Citation: 2009 TCC 143
Date: 20090521
Docket: 2007-2286(IT)G
BETWEEN:
BERNARD VIGEANT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Archambault
J.
[1]
Bernard Vigeant is appealing from
assessments made by the Minister of National Revenue ("the Minister")
in respect of the 1998, 1999 and 2000 taxation years. The Minister had added to
Mr. Vigeant's income additional income amounts determined using the indirect
income calculation method known as the "net worth method".
[2]
The additional income amounts
determined using the net worth method were $29,381.63 for 1998, $96,955.83 for
1999, and $55,352.80 for 2000. From these amounts the Minister subtracted amounts
representing specific adjustments with respect to certain income or disallowed
expenses. What remained was unreported business income, to which a penalty
under subsection 163(2) of the Income Tax Act ("the Act")
was applied. The unreported income amounts total $6,512.99 for 1998, $74,548.53
for 1999, and $41,043.92 for 2000. In his Notice of Appeal, Mr. Vigeant
challenges some of the Minister's net worth calculations. In particular, he complains
that the Minister did not take account of certain personal property that he
inherited and gifts received from his father before he died. He also
challenges the business‑use and personal‑use percentages for
certain property, as determined for the purpose of calculating certain expenses
such as automobile, telephone, Internet service, postage, and travel expenses.
Factual background
[3]
In making the reassessments, the
Minister relied on certain assumptions of fact set out in paragraph 23 of
the Reply to the Notice of Appeal. I shall reproduce those assumptions here:
[TRANSLATION]
(a) at all relevant times from 1997 to 2001, the appellant
worked as a chiropractor; (denied)
(b) from 1997 to 2001, the appellant personally operated the Clinique chiropratique
de la Rive-Sud, in Saint-Nicolas; (admitted)
(c) from 1997 to March 31, 2000, the appellant personally
operated the Clinique chiropratique de Saint-Prosper, in Saint-Prosper;
(admitted)
(d) from February 8, 1998, to
October 31, 1999, the appellant managed the Chiro‑Clinique
Rive-Sud, a business located in Longueuil and owned by Les Entreprises
Dumavi Inc; (admitted)
(e) from February 8, 1998, to October 31, 1999, the appellant
was the president and sole shareholder of Les Entreprises Dumavi Inc.;
(admitted)
(f) the clinics' revenues were from chiropractic treatments,
chiropractic examinations, X-rays and the sale of orthopedic pillows;
(admitted)
(g) the appellant reported total income of $51,506 for 1998,
$83,343 for 1999, and $71,995 for 2000; (no knowledge)
(h) following his father's death on February 7, 1998,
the appellant received, in the course of that year, an inheritance worth
$421,836; (admitted)
(i) in
1998, the appellant won $25,000 in a lottery; (admitted)
(j) following the initial assessments and the reassessments
that are not in issue, the appellant's total income was determined to be
$56,740 for 1998 and $83,341 for 1999; (no knowledge)
Net worth audit
(k) from 1997 to 2001, there was no bank
account specifically designated for the Clinique chiropratique de la Rive-sud
in Saint-Nicolas; (admitted)
(l) the Minister audited the appellant using the net worth
method; (admitted)
(m) the appellant's net worth was $239,454 as at
December 31, 1997, $746,780 as at December 31, 1998,
$779,417 as at December 31, 1999, and $811,407 as at
December 31, 2000, as shown in the table entitled [TRANSLATION]
"Personal Balance Sheet" and on the related explanatory sheets
attached hereto as Appendix A and forming an integral part hereof; (denied)
(n) the appellant incurred personal expenses in the
amounts of $24,132 for the year 1998, $55,496 for the year 1999, and $65,245
for the year 2000, as shown by the personal expense sheets attached hereto as
Appendix B and forming an integral part hereof; (denied)
(o) the appellant's total income determined using the net worth
method was $86,121 for 1998, $180,296 for 1999, and $127,347 for 2000, as shown
by the table entitled [TRANSLATION] "Calculation of Net Worth
Differential" attached hereto as Appendix C and forming an integral
