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Citation: 2003TCC673
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Date: 20030924
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Docket: 2001‑2351(IT)I
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BETWEEN:
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ÉLECTRICITÉ GASTON ST‑PIERRE
INC.,
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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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[OFFICIAL ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
Tardif, J.
[1] This is an appeal
concerning the 1994 and 1995 taxation years.
[2] Most of the facts
assumed by the Minister of National Revenue (the "Minister") in
making the assessments in issue were admitted. The admissions concern the
following facts:
[TRANSLATION]
(a) According to the Minister's records, the appellant was
incorporated on April 1, 1982;
(b) During
the taxation years in issue, Gaston St‑Pierre was the sole
shareholder of the appellant (hereinafter the "shareholder");
(c) As
stated in its income tax returns, the appellant's main business activity was
that of an electrical contractor;
(d) The
appellant's fiscal year ended on March 31 of each year;
...
(f) As
a result of her audit for the taxation years in issue, the Minister's auditor
found the following:
(i) the
appellant reported its income using the deposit reporting method;
(ii) the
corporation had only one bank account at the Saint‑Pascal Caisse
Populaire Desjardins;
(iii) income
had not been reported by the appellant;
(iv) most
of the income not reported by the appellant consisted of cheques issued by
Scierie Pelem Inc.;
(v) those
cheques had been cashed by the shareholder of the appellant at the counter of
various financial institutions rather than deposited to the appellant's bank
account;
...
(vii) a
final portion of unreported income consisted of two cheques issued by Scierie
Pelem Inc. and deposited by it to the appellant's bank account;
(viii) however,
the cheques referred to in the above subparagraph were not reported by the
appellant;
...
UNCLAIMED PURCHASES
(h) At
the time of the audit for the taxation years in issue, the appellant's
shareholder submitted purchase invoices to the Minister's auditor;
(i) Those
purchase invoices had not previously been claimed by the appellant;
(j) For
the taxation years in issue, seven purchase invoices paid out of the unreported
income were allowed by the Minister;
...
(l) Consequently,
the Minister allowed the appellant only the additional amounts of $284 in 1994,
and $8,054 in 1995 as business expenses (see details in the schedules);
The appellant denied or had no knowledge
of the following facts:
[TRANSLATION]
(e) During the taxation years in issue, the appellant's accounting
records were deficient;
(f) ...
(vi) another portion of unreported income consisted of three cheques
totalling $20,000 that had been issued by Scierie Pelem Inc. to the order of
the Notre‑Dame du Mont‑Carmel Caisse populaire by reason of the
fact that the appellant's shareholder had assigned the receivables from Scierie
Pelem Inc. as a guarantee of a loan granted to Les Immeubles Gaston and
Réjeanne inc.;
(g) Consequently, the Minister added $25,716 and $75,804 to the
appellant's income respectively for the taxation years in issue (see details in
schedules);
...
(k) With the exception of the seven purchase invoices referred to
in the previous subparagraph, no other invoices were allowed because they were
not valid;
[3] The sole
shareholder of the appellant (hereinafter
the "shareholder") represented himself alone. The appellant did not
produce any witnesses in support of its claims.
[4] The respondent
produced the auditor, Johanne Couture, and
Serge Roy, in his capacity as Vice-President of Finance and Administration
of Distrilec‑Roberge Inc., at the time the appellant was a client of the
business.
[5] As a result of
the audit, Gaston St‑Pierre, the sole shareholder of the appellant,
admitted that substantial income had not been reported. This was income earned
for the performance of electrical work for the benefit of Scierie Pelem Inc.
[6] The evidence
brought by both parties focused mainly on purchase invoices for materials and
equipment used in performing the work that generated the concealed income.
[7] The appellant's
claims are that it had to purchase and pay more than $100,000 for various
materials and equipment required to perform the work. The appellant's agent
contended that those payments had to be made out of the unreported income, thus
considerably reducing the tax burden resulting from the unreported income.
[8] In support of its
claims, the appellant submitted 32 invoices to the respondent totalling
more than $125,000.
[9] The invoices were
very thoroughly analyzed. Based on the analysis, the respondent retained and
allowed only seven invoices totalling $8,339.29. All the other invoices were
disallowed on the ground that they were false.
[10] The evidence
mainly concerned the validity of the invoices; the appellant's agent asserted
that they were the invoices obtained at the time the materials and equipment
were purchased on the dates indicated. The respondent contended that the said
invoices had to be excluded since they were probably false.
[11] To prove that this
serious grievance was valid, counsel for the respondent produced
Serge Roy, who filed in evidence Exhibit I‑11, a letter dated
March 26, 1997. In view of the importance and relevance of that letter, it
should be reproduced:
[TRANSLATION]
Karyne Albert
...
Subject: Your request for information concerning purchase orders VC‑48673,
VC‑48810, VC‑48820 and VC‑48826
Dear Madam,
In
response to your request, we wish to inform you of the following facts.
l. Électricité Gaston St‑Pierre does not have an account
with us.
2. It is impossible that we sold the products stated on the
invoices to that business on those dates for the following reasons.
(a) The invoice books corresponding to those numbers were purchased
from our supplier, Formulogic Inc., on September 13, 1995.
(b) On June 11, 1996, five books of 50 "cash sale"
invoices bearing numbers VC‑48601 to VC‑48850 were sent to our
Rivière‑du‑Loup branch to be used there.
