[OFFICIAL ENGLISH TRANSLATION]
Date: 20011031
Docket: 2000-269(IT)I
2000-323(IT)I
2000-329(IT)I
2000-342(IT)I
2000-698(IT)I
BETWEEN:
GEORGES YOUNES,
DENISE AUDETTE,
JULIEN AUDETTE,
FRANCE BENARD,
OTTAVIO SPIEZIA ,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the bench
on September 27, 2001, at Montréal,
Quebec,
and edited for greater
clarity and completeness.)
Archambault, J.T.C.C.
[1] Georges Younes,
Denise Audette, Julien Audette, France Benard and
Ottavio Spiezia have instituted appeals from income tax
assessments made by the Minister of National Revenue
(Minister), who disallowed the tax credits claimed by
these appellants in respect of purported charitable donations
made to the Ordre Antonien Libanais des Maronites (the
Order). The Minister maintains that the appellants did not
actually make the following donations:
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1989
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1990
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1991
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1992
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1993
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1994
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1995
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Georges Younes
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$ 9,025
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$ 975
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Denise Audette
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$ 3,000
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$ 3,500
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Julien Audette
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$12,000
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$12,000
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$10,000
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$11,500
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$6,000
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France Benard
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$ 5,000
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$ 5,000
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$1,600
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$3,000
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Ottavio Spiezia
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$3,000
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$2,400
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[2] The respondent acknowledges that
some of the assessments were made outside the normal reassessment
period and that the burden is on her to establish that the
appellants made a misrepresentation that is attributable to
neglect, carelessness or wilful default or committed some fraud
in filing their income tax returns. The respondent admits that
this burden is on her with respect to all the appellants, except
for Mr. Spiezia and Ms. Benard for the 1993 and 1995
taxation years. The burden of proof is also on the respondent
with respect to the penalties which the Minister assessed under
subsection 163(2) of the Income Tax Act (Act)
for each of the relevant taxation years.
Facts
Respondent's Evidence
[3] Two representatives of the
Minister, an investigator from the Criminal Investigations
Service and an auditor, described the fraudulent scheme
(scheme) put in place by the Order. In some cases, the
Order issued a receipt to a taxpayer showing a cash donation
equal to the amount that that taxpayer had paid to the Order by
cheque and, at the same time, the Order returned a portion of
that sum in cash to the taxpayer. The repayment often amounted to
80 percent of the amount appearing on the cheque. In other
instances, the Order made out a receipt to a taxpayer showing a
donation of a certain amount, when the taxpayer had either paid
nothing or had paid a much smaller amount than the amount
indicated, generally 20 percent of the latter amount. In
addition, some of the receipts falsely stated that the purported
gift had been made in the year preceding that in which the Order
received the cash and issued the receipt. In other words, the
receipts were antedated.
[4] It was the separated wife, a
doctor, of one of the Order's leaders who informed the
Minister of the scheme's existence in March 1994. In a
statement which, with the appellants' consent, was filed at
the hearing in lieu of testimony by her, she admitted that she
had taken advantage of the scheme in three taxation years, 1988
to 1990 inclusive. In those years, she apparently paid the Order
an amount equal to 50 percent of the amount of the
receipt.
[5] Upon receipt of the information
regarding the scheme, the Minister's auditor went to audit
the Order's books of account and bank statements. Her work
was done in September and October 1994 and her analysis enabled
her to conclude that the information concerning the false receipt
scheme was correct. In particular, she noted that the donation
cheques provided by professionals with fairly substantial incomes
were deposited at the bank and that large withdrawals were made
in the following days, while, in the case of gifts made by
taxpayers with more modest incomes, the cheques deposited
represented only a fraction of the amount of the receipt made out
by the Order.
[6] The case was then handed over to
the Criminal Investigations Service, which conducted a search on
November 8, 1995. In that search, the Minister was able to
seize documents confirming the existence of the scheme put in
place by the Order. Among those documents was spreadsheet program
(Bibliorec) from a computer of the Order providing data
for 1993. That spreadsheet contained 356 entries concerning
352 receipts, namely those numbered from 32 to 383. The
entries state the name of the donor, his or her telephone number,
the receipt number, the amount of the purported donation (with an
indication that the amount had been paid in cash, if that was the
case), the balance to be repaid to the donor, the amount repaid
and the balance repayable, the share, if any, belonging to the
Order and, in many cases, the Order's portion expressed as a
percentage of the amount of the purported gift, as well as the
coded name of the intermediary through whom the
"donors" had been put in touch with the Order.
