Raymond Plante v. Minister of National Revenue, [1985] 1 CTC 2098, 85 DTC 117

Cardin, TCJ:—The appeal of Raymond Plante is against tax assessments for the 1970-1973 taxation years inclusive. By notices of reassessment dated May 11, 1977, the respondent added to the appellant’s income for each of the years at issue the following amounts:

The respondent further imposed penalties in the following amounts:

For the 1973 taxation year, the point at issue in this appeal was heard jointly with the appeals of André Perrault and Jean-Paul Bérubé on November 2, 1982. The amounts at issue affecting Raymond Plante for 1973, namely additional income of $2,805 and a penalty of $110.21, were dealt with in a separate hearing and judgment, the reasons for judgment in which are attached hereto as Appendix A. This case accordingly concerns the 1970, 1971 and 1972 taxation years.

As argued by counsel for the appellant, the assessments for 1970 and 1971 are prescribed, as they were made over four years after the first assessments were made. The respondent admitted that the 1970 and 1971 taxation years are prescribed, but relying on paragraph 152(4)(a) of the Income Tax Act, RSC 1952, c 148, applicable in the 1970 and 1971 taxation years, he assumed the burden of showing that the appellant in filing his tax returns or in providing information under the Income Tax Act had made a misrepresentation or committed fraud. He maintained that if the respondent succeeds in showing that the appellant made a misrepresentation or committed fraud, the appellant will then have to show that the Minister’s assessment is incorrect in fact or in law. The respondent cited a decision of Cameron, J of the Exchequer Court of Canada, in MNR v Maurice Taylor, [1961] CTC 211; 61 DTC 1139, at 214 [1141-42], and Edward Djoboulian v MNR, [1979] CTC 2074; 79 DTC 87. These two cases confirm the validity of this submission. The respondent further alleged that even an inadvertent misrepresentation by a taxpayer is sufficient to allow the Minister to reopen the prescribed years, if the taxpayer was negligent. For this proposition counsel for the respondent cited, inter alia, Lodie Saykaly v MNR, [1976] CTC 702; 76 DTC 6440, where at 706 [6443] Marceau, J said:

I think that her “misrepresentation” was innocent, she was not aware of it, but it has been held repeatedly that a “misrepresentation”, though innocent, justifies the Minister in proceeding with re-assessment at any time.

In his submissions, counsel for the appellant did not address these points directly, but alleged that the Minister had not acted with all due dispatch within the meaning of subsection 152(1), by assessing the appellant in 1977 when in 1973 he had available, as the result of a special investigation, all the information required to undertake assessments of the appellant for 1970 and 1971. He further submitted that the respondent had not succeeded in showing the court that the appellant had made any default or misrepresentation in his tax returns for 1970 and 1971. The appellant concluded that the respondent could not take advantage of what he regarded as an exception contained in subsection 152(4) of the Act.

Subsection 152(4), in allowing the Minister to undertake reassessments “if the taxpayer . . . has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying information under this Act . . .”, does not place any time limit on the Minister in making a reassessment. The Minister may make reassessments in these circumstances “at any time”. I cannot agree with the appellant’s interpretation in this regard. Furthermore, it was established that throughout this matter, the Minister had to proceed not only by a special investigation but by a commission of inquiry, leading in the end to a criminal prosecution against André Perrault, which is involved in the appeal now before the Court. Though the appellant’s interpretation had to be considered, no evidence was presented that, by exercising all due dispatch in examining the appellant’s tax returns for the 1970 and 1971 taxation years, the Minister could have made reassessments within the deadline prescribed by the Act.

It was further alleged that the respondent did not establish that the appellant made misrepresentations or committed fraud in his tax returns or in the information supplied for 1970 and 1971 pursuant to the Income Tax Act. Although in law there is an important distinction to be made between the burden on the respondent to establish that there was misrepresentation or fraud by the appellant in his 1970 and 1971 tax returns, and the burden on the appellant to show that the Minister’s assessments for 1970, 1971 and 1972 are incorrect, these are two different aspects of the same facts which can only be considered together — that is, the substance of the case. In the respondent’s view, the amounts added to the appellant’s income in 1970, 1971 and 1972 are income received by the appellant but not reported. In the appellant’s view, these amounts are not income but amounts which he received as an agent or fiduciary to make payments to third parties, including Gérard Pellerin. It is the appellant’s evidence in rebuttal which will establish whether there was misrepresentation in the tax returns for 1970 and 1971. For 1972, the appellant will have to present evidence in support of his submission.

In the taxation years at issue, the appellant was a shareholder of Immarco Ltée and FINOQ Inc. He was also a real estate broker for Habitations Noël Inc and was the manager of certain buildings located at Chapais, under the orders of André Perrault.

