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Citation: 2004TCC611
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Date: 20040916
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Docket: 2002-2667(IT)I
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BETWEEN:
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DANIEL LACASSE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
DussaultJ.
[1] This case concerns appeals from
assessments for the 1996, 1997, 1998, and 1999 taxation years
made under the Income Tax Act ("the Act"). These are
appeals under the informal procedure.
[2] The assessments were made on
May 31, 2001, following an audit by the Minister of National
Revenue ("the Minister") based on the net worth method by which
the income of the appellant, who had not declared any income for
those years, was established at $23,308, $45,508, $43,792, and
$46,147 for each year from 1996 to 1999 respectively.
[3] A penalty for filing income tax
returns late and a penalty for gross negligence were also
assessed under subsections 162(1) and 163(2) of the Act for
each of the years at issue.
[4] Mr. Lacasse's file had been opened
by Ms. Louise Laroche, Auditor, Special Investigations, of the
Canada Customs and Revenue Agency ("CCRA"), further to
information obtained from the police. After finding that Mr.
Lacasse had not filed an income tax return, the first letter was
sent from the CCRA on May 27, 1999, asking him to file a signed
statement of assets and liabilities as of December 31 for
the years from 1995 to 1998; a statement of continuity of the
capital account from January 1, 1996, to December 31, 1998,
including the details of his personal expenditures during that
period; and an income tax return for each of the 1996, 1997, and
1998 taxation years (Exhibit I-1, Tab 1).
[5] As the first request remained
without a response, requirements to file the same documents were
served to Mr. Lacasse on September 3, 1999
(Exhibit I-1, Tab 2).
[6] On October 5, 1999, the appellant
filed his income tax returns for 1996, 1997, and 1998 and
declared no income. The initial assessments for those years were
made on November 8, 1999.
[7] On November 4, 1999, Mr. Mario
Leporé, the appellant's accountant, requested additional
time to file the other documents required. He was granted
additional time up to December 20, 1999. The appellant's balance
sheet as of December 31 for the years from 1995 to 1998
and a statement of changes in his financial position, including
the details of his personal expenditures from January 1,
1996, to December 31, 1998, in the form of a statement of net
worth of the appellant and his wife, Ms. Edith Blais, were filed
by Mr. Leporé on December 8, 1999
(Exhibit I-1, Tab 8).
[8] The statement of net worth
submitted by Mr. Leporé indicates an unexplained gap of
$15,187 for the 1996 taxation year, an unexplained gap of $19,025
for the 1997 taxation year, and income of $9,000 for the 1998
taxation year, whereas the income tax returns previously filed
for those years do not indicate any income.
[9] On July 10, 2000, a new request
was addressed to the appellant, this time to file his income tax
return for the 1999 taxation year. Despite the date of
April 28, 2000, that was recorded on it, the subsequently
filed return did not indicate any income (Exhibit I-1, Tab
10).
[10] After finding, among other things,
contradictions between the tax returns and the statement of net
worth filed, Ms. Laroche carried out an audit using the net worth
method, for which the results were translated into reassessments
made on May 31, 2001 (Exhibit I-8, Volume 1, Tab 1, and
supporting documents; Exhibit I-8, volumes 1, 2, and 3,
Tabs 2 to 8). The reassessments were objected to, and they
were confirmed on May 22, 2002.
Issues
[11] The appellant's objection was based on
the following four questions, namely:
· Were the
assessments for 1996 and 1997 made after the normal reassessment
period?
· Is the
penalty for filing the returns late for the 1996 to 1999 taxation
years justified?
· Is the
inclusion of the undeclared income, as established by the
reassessments, justified?
· Is the
imposition of the penalty set out in subsection 163(2) of the Act
for each year from 1996 to 1999 justified under these
circumstances?
