Date: 19971114
Docket: 95-475-IT-G
BETWEEN:
JACQUELINE TREMBLAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
P.R. Dussault, J.T.C.C.
[1] These are appeals from assessments for the appellant's
1988, 1989, 1990 and 1991 taxation years. The income reported by
the appellant for each of those years respectively was $16,294,
$20,943, $20,960 and $25,792.
[2] By those assessments the Minister of National Revenue
("the Minister") increased the appellant's income
by a total of $254,015.85, broken down as follows:
1988 - $80,420.80
1989 - $58,088.11
1990 - $76,007.45
1991 - $39,499.49
[3] He also imposed the following penalties pursuant to
s. 163(2) of the Income Tax Act ("the Act")
for each of the years:
1988 - $5,393.01
1989 - $7,155.55
1990 - $7,231.27
1991 - $3,239.00
[4] The assessments for the 1988, 1990 and 1991 taxation years
were made on December 13, 1994 after the appellant objected
to reassessments made for the four years at issue on
October 12, 1993. As a result of the objections the income
added for those years was slightly reduced, the capital gains
deduction allowed and the penalties assessed were reduced
accordingly. The assessment of October 12, 1993 for the 1989
taxation year was simply affirmed. The assessments of
October 12, 1993 for the 1988 and 1989 taxation years were
made after the usual reassessment period.
[5] The October 12, 1993 assessments and the
December 13, 1994 assessments were made by the "net
worth" method, as the appellant had not as alleged
"reported her income in full".
[6] In his testimony Jean-Louis Cantin, an auditor
with Revenue Canada, mentioned a request for an audit of the
balance sheets and commercial operations of the appellant, who
during the years at issue operated a business selling piece
goods. After asking for documentation in support of the tax
returns submitted, Mr. Cantin found out that the cash register
tapes of the business were not available. He concluded that he
could not audit the operations of the business properly and so
had to proceed by the net worth method to establish the
appellant's income.
[7] Mr. Cantin used information contained in the tax
returns and documents supplied by the appellant and her
accountant or obtained from the registry office, building
contractors, automobile depositories or other agencies to
establish the additional income not reported by the appellant.
This income is set out in detail in the documents submitted as
Appendix A to the Reply to the Notice of Appeal. All the
transactions were checked with the official documents and
information obtained. The documents concerning these transactions
were entered in evidence and Mr. Cantin explained the
auditing of items in the assets and liabilities and the results
obtained.
[8] Further, referring to various contracts Mr. Cantin
determined that the appellant had, among other things, made
several real estate deals giving rise to capital gains in 1988,
1990 and 1991 and that those gains had not been reported. The
taxable portion of those gains was added to the appellant's
income and the capital gains deduction provided for by
s. 110.6 of the Act was initially denied. Similarly,
Mr. Cantin found out that interest income on financing
provided to certain purchasers in 1990 and 1991 also went
unreported.
[9] The appellant, who acted as her own agent, was the only
person to testify on her behalf. She submitted no documents.
[10] In her testimony, the appellant stated first that her
godfather had given her $100,000 cash in small notes three or
four months before his death after it was agreed that she
would say nothing to anyone and on condition that she helped her
godmother if necessary. The latter died a year or a year and a
half later, alone in her house, without the appellant having to
spend any money on her. What is more, in the presence of police
officers the appellant's brother then found an additional
$35,000 to $40,000 hidden in a black kettle in the basement of
the house. The appellant said she only spoke of the $100,000 to
her mother who is now dead. In cross-examination the appellant
described this gift as being an amount of $100,000, $110,000 or
even $120,000 in $20 notes which her godfather had given her in a
grocery bag which she took with her and hid among boxes at the
back of a cupboard. The appellant said she later put the money in
one or two safety deposit boxes in the bank and changed over
$60,000 into $1,000 notes, including $20,000 on a single
occasion. She said she began making investments once her
godmother was dead. The appellant said she did not remember the
months or years in which these various events occurred, simply
stating that her godfather had died either in 1986 or 1987.
[11] The appellant also stated that she often went on cruises
and won $25,000 on one of them. She said she loaned part of this
amount to people who needed it, including one
André Labrie who she said was now unlocatable. The
appellant provided no further details as to the place, date or
manner in which she made this gain.
