[OFFICIAL ENGLISH TRANSLATION]
Date: 20010824
Docket: 1999-4871(IT)I
BETWEEN:
JAY BASSILA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre, J.T.C.C.
[1] These are appeals under the
informal procedure from assessments made against the appellant
pursuant to section 118.1 of the Income Tax Act
("Act") for the 1990, 1991, 1992 and 1993
taxation years. Through those assessments, the Minister of
National Revenue ("Minister") disallowed credits
claimed by the appellant for charitable gifts to the Ordre
Antonien libanais des Maronites ("Order") amounting to
$7,000 for 1990, $6,000 for 1991, $5,000 for 1992 and $6,000 for
1993. The Minister also assessed penalties under subsection
163(2) of the Act. Since the Minister reassessed the
appellant outside the normal reassessment period, the onus is on
the Minister to show that the appellant made a misrepresentation
attributable to neglect, carelessness or wilful default or
committed some fraud with respect to the charitable gifts, as
required by subsection 152(4) of the Act (see
M.N.R. v. Taylor, [1961] C.T.C. 211 (Ex. Ct.)).
Facts
[2] The appellant was born in Lebanon
and immigrated to Canada in 1987. He is part of
Montréal's Lebanese Maronite community.
[3] From 1990 to 1993, the appellant,
who was then in his early 20s, had regular dealings with the
Order. He explained that the Lebanese community gathered together
to help Lebanese people who had recently arrived in Canada adapt
socially and financially to their new country and also to make
Canadian authorities aware of the war in Lebanon.
[4] He said that he gave the Order
$7,000, $6,000, $5,000 and $6,000 in 1990, 1991, 1992 and 1993 in
a number of cash payments. He also said that he may have donated
by cheque a few times. He gave the amounts to fathers
Joseph El-Kamar and Claude Nadras when he went to
church for various political, religious or social events.
According to the appellant, the fathers recorded the amount of
the gift. He was given a receipt at the end of the year, at which
point he checked to make sure that the receipt corresponded to
the money he had given. However, he did not keep any written
record of his gifts. He relied on his memory.
[5] As of 1994, he no longer made
gifts to the Order. He got married in 1992 and had two children,
one in 1994 and the other in 1996. He said that he lived with his
parents in 1990, 1991, 1992 and 1993 and had no financial
responsibilities. He said he had a house built in 1994. He
explained that his needs changed as of that time, the situation
in Lebanon was no longer the same and he felt that he had done
his part for the Lebanese cause. He therefore started investing
in his registered retirement savings plan ("RRSP").
[6] He said that he learned of the
Order's existence through a teacher who had taught him in
Lebanon and through other people whom he no longer sees. The
Order, he stated, solicited him for donations, which were said to
have been used to meet the needs of orphanages, universities and
monasteries in Lebanon as well as the needs of Lebanese people in
Canada. The appellant maintained, moreover, that he did not
merely give money; he also gave furniture and clothing to people
in the community who were starting a new life in Canada. He chose
to donate through the Order because it was an organization that
provided for the needs of Lebanese Christians, whereas other
religious orders were not devoted exclusively to that cause.
[7] The appellant said that he heard
about the misappropriation of money by the Order when he read an
article in the newspaper The Gazette in 1996. He said that
he was very surprised to learn of such a scheme. However, he did
not subsequently do anything to ascertain that the money he had
given had been used for the needs of Lebanese people. He
maintained that his life had changed at that time and that he was
no longer as involved in the Lebanese cause.
[8] The appellant did not keep his
bank statements. He moved a few times in 1990, 1991, 1992 and
1993 and did not keep his files any longer than three or four
years. Nor did the appellant approach the Royal Bank, with which
he was dealing at the time, to track down his bank books. He said
that he no longer deals with that bank, with which he was not on
the best of terms on leaving.
[9] The appellant's income was
about $37,000 in 1990. It rose to about $52,000 in 1991 and 1992
and $80,000 in 1993 and 1994. He started contributing to RRSPs in
1993.