part hereof; (denied)
(p) the appellant's net worth differential was $29,381 for
1998, $96,955 for 1999 and $55,352 for 2000; (denied)
(q) these differentials are made up, in particular, of
unreported business income in the amounts of $6,513 for 1998, $74,549 for 1999
and $41,044 for 2000; (denied)
(r) the remaining portions of the net-worth differential
amounts, that is to say, $22,868 for 1998, $22,407 for 1999 and $14,308 for
2000, can be explained by specific adjustments, as shown in the table entitled
[TRANSLATION] "Analysis of Net Worth Differential" attached
hereto as Appendix D and forming an integral part hereof; (denied)
Specific
adjustments
(s) in 1999, the appellant received $4,997 in trust income that
he did not include in computing his income; (no knowledge)
(t) in 1999, the appellant incurred a $2,456 capital loss from
the disposition of investments from his father's estate, which he did not report;
(no knowledge)
(u) in 2000, the appellant incurred a $7,987 capital loss from
the disposition of investments from his father's estate, which he did not report;
(no knowledge)
Class 10 capital cost allowance (CCA)
(v) in 1998, the appellant disposed of a
1994 BMW 318is automobile for $14,000, and did not take it into account in
computing his 1998 capital cost allowance; (admitted)
(w) the 1994 BMW 318is was the appellant's only Class 10
depreciable property;
(x) the undepreciated Class 10 capital cost as at
December 31, 1997, was $11,556; (admitted)
(y) the appellant claimed CCA of $1,733 in 1998 with respect to
Class 10; (admitted)
(z) in 1998, the appellant was not entitled to any CCA in
respect of the 1994 BMW 318is; (admitted)
(aa) the disposition of the 1994 BMW 318is resulted in a $2,444
recapture of depreciation; (admitted)
Class 10.1
capital cost allowance (CCA)
(bb) in 1997, the appellant purchased a 1998 Mercedes ML320
for $55,000; (admitted)
(cc) the 1998 Mercedes ML320 is a Class 10.1 depreciable asset;
(admitted)
(dd) the appellant's business-use percentage for the 1998
Mercedes ML320 in 1998, 1999 and 2000 never exceeded 50%; (denied)
(ee) with respect to Class 10.1, the appellant claimed CCA
of $4,037 for 1998, $6,864 for 1999 and $4,804 for 2000; (no knowledge)
(ff) the appellant was not entitled to claim CCA exceeding
$2,137 for 1998, $3,632 for 1999, and $2,314 for 2000 with respect to
Class 10.1; (denied)
Triax
Resource Limited Partnership
(gg) for 1999, the appellant received a T5013 slip from the Triax
Resource Limited Partnership that he did not report; (no knowledge)
(hh) in 1999, the appellant incurred a $509 business loss
attributable to his interest in the Triax Resource Limited Partnership; (no
knowledge)
(ii) in 1999, the appellant realized a $2,456 capital gain
attributable to his interest in the Triax Resource Limited Partnership; (no
knowledge)
Nesbitt
Burns
(jj) in 1998, the appellant did not report a $5,357
capital gain from his investments with Nesbitt Burns; (no knowledge)
(kk) for the 1999, the appellant received a T5 slip from
Nesbitt Burns which he did not report; (no knowledge)
(ll) in 1999, the appellant did not report $1,674 in
dividend income from his investments with Nesbitt Burns; (no knowledge)
(mm) in 1999, the appellant did not report $440 in interest
income from his investments with Nesbitt Burns; (no knowledge)
Class 8 capital
cost allowance (CCA)
(nn) in 2000, the appellant disposed of Class 8
depreciable property, namely equipment from the Clinique chiropratique de Saint‑Prosper,
for $20,000, and he did not take this disposition into account in computing his
CCA for 2000; (admitted)
(oo) the appellant claimed Class 8 CCA of $5,941 in 2000;
this amount was less than 20% of the reported undepreciated capital cost of
$30,073; (no knowledge)
(pp) in 2000, the appellant was not entitled to claim more
than a $2,015 as Class 8 CCA; (no knowledge)
Disallowed
business expenses
(qq) in 1998, the appellant claimed $124,384 in business
expenses;
(rr) among these expenses for 1998 is an amount of $12,774
consisting of personal expenses such as meals, lodging, medication purchases,
boat‑related expenses, residential telephone expenses, cellular phone
