[OFFICIAL ENGLISH TRANSLATION]
|
Citation: 2003TCC612
|
|
Date: 20030904
|
|
Docket: 2000-317(IT)G
|
|
BETWEEN:
|
|
CHAWKI CORTBAOUI,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Lamarre Proulx, J.
[1] These are appeals concerning the 1989 to 1995 taxation years.
[2] The issues are whether charitable gifts made to the Ordre Antonien Libanais des Maronites, or the "OALM", were in the amount stated on the receipts; whether the Minister of National Revenue (the "Minister") was authorized to reassess after the expiry of the normal reassessment period for each of the years from 1989 to 1993; and whether the Minister was justified in assessing penalties for the taxation years at issue under subsection 163(2) of the Income Tax Act (the "Act").
[3] The facts on which the Minister relied in making his reassessments are described in paragraph 8 of the Reply to the Notice of Appeal (the "Reply") as follows:
[TRANSLATION]
(a) in filing his tax returns for the 1989, 1990, 1991, 1992, 1993, 1994 and 1995 taxation years, the appellant claimed a charitable donation credit in relation to the amounts of $13,500, $12,000, $12,100, $13,000, $13,000, $13,000 and $13,000 that he purports to have donated to the Ordre Antonien libanais des Maronites in the 1989, 1990, 1991, 1992, 1993, 1994 and 1995 taxation years respectively;
(b) the appellant did not, in any way whatsoever, donate the amounts of $13,500, $12,000, $12,100, $13,000, $13,000, $13,000 and $13,000 to the Ordre Antonien libanais des Maronites in the 1989, 1990, 1991, 1992, 1993, 1994 and 1995 taxation years;
(c) the appellant did not file with the Minister valid receipts containing the prescribed information respecting the alleged gifts of $13,500, $12,000, $12,100, $13,000, $13,000, $13,000 and $13,000 that he claims to have made to the Ordre Antonien libanais des Maronites, since the amounts of the gifts that appear on them are false;
(d) the appellant did not make the gifts for which he claims credits on his tax returns and instead took part in the following scheme:
(i) in some cases, the Ordre Antonien libanais des Maronites would prepare a receipt for a taxpayer showing a cash gift of an amount equal to the amount that the taxpayer paid the Ordre by cheque, at the same time returning an equivalent or nearly equivalent amount of cash to the taxpayer;
(ii) in other cases, the Ordre Antonien libanais des Maronites would prepare a receipt for a taxpayer showing a cash gift of a certain amount, whereas the taxpayer had paid nothing or had paid a trifling cash amount compared to the amount shown on the receipt;
(e) the Ordre Antonien libanais des Maronites and its directors entered a plea of guilty with respect to the charges brought against them under section 239 of the Act in relation to this scheme;
(f) by filing his tax returns and by providing information under the Act for the 1989, 1990, 1991, 1992 and 1993 taxation years regarding the charitable donation credits he claimed in relation to the amounts of $13,500, $12,000, $12,100, $13,000 and $13,000, the appellant made a misrepresentation that is attributable to wilful default;
Penalties
(g) the appellant knowingly, or at least under circumstances amounting to gross negligence, made a false statement or omission by claiming charitable donation credits in relation to the amounts of $13,500, $12,000, $12,100, $13,000, $13,000, $13,000 and $13,000 respectively for the 1989, 1990, 1991, 1992, 1993, 1994 and 1995 taxation years, whereas he had not made any gift.
(h) because the appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of, a false statement or omission in tax returns filed in respect of the taxation years at issue, it follows that the tax that the appellant would have been required to pay, according to the information provided in the tax returns filed for those years, was less than the amount of tax actually payable for those years of $3,458.48 for 1989; $3,183.71 for 1990; $3,272.50 for 1991; $3,505.68 for 1992; $3,452.69 for 1993; $3,449.59 for 1994; and $3,427.60 for 1995.
[4] In his Notice of Appeal, the appellant stated the following:
[TRANSLATION]
...
