Citation: 2009 TCC 313
Date: 20090611
Docket: 2006-3783(IT)G
BETWEEN:
GILLES TREMBLAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an
appeal from the reassessments issued by the Minister of National Revenue ("the
Minister") in accordance with the Income Tax Act, R.S.C. 1985, c. 1
(5th Supp.), as amended ("the Act"), dated June 1, 2004, and
September 21, 2006, for the 1999, 2000, 2001 and 2002 taxation years. The
assessments resulted from an audit performed according to the net worth method
and included unreported business income, shareholder's benefits resulting from
advances from a company, and penalties under subsection 163(2) of the Act.
[2]
On the basis
of the reassessments dated September 21, 2006, the amounts of the unreported
income, of the shareholder's benefits, and of the penalties for the 2000, 2001
and 2002 taxation years are as shown in the following table:
|
|
2000
|
2001
|
2002
|
|
REVISED
unreported income
|
$186,148
|
$42,958
|
$66,805
|
|
PLUS
Shareholder's benefits
|
$1,000
|
$9,965
|
$3,314
|
|
REVISED difference in net worth
|
$187,148
|
$52,923
|
$70,119
|
|
REVISED penalties
|
$22,957
|
$5,034
|
$5,962
|
[3]
In an
amended return for the 2000 taxation year, the appellant requested that a
non-capital loss of $11,659 be carried back to the 1999 taxation year. The Minister denied
the carry-back to the 1999 taxation year following a reassessment dated June 1,
2004.
[4]
In this case, the following points are in issue:
(a) The use
of the combined net worth method with the appellant’s former spouse
(b)
A $30,000
credit at the time that the appellant purchased a residence in Stoneham
(c)
A $10,000
cash loan obtained from Laurent Trépanier
(d)
A $7,000
loan obtained from Gestion Atlantique Inc.
(e)
A $14,595
loan obtained from 2963159 Canada Inc.
(f)
A $57,500
private placement
(g)
A $45,000
debt of Daniel Bouchard
(h)
A $7,410
loan obtained from the appellant's brother
[5]
Before
analyzing each issue, I will provide some information about the appellant. In addition to
having a bachelor's degree in actuarial science, the appellant has a master's
degree in project management. The appellant was employed as a trustee in
bankruptcy until September 1, 1995. Following
an audit by the Office of the Superintendent of Bankruptcy and the endorsement
of a partner's instruments, moneys were sought from the appellant in regard to
his management of certain files, and he had to make an assignment of his
property. During the years at issue, he worked
in land decontamination. He would purchase contaminated lands at low prices,
decontaminate them through companies in which he held shares, and sell them for
a profit. The appellant also had interests in various companies including 25%
of the shares in Écolo-tech Décontamination Inc. and 25% of the shares in 9076‑1214
Québec Inc.
[6]
In addition
to his bankruptcy in 1997, the appellant has had other encounters with the law. On May 7, 1999,
the appellant was convicted of 13 counts of failing to remit the positive
amount of his net tax (Goods and Services Tax). On September 9, 1999,
the appellant was convicted of having, by deceit, falsehood or other fraudulent
means, defrauded the creditors of Final P. Inc. of over $5,000. On November 12,
2001, he was sentenced to 691 days in prison for failing to report and to remit
$59,710.08 in relation to the Quebec Sales Tax. The appellant began to serve
his sentence in November 2001 and was released on April 30, 2002.
[7]
The
appellant did not file an income tax return for the 1998 or 1999 taxation
years. For the 2000 taxation year, the appellant reported a net loss of
$11,659. For the 2001 taxation year, he reported no income, while
for the 2002 taxation year, he reported a net loss of $12,301.
Combined net worth
[8]
The
Minister undertook an audit of the appellant’s net worth, having found that the
appellant had no records and that his income tax returns were based solely on a
balance sheet and an income statement. Supporting documentation for expense claims
was often missing. The Minister combined the appellant's net worth with that of
his former common-law spouse, Johanne Carrier, because their assets and
liabilities were not treated separately. For example, the appellant was making
payments on his former spouse's vehicle, while cheques in the appellant's name
were deposited into his former spouse's bank account. The appellant paid the residence-related expenses, while
his former spouse paid for groceries. The appellant also sold a company
called Distri‑Carr to his former spouse to settle a debt he owed her. In these circumstances, I find it appropriate to use the
combined net worth method, because there is clearly confusion of patrimony,
liabilities and expenses.