expenses, postal expenses, automobile expenses and other expenses of a
personal nature; (no knowledge)
(ss) in 1999, the appellant claimed $145,054 in business
expenses; (no knowledge)
(tt) among these expenses for 1999 is an amount of $12,154
consisting of personal expenses such as meals, lodging, medication purchases,
boat-related expenses, residential telephone expenses, cellular phone expenses,
postal expenses, automobile expenses and other expenses of a personal
nature; (no knowledge)
(uu) in 2000, the appellant claimed business expenses in the
amount of $84,192;
(vv) among these expenses for 2000 is an amount of $13,218
consisting of personal expenses such as meals, lodging, medication purchases,
boat‑related expenses, residential telephone expenses, cellular phone
expenses, postal expenses, automobile expenses and other expenses of
a personal nature;
(ww) for each taxation year in issue, the appellant claimed 90% of
his automobile expenses;
(xx) for each of the taxation years in issue, the appellant's
business use of his vehicles never exceeded 50%.
[4]
To justify the penalties, the Minister
set out the following facts in paragraph 24 of the Reply to the Notice of
Appeal:
[TRANSLATION]
(a) the
facts set out above in paragraph 23;
(b) the employees of the chiropractic clinics prepared, for the
purpose of balancing the clinics' cash, a daily report containing the name of
each patient and the amounts coming in; (admitted)
(c) the cash receipts and daily reports were given to the appellant
at the end of the day; (admitted, except for the period when he was on sick
leave)
(d) the appellant was the subject of search warrants,
which were executed on June 15, 2004; (admitted)
(e) the searches did not uncover any daily reports or any
receipt books; (no knowledge)
(f) the appellant did not send the Minister's agents any
daily reports or any receipt books; (admitted)
(g) the combined statement of revenues and expenses of the
Saint-Prosper and Saint-Nicolas clinics was prepared from a handwritten summary
sheet that the appellant gave his accountant; (admitted)
(h) the only accounting record kept by the appellant was a book
in column format in which the business purchases and expenses were entered manually;
(admitted)
(i) the appellant did not keep a record of the gross
revenues of the Saint‑Nicolas and Saint-Prosper clinics; (no knowledge)
(j) a search of the appellant's residence revealed that he
kept tax information slips in a box marked [TRANSLATION] "1999 Tax"
and did not report them; (no knowledge)
(k) the appellant knew the contents of his income tax
returns; (no knowledge)
(l) the appellant signed his 1998 and 2000 income tax
returns; (admitted)
(m) the unreported income is significant in relation to the
reported income; (denied)
(n) during the 1998 to 2000 taxation years, the appellant's
lifestyle was not consistent with his reported income; (denied)
(o) the appellant was aware of income that he was not
reporting. (denied)
Analysis
[5]
It is important to note that the
Minister's assessments were made beyond the normal reassessment period.
Consequently, the burden was on the Minister to show that Mr. Vigeant made
a misrepresentation that is attributable to neglect, carelessness or wilful
default. Obviously, the Minister also bore the burden of establishing the facts
justifying the imposition of the penalty under subsection 163(2) of the
Act. I had to address the
applicable rules in this regard, and the rules applicable to net worth
assessments, in Léger v. The Queen, 2001 DTC 471,
[2003] 1 C.T.C. 2437, where I wrote as follows:
Burden of proof
[13] First of all, the
burden of proof resting on Mr. Léger in his appeals must be dealt with. My
colleague Judge Tardif had an opportunity to discuss the burden of proof in a
case that, like this one, raised the issue of the use of the net worth method.
[14] In Bastille v. R., [1999]
4 C.T.C. 2155 (99 DTC 431), he wrote the following at paragraphs 5 et seq.:
[5] I think it is important to point out
that the burden of proof rests on the appellants, except with respect to
the question of the penalties, where the burden of proof is on the respondent.
