Roger Coderre, Daniel Marcoux, Pierre Daneau, Denis Coderre, Raymond Brisson, Madeleine Coderre and St. Germain Transport Ltée v. Minister of National Revenue., [1993] 1 CTC 2564, [1993] DTC 381

Garon, T.C.C.J.:—The appellant, St-Germain Transport Ltée, hereinafter called” société St-Germain” or the "appellant corporation”, has appealed from reassessments dated February 1, 1989 for the 1980, 1981, 1982, 1983 and 1984 taxation years.

In these assessments for the 1980, 1981, 1982 and 1983 taxation years, the Minister of National Revenue included in the appellants revenue, before any capital cost allowance, the following amounts for the taxation years indicated below:

In assessing the appellant in this way, the respondent relied in particular on the fact that it had received additional revenue from a large number of undeclared sales, which will be discussed below.

Penalty assessments were issued 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") against the appellant société St-Germain in respect of this undeclared additional revenue for the years 1980, 1981, 1982 and 1983.

In its assessment of the appellant corporation for the year 1984, the respondent reduced the small business deduction which the appellant had claimed to zero.

I shall address below in these reasons the six assessments concerning the appellant Roger Coderre for the 1980 to 1985 taxation years and the six assessments concerning the appellant Madeleine Coderre for those same years.

These appeals from the 17 above-mentioned assessments concerning one or the other of the three appellants were heard on common evidence. That evidence was voluminous since the hearing of these appeals lasted 18 full days and 113 exhibits, some consisting of notebooks several pages long, were submitted during the trial. In addition to this evidence, by agreement among the parties to the proceedings and with the Court's approval, there was the evidence gathered during the hearing of the four appeals bearing the numbers 88-1460(IT), 88-1461(IT), 88-1462(IT) and 88-1463(IT), in which the appellants were Messrs. Daniel Marcoux, Pierre Daneau, Denis Coderre and Raymond Brisson and the respondent the Minister of National Revenue. In the appeals concern- ing the four said individuals, the main issue raised by the income tax assessments concerned the amounts which, in the calculation of their income, could be deducted for travelling expenses incurred when the appellants were employed as drivers by the appellant corporation during all or, for some, part of the years 1980, 1981, 1982 and 1983. The four taxpayers in question did not challenge the fact that the amounts received in cash from that corporation had to be included in the calculation of their employment income.

I would first like to discuss a general argument raised by the three appellants against all the assessments in issue. That is the proposition that the assessments are invalid because they are based "on information obtained through an oppressive, irregular, illegal and invalid search" [translation]. According to the appellants, the facts related in the following paragraphs, contained in a document entitled "Appendix" attached to the notice of appeal of the appellant Madeleine Coderre, establish that the assessments in issue are based on an "oppressive, irregular, illegal and invalid” [translation] search:

2. On March 8, 1984, the Royal Canadian Mounted Police conducted searches of the said place of business of the company pursuant to a search warrant issued March 5, 1984 by Justice of the Peace Michel Breton, copy of which is filed in support hereof as Exhibit A-1;

3. The searches were permitted on the ground that the appellant and its directors were suspected of having committed offences against the Canada Employment and Immigration Commission between January 1, 1979 and January 29, 1984, as appears from the copy of the information filed in support hereof as Exhibit A-2;

4. During the searches, nearly all the administrative documents of the company were seized;

5. On April 4, 1984, the company filed applications for certiorari through its solicitors in the Superior Court of the Province of Quebec, Criminal Division, Drummond District, No. 405-05-000080-84, challenging the said searches on the ground that they were oppressive, irregular and invalid, as appears from the documents filed in support hereof as Exhibit A-3;

6. On April 12, 1984, the Honourable Judge Réjean Paul, Superior Court, Criminal Division, Drummond District, dismissed the applications for certiorari, as appears from the transcript of the decision filed in support hereof as Exhibit A-4;

7. On December 19, 1985, all the seized documents were returned to the company, although no information was filed under the Criminal Code or the Unemployment Insurance Act, 1971 concerning the search of March 8, 1984;

8. Also on December 9, 1985, Revenue Canada (Taxation), through its officers, returned to the attack and again seized the documents that had been subject to the first search, as appears from the information filed in support hereof as Exhibit A-5;

9. The decision referred to in paragraph 6 was overturned by the Quebec Court of Appeal in a decision dated November 24, 1986, as appears from the document filed in support hereof as Exhibit A-6;

10. It is clear that Revenue Canada (Taxation) was able to conduct its own search and issue notices of reassessment 1697070 to 1697075 only as a result of information obtained through the seizure of March 8, 1984;

11. The notices of reassessment issued on December 16, 1987 bearing numbers 1697070 and 1697075 are therefore invalid in that they are based on information obtained through an oppressive, irregular, illegal and invalid search.

[Translation.]

I must indicate that the documents entitled "Appendix" attached to the notice of appeal in the files of the appellant Roger Coderre and the appellant corporation contain allegations concerning the invalidity of the search by the Minister of National Revenue and of the reassessments prepared on the basis thereof which are in all points similar to those appearing in the above-cited paragraphs of the document "Appendix" incorporated in the notice of appeal of the appellant Madeleine Coderre.

This same argument was raised in the four appeals to which I referred above concerning the matter between the Minister of National Revenue and the four drivers employed by the appellant corporation. It will be remembered that the evidence filed at the drivers' hearing is part of the evidence in the present appeals. In essence, I said at that time, in reference to the seizure by the Royal Canadian Mounted Police, which was subsequently invalidated by the Quebec Court of Appeal, that, although there was no doubt that the seizure by the Minister of National Revenue had not been the result of a coincidence with that conducted at the initiative of the Royal Canadian Mounted Police, it was no less apparent that no evidence had been submitted that would establish the invalidity of the seizure by the Minister of National Revenue. I indicated that, in fact, an officer of the Minister of National Revenue had stated under oath that the Minister's seizure had been conducted on the basis of information that had come neither from the Royal Canadian Mounted Police nor from employees of the Employment and Immigration Commission. It is still my view that no evidence was produced establishing the invalidity of the seizure by the respondent. I would also add that, contrary to the claims of counsel for the appellants, the search appears to have been conducted not under section 231 of the Income Tax Act, but rather pursuant to a warrant issued under section 487 of the Criminal Code (section 443 of the former Code). Indeed, the information which the appellants filed as Exhibit A-5 bears an inscription in black and white indicating that it was issued under section 443 of the Criminal Code. There are grounds to believe that the warrant itself, which was not filed, must have been issued under section 443 of the Criminal Code, which applies not only to Criminal Code offences that have been or are suspected to have been committed against the Criminal Code, but also against any other act of the Parliament of Canada. To the best of my knowledge, the courts have cast no doubt on the constitutional validity of this last section.

I therefore reject this argument raised by the appellants against all the assessments appealed.

I shall first address the assessments concerning the appellant corporation.

