Canonne v. The Queen, docket 1999-683-IT-G

Date: 20010410

Docket: 1999-683-IT-G,

1999-684-IT-G

BETWEEN:

PERSÉPHONE CANONNE,

JEAN CANONNE,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Tardif, J.T.C.C.

[1]            The parties agreed to proceed on common evidence in the two cases.

[2]            The appeals concern the 1992, 1993 and 1994 taxation years. The appellants' arguments are clearly set out in their Notices of Appeal and it would therefore be appropriate to reproduce them here.

Perséphone Canonne's appeal (1999-683(IT)G):

[TRANSLATION]

1.              The appellant is the sister of Eugenia Coukos, who is the wife of Klearkos Coukos;

2.              Mr. and Mrs. Coukos, who are 80 and 70 years old respectively, are the parents of Andromaque Coukos, who is now 47 years old and lives in the United States of America;

3.              As a result of a bicycle accident in her teens, Andromaque Coukos suffers from a severe mental impairment that makes it impossible for her to live independently and which requires that she receive constant care;

4.              Because they were very concerned about their child's future welfare, Mr. and Mrs. Coukos accumulated over the years assets that were to be used for the support of their daughter after their death;

5.              As they were very close to the appellant and her husband, Jean Canonne, Mr. and Mrs. Coukos, in view of their age, decided to entrust the management of the assets they had accumulated for the benefit of their daughter to the appellant and her husband;

6.              For this purpose, in 1990 and 1991, Mr. and Mrs. Coukos transferred various sums of money they held in a banking institution to the appellant and her husband for them to invest the money on behalf of and for the benefit of Mr. and Mrs. Coukos' daughter so that she would not find herself without resources after they died;

7.              Having received the money in question, the appellant and her husband invested it with the American brokerage firm of Paine Webber with a view to making it grow for the benefit of Andromaque Coukos, as had been agreed with Mr. and Mrs. Coukos;

8.              The source of the funds invested through the Paine Webber brokerage firm was Mr. and Mrs. Coukos, as is established by the documentation detailing the bank transfers handed over to Department of National Revenue officials;

9.              Although the account with the said brokerage was opened in the names of Jean and Perséphone Canonne, all the money that was placed in this account came exclusively from Mr. and Mrs. Coukos;

10.            At no time during the years when the appellant and her husband administered the assets entrusted to them for the benefit of Andromaque Coukos did the appellant benefit directly or indirectly from those assets or the income therefrom, whether for her own purposes or her husband's;

11.            All the assets and income in account number GO-00348Y3 belong to third parties and not to the appellant, who was acting only as manager along with her husband;

12.            By assessments dated June 8, 1998, the Minister of National Revenue added to the appellant's reported income for her 1992, 1993 and 1994 taxation years amounts of $23,628.00, $21,355.00 and $56,153.00 respectively as unreported interest and dividends on foreign investments and assessed penalties of $3,188.00, $2,834.00 and $7,450.00 in respect of the 1992, 1993 and 1994 taxation years;

13.            The appellant duly objected to the assessments issued in respect of his 1992, 1993 and 1994 taxation years, and, on December 1, 1998, the Minister of National Revenue issued a Notice of Confirmation confirming the said assessments.

The Notice of Appeal for Jean Canonne (1999-684(IT)G) repeats substantially the same facts, as follows:

                [TRANSLATION]

1.              Perséphone Canonne, the appellant's wife, is the sister of Eugenia Coukos, who is the wife of Klearkos Coukos;

2.              Mr. and Mrs. Coukos, who are 80 and 70 years old respectively are the parents of Andromaque Coukos, who is now 47 years old and lives in the United States of America;

3.              As a result of a bicycle accident in her teens, Andromaque Coukos suffers from a severe mental impairment that makes it impossible for her to live independently and which requires that she receive constant care;

4.              Because they were very concerned about their child's future welfare, Mr. and Mrs. Coukos accumulated over the years assets that were to be used for the support of their daughter after their death;

5.              As they were very close to the appellant and his wife, Perséphone Canonne, Mr. and Mrs. Coukos, in view of their age, decided to entrust the management of the assets they had accumulated for the benefit of their daughter to the appellant and his wife;

6.              For this purpose, in 1990 and 1991, Mr. and Mrs. Coukos transferred various sums of money they held in a banking institution to the appellant and his wife for them to invest the money on behalf of and for the benefit of Mr. and Mrs. Coukos' daughter so that she would not find herself without resources after they died;

