Citation: 2008TCC233
Date: 20080423
Docket: 1999-408(IT)I
BETWEEN:
JEAN-GUY CADORETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] The taxation year in question is 1988. The issue
in this case is whether there was genuine scientific research and experimental
development.
[2] The presumptions of fact on which the Minister of
National Revenue (the "Minister") relied to establish the new
assessment are described at paragraph 19 of the Reply to the Notice of Appeal,
and state:
[translation]
19. By establishing the new assessment in question, in Minister of
National Revenue relied on the following facts:
(a) SYSTÈME A.L.H. ENR. (the "Company") was
created in October 1988;
(b) in 1988, the Company entered into an
agreement with Zuniq Corp. ("Zuniq") regarding work related to the
project "INCOM";
(c) then, Zuniq entered into an agreement with
each of the following corporations, among others: Dias Informatique Inc., Data
Age Corp., Système Inar Inc. ("Zuniq group corporations"). All these
agreements were in regard to the same project;
(d) Zuniq was incorporated on March 25, 1985,
with the purpose of carrying out work presented as research and development. It
was to carry out various jobs and to do so, a number of companies were created;
(e) the promoter-organizer of the company is
Hien Vohoang ("Vohoang"), the leader of Zuniq;
(f) the Zuniq group corporations all had a
non-arm' length relationship between each other and with Zuniq and Vohoang;
(g) the work presented by the Company (as
scientific research and development activities) had nothing to do with
scientific research or experimental development;
(h) the Company had no expenses regarding
scientific research and experimental development activities during the taxation
year in question;
(i) for the fiscal year ending December 31,
1988, the Company claimed $3,171,000 as research fees in accordance with
subparagraph 37(1)(a)(i) of the Income Tax Act;
(j) the amount of $3,171,000 is not an
expense incurred by the company regarding scientific research and experimental
development activities.
[3] The Appellant explained the reasons for his
financial participation. He wanted to support scientific research and
experimental development in Canada, while taking advantage of the tax benefits
related to these research activities. He had confidence in the quality of the
professionals who supported the project. These professionals were scientists
with Ph.D.'s and an accountant who was a chartered accountant.
[4] The Appellant produced some documents. The first
was dated November 3, 1988, and is titled, [translation]
"Proposal Scientific research and experimental development of a
prototype for computer assisted training system in inter-personal communication
by Système A.L.H. Enr. (According to Revenue Canada T611 form.)" This
project is identified by the logo "INCOM".
[5] Included with the documents given to potential
investors was a scientific and technical with the University of Montréal,
faculty of science and education letterhead and signed by Mr.
R. D., Ph.D., assistant professor. There was also a resume of
Hien Vohoang, promoter of the project, of Mr. B.F.R., Ph. D.,
education. There was also a notice from a chartered accountant,
Mr. Y. R. This notice, however, ended with a caution regarding the
expected tax effect of the plan.
[6] The Appellant's financial participation of
$10,000 was made by two cheques, one for 50% of the total amount, dated October
14, 1988, and the second dated at the latest December 15.
[7] According to the documents presented, the
Appellant was not among the research employees.
[8] An expert report supporting the Minister's
statements was sent to the Appellant within the time prescribed under the Tax
Court of Canada Rules (informal procedure). This expert was subpoenaed to
testify.
[9] After having submitted these documents, the
Appellant informed the Court that he did not plan to submit evidence regarding
the admissibility of expenses as expenses that meet the criteria at section
2900 of the Income Tax Regulations ("Regulations"). He asked
that his case be handled in terms of fairness. He also raised the unreasonable
delay.
[10] Counsel for the Respondent then asked for the
appeal to be dismissed on the ground that the Appellant did not meet his burden
of proof. They referred to the decision by this Court, Foster v. Canada, [2007]
T.C.J. No. 538 (QL) which involved the same company, the same project and the
same taxation year as the present appeal. That decision was to dismiss the
Appellants' appeal. It relied on the conclusions of the expert, who is the same
as in the present case.
Analysis and conclusion
[11] Concerning the burden of proof on a taxpayer
appealing an assessment, since the Supreme Court of Canada decision, Johnston v. M.N.R., [1948] S.C.R. 486, the
case law has been consistent: it is the taxpayer's responsibility to establish
that the facts on which the Minister based the assessment are erroneous. This
finding in the case law was once again confirmed by the Supreme Court of Canada
in 2006, in Placer Dome Canada Ltd v. Ontario (Minister of Finance), [2006] 1 S.C.R. 715.
[12] In the circumstances
of these appeals, namely the admissibility of research under the criteria at
section 2900 of the Regulations, the Minister's presumptions of fact are
determining factors as to the result of these appeals. The Appellant must
therefore present evidence against these assumptions of fact, which was not
done.
[13] The taxpayer is
asking that the Court judge according to fairness. There is no provision in the
Income Tax Act (the
"Act") that allows the Court to set aside substantive tax law. It
must judge according to the Act. However, there is a provision in the Act that
allows the Minister to waive the interest and penalties for reasons of
fairness, at subsection 220(3.1). The court with jurisdiction to review the
exercise of the Minister's power regarding this provision is the Federal Court
of Canada.
[14] The taxpayer also
raised the issue of unreasonable delay. The Notice of Reassessment was dated
April 29, 1992. The Notice of Objection was served in a timely fashion. The
Notice of Appeal submitted to the Court on October 30, 1998, was submitted
before the Minister amended the assessment or proceeded with a reassessment.
[15] Regarding the issue of excessive delay, first,
reference must be made to section 169 of the Act, which states that a taxpayer
may appeal to our court after the 90 days following the service of the notice
of objection have expired. Second, it must be noted that the Court file does
not show any scheduling request by the Appellant after he filed his Notice of
Appeal.
[16] The issue of unreasonable
delay was analyzed in a few decisions with the same context of so-called
research projects: Lassonde
v. Her Majesty the Queen,
2003TCC715, [2003] T.C.J. No. 560 (QL), 2005CAF323, [2005] F.C.A. No. 1682 (QL) and Moledina v. Her Majesty the Queen,
2007TCC354, [2007] T.C.J. No. 286 (QL). According to all these decisions,
the Appellant had the legal power necessary to obtain a judicial decision
within a reasonable deadline, and if there was any delay, it was caused by
negotiations or accepted postponements of appeal hearings—circumstances that
had been accepted by the Appellant or his counsel at the time.
[17] For these reasons,
and in particular the reason regarding burden of proof, the appeal must be
dismissed.
Signed at Ottawa, Canada, this 23rd day of April 2008.
"Louise Lamarre Proulx"
Translation
certified true
on this 27th day
of May 2008.
Elizabeth Tan,
Translator
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