[9]
In his
Notice of Appeal, the appellant alleged that a SAAB vehicle described as
capital property should be excluded from his assets for the period between
December 31, 1999, and December 31, 2000, because the vehicle
belonged to his former spouse (paragraphs 15.1 and 17.1). The appellant
also alleged in his Notice of Appeal that the amount of personal expenditures
for the 2001 and 2002 taxation years should be reduced by $21,879 and
$34,274.47 respectively because those amounts came from the bank account with
the Caisse populaire des Laurentides held by his former spouse (paragraphs 27.1
and 37.1). Finally, the appellant alleged
that, with respect to 2001, the $248 and $230 in deductions at source (DAS),
and with respect to 2002, the $251.90 and $195.25 in DAS, belonged to his
former spouse (paragraphs 27.5, 27.6, 37.5 and 37.6).
[10]
The
appellant's former spouse did not testify at the hearing. However, the
calculation of the difference in net worth enclosed with the Reply to the
Notice of Appeal showed that the DAS for the appellant's former spouse's
federal and provincial taxes and her tax refunds were taken into account.
The $19,000 paid for the SAAB vehicle was treated as
the appellant's capital property because he made the monthly lease payments
until the lease ended in 2001. In 2001, the
capital property appearing on the appellant's personal balance sheet was
reduced by $19,000, and a loss of $19,000 was recognized under personal-use
property in the calculation of the difference in net worth. The balance of the
appellant's former spouse's account with the Caisse populaire des Laurentides
was added to the current assets on the personal balance sheet at December 31 of
1999, 2000, 2001 and 2002. This is unavoidable in cases where the combined net
worth method is used because of the confusion of patrimony, liabilities and
expenses. It should be noted that the income
reported by the appellant's former spouse was only $3,005, $1,751 and $572 for
2000, 2001 and 2002 respectively. Those amounts are clearly insufficient to
accumulate any kind of capital in a bank account.
Credit of $30,000 at the time the
appellant purchased a residence
[11]
The
appellant is claiming that the real value of the residence was $120,000, not $150,000
as it appears on the notarial act dated January 31, 2000, signed by the
appellant and his brother, Denis Tremblay. The appellant's brother did not
testify at the hearing and therefore did not explain the difference in the
residence’s value or the transactions that had taken place before the appellant
purchased the residence. By his testimony alone, the appellant could not contradict
a valid writing signed before a notary.
Cash loan of $10,000 obtained from Laurent
Trépanier
[12]
According
to the appellant, this loan was obtained in 2002, and it was given in cash in
order to avoid the five-day waiting period that applies when a cheque is
cashed. Counsel for the respondent alleges that the loan is not on
the list of the appellant's loans for 2002 provided in paragraph 42 of the
Notice of Appeal. Since the issue of this loan is not supported by any
documentary evidence and since the lender did not confirm its existence and its
terms and conditions by testifying at the hearing, the loan need not be taken into
consideration in the calculation of the appellant's net worth.
Loan of $7,000 from Gestion Atlantique
Inc.
[13]
According
to the appellant, loans totalling $15,000 were issued by Gestion Atlantique
Inc. in order to secure the appellant's hypothec payments to the Caisse
populaire Notre-Dame des Laurentides. At the hearing, the appellant tendered a
photocopy of two cheques dated March 2, 2001, totalling $7,000, made out to the
Minister of Finance by Gestion Atlantique Inc. (Exhibit A-3). Serge Garneau
testified at the hearing as a director of the companies that had given advances
to the appellant. Mr. Garneau confirmed that he was a business partner of the
appellant and that Gestion Atlantique Inc. had given the appellant advances
totalling $7,000, but that he had no agreement setting out the terms and
conditions of those advances. Furthermore, he could not provide any reasons why the
cheques were made out to the Minister of Finance rather than to the appellant.
[14]
Even though
Mr. Garneau's testimony is not completely disinterested, there is sufficient
evidence showing that the companies he controlled, namely, 9076‑1214
Québec Inc., Ecolo-Tech, Gestion Atlantique Inc. and 2963159 Canada Inc. had
actually given advances to the appellant. The Minister accepted the
advances given to the appellant by 9076-1214 Québec Inc. The same also goes for the advances of $2,902 personally
provided to the appellant by Mr. Garneau.
Advances of $14,595 made by 2963159 Canada
Inc.
[15]
These
advances are part of those made to the appellant by companies controlled by
Serge Garneau. Unfortunately for the appellant, they were not claimed in the
Notice of Appeal and therefore cannot be accepted. Furthermore, no loan
agreement or proof of payment was offered at the hearing. Finally, Mr. Garneau's
testimony concerning the advances made to the appellant by 2963159 Canada Inc.
was not very clear or specific.
