REASONS FOR JUDGMENT
D’Auray J.
Background
[1]
In this appeal, the Minister
of National Revenue (the Minister) reassessed the appellant adding to his
income the amounts of $308,000 for the 2005 taxation year and $786,944 for the
2006 taxation year as business income.
[2]
According to the Minister,
this income resulted from the sale of immovables (immovables at issue) by the
appellant during the 2005 and 2006 taxation years.
[3]
The Minister did not assess
the 2005 taxation year within the three‑year time limit set out in
subsection 152(4) of the Income Tax Act (the Act).
[4]
The Minister also assessed
penalties under subsection 163(2) of the Act for the 2005 and 2006 taxation
years.
[5]
In the Reply to the Notice
of Appeal filed with this Court, the Minister assumed the following facts in
making the assessments for the 2005 and 2006 taxation years:
[Translation]
(a) During the 2005 and 2006 taxation years,
the appellant was receiving social assistance benefits;
(b) Although the appellant received social
assistance benefits, his regular activities were to purchase immovables in
order to resell them at a profit;
(c) Thus, during the 2005 and 2006 taxation
years, the appellant personally purchased and sold, at a profit, seven immovables,
as shown in the following table:
|
Address
|
Date of purchase
|
Adjusted cost base
|
Dates of sale
|
Proceeds of disposition
|
Net profit
|
|
5626 Normanville, Montréal
|
06/06/2005
|
$170,000
|
08/12/2005
|
$295,000
|
$125,000
|
|
11452 Notre-Dame, Montréal
|
29/06/2005
|
$160,000
|
08/09/2005
|
$343,000
|
$183,000
|
|
|
|
|
Address
|
Date of purchase
|
Adjusted cost base
|
Dates of sale
|
Proceeds of disposition
|
Net profit
|
|
2331 Ontario Street, Montréal
|
15/12/2005
|
$30,000
|
04/07/2006
|
$235,000
|
$205,000
|
|
3171 Adam Street, Montréal
|
21/12/2005
|
$75,000
|
17/03/2006
|
$235,000
|
$160,000
|
|
11305 Dorchester, Montréal
|
24/11/2005
|
$178,056
|
27/03/2006
|
$300,000
|
$121,944
|
|
215 Gentilly Street, Longueuil
|
09/09/2005
|
$170,000
|
13/01/2005
|
$360,000
|
$190,000
|
|
101 De la Grande-Allée, Montréal
|
08/09/2005
|
$55,000
|
17/04/2006
|
$165,000
|
$110,000
|
|
|
|
(d) The appellant took out significant loans in
order to finance each of these purchases;
(e) The average period the appellant held an
immovable was 4.9 months;
(f) The appellant’s intention was to make a
profit when he resold the immovables;
(g) The appellant did not seek to earn rental
income from the immovables;
(h) All of the deeds of purchase and sale were
signed by the appellant;
(i) The taxpayer was not a victim of identity
theft.
[6]
In addition, at paragraph 22
of the Reply to the Notice of Appeal, the respondent also relied on the
following facts:
[Translation]
(a) In addition to the aforementioned
immovables, the appellant personally purchased for $120,000, the immovable
located at 1025-1027 48th Avenue in Montréal, on June 1, 2005;
(b) On August 25, 2005, the appellant sold that
immovable for $280,000;
(c) The appellant did not live in any of the
eight immovables at issue;
(d) The deeds of purchase, of sale and of loan
for the eight immovables at issue were notarized by the same notary and they
were all signed by the appellant;
(e) The appellant opened a bank account at the
Caisse populaire Desjardins Saint‑Pierre‑Apôtre in Longueuil on
November 8, 2005;
(f) The bank transactions related to most of the
immovable transactions were made in that bank account by the appellant or by an
agent authorized by the appellant.
