Tremblay
J.T.C.C.:-This
appeal
was
heard
on
March
30,
1994,
in
Québec
City,
Quebec.
I.
Point
at
issue
The
point
at
issue
is
whether
the
appellant
was
correct
A.
in
claiming
a
$6,000
deduction
for
repairs
to
a
rental
property
located
at
70
St-Louis
Street
in
Quebec
City
in
computing
his
income
for
the
1986
taxation
year;
the
respondent
argued
that
the
appellant
provided
no
voucher;
B.
in
not
paying
the
$811.05
penalty
assessed
by
the
respondent
under
subsection
163(2)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
because
the
appellant
had
not
included
a
taxable
capital
gain
of
$13,000
resulting
from
the
sale
of
the
rental
property
located
on
St-Louis
Street
in
computing
his
income
for
the
1987
taxation
year.
The
respondent
argued
that
the
appellant
knowingly,
or
under
circumstances
amounting
to
gross
negligence,
failed
to
declare
the
taxable
capital
gain
of
$13,000.
2.
Burden
of
proof
2.01
With
respect
to
the
civil
aspect
of
the
assessment,
that
is
the
$6,000
expense
in
the
instant
case,
the
onus
is
on
the
appellant
to
show
that
the
respondent’s
assessment
was
incorrect.
2.02
As
to
the
criminal
aspect
of
the
assessment,
that
is
the
penalty
assessed
under
subsection
163(2)
of
the
Income
Tax
Act,
the
burden
of
proof
is
on
the
respondent
pursuant
to
subsection
163(3)
of
the
Income
Tax
Act.
2.03
The
burden
of
proof
concerning
the
civil
aspect
arises
from
a
number
of
judicial
decisions,
including
a
judgment
by
the
Supreme
Court
of
Canada
in
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486,
[1948]
C.T.C.
195,
3
D.T.C.
1182.
2.04
The
facts
assumed
by
the
respondent
in
the
instant
case
are
described
at
subparagraphs
(a)
to
(f)
of
paragraph
6
of
the
reply
to
the
notice
of
appeal.
They
read
as
follows:
6.
The
respondent
took
for
granted
inter
alia
the
following
facts
in
making
the
reassessments
in
respect
of
the
1986
and
1987
taxation
years:
(a)
the
appellant
is
a
notary
and
has
practised
this
profession
since
1981;
[admitted]
(b)
for
his
1986
taxation
year,
the
appellant
claimed
inter
alia
a
$6,000
"repair"
expense
against
the
income
he
earned
from
the
rental
property
located
at
70
St-Louis
Street
in
Québec
City;
[admitted]
(c)
the
appellant
was
unable
to
provide
any
voucher
or
document
in
support
of
this
claim;
[admitted,
but
to
be
completed]
(d)
in
1987,
the
appellant
disposed
of
his
rental
property
on
St-Louis
Street
in
Québec
City
and
realized
a
taxable
capital
gain
of
$13,000;
[admitted]
(e)
the
appellant
failed
to
declare
this
gain
in
computing
his
income
for
this
1987
taxation
year;
[admitted,
but
to
be
completed]
(f)
for
his
1987
taxation
year,
the
appellant
knowingly,
or
under
circumstances
amounting
to
gross
negligence,
failed
to
report
the
capital
gain
realized
at
the
time
of
the
sale
of
his
rental
property....[denied]
[Translation.]
3.
Facts
adduced
in
evidence
3.01
The
appellant,
a
notary
since
1981,
practises
his
profession
in
Château-Richer,
Quebec.
3.02
The
rental
property
on
St-Louis
Street
in
Québec
City
was
a
185-
year-old
building
purchased
in
1984
and
resold
in
1987.
3.03
At
the
end
of
the
winter
of
1986,
water
began
to
seep
through
the
back
wall
of
the
house.
The
joints
cracked,
the
wall
had
to
be
repointed,
certain
field
stones
that
were
a
constituent
part
of
the
wall
crumbled.
They
had
to
be
replaced
by
quarry
stones.
The
tenants
complained.
Ultimately,
the
entire
wall
had
to
be
repaired.
3.04
The
work
was
contracted
to
a
person
whose
name
the
appellant
no
longer
remembered.
An
agreement
was
reached
that
the
work
would
be
done
for
the
sum
of
$6,000,
that
payment
would
be
made
in
cash,
but
that
it
would
be
made
only
at
the
end
of
the
work
and
not
in
a
single
amount.
According
to
the
appellant,
the
purpose
of
this
last
clause
was
to
allow
rain
to
fall
several
times
so
that
it
could
be
determined
whether
the
work
had
been
well
done.
The
appellant
did
not
remember
whether
he
had
made
two
payments
of
$3,000
or
three
payments
of
$2,000.