7.              Having received the money in question, the appellant and his wife invested it with the American brokerage firm of Paine Webber with a view to making it grow for the benefit of Andromaque Coukos, as they had agreed with Mr. and Mrs. Coukos;

8.              The source of the funds invested through the Paine Webber brokerage firm was Mr. and Mrs. Coukos as is established by the documentation detailing the bank transfers handed over to Department of National Revenue officials;

9.              Although the account with the said brokerage was opened in the names of Jean and Perséphone Canonne, all the money that was placed in this account came exclusively from Mr. and Mrs. Coukos;

10.            At no time during the years when the appellant and his wife administered the assets entrusted to them for the benefit of Andromaque Coukos did he benefit directly or indirectly from those assets or the income therefrom, whether for his own purposes or his wife's;

11.            All the assets and income in account number GO-00348Y3 belong to third parties and not to the appellant, who was acting only as manager along with his wife;

12.            By assessments dated June 8, 1998, the Minister of National Revenue added to the appellant's reported income for his 1992, 1993 and 1994 taxation years amounts of $23,628.00, $21,355.00 and $56,153.00 respectively as unreported interest and dividends on foreign investments and assessed penalties of $3,188.00, $2,834.00 and $7,450.00 in respect of the 1992, 1993 and 1994 taxation years;

13.            The appellant duly objected to the assessments issued in respect of his 1992, 1993 and 1994 taxation years and, on December 1, 1998, the Minister of National Revenue issued a Notice of Confirmation confirming the said assessments.

[3]            In making the assessments under appeal, the respondent assumed the following facts set out in both Replies to the Notice of Appeal.

With regard to Perséphone Canonne's appeal (1999-683(IT)G):

                [TRANSLATION]

(a)            the appellant is Jean Canonne's wife;

(b)            during the 1992, 1993 and 1994 taxation years, the appellant and his wife invested part of their capital in the United States;

(c)            they decided to use the American securities brokers Paine Webber for this purpose;

(d)            a number of accounts were opened with Paine Webber, some in the appellant's name, some in her husband's name and others in the name of the appellant and her husband jointly;

(e)            part of the capital invested by the appellant and her spouse produced interest income;

(f)             part of the capital invested by the appellant and her spouse was used to purchase shares in the capital stock of various companies;

(g)            dividends were paid to the appellant and her spouse on the shares so purchased;

(h)            the income generated by the appellant's investments (both those held by the appellant alone and those held by the appellant jointly with her husband) was not reported to either the American or Canadian tax authorities;

(i)             the Minister of National Revenue added to the appellant's income the income generated by the appellant's investments and not reported by her;

(j)             with regard to the income generated by the investments in the names of the appellant and her husband jointly, one half of that income was added to the appellant's income;

(k)            during the 1992, 1993 and 1994 taxation years, the appellant's investments earned her the following income (in U.S. dollars):

                                                                1992       1993                       1994

                Dividends                               $ 2,248    $ 2,451    $ 2,289

                Interest                   $27,308 $14,106 $38,823

(l)             the Minister of National Revenue converted into Canadian dollars the appellant's income earned in U.S. dollars, using the following conversion rates:

                                                                   1992                       1993                       1994

                Conversion rate:    1.2083     1.2898     1.3569

(m)           for the 1992 and 1993 taxation years, the Minister of National Revenue added to the appellant's income the following amounts as income from property (additional investment income):

                                   1992                                       1993                                       1994

                                $23,628                    $21,355                    $56,153

(n)            in accordance with the Canada-United States Income Tax Convention, a 15% withholding tax was withheld on most of the dividends, and the Minister of National Revenue accordingly granted the appellant a foreign tax credit for each taxation year:

                                                                1992                         1993                        1994

                Foreign tax

credit:                                     $394                         $425                        $469

(o)            by not reporting all of her income, the appellant knowingly, or under circumstances amounting to gross negligence, made a false statement or omission in her tax returns for the 1992, 1993 and 1994 taxation years, which justifies the assessment of a penalty in the amount of $3,188 for 1992, $2,834 for 1993 and $7,450 for 1994 pursuant to subsection 163(2) of the Income Tax Act.