1) Reassessments for
1996 and 1997
[12] With regard to this first issue, it
seems that the initial assessments for 1996, 1997, and 1998 were
made on November 8, 1999, after the tax returns for those years
were filed further to the CCRA's requests in this respect. The
first request was dated May 27, 1999, and the second was
dated September 3, 1999 (Ms. Louise Laroche's transcript,
October 23, 2003, page 145). Under these circumstances,
it is clear that the normal reassessment period expired only on
November 9, 2002, according to the application of
subsection 152(3.1) of the Act. Thus the assessments made on
May 31, 2001, were within that period. Therefore, it is
up to the appellant to show, on a balance of probabilities, that
the assessments for 1996 and 1997 are erroneous, just as he must
do for the assessments for 1998 and 1999.
2) Application of
subsection 162(1) of the Act
[13] In these circumstances, there were no
difficulties with the second issue. It was clearly established
that the return for each of the years at issue had not been filed
on or before the following April 30, as required by
paragraph 150(1)(d) of the Act. They had been filed
on October 5, 1999, for 1996, 1997, and 1998 and only in
July 2000 for 1999. All of the returns had been filed
only further to requirements, despite the different dates typed
and indicated under the appellant's signature on the returns
themselves, thereby implying that they had been filed within the
prescribed timeframe, which is obviously not the case. Therefore,
the application of the penalty set out in subsection 162(1)
of the Act is justified, given the circumstances. As for the
rest, it remains simply to establish the quantum based on
the tax payable for each year on the normal filing date and the
tax unpaid on that date until the effective date the return is
filed.
3) Undeclared income
and use of the net worth method
[14] In his testimony, the appellant
categorically affirmed that he had earned absolutely no income
during the four years at issue, not even the $9,000 his
representative, Mr. Mario Leporé, had indicated
in the statement of net worth submitted to the authorities as
being income in 1998 from
9055-4460 Québec Inc., which does business
under the name D.L. Contact. According to the appellant,
that company, which was created in August 1997 and for which he
is the sole shareholder and administrator, had operated a truck
transport business as of December 1997 under a contract with
Les Transports Yvon Turcotte Ltée
("Transports Turcotte"). The appellant said that he
considered the $9,000 a loan but his accountant would need to be
consulted to find out the true nature of the amount. However, as
mentioned previously, the accountant considered the amount in
question to be income.
[15] With no income during the years at
issue, the appellant is essentially claiming that he and his
spouse, Ms. Edith Blais, had lived - or rather,
survived - on his wife's salary from
Disque Améric Inc. and on two loans: one of
$20,000, agreed to by Transports Turcotte on
May 29, 1998; and the second of $22,000 granted by a
friend, Mr. Stéphane Gauthier, on June 3, 1999.
I will point out right away that the existence of the first loan
was recognized by the CCRA, but its use for personal expenditures
was disallowed so that the amount first indicated as a liability
was later added to personal expenditures in the statement of net
worth prepared by Ms. Laroche of the CCRA for 1998
(Exhibit I-8, Volume 1, Tabs 1 and 2). The
existence of the second loan, the $22,000 granted by
Mr. Stéphane Gauthier in 1999, was never
recognized by the CCRA.
[16] The appellant's objection initially
concerned the recognition of these two loans, but later the
appellant challenged the amount of personal expenditures
established for the years at issue by Ms. Laroche,
particularly using the statistics compiled by Statistics Canada
regarding the personal expenditures of individuals or families
according to the various regions of the country. According to the
appellant and his accountant, Mr. Leporé, the use of
those statistics is completely inappropriate and fully abusive in
the instant case, since all of the actual personal expenditures
of the appellant and his wife were disclosed to the CCRA as part
of the statement of net worth submitted by Mr. Leporé
with all of the supporting documents. Indeed, in his testimony,
Mr. Leporé maintained that he himself had prepared
the statement of net worth submitted to the authorities,
particularly 90% to 95% of the statement of personal
expenditures, after having obtained all of the relevant
information from the financial institutions, the suppliers of
goods and services, and the credit card companies. Thus,
according to him, nearly all of the expenditures indicated in the
statement correspond to actual expenditures supported by
documentation. Only a few expenditure items, such as food, were
estimated since there was no supporting documentation.
