[OFFICIAL ENGLISH TRANSLATION]
Date: 20010925
Docket: 2000-2470(IT)I
2000-2484(IT)I
BETWEEN:
GARAGE A. CÔTÉ BAIE ST-PAUL INC.,
JENNEY CÔTÉ,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the bench
on June 27, 2001, at Québec, Quebec,
and edited for clarity and completeness.)
Archambault, J.T.C.C.
[1] These appeals were instituted by
Garage A. Côté Baie St-Paul inc.
(Garage) and Mr. Jenney Côté in respect of
assessments made by the Minister of National Revenue (the
Minister) for the 1996 taxation year. In the two appeals,
the problem is essentially the same: the Minister added to
Garage's income $15,400 in unreported income and considered
that same amount as an appropriation of funds taxable in the
hands of Jenney Côté under subsection 15(1) of
the Income Tax Act (the Act).
[2] The assessments at issue resulted
from the work of one of the Minister's auditors who
discovered deposited in Jenney Côté's personal
account certain amounts concerning which she was not given a
satisfactory explanation. The following deposits were
involved:
|
29-02-96
|
$10,000
|
|
29-02-96
|
$4,000
|
|
23-04-96
|
$400
|
|
13-05-96
|
$1,000
|
At the beginning of the hearing, the appellants informed the
Court that they were no longer challenging the inclusion of the
$4,000 deposit or the assessment of a penalty in respect of that
amount.
[3] The only remaining issue is the
treatment of the $10,000 deposit made on February 29, 1996, and
the deposits totalling $1,400 made in April and May 1996. The
appellants allege that the $10,000 represents a gift to
Jenney Côté made on January 1, 1996 by a
distant cousin, Amédé Côté. They
also allege that the $1,400 represents a portion of the proceeds
from the sale of equipment described as [TRANSLATION]
"blowers".
Analysis of the evidence
[4] The problem raised by these two
appeals primarily concerns the credibility of the evidence
provided to the Court, more especially by the witnesses. The
evidence-particularly that adduced by the appellants-was not
entirely clear. Moreover, some of Jenney Côté's
explanations appeared at first blush somewhat improbable and
caused me to question his credibility. To begin with, there is
the fact that the $10,000 gift to Jenny Côté from
Amédé Côté was apparently made in
cash using an amount of $10,000 that was allegedly withdrawn by
Amédé Côté more than ten months
before January 1, 1996. The fact that
Amédé Côté used a cheque in
making another gift, namely a gift of $25,000, in November 1996,
also raised doubts.
[5] The reason given
byJenney Côté in his testimony to explain why a
cheque had been used in November 1996 appeared improbable.
According to him, his cousin Amédé did this in
order to be able to provide better evidence and precisely to
avoid the kind of problem he found himself facing before this
Court. However, the Minister's audit had not yet begun at the
time the second gift was made.
[6] Among the other facts that created
some doubt about Jenney Côté's testimony, there
is the wording on the card accompanying the $10,000 gift and on
which Amédé Côté indicated that
he was making a gift of $10,000 to
Jenney Côté.
[7] There is also the fact that some
of the explanations given to the Court were not provided to the
auditor at the audit stage. In particular, the card that
accompanied the gift of January 1, 1996, was not given to her.
Furthermore, only at a very late stage was Exhibit A-1 tendered
in evidence as proof of the sale of the blowers on April 22,
1996, to a Gérald Tremblay for an amount of $1,500,
$500 of which was allegedly paid as a down payment, with the
balance payable on delivery.
[8] Taking all these circumstances
into account, I am not at all surprised that the appeals officer
felt unable to grant the changes that the appellants had
requested at the objection stage. I myself cannot be absolutely
certain that a gift of $10,000 was made by
Amédé Côté to
Jenney Côté and that a sale of blowers actually
took place on April 22, 1996. However, the onus on the appellants
was not to convince the Court beyond a reasonable doubt. They had
to prove their case on a balance of probabilities. My assessment
of the whole of the evidence that was presented to me leads me to
the conclusion that Jenney Côté and Garage
succeeded in showing that the Minister's assessments were
incorrect. I find it probable that Amédé
Côté gave $10,000 to Jenney Côté
and that the blowers were indeed sold on April 22, 1996, for an
amount of $1,500.