Société St-Germain was incorporated in 1965 and operates in the field of transportation of goods. It conducted its activities not only in Quebec and other regions of the country, but also in the United States. The corporation's head office and principal place of business were located in St-Germain de Grantham, a municipality located a few kilometres from Drummondville, Quebec. Société St-Germain is a Canadian-controlled private corporation within the meaning of the Income Tax Act. The appellant corporation also did business under the name "Transport Service Company". Its taxation year coincided with the calendar year.

The appellant Roger Coderre owned virtually all the shares of this corporation, while his wife, the appellant Madeleine Coderre, owned a few shares. During the years in question, the appellant Roger Coderre was the soul of the corporation and its senior director. The two other directors were Mr. Denis Coderre, vice-president, son of the appellants Roger and Madeleine Coderre, and the appellant Madeleine Coderre, who was also the corporation's secretary.

Paragraph 7 of the reply to the notice of appeal in the file of société St- Germain contains a long list of alleged facts on which the Minister of National Revenue relied in making the reassessments. Subparagraphs 7(e) to (r) are of particular interest:

(e) the revenue reported in the financial statements appended to the tax returns of SGT Ltée for the years 1980 to 1983 is calculated on the basis of deposits to the company's bank accounts at the following institutions:

Royal Bank of Canada

250, rue Hériot

Drummondville

Toronto-Dominion Bank

1900, boulevard St-Joseph

Drummondville

Canadian Imperial Bank of Commerce

242, rue Hériot

Drummondville;

(f) following an exhaustive analysis, declared sales were reconciled and the bank deposits substantially identified through checks of SGT Ltée’s deposit slips and of documents issued by customers;

(g) during its 1980 to 1983 taxation years, SGT Ltée failed to declare additional gross business income of

$266,534.48 in 1980

$202,853.40 in 1981

$156,497.14 in 1982

$187,666.65 in 1983

(h) the undeclared sales came, inter alia, from the following different sources:

1. Amounts received, but not identified on deposit slips:

based on analysis of cheque stubs, invoices and account statements, these are amounts that were collected and for which no corresponding deposit can be traced

2. Amounts appearing in a sales journal, but not traced through deposits used to establish declared sales:

these were amounts entered in a sales journal which the corporation’s accountant had begun to keep in response to a request to keep books, but which was set aside for the purpose of establishing declared sales, which were calculated solely on the basis of deposits

3. Amounts confirmed by customers and/or third parties:

these amounts were billed by the company under the name of Transport St- Germain Ltée or Transport Service Company and separated from sales declared by the company through various stratagems employed by the principal shareholder Roger Coderre such as the following

— cashing customers' cheques at the bank for cash

— signing cheques over to third parties in return for cash

— exchanging customer cheques for bank drafts made out to Mr. Roger Coderre

— depositing customers' cheques in personal accounts in Canada and the United States by and for Mr. Roger Coderre (under his real name and an assumed name)

(i) details of the undeclared sales alleged in subparagraph (h) above were established as follows (at the time of the reassessment of December 16, 1987):

Various sources of
additional revenue	1980	1981 1981	1982 1982	1983
Amounts received, but
not identified on
deposit slips	$ 13,325.85	$ 46,488.72	$ 10,652.01	$ 16,278.48
Amounts received and
entered in sales jour
nal, but not traced
through deposits
Canadian sources	8,354.19	57,433.76	20,609.10	45,955.46

— Can. and U.S. car-
riers				79,045.38
Amounts received, en
tered in sales journal,
but not traced through
deposits: U.S. cus-
tomer: Southern Peat
Moss Inc.		24,240.57	1,817.73
Amounts deposited to
U.S. bank accounts		2,899.56	2,573.98	12,812.61	6,496.86
Amounts	firmed by
third parties”		256,970.72	156,466.25	61,983.70	124,860.41
third parties
Total		305,790.89	264,790.44	185,102.80	193,591.21
Less
(a) Adjustments		2,527.51	21,041.30	15,179.66
(b) Cash deposits		28,021.37		5,341,00
(c) Allowed expenses,
oil purchases		8,707.53
(d) Corrections for U.S.
exchange rate					5,924.56
exchange rate
		39,256.43	21,014.30	20,520.66	5,924.56
Total undeclared
revenue		$266,534.48 $243,749.14 $164,582.14 $187,666.65

Reduction of undeclared sales for 1981 and 1982:

For 1981

(j) The amount of undeclared gross sales of $243,749.14 in 1981, mentioned in subparagraph (i), is reduced to $202,853.40, as mentioned in subparagraph (g) because:

— the Minister of National Revenue has included a cheque received from a customer, Amoco, in SGT Ltée’s 1980 revenue

— part of that cheque, $40,895.74, was declared under 1981 sales

For 1982

(k) the amount of undeclared gross sales of $164,582.14 in 1982, mentioned in subparagraph (i), is reduced to $156,415.14, as mentioned in subparagraph (g) because:

— the Minister of National Revenue has included a cheque (dated 1/12/81) from Amoco, deposited in a U.S. account in 1982, in SGT Ltée's additional revenue for 1981;

— that cheque, in the amount of $8,085, was also included as additional revenue for 1982 because it was deposited in 1982.

Additional expenses allowed as reduction of undeclared sales:

(l) in addition to wages claimed as deductions on SGT Ltée's tax returns, a portion of undeclared sales proceeds was used to pay additional wages for 41 drivers in cash under the table” [translation];

(m) these additional wages were established on the basis of the weekly pay slips of each driver and total:

$ 87,985.82 in 1980

$ 74,913.82 in 1981

$ 76,275.97 in 1982

$101,597.82 in 1983

(n) in addition to the additional wages, other deductible expenses were paid out of undeclared revenue:

For 1980

— the amount of $420 to the company Yves F. Lauzon Inc.

For 1981

— a customer's cheque was signed over to a driver and presumably used for driving expenses totalling $900

— customers' cheques were signed over to a certain Mr. Denis Laterreur presumably for diesel oil purchases totalling $22,713.95

— total deductible additional expenses (in addition to additional wages) thus equal $23,613.95

For 1982

— customers’ cheques were signed over to the companies L. Dugal ($3,400) and Wheeler Truck ($4,500) for truck repairs

— a $2,000 expense to cover transportation costs was paid by a cheque drawn on an account in the name of Roger St-Germain in trust (an account not included in the company's declared revenue) at the Canadian Imperial Bank of Commerce branch in St-Hyacinthe

— a customer's cheque and cheques drawn on the CIBC account in St-Hyacinthe were remitted to Mr. Denis Laterreur for diesel oil purchases totalling $13,406.03

— total deductible additional expenses (in addition to additional wages) are thus $23,306

Total deductible additional expenses:

(o) total deductible additional expenses paid out of gross revenues from undeclared sales is as follows:

	1980	1981 1981	1982 1982	1983
Wages	$87,985.82 $74,913.82 $76,275.97 $101,597.82
Other expenses	420.00	23,613.95	23,306.03
Total	$88,405.82	$98,527.77	$99,582.00	$101,597.82

(p) SGT Ltée has provided no proof or evidence of other additional deductible expenses paid by or for it by its officers, including Mr. Roger Coderre, out of the proceeds from declared or undeclared sales;

(q) SGT Ltée failed to declare net additional and taxable business income (excluding capital cost allowance but after deduction of all additional deductible expenses) totalling:

1980	$178,128.66
1981	$104,325.63
1982	$ 56,915.14
1983	$ 86,068.83

Total: $425,438.26, of which $393,929.11 was appropriated by Mr. Roger Coderre

Capital cost allowance

(r) at SGT Ltée's request, maximum capital cost allowance is allowed, thus yielding increases and decreases for the years concerned as follows:

	1980	1981	1982	1983	1984
Increase	$153,438.39 $47,844.83
Decrease			($60,385.12) ($33,788.52) (12,325.95)
					[Translation.]

