Citation: 2007TCC114
Date: 20070222
Docket: 2005-700(IT)G
BETWEEN:
ANDRÉ MORISSET,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Paris J.
[1] The appellant is
appealing an assessment made by the Minister of National Revenue
("the Minister") under the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.) ("the Act") for the 2000
taxation year. By that assessment, the Minister disallowed a tax credit claimed
by the appellant under subsection 118.1(3) of the Act for two alleged
charitable donations totalling $60,000. The Minister also assessed a penalty
of $7,698 under subsection 163(2) of the Act.
[2] The appellant
claims to have donated two polar bear skins with a fair market value of $30,000
each to the Centre universitaire de recherches internationales ("CURI"),
located in Trois‑Rivières. The CURI was a charitable organization
registered by the Minister. The two CURI charitable donation receipts submitted
by the appellant show the donation of a stuffed male polar bear and a stuffed
female polar bear.
[3] The Minister
disallowed the credit on the grounds that the appellant did not make a donation
to the CURI; that he purchased the two receipts for $20,000 from Pierre Marchand,
the CURI's president and representative; and that the fair market value of the
property described on the receipts was nil.
Facts
[4] The appellant has
been a dental surgeon in Trois‑Rivières since 1983.
[5] He testified that,
in October or November 2000, he met Mr. Marchand at his office, and
Mr. Marchand proposed that he make a charitable gift to the CURI. According to
the appellant, this was to be a gift of money, with which
Mr. Marchand would purchase objets d'art that could then be
[TRANSLATION] "redistributed" to the CURI as a [TRANSLATION]
"charitable gift of greater value than the financial contribution."
[6] Mr. Marchand allegedly
showed the appellant photographs of paintings, objets d'art, Indian jewellery
and apparently polar bear skins that the appellant could purchase; Mr. Marchand
also showed him appraisal certificates for those items and a certificate
attesting that Mr. Marchand was qualified [TRANSLATION] "as an art
appraiser".
[7] The appraisals for
the polar bear skins indicated a market value of $30,000 each. So Mr. Marchand
proposed that the appellant [TRANSLATION] "invest" $10,000 for each
skin, and then donate them to the CURI and receive [TRANSLATION] "income
tax receipts for $60,000."
[8] The appellant says
that, following this meeting, he contacted two hunting companions, Mr. Doyon
and Mr. Pérusse, who had previously dealt with Mr. Marchand and who
said that they had made donations to the CURI.
[9] The appellant
wanted to confirm that Mr. Marchand's proposal was [TRANSLATION] "on
the level" and check whether his friends had encountered problems with the
[TRANSLATION] "taxation". Mr. Doyon allegedly told him that he
[TRANSLATION] "made contributions under that system" for a few years
and never had any problems with his tax claims. Mr. Pérusse allegedly told
the appellant that he donated to the CURI for two or three years.
[10] The appellant also
says that he contacted his accountant in early November to discuss his [TRANSLATION]
"investment". He says that he told his accountant that he was
interested in claiming charitable donations, and that his accountant told him
that if he claimed one donation, he might as well claim two in order to really
reduce his taxes.
[11] According to the appellant,
Mr. Marchand called him back one or two weeks after their first meeting, at
which time he expressed his interest in putting up $20,000 [TRANSLATION]
"to get receipts for the polar bear skins and then donate the skins to the
charity." At
that time, Mr. Marchand allegedly requested that payment be made in cash.
[12] The appellant says
that he found this request a bit suspicious, but that Mr. Pérusse
confirmed that this was how it had been done in his case as well. Mr. Marchand
allegedly then set up an appointment to meet the appellant at the appellant's
office.
[13] In order to get the
money, the appellant wrote two cheques payable to himself, and cashed them at his
bank on December 21, 2000. According to him, he went to the bank twice that day,
and did not cash both cheques at the same time.