[6] A NET WORTH
assessment can never reflect the kind of mathematical accuracy that is both
desired and desirable in tax assessment matters. Generally, there is a
certain degree of arbitrariness in the determination of the value of the various
elements assessed. The Court must decide whether that arbitrariness is
reasonable.
[7] Moreover, use of this method
of assessment is not the rule. It is, in a way, an exception for
situations where the taxpayer is not in possession of all the information,
documents and vouchers needed in order to carry out an audit that would be
more in accordance with good auditing practice, and most importantly, that
would produce a more accurate result.
[8] The bases or foundations of
the calculations done in a NET WORTH assessment depend largely on information
provided by the taxpayer who is the subject of the audit.
[9] The quality, plausibility and
reasonableness of that information therefore take on absolutely fundamental
importance.
[15] Another of my colleagues,
Judge Bowman, stated the following in Ramey v. Canada, [1993]
T.C.J. No. 142 (QL) ([1993] 2 C.T.C. 2119, 93 DTC 791), at paragraph
6:
I am not unappreciative of the enormous,
indeed virtually insuperable, difficulties facing the appellant and his
counsel in seeking to challenge net worth assessments of a deceased
taxpayer. The net worth method of estimating income is an unsatisfactory
and imprecise way of determining a taxpayer's income for the year. It is a
blunt instrument of which the Minister must avail himself as a last resort.
A net worth assessment involves a comparison of a taxpayer's net worth, i.e.
the cost of his assets less his liabilities, at the beginning of a year, with
his net worth at the end of the year. To the difference so determined there are
added his expenditures in the year. The resulting figure is assumed to be his
income unless the taxpayer establishes the contrary. Such assessments may be
inaccurate within a range of indeterminate magnitude but unless they are shown
to be wrong they stand. It is almost impossible to challenge such assessments
piecemeal. The only truly effective way of disputing them is by means of a
complete reconstruction of a taxpayer's income for a year. A taxpayer whose
business records and method of reporting income are in such a
state of disarray that a net worth assessment is required is frequently the
author of his or her own misfortunes.
[16] In the instant appeals, Mr. Léger was the
only person who testified in support of his position. The auditor whose work
led to the assessments testified for the respondent. In assessing the evidence
provided by Mr. Léger, something must be said about the failure to call
certain witnesses who could have confirmed what he said. In Huneault v.
The Queen, 98 DTC 1488, my colleague Judge Lamarre referred to certain
statements that were made by Sopinka and Lederman in The Law of Evidence in
Civil Cases and cited by Judge Sarchuk of this Court in Enns v. M.N.R.,
87 DTC 208, at page 210:
In The Law of Evidence in Civil Cases, by
Sopinka and Lederman, the authors comment on the effect of failure to call a
witness and I quote:
In Blatch v. Archer, (1774), 1 Cowp. 63, at
p. 65, Lord Mansfield stated:
It is certainly a maxim that all evidence is to
be weighed according to the proof which it was in the power of one side to have
produced, and in the power of the other to have contradicted.
The application of this maxim has led to a well‑recognized
rule that the failure of a party or a witness to give evidence, which it
was in the power of the party or witness to give and by which the facts might
have been elucidated, justifies the court in drawing the inference that the
evidence of the party or witness would have been unfavourable to the
party to whom the failure was attributed.
In the case of a plaintiff who has the evidentiary
burden of establishing an issue, the effect of such an inference may be that
the evidence led will be insufficient to discharge the burden. (Levesque et al. v.
Comeau et al. [1970] S.C.R. 1010, (1971), 16 D.L.R.
(3d) 425.).
[Emphasis added.]
[6]
Counsel for the respondent quoted
paragraphs 29-33 of the decision of the Federal Court of Appeal, per
Pelletier J.A., in Lacroix v. Canada,
[2008] F.C.J. No. 1092 (QL), 2008 FCA 241:
29 This last passage highlights the dialectic specific
to certain reassessments made using the net worth method. In the case at
bar, the Minister found undeclared income and asked the taxpayer to justify it.
