Citation: 2005CCI238
Date: 20050505
Docket: 2002-4085(IT)G
BETWEEN:
2622-4121 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Docket: 2002-4086(IT)G
ANDRÉ PRUDHOMME,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] These
appeals are heard on common evidence under the general procedure. The years at
issue are the 1998 and 1999 taxation years. The financial year of the Appellant
(the "corporation") ended on June 30. During the relevant period, the
corporation operated a freight transport business in Canada and in the United States. The Appellant was the sole shareholder and
director of the corporation. He also worked for the corporation as a mechanic,
maintenance person and truck driver.
[2] The only questions
at issue are the following:
(i) Was the
Minister of National Revenue (the "Minister") justified in adding to
the income of the Appellant, as business income, the amounts of $10,282 and
$10,000 for the 1998 and 1999 taxation years, respectively? Cash withdrawals
had been made from a bank account of
the corporation (the "bank account") at automatic teller machines for
amounts totalling $10,282 and $10,000 during the period at issue. The
corporation accounted for these withdrawals by debiting the loans to Jeannot
Lauzon" account; he was a truck driver who worked for the corporation. The
corporation converted the loans to Mr. Lauzon, by means of adjusting entries,
to sub-contracting expenses. I will have to decide who, the Appellant or Mr.
Lauzon, should be taxed for this sub-contracting income.
(ii) The Appellant, moreover,
had claimed a deduction for meal expenses, under paragraph 8(1)(g) of
the Act, in the amounts of $9,735 and $9,702 for the 1998 and 1999
taxation years, respectively. In short, the Minister maintains that these
expenses had already been claimed. I must accordingly determine whether this is
the case.
(iii) At the end of the 1998
and 1999 taxation years, the corporation had made adjustments by means of which
it had withdrawn from the "loans to shareholder" account the expenses
allegedly made by the Appellant on behalf of the corporation and by means of
which it had added them to the expenses incurred in order to derive income from
the corporation. The Minister denied the corporation the deduction, in
calculating business income, expenses totalling $10,037 and
$6,768 for the 1998 and 1999 taxations years respectively, and demanded
that the Appellant pay tax on these amounts because the adjusting entries were
not accompanied by supporting documents. I must accordingly determine
whether the Minister was wrong in this respect.
(vi) Lastly, I must determine
whether the Minister was justified in imposing on the Appellants the penalty
provided for under subsection 163(2) of the Act on the following
additional income:
(i) on the amount of $10,282,
which was added to the Appellant's income, as business income, for the 1998
taxation year. We should bear in mind that this additional income was related
to the cash withdrawals made from the bank account using the debit card.
(ii) on the amount of $10,037
which was added to the Appellant's income as a shareholder benefit
(appropriation of funds) for the 1998 taxation year. We should bear in mind
that this additional income was related to expenses that the Appellant
allegedly made on behalf of the corporation during that year, expenses which
had reduced the loans to "shareholder " account by the same amount.
(iii) on expenses of $10,037
and $6,768 allegedly incurred by the corporation in order to produce business
income in 1998 and 1999 respectively, for which the Minister denied the
deduction. We should remember that the corporation had, by means of adjusting
entries, treated as its own expenditures which the Appellant claimed he had
made on behalf of the corporation.
(iv) on an expense of $15,641
in respect of the repair of a GMC truck, which the Minister denied the
corporation as a deduction in calculating business income for the 1999 taxation
year, because the expenditure had not been made or committed during that
taxation year.