[7]
Alternatively, the
respondent also argued at paragraph 23 of the Reply to the Notice of Appeal
that, if the appellant had not personally purchased or sold these immovables,
the Deputy Attorney General of Canada then relied on the following facts:
[Translation]
(a) The transactions are part of a fraudulent
immovable transaction scheme more commonly known as “property flipping”;
(d) The appellant took part in the scheme by
following the steps described below for each of the immovables at issue:
(c) The appellant agrees to be a nominee for the
purchase of an immovable at a low price;
(d) To finance the purchase of the immovable,
the appellant obtains a loan from an individual, which is repayable within one
year;
(e) The lender knowingly takes part in the
scheme;
(f) Until the loan is completely repaid, only
interest payments are owed and payable each month;
(g) The interest is, at least partly, the lender’s
remuneration for his participation in the scheme;
(h) A few months after the immovable is bought,
the appellant again agrees to be a nominee for the resale of the same immovable
to a buyer with whom he is in collusion, at a cost higher than fair market
value;
(i) The buyer of the immovable obtains from a
financial institution a hypothecary loan that is over-valued compared with the
fair market value of the immovable;
(j) After those transactions are performed,
the appellant agrees to be a nominee for cashing the difference between the
hypothec amount and the price paid to the original seller;
(k) The income obtained in that way is not
reported by anyone to the tax authorities;
(l) After a few months, the buyer stops
repaying the hypothecary loan held by the financial institution;
(m) Hypothecary remedies are therefore
undertaken by the financial institution against the buyer;
(n) Several individuals, including the
appellant, knowingly act as nominees at various stages of the scheme;
(o) The appellant received significant amounts
of money as consideration for the services he rendered as a nominee in the
transactions.
Issues
[8]
Did the Minister correctly
include the amounts of $308,000 for the 2005 taxation year and $786,944 for the
2006 taxation year as business income under subsection 9(1) of the Act?
[9]
Was the Minister able to
assess the 2005 taxation year under subparagraph 152(4)(a)(i) of
the Act, that is, after the normal reassessment period?
[10]
Was the Minister able to assess penalties under
subsection 163(2) of the Act for the 2005 and 2006 taxation years?
Burden of proof
[11]
In tax matters, the burden
of proof is on the taxpayer. He
must rebut the Minister’s assumptions. Thus,
in this appeal, the appellant must prove that the Minister incorrectly added to
his income the amounts related to the sale of immovables.
[12]
With regard to the 2005
taxation year, the Minister assessed the appellant past the normal reassessment
period. Thus, the assessment
will be valid if the respondent proves that the appellant has made a
misrepresentation that is attributable to neglect, carelessness or wilful
default or has committed any fraud in filing his tax return for the 2005
taxation year.
[13]
The respondent must also
prove that the Minister correctly assessed the penalties based on subsection
163(2) of the Act. The
respondent must establish that the appellant knowingly, or under circumstances
amounting to gross negligence, has made a false statement or omission in his
tax returns for the 2005 and 2006 taxation years.
Evidence and parties’ positions
[14]
The appellant argues that
the immovable transactions at issue were made without his knowledge. He submits that he never purchased or
sold the immovables at issue and that he did not sign the deeds of purchase,
sale and hypothec. According to the appellant,
someone forged his signature on the deeds.
[15]
In addition, the appellant stated
that he does not know Mr. Brassard, the notary who executed the notarial
deeds of purchase, sale and hypothec respecting the immovables at issue.
[16]
The appellant indicated that,
between 2006 and 2008, his wallet containing all of his ID cards was stolen or
lost. According to the
appellant, this could explain why his name is on the deeds respecting the
immovables at issue. The appellant is allegedly
a victim of identity theft.
[17]
The appellant purportedly
found out that a person was using his identity in October 2010, when he received
an electricity bill from Hydro Québec for $3,800 for the immovables at issue. In order for the electricity to stay on,
the appellant paid this amount to Hydro Québec.
[18]
The appellant also indicated
that he had learned during that same period, that is, in October 2010, that
Revenu Québec had added to his income for the 2005 and 2006 taxation years, the
amounts resulting from the sale of the immovables at issue.
[19]
The appellant then went to
the office of his MP, Ms. Weil. Mr. McMahon, Ms. Weil’s political
advisor, assisted the appellant with dealing with organizations including Revenu
Québec.
[20]
The appellant’s file with
Revenu Québec was closed, because he had not filed notices of objection to the
assessments for the 2005 and 2006 taxation years. That being said, towards the end of 2010 or the start of
2011, Revenu Québec agreed to conduct an administrative review of the appellant’s
file.
[21]
On February 28, 2011, Mr.
McMahon went with the appellant to file a complaint with the Service de Police
de la Ville de Montréal (SPVM) for identity theft.
[22]
The appellant took several
measures with the Caisses
populaires Desjardins (CPD) in
order to obtain information on a bank account. According to the appellant, a bank account was opened
without his knowledge at the Longueuil branch of the CPD.
[23]
The appellant contacted the Chambre des notaires to obtain copies of the notarial deeds relating to the
immovables at issue and to request an investigation of the immovable
transactions concerning the immovables at issue.
[24]
Copies of the bank
transactions in the bank account at the Longueuil CPD were provided to the
appellant. The Chambre des notaires also provided to the appellant copies of the notarial
deeds for some of the immovables at issue.