There are thus grounds to examine the evidence presented in the file of the appellant corporation.

The main witness for the respondent was undoubtedly the auditor, Mr. Denis Hamel.

Upon completing his education, Mr. Hamel earned the certified general accountant designation (C.G.A.). He has worked at Revenue Canada (Taxation) for more than 20 years, 10 of them in Special Investigations. In his testimony, Mr. Hamel first made some observations of a general nature concerning the appellant corporation's accounting records. He asserted that the corporation's accounting records could have constituted a complete accounting system since they included a general journal, a ledger, a cash receipts/disbursements journal and sales journals. For the year 1983, special journals for accounts receivable and accounts payable were also found. During his examination of the appellant corporation’s accounting records, Mr. Hamel noted that the amounts reported in the ledger had been transferred from the cash receipts/ disbursements journal, not from the sales journal. He also observed that the corporation calculated its revenue on the basis of information contained in the cash receipts/disbursements journal, when the amounts which the appellant corporation declared as revenue were to be found in its general ledger.

Mr. Hamel explained the method he used to calculate the appellant corporation's revenue. As basic documents, he first used the financial statements produced by the appellant corporation for the years in question along with its T2 income tax returns. He then consulted the work sheets prepared by Messrs. Viger and Garbuz as the case may be. The work sheets provided a breakdown of revenue components, sources of information and adjusting entries. This information on receipts or revenue came from the ledger. To establish basic revenue reported for each year, Mr. Hamel had at his disposal the ledger, which summarized totals for each month, the cash receipts/disbursements journal, which provided some information on deposits to the various bank accounts, and the deposit slips, which provided totals of deposits to specific bank accounts for specific days. However, these deposit slips did not contain information on the source of the cheques. These bank deposits were recorded in the cash receipts/disbursements journal and the total of entries in the cash receipts/disbursements journal was transferred to the ledger.

The auditor then made extensive and thorough research efforts to try to determine the total and nature of these deposits by the corporation. Of total deposits of some $6 million over a five-year period, only some $165,000 could not be traced or analyzed.

In the course of his investigation, the auditor realized from examining bank slips for all the bank accounts of the corporation that the latter had not made any cash withdrawals. Since some of the corporation's operating expenses were paid directly in cash, he concluded that société St-Germain had to have other revenues. Exhibit 1-42 shows sales that appear neither in the sales journal nor in the other books or records of the corporation. This exhibit establishes, in particular for the years 1980 to 1983, that cheques for more than $339,000 issued by customers of the corporation do not appear in the sales journal. However, the auditor acknowledged in the course of his testimony that some corrections had to be made to revenue as calculated by the respondent.

It should be noted at this point that the respondent admitted during the hearing of these appeals that, for some of the years in issue, certain corrections had to be made to the calculation of revenue which the respondent used in establishing the assessments here under appeal. The respondent admitted that the appellant's revenue should be reduced as follows:

1. for the year 1980, the revenue of the corporation should be reduced by $29,315;

2. for the year 1981, the amount of $27,863 should be subtracted from revenue;

3. for the year 1982, the revenue of the corporation should be reduced by $9,615.

I shall make only a few brief comments on the testimony of Messrs. Denis St-Onge and Louis Arguin, who were called by the respondent in order to undermine the credibility of the appellant Roger Coderre.

In the case of the witness Denis St-Onge, he was the principal shareholder of the corporation "Les Fondations Wickham Inc.” He asserted that he had prepared an estimate for work that was to be performed for the appellant corporation, but that he ultimately did not do the work or receive payment for it. The word "cash" appearing on the submission was not written by him.

As for the witness Louis Arguin, he was, during the relevant period, the principal shareholder of a corporation, A. Matador Canada Inc., which sold building materials. He remembered having provided the appellant corporation with an estimate in the amount of $18,000 for the sale of certain materials. He did not perform the work, or sell any materials, or receive any money. The accounting entry showing that the amount of $18,000 had been paid apparently is also false.

I conclude from these testimonies and from Exhibits 1-26 and 1-28 that a person in all likelihood acting for the appellant corporation wrote the word "cash" on the submissions in question in order to give the impression that the estimated amounts had been disbursed in payment of the work referred to in the submissions. I clearly cannot believe that a simple error was made on two occasions in the documentation emanating from the appellant corporation. These testimonies have created certain doubts in my mind as to the credibility of the appellant Roger Coderre.

I shall now consider the evidence submitted by the appellants. Eight witnesses were called for the appellants.

The appellant Roger Coderre testified at length during the hearing of these appeals.

First of all, he acknowledged that it was he who took all decisions for société St-Germain. Concerning his method of accounting for its revenue, he stated that he did not deposit all cheques from the corporation's customers at the bank immediately upon receipt, but, on the other hand, did not hold them for more than one month before disposing of them. He admitted that, concerning revenue for the years 1980 to 1983, he had not informed the corporation's "accountant" that not all cheques had been deposited. He added that he had merely answered the accountant's questions. He attributed the failure to account for the revenue of Transport Service Company to the fact that he had not introduced an appropriate system for that purpose. He stated that the only discussions he had had with the “accountant”, Mr. Viger, for the first part of the relevant period, and with the accountant, Mr. Garbuz, for the years 1983 and 1984, had concerned only the questions which they had asked. In particular, he asserted that Mr. Viger knew that cash amounts were paid to the drivers. Mr. Garbuz, for his part, was aware of the existence of the accounts which the appellant Roger Coderre and société St-Germain held in the United States.

Concerning these U.S. bank accounts, the appellant Roger Coderre disclosed that he had opened an account at a bank in Daytona, Florida, to which he had deposited roughly U.S. $50,000. He gave the bank the address of some friends who were staying at a camp ground. This money was to be used to establish a terminal for the corporation. He opened accounts at other financial institutions, including one in Plattsburg in the name of Joseph Coderre, and gave the address of one of his New York customers in order, as he said, to facilitate matters. He also opened another bank account in the United States in the name of St-Germain Transport.

