[OFFICIAL ENGLISH TRANSLATION]
Date: 20010926
Dockets: 2000-286(IT)I
2000-238(IT)I
2000-663(IT)I
BETWEEN:
DOMINIQUE ABOUANTOUN,
JEAN ABOUANTOUN,
GRITTA SAROUFIM,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the Bench
on February 9, 2001, at Montréal,
Quebec,
and modified for greater clarity and
completeness)
Archambault, J.T.C.C.
[1] Gritta Saroufim, Jean Abouantoun
and Dominique Abouantoun have appealed from income tax
assessments made by the Minister of National Revenue (the
Minister). The Minister disallowed the tax credits claimed
by the appellants in relation to alleged charitable donations to
the Lebanese Antonine Maronite Order (the Order). The
Minister alleges that the appellants did not really make the
following donations:
|
|
1991
|
1992
|
1993
|
1994
|
|
|
|
|
|
|
|
Gritta Saroufim
|
$2,000
|
$1,500
|
$2,000
|
|
|
|
|
|
|
|
|
Dominique Abouantoun
|
$1,500
|
$2,500
|
$3,000
|
$2,600
|
|
|
|
|
|
|
|
Jean Abouantoun
|
|
$2,500
|
$4,000
|
$3,500
|
[2] The respondent acknowledges that
some of the assessments were made outside the normal assessment
period and must therefore show that the appellants made a
misrepresentation attributable to neglect, carelessness or wilful
default or committed a fraud in filing their income tax returns.
The respondent acknowledges this burden in respect of all the
taxation years at issue in the appeals of Ms. Saroufim and in
respect of the taxation years prior to 1993 for the other two
appellants. The respondent also has the burden of proof with
respect to the penalties assessed by the Minister under
subsection 163(2) of the Income Tax Act (the
Act) for each of the taxation years in question.
Facts
Evidence of the respondent
[3] Two representatives of the
Minister, that is, an investigator with the Criminal
Investigations Service and an auditor, described the scheme
organized by the Order. In some cases, the Order issued a receipt
to a taxpayer showing a cash donation for the amount that the
taxpayer had paid the Order by cheque and at the same time
returned a portion of that amount in cash to the taxpayer. There
was often an 80% refund of the amount on the cheque. In other
cases, the Order issued a receipt to a taxpayer showing a cash
donation in a certain amount, although the taxpayer had not paid
anything or had paid an amount far less than that indicated,
i.e., generally 20% of the amount shown. In addition, some of the
receipts falsely indicated that the alleged donation had been
made the year previous to when the Order received the cash and
issued the receipt. In other words, the receipts were
backdated.
[4] A doctor who was the estranged
wife of one of the Order's directors informed the Minister in
March 1994 of the existence of the scheme. In a statement, which,
with the appellants' agreement, was introduced in evidence at the
hearing to take the place of her oral testimony, she acknowledged
that she had benefited from this scheme in respect of three
taxation years, that is, 1988 to 1990 inclusive. She said she
paid the Order an amount equal to 50% of the amount on the
receipt.
[5] As a result of that information,
an auditor of the Minister audited the Order's accounting records
and its bank statements. Her work was done during September and
October 1994 and her analysis showed that the information
regarding the false receipt scheme was correct. Among other
things, the auditor noted that the gifts made by professionals
with fairly substantial incomes were deposited in the bank and
that there were sizeable withdrawals in the days following,
whereas in the case of gifts made by taxpayers with more modest
incomes, the cheques deposited were only a fraction of the amount
on the receipt issued by the Order.
[6] The case was referred to the
Criminal Investigations Service, which conducted a search on
November 8, 1995. In the course of the search, the Minister was
able to locate documents confirming the existence of the scheme
organized by the Order. Among the documents was an electronic
spreadsheet (Bibliorec) from a computer of the Order
containing data for 1993. This spreadsheet shows 356 entries
relating to 352 receipts, i.e., those numbered from 32 to 383.
The entries show the donor's name, telephone number, the number
of the receipt, the amount of the alleged gift (with an
indication of whether the amount had been paid in cash if it
had), the amount to be refunded to the donor, the amount refunded
and the balance to be refunded, the share, if any, that belonged
to the Order, and, in many cases, the percentage of the amount
belonging to the Order in relation to the amount of the alleged
donation, as well as the code name of the intermediary through
whom the "donors" had been put in contact with the Order.