The
appellant
allegedly
did
not
check
with
another
contractor
in
order
to
have
a
second
estimate.
He
admitted
that
he
did
not
know
much
about
construction.
3.05
According
to
the
appellant,
two
masons
other
than
the
one
with
whom
he
entered
into
the
agreement
actually
did
the
work.
He
observed
them
several
times.
They
seemed
to
be
men
of
the
trade.
In
any
case,
the
water
problem
never
recurred.
The
work
was
allegedly
completed
in
early
June
1986.
The
payments
were
made
during
the
month
of
June.
3.06
The
appellant
said
that
he
had
demanded
receipts
from
the
one
to
whom
he
paid
the
money
in
order
to
protect
himself
in
case
the
work
had
been
poorly
done.
Those
receipts
were
lost,
however.
The
appellant
claimed
he
had
made
considerable
repairs
from
1984
to
1987
and
that
he
had
several
vouchers
but
that
he
had
been
unable
to
track
down
the
receipts
in
question.
3.07
In
a
telephone
conversation
on
August
18,
1989,
the
appellant
also
allegedly
told
Jacques
Simard,
a
witness
for
the
respondent,
then
an
appeals
officer,
that
he
had
no
invoice.
Mr.
Simard
then
demanded
the
building
permit
issued
by
the
city
of
Québec.
The
approximate
cost
of
the
work
to
be
done
appears
on
those
permits.
The
appellant
was
unable
to
track
down
that
document
either.
Mr.
Simard
then
asked
him
to
provide
his
bank
book
for
the
period
in
question.
He
then
would
have
been
able
to
see
whether
withdrawals
of
$2,000
or
$3,000
had
been
made.
The
appellant
allegedly
answered
him
that
he
had
done
work
to
his
home
during
that
period
and
that
a
great
deal
of
cash
had
been
withdrawn.
Since
the
workers
were
members
of
his
family,
he
had
paid
them
in
cash.
The
appellant
subsequently
stated
that
the
work
at
his
home
began
in
mid-July
1986.
However,
he
did
not
deny
the
conversation
held
with
Mr.
Simard.
3.08
The
respondent
admitted
that
the
damaged
wall
in
question
underwent
a
major
repair.
3.09
With
respect
to
the
failure
to
include
the
$13,000
taxable
capital
gain
in
computing
his
income
for
the
1987
taxation
year,
the
appellant
stated
that
he
met
the
accountant
in
late
March
or
early
April
1988
in
order
to
make
his
income
tax
return.
He
usually
completed
his
income
tax
return
himself.
However,
as
he
had
sold
his
income
property,
he
wanted
everything
to
be
well
done.
Consequently,
he
informed
his
accountant
of
the
sale
of
the
said
income
property.
Together
they
calculated
the
capital
gain,
that
is
$26,000.
Both
were
aware
of
the
$100,000
exemption
provided
in
the
Income
Tax
Act.
The
appellant
had
not
taken
the
contract
of
sale
to
the
accountant,
but
wanted
to
remit
it
to
him
later,
which
was
likely
not
done.
3.10
At
the
time
of
the
hearing,
it
was
impossible
to
reach
the
accountant
at
his
home
by
telephone
in
order
for
him
to
come
testify.
3.11
Jacques
Simard,
a
witness
for
the
respondent,
stated
on
the
subject
that
he
had
reached
the
accountant
by
telephone
on
September
20,
1988.
The
latter
attested
that
he
had
been
advised
by
the
appellant
of
the
sale
of
the
income
property
and
of
the
fact
that
they
had
calculated
the
$26,000
capital
gain
together.
The
accountant
added,
however,
that
the
appellant
had
also
told
him
that
it
was
pointless
to
report
it
as
it
would
not
be
taxable
because
of
the
exemption.
3.12
The
appellant
testified
that,
when
the
accountant
handed
him
his
1987
income
tax
return,
which
was
supposed
to
have
been
duly
completed,
he
was
very
busy.
He
then
checked
only
the
amount
of
taxable
income
and
the
taxes.
These
figures
coincided
with
those
he
had
expected.
He
signed
his
income
tax
return
on
April
5,
1988.
3.13
Around
mid-April,
a
Mr.
Gagné,
investigator
for
the
respondent,
conducted
an
audit
in
the
appellant’s
office.
He
stayed
there
four
or
five
days.
One
day,
while
having
coffee
with
Mr.
Gagné
as
well
as
with
his
secretary
Christine
Boies,
the
appellant
spoke
of
the
income
property
he
had
owned.
Mr.
Gagné
made
the
comment
that
he
had
spent
a
great
deal
of
money
on
repairs.
The
appellant
informed
him
that
he
had
sold
it
for
that
reason.
Christine
Boies
confirmed
that
conversation.