[12] The appellant further stated she had always reported all
her income and that her accountant at the time, a
Mr. Fortin, found everything was done correctly.
[13] In cross-examination the appellant first confirmed the
correctness of the various components of the assets and
liabilities, as set out in Appendix A of the Reply to the
Notice of Appeal, and the correctness of the transactions
described. She later argued that a transaction involving a Toyota
Tercel licensed in her name should actually have been attributed
to her son, who repaid the loan directly, but finally admitted
that the car was hers. Concerning another automobile, a Subaru
Justy also licensed in her name, the appellant said she had
contracted a loan herself to pay the purchase price but her son
was repaying her directly and she was depositing the money in her
account from which the monthly payments were taken.
[14] The appellant stated that she made sure the content of
her tax returns was accurate before signing them. She later said
she signed without checking.
[15] Concerning her business, the appellant said she worked in
it and then that she did not work there, simply going to check on
it and looking after purchasing. She said she gave all her
documents to her accountant every month or every three months,
the latter gave her cheques to sign, especially for both levels
of government, and he gave her "his papers". Yet, in
the audit the appellant did not have the cash register tapes in
her possession so that it was impossible to check the actual
commercial operations of the business.
[16] As to the various real estate transactions engaged in
over the years, the appellant argued that her assets actually
came from a gift of $100,000 from her godfather and said it was
really always the same money that was used. Accordingly, she
said, she made no capital gains. When shown the documents she
then said either that she did not remember the amount of a
particular transaction or that the amount shown on the contract
was not correct.
[17] The appellant's testimony regarding the unreported
interest was just as vague and confused, giving first one version
and then its opposite. Accordingly, the appellant first admitted
she received interest on loans made to purchasers in certain real
estate transactions and stated that the interest had been
reported. When asked to admit that it had not been reported, she
said it was probably because there was no interest or because
very little interest had actually been paid.
[18] As mentioned before, Mr. Cantin testified about
making the assessments using the net worth method, explaining in
detail the various items shown in the appellant's assets and
liabilities for the years at issue, indicating the source of the
information obtained and the calculations made. After discussions
with the appellant's accountant, Mr. Pichette, minor
changes were made, reducing certain of the appellant's
personal expenses established partly by estimate and adding to
the assets at the start of the period an amount of $2,000 placed
in an RRSP account that had not initially been taken into
account. According to Mr. Cantin, these were the only
changes made to the net worth as a result of
Mr. Pichette's comments. Mr. Cantin said he also
discussed the matter with Mr. Savard, the appellant's
spouse, and obtained no further information.
[19] In his testimony Mr. Cantin also stated that
according to the information obtained from the bank the appellant
had no safety deposit box.
[20] As far as the penalties were concerned, Mr. Cantin
said he took into account the size of the amounts in question,
the annual recurrence, the fact that certain amounts of interest
had not been reported and that the capital gains made were never
reported. I note that it was only after the objections were made
followed by the assessments on December 13, 1994 that the
capital gains deduction was allowed for 1988, 1990 and 1991.
Mr. Cantin did not testify on this point.
[21] The appellant's arguments amount to very little. She
never opened a book or consulted the documents. She did not want
to know anything or to be concerned with anything. The
accountants Fortin and Pichette looked after everything. She said
she initially told the accountant Pichette about the gift of
$100,000. According to her, her spouse Mr. Savard was not
aware of it. She said that she did not want him to know about it
either.
[22] Referring to various points in the appellant's
testimony, counsel for the respondent noted first the many
contradictions and varying stories given by the appellant,
especially as regards unreported interest and capital gains on
several real estate transactions engaged in during the period at
issue, which must obviously have been known to her. Since it
seemed clear that the appellant knew that all her income had not
been reported and that the information contained in her returns
was inaccurate she could not, counsel submitted, be allowed to
put the blame on her accountant.
[23] Counsel for the respondent also argued that the Court
could not accept the appellant's testimony regarding the gift
of $100,000 from her godfather and the winnings of $25,000, or
her contradictory comments on the interest and capital gains.