Unfortunately for the Minister, the spreadsheet does not provide
a list of all the donors who were issued donation receipts by the
Order. However, it does include the names of the three appellants
and information on which it can be concluded that, in fact, they
paid only 15% or 20% of the amounts on the receipts.
[7] In addition to the doctor's
testimony, there was the testimony of two other taxpayers who
acknowledged at the hearing that, in calculating their charitable
donations credits, they had included amounts that were more than
what was paid to the Order and that they had submitted to the
Minister some false receipts provided by the Order. Among the
documents from the investigation that were tendered by the
respondent, there are reports of interviews by the investigator
in which a certain number of taxpayers (approximately 80,
including, in certain cases, some whose names did not even appear
on the Bibliorec) acknowledged their participation in the
scheme.
[8] In his testimony, the investigator
also revealed that over 1,000 donors had been the subject of
reassessments in which the Minister disallowed tax credits
claimed for donations for which the Order had issued receipts in
respect of the 1989 to 1995 taxation years. Of that number, 500
or 600 donors filed a Notice of Objection. Many of these cases
were settled at the objection stage on the following basis: the
Minister waived assessment of a penalty and, in some cases, even
allowed a tax credit for the amount actually paid by the
taxpayer. Fewer than 100 taxpayers, he said, had appealed to the
Tax Court of Canada.
[9] The investigator also revealed
that a certain number of donors who had claimed tax credits for
substantial amounts pleaded guilty to charges brought against
them under section 239 of the Act in connection with the scheme.
However, the fathers of the Order involved in the scheme were not
prosecuted since they had left Canada.
Evidence of the appellants
[10] Dominique Abouantoun and Ms. Saroufim
came to Canada in December 1988. They were fleeing Lebanon where
a war had been raging since 1975. The appellant husband is 31
years old while his appellant spouse is 19. They were married in
Lebanon before immigrating to Canada. A sister of Ms. Saroufim
has lived in Canada since 1980. The couple lives in a three-room
apartment in Laval. The couple is of the Maronite Catholic
religion and they said that they regularly attended the Order's
church of St-Antoine, which is located in Outremont.
Jean Abouantoun is the brother of Dominique. They all stated
that they had genuinely made the donations to the Order for which
they claimed tax credits. According to them, the donations were
remitted in cash in small envelopes during the Sunday collection
at the church of St-Antoine.
Analysis
[11] In argument, counsel for the
respondent, Ms. Lessard, correctly stated the legal principles
relating to the burden of proof and the rules for assessing
circumstantial evidence. She cited, inter alia, the
decision of the Supreme Court of Canada in Hickman Motors Ltd
v. Canada, [1997] 2 S.C.R. 336, at page 378, in which Madam
Justice L'Heureux-Dubé states: "It is trite law
that in taxation the standard of proof is the civil balance of
probabilities . . ." Concerning the burden of proof in cases
involving the assessment of a civil penalty, counsel cited the
following passage from Continental Insurance v. Dalton
Cartage Co., [1982]
1 S.C.R. 164, at page 169, a decision referred to by Madam
Justice L'Heureux-Dubé in Hickman Motors:
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.]
[12] As for the assessment of the evidence,
counsel cited, inter alia, the author Jean-Claude
Royer, La preuve civile, 2nd ed., Les Éditions Yvon
Blais, especially paragraph 175, at page 100:
[TRANSLATION]
Direct evidence is preferred over indirect evidence -
Direct evidence is evidence that applies directly to the fact in
issue. Indirect, inferential and circumstantial evidence involve
relevant facts from which the existence of the fact in issue may
be inferred.
...
Direct testimonial evidence is superior to circumstantial
evidence. The rule, however, is not absolute. In some
circumstances, the court may prefer inferential evidence to
direct evidence.
Counsel also cited a decision of the Quebec Court of Appeal,
Légaré v. The Shawinigan Water and Power Co.
Ltd., [1972] C.A. 372, in which Chief Justice Tremblay
expressed himself as follows:
[TRANSLATION]
Légaré directs two main criticisms to the trial
judge.
He criticized the judge for setting aside his testimony and
the testimony of Bureau although they were uncontradicted. But
courts are not required to believe witnesses, even when they are
not contradicted by other witnesses. Their version may be
improbable as a result of circumstances revealed by the evidence
or the rules of simple common sense. The bearing and attitude of
the witness are also important factors.