With regard to Jean Canonne's appeal (1999-684(IT)G):

                [TRANSLATION]

(a)            the appellant is Perséphone Canonne's husband;

(b)            during the 1992, 1993 and 1994 taxation years, the appellant and his wife invested part of their capital in the United States;

(c)            they decided to use the American securities brokers Paine Webber for this purpose;

(d)            a number of accounts were opened with Paine Webber, some in the appellant's name, some in his wife's name and others in the name of the appellant and his wife jointly;

(e)            part of the capital invested by the appellant and his spouse produced interest income;

(f)             part of the capital invested by the appellant and his spouse was used to purchase shares in the capital stock of various companies;

(g)            dividends were paid to the appellant and his spouse on the shares so purchased;

(h)            the income generated by the appellant's investments (both those held by the appellant alone and those held by the appellant jointly with his wife) was not reported to either the American or Canadian tax authorities;

(i)             the Minister of National Revenue added to the appellant's income the income the income generated by the appellant's investments and not reported by him;

(j)             with regard to the income generated by the investments in the names of the appellant and his wife jointly, one half of that income was added to the appellant's income;

(k)            during the 1992, 1993 and 1994 taxation years, the appellant's investments earned him the following income (in U.S. dollars):

                                                                1992       1993       1994

                Dividends                               $ 1,260    $ 2,289    $ 3, 241

                Interest                   $18,401 $19, 269 $26,420

(l)             the Minister of National Revenue converted into Canadian dollars the appellant's income earned in U.S. dollars, using the following conversion rates:

                                                                   1992                       1993                       1994

                Conversion rate:    1.2083     1.2898     1.3569

(m)           for the 1992 and 1993 taxation years, the Minister of National Revenue added to the appellant's income the following amounts as income from property (additional investment income):

                                1992                                        1993                                        1994

                                $23,756                    $27,805                    $40,511

(n)            in accordance with the Canada-United States Income Tax Convention, a 15% withholding tax was withheld on most of the dividends, and the Minister of National Revenue accordingly granted the appellant a foreign tax credit for each taxation year:

                                                                1992                         1993                        1994

                Foreign tax

credit:                                     $216                         $389                        $662

(o)            by not reporting all of his income, the appellant knowingly, or under circumstances amounting to gross negligence, made a false statement or omission in his tax returns for the 1992, 1993 and 1994 taxation years, which justifies the assessment of a penalty in the amount of $4,340 for 1992, $4,357 for 1993 and $5,777 for 1994 pursuant to subsection 163(2) of the Income Tax Act.

[4]            The appellants both testified, substantially repeating the facts alleged in their respective Notices of Appeal. Eugenia Coukos and her husband, Klearkos Coukos-the parents of Andromaque Coukos-did not come to testify, apparently because of their age and precarious health. In support of their testimony, the appellants produced the following voluminous documentary evidence:

                [TRANSLATION]

. . .

(9)            Copy of a confirmation of a term deposit of US$118,582.06 with the National Bank of Canada (International) Limited in the names of Klearkos Coukos and Eugenia Coukos;

(10)          Copy of a confirmation of a deposit of US$137,895.88 on May 20, 1985, with the National Bank of Canada;

(11)          Copy of a confirmation of a deposit of US$142,922.38 on November 20, 1985, with the National Bank of Canada;

(12)          Copy of a confirmation of a deposit of US$147,233.88 on May 20, 1986, with the National Bank of Canada;

(13)          Copy of a confirmation of a deposit of US$151,022.85 on November 17, 1986, with the National Bank of Canada;

(14)          Copy of a handwritten note by Eugenia Coukos listing amounts totalling US$44,100.00 for the period from May 1986 to October 1987;

(15)          Cheque for US$190,000.00 dated July 24, 1987, made out by Perséphone Canonne to the order of Mr. and Mrs. K. Coukos, which was deposited with the Union Bank of Switzerland (Canada);

(16)          Copy of certain statements of account in respect of Mr. and Mrs. Coukos' account no. 111,809/04,05 with the Swiss Bank Corporation (Canada), for periods from 1990 to 1993;

(17)          Copy of a debit note in the amount of US$122,766.49 issued by the Swiss Bank Corporation and dated September 24, 1990;

(18)          Copy of a debit note in the amount of US$6,000.00 issued by the Swiss Bank Corporation and dated October 9, 1990;

(19)          Copy of a debit note in the amount of US$18,755.50 issued by the Swiss Bank Corporation and dated November 9, 1990;

(20)          Copy of a debit note in the amount of US$92,807.69 issued by the Swiss Bank Corporation and dated February 22, 1991;

(21)          Copy of a debit note in the amount of US$60,000.00 issued by the Swiss Bank Corporation and dated November 13, 1991;

(22)          Copy of certain statements of account in respect of account GO 00458-Y3 with Paine Webber, for the period from 1992 to1994;

(23)          Copy of certain statements of account in respect of account LY2740242-Y2 with Paine Webber, for 1991;

