[OFFICIAL ENGLISH TRANSLATION]
Date: 20010511
Dockets: 96-3841(IT)G
96-3997(IT)G
BETWEEN:
DENIS LAROCHE,
AUTO D.L. LAROCHE INC.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Garon, C.J.T.C.C.
[1] In the case of the individual
appellant, Denis Laroche, these are appeals from assessments by
the Minister of National Revenue for the 1990, 1991, 1992 and
1993 taxation years. By those assessments, the Minister of
National Revenue added the following amounts to the individual
appellant's income for the taxation years in question:
amount
added
taxation year
$39,751.00
1990
$9,616.00
1991
$5,616.00
1992
$4,680.00
1993
[2] The Minister of National Revenue
also assessed penalties against the individual appellant under
subsection 163(2) of the Income Tax Act for each of the
four years at issue.
[3] The corporate appellant, Auto D.L.
Laroche Inc., is appealing from assessments by the Minister of
National Revenue for 1990, 1991 and 1992. Each of those taxation
years of the corporate appellant ended on May 31. By those
assessments, the Minister of National Revenue added the following
amounts to the corporate appellant's income for the taxation
years in question:
amount
added
taxation year
$6,700.00
1990
$47,762.00
1991
$4,776.16
1992
The Minister also assessed penalties under subsection 163(2)
of the Income Tax Act for the corporate appellant's
1990, 1991 and 1992 taxation years.
Appellants' evidence
[4] The first witness was the
individual appellant, who is the director and sole shareholder of
the corporate appellant. He said that he left school in
Secondary III and has been running the corporate
appellant's operations since about 1989; before that, he was
a steel erector.
[5] At the start of his testimony, the
individual appellant described the operations involved in the
corporate appellant's business. He said that the cash
received when used vehicles were sold was used to have repairs
made to damaged cars obtained from recyclers. The individual
appellant said that the corporate appellant received only part of
the sale price of each car, since it had to give the other part
to the firm that had repaired the car. Taxes were not collected
on the repair price paid by the consumer because they were
included in that price.
[6] The individual appellant then
dealt with specific transactions.
[7] The first transaction involved a
contract between the corporate appellant and Clémence
Noël for the purchase of a Nissan 240. At the time of the
transaction, Ms. Noël paid $5,000 in cash and handed a
cheque for $6,800. According to the individual appellant, the
$5,000 represented the cost of the repairs and was given to the
repairer. To support that assertion, he filed an invoice for
$5,000 dated January 23, 1990, from Ateliers de
Débosselage Pro-Tess enr. An invoice for $4,050 for
the purchase of the car from Auto Recyclage Berpa inc. and a
cheque for $6,700 given to that company were also adduced in
evidence with regard to that transaction. The difference between
those two amounts was not explained. Moreover, on
cross-examination, the individual appellant stated that the
corporate appellant had received a cheque for $11,239 and $5,000
in cash for the Nissan 240 purchased by Ms. Noël.
[8] The individual appellant then
referred to the sale of a car to Serge Beauchesne under a
contract dated July 10, 1990. As for the price of that car, the
corporate appellant received $13,302, including $600 in cash-for
which an invoice was issued-that was used to pay for the repairs.
The car had been purchased from Auto Recyclage Berpa inc. for
$5,000.
[9] The individual appellant testified
that the contract between France Lemarier and the corporate
appellant was for a 1988 Camaro that the corporate appellant had
purchased from Autos Guy & Richard inc. for $5,000. The car
was damaged and was repaired by Atelier de Débosselage
Pro-Tess enr. for $6,700. It was sold for $6,422 plus $6,700 in
cash. The cash amount was given to Atelier de Débosselage
Pro-Tess enr. to pay for the repairs.
[10] The individual appellant then referred
to a contract between the corporate appellant and Transport AGM
Inc., represented by Guylaine Dubé, for the purchase of a
GMC pickup truck. The vehicle in question had been purchased from
Pièces Fontaines inc. for $7,500 and repaired by
Carrosserie G. Boyer for $5,200. Carrosserie G. Boyer has its
place of business in Arundel, a town about three and a half hours
by car from Victoriaville. On cross-examination, the
individual appellant explained that the car was sent to Arundel
because the other garages that were nearer were busy at the time.
However, the repairs were not completed until two and a half
months later.
[11] The sale by the corporate appellant to
Transport AGM inc. was made for $25,330, which included the
amount of $18,500 ($20,165 after taxes) in addition to the $5,165
paid in cash for repairs. The individual appellant gave the
$5,165 to Carrosserie G. Boyer. On cross-examination,
the individual appellant was no longer certain whether the $5,165
was received in cash or by cheque. He said that he probably kept
the amount. However, when asked whether he had not paid for
repairs, he answered as follows: [translation] "yes,
that's right, I paid for repairs". Out of the $18,500
portion of the price just referred to, the individual appellant
financed $15,000, which was not entered in his books of account
because he had [translation] "not been paid yet". The
sales tax was remitted to the government, and he said that it was
entered in the books of account. The individual appellant
admitted that he deposited the monthly payments received from
Transport AGM inc. for that transaction in his personal bank
account. He admitted that those payments were not included in his
income. He said that those amounts were part of the corporate
appellant's income and not his personal income. He did not
ask the purchaser to make out the cheques to the corporate
appellant because he did not want to [translation] "confuse
the secretary" of the corporate appellant. He intended to
deposit all of the monthly payments in the corporate
appellant's account as soon as all the instalments had been
paid. He cashed the cheques and put the proceeds in an envelope
near another envelope containing cash for repairs. The individual
appellant explained that he took the amounts home because he did
not have a strongbox at the garage. However, he forgot to deposit
the money in the bank once all the payments had been made. He
admitted that he had used the amounts for his personal
expenses.
[12] The contracting parties in the next
transaction were the corporate appellant and Serge Houle. Garage
René Martineau inc. made $7,000 in repairs to the car in
question. The price set out in the contract was $4,400, and
another $7,000 was paid in cash. The $7,000 was given to Garage
René Martineau inc. to pay for the repairs. The individual
appellant no longer had in his possession the contract proving
the corporate appellant's purchase of that car and testified
that it had probably been lost.
[13] The next transaction to be discussed
involved the corporate appellant and Gilles Ducharme. The
contract by which the corporate appellant purchased a 1990 Buick
Century from Pièces Fontaine inc. for $7,600 was not
adduced in evidence. The individual appellant said that the car
had been repaired by Centre d'Autobaines for $2,000, but
then said that the repairs had been made by
Carrosserie G. Boyer for $6,000. Centre d'Autobaines is
located in Rivère-des-Prairies near
Montréal. The price of the repairs was paid by the
purchaser in addition to the price stated in the contract. The
invoice for $2,000 refers to a white Buick Century, whereas the
invoice for $6,000 refers to a grey Buick Century. On that point,
the individual appellant said that there were two Buick
Centuries. Since the invoice for the car's purchase refers to
a grey car, it would seem that only the invoice for $6,000
applies to the car purchased by Gilles Ducharme for $7,600.
The invoice for the repairs costing $2,000 is for
Serge Fortin's car. Both cars were purchased by the
corporate appellant for consideration that was not specified.
[14] Reference was next made to the sale of
a 1990 Jeep Cherokee to Martine Fillion. That vehicle was
purchased by the corporate appellant from Alain Lalonde Auto
World Ltd. for $12,500 and repaired by Atelier de
Débosselage Pro-Tess enr. for $6,400. In this case as
well, Ms. Fillion paid $6,400 in cash for the repairs in addition
to the price set out in the written contract. The individual
appellant gave the $6,400 to Atelier de Débosselage
Pro-Tess enr. While cross-examining the individual
appellant, the respondent brought up the point that there were
two contracts with different prices, one for $25,091 with a
$10,00 credit for a car given as a trade-in and the other
for $13,853 with a $5,000 credit for another car. The individual
appellant was unable to explain this. Later, he added that Mr.
