditor, the appellants' skilful counsel, having no doubt understood that
he needed the auditor's cooperation to discharge the burden of proof which, at
least as far as the main elements of the assessments are concerned, was on the appellants,
pointed out a number of errors in various reports and conclusions that the
auditor prepared following his audit work.
·
One
of the criticisms levelled against the auditor was that he did not take account
of certain amounts listed on the credit card statement, thereby giving rise to
an assumption that they were repair bills. The auditor admitted that he did not
take account of these amounts because they were small.
·
Another
criticism was that some invoices that were clearly for gas purchases were
considered to have been for restaurant expenses. The ten or so invoices in
question were issued by a business located close to Mr. Jobin's home and
were obviously for gas purchases. Were they accommodation invoices? The testimony
of a representative of the business would have been the best evidence.
·
The
most significant criticism pertained to the auditor's finding that Mr. Jobin's
odometer-tampering explanation was implausible. The auditor made this
determination on the basis of two telephone conversations with two Volvo
dealers: one in Sherbrooke and the other in Saint‑Hyacinthe. Actually,
the auditor only accepted the tenor of the conversation with the Saint‑Hyacinthe
dealer because his opinion was more clear-cut and was consistent with the
auditor's own view that Mr. Jobin's explanations were falsehoods.
[29] Mr. Jobin maintained,
and even repeated, that the auditor had told him that disconnecting the odometer
is a very common practice with people who use their cars for business purposes.
When asked to confirm or deny this assertion, the auditor totally and unequivocally
denied it. He said that it was the first time he had heard an explanation like
that given by Mr. Jobin, despite the fact that he had audited vehicle usage
on a very regular basis.
[30] The appellants'
evidence is essentially circumstantial. It is based mainly on the following
premises:
·
Carl
Jobin is indispensable to the company's operations.
·
He
personally develops the numerous products and seeks out new clients.
·
The
business experienced considerable growth, which explains why 80,000 km did
not show on the odometer over the course of each of three years and why the
company’s director, Carl Jobin, drove an average of roughly 100,000 km
per year in a 1998 Volvo and was reimbursed $0.34 per kilometre.
·
In
order to maximize the warranty on the vehicle, the appellant regularly disconnected
the odometer.
·
The
odometer was defective and had to be replaced.
[31] The probative value
of circumstantial evidence obviously depends on the quantity and the quality of
its content. In the case at bar, I find the quality to be at best highly debatable,
even dubious. As far as quantity is concerned, the appellants chose to limit
the evidence that they would submit even though there were clearly a number of
ways to validate certain elements.
[32] The somewhat
outlandish explanation that Carl Jobin regularly disconnected the odometer cable
because that would enable him to benefit longer from the extended warranty that
he had purchased for $2,536 is not credible. In fact, it is implausible for various
reasons.
[33] To begin with, all
warranties, whether original or extended, are subject to very strict rules, and
failure to comply therewith automatically voids the warranty.
[34] The duration of the
extended warranty was seven years or 160,000 km. At the time of
purchase, the vehicle had been driven 11,400 km, which means that there
remained approximately 148,000 km until the warranty expired. Over
six years it would thus have been possible to drive an average of 25,000 km
per year. Why then would Mr. Jobin not have allowed more kilometres to be displayed
on the odometer in order to reduce the risk that the company would discover his
scheme?
[35] Would an engineer of
his intelligence, who has an answer for everything, have been clumsy in
handling matters relating to his car, especially if the continuation of his
warranty was such a major concern?
[36] To think that a
mechanic would be unable to see the difference between a vehicle that has been driven
about 30,000 km and one that has been driven more than 250.000 km is
a real insult to the intelligence of those who work in that field.
[37] The question of the
number of kilometres driven in the Volvo was absolutely fundamental. This was a
very important issue and the parties' positions were diametrically opposed.
[38] According to the appellants,
the vehicle was driven approximately 300,000 km during the periods in
question, whereas the Canada Revenue Agency was of the opinion that the
odometer reading of about 30,000 km was essentially correct.
[39] In support of his claims,
Mr. Jobin referred essentially to: an odometer failure; his having disconnected
the odometer several times; a few repair bills; an invoice for the purchase of
two sets of tires, one for the winter and the other for the summer; and the
testimony of two customers who said that Carl Jobin went to see them a few
times, and that he was driving a red Volvo.
·
Why
did the appellants not call as a witness a competent mechanic having expertise
in Volvo automotive mechanics to show the feasibility of the odometer
disconnection scheme?
·
Why
did they not call as a witness a specialist in automotive mechanics who could
certify that the overall mechanical wear and tear confirmed that the vehicle had
been driven more than 300,000 km?
·
Why
did they not call as witnesses employees of the business who could have given a
relatively accurate account of the frequency of Carl Jobin's absences?
·
Why
did they not produce statements attesting to cellphone use in order to confirm
the numerous alleged trips?
·
Why
did they not retain vouchers in support of their claims, considering that this
was a very unusual element that had a major impact both on the appellant Carl
Jobin and on the corporation he controlled?
[40] I was able to
observe Carl Jobin and found him to be an intelligent and very imaginative
person who is not easily flustered. I therefore conclude that it would
clearly not have been particularly helpful to his case to obtain the testimony
of certain people well‑qualified to answer certain questions.
[41] I do not believe any
of Carl Jobin's explanations. They are outlandish, bizarre and utterly implausible
for the most part. I am entirely convinced that the set of reports entitled
[TRANSLATION] "Meeting Report" for the years 2000, 2001 and 2002 are
complete fabrications produced either during or after the audit (Exhibit A-2,
Tabs 9, 10 and 11).
The penalties
[42] In light of the
evidence, I find, without hesitation, that the penalties were entirely
justified: what we have here are definitely not run-of-the-mill errors,
involuntary omissions or trifling offences; on the contrary, a veritable system
was put in place, the clear object of which was to enable the appellants to have
it both ways.
[43] From the company's
perspective, the amounts in question were expenses that it deducted from its
income. From the appellant Carl Jobin’s perspective, since these amounts were
an allowance, there was no need to retain supporting documents and he could thus
benefit from tax-free income.
[44] The tax savings realized
would have warranted a somewhat more refined and credible scheme.
[45] The conditions which,
under the Income Tax Act, must be fulfilled in order to justify the assessment
of penalties were clearly met, and thus, the penalties are fully justified.
[46] Carl Jobin
deliberately hatched and implemented a scheme to avoid paying large amounts of
income tax. He thought up a seemingly clever plan, but went so far overboard
that everything fell apart.
[47] Despite certain
self-evident facts, and the fact that some of his explanations — such as the
number of tires on which a distance of roughly 300,000 km was driven,
sometimes at speeds which, according to Mr. Jobin himself, were above the
speed limit — were utterly outlandish and implausible, Mr. Jobin persisted in
trying to prove that his claims were well‑founded.
[48] The assessments are
based on reasonable and plausible information and are entirely proper. As for the
penalties, they are fully justified. Consequently, the appeals are dismissed
and costs in each matter are awarded to the respondent.
Signed at Ottawa, Canada, this 16th day of January 2007.
"Alain Tardif"
Translation
certified true
on this 27th day
of June 2008.
Erich Klein, Revisor
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