The testimony by the appellant Madeleine Coderre was rather succinct. I shall mention only the essential points concerning the appellant corporation.

The appellant Madeleine Coderre mentioned that the corporation had originally had its offices in the building where the grocery business was also operating. She mentioned that she had made bank deposits for the appellant corporation on a number of occasions. She also knew that her husband paid for fuel purchases sometimes by cheque and at other times in cash. She also knew that her husband cashed cheques of the appellant corporation in order to obtain the needed cash. She acknowledged that a deposit had been made to a bank account in Florida opened in the name of Roger Coderre and Madeleine Coderre. She also mentioned the following:

— she has already heard about Transport Service Company;

— she has already cashed cheques made out to Transport Service Company in order to obtain cash;

— she played no role in the company;

— she did not participate in the opening of a number of bank accounts in the United States;

— regarding the Daytona Beach account, she does not remember either the amount of money involved or the source of the funds used;

— she does not remember having deposited any of the corporation's cheques to her personal accounts;

— in response to representations by Maître Marecki, she admits that another U.S. account existed, at the National Savings Bank of Albany;

— she does not recall her husband, Roger Coderre, ever using the assumed name Joseph in her presence.

The testimony of Mrs. Solange Coderre-Lussier, daughter of the appellants Roger and Madeleine Coderre, who had been employed by the corporation as a secretary from 1980 to 1984, provided some clarification. The following points should be recalled from her testimony:

— the corporation received no invoices from Huiles Daunais;

— the witness knew of the name Transport Service Company and knew that the appellant corporation sometimes received cheques made out to that business name which were cashed in order to obtain the desired cash;

— no record was kept in the corporation's books of cheques received by Transport Service Company;

— this witness also acknowledged that she knew that the corporation did not report all its revenue;

— this witness also asserted that she did not know whether the trucks were powered or could be powered by heating oil.

The accounting evidence presented by the appellants must now be analyzed. Two witnesses, Mr. Jean Viger and Mr. Ashar Garbuz, were heard on this subject.

As for Mr. Viger, who has some knowledge of accounting, but was not a chartered accountant, he prepared the corporation's financial statements and income tax returns for the years 1980, 1981 and 1982. In particular, he stated that he did not know of the existence of Transport Service Company or of the method by which the drivers were paid and that he had not conducted an exhaustive audit of the receipts and disbursements. He had not been informed that many expenses were paid in cash. Under cross-examination, he admitted that he had never discussed with the appellant Roger Coderre the discrepancies between the sales journal and the bank deposits. He added that he had audited only the sales journal, not the invoices. Lastly, he knew that the corporation had a bank account in Plattsburg, in the United States.

As for Mr. Ashar Garbuz, he is a chartered accountant, who has performed various accounting duties for the appellant corporation since April 1984. He prepared the corporation's income tax returns for the 1983 fiscal year from its ledger and discussions with the appellant Roger Coderre. He conducted intensive research into the corporation's operations and revenues during the years in question, following receipt of notices of assessment dated December 16, 1987. In particular, in response to a request in this regard by solicitor for the respondents, he conducted a special study of the appellant corporation's fuel expenses for 1980, 1981 and 1982, particularly that portion of those expenses that was apparently not accounted for. In the course of his testimony, he explained how he had prepared his estimate of fuel costs for the three years in question. He also prepared a study entitled "Sales Based on Sales Journal and Financial Statements" [translation]. Total sales recorded in the sales journals were as follows:

From his analysis of available information, he drew the following conclusions:

— certain amounts were included twice in the corporation's revenue;

— the amounts of the undeposited cheques were apparently as follows for the following years:

— the respondent had credited the corporation for $579,000.84 in expenses;

— the respondent apparently failed to deduct certain petty cash amounts totalling $63,251.50;

— if the two amounts that he thinks were entered twice were deducted, the residual amount would total $286,405;

— from this last amount, he subtracts the amount of $245,099, which apparently represents additional fuel expenses, leaving a sum of $41,000. This latter amount apparently represents the additional amount to be included in the appellant corporation's revenue.

Under cross-examination, Mr. Garbuz acknowledged that he did not conduct a full audit. He cannot explain to the Court why certain amounts had not been considered in these analyses. He had audited only the balances in the ledger and in the bank statements. Mr. Garbuz also offered the following information and statements under cross-examination:

— he asserts that he did not identify certain specific amounts because his instructions were not to identify each item, but rather to provide a comprehensive year-end picture;

— regarding his estimate of average fuel consumption, he did not compare the result he had obtained, based on the average cost of fuel sold by Texaco, against the vouchers he had in his possession; his assessment was only an estimate;

— he asserts he does not know how the company actually paid for the fuel; he claimed that that was not important for him in reaching his estimates; — he did not consider the fact that the company was supplying itself directly from its own tanks (which might have contained heating oil and not diesel fuel);

— he did not audit the corporation's fuel vouchers;

— he estimated average fuel consumption for the vehicles at 3.35 miles per gallon in 1983;

— he discussed fuel consumption with one of the drivers, Pierre Daneau;

— he never asked Pierre Daneau whether his estimate was in Canadian or U.S. gallons;

— he cannot explain how the company could have paid the additional amount of $240,000 claimed for fuel expenses without having received additional revenue.

It should be recalled from the testimony of Mr. Jean Daneau, who was a driver for the appellant corporation for approximately a ten-year period ending in March 1989, that Mr. Daneau estimated the fuel consumption of the trucks he used at roughly four miles per gallon. It should be remembered that his duties as driver required Mr. Daneau to transport goods to the United States. He mentioned that the appellant Roger Coderre had instructed his drivers to fuel their vehicles as far as possible at the headquarters of the appellant corporation. Under cross-examination, he also stated that he had been unable to determine whether the fuel tanks of trucks were filled with heating oil. Two suppliers of heating oil and diesel fuel testified as to their business relations with the appellant corporation and with the appellant Coderre. They were Messrs. Jean-Guy Daunais and Denis Laterreur.

For his part, Mr. Daunais, who until January 1981, had run his petroleum products sales business through a corporation called "Les Huiles Daunais Inc.”, asserted that his corporation sold petroleum products to the appellant Roger Coderre and the appellant corporation and that those products had been paid in cash, by a cheque from the corporation or by cheques from third corporations. These three methods of payment were commonly used by the appellant corporation and the appellant Roger Coderre. He added that an invoice was remitted to the appellant Roger Coderre upon each delivery. Mr. Daunais’ corporation owned two trucks and employed only one employee, in addition to Mr. Daunais himself, who made deliveries. The witness confirmed that the only difference, since 1975, between heating oil and diesel fuel, which was supposed to be used in the trucks, was their colouring. He also said that, around 1980, he had delivered some 2,000 gallons of diesel fuel per week to the facilities of the appellant corporation. This product was intended for private homes, commercial establishments and industrial buildings.