Cajelait, his salesperson, remembered the transaction and the
fact that there were two contracts but could not remember why.
The respondent objected to that part of the individual
appellant's testimony on the basis that it was hearsay.
According to the individual appellant, the salesperson was the
one who drew up the contracts. He stated that one of the two
contracts must not reflect reality. He said that Ms. Fillion
paid him $6,350 in cash.[1] The corporate appellant [TRANSLATION]
"probably" reported a sale for $13,853. The individual
appellant said that he received $9,650 of that $13,853 by cheque
and $6,350 in cash. Those amounts add up to $16,000, not
$13,853.
[15] The last transaction was between the
corporate appellant and Michel Caron. The vehicle involved
was a 1989 Ford truck purchased from Garage C. Hébert
inc. for $4,500 and repaired by Garage René Martineau inc.
for $4,066. The truck was sold to Mr. Caron for $10,297. Of that
amount, $5,000 was the credit given for a car traded in and
$6,500 was paid by cheque. The individual appellant paid $4,000
in cash for the repairs made to that truck.
[16] The individual appellant next said that
all of the vehicles purchased and resold by the corporate
appellant needed repairs. He said that, in the sale price of the
vehicles, he did not include the amounts given in cash to pay the
cost of the repairs because [translation] "this helped me
make my sale". Moreover, he said that the person that did
the repairs wanted to be paid in cash. On
cross-examination, he explained that that system helped him
sell cars because he could charge less for taxes and the customer
had to pay taxes only on the sale price specified in the written
contract, which did not include the cost of the repairs. No
customer refused that means of payment.
[17] The individual appellant said that he
was the corporate appellant's only shareholder and also one
of its employees. The corporate appellant had between five and
eight employees during the years in question. They included a
secretary who came in once a week to make entries in the
corporate appellant's books to take account of the cars sold
and the invoices. The only other person who looked after the
corporate appellant's books of account was its accountant,
Jacques Gagnon, who came [TRANSLATION] "to do the month-end
work". Mr. Gagnon also prepared the corporate
appellant's financial statements and tax returns and the
individual appellant's personal tax returns. For that
purpose, he spent a few days at the premises of the corporate
appellant once a year and met with its secretary. The individual
appellant did not make entries in the books of account
himself.
[18] Mr. Gagnon determined the corporate
appellant's income using the information and documents
provided by its secretary. The entries made by the secretary in
the books were based on the contracts of purchase and sale and
the purchase invoices for parts. The invoices for repairs that
were paid in cash and made to the above-mentioned vehicles
were not given to the corporate appellant's secretary
because, as the individual appellant put it, they were
[TRANSLATION] "ins and outs" since the cash received
from the purchaser of a vehicle was used to pay for the repairs.
The secretary did not see those invoices because she did not have
[TRANSLATION] "to do incomings and outgoings".
Referring to a given invoice, the individual appellant stated:
[TRANSLATION] "I took it with one hand and gave it back with
the other".
[19] The individual appellant said that he
paid the repairers when he took possession of the car on the
corporate appellant's behalf and that he received the same
amount when the purchaser of a given vehicle paid for it some
time later. He [TRANSLATION] "paid himself back", he
said. The repairers would not have agreed to hand the cars to the
corporate appellant and be paid later. The individual appellant
usually used the cash to pay for repairs made to another vehicle.
In the specific case of the vehicle sold to Ms. Lemarier, he
could not remember how he had used the $6,700 he had received in
cash.
[20] In his testimony, the individual
appellant also provided some general information about the
corporate appellant's operations.
[21] The individual appellant believed that
the corporate appellant used an electronic accounting system
during the years at issue. He said that the repairers were paid
in cash because that was what they requested.
[22] About half of the 300 to 350 cars sold
by the corporate appellant each year were damaged. The individual
appellant was not able to describe the repairs made to any of the
vehicles in question here. During the years at issue, the
individual appellant always did business with the same garages to
repair those cars. The garages used were chosen based on their
availability. Since they were often busy, the individual
appellant occasionally had to go to garages that were farther
away from the corporate appellant's place of business in
Victoriaville.
[23] When asked to explain what had been
done with the amount paid in cash for repairs to the vehicle
purchased by Mr. Caron-that transaction being the last involving
the receipt of cash-the individual appellant said that he
probably paid himself back for the repairs made to the first
vehicle purchased by the corporate appellant, since the corporate
appellant had had to take out a loan to pay the consideration
required for its first transaction. He could not say with
certainty who the lender was, but he thought that it might have
been his brother, Yvon.
[24] The individual appellant stopped paying
for repairs in cash after the sale to Mr. Caron [TRANSLATION]
"because it was too much of a nuisance" and the garages
[TRANSLATION] "didn't need it as much". He never
obtained any receipts for the payments made to the repairers; the
invoices were the only documents issued by them.
[25] The individual appellant was unable to
explain why a busy garage like Guy Boyer's had
apparently issued consecutively numbered invoices for repairs
done two months apart. Nor could he clarify why the number on the
invoice dated October 6, 1990, was higher than the
number on the receipt dated May 30, 1991.
[26] Finally, it was admitted that the
individual appellant had pleaded guilty to a single count, namely
receiving stolen cars, out of [TRANSLATION] "about 30"
charges laid against him in connection with the vehicles at issue
in these Reasons for Judgment. The individual appellant paid a
$100,000 fine for that charge.
Édouard Tessier
[27] Édouard Tessier, the owner of
Atelier de Débosselage Pro-Tess enr., testified that he
repaired [TRANSLATION] "maybe" one or two cars a month
for the corporate appellant. However, on cross-examination,
he changed his story and said that what he meant was that he
repaired about one car a month in total for the corporate
appellant or any other person. He no longer remembered the
specific repairs made to the vehicles at issue that he had
repaired. He confirmed that the individual appellant always paid
him in cash.
[28] Atelier de Débosselage Pro-Tess
enr. was not incorporated during the years at issue. Mr. Tessier
said that his gross income from that business was about $50,000
in 1990 and that he had reported that income in his tax return.
When counsel for the respondent showed him his 1990 tax return,
in which only $22,476 in employment income had been reported, he
reconsidered and admitted that he had not reported his business
income of $50,000 [TRANSLATION] "most probably" to
avoid paying taxes. He also received unemployment insurance
benefits in 1991 and 1992 without declaring that he worked for
Atelier de Débosselage Pro-Tess enr.
Guy Boyer
[29] Guy Boyer was the owner of Carrosserie
G. Boyer in Arundel. He did not remember the particulars of the
repairs made to the corporate appellant's vehicles, but he
confirmed that the individual appellant paid him in cash. In
answer to a question by counsel for the respondent, he said that
he repaired [TRANSLATION] "at least one (vehicle) a
month" during the years at issue. He said that he did not
repair any other vehicles between the repairs he made to the
individual appellant's two vehicles, which explains why the
two invoices issued to the individual appellant were
consecutively numbered. Mr. Boyer stopped carrying on business at
the end of 1990 because of health problems. He confirmed that he
asked to be paid in cash because he had to pay cash when he
stocked up at scrapyards.
Claude Hébert
[30] Claude Hébert was the owner of
Garage C. Hébert inc. in
Sainte-Hélène, a business whose operations
involved the purchase and resale of damaged cars. He sold the
individual appellant a Ford F150 for $4,500 ($4,815 after taxes)
and was paid by cheque. The witness could not remember the terms
and conditions of the sale and said that his son was the one who
had sold the car. He said that he purchased the vehicle in
question from an insurance company.