4. The appellant contributed in good faith to an organization bearing the name of the Ordre Antonien Libanais des Maronites, the appellant being of Lebanese origin and a practising Catholic with a fervent desire to help his compatriots who were still living in Lebanon and were subject to war in their country;
5. All the sums of money for which the appellant claimed a charitable donation credit were actually paid by the appellant to the Ordre Antonien Libanais des Maronites in a spirit of generosity, and no amount was subsequently returned to the appellant at any time whatsoever in any form whatsoever by the Ordre Antonien Libanais des Maronites;
6. While the Ordre Antonien Libanais des Maronites may have made certain arrangements that benefited some taxpayers who had made cash gifts to it, arrangements whereby those taxpayers received more than the credits reflecting their gifts, this was definitely not the case for the appellant;
7. The respondent cannot generalize with respect to all of the donors of funds to the Ordre Antonien Libanais des Maronites concerning the individual arrangements that this organization may have made with regard to some, as he is trying to do in the appellant's case;
8. Furthermore, the respondent has refused even to acknowledge the supporting evidence of payments made by the appellant, when it has no evidence, of any kind, that the appellant received any benefits other than the receipts reflecting the gifts made;
9. Nothing in the appellant's conduct allows the respondent to allege that the appellant misrepresented facts in his tax return or "knowingly made a false statement";
...
[5] Jean-Claude Phisel, a chartered accountant, was the first witness for the appellant. He said that the appellant had been his client from 1979 until his departure for Lebanon in 1996. He prepared his tax returns. After 1996, he dealt with the appellant regarding the sale of his house in 1998 and the preparation of the notices of objection in the appeals at issue.
[6] The witness explained that he knew the OALM merely from the charitable receipts that were attached to the appellant's return. He said that there were articles in the papers in 1996 concerning certain things about the OALM. He telephoned the appellant to inform him of those problems and said that the appellant told him: [TRANSLATION] "I have nothing to do with that."
[7] He remembered the gifts the appellant had made to the OALM because those gifts were astonishing by their scale. He had no other clients who made donations to the OALM.
[8] On January 28, 1997, the appellant received a letter from Revenue Canada informing him that the total amount of gifts would be disallowed and that a penalty would be assessed. The letter was given to the accountant and filed in evidence as Exhibit A-23.
[9] On cross-examination, the accountant said that the appellant had started making gifts in 1984. On re-examination, he said that the income from the appellant's medical practice was in the order of $150,000 to $200,000.
[10] The appellant testified. He is Lebanese and Canadian. He was born in Lebanon. He came to Canada in 1970 where he completed his medical studies. He has been an orthopedic physician since 1975. In 1979, he began to practice at the Centre d'orthopédie de Laval, a clinic at the Cité de la santé located in Laval.
[11] The appellant said that he was a Maronite Christian by religion and that during the years at issue he attended the Maronite church and monastery, located on Ducharme Street in Outremont.
[12] The appellant explained that the Maronites are the largest Christian community in Lebanon. The OALM helped the Lebanese in the civil war in their country.
[13] He said that he had heard about the possibility of making gifts to the OALM at a meeting in the church basement, where the faithful often congregated after mass to discuss the war and to exchange news of the country.
[14] The appellant had family still living in Lebanon and he helped them out. Concerning the gifts to the OALM, he consulted his accountant to find out what the tax limits were. He could have given even more. He felt a moral obligation to help.
[15] He produced in evidence Exhibits A-1 to A-22. Exhibits A-18 to A-22 are the tax returns for the 1984 to 1988 taxation years. In 1984, the charitable gifts were in the amount of $6,205, $6,000 of which was given to the OALM. In 1985, the amount of the gifts was $9,100, $9,000 of which went to the OALM. The total income was $158,700. In 1986, the amount of the gifts to the OALM was $9,000 in total. In 1987, the amount of the gifts to the OALM was $12,000 in total. Total income was $172,162. In 1988, the total amount of the gifts was $14,105, $14,000 of which went to the OALM. Total income was $195,290.
[16] The appellant described his method of donating as follows: on Sunday, in the church basement, he would give his cheque to Father Sleiman-this was until 1989, then it was Father Kamar, and he was eventually replaced by Father Hage. In the weeks that followed, the Father would give him a receipt on Sunday in the basement.
[17] After 1995, he made no further gifts to the OALM. He returned to Lebanon where he practised orthopedics. In Lebanon, he donated his time rather than his money, and this has continued to this day. He produced in evidence as Exhibit A-24 a letter dated May 5, 2003. This letter came from the Association des Jeunes de Kfar Selwan, from the charity clinic's administration. The letter said that the appellant, a native of that place, had offered continuously since 1996 weekly medical consultations every Thursday to the Association clinic on a volunteer basis, while underwriting the cost of all the medications dispensed. This is a recent document, a letter written in Arabic, the translation of which seems to have been approved by the Lebanese government and the Embassy of Canada in Lebanon.
