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Citation: 2005TCC330
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Date: 20051011
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Docket: 2003-1031(IT)G
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BETWEEN:
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CHRISTIAN VINCENT,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
[OFFICIAL
ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
(Delivered orally at the hearing at Montréal, Quebec, on March 24, 2005,
and amended for greater clarity and precision.)
Archambault J.
[1] Christian Vincent is appealing from
reassessments made by the Minister of National Revenue (the Minister)
under the Income Tax Act (the Act) in respect of the 1995,
1996 and 1997 taxation years (the relevant period). He objects to the
Minister's addition of $35,000 of unreported income to each of the taxation
years in issue. At the beginning of the hearing, counsel for the
Respondent acknowledged that the reassessments had not been made within the
normal reassessment period. In addition, the Minister imposed penalties
under subsection 163(2) of the Act.
[2] In issuing his
assessments, the Minister made certain factual assumptions that are set out in
paragraph 24 of the Reply to the Notice of Appeal:
[TRANSLATION]
(a) The
Appellant began working for the payor Howmet Cercast (Canada)
Inc. on January 5, 1970.
(b) The
Appellant held various positions over the years: toolmaker, supervisor and
workshop supervisor.
(c) In
1994, he accepted the position of subcontracting manager and held this position
until August 10, 1998, when he was dismissed.
(d) The
position of subcontracting manager consisted of finding suppliers to
manufacture cast parts, and finding toolmakers to make the tools.
(e) The
Appellant was paid roughly $75,000 a year as subcontracting manager during the
years 1995, 1996 and 1997.
(f) Aside
from his position, the Appellant made industrial designs and designed tools
("hereinafter "industrial designs") for suppliers.
(g) The
suppliers paid the Appellant for these industrial designs.
(h) The
suppliers always paid cash for the Appellant's industrial designs.
(i) The
amounts received for industrial designs were not reported to the tax
authorities.
(j) The
Appellant admitted under oath to Labour Standards Commissioner Michel Denis
that he received between $30,000 and $40,000 a year from 1995 to 1997 for
industrial designs done for suppliers of the payor.
(k) This
admission before the Commission des normes du travail is an extrajudicial
admission before the Tax Court of Canada.
(l) The
changes made to the tax returns for the years 1995, 1996 and 1997 are further
to a decision made by the Commission des normes du travail in an unust
dismissal complaint brought by the Appellant.
(m) Labour
Standards Commissioner Michel Denis stated as follows in his decision:
[TRANSLATION]
… [the Appellant]
states that he received $30,000 to $40,000 per year in total from all the
suppliers for such [industrial design] work during the years 1995 to 1997. . .
The complainant states that this income was not reported for tax purposes, that
it was the subject of an oral agreement and that it was not a hobby. Later on,
he said that he was always paid in cash because his salary was high enough and
to avoid taxes, which are the only thing that prevents him from sleeping.
(n) The
audit section of the Canada Customs and Revenue Agency assessed the average of
the amounts that the labour standards commissioner was told were unreported
income, specifically $35,000 for each of the 1995, 1996 and 1997 taxation
years.
(o) The
unreported income for the years 1995 to 1997 is as follows:
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1995
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1996
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1997
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Reported gross income
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$73,293
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$74,131
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$73,425
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Unreported gross income
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$35,000
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$35,000
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$35,000
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Total income
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$108,293
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$109,131
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$108,425
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RRSP
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$5,400
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$10,800
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$12,460
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Support payments
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$21,996
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$23,400
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$23,400
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Total deductions
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$27,396
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$34,200
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$35,860
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Revised taxable income
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$80,897
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$74,931
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$72,565
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(p) By
failing to report income of $35,000 for each of the years 1995, 1996 and 1997,
the Appellant knowingly, or in circumstances warranting a finding of gross
negligence, made a false representation or omission in the federal income tax
returns that he filed for the taxation years in issue, or participated in,
assented to or acquiesced in the making of such false statement or omission,
and consequently, the tax that he was purportedly required to pay based on the
information provided in the federal income tax returns filed for the years in
issue was less than the amount payable for those years.