Jean Demers
[31] Jean Demers was the manager of
Pièces Fontaine inc. during the years at issue. He
confirmed in particular that this firm sold the corporate
appellant a damaged vehicle for $7,600. He also said that he sold
the corporate appellant about 10 vehicles a year.
Respondent's evidence
France Lemarier
[32] In May 1990, France Lemarier purchased
a Camaro from the corporate appellant. She said that she paid
$6,700 in cash in addition to the $6,999.98 set out in the
contract, an amount paid by certified cheque. The total price was
therefore $13,699.98. She paid that way because the individual
appellant told her that [translation] "what it will do is
save on taxes, it will cost less than the asking price". She
said that based on her liquid assets she herself had determined
how much of the consideration she would pay in cash. The
Sûreté du Québec later seized the car on the
ground that it was stolen. The car was returned to her eight
months later.
[33] In addition to Ms. Lemarier, all the
purchasers of vehicles referred to in the testimony of the
individual appellant testified at the request of the respondent.
They were Clémence Allaire (Clémence Noël),
Serge Houle, Gilles Ducharme, Serge Fortin, Michel
Caron, Guylaine Dubé and Martine Fillion. They all
said that they had purchased a vehicle from the corporate
appellant and that, on top of the price set out in the written
purchase contract, they had paid an amount in cash ranging from
$2,000 in one case to no more than $7,000 in the others.
[34] After those who had purchased vehicles
from the corporate appellant testified, evidence was given by
Denis Blais and Johanne Couture, two people who worked for
Revenue Canada at the relevant time.
[35] It should be noted from the testimony
of Mr. Blais, a Revenue Canada appeals officer who was assigned
the two appellants' files, that he contacted Jacques Gagnon,
the appellants' accountant, several times. On a few of those
occasions, Mr. Gagnon asked him for time to discuss the files
with his clients. That time was always given to him. On July 2,
1996, Mr. Blais contacted Mr. Gagnon by telephone for the
last time. According to Mr. Blais, Mr. Gagnon said:
[translation] "Close the file . . . I'm fed up with
running after my client". Moreover, in reviewing the
objection filed by the appellants to the assessments at issue,
Mr. Blais never received any vouchers or other documentation and
was therefore unable to thoroughly analyse the file.
[36] From 1991 to 1994, Johanne Couture was
an auditor with Revenue Canada. She audited the appellants'
files but did not participate in the investigation. Her audit was
based, inter alia, on information obtained from the
Sûreté du Québec indicating that stolen cars
had been resold.
[37] On January 20, 1994, Alain Gingras, who
was then an investigator with Revenue Canada, interviewed the
individual appellant. Later the same year, Mr. Gingras fell
ill and did not return to work afterwards. Since 1996, he has
been retired with a permanent disability. Ms. Couture therefore
testified concerning Mr. Gingras's interview with the
individual appellant. That evidence was objected to on behalf of
the appellants. Relying on the notes taken by Mr. Gingras,
Ms. Couture stated the following about the interview:
[TRANSLATION]
... The interview was held on January 20, 1994, with
Denis Laroche at Auto D.L. Laroche's place of business.
Alain Gingras was present. The interview was held as a
result of searches conducted in December 1993. One reason was to
give him an inventory of the things seized during the search.
They gave him the formal warning, which is something we use when
we're investigating to inform taxpayers of their rights as
far as the criminal aspect of the file is concerned.
One thing Mr. Laroche said was that everything had been
reported and that he didn't know anything about the
paperwork. He wouldn't allow us to take notes. A little
later, at the end of the interview, the investigators asked Mr.
Laroche whether there were cash outlays¾whether he had
paid certain expenses in cash and not claimed those expenses
against the unreported income. Mr. Laroche's answer was
no.
So in the work I did to make the reassessments-first,
submitting the proposed assessments and then making a
reassessment-that was a statement I took into account.
[Transcript of November 19, 1998, at
pages 223-24.]
[38] During the audit, Ms. Couture never saw
any invoices for the repairs made to the vehicles in question or
any contracts by which the corporate appellant purchased those
vehicles. She saw the invoices for the first time in October 1998
and the purchase contracts on the first day of the hearing of
these appeals.
[39] To make her assessment, Ms. Couture
relied on Mr. Gingras's files and the [TRANSLATION]
"statutory declarations" made by the corporate
appellant's customers to the Sûreté du
Québec officers.
[40] Ms. Couture also referred to a note
hand written by Mr. Gingras at the bottom of a working document,
which reads as follows:
[TRANSLATION]
The total in the contract of sale, specifically $20,165, was
removed from Auto D.L.'s books for its fiscal year ending on
May 31, 1991. The financing was appropriated by the
shareholder, Denis Laroche. The cheques were cashed at
Mr. Laroche's branch of the National Bank.
[Transcript of November 19, 1998, at page 228.]
[41] The total amount of the transaction in
which Ms. Dubé purchased a vehicle was therefore added to
the corporate appellant's income as unreported income. It was
also added to the individual appellant's income as an amount
that he had appropriated, since the cheques had been made out to
and cashed by him. Since the sale to Ms. Dubé had been
financed by the corporate appellant, interest income was also
added to its income. Ms. Couture could not say whether the sales
tax on the transaction had been remitted to the government.
[42] As regards the sale to Ms. Fillion-the
transaction for which there were two contracts-$9,650, which was
the amount recorded in the corporate appellant's books of
account, was subtracted from the $16,000 paid by
Ms. Fillion, resulting in $6,350 in unreported income.
[43] Ms. Couture said that, after reading
Mr. Gingras's file, she noted that searches were conducted in
December 1993 but that they did not have [translation] "the
expected results". Ten or so boxes of books of account,
vouchers and records were not found. However, Ms. Couture said
that, despite the absence of the boxes containing that
documentation, she at least had a photocopy of all the documents
she needed to make the assessments at issue.
[44] Ms. Couture also obtained information
on Édouard Tessier, the owner of Atelier de
Débosselage Pro-Tess enr. She stated, inter alia,
that Mr. Tessier did not have his firm name registered before May
1994 even though he claimed to have done so in 1992. She also
testified that, in his tax returns, Mr. Tessier had reported only
employment income for 1989 and 1990 and employment income and
unemployment insurance benefits for 1991 and 1992.
[45] Ms. Couture also recommended the
assessment of the penalties provided for in subsection 163(2) of
the Income Tax Act because the individual appellant seemed
to have arranged his affairs for the purpose of not reporting
certain income and to have [translation] "set up a tax
evasion scheme".
[46] The last two of the respondent's
witnesses were Vincent Martin and Gilles Roberge, members of
the Sûreté du Québec.
Vincent Martin
[47] Mr. Martin is a police investigator
with the Sûreté du Québec. He conducted an
investigation in the appellants' files. As part of that
investigation, he worked closely with Mr. Roberge, whose role was
to determine whether the seized vehicles were in fact stolen
vehicles.
[48] The investigation began in 1991 with
the seizure of automotive parts at the home of the individual
appellant's father-in-law and a similar seizure at Recycleurs
Fontaine. Charges were laid in 1992. The second phase of the
investigation involved identifying a stolen car ring.
[49] Mr. Martin said that, after the
automotive parts were seized, the Sûreté du
Québec found serial numbers of vehicles [translation]
"that were total losses on the engines or the
transmission". A check showed that the vehicles were still
registered.
[50] Mr. Martin recognized all the names of
the people involved in the transactions at issue except the name
of Guylaine Dubé. He then explained how the vehicles
presumed to be stolen were traced.