Unfortunately for the Minister, the spreadsheet did not provide a
list of all donors to whom the Order had issued donation
receipts. However, it did contain the name of Julien Audette
and information showing that, in 1993, he had actually paid only
15 percent of the amount indicated on his receipt for
charitable donations and that he had been put in touch with the
Order through a certain Ralph (in all likelihood,
Ralph Nahas).
[7] Mr. Nahas was not only the
Order's accountant during the relevant years, he was also a
neighbour of Mr. and Mrs. Audette, Ms. Benard and
Mr. Spiezia, who all lived in Pierrefonds during the
relevant years. Furthermore, Mr. Nahas had acted as the
accountant of those four appellants (four appellants).
Before the Court, Mr. Audette emphasized that he himself had
prepared his income tax returns, but he said that Mr. Nahas
had checked them. However, Mrs. Audette recognized
Mr. Nahas's writing on the income tax returns sent to
the Minister and filed in evidence by the respondent. It was also
Mr. Nahas who served as an intermediary between the Order
and the four appellants.
[8] In addition to the doctor's
testimony, there was that of two other taxpayers who admitted at
the hearing that they had included in computing their tax credits
for charitable donations amounts greater than those paid to the
Order and that they had submitted to the Minister false receipts
provided by the Order. Among the investigation documents filed by
the respondent were some investigator's interview reports in
which a number of taxpayers (approximately 80, whose names, in
some cases, do not even appear in Bibliorec) admitted that they
had taken part in the scheme. Those documents include a solemn
declaration by a Mrs. Cedilot, who admitted she had paid amounts
less than those stated on her receipts for the years 1991 to 1994
and who stated that Ralph Nahas had induced her to give to
the Order in this way and that she had remitted the money to him,
in cash. It was also Mr. Nahas who had obtained the receipts
for charitable donations and prepared her income tax returns.
There is also an interview report prepared by the investigator
following a meeting with a Mrs. Mercier, who also
acknowledged that Mr. Nahas had proposed the scheme to her,
that she had given him cash in an envelope and that
Mr. Nahas had looked after obtaining the charitable donation
receipts. Like the Audettes, Mrs. Mercier had met Mr. Nahas
through her children.
[9] In his testimony, the investigator
also revealed that more than 1,000 donors had been the
subject of reassessments whereby the Minister disallowed tax
credits with respect to donations for which the Order had made
out receipts for the 1989 to 1995 taxation years. Apparently
fewer than 100 taxpayers appealed to the Tax Court of
Canada. All the others either accepted their assessments or
accepted the offer to settle made at the objections stage to all
the taxpayers concerned.
[10] The investigator also revealed that a
number of donors who had claimed substantial amounts for tax
credit purposes pleaded guilty to criminal charges relating to
the scheme that were laid against them under section 239 of
the Act.
Appellants' Evidence
Georges Younes
[11] Georges Younes described himself
as a consultant when he was sworn at the start of his testimony.
He is from Lebanon and has lived in Canada for 26 years. He
is of the Greek Orthodox faith and thus does not belong to the
Order. He has been a claims adjuster and a salesman with a
business providing renovation services. During the relevant
years, 1990 and 1991, Mr. Younes was living in Kirkland. He
has been married since September 16, 1990.
[12] Mr. Younes said he had organized a
concert for a childhood friend, a certain Joe Saadé,
who was living in France. Mr. Saadé was considering
emigrating to Quebec. The concert, which was to be organized in
cooperation with Father Joseph Kamar, one of the fathers of
the Order and an acquaintance of Mr. Saadé's, was
held on December 22, 1990, in a room at the Order's
monastery in Outremont. Mr. Younes had agreed to pay the
Order $2,000 to rent the room and to give it 25 percent of
the receipts from the bar that would be open during the concert.
In a statement on his honour, Mr. Saadé said that
there were only 40 people at the concert. According to him,
a snowstorm had prevented a large audience from attending.
However, Mr. Younes filed a monthly weather summary from
Environment Canada showing that there had been freezing rain on
December 21, 1990, that it had turned into rain during the
day on December 22 and that there had been drizzle between
4:00 p.m. and 10:00 p.m. As Mr. Younes remembered,
the price of tickets for the concert was $30. However, the ticket
provided by Mr. Saadé with his statement on his
honour shows a price of $15 per person. According to
Mr. Younes, some 600 tickets had been printed, 300 of
which were given to Father Kamar, who had assured him that
he should consider those tickets as sold.