[18] The respondent challenged the production in evidence of this document because it was not on the list of documents and because the person who had signed it was not there to be examined. I allowed it to be produced in evidence without prejudice. Since this document has no material influence on my analysis of the evidence, I find it unnecessary to decide on its admissibility. With regard to the payment of the remedies, the appellant nonetheless explained that the Lebanese government paid a portion of it and it was the patient's portion that he paid, which was not very much according to his testimony. Even so, he contributed his time, which is very valuable.
[19] The appellant said that when he received the draft assessment and subsequently the assessment, he objected. But he did not ask the Ordre any questions. He found that it did not concern him. Recently, at a dinner given by the Embassy of Canada in Lebanon, he met Father Sleiman. He inquired about what had happened. The Father told him that the Ordre had decided to pass over these unfortunate events in silence in order not to prolong the scandal. Here, after his examination for discovery, he talked with a friend, Dr. F. B. His friend told him not to worry; that only the big donors had been prosecuted.
The cross-examination
[20] One of his co-workers at the private orthopedic clinic was Dr. R. R. He was also an orthopedist. He practised with Dr. R. R. until 1990, the year when Dr. R.R. left the clinic.
[21] In a reply to an undertaking at the examination for discovery, he had written that the initial years when he had begun to make gifts were 1987 and 1988, whereas it was 1984. He said that he did not remember.
[22] From 1975 to 1983, he did not make any substantial gifts to support the community in Lebanon. He sent money to his family when some of its members were in need-approximately $3,000 to $4,000 a year. When he began to make gifts to the OALM, he did not stop giving to his family.
[23] He asserted that he did not ask other people to make gifts such as Dr. R. R. or Dr. F. B. who was and is his friend. The appellant said that he did not know what Dr. R. R. or Dr. F. B. did concerning donations to the OALM. Dr. R. R. may have made gifts but he does not know when or for how much. He said that no one had ever told him about the possibility of obtaining receipts for amounts larger than the gifts actually made. He said that he had told no one, except perhaps his wife and his accountant, that he had made gifts to the OALM.
[24] The appellant said that the dates on the cheques were the dates when the cheques were written.
Testimony of the witnesses for the respondent
[25] Gaétan Ouellette testified for the respondent. He has been retired since July 2002. He worked for Special Investigations from 1969 to 2002. He was the investigator in charge of the OALM scheme but was not in charge of each of the donors' files.
[26] The investigation began with the laying of an information by Ms. I. M., who was the wife of a director, Mr. S. B.The information was to the effect that the OALM was selling charity receipts. There was a meeting in March 1994 attended by Mr. Ouellet, Colette Langelier, an auditor, and Mr. Gualimi, Ms. M.'s accountant.
[27] Ms. Langelier audited the books of the OALM. She later sent the file to Special Investigations in the fall of 1995.
[28] On November 8, 1995, a search warrant was carried out against the OALM.
[29] Mr. Ouellet produced in evidence as Exhibit I-2 a 15-tab book entitled "Investigation documents". He drew the Court's attention in particular to the documents found at Tabs 3 and 15. At Tab 3, there is a transcript of an electronic document entitled "Biblio-Reç". The computer storage medium was found in the offices of the OALM.
[30] It is a nine-page spreadsheet. At the head of the various columns, the following is indicated: [TRANSLATION] No., first name, name, telephone, amount, to be paid, paid, outstanding, Ours, via. The investigator interpreted "No." as the number of the receipt; "amount" as the amount of the receipt; "to be paid" as the amount that was returned to the donor; and "Ours" as the amount actually given. Thus, for the receipt bearing number 32 (I will omit the name and telephone number) the amount is $4,000, the amount "to be paid" is $3,200 and the "Ours" amount is $800.
[31] According to Mr. Ouellet, the investigation disclosed that the method was to issue receipts at 100% against a payment of 20% in cash or by cheque. Another common method used by the donors was to issue a cheque for the total amount but with a cash rebate of 80%.
[32] At Tabs 4 and 5 of Exhibit I-2, there are the photocopies of the cheques found on site that confirm this interpretation of the Biblio-Reç document.
[33] At Tab 15 of Exhibit I-2, there is another electronic document entitled "Biblio-Avant-moi", which was found at Ralph Nahas', the OALM's accountant. On this document can be seen the names of the donors, their telephone numbers and the amount of the donation but nothing else. However, the names of a number of persons who pleaded guilty can be seen along with some names of persons who made admissions. The appellant is on this list. The receipt number is 2864 and the amount is $7,000.