Analysis
Withdrawals from automatic teller
machines
[3] Let us first
examine the assertions made by the Appellant with regard to these withdrawals
in paragraphs 8, 9, 10, 11, 12 and 13 of his Notice of Appeal:
[translation]
8. In the course of 1998, 2622 acquired a new transport truck, which
it assigned to Jeannot Lauzon, driver;
9. In order to account for all the income, costs and expenses in
respect of this new truck, 2622 opened and maintained a separate bank account,
bearing the number 01-300-28 at the St-Joseph de Beauce branch of the National
Bank of Canada;
10. Also, 2622 entrusted to his driver, Jeannot Lauzon, the use of a
debit card, giving him access to this account so that he could quickly obtain
the cash needed to cover the operating and maintenance expenses of the truck
and his travel expenses;
11. The Appellant realized over a period of months, that Jeannot
Lauzon had withdrawn large amounts from this account for his own personal use,
amounting to approximately $10,282 in 1998 and $10,000 in 1999;
12. When confronted with these facts, Jeannot Lauzon acknowledged
that he had appropriated these amounts for his own use and undertook to repay
them to 2622, which he did over the course of the months and years that
followed;
13. Jeannot Lauzon also admitted that he had used these amounts in
indulging his passion for gambling;
[4] The corporation had
an account called "loans to Jeannot Lauzon". The corporation debited
from this account the cheques that it made out payable to "cash," of
which Mr. Lauzon was the recipient. The corporation also debited this account
for withdrawals made from the bank account (by Mr. Lauzon, according to the
Appellant, or by the Appellant, according to the Respondent). The corporation,
furthermore, credited to this account expenses in respect of the use of the
truck assigned to Mr. Lauzon which were incurred by him on behalf of the
corporation and paid through withdrawals from the bank account. Lastly, through
adjusting entries, the corporation converted the advances made to Mr. Lauzon
into subcontracting expenses. Serge Potvin of the Canada Customs and Revenue
Agency (the "CCRA") stated that he had assumed that Mr. Lauzon was
the one who was the recipient of the contracts thus subcontracted. Mr. Potvin
had accordingly sent Mr. Lauzon a draft assessment, by which the Minister
proposed to include this subcontracting income in the earnings of Mr. Lauzon.
Following comments by Mr. Lauzon, who stated that he had withdrawn small
amounts from the bank account using the debit card and that these amounts had,
moreover, been repaid – claims that he repeated during the trial – Mr. Potvin
decided to allow the deduction of the subcontracting expenses to the
corporation in the calculation of business income and to have the tax on that
income from subcontracting paid by the Appellant rather than by Mr. Lauzon.
[5] We are thus dealing
with two totally contradictory versions. I must emphasize that the Appellant's
explanations were evasive, imprecise, ambiguous, elusive, equivocal,
unintelligible and laborious. His hesitations, the time he took to answer, his
expression and the gaps in his memory merely added to my doubts about his
credibility. He could have supported his claims on numerous occasions with
satisfactory, serious documentary evidence and on credible independent
testimony. He did not do so. I infer from that that such evidence would not
have been in his favour. I would also note that the testimony by Mr. Lauzon
seemed to me credible, albeit imprecise on some occasions.
[6] Who, then, made the
withdrawals from the bank account? First, the Appellant testified that Mr.
Lauzon was the only person who had a debit card that could access this bank
account. The Appellant was in a position, in this case, to provide documentary
evidence proving this. He did not do so. I infer therefrom that this evidence
would not have been in his favour. The Appellant had a unique opportunity to
establish his credibility! The Appellant also could have based his assertions
on documentary evidence establishing the date on which the new truck was
acquired and the date the bank account was opened. We should recall that the
Appellant maintained that the corporation had opened the bank account for the
sole purpose of accounting for all the income and costs and expenditures related
to the new truck, which had been assigned to Mr. Lauzon. Here again, the
Appellant did not see fit to support his assertions by credible, objective
evidence.
[7] I note from the
account statements (Exhibit A-1, Tab 18) from the bank account that withdrawals
began on April 1, 1998. However, Mr. Lauzon testified that he did not begin
working for the corporation until August or September 1998. This appears to be
supported by the note that we find on the report on an objection (Exhibit I-1,
Tab 11, page 9) to the effect that the employment of Mr. Lauzon had begun
in the week of June 30, 1998. I note that this report was submitted in evidence
without objection by Counsel for the Appellants. Although I am aware that the
probative force of this report is attenuated by the fact that its author was
absent from the hearing, I am nonetheless of the opinion that it is more
probable than improbable that Mr. Lauzon was not employed by the corporation
during the months of April, May and June 1998, all the more so since the
Appellant did not contradict Mr. Lauzon's testimony in this regard and did not
file in evidence the Record of Employment of Mr. Lauzon, which could have
proved that the latter was working for the corporation at least from
April 13, 1998. The Appellant accordingly did not convince me that
Mr. Lauzon was the one who had made the withdrawals from the bank account from
April 1998 until the date that Mr. Lauzon's employment began. We are
accordingly entitled to entertain serious doubts about the assertion by the
Appellants that Mr. Lauzon had made withdrawals in this amount (throughout
the entire relevant period) in order to satisfy his passion for gambling.
