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Citation: 2003TCC789
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Date: 20031112
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Docket: 2001-3885(IT)G
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BETWEEN:
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GAÉTAN PAQUET,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Tardif, J.
[1] This is an appeal for the 1997 taxation year.
[2] At issue is whether the company controlled by the Appellant paid him a deemed dividend of $22,000 or $40,874, as assessed by the Minister of National Revenue for the 1997 taxation year.
[3] The Appellant, a handyman, described himself as a manual labourer with extensive experience in construction. He repeatedly emphasized that the administration, accounting and clerical work arising from it was not under his control.
[4] For everything connected with the company, of which he was the main shareholder and director, and all his personal tax returns, he placed himself entirely in the hands of his wife and a certain Mr. Leblanc, as accountant, who in turn, had his work checked by a public accounting firm.
[5] On numerous occasions during his testimony, the Appellant declined to answer, hurrying to add that his wife would be able to answer, as she and the accountant were the only ones qualified to provide answers and explanations.
[6] The Appellant explained that he had built some multi-unit residential buildings.
[7] The project had mortgage financing and the funds were released based on progress on the worksite, thus leaving the Appellant without resources for long periods.
[8] He thus had to resort to advances from the company he controlled. The company had significant amounts of cash; he thus regularly obtained advances that he repaid periodically. At the end of the fiscal year, Mr. Leblanc, the accountant, made various adjustments.
[9] The Appellant maintained that the amount defined as a deemed dividend by the Respondent was nothing but a simple advance that was paid with a cheque indicating payment of dividend. He was unable to explain or justify why the cheque bore the note [translation] "Payment of Dividend".
[10] Contrary to the Appellant's statements and belief, his wife did not have the expertise that, he attributed to her for administrative and corporate management.
[11] In fact, a number of times she stated that her knowledge was very limited and that for this reason, she placed everything in the hands of her accountant, a certain Mr. Leblanc. She did not review his work and generally did not question him.
[12] Not being familiar with taxation, she was essentially concerned with the tax burden of the Appellant, her husband.
[13] She explained that the amount of dividends paid for the previous taxation year had generated a new assessment that she had had to settle. In light of that disappointment, she wanted to avoid another.
[14] In order to reduce the tax cost of the dividend that had already been paid, she decided to repay a portion of the dividend, resulting in the notorious cheque with the note: [translation] "Payment of Dividend".
[15] It would have been interesting to have the accountants' version; the Appellant chose not to have them testify. This decision is quite understandable in light of the grievances he and his wife have expressed.
[16] The Appellant rejected the one in whom the Appellant and his wife had placed their trust for a number of years; he repudiated the designation of a number of transactions recorded in the company's books because his signature did not appear. Moreover, he stated that he had been surprised that the dividend he received annually was the result of the sale of his shares. However, the evidence showed that this practice has been repeated over the course of the years prior to the year at issue.
[17] In short, the Appellant maintained that the Respondent had taxed a dividend that had never existed. According to the latter, this was not a dividend, but merely an advance.
[18] For her part, the Appellant's wife submitted a very different version of the facts. After having had to pay a higher amount of tax than expected following the payment of a dividend the year prior to the year at issue, she instructed the accountant to retroactively reduce the dividend previously paid by $20,000, considering that this procedure was more expensive than expected or desired.
[19] These are the explanations that the Appellant and his wife gave regarding the question of the disputed dividend. Documentary evidence from the company's records and financial statements contribute no explanations and do not match the Appellant's claims.
[20] In these circumstances, it would have been very significant to have the testimony of those who had prepared the books and the financial statements. The Appellant and his wife had trusted them.
[21] According to their testimony, they never questioned the accountants' work and generally signed the prepared records that required a signature. It seems that the only time that the Appellant's wife intervened was when she realized that the dividend paid by the accountant would result in the obligation to pay higher taxes than the amount she wished to pay.
[22] It seems that the Appellant and his wife had a single concern with regard to the work performed by the accountants, [translation] "to pay the least tax". In and of itself, this is a proper and legitimate concern, in no way forbidden by the Income Tax Act.
[23] This in no way means that an individual can change his decisions at any time pertaining to transactions generating taxation consequences, much less make decisions with retroactive effect. The very stability of our tax system depends on it.
[24] Everyone has the benefit of considerable latitude in his business tax planning. This does not mean, however, that it is possible to make changes at any time, even retroactively.
[25] I in no way subscribe to the Appellant's submissions and claims. He has chosen to organize his affairs by forming a company. Not having the skills to take on all the obligations and benefit from all the advantages, he chose to pay individuals claiming to be qualified.
[26] The Appellant has made some choices. He must assume them. The Respondent very accurately described the Appellant's behaviour stating that he wanted retroactive tax planning. Accepting this sort of procedure would have the effect of promoting unreliability of all transactions having an impact on the tax situation of the involved parties.
[27] If the Appellant is of the opinion that he did everything correctly, that he did nothing wrong and that the discrepancy is the result of his accountants' carelessness and negligence, this is a matter of professional liability. I do not see why the government should bear the consequences of that which, according to the Appellant, was negligence or failure to follow good practice.
[28] The appeal is dismissed, with costs.
Signed at Ottawa, Canada, this 12th day of November 2003.
Tardif, J.
Translation certified true
on this 20th day of April 2004.
SharonMoren, Translator
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