(24)          Copy of certain statements of account in respect of account BX18113-32 with Paine Webber, for 1990 and 1991;

(25)          Copy of certain statements of account in respect of account LV00377-Y2 with Paine Webber, for 1991;

(26)          Copy of certain statements of account in respect of account GO-00516-Y3 with Paine Webber, for 1992, 1993 and 1994;

(27)          Copy of certain statements of account in respect of account GO-32924-Y3 with Paine Webber, for 1993 and 1994;

(28)          Copy of Paine Webber documents reporting interest and dividends for account GO-00516-Y3, for 1991 to1994;

(29)          Copy of Paine Webber documents reporting interest and dividends for account GO-32924-Y3, for 1993, 1994 and 1995;

(30)          Copy of Paine Webber documents reporting interest and dividends for account GO-00458-Y3, for 1990 to 1995;

(31)          Copy of an affidavit of Eugenia Coukos and Klearkos Coukos dated August 7, 1996;

(32)          Copy of a letter from Louis G. Poulin, of Paine Webber, dated June 12, 1996;

(33)          Copy of a letter from lawyer Konstantinos G. Ganalopoulos dated June 14, 1996;

(34)          Copy of an excerpt from the will of Eugenia Coukos dated November 27, 1978;

(35)          Copy of an excerpt from the will of Klearkos Coukos dated November 27, 1978;

(36)          Copy of a power of attorney given by Eugenia Coukos authorizing Perséphone Canonne to act on her behalf in dealing with Lévesque Beaubien Geoffrion inc.;

(37)          Copy of a power of attorney given by Eugenia Coukos appointing Perséphone Canonne as her attorney for the purposes of accounts 30 271-09 and 9807-00 with the National Bank of Canada.

[5]            The assessments are based on information received from the American tax authorities. According to this information, the appellants received interest and/or dividends from investments registered to one or the other of them separately in some instances and to both of them jointly in others. The income recorded in their respective names was admitted by the appellants as regards the accuracy of the basic amounts assessed, but they contested the penalties.

[6]            The dispute thus has to do essentially with the portion of the assessments that related to the income from their joint investments and with all the penalties, including those in relation to the unreported but admitted income.

[7]            The respondent maintained that she was not required to inquire into the ownership of the funds that generated the income assessed. According to her, the only relevant information needed to justify the assessment was the simple fact that the income had indeed been paid to the appellants.

[8]            In this regard, the appellants criticized the Minister of National Revenue (the "Minister") for his lack of initiative and failure to take steps to discover the source of the capital and, especially, to identify its owners. That criticism is unwarranted since there was no obligation on the Minister to verify the ownership of the assessable income.

[9]            When income from property is payable to a person with no mention of the capacity in which he receives the income, there is a strong presumption that the income is his personal income.

[10]          This presumption is not, however, irrebuttable or juris et de jure; it may be refuted by evidence to the contrary. In the case at bar, the appellants presented testimony that was elaborate and, above all, supported by an abundance of documentary evidence establishing on a balance of probabilities that the income generated by the funds in the joint account was neither theirs nor for them, but for the eventual benefit of their niece, since the capital was the property of the niece's parents.

[11]          The various financial documents that were produced in evidence revealed a consistent and reasonable evolution and transition of the account, the upshot of which was the appellants becoming at some point the beneficial holders.

[12]          I digress here to refer to one aspect of the evidence. The evidence was rather weak as to the source of the original funds. To be sure, the appellants argued vigorously that the funds belonged to Mr. Coukos and his wife, the latter being Perséphone Canonne's sister and Jean Canonne's sister-in-law. Both appellants testified at length about the age, health and quality of life of Mr. and Mrs. Coukos, who are living in the United States, and the very high degree of physical and mental impairment of their niece, Andromaque Coukos.

[13]          Neither Mr. Coukos nor Mrs. Coukos was present to testify. Their testimony would have been the best evidence and, above all, would have given the respondent an opportunity to cross-examine them. Furthermore, it would have allowed some useful clarifications to be made. Not only did they not testify, but no evidence was presented regarding the relative capacity or incapacity of the individuals so much spoken of throughout the proceedings. Having come to the end of the digression, I shall continue with the analysis.

[14]          In view of the Jean Canonne's very high level of education and expertise in law and administration and his vast experience in related fields, the Court was astonished by and indeed somewhat suspicious of the amateurish way he went about increasing the capital that was ultimately supposed to benefit someone other than its owner.

