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Citation: 2003TCC86
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Date: 20030227
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Docket: 2000-4106(IT)G
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BETWEEN:
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MARIE-CLAUDE BOUCHER,
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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
Teskey, J.
[1] The Appellant
appeals her 1990 assessment of income tax.
Issue
[2] The only issue is
whether the usual source deductions were withheld by W.C.I. Wood
Conversion Inc. ("Wood") from sums of money paid to the
Appellant totalling $213,022.
Facts
[3] During the period
January 1, 1990 to December 18, 1990, the Appellant was
the manager of Wood and she was in charge of payroll
deductions.
[4] Wood at the time
had 11 employees that were paid on an hourly basis and three
senior personnel, one being the Appellant, who were paid on the
basis of bonuses based on profitability.
[5] The Appellant
alleged that "she made the source deductions for all
employees and remitted the deductions for the hourly paid
employees, but did not remit for the three bonus employees
because this was the first year and the bonuses would have to be
readjusted at the end of the year" when the profit was
determined.
[6] The Appellant
filed her T1 tax return for 1990 in April of 1991, together with
a letter addressed to Revenue Canada.
[7] The T1 tax return
claims that the Appellant received in 1990 dividends from a
Canadian corporation of $266,340 on line 120, and interest on
line 121 of $3,586.84 and she claimed a $40,010.45 refund.
[8] The letter
alleges that the Appellant was an employee and a 50 percent
shareholder of Wood and since her former partner failed to close
on a buy/sell agreement she had left the company.
[9] She further
claimed that she received a T4 in the amount of $7,721.28
relating to personal use of a company car, which should not be
taxable in her hands.
[10] She also notes that
the company issued a T4A for $213,072. She claims this amount
represents "my share of the profits taken during the
year". Then, she states that it should have been
reported on a T5 as dividend income and she has included this
$213,072 as dividend income on Schedule 5.
[11] The Appellant entered
as an exhibit Reasons for Judgement of Ferrier J. of the
Ontario Superior Court in an action by the Appellant as plaintiff
against John Kennedy and Wood as defendants who both
counterclaimed against the Appellant and a company that she
incorporated.
[12] The trial lasted some
12 days.
[13] Under the heading
"Background", Ferrier J. states that Kennedy is
married to the Appellant's sister, Lisette, thus making the
Appellant Kennedy's sister-in-law.
[14] Ferrier J. found
that the Appellant, a lawyer, was a stockbroker having worked for
Burns Fry in Toronto since 1984 and she left under a severe
cloud. He found that in the period of October 1987 to
April 1988, the Appellant had made numerous unauthorized
trades, signed client signatures to documents and falsified
account slips. She also attempted to falsify her identify to
Richard Pyne and participated in a tax fraud, allocating a
fictional loss to the account of a client who had not in fact
suffered a loss.
[15] Ferrier J. summarized
her background on page 7 of his Reasons as follows:
Following her call to the bar in Manitoba in
1973, Boucher practised for one year in a commercial practice and
then spent about four years working for the Federal Government,
working on commercial matters. Over the next few years she worked
as a consultant for the Magna Corporation, assisted
Richard Pyne from time to time and continued to act as a
consultant for Magna while she was a broker with Burns Fry.
[16] What Ferrier J.
omitted therefrom or was not advised of, was the fact that during
the first two years after graduation, the Appellant was working
for the Department of National Revenue, her time was spent
drafting income tax legislation.
[17] Under the heading
"WHETHER AND TO WHAT EXTENT BOUCHER WAS A SHAREHOLDING OR
OTHER INTEREST IN WOOD", Ferrier J. found that
there was no shareholder's agreement but an oral
understanding that the Appellant would be a 49 percent
shareholder with Kennedy who had 51 percent. The Appellant
was to put in part of a $40,000 tax refund as part of the
purchase price.
[18] Ferrier J. found
that the $40,000 contribution by the Appellant was a requirement
of her becoming a shareholder, as had been agreed upon in May of
1989 and that it was never paid and that the Appellant never
became a shareholder. Ferrier J. did not accept the
Appellant's testimony or her allegation that she was entitled
to a $40,000 tax refund.
[19] Ferrier J. also
found that by October 1990, the relationship between Kennedy and
the Appellant had deteriorated to the point where Kennedy wanted
the Appellant disassociated with Wood.
[20] Ferrier J, said
on pages 15 and 16 of his Reasons:
Further, Boucher abused her signing authority
in her capacity as plant manager by paying the down payment on a
personal automobile with company funds and purchasing a sailboat
with company funds, without approval or prior consultation with
Kennedy. Further, in order to avoid the $5,000 limit on her
signing authority, she wrote two cheques for the sailboat,
totalling $7,500. This latter incident is but one of several
examples of Boucher ignoring rules or obligations to do what
pleases her. Despite her responsibility to manage the company,
she deliberately failed to make remittances to the Department of
National Revenue for taxes withheld at source. She breached
labour regulations by failing to pay employees for overtime wages
and when she ultimately did so late in her life with the company,
she attempted to extract and in at least one case did extract a
return payment from the employees of 50% of their overtime
wage.
In addition, she ran an unacceptably large petty cash account and
used it frequently for personal purchases.
