Citation: 2011 TCC 69
Date: 20110207
Docket: 2009-1203(IT)I
BETWEEN:
Roger R. Presseault,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2009-1210(GST)I
BETWEEN:
Roger R. Presseault,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2009-1212(IT)I
BETWEEN:
Claire Presseault,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre J.
[1]
These are appeals from reassessments
made by the Minister of National Revenue (Minister) under the Income
Tax Act (ITA) and from an assessment under the Excise Tax Act
(ETA). The two appellants, Roger R. Presseault and Claire Presseault,
are husband and wife and were fifty-fifty partners in a partnership operating
under the name Les Enterprises CRP Enterprises (CRP), which provided
word‑processing and translation services from the appellant’s personal
residence. They were each reassessed after the normal reassessment period,
pursuant to subparagraph 152(4)(a)(i) of the ITA, for additional
business income of $12,286, $35,970, $16,998 and $11,279 for the 1996, 1997,
1998 and 1999 taxation years respectively; they were also assessed gross
negligence penalties pursuant to subsection 163(2) of the ITA and late‑filing
penalties pursuant to section 162 of the ITA. They were in addition assessed
under the ETA additional goods and services tax (GST) totalling $2,710
for the period from January 1, 1996 to December 31, 1997, were denied input
tax credits (ITCs) totalling $8,713 for the period from January 1, 1996
to December 31, 1999, and were charged a gross negligence penalty pursuant to
section 285 of the ETA.
[2]
In a Statement of
Agreed Facts filed with the Court on June 1, 2010, it was agreed that each
appellant had failed to report revenue in the amount of $14,251 for the 1997 taxation
year. It was also therein stated that they had received an amount of $16,725
from the Lowe Martin Group. It was further stated in the Statement of Agreed
Facts that the parties agreed that the only remaining unreported income in
issue was $588.22 with respect to the 1996 taxation year, and that the only
remaining expense amounts in issue for the 1996 through 1999 taxation years
were the ones listed in that Statement of Agreed Facts.
[3]
At the hearing, the
parties filed at the outset a Partial Settlement, which is reproduced below:
The parties have agreed to settle these matters as
set out below:
1.
Ms. Presseault withdraws
her appeal with regards to the 1996, 1997, 1998, 1999 taxation years with the exception
of subcontracting/consulting and meals and entertainment expenses.
2.
For subcontracting/consulting
expenses, the amounts still in issue are: $30,013.50 for 1996; $15,100.38 for
1997; $4,256.50 for 1998; 810,030.25 for 1999, to be divided between both
appellants on a 50% basis.
3.
For meals and entertainment, the
amounts still in issue are: $276.08 for 1996; $225.59 for 1997; $452.33 for
1998; $323.30 for 1999, to be divided between both appellants on a 50% basis.
Unreported Income
4.
With respect to the assessed amount of unreported income
of $588.22 in the 1996 taxation year,
Mr. Presseault ("the Appellant") has withdrawn his appeal.
5.
With respect to the assessed amount of unreported
income of $16,725 in the 1997 taxation year, the Appellant has withdrawn his
appeal.
Advertising & Promotion Expenses
6.
The Appellant claimed
advertising and promotion expenses in the amount of $2,553 in the 1996 taxation
year. In addition to the amount of $137.00 already allowed, a further amount of
$23.64 in expenses will be allowed for that year.
7.
The Appellant claimed
advertising and promotion expenses in the amount of $3,217 in the 1997 taxation
year. The amount of $20.33 in expenses will be allowed for that
year.
8.
The Appellant claimed
advertising and promotion expenses in the amount of $4,306 in the 1998 taxation
year. The amount of $12.61 in expenses will be allowed for that year.
9.
The Appellant claimed
advertising and promotion expenses in the amount of $1368 in the 1999
taxation year. No further amounts will be allowed for that year.
10.
The Appellant has withdrawn his
appeal with regards to all remaining disallowed advertising and promotion
expenses for all taxation years in issue.
11.
Bad Debt Expense
12.
