Jacques Kingsbury and Jocelyne Durocher v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2911

Garon T.C.CJ.:—These appeals are governed by the informal procedure.

The appeals of the appellant Jocelyne Durocher for the 1988 and 1989 taxation years concern the amount of the child tax credit provided by section 122.2 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the “Act”) to which the appellant is entitled for each of those years. As this credit must be determined by taking into account, in particular, the spouse's income for each of those years, it was acknowledged by the parties that the fate of the appellant Jocelyne Durocher's appeal depended on this Court's judgment in the instant appeal of the appellant Jacques Kingsbury.

In the case of the appellant Jacques Kingsbury, at issue are appeals from reassessments of income tax for the 1988 and 1989 taxation years. In those reassessments, the Minister of National Revenue added to the appellant's reported income certain sums for the taxation years in question, as indicated in the table below:

According to the Minister of National Revenue, the appellant failed to report the amounts he received in cash from his employer during the two years in question.

The appellant was employed by Charron Excavation Inc. (' Charron Excavation") as a truck driver during the years in issue. T4 slips representing total wages paid to the appellant by cheque were issued in the appellants name by Charron Excavation. The wages reported on the T4 slips were reported by the appellant in his income tax returns for the years in question.

On behalf of the respondent, Mr. Michel Ledoux, an investigator with Revenue Canada's Special Investigations Section, conducted a full-scale investigation into the activities of Charron Excavation. A warrant was executed at the company's office in July 1989 and documents were seized. In particular, daily time sheets were discovered for each of the employees. Handwritten sheets also showed that part of the earnings of some employees had been paid in cash. The normal pay week at Charron Excavation was 45 hours at least for some jobs, including the appellant's. The cheques issued for the normal number of hours (45) were entered in the pay records. This investigation established that certain amounts representing the employees' earnings for hours exceeding the normal week were kept in a “bank”, to borrow the expression used by a number of witnesses. Those hours were used when, in a given week, an employee did not work 45 hours and wished to have a" normal” pay. Mr. Ledoux also stated that he met the appellant in January 1992, in the company of three other employees, after the reassessments concerning the appellant had been made. It was indicated in his interview report that the appellant had stated he had not received more than $6,000 in cash during the years in issue, whereas the Minister of National Revenue had estimated the amounts received in that form during those same years at $13,000. It was also mentioned in that report that the “four taxpayers asked us in writing to give them copies of their cash pay slips so that they could file a claim with the Commission des normes du travail for the wages paid under the amounts provided by the orders"[translation]. He also explained that Mrs. Valiquette had informed him that she did the necessary computations, entered the hours on the calculator tape, put the tape in an envelope, wrote the individual's name on the envelope and handed the envelope over to Mrs. Sylvie Charron. The sealed envelope was later returned to Mrs. Valiquette. The latter could see that there was something in the envelope, but she could not determine the nature of its contents. She attached the pay cheque to that sealed envelope and gave the whole to the employee, who was required to sign to acknowledge receipt of it.

Mrs. France Valiquette also testified for the respondent. During the years in issue, she was secretary to Messrs. Léopold and Daniel Charron, respectively president and vice-president of Charron Excavation. She had been in the service of that company since roughly 1980. In this capacity as secretary, she prepared pay cheques after first computing employees' hours for a given week with the aid of the employees' daily time sheets. She then prepared the cheques for a given employee on the basis of a 45-hour work week. She confirmed that the surplus hours were recorded on a calculator tape, which she handed over to Mrs. Sylvie Charron. Mrs. Valiquette believed that this payment method applied to all the employees, but she could not state, however, whether the appellant had been remunerated in this manner for his overtime hours. She also confirmed the existence of the reserve or "bank" of hours, which was established for the number of hours that exceeded the normal 45-hour week. These overtime hours were recorded by this witness on a detachable sheet. These sheets relating to the calculation of the appellant's hours were filed jointly during the hearing. She also mentioned that she did not know what use Mrs. Charron made of the calculator tape because she was not present or could not see the work done by Mrs. Charron in this regard. The employees had to sign a sheet acknowledging receipt of the pay cheque. She seemed to say that the employees also received an envelope at the same time as their pay cheques.

For her part, Mrs. Sylvie Charron testified that the employees of Charron Excavation were paid both by cheque and in cash. An employee was paid basic earnings, that is for 45 hours of work in a given week, by cheque. The surplus hours exceeding 45 hours were recorded and constituted a bank of hours. The employee was paid for these surplus hours in cash. The cheques and cash amounts were inserted in an envelope and handed over to the employees by a receptionist. Pays in the form of cheques and the envelopes were stapled together. Mrs. Charron stated that she believed the appellant had received cash amounts, as had most of the other employees. However, she was not entirely categorical.

As regards the appellant, he stated that he did not receive cash amounts apart from the $400” Christmas” gratuity, which the appellant called a“ bonus”. The hours exceeding 45 hours per week constituted a "bank", and the appellant was paid for those hours later when he took leave days or when he could not work because of the weather. The appellant indicated that he was also paid by cheque for these surplus hours. I nevertheless noted some hesitation on the appellant's part when he cross-examined Mr. Michel Ledoux concerning the statement attributed to him according to which he received $6,000 in cash during 1988 and 1989.

Analysis

The weight of the evidence tends to show that the appellant was remunerated in cash for the hours of work exceeding the normal work week. First of all, I believe it was likely in the presence of two Department of National Revenue officials that he made the statement that he had received a sum which he estimated at no more than $6,000 cash in total during the two years in issue. Furthermore, the testimony of Mr. Ledoux of Revenue Canada appeared to me to be that of a poised and credible witness. All things considered, I was not persuaded by the appellant Jacques Kingsbury that he did not receive cash amounts from his former employer in the years in issue in addition to the "Christmas" bonuses.

As for the penalty component, under subsection 163(3) of the Income Tax Act, the burden was on the Minister of National Revenue to establish the facts justifying his assessment under subsection 163(2) of that Act. I am of the view that the Minister discharged this obligation with respect to the income not reported by the appellant.

For these reasons, the appeals of the appellant Jacques Kingsbury from these reassessments are dismissed.

The appeals of the appellant Jocelyne Durocher are also dismissed in view of what is stated at the start of these reasons concerning the relatedness of the two appellants’ appeals.

Appeals dismissed.