Citation: 2005TCC321
Date: 20050513
Docket: 2003-1093(IT)G
BETWEEN:
DANIEL ADAM & ASSOCIÉS,
TRUSTEES TO THE BANKRUPT LUC LAFONTAINE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] The assessment from
which this appeal is made was established using the "net worth"
method under unusual circumstances. In the wake of a police investigation,
followed by criminal charges to which Mr. Lafontaine pleaded guilty, the
Respondent reviewed Mr. Lafontaine's tax file.
[2] Since Mr.
Lafontaine had not submitted an income tax return for the 1999 taxation year,
the Respondent issued an assessment on the basis of information taken from a
variety of documents that were seized and confiscated during the police
investigations.
[3] After the
assessment had been issued, Luc Lafontaine assigned his assets on July 16,
2004. Since Mr. Lafontaine no longer had the legal ability to proceed with his
appeal, the bankruptcy trustees filed an application for resumption of
proceedings, dated October 27, 2004, which was worded as follows:
[translation]
CANADA
PROVINCE
DE QUEBEC Tax Court
of
Canada
_______________________
NO: 2003-1093(ITG)
LUC
LAFONTAINE,
Appellant;
-vs-
HER
MAJESTY THE QUEEN,
Respondent.
________________________
APPLICATION
FOR RESUMPTION OF PROCEEDINGS
We are appearing for
Daniel Adam, in his capacity as trustees of the assets of Luc Lafontaine,
Appellant, in the instant case, without prejudice.
Luc Lafontaine, through
his undersigned Counsel, is appearing in the instant case, without prejudice.
Charlesbourg, October 27, 2004
(Signed)
ARMIJO & WEBSTER
(Manès
Webster)
Counsel
for the Appellant
[4] In order to explain
and justify the assessment, the Respondent relied on the following assumptions
of facts:
(a) The Minister
undertook an audit of the personal finances of the Appellant using the net
worth variance method following an investigation by the Royal Canadian Mounted
Police Integrated Proceeds of Crime Unit.
(b) On March 13,
2000, the Appellant was convicted of smuggling tobacco and alcohol and
sentenced to a fine of three million dollars ($3,000,000).
(c) On January 11,
2001, the Appellant pleaded guilty to four counts: 1. Conspiracy to export
narcotics; 2. Conspiracy to traffic, possession for the purpose of trafficking
and possession of narcotics; 3. Possession of property obtained by crime and 4.
Exporting narcotics.
(d) He was
sentenced to five (5) years and four (4) months in prison, a victim fine
surcharge of one hundred and twenty thousand dollars ($120,000), and prohibited
from the possession of firearms for a period of ten (10) years.
(e) In addressing
his arguments to the Court, the Appellant admitted being the owner of a number
of items of property, including the motor vehicle which the Appellant described
in his Notice of Appeal.
(f) In order to
establish the assessment at issue, the Minister analyzed records of bank
transactions, invoices, credit card statements and other information obtained
in the course of his investigation, which are summarized in the tables attached
to this response as Appendix A, and are an integral part thereof.
(g) Using the net
worth variance method, the Minister established that the Appellant had income
of $283,825.00 for the 1999 taxation year, as it appears in the tables attached
to this Response as Appendix A, of which they form an integral part.
(h) The Appellant
did not file an income return for the 1999 taxation year by
April 30, 2000.
(i) The Minister
imposed a penalty of $10,947.11 on the Appellant for late filing of his income
tax return.
[5] The evidence
submitted by the Appellant was made up exclusively of the testimony of Luc
Lafontaine, who has a material interest in the result, in view of the fact that
Counsel for the Appellant mentioned that the outcome of the appeal would have
an impact on the progress of the case.
[6] The Appellant
targeted most of the elements considered in calculating the net worth. These
elements were as follows:
·
personal
expenses;
·
the
ownership of a specific motor vehicle;
·
money
from another person;
·
the
assessed value of a second boat, which had been owned by Luc Lafontaine;
·
landscaping
improvements to the residence of Luc Lafontaine;
·
furnishings
and personal effects.