[13] It must be explained at the outset that
this case does not involve criminal proceedings: no one is
charged with anything. The issue is whether the three appellants
are entitled to their charitable donations credit. It must also
be determined whether civil penalties are warranted because of
the presence in the appellants' statements of misrepresentations
attributable to gross negligence, in particular.
[14] Each appeal must be decided on the
basis of the evidence before the Court. For example, in
Ghadban v. The Queen (1999-4736(IT)I, an unreported
decision from the bench), the taxpayer also claimed he had made
donations to the Order. After hearing his testimony, I came to
the conclusion that he did in fact make the donations. I must
note, however, that in his case, unlike the situation in the case
at bar, the respondent had no evidence that tied the donations to
the Order's scheme. The name of Mr. Ghadban did not appear on the
Bibliorec. There is also the decision rendered by my colleague
Judge Lamarre in Korkemaz v. R., 2000
CarswellNat 3636, which raised the same issue regarding
alleged donations to the Order. Judge Lamarre was not satisfied
that these donations existed.
[15] In the case at bar, I have heard the
testimony of the three appellants and the witnesses called by the
respondent. Essentially, I accept almost all of the reasons put
forward by counsel for the respondent in support of the
Minister's assessments. I do not intend to cite them all here; I
will limit myself instead to the ones that I find most
significant. In addition, I will focus on certain aspects of the
appellants' testimony, which, by the end of the first day of
hearing, raised a great deal of doubt in my mind because their
testimony was often evasive and sometimes contradictory or
improbable.
[16] To begin with, there is the fact that
the amounts of the alleged donations are substantial compared
with the income earned by each appellant and are often close to
the maximum amounts allowed for a charitable donations credit.[1] The situation in
which the appellants found themselves at the time must be
remembered. They were all recently arrived immigrants in Canada
and they held unstable employment, as is shown by their receiving
employment insurance benefits. In 1991, in particular, the first
year in which he decided to make a donation (of $1,500) to the
Order, Dominique Abouantoun's income came primarily from
employment insurance benefits ($12,600 out of a total income of
$12,993). In 1992, he claimed a credit for a donation of $2,500
when his employment insurance benefits represented $13,662 out of
his total income of $13,762.
[17] At the outset of her testimony, Ms.
Saroufim said that before 1991, she had sent her family, who had
remained in Lebanon, between $1,000 and $1,500 in financial
assistance, but towards the end of her testimony, she stated the
opposite. There is also her rather surprising testimony that she
decreased the amount of this assistance so that she could make
donations to the Order. It is also rather disturbing that the
appellants, and in particular Ms. Saroufim, refused to name the
couriers used to take the money for their family members to
Lebanon. No valid reason- such as the unlawfulness of such
activity-was provided. The impression it conveys is that they did
not mention any names for fear that someone might check the truth
of their explanations.
[18] Another disturbing element in these
appeals is the fact that there is no evidence establishing the
existence of the donations: no cheque and no representative of
the alleged donee to confirm receipt of such donations.
Unfortunately for the appellants, they said the donations were
all made in cash. In view of the appellants' limited financial
means at the time and the size of the donations, it is surprising
that they did not personally meet with one of the Order's priests
to remit the money by hand. Obviously, there are the receipts,
but the overwhelming evidence produced by the respondent reveals
that the Order had organized a scheme consisting in issuing false
receipts; the receipts have therefore little or no probative
value.
[19] They refused to name the persons who
might have told the appellants about the possibility of making
donations to the Order or they said they did not know their
names. It is nonetheless rather surprising that they would not
know the names of those persons when they went to church almost
every Sunday, or in the case of Jean Abouantoun, at least twice a
week. How then can one not know the names of the people with whom
one has social contacts on such occasions?[2]
[20] I was also rather surprised-even to the
point of wondering if this were really true-to learn that from
1988 to 1994, Ms. Saroufim attended church every Sunday. In the
first place, she had some difficulty remembering the name of the
church and did not seem to know that the church of St-Antoine was
also called a monastery. Furthermore, I was quite astonished that
she was unable to describe the route between Laval and Outrement
(where the monastery was located), a route that she must have
taken at least 600 times.[3] Quite intriguing¾and no way to lend credibility
to Ms. Saroufim's testimony. Another thing that struck me is the
fact that she and her brother-in-law, although they are
practically neighbours in Laval, never went to the church of
St-Antoine together, when she said that she visited her in-laws,
who lived with her brother-in-law, regularly, almost on a daily
basis.