[13] At the end of the concert,
Mr. Younes says, he gave Father Kamar a cheque for
$2,000 for the rental of the room and $200 in cash from the bar
receipts and tried to obtain the proceeds of sale from the
tickets sold by Father Kamar. Father Kamar thereupon
apparently told him that he could not hand over the proceeds
because the ticket buyers might ask to be reimbursed because of
the weather that evening and the Order had not received payment
for all the tickets. Mr. Younes admitted that he did not
know how many tickets the Order had purportedly sold. He did not
even know how many tickets had been sold at the door. However,
Father Kamar apparently gave Mr. Younes an
"official receipt for tax purposes" showing a donation
of $10,000. Mr. Younes explained the amount of the receipt
as follows. The $10,000 was the total of three amounts: $2,000
remitted by cheque and $200 in cash (from the bar receipts) for
the rental of the room and the balance of $7,800, representing
the proceeds of sale for the tickets sold by the Order
(260 tickets at $30). In answering questions that I put to
him, Mr. Younes indicated that, when he left the monastery
on the evening of December 22, 1990, he had no intention of
giving the Order the proceeds from the sale of those tickets; he
expected to receive those proceeds later. He said he never
received the money and never took any steps to collect it from
Father Kamar, being embarrassed to make such a request of a
representative of a church.
[14] Mr. Younes said he had paid
Mr. Saadé $6,900 in cash for his performance and paid
his living expenses, Mr. Saadé having stayed at Mr.
Younes' home for two weeks. In addition, Mr. Younes may
have paid fees to two Quebec musicians who accompanied
Mr. Saadé at the concert. Mr. Younes said that
he had lost more than $10,000 as a result of the concert. His
accountant, he said, told him that it would be more advantageous
to deduct that amount as a business loss. Having claimed a
deduction for major expenses in computing his "total
income", Mr. Younes could receive the tax credit for
charitable donations solely in respect of donations of $5,069. He
therefore had to carry over a portion of the balance, namely
$4,602, to 1991, and the rest was apparently used by his wife.
Mr. Younes nevertheless preferred to use the receipt for
charitable donations given him by Father Kamar. According to
Mr. Younes, the Order's receipt had more certain
probative value.
[15] Following a reassessment denying
Mr. Younes a significant portion of the aforementioned
expenses that he had claimed, which accordingly increased his
"net income", the Minister recomputed the tax credit
for charitable donations in respect of an amount of $9,025 for
1990 and $975 for 1991. On August 7, 1997, after discovering
the scheme, the Minister made new notices of reassessment for the
1990 and 1991 taxation years, denying Mr. Younes the credits
for charitable donations in respect of the receipt issued by the
Order. The Minister also assessed penalties under
subsection 163(2) of the Act.
Evidence of the Four Appellants
[16] When being sworn, Mrs. Audette
described herself as an assistant manager; Mr. Audette said
he held a products manager's position; Ms. Benard said
she was a travel counsellor; and Mr. Spiezia stated that he
was assistant to the meat department manager at a grocery store.
Since November 1993, Mr. Spiezia has been living in the same
house as Ms. Benard, but in the basement. Even though the
latter has been separated since 1990 and the former divorced
since February 1993, they do not appear to be living in a
conjugal relationship. Ms. Benard and the Audettes seemed to
me to have known each other for a number of years.
Ms. Benard admitted that she was a co-worker of
Mr. Nahas's wife and that she knew the Nahas family
well.
[17] All four appellants asserted that they
had given the full amounts appearing on the receipts issued by
the Order. They all stated that they had wanted to help the
children of Lebanon who were victims of the war. None of the four
is of Lebanese extraction or has relatives in Lebanon. None is a
Maronite.
Analysis
[18] In her argument, Ms. Lessard,
counsel for the respondent, correctly stated the legal principles
relating to the burden of proof and the rules concerning the
assessment of circumstantial evidence. Included in her book of
authorities is the decision by the Supreme Court of Canada in
Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336,
in which L'Heureux-Dubé J. affirms at
page 378: "It is trite law that in taxation the
standard of proof is the civil balance of
probabilities". As to the burden of proof in cases
involving the application of a civil penalty,
L'Heureux-Dubé J. cites in Hickman
Motors the following passage from the decision in
Continental Insurance Co. v. Dalton Cartage Co.,
[1982] 1 S.C.R. 164, at page 169:
Where there is an allegation of conduct that is morally
blameworthy or that could have a criminal or penal aspect and the
allegation is made in civil litigation, the relevant burden of
proof remains proof on a balance of probabilities.
[Emphasis added.]
[19] With respect to the assessment of the
evidence, counsel cited in particular
Jean-Claude Royer, La preuve civile, 2nd
edition, Les Éditions Yvon Blais, and specifically
paragraph 175, at page 100:
[TRANSLATION]
Direct evidence is preferred over indirect evidence -
Direct evidence is evidence having an immediate bearing on the
fact in dispute. Indirect evidence, inferential evidence or
presumptive evidence concerns material facts which make it
possible to infer the existence of the fact in dispute.