[14] He then met Mr. Marchand,
gave him the cash, and got the two charitable gift receipts from him. He says
that Mr. Marchand also [TRANSLATION] "lent" him one of the two skins
for temporary use at his home, saying that he would call him with regard to taking
it back; but the appellant had no further contact with Mr. Marchand.
The appellant says that he did not try to phone Mr. Marchand or the CURI,
and that he had to throw out the skin about a year later because it was
starting to smell bad — a fact that he suspected was attributable
to improper tanning.
[15] The charitable donation
receipts indicated that the appellant had donated to the CURI one stuffed male
polar bear and one stuffed female polar bear, and that each had a value of
$30,000 according to Mr. Marchand's appraisals.
[16] The appellant did
not get a copy of the appraisals, but he apparently saw them in Mr. Marchand's
binder at their first meeting. He says that he was comfortable with the amount
of $30,000 shown on the receipts as the value of each skin. Being a hunter,
he was aware of the costs necessarily involved in going on a polar bear hunt,
and an acquaintance whom he met on a hunting trip in Colorado estimated that
such a hunt would cost at least $25,000. In addition, the appellant allegedly
saw advertisements in magazines offering polar bear skins for prices ranging
from $25,000 to $30,000.
[17] The appellant was
unable to explain why the receipt showed October 15, 2000 as the date
on which the CURI received the donation. As for the date of the receipt itself,
December 19, 2000 — that is, a few days before the appellant met
Mr. Marchand to give him the money — the appellant thought that
perhaps Mr. Marchand entered the date on which he had notified Mr. Marchand
over the telephone that he would take the skins.
[18] The appellant says
that he sent the charitable gift receipts to his accountant, who prepared his
2000 income tax return, in which was claimed a tax credit in respect of $60,000
in charitable donations.
[19] In May 2002, Marc
Proulx, a Canada Customs and Revenue Agency (CCRA) auditor, commenced an audit
of the CURI for the years 1997 to 2001 and of the donations allegedly made by
the appellant. This was the first time that the appellant had had problems with
the Agency.
[20] In the course of his
audit, Mr. Proulx met with Pierre Marchand and asked to see the CURI's
records. The only thing that he was given was a synoptic journal detailing the
expenditures made by the organization. He had no inventory of donations, no minutes
book, no general ledger, no journal, and no record of the donations made to the
CURI in 2000. According to the CURI's bank statements and those of Mr. Marchand
and his spouse, Simone Galois, which
were obtained by Mr. Proulx, there was no deposit corresponding to the
amounts that the appellant paid Pierre Marchand.
[21] Mr. Proulx visited
the premises in Ste-Anne‑de‑la‑Pérade and St‑Mathieu‑du‑Parc
where the CURI kept its property. The first location was a sort of warehouse, in
which there was in no apparent order. At St‑Mathieu, Mr. Proulx saw
a tent in which there was a display including small stuffed animals in a
simulated nature scene. He estimated that there were 50 to 100 stuffed animals
at the St‑Mathieu location. He saw no polar bear skins or stuffed polar
bears at either place.
[22] On May 30, 2002, Mr. Proulx
sent a letter to the appellant asking for the receipts and any other supporting
documents related to the donations. Since he did not get a response from the appellant,
Mr. Proulx wrote to him again on June 27, 2002, saying:
[TRANSLATION]
. . .
We are now In the process of
examining the deduction(s) listed in the attached appendix, which you claimed
in respect of gifts of property to the charity "CENTRE UNIVERSITAIRE
DE RECHERCHES INTERNATIONALES". We require the following
information for the year indicated:
1. When
(exact date) did you purchase the donated property listed in the appendix, for
which you claimed a deduction in your income tax return for the year indicated?
2. From
whom did you purchase the donated property? Attach a copy of the invoice.
3. How
was the purchase price determined?
4. How
did you pay for your purchase of the donated property? Attach a copy of the
front and back of your cancelled cheque or the payment document.