As for Mr. Denis Laterreur, he was examined twice, on August 31 and September 6, 1990. In particular, he stated that he operated a petroleum products business through which he had sold products to the appellant Roger Coderre and the appellant corporation. In the initial examination, he added that he had always been paid by cheques that had been issued by the appellant corporation and by third persons. However, he was to revise his testimony on this point when examined the second time and he admitted that the appellant Roger Coderre had occasionally paid him in cash, not only by cheque. He never provided the appellant Roger Coderre with invoices. The latter did not ask for receipts. Mr. Laterreur described the method of payment as follows:

We wrote the number of gallons on a piece of paper and added it up. When it reached a certain amount, he wrote me a cheque.

[Translation.]

Under cross-examination, this witness indicated that he had delivered heating oil to the appellant corporation and fuelled the trucks with this product, and he maintained this version under the second examination. During the relevant period, the price of heating oil was $1.35 per gallon, while diesel fuel sold for $2 a gallon. Mr. Laterreur said that he had stopped making deliveries to the appellant corporation in September 1981. Hesaid that the appellant corporation was no longer his customer because it had acquired underground fuel storage tanks.

In the light of this evidence concerning the appeals of société St-Germain, I must now consider the validity of the assessments concerning this corporation for its 1980, 1981, 1982 and 1983 taxation years.

First, the assessments for the 1980, 1981 and 1982 taxation years were made after the normal time limitation, then four years, for reassessments. Consequently, the burden of proof lies on the respondent to establish that the taxpayer has made any misrepresentation that is attributable to neglect, carelessness or willful default or has committed any fraud in filing the return or supplying information. The standard of proof required is that applicable in civil proceedings; a preponderance of evidence is therefore needed. This principle was established by the Exchequer Court in M.N.R. v. Maurice Taylor, [1961]

C. T.C. 211, 61 D.T.C. 1139. See also the judgment by the Tax Appeal Board in Roselawn Investments Ltd. v. M.N.R., [1980] C.T.C. 2316, 80 D.T.C. 1271 and the decision of this Court in Dimitrios Markakis v. M.N.R., [1986] 1 C.T.C. 2318, 86

D. T.C. 1237. In the case of the four assessments in issue, there is no doubt that it was clearly demonstrated that the appellant corporation knew, through its senior director, that it was not reporting all its revenue. In particular, no accounting entries were made concerning revenue in the form of cheques to the order of Transport Service Company, and the amounts in question paid to Transport Service Company were substantial. The accounting system used by the corporation was distinctly inadequate. From all the evidence, it is clear that the appellant corporation did not take proper care to report its revenue faithfully since it had not taken appropriate steps to do so and, in particular, had not established an adequate accounting system for that purpose.

It follows from the foregoing that the assessments for the taxation years of the appellant, société St-Germain, must be examined on their merits. The presumption of validity that applies to the respondent's assessments, by virtue of the Supreme Court of Canada judgment in Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195, 3 D.T.C. 1182, applies to each of these assessments, even those issued after the normal time limitation for assessment. Solicitor claimed that the burden of proof which lies on the appellant corporation is to prove that the assessment is incorrect, not to prove the appellant corporation's exact revenue. It seems to me to follow from the preceding that the appellant corporation has a burden to refute the facts used in support of the respondent's assessments concerning it. If that refutation is only partial, it follows that the assessment must be held to be valid in its other respects.

Solicitor for the appellants advanced three main arguments to contest the validity of the assessments in respect of the appellant corporation.

First, he contended that the assessments were incorrect because the method used to prepare them was based on reconciliation of the corporation's bank deposits. He added that, since that reconciliation could not be completed and a substantial sum in the order of $165,000 could not be associated with the corporation's sales, as even Mr. Denis Hamel, the auditor, admitted, it follows that the reassessment as a whole is incorrect. According to the appellant corporation’s accountant, this amount would total $375,000; this estimate appears in Exhibit A-32. He matched this amount of $165,000 with the amount of $425,000, which represents the total revenue added by the respondent for all four taxation years in question. It seems to me fairer to establish a relation between the $165,000 figure and the bank deposit total of more than $6 million for the years in question.

Solicitor for the appellants claimed that the auditor should have used other methods to establish the revenue of the appellant corporation. In his view, the respondent's auditor should have taken the sales journal entries into account and added to those figures the amounts appearing in Exhibits I-13 to 1-20, which represent the amounts paid to Transport Service Company, and should have subtracted that portion of the amounts paid to Transport Service Company that was included when the respondent calculated the corporation's revenue. He suggested a second method whereby Transport Service Company's revenue, as it appears in Exhibits 1-13 to I-20 would have been calculated first. To those revenue figures for Transport Service Company would have been added those Transport Service Company revenues that appear in reported revenue. This method would have yielded the total revenue of Transport Service Company to which the revenue expressly attributed to the appellant corporation should have been added.

I do not believe that the appellant corporation’s revenue for the years in question could have been determined accurately using either of the methods suggested by solicitor for the appellants. It is not at all certain that the estimate of gross receipts would have been any closer to the actual figure. Either of these methods would have yielded an estimate of the corporation's revenue for the years in issue because of the inadequate nature of the system established to account for the appellant corporation's revenue or, to be perhaps more accurate, the absence of any appropriate accounting system. For example, it is virtually impossible to establish the amount of expenses incurred in each of the years in question based on the appellant corporation's mode of operation. I do not have to determine which method should have been used to establish the corporation's revenue given the tangled state of its books and records. Rather my task is to determine the degree to which the appellant corporation succeeded in showing by a preponderance of evidence that the assessments in issue are invalid, in view of the fact that those assessments enjoy a presumption of validity under the law. In any case, the method which the respondent's auditor adopted appeared to me sound and likely to yield an approximation of the appellant corporation's revenue, a precise, rigorous determination of those revenues appearing to me impossible in the circumstances, as I have just explained. Mr. Hamel appeared to me a poised and credible witness.

I shall now examine the fuel expenses.

On behalf of the appellant, there was an attempt to establish that fuel expenses for the years 1980, 1981, 1982 and 1983 greatly exceeded the amounts estimated by the respondent. The appellant Roger Coderre, senior officer of the corporation, acknowledged that he was unable to establish the exact amounts of these expenses for each of the years in question. First, there was the study by Mr. Garbuz. Mr. Garbuz estimated fuel consumption at 1,900,000 litres for 1983. He established a fuel consumption figure of 3.35 miles per gallon. This examination has no solid basis in fact. He did not even take into account information that was in the appellant corporation's possession. He did not consult the “fuel logs” [translation], as they were called, which were available at the time. Table A-1 prepared by Mr. Garbuz is based on a great number of assumptions. Besides, Mr. Garbuz himself failed to assert with any force that the findings of these studies of fuel expenses enabled him to evaluate those expenses with any great degree of accuracy. All things considered, this study was not convincing.