(q) Because
of this failure to report his entire income for the 1995, 1996 and 1997
taxation years, the Minister, in his notices of assessment dated
May 27, 2002, imposed a penalty of $4,321 for the 1995 taxation year,
$4,200 for the 1996 taxation year and $4,153 for the 1997 taxation year, in
accordance with subsection 163(2) of the Income Tax Act (hereinafter
"the Act").
(r) Upon
filing his tax returns for the 1995, 1996 and 1997 taxation years, the
Appellant made misrepresentations of fact attributable to negligence,
carelessness or wilful default, so the Minister issued the notices of
reassessment dated May 27, 2002, for the 1995, 1996 and 1997 taxation years, in
accordance with subparagraph 152(4)(a)(i) of the Act.
[3] In his reply,
Mr. Vincent admitted to the facts in subparagraphs 24(a), (b), (e), (f), (g) and (h). In light
of the evidence before me, or the fact that Mr. Vincent did not adduce any
evidence to the contrary, the facts in subparagraphs 24(c) (subject to
Mr. Vincent's amendment to the effect that he accepted the position in
late 1994) as well as in (d), (i), (j), (k), (l), (m), (n), and (o) are
considered admitted. As for subparagraphs 24(p) through (r), these are
facts which the Minister had the onus to prove and I reserve my comments on
this question for my analysis below.
[4] Mr. Vincent's testimony, and the documentary
evidence submitted during his examination by counsel for the Respondent,
uncovered additional facts. Let us begin with Exhibit I-1, the transcript
of Mr. Vincent's testimony before a labour commissioner in connection with
his complaint under section 124 of the Act respecting labour standards,
by which he sought resinstatement to his position at Howmet Cercast Canada Inc.
following his August 1998 dismissal. During this testimony, he was asked to
[TRANSLATION] "provide a ballpark amount for [what he] had billed
[for alleged industrial design services] to Mr. Inchausti, the president
of Inviplax."
Mr. Vincent replied: [TRANSLATION] "I am unable to do so. In fact,
I never billed. . . . As I said, payment was always made in cash."
The labour commissioner did not consider this answer satisfactory:
[TRANSLATION]
Q .
. . Was it a billion a year, a million a year, a hundred thousand, ten bucks a
year, a hundred bucks, a thousand bucks?
[Mr.
Vincent]
. . .
A O.K.
Well I'd say less than $50,000 a year, but not just from that individual. From
Mr. Enrique and other individuals as well.
. . .
Q .
. . you are saying less than $50,000 per year for everyone.
A Yes.
It could have been $10,000, just as it could have … that year … it was looking
very good because in six months, I may have earned $30,000.
Commissioner MICHEL
DENIS:
Q But
when you say less than fifty thousand, but what you made was in the ballpark
of thirty to forty thousand a year. That is my understanding.
A Yes.
Q Am
I mistaken?
A No,
that would be pretty realistic.
[Emphasis
added.]
[5] Somewhat later
during the same examination, Mr. Vincent gave the following answers:
Commissioner MICHEL
DENIS:
Q So
you've been doing this each year since '95, correct?
A Yes. One
could even say since '93 (inaudible).
JACQUES ROUSSE,
COUNSEL FOR THE RESPONDENT
Q And how
did he pay you?
A Always
in cash. I always did it in cash. Why? Because my salary was high
enough. I don't declare it. Why be penalized with taxes? That's the only
thing that I fault myself for, and that keeps me from sleeping. The rest
doesn't keep me from sleeping, that you can be certain of, Sir.
A Have
you received money for something other than work that you did on behalf of…
R
No. No. I only received money for the work that I did at home, as I've
repeated several times. . . .
[Emphasis
added.]
