André Perrault v. Minister of National Revenue, [1985] 1 CTC 2104, [1985] DTC 115

Cardin, TCJ [TRANSLATION]:—By a notice of assessment dated May 11, 1971, the respondent added to the income reported by André Perrault for the 1969, 1971 and 1972 taxation years the amounts of $8,295, $5,049.91 and $6,000 respectively, as income. For 1973 the respondent added the amounts of $11,600 and $1,525. The respondent further imposed penalties of $309.05 for 1969 and penalties of $151.59, $201.91 and $526.43 for each of the 1971, 1972 and 1973 taxation years respectively. On June 14, 1982 André Perrault appealed from these assessments.

The parties through their counsel agreed that judgment should be rendered in the instant case allowing the appeal of the appellant for the 1969, 1971 and 1973 taxation years, dismissing the appeal for the 1972 taxation year and referring the whole to the Minister of National Revenue for re-examination and reassessment on the basis indicated in the minute of settlement, attached to the reasons for judgment. The consent to judgment was signed by counsel for the respondent on November 22, 1982 and by counsel for the appellant on December 2, 1982. As appears in the minute, the parties were able to agree on all the disputed amounts except for the sum of $1,525 for the 1973 taxation year, which is now the only amount at issue in this appeal.

At the hearing held in Rouyn, Quebec on December 2, 1982, it was agreed that the appeals of Messrs Jean-Paul Bérubé and Raymond Plante in respect of the 1973 taxation year would be heard concurrently and on the evidence presented in the appeal of Mr Perrault. As in the Perrault case, the respondent added to the latter’s income the sum of $1,525. Similarly, the respondent by a notice of assessment added the amounts of $1,880 and $2,805 to the income of Jean-Paul Bérubé and Raymond Plante as income received by each of them from the Fonds Immobiliers Nord-Ouest Québécois Inc (FINOQ) during the 1973 taxation year.

Facts

FINOQ was formed around 1966 as an investment club. The Commission des valeurs mobilières [Quebec securities commission] terminated its operations. In the years that followed, the idea was put forward of selling members of the club fictitious parcels of land in order to get around the regulations of the Commission and allow members to continue making investments through FINOQ.

FINOQ was incorporated in 1971 and the company purchased two adjacent parcels of land at La Sarre, Quebec. Each member of the investment club signed a promise to purchase a parcel of land for $1,500, at the rate of $25 a month plus $1 for one share in FINOQ.

The parcels of land were purchased for between $200 and $300 each; FINOQ realized a profit on sale of the land which was to be distributed to the shareholders in the form of annual rebates. The amount of rebate was based on a percentage of the amounts paid by each shareholder on his parcel of land.

Theoretically, after a number of years the shareholders would receive rebates amounting to the purchase price of their land. However, the parcels of land were never subdivided, no contract of sale was signed by the shareholders and none of them became owners of the said land.

Moreover, the great majority of FINOQ shareholders stated that they regarded this as an ingenious investment plan and had no expectation of becoming owners of land.

The idea of FINOQ was conceived by André Perrault, a real estate broker who in 1973 was the secretary and prime mover in FINOQ. The directors of FINOQ included André Perrault, Jean-Paul Bérubé, Raymond Plante and Mr Limoges.

The shareholders were distributed in four regions of northwestern Quebec, under the supervision of one of the FINOQ directors. Mr Perrault had the Val d’Or region, Mr Bérubé looked after shareholders in Chibougamau, Mr Plante had shareholders in Chapais and Mr Limoges (who is not involved in these appeals) was at La Sarre.

In 1971 and 1972 the rebates were paid to shareholders by cheque. Following meetings of shareholders of the four regions, at which Mr Perrault was present, it was decided that beginning in 1973 rebates would be paid to shareholders in the form of bank drafts rather than cheques. No reason was given to explain why it was thought necessary to change the method of paying rebates to shareholders.

In the 1973 taxation year cheques in the amounts of $1,525, $1,880 and $2,805 were issued by FINOQ in the names of André Perrault, Jean-Paul Bérubé and Raymond Plante respectively (Exhibit I-1). The amounts of these cheques were received by the appellants, but were not included in the calculation of their income for 1973, and this is the basis of the assessments of the three appellants.

In their notice of appeal the appellants argued that all the amounts received by them in 1973 were passed on to the shareholders as rebates.

This is a question of fact. The appellants have the burden of showing that the amounts received by them from FINOQ on June 4, 1973 were in fact completely distributed to shareholders in their respective regions.