Mr. Leporé said that the first document filed was
later amended to take into account some information obtained
later; however, no amended statement was submitted as
evidence.
[17] In his testimony,
Mr. Leporé also noted that it was impossible to file
a taxpayer's statement of net worth that was completely
consistent since the perfect matching of revenues and
expenditures is not realistic or realizable by taxpayers, who are
not required to keep all vouchers of their expenses, of which a
good portion may, furthermore, have been paid in cash.
[18] Although the issue of the two loans and
the CCRA's use of statistics are the main points of the
appellant's objection, one other specific item in the statement
of net worth established by Ms. Laroche was challenged at
the hearing.
[19] This issue concerns the family unit of
reference used by Ms. Laroche of the CCRA to determine the
personal expenditures according to the methods established by
Statistics Canada. It seems that, for 1996, 1997, and 1998,
Ms. Laroche used the data compiled by Statistics Canada for
a family of two adults and one child. For 1999, she used the
statistics for a family with two adults only since Mr. Patrick
Lacasse, the son of the appellant and his wife, had left the
family home in the fall of 1998. It seems that Patrick Lacasse
had turned 18 on October 13, 1996, he was already
earning an income, and he was supporting himself. His tax returns
for 1996 to 2001 were submitted as evidence (Exhibit A-3).
The appellant's counsel maintains that the auditor should have
taken that income into account.
[20] Although I did not allow the
appellant's counsel to re-amend his notice of appeal so late so
that he could add this specific reason for challenging the
statement of net worth prepared by Ms. Laroche, I did not find it
appropriate to ignore this issue and the evidence presented in
this respect. I will return to this in a little while.
a) Loan issue
[21] In his testimony, the appellant
maintained that he had obtained the $20,000 loan granted by
Transports Turcotte in the form of a cheque on
May 29, 1998 (Exhibits A-2 and I-8, Volume 3,
Tab 15). The cheque had allegedly simply been cashed at the
bank. The appellant first said that he had kept the cash hidden
in a desk drawer at his home and then used it to pay his current
expenses (transcript of the appellant's testimony,
January 29, 2003, page 31). Later the appellant said
that a number of people, members of his family, had lent him
money and he had used the money received from
Transports Turcotte to pay back amounts of $1,500, $1,800,
and $2,000 that he owed such that the $20,000 had been completely
spent by the end of 1998 (transcript of the appellant's
testimony, January 29, 2003, pages 74 and 75). Later he said that
the loans he had received were $1,500 and $2,000, but also
$3,000, $4,000, and $5,000. Without providing more details, he
estimated that approximately half of the $20,000 amount may have
been used to pay back those personal loans (transcript of the
appellant's testimony, January 29, 2003, pages 131 and 132). It
is clear that the appellant's testimony is vague, confused, and
incomplete - even contradictory - regarding the actual use of the
$20,000 received from Transports Turcotte. However, the
existence of that loan was indeed recognized by the CCRA, and the
amount was carried over to the liabilities of the 1998 statement
of net worth prepared by Ms. Laroche. However, considering
that the exact use of the loan amount was not known,
Ms. Laroche later added the $20,000 as a positive adjustment
to the 1998 statement of net worth (Exhibit I-8,
Volume 1, Tab 1). I think that, given the
circumstances, this adjustment was not justified.
[22] I will immediately acknowledge that no
debt to individuals appeared in the statement of net worth
prepared by Mr. Leporé, the appellant's accountant,
nor did any such debt appear in the statement of net worth
prepared by Ms. Laroche. Furthermore, as with
Mr. Leporé, Ms. Laroch traced all of the assets of
the appellant and his wife, and it was never alleged that they
may own other property. It should also be noted that the
statement of net worth established by Ms. Laroche, more
specifically the use of the statistics with regard to a number of
types of expenditures, leads to the unquestionable conclusion
that a major proportion of the total expenses were paid in cash
(transcript of Ms. Laroche's testimony, October
23, 2003, pages 138 to 141, and Exhibit I-8,
Volume 2, Tab 1). In my opinion, the fact that the
$20,000 the appellant received from Transports Turcotte was
used to pay back loans that do not even appear in the liabilities
or to assume the cost of personal expenditures is of no
significance and its addition for the purposes of establishing
the appellant's gap in net worth for 1998 does not seem justified
to me since the existence of the loan was indeed recognized by
the CCRA.