The taxpayer provided an explanation that neither the Minister
nor the Tax Court of Canada found to be credible. Accordingly, there is
no viable and reasonable hypothesis that could lead the decision-maker to give
the taxpayer the benefit of the doubt. The only hypothesis offered was deemed
not to be credible.
30 The facts in evidence in
this case are such that the taxpayer’s tax return made a misrepresentation of
facts, and the only explanation offered by the taxpayer was found not to be
credible. Clearly, there must be some other explanation for this income. It
must therefore be concluded that the taxpayer had an unreported source of
income, was aware of this source and refused to disclose it, since
the explanations he gave were found not to be credible. In my view, given
such circumstances, one must come to the inevitable conclusion that the false
tax return was filed knowingly, or under circumstances amounting to
gross negligence. This justifies not only a penalty, but also a reassessment
beyond the statutory period.
31 Paragraph 20 of Justice Bédard’s reasons for decision,
cited above, sets out precisely this situation, which amply justifies his
conclusions with regard to the penalties and the reassessment beyond the
statutory period.
32 What, then, of the burden of proof on the Minister?
How does he discharge this burden? There may be circumstances where the
Minister would be able to show direct evidence of the taxpayer’s state of mind
at the time the tax return was filed. However, in the vast majority of
cases, the Minister will be limited to undermining the taxpayer’s credibility
by either adducing evidence or cross-examining the taxpayer. Insofar as the
Tax Court of Canada is satisfied that the taxpayer
earned unreported income and did not provide a credible explanation for the
discrepancy between his or her reported income and his or her net worth, the
Minister has discharged the burden of proof on him within the meaning of subparagraph
152(4)(a)(i) and subsection 162(3).
33 As Justice Létourneau so aptly put it in Molenaar
v. Canada, 2004 FCA 349, 2004 D.T.C. 6688, at paragraph 4:
4. Once the Ministère
establishes on the basis of reliable information that there is a discrepancy,
and a substantial one in the case at bar, between a taxpayer’s assets and his
expenses, and that discrepancy continues to be unexplained and inexplicable,
the Ministère has discharged its burden of proof. It is then for the
taxpayer to identify the source of his income and show that it is not taxable.
[Emphasis added.]
[7]
I would also quote the remarks of
Judge Tardif in Ruest v. Canada, [1999] T.C.J. No. 586
(QL):
27 Since the assessments resulted from the observed discrepancy
between income and expenses relative to capital or assets, the burden was
solely on the appellant to explain that discrepancy. To convince the Court,
he had to show on the balance of evidence that his claims were plausible,
reasonable, correct and coherent. It was not enough to criticize and raise
certain minor grievances in order to enable the Court to conclude that
everything balanced as a result of the amount received at a particular
moment.
28 This,
I agree, might have required a colossal amount of work, but it should
nevertheless be pointed out that a taxpayer assessed by means of the net
worth method is himself responsible for the manner in which he has been assessed
in that he deliberately and knowingly chose not to have any accounting system
and to keep no record of his income and expenses.
[Emphasis added.]
[8]
Before we consider certain points
in issue in these appeals in greater detail, certain general comments should be
made about the probative value of the evidence adduced by Mr. Vigeant.
[9]
Mr. Vigeant was the only person
who testified. He did not summon any other witnesses to corroborate his
assertions. There are significant contradictions between the evidence that he
presented to the Court and the evidence that he provided to the Minister. For
example, in a letter faxed to the Minister's objections branch ("the
fax") on December 15, 2006, Mr. Vigeant stated that he
received two gifts of $40,000 each from his father, the first on
October 20, 1997, and the second at Christmas 1997
(Exhibit I‑1, Tab 13). It is obvious that this document is in
Mr. Vigeant's handwriting. He made the same assertion in paragraphs 6 and
7 of his Notice of Appeal. However, on February 16, 2005, during a
meeting at the Department's offices with Ms. Nadeau, the investigator, and
her team leader, he said that the gifts made in October and
December 1997 were $10,000 each, which gives a total of $20,000. In his
testimony before the Court, Mr. Vigeant gave a quite different version: he
said that he received two gifts in the amount of $20,000 each.