The Appellant claimed a bad debt
in the amount of $275 for the 1997 taxation year. The Appellant has withdrawn
his appeal with regards to that issue.
13.
The Appellant claimed a bad debt
in the amount of $1,684 for the 1998 taxation year. The Appellant has withdrawn
his appeal with regards to that issue.
Printing and Photocopying Expenses
14.
With regards to printing and
photocopying expenses claimed, the Appellant has withdrawn this appeal for all
taxation years in issue. The following amounts were properly denied: for 1996,
$1,941; for 1997, $5,440; for 1998, $5,746; and for 1999, $3,772.
Office Supplies Expenses
15.
The Appellant claimed office
supplies expenses in the amount of $9,899 in the 1997 taxation year. A further
amount of $252.76 in expenses will be allowed for that year.
16.
The Appellant claimed office
supplies expenses in the amount of $2,425 in the 1999 taxation year. A further
amount of $32.08 in expenses will be allowed for that year.
17.
The Appellant has withdrawn his
appeal with regards to all remaining disallowed office supplies expenses for
all taxation years in issue.
In Home Office Expenses (rent, insurance, hydro.
heat)
18.
With respect to the amount of
expenses claimed for in home office expenses (rent, insurance, hydro and heat),
a further expense of $2,458.85 for the 1996 taxation year; $2,705.30 for the
1997 taxation year; $2773.87 for the 1998 taxation year; $2,700.33 for the 1999
taxation year will be allowed.
In Home Business Phone
19.
With respect to the amount of
expenses claimed for in-home business phone, a further expense of $13.46 for
the 1996 taxation year; $38.63 for the 1997 taxation year; $98.28 for the 1998
taxation year; $151.96 for the 1999 taxation year will be allowed.
Automobile insurance Expenses
20.
With respect to the amount of
expenses claimed for automobile insurance for all the taxation years in issue,
the Appellant has withdrawn his appeal regarding these expenses.
Automobile Lease Expenses
21.
With respect to the amount of expenses claimed for automobile
lease for all the taxation years in issue, the Appellant has withdrawn his appeal
regarding these expenses.
Automobile Maintenance Expenses
22.
With respect to the amount of
expenses claimed for automobile maintenance for all the taxation years in
issue, the Appellant has withdrawn his appeal regarding these expenses.
Automobile Gas Expenses
23.
With respect to the amount of expenses claimed for automobile gas
for all the taxation years in issue, the Appellant has withdrawn his appeal
regarding these expenses.
Parking Expenses
24.
The Appellant claimed parking
expenses of $1,272 in the 1996 taxation year, which were denied in the
assessment. The Appellant has withdrawn his appeal for this issue.
25.
The Appellant claimed parking expenses of $1,084 in the 1997 taxation year, which
were denied. The Appellant has withdrawn his appeal with regard to this issue.
26.
The Appellant claimed parking
expenses of $815 in the 1998 taxation year, which were denied. The Appellant
has withdrawn his appeal with regard to this issue.
27.
The Appellant claimed parking
expenses of $480 in the 1999 taxation year, which were denied. The Appellant
has withdrawn his appeal with regard to this issue.
Gross Negligence Penalties assessed under s. 163(2)
of the Income Tax Act
28.
The Appellant has been assessed
gross negligence penalties as per subsection 163(2) of the Income Tax Act ("the
Act"). The Appellant agrees the gross negligence penalties
shall apply and shall be adjusted accordingly with the above paragraphs.
29.
The Appellant further agrees
that as per subsection 152(4) of the Act, the Minister properly
reassessed the taxation years in question.
30.
If the Appellant is unsuccessful
in his appeal to the Tax Court regarding the subcontracting/consulting expenses
or regarding meals and entertainment expenses, it is agreed that gross negligence penalties as per subsection
163(2) of the Act shall apply to those expenses. The Minister shall not
be required to call evidence in this regard to meet his burden of proof.
Late-filing penalties assessed under s. 162 of the Income Tax Act
31.