[21] Under the heading
"CONTEMPT", Ferrier J. found that the
Appellant knowingly and repeatedly did not comply with a Court
injunction over a two-year period and fined her $30,000 for
contempt.
[22] Under the heading
"QUANTUM MERUIT", Ferrier J. found
that the Appellant did have a quantum meruit claim and
went on to say:
As to the amount to which Boucher might be entitled,
Boucher's counsel argues that she should receive
50 percent of the profit above what Boucher and Kennedy
withdrew, with a reduction of $20,000 to reflect the month of
December, 1990, at which point Boucher was no longer involved in
the company. The amount submitted by Boucher's counsel is the
sum of $150,000.
That approach in quantifying the amount is not unreasonable but
it fails to take account of three elements. The first is that
Kennedy had spent a significant amount of time developing the
project in its conceptual stages and in laying the groundwork
through contact with various agencies including the Municipality
of Peel. In short, Boucher should not share equally, or even
close to equally, to take account of her involvement during the
period June of 1988 to November of 1990. Secondly, the action of
Boucher in causing the cancellation of the NRC grant, thereby
depriving the company of $92,000, must be accounted for in any
quantum meruit claim. Thirdly, she has already received
for her efforts, approximately $220,000.
I am satisfied that Boucher has already been amply compensated
for her contributions. Accordingly, the claim on the basis of
quantum meruit is dismissed.
[23] Thus, Ferrier J.
determined that the $220,000 was the total compensation for the
year 1990 that the Appellant was entitled to receive. The
Appellant stated that the source deduction money was being
withheld but not remitted and she said by way of explanation:
Because in the first year we weren't sure
whether or not - because it was the first year of the company we
didn't know what the profitability would be, and these
bonuses, these draws, were being based on the profitability of
the company.
[24] In re-direct,
the Appellant consulted a ledger and said:
... My partner and I, Mr. Kennedy, took
draws regularly from a period starting - I'll just make sure
here. From a period beginning July 24, 1989, to October 3, 1990.
And the draws were in the form of 5,000, 5,000, 5,000, 18,000,
6,200, 5,000, 5,000, 34,000. So, up until - I had drawn by the
time I left - the ledger shows that I had drawn $250,659. And his
ledger shows he had draw $261,723. And the ...
Analysis
[25] I find that the
Appellant will say under oath whatever she believes will help her
appeal. She swore that she filed her T1 tax return according to
the T4A that she had. Obviously, this is wrong. This amount is
not shown in her T1 tax return for 1990 and in fact her letter to
Revenue Canada filed with the return specifically claims that it
should be a T5 as divided income. She took her drawings of
$213,072 and grossed it up by 25 percent, namely $53,268,
making a total of $266,340, which is what was declared in her T1
tax return for 1990.
[26] Although Ferrier J.
said:
Despite her responsibility to manage the
Company, she deliberately failed to make remittances to the
deposits for National Revenue for taxes withheld at source.
[27] The Appellant uses
this sentence to substantiate her statement that she withheld the
source deductions. I cannot accept this position. I believe
Ferrier J.was referring to the hourly paid employees. Also,
when the Appellant referred to a ledger which was not entered as
an exhibit, she was able to recite all the draws. The journal
would have shown the source deductions if the income tax had been
deducted. Furthermore, Ferrier J. when dealing with the
Appellant's quantum meruit claim, stated that she had
received approximately $220,000 and found that was ample
compensation for her contribution. If the corporate books had
shown source deductions having been deducted, he would have had
to deal with a much larger figure. Thus Ferrier J.
determined that the Appellant's total compensation for the
year 1990 was the draws that she had received and nothing more.
Therefore, the Appellant's total income from Woods for 1990
was $213,072 and nothing more.
[28] I am satisfied that
both Kennedy and the Appellant were taking these draws and at the
year end were going to sit down and decide how the corporation
would characterize these payments. This procedure is normal
practice in a small closely held corporation. Unfortunately the
Appellant parted company with Wood and Kennedy before the
year-end.
[29] I find that no money
was set aside as source deductions for the Appellant's draws,
as at that time the Appellant was claiming they were dividends,
and I reject the Appellant's statement that there was. When
she filed her T1 tax return for 1990, she showed the draws as
dividends and, in a written submission to Revenue Canada, she
stated that she should have received a T5 dividend statement for
the $213,072.
[30] Normally this would
conclude my reasons and the appeal would be dismissed, with
costs. However, the Appellant asks the Court to raise the
assessment to $414,617, which increases the appealed assessment
by $201,545 and that I should direct the Minister of National
Revenue to provide to the Appellant a credit of $201,545.
[31] When I questioned the
Appellant on the basis that if I should decide that a direction
by me to the Minister to give the Appellant the claimed credit
was beyond the Court's jurisdiction, the Appellant stated she
wanted the assessment raised in any event.
[32] I then asked for
written argument to be submitted as to whether the Court could
raise an assessment on request, and if so, was there jurisdiction
to direct the Minister to issue a credit for source deductions
found to have been or should have been withheld. I have now
received the written submissions of both parties.
[34] In view of my above
findings, these issues addressed in the written arguments are
moot and, therefore, I will not comment on them.
[35] The appeal is
dismissed with costs.
Signed at Ottawa, Canada, this 28th day of
February 2003.
J.T.C.C.
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