3.14
On
the
same
day
or
subsequently,
Mr.
Gagné
told
the
appellant
that
he
had
forgotten
something
in
this
1987
income
tax
return,
but
did
not
say
what.
3.15
Jacques
Simard
stated
that
the
appellant
had
cooperated
well.
4.
Act-case
law-analysis
4.01
Act
The
provisions
of
the
Income
Tax
Act
involved
in
the
instant
appeal
are
paragraph
18(l)(a)
and
subsections
110.6(6),
163(2),
163(3),
230(1)
and
230(4).
They
read
as
follows:
18.(1)
General
limitations
-In
computing
the
income
of
a
taxpayer
from
a
business
or
property
no
deduction
shall
be
made
in
respect
of
(a)
general
limitation
.-an
outlay
or
expense
except
to
the
extent
that
it
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
the
business
or
property;
110.6(6)
Failure
to
report
capital
gain.-Notwithstanding
subsections
(2),
(2.1)
and
(3),
where
an
individual
has
a
capital
gain
for
a
taxation
year
from
the
disposition
of
a
capital
property
and
knowingly
or
under
circumstances
amounting
to
gross
negligence
(a)
fails
to
file
a
return
of
his
income
for
the
year
within
one
year
after
the
day
on
or
before
which
he
is
required
to
file
a
return
of
his
income
for
the
year
pursuant
to
section
150,
or
(b)
fails
to
report
the
capital
gain
in
his
return
of
income
for
the
year
required
to
be
filed
pursuant
to
section
150,
no
amount
may
be
deducted
under
this
section
in
respect
of
the
capital
gain
in
computing
his
taxable
income
for
that
or
any
subsequent
taxation
year
and
the
burden
of
establishing
the
facts
justifying
the
denial
of
such
amount
under
this
section
is
on
the
Minister.
163(2)
False
statements
or
omissions
-Every
person
who,
knowingly,
or
under
circumstances
amounting
to
gross
negligence
in
the
carrying
out
of
any
duty
or
obligation
imposed
by
or
under
this
Act,
has
made
or
has
participated
in,
assented
to
or
acquiesced
in
the
making
of,
a
false
statement
or
omission
in
a
return,
form,
certificate,
statement
or
answer
(in
this
section
referred
to
as
a
"return")
filed
or
made
in
respect
of
a
taxation
year
as
required
by
or
under
this
Act
or
a
regulation,
is
liable
to
a
penalty
of
(a)
25%
of
the
amount,
if
any,
by
which…
The
Court
reproduces
only
the
preamble
of
the
subsection,
which
states
the
circumstances
in
which
the
Department
may
assess
a
penalty
on
a
taxpayer,
the
rest
of
the
subsection
being
devoted
to
the
calculation
of
the
penalty,
which
calculation
is
not
in
issue.
163(3)
Burden
of
proof
in
respect
of
penalties
-Where,
in
any
appeal
under
this
Act,
any
penalty
assessed
by
the
Minister
under
this
section
is
in
issue,
the
burden
of
establishing
the
facts
justifying
the
assessment
of
the
penalty
is
on
the
Minister.
230(1)
Books
and
records-Entry
person
carrying
on
business
and
every
person
who
is
required,
by
or
pursuant
to
this
Act,
to
pay
or
collect
taxes
or
other
amounts
shall
keep
records
and
books
of
account
(including
an
annual
inventory
kept
in
prescribed
manner)
at
his
place
of
business
or
residence
in
Canada
or
at
such
other
place
as
may
be
designated
by
the
Minister,
in
such
form
and
containing
such
information
as
will
enable
the
taxes
payable
under
this
Act
or
the
taxes
or
other
amounts
that
should
have
been
deducted,
withheld
or
collected
to
be
determined.
230(4)
Keeping
of
records
and
books
of
account
.-Every
person
required
by
this
section
to
keep
records
and
books
of
account
shall
retain
(a)
the
records
and
books
of
account
referred
to
in
this
section
in
respect
of
which
a
period
is
prescribed,
together
with
every
account
and
voucher
necessary
to
verify
the
information
contained
therein,
for
such
period
as
is
prescribed;
and
(b)
all
other
records
and
books
of
account
referred
to
in
this
section,
together
with
every
account
and
voucher
necessary
to
verify
the
information
contained
therein,
until
the
expiration
of
six
years
from
the
end
of
the
last
taxation
year
to
which
the
records
and
books
of
account
relate.
4.02
Case
law
The
following
case
law
was
cited
by
the
parties:
1.
Thibault
v.
M.N.R.,
[1978]
C.T.C.
2876,
78
D.T.C.
1641
(T.R.B.);
2.
Dunleavy
v.
The
Queen,
[1993]
1
C.T.C.
2648,
93
D.T.C.
417
(T.C.C.);
3.