. . .
Direct testimonial evidence is superior to presumptive
evidence, although this rule is not absolute. In some
circumstances, a court may prefer inferential evidence to direct
evidence.
Counsel also cited the decision by the Quebec Court of Appeal
in Légaré v. The Shawinigan Water and Power Co.
Ltd., [1972] C.A. 372, in which Tremblay C.J. wrote as
follows:
[TRANSLATION]
Légaré criticizes the trial judge on two main
points.
He complains that the trial judge has disregarded his
testimony and that of the Bureau, although that testimony was not
contradicted. But the courts are not required to believe
witnesses, even if they are not contradicted by other witnesses.
Their version may be implausible given the circumstances revealed
by the evidence or based on the rules of plain common sense. The
witness's demeanour and attitude are also important
factors.
[20] First, it is important to state that no
criminal proceedings are involved here: no charges have been laid
against anyone. The question is whether the five appellants are
entitled to their tax credits for charitable donations. It must
also be determined whether civil penalties are justified on the
basis of the presence in the appellant's returns of false
statements amounting to gross negligence.
[21] Each appeal must be decided on the
evidence brought before the Court. For example, in Ghadban v.
The Queen (1999-4736(IT)I, a decision delivered orally
and not reported), the taxpayer also claimed that he had made
donations to the Order. After hearing his testimony, I concluded
that he had in fact made the donations. The fact that the Order
"sold" false receipts does not mean that it must
necessarily be concluded that all the Order's donors used
false receipts. In Abouantoun et al. (2000-286(IT)I,
2000-238(IT)I and 2000-663(IT)I), on the other hand,
I held that the taxpayers had taken part in the scheme. I should
mention, however, that, in their case, unlike in Ghadban,
the respondent had adduced evidence linking their donations to
the Order's scheme. In particular, the names of those
taxpayers appeared in Bibliorec.
[22] Here, I heard the testimony of the five
appellants and the witnesses called by the respondent. In my
view, a distinction must be drawn between Mr. Younes'
appeals and those of the four appellants. The circumstances of
their claims for tax credits for charitable donations are quite
different.
Georges Younes
[23] I believe the respondent did not prove
that Mr. Younes took part in the scheme. I was not satisfied
on a balance of probabilities that Mr. Younes purchased a
false receipt for charitable donations at a cost of
20 percent of the amount indicated thereon, as the
respondent claims. First of all, there is quite obviously the
testimony of Mr. Younes, who said he had never been informed
of the scheme. There is also the fact that Mr. Younes
obtained only one receipt. There were not a number of purported
donations for more than one taxation year, as was the case with
the other appellants. In addition, Mr. Younes' name does
not appear in Bibliorec, since the data contained therein concern
only 1993. Mr. Younes' alleged gift was apparently made
in 1990.
[24] Even if he did not participate in the
scheme, that does not mean that he is entitled to his credit for
charitable donations and that the penalty assessed by the
Minister is unjustified. Mr. Younes stated that he had
handed over a cheque for $2,000 and $200 in cash in payment for
the room at the Order's monastery, which he had rented in
order to present a concert by a childhood friend. When I asked
Mr. Younes to explain to me how he could have claimed a tax
credit for charitable donations in respect of that rent, he
answered that, in his mind, any sum of money given to a church
was a charitable donation. When one receives a consideration for
money handed over to a person, there can be no question of a
donation, even if the recipient of the payment is a charity. A
donation supposes a reduction of the donor's patrimony for
the benefit of that of the donee.
[25] Furthermore, when he left
Father Kamar at the end of the evening of December 22,
1990, Mr. Younes had no intention of giving the Order the
proceeds of the sale of tickets for the concert. In addition,
even though Mr. Younes believes that Father Kamar sold
approximately 260 tickets at $30 each, that does not prove
that Father Kamar collected the sum of $7,800 for those
tickets. First of all, the only probative evidence of the price
of the tickets is the ticket filed as Exhibit A-10
which establishes the price at $15. As there were no reserved
seats, it is unlikely that any of the tickets were sold at twice
the price of the other tickets. There is no evidence at all that
the concert was a benefit concert for the Order. At any event, if
such had been the case, it is the ticket buyers who could have
derived a tax benefit therefrom. Furthermore, the fact that only
40 persons attended the concert on December 22, 1990,
raises serious doubts as to Father Kamar's having sold
that many tickets. It should also be pointed out that, contrary
to what appears in Mr. Saadé's written
declaration, there was no snowstorm on the evening of
December 22, 1990, but rather it was drizzling.