[9] First, there is the testimony
of Jenney Côté who, under oath, said that
he had received the gift of $10,000 and that he had sold the two
blowers for an amount of $1,500 to Mr. Tremblay in April 1996. It
is entirely likely that such a gift could have been given
to Jenney Côté since
Amédé Côté resided at
Jenney Côté's home, where he received board
as well. The fact that Amédé Côté
was approximately 79 years old at the time the gifts were made
and that he had neither children nor brothers or sisters makes it
likely that he could have made and wanted to make the gift of
$10,000. Furthermore, the Minister did not dispute the fact that
Amédé Côté gave $25,000 to
Jenney Côté in November 1996.
[10] In addition, Amédé
Côté seems not to have had many expenses and he
apparently did not deposit in the bank either his old age pension
benefits or the benefits he received from the Régie des
rentes du Québec. According to
Amédé Côté's bank statements, the
biggest and most regular deposits seem to have been interest
payments, mainly from term deposits. These investments could have
been made from the proceeds of $71,000 from the sale of a
building by Amédé Côté to
Jenney Côté.
[11] According to the testimony ofJenney
Côté and his accountant, Mr. Forest,
Amédé Côté was in the habit of
keeping large sums of money at home. Consequently, even if the
$10,000 withdrawn in February 1995 may have been spent before
January 1, 1996, Amédé Côté had,
in January 1996, the financial means to pay the $10,000 amount in
question.
[12] By not taking the steps required to
ensure Amédé Côté's presence at
the hearing, the appellants ran a fairly substantial risk that
the Court would not give any probative weight to the affidavit of
Amédé Côté, since counsel for the
respondent did not have an opportunity to cross-examine him.
Moreover, counsel objected to the tendering of this statement in
evidence. In disallowing the objection, I relied on the decision
of the Federal Court of Appeal in Ainsley v. Canada,
[1997] F.C.J. 701. The relevant passage reads as follows:
. . . In our view, given that the proceedings below were
conducted in an informal way, it was not necessary in order for
the letter to be admitted into evidence that its author be
called. Moreover, in the exceptional circumstances described
above, the applicant should be given an opportunity before
closing his case to call David Munro, who he claims will support
his case and who would have been called had he known in good time
that the outside bookkeeper was going to be called by the
respondent.
*
See subsection 18.15(4) of the Tax Court of Canada Act, R.S.C.
1985, c. T-2, as amended, as read with paragraph 18.29(1)(b) of
that statute.
[13] This passage was cited with approval
by Judge Bowman in Brennan v. R., [1998] 1 C.T.C.
2143, at paragraph 7. At paragraph 12, Judge Bowman adds the
following:
The Federal Court of Appeal decision in Ainsley was
followed and analyzed by Christie A.C.J.T.C. in Yakubu v.
R. (September 5, 1997), Doc. 96-4445(IT)I (T.C.C.).
In his reasons for judgment, the learned Associate Chief Judge
observed at p. 6:
It does not follow that the fact that documents are entered in
evidence as exhibits in the course of a trial that what is said
therein by way of statements of fact must necessarily be taken by
the Court as being true. Presumably this was the intent of the
Court of Appeal in Ainsley.
[14] Considering the age of
Amédé Côté, in view of the fact that
he lived just under 100 km from the place where the hearing was
held and given the amount in question, namely $10,000, I am
prepared to accept his affidavit as corroborating the testimony
of Jenney Côté that he had indeed received a
gift of $10,000 from Amédé Côté. Among
the other circumstances that lead me to this conclusion, there is
the fact that the evidence did not show that Garage and
Jenney Côté had repeatedly failed to report
income in the past. Moreover, it is interesting to note that the
Minister did not see fit, in the circumstances, to make an
assessment using the net worth method. If the Minister had
thought that there had been such omissions on the part of
Jenney Côté, he would in all likelihood have
used that method of assessment.
[15] For all these reasons, the appeals of
the appellants are allowed, without costs, and the assessments
are referred back to the Minister for reconsideration and
reassessment on the basis that the amount of $11,400 is to be
excluded from the income added by the Minister and that the
penalty and interest amounts are to be modified accordingly.
Signed at Montréal, Quebec, this 25th day of September
2001.
J.T.C.C.
Translation certified true
on this 20th day of February 2003.
Erich Klein, Revisor
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