[10]
With a view to showing that, in
computing his net worth, the Minister failed to take into account certain
property that he owned, notably property inherited from his sister or father,
Mr. Vigeant submitted a summary ("the summary") of the property
of which he claimed to have disposed in 1998, 1999 and 2000. This summary
indicated the proceeds of disposition in each instance (Exhibits A-1 and
P-3). It was prepared by Mr. Vigeant to be submitted to the Court. It does
not constitute evidence of the disposition of the property, nor does it
constitute evidence of the proceeds of disposition. One of the items in the
summary is the sale for $4,500, on an unspecified date, of a piano received
from his sister. However, the amount that he had indicated in the fax of
December 15, 2006, was $4,000.
[11]
The
summary shows a disposition of furniture for $5,000, but does not mention the
date; the fax, however, gives a value of $8,000. On cross‑examination,
Mr. Vigeant said that he had forgotten $3,000 received for
bedroom furniture. He likewise explains as an oversight the $500
difference between the amount of $3,500 shown for power tools in the summary
and the amount of $4,000 indicated in the fax. There is also a discrepancy with
respect to the value of a dinghy (with motor) received from his father's
estate, given as $6,000 in the summary and $5,500 on the fax, a $500
difference.
[12]
These
contradictions in the testimony or documentary evidence of Mr. Vigeant
illustrate well how memory can play cruel tricks on us when we are careless
about keeping supporting documents or when we fail to produce them in court to
corroborate our statements.
[13]
With
respect to the items of property the total value of which, according to the
summary, is $55,000, Mr. Vigeant has no documents corroborating their sale
or the proceeds of disposition therefrom. They were allegedly cash sales. The
situation is similar with regard to the gifts totalling $40,000 made to him by
his father prior to his death in that the amounts were allegedly given to him
in cash without any witnesses, and Mr. Vigeant said he did not deposit
them in any bank account. Consequently, it is impossible to confirm
Mr. Vigeant's version.
[14]
In
addition, the inventory of Mr. Vigeant's father's estate shows $26,000 as
the value of the particular legacy to Bernard Vigeant consisting of
[TRANSLATION] "books, tools, computer and accessories, two paintings or
watercolours of his choice, boats and motor and privileges at the
Club nautique de Longueuil marina" (Exhibit I‑1, Tab 10.50,
page 10). Yet the boat was sold on July 3, 1998, for $33,000
(see Exhibit I‑1, Tab 10.23). Again, according to the inventory
of the estate, the value of the boat as at February 7, 1998, was
$25,000 (see Exhibit I‑1, Tab 10.50, page 8). That
leaves only $1,000 as the value of all the other property. This raises
serious doubts as to whether there were $6,000 in proceeds from the disposition
of the dinghy and $3,500 in proceeds from the disposition of the power tools.
[15]
There is another example of
Mr. Vigeant's shaky memory. He testified that, during the relevant period,
particularly in 2000, he did not incur any expenses associated with the use of
his boat (which was purchased for $155,000) because it was in dry dock. When
the investigator took the stand and was able to point out numerous fuel
expenses, including a purchase of 442 litres of gasoline at Cap‑à‑l'Aigle
for $389, Mr. Vigeant acknowledged that his boat might only have been dry‑docked
in 2001, a year that is subsequent to the relevant period.
[16]
The fact that the Minister had to
determine Mr. Vigeant's income using the net worth method is attributable
to the lack of accounting records for Mr. Vigeant's professional business.
Indeed, the only book of account that Mr. Vigeant kept was an eight‑column
journal in which were entered the purchases and expenditures of his business. On
the other hand, he kept no similar journal for the income from the business.
According to the report prepared by the investigator, Mr. Vigeant said
that he determined that income from the receipts that he issued to his clinic's
patients. But Mr. Vigeant was unable to provide a single receipt
during the audit or the investigation.