5. Did
you insure the donated property while you owned it? If so, please provide a
copy of the insurance policy rider.
6. Please
provide a copy of the appraisal of the donated property and specify the name
and address of the expert who did the appraisal.
7. How
did you come into contact with the above charity?
8. Why
did you give the property to the above charity?
. .
.
[23] The appellant
retained a lawyer, and the lawyer answered Mr. Proulx's letter on
July 30 but did not provide any details about the purchase of the property
that was supposedly donated. On December 2, 2002, the auditor
notified the appellant's lawyer that he intended to disallow the tax credit and
assess a penalty under subsection 163(2) of the Act, and, on
January 30, 2003, the lawyer replied, stating inter alia:
[TRANSLATION]
. . . Mr. Marchand solicited cash
donations from our clients, telling them that the money given would be used to
acquire collections and other valuable items on their behalf. Our clients would
then give these collections to the charity represented by Mr. Marchand. The
collections purchased by our clients were appraised by Mr. Marchand, who
claimed to be fully qualified to do so. Mr. Marchand issued to our clients
a charitable donation receipt for an amount equal to the value of the
collections that our clients donated to the Centre universitaire de
recherches internationales.
[24] However, the auditor
still has not received any details concerning the purchase of the property
referred to on the charitable donation receipts.
[25] By notice of
reassessment dated February 20, 2004, the Minister disallowed the tax credit
and assessed the penalty provided for in subsection 163(2) of the Act.
[26] On April 7, 2004, the
appellant served a notice of objection to the reassessment, and, on
October 20, 2004, he sent the appeals officer a copy of the two
cheques dated December 20 and 21, 2000, payable to himself and in the
amounts of $10,000 each.
[27] The appellant
testified that he had had trouble obtaining the cheques from his bank because
they were stored elsewhere.
The parties' arguments
[28] Counsel for the appellant
submits that the evidence shows that the appellant donated two polar bear skins
having a total fair market value of $60,000, and that the receipts issued by the
CURI complied with the requirements of the Act. Further, he submits that the appellant
did not make in his 2000 income tax return any false statement under
circumstances amounting to gross negligence.
[29] In the event that
the Court should decide that the appellant did not donate polar bear skins to the
CURI, counsel for the appellant submits that the appellant is still entitled to
a charitable donation tax credit in respect of the $20,000 that he handed over
to Mr. Marchand.
[30] Counsel for the respondent
submits that there is no evidence before the Court that the appellant did make
a donation to the CURI. It was not shown that polar bear skins were delivered
to the CURI or even that the appellant had such property. The auditor found no
trace of the skins either in the CURI's records or on his visit to the CURI's
places of business. Even if there were any evidence that the skins existed, the
appellant still has not, in counsel for the respondent's submission, succeeded
in proving their fair market value.
[31] Moreover, counsel
for the respondent says that there is no evidence either that the appellant donated
$20,000 in cash to the CURI. There is no evidence that this amount was handed
over to the organization. Lastly, counsel for the respondent submits that the appellant
herein was wilfully blind to Mr. Marchand's scheme, which was to offer
charitable donation receipts for triple the amount paid by the taxpayer. This wilful
blindness was, argued counsel, sufficient to warrant the penalty assessed under
subsection 163(2) of the Act.
Analysis
[32] Is the appellant
entitled to the tax credit for charitable gifts under subsection 118.1(3)
of the Act? In order to be entitled to the credit, a taxpayer must have made a
gift to a registered charity.
[33] The first issue,
then, is whether the appellant made any gift whatsoever to the CURI.
[34] In making the
assessment in issue, the Minister assumed that the appellant, instead of making
a charitable gift, purchased the charitable donation receipts from Mr. Marchand
for a third of the amount of the receipts. Naturally, a purchase of a
charitable donation receipt is not a gift. The burden is on the appellant to
show that this assumption of fact is wrong.