[10] He explained that his brother was much
too young at the time to make donations. His brother was still a
student, and his sister was not living in Canada.
[11] The respondent called Adel Bassal and
Mariette Chamberland as witnesses. They both testified that
they had colluded with the Order during the years at issue by
giving it money in return for a receipt showing a much larger
gift than was actually made.
[12] Finally, the testimony of Colette
Langelier and Gaétan Ouellette, who were an officer and an
investigator respectively with the Canada Customs and Revenue
Agency, revealed the fraud involving the issuing of false
receipts by the Order during the years at issue. Under the
scheme, the Order issued receipts for an amount that was on
average five times higher than the actual amount of the gift.
More than a thousand taxpayers were denied the charitable
donations credit they had claimed using false receipts issued by
the Order. According to a calculation done by Ms. Langelier
(Exhibit I-13), the taxpayers who participated in the
scheme derived therefrom a monetary benefit going beyond the mere
tax credit. Thus, where a receipt was issued for $7,000 but the
taxpayer had donated only 20 percent of that amount, or
$1,400, the taxpayer got a charitable donations credit (federal
and provincial) of $3,400, for a profit of $2,000.
[13] Ms. Langelier also said that the scheme
may well have been devised so that the Order could finance its
administrative expenses. In point of fact, a charity cannot
allocate more than 10 percent of the amounts shown on receipts to
non-charitable purposes. Since the Order's fixed costs
were quite high, the scheme it developed enabled it to allocate
more money to its fixed costs while attracting donors who derived
a monetary benefit from the scheme. Moreover, according to
Ms. Langelier, the balance sheet in the Order's
financial statements did not show the total amounts that ought to
have been received if the amounts shown on the receipts reflected
the actual amounts paid to the Order. Thus, in her view, it is
much more plausible that the Order issued donors with false
receipts than that it misappropriated the donors' gifts to
its own purposes.
[14] Moreover, it was impossible to track
down anything concerning the cash donations, since the Order did
not keep any record of them. Nor was the Order able to trace any
of those amounts in its safes or bank accounts. Finally, Ms.
Langelier found that most of the issued receipts had been
backdated to the end of the year for which the taxpayers were
filing their tax returns.
[15] Mr. Ouellette seized during his
investigation a document called the "Bibliorec", that
brought to light the fraud involving the issuing false receipts
for 1993. He was unable to find a similar document for the other
years. His investigation further revealed that the names of the
donors who participated in the scheme did not all appear in the
Bibliorec.
[16] As for the appellant in particular, he
is claiming that he made cash donations to the Order amounting to
$7,000 in 1990, $6,000 in 1991, $5,000 in 1992 and $6,000 in
1993. According to a document prepared by Ms. Langelier, the
appellant's net income for each of those years was $37,352,
$51,681, $52,346 and $78,834 respectively. According to the same
document (Exhibit I-14), his disposable net income (after
deducting taxes and other contributions, medical expenses and his
education expenses) was $27,112 in 1990, $36,109 in 1991, $34,849
in 1992 and $50,282 in 1993. It can be seen from that document
that the appellant's income increased significantly after
1993 (up to $293,000 in 1998 and $219,000 in 1999) but that he
stopped making any substantial gifts after 1993.
Respondent's argument
[17] The onus is on the respondent to prove
on a balance of probabilities that the appellant made a
misrepresentation attributable to neglect, carelessness or wilful
default or committed some fraud in filing his tax return. Being
unable to adduce any direct evidence, since no record of the cash
donations was found during the investigation, the respondent had
to proceed on the basis of circumstantial evidence. She had to
show on a balance of probabilities that the appellant did not
actually make those cash gifts or that, if he did, their amounts
were less than the amounts on the receipts.