[6] At paragraphs 67-70
of his decision, the labour commissioner provided the following statement of
facts:
[TRANSLATION]
[67] The
complainant never notified the Respondent that he did work at home for
suppliers. His justification for his conduct is that the Respondent did not
follow up on the contract that he had with the previous owner, and which
provided that the complainant's services were exclusive and granted the
complainant a large annual bonus and a car, so he felt free to use his spare
time as he saw fit.
[68] He
says that Inviplax, one of the aforementioned suppliers, gave him money for
design jobs, among other things. He specifies that the cost of three of these
jobs, within the first six months of 1998, was approximately $30,000.
[69] He
says that he received a total of $30,000 to $40,000 per year for such jobs
during the years 1995 through 1997 from all suppliers.
[70] The
complainant says that this income was not reported on his tax returns, that
they were the subject of an oral agreement, and that they constituted as hobby.
Later, he said that he was always paid cash because his salary was high
enough and to avoid taxes, which are the only thing that keeps him awake at
night.
[Emphasis added.]
[7] During his
testimony, Mr. Vincent also
noted that he was charged with receiving secret commissions paid by some of his
employer's suppliers. After a lengthy judicial saga, Mr. Vincent was
convicted on four charges in a trial by jury in the Quebec Superior Court. The
first charge concerned the payment of secret commissions by a corporation
called Sobacor Inc. These commissions amounted to $80,000 for the period from
1995 to 1997. The second charge also pertained to secret commissions, but no
amount was mentioned. The third charge concerned $20,000 in secret commissions
paid by Arnoldi Tool & Die Inc. and the fourth pertained to $10,000 in
secret commissions paid by a corporation called Usinages Altec. In all,
this represented at least $110,000 in secret commissions.
[8] Mr. Vincent said that he did not appeal
from the Superior Court decision because the sentence imposed on him did not
involve jail time. The Superior Court imposed a one‑year suspended
sentence with an obligation to perform community service.
[9] Based on
Mr. Vincent's arguments and, on his testimony, it is clear that he is not
contesting the fact that he received money that he did not report as income,
and that he could be subject to penalties under the Act. He is
fundamentally opposed to the amount of each assessment, namely $35,000. As we
have seen, the Minister assumed that this amount was correct and it corresponds
to the average annual amount of $30,000–$40,000 for services
rendered, which Mr. Vincent acknowledged receiving when he testified
before the labour commissioner.
[10] During Mr. Vincent's
testimony before me, it also emerged that his position at the criminal trial
was that the secret commissions were fees for services rendered. However, he
acknowledged that the persons alleged to have paid the fees denied receiving
any services from Mr. Vincent.
[11] To report his income
for the relevant period, Mr. Vincent retained the services of a tax-return
preparation company but did not disclose to the company the money he received
as secret commissions or fees for purported design services. In addition, he
acknowledged that he did not ask the company in question about his potential
obligations to disclose and report this income. Mr. Vincent's
justification for his conduct is that he did not receive a T4 form from the
persons who paid him the amounts in question, and, consequently, he did not
believe that he was required to report the income.
[12] The evidence also
disclosed that Mr. Vincent did not contact the tax authorities to inquire
about his obligation to report the amounts received as secret commissions or as
remuneration for industrial design services. The only efforts that
Mr. Vincent undertook in this regard were subsequent to the filing of his
income tax returns for the relevant period. In fact, the only time that Mr. Vincent requested
information from the tax authorities was following the receipt, in
July 1999, of what he called false T4 information slips.
Analysis
[13] First of all, it is
important to mention that, since the assessments were not made within the
normal period of assessment, the Minister could only make them if he could show — as required by paragraph 152(4)(a)
of the Act — that the taxpayer made a misrepresentation
attributable to neglect, carelessness or wilful default or committed fraud in
filing his return or in supplying any information under the Act. And it
is settled law that the relevant time for determining whether a person has made
a misrepresentation attributable to neglect, carelessness or wilful default in
his tax return must be the time that the return was filed.