[23] Now what about the second loan? The
second loan, in the amount of $22,000, was allegedly granted to
the appellant by Mr. Stéphane Gauthier on
June 3, 1999. A document that is called a loan
agreement under private seal but that seems instead to be an
acknowledgement of debt was submitted as evidence
(Exhibit A-1). That document, which was allegedly
signed by the two parties on June 3, 1999, states that the
loan of $22,000 bore no interest and was to be paid back on or
before June 3, 2004.
[24] The authenticity of this loan was not
recognized by the CCRA because the very existence of
Mr. Gauthier was doubtful. Yet Mr. Gauthier does indeed
exist. He testified regarding the loan granted to the appellant,
whom he describes as being his acquaintance and friend for some
10 years. According to Mr. Gauthier, the appellant had told
him several times that he had financial problems, particularly
because he had started a truck transport company, and so he had
asked him if he could borrow some money from him.
[25] Mr. Gauthier said that his father
had given him, as with his three brothers, $50,000 after he had
sold his farmland in March 1999, and he had lent part of that
amount to the appellant (transcript of Stéphane Gauthier's
testimony, October 24, 2003, pages 7 and 13). The
loan to the appellant had allegedly been made in cash, which
Mr. Gauthier had withdrawn from the bank a few days earlier.
The appellant maintained that he had kept the amount in cash at
his house and had used it to pay his expenditures and pay back
some loans.
[26] In his testimony, the appellant
maintained that he had known Mr. Gauthier for approximately
seven years at that time, that Mr. Gauthier had become a
friend, and that he saw him practically every second day
(transcript of the appellant's testimony, January 29, 2003,
pages 75 and 76). Yet, according to the appellant, it was
because Mr. Gauthier had received an inheritance from his
deceased father that he had the money needed to provide him with
a loan (transcript of the appellant's testimony, January 29,
2003, pages 26 and 27). That statement concerning Mr.
Gauthier's inheritance following his father's death is very
different from the version given by Mr. Gauthier, who simply
said that his father had sold his land in March 1999 and had made
a gift to each of his four sons. If the appellant and
Mr. Gauthier truly saw each other every second day, as the
appellant had maintained, the appellant should have known that
Mr. Gauthier's father had not passed away.
[27] Furthermore, it was adduced in evidence
that Mr. Gauthier's income had been $8,700,
$19,000, and $18,000 for each year from 1996 to 1998
respectively. Even though Mr. Gauthier had explained that
his income was not very high because he had also worked on his
father's farm for approximately one year before it was sold and
had received food and accommodation, it is difficult to believe
that someone with such a modest income would agree to lend an
amount greater than his annual income, particularly when the loan
was for a period of five years with no interest (transcript of
Mr. Gauthier's testimony, October 24, 2003,
pages 10 and subsequent).
[28] Also keeping in mind the lack of
credibility of the appellant's testimony and the fact that he in
no way hesitated to lie and even use a false tax information slip
to obtain a bank loan in February 1998, as I will explain later,
I also have some very serious doubts as to the authenticity of
this loan from Mr. Gauthier, so much so that I am not
prepared to acknowledge its existence. Therefore, I am of the
opinion that it is with good reason that the CCRA refused to
acknowledge this loan.
b) Statement of net worth
prepared by the CCRA and the use of statistics
[29] We know that the appellant did not
indicate any income in his returns filed to the CCRA on
October 5, 1999, for 1996, 1997, and 1998 and that the statement
of net worth prepared by Mr. Leporé, signed by the
appellant and his wife and submitted to the authorities on
December 8, 1999, states not only a positive gap for 1996 and
1997, but also an income of $9,000 for 1998.