[18] Counsel for the respondent argued that
a negative inference must be drawn from the fact that the
appellant did not adduce any evidence other than his own
testimony at the hearing. Although he had been served with a
subpoena duces tecum requiring him to bring with
him the bank statements that could be used to trace the gifts he
claims to have made, he made no effort to try to track the
statements down.
[19] As well, the appellant suggested in his
testimony that he took money to the monastery at least twice a
year and that the fathers noted down the amount he gave in a
book; he himself, however, kept no personal notes. If this is
really true, one wonders of why the appellant did not attempt to
obtain that book containing all the information or to contact the
priests he had dealt with in order to try to prove that he really
did make gifts. In view of Ms. Langelier's testimony, it is
more likely that such a record did not exist. Moreover, the
appellant testified that he dealt with fathers Joseph
El-Kamar and Claude Nadras and that the receipts were
prepared in front of him and given to him personally. It seems,
however, from the receipts issued for 1992 and 1993 (Exhibit
I-1, Tab 4) that these were not signed by either
Father Joseph El-Kamar or Father Claude Nadras.
This is also shown by the audit conducted by Ms. Langelier, who
found that the signature on the two receipts did not correspond
to that of Father Claude Nadras, which she had seen on other
bank documents.
[20] Although the priests were not present
to attest their signatures, the respondent argued that these
facts cast doubt on the reliability of the receipts issued to the
appellant and on the appellant's credibility.
[21] According to counsel for the
respondent, the appellant's testimony is not very credible
and must be rejected. The appellant said that he had heard about
"money mishandling" by the Order in the newspapers in
January 1996. Yet the newspaper article in question (Exhibit
I-17) states that the Order issued false receipts, not that
it misappropriated money. At the time, the appellant did not see
fit to go and get proof of the gifts he claims to have made. He
argued that he wanted to distance himself somewhat from the Order
at that point. His testimony indicates that he did not remember
how much he had given the Order, but he knew he had given a lot.
It is therefore surprising that, after he learned of the fraud in
which the Order was involved, he did nothing to ensure that the
receipts he had been given were valid.
[22] Counsel for the respondent also argued
that the appellant's testimony was very evasive, especially
as regards the people who put him in touch with the Order, the
role he played in the Lebanese and Maronite community, and the
way he made the gifts in question. How can he claim that he was
not all that involved in that community (page 53 of the
transcript of his testimony) and yet have made such generous
gifts to it? How can he explain the fact that he stopped making
any gifts (even minimal ones) to that community after 1993 when
he claims that he did not learn of the fraud until January 1996
and although his income increased significantly starting in 1993?
In his Notice of Appeal, the appellant tried to explain this by
stating that his financial situation had changed after his
marriage. Yet the appellant got married in 1992 and continued to
make donations that were just as substantial in 1992 and
1993.
[23] According to counsel for the
respondent, it is more likely that the appellant stopped making
gifts to the Order in 1994 because Revenue Canada's
investigation had begun in the fall of 1994. The fact that, as
Ms. Langelier's testimony indicates, the appellant more
than likely received a receipt when it was time to prepare his
tax return for the previous year, which would have been in the
spring of 1995 for the 1994 taxation year, and that the Order had
stopped issuing false receipts by then, would explain why the
appellant no longer reported any gifts to the Order for 1994 or
subsequent years.
[24] Moreover, the appellant was unable to
give any precise explanation about his financial responsibilities
(such as the amount of the mortgage he had to pay) during the
years at issue. He merely stated that he had no financial
obligations since he was living with his parents. Yet his
testimony shows that it was his parents who were living with him
and not the reverse (pages 123-24 of the transcript of his
testimony).
[25] For the following reasons, counsel for
the respondent concluded from the evidence that the appellant was
more than likely told about the scheme used by the Order and that
he took part in it: (1) the priests involved in the scheme,
fathers Joseph El-Kamar and Claude Nadras (according
to Adel Bassal's testimony, pages 151-52 of the
transcript), were in constant contact with the appellant during
the years at issue; (2) the appellant claims that he made
substantial cash gifts but has no documentary evidence; (3) the
appellant made substantial gifts only during the years in which
the scheme was in effect; (4) the appellant's testimony was
vague and imprecise, even contradictory at times. Counsel
concluded that, in the circumstances, it would be very surprising
if the appellant had been kept out of the scheme.
