Date:
20010831
Docket:
2000-1276-IT-I,
2000-1278-IT-I
BETWEEN:
DÉCOR
DU LOGIS DU VIEUX QUÉBEC INC.,
CATHERINE
VERMETTE,
Appellants,
and
HER MAJESTY THE
QUEEN,
Respondent.
Reasons for
Judgment
Tardif,
J.T.C.C.
[1] It was agreed to proceed on
common evidence.
[2] The issues are as
follows:
Appeal of
Décor du Logis du Vieux Québec Inc.
(2000-1276(IT)I)
[TRANSLATION]
Did the
appellant report all of its income for the 1994, 1995, 1996 and
1997 taxation years?
Was the
Minister of National Revenue ("the Minister") justified
in denying the appellant expenses of $3,417 for 1993, $6,821
for 1994 and $7,627 for 1995?
Did the
Minister correctly calculate the capital cost allowance that
could be deducted for the years at issue?
Was the
Minister justified in assessing a penalty against the appellant
under subsection 163(2) of the Income Tax Act ("the
Act") for the years at issue?
Appeal of Catherine
Vermette (2000-1278(IT)I)
[TRANSLATION]
Did the
Minister correctly include the company's funds appropriated
by the appellant in the appellant's income for the 1993,
1994, 1995, 1996 and 1997 taxation years?
Did the
Minister correctly calculate the automobile benefit allocated to
the appellant for each of those years?
Was the
Minister justified in assessing a penalty against the appellant
under subsection 163(2) of the Act for the years at
issue?
Was the
Minister justified in assessing a late filing penalty against the
appellant under subsection 162(1) of the Act for the 1993,
1994 and 1995 taxation years?
[3] The assessments were made using
what is called the "net worth" method. That method had
to be used because the available accounting records were
deficient and totally inadequate, which was, moreover, admitted
by the individual appellant and her accountant.
[4] Since the individual appellant
disagreed with the assessments at issue in these appeals, she
instructed Mario Tremblay, CA, to prepare financial statements
for the period from 1993 to 1997.
[5] Mr. Tremblay described the
nature and scope of the mandate he was given. He explained that
he did not examine the invoices and that he relied on the
explanations given by his client. Rather surprisingly, he
admitted that the figures and conclusions arrived at by the
respondent as a result of her audit work struck him as reasonable
and realistic.
[6] However, the accountant added
that, in his view, the individual appellant's income had
never been very substantial. Indeed, his findings were that her
income had always been quite modest. In support of this view, he
stated that the individual appellant had cashed in registered
retirement savings plans (RRSPs) and that she drove an old
car.
[7] I intervened a few times to ask
specifically what complaints he had concerning the way the file
had been dealt with during the audit. Despite my questions,
Mr. Tremblay basically just reiterated the limits of his
mandate. On his client's behalf, he asked for sympathy in
light of her modest financial situation.
[8] Although Mr. Tremblay testified
in a professional manner, he did not provide any information that
might discredit the assessments. As regards the penalties, his
testimony shows that the individual appellant truly wants to take
a disciplined approach to accounting in future, but it provides
nothing that could justify the Court's
intervention.
[9] Basically, Mr. Tremblay
testified that the individual appellant had neglected her
accounting; he also noted that she had not drawn a line between
her personal affairs and those of the company.
[10] The individual appellant's
testimony, while it inspired sympathy, did not bring out anything
that could discredit the net worth assessments.
[11] From the outset, she admitted that
accounting was not her strength. Moreover, her various comments
clearly illustrated the fact that she often mixed up her personal
affairs with those of the company she controlled.
[12] She explained that things had not
always been easy and that, because of illness, she had had to go
through a very difficult period that had forced her to cut
expenses.
[13] She explained that she had chosen to
cut management and accounting expenses because she felt that they
were less important than other expenses.
