Camille Bossé v. Minister of National Revenue, [1993] 1 CTC 2073, [1993] 1 CTC 2498

Garon, T.C.C.J. (orally):— These are appeals from assessments by the Minister of National Revenue dated December 3, 1987 for the 1981, 1982, 1983, 1984 and 1985 taxation years.

By these assessments the Minister of National Revenue added the following amounts to the appellant's income, as unreported income, for the years mentioned below:

By these assessments the Minister also imposed penalties for each of the years at issue, as indicated below:

Two witnesses were called for the appellant, the appellant himself and his wife Cécile St-Amant.

The appellant left school at age ten. He then began work”, as he put it. The appellant related that in 1966, when he was 37, he married Cécile St-Amant, who was then almost 21. The appellant and Miss St-Amant had two children, Stéphane and France, born on March 14, 1967 and September 30, 1975 respectively. The appellant began working for the Iron Ore Company in 1952 as a mechanic. He estimated that at the time of his marriage his capital was some $35,000. When he married in 1966, the appellant's income from his job was some $20,000 and he continued working for the company until 1985. His salary at the time he left the employment of Iron Ore was some $30,000, and was about $22,000 in 1980. Throughout this period in which the appellant was working for Iron Ore, his salary at its highest point was $46,000. The appellant lived in Shefferville during his years of employment with the company.

The appellant said that before their marriage his wife had been in paid employment for four years. She was employed at a motel in Kamouraska as, in his own words, a"cleaning woman" [translation]. He also said that his wife had accumulated a capital of about $10,000 at the time of her marriage. After her marriage, he said that Cécile St-Amant ran a nursery for children until 1985. These children — there could be three or four of them on average, at least most of the time — were cared for at her home. This work brought her in income of some $3,500 at the start of the period and amounting to $5,000 towards its end.

The appellant and his wife were married under the regime of separation as to property, as indicated by the marriage contract dated April 18, 1966, which was entered in evidence at the hearing of these appeals.

The following clauses of this contract should be noted:

1. The future spouses adopt the regime of separation as to property in accordance with the Civil Code: they will accordingly not be liable for each other's debts contracted before or during the marriage;

2. The expenses of the future household will be paid by the husband alone;

3. To replace the dowry which the future wife renounces both for herself and for children of the future marriage, the future husband makes a gift inter vivos, declared exempt from seizure and for alimentary purposes, to the future wife who accepts, of the following property:

(2) the sum of $11,000, not bearing interest, to be used for the purpose of purchasing furniture to replace or add to the future spouses' existing furniture, in accordance with their means and their requirements, and the authorization of the future husband shall be required in the choice of such furniture; however, the future spouses reserve the right to use part of this amount, by mutual consent, to purchase other movable or immovable property;

(3) the sum of $20,000 payable on demand during the marriage, without interest, as the means of the future spouses shall permit, but not in any case exceeding $700 per annum, and to be paid in any manner: cash, securities, giving of real property, assignment of life insurance policies and so on.

[Translation.]

The appellant made the gift of $20,000 mentioned in this marriage contract by equal annual payments of $2,000.

The appellant testified that he began buying bearer bonds issued by municipalities, school boards, transport commissions, CEGEPs and other bodies corporate in about 1967 or 1968. He obtained these bonds from brokers, and in recent years from Geoffrion Leclerc; previously, from certain other firms whose operations were later continued by Geoffrion Leclerc. In his dealings with the brokerage firms just mentioned, the appellant had to do business with Messrs. Oscar Levesque and Gérard Michaud.

The appellant said that he and his wife were not satisfied with the services rendered by Mr. Levesque: they did not receive the required documentation from him. On the other hand, the appellant and his wife noted that the services rendered by Mr. Michaud met all their expectations.

In the course of his testimony, the appellant mentioned the fact that during the years at issue he held inter alia a large number of bearer bonds, but that his wife also had her own portfolio of bonds. At the meeting which the appellant and his wife had with Mr. Jean-Claude Martineau, an auditor for Revenue Canada, they told him they each had bonds in their own names but they said the auditor was not willing to accept the idea that the appellant's wife could have a large number of bonds. The appellant explained that he periodically used his wife's assets, at her request, to buy her bearer bonds.