[30] The information obtained by
Ms. Laroche from the CCRA during her audit also enabled her
to find that, when applying for a loan to the National Bank of
Canada on February 20, 1998, the appellant had stated that his
annual income had been more or less $50,000 in 1997, that is, a
gross monthly income of $4,166, and that income was from
Transports Turcotte (Exhibit I-2).
[31] Ms. Laroche also obtained a copy
of a relevé 1 from the bank for 1997, which is an
information slip indicating employment income and other income
for Quebec income tax purposes. The appellant had given it to the
bank to attest to his income (Exhibit I-3). The
relevé, which had seemingly been issued by
Transports Turcotte, showed employment income of
$35,906.14 for 1997 and various source deductions.
[32] The blatant contradictions identified
by Ms. Laroche both in the documents filed by the appellant
and the documents obtained from the bank were, in my opinion,
sufficient to cast serious doubt on the authenticity of any
information provided by the appellant and on the magnitude of his
personal expenditures as they were established in the statement
of net worth prepared by Mr. Leporé.
[33] However, there is much more, and the
appellant's testimony itself leads to the conclusion that the
financial situation he presents, particularly his standard of
living, has little to do with his claims.
[34] First I will point out that, in his
testimony, the appellant categorically denied the truth of the
information provided to the bank in order to obtain the loan just
mentioned. According to him, it was clearly a lie told
specifically so that he could obtain a loan. With regard to the
relevé 1 provided to the bank, the appellant
maintained that it was false, and he himself had completed it and
given it to the bank in support of his loan application
(transcript of the appellant's testimony, January 29, 2003,
pages 116 to 118).
[35] It is extremely difficult to reconcile
the appellant's personal expenditures, as indicated in the
statement of net worth prepared by his accountant,
Mr. Leporé, and the statements established by
Ms. Laroche of the CCRA using statistics. The fact that
different headings were used makes the exercise dangerous, even
completely futile, with regard to certain points. Nevertheless,
it was clearly shown that the statement of personal expenditures
prepared by Mr. Leporé and attested to by the
appellant and his wife far from represented the actual
disbursements for some expenditures that were more easily
verifiable.
[36] Thus, under the heading for
miscellaneous insurance, the statement submitted by the appellant
indicates an amount of $500 for each year in 1996, 1997, and 1998
(Exhibit I-1, Tab 8, page 4). Yet Ms. Laroche of the
CCRA traced amounts of $1,398, $1,738.10, and $1,218.70 for
insurance premiums alone related to transportation for each year
from 1996 to 1998 respectively (Exhibit I-8, Volume 2,
Tab 11, 1996 page 2, 1997 page 2, 1998 page 2).
[37] Another example concerns vehicle
rentals. For 1997, the statement submitted by the appellant
indicates that his expenditures for gasoline and travel amounted
to $2,600 for each year from 1996 to 1998 and that his
expenditures for vehicle maintenance and repair were $569, $409,
and $443 for each year from 1996 to 1998 respectively
(Exhibit I-1, Tab 8, page 4). Yet Ms. Laroche of the
CCRA discovered that the appellant had rented vehicles several
times in 1997 and the total cost of those rentals was allegedly
$9,383.43 for the year (Exhibit I-8,
Volume 2, Tab 11, 1997 page 2). In his testimony, the
appellant denied having rented vehicles for that amount, and
obviously, the amount of $9,383.43 did not appear anywhere in his
statement of expenditures submitted to the authorities.
[38] To the extent that the audit could show
that the statement submitted by the appellant was incomplete in
that some expenditures were either understated or simply ignored
and therefore presented very little, if any, guarantee of
reliability, resorting to statistics seemed to be the only
realistic option for completing this audit and endeavouring to
establish, certainly in an approximate manner but at least
somewhat realistically, the standard of living of the appellant
and his wife during the years in question. In my opinion, the use
of statistics is completely justified when the information
provided by a taxpayer proves to be false or incomplete in one
aspect or another.
