Simard v. R., [1998] 3 CTC 2839

Tremblay T.C.J.:

This appeal was heard at Chicoutimi, Quebec, on October 16, 1997. Point at issue

According to the Notice of Appeal and Reply to the Notice of Appeal, the issue is whether the appellant was correct in not including in 1990, 1991 and 1992 the sums of $712, $7,610 and $6,026 respectively in computing his income and whether the respondent was correct in imposing penalties pursuant to s. 163(2) of the Income Tax Act (“the Act”). In the respondent’s submission, according to information received from the directors of the employer, namely the numbered company 2841-3185 Québec Inc., operating under the trade name Carl-Bec Enr. (“Carl-Bee”), this was pay for moonlighting.

For his part, the appellant maintained that he had reported his income in full. The shareholders of Carl-Bec Enr., Denis Lavoie and Rénald Dubé, had allegedly vanished. Following a complaint to the Office de la construction du Québec (“O.C.Q.”) and an investigation conducted by it, the appellant was allegedly paid $1,100 from a compensation fund. The credibility of the payer’s directors was very much in question. He said they owed him other money.

Burden of proof

The appellant has the burden of showing that the respondent’s assessments are incorrect. This burden of proof results from several judicial decisions, including a judgment by the Supreme Court of Canada in Johnston v. The Minister of National Revenue) [1]

In that judgment the Court held that the facts assumed by the respondent in support of the assessments or reassessments are also deemed to be true until the contrary is shown. In the instant case the facts assumed by the respondent are described in subparagraphs (a) to (h) of paragraph 4 of the Reply to the Notice of Appeal. That paragraph reads as follows:

[TRANSLATION]

4. In making these reassessments the Minister took into ‘account inter alia the following facts:

a. in the years under appeal the appellant was employed by the company 2841-3185 Quebec Inc., operating under the trade name CarlBec Enr. (“the employer”); [admitted]

b. in 1993 the Minister conducted an exhaustive inquiry into the employer’s affairs; [admitted]

c. this inquiry indicated that:

1. time cards and/or time sheets showing hours worked did not appear in the employer’s books; [not known]

ii. cheques were issued to pay employees who were paid [TRANSLATION] “under the table”; [denied]

iii. time paid for “under the table” was not entered in the employer’s books; [not known]

d. the employer’s directors told the Minister that this was in fact salary paid “under the table”; [not known]

e. T4 information sheets from the employer were compiled by the Minister; [not known]

f. following the audit the Minister added to the appellant’s employment income $712 for the 1990 taxation year, $7,610 for the 1991 taxation year and $6,026 for the 1992 taxation year; [admitted]

g. the appellant, knowingly or in circumstances amounting to gross negligence, made, participated in, assented to or acquiesced in the making of a false statement or omission in his tax returns for the 1990, 1991 and 1992 taxation years, with the consequence that the tax payable by the appellant, if it had been determined according to the information provided in his returns, would have been $200 less for the 1990 taxation year, $1,460.75 less for less than the 1991 taxation year and $1,027.37 less for the 1992 taxation year than the tax actually payable; [denied]

h. accordingly, the penalty imposed on the appellant under s. 163(2) of the Act amounts to an amount not less than $100 for the 1990 taxation year, $741.88 for the 1991 taxation year and $513.68 for the 1992 taxation year, [denied]

Facts in evidence

Following admission of the foregoing facts the evidence further consisted of the testimony of the appellant and of Sylvain Brisson and Richard Pelchat, the respondent’s investigators, and the filing of Exhibits A-1 to A-3 and 1-1 and 1-2.

The appellant is a maintenance carpenter by trade. In 1990, 1991 and 1992 he worked for the payer Carl-Bec Enr. from May-June until late fall, when construction work ended.

He worked as the person responsible for the site, namely as a foreman, and as such, he was supposed to receive $1.50 an hour more than tradesmen, pursuant to an agreement with the payer. However, he was never paid this amount. He also supplied tools which the payer did not have: hammer, tamper, ladders and so on; and he was also supposed to be paid for this and never received anything.

He said that during the years in question he received from the payer only $7,635 in 1990, $12,596 in 1991 and $10,158 in 1992. The appellant stated categorically that he never received any money for moonlighting: in any case it was not to his advantage. At his age, of over 60, he had every reason to work in accordance with requirements so he could later benefit from the pension scheme and all the fringe benefits.

In March 1993 he worked for the payer in Alma. He was promised that he would be paid the amounts owed on the extra pay of $1.50 an hour and the tool rental from the money received by the payer. While receiving unemployment insurance benefits he reported this salary to Employment and Immigration Canada. He accordingly received no unemployment insurance benefits for the week in question. Furthermore, the payer gave him a cheque which turned out to be an NSF cheque.

The appellant made a report to the Office de la construction du Québec. An O.C.Q. document filed as Exhibit A-3 summarizes the appellant’s complaint as follows: [TRANSLATION] “He is claiming vacation pay and related fringe benefits as well as pay for March 13 to 20, 1993, which was not paid at all”.

In his Notice of Appeal the appellant summarized what happened, as he explained to the Court:

[TRANSLATION]

For the amounts owed on my construction vacation in July 1993, this employer paid me only $79. I applied to the O.C.Q. I received a $1,100 payment from the O.C.Q. compensation fund. I have not yet received the amount payable in December 1993 for my winter vacation. The O.C.Q. compensation fund initiated an investigation to update the Les Entreprises Carl-Bec Enr. file and get its account in order.