The appellant also told the Court that during the years at issue he submitted his tax return annually, blank, with all the documentation he had concerning his employment income and income from his bonds. For example, in 1982 a letter written to the Department [sic] of National Revenue by the appellant on April 20, 1983 read as follows:

Dear Sir: I am sending you all the papers I have. I do not have any papers for charitable gifts. I have not set out my gifts in detail.

[Translation.]

A similar letter was sent the preceding year for the 1981 taxation year.

The appellant admitted that during the years at issue he did not report the total amount of his interest income. He attributed this omission to the fact that the broker, Mr. Oscar Levesque, did not send him the necessary documents, and in particular T-600 forms. He insisted that he did not conceal anything from the Department of National Revenue. He gave the Department all the documents he had in his possession and he could do nothing more. He also mentioned the fact that from 1986 to date the preparation of his tax returns has been entrusted to accountants, H. & R. Block from 1986 to 1989 and since 1989 the firm of Mr. Jean Filion, C.A. The appellant argued that since 1986 he has properly discharged his tax obligations.

It was further in evidence that the appellant was convicted of certain offences under paragraphs 239(1)(a) and (d) of the Income Tax Act in respect of false or misleading statements which he made in his tax returns during the years at issue, and also the fact that he avoided the payment of tax required by the Income Tax Act. He was ordered to pay a fine of $19,852 for these offences. The appellant explained that he did not consider he was guilty and that his counsel had entered a guilty plea as the result of a misunderstanding of some kind. Rather than pay the fine, though he had the necessary financial resources, he preferred to serve a six-month term of imprisonment. In actual fact, the appellant recovered his freedom after a total period of two months' imprisonment.

In the course of his testimony, the appellant said several times that he did not hold all the bearer bonds interest on which was added to his income by the Minister of National Revenue's assessments. He considered that his worth in bonds in 1980 was some $250,000 while in 1985 it was about $400,000. A financial statement prepared by the appellant himself was filed for 1979; it read in part as follows:

Based on this information, the appellant stated that during each of the years at issue he was unable to buy bonds for more than $7,000 or $8,000 per annum. He said his wife was able to invest the sum of from $3,000 to $5,000 from her assets in bonds during each of these years, taken not only from her income from operating a nursery but also payments made on the gift of $20,000 mentioned in the marriage contract.

The evidence also was that the appellant reported the following income as interest and other investment income for the years at issue: $6,289.13 for 1981; $8,847.42 for 1982; $10,632.85 for 1983; $8,125.49 for 1984 and $10,127.31 for 1985.

The appellant also categorically denied that all the bonds, shown on a list in Exhibit 1-2 with the title “ Physical Count" — a list prepared by Mr. Jean-Claude Martineau of Revenue Canada — were his property apart from those beside which Mr. Martineau himself had written "Mrs." or “Stéphane”. These notations were added some time after the document in question was prepared, to indicate that the bonds beside them were held, as the case may be, by Cécile St-Amant or the son of the latter and the appellant.

As to the appellant's wife, who has a grade seven education, she said she began work at age 17 as a cleaning woman in the Maurice Richard hotel in Kamouraska, where she worked until the time of her marriage four years later. Her savings, while she was thus employed in the hotel, were deposited in a strongbox in the hotel. She estimated she had accumulated some $10,000 when she got married. She also mentioned the fact that she received $20,000 from her husband as a gift under her marriage contractwith the appellant. All her assets were kept in an account and at the end of each year she gave her husband money to purchase bonds for her.

She also corroborated the appellant's testimony on other matters, in particular the fact that she ran a nursery for children for pay throughout her residence in Shefferville, a period of 17 years, from 1966 to 1983. The information provided by Cécile St-Amant on the income she received from this occupation is identical to that mentioned earlier in the appellant's testimony. Miss St-Amant also noted that she had very few personal expenses, as the appellant was responsible for the household expenses. She estimated her holdings of bonds in 1981 at $110,000 and in 1985 at $150,000.

Mrs. Bossé admitted that she had never made tax returns prior to 1986, when she filed her return for 1985 prepared by H. & R. Block. Since 1989 [2] , she had on hand a list of bonds held by her personally and reported her interest income using the services of an accountant named Jean Filion of the firm Jean Filion et Associés Inc. In this regard, a statement titled “Additional list of investment income" indicates that Miss St-Amant received interest income from her bonds of $24,277 in 1989, $19,832 in 1990 and $16,780 in 1991. She estimated her holdings of bonds at the present time at about $160,000.