[14] In Estate of the late Cléophas
Saint-Aubin v. R., 2003 CarswellNat 2624, 2003 TCC 608,
2003 DTC 1085, I cited the decisions in Venne v. Canada,
[1984] F.C.J. No. 314 (QL) and Nesbitt v. Canada., [1996]
F.C.J. No. 1470 (QL). In Nesbitt, Strayer J.A. of
the Federal Court of Appeal stated as follows at paragraph 8:
. . . Whether or
not there is misrepresentation through neglect or carelessness in the
completion of a return is determinable at the time the return is filed.
A misrepresentation has occurred if there is an incorrect statement on the
return form, at least one that is material to the purposes of the return and to
any future reassessment.
[Emphasis added.]
In
the same paragraph, Strayer J.A. even added:
. . . It remains a
misrepresentation even if the Minister could or does, by a careful analysis of
the supporting material, perceive the error on the return form.
[15] Here, the Minister
also had the burden of proving the facts justifying the imposition of a penalty
under subsection 163(2) of the Act. This penalty applies to any person
who, knowingly, or under circumstances amounting to gross negligence, makes a
false statement or omission in
his income tax return.
[16] Venne is another case in which the
burden on the Minister to establish the relevant facts warranting the
imposition of a penalty was described. It is noteworthy that this decision is
cited by Isaac J.A. of the Federal Court of Appeal in Findlay v. Canada,
[2000] F.C.J. No. 731 (QL). In particular, the following excerpt,
which addresses gross negligence within the meaning of subsection 163(2) of the
Act, is quoted:
. . . 'Gross
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.
[17] To sum up, the
Respondent has the burden of proving the existence of the elements necessary to
make the assessments outside the normal assessment period and to justify the
penalties imposed.
[18] If the Minister
succeeds in this task, Mr. Vincent has the onus of proof with respect to the
amount of the assessments. Several decisions have applied this principle,
including Jencik v. Her
Majesty the Queen, T.C.C.,
2003‑1836(IT)I, April 20, 2004, [2004] T.C.J. No. 202
(QL), 2004 TCC 295, cited by counsel for the Respondent. At paragraph
11 of the decision, Bonner J. wrote:
The well-known rule
which places on the taxpayer the onus of establishing that facts as found or
assumed or assessment are incorrect does not apply in appeals from
statute-barred reassessments unless the Minister first establishes facts which
show that he was entitled to reassess when he did.
[Emphasis added.]
[19] The evidence must
now be analysed in light of these principles. A great deal of the proof has
been made by means of Mr. Vincent's judicial and extrajudicial admissions.
[20] To my knowledge, the Tax Court of Canada Act and the Tax
Court of Canada Rules (General Procedure) do not address the question of
admissions. Since the Act and Rules are silent, we must rely on
section 40 of the Canada Evidence Act, which states as follows:
40. In all
proceedings over which Parliament has legislative authority, the laws of
evidence in force in the province in which those proceedings are taken,
including the laws of proof of service of any warrant, summons, subpoena or
other document, subject to this Act and other Acts of Parliament, apply to
those proceedings.
[21] Since Mr. Vincent's
appeal was filed in Quebec, one must refer to the rules of evidence contained in the Civil Code
of Québec (C.C.Q.), and, in particular, the rules regarding proof,
notably admissions. Article
2850 C.C.Q. defines an admission as "the acknowledgement of a fact
which may produce legal consequences against the person who makes it."
According to article 2851, "[a]n admission may be express or
implied." Article 2852 C.C.Q.
states: "An admission made by a party to a dispute . . . makes
proof against him if it is made in the proceeding in which it is
invoked. . . . The probative force of any other admission
is left to the appraisal of the court."