I propose to consider first the evidence presented by the respondent, for the purpose of establishing whether there was a misrepresentation or fraud by the appellant within the meaning of subsection 152(4) of the Act for 1970 and 1971. I will then consider the appellant’s evidence in rebuttal for 1970 and 1971 and his evidence for the 1972 taxation year.

The source of the appellant’s reassessment for 1970, 1971 and 1972 is the result of a special investigation carried out by Claude Engelhart, an investigator for the Department of National Revenue. It was a far-reaching investigation in which fictitious real estate transactions by Immarco Ltée and Habitations Noël were audited.

For the 1970 taxation year the investigator recorded a series of cheques amounting to $1,634.85, payable to Raymond Plante, endorsed by him and deposited in his personal account No 512. According to the appellant, all these cheques were to reimburse him for expenses he had incurred in the course of his duties. However, only one cheque in the amount of $100, dated September 1, 1970, is marked “travel expenses”. Neither during the investigation nor at the hearing of the case was the appellant able to clearly establish that the amount of $1,634 was received by him as travel expenses, and he could not explain the nature or purpose of such travel.

Counsel for the appellant told the Court that a mistake has been made in preparing form T7Wc for 1970. The said form showed that cheques in the amount of $1,634.85 were issued to the appellant by Habitations Noël Inc, when in fact the cheques were issued by Immarco Ltée. Counsel for the respondent addmitted the error, but explained that it was a clerical error which could not be detrimental to the appellant’s case. The point is whether the amount of the cheques was, or was not, income for the appellant, and not which of the two corporations issued the cheques. The Court accepts this correction by the respondent, which does not affect the outcome of the case (Exhibit I-1).

The investigator recorded three series of cheques for 1971. The first consisted of cheques issued by Immarco payable to Raymond Plante, totalling $9,214.60 (Exhibit I-15). Of this amount, however, only $6,746.73 was added to the appellant’s income, as the investigator concluded that the amounts on the books beside which there was an “S” were interpreted by the respondent as meaning “salary”.

The second series of cheques amounting to $6,425, issued by Habitations Noël and payable to the appellant, were regarded as commissions received by the appellant. Moreover, the appellant did not dispute this part of the assessment for 1971. He stated that he had received $6,442.50 from Habitations Noël Inc as commissions (Exhibit I-15). All these amounts were deposited in the appellant’s personal account, No 10527.

The third series of cheques recorded is set out in Exhibit I-17. These cheques, issued by Habitations Noël Inc and paid to various people, in the amount of $9,348.17, were debited on the books to the “building management” account. Deducting building income, $2,860.73, from this amount left a balance of $6,487.44. The investigator concluded that these were the appellant’s personal expenses, paid by Habitations Noël. In the company’s ledger (Exhibit 21) the “building management” account was credited with an amount equal to the balance, namely $6,487.44, and Raymond Plante’s “salary” account was debited with the same amount.

For 1972, the investigator recorded a series of cheques totalling $5,300 issued by Habitations Noël Inc and payable to Raymond Plante (Exhibit I-16). The amounts were debited to the company’s s “salary” account, according to an analysis made by the Minister’s investigator. In 1972 the appellant reported receiving $650 as commissions from Habitations Noël. The difference between $5,300 (the amounts of the cheques issued by Habitations Noël payable to Raymond Plante) and the amount of $650 reported by the appellant as being received as commissions ($4,650) was added to the amount of income reported by the appellant in 1972.

On another point, the income reported by the appellant as indicated in his tax returns for the years at issue is unrealistic. For 1970, the appellant reported a total of $3,862.73 at a time when he was claiming a deduction for three dependants (Exhibit I-18). For 1971, the net reported income amounted to $5,838.95, and in 1972 his income totalled $4,621.39. The amounts of income reported by the appellant, who in addition to being a shareholder of Immarco Ltee and FINOQ was also a real estate broker for Habitations Noël and managed certain buildings at Chapais for André Perrault, are quite simply not believable. Even if allowance is made for the fact that the appellant’s wife contributed to the family income by working as a cashier, it would have been impossible for the appellant to support a family with the amounts of income reported by him. The appellant’s credibility is an important factor in deciding this appeal, and cannot but be weakened by such statements.

In his evidence in rebuttal, counsel for the appellant called Raymond Plante (the appellant) and André Perrault. For 1970 the appellant alleged that the cheques for $1,634.85, issued by Immarco Ltée and payable to himself (Exhibit I-14), were given in return for receipts for expenses incurred by him and issued to Immarco. He maintained that no evidence of such expenses could be provided by the appellant, since the Immarco documents had been seized, including the documentation which the appellant alleged exists. It was established that the investigator, Mr Englehart, at the very beginning of his investigation, warned the appellant that the Minister proposed to include this amount of $1,634.85 in his 1970 income, and asked for explanations and/or documentation of the expenses alleged by the appellant. No explanation was given and no documentation produced by the appellant, at a time when such information would have been both available and useful. In my opinion, the Minister was justified on the evidence in adding the cheques payable to the appellant, amounting to $1,634.85, to the appellant’s income for the 1970 taxation year.