[39] To me, it also seems worthwhile to
highlight the fact that Mr. Robert Larochelle, an
appeals officer, said that, during a meeting held on January
7, 2002, with Mr. Leporé, Mr. Leporé
had attempted to justify the appellant's low cost of living by
saying that the appellant was an aspiring biker who travelled all
over the country and lived in biker clubs. Yet in his testimony
Mr. Leporé denied having made such comments, and he
claims that he had simply mentioned that the appellant was a
truck driver and travelled in Canada. However, I do not believe
that Mr. Larochelle invented these comments. As for the
appellant, he admitted that he had visited biker clubs during the
years at issue.
[40] If I hold to the appellant's testimony,
I believe he only reinforced the auditor's finding that the
statement of expenditures submitted did not fully represent
reality. Thus, throughout his testimony the appellant constantly
tried to establish that his personal expenditures had been
reduced, actually reduced right down to the poverty line. One
example involves the food expenditures assessed for 1996, 1997,
and 1998 at $3,900 per year or $75 per week in the statement of
expenditures submitted (Exhibit I-1, Tab 8,
page 4). However, according to the appellant, this amount
included not only groceries but also restaurant expenditures and
the costs of personal care products and household cleaning
products (transcript of the appellant's testimony, January
29, 2003, pages 36 and subsequent). Obviously, this
comprehensive amount of $3,900 per year is well below the average
expenses a family devotes to these various types of expenditures,
which is approximately $8,000 per year.
[41] However, the most surprising and
striking aspect of the testimony of the appellant, who was
constantly attempting to minimize his cost of living, was that he
did not remember or categorically denied certain expenditures
that could easily be traced since they had been paid by cheque or
credit card. Take his telephone costs, for example. In the
appellant's testimony, he mentioned only costs of $26 per month
for the telephone, costs which, according to him, were included
in the housing costs. Furthermore, he said he did not remember
whether he had owned a cell phone or a pager at that time;
however, it can be seen that the costs paid to Cantel were
$3,369.71 and $2,135.79 in 1996 and 1997 respectively and the
statement of net worth prepared by Mr. Leporé and
submitted to the authorities specifically includes these
costs under the heading for communications
(transcript of the appellant's testimony, January 29, 2003,
pages 41 and subsequent, and pages 138 and subsequent;
Exhibit I-1, Tab 8, page 4; Exhibit I-8, Volume 2,
Tab 11, 1996 page 2, 1997 page 2).
[42] Another example of the appellant's
vague, confused, and incomplete or even contradictory testimony
involves donations. The appellant maintained that he had never
given gifts or donations to anyone and had, at the very most,
purchased flowers only once during the years at issue, whereas
the auditor traced a number of purchases at florists and
jewellers (transcript of the appellant's testimony, January
29, 2003, pages 149 and 150, and October 23, 2003,
pages 27 and 28; transcript of Ms. Louise Laroche's
testimony, October 23, 2003, pages 121 and 122, and
Exhibit I-8, Volume 2, Tab 11).
[43] The appellant's testimony is no longer
credible regarding his stays in hotels. While he first said that
he may have stayed in a hotel once for his wife's birthday in
1996 and later that it was possible that he had stayed in a hotel
and that his wife may have also done so, the hotel costs may be
traced on his credit cards and his wife's credit cards on nearly
30 different occasions during the years at issue (transcript of
the appellant's testimony, January 29, 2003, page 60,
and October 23, 2003, pages 18 and 19;
transcript of Ms. Louise Laroche's testimony, October
23, 2003, pages 106 and subsequent; and
Exhibit I-8, Volume 2, Tab 11). The appellant
later added to this point by stating that he may have also lent
his credit card to one of the truck drivers hired by his company
for trips to the United States whereas he himself was ineligible
to enter the U.S. (transcript of the appellant's testimony,
October 23, 2003, page 30).