There was also the analysis conducted by Mrs. Solange Coderre-Lussier. This analysis concerned short hauls. The period in question included the months of January and February, the coldest months of the year when fuel consumption is highest for a given distance. This period is not representative, just as the distances travelled are not typical.

In considering this matter of fuel expenses, and in particular these estimates of expenses incurred by the appellant corporation, Mrs. Solange Coderre-Lussier and Mr. Garbuz took into account, for a portion of the costs relative to the distances travelled by the trucks, the cost of diesel fuel from the appellant's tanks at its place of business. This assumption is probably not entirely valid. In my view, the appellant corporation indeed likely used heating oil during the years in question, at least during some of them, the cost of which was approximately 35 per cent less than that of diesel fuel. I am led to this conclusion by Mr. Laterreur's undisputed testimony on this point under both examinations and at least one other piece of evidence. That other piece of evidence is Mr. Jean Daneau's assertion that the appellant Roger Coderre insisted that the drivers fuel their trucks at the corporation's head office. This decision by the appellant Roger Coderre is readily understood since, based on the evidence, during at least part of the period that concerns us here, the price of heating oil in Quebec was substantially lower than the price of diesel fuel in both Canada and the United States, and on the other hand the price of diesel fuel in Quebec was far greater than the price of that product in the United States.

On this question of fuel expenses, I therefore conclude that the estimates advanced on behalf of the appellant corporation have no probative force and do not refute the figures used by the respondent in this regard. In coming to this conclusion, I was also influenced by the fact that the appellant corporation did not produce the appropriate vouchers in support of the studies and analyses to which I referred. The requirements of subsection 230(1) of the Income Tax Act were not respected. That subsection reads as follows:

Every 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.

There is the other argument which the appellant corporation raised. It concerns the 1980 taxation year, more particularly accounts receivable for 1979 that were paid in 1980. On this point, solicitor for the appellants first noted that the auditor for the respondent had explained, in reference to Exhibit 1-17, that the respondent excluded accounts in the amount of $4,150 paid in 1980 from the appellant corporation's revenue for that year, in accordance with the accrual method to which the appellant corporation was subject for the purposes of calculating its revenue. One of the difficulties in the evidence in this respect stems from the fact that a large number of invoices, a list of which appears in Exhibit 1-17, bear no date. In this respect, the witness Mrs. Solange Coderre-Lussier prepared a list of invoices totalling $24,692. Those invoices apparently represent sales realized in 1979 by Transport Service Company in respect of which payments were apparently made in 1980. Of this amount of $24,692, the appellant corporation admits that the amount of $4,150 should be deducted, which deduction has already been allowed by the respondent. The appellant corporation thus claims a deduction of an additional $20,547.92 from the calculation of its revenue for 1980. In response to this claim by the appellant corporation, the respondent answers, first, that an amount of $35,371 has already been credited to the appellant corporation in the calculation of its revenue for 1980 in respect of accounts receivable at the end of 1979 and, second, that it has not been shown that the amount of $20,547.92, which the appellant corporation claimed at the hearing of these appeals should be deducted, was not included in the deduction of $35,371 already allowed by the respondent.

On this question, I am prepared to accept the testimony of Mrs. Solange Coderre-Lussier, who appeared to me an entirely credible witness. It is therefore my view that the weight of the evidence establishes that, during the relevant period, Transport Service Company had a separate billing system and that the invoices issued in the name of Transport Service Company were not taken into account in the financial statements of the appellant corporation. It is also likely that the accounts receivable totalling $35,371, the nature and details of which were not filed as evidence, represent only the accounts billed solely in the name of St-Germain Transport Ltée. I therefore conclude that the accounts receivable totalling $24,692, concerning which the respondent has determined that the appellant corporation was entitled to a deduction of $4,145, are not part of the group of accounts totalling $35,371, deduction of which the respondent allowed, but rather represents the total amount of invoices issued in the name of Transport Service Company and paid in 1980 in respect of transactions conducted in 1979.

I have therefore discussed the main arguments advanced by the appellant corporation and have arrived at the following conclusions as to reductions that shall be made by the respondent, before any capital cost allowance, of the revenue established by the assessments in issue:

1. For the year 1980, the revenue of the appellant corporation shall be reduced by the total of the following amounts:(a) $29,315, deduction of which was allowed by the respondent during the hearing of these appeals;

(b) $20,547.92, representing accounts receivable, deduction of which is authorized by these reasons for judgment.

2. For the years 1981 and 1982, the revenue of the appellant corporation shall be reduced by $27,863 and $9,615 respectively, in accordance with the position taken by the respondent during the hearing of these appeals.

3. The appellant corporation is entitled to no reduction in respect of 1983.

4. As regards the assessment for the 1984 taxation year, no facts were alleged in the pleadings except the following, which was marked with an asterisk at the bottom of paragraph 5 of the reply to the notice of appeal and reads as follows: "The small business deduction was also disallowed for 1984” [translation]. No evidence was submitted and no argument presented concerning this last question.

I believe it follows from the preceding that the appellant corporation appealed from the assessment of February 1, 1989 in order to safeguard its rights in a possible review of that assessment on the assumption that this Court's decision for the 1980, 1981 and 1982 taxation years of the corporation could influence the validity of the assessment for 1984.

Consequently, I would ask the parties to submit for my consideration a draft formal judgment concerning the corporation's assessment for the year 1984. Failing an agreement within a reasonable period of time, the Court will rule, following a special hearing on this matter. Formal judgment concerning the appeal from the assessment for the year 1984 will therefore be rendered at a later date.

The appellant corporation’s appeals from the part of the assessments concerning penalties for the years 1980 to 1982 are allowed only to the extent that they must be allowed in order for the appellant corporation's revenue for those years to be reduced. The appeal from the assessment in respect of the penalties element for the 1983 taxation year is dismissed.

I shall now discuss the assessments issued in respect of the appellant Roger Coderre for the six taxation years 1980, 1981, 1982, 1983, 1984 and 1985.

First, there are the assessments dated February 3, 1989, which concern the 1980, 1981 and 1982 taxation years, and the assessment of December 16, 1987, which concerns the year 1983. These assessments rely mainly on the fact that the appellant Roger Coderre apparently appropriated the funds of the corporation in the following amounts for the years indicated:

Furthermore, in those same assessments of February 3, 1989 for the years 1980, 1981 and 1982, and the assessments dated December 16, 1987 for the years 1983, 1984 and 1985, the respondent included the following interest income in the appellant Roger Coderre's income for the years indicated below:

In those same assessments, penalties were assessed against the appellant Roger Coderre under subsection 163(2) of the Income Tax Act for the six years 1980 to 1985. For the last two years of that six-year period, these penalties are in respect of interest apparently unreported and, for the first four years of that period, in respect of unreported interest income and funds of société St- Germain appropriated by the appellant Roger Coderre.