(c) Most of the products stated on the invoices of which you sent
copies to us are electrical equipment that must be specially ordered from our manufacturing
supplier and take six to 12 weeks to be manufactured and delivered. In no
case do we place this kind of order if the business making the purchase does
not have a customer account with us with a line of credit equal to the amount
of the order. However, that is not the case of Électricité Gaston St‑Pierre,
whose name appears on the invoice copies you sent us.
(d) We conduct a return follow‑up on books sent to our
branches to ensure that all sales invoices are accounted for and deposited.
According to our control sheet for the cash-sale invoice books sent to our
branches (including those sent on June 11, 1996), the books containing
invoices 48651 to 48700 and 48801 to 48850 were not returned (two books of
50 invoices each). The manager of our Rivière‑du‑Loup branch
is missing the entire two books.
...
(Emphasis added.)
[12] Mr. Roy
explained that the Rivière‑du‑Loup branch, where the purchases in
issue were apparently made, used only invoices supplied by the principal place
of business located in the Québec region.
[13] The invoices had
been printed in triplicate. When a sale was made, the original was submitted to
the customer and two copies were retained; one was returned to head office for
control and administration purposes.
[14] None of the
invoices filed by the appellant and disallowed by the respondent were ever
traced by the business that sold the materials. The appellant alone had the
invoices. Furthermore, the dates stated on the invoices were prior to the very
existence of those invoices.
[15] In light of
Mr. Roy's testimony, it appears that the content of and dates stated on
the invoices filed by the appellant were prepared from blank invoices obtained
in a dubious manner. The respondent therefore concluded and contended that they
were simply false invoices and, as a result, refused to consider them.
[16] That
interpretation is confirmed by a preponderance of proof. Moreover,
Gaston St‑Pierre expressly and categorically stated that the
invoices in support of his claims were those obtained at the time of the
various purchases. He thus contradicted the respondent's evidence, consisting
of the testimony of a person of unquestionable credibility and corroborated by
convincing, decisive and uncontradicted documentary evidence.
[17] It would have been
easy and extremely interesting to obtain the versions of the employees of the
Rivière‑du‑Loup branch of the business. Gaston St‑Pierre,
the sole shareholder of the appellant, chose not to have them testify. Nor did
he produce his accountant or any of the representatives of Scierie Pelem Inc.,
which paid the substantial unreported income.
[18] In view of the
appellant's type of work, it was possible that the material and equipment
installed were purchased directly by Scierie Pelem Inc. It would therefore have
been very important to hear from one or more representatives of the business in
question to shed light on what remained very unclear.
[19] The representative
of Distrilec‑Roberge Inc., Mr. Roy, who the appellant claims
provided and sold the equipment used in the performance of the work, explained
how the sales were accounted for, billed and subsequently controlled. That
highly credible explanation totally repudiated the appellant's claims.
[20] The theft of blank
invoices being a plausible explanation, Mr. St‑Pierre simply
responded spontaneously: "Prove it!" and hastened to add, "Did
anyone call the police?"
[21] Indeed, it was not
established that blank invoices were stolen. However, the testimony of
Mr. Roy, who is entirely trustworthy and without interest in this case, is
indisputable. The invoices describing the material that was purportedly
purchased and used to perform the work that generated the unreported income
could not have been prepared by his business for the simple reason that, on the
dates stated on the invoices, the invoices simply did not exist. Furthermore,
the numbers on the missing invoices proved to be the same as those on the
invoices filed by the appellant.
[22] Representing
himself alone and having chosen to produce no witnesses, the appellant's agent,
a highly articulate man, had very surprising knowledge and reflexes for a
person who had initially described himself as uninformed, nervous and lacking
experience before a Court.
[23] Mr. St‑Pierre's
testimony was simply not credible and must be excluded from the evidence.
[24] In support of that
harsh conclusion, I rely in particular on the following facts:
·
through its sole shareholder, Gaston St‑Pierre, the appellant
admitted that it had failed to report very large amounts of income;
·
he admitted that he had provided his accountant with incomplete
information and documents; and
·
he wilfully failed to report substantial income.
[25] It also appears
from the evidence that Scierie Pelem Inc., which had entered into a contract
for the performance of various electrical jobs with the company of which he
held all the shares, had to make the payments for the work performed not to the
company, but to Gaston St‑Pierre personally, at Mr. St-Pierre's
express request.
[26] The cheques made
out to him personally were cashed at financial institutions other than the one
where the appellant generally did business.
[27] There is a very
strong presumption, not rebutted by the persons in a position to do so, that
the invoices submitted by the appellant were false.
[28] The facts and
evidence discrediting the quality of the testimony of the appellant's agent are
also highly relevant and largely sufficient to conclude that the appellant
knowingly and deliberately planned its business so as to exclude very large
amounts of money from its income.
[29] It not only
concealed substantial income but was also arrogant enough to make up expenses
in order to reduce the concealed income once the respondent had discovered it.
[30] Gaston St‑Pierre,
the sole shareholder of the appellant, repeatedly, wilfully and knowingly took
action to conceal significant amounts of income constituting gross negligence that
warranted the penalties assessed.
[31] The respondent was
fully justified in reassessing for the taxation years, even though those years
were theoretically time-barred. The evidence that the respondent had the burden
of adducing established decisively that the appellant had set up an actual
system for concealing significant amounts of income and making up expenses.
[32] For these reasons,
the appeal is dismissed, with costs to the respondent.
Signed at Ottawa, Canada, this 24th
day of September 2003.
Tardif, J.
Translation certified true
on this 28th day of July 2004.
Sophie Debbané, Revisor
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