[44] In his testimony, the appellant also
said several times that his accountant would need to be consulted
for explanations regarding certain expenditures. He also admitted
a number of times that he had paid for numerous expenditures in
cash. When questioned about specific expenditures, he often
replied that it was a possibility or that he simply could not
confirm whether he had incurred that expenditure. In my opinion,
it is the person who incurred an expenditure, not the accountant,
who is primarily able to testify to the expenditure.
[45] As I have mentioned, the general
impression is that the appellant was, throughout his testimony,
constantly trying to minimize the magnitude of his personal
expenditures either by simply denying their existence or by
hiding behind vague or even contradictory answers so as to
deliberately create confusion or ambiguity from which no definite
conclusions could be drawn. On the one hand, the appellant
demonstrated a very spartan lifestyle: his expenses had been
reduced to a minimum, he did not go out, he ate very rarely at
restaurants other than McDonald's once a month, he did not
participate in any sports, he had no recreational activities, he
did not give any gifts to anyone, he did not smoke other than
occasional cigarettes other people offered him, and he
occasionally went to bars but did not drink.
[46] On the other hand, we find
communication expenses for more than $3,300 for 1996 and
more than $2,100 for 1997, a number of purchases from florists
and jewellers, vehicle rentals for more than $9,000 in 1997,
approximately thirty stays in hotels during the years at issue,
not including a one-week trip to Ixtapa in Mexico, gifts
from friends for favours . . . or for being in some way their
confidant . . . in short, points that are not consistent with the
minimal and austere lifestyle described.
[47] In reality, as the appellant's
testimony is riddled with pretences and sprinkled with
falsehoods, it becomes nearly impossible to distinguish what is
true from what is false. The least I can say is that he certainly
did not convince me by a preponderance of evidence that the
Minister's assumptions underlying the assessments, particularly
the use of statistics to establish his personal expenditures,
were not justified or well-founded under the circumstances; this
is with the exception of one specific point referring to the
assumption used by the auditor, Ms. Laroche, for the family
unit of reference including two adults and one child for 1996,
1997, and 1998. I will deal with this question later.
[48] As for Mr. Leporé's testimony,
he by no means convinced me that the statement of net worth
prepared by Ms. Laroche was erroneous in any way except in
regards to the issue of the family unit of reference, which I
just mentioned.
[49] For example, Mr. Leporé
challenged a positive adjustment regarding a non-deductible
loss of $7,150 further to the sale of a Harley Davidson
motorcycle by the appellant to his wife in 1997. The motorcycle
purchased by the appellant for $16,500 in 1995 was
transferred to his wife for $9,350, yet in the statement of net
worth prepared by Ms. Laroche, the addition of this loss is
offset by the decrease in the appellant's assets at the end of
1997, and the cost for the appellant's wife plus the costs
incurred is registered under his wife's assets at the end of that
year. It is then carried over to his assets at the beginning of
1998 (Exhibit I-8, Volume 1, Tabs 1 and 7,
Volume 2, Tab 14). Therefore, the addition of the
non-deductible loss has no impact in 1997 or the subsequent
years because the addition is offset by the reduction in cost. In
fact, the results are the same as if the loss resulting from the
transaction had been completely ignored.
[50] In reality, since this was a
transaction between spouses involving a fixed asset,
subsection 73(1) of the Act establishes that the transaction
is deemed to have taken place for proceeds equal to the adjusted
cost base of the property so that there are no losses for the
appellant, and the cost of the property for his wife is equal to
the initial cost of the property for the appellant. Therefore,
the transaction does not give rise to any losses, and the results
are the same as Ms. Laroche's results.
c) Family unit of
reference
[51] In her testimony, the auditor,
Ms. Laroche, said that she had used the statistics for a
family of two adults and one child as a basic assumption to
establish the personal expenditures of the appellant and his wife
for 1996, 1997, and 1998. However, for 1999, the assumption used
was that of a family with only two adults since she had been
informed that the appellant's child had left the family home in
the fall of 1998 (transcript of Ms. Laroche's testimony,
October 23, 2003, pages 147 and subsequent).