[25]
However, for lack of
evidence, the SPVM closed the appellant’s file in 2011.
[26]
After an administrative
review of the file, Revenu Québec did not revise the assessments made in
respect of the appellant for the 2005 and 2006 taxation years.
[27]
In September 2011, a member
of CPD’s security team, Mr. Champagne, suggested to the appellant that he could
have been a nominee in an immovable buying and selling scheme, which the
appellant vigorously denied. At that point, the appellant stopped all contact
with Mr. Champagne.
[28]
On January 31, 2013, considering the file to be
unfounded, the Chambre des notaires closed the appellant’s file. It should be
noted that, in a letter to the appellant dated October 24, 2012, the
Assistant Syndic of the Chambre des notaires, Maryse Laliberté, wrote the following:
[Translation]
You have stated
that your identity had been stolen. However, the notary and the notary’s
secretary attest that you were indeed the person on the driver’s licence on
record, who came in to the notary’s office several times to sign documents.
. . .
[29]
The respondent submits that it is the appellant’s
signature that is on the notarial deeds concerning the immovables at issue. She
argues that, on the basis of the oral and documentary evidence presented at the
hearing, in 2005, the appellant purchased eight immovables and sold three of
them, and in 2006, the appellant sold five of them. The Minister of National
Revenue, therefore, correctly included in the appellant’s income the amounts of
$308,000 for the 2005 taxation year and $786,944 for the 2006 taxation year as
business income.
[30]
The respondent called as a witness Mr. Brassard,
the notary who executed the deeds concerning the immovables at issue. Mr.
Brassard explained that when he signs notarial deeds, he is required to obtain
proof of identity from signers. The appellant used his driver’s licence for
this purpose. Therefore, a copy of the appellant’s driver’s licence was always on
file.
[31]
The respondent filed in evidence the driver’s
licence photo, which is of the appellant. The licence was issued by the Société
de l’assurance automobile du Québec on June 14, 2002, and expired on June 10,
2006.
[32]
Mr. Brassard also identified the appellant as
the person who came to his office to sign the notarial deeds.
[33]
Christiane Auger also testified. She is Mr.
Bélanger’s spouse, and since 2003, she has been Mr. Bélanger’s assistant. Ms. Auger
also identified the appellant as the person who came to Mr. Bélanger’s office
several times to sign notarial deeds concerning the immovables at issue.
[34]
Daniel Perreault testified that he was a victim
of an immovable buying and selling scheme. He indicated that his brother Gaétan
Perreault convinced him that he could earn income by purchasing an immovable on
Notre-Dame Street East in Montréal. His brother Gaétan told him that the
immovable would be resold to a third buyer and at the time of that sale, he
would receive commission. Unknowingly, Daniel Perreault became a hypothecary
debtor for an amount that was, according to the CPD, much higher than the
immovable’s value.
[35]
Mr. Perreault identified the appellant as the seller
of the immovable on Notre‑Dame Street East in Montréal. He stated
that the appellant was at Mr. Brassard’s office at the time of the
transaction.
[36]
On April 4, 2006, Daniel Perreault filed with
the Superior Court of Québec (SCQ) a motion to institute proceedings against
several defendants including the appellant. In the motion, Daniel Perreault
sought, among other things, that the sale of the immovable become null and void
and that the amounts related to the sale be repaid to him. Daniel Perreault
declared bankruptcy. Consequently, the motion before the SCQ did not proceed.
[37]
Daniel Perreault also testified that he had done
renovation work for his brother Gaétan Perreault in July-August 2005, and at
that time, the appellant also worked for his brother.
[38]
The respondent also called as a witness Julie
Binette as a handwriting analysis expert. Ms. Binette is a Forensic
Document Examiner with the Canada Border Services Agency (CBSA). Ms. Binette
has a Bachelor of Science degree in chemistry from Sherbrooke University. After
winning the competition for the position of forensic document examiner at the
CBSA, Ms. Binette was mentored for four years in handwriting analysis and
document analysis. After completing her training and passing the exams, she
obtained a certificate allowing her do handwriting analysis in 2007 and
document analysis in 2011.
[39]
Ms. Binette has been a member of the Canadian
Society of Forensic Science since 2009. After the explanations she provided
about her training and experience in the field of handwriting analysis, I recognized
her as an expert in handwriting analysis. Therefore, she testified as a
handwriting analysis expert in this appeal.