The payroll for the work done in March 1993 was filed as Exhibit A-l. He received a cheque of $404.01 net. The gross amount was $808.44.

It appears from the O.C.Q. report dated August 25, 1997, filed as Exhibit A-2, that the appellant received the sum of $1,452.64 from the compensation fund.

The following extract from his Notice of Appeal clearly summarizes part of his testimony:

[TRANSLATION]

I tried in vain to contact the employer several times, to get an explanation of the discrepancy in income. I was never able to talk to or see him. This general construction business no longer exists: there were two shareholders, Denis Lavoie and Rénald Dubé. I went to the office of the business and there was nothing there. During the summer I glimpsed Rénald Dubé on a work site but as soon as he saw me he vanished. I later continued trying to get in touch with him at regular intervals but I was always unable to do so. He has apparently become an electrical contractor.

Cross-examination

The witness stated that he worked among others for the payer A. Délisle on the expansion of a seniors’ residence, and also in Chicoutimi and elsewhere.

The payer had about 15 employees altogether: carpenters, plasterers and electricians. The payer made up the employees’ time cards and his own. Payday was every Thursday. The payer changed accountants twice.

He was to have been paid for the rental of his tools at the tool rental centre rate.

Following the respondent’s investigation, and the issuing of the reassessments, the appellant had to undertake to pay $30 a month.

In concluding, the appellant insisted again that he had never moonlighted or received any amount from the payer other than the $7,635 in 1990, $12,596 in 1991 and $10,158 in 1992.

Sylvain Brisson, an investigator with Revenue Canada, Special Investigations, and a witness for the respondent, testified that from various indications in the payer’s files and a more extensive investigation it appeared that the two shareholders were making substantial withdrawal, made out to cash, from the payer’s bank account at the Royal Bank in Alma. When the cheques got back to the payer they were altered by replacing the word [TRANSLATION] “cash” with the suppliers’ names, thereby forging false invoices. The purpose was apparently to obtain hard cash to pay salaries for moonlighting work. He said the two shareholders cooperated with the respondent’s investigators and supplied photocopies of microfilms of cheques made out to cash. The investigators obtained the names of persons who had allegedly moonlighted, with their social insurance numbers and the amounts received by each of them. The investigators saw the cheques and noted the numbers and amounts, but did not photocopy either the front or back of the cheques.

As Exhibit 1-1 the following items were filed in respect of 1990 and 1991 from the amounts received under the table by the appellant, both for time worked and for reimbursement of expenses or rental of tools and forms.

In 1990 three cheques were issued for 43.5 hours of moonlighting work, totalling $696, and five cheques as payment for gasoline and employee transport, amounting to $519. The latter amount was not included in the appellant’s income.

In 1991, 22 cheques were issued for 388 hours of moonlighting, amounting to $7,610. Additionally, four cheques were issued totalling $2,309.92 in replacement of two N.S.F. cheques and for the rental of forms and tools. The latter amount was not included in the appellant’s income.

For 1992, counsel for the respondent filed as Exhibit 1-2 a list of 13 cheques allegedly made out to the appellant, showing unemployment insurance premiums, totalling $6,026.

Richard Pelchat, a Revenue Canada auditor at the Chicoutimi office, confirmed Mr. Brisson’s testimony both as to the ploy of withdrawals from the bank made out to cash and the fact that the two shareholders voluntarily supplied information.

Cross-examination

In cross-examination the appellant denied ever receiving the amounts shown on Exhibits 1-1 and 1-2, both for moonlighting work and other payments for gasoline and transportation amounting to $519 and for the rental of forms and tools.

He said he had never supplied any forms. They were supplied by the firm Morel & Frères.

Act - analysis

In making her assessments, the respondent relied on ss. 3, 5(1) and 163(2) of the Act.

There are limits to the well-settled rule that the taxpayer has the burden of proof.

In the instant case the respondent had all the cheques available, both those establishing the moonlighting and those showing the reimbursements of expenses. The respondent’s representatives did not retain these cheques or make front and back photocopies. The respondent too is subject to the best evidence rule. What better evidence could there be than these cheques made out to the appellant and endorsed by him? The appellant and the Court could at least have checked them. How could the respondent’s witnesses decide from looking at endorsements on the cheques whether this was in fact the appellant’s signature? Further, in view of the ploy used by the payer’s shareholders to get money from the company’s bank account, later falsifying the suppliers’ names to try and justify the expense, why might they not have imitated the appellant’s signature, taking it from the backs of genuine paycheques, and have signed the appellant’s cheques themselves? - anything is possible.

In cooperating with the respondent and saying that this was money used to pay for moonlighting the two shareholders did not necessarily act virtuously: it was a good way out. Had it not been for this way out, they would have had to pay tax on all the money taken from the bank account.

Finally, why were Denis Lavoie and Rénald Dubé not called by the respondent as witnesses? She was in a position to do so, while so far as the appellant was concerned the birds had flown.

The respondent missed such a good opportunity to present the best evidence that the Court cannot shift the consequences for this to the appellant.

Further, it goes without saying that there is no basis for the penalty imposed under s. 163(2) of the Act.

Conclusion

The appeal is allowed with costs.

Appeal allowed.