[7] By way of
introduction, Mr. Luc Lafontaine stated that, after serving his prison
sentence, he had decided to mend his ways and become a responsible citizen.
[8] To illustrate this
turnaround, he stated that he had severed all ties to his former acquaintances,
had regained custody of his child and had adopted the child of his new wife.
[9] He then provided
essentially oral explanations in order to refute the conclusions drawn under
the various headings set out above.
[10] For each of these
headings, Mr. Lafontaine submitted only a variety of oral explanations, most of
them summary. He did not opt to support his statements with any kind of
documents or witnesses.
[11] His statements were
often vague and equivocal. They stemmed from a somewhat selective memory. On
the other hand, this memory became surprising, even exceptional, with respect
of other aspects which, naturally, supported his position.
[12] Before the Court,
Mr. Lafontaine clearly repeated the same oral arguments as he had done in the
objection, without any additions in the form of documents, other witnesses or
interventions by persons able to corroborate his statements.
[13] He insisted, at the
start of his testimony, that he was now a law-abiding person, rehabilitated,
serious and responsible, now with substantial family responsibilities.
[14] Such a turnaround is
undoubtedly laudable and such as to cast a sympathetic light on the case.
However, this new direction and rehabilitation of Mr. Lafontaine have no impact
on whether or not the appeal is well founded.
[15] Let us review the
essentials of Luc Lafontaine's explanations. He claimed that he had
received $50,000 from a Chinese named Mr. Wong; Mr. Wong reportedly had
commissioned a lawyer to give him the amount in question after he had been
obliged to return to China. He knew his name, "Wong"; he had done
business with him in the past. Despite the passage of several years, he had
heard nothing more of Mr. Wong and had done nothing to locate him, hence the
fact that he still owed him this amount.
[16] In the course of the
action taken to verify the statements of Mr. Lafontaine, the Respondent
explained that Mr. Wong had been located; according to their research, he was
residing in British Columbia and not in China.
[17] A review of the
income reported by Mr. Wong leads to the conclusion that $50,000 constituted a
considerable sum; this finding leads to a highly relevant question: why would
someone who is owed the sum of $50,000, and whose income is very modest, have
done absolutely nothing to recover what was owing to him, especially since it
would appear that the lawyer who acted as his agent could have easily located
Mr. Lafontaine in order to recover the money?
[18] With regard to a
Sebring vehicle, Mr. Lafontaine maintained that it was part of a group of
vehicles of the same make seized in the context of criminal proceedings.
According to his testimony, one of the vehicles in question did not belong to
him; it belonged to another individual, who had recovered it following the
seizure.
[19] Are we dealing with
the same vehicle? Why had he formally admitted, under oath before the Court,
following the seizure, that he was the owner of the vehicle in question?
Answer: he was following the advice of his lawyer. Why did the person who was
the owner of the vehicle not appear to testify?
Boat:
[20] The assessment was
established following an analysis of a number of factors and a variety of
documents. According to Mr. Lafontaine, most of these factors were not
relevant. He explained that, when he purchased the boat, the seller had
undertaken to make improvements without charge, to do repairs without charge
and also to provide certain additions without charge. Why did the seller not
appear to testify and confirm his many statements?
Heat pump:
[21] The explanations by
Mr. Lafontaine are that he had purchased it at a very good price and that
he had installed it himself with the help of a friend who did the work for
free. He claims that the amount assessed is totally unreasonable.
[22] No one testified
regarding the size of the residence in order to establish its energy
requirements and specific features. Why did the vendor of the heat pump not
appear as a witness? The value that was assigned was admittedly done in a
somewhat arbitrary manner, albeit not an unreasonable one.
Landscaping:
[23] Mr. Lafontaine
claims that he allegedly invested $20,000 in installing a swimming pool and
adjacent facilities; he did not do the landscaping work at the front of his
property. The facts considered in determining his net worth included an invoice
which, according to Mr. Lafontaine, was not related to the work actually
performed, but was merely an estimate; according to him, the work described in
it was never performed.