[21] It is also worth mentioning that when
the Minister disallowed the tax credits, the appellants seem to
have made little effort to obtain corroborative evidence from the
Order. In fact, in order to obtain access to some documents such
as their bank accounts, counsel for the respondent had to
subpoena them.
[22] There is also Ms. Saroufim's
statement that she had heard rumours about the scheme in 1994,
that she had thought about taking advantage of it and, in the
end, had decided not to do so. The search did not take place
until November 1995 and the stories only began to appear in the
press in early 1996. Obviously, it is possible that Ms. Saroufim
got wind of the audit carried out in September and October 1994.
But how is it, then, that there was no donation in 1994 when the
appellants said they put money in envelopes almost every week
during the Sunday collections? Could it be that Ms. Saroufim
was given backdated receipts? This seems to be the case,
incidentally.[4]
Moreover, how is it that Dominique and Jean Abouantoun say that
they did not get wind of the scheme before 1995 or 1996? If
Ms. Saroufim had heard rumours in 1994, one would expect her
husband and her brother-in-law to have known about it and to have
stopped making their alleged donations to the Order as well.
[23] Finally, there is the behaviour of the
witnesses during their testimony. I felt that Ms. Saroufim was
fairly nervous when she testified. Although on a number of
occasions I had to remind them about this, they all had great
difficulty addressing their answers to me: instead, they directed
them to counsel for the respondent.
[24] It is because of all these facts that,
by the end of the first day, I doubted the truthfulness of the
appellants' version. The doubt became a conviction on the second
day when the respondent introduced into evidence the fact that
the names of the three appellants appeared on the famous
Bibliorec, which also showed that they had paid only 15% or 20%
of the amount on the receipt issued to them by the Order. I
therefore conclude that the evidence as a whole reveals, on a
balance of probabilities, that the three appellants participated
in the scheme and that they purchased false receipts for
charitable donations.
[25] As Ms. Lessard stated in argument, one
would have to be blind not to conclude that the case at bar
involves the purchasing of false donation receipts. There can be
no question of donations here because I cannot detect any
intention to give on the part of the appellants, namely, the
intention to impoverish their own patrimony in order to enrich
the Order. All that was done was the selling and purchasing of a
piece of paper that was supposed to procure a tax benefit for the
appellants, whether fraudulently or, at the least,
improperly.
[26] This approach may seem contrary to the
one I took in Paradis v. R., 1996 CarswellNat 2261, where
I stated:
38 Let us begin by addressing the first condition. The
Minister claims that Dr. Paradis's principal motivation in
acquiring the paintings and transferring them to the donees was
strictly to obtain a tax benefit, not to divest himself of them
in their favour. I do not deny that this motivation played an
important role in Dr. Paradis's actions during the relevant
years. However, I do not believe it is pertinent to consider
the tax advantage in order to determine the validity of a gift in
Quebec law. I believe this question must be decided strictly
in the context of the legal relationship established between Dr.
Paradis and each of the donees.
39 Take the case of the gift of the Messier-Leduc painting.
Dr. Paradis became the owner of this painting by purchasing it
from Galerie des Maîtres Anciens. Under the gift agreement,
Dr. Paradis disposed of the painting without receiving any
consideration from Musée de Joliette, which as a
consequence was enriched by the acquisition of a new painting and
Dr. Paradis was impoverished by an amount equal to the value of
that painting. I do not believe that the receipt for tax
purposes can be looked upon as consideration for the
painting. The receipt is merely a document establishing that
a gift was received by Musée de Joliette. True, that
document is necessary in order to claim the value of the gift for
the purposes of the deduction for gifts. However, the extent to
which Dr. Paradis is entitled to that benefit does not depend on
the Musée de Joliette. That is determined by the Act. In
my view, this tax advantage should not be considered in
determining whether Dr. Paradis was impoverished.
40 If such advantage were to be taken into account, a number
of gifts might not qualify for the purposes of computing the
deduction for gifts. I do not believe such an approach to be
consistent with the spirit of the Act. This moreover is the point
of view adopted by the Federal Court of Appeal in Friedberg v.
R., ( (1991), 92 D.T.C. 6031 (Fed. C.A.))(December 5, 1991),
A-65-89.* Linden J.A. wrote as follows at page 6032:
Thus, a gift is a voluntary transfer of property owned by a donor
to a donee, in return for which no benefit or consideration flows
to the donor (see Heald, J. in The Queen v. Zandstra [74
D.T.C. 6416] [1974]
2 F.C. 254, at p. 261.) The tax advantage which is received
from gifts is not normally considered a "benefit"
within this definition, for to do so would render the charitable
donations deductions unavailable to many donors.
