Bastille v. R., [1999] 4 CTC 2155, 99 DTC 431

Tardif T . C.J.:

These appeals relate to the 1989 taxation year, in the case of J.M. Bastille Inc., and the 1989 and 1990 taxation years, for Jean-Marie Bastille personally (the “appellant”). It was agreed that the two cases would proceed on common evidence.

The assessments in question were NET WORTH assessments. Also at issue is whether the penalties imposed on the appellants were justified.

Counsel for the appellants began by stating that the main points in issue were as follows:

• The estimate of the cost of living for the appellant and his family.

• The allocation of an amount of $16,934 representing the cumulative total of three cheques issued by the insurers after some jewellery was stolen.

• Room and board paid by the appellant’s children.

• A sum of $8,000 obtained from the sale of a very special snowmobile.

° The amount of the cash on hand as at December 31, 1990.

• The balance in the appellant’s bank account at the First American Bank on December 31,1990.

• The appellant’s investment in the corporation “Carillons Touristiques de R.D.L.” as at December 31, 1990.

• The facts and circumstances surrounding the purchase of three woodlots.

In addition to these issues, there is obviously the question of whether or not the penalties provided for by the Income Tax Act (the “Act”) should have been imposed.

I think it is important to point out that the burden of proof rests on the appellants, except with respect to the question of the penalties, where the burden of proof is on the respondent.

A NET WORTH assessment can never reflect the kind of mathematical accuracy that is both desired and desirable in tax assessment matters. Generally, there is a certain degree of arbitrariness in the determination of the value of the various elements assessed. The Court must decide whether that arbitrariness is reasonable.

Moreover, use of this method of assessment is not the rule. It is, in a way, an exception for situations where the taxpayer is not in possession of all the information, documents and vouchers needed in order to carry out an audit that would be more in accordance with good auditing practice, and most importantly, that would produce a more accurate result.

The bases or foundations of the calculations done in a NET WORTH assessment depend largely on information provided by the taxpayer who is the subject of the audit.

The quality, plausibility and reasonableness of that information therefore take on absolutely fundamental importance.

In the instant case, the evidence was composed of the testimony of three people: the appellant, on his own behalf and as sole shareholder of the appellant company, J.M. Bastille Inc.; Lucien Lauzier, an accountant and tax expert, and the person who did the NET WORTH calculations on which the appellants’ arguments are based; and Jean-Luc Proulx, the auditor of the accounting on which the assessments are based.

Mr. J.M. Bastille

Mr. Bastille testified at length. He explained with precision, confidence and assurance certain facts, including the fact that he had never had any cash or petty cash; that he knew nothing about accounting; and that the insurance proceeds had not been used to purchase other jewellery. He was able to explain in remarkable detail some facts that called for exceptional powers of memory.

On certain other points, he was much less explicit. He at first said that his wife was responsible for charging the children who were working and who lived with him room and board in order to teach them to take responsibility for themselves. His explanations regarding the amounts, numbers and periods were rather ambiguous, particularly with respect to the amounts, which he put at between $25 and $35 per week per child.

The same was true with respect to the sale of the snowmobile. He asserted that he had sold it in the fall of 1990 to an oil salesman from Trois- Rivières for $8,000 or $10,000. He said that he had demanded payment in cash. He could not specify whether it was $8,000 or $10,000. He did not recall whether the money was paid to him in small, medium or large bills. Also, and most importantly, his memory failed him on the question of the purchaser’s name.

With respect to the amount received from the insurance companies, he fell back behind Mr. Ouellet, the controller, to whom he said he had handed over the cheques, which he had endorsed, with no instructions; he further stated that he did not know what Mr. Ouellet had done with them. Later, he said that the money had no doubt been used to purchase the land. Here again, we are talking about a relatively large sum of money: nearly $17,000.

On the question of the investment in Carillons Touristiques de R.D.L, Mr. Bastille’s explanations were questionable in terms of their consistency. First he said that the bells had been purchased for promotional purposes for J.M. Bastille Inc.; he also said that a number of the bells may have been sold. In the end he asserted that he had paid $1,000 for the remaining bells when he handed the business over to his sons.

Mr. Bastille also testified regarding his habits and lifestyle. His explanations on this point completely destroyed the already minimal weight his testimony carried. Not only did I not believe the appellant when he said that he never went to the restaurant, except on company business, but I am of the view that his assertions that he never went to any restaurant during the several months he spent in Florida are entirely untruthful. The same is true of his justifications of the very small amount of money spent on the purchase of clothing.

Lastly, the appellant systematically and somewhat aggressively refused to answer several questions on the ground that he did not know how to read, that he did not have much education, that he had no recollection on account of the aftereffects of a serious health problem, and that he did not want to lie. To sum up, the appellant’s testimony did not constitute persuasive, reasonable or even credible evidence supporting his contentions.

This case must be disposed of on a balance of probabilities. It was not enough for the appellant to raise a doubt in the Court’s mind in order to succeed. He had to establish that it was more probable than not that his contentions were reasonable, plausible and credible.