[26] Counsel for the respondent therefore
argued that, on a preponderance of evidence, the appellant did
not make gifts in the amounts indicated on the receipts issued to
him. According to her, the appellant's aim was not only to be
compensated for the amount paid to the Order but also to make a
profit through the tax credit he obtained.
[27] She thus argued that there was no
intent to give and that donations therefore cannot be said to
have been made in this case. She relied on two decisions by the
Federal Court of Appeal, Friedberg v. Canada, [1991]
F.C.J. No. 1255 (Q.L.), and The Queen v. Burns, 88 DTC
6101 (F.C.T.D.), affirmed by 90 DTC 6335 (F.C.A.), in
contending that there can be no gift where the taxpayer who
claims to have made a gift derived a benefit therefrom rather
than diminishing his substance thereby. Linden J.A. stated the
following in Friedberg, at page 2:
Thus, a gift is a voluntary
transfer or property owned by a donor to a donee, in return for
which no benefit or consideration flows to the donor (see Heald
J. in The Queen v. Zandstra [1974] 2 F.C. 254, at p. 261.)
The tax advantage which is received from gifts is not normally
considered a " benefit " within this
definition, for to do so would render the charitable donations
deductions unavailable to many donors.
Moreover, Pinard J. of the Federal Court-Trial Division stated
the following in Burns, at page 6105:
I would like to emphasize that
one essential element of a gift is an intentional element that
the Roman law identified as animus donandi or liberal
intent (see Mazeaud, Leçon de Droit Civil, tome
4ième, 2ième volume, 4ième edition, No.
1325, page 554). The donor must be aware that he will not
receive any compensation other than pure moral benefit; he must
be willing to grow poorer for the benefit of the donee
without receiving any such compensation.
[28] Counsel for the respondent also
contended that the receipts do not meet the requirements imposed
by section 118.1 of the Act and section 3501 of the
Income Tax Regulations (for example, the date on the
receipt is not consistent with the actual dates of the donations
and the amounts indicated are not correct).
[29] Lastly, she concluded that there was
gross negligence on the appellant's part and that the penalty
assessed under subsection 163(2) of the Act should be
upheld.
Appellant's argument
[30] Counsel for the appellant argued that
the appellant was introduced to the Order by former friends and
that he felt obliged to participate financially through
charitable gifts in its plan to help Lebanese people. Since he
had few financial responsibilities during the years at issue, he
was able to contribute generously. According to counsel, the
appellant stopped contributing to the Order after his marriage,
when his financial obligations changed. He renovated the house in
which he was living in order to sell it and buy a bigger house.
It was at the request of fathers Joseph El-Kamar and
Claude Nadras that the appellant donated the cash for which
he was given a receipt at the end of the year. According to
counsel, the appellant donated in all sincerity and had no
control over the Order's actions. He was neither an employee
nor an agent of the Order.
[31] Counsel reiterated that the onus is on
the respondent to prove on something more than a balance of
probabilities that the appellant took an active part in the
fraudulent scheme. According to counsel, the respondent has not
discharged that onus. The appellant did not know the two
witnesses who said they participated in the scheme. As well,
counsel argued that the respondent relied on hearsay evidence,
opinion evidence and speculative evidence, all of which is
unacceptable in the circumstances.
Analysis
[32] In reply to the appellant's
argument concerning the evidence tendered by the respondent, it
is my opinion that the respondent, who bears the onus of proof
here, tried to make her case through presumptive evidence because
she was unable to adduce any direct evidence. Such evidence is
entirely admissible to try to prove the correctness of one's
arguments in a sufficiently convincing way (see Canadian
Titanium Pigments Ltd. v. Fratelli D'Amico Armatori,
[1979] F.C.J. No. 206 (Q.L.) (F.C.T.D.)).