[24] He maintained that
the Minister should have visited the property to verify and see for himself
that the work had not been carried out. Why did he not call as witnesses the
various contractors involved, who would have been in a position to explain the
documents that were seized and used by the Minister?
[25] With regard to the
personal expenses and the purchase of furnishings, Mr. Lafontaine
essentially asserted that his lifestyle was within the standards established by
Statistics Canada. He also stated that his partner was very extravagant and
that she had purchased certain assets with her own income.
[26] There was also the
matter of the "Poker Run", which consisted of boat trips over a
certain route with a number of stops to take a playing card at each location;
at the end of the outing, the participant with the best poker hand was declared
the winner. According to his testimony, his passengers paid all the expenses,
and his participation was limited to providing the boat.
[27] In addition to many
explanations that were unsubstantiated, incomplete and often implausible, I am
obliged to recall that Mr. Lafontaine admitted to having used several cellular
telephones not registered to him; the registered owners agreed to lend their
names and consent in return for remuneration and reimbursement of the user
fees. He also stated that he had used numerous aliases so that certain assets
of which he was the real owner would not appear under his name.
[28] With regard to this
very specific context, the Appellant would have needed to provide more
convincing proof of some of its claims, especially since it would have been
very easy to have had certain persons appear who would have been very useful in
this regard.
[29] The Court,
furthermore, raised in the course of the hearing the weakness of the evidence,
since it consisted essentially of the testimony of Mr. Lafontaine, who was
personally interested in and, most importantly, very much affected by the
result of the appeal, in contrast to the claims of Counsel, who stated that
Mr. Lafontaine had nothing to lose or gain from the appeal. This comment
was utterly at variance with the claim that the cancellation of the assignment
of assets for the benefit of creditors would be submitted if the appeal were
upheld.
[30] Counsel for the
Appellant in fact himself repeated on several occasions that, if the appeal
were upheld, the administrative process of the assignment of assets would be
halted and an application for cancellation of the assignment would probably be
filed.
[31] In order to explain
or justify the failure to appear on the part of certain individuals who could
have substantiated, confirmed or validated certain essentially oral elements of
proof, Counsel for the Appellant indicated that, on the one hand, Mr.
Lafontaine had decided to sever all ties to his former circle of acquaintances
and, on the other hand, that he had been formally prohibited, by Court order,
from having any form of contact whatsoever with the persons with whom he had
previously associated.
[32] First, these
arguments cannot stand because the Appellant, in accordance with the appearance
in resumption of proceedings, is not Mr. Lafontaine, but the firm of trustees.
[33] Second, the
procedure for having a person testify at a trial has nothing to do with the
nature of the relationship that may have existed between a potential witness
and the interested party in the case. In other words, Mr. Lafontaine strictly
speaking had nothing to do with the responsibility or the consequences of
having certain persons testify or not; this decision rested essentially with
the bankruptcy trustees who re-opened the case. Furthermore, the trustees, who
alone are competent to act in the instant case, were obliged to present the
best evidence possible. This required the appearance of any person capable of
validating and corroborating the essentially oral evidence of a person who was
very much concerned with the result.
[34] If the reasons
invoked to justify the non-intervention of certain individuals were acceptable,
which is not the case, the Appellant could certainly have called several people
who had absolutely no connection with Mr. Lafontaine's criminal past. I am
thinking specifically of a representative of the company that prepared the
document concerning the landscaping work, a person who could have shed light on
the heat pump, a representative of the company that installed the swimming
pool, the various parties involved in the purchase and sale of the boat, and so
on.
[35] To begin with, Mr.
Lafontaine, having regard to the rather unusual context and circumstances which
led to a substantial assessment, knew full well that his credibility would
undoubtedly be an important factor in the analysis of the evidence in support
of the appeal. The Court can understand in part some of the difficulties that
that entailed in respect of certain aspects of the case.