[34] Mr. Ouellet said that criminal complaints were filed against approximately 18 donors, the donations of which totalled $100,000 or more, in the period from 1989 to 1995. The memorandums of the guilty pleas are found at Tab 2 of Exhibit I-2. The admissions gathered and admissions received are found at Tabs 10 and 11 of Exhibit I-2.
[35] About 1,200 of the taxpayers who made gifts to the OALM were reassessed (Exhibit I-15). There were many settlements between Revenue Canada and the donors. The number of appeals to this Court is approximately 95.
[36] Mr. B.H. who signed the admission found at page 4 of Tab 11 of Exhibit I-2 testified. He confirmed what he had said in his admission, which reads as follows:
[TRANSLATION]
Subject: Tax Return For 1993
To whom it may concern:
I declare that, for the 1993 taxation year, I made an actual donation to a priest of the Ordre Antonien Libanais des Maronites of a value of $240. However, I was given a receipt for a value of $1,200.
I would like you to credit me for the actual donation ($240) and I will be grateful for your understanding.
Yours truly,
...
[37] Exhibit I-8 is the receipt in the amount of $1,200 obtained by Mr. H.
[38] Mr. J-Y C. testified. He confirmed the scheme. His name and the name of his wife appeared on the Biblio-Reç document, Tab 3 of Exhibit I-2. Exhibit I-9 is the receipt received by Mr. C.
[39] In the admissions appearing at Tab 11 of Exhibit I-2, the letter of Mr. J. G. describes the scheme as follows:
[TRANSLATION]
Dear Sir:
Further to the telephone conversation that we had this morning, I shall state the facts for you as they happened in 1989.
In 1989, Mr. S. B. asked me on a number of occasions to make a gift to the Maronite Order. I was very sceptical.
Mr. B. showed me a paper indicating that it was a charitable organization recognized by the federal government and that there was no danger.
Mr. B. persuaded me by telling me that this money would help in the rebuilding of Lebanon, which was at war.
I asked him if a number of people contributed to this charitable organization.
He replied that there were many professionals, including lawyers, notaries, doctors and so forth.
To convince me, he also told me that a number of doctors from the Hôtel-Dieu Hospital were contributing, including Dr. F. B. from the cardiac surgery department.
I told Mr. B. that I had no money because my budget was tight.
Mr. B. told me to borrow the money and that I could pay everything back from the tax refund and would still have some money left over. As an example, he told me that if I gave him $1,000, he would give me back $750 in cash, plus my tax refund; in that way, it wouldn't cost me a cent.
At that point, I gave in and did what he told me for the years 1989, 1990 and1991.
...
[40] Colette Langelier also testified. She filed a working document prepared at the time of the audit that shows the substantial cash withdrawals that were made at the time of each bank deposit the OALM made in the years under audit(Exhibit I-11).
[41] Exhibit I-11 shows that in 1989, the deposits totalled $845,154.23 and the withdrawals were $680,369. In 1990, the deposits totalled $1,111,507.99 and the withdrawals were $883,350. In 1991, the deposits were $1,337,769.96 and the withdrawals were $1,152,740.89. In 1992, the deposits were $1,293,502.63 and the withdrawals were $1,090,528. In 1993, the deposits were $1,169,108.60 and the withdrawals were $857,340.50. In 1994, the deposits were $1,068,966.01 and the withdrawals were $695,250.
[42] What became of the cash withdrawals could not be traced in any of the records made available to the auditor. Neither she nor Mr. Ouellet, the investigator, were able to put their hands on the record that was kept of these highly substantial withdrawals. There was no trace of cash.
[43] She referred to Exhibit I-10, which contains the registered charity information returns and the public information return for the OALM for the years from 1984 to 1994. These returns include the total list of donors and the amounts of the donations. In 1984 (Tab 1 of Exhibit I-10), there were 64 donors who gave a total amount of $131,660. On December 28, 1984, Dr. F. B. gave $7,500 and Dr. R. R. and the appellant each gave $6,000. The receipt numbers are respectively 002, 005 and 006. In 1985 (Tab 2 of Exhibit I-10), on December 30, 1985, Dr. F. B. gave an amount of $17,500 and Dr. R. R. and the appellant each gave $9,000. The receipt numbers are respectively 229, 230 and 231.
[44] In 1986, (Tab 3 of Exhibit I-10), on December 31, 1986, Dr. R. R. and the appellant each gave $9,000. The receipt numbers are 224 and 225. In 1987, on July 20, 1987, Dr. R. R. and the appellant each gave $12,000. The receipt numbers are 359 and 360 (Tab 4 of Exhibit I-10). In 1988, on December 31, the appellant gave $14,000 and Dr. R. R. gave $12,000. The receipt numbers are 687 and 688 (Tab 5, Exhibit I-10).