[8] It is also
interesting to note that the debit balance of the "loans to
Jeannot Lauzon" account was $10,382.87 on July 1, 1998. How could
that be the case, since Mr. Lauzon's employment began after that date? How can
this fact be reconciled with the Appellant's parallel record (Exhibit I-4) in
which the Appellant noted each week the balance of withdrawals made by Mr.
Lauzon for his personal use and not reimbursed, which indicated that Mr. Lauzon
owed only $560 on June 30, 1998?
[9] The Appellant
maintained that the withdrawals from the bank account made by Jeannot Lauzon
for his personal benefit had not only been debited to the "loans to
Jeannot Lauzon" account, but had also been reimbursed in full, and thus
credited to the "loans to Jeannot Lauzon" account when they were
repaid. We can thus conclude that the adjusting entries by which the
corporation had credited the "loans to Jeannot Lauzon" account, in
the amounts of $10,382 on August 30, 1998 and $10,000 on June 30, 1999 –
we should remember that the corporation had treated these amounts as
subcontracting expenses – had clearly not reduced the amounts of these
withdrawals by Mr. Lauzon for his personal benefit; at all times, these
withdrawals had been regarded by the corporation as advances that were
ultimately reimbursed. I deduce from this that the corporation could not reduce
the amount of the "loans to Jeannot Lauzon" account by such
adjustments unless the withdrawals made by Mr. Lauzon from the bank account and
the cheques payable to "cash" drawn by the corporation (for the
benefit of Mr. Lauzon) were at least on the order of $40,704 during the relevant
period, since the withdrawals made from the bank account by Mr. Lauzon in order
to feed his passion for gambling ($10,282 in 1998 and $10,000 in 1999) had been
treated by the corporation at all times, according to the Appellant, as loans
which had been reimbursed subsequently. It was incumbent upon the Appellant to
give me valid explanations in this regard. Unfortunately, he failed to do so.
For all these reasons, I believe that the Minister was right in adding this
subcontracting income to the income of the Appellant as business income.
Meal expenses
[10] The Appellant
changed his Notice of Appeal several days prior to the hearing in order to have
recognized an expenditure of $9,735 in 1998 and $9,702 in 1999 for meal
expenses under paragraph 8(1)(g) of the Act.
The law
[11] Paragraph 8(1)(g)
of the Act reads as follows:
g) Transport
employee's expenses – where the taxpayer was an employee of a person whose
principal business was passenger, goods, or passenger and goods transport and
the duties of the employment required the taxpayer, regularly:
(i) to travel, away from the municipality where
the employer's establishment to which the taxpayer reported for work was
located and away from the metropolitan area, if there is one, where it was located,
on vehicles used by the employer to transport the goods or passengers, and
(ii) while so away from that municipality and
metropolitan area, to make disbursements for meals and lodging,
amounts so disbursed by the taxpayer in the year to the extent that
the taxpayer has not been reimbursed and is not entitled to be reimbursed in
respect thereof;
Form TL2
[12] This form summarizes
the information in respect of travel and must be duly completed by the employee
and the employer. The form must be attached to the employee's tax return if the
employee is asking that the cost of meals and lodging be deducted.
[13] Paragraph 8(1)(g)
of the Act stipulates that the amount of allowances and reimbursements
received or receivable in respect of meals and lodging must be subtracted from
all the deductions claimed under this heading.