[40]
Ms. Binette’s mandate was to compare the
appellant’s signature on the documents at issue, namely, the notarial deeds
executed by Mr. Brassard, with the specimens, namely, documents signed by the
appellant, such as the Notice of Motion, sworn statement, cheques, 2006 and
2007 tax returns, application for an extension of time, notice of objection,
letter to Ms. Beauchesne and witness statement to SPVM.
[41]
Ms. Binnette received copies of the notarial
deeds and the comparison specimens on January 14, 2013. On January 16, 2013,
Ms. Binette went to Mr. Brassard’s office to examine the originals of the
documents at issue. She examined the original of each deed of purchase, sale or
hypothec on site. She scanned the signature on each deed in high resolution.
[42]
With regard to the comparison specimens, Ms.
Binette received copies of the documents at her office on January 4, 2013. On
January 16, 2013, she also visited Revenu Québec in Montréal in order to
examine the original tax returns. She examined the appellant’s signature on the
original tax returns for 2005, 2006, 2007 and 2010. In addition, she scanned
the appellant’s signatures in high resolution. She also received from Revenu
Québec original comparison specimens in the form of tax returns for the 2008
and 2009 taxation years. With regard to cheques, Ms. Binette had the
originals. Ms. Binette then compared each specimen to each notarial deed.
[43]
Ms. Binette explained that, following the
handwriting analysis, a number of conclusions is possible: for example, a “match”
conclusion indicates that there is no doubt in the examiner’s mind that the writer
of the comparison specimens is the writer of the disputed writing. If the
examiner makes the “nonmatch” conclusion, there is no doubt in the examiner’s
mind that the writer of the comparison specimens is not the writer of the
disputed writing.
[44]
Other possible conclusions are “high likelihood
of a match” or “high likelihood of a nonmatch”.
[45]
A high likelihood of a match means that the indications
found support the argument that the same writer wrote the disputed writing and
that of the specimens. That conclusion provides a very strong indication that
only one writer is involved and the possibility that another writer may be
considered is negligible. A high likelihood of a nonmatch means that it is
highly likely that the disputed writing and that of the specimens were produced
by two different writers.
[46]
In this appeal, Ms. Binette concluded that there
was a “match”, that is to say that, in comparing the specimens signed by the
appellant to the documents at issue, there is no doubt that the writer of the
comparison specimens, namely, the appellant, produced the signatures on documents
L-1 to L-17, L-19, L-22 and L‑23.
[47]
With regard to documents L-18, L-20 and L-21,
Ms. Binette concluded that there is a high likelihood of a match, that is,
there is a good indication that only one writer is involved, and the
possibility that another writer may be considered is negligible. According to
Ms. Binette, it is very likely that it is the appellant’s signature on
documents L-18, L-20 and L-21.
[48]
Ms. Binette explained that the work of a
forensic examiner is always reviewed by a colleague who is also a forensic
examiner. Her colleague allegedly concluded that it was a “match” for all of
the documents.
Analysis
[49]
In a tax case, the onus is on the appellant to
demolish the Minister’s assumptions.
[50]
It is difficult for me to not question the
appellant’s credibility, given the testimony of Mr. Brassard, his assistant Ms.
Auger and Daniel Perreault. These three people identified the appellant as the
person who participated in the immovable transactions related to the immovables
at issue.
[51]
In addition, after comparing the writing on the
comparison specimens with the documents at issue L-1 to L-23, the handwriting
analysis expert, Ms. Binette, concluded that 20 of the 23 documents at issue, namely,
documents L-1 to L-17, L‑19, L-22 and L-23 were a “match” and the other
three, namely, L-18, L-20 and L‑21, had a high likelihood of a match. Consequently,
according to the expert, Ms. Binette, the appellant’s signature appears on
the documents at issue.
[52]
In addition, I noted some inconsistencies in the
appellant’s testimony:
(a) It
is noted that several immovable transactions took place in 2005. The appellant stated
that his ID cards were stolen or lost between 2006 and 2008. How could the loss
or theft of his ID cards between 2006 and 2008 have affected the immovable transactions
in 2005?
(b) It is also
difficult to understand why the appellant went to the SPVM only in 2011 to
report that he had been a victim of identity theft. Based on the evidence,
Revenu Québec assessed the appellant in 2008 for the sale of immovables at
issue. Why did the appellant not inform SPVM in 2008, as soon as he found out
that someone was using his identity? In addition, it is difficult to conceive
how a person could live without ID for such a long time.