[17]
In addition, Mr. Vigeant disclosed
only the total gross revenues to his accountant. Thus the accountant was unable
to verify the accuracy and source of those revenues. During the Minister's
investigation, former employees of Mr. Vigeant's clinic stated that they
had prepared a daily report with the names of each patient and the amounts paid
for their treatments. Mr. Vigeant's assistant balanced the report with the till.
The daily report and the amounts received were given to Mr. Vigeant
at the end of the day. There is no book of account in which those figures were
entered.
[18]
To justify his failure to tender
the daily reports, Mr. Vigeant said that he lost them as a result of sewer
water backing up in December 1999, one month after he took possession of his
new residence on Marie-Victorin Street in Saint-Nicolas. When I asked
him if he had any evidence whatsoever of this incident and of the loss of these
business documents, Mr. Vigeant said that he had no invoices and no
insurance claim regarding the damage. The only thing that he had was a cheque
in the amount of $115.02, dated December 23, 1999, and payable to
Net Plus Inc. (Exhibit A‑1, P‑1). There is on the
cheque no explanation other than the number 12269. He provided no invoice from
Net Plus to show what goods or services would have been provided in
consideration of the amount in question.
[19]
Furthermore, Mr. Vigeant said
that he had had to replace part of the plasterboard installed in his basement.
His reason for the lack of invoices was that he had done some of the work
himself. In contrast, when he tried to establish that he had been on sick leave
owing to a torn rotator cuff in December 1999, and that he had had to hire
a chiropractor to replace him, he produced the employment contract. That
contract is dated December 23, 1999, which is the same date as that
on the cheque for the alleged cleaning services of Net Plus. It is hard to
imagine how Mr. Vigeant, in his condition, could have taken an active part
in cleaning up the mess caused by sewer water backing up.
[20]
When I asked him whether he had
accounting records to support his computation of his professional income for
the period subsequent to the damage that occurred in December 1999 — since
the year 2000 is in issue — he told me that there was further damage in
December 2000. He did not have any evidence of this second incident
either, such as a claim filed with his insurance company. It is troubling
that Mr. Vigeant was ostensibly the victim of a second incident that he
says explains the absence of the daily revenue reports, and yet the purchases
journal was available. Moreover, the search executed on
June 15, 2004, turned up in the master bedroom a box that belonged to
Bernard Vigeant and was marked [TRANSLATION] "1999 Tax" and
contained slips prepared by Nesbitt Burns, including a T5 slip showing income
that Mr. Vigeant did not report on his income tax return
(see Exhibit I‑1, Tab 9, page 4).
[21]
One cannot but observe that Mr.
Vigeant is, at least in part, the author of his own misfortune. Indeed, since
he failed to keep accounting records concerning his gross revenues from the
various clinics, it was almost impossible for him to attack the Minister's
assessment. As Judge Bowman held in Ramey, at paragraph 15:
. . . It is almost impossible to challenge such
assessments piecemeal. The only truly effective way of
disputing them is by means of a complete reconstruction of a taxpayer's
income for a year. A taxpayer whose business records and method of
reporting income are in such a state of disarray that a net worth assessment is
required is frequently the author of his or her own misfortunes.
[Emphasis added.]
[22]
Because of the numerous flaws in
Mr. Vigeant's testimony, it is difficult to give it much weight and rely
on it to justify making changes to the Minister's calculations. It should also
be noted that the calculations by the investigator in determining
Mr. Vigeant's income by the net worth method were not done in accordance
with standard practice. Indeed, instead of obtaining information from Mr. Vigeant
that would have enabled her to establish his cost of living and to compare it
with government statistics, the investigator limited herself to including in
his cost of living only expenses for which she had supporting documents,
notably personal expenses deducted in computing Mr. Vigeant's professional
income. She believed that this approach was warranted because the purpose
of her work was to show criminal fraud and she wanted to limit herself to
numbers supported by evidence. She therefore underestimated
Mr. Vigeant's cost of living.
[23]
By way of illustration, it may be
observed that, according to the investigator, the annual grocery and restaurant
expenses totalled $1,264 for 1998, $761 for 1999, and $1,132 for 2000.