[14] However, an
administrative policy established by the Minister stipulates that the Minister is
prepared to allow the taxpayer, in calculating his employment income, a deduction
of $11 per meal without supporting documentation. The Minister nonetheless
requires the taxpayer to retain a record of actual travel for possible future
audit. Thus, the taxpayer must keep a list of travel during the taxation year,
with the following details: the date and time of departure, the destination,
the date and time of arrival, the number of hours away, the number of
kilometres travelled and the number of meals.
[15] Lastly, with regard
to claims for meal costs incurred during the period at issue, the standard meal
rate is subject to the 50% limit stipulated at subsection 67.1 of the Act.
Analysis
[16] It should be noted
that the Appellant had not claimed his meal costs at the audit. He testified
that his tax adviser had informed him, at the time of the objections, that he
could claim, under paragraph 8(1)(g) of the Act, a deduction for
meal expenses, even if he had not retained supporting documentation. The tax
adviser had then informed the Appellant of the Minister's administrative policy
which allows taxpayers who meet the requirements set out in paragraph 8(1)(g)
of the Act to claim a deduction of $11 per meal without supporting
documentation.
[17] The Appellant, who
was not aware of this administrative policy during the period at issue, had
thus not attached form TL2 to his statements of income for the taxation years
at issue and had thus not kept a register of his actual travel for audit
purposes, as required by the Minister's administrative policy.
[18] So, the Appellant
attempted to reconstitute a record of his actual travel based on his log books.
He thus produced a summary of his log books (Exhibit A-1, Tab 15) for the years
at issue. This summary shows the date, the destinations for a given day and the
number of hours during which he was away during a given day. It should be noted
that this summary had been prepared by the secretary of the corporation, who
did not testify in the instant case.
[19] Is the Applicant
credible when he states that he did not claim the deduction for meal expenses
prior to the audit because he did not know about the administrative policy of
the Minister, who is prepared to allow a deduction of $11 per meal without
requiring supporting documentation?
[20] This version of the
facts seems to me quite simply improbable. The Appellant attempted to have me
believe that he knew absolutely nothing about the rules regarding the deduction
of meal costs. He even tried to have me believe that he did not recognize the
form TL2
whereas he had previously signed such a form as the representative of the
corporation in at least one case.
[21] How can the
Appellant, who is not only an experienced trucker, but also the sole
shareholder and sole director of a corporation who has been working in the
transport industry since 1988, be ignorant on this point? No simple trucker
would have attempted to have me believe such a thing. The Appellant's claimed
total ignorance of the rules in respect of the deduction of meal expenses
merely added to my doubts about his credibility.
[22] The duties of the
Appellant required him on the one hand to travel regularly to the United States and within Canada and, on the other hand,
to incur meal costs while he was away. How can one not have doubts, however,
about the accuracy of Exhibit A-1, Tab 15, which is a summary, prepared by the
secretary of the corporation, of the Appellant's log books for the years at
issue? It would have been interesting to hear the testimony of the secretary,
who could have corroborated the testimony of the Appellant that the summary
faithfully reflects the information contained in the log books. The Appellant
could have had the secretary testify. Once again, he did not do so. I infer
from that that this evidence might not have been in his favour.
[23] The Appellant was
also required to subtract the amount of allowances and reimbursements in
respect of meals received or owing from all the deductions requested in respect
of his meal expenditures. Clearly, he did not do so. Mr. Potvin, whose
testimony need not be doubted in this case, testified that the Minister had not made the
Appellant pay tax on a number of cheques payable to "cash" which he
had cashed, because he had believed, as he had done for the other truck drivers
of the corporation, that these cheques constituted reasonable allowances? This
fact raised even more doubt in my mind regarding the credibility of the
Appellant. How can one not wonder whether a portion of the meal expenses
claimed today by the Appellant had not already been reimbursed by the corporation,
which had, moreover, incurred major travel expenses during the taxation years
at issue.