[14] Although the individual appellant
said she understood the corporate reality of the business, the
evidence shows that there was no real division or separation
between the two patrimonies, namely her own and that of the
company she controlled. The company's business was
decorating, design and renovation. The individual appellant
maintained that, in some circumstances, she considered the fees
to be the salary she was owed for her work. In such cases, the
company did not receive the amounts in question. On the other
hand, the evidence showed that the company paid expenses that
basically had nothing to do with it.
[15] The evidence did not demonstrate that
the accounting data were handled with any consistency or logic
that could have reflected a certain concern with doing things
properly.
[16] The weight of the evidence showed
rather that everything that had to do with accounting was
inadequate, neglected, late and incomplete. Admittedly, the
individual appellant maintained that she never acted in bad
faith, which I accept. However, total indifference and constant
disinterest manifested over a number of years indicate blatant
neglect of one's tax responsibilities. In my humble opinion,
such carelessness and the abdication of such a basic
responsibility amount to gross negligence.
[17] Except as regards the penalty part of
the assessments, the burden of proof was on the appellants. They
had to show on a balance of probabilities, through such evidence
as testimony, documents and various data, that the assessments
were wrong. Yet, no evidence was adduced in that
regard.
[18] First of all, the accountant hired to
clarify the accounting admitted that the work done by the
respondent was correct. Given his qualifications, he might have
been able to demonstrate some abuses, mistakes or breaches. He
did nothing of the sort and so the burden on Ms. Vermette was a
heavy one.
[19] Given her obvious lack of accounting
knowledge, Ms. Vermette's testimony basically referred to her
various problems, and was rounded out by several comments showing
that her accounting was now transparent and consistent.
Unfortunately, good intentions for the future are not a relevant
factor in vacating or even reducing an assessment made long
before the result that will be generated by the good
intentions.
[20] In this case, the individual
appellant explained that she had had to cut expenses and that she
had chosen to stop consulting an accountant. She did not explain
why she eliminated that kind of expense as opposed to other
items.
[21] Taxpayers are not obliged to use an
accounting specialist; however, all taxpayers must have an
accounting system that makes a review or audit possible, failing
which they run the risk of having results that may be surprising
imposed on them.
[22] Indifference to and total disregard
of accounting matters constitute gross negligence, especially
where there is or may be confusion between a company's
accounting data and the accounting data relating to the personal
affairs of the shareholder who controls the company.
[23] Here, the individual appellant
admitted that she did not have the knowledge needed to present
consistent accounting data. Despite that, she deliberately chose
to neglect that important-for both the company she controlled and
her personal affairs-aspect of things.
[24] She certainly showed a real interest
in mending her ways in future; however, good intentions cannot
have retroactive effect. The Court must dispose of the appeals
based on the facts that existed at the time the assessments were
made. In this regard, the weight of the evidence shows that the
appeals are unfounded and accordingly they must be
dismissed.
Signed at Ottawa,
Canada, this 31st day of August 2001.
J.T.C.C.
Translation certified true
on this
31st day of May 2002.
Erich
Klein, Revisor
[OFFICIAL
ENGLISH TRANSLATION]
2000-1278(IT)I
BETWEEN:
CATHERINE
VERMETTE,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Appeal heard on common
evidence with the appeal of
Décor du
Logis du Vieux Québec Inc. (2000-1276(IT)I)
on July 16, 2001, at
Québec, Quebec, by
the Honourable Judge
Alain Tardif
Appearances
For the
Appellant:
The Appellant herself
Counsel for the
Respondent:
Stéphanie Côté
JUDGMENT
The appeal from the assessments made under the Income Tax
Act for the 1993, 1994, 1995, 1996 and 1997 taxation years is
dismissed in accordance with the attached Reasons for
Judgment.
Signed at Ottawa, Canada,
this 31st day of August 2001.
J.T.C.C.
Translation
certified true
on this 31st
day of May 2002.
Erich Klein,
Revisor
Email this Content