[52] For various reasons, the hearing of
these appeals which had begun on January 29, 2003, could not
be continued until October 23, 2003. From the beginning of
the hearing on January 29, 2003, the appellant's counsel
submitted an amended notice of appeal, and the respondent's
counsel filed an amended response to the amended notice of
appeal. At the continuation of the hearing on October 23, 2003,
the appellant's counsel wanted to re-amend his notice of appeal
to include a specific reason for objection in connection with the
use of statistics to establish the personal expenditures of the
appellant and his wife, a reason based on the financial
participation of the appellant's son, Patrick Lacasse,
in the family's expenses. If I have properly understood the
position of the appellant's counsel, in reality he wanted
Patrick Lacasse's income to be taken into account in the
statement of net worth established by the authorities for 1996,
1997, and 1998. So I denied the amendment sought by the
appellant's counsel, an amendment that I thought was too late and
was likely to further delay the hearing of these appeals even
more since the appeals were under the informal procedure.
However, after reflecting on this and considering the fact that
the use of statistics is challenged overall in the amended notice
of appeal, I believe I cannot ignore the evidence submitted
according to which Mr. Patrick Lacasse turned 18 on
October 13, 1996, he was working, he had an income, that
income was reported (Exhibit A-3), and, according to the
appellant, his son supported himself even though his
participation in the family's expenses may seem somewhat marginal
(transcript of the appellant's testimony, January 29, 2003,
page 120, and October 23, 2003, pages 7 and 8).
[53] Considering that it is still very
possible that Mr. Patrick Lacasse supported himself during
1996, 1997, and 1998, given the fact that he was working and was
earning an income, albeit a modest one, I think amendments should
be made to the calculations made by Ms. Laroche that
resulted from the use of statistics by ordering that the
necessary adjustments be made to take into account the
expenditures of two adults only for 1996, 1997, and 1998. Since
Mr. Patrick Lacasse's income was not taken into account
and its use was not analyzed by Ms. Laroche, I believe these
adjustments constitute a reasonable solution in the
circumstances.
4) Penalties under
subsection 163(2) of the Act
[54] In the income tax returns for the four
years at issue, all of which were filed after requirements were
sent to the appellant, the appellant reported absolutely no
income, even though the statement of net worth prepared by his
accountant and signed by him and his wife indicates major gaps
for 1996 and 1997 and even $9,000 of income in 1998 from
9055-4460 Québec Inc., which does business under the
name D.L. Contact.
[55] The evidence introduced by the
respondent also establishes in a convincing manner that there are
major gaps in the statement of net worth submitted to the
authorities and the personal expenditures are in many respects
significantly understated on it. Furthermore, the appellant's
testimony convinced me that he had deliberately sought to lie
several times in order to minimize the magnitude of his
lifestyle, which is far from modest for someone who claimed to
have earned absolutely no income over the four years at
issue.
[56] My conclusion is simply that the
appellant could only have acted knowingly by making false
statements and major omissions in his tax returns for the four
years at issue and that the penalties assessed under subsection
163(2) of the Act must be upheld.
[57] As a result of the foregoing,
· the appeals
from the assessments made for the 1996, 1997, and 1998 taxation
years are allowed, and the assessments are referred back to the
Minister of National Revenue for reconsideration and
reassessment, on the basis that
- all of the calculations
from the statement of net worth for the three years must be
adjusted using the expenditures of a family of only two adults as
a basic assumption;
- the addition of the
$20,000 loan to the adjustments for 1998 must be removed;
and
- the penalties under
subsections 162(1) and 163(2) of the Act, as well as the
interest, must be adjusted as a result.
· The appeal
from the assessment made for the 1999 taxation year is
dismissed.
· The whole
is without costs.
Signed at Ottawa, Canada, this 16th day of
September, 2004.
Dussault J.
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