I do not believe that the children paid any room and board whatsoever. In fact, even if I were to accept the explanation given, it would change absolutely nothing, since there would be a nil effect in that income would equal expenses.

On the question of the investments in Carillons Touristiques de R.D.L., I am satisfied that this expense was assumed by J.M. Bastille Inc., although the inventory essentially benefited Carillons Touristiques de R.D.L., which undoubtedly sold the bells in question as souvenirs to museum visitors. If the famous bells had been offered free of charge, as the appellant contended, it would have been simple, easy, effective and, most of all, beneficial to provide the names of a few recipients, who would have had absolutely nothing to fear from this being reported.

The very poor quality of the appellant’s testimony provides substantial confirmation of the degree to which it must have been difficult and laborious to get the information needed to establish the NET WORTH.

The appellant’s testimony deceived no one. He said only what he wanted to say, using all sorts of pretexts in explaining various inconsistencies. It was extremely odd that his memory became remarkably good when it came to what he had to say that supported his position. On the whole, Mr. Bastille’s testimony was not credible.

It would have been interesting, and above all very relevant, to have heard the testimony of the people who were directly and specifically affected by the facts in this case. The appellant’s explanation, which was that he had not seen fit to invite them to testify, is entirely unacceptable.

I do not consider it useful or necessary to analyze the appellant’s testimony any further, when my assessment can be summarized simply as follows: the Court does not believe or accept any of this entirely implausible testimony.

Consequently, I do not accept the NET WORTH statements and conclusions prepared by Lucien Lauzier, since the basic figures and information are from a non-credible source, namely the appellant J.M. Bastille.

Lucien Lauzier’s testimony was relatively clear and consistent. Despite the logic in the explanations he provided, his testimony was not conclusive.

In its most fundamental aspects, the basis on which his testimony rested was vague and undocumented and derived essentially from oral explanations provided by the appellant and members of his family. Throughout his testimony, Mr. Lauzier repeatedly stated that he had assumed, that he had presumed, that he had relied on the answers given by Mr. Bastille; he also used the following expressions: [TRANSLATION] “from what he told me”, “I asked ‘what’s that?”’, “according to the information I received”, “I did not verify”, “perhaps”, “I can’t guarantee”, “I don’t know who prepared that”, “I used that figure so it would balance out”, “it could be anything”, “that’s what he told me”, “it’s possible”.

I believe that the accountant properly carried out his mandate, which was to give a relatively clear and logical presentation, based on a whole series of assumptions, which were, however, uncertain, vague and very questionable. What is the probative value of work or of a presentation whose basis is so vague, questionable or implausible? Absolutely nil.

As for the work prepared by the respondent, it was certainly not perfect. In fact, the appellant accused the auditor of proceeding in an arbitrary and unusual manner in determining NET WORTH.

The Court agrees with this complaint in part. I would add, however, that it was made necessary essentially by the appellant’s failure to cooperate. The appellant refused to provide documents and information that could have supported or even refuted certain inferences, which could have been confirmed or ruled out if there had been honest, serious and reasonable cooperation.

A taxpayer is entirely free to cooperate or not to cooperate. If someone refuses to cooperate, for reasons that I will not go into, he cannot then be heard to complain that those who did the job of reconstructing proceeded in an arbitrary and unjustified manner if the necessary information and documentation were not available to them.

On a balance of probabilities, the NET WORTH was established through a reasonable, fair and serious process. There is no proof or evidence that would discredit or detract from the job that was done.

The weaknesses and arbitrariness complained of essentially stem from the incomplete or implausible information supplied by the appellant; he exercised tight control at all times over relevant information by providing information that was confusing, weak and questionable through intermediaries, including the controller, Mr. Ouellet, whom he did not think it necessary to call as a witness.

In the circumstances, I affirm the assessments made for the 1989 taxation year in respect of J.M. Bastille Inc., and for the 1989 and 1990 taxation years in respect of the appellant.

On the question of the penalties, the Court is of the opinion that the respondent has discharged the burden of proof that rested on her; indeed, there is no doubt that the appellant knowingly thought up and invented all sorts of far-fetched explanations so that his accountants could produce something whose sole aim was to discredit what the respondent had produced and show it to be unreasonable. In fact, the Court is persuaded that the appellant deliberately concealed a number of essential facts and distorted other information.

The evidence, which was composed primarily of the appellant’s testimony, established on a clear balance of probabilities that he alone provided the information with respect to both his personal situation and the company’s. Claiming ignorance, he tried to avoid answering certain really very simple questions. At the same time he answered in detail when the answers supported his position.

The answers as a whole and his conduct at the hearing leave no doubt as to the problems that he must have caused for the auditors who were trying to reconstruct the economic activities of both the appellant personally and the company he controlled.

His failure to cooperate consisting in providing incomplete or implausible information is evidence that the appellant expressly and actively chose to withhold information that was essential to determining the appellants’ incomes.

For these reasons, the appeals are dismissed, with costs to the respondent in both cases.

Appeal dismissed.