Date: 20000823
Docket: 1999-4973-IT-I
BETWEEN:
JEAN-PAUL SIMARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
P.R. Dussault, J.T.C.C.
[1] This is an appeal from an assessment for 1995 through which the Minister of National Revenue ("the Minister") added $18,750 to the appellant's income as a taxable capital gain. A penalty of $2,488 was also assessed under subsection 163(2) of the Income Tax Act ("the Act") because of the failure to report that taxable capital gain.
[2] In making the assessment, the Minister assumed the facts stated in subparagraphs (a) to (k) of paragraph 4 of the Reply to the Notice of Appeal. Those subparagraphs read as follows:
[TRANSLATION]
(a) the appellant sold a woodlot on December 13, 1995, by notarial contract;
(b) the sale price stated in the notarial contract is $60,000;
(c) the value of the woodlot on the municipal assessment roll was $22,400;
(d) the Minister has appraised the property as at December 13, 1995, and the appraisal shows that the fair market value is $85,000;
(e) the purchaser, Lucien Chassé, claims that he paid $85,000 for the said woodlot, which is $25,000 more than the amount stated in the notarial contract;
(f) the purchaser says that he paid the appellant an additional $25,000 in cash;
(g) the purchaser withdrew $25,000 from his bank account on December 13, 1995, the date of the notarial contract, by writing himself a cheque and cashing it for small bills;
(h) that $25,000 came from a loan obtained from the Caisse populaire Desjardins in Tourville; the bank document states that the purpose of the application for financing made by Jean-Paul Simard, the appellant, was to purchase woodlots in the Saint-Pierre parish;
(i) the capital gain was calculated as follows:
Deemed proceeds of disposition $85,000
Reported proceeds of disposition $60,000
Adjusted cost base $60,000
Unreported capital gain $25,000
Taxable capital gain (75%) $18,750
(j) as a result of the appellant's failure to report a taxable capital gain of $18,750, the Minister, in reassessing him on April 26, 1999, for the 1995 taxation year, assessed a penalty of $2,488 against him in accordance with subparagraph 163(2)(a)(ii) of the Income Tax Act (hereinafter "the Act");
(k) by failing to report all of his income, the appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of, a false statement or omission in the income tax return filed for the 1995 taxation year, with the result that the tax he would have had to pay on the basis of the information provided in the tax return filed for that year was less than the amount of tax actually payable for that year.
[3] The appellant testified on his own behalf. Lucien Chassé, Jean-Guy Bernard, a Revenue Canada auditor at the time of the assessment, Yvon Bergeron, an accredited appraiser at Revenue Canada, and Christiane Lebel, an appeals officer, testified for the respondent.
[4] Mr. Chassé testified that he paid the appellant $85,000 for his woodlot, that is, the $60,000 set out in the contract and $25,000 in cash. He said that, when he expressed an interest in buying the property, the appellant asked for $100,000. Since he told the appellant that that was too expensive and that he therefore wanted to buy only half of the property, the appellant offered to let him buy the entire property for $60,000—which would be the price stated in the contract—plus $25,000 in cash.
[5] Mr. Chassé usually dealt with a business called Matériaux Blanchette that loaned him money to purchase woodlots and also bought the wood he harvested. Mr. Chassé said that, since he felt that that lender would consider $85,000 too high, he applied to the Caisse populaire Desjardins in Tourville, Quebec, for credit and obtained a $25,000 loan to purchase the appellant's lot. In the end, Matériaux Blanchette loaned him $85,000 and he gave back the $25,000 he had borrowed from the Caisse populaire. The only document filed in respect of those loans is the credit application made to the Caisse populaire (Exhibit I-2).
[6] In his testimony, the appellant said that he had owned his woodlot since 1957, that all the wood had been harvested between 1960 and 1970 and that no reforestation had been done. He estimated the area of the woodlot to be about 166 arpents. In 1993 and 1994, a little softwood that was about 30 years old was harvested. Another harvest took place about 10 years ago. According to the appellant, the land sold to Mr. Chassé was 60 percent wooded but the wood was young, about 25 to 30 years old. He said that there were also some maple trees (300 to 400) that could have been tapped but that they were not sufficient for a profitable sugar bush operation since there was also an accessibility problem and no electricity.
[7] The appellant stated that a neighbour had previously offered him $50,000 for his property and that he had also received an offer of $55,000. He said that he agreed with Mr. Chassé on a price of $60,000—the price set out in the contract of December 13, 1995—and no more (Exhibit A-1). According to him, Mr. Chassé paid the notary and the notary in turn wrote him a cheque for $60,000.
[8] The appellant also testified that he was not able to contribute to his registered retirement savings plan (RRSP) because he did not have any extra money available. He further said that his bank accounts had been audited by Revenue Canada.
[9] With regard to the payment to the appellant of the agreed amount of $85,000, a certified cheque for $60,000 was adduced as evidence (Exhibit 1-4). It is dated December 12, 1995, signed by Mr. Chassé and made out directly to the appellant. It is endorsed by the appellant.
[10] Another cheque, for $25,000, was also adduced in evidence (Exhibit I-3). It is likewise dated December 12, 1995, and is signed by and made out to Mr. Chassé. That cheque is endorsed by Mr. Chassé. The endorsement shows that it was cashed on December 13, 1995, at the Caisse populaire de St-François in Montmagny. According to Mr. Chassé, the appellant wanted the additional $25,000 the day the contract was signed and the cheque was therefore cashed at the Caisse populaire de St-François in Montmagny and the cash given by the teller directly to the appellant. Mr. Chassé said that that transaction took place in Montmagny rather than Tourville because the manager of the Caisse populaire de Tourville had told him that it would take a week to obtain that much cash.
[11] Mr. Chassé said that he purchased the property to exploit it and then give it to his two sons and that he harvested the softwood on it. According to him, there were also 10,000 or so small maple trees that were nevertheless big enough to be tapped. He also said that he purchased another property in the fall of 1996. That property, which he described as a small strip the area of which was about a third of that of the land acquired from the appellant, was purchased for $75,000. Mr. Chassé said that he sold the property purchased from the appellant in 1997 for $65,000. The purchaser, the owner of Matériaux Blanchette, gave him more because he was a friend.
[12] On cross-examination, Mr. Chassé stated that no terms had been fixed for the repayment of his $85,000 loan from Matériaux Blanchette and that he made payments from time to time. He asserted that in June 1996 he had already paid back $45,000 and said this time that the land was sold to Matériaux Blanchette for $60,000, of which $40,000 was used to repay the balance of his loan. He said the purchaser gave him an additional $20,000.
[13] Mr. Chassé admitted that he had been audited by Revenue Canada and that the use of the "net worth" audit method for a period of five years had "cost" him $125,000.
[14] Finally, it should be noted that, in the notarial contract for the purchase of the appellant's property signed on December 13, 1995, the consideration declared by the parties for the purposes of the Act respecting duties on transfers of immovables was $60,000 (Exhibit A-1, pages 6-7).
[15] Since there was a small cottage on the lot which the parties valued at $4,000, the consideration declared by the parties for the purposes of the goods and services tax was $56,000 ($60,000 - $4,000). For the purposes of the Quebec sales tax, the consideration declared was $59,920 ($60,000 - $4,000 + $3,920). In the contract, the purchaser, Mr. Chassé, undertook, to the complete exoneration of the vendor, to self-assess with respect to the taxable portion of the sale (Exhibit A-1, page 6).
[16] Jean-Guy Bernard of Revenue Canada audited Mr. Chassé's