[15]          On this point, Mr. Canonne testified that he had recommended to the parents of Andromaque Coukos that they create a trust to ensure the transparency and coherence of the transactions involved in providing for the future financial needs of Andromaque Coukos.

[16]          Jean Canonne said that his brother-in-law had not been favourable to the idea of a trust because of the significant outlays required, both to set it up and to pay the recurring annual fees.

[17]          To explain the absence of explicit documents regarding the extent of the appellants' rights, powers and obligations, Mr. Canonne stated that honesty was a cultural matter, and that in that culture documents were superfluous.

[18]          He even claimed that to require documents could be considered as an insult and as casting doubt on one's honesty. Given the possible consequences of the scenario that was chosen and in view of Mr. Canonne's experience and knowledge, he would have done better to have insisted, and even to have refused to act, in the face of the refusal to create a trust.

[19]          Tax laws are the same for all, and everyone is subject to them in the same way. The customs and usages peculiar to the cultural habits of some Canadians have nothing to do with the tax obligations to which all Canadians, regardless of their origins, are subject.

[20]          Jean Canonne stated that his knowledge of tax matters was more theoretical than practical. He also asserted that his wife was independent and autonomous with regard to her tax affairs. I believe that Mr. Canonne's knowledge was far more extensive than he claims. Far beyond that, I believe that he was very well aware of the extent of his rights and duties.

[21]          Moreover, I believe that Mr. Canonne was the guiding spirit behind the whole joint investment arrangement. The Court has no doubt that he had a clear ascendancy over his wife regarding tax matters. This is especially evident in the transcript of some portions of the testimony of Mr. Canonne and his wife.

Testimony of the appellant Jean Canonne, at page 69:

[TRANSLATION]

                . . .

Q.             But, you are the one who provides all the relevant documents for the preparation of your tax return . . .

A.             Yes.

Q.             . . . to your accountant. Is it also you who looks after providing the same documents for your spouse?

A.             No, my wife has . . . we each see to our own affairs, my wife and I, she has her accountant and I have my accountant.

Q.             Right. Tell me, Mr. Canonne, even if you do not prepare your own tax return, you are all the same aware of the importance of giving your accountant all relevant information.

A.             Yes, yes.

. . .

Testimony of the appellant Jean Canonne, at page 74:

[TRANSLATION]

. . .

Q.             Were you aware, Mr. Canonne, that your spouse also had personal investments in the United States?

A.             I told you just now that my wife and I we have . . . I'm not saying that we don't discuss business, but I do not concern myself with the details of her affairs; I couldn't even tell you what she has exactly; I don't know and I don't want to know.

Q.             Mr. Canonne, in 1994, is it possible that your spouse earned interest income in a personal account?

A.             I would prefer that you asked her.

Q.             No, I'm asking you, Mr. Canonne.

. . .

Testimony of the appellant Jean Canonne, at page 94:

                [TRANSLATION]

. . .

Q.             You say that this document represents amounts of money paid by Eugenia Coukos to Perséphone Canonne, is that correct?

A.             All that I can say, as I said earlier, is that it was a document written in Greek that was exchanged between my wife and her sister at the time when . . . when it was done, I don't know when exactly it was done but, later on, when this document was shown to me, my wife told me that it involved amounts that her sister had given her and that she had managed for her. That's all I know about it; I know nothing more.

. . .

Testimony of the appellant Jean Canonne, at page 96:

                [TRANSLATION]

. . .

Q.             You don't know how that money was paid to your wife?

A.             I don't know how it was paid; we talked about it, my wife and I, when this document came to my knowledge not so long ago, and my wife told me that it had been . . . she had placed it in accounts . . . in an account held by my sister-in-law here in Canada, over which she has a power of attorney, that was filed with the Exhibits.

Testimony of the appellant Perséphone Canonne, at page 131:

                [TRANSLATION]

A.             No, I told you no.

Q.             That's definitely not your handwriting.

A.             No.

Q.             Right. Do you know whose writing it is?

A.             I think it's my husband's.

Q.             You think it's your husband's.

A.             Because he often prepared my return as well.

Q.             He prepared your tax return, you say?

A.             Yes.

Q.             Right. Who gave him all the documents relating . . .

A.             I did.

Q.             . . . to the tax return, it was you?

A.             It was me.

Q.             You must look at the judge, Mrs. Canonne.

Testimony of the appellant Perséphone Canonne, at page 138:

                [TRANSLATION]

Q.             And there was never at that time . . . excuse me. I am going to rephrase my question in any event, Your Honour. There was no . . . there was talk at that time of creating a trust, right, for Andréa?