[51] In the case of the Camaro purchased by
Ms. Lemarier, Mr. Martin found the vehicle and then seized it.
The vehicle was then examined by Mr. Roberge.
Mr. Martin was not involved in the examination. According to
Mr. Martin, Mr. Roberge gave him a serial number
belonging to a car that had been stolen on
February 20, 1990. Once it was established that the
vehicle had been stolen, he asked the prosecuting attorney to
bring proceedings against the individual appellant.
[52] The same process was used for Ms.
Noël's Nissan 240, and it was concluded that this car
had been stolen on May 4, 1990. It was also determined that the
cars purchased by Mr. Beauchesne, Ms. Dubé,
Mr. Houle,[2]
Mr. Ducharme and Mr. Fortin were stolen cars. Mr. Martin
reached the same conclusion about Ms. Fillion's car, except
that this vehicle was examined by the Sûreté du
Québec in Québec. Mr. Martin did not participate in
the investigation concerning that car, but he laid charges
involving it and other vehicles. Mr. Martin did not have any
documentation on the vehicle purchased by Mr. Caron and
remembered little about it.
[53] Mr. Martin confirmed that 53 charges
involving the vehicles in question were laid against the
individual appellant and subsequently withdrawn. Only one count
was retained.
[54] A number of objections were made to Mr.
Martin's evidence on the basis that it was largely hearsay
and did not comply with the best evidence rule. The respondent
argued that Mr. Martin's testimony was necessary to demolish
the individual appellant's credibility, something that
counsel for the respondent said was essential to her case.
Gilles Roberge
[55] Mr. Roberge has been a police officer
with the Sûreté du Québec since 1973. Before
the 1980s, he was assigned to that police force's forensic
identification unit. From then on, his duties included the
restoration of altered serial numbers on automotive parts by
using acid. In the 1980s, Mr. Roberge received training from the
insurance crime prevention bureau of the Sûreté du
Québec. Later, in 1990, he attended a two-week
vehicle identification seminar at the Canadian Police College.
The seminar enabled him to work particularly in the field of
identifying vehicles by means of the secondary serial numbers on
them. That is the job he still holds today.
[56] Mr. Roberge's status as an expert
witness was admitted on behalf of the appellants and accepted by
the Court.
[57] The investigation involving the
individual appellant's file started around May 1991. Mr.
Roberge acted as a specialist in restoring the altered serial
numbers on engines and transmissions seized in the corporate
appellant's garage and on a school bus.
[58] The first step in the investigation was
to identify the secondary serial numbers on the engines and
transmissions. Mr. Roberge then contacted the
Société de l'assurance automobile du Québec
to obtain the complete serial number. With that number, he
obtained the name of the vehicle's owner at the relevant
time, general information on the vehicle and the vehicle's
history from the Centre de renseignement policier du
Québec. Mr. Roberge was also told whether the vehicle was
on the road. Since the vehicles were on the road, the next step
in the investigation was the seizure of the vehicles by teams of
police officers with the assistance of officer Vincent Martin.
Mr. Roberge then had to examine each seized vehicle and prepare a
positive identification report.
[59] During his testimony, Mr. Roberge
briefly summarized the procedure he followed to identify the
vehicles: the secondary serial numbers on the seized part were
restored, the complete serial number was identified by the
Société de l'assurance automobile du Québec,
a check with the Centre de renseignement policier du
Québec was made to obtain the stolen vehicle report and
the vehicle with the serial number in question was seized and
then examined by him.
[60] One of the appellants' counsel
objected to the admissibility of Mr. Roberge's testimony
concerning the restoration work done on the engine of a vehicle
owned by Serge Houle because the work was not done by
Mr. Roberge. It was another police officer, Luc Savard, who
did the restoration. The report was prepared by Mr. Savard and
Mr. Roberge. Counsel for the appellants argued that, since Mr.
Savard did the restoration, he should be the one to testify about
the findings. Mr. Roberge explained that he did not think he was
present when Mr. Savard did the restoration and that he did
not know who took the photographs in document 59 of Exhibit
I-7 (book of photographs of the red 1990 Pontiac Sunbird).
However, Mr. Roberge said that he had prepared part of the
report, had contacted the Société de
l'assurance automobile du Québec to obtain the
complete serial number and had requested the stolen vehicle
report.
[61] When asked questions about the
photographs in document 53 of Exhibit I-7 (book of
photographs of a school bus with several car engines inside),
Mr. Roberge admitted that the secondary serial numbers on
most of the engines had been forged by grinding them down, even
though he had previously said that the serial numbers had almost
all been hammered with a pointed tool. He confirmed that he
achieved varying results in his examination of more than
20 engines. The secondary serial numbers on eight engines
were restored, leading to vehicle seizures; for some vehicles,
the Société de l'assurance automobile du
Québec did not have the complete serial numbers so the
investigation was not continued; for others, the secondary serial
numbers simply could not be restored, so the result was negative.
Mr. Roberge said that the secondary serial numbers sometimes
corresponded to complete serial numbers of vehicles on the road
in Quebec and not to stolen vehicles.
[62] Subject to an objection by counsel for
the respondent, Mr. Roberge was cross-examined on his
restoration of serial numbers of vehicles not at issue in these
proceedings. Mr. Roberge confirmed that, in a given case, the
Société de l'assurance automobile du
Québec may not have the complete serial numbers
corresponding to the restored secondary serial numbers. In such a
case, he concludes that the vehicle in question is not on the
road in Quebec, since it has never been registered in Quebec. Mr.
Roberge admitted the possibility that a part whose serial number
is restored might come from a damaged vehicle from the United
States or Ontario and that the vehicle would not have
subsequently been put back on the road in Quebec with those
secondary serial numbers.
Submissions of the appellants
[63] One of the appellants' counsel
noted that the Minister of National Revenue did not make
assessments for the 1990 and 1991 taxation years against each of
the appellants within the normal assessment period and that,
under subparagraph 152(4)(a)(i) of the Income Tax
Act, it was therefore up to the Minister to prove that he was
entitled to assess them. To justify the assessment of penalties
under section 163 of the Income Tax Act, the Minister had
to prove that the appellants failed to report all of their income
knowingly or under circumstances amounting to gross negligence.
As regards the individual appellant, the Minister concluded that
there was an appropriation of funds, and penalties were also
assessed under section 163 of the Income Tax Act.
[64] Relying on the Supreme Court of
Canada's decision in Hickman Motors Limited v. The
Queen, 97 DTC 5363, and the Exchequer Court of Canada's
decision in M.N.R. v. Pillsbury Holdings Ltd.,
64 DTC 5184, the appellants argued that they had to adduce
sufficient evidence to cast doubt on the facts assumed by the
Department. Once that was done, the burden of proof was reversed.
According to the appellants, the Minister did not take account of
certain facts when he made his assessments, and the amounts
received in cash represented [translation] "expenses for
repairs that had been done; therefore, unreported income versus
unreported expenses". It was added that [translation]
"naturally, if there are expenses equal to income, there is
no business income in accordance with section 9".
[65] With regard to the deductibility of
those expenses, the appellants also referred to the following
cases: Fortin et al. v. The Queen, T.C.C., No.
94-907(IT)G, October 8, 1996 (97 DTC 950);
Lafrenière v. M.N.R., 83 DTC 345 (T.R.B.),
Epsie Printing Co. Ltd. v. M.N.R., 60 DTC 1087 (Ex.
Ct); M.N.R. v. Eldridge, 64 DTC 5338 (Ex. Ct), and
United Color and Chemicals Limited et al. v.
M.N.R., 92 DTC 1259 (T.C.C.).
