REASONS
FOR JUDGMENT
Paris J.
[1]
This is an appeal brought under the informal
procedure against a reassessment for the 2002 tax year. The issues in dispute
are as follows: Did the late Mr. Noiseux fail to report $27,250 of his
income and was the Minister of National Revenue ("the
Minister") justified in making a reassessment after the normal
reassessment period?
[2]
The respondent maintains that the failure to
report this income is a misrepresentation of the facts by the late
Mr. Noiseux in his tax return, attributable to neglect, carelessness or
wilful default, which gave the Minister the right to make the reassessment
under subparagraph 152(4)a)(i) of the Income Tax Act (the "Act"). The
respondent assumes the burden of proof to establish the facts justifying the
reassessment in this case.
[3]
The appellant's representative chose not to call
any witnesses during the appeal hearing and maintains that the respondent
failed to discharge the burden of proof to show that Mr. Noiseux had
received the amount in question. I reject this argument.
[4]
The respondent called upon Maurice Paradis to
testify. Mr. Paradis confirmed that he had done business with
Mr. Noiseux in 2002 and that Mr. Noiseux had invested funds withdrawn
from his RRSP into valuable lumber. This investment was made through the
Coopérative de producteurs de bois précieux Québec Forestales (the "Cooperative"). Michel Maheux was the
Cooperative's president. Mr. Paradis also testified that Mr. Maheux
had given him sealed envelopes to give to investors and that the envelopes
contained advances on the Cooperative's returns, equalling 40–50% of the
amounts invested. He said that he had given at least one of these envelopes to
Mr. Noiseux. Mr. Paradis' testimony was not contradicted.
[5]
Next, Chantal Petit, an auditor for the Canada
Revenue Agency (the "CRA"), testified
that she had examined Mr. Noiseux's 2002 investments in the Cooperative.
Based on documents seized through searches of the Cooperative, of the residence
of its CEO and of Mr. Maheux, she was able to confirm that
Mr. Noiseux had invested, in three installments, a total of $54,500, via
his self-directed registered retirement savings plan. According to these same
documents, 50% of each of Mr. Noiseux's investments was returned to him.
These elements of her testimony were not contradicted.
[6]
Lastly, Jeannette Mercier, a tax avoidance
auditor for CRA, testified that Mr. Noiseux had admitted (during a
telephone conversation with her) that he had received one or more envelopes of
money from Mr. Paradis, containing 50% of the amounts he had invested in
the Cooperative. This conversation took place the day after a meeting between
Mr. Noiseux and the senior investigator assigned to the Cooperative's
file—a meeting which Ms. Mercier had attended.
[7]
Although the appellant's representative did not
object to this testimony or to the transcript of this conversation produced by
Ms. Mercier following the exchange, the admissibility of this evidence
must be examined, since it constitutes hearsay. Hearsay is the introduction by
a witness of a third party's out-of-court statement, to establish the truth of
the matter. However, under section 2870 of the Civil Code of Québec,
a court may admit hearsay if it is impossible for the declarant to appear in
court and if the statement is sufficiently guaranteed by the circumstances in
which it is made. Section 2870 stipulates:
2870. A statement made by a person who does
not appear as a witness, concerning facts to which he could have legally
testified, is admissible as testimony on application and after notice is given
to the adverse party, provided the court authorizes it.
The court shall, however, ascertain that it
is impossible for the declarant to appear as a witness, or that it is
unreasonable to require him to do so, and that the reliability of the statement
is sufficiently guaranteed by the circumstances in which it is made.
Reliability is presumed to be sufficiently
guaranteed with respect in particular to documents drawn up in the ordinary
course of business of an enterprise, to documents entered in a register
required by law to be kept, and spontaneous statements that are contemporaneous
to the occurrence of the facts.
[8]
The respondent informed the appellant prior to
the hearing of its intention to produce this evidence, thus meeting the
condition of providing notice, as outlined in section 2870. In this case,
I find the statement to be credible, since Mr. Noiseux voluntarily
made the statement to a CRA agent, and since the statement was recorded by the
agent immediately thereafter.
[9]
Ms. Petit also produced extracts from CRA
computer systems, which prove the amount of income claimed by Mr. Noiseux
in his 2002 tax return (filed electronically) and which also prove that
Mr. Noiseux did not declare the revenue he received from the Cooperative.
[10]
In light of all of this evidence, and especially
in light of Mr. Noiseux's own admission to Ms. Mercier, I reject the
appellant's argument that the respondent failed to discharge the burden of
proof to show, based on the preponderance of evidence, that Mr. Noiseux
received $27,250 in revenue from the Cooperative in 2002. I therefore also
find that Mr. Noiseux, a former university professor, should have known
that sums from a commercial enterprise are taxable, or in case of doubt, he
should have consulted a tax expert regarding the matter, and that his failure to
declare this revenue was due, at minimum, to negligence.
[11]
For all of these reasons, the appeal is
dismissed.
Signed at Ottawa, Canada, this 1st day of
March 2016.
"B. Paris"
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