A.             My husband was very insistent; they had saved this money with difficulty; I know it was talked about; we insisted.

Q.             Is it correct to say your spouse revealed that it was because Mr. Coukos did not want to pay the trust fees, is that correct?

A.             He found that it was rather expensive.

Q.             Is that the only reason why he did not set up a trust?

A.             He probably didn't see the point. He didn't . . . he didn't know enough about it; he didn't have enough education, perhaps, to understand its usefulness.

[22]          Although the quality of the testimony was impaired in certain regards, I cannot on that basis dismiss it in its entirety, because the burden on the appellants is proof on a balance of probabilities.

[23]          In the light of the explanations that were provided and the documentary evidence confirming the basic elements of the testimony, I believe that the explanation given by the appellants should be accepted, that is, it should be accepted that they basically acted as agents for and on behalf of Mr. and Mrs. Coukos. Thus, the appeals with respect to the income generated by the joint investments registered in the appellants' names should be allowed.

[24]          As for the assessments concerning the unreported income from individual investments, I find they are well-founded, especially since those assessments have not been challenged. The appellants have admitted that they did not report the amounts involved.

Testimony of the appellant Jean Canonne, at page 19:

                [TRANSLATION]

Q.             What happened with that money, Mr. Canonne, afterwards?

A.             The same Mr. Rompré said to me one day, I don't know if I telephoned him in Montreal or from the Bahamas, I don't remember, but he told me that the money market was finished, that the good times were over for the money market and that some other kind of investment would have to be considered.

                And that was when, after talking to my sister-in-law and my brother-in-law, that money was transferred to the Crédit Suisse, to the Crédit Suisse branch in Montreal, where I got to know an adviser at a meeting, I think it was a meeting of . . . where I had . . . I had an opportunity to meet him and I spoke to him about these problems.

Testimony of the appellant Jean Canonne, at pages 49, 50 and 51:

[TRANSLATION]

. . .

Q.             Am I right in thinking, Mr. Canonne, that the amounts that were added as foreign investment income were all interest or investment income from the account of Jean and Perséphone Canonne?

A.             No, not completely. For the year . . . for the first year there was $3,000, three or four thousand dollars, which was personal; for the second year, $5,000, and for the last year, eight or nine thousand dollars in American dollars. Also . . .

Q.             One moment.

A.             Sorry.

Q.             As for the rest . . .

A.             Oh! yes, as for the rest, it's . . .

Q.             . . . the income amount all comes from this famous account . . .

A.             Yes.

Q.             . . .with Paine Webber, the account of Jean and . . .

A.             Yes, um.

Q.             . . . Perséphone Canonne.

A.             Also, I have . . .from the . . . I tried to explain-not to the tax people but through my accountant-the situation to the tax officers. And when I consulted the file that I obtained through Access to Information, I realized that, right from the first year, the mind of the first auditor, Ms. Dumas, had been made up or else she made a mistake; I noted some advances that she had indicated and had crossed out herself on page 787 of the file, and then her successor, Mr. Bernard, stuck to that, he didn't budge.

Q.             Well, I didn't . . .

A.             Because the money that I received myself, personally, as early as October '95 I told the accountant that I was prepared to pay immediately.

. . .

Testimony of the appellant Jean Canonne, at pages 69 and 70 and 71:

                [TRANSLATION]

. . .

Q.             But, you are the one who provides all the relevant documents for the preparation of your tax return . . .

A.             Yes.

Q.             . . . to your accountant. It is also you who looks after providing the same documents for your spouse?

A.             No, my wife has . . . we each see to our own affairs, my wife and I, she has her accountant and I have my accountant.

Q.             Right. Tell me, Mr. Canonne, even if you do not prepare your own tax return, you are all the same aware of the importance of giving your accountant all relevant information.

A.             Yes, yes.

Q.             Despite this, Mr. Canonne, you would agree with me when I say that you have interest and dividend income from some personal accounts with Paine Webber, from '92 to '94, that was not reported on your tax return, is that correct?

A.             I am going to answer yes, but I will add that I was audited a number of times with regard to my business dealings and that the adjustments made concerning me were minimal and in some cases I even won . . . I won against the tax people and I was refunded amounts for which I had been wrongly assessed.

Q.             Is it correct to say, Mr. Canonne, that you had been audited before the audit that led to these assessments . . .

A.             I can even say. . .

Q.             . . . you had . . . wait until I finish my question.

A.             Sorry.

Q.             You had been audited by Martine Dumas for '91, '92 and '93, is that right?

A.             I don't remember for which years she audited me but in any case the amount of the adjustment as compared to my other income was absolutely minimal.