The Appellant has been assessed
late-filing penalties as per section 162 of the Act. The Appellant
agrees the late-filing penalties shall apply and shall be adjusted accordingly
with the above paragraphs.
GST
32.
The Appellant has been assessed
gross negligence penalties as per section 285 of the Excise Tax Act. The
Appellant agrees the gross negligence penalties shall apply and shall be adjusted accordingly with the above
paragraphs.
33.
The Minister assessed an
additional GST collectible of $2,710.09 for the period from January 1, 1996 to
December 31, 1997. The appellant has withdrawn his appeal in regards to this
issue.
34.
The Minister denied input tax
credits of $8,713.26 for the period from January 1, 1996 to December 31, 1999.
An additional amount of $144.42 in input tax credits will be allowed. The appellant withdraws his appeal with
respect to all other issues in regards to input tax credits except for with
respect to subcontracting/consulting and meals and
entertainment expenses.
Issues remaining to be
resolved
35.
The only matters remaining to be
resolved before the Tax Court of Canada
are the amounts claimed and denied for subcontracting/consulting expenses and
meals and entertainment expenses for the
taxation years at issue and the
corresponding input tax credits, which amount to $3,062.58 and $89.16
respectively for the taxation years in issue.
36.
The Appellant has withdrawn his appeal with regards to all remaining issues for all taxation
years in issue.
[4]
As set out in paragraphs 2, 3
and 34 of the Partial Settlement referred to above, the only matters remaining
to be resolved before me are the amounts claimed and denied for
subcontracting/consulting expenses and meal and entertainment expenses for the
taxation years at issue and the corresponding ITCs.
[5]
Roger Presseault testified for the
appellants, his wife being too sick to attend the hearing. All expenses at
issue relate to an alleged contractual relationship between the appellants and a
person by the name of Daniel Ryan. Mr. Presseault said that he was
introduced to Mr. Ryan in 1992. At the time, Mr. Ryan was the
executive director of the Native Council of Canada (NCC). On August 23,
1993, a contract was entered into between CRP and the NCC whereby CRP was to
provide translation services to the NCC. This agreement, which was executed in
French, was filed as Exhibit A-1, Tab 7. It was signed by Roger Presseault for
CRP and by Daniel Ryan for the NCC. The contract stipulated that, at the
request of Mr. Ryan, CRP undertook to hire Nathalie Ladouceur to revise
the translations and Pro Discount Printers for printing; both, referred to in
the contract as subcontractors, were to be paid by CRP through Mr. Ryan. Mr. Presseault
testified that the day after the contract was signed a lady introducing herself
as Nathalie Ladouceur called him to confirm that they would be doing business
together under the contract signed with Mr. Ryan. Mr. Presseault
conceded, however, that he had never met Nathalie Ladouceur. In fact, Nathalie
Ladouceur was called to testify by the respondent. She is a nurse, has never
worked in the field of translation, and was never made aware of the contract
until the investigator from the Canada Revenue Agency (CRA) called her
in the course of his investigation relating to the actions of Mr. Presseault
and Mr. Ryan. It appears that Nathalie Ladouceur was a friend of Mr. Ryan’s
son, and lived with him in 1992 and 1993 in Hull, Quebec. In the years at issue, she was not seeing
Mr. Ryan’s son anymore and, in fact, had lived for two years in
Switzerland and then in Montreal, Quebec.
[6]
Mr. Presseault filed in
evidence a few cheques that were made out to Nathalie Ladouceur in 1994
and 1995 and that were deposited in Mr. Ryan’s bank account according to
information obtained by Mr. Presseault (Exhibit A‑1, Tab 10,
and Exhibit A‑4).