The annual cost of housing (in particular rent, property maintenance and
insurance) for 1998 as established by the investigator is $1,166, and this
includes $705 in hotel expenses paid by Mr. Vigeant's professional
business! For 1999, of the total amount of $18,779, $15,465 consists of either
travel expenses or capital outlays associated with the purchase of his new
residence. Thus, only $3,314 could be property expenses. The cost of housing
determined for 2000 is more reasonable because the total is approximately
$10,250. It should also be noted that the calculation of Mr. Vigeant's
cost of living includes only very minimal amounts, and often nothing at all,
for personal care, entertainment, newspapers, magazines and books, education,
tobacco and alcohol, life insurance, and gifts and donations. Only $448 is
shown for clothing for 1998, while the amount for 1999 is nil, and for 2000,
$310.
[24]
Under these circumstances, I do
not consider it justified to seek corrections only of certain errors that the
Minister may have made in his calculations — notably with respect to the
personal and business portions of automobile expenses — when Mr. Vigeant has
provided no evidence to establish his true cost of living. A taxpayer cannot
be content to ask only that the errors to his disadvantage be corrected. Furthermore,
Mr. Vigeant did not even attempt to fully reconstruct his income for the
years in issue. For these reasons, I am not satisfied that the amount of tax
established in the assessments is erroneous.
[25]
We must now deal with the question
of whether the Minister was justified in making assessments for the relevant
period, considering that they were made outside the normal reassessment period.
In order to succeed with respect to this question, the Minister had to show
that Mr. Vigeant made a misrepresentation attributable to neglect,
carelessness or wilful default. The evidence has amply demonstrated that, at
the very least, Mr. Vigeant made a misrepresentation attributable to
neglect or carelessness with regard to the relevant period. For the year 1998,
he did not report a $5,357 capital gain and he claimed capital cost allowance
for property that he no longer possessed at the end of the year, namely his BMW
automobile. For 1999, $4,997 in income from the estate was not reported. The
same is true of the income that Nesbitt Burns recorded on a T5 slip that was
found by the investigators during the search. This income included $2,093 in
taxable dividends and $439 in interest income. With respect to each of the
three years in the relevant period, Mr. Vigeant, in computing his business
income, claimed deductions for expenses that were clearly personal, such as the
cost of medication. For 1998, there is an amount of $300 paid to St‑Antoine
Parish for a mass in remembrance of his father, and an amount of $215 paid to
the Côte-des-Neiges Cemetery. For
1999, there is also an amount of $2,220 representing insurance costs for his
BMW motorcycle.
[26]
As for the penalties, I believe
that they are justified for the 1999 and 2000 taxation years given the size of
the amounts determined using the net worth method. The $6,512 discrepancy for
the 1998 taxation year is much less clear-cut in my view. Indeed, I believe
that Mr. Vigeant must be given the benefit of the doubt because the net
worth method can be imprecise and there may have been almost no unreported
business income for that year. However, another reason to confirm the penalties
for 1999 and 2000 is the fact that Mr. Vigeant was grossly negligent in
failing to adopt an adequate system to account for his professional business income
during the relevant period. In addition, it is troubling to see that
Mr. Vigeant did not have a separate bank account for his professional
activities in Saint‑Nicolas. His bank account was used both for his professional
activities and for personal transactions. Mr. Vigeant's conduct shows a
complete lack of interest in taking the steps necessary to ensure the integrity
of the financial information regarding his professional business. I have read
the report recommending the imposition of penalties and the reopening of the statue-barred
years. Except with respect to the penalty for 1998, it is my opinion that the
report amply justifies the investigator's conclusions.
[27]
For all these reasons,
Mr. Vigeant's appeal in respect of the year 1998 is allowed, and the
assessment is referred back to the Minister for reconsideration and
reassessment on the basis that the penalty must be cancelled. The appeals in
respect of the years 1999 and 2000 are dismissed. The respondent is entitled to
two-thirds of her costs.
Signed
at Ottawa, Canada, this 21st day of May 2009.
"Pierre Archambault"
Translation
certified true
on
this 29th day of October 2009.
Erich
Klein, Revisor
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