[22] The scholarly
writing and the case law draw a distinction between judicial and extrajudicial
admissions. The former category includes admissions made in the course of
proceedings, such as Mr. Vincent's admission, in the instant proceedings, that
he received moneys that he did
not report as part of his income. The admission made before the labour
commissioner is an extrajudicial admission. The judicial admission made before
me constitutes probative proof. The extrajudicial admission made before the
labour commissioner is an admission the probative force of which is left to my
appraisal.
[23] It is helpful to
reproduce the following comment made by Professor Léo Ducharme in Précis de la preuve, 5th
ed. (Montréal: Wilson & Lafleur, 1996), at paragraphs 703-04, a
comment cited with approval by the Quebec Court of Appeal in Rhéaume v.
Economical, Cie d'assurance, [1999] Q.J. No. 5795 (QL), at
paragraph 15:
[TRANSLATION]
[. . .] Indeed, article 2852 C.C.Q.
draws a very clear distinction between the probative force of a judicial
admission and the probative force of an extrajudicial
admission. [. . .]
[. . .] However,
a court should not be able to dismiss an extrajudicial admission by a party
without a valid reason since any statement in which a person admits to a
fact that is against his interests in presumed to be true. Under these
conditions, it makes sense that a person who has made a statement of this kind
should have to show why the court should not believe it.
[Emphasis added.]
[24] Mr. Vincent objected to the admissibility of
his extrajudicial admission based on various grounds. Firstly, he cited
section 13 of the Canadian Charter of Rights and Freedoms (the Charter),
which states:
A witness who
testifies in any proceedings has the right not to have any incriminating
evidence so given used to incriminate that witness in any other proceedings,
except in a prosecution for perjury or for the giving of contradictory
evidence.
[Emphasis added.]
[25] In my opinion, this
provision does not apply here, because the issue is whether the Minister's
assessment is valid. An assessment of tax owed by a taxpayer is not an
incrimination of the taxpayer; it is merely a determination of the amount of
his tax liability to the Minister of National Revenue. In fact, this was the conclusion reached by my
colleague Bédard J. in Bisaillon v. Canada, 2005 TCC 117,
[2005] T.C.J. No. 13 (QL), where he found that the penalties set out
in subsection 163(2) of the Act are not a criminal or penal consequence
within the meaning of section 11 of the Charter, paragraph (a) of
which states: "Any person charged with an offence has the right (a)
to be informed without unreasonable delay of the specific offence. [. . .] "
[26] Thus, it can be seen
that sections 11 and 13 are provisions intended to protect the vital rights of
Canadians, such as the right under section 7 of the Charter to life,
liberty and the security of the person, and the right under section 9, which
states that "everyone has the right not to be arbitrarily detained or
imprisoned."
[27] A tax assessment is
not an infringement of liberty; it is solely a determination of whether a
person owes tax to the tax authority.
[28] Mr. Vincent also invoked section 5 of the Canada
Evidence Act, which provides:
(1) No
witness shall be excused from answering any question on the ground that the answer
to the question may tend to criminate him, or may tend to establish his
liability to a civil proceeding at the instance of the Crown or of any person.
(2) Where
with respect to any question a witness objects to answer on the ground that his
answer may tend to criminate him, or may tend to establish his liability to a
civil proceeding at the instance of the Crown or of any person [. . .] then [.
. .] the answer so given shall not be used or admissible in evidence against
him in any criminal trial or other criminal proceeding . [. . .]
[29] I believe that there
are several reasons to reject this argument advanced by Mr. Vincent.
However, it is sufficient, in my view, to mention the most obvious one: In order for the evidence of
Mr. Vincent's admission before the labour commissioner to be inadmissible,
it would have been necessary for Mr. Vincent to object to answering the
labour commissioner's questions. Mr. Vincent acknowledged before me that
he never objected to answering the question that resulted in the admission,
and, in fact, a reading of the relevant passages of the transcript of his
testimony (Exhibit I‑1) shows this.