[7]
Mr. Presseault filed another
contract apparently entered into between CRP and Daniel Ryan on October 5, 1995
(Exhibit A-1, Tab 11). This agreement was also drafted in French and
stipulated that Mr. Ryan was to promote CRP’s business and also provide revision
services with respect to translations done by CRP. It was stated that CRP agreed
that Mr. Ryan would use the services of the people referred to in the 1993
contract mentioned above and that CRP would pay cash to Mr. Ryan, who in
turn would pay the subcontractors. The hourly rate set for revision was from $35
to $75, and for promotional services, from $100 to $150. Apparently, in late
1995, the NCC owed about $23,000 to the appellants and they decided to take
legal action against it. An out-of-court settlement was reached, and Mr. Presseault
explained that it was in the course of that dispute that the 1995 contract was
signed between CPR and Mr. Ryan personally.
[8]
Daniel Ryan was called by the
respondent to testify. He denied having signed the 1995 contract. He said that
he was very busy travelling for the NCC (later renamed the Congress of
Aboriginal Peoples) and then for the Department of Indian Affairs, and that he
did not see how he would have had the time to provide the services referred to
in that agreement. He further stated that he was not in the translation
business himself and that he never personally billed the appellants for such
services. When counsel for the respondent showed him the invoices filed by the
appellants, he said that he had never seen them before. He testified that Ms.
Ladouceur never worked for him. In cross-examination, he admitted that he
signed the 1993 contract for NCC but was not able to explain why the names of
Nathalie Ladouceur and Pro Discount Printers appeared therein. Nor was he able
to explain why the cheques made out to Nathalie Ladouceur were deposited in his
bank account. Mr. Presseault filed three cheques for amounts varying from
$640 to $930 made out to Mr. Ryan in 2000, drawn against CRP’s account,
and deposited into Mr. Ryan’s bank account (Exhibit A-1, Tab 2).
Apparently, Mr. Ryan had moved to the Aboriginal Financial Officers
Association (AFOA) and had requested the services of the appellant for that
organization. Mr. Ryan was not able to explain how it was that the
aforementioned cheques were made out to him personally. Finally, Mr. Ryan
testified that he did not see or speak to Mr. Presseault after the termination
of the contract with the NCC until he called Mr. Presseault again in 2000
or 2001 or thereabouts for one contract with the AFOA. Confronted with e‑mails
exchanged between him and Mr. Presseault from September 1997 to December
1999 (Exhibit A-1, Tab 13), Mr. Ryan still maintained that these
contacts related to business done between the appellants and the NCC. Mr. Presseault
pointed out that Mr. Ryan’s e‑mail address was not shown as being an
address for the NCC and that the account was apparently created in September
1997 after Mr. Ryan’s departure from the NCC. Mr. Ryan did not have
any explanation for that, maintaining that he never did any personal business
with the appellants. He kept saying that after 1996, he did not do business
with Mr. Presseault until the year 2000 or 2001, explaining that when he
started working for the Department of Indian Affairs there was no need to call
the appellants (Transcript, pp. 212-213). Mr. Ryan acknowledged that he was
charged with fraud over $5,000 in 2002 while he was the chief operating officer
of the AFOA, and that he ended up with a criminal record and one year of probation
(Transcript, pp. 161-162).
[9]
The appellants were denied the
deduction of all alleged payments to Daniel Ryan or to Nathalie Ladouceur on
invoices apparently received from them for consulting/subcontracting services.
Examples of such invoices were filed as Exhibit A-2 and in Exhibit R-1,
Volume 2, Tab 24. They all show that payment was made in cash. Ms. Jennifer
Linnett, the investigator in charge of the appellants’ file, explained why she
did not accept those invoices. First, the address shown for Nathalie Ladouceur
was false, as confirmed by Canada Post. Second, Ms. Linnet tried to match
the amounts allegedly paid on each date stamped on the invoices with withdrawals
from the business bank account or with credit card or personal bank account withdrawals.
She was not able to match any of them, and she realized that in many instances it
was not possible, considering the withdrawals, to have paid all of the cash
amounts shown on the invoices. Third, none of the CRP clients that she
interviewed were aware that CRP was subcontracting their work. Fourth, on most
of the invoices ostensibly issued by Nathalie Ladouceur, the rate being charged
was $75 an hour, whereas CRP was billing its clients only $35 an hour, which
did not make sense. Finally, both Nathalie Ladouceur and Daniel Ryan told her
that they never issued the invoices in question to the appellants.