[24] The burden of proof
was on the Appellant to convince me, based on a preponderance of probabilities,
of the accuracy of his log book summary. It was also incumbent upon him to
demonstrate to me that he had not received allowances and reimbursements in
respect of meals and that the corporation had not, quite simply, reimbursed
part of these meal expenses. In view of the limited credibility that I accord
to the Appellant's testimony, combined with the absence of any serious
documentary evidence or credible, independent testimony that might have
corroborated his own testimony, I must conclude that the Appellant has not
satisfied the obligation that was upon him to demonstrate that the Minister was
wrong on this point.
Shareholder benefit and expenses denied to
the corporation
[25] The Appellant
purportedly made or committed, on behalf of the corporation, expenditures of
$10,037 and $6,778 for the corporation's 1998 and 1999 taxation years,
respectively. These expenditures were related to the maintenance and repair of
the corporation's trucks and the purchase of a computer.
[26] Using adjusting
entries, the corporation:
(i) reduced the "loans to
shareholder" account by an equivalent amount; in other words, these
amounts were added to the "Owing to shareholder" account;
(ii) treated these expenses allegedly made or
committed by the Appellant for his personal use as business expenses and thus
deducted them in calculating its business income.
[27] In the audit, Mr.
Potvin denied the corporation the deduction of these expenses in calculating
its business income and made the Appellant pay tax on these amounts as a
shareholder benefit granted by the corporation, because these expenditures were
not supported by vouchers.
[28] In order to
partially justify the expenses thus claimed by the corporation and to partially
refute the appropriation of funds, the Appellant produced at the time of the
objections, that is one or two years later, four invoices (Exhibit A-1, Tab 17)
totalling $6,333.33 in expenditures in respect of the maintenance and repair of
the corporation's trucks, which he had purportedly incurred on behalf of the
corporation during the corporation's 1998 taxation year. The Appellant had also
produced, at the time of the objections, another invoice in relation to the
purchase of a computer (Exhibit A-1, Tab 14) which the Appellant acquired in
1998 for the corporation at a cost of $2,528. Despite the Appellant's
explanations that the invoices for the maintenance and repair of the trucks had
been lost in the trucks and that he had checked with the corporation's
accountant that these expenditures had not previously been claimed by the
corporation, the Minister refused to allow them, even though substantiating
evidence was ultimately produced to support them. It is worth noting that the
Appellant did at no time produce substantiating evidence for the other expenses
that he incurred on behalf of the corporation. Thus, the expenditures that the
Appellant claimed were made on behalf of the corporation amounting to $8,174
were not at any time supported by documentation.
[29] In the instant case,
the Appellant had the burden of proving, based on a preponderance of probabilities,
that these expenditures had not previously been deducted in calculating
business income. The evidence from the Appellant in this regard was based
solely on his testimony. The explanations by the Appellant in this regard are
worth quoting:
[translation]
Q. How can you come here today to
testify that these invoices were not claimed?
A. Because when Manon Gallant was
asked whether I had invoices, they were found, they had traced them back to see
whether they were on the return that she filed. She did not have them, no
photocopies, nothing. I had only the originals. At the weekend, or at the end
of the month, the driver was supposed to give me all the invoices he had in his
possession, so that they could be given to the accountant. And those invoices
were never given to me because they were still in the license pads, in the
leather pads.
[30] First, it emerges
from this testimony that the drivers had forgotten to give the invoices to the
Appellant. However, the evidence revealed that four of the five invoices had
been paid in cash by the Appellant and not by the truck drivers. So, I have
difficulty understanding why the Appellant claimed that the drivers had
forgotten to give him the invoices. Was the invoice related to the purchase of
the computer also lost? The testimony of the Appellant was silent on that
point.
[31] The Appellant could
have supported by means of her testimony his claims that he had checked with
Ms. Gallant that these expenditures had not already been claimed by the corporation.
He did not do so. I infer therefrom that this evidence would not have been in
his favour. It would also have been most interesting to hear the testimony of
Théodore Turgeon, the driver for the corporation, who reportedly paid for the
repair of a truck belonging to the corporation and who also forgot to give the
invoice to the Appellant.