[26] Consequently, I do not believe that the
receipt made out by the Order confirms the existence of a $10,000
donation, and I conclude that Mr. Younes did not make such a
donation to the Order.[1] Mr. Younes did not become poorer when he paid the
Order $2,200 since he obtained the use of a concert room in
consideration for that sum. As to the balance of $7,800, the
evidence is insufficient to enable one to conclude that the Order
realized that amount on the sale of tickets; consequently,
Mr. Younes is unable to establish that he in fact waived
that amount in favour of the Order.
[27] As he made his assessments in 1997,
that is to say, outside the normal reassessment period, the
Minister first had to prove that Mr. Younes made a
misrepresentation attributable to neglect, carelessness or wilful
default or committed some fraud in filing his income tax
return.[2] In
dealing with this question, it is useful to consider at the same
time the application of the penalty prescribed in
subsection 163(2) of the Act. That subsection provided as
follows:
163(2) False statements or
omissions
Every person who, knowingly, or under circumstances amounting
to gross negligence in the carrying out of any duty or obligation
imposed by or under this Act, has made or has participated in,
assented to or acquiesced in the making of, a false statement or
omission in a return, form, certificate, statement or answer (in
this section referred to as a "return") filed or made
in respect of a taxation year as required by or under this Act or
a regulation, is liable to a penalty of the greater of $100 and
50% of the aggregate of
. . .
[28] Strayer J. analyzed these two
questions in Venne v. The Queen, 84 DTC 6247.
With respect to assessment outside the normal reassessment
period, he wrote, at page 6251:
I am satisfied that it is sufficient for the Minister, in
order to invoke the power under sub-paragraph 152(4)(a)(i)
of the Act to show that, with respect to any one or more aspects
of his income tax return for a given year, a taxpayer has been
negligent. Such negligence is established if it is shown that
the taxpayer has not exercised reasonable care. This is
surely what the word "misrepresentation that is attributable
to neglect" must mean, particularly when combined with other
grounds such as "carelessness" or "wilful
default" which refer to a higher degree of negligence or to
intentional misconduct.
[Emphasis added.]
However, Strayer J. stated that the respondent's onus
is heavier with regard to the assessment of a penalty (page
6249):
It will be noted that for the penalty to be applicable there
appears to be a higher degree of culpability required,
involving either actual knowledge or gross negligence,
than is the case under sub-section 152(4) for reopening
assessments more than four years old where mere negligence seems
to be sufficient.
[Emphasis added.]
He described what constitutes gross negligence as follows
(page 6256):
"Gross negligence" must be taken to involve greater
neglect than simply a failure to use reasonable care. It must
involve a high degree of negligence tantamount to intentional
acting, an indifference as to whether the law is complied with or
not.
[Emphasis added.]
[29] I do not think it plausible that
Mr. Younes could have believed he was entitled to deduct as
a charitable gift rent paid to a church. In 1990, Mr. Younes
had been living in Canada for some 15 years. He had held
employment in business, working in particular in claims
adjustment and as a salesman in the renovation services field.
There is no indication that Mr. Younes did not have the
necessary judgment to realize that one is not making a gift when
one receives a consideration for the money paid.
[30] I also find it hard to see how his
accountant could have suggested to him that he deduct as a
business loss the loss incurred in organizing the concert. That
concert was the only one Mr. Younes organized. All he hoped
was to recover his expenses. He did not do it to earn a profit
from the activity. He did it to help a friend. In such
circumstances, no business is being carried on because there is
no source of income. It is unfortunate that Mr. Younes did
not have his accountant testify to shed light on the discussions
that took place between them. I believe the most plausible
explanations concerning the accountant's recommendation are
the following: either Mr. Younes did not provide his
accountant with all the relevant information, or he did so and
the accountant did not perform his work in a professional and
ethical manner.
[31] The fact that Mr. Younes could not
deduct a business loss might also explain why he did not try to
deduct his loss and preferred to use an "official receipt
for tax purposes" prepared by a church, believing that such
a receipt gave him a better chance of avoiding having the tax
authorities question things. Consequently, I conclude that
Mr. Younes knowingly, or under circumstances amounting to
gross negligence, made a false statement in his income tax return
for 1990 and 1991. It is therefore clear that Mr. Younes
made a misrepresentation attributable to neglect, carelessness or
wilful default, which enabled the Minister to make his
assessments outside the normal reassessment period.