[10]
Mr. Presseault claimed that
he paid the amounts of the invoices in good faith and that he has been the victim
of an individual whom he had believed to be an honest businessman. As proof, he
said that the cheques made out to Mr. Ryan or Ms. Ladouceur both prior
to and after the years at issue showed that he did in fact work with Mr. Ryan
and paid him for legitimate expenses. Mr. Presseault also filed, as
Exhibit A-1, Tab 20, a breakdown of the work done in the years at
issue. However, this breakdown does not give any details concerning the amounts
allegedly invoiced and paid for subcontracted work. Mr. Presseault also filed
his personal agendas for the years at issue to show that he did meet with
Mr. Ryan in those years (Exhibit A-3). In fact, he used those agendas
to reconstruct a breakdown of all the meals he had with Mr. Ryan and that
he now claims as expenses (Exhibit A-1, Tab 19).
[11]
In cross-examination, Mr. Presseault
had to admit that the meal invoices in Exhibits R-4, R‑5 and R‑6
showed that those meals were taken with children, or on his wedding anniversary,
or on a statutory holiday. Mr. Presseault still claimed, however, that Mr. Ryan
was there and that they were business meals. He did not keep a logbook of meals
taken with clients because he had meals only with Mr. Ryan. Mr. Ryan did
not deny that he occasionally had lunch with Mr. Presseault close to the NCC’s
offices, but testified that he never had any meals with Mr. Presseault at
which members of Mr. Presseault’s family were present or on statutory
holidays. He said that, with a couple of exceptions, he was not with
Mr. Presseault at the meals listed in Exhibit A-1, Tab 19. Mr. Presseault
admitted that as a result of the CRA investigation he was fined $12,000 — and
now has a criminal record — for, among other things, claiming personal
expenditures as business expenses (Transcript, pp. 21, 64 and 101-102). He
also acknowledged that the personal agendas were not part of the documents
seized by the CRA during the investigation, nor was the 1995 contract. He did
not think it necessary at the time to hand those documents over to the CRA. In
those years, Mr. Presseault was working full‑time for Canada Post
and was sitting on the Employment Insurance Board of Referees, and it was only the
agendas that he kept to justify his absenteeism at Canada Post that were found
by the CRA in the seizure. Those agendas made no mention of any dealings with
Mr. Ryan. Mr. Presseault explained that there were two separate sets
of agendas.
Analysis
[12]
At the outset, I must say that I found
the testimony of neither Mr. Ryan nor Mr. Presseault credible. Both had
pleaded guilty to criminal charges of fraud, which, as I understand, were
related in part to the assessments before me. The testimony of both was inconsistent,
and on more than a few occasions Mr. Ryan as well as Mr. Presseault
had difficulty providing explanations. Nathalie Ladouceur was straightforward
and I have no difficulty believing that she was completely unaware of the
alleged agreements and that her name was used fraudulently by Mr. Ryan for
his own interests. As for Mr. Presseault, the impression he gave in court
was that he just closed his eyes to the situation and implicitly went along
with deceiving the tax authorities with the complicity of Mr. Ryan. I do not
believe at all that the two men operated a legitimate business together, and thus,
in the absence of a real business, the expenses claimed in relation to Mr. Ryan
must all be disallowed.