Q.             Mr. Canonne . . .

A.             And the audit had not been completed when she asked me to tell her the source of the interest that had been paid by Paine Webber on the Perséphone and Jean Canonne account. In other words, that audit was never completed.

Q.             Mr. Canonne, did you indicate, either to Ms. Dumas or in your tax returns, that you had interest income?

A.             No, I did not . . .

Q.             From the United States.

A.             . . . I said earlier, in answer to Mr. Côté's question, I had interest income of about $3,000 in '92, $4,000 in '94 and $7,000 or $8,000 in '94, American income from a personal account I had with Paine Webber, which I did not declare for the following reason: my wife and I are joint owners of some of building lots in a place in Florida called Cape Coral, and every year the taxes, other levies and various charges amount to about $5,000.

. . .

Testimony of the appellant Perséphone Canonne, at pages 143, 144, 145 and 146:

                [TRANSLATION]

. . .

Q.             Tell me, Mrs. Canonne, you yourself have a portfolio with Paine Webber, is that correct?

A.             Yes.

Q.             Your personal portfolio?

A.             Yes.

Q.             Is it correct to say that you did not declare the dividends and interest . . .

A.             Yes, and . . .

Q.             From that portfolio?

A.             . . . there was a little problem; there was probably a little problem. We're waiting, we're still waiting for the papers to arrive; there were some small problems with Proxair or Xerox, so we didn't have those papers. I acknowledged that I was a bit careless; it was a difficult time. I admitted it and I paid them. And I agreed.

Q.             You paid them?

A.             Yes.

Q.             You say that it was a difficult time, it was a difficult time for your . . . in your own life?

A.             In my life, too.

Q.             And as a result of those difficulties you were unable to declare your interest and dividend income.

A.             Well, maybe I . . . no, sir, it's possible that I didn't pay any attention to the papers; the papers may have been lost. If you look at it, there is, as I said, one year of dividends from Xerox that was missing, and I didn't look during that period of my life, I didn't look. I was hospitalized; I have arrhythmia. In '94, I received . . . I was seeing a doctor even before; I was not well in '94 myself. And I didn't look. But I admitted it to Ms. Garneau and I paid.

Q.             Mrs. Canonne, in 1994, you forgot to include in your . . . in your tax return US$20,965 in interest.       

A.             Yes, I know that.

Q.             This was because of your illness?

A.             Probably, sir. I have to say that I am not very good at arithmetic; I am very disorganized, and that is my big shortcoming. I was more interested in research than in numbers.

Q.             But if I look at your tax return for '94, Mrs. Canonne, a handwritten document, Perséphone Canonne, 1994, RRSP, line 208. Please put your glasses on to look at it.

Unused balance from 1993, $2,924; indemnity fund $1,775 plus $340; Lévesque Beaubien, $4,756.

So you would have had a total of $9,995. You would have contributed $9,570 that year to your RRSP?

A.             I don't remember, sir.

Q.             You don't remember.

A.             No. And did I contribute too much or not enough?

Q.             Well, you say, Mrs. Canonne, on the one hand, that you had health problems and that kept you perhaps to a certain extent from looking after your affairs in an . . .

A.             Organized way.

Q.             . . . organized way.

A.             Yes.

Q.             But despite that problem, you were still capable of contributing to your RRSP.

A.             It's because they send us . . . they send, the companies do, and they are more organized than I am.

Q.             But those companies, Mrs. Canonne, they send you the bank statements. Does Paine Webber send you monthly statements?

A.             I just explained to you, sir, that I didn't . . . I didn't have it. I admitted it and I paid, what more should I say? And I was even quite displeased with myself.

. . .

[25]          With respect to the penalties for failing to report the amounts in question, I am of the view that the respondent has met her onus of proof in this respect. Indeed, it has been established that the appellants were two highly educated people with a far above average knowledge of tax matters. The unreported amounts were significant in Mrs. Canonne's case, but less so in her husband's. They were, however, amounts that were unreported over more than one year.

[26]          Although Mr. Canonne wanted to downplay or understate his knowledge in tax matters and although he said that he and his wife both relied on an accountant to prepare their tax returns, I think that Mr. Canonne was very well aware of the consequences of hiding income, however small the amount.

[27]          Furthermore, in administrative, accounting and tax matters he had an ascendancy over his wife and no doubt knew the extent of her income.

[28]          To reduce her tax burden, Mrs. Canonne took advantage of an RRSP and of the deductions for donations. She was thus obliged to take all the steps such donations required, namely handing over the property or the artwork and obtaining in return an evaluation and the appropriate receipt.