[32] However, as to the calculation of the
penalty, I am prepared to admit that Mr. Younes may have
believed he was entitled to a tax credit for charitable donations
in respect of a portion of the $10,000 amount. I am prepared to
acknowledge that Mr. Younes may have believed that
Father Kamar and the Order had been able to sell a certain
number of tickets for the concert and had kept the proceeds from
the sale for the Order's charitable works. In view of the
small number of people present at the concert, considering the
weather conditions, which, however, were not as disastrous as
described by Joe Saadé, and given the fact that the
concert was to be held so close to the Christmas holiday period,
Mr. Younes could have believed that Father Kamar had
sold 100 of the 300 tickets given to him. As the evidence
showed that the price of the tickets was $15, I conclude that
Mr. Younes could have believed that the amount withheld by
Father Kamar and the Order was $1,500 ($15 x 100)
and that he was entitled to a tax credit in respect of that
amount. It is true that, when he left Father Kamar on
December 22, 1990, he had no intention of giving that amount
to the Order. However, having abandoned any effort to obtain
payment, he may have resigned himself to having made a gift of it
to the Order, particularly since he left that evening with an
official tax receipt for income tax purposes.
The Four Appellants
[33] In the case of the four appellants, I
am satisfied on a balance of probabilities that they took part in
the Order's scheme and that they acquired false charitable
donation receipts. The evidence supporting this finding is as
follows.
[34] First of all, there is the fact that
none of the four appellants made donations, or that they made
only small donations, to other charities. Thus, from 1988 to
1998, the Audettes ostensibly made gifts to the Order totalling
$58,000 over a period of five years, whereas the total of
their gifts to other charities during the entire 11 years
did not exceed $420. In Ms. Benard's case, her alleged
gifts[3] to the
Order totalled $14,600 for the years from 1990 to 1998, whereas
her other donations for the same period were limited to $25. As
to Mr. Spiezia, his purported donations[4] to the Order amounted to $5,400
for the period from 1990 to 1998, while he made no other
charitable gift during that period.
[35] Furthermore, the alleged gifts of each
of the four appellants represent an appreciable percentage of
their disposable net income, that is to say, the amount of their
total income after deduction of, in particular, their
contributions to retirement savings plans and to the Quebec
pension plan and amounts of tax withheld at source by their
employers. Mr. Audette's purported donations to the
Order represent between 22 percent and 27 percent of
his disposable net income for the relevant years. For
Mrs. Audette, the figure is between 22 percent and
23 percent, for Ms. Benard, between 10 percent and
16 percent, and for Mr. Spiezia, between
14 percent and 23 percent. It must also be considered
that the Audettes had three children, as did
Ms. Benard, during the relevant period. In
Ms. Benard's case, her purported gifts totalled $14,600
for the four taxation years in question, whereas her disposable
annual net income during that period varied between $15,255 and
$34,741, in addition to which she was divorced and occasionally
had trouble collecting support for her children.
[36] In Mr. Spiezia's case, it
should be mentioned that he had to pay his former spouse support
for his children. In 1994, for example, his disposable net income
was $12,773, and yet he claims he made a $3,000 donation to the
Order. Mr. Spiezia attempted to explain that he had the
money to make the donation because his mother had given to him,
as she did to his brother, $5,000 in 1994. However, based on the
amounts reported by Mr. Spiezia's mother, her income was
very modest. It is therefore very surprising in the circumstances
that Mr. Spiezia, whose disposable net income was only
$12,773 in 1994 and $17,256 in 1995, could have made such large
gifts as $3,000 in 1994 and $2,400 in 1995.
[37] Furthermore, the amount of the alleged
gifts for which the four appellants claimed tax credits
represents a very high percentage of the maximum amount which
they were entitled to deduct. In Mr. Audette's case, the
donations to the Order represent, for the years from 1991 to
1993, between 90 percent and 98 percent of the eligible
maximum amount (20 percent of net income) for the purposes
of computing the tax credits. For 1989 and 1990, his purported
donations represent between 60 percent and 66 percent
of the maximum. As to Mrs. Audette, her gifts represent
81 percent and 86 percent of the maximum amount.
Ms. Benard's alleged gifts represent between
38 percent and 70 percent of the maximum, and, in
Mr. Spiezia's case, the figures are 46 percent and
75 percent.
[38] Another troubling factor in the appeals
of the four appellants is that there is no evidence establishing
the existence of the donations. There is no cheque and no
representative of the purported donee to confirm receipt of such
donations. Unfortunately for the four appellants, they all say
they made their donations in cash. In addition, all claim to have
used money deposited in safety deposit boxes or safes to explain
the fact that their bank statements were or would have been of no
use in confirming the withdrawals of funds supporting their
allegations that they made donations to the Order. It is
surprising to say the least that the appellants paid such large
amounts in cash. In particular, Mr. Audette alleges that he
donated in single cash payments $12,000 in 1990, $10,000 in
November 1991 and $10,000 in 1992. The same is true for
Ms. Benard's gifts of $5,000 in 1991 and 1992. That is a
great deal of money to have in a safety deposit box! A cheque
(certified if necessary) or a bank draft would certainly have
been a more common method of payment for such large donations.