[13]
First, it is important to say that,
in their initial tax return for 1996, the appellants claimed a total of $14,810
for consulting expenses and $1,942 for meal and entertainment expenses (Exhibit R-1,
Volume 1, Tab 1, pp. 8 and 11, and Tab 5, pp. 5 and
8). They now claim $30,013.50 for consulting (twice as much) and $276.08 for
meals and entertainment (seven times less). For 1997, they claimed $16,259.70
for subcontracts and $2,096.94 for meals and entertainment (Exhibit R-1,
Volume 1, Tab 2, p. 9, and Tab 6, p. 6) whereas they
now claim $15,100.38 and $225.59 for those expenses respectively (nine times
less for meals). For 1998, they claimed $7,046.60 for consulting fees and
$2,787.58 for meals and entertainment (Exhibit R-1, Volume 1, Tab 3,
p. 14, and Tab 7, p. 10). They now claim $4,256.50 and $452.33 for
those expenses respectively (that is, somewhat more than half as much for
consulting, and six times less for meals). Finally, for 1999, they claimed
$9,375 for subcontracts and $1,033.98 for meals and entertainment (Exhibit R-1,
Volume 1, Tab 4, p. 11, and Tab 8, p. 6). They now
claim $10,030.25 and $323.30 for those expenses respectively (almost $1,000
more for consulting and over three times less for meals).
[14]
The discrepancy between the
amounts initially claimed and the ones now claimed shows in my view a wilful
blindness by the appellants vis‑à‑vis their tax responsibilities.
Further, with respect to meals, the appellants persist in claiming amounts that
were shown to have been personal (meals with children, a wedding anniversary
meal), with no evidence whatsoever that clients were present at those meals. With
respect to consulting fees, it is simply unbelievable that the appellants would
have paid a consultant twice as much as they charged their own clients. This is
simply not a sound business practice and the claim in that regard is completely
fanciful. Moreover, Ms. Linnett testified that she was not able to trace
any withdrawals from either the business or the personal accounts of the
amounts allegedly paid in cash. Mr. Presseault did not adduce any concrete
evidence to prove that cash amounts really were withdrawn to pay Mr. Ryan.
The only evidence given related to years prior to and after the period at
issue, and was limited to a few cheques made out to Ms. Ladouceur (whom we
know was not involved at all in translation work) or to Mr. Ryan.
[15]
Furthermore, Mr. Presseault
was not able to relate the invoices to specific work done by the alleged
subcontractors. He reconstructed a kind of schedule of work done (Exhibit A-1,
Tab 20) from his personal agendas, but with no reference whatsoever to fees
related thereto. Further, it is noteworthy that Mr. Presseault could not
give any explanation as to why he did not hand the personal agendas and the
1995 contract, on which he mainly relied, over to the CRA investigators at the
time of the investigation. All those documents were provided long after the
fact and are more or less self‑serving evidence.
[16]
For all these reasons, I do not
accept the expenses now claimed by the appellants in relation to
consulting/subcontracting and for meals and entertainment.
[17]
There is one last point. Mr. Presseault
filed in court an unsigned letter which is not dated and was ostensibly sent to
Mr. Ryan by Ms. Linnett (Exhibit A-1, Tab 5). In that
letter, Mr. Ryan was informed of income tax adjustments for unreported
revenue. In court, counsel for the respondent raised doubt as to the authenticity
of this document as the amounts of unreported revenue corresponded to Claire
Presseault’s unreported revenue. Mr. Presseault claimed that this document
had been returned to him by the CRA investigators just before the criminal
proceedings. The day after the hearing, Mr. Presseault was informed by
counsel for the respondent that upon verification she was told that the
document was a draft that was never finalized and never sent to Mr. Ryan. It
was provided to Mr. Presseault through the disclosure process. Mr. Presseault
immediately wrote a letter to the Court arguing that this admission by counsel
for the respondent was to be interpreted as proving his credibility.
Unfortunately for Mr. Presseault, this document may help in proving that
Mr. Ryan had his own trouble with the CRA and goes to Mr. Ryan’s credibility,
but that does not change in any way my perception of Mr. Presseault’s
behaviour in his own case. The document in question has absolutely no bearing
on my reasons for disallowing the expenses claimed before me.
[18]
I will therefore allow the appeals
and refer the assessments back to the Minister for reconsideration and
reassessment just to take into account what was agreed upon by the parties in
the Partial Settlement. It is understood that the appellants may not deduct the
subcontracting/consulting and meal and entertainment expenses claimed or the ITCs
related thereto.
Signed at Montreal, Quebec, this 7th day of February 2011.
"Lucie Lamarre"
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