Alain Rhéaume v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2903

Garon, T.C.C.J.:—These appeals are governed by the informal procedure.

In the appellant's case, these are appeals from reassessments of income tax for the 1988 and 1989 taxation years. In those reassessments, the Minister of National Revenue added to the income reported by the appellant certain sums for the taxation years in question, as indicated in the following table:

According to the Minister of National Revenue, the appellant failed to report the amounts he received in cash from his employer during the two years in question.

During the years in issue, the appellant was employeed by Charron Excavation Inc. ("Charron Excavation”) as a truck driver. T4 slips representing wages which the appellant was paid by cheque were sent out in the appellants name by Charron Excavation. The wages mentioned on the T4 slips were included by the appellant in his income tax returns for the years in question.

The appellant testified on his own behalf. He stated that he had not received cash amounts except in two types of circumstances. He acknowledged that he had received "Christmas" bonuses, which he estimated at approximately $200 in 1988 and $400 or $500 in 1989. In addition, he received small amounts from his employer when he was reimbursed by the latter for cash advances which he had agreed to make at his employer's request for the purchase of certain materials or parts for the purposes of that employer's business. This situation in which the appellant made advances might nave occurred once in 1988, the appellant having started to work for Charron Excavation only in August 1988, and perhaps some 10 times in 1989. He was absolutely categorical in stating that he had received no cash amount as earnings for his work in addition to his pay cheques.

He also mentioned without any hesitation that he had worked more than 45 hours in one given week, and much more than 45 hours on many occasions, but that he received no additional amount for those hours of work. The appellant received a very good hourly wage compared to that of his previous employment, and, in accordance with his agreement with Mr. Daniel Charron, he could not claim anything in addition to his earnings calculated on the basis of 45 hours per week. The appellant also stated at his meeting with Mr. Ledoux and another Department of Revenue Canada official that he wanted to show his bank books, his deposits, his withdrawals and to inform them of his borrowings, in particular from his father and from his girlfriend’s mother, in order to show that he had not received the cash amounts that were added to his income in the assessments under appeal. He also explained that, for eight weeks in 1989, his pay cheques were totally deposited and that he supported himself during that period on his girlfriend’s employment income. He reduced his expenses to a minimum, he said,"so that I would be able to get my loan for my house” [translation]. The Department of National Revenue officials, he added, did not want to examine and analyze this documentation.

Mr. Michel Ledoux, an investigator with the Special Investigations Section of Revenue Canada, conducted a full-scale investigation into the activities of Charron Excavation for the respondent. A warrant was executed at that company's offices in July 1989, and documents were seized. In particular, daily time sheets for each of the employees were discovered. Handwritten sheets also showed that part of the earnings of some employees had been paid in cash. The normal pay week at Charron Excavation was 45 hours, at least for certain employment classes, including that of the appellant. The cheques issued for the normal number of hours (45) were entered in the pay records. He also explained that Mrs. Valiquette had informed him that she did the necessary calculations, entered the hours on a calculator tape, put the tape into an envelope, wrote the name of the individual on the envelope and handed the envelope over to Mrs. Sylvie Charron. The sealed envelope was later returned to Mrs. Valiquette. The latter could see that there was something in the envelope, but she could not determine the nature of its contents. She attached the pay cheque to that sealed envelope and gave the whole to the employee who was required to sign to acknowledge receipt of it. Mr. Ledoux also confirmed the appellant's remarks that he had, at the relevant time, offered to provide the officials concerned from the Department of National Revenue with access to his personal documentation concerning his financial situation for the years in issue, but that the latter decided not to accept that offer.

Mrs. France Valiquette also testified for the respondent. During the years in issue, she was secretary to Messrs. Léopold and Daniel Charron, respectively president and vice-president of Charron Excavation. She had been in the service of that company since roughly 1980. In this capacity as secretary, she prepared the pay cheques after first calculating the employees' hours for a given week with the aid of the employees' daily time sheets. She then prepared the cheques for a given employee on the basis of 45 hours of work. She confirmed that the surplus hours were recorded on a calculator tape, which she handed over to Mrs. Sylvie Charron. Mrs. Valiquette believed that this method of payment applied to all the employees. She also confirmed the existence of the reserve or "bank" of hours which was established for the number of hours that exceeded the normal 45-hour week. These overtime hours were recorded by this witness on a detachable sheet. These sheets relating to the calculation of the appellant's hours were filed jointly during the hearing. She also mentioned that she did not know what use Mrs. Charron made of the information appearing on the calculator tape. The employees had to sign a sheet to acknowledge receipt of the pay cheque. She seemed to say that the employees also received an envelope at the same time as their pay cheques.

For her part, Mrs. Sylvie Charron, who was the daughter of the president and sister of the vice-president of Charron Excavation, testified that Charron Excavation's employees were paid both by cheque and in cash. An employee was paid basic remuneration, that is to say for 45 hours of work in a given week, by cheque. The surplus hours exceeding 45 hours were recorded and constituted a "bank" of hours. Thus, an employee could accumulate hours so as to be able to receive remuneration, for example, for rainy days. Employees were paid for these surplus hours in cash. The cash amounts were inserted in an envelope and handed over to the employees by a receptionist. The pays in the form of cheques and the envelopes were stapled together. Mrs. Charron stated categorically that the appellant, like the other employees, had received amounts in cash. Her testimony on certain points was contradicted by that of Mrs. Valiquette.

Analysis

The appellant appeared to me an entirely credible witness. Perhaps it is only he, among the persons who testified, who knows whether he received amounts in cash for the working hours which, in any given week, exceeded the normal number of working hours, which was 45 hours, for the type of employment which he held. He provided valid explanations on the subject of the aspects of his conditions of employment which appeared, at first sight, uncommon or unusual. He also offered, in the course of a meeting with the Department of National Revenue officials, to provide all the details of his personal financial situation and to give information on the subject of his lifestyle at the relevant time. I accept without hesitation his statement that he did not receive earnings in cash with respect to the working hours exceeding the normal working hours in a given week during the two years in issue. As to the testimony of Mrs. Valiquette, it did not contradict that of the appellant. Mrs. Valiquette, who was still in the service of Charron Excavation at the time these appeals were heard, said that she could not determine the contents of the envelope which was handed over to a given employee each week. In Mrs. Charron's case, I have doubts as to the credibility of her testimony. Some of her answers seemed to me evasive, and she appeared at other moments to be quite categorical on events which had taken place three or four years previously.

As regards the testimony of Mr. Ledoux, I do not doubt his sincerity, but it was only by deduction that he was able to state that the appellant had received cash amounts as remuneration for the hours exceeding the normal hours of work in a given week. In my view, he did not attach sufficient importance to the explanations provided by the appellant. The officials concerned from the Department of National Revenue should have accepted the offer made by the appellant to provide additional information concerning his personal financial situation. In my view, Mr. Ledoux did not adequately consider the possibility that particular situations which did not fit in with the overall plan established by Charron Excavation could exist in the remuneration system set up by the employer to evade tax. It was certainly not impossible in this factual context that money apparently intended for certain persons could fall into the hands of others or be intercepted along the way. At all events, I do not have to determine exactly what happened for the purposes of these appeals.

I therefore come to this conclusion on the facts that the appellant did not receive the sums added to his income by the assessments under appeal.

For these reasons, the appeals are allowed, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessments on the basis that the appellant did not receive any cash earnings for his working hours exceeding in a given week the normal number of hours in the course of the years 1988 and 1989.

Appeal allowed.