Further, he said, the audit by the net worth method with
supporting documents disclosed unreported income much greater
than what she said she received from her godfather or won on a
cruise. Counsel for the respondent concluded that the appellant
had knowingly filed false tax returns. At the very least, he
said, taking into account the circumstances, and in particular
the size of the amounts in question and the annual recurrence,
the appellant had committed gross negligence by signing her
returns without checking them, which either way justified both
the assessments beyond the usual assessment period for 1988 and
1989 and the penalties under s. 163(2) for the four
years.
[24] In support of his arguments counsel for the respondent
referred to the decisions in the following cases:
· Communications et Services (Royal) Inc. et al. v.
The Queen, 94 DTC 1163 (T.C.C.);
· Georges Sigouin v. M.N.R., 93 DTC 206
(T.C.C.);
· R. Morin v. M.N.R., 92 DTC 1241
(T.C.C.);
· Girard v. M.N.R., 89 DTC 63 (T.C.C.);
· Lucien Venne v. The Queen, 84 DTC 6247
(F.C.T.D.);
· John W. Howell v. M.N.R., April 1, 1981,
case 79-245 (T.R.B.);
· Cloutier v. The Queen, 78 DTC 6485
(F.C.T.D.).
[25] I agree with the conclusions of counsel for the
respondent. The assessment of the appellant's unreported
income for each of the years at issue using the net worth method
was fully justified in the circumstances, since the appellant
from the outset was unable to provide all the documents that
would have been required for an audit of the operations of her
business, and in particular the cash register tapes which
mysteriously and inexplicably disappeared. In the circumstances,
the natural inference is simply that they were deliberately
hidden. This is an act for which the appellant must be held
responsible and the fault for which she cannot, just by saying
so, shift the blame to her accountant, who was not called to
testify.
[26] The painstaking, detailed and well-documented audit by
Mr. Cantin used to make the assessments by the net worth
method leaves little doubt as to the scope and level of the
income not reported by the appellant during the years at issue.
While the amounts are large, it can also be seen that part comes
from profits made on several real estate transactions spread over
several years which were never reported by the appellant in her
tax returns. The same is true of interest on loans made by the
appellant to purchasers in some of those transactions. The
confused explanations and contradictory stories told by the
appellant in this regard at different points in her testimony can
only lead to the conclusion that there was deliberate concealment
of the amounts at issue. Furthermore, the appellant's
statement that she checked nothing before signing her tax
returns, and in short, that she did not want to know anything
about it, also shows in the circumstances a measure of
indifference regarding her tax obligations.
[27] In the circumstances, the lack of credibility which I
place on the appellant's testimony also applies to her
allegations about the gift of $100,000 received from her
godfather and the winnings of $25,000 on a cruise: some aspects
of the appellant's description of these events were
surprising to say the least. She had no memory of the dates or
even the exact amount in the first case and no relevant details
in the second. It is conceivable that extraordinary things do
happen: however, on analysing the evidence as a whole it is quite
simply impossible to conclude on a balance of probabilities that
such events were responsible for the appellant's assets.
[28] As to the penalties assessed under s. 163(2) of the
Act, the facts set out above lead the Court to conclude that
these were justified. I take the liberty here of referring to the
judgment of Strayer J., then sitting at the Federal Court
Trial Division, in Venne, supra, in which he
analysed "gross negligence" as follows:
"Gross negligence" must be taken to involve greater
neglect than simply a failure to use reasonable care. It must
involve a high degree of negligence tantamount to intentional
acting, an indifference as to whether the law is complied with
or not.[1]
[My emphasis.]
[29] Additionally, in his decision in Morin,
supra, at 1239, Chief Judge Couture of this Court said the
following:
To escape the penalties provided in subsection 163(2) of
the Act, it is necessary, in my opinion, that the
taxpayer’s attitude and general behaviour be such that no
doubt can seriously be entertained as to his good faith and
credibility throughout the entire period covered by the
assessment, . . .
[30] The appellant did not persuade the Court either of her
good faith or credibility. On the contrary, the evidence
submitted led it to conclude that if she did not deliberately
avoid her tax obligations she was at least completely indifferent
as to whether the Act was complied with.
[31] Clearly, this observation leads the Court to conclude
that the Minister was also justified in making assessments for
the 1988 and 1989 taxation years beyond the usual assessment
period specified in the Act.
[32] The appeals are dismissed with costs to the
respondent.
“P.R. Dussault”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 3rd day of April
1998.
Mario Lagacé, Revisor
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