[36] Consequently, it was
imperative to emphasize those elements where it was possible, or even very
easy, to submit evidence of irreproachable quality, especially since the oral
claims of Mr. Lafontaine had already been presented and rejected at the time of
the objection.
[37] The Appellant chose
to dispute the grounds for the assessment by repeating essentially the same
oral explanations that were submitted with the objection. According to the
Appellant, these explanations should be retained for the following two reasons:
·
the difficulty of,
indeed the prohibition against, having contact with his former associates;
·
his reformed behaviour
and rehabilitation, complemented by the addition of major family
responsibilities.
[38] These may,
admittedly, be arguments that have a certain relevance and that could have
complemented or supported evidence that itself has minimal probative force.
However, they definitely do not constitute sufficient evidence to discredit the
value of the assessment which, although arbitrarily established, nonetheless
had the merit of being reasonable and plausible, in terms of both the substance
and the quality of the work resulting in the production of this assessment.
[39] In fact, the
evidence has shown that some assets were assessed in a somewhat arbitrary
manner, albeit not an unreasonable one. The evidence has also clearly
established that the Respondent had displayed considerable generosity in her
approach to Mr. Lafontaine. I am referring specifically to the amounts allocated
to him for personal expenses. (Reference to the statistical data provided by
Statistics Canada)
[40] Mr. Lafontaine quite
clearly had substantial resources. He had many assets, luxury cars, a boat, a
snowmobile, a Harley-Davidson motorcycle, high‑end clothing, and so on.
[41] Claims that arriving
at Mr. Lafontaine's cost of living on the basis of statistical data established
by Statistics Canada constitute a real affront to the intelligence and are
certainly not likely to create a context or a favourable predisposition with
regard to certain elements where there might have been a degree of doubt; more
than that, such audacious exaggeration undermines Mr. Lafontaine's entire
testimony.
[42] In order to satisfy
the burden of proof, much more is required than merely to point out certain
weaknesses with regard to the reliability of the data used in the calculation
using the net worth method.
[43] Highlighting certain
weaknesses is definitely not sufficient to invalidate the result obtained by
the net worth method, even if this is an imperfect approach which inevitably
produces a commensurately imperfect result.
[44] The use of the net
worth method does not result from a choice by the Respondent; it stems
essentially from the choice of the individual concerned by the assessment not
to have in their possession a file that would allow for a traditional audit
when the time comes to do so.
[45] Furthermore, an
assessment arrived by the net worth method always takes the form of a draft,
which the individual involved can challenge. If that is not the case, the
assessment can be disputed by a Notice of Objection. At that stage, the
individual can seek help and advice and provide everything that is potentially
relevant to support a review that will produce an outcome in their favour.
[46] If the individual
concerned by the assessment fails in his or her attempt to obtain satisfaction,
he or she can then file a Notice of Appeal, after which a hearing will be held.
If the Appellant does no more than essentially repeat the explanations produced
at the objection, they are likely to encounter the same reasons that led to
their being rejected previously.
[47] However, if the
individual being assessed believes in the merit of the arguments that were
dismissed at the objection stage, it seems to me essential, if they are
serious, that they undertake a whole series of efforts and initiatives to
confirm and substantiate their arguments with a view to establishing probative
force that will support elements that have a degree of reliability.
[48] In the instant case,
the testimony of Mr. Lafontaine was filled with such statements as "I
don't remember", "Perhaps", and so on. Furthermore, many of his
statements were vague, imprecise or very general. Overall, his testimony had
very little credibility and was certainly insufficient to meet the requirements
of the burden of proof that rests on the Appellant. This assessment is based
specifically on the following elements:
·
Explanations
that were outlandish and essentially oral. I am referring specifically to the
money from a certain Mr. Wong. This was a large amount, over $50,000,
which belonged to this Mr. Wong, who was supposed to leave for China, and which a lawyer had
been instructed to give to him.
·
The
total absence of relevant, valid documentation to confirm the oral assertions
and explanations.
·
The
denial of a judicial admission regarding the ownership of a motor vehicle.
·
The
fact of having deliberately disposed of all the confiscated documents that were
returned to him (the green bag).