[66] According to the appellants, all that
they had to prove was that expenses were incurred to make
repairs. For most of the vehicles, the repairers testified that
they made the repairs and were paid in cash for them. The
[TRANSLATION] "statutory declarations" made to the
police officers by the people who purchased vehicles from the
appellants and the purchase contracts between the corporate
appellant and those people confirm that the purchasers bought
damaged vehicles that had been repaired. There is no evidence
that contradicts that testimony or challenges the fact that
expenses were incurred for repairs. The appellants also argued
that it is not contested that the corporate appellant had between
300 and 400 vehicles repaired by various firms each year.
[67] According to the appellants, it was up
to the respondent to rebut the evidence concerning the expenses
by proving that the corporate appellant did not incur expenses
equal to the unreported income. In this regard, one of the
appellants' counsel argued that the appellants' evidence
had not been contradicted. Even if counsel for the respondent had
proven on a balance of probabilities-which she did not-that the
individual appellant knew the vehicles were stolen, the fact
remains that the repairs were done and paid for by the corporate
appellant. The deduction of the expenses should therefore be
allowed.
[68] As regards the transaction between the
corporate appellant and Guylaine Dubé in which the
corporate appellant gave Ms. Dubé $15,000 in financing, it
was admitted for the appellants that this amount was not included
in the corporate appellant's income. The failure to do so was
explained as a mere accounting oversight by an inexperienced
accounting clerk. According to the appellants, [translation]
"it was the only case in which income was omitted". One
of the individual appellant's counsel made the following
comments about this:
[TRANSLATION]
I don't think it can be said in that case that there was such
negligence that, first, it became possible to assess outside the
required assessment period and, second, it can be likened to
neglect or even a very high degree of fault.
[Transcript of February 7, 2000, at page 153.]
[69] Reference was then made to the decision
by the Federal Court-Trial Division in Venne v. The
Queen, 84 DTC 6247.
[70] One of the appellants' counsel
expressed their main position as follows:
[TRANSLATION]
. . . I think it's the basis of all my argument: the
expenses relating to the omitted income may be deducted even
where a penalty is being calculated. This is my main position,
but it's also my position as regards the penalties.
The rest, Your Honour-my client's degree of fault, degree of
involvement, degree of any knowledge about the possession of
stolen goods-does nothing to change the fact that the vehicles
were repaired vehicles the cost of which had to be paid.
[Transcript of February 7, 2000, at page 154.]
[71] It was also argued on behalf of the
appellants that they did not have any equipment to repair
vehicles. Without equipment, they could not do all the work
needed for repairs. It was noted that officer Roberge had
testified that falsifying serial numbers on a vehicle is a
complex operation and that it took him many hours to uncover a
falsified vehicle. According to the appellants, the evidence they
put forward is more plausible than the respondent's theory
that the individual appellant repaired the vehicles in
question.
[72] As regards the respondent's
argument that it is unlikely that repairs could have been done by
a repairer located more than a two-hour drive from the
corporate appellant's garage, it was explained for the
appellants that the vehicles were repaired near the places where
they were when the corporate appellant purchased them. For
example, three vehicles purchased in Montréal were
repaired near Montréal in Contrecoeur and then returned to
Victoriaville.
[73] It was argued for the appellants that,
if they were in possession of stolen vehicles or vehicles with
stolen parts, those vehicles were resold to the corporate
appellant's customers in the condition in which the vehicles
or parts were received. Just a few cases out of 600 are involved,
since the evidence shows that only six vehicles were altered. The
work was done at the repairer's shop.
[74] The fact that the appellants did not
keep accounting records or books concerning the income and
expenses at issue here does not preclude them from proving that
the expenses were real. He added that it is [translation]
"one of the only ways in which unreported income and
unreported expenses can be brought before the Court". The
appellants argued that they proved the expenses were real by the
invoices they filed and the testimony of the witnesses.
[75] The appellants, while ready to accept
the respondent's position that the purchasers were impartial
witnesses, took the view that the purchasers could not testify
that there was unreported income or testify about the validity of
the expenses. They could testify only that they [translation]
"contributed to unreported income".
[76] It was also explained that the
corporate appellant did not report the income at issue in these
proceedings because [translation] "it is obvious that, if it
was doing its customers a favour by not having them pay taxes, it
wasn't going to include it in its income, report the taxes
and take a risk that its customers would have problems in that
regard". Counsel admitted that the corporate appellant and
its customers mutually decided not to pay the provincial taxes,
but the appellants should not suffer [translation] "tax
consequences insofar as there was no net profit".
[77] According to the appellants, it was up
to the respondent to prove that the expenses were not incurred or
paid by either of the appellants. The appellants' evidence
shows that the vehicles were delivered to the repairers. Although
the invoices are imprecise, the repairers that testified are
credible, and they stated that they made repairs to the damaged
vehicles at issue in these appeals. If the repairers are
credible, then their invoices providing few details are also
credible. Moreover, the reason the invoices are imprecise is that
the individual appellant often dealt with the same repairers.
Given their longstanding business relationship, the individual
appellant checked only whether the price proposed to the
corporate appellant by the vendors was reasonable. The invoices
did not have to be corroborated by the corporate appellant's
secretary and accountant.
[78] One of the appellants' counsel
admitted that repairs were made to stolen vehicles. The Court
does not have to decide whether the individual appellant is the
one who stole the vehicles. According to that counsel, what the
Court must decide is whether the corporate appellant incurred the
expenses in question. As regards the appropriation of funds, the
individual appellant does not agree with the respondent's
position that he admitted appropriating funds. What the
individual appellant admitted is that he took cash and put it in
an envelope at his home. He paid the expenses incurred to repair
the vehicles with cash that he kept in an envelope. The fact that
he brought the money home does not imply that he used it for
personal purposes. On that point, the appellants referred to the
decision by the Federal Court-Trial Division in Berbynuk
v. The Queen, 78 DTC 6322, at page 6324:
... I see nothing in any of those provisions which would
authorize the attribution of a corporation's suppressed
income to an employee or a shareholder simply because it was
suppressed income. In order for it to be attributable the
individual, whatever the relationship to the corporation, the
individual must have either received the money or its value in
the form of a benefit or advantage.
Submissions of the respondent
[79] After admitting that the assessments
for the appellants' 1990 and 1991 taxation years were made
after the normal assessment period, counsel for the respondent
argued that all she had to prove was that the taxpayer did not
act with reasonable care because a misrepresentation was made. In
the instant case, it is clear that a misrepresentation was made,
since part of the total price on numerous sales of vehicles was
not reported in the corporate appellant's income. As for the
individual appellant, the Minister had to prove that there was an
appropriation of funds.
[80] According to counsel for the
respondent, the evidence as a whole shows, first, that the
Minister was entitled to assess, second, that there was
unreported income and, third, that that income [translation]
"could be penalized" in the hands of both the corporate
appellant and the individual appellant.
[81] The following evidence shows that a
misrepresentation was made: sales were recorded incorrectly in
the corporate appellant's books; [translation] "the
amortization schedules were not changed"; and there are
cheques-for the vehicle sold to Ms. Dubé, for example-that
were made out to the individual appellant and cashed by him
personally. The individual appellant himself testified that
amounts were paid in cash by the purchasers of vehicles and given
to him directly.
[82] On the question of the
"statute-barred" assessment years, counsel for the
respondent relied on two decisions. The first is Regina
Shoppers Mall Limited v. The Queen, 90 DTC 6427, in
which Addy J. of the Federal Court-Trial Division stated the
following at page 6429: "It has also been established that
the care exercised must be that of a wise and prudent person and
that the report must be made in a manner that the taxpayer truly
believes to be correct." The second is this Court's
decision in Plante v. M.N.R., 85 DTC 117, which
sets out the principle that, as soon as the Minister has proven
that a misrepresentation was made, the burden is on the taxpayer
to prove that the assessment is incorrect.