[29]          Those were concrete facts and actions one of the effects of which, as insignificant as it may be, was at least in part to reduce Mrs. Canonne's tax burden. On the other hand, Mrs. Canonne did not have dozens of income sources: she taught at a university. All the facts relating to her tax file were, when all is said and done, simple and uncomplicated, leaving no room for such a gross oversight as that which gave rise to an assessment after it was seen that income had not been reported.

[30]          In addition to all these factors there is the sizeable amount of the unreported income, which give the lie to the possibility that this was a case of ordinary forgetfulness.

[31]          The appellants, two highly educated people, both teaching at the university level, planned and devoted part of their free time to planning their retirement and incorporated into that planning the concerns raised by the financial needs of their severely handicapped niece.

[32]          Could they have been so absent-minded as to repeatedly fail to report certain income in one case and to overlook a substantial amount in the other? Not only do I answer in the negative, but I add that the appellants were no doubt influenced, if not inspired, by the scheme used for the purposes of the joint investment on behalf and for the benefit of another person.

[33]          Not only did the respondent discharge the onus on her to show that the assessment of the penalties with respect to the unreported personal income was justified, but the appellants adduced no evidence that could cast doubt on the quality of the respondent's evidence.

[34]          Quite the contrary, the evidence the appellants submitted to validate their claims regarding the income from the joint account administered for and on behalf of their niece's parents had the effect of increasing the seriousness of the wrongdoing with respect to the income from their individual accounts.

[35]          As regards that income they had no reasonable excuse and, in fact, they had the knowledge required to know and understand the gravity of their actions. On the evidence, there was without a doubt gross negligence justifying the assessment of penalties.

[36]          For all these reasons, the appeals are allowed in that the file is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that, with respect to the investments registered to them jointly, the appellants were acting as agents for and on behalf of third parties. As for the income they received in their individual and personal capacities, it is taxable income that they knowingly neglected to report and, accordingly, the penalties assessed were justified and well-founded. The whole without costs.

Signed at Ottawa, Canada, this 10th day of April 2001.

"Alain Tardif"

   J.T.C.C.

Translation certified true on this 29th day of October 2002.

Erich Klein, Revisor

[OFFICIAL ENGLISH TRANSLATION]

1999-683(IT)G

BETWEEN:

PERSÉPHONE CANONNE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on common evidence with the appeal of Jean Canonne

(1999-684(IT)G) on October 19, 2000, at Quebec City, Quebec, by

the Honourable Judge Alain Tardif

Appearances

Counsel for the Appellant:                  Jacques Côté

Counsel for the Respondent:                              Simon-Nicolas Crépin

JUDGMENT

                The appeal from the assessments made under the Income Tax Act for the 1992, 1993 and 1994 taxation years is allowed in that the file is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that, with respect to the investments registered to them jointly, the appellants were acting as agents for and on behalf of third parties. As for the income they received in their individual and personal capacities, it is taxable income that they knowingly neglected to report and, accordingly, the penalties assessed were justified and well-founded. The whole in accordance with the attached Reasons for Judgment.

                No costs are awarded.

Signed at Ottawa, Canada, this 10th day of April 2001.

"Alain Tardif"

J.T.C.C.

Translation certified true on this 29th day of October 2002.

Erich Klein, Revisor

[OFFICIAL ENGLISH TRANSLATION]

1999-684(IT)G

BETWEEN:

JEAN CANONNE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on common evidence with the appeal of Perséphone Canonne

(1999-683(IT)G) on October 19, 2000, at Quebec City, Quebec, by

the Honourable Judge Alain Tardif

Appearances

Counsel for the Appellant:                  Jacques Côté

Counsel for the Respondent:                              Simon-Nicolas Crépin

JUDGMENT

                The appeal from the assessments made under the Income Tax Act for the 1992, 1993 and 1994 taxation years is allowed in that the file is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that, with respect to the investments registered to them jointly, the appellants were acting as agents for and on behalf of third parties. As for the income they received in their individual and personal capacities, it is taxable income that they knowingly neglected to report and, accordingly, the penalties assessed were justified and well-founded. The whole in accordance with the attached Reasons for Judgment.

                No costs are awarded.

Signed at Ottawa, Canada, this 10th day of April 2001.

"Alain Tardif"

J.T.C.C.

Translation certified true on this 29th day of October 2002.

Erich Klein, Revisor

[OFFICIAL ENGLISH TRANSLATION]