(c) The
appellant testified at the hearing that he had learned that Revenu Québec had
assessed him around October 2010. However, it was filed in evidence that on
September 12, 2008, Revenu Québec sent the appellant a draft assessment adding
to his income $308,000 for 2005 and $786,944 for 2006 as business income for
the sale of the immovables at issue;
(d) Since the
appellant did not provide any comments to Revenu Québec regarding the draft
assessment, Revenu Québec made an assessment dated December 22, 2008;
(e) At
the hearing, the appellant did not indicate that he had not received the draft
or the notice of assessment from Revenu Québec in 2008. He stated that he had
not filed a notice of objection because he had been under the impression that
Revenu Québec had the burden of proving that he had made the immovable
transactions;
(f) In addition, the appellant filed in evidence Exhibit A-8, Motion to
Institute Proceedings filed with the SCQ by Daniel Perreault. The motion is
dated April 4, 2006. The appellant was one of the defendants. Thus, the
appellant was probably informed of this lawsuit well before 2010. As the
plaintiff, Daniel Perreault, argued that the appellant had served as a nominee
for the sale of the immovable on Notre-Dame Street East in Montréal. It is
therefore difficult to believe the appellant when he says that he found out
about the immovable transactions only in October 2010.
(g) In
addition, at the hearing, he stated that, during the years at issue, he did not
live with his spouse and had no fixed residence. However, in his tax returns
from 2005 to 2010, he stated that his spouse was Ms. Reeves. In addition,
the addresses used by the appellant were the same as those of his spouse. Surprisingly,
the appellant stated that he had paid part of Hydro Québec’s bill for the
immovables at issue in order to protect his children: he did not want Hydro
Québec to cut off the electricity. Based on the appellant’s tax returns and on
the evidence, his children did not live in the immovables at issue.
(h) The
appellant also stated that he could not open bank accounts since he had no ID. He
used an account that he held together with his spouse and used her bank card
even though they lived separately.
(i) With respect to the 2005 to 2010 taxation years, he stated that he
had never worked and that his income came solely from social assistance
benefits. However, Daniel Perreault indicated that he had worked with him for
about two weeks in 2005.
[53]
In the light of the oral and documentary
evidence in this appeal, I am of the view that the Minister correctly assessed
the appellant for the 2005 and 2006 taxation years.
[54]
I am also of the view that the Minister could
assess the appellant for the 2005 taxation year outside the normal reassessment
period under subparagraph 152(4)(a)(i) of the Act. The appellant
knew that he did not report all of his income when he filed his income tax
return for the 2005 taxation year. The appellant did not include in his income
the amounts related to the sales of immovables in 2005. Three immovables were
sold in 2005 for $308,000. This constituted wilful default in the appellant’s
tax return for the 2005 taxation year.
[55]
I am also of the view that the Minister
correctly imposed penalties under subsection 163(2) of the Act.
[56]
As stated by Justice Strayer in Venne v.
Canada, [1984] FCJ No. 314, 84 DTC 6247, for subsection 163(2) of the Act
to apply, there must be “greater
neglect than simply a failure to use reasonable care. It must involve a high
degree of negligence tantamount to intentional acting, an indifference as to
whether the law is complied with or not”.
[57]
The evidence shows that the appellant
deliberately failed to report the amounts related to the sale of immovables
during the 2005 and 2006 taxation years. According to the notarial deeds, the
appellant sold three immovables in 2005 and five immovables in 2006. The
amounts resulting from these sales are considerable, namely, $308,000 for 2005
and $786,944 for 2006. The appellant’s explanations for not including these
amounts in computing his income for the 2005 and 2006 taxation years are not
credible.
[58]
Before I conclude, in the Reply to the
Notice of Appeal, the respondent alternatively submits that the appellant
participated in a scheme commonly known as “property flipping”. According to the witness Daniel Perreault, the people who
served as nominees received a lump sum of about $10,000 per transaction.
[59]
Since the
appellant did not admit that he had participated in the scheme and I do not
have the evidence needed to find that the appellant participated in the scheme
as a nominee, it is impossible for me to reduce the assessment amounts to take
into account that the appellant served as a nominee.
[60]
In addition, the
respondent also correctly argued that, if the appellant had raised the argument
that he had acted as a nominee, the notarial deeds should have been subject to
improbation under article 2821 of the Civil Code of Quebec, since the
deeds are authentic.
Disposition
[61]
For these reasons, the appeal is dismissed with
costs to the respondent.
Signed at Ottawa, Canada, this 23rd day of December, 2014.
“Johanne D’Auray”
Translation certified true
On this 18th day of June 2015
François Brunet, Revisor
Email this Content