First, the assessments for the 1980, 1981, 1982 and 1983 taxation years were issued, according to the respondent, after expiry of the normal time limitation for reassessment. This assertion was not challenged. There is no doubt here that the appellant Roger Coderre did not bother to provide all the necessary information to those responsible for preparing his income tax returns. He merely answered their questions, as he himself asserted. He clearly drew no distinction between the estate of the appellant corporation and his own. I have no hesitation in concluding that the respondent was entitled to make these assessments after the normal time limitation had expired since the appellant Roger Coderre showed grave negligence in not reporting all his income for the years in question.

I shall first address the assessments appealed for the years 1980 to 1983 concerning the funds of the appellant corporation which the appellant Roger Coderre apparently appropriated during the four years in question.

In making the assessments, to the extent that they concern the funds of the appellant corporation which the appellant Roger Coderre apparently appropriated, the respondent relied in particular on some of the assumptions he made in making the assessments of the appellant corporation for 1980 to 1983. Those assumptions, stated above in these reasons, are given in subparagraphs 7(e), (f), (g), (h), (p) and (q) of the reply to the notice of appeal in the file of the appellant corporation. In addition, in support of the assessments in respect of the appellant Roger Coderre concerning the appropriation of funds, the respondent relied on additional assumptions set out in subparagraphs 8(i), (I), (m), (n), (o), (p), (q) and (r) in the reply to the notice of appeal submitted in the file of the appellant Roger Coderre. Those subparagraphs read as follows:

(i) total deductible additional expenses paid out of gross revenues from undeclared sales were as follows:

	1980	1981	1982	1983
Wages	$87,985.82 $74,913.82 $76,275.97 $101,597.82
Other expenses	$ 420.00 $23,613.95 $23,306.03
Total	$88,405.82 $98,527.77 $99,582.00 $101,597.82

(I) net amounts appropriated by Mr. Roger Coderre are as follows:

$ 79,491.36 in 1980

$160,620.89 in 1981

$ 74,570.63 in 1982

$ 79,246.23 in 1983;

(m) a large portion of the appropriated revenues was traced to various personal bank accounts of Mr. Roger Coderre in both Canada and the United States;

(n) Mr. Roger Coderre had six accounts (the number known to the officers of the Department) in the United States, five at banks in New York State and one in Florida;

(0) one bank account was opened by the appellant under the name of Joseph Coderre and five accounts under the names Roger Coderre and/or Madeleine Coderre;

(p) the funds deposited to these accounts in the United States came solely from cheques issued by customers of the company St-Germain Transport Ltée;

(q) thus an initial deposit of $50,000 made on March 11, 1981 to account no. C.D9194958 in the name of Roger Coderre at the Security First Federal Savings and Loan Association, Daytona Beach, Florida, consisted of cheques issued in the following amounts by the following SGT Ltée customers:

27/10/80	Premier Brands Inc.	$	479.68
28/11/80	Cargo	$ 369.20
28/11/80	Cargo	$ 840.70
12/12/80	Cargo	$ 429.44
07/11/80	Southern Importers Inc.	$ 1,285.00
05/12/80	Cargo	$ 836.00
05/12/80	Southern Importers Inc.	$ 1,488.00
23/12/80	Premier Brands Inc.	$ 1,690.62
09/12/80	Hyde Park Products Corp.	$ 1,193.30
25/11/80	Southern Importers Inc.	$ 1,385.80
12/04/80	Southern Importers Inc.	$ 1,183.28
15/10/80	H.A. Pollack Riverhead Corp.	$ 2,304.35
08/12/80	Southern Importers Inc.	$ 3,200.00
06/11/80	Southern Importers Inc.	$ 2,634.70
05/12/80	Hyde Park Products Corp.	$10,230.13
19/11/80	Hyde Park Products Corp.	$20,695.35
		$50,246.35

(r) in short, from 1980 to 1983, the balance of these accounts increased by $155,463.74 (in Canadian dollars) including $51,388.30 in interest paid into these accounts.

[Translation.]

On this issue of appropriated funds, solicitor for the appellants contended that the total amounts deposited to the bank accounts in the United States and Canada in the name of the appellant Roger Coderre were deposited for the benefit of the appellant corporation only. In particular, he made the proposition that the sum of U.S. $50,000 deposited to an account at a branch bank in Daytona, Florida, was intended for a terminal project of the appellant corporation. On behalf of the appellant Roger Coderre, it was pointed to the fact that the amounts deposited to all these accounts were not used by the appellant for personal reasons, as proof that he did not appropriate funds. It was also alleged that the appellant Roger Coderre was acting as a figurehead for the appellant corporation.

As to the question of the establishment of a terminal in Daytona, there is some evidence pointing to the fact that the appellant Roger Coderre had at least truly considered this possibility. The explanations he gave concerning the timeliness of establishing such a terminal were corroborated by the testi- moneys of Mrs. Solange Coderre-Lussier and the appellant Madeleine Coderre.

From all the evidence concerning this issue, I have come to the conclusion that the appellant considered as his own all the money deposited to his name or to an assumed name in the accounts in question. In support of this conclusion, I find it hard to explain why, in opening these accounts, the appellant gave customers’ addresses in certain cases, rather than his own or that of the appellant corporation. How to explain that he did not use his usual name in one instance? These facts suggest that the appellant Roger Coderre wanted to separate these funds from the assets of the appellant corporation unbeknownst to tax authorities. There is also the assertion of the appellant Coderre made in an affidavit dated April 17, 1984 to the effect that the money deposited in certain bank accounts, including that in Daytona, Florida, belonged to him personally. This affidavit was in support of an application by the appellants Roger and Madeleine Coderre to the Court of Sessions of the Peace for an“ "order to return certain effects seized from their owners" [translation]. I was provided with no reasonable explanation why these bank accounts were not opened in the name of the appellant corporation. Furthermore, the amounts totalling U.S. $50,0000 deposited to the Daytona, Florida, account do not appear in the balance sheet of the appellant corporation for the years in question.

Concerning these appropriations of funds, it follows from the facts that the respondent took it as established, in support of his assessments in subparagraphs 8(m) to (o) of the reply to the notice of appeal in the file of the appellant Roger Coderre, that, of the total amounts appropriated by the appellant Roger Coderre, an amount totalling $155,463.74 at the end of 1983 could be traced to the appellant Roger Coderre's personal bank accounts in the United States and Canada. As for the balance of nearly $140,000, the respondent did not indicate how these funds would have been used or in what form the funds or part thereof would have been found at the end of 1983, supposing that the funds, or their use, could be identified at the time and were in some way under the appellant Roger Coderre's control.

Although the reply to the notice of appeal, in particular, subparagraph 8(k) of that pleading, appears to establish a certain link between the unreported revenues of the appellant corporation and the funds appropriated by the appellant Roger Coderre, it does not go so far as to provide any rigorous calculations demonstrating that the total appropriated funds came from unreported revenue of the appellant corporation. The comments of Mr. Denis Hamel reported on pages 160 to 163 of the transcript of the session of November 9, 1990 do not shed enough light on this matter of the link between the unreported revenue and the appropriations. In other words, a reduction of the appellant corporation's revenue for the years in question does not necessarily result in an equivalent deduction of funds that may have been appropriated by the appellant Roger Coderre. At all events, the Court heard no argument contrary to this conclusion which I have just drawn. Failing proof to this effect, how could the Court, if necessary, distribute the reduction in the appropriated amounts over the years in question?