[83] Counsel for the respondent went on to
argue that the case at bar involves a taxpayer whose accounting
was deficient, with some amounts not being reported. Moreover,
the respondent referred once again to the corporate
appellant's sale of a vehicle to Guylaine Dubé, noting
that the individual appellant admitted in his testimony that he
had appropriated $5,165, since the cheque for that amount was
made out to him. The individual appellant also appropriated
$15,000 in that transaction. A misrepresentation was therefore
made.
[84] It is not in dispute that part of the
sale price in each of the transactions at issue was paid in cash.
The individual appellant himself testified that those amounts
were not indicated in the contracts of sale for the vehicles,
deposited in the corporate appellant's bank account or
entered in the corporate appellant's books.
[85] Counsel for the respondent argued that
it is rather "odd" that repair invoices were submitted
at the last stage of challenging the assessments, that is, the
appeal, when they had never been submitted at any other stage
prior to the hearing in this Court. In her view, that lack of
co-operation by the appellants may taint their cases.
According to the respondent, the individual appellant's
behaviour is highly significant in establishing whether or not
the appellants' evidence is credible.
[86] It was argued for the respondent that
the evidence resulting from the testimony of the police officers,
Vincent Martin and Gilles Roberge of the Sûreté du
Québec, is crucial in determining whether expenses were
incurred and whether they were legitimate. The description of the
investigation conducted by the Sûreté du
Québec and, in particular, the origin of the vehicles and
the history of the serial numbers that were tampered with and
forged are important elements that discredit the appellant's
position that repair expenses were incurred in relation to the
vehicles.
[87] Moreover, counsel for the respondent
noted that it is strange that the amounts of money some
purchasers were prepared to pay in cash, which did not appear in
the contracts of sale, were almost indentical to the cost of the
alleged repairs even though two or three of the purchasers
testified that they themselves determined the amount they would
pay in cash according to the liquid assets they had at the time
of a given contract. Furthermore, some purchasers stated that
they paid an amount in cash precisely to reduce the taxes and the
sale price of the vehicle. As well, the purchasers did not
testify that there was an agreement between each of them and the
individual appellant whereby the amount that each was to pay in
cash for a given vehicle would correspond to the cost of the
repairs made to the vehicle. According to the respondent, the
purchasers did not support the appellants' position.
[88] The eight purchasers who testified had
no interest in testifying one way rather than another. Their
testimony carries enormous weight with the Court and supports the
respondent's position and not the appellants'. It is
testimony that cannot be refuted by the appellants. As regards
the individual appellant's evidence, it is obvious that, when
he testified, it was in his interest to win his case. The
recyclers and repairers that testified deal with the individual
appellant regularly. It was therefore in their interest not to
give testimony that could harm the appellants.
[89] According to the respondent, the
individual appellant's explanation that not including the
amounts at issue made it easier to sell a vehicle is not
plausible. She understands that the reduction in a vehicle's
sale price resulting from what the corporate appellant did so
that the purchaser pay less in taxes could help make a sale.
However, the failure to record the sale price in the corporate
appellant's books had no effect on the sale. The individual
appellant also said that this approach made it possible for the
purchaser to obtain credit. That submission is not plausible
either.
[90] Counsel for the respondent next
referred to the individual appellant's testimony concerning
the bookkeeping and, in particular, his assertion that his
secretary looked after the billing and that his accountant, who
was responsible only for the year-end work, was not aware
that certain expenses were paid in cash. According to the
respondent, this way of doing things constitutes a
misrepresentation. Moreover, she expressed the view that it was
illogical for the individual appellant to allow a purchaser to
pay cash to reduce the provincial sales tax and at the same time
refuse to allow the cash amount to exceed the cost of the
so-called repairs on the ground that his accounting would no
longer be accurate.
[91] Counsel for the respondent referred to
the individual appellant's explanation that, when repairs
were paid for by cheque to the various repairers, the amount was
recorded by the secretary. She then wondered why the secretary
did not record the expenses paid in cash for repairs to the
above-mentioned vehicles, if not to hide something. Counsel
for the respondent noted that the individual appellant's
testimony with respect to the accounting was not corroborated,
aside from Ms. Couture's evidence on this point.
[92] Ms. Couture testified that Revenue
Canada did not see any invoices for the expenses at issue here
and that the individual appellant told Alain Gingras, a Revenue
Canada auditor, that everything had been reported and that there
were no unreported expenses. As regards the appropriation of the
funds paid on the sale of a vehicle to Guylaine
Dubé¾a contract involving $15,000 in
financing¾ Ms. Couture explained that she included
the following amounts in the corporate appellant's income:
two payments in 1990 totalling $936; 12 payments in 1991
totalling $5,616; 12 payments in 1992 totalling $5,616 and; 10
payments in 1993 totalling $4,680.
[93] Referring to the testimony of the two
Sûreté du Québec officers, counsel for the
respondent noted in particular that, after obtaining the
"real" serial numbers for the engines in question and
after checking with the Société de l'assurance
automobile du Québec, those officers realized that most of
the vehicles were still on the road even though they had been
recorded as total losses. After the real owners were identified,
the Sûreté du Québec seized the vehicles. The
serial numbers on all the vehicles except the vehicle of Michel
Caron had been forged. Mr. Martin and Mr. Roberge
testified that, after the "real" serial numbers on the
seized vehicles were found and after a technical examination of
those vehicles was done, the vehicles were identified as stolen
vehicles. Six of them were new vehicles stolen from dealers,
while three others were very recent vehicles.
[94] According to the respondent, it can be
inferred on the balance of evidence from the testimony of the
police officers, Vincent Martin and Gilles Roberge, that the
vehicles in question are stolen vehicles whose serial numbers
were forged, and that they were subsequently sold. The respondent
argued that this evidence contradicts the appellants'
position, since they cannot claim that they have invoices for
repairs-the invoices have little information and the
repairers' testimony about them has no weight-when the
vehicles in question are new vehicles that were stolen. Counsel
for the respondent argued that it would be unlikely for damaged
vehicles to have been stolen.
[95] As regards the penalty under subsection
163(2) of the Income Tax Act, counsel for the respondent
was of the view that the Minister penalized both the corporate
appellant's unreported income and the individual
appellant's appropriation of funds. Everything took place in
order to evade taxes and enable the individual appellant to
appropriate funds. The individual appellant testified that he
personally received cash that he kept at home in an envelope. The
fact that he then said that the money was used to pay for repairs
is neither plausible nor credible. He did not submit any
documentation to support his testimony that he had some kind of
accounting system at home.
Analysis
[96] Before analysing the evidence and
discussing the issues, it is worth making some general comments
concerning the many objections to evidence made primarily by
counsel for the appellants.
Evidence
[97] When Mr. Martin and Mr. Roberge
testified, the appellants objected to the admissibility of
certain parts of their testimony. In support of their objections,
they argued that the evidence was contrary to the rule that
hearsay evidence is not admissible and that it did not comply
with the best evidence rule.
[98] The basic rule against hearsay was
stated as follows by J. Sopinka, S.N. Lederman and A.W.
Bryant in their book The Law of Evidence in Canada,
2d ed. (Toronto: Butterworths, 1999), at page 173:
Written or oral statements, or communicative conduct made by
persons otherwise than in testimony at the proceeding in which it
is offered, are inadmissible, if such statements or conduct are
tendered either as proof of their truth or as proof of assertions
implicit therein.