Beebe
v.
Canada,
Court
File
No.
92-767
(T.C.C.),
June
9,
1992
(unreported);
4.
Ganne
v.
Canada,
[1994]
1
C.T.C.
2124
(T.C.C.).
4.03
Analysis
4.03.1
With
respect
to
the
sum
of
$6,000
allegedly
spent
to
repair
a
wall
of
the
income
property
located
on
St-Louis
Street,
the
Court
observes
first
that
the
appellant
was
unable
to
provide
any
voucher
either
for
materials
or
for
labour.
The
appellant
was
unable
to
provide
either
the
contractor’s
receipts
or
the
cheques
showing
withdrawals
of
funds,
or
even
the
building
permit
(3.07).
The
appellant
nevertheless
had
an
obligation
to
retain
the
vouchers
which
would
make
it
possible
to
determine
the
amount
of
income
tax
payable
pursuant
to
subsections
230(1)
and
(4)
of
the
Act
cited
above
(4.01).
Furthermore,
the
Court
observes
that
the
respondent
admitted
that
the
wall
in
question
was
repaired.
The
Court
also
believes
that
the
wall
was
repaired,
but
must
it
also
allow
the
$6,000
expense
as
alleged
by
the
appellant?
It
is
quite
certain
that
there
was
a
cost
involved
in
this
repair.
But
what
was
the
amount?
The
Court
is
of
the
view
that
the
appellant
did
not
make
sufficient
efforts
to
adduce
the
best
evidence.
The
appellant
could
have
provided
his
bank
book
or
other
relevant
bank
documents
following
his
telephone
conversation
with
the
appeals
officer
Jacques
Simard
(3.07)
in
August
1989.
He
could
also
have
gone
to
the
offices
of
the
city
of
Québec
to
obtain
a
photocopy
of
the
building
permit.
He
could
at
least
have
telephoned
the
city
to
inquire
whether
the
permit
still
existed.
Was
the
$6,000
amount
appropriate?
To
a
question
from
the
Court
whether
he
had
consulted
another
contractor
with
respect
to
this
work
and
its
cost,
he
answered
no
and
that
he
did
not
know
much
about
construction
(3.04).
The
Court
is
of
the
view,
in
these
circumstances,
that
the
respondent
was
entitled
to
require
the
documents
and
that
this
requirement
of
the
Act
is
not
excessive.
The
vouchers
are
a
fundamental
element
of
every
accounting
system.
This
element
existed
before
the
Income
Tax
Act.
I
would
confirm
the
respondent’s
assessment
on
this
point
in
the
instant
case.
4.03.2
As
to
the
second
point
at
issue,
that
is
whether
the
appellant
’’knowingly,
or
under
circumstances
amounting
to
gross
negligence”
failed
to
report
his
capital
gain
of
$26,000
in
his
1987
income
tax
return,
the
Court
differs
from
the
opinion
of
the
Department
of
Revenue.
The
principal
element
on
which
the
Department
of
Revenue
relied
was
the
statement
made
by
the
accountant
on
September
20,
1988,
that
is
that
even
though
the
appellant
knew
he
had
an
exemption,
he
said
that
there
was
no
point
in
reporting
it
since
that
gain
was
in
any
case
exempt.
In
my
view,
this
proposition
cannot
stand.
Why
hide
this
income
if
it
was
exempt,
particularly
since
the
appellant
did
not
foresee
applying
other
capital
gains
against
the
$100,000
exemption?
This
was
the
only
capital
gain
he
had
made
in
his
life.
Furthermore,
if
the
accountant
heard
the
appellant’s
remarks
as
reported
by
Mr.
Simard,
why
did
he
not
then
advise
his
client
of
the
existence
of
subsection
110.6(6)?
Lastly,
why
did
the
respondent’s
investigator
Mr.
Gagné,
who
noticed
the
appellant’s
omission
in
his
1987
return
in
April
1988,
not
simply
advise
him
rather
than
tell
him,
’’You
have
forgotten
something"?
Had
the
appellant
not
told
him
in
good
faith
that
he
had
sold
his
income
property?
The
appellant
believed
that
the
capital
gain
was
reported
and
the
exemption
applied.
He
would
still
have
had
the
time
to
file
an
amended
return.
It
was
on
April
5,
1988,
that
the
appellant
signed
and
mailed
his
return
and
it
was
during
the
following
week
or
weeks
that
Mr.
Gagné
made
his
investigation
at
the
appellant’s
place
of
business.
In
my
view,
the
appellant
was
not
grossly
negligent.
5.
Conclusion
The
appeal
in
respect
of
the
1986
taxation
year
is
dismissed
and
that
respecting
the
1987
taxation
year
is
allowed.
Appeal
re
1986
dismissed;
appeal
re
1987
allowed.
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