[33] As for the degree of proof, the
respondent has to show on a simple balance of probabilities that
the assessments are correct (see Hickman Motors Ltd. v. The
Queen, [1997] 2 S.C.R. 336). This is so even if there is an
allegation of morally blameworthy conduct that may involve a
penal aspect, where that allegation is made in civil litigation
as is the case here (see Continental Insurance Company v.
Dalton Cartage Co. et al., [1982] 1 S.C.R. 164). To discharge
that onus, the respondent must satisfy the Court that the
existence of a particular fact is more likely than its
non-existence (see Jean-Claude Royer, La Preuve Civile,
2nd edition (Les Éditions Yvon Blais,
1995), at pp. 98-102).
[34] In the circumstances, my view is that
the respondent has adduced evidence that is sufficiently
convincing to allow me to conclude on a balance of probabilities
that the appellant was aware of and participated in the
fraudulent scheme devised by the Order during the years at
issue.
[35] The appellant's evasive and
sometimes exasperated testimony casts serious doubt on the
credibility of that testimony. Although he said that he had no
financial responsibilities, it later emerged from his testimony
that his parents were actually staying with him and not the
reverse. He subsequently gave a very ambiguous answer when asked
how much it cost him to support the household. In the
circumstances, it is therefore hard to believe that he had no
financial responsibilities.
[36] Moreover, it is not clear from his
testimony why he stopped making substantial gifts in 1994. In his
Notice of Appeal, he stated that he had gotten married and that
his priorities had changed. Yet the evidence showed that he got
married in 1992. This explanation loses all plausibility when one
notes that he continued to report substantial gifts to the Order
in 1992 and 1993. I agree with counsel for the respondent that it
is much more likely, given the evidence, that the appellant
stopped claiming charitable gifts in 1994 because that was the
year the Order, which was being investigated, ceased issuing
false receipts for an amount much higher than the actual amount
of the gift.
[37] The fact that the appellant's
income increased significantly in the following years along with
the fact that he never again made any substantial gifts, when
considered in light of the respondent's extensive evidence
demonstrating the existence of the fraudulent scheme devised by
the Order and specifically by fathers Joseph El-Kamar
and Claude Nadras, with whom the appellant dealt regularly, casts
serious doubt on the appellant's philanthropic side.
[38] More than likely, the appellant was
seeking only to benefit personally through the alleged gifts to
the Order. I consider the appellant's testimony to have very
little credibility in the circumstances, and the respondent's
evidence convinces me fully, on more than a simple balance of
probabilities, that the appellant in all likelihood took part in
the fraudulent scheme and accordingly made a misrepresentation
attributable to neglect, carelessness or wilful default. The
Minister was therefore entitled to reassess after the normal
reassessment period.
[39] Moreover, having concluded that the
appellant took part in such a scheme, I cannot conclude that he
made a gift within the meaning given that term by the courts.
Indeed, Ms. Langelier demonstrated that, in acting as he did, the
appellant not only recovered his outlay but also derived a
benefit therefrom through the tax credit. Thus, not only did he
not diminish his substance, but he also derived a benefit beyond
the tax benefit normally provided for by the Act.
[40] One must therefore speak not of
impoverishment but of enrichment in these circumstances. I share
the respondent's view that there were in this case no gifts
within the meaning of section 118.1 of the Act.
[41] Furthermore, I find that the Minister
has shown on a balance of probabilities that the appellant
knowingly, or under circumstances amounting to gross negligence,
made a false statement or omission in filing his tax returns for
the years at issue. The penalties assessed under subsection
163(2) are therefore maintained.
[42] The appeals are accordingly
dismissed.
Signed at Ottawa, Canada, this 24th day of August 2001.
J.T.C.C.
Translation certified true
on this 14th day of February 2003.
Erich Klein, Revisor
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