Private placement of $57,500
[16]
In his
Notice of Appeal, the appellant alleged that the sum of $57,500 came from
advances made by Laurent Trépanier, not from a private placement made on March
14, 2000. However, the loan agreement between the appellant on the one
hand and Laurent Trépanier and Gestion Laurent Trépanier (1993) Inc. on the
other hand, signed on December 10, 2002, refers specifically, in the preamble,
to a $57,500 loan from Laurent Trépanier directly or through related
corporations for a private investment made on March 14, 2000. In his testimony, the appellant was unable to explain how
the $57,500 loan was used. Consequently, the
assessments issued should not be altered in order to have that investment
amount subtracted.
Debt of $45,000 from Daniel Bouchard
[17]
In
paragraph 27.2 of the Notice of Appeal, the appellant alleged that the sum of
$45,000 should be deducted from his personal expenses, considering that it was
used to settle a contested claim of 9076-1214 Québec Inc., which was owed by
Daniel Bouchard as the lessee of a building on a lot in Blainville. According
to the appellant, the $45,000 was used to settle the late rent payments of the
lessee Daniel Bouchard. In addition, an excess sum collected had allegedly been
given back to Daniel Bouchard. Since no
documentary evidence was filed concerning the bank drafts that the appellant
had allegedly given to Mr. Bouchard and since Mr. Bouchard did not testify at
the hearing to corroborate the facts, the appellant's allegations will not be
accepted.
Loan of $7,410 from the appellant's
brother
[18]
The
appellant did not mention this loan in his Notice of Appeal or at the time of the
audit. No documentary evidence was filed, and the appellant's brother did not
testify at the hearing. In these circumstances, this element will not be
accepted.
Non-capital loss for 2000 carried back to
1999
[19]
The loss
carry-back was not challenged at the hearing. Consequently, no non‑capital
loss can be carried back to the 1999 taxation year.
Penalties
[20]
Subsection
163(2) of the Act provides for the following penalties:
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
. . .
[21]
In view of
the combined net worth assessed by the Minister, the appellant failed to report
in his income tax returns for the 2000, 2001 and 2002 taxation years income and
benefits totalling $187,148, $52,923 and $70,119 respectively. The unreported
income amounts are very significant in comparison to the income amounts
reported by the appellant, namely, a net loss of $11,659 for 2000, an income of
zero for 2001 and a net loss of $12,301 for 2002.
[22]
The audit showed
that the appellant's records and books of account were inadequate and not very
reliable. The auditor also noted that the audit had been performed in rather
difficult conditions and that he had had to issue several requirements in order
to obtain information from the appellant.
[23]
The
appellant's academic training and professional experience leave no doubt that
he has a great deal of knowledge about these matters and about his tax duties.
[24]
For the
reasons mentioned above, I am satisfied that the appellant earned unreported
income and did not provide a credible explanation for the discrepancy between
his reported income and his net worth. In my view, the Minister discharged his
burden of proof under subsection 163(2) of the Act.
Other adjustments
[25]
At the
hearing, the parties agreed that the appellant's income for 2000, 2001 and
2002, determined by the net worth method, should be revised by the addition to
his loans and mortgages amount for 2000 rather than 2001, of $55,000 from a
loan issued by Gestion L. Trépanier (1993) Inc., and for 2001, of $1,000 from
an advance made by 9076-1214 Québec Inc.
[26]
Given the
adjustments set out in the preceding paragraph and the acceptance of the $7,000
loan issued by Gestion Atlantique Inc. in 2001, the Court determines that the
appellant's unreported income for the years 2000, 2001 and 2002 is $131,148,
$89,956 and $47,605 respectively. The shareholder's benefits in the amounts of
$1,000 for 2000, $9,965 for 2001 and $3,314 for 2002 will also be added to the
unreported income.
[27]
Consequently,
the appeal is allowed in part, without costs, and the assessments issued on
September 21, 2006, regarding the 2000, 2001 and 2002 taxation years are referred
back to the Minister for reconsideration and reassessment to reduce the
unreported income for the 2000 taxation year by $55,000, to increase the
unreported income for the 2001 taxation year by $47,000, and to reduce the
unreported income for the year 2002 by $19,200, with adjustments to the
penalties but without changes to the shareholder's benefits.
Signed
at Québec, Quebec, this 11th day of June 2009.
“Réal Favreau”
on this 10th day
of July 2009
François Brunet,
revisor
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