It therefore appears to me beyond any doubt that the appellant Roger Coderre misrepresented the facts in his tax returns by failing to report to the respondent the funds he appropriated from the appellant corporation and in not reporting all his interest income. This misrepresentation was without a doubt such that the respondent was justified in law in making reassessments for the years in question. The tax assessments for the 1980 to 1985 taxation years are therefore upheld. The same is true of the penalty assessments, given that it was in full knowledge of the facts that the appellant Roger Coderre failed to report his interest income and appropriated certain funds of the appellant corporation.

I shall now examine the appeals brought by the appellant Madeleine Coderre against the respondent's assessments for the years 1980 to 1985.

The appellant disputes the assessments issued December 16, 1987 for the 1980 to 1985 taxation years. In those assessments, the respondent disallowed all child tax credits claimed for 1980 to 1983 and part of the same deductions claimed for 1984 and 1985. Moreover, in its assessment for 1981, the respondent included interest income of $937.50 in the appellant's income. In addition, the appellant Madeleine Coderre objected to a penalty assessment in respect of the unreported interest income under subsection 163(2) of the Income Tax Act for the 1981 taxation year.

Although the Court was not informed that the assessments of the appellant Madeleine Coderre for some of the years in question were prepared after the normal time limitation for reassessment had expired, it is possible that the assessments dated December 16, 1987 for the 1980, 1981, 1982 and 1983 taxation years fall into this category. It is not up to me to determine this question.

From the preceding, it appears that the dispute concerns a single issue for five of the six years in question: 1980, 1982, 1983, 1984 and 1985. That issue concerns the appellant's entitlement to the child tax credit provided under section 122.2 of the Income Tax Act.

This tax credit was denied to the appellant in its totality for the 1980 to 1983 taxation years on the ground that the appellant Madeleine Coderre's income and that of her spouse, the appellant Roger Coderre, as established in the respondent's assessments, exceeded the maximum income for entitlement to a deduction under section 122.2 of the Act. In this regard, there is reason to note the following assumption stated in subparagraph 6(c) of the reply to the notice of appeal from the appellant Madeleine Coderre's file on which the respondent relied in assessing the appellant for the 1980 to 1985 taxation years:

(c) for the purposes of calculating the child tax credit claimed by the appellant, the appellant's net income and that of her spouse were calculated as follows:

It was not disputed that, if the net incomes of the appellant Madeleine Coderre and the appellant Roger Coderre had been correctly calculated by the respondent, the appellant would not be entitled to the child tax credit. Since the appellants Madeleine Coderre and Roger Coderre did not demonstrate that any error had been made in the calculation of their net incomes and, in particular, since I dismissed the appeals from the assessments of the appellant Roger Coderre for those same years, it follows that the appellant Madeleine Coderre is not entitled to the child tax credit for the years 1980, 1982 and 1983. As to the child tax credit which she claimed for 1984 and 1985, the appellants Madeleine Coderre and Roger Coderre did not demonstrate that the appellant Madeleine Coderre's net incomes of $11,342.20 and $12,018.44 for 1984 and 1985 respectively and Roger Coderre's net incomes of $19,771.28 and $18,768.78 for the same years had not been correctly calculated by the respondent. It was not argued that, based on the net incomes thus calculated, the respondent had miscalculated the tax credit to which the appellant Madeleine Coderre was entitled.

The assessment by the respondent for the year 1981 was challenged in two respects.

The first concerned the child tax credit claimed by the appellant Madeleine Coderre. My observations on this question for the years 1980, 1982 and 1983 apply to the respondent's assessment for the 1981 taxation year subject to the necessary adjustments.

The second point at issue concerning the 1981 assessment was a penalty assessment in respect of the appellant's failure to include an amount of $937.50 in her income. This income arose in the form of interest when the appellant cashed savings bond interest coupons during 1981. The amount was deposited that same year to her account at the Caisse populaire St-Pierre, in Drum- mondville.

This omission of the amount of $937.50 must be considered in the context of the appellant Madeleine Coderre's other sources of income for the same year. In this respect, the evidence establishes that the appellant had total income of $6,919.45 for 1981, excluding this amount of $937.50. On this point, I also considered the appellant Madeleine Coderre's testimony, particularly that part concerning this unreported interest of $937.50. I also noted that, in each of the six years in question, she faithfully reported interest income, in particular from sources in the United States, including in 1981, when she reported another amount of $1,515.69 in interest from another source. I have come to the conclusion that Mrs. Coderre did not fail to report this income of $937.50 knowingly or under circumstances amounting to gross negligence.

The appeal from the assessment for 1981 is therefore allowed.

Conclusion

For these reasons:

1. The appeals of the appellant corporation are allowed for its 1980, 1981 and 1982 taxation years, and the assessments are referred back to the respondent for reconsideration and reassessment on the basis indicated below for each of those years:

(a) for 1980, the revenue of the appellant corporation shall be reduced by the total of the following amounts:

(i) $29,315, deduction of which was allowed by the respondent during hearing of these appeals;

(ii) $20,547.92, representing accounts receivable, deduction of which is authorized by these reasons for judgment;

(b) for 1981 and 1982, the revenue of the appellant corporation shall be reduced by $27,863 and $9,615 respectively in accordance with the position taken by the respondent during the hearing of these appeals;

(c) for 1980, 1981 and 1982, the part of each assessment concerning penalties shall be amended to give effect to the assessment adjustments ordered by this judgment concerning the tax element.

2. Before ruling on the question of costs in respect of the appellant corporation concerning the appeals for the 1980, 1981 and 1982 taxation years and, if necessary, on the quantum of those costs, the Court would like to hear the views of the parties on whether the appellant corporation is entitled to costs in the circumstances and, if so, on the quantum of those costs. For this purpose, an officer of the Registry will contact solicitors for both parties in a few weeks to set a hearing date, unless informed that the parties have reached an agreement on the question of costs.

3. The appeal from the assessment of the appellant corporation for its 1983 taxation year is dismissed.

4. Judgment on the appeal from the respondent's assessment of the appellant corporation for its 1984 taxation year will be rendered at a later date, as explained in paragraph number 4, page 24 of these reasons.

5. The appeals of the appellant Roger Coderre for the 1980 to 1985 taxation years are dismissed.

6. The appeals of the appellant Madeleine Coderre for the 1980 and 1982 to 1985 taxation years are dismissed. Her appeal from the assessment for the 1981 taxation year is allowed, and the assessment is referred back to the respondent for reconsideration and reassessment on the basis that the part of that assessment concerning the penalty is invalidated.