[30] In conclusion, the
extrajudicial admission made before the labour commissioner is admissible proof
in this Court, and, in light of the context in which it was made and the
evidence that I heard at the hearing, I find that it is probative as well.
[31] My understanding of
the events that occurred during the relevant period is as follows.
The amounts that Mr. Vincent claims were remuneration for industrial
design services were, in all likelihood, secret commissions that he received,
and the fact that he was convicted by a jury on four charges of receiving
secret commissions totalling at least $110,000 is additional proof based on
which it can be concluded that he received amounts that he did not report as
income.
[32] On the preponderance
of the evidence, and having regard, in part, to Mr. Vincent’s admission
that he received amounts totalling at least $105,000, which is the amount of
the Minister's assessments, it is clear from Mr. Vincent's testimony that he
not only did not report these amounts, but also that he knew he should report
them: [TRANSLATION] "That's the only thing that I fault myself for, and
that keeps me awake at night." In my opinion, his explanation that he did
not receive any T4 slips is just an excuse on his part, and one that cannot be
accepted in this case. The evidence in this appeal seems much clearer to me
than the evidence in many other appeals
heard by this Court.
[33] Since I have found
that Mr. Vincent did not report his income voluntarily, one of the conditions
necessary for the application of the penalty has been fulfilled: knowingly, or
under circumstances amounting to gross negligence, he made a false statement in
his return. If the omission was not wilful, it was certainly made under
circumstances amounting to gross negligence, that is to say, a deliberate
action, an indifference as to whether the Act is complied with or not.
[34] Proof of the amount
of the unreported income giving rise to the penalties, namely $35,000 for each
of the years in issue, was made in two ways: through the extrajudicial
admission in which Mr. Vincent acknowledged that he earned an average of
$30,000 – $40,000 of additional income per year during the relevant
period; and through the fact that a jury found him guilty, beyond reasonable
doubt, of receiving $110,000 in secret commissions. Proof beyond reasonable doubt is a standard of proof
that is much higher than the standard required in this Court. The amount
established by the Minister in his assessments is $5,000 lower than the amount
set out in the charges. It seems entirely clear to me, on a balance of
probabilities, that the amounts in the assessments constitute income earned in
each of the taxation years contemplated by those assessments.
[35] In view of my
finding that Mr. Vincent wilfully omitted to report $35,000 in income per
year, the penalties are completely justified. Plainly, the Minister was
entitled to assess the Appellant accordingly beyond the normal reassessment
period, since there was a
misrepresentation attributable to neglect, carelessness or wilful default.
Thus, all the requisite conditions for making the assessments have been met.
Mr. Vincent's conduct in the preparation and filing of the income tax
returns is sufficient to warrant the assessments made outside the normal
reassessment period.
[36] The main reason that
Mr. Vincent brought an appeal before this Court was not to deny that he
failed to report all his income, but to challenge the amount of the Minister's
assessments. He argued that it was up to the auditor to go and question the
suppliers in order to determine the actual amount that he was paid. However, as we have seen, the authorities
have continuously and consistently stood for the proposition that this is the
taxpayer's task. It is up to the taxpayer to disprove the facts on which the
Minister relied in establishing the amount of the assessment. And one of the
facts on which the Minister relied was that Mr. Vincent earned $35,000 in
additional income per year. The burden was on Mr. Vincent to prove that
this amount was wrong. Since he did not adduce contrary evidence to disprove
the fact in question —
and he acknowledged this failure, because he did not keep any accounting
records that could establish the precise amount of additional income earned in
each of the relevant years —
Mr. Vincent did not show that the Minister's assessments were wrong.
[37] For these reasons,
Mr. Vincent's appeals with respect to the 1995, 1996 and 1997 taxation years
are dismissed, with costs to the Minister.
Signed at Ottawa, Canada, this 11th day of October 2005.
Archambault
J.
Translation certified
true
on this 23rd
day of March, 2006.
Garth McLeod,
Translator.
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