[35] On the whole of the
evidence, I find that the appellant has not discharged this burden. In my
opinion, the appellant's testimony was not credible. It contained several
inconsistencies and contradictions, and certain events of which he spoke were
completely implausible.
[36] For example, I have
a great deal of difficulty believing that his accountant would have advised him
to make the alleged gifts if he had explained to the accountant that what had
been proposed to him was a charitable donation receipt for an amount three
times higher than his outlay.
[37] The appellant's
explanation for writing two cheques and going to the bank twice to get the cash
on December 21, 2000, is problematic as well. The appellant says that
after going to the bank the first time, he phoned his accountant to get his opinion
on Mr. Marchand's proposal, and that his accountant told him to make two
donations, which required him to write a second cheque and make a second visit
to the bank. This version of the facts contradicts the appellant's earlier
testimony that he had phoned his accountant in early November and was advised
at that time to make two gifts.
[38] I also find it hard
to believe that the appellant would not have verified the receipts upon giving
$20,000 in cash to Mr. Marchand, and would not have asked him any
questions about the apparently erroneous information on the receipts, such as
the date on which the gift was received (October 15, 2000), the
description of the property (stuffed bears as opposed to bear skins), and
lastly, the date of the receipts (December 19, 2000), which was not
the date on which the appellant supposedly gave Mr. Marchand the money. The
appellant's explanation concerning this latter point, which is that Mr. Marchand
entered the date on which the appellant agreed to make the donations, does not
hold up because he says that he confirmed that he would be donating two skins
in a telephone conversation with Mr. Marchand that took place in early November.
[39] In addition, it
strikes me as improbable that Mr. Marchand arrived at the appellant's
office with a polar bear skin, which the appellant described as [TRANSLATION] "gigantic"
and [TRANSLATION] "monstrous", or that the appellant would not have
sought advice as to whether he should accept the loan of the skin. It is also
incredible that the appellant would have thrown out a polar bear skin that he
believed to be initially worth $30,000 without trying to contact
Mr. Marchand to return it to him, even though his address and telephone
number were on the CURI receipts.
[40] There are other obvious
discrepancies in the appellant's testimony. For example, the appellant said
that he checked with Mr. Pérusse and Mr. Doyon whether the arrangement
proposed by Mr. Marchand worked for income tax purposes, and that both men
confirmed that it did; but later in his testimony the appellant asserted that Mr. Pérusse
merely told him he had had dealings with Mr. Marchand without saying how
[TRANSLATION] "it was done." The appellant said that he actually
had no idea how Mr. Pérusse went about making his donations to the CURI.
[41] In addition, the appellant
would testify that the $20,000 payment was a gift to the CURI, only to explain
subsequently that the money was used to purchase the skins and that he was going
to donate these to the CURI.
[42] All in all, I find
that I cannot rely on the appellant's testimony. No other witness, such as Mr. Pérusse,
Mr. Doyon or the appellant's accountant, was called to corroborate his
testimony.
[43] The Minister also
assumed that the fair market value of the two stuffed polar bears referred to on
the receipts in issue was nil. The appellant has not managed to demolish
this assumption either.
[44] First of all, I note
that the appellant adduced no expert evidence with respect to the market value
of the polar bear skins referred to on the CURI receipts. Even if I accepted
the appellant's testimony that the cost of a polar bear hunt would range from
$25,000 to $30,000, this is not evidence of fair market value. The costs involved
in obtaining property are not relevant in determining the fair market value of
the property, which is the price that it would fetch on the market upon its
disposition: see Conn v. M.N.R., [1986] T.C.J. No. 801 (QL).
[45] I note that the appellant's
testimony regarding the hunting magazine advertisements offering polar bear
skins was not corroborated and, in any event, it does not show how much was
actually received upon the sale of the skins.
[46] Having failed to
demolish the assumptions on which the assessment in issue is based, the appellant
is not entitled to the charitable gift tax credit that he is seeking.