The appellant did not dispute that the cheques amounting to $6,425.89, payable to him and issued by Habitations Noël Ltée, were deposited by him as commission in 1971. The respondent admitted that this amount had been reported by the appellant.

However, the appellant disputed that the amount of $6,746.34 paid to him by Immarco Ltée should be regarded by the Minister as income. The series of cheques issued by Immarco to Raymond Plante in 1971 totalled $9,214.36 (Exhibit I-15). The appellant appeared to be complaining that the respondent took from this amount the sum of $6,746.34 for tax purposes, as salary. He submitted that the respondent was not consistent in the way in which the various assessments were made, and that in his deposition Mr Englehart stated that he had taken only the amounts of the cheques paid to Raymond Plante and entered in Immarco’s books for 1971 as salary (Exhibit I-11).

In Immarco’s books (Exhibit I-11) there is an “S” beside the names of various people, including Raymond Plante, who received most of the cheques. Mr Englehart interpreted this “S” as meaning “salary”. In his testimony Mr André Perrault, who was responsible for keeping the books of Immarco Ltée, did not appear to be certain what the “S” meant: he finally indicated that for all the others whose names were entered in the book (Exhibit I-11), the “S” meant salary, but it did not mean the same thing for the appellant Raymond Plante. The witness Perrault said that the “S” could perhaps have meant “subcontractor”. There was no evidence that Raymond Plante at any time had a subcontract with Immarco Ltée, or that he had paid these amounts to subcontractors. On the evidence, the investigator was justified in regarding the cheques amounting to $6,746.34 as salary received by the appellant from Immarco in 1971 and not reported.

The third series of cheques involved in the case were issued by habitations Noël Inc and payable to various persons or companies, totalling $9,348.17 (Exhibit 1-17). Looking at Exhibit I-17, it will be seen that after adjusting the income from Habitations Noël for the amount of $2,860.73 the sum of $6,487.73 remains. This amount was credited to the “building management” account in the books of Habitations Noël Inc, and Raymond Plante’s “salary” account was debited for the same amount of $6,478.73, as appears in the company’s ledger (Exhibit 1-21).

The investigator concluded that this was a way for the appellant to have his personal expenses paid by Habitations Noël Inc. In his testimony André Perrault, who was also responsible for keeping the books of Habitations Noël Inc, stated that this might have been a wrong entry in the books. Counsel for the appellant admitted that there could have been an accounting error. Since the Court allowed the respondent to correct an error by amending its form T7WC, he suggested that it might do as much for the appellant by allowing him to correct his error. Even if the court allowed him to correct a so-called intercepted error, which it has no intention of doing, the appellant did not indicate the nature of the correction that would be necessary in the circumstances.

Unlike the error made by the respondent in preparing form T7WC, which does not actually affect the substance of the case, the correction which the appellant would like to make is at the heart of the case, and the Court could not allow such a correction without having before it much more evidence than the appellant was able to produce.

In view of these facts, I conclude that the investigator was justified in regarding the amount of $6,487.73, received by the appellant in 1971 from Habitations Noël Inc, as salary which he did not report in his income.

For the 1972 taxation year, the appellant had the burden of showing that the Minister’s assessment was incorrect. The 1972 assessment was based on a series of cheques issued to Raymond Plante by Habitations Noël Inc, amounting to $5,300, deposited by him in his personal account with the Canadian Imperial Bank of Commerce, No 10679 (Exhibit I-16). The investigator, Mr Englehart, showed that all these amounts were debited to the “salary” account in the books of Habitations Noël Inc. In his tax return for 1972 the appellant reported income from Habitations Noël Inc as commissions in the amount of $650, but included no other income from that source.

The appellant’s rebuttal evidence for 1970 and 1971, including his testimony and that of André Perrault, which was filled with vague responses and anomalies, was unable to rebut the testimony of Mr Englehart, which was corroborated by an extensive and persuasive documentation, taken primarily from the books of the companies involved in this case. The appellant also was unable to establish that the respondent’s assessment for the 1972 taxation year was incorrect in fact or in law. He further failed to show in what way the Minister’s assessments for 1970 and 1971 were incorrect. The respondent’s evidence overall clearly showed that the appellant had neglected to include all his income in his tax returns for 1970, 1971 and 1972. The respondent was justified in imposing a penalty for each of those years, under subsection 163(2) of the Act.

For these reasons, the appeals for 1970, 1971 and 1972 are dismissed.

Appeals dismissed.