Miss Cécile St-Amant also stated that she had not known of the T-600 form before 1986 and that during the time that she and the appellant dealt with Mr. Oscar Levesque they received very little mail or information on their bond investments, while with Mr. Michaud the situation was entirely clear. According to Miss Cécile St-Amant, Mr. Levesque set up only one account for the bonds held by her and her husband. Mr. Michaud kept separate accounts for the appellant and herself.

She also stated categorically that when the Revenue Canada auditor, Mr. Jean-Claude Martineau, came he did not want to hear anything about the bonds she held personally. In particular, she indicated that she kept her bond certificates in what she called a separate “leather envelope". Her assets were therefore kept separately, she said, from those of her husband.

For his part, the respondent called two witnesses: the first of these witnesses was Mr. Oscar Levesque, a securities broker who acted for the appellant and Cécile St-Amant during the period at issue. Mr. Levesque stated that he received instructions from the appellant which came to him from Shefferville by mail regarding investments to be made in the form of bonds. He confirmed that all the bonds in question were bearer bonds. He stated that neither the appellant nor Cécile St-Amant complained of his services and that he always sent them T-600 forms. He could not say whether a joint account or two separate accounts were kept by the various brokerage firms throughout the years in which he acted for the appellant and his wife and handled their bond portfolios.

Finally, Mr. Jean-Claude Martineau was called to testify for the respondent. At the relevant time he was an auditor for Revenue Canada and it was he who carried out the necessary investigation to establish the appellant's income for the years in question. On reviewing the file, he quickly realized that all the interest income had not been reported by the appellant for the years in question.

As part of his work he went to the appellant's residence and prepared a list of bonds held by the appellant in the course of a visit which took a couple of days, in January 1987. This list of bonds bore the appropriate notations to indicate each of the bonds held by the appellant, his wife and their children. Mr. Martineau stated that [sic] during the examination in chief that on the basis of information supplied by the appellant and his wife he noted which of them or their children held each of the securities appearing on the list. These notations in pencil, with the abbreviation "Mrs." or the Christian name of the child concerned, indicated that the appellants wife or the child concerned, as the case might be, was the holder of the bonds in question. In cross- examination, however, he admitted that these notations were made subsequently in his office.

In addition to the information given by the appellant and his wife, Mr. Martineau made use of two other sources of information. First, he consulted copies of T-600s obtained from brokers, and some of these copies were illegible. He also used information provided by the Kamouraska Caisse populaire, the appropriate branches of the National Bank of Canada and the Canadian Imperial Bank of Commerce. Some T-600 forms apparently were not completed by Mr. Michaud. It was also established that in many cases the appellant, when completing the T-600s, did not enter his social insurance number and this made the task of the tax authorities much more difficult.

Allegations of parties

The appellant's first allegation was that the Minister of National Revenue, when he determined the appellant's interest income from the bonds listed in Exhibit I-2 mentioned above, did not take into account that a significant number of these bonds belonged during the years at issue not to the appellant but to his wife, Cécile St-Amant.

The appellant's lawyer also pointed out, relying on various information that will be mentioned below, that the appellant's unreported interest income issued should actually be as follows during the years shown:

Based on the same information, Miss St-Amant's interest income for 1981 to 1985 was estimated as follows:

The appellant's counsel further contended that the appellant sent in all the documents in his possession and that he never tried to avoid tax.

For his part, the respondent maintained that the Minister of National Revenue had, through his auditor, undertaken a painstaking investigation to establish the appellant's income for the years in question and obtained copious information on the appellant's investment in bonds.

The respondent's counsel also mentioned the appellant's criminal convictions for false and misleading statements he made in his tax returns for each of the years at issue, and the fact that during the years in question he evaded the payment of $58,570.76 in income tax.

Analysis

On reviewing the evidence as a whole, there is no doubt that the appellant did not report all his interest income from the bonds held by him during the years at issue. The appellant himself admitted that this was so.

As his counsel recognized, it was not possible at the hearing of these appeals to determine exactly which bonds might have belonged to the appellant himself during the years at issue and which were the property of Cécile St- Amant. Consequently, the interest income from the bonds in question of which the appellant was the true owner could also not be established. This gap in the evidence is due to the appellant himself. The explanations given by the appellant and Cécile St-Amant that they were unable to quantify the income from the bonds held by each of them because of the lack of information provided by one of the brokers do not seem acceptable to me. In my opinion, if the appellant really intended to determine his income for the years in question, at least approximately, he could have found some means of doing SO.