Penalty
[47] It must now be
decided whether subsection 163(2) of the Act applies to the facts of this
appeal. That provision reads as follows:
163(2) False statements or omissions -- Every 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, form, certificate, statement or answer (in this section referred to as
a "return") filed or made in respect of a taxation year for the
purposes of this Act, is liable to a penalty of the greater of $100 and 50% of
the total of
(a) the amount, if
any, by which
(i) the amount, if any, by
which
(A) the tax for the year
that would be payable by the person under this Act
exceeds
(B) the amounts that would be deemed by subsections 120(2) and (2.2)
to have been paid on account of the person's tax for the year
if the person's taxable income for the year were computed by adding
to the taxable income reported by the person in the person's return for the
year that portion of the person's understatement of income for the year that is
reasonably attributable to the false statement or omission and if the person's
tax payable for the year were computed by subtracting from the deductions from
the tax otherwise payable by the person for the year such portion of any such
deduction as may reasonably be attributable to the false statement or omission
exceeds
(ii) the amount, if any, by which
(A) the tax for the year that would have
been payable by the person under this Act
exceeds
(B) the amounts that would be deemed by
subsections 120(2) and (2.2) to have been paid on account of the person's tax
for the year had the person's tax payable for the year been assessed on the
basis of the information provided in the person's return for the year
. . .
[48] It must be
determined whether the evidence adduced by the respondent is sufficient to
discharge the burden on the respondent to prove, on a balance of probabilities,
that the appellant made a false statement in his 2000 income tax return and
that the false statement was made knowingly or under circumstances amounting to
gross negligence.
[49] In my opinion, the respondent
cannot succeed in the case at bar. The respondent did not adduce evidence
tending to show the existence of Mr. Marchand's alleged scheme consisting in
selling charitable receipts for a third of the amounts shown thereon. In
addition, the evidence presented by the respondent did not show, on a balance
of probabilities, that the appellant did not make a gift to the CURI. It is
true that Mr. Proulx, the auditor, said he did not find during his
investigation at the CURI's premises any evidence — whether in the CURI's
records, or in the bank statements of Mr. Marchand and his spouse, or
among the stuffed animals stored by the CURI — of the gifts allegedly made by
the appellant; however, Mr. Proulx does not seem to have asked
Mr. Marchand any direct questions about the alleged gifts.
[50] It is clear that the
CURI's records were totally inadequate. For example, there was no inventory of
the gifts in kind to the CURI, no copy of the charitable gift receipts issued
by the CURI, and, apparently, no copy of Mr. Marchand's appraisals. The
accounting records consisted of a synoptic journal in which the expenditures
and deposits made by the organization were entered. Mr. Proulx said himself
that it was impossible, when he visited the CURI warehouses, to connect the items
found there with the receipts issued by the CURI because the CURI's records
were not in order. However, Mr. Proulx did not say whether he asked
Mr. Marchand to explain the lack of records or to tell him whether there
was some other way to determine what gifts the CURI received in the years at
issue.
[51] Since it was not shown
that Mr. Proulx made any particular effort to see the skins in question, that
Mr. Marchand was unable to show them to him or that he could not explain
the circumstances of their absence, the evidence in this regard remains
ambiguous.
[52] Lastly, the fact
that there was no deposit of $20,000 into the CURI’s account or into Mr. Marchand
and his spouse's account in 2000 or 2001 does not, in itself, constitute
evidence that the appellant did not donate two polar bear skins to the CURI.
[53] In conclusion, it is
my opinion that the evidence before the Court is insufficient to sustain the
penalty assessed under subsection 163(2) of the Act.
[54] The appeal will therefore
be allowed in part, without costs, and the penalty assessed in the case at bar will
be cancelled.
Signed at Ottawa, Canada, this
22nd day of February 2007.
"Brent Paris"
Translation
certified true
on this 11th day
of June 2008.
Erich Klein Revisor
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