Date: 19971211
Docket: 96-3554-IT-I
BETWEEN:
ANDRÉ SIMARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Tremblay, J.T.C.C.
[1] This appeal was heard at Chicoutimi, Quebec, on
October 16, 1997.
Point at issue
[2] According to the Notice of Appeal and Reply to the Notice
of Appeal, the issue is whether the appellant was correct in not
including in 1990, 1991 and 1992 the sums of $712, $7,610 and
$6,026 respectively in computing his income and whether the
respondent was correct in imposing penalties pursuant to
s. 163(2) of the Income Tax Act ("the
Act"). In the respondent's submission, according to
information received from the directors of the employer, namely
the numbered company 2841-3185 Québec Inc.,
operating under the trade name Carl-Bec Enr.
("Carl-Bec"), this was pay for moonlighting.
[3] For his part, the appellant maintained that he had
reported his income in full. The shareholders of Carl-Bec
Enr., Denis Lavoie and Rénald Dubé, had
allegedly vanished. Following a complaint to the Office de la
construction du Québec ("O.C.Q.") and an
investigation conducted by it, the appellant was allegedly paid
$1,100 from a compensation fund. The credibility of the
payer's directors was very much in question. He said they
owed him other money.
Burden of proof
[4] The appellant has the burden of showing that the
respondent's assessments are incorrect. This burden of proof
results from several judicial decisions, including a judgment by
the Supreme Court of Canada in Johnston v. The Minister
of National Revenue.[1]
[5] In that judgment the Court held that the facts assumed by
the respondent in support of the assessments or reassessments are
also deemed to be true until the contrary is shown. In the
instant case the facts assumed by the respondent are described in
subparagraphs (a) to (h) of paragraph 4 of the Reply to
the Notice of Appeal. That paragraph reads as follows:
[TRANSLATION]
4. In making these reassessments the Minister took into
account inter alia the following facts:
a. in the years under appeal the appellant was employed by the
company 2841-3185 Québec Inc., operating under the
trade name CarlBec Enr. ("the employer");
[admitted]
b. in 1993 the Minister conducted an exhaustive inquiry into
the employer's affairs; [admitted]
c. this inquiry indicated that:
i. time cards and/or time sheets showing hours worked did not
appear in the employer's books; [not known]
ii. cheques were issued to pay employees who were paid
[TRANSLATION] "under the table"; [denied]
iii. time paid for "under the table" was not entered
in the employer's books; [not known]
d. the employer's directors told the Minister that this
was in fact salary paid "under the table"; [not
known]
e. T4 information sheets from the employer were compiled by
the Minister; [not known]
f. following the audit the Minister added to the
appellant's employment income $712 for the 1990 taxation
year, $7,610 for the 1991 taxation year and $6,026 for the 1992
taxation year; [admitted]
g. the appellant, knowingly or in circumstances amounting to
gross negligence, made, participated in, assented to or
acquiesced in the making of a false statement or omission in his
tax returns for the 1990, 1991 and 1992 taxation years, with the
consequence that the tax payable by the appellant, if it had been
determined according to the information provided in his returns,
would have been $200 less for the 1990 taxation year, $1,460.75
less for less than the 1991 taxation year and $1,027.37 less for
the 1992 taxation year than the tax actually payable;
[denied]
h. accordingly, the penalty imposed on the appellant under
s. 163(2) of the Act amounts to an amount not less than $100
for the 1990 taxation year, $741.88 for the 1991 taxation year
and $513.68 for the 1992 taxation year. [denied]
Facts in evidence
[6]Following admission of the foregoing facts the evidence
further consisted of the testimony of the appellant and of
Sylvain Brisson and Richard Pelchat, the
respondent's investigators, and the filing of
Exhibits A-1 to A-3 and I-1 and
I-2.
[7] The appellant is a maintenance carpenter by trade. In
1990, 1991 and 1992 he worked for the payer Carl-Bec Enr.
from May-June until late fall, when construction work ended.
[8] He worked as the person responsible for the site, namely
as a foreman, and as such, he was supposed to receive $1.50 an
hour more than tradesmen, pursuant to an agreement with the
payer. However, he was never paid this amount. He also supplied
tools which the payer did not have: hammer, tamper, ladders and
so on; and he was also supposed to be paid for this and never
received anything.
[9] He said that during the years in question he received from
the payer only $7,635 in 1990, $12,596 in 1991 and $10,158 in
1992. The appellant stated categorically that he never received
any money for moonlighting: in any case it was not to his
advantage. At his age, of over 60, he had every reason to work in
accordance with requirements so he could later benefit from the
pension scheme and all the fringe benefits.
[10] In March 1993 he worked for the payer in Alma. He was
promised that he would be paid the amounts owed on the extra pay
of $1.50 an hour and the tool rental from the money received by
the payer. While receiving unemployment insurance benefits he
reported this salary to Employment and Immigration Canada. He
accordingly received no unemployment insurance benefits for the
week in question. Furthermore, the payer gave him a cheque which
turned out to be an NSF cheque.
[11] The appellant made a report to the Office de la
construction du Québec. An O.C.Q. document filed as
Exhibit A-3 summarizes the appellant's complaint
as follows: [TRANSLATION] "He is claiming vacation pay and
related fringe benefits as well as pay for March 13 to 20,
1993, which was not paid at all".
[12] In his Notice of Appeal the appellant summarized what
happened, as he explained to the Court:
[TRANSLATION]
For the amounts owed on my construction vacation in
July 1993, this employer paid me only $79. I applied to the
O.C.Q. I received a $1,100 payment from the O.C.Q. compensation
fund. I have not yet received the amount payable in December 1993
for my winter vacation. The O.C.Q. compensation fund initiated an
investigation to update the Les Entreprises Carl-Bec Enr.
file and get its account in order.