On the other hand, the weight of the evidence leads me to believe that the Minister of National Revenue underestimated the size of the bond portfolio which may have been held by Cécile St-Amant. According to the Minister her holding of bonds amounted, based on the information contained on the last page of Exhibit 1-2, to $8,000 for 1981 and 1982, $13,000 for 1983, $23,000 for 1984 and finally $38,000 for 1985. The holding of these bonds by Cécile St-Amant, the Minister of National Revenue submitted, produced the following income: $726.25 for 1981, $975 for 1982, $1,867.50 for 1983, $3,381.25 for 1984 and $4,346.24 for 1985. For his part, counsel for the appellant put forward the hypothesis that Cécile St-Amant could have accumulated capital in 1985 since the marriage of about $140,000, taking into account the capital of $10,000 she had at the time of her marriage and applying an appropriate rate to that capital. To obtain this capital of about $140,000 Miss St-Amant, on this argument, would have had to make an annual investment in bonds of some $4,000.

Counsel for the appellant also made certain calculations which he said lent plausibility to certain points in the appellant's testimony, regarding how the appellant's unreported interest income for the years at issue was established. According to the appellant, this unreported income was established for the years indicated below as follows:

This breakdown of unreported interest income between the appellant and Cécile St-Amant takes as its starting-point the total unreported interest income allocated to the appellant by the assessments at issue. In making these calculations, interest rates of nine per cent and ten per cent were taken into account.

I must therefore estimate on a balance of probabilities the additional unreported income which the appellant apparently received during the years at issue from the bonds he held in his own name. I must of course exclude interest income from bonds owned by Cécile St-Amant.

I have serious doubts regarding certain evidence presented on the appellant's behalf. Thus, it does not seem likely that Cécile St-Amant actually had a capital of $10,000 at the time of her marriage. The appellant did not establish the probability of this allegation, though it was not challenged in cross- examination. However, I feel that it is likely Miss St-Amant had a substantial capital for the time when she married, taking into account her age and the income she may have received during the four years preceding her marriage when she held paid employment. There was not sufficiently persuasive evidence to show that Cécile St-Amant could have held $110,000 of bonds in 1981. However, it seems likely that Miss St-Amant could have had bonds with a value much higher than the amount estimated by the Minister of National Revenue in Exhibit 1-2.

Considering what may have been the capital of the appellant and Miss St- Amant at the time of their marriage, their respective earnings during the marriage, the gift of $20,000 made by the appellant to Miss St-Amant under the marriage contract, the household expenses paid by the appellant under that same marriage contract and all the relevant circumstances, I have concluded that it is probable that Cécile St-Amant could have had bonds representing at least half the amount attributed to her by counsel for the appellant in the submissions he made to the Court in his pleading. I therefore conclude it is probable that Cécile St-Amant held bonds in the following amounts for each of the years at issue: $55,000 for 1981, $61,000 for 1982, $67,000 for 1983, $74,000 for 1984 and $82,000 for 1985.

Accordingly, using the rates of return applied by the appellant, which were not seriously questioned, I reduce the appellant's unreported income by the following amounts for the years shown below:

As to the part of the assessments dealing with penalties, the latter are affirmed in principle but must be amended to take into account the reduction in additional unreported income, and so the reduction in tax payable for each of the years at issue. I feel that penalties are clearly warranted in the instant case. The appellant knew he was underestimating his interest income by a substantial amount. He could have informed the Minister of National Revenue that he did not have in his possession all the documents needed to determine his interest income. He did not do so. It seems clear from the procedure followed by him during the years at issue and from his testimony that he was somewhat careless of the tax obligations imposed on him by the Income Tax Act. I therefore have no hesitation in concluding that the appellant, within the meaning of subsection 163(2) of the Income Tax Act, knowingly or in circumstances amounting to gross negligence, made a false statement or omission in information provided to the Minister of National Revenue on his income for the years at issue.

For these reasons, the appeals are allowed and the assessments referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant's unreported income should be reduced by the following amounts:

The part of the assessments concerning the penalties imposed under subsection 163(2) must be adjusted to take into account the reduced amount of tax payable for each of these years.

No award of costs is made to the appellant.

Appeal allowed in part.