[32] Ultimately, the
Appellant is asking me to lend credence to his assertions that the invoices had
been lost, and that he had been unable to produce them at the time of the
audit, and that the corporation had not previously deducted them in calculating
its business income. In light of the lack of credibility that I give to the
Appellant's testimony, it is difficult for me to believe his explanations when
they are not supported by valid, objective evidence and by credible,
independent testimony. How can the Appellant who, moreover, provided no
explanation in support of expenditures of $8,174 that he made on behalf of the
corporation and for which he produced not a single piece of documentary
evidence, expect that the Court will blindly believe his testimony?
Penalty
[33] Was the Minister
justified in imposing on the corporation a penalty pursuant to subsection
163(2) of the Act in respect of the expenditure of $15,641 ($15,641 +
GST and QST = $17,991) for the repair of the corporation's GMC truck during its
1999 taxation year? We should remember that the expenditure was allegedly
incurred by the Appellant on behalf of the corporation and that the corporation
had reduced the "loans to shareholder" account by that amount. In
support of the expenditure of $15,641, the Appellant has submitted an estimate
given to the corporation as evidence.
The word "estimate" had been concealed by a strip of correcting tape.
The evidence also revealed that the repairs had been carried out in early 2000.
Lastly, it must be noted that the Appellant acknowledged that the Minister was
within his rights in denying the corporation a claim for this expense in
computing its income for the taxation year ending on June 30, 1999 and that the
Minister was also entitled to add to the Appellant's income as a shareholder
benefit for his 1999 taxation year the amount of $17,991 (namely $15,641 + GST
and QST).
[34] The explanations of
the Appellant in this regard deserve to be quoted (from paragraph 352, page 92,
to paragraph 369, page 97, of the stenographic record):
[translation]
Q. If we look at 1999, the following tab, Tab 14, Your
Honour, at page 3 of the document, that is worksheet 7550-3. You can also see
at the top: an entry dated thirty (30) June, general repair $17,991, that's the
repair according to the estimate or the explanation that you gave during your …
A. Yes.
Q. Was this $17,991 repair credited to your loans account at
that time?
A. Yes.
Q. What happened on the thirtieth (30) of June? You have
explained to us that you had the estimate, that the estimate was in the
envelope that was with Manon Gallant. I understand that Ms. Gallant called you
to find out if she should pay the expense or not this …
A. In the week after I gave her the envelope, yes. But after
that, we didn't talk about it again.
Q. If you look at the estimate that you gave her. At what
point?
A. The estimate was done in November 98, I believe.
Q. I have the same estimate, Your Honour, at Tab 16 of my
list of documents. The estimate is dated the 18th of November 1998. So this
estimate was given to Ms. Gallant in the weeks that followed?
A. Yes, before the thirty-first (31st ) of
December for the end of the quarter.
Q. Before the thirty-first (31st) of December?
A. Yes.
BÉDARD J.:
Q. So, the estimate was given to Ms. Gallant when?
A. Certainly before the thirty-first (31st) of December of
that year.
ANNE POIRIER:
Q. Before the thirty-first (31st) of December 98?
A. 98.
Q. On the thirtieth (30th) of June or a few days before the
thirtieth of June, Ms. Gallant called you to find out whether she should claim
the invoice as an expense or …
A. No, not at that point, when the expenditure had actually
been made, because the invoice at that point, it was only produced in November
98.
Q. Did you tell Ms. Gallant to claim the expenditure on the
thirty-first (31st) of December 98?
A. Before the thirty-first (31st) of December 98. And after
that, we didn't talk about it again.
Q. Why did she wait until the thirtieth (30th) of June to
claim it?
A Look, I have no idea, I'm not an accountant. I do not
know. Okay, my taxation year ends on the thirtieth (30th) of June. So that is
probably when the claim was made on the tax return.
BÉDARD J.: I did not understand the testimony.