Cash payments are more readily understandable for smaller
donations. The four appellants obviously asserted that the
receipts made out by the Order constituted proof of their
donations. However, the overwhelming evidence adduced by the
respondent reveals that the Order had put in place a scheme
involving the issuing of false receipts. The receipts thus have
little probative value.
[39] There remains the testimony of the four
appellants themselves, all of whom stated that they gave the
entire amounts shown on the receipts. However, there is reason to
doubt their credibility. They did not always speak frankly during
their testimony. In particular, the four were questioned about
the letter that each of them had sent to counsel for the
respondent in which each stated their reasons for refusing a
request to amend the respondent's reply to the notice of
appeal. When asked if that letter had been drafted with the help
of another person, Mr. Audette and Ms. Benard each said
they had written it themselves, without anyone's assistance.
Mrs. Audette said it was her husband who had written it,
while Mr. Spiezia asserted that he had only had the help of
a co-worker to write the letter in French. Although he
speaks and understands French, Mr. Spiezia preferred to
express himself in English before the Court. As all the letters
are virtually identical, it is much more plausible that one of
those letters served as a model for the other three or that a
model prepared by a third party-for example, by Mr. Nahas,
the four appellants' accountant-was used in drafting each of
the letters. It should also be noted that Mr. Nahas did not
testify at the hearing: according to Mr. Audette, he would
not have had a great deal of credibility because he had been
found guilty of tax evasion as a result of his participation in
the scheme.[5]
[40] Furthermore, in Mr. Audette's
case, it bears repeating that his name appears in Bibliorec. That
document shows that Mr. Audette paid 15 percent of the
amount of the receipt prepared by the Order for 1993. In
addition, Mr. Nahas's given name appears in the
intermediaries column and it is he who apparently introduced
Mr. Audette to the Order, as Mr. Audette moreover
confirmed himself. I would point out that Mr. Nahas was, all
at the same time, the Audettes' neighbour, the Order's
accountant and the person who reviewed and completed the tax
returns of Mr. and Mrs. Audette.
[41] Another disturbing fact came out of the
testimony of Mr. and Mrs. Audette and of
Ms. Benard. All three said they had gone to the Order's
office on December 31 to make their donations.
Mrs. Audette said she went there on December 31, 1991
and 1992; Mr. Audette said he went on December 31,
1993; and Ms. Benard said she was there on December 31,
1991. First of all, it is surprising, if not implausible, that
these three appellants would have travelled from Pierrefonds to
Outremont on New Year's Eve to make their donations to the
Order. It is much more likely that they did the same as
Mrs. Cedilot and Mrs. Mercier, who gave Mr. Nahas cash,
and that it was he who took care of obtaining the receipts from
the Order.
[42] Furthermore, an analysis by the
Minister's auditor supports that auditor's conclusion
that these appellants' receipts dated December 31, like
some of the other receipts, are antedated. That of
December 31, 1991, bearing no. 2301, issued to
Mrs. Audette was part of the book containing the receipts
numbered from 2301 to 2325. The donation cheque for which the
Order issued receipt no. 2304 dated December 31, 1991,
was not deposited at the bank until April 24, 1992.
Mrs. Audette's receipt of December 31, 1992, bears
no. 1246. The cheques for which the Order made out receipts
1229 and 1249 dated December 31, 1992, were not deposited at
the bank until May 5, 1993.
[43] The Minister's auditor conducted a
similar analysis of receipt no. 996 dated December 22,
1992, issued to Julien Audette. She learned from her audit
that the cheque for which the Order issued receipt no. 978
dated December 31, 1992, was not deposited until May 5,
1993. The fact that the donation amounts on the basis of which
Mr. Audette computed tax credits for charitable donations
for 1992 and 1993 correspond to 95 percent and
98 percent of the eligible maximum amount suggests that he
obtained his receipts after the end of the year because that
enabled him to calculate the amount of his net income more
accurately, this calculation being necessary to determine the
maximum amount deductible for the purposes of the tax
credits.
[44] As for Ms. Benard, she obtained a
receipt dated December 31, 1991, bearing no. 2116. The
auditor observed that the cheques for which the Order issued
receipts nos. 2107 to 2109 dated December 31, 1991,
were not deposited until March 25, 1992.