[99] Exceptions to the rule against hearsay
were created in situations having the following four
characteristics:[3]
(1) It was
impossible or difficult to secure other evidence.
(2) The author of
the statement was not an interested party in the sense that the
statement was not in his favour.
(3) The statement
was made before the dispute in question arose.
(4) The author of
the statement had a peculiar means of knowledge not possessed in
ordinary cases.
[100] The following comments by the same authors should
be considered in determining whether a hearsay exception may
apply:[4]
Necessity has given rise to a number of clearly defined
exceptions to the rule against hearsay. The requirement that
testimony be subjected to the test of cross-examination has been
dispensed with in situations where the declarant of the words in
question is unavailable and the oral or written statement was
made under circumstances which, it can be presumed, would impress
the remarks with a genuinely trustworthy quality. In many
situations, such declarations are the only cogent evidence
available and to exclude them would result in considerable
inconvenience.
[101] In R. v. Khan[5] and R. v. Smith,[6] the Supreme Court
of Canada further defined the circumstances in which hearsay
evidence may be admitted. The Court adopted the criteria of
necessity and reliability rather than trying to fit hearsay into
one of the exceptions accepted by the courts or expanding those
exceptions. In Smith, Lamer C.J. stated the following
about hearsay evidence at page 933:
This Court's decision in Khan,
therefore, signalled an end to the old categorical approach to
the admission of hearsay evidence. Hearsay evidence is now
admissible on a principled basis, the governing principles being
the reliability of the evidence, and its necessity.
[102] Thus, Lamer C.J. clearly confirmed that the
approach recognized in Khan involving the twofold
criterion of necessity and reliability should not be limited to
the specific facts of that case.
[103] The same judge then provided further information
about those criteria at pages 933-34:
The criterion of "reliability"-or, in
Wigmore's terminology, the circumstantial guarantee of
trustworthiness-is a function of the circumstances under which
the statement in question was made. If a statement sought to be
adduced by way of hearsay evidence is made under circumstances
which substantially negate the possibility that the declarant was
untruthful or mistaken, the hearsay evidence may be said to be
"reliable", i.e., a circumstantial guarantee of
trustworthiness is established....
The companion criterion of "necessity"
refers to the necessity of the hearsay evidence to prove a fact
in issue....
... the criterion of necessity must be given a flexible
definition, capable of encompassing diverse situations. What
these situations will have in common is that the relevant direct
evidence is not, for a variety of reasons, available. Necessity
of this nature may arise in a number of situations. Wigmore,
while not attempting an exhaustive enumeration, suggested at
§ 1421 the following categories:
(1) The person whose assertion is offered may now
be dead, or out of the jurisdiction, or insane, or otherwise
unavailable for the purpose of testing [by cross-examination].
This is the commoner and more palpable reason....
(2) The assertion may be such that we cannot
expect, again or at this time, to get evidence of the same value
from the same or other sources.... The necessity is not so great;
perhaps hardly a necessity, only an expediency or convenience,
can be predicated. But the principle is the same.
Clearly the categories of necessity are not closed. In
Khan, for instance, this Court recognized the necessity of
receiving hearsay evidence of a child's statements when the
child was not herself a competent witness. We also suggested that
such hearsay evidence might become necessary when the emotional
trauma that would result to the child if forced to give viva
voce testimony would be great. Whether a necessity of this
kind arises, however, is a question of law for determination by
the trial judge.
[104] Finally, the learned judge concluded as follows at
page 935:
... Where the criteria of necessity and reliability are
satisfied, the lack of testing by cross-examination goes to
weight, not admissibility, and a properly cautioned jury should
be able to evaluate the evidence on that basis.
[105] In his book Précis de la preuve,
Professor Ducharme discussed the application of Khan and
Smith to cases governed by Quebec law. That law applies
even to federal matters, on a suppletive basis, in view of what
is stated in section 40 of the Canada Evidence Act.
Professor Ducharme stated the following at pages 373-74:
[TRANSLATION]
Although . . . Khan, Smith and R. v.
B. [[1993] 1 S.C.R. 740] were criminal cases, they were
also authoritative in civil cases in Quebec. Inasmuch as the
exceptions to the prohibition against hearsay evidence in Quebec
law were common law exceptions, any Supreme Court decision
clarifying or changing the common law rules in this area also had
to be applied in Quebec.
[Footnotes omitted.]
[106] One of the appellant's counsel objected to the
filing of computer reports from the Centre de renseignement
policier du Québec and occurrence reports from the
Sûreté du Québec on the ground that they were
not the best evidence.
[107] The practical disadvantages resulting from the
application of the best evidence rule have prompted Parliament
and the courts to create numerous exceptions to that rule. One
such exception recognized by the courts is that secondary
evidence of the content of public documents is admissible.[7]
[108] Moreover, the Supreme Court of Canada accepted the
admissibility of "public documents" in Littley
v. Brooks and Canadian National Ry. Co.,[8] in which Rinfret J. stated the
following at page 426:
... Documents such as these will be received in evidence when
they contain the results of inquiries made, as here, under
competent public authority in the exercise of a judicial or
quasi-judicial duty and concerning matters in which the public
are interested. (See speech of Lord Blackburn in Sturla v.
Freccia (1880) 5 App. Cas., 623; see also Phipson, Law of
Evidence, 6th ed., p. 355).
The Supreme Court of Canada thus adopted the following
definition of "public document" provided by Lord
Blackburn at page 643 in Sturla: ". . . a document
that is made for the purpose of the public making use of it, and
being able to refer to it".
[109] In Canada, that exception was subsequently
incorporated into specific legislation. Section 24 of the
Canada Evidence Act[9] is one of several provisions intended to encourage
secondary evidence of public documents. That section reads as
follows:
24. In every case in which the original record
could be admitted in evidence,
(a) a copy of any official or public document of
Canada or of any province, purporting to be certified under the
hand of the proper officer or person in whose custody the
official or public document is placed, or
(b) a copy of a document, by-law, rule, regulation
or proceeding, or a copy of any entry in any register or other
book of any municipal or other corporation, created by charter or
Act of Parliament or the legislature of any province, purporting
to be certified under the seal of the corporation, and the hand
of the presiding officer, clerk or secretary thereof,
is admissible in evidence without proof of the seal of the
corporation, or of the signature or official character of the
person or persons appearing to have signed it, and without
further proof thereof.
[110] Thus, secondary evidence involving the filing of a
copy of a document is admissible as evidence of the content of
the original public document without it being necessary to
certify that the copy is a true copy. It is also not necessary to
certify that the public document was validly made.[10]
[111] In my analysis of the evidence, I have taken
account of these principles concerning the exclusion of hearsay
evidence and the best evidence rule.
[112] First of all, as noted by the parties, the
Minister of National Revenue's right to make assessments
against the two appellants for the 1990 and 1991 taxation years
was statute-barred unless it could be shown that the appellants
made a misrepresentation attributable to neglect, carelessness or
wilful default, as stated in subparagraph 152(4)(a)(i) of
the Income Tax Act. It was also assumed that the burden of
proof concerning the misrepresentation was on the Minister of
National Revenue.
[113] I consider it appropriate to review the evidence
as a whole as regards the assessments for the individual
appellant's four taxation years-1990, 1991, 1992 and 1993-and
the corporate appellant's three taxation years-1990, 1991 and
1992.
[114] The individual appellant, who was the corporate
appellant's sole director and shareholder, testified that, in
running the corporate appellant's used car purchase and sale
business, he received part of the consideration from the
purchasers in cash and the rest by cheque. According to the
individual appellant, the part he received in cash was used to
pay for repairs to vehicles. He said that he purchased cars from
recyclers. Taxes were not collected on the cost of the repairs
because they were included in the repair price. The individual
appellant himself testified that the amounts received in cash on
the corporate appellant's behalf were not entered in its
books of account. The cash was taken to the individual
appellant's home and put into envelopes.