The assessment of the appellants for 1973 resulted from a special investigation conducted by Claude Engelhart, an employee of the Department of National Revenue. A hearing was first held regarding a company known as “Immarco” and also concerning André Perrault, one of the appellants in the instant case. This hearing led to the examination of FINOQ’s books, and during the investigation it was found that the amounts mentioned in Exhibit 1-1 were supposed to have been paid to third parties by the appellants. However, no T-5 was issued by FINOQ for these amounts and none of these amounts or rebates, taxable under subsection 135(7) of the Income Tax Act, RSC 1952, c 148, was included in calculating the income either of the appellants or of the recipient shareholders for the 1973 taxation year.

A seizure made by the Department of National Revenue in the offices of FINOQ, Habitations Noël and Immarco made available to the investigator the FINOQ books and cheques issued to the three appellants and Mr Limoges (Exhibit 1-1).

The investigator also had the FINOQ ledger, which indicated the amounts to be paid by FINOQ to its shareholders, and a photocopy of one page of this ledger was filed as Exhibit A-1.

Before proceeding with the assessments of the appellants for 1973, the investigator visited a number of FINOQ shareholders, whose names appeared on the list (Exhibit A-l), and to whom the appellants said the amounts at issue were paid in 1973.

From the twenty-five shareholders (out of some 100) who were visited, the investigator or one of his colleagues obtained seventeen sworn statements that they never received rebates in 1973 (Exhibit I-5). Eight other shareholders, at a criminal proceeding against André Perrault, also stated that they received no amounts or rebates from FINOQ in 1973.

The investigation showed that FINOQ was in fact the owner of the two parcels of land at La Sarre. However, the land was never subdivided and no land was sold to the shareholders. The testimony of all the shareholders questioned in the investigation was the same.

No shareholder expected to become the owner of a parcel of land, and all stated that the amounts paid by them were investments which they were making through FINOQ.

Moreover, after the special investigation and before undertaking criminal proceedings against André Perrault, the Minister of National Revenue also held a commission of inquiry into this matter.

For tax purposes, the Minister concluded that the amounts of $1,525, $2,805 and $1,880 received in 1973 by Perrault, Plante and Bérubé respectively were not passed on to the shareholders of FINOQ, but were appropriated by them, without being included in their respective incomes for the 1973 taxation year.

The investigator asked the appellants several times before the assessments were made for explanations regarding the amounts of the cheques which they received on June 4, 1973 from FINOQ. Bérubé and Plante stated that the whole matter was left in the hands of Perrault, and this was not denied. Additionally, it was Perrault who during this period was responsible for Bérubé and Plante’s tax returns, and said he was their representative.

Although Perrault said several times that all the amounts at issue were paid to the shareholders, the investigator was not given any evidence of this during the investigation.

At the hearing of the case the appellant filed as Exhibit A-6 seventeen bank drafts in the names of certain shareholders, listed on Exhibit A-l. However, all these drafts are for amounts less than the rebate which each shareholder was entitled to receive in 1973. Additionally, the draft gives no explanation of exactly what the amounts represented.

Exhibit A-3 was also filed by the appellant, and properly objected to by the respondent, as the bank draft was not signed and the amounts in question were not at issue in the instant appeal. The Court cannot place any evidentiary value on this document.

In argument, counsel for the appellant admitted that he had not been able to fully support the allegations contained in the notice of appeal. Counsel appeared to think that the seventeen bank drafts (Exhibit A-6), the testimony of Perrault, Bérubé and Plante that the amounts of the cheque (Exhibit I-1) were paid by the shareholders, and the testimony of Mrs Corriveau and Mr Gamache, who said that they had received certain amounts from FINOQ in 1973, was sufficient evidence to enable the Court to conclude that all the amounts at issue were paid to the shareholders, and that the appellants had made out their case. Such a decision is not in any way justified by the evidence presented by the appellants.

It seems clear that the assessments of the appellants were not made lightly or arbitrarily by the respondent. Though it was not incumbent on the respondent to present evidence of the facts on which he based his assessments, he showed the Court that the facts or presumptions of fact alleged justified a conclusion that the cheques received by the appellants in 1973 had not been paid to the shareholders either by the appellants personally or by FINOQ. He could then logically conclude that quite specific amounts had been appropriated by the appellants in 1973, but not included in their tax returns. As the appellants were assessed accordingly, they not only had to show that the respondent had based his assessments on false premises, they also had to present concrete evidence that all the amounts at issue were paid to FINOQ shareholders in 1973. The appellants did not succeed either in direct or rebuttal evidence in convincing the Court that the amounts at issue were paid to the shareholders in 1973.

Accordingly, I conclude that even if the amounts of $1,525, $1,880 and $2,805, received by André Perrault, Jean-Paul Bérubé and Raymond Plante respectively, were to be paid to shareholders in the 1973 taxation year, there is no acceptable evidence that these amounts were in fact paid to FINOQ shareholders. The respondent accordingly did not err in adding these amounts to the appellants’ income for the 1973 taxation year. The penalties imposed must also be affirmed.

The appeals are therefore dismissed.

Appeals dismissed.