[45] Moreover, in Mr. Spiezia's
case, his receipt for 1994 showing an amount of $3,000 bears
no. 1156 and is dated October 11, 1994.
Mr. Spiezia says he personally paid this sum in cash at the
Order's office. However, during that month, the
Minister's auditor was on site auditing the Order's books
and had asked the Order to provide her with proof of the amounts
held in cash in its safe. She was unable to obtain such proof.
Furthermore, analysis of the Order's bank deposits reveals no
trace of this $3,000 donation since the Order recorded only
deposits of money that had been given to it by cheque.
[46] It is also disturbing to note that
Mr. Spiezia and Ms. Benard, who were living under the
same roof, each obtained a receipt for 1995 dated
December 5, 1995, bearing no. 1581 in one case and
no. 1582 in the other, and that they stated that they had
gone to Outremont in person and had not met each other.
Ms. Benard says that she did not know that Mr. Spiezia
(and the Audettes) had made donations to the Order until she
received notices of hearing from the Court.
[47] It should be mentioned as well that not
only did each of the four appellants know Mr. Nahas,
the Order's accountant, but Mr. Nahas prepared their
income tax returns. As revealed by Mrs. Cedilot's solemn
declaration and the report on the interview with
Mrs. Mercier, Mr. Nahas had recommended to those
persons the purchase of false receipts for charitable of prepared
by the Order. It is therefore highly likely that Mr. Nahas
did the same with the four appellants.
[48] Another minor piece of evidence
concerning Mr. Spiezia, which adds to all the rest, is the
fact that it was 1994, the year after he moved into the same
house as Ms. Benard, that Mr. Spiezia began claiming
tax credits for charitable donations made to the Order.
[49] Lastly, it may be mentioned that the
four appellants appear to have made few efforts to obtain
from the Order evidence corroborating their allegations after the
Minister denied them the tax credits. On the contrary, to gain
access to certain documents, such as their bank statements,
counsel for the respondent had to send them a
subpoena.
[50] As in my decision in
Abouantoun,[6] supra, here too one would have to be blind not
to conclude that what we are dealing with is purchases of false
receipts for charitable donations. There were in fact no
donations; there were, rather, sham donations. In the case of the
four appellants, there can be no question of donations
because I can detect no donative intention on their part, that
is, an intention to reduce their patrimony in order to enrich the
Order. All that took place was the purchase and sale of a piece
of paper which was to secure for the appellants a fraudulent, or
at least undue, tax benefit.
[51] Having concluded that the
four appellants did not make actual donations, I must now
decide whether subsection 163(2) of the Act applies to the
facts of their appeals. As seen above, that subsection provides
for a penalty to be assessed against every person who, knowingly,
or under circumstances amounting to gross negligence, has made or
has participated in, assented to or acquiesced in the making of a
false statement or omission in a return for a taxation year.
[52] The respondent argues that, to the
extent that it is found that the four appellants took part
in the scheme and that they were fully aware of the content of
their returns, it must also be found that the penalty should
apply. I share this view. I am satisfied on a balance of
probabilities that the four knowingly, or under circumstances
amounting to gross negligence, made a false statement in their
income tax returns in claiming tax credits for charitable
donations and in basing those claims on false receipts which they
had purchased. One would have to be wilfully blind not to realize
that one cannot be entitled to 100 percent of such credits
where only 15 percent or 20 percent of the amount of
the receipt has been donated. In my view, the penalty is fully
justified in the case of the four appellants. It therefore
goes without saying that the Minister has shown on a balance of
probabilities that Mr. and Mrs. Audette and
Ms. Benard made a misrepresentation that is attributable to
neglect, carelessness or wilful default or committed a fraud in
filing their returns. Accordingly, the Minister could assess
outside the normal reassessment period.
[53] For all these reasons, the appeals of
Mr. and Mrs. Audette and those of Ms. Benard and
Mr. Spiezia are dismissed. Mr. Younes' appeals are
allowed and the assessments are referred back to the Minister for
reconsideration and reassessment on the basis that
Mr. Younes was entitled to no tax credit for charitable
donations in respect of the purported gift of $10,000 made to the
Order but, for the purposes of computing the penalty and for
those purposes alone, on the basis that he was entitled to a tax
credit with respect to a $1,500 charitable donation.
Consequently, the penalty shall be computed solely on the basis
of the tax credit in respect of charitable donations of
$8,500.
Signed at Montréal, Quebec, this 31st day of October
2001.
J.T.C.C.
Translation certified true
on this 28th day of February 2003.
Erich Klein, Revisor
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