[13] The payroll for the work done in March 1993 was
filed as Exhibit A-1. He received a cheque of $404.01
net. The gross amount was $808.44.
[14] It appears from the O.C.Q. report dated August 25, 1997,
filed as Exhibit A-2, that the appellant received the
sum of $1,452.64 from the compensation fund.
[15] The following extract from his Notice of Appeal clearly
summarizes part of his testimony:
[TRANSLATION]
I tried in vain to contact the employer several times, to get
an explanation of the discrepancy in income. I was never able to
talk to or see him. This general construction business no longer
exists: there were two shareholders, Denis Lavoie and
Rénald Dubé. I went to the office of the
business and there was nothing there. During the summer I
glimpsed Rénald Dubé on a work site but as
soon as he saw me he vanished. I later continued trying to get in
touch with him at regular intervals but I was always unable to do
so. He has apparently become an electrical contractor.
Cross-examination
[16] The witness stated that he worked among others for the
payer A. Délisle on the expansion of a seniors’
residence, and also in Chicoutimi and elsewhere.
[17] The payer had about 15 employees altogether:
carpenters, plasterers and electricians. The payer made up the
employees' time cards and his own. Payday was every Thursday.
The payer changed accountants twice.
[18] He was to have been paid for the rental of his tools at
the tool rental centre rate.
[19]Following the respondent's investigation, and the
issuing of the reassessments, the appellant had to undertake to
pay $30 a month.
[20] In concluding, the appellant insisted again that he had
never moonlighted or received any amount from the payer
other than the $7,635 in 1990, $12,596 in 1991 and $10,158 in
1992.
[21]Sylvain Brisson, an investigator with Revenue Canada,
Special Investigations, and a witness for the respondent,
testified that from various indications in the payer's files
and a more extensive investigation it appeared that the two
shareholders were making substantial withdrawal, made out to
cash, from the payer's bank account at the Royal Bank in
Alma. When the cheques got back to the payer they were altered by
replacing the word [TRANSLATION] "cash" with the
suppliers' names, thereby forging false invoices. The purpose
was apparently to obtain hard cash to pay salaries for
moonlighting work. He said the two shareholders cooperated with
the respondent's investigators and supplied photocopies of
microfilms of cheques made out to cash. The investigators
obtained the names of persons who had allegedly moonlighted, with
their social insurance numbers and the amounts received by each
of them. The investigators saw the cheques and noted the numbers
and amounts, but did not photocopy either the front or back of
the cheques.
[22] As Exhibit I-1 the following items were filed
in respect of 1990 and 1991 from the amounts received under the
table by the appellant, both for time worked and for
reimbursement of expenses or rental of tools and forms.
[23] In 1990 three cheques were issued for 43.5 hours of
moonlighting work, totalling $696, and five cheques as payment
for gasoline and employee transport, amounting to $519. The
latter amount was not included in the appellant's income.
[24] In 1991, 22 cheques were issued for 388 hours
of moonlighting, amounting to $7,610. Additionally,
four cheques were issued totalling $2,309.92 in replacement
of two N.S.F. cheques and for the rental of forms and tools.
The latter amount was not included in the appellant's
income.
[25] For 1992, counsel for the respondent filed as
Exhibit I-2 a list of 13 cheques allegedly made
out to the appellant, showing unemployment insurance premiums,
totalling $6,026.
[26]Richard Pelchat, a Revenue Canada auditor at the
Chicoutimi office, confirmed Mr. Brisson's testimony
both as to the ploy of withdrawals from the bank made out to cash
and the fact that the two shareholders voluntarily supplied
information.
Cross-examination
[27] In cross-examination the appellant denied ever
receiving the amounts shown on Exhibits I-1 and
I-2, both for moonlighting work and other payments for
gasoline and transportation amounting to $519 and for the rental
of forms and tools.
[28] He said he had never supplied any forms. They were
supplied by the firm Morel & Frères.
Act - analysis
[29] In making her assessments, the respondent relied on
ss. 3, 5(1) and 163(2) of the Act.
[30]There are limits to the well-settled rule that the
taxpayer has the burden of proof.
[31] In the instant case the respondent had all the cheques
available, both those establishing the moonlighting and those
showing the reimbursements of expenses. The respondent's
representatives did not retain these cheques or make front and
back photocopies. The respondent too is subject to the best
evidence rule. What better evidence could there be than these
cheques made out to the appellant and endorsed by him? The
appellant and the Court could at least have checked them. How
could the respondent's witnesses decide from looking at
endorsements on the cheques whether this was in fact the
appellant's signature? Further, in view of the ploy used by
the payer's shareholders to get money from the company's
bank account, later falsifying the suppliers' names to try
and justify the expense, why might they not have imitated the
appellant's signature, taking it from the backs of genuine
paycheques, and have signed the appellant's cheques
themselves? - anything is possible.
[32] In cooperating with the respondent and saying that this
was money used to pay for moonlighting the two shareholders did
not necessarily act virtuously: it was a good way out. Had it not
been for this way out, they would have had to pay tax on all the
money taken from the bank account.
[33]Finally, why were Denis Lavoie and
Rénald Dubé not called by the respondent as
witnesses? She was in a position to do so, while so far as the
appellant was concerned the birds had flown.
[34] The respondent missed such a good opportunity to present
the best evidence that the Court cannot shift the consequences
for this to the appellant.
[35]Further, it goes without saying that there is no basis for
the penalty imposed under s. 163(2) of the Act.
Conclusion
[36] The appeal is allowed with costs.
Signed at Québec, Quebec, December 11, 1997.
“Guy Tremblay”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true this 25th day of May 1998.
Benoît Charron, Revisor
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