[45] In 1989, Dr. R. R. gave $6,000 on May 9, 1989, and on June 6, 1989, the appellant gave an identical amount. The receipt numbers are 746 and 749. On December 29, 1989, Dr. R. R. and the appellant each gave $6,000. The receipt numbers were 1006 and 1007. On October 26, 1989, Dr. R. R. and the appellant gave $1,500. The receipt numbers are 1074 and 1075 (Tab 6 of Exhibit I-10).
[46] Ms. Langelier reviewed the days of the calendar to verify whether the appellant's explanation of his method of donating might be accurate. However, in the case of seven cheques, there was no Sunday between the date of the cheque and the endorsement of the cheque. The cheque of Monday, June 5, 1989, (Exhibit A-4) was deposited on Tuesday, June 6, 1989. Exhibit A-6 is a cheque dated Monday, July 16, 1990, that was deposited the next day on Tuesday; Exhibit A-7 is a cheque also dated a Monday and deposited on a Tuesday; Exhibit A-8 is a cheque dated Thursday, July 11, that was cashed the same day; Exhibit A-10 is a cheque dated a Thursday that was deposited the next day, and it is the same scenario for Exhibits A-11 and A-12-cheques made out a Wednesday and cashed before the following Sunday.
Conclusion
[47] The evidence clearly showed that there was a scheme whereby the OALM issued charitable receipts for a value far greater than the amount actually given.
[48] Was the appellant an exception to the scheme? That is what he asserted. The evidence that he presented was the testimony of his accountant, his own testimony and photocopies of the cheques made out for the full amount of the charitable receipts issued.
[49] The appellant's accountant could not confirm whether the gifts were bona fide. All that he could testify to was that he had considered notifying his client when the tax evasion was mentioned in the newspapers.
[50] Thus, as argued by counsel for the respondent, the appellant's reaction to the telephone call from his accountant is telling. All he could apparently find to say was that it did not concern him because he had valid receipts, when he had donated nearly $140,000 in all to that charitable organization.
[51] Regrettably, the appellant's own testimony is not credible. The description he gave of the moment when he was made aware of the possibilities of making donations to the OALM and his method of donating do not reflect what actually happened.
[52] This is not an oversight concerning an event that happened in the course of a year, which might be acceptable. This involves events that took place from 1984 to 1989 inclusive, that is, six years. From 1984 to 1989, the appellant's receipts and those of Dr. R. are consecutive, with the same date and the same amounts. In 1984, the year the appellant began to donate to the OALM, he was in the company of Drs. F. B. and R. R. The receipt numbers are among the first.
[53] It is impossible to believe that he did not know what his friends were up to. It is also not possible to believe the method of donating that he described at the hearing.
[54] I must also consider the fact that the appellant's name appears on the list entitled "Biblio avant moi" (Tab 15 of Exhibit I-2). On this document are the names of a number of people who received receipts and pleaded guilty or admitted to participating in the scheme.
[55] I must also note that the appellant did not ask for an explanation or take any steps with the OALM, except very late in the game and very politely at a chance meeting at an embassy dinner. Yet, he was in Lebanon.
[56] Counsel for the appellant relied on the decision of Judge Tardif in Abboud v. Canada, [2001] T.C.J. No. 161 (Q.L.), who had allowed the appeal of the physician taxpayers. One of the reasons for the decision was that the taxpayers had the financial wherewithal to make the donations. Counsel argued that the appellant's income could easily support the amount of the donations. He also pointed to the appellant's spirit of generosity. He helped his family during the time he was in Canada and is now offering one afternoon a week to a clinic. He also argued that, just because certain persons appearing on the "Biblio avant-moi" table pleaded guilty or made admissions, the situation was not automatically the same for all of the donors.
[57] The donors should therefore prove that they are exceptions to the bogus charitable receipt scheme. That is what the appellant tried to do. He did produce his cheques and receipts in evidence but did not produce his bank statements. Furthermore and above all, as I said earlier, he is regrettably not credible.
[58] I am therefore of the opinion that the Minister was correct in applying subsection 152(4) of the Act because there was intention, neglect or wilful default on the appellant's part in claiming credits for charitable donations for amounts far greater than the amounts actually given. The Minister was entitled to issue reassessments for the statute-barred years. In addition, the penalties under subsection 163(2) of the Act are fully justified.
Signed at Ottawa, Canada, this 4th day of September 2003.
Judge Lamarre Proulx
Email this Content