[115] The individual appellant also admitted that he did
not tell the corporate appellant's accountant about this way
of handling the cash he received.
[116] In the circumstances of this case, what reason
could the individual appellant have had for not recording the
cash if not to conceal part of the corporate appellant's
income and enable himself to appropriate the cash and not include
it in his income?
[117] To illustrate, I would like to discuss two
specific transactions.
[118] I will first refer to the corporate
appellant's sale of a Camaro to France Lemarier on May
5, 1990, for $13,799.98, $6,700 of which was paid in cash. Ms.
Lemarier said that she paid in that manner at the individual
appellant's suggestion to avoid paying taxes. The individual
appellant said that he usually used the money he received to pay
for repairs to another car. In the specific case of the money
received from Ms. Lemarier, he could not remember what he had
done with the $6,700 paid to him in cash. Thus, the individual
appellant himself was not positive about how the cash received in
that transaction was used.
[119] It is interesting to note that Ms. Lemarier
testified that, when she purchased her car, she even determined
the amount-payable in cash-that did not appear in the contract.
How can it be argued that this amount corresponded exactly to the
cost of the repairs to that vehicle paid for by the corporate
appellant?
[120] I turn now to a second example, namely, the sale
of a vehicle by the corporate appellant to Transport AGM inc. on
October 6, 1990. The testimony of Ms. Dubé, the
representative of Transport AGM Inc., shows that a financing
contract was entered into for $15,000 out of the sale price of
$20,165 and that the balance of $5,165 was paid in cash. At the
individual appellant's request, Ms. Dubé made out the
cheques for the instalment payments on the $15,000 to the
individual appellant personally and not to the corporate
appellant. When he testified, the individual appellant explained
that he deposited those monthly payments in his personal bank
account. While waiting for all the payments to be made, he put
the proceeds of the cheques in an envelope. He intended to
deposit all of the monthly payments in the corporate
appellant's bank account, but he admitted that he used the
money for his personal expenses. The individual appellant was
rather vague about how he used the $5,165 paid in cash in that
same transaction. When asked whether he had paid for repairs to
the vehicle, he admitted that he had, whereas before he stated
that he had probably kept the amount.
[121] The individual appellant admitted that the $15,000
covered by the financing contract with Transport AGM inc. was not
recorded in the corporate appellant's books or included in
its income. I cannot believe that this was a mere accounting
oversight.
[122] Even if I were to consider the individual
appellant's testimony alone, the terms and conditions of the
two transactions to which I have just referred show indisputably
that the cash received by the individual appellant was not used
solely to pay the cost of the repairs to the used cars.
[123] With regard to the credibility of the testimony, I
kept in mind the very appropriate comments made by Professor
Ducharme at page 154 of his book mentioned above:
[TRANSLATION]
When it comes to assessing the value of testimony, the
factors governing the credibility of witnesses are what matter,
particularly the following factors: the witness' means of
knowledge, sense of observation, reasons for remembering,
experience, reliability of memory and independence from the
parties involved. The person who calls a witness must bring out
the factors favourable to the witness' credibility, while the
opposing party must bring out the unfavourable factors. Those
unfavourable factors may relate, inter alia, to the
witness' morality. Thus, in one particular case, a court
found that a witness' propensity for trying to evade tax
liabilities was a factor unfavourable to the witness'
credibility.664
_______________________
664
B.C.v. Dame S.S. et les Héritiers de Dame
S.S. (1988), 12 Q.A.C. 266.
[124] I examined the individual appellant's
behaviour while he was giving evidence. I also examined his
testimony, which was evasive at times. I detected a number of
contradictions as well. In considering the question of the
individual appellant's credibility, I need not point out that
he pleaded guilty to one count of receiving stolen cars during
the years at issue.
[125] All in all, I found that his testimony was not
credible.
[126] In my view the evidence provided by officers
Martin and Roberge that seems to indicate that the vehicles at
issue in these Reasons for Judgment were stolen and, furthermore,
were not damaged when they were acquired by the corporate
appellant fails in some respects to meet the criteria for the
admissibility of hearsay evidence and to comply with the best
evidence rule. In any event, I do not have to make a definitive
ruling on the admissibility of that evidence given the conclusion
I have reached on other grounds concerning the disposition of
these appeals.
[127] I find that the Minister of National Revenue was
entitled to assess both of the appellants for their 1990 and 1991
taxation years because it is indisputable, based on the evidence,
that the appellants made a misrepresentation attributable to
neglect, carelessness or wilful default. By the individual
appellant's own admission, the corporate appellant's tax
returns did not report the amounts received in cash in the
transactions in question. As for the individual appellant, he
appropriated funds from the corporate appellant. If we refer to
the two transactions discussed earlier, this has been proven
directly for the 1990 taxation year. As for the 1991 taxation
year, I infer from all of the evidence concerning the vehicle
sales that the individual appellant probably appropriated the
cash he had received that year and kept at his home.
[128] I have concluded that the respondent has
discharged her burden of proof, that the corporate appellant
probably did not report all of its income for its 1990 and 1991
taxation years and that the individual appellant appropriated
part of the corporate appellant's funds during those same two
years. The Minister of National Revenue was therefore entitled to
assess the two appellants for the 1990 and 1991 taxation
years.
[129] Based on all of the evidence concerning the
assessments for the 1990, 1991, 1992 and 1993 taxation years in
the case of the individual appellant and the 1990, 1991 and 1992
taxation years in the case of the corporate appellant, I am
satisfied that the Minister's assumptions concerning the
amounts not reported by the corporate appellant and the amounts
appropriated by the individual appellant have not been rebutted.
I have in fact concluded that the evidence clearly shows that the
corporate appellant did not report all of its income for the
years at issue and that the individual appellant appropriated
funds during the four years referred to above.
[130] I give no credence, inter alia, to the
testimony of certain car suppliers of the corporate appellant,
especially the testimony of Édouard Tessier. I note in
particular that Mr. Tessier first said that his gross income for
the 1990 taxation year was $50,000. When confronted with his 1990
tax return, he reconsidered and admitted that he did not report
that gross income in his tax return for that year. Nor did he
state that he was self-employed in 1990 and 1991 when he applied
for unemployment insurance benefits. Those suppliers, or at least
most of them, had a personal interest in not causing harm to the
appellants when they gave evidence in this case.
[131] I must still consider the question of the
assessment of penalties against the two appellants.
[132] Based on the evidence and, in particular, by the
individual appellant's own admission, it is indisputable that
the corporate appellant's accounting was totally inadequate.
The amounts received in cash from the corporate appellant's
customers when they purchased cars were not recorded. Those
amounts were substantial, and this element was an important part
of each of the transactions at issue during the taxation years
involved. Obviously, we are dealing with misrepresentations and
wilful default by the appellants. The fact that some of the cash
was used to pay for repairs-assuming that this is true-cannot, of
course, justify the failure to fully reproduce the accounting
data in this regard. Both of the appellants knowingly failed to
report all of their income during the years at issue.
[133] The assessment of penalties against the two
appellants under subsection 163(2) of the Income Tax
Act was therefore justified. The Minister of National Revenue
has discharged the burden of proof set out in subsection 163(3)
of the Income Tax Act.
[134] The appellants' appeals from the assessments
by the Minister of National Revenue for the taxation years at
issue are dismissed with costs.
Signed at Ottawa, Canada, this 11th day of May
2001.
C.J.T.C.C.
Translation certified true
on this 8th day of January 2003.
Sophie Debbané, Revisor
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