ANNE POIRIER: He is telling me that Ms. Gallant, on the
thirty-first (31) of December, had the invoice estimate, which she was to
record as an expense, if the expenditure had been made. And I am asking him why
was the expense not shown until the thirtieth (30th) of June of the
following year, but in the same taxation year, whereas Ms. Gallant could have
asked you in January 99, should I enter the expenditure …
Q. Did Ms. Gallant come back to you to say: this is not an
expense that I can claim because it is marked estimate?
A. On the same day that I gave her the invoices, she called
me in the course of that week to tell me that it had the word “estimate” on it.
I said: "We will wait for the loan to have the truck repaired. And you
should keep that invoice, and put it with the books because I will keep the
original invoice." And at that point, that is the explanation, that we did
not have the money at that point. So the expenditure was made the following
year in November 98.
Q. Did you authorize Ms. Gallant to erase the word “estimate”
on the invoice so that she could keep it?
A. No, that was her suggestion to me. I said to her:
"Okay, there's no problem." That was it.
Q. So you agreed to her request?
A. Yes, I knew. I was aware of it.
Q. You knew.
BÉDARD J.:
Q. So, to be sure that I understand correctly. You handed in
the quote unquote "estimate" towards the end of December 98. And
then, Ms. Gallant called you about it. You said: you will enter it, that's what
you said, you will enter it as an expense during the year?
A. That is the invoice that you will keep for the expenses,
yes, for the accounting.
Q. And she did not enter it right away but she did enter it
in June?
A. I have no idea about that. That's certain, because I, I'm
not the one who does the accounting. And she lives in Saint‑Calixte and I
live in the Beauce. So we don't see each other every day, we live four or five
kilometres apart. All that I know is that the real expenditure happened in 99,
November 99 or October.
ANNE POIRIER:
Q. So for the next business year. To your knowledge, was the
expenditure claimed for the following year?
A. I don't know whether anyone checked, I believe so, that it
was claimed for the year 2000.
[35] So the Appellant
gave the supporting documentation to Ms. Gallant before December 31, 1998. Why
did Ms. Gallant wait until June 30, 1999 to prepare an adjusting entry by means
of which she reduced the "shareholder loans" account by $17,991? Once
again, the Appellant replied "that he has no idea and that he is not an
accountant". It would have been very interesting to hear the testimony of
Ms. Gallant, who would have been able to corroborate the assertion by the Appellant
that she was the one who suggested concealing the word "estimate"
with a strip of correction tape. I have difficulty explaining the fact that the
sole director of the corporation forgot to tell Ms. Gallant that the
expenditure was not made during the corporation's 1999 taxation year. This is
nonetheless a major expense in this case, in view of the corporation's low
turnover. It
is also highly surprising that Ms. Gallant did not call the Appellant back
before she reduced, on June 30, 1999, the loans to the Appellant to ask him if
the expenditure had actually been made, in view of the fact that the Appellant
had told her that he was waiting for "the loan to have the truck
repaired". All in all, the Appellant claims that he is an ignoramus when
it comes to accounting and that this was an involuntary mistake. I am, instead,
of the opinion that the Appellant displayed a serious degree of
irresponsibility and wilful blindness.
[36] Was the Minister
justified in imposing on the Appellants a penalty under subsection 163(2) of
the Act in respect of the other additional income? In light of all the
evidence, the Appellant’s behaviour has persuaded me that he displayed wilful
blindness, a marked lack of concern, or at least serious negligence with regard
to his tax obligations. In this connection, we must bear in mind the size of
the amounts in question, the marked absence of supporting documentation and the
Appellants' lack of administrative rigor. For these reasons, I conclude that
the Minister has discharged the burden that was on him to prove, based on a
preponderance of probabilities, that the Appellants had, in this case,
knowingly or in circumstances equivalent to gross neglect, made false
statements or omissions in their tax returns. I am thus of the opinion that the
Minister was justified in imposing on the Appellants the penalty stipulated at
subsection 163(2) of the Act in respect of the amounts at issue.
[37] For all these
reasons, the appeals are dismissed, with costs.
Signed at Ottawa, Canada, this
5th day of May 2005.
"Paul Bédard"
Certified
true translation
on this
27th day of February, 2006.
Garth McLeod,
Translator
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