·
The
use of numerous aliases, with the obvious intent to leave no trail. I am
referring specifically to boats, pagers and cellular telephones.
·
The
totally implausible claims regarding lifestyle.
·
The
non-appearance of a number of individuals who could have made a contribution.
[49] Taken together, all
these elements make the version of Luc Lafontaine very unconvincing, and
support the conclusion that it is not credible in presenting better evidence.
[50] The burden of proof
was on the Appellant. Such a burden is of itself a heavy responsibility. In the
instant case, it involved a large assessment, the substance of which stemmed
from investigations that led to serious criminal charges, which in turn
resulted in guilty pleas. In the context of these investigations, a
considerable amount of property and documents was confiscated and seized, and
this was clearly known by the person being assessed.
[51] The assessment was
arrived at on the basis of facts, conversations, transactions and a large
quantity of highly relevant documents. The assessment was followed by an
objection, where Mr. Lafontaine was represented by an accountant.
[52] He accordingly had
the time, energy and resources to assemble a detailed, substantiated objection that
would make the basis of his objection credible and plausible, even if he had
disposed of most of the documents that were given to him.
[53] According to the
person in charge the case, at the objection, Mr. Lafontaine had
essentially produced the same, largely oral, explanations; they were not
accepted.
[54] In preparing for the
appeal, the Appellant was aware of the basis for the assessment and accordingly
of the nature of the evidence that would be presented to the Court.
[55] All the documents, data
and items in support of the assessment were known, hence it would have been
essential to prepare and submit evidence more substantial than a mere
repetition of the claims made at the objection.
[56] This Court must
decide on the justification for the assessment, based on the relevant proof
submitted to it. Such proof must be credible, plausible and preponderant.
[57] The basis for the
assessment established using the net worth method was derived from a serious
analysis and from appropriate questioning. The testimony of the Sergeant with
the Royal Canadian Mounted Police and of the Auditor General also established
numerous facts based on documents of eminently acceptable reliability.
[58] Admittedly, the
value of certain assets, specifically the heat pump, was established in a
fairly arbitrary manner, although one that was not unreasonable; this is a
consequence that any person must accept when they do not have in their
possession supporting documentation to refute its accuracy. When an individual
is the subject of an assessment based on the net worth method, they have all
the latitude one could wish for to discredit the basis thereof.
[59] When such an
assessment is established, the individual concerned has access to all the
factors and all the facets taken into account in arriving at it; they can
accordingly demonstrate, through numerous means, such as the intervention of
third parties, supporting documentation, strong circumstantial evidence or
credible, reliable testimony, based on the preponderance of evidence, that the
assessment in question is wholly or partially unfounded.
[60] In order to dispute
an assessment arrived at using the net worth method and based on facts and
documents, the reliability of which was convincing, and circumstantial evidence
that would appear to be equally convincing, it would have been necessary, given
the quality of such evidence, to submit evidence of equally convincing
reliability.
[61] Mr. Lafontaine
claimed that he had placed in a green bag all the documents handed over after
the seizure, some of which could have shed a certain light on, or possibly
confirmed, his statements.
[62] In refuting and
disputing the validity of the assessment, the Appellant did no more than make
unsubstantiated, uncorroborated statements, which were for the most part vague
and inconsistent.
[63] This is flawed,
incomplete evidence which is certainly not sufficient to discredit the validity
of the assessment.
[64] The burden of proof
lay with the Appellant. It has unquestionably failed to discharge this
responsibility. In light of the evidence submitted, one would have thought that
the Appellant was under the impression this was a criminal trial, where
reasonable doubt can make all the difference.
[65] In tax law, the fact
of raising a small doubt or several small doubts is not sufficient to satisfy
the burden of proof that rests on the Appellant.
[66] For all these
reasons, the appeal is dismissed, all with costs.
Signed at Ottawa, Canada, this 13th day of May, 2005.
"Alain Tardif"
Translation certified true
on this 29th day of March, 2006
Garth
McLeod, Translator
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