[Emphasis added.]
[27] It may also
seem contrary to the approach taken by the Federal Court of
Appeal in Duguay v. R., F.C.J., Nos. A-756-98 and
A-757-98, November 3, 2000 (2000 CarswellNat 3240, 2000 DTC
6620 (Fr.)), when it affirmed a decision of my colleague, Judge
Garon (as he then was):
8 The Tax Court of Canada judge applied to the transactions in
question the rules in the Civil Code of Lower Canada which
at the time governed the making of gifts, and in particular arts.
755 and 776. He concluded that the conditions necessary for a
gift to exist, namely the intention to give, delivery of the
property and acceptance by the donee, had been met. Applying
The Queen v. Friedberg, 92 DTC
6031, a judgment of this Court, he found that even though
the respondents' primary motivation in the case at bar was to
obtain a tax benefit, that did not nullify the donors' intent
to give. He was also of the opinion that obtaining a receipt
from the recipient organization could not be regarded as
consideration that eliminated the gratuitous and liberal nature
of the transaction.
9 Finally, the subject-matter of the gifts seemed sufficiently
clear to him and he was satisfied that the items given had become
the property of the charitable organizations that issued the
receipts for tax purposes.
10 In my opinion, the judge correctly directed himself on
the legal principles applicable in the case at bar.
Similarly, I was not persuaded that he erred in applying these
principles to the facts before him. Consequently, I would dismiss
the appeal with costs.
[Emphasis added.]
[28] However, the situation appears to be
quite different in the case at bar. It is not a matter of a
donation in kind where there could be a divergence of opinion
regarding its value. In the case at bar, there is instead a mock
donation. It is claimed that cash was donated whereas it was
really the price paid to purchase a false receipt in respect of
the donation whereby an undue tax benefit could be obtained. The
undue benefit could offer a return of more than 200% on the
purchase price of the false receipt.[5] This, moreover, was implicitly
acknowledged by one of the witnesses who participated in the
scheme, when he frankly admitted that he had not been concerned
at all with the use made of the money remitted to the Order. All
that mattered to him was the tax benefit he sought.
[29] Having found
that the appellants did not make genuine donations, it must be
decided whether subsection 163(2) of the Act applies to the facts
of these appeals. This subsection assesses a penalty on every one
who, knowingly, or under circumstances amounting to gross
negligence, has made or participated in, assented to or
acquiesced in the making of, a false statement or omission in a
return filed or made in respect of a taxation year. More
precisely, subsection 163(2) reads 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
...
[30] The respondent claims that to the
extent it is found that the appellants participated in the scheme
and were really aware of the contents of their statement, the
conclusion must also be that a penalty should be assessed. The
respondent maintains that, in view of [TRANSLATION] "the
crudeness of the scheme, which is to pay only a fraction [of
the amount of the receipt], a person, knowing what the
appellants knew, would have to willingly close his eyes not to
understand that this is not right." And the respondent went
on to say:
[TRANSLATION]
And to the extent, as well, that they completely deny
participating in the scheme, this is another factor that
indicates that they were not unaware of it ... [I]f they had
thought that it was right, they would simply admit doing what
they did, thinking that it was right and that this entitled them
to a credit, but that is not the case.
[31] On a balance of probabilities, I am
satisfied that the appellants knowingly, or under circumstances
amounting to gross negligence, made a false statement in their
tax returns by claiming tax credits for charitable donations and
by basing their claims for tax credits on false receipts
purchased by them. One has to show wilful blindness not to
realize that one cannot be entitled to 100% of such tax credits
when one has only paid 15% to 20% of the amount on the receipt.
This was a brazen scheme unworthy of a religious organization,
and some of the people who took part in it have had to plead
guilty to a criminal offence under the Act. The case at bar,
however, does not involve such an offence but involves the
assessment of a civil penalty. In my opinion, the penalty is
fully justified in the case of the three appellants. It goes
without saying that the Minister established, on a balance of
probabilities, that they made a misrepresentation attributable to
neglect, carelessness or wilful default or committed a fraud in
filing their returns. The Minister could therefore assess outside
the normal assessment period.
[32] For all of these reasons, the appeals
are dismissed.
Signed at Ottawa, Canada, this 15th day of
February 2001.
J.T.C.C
Translation certified true
on this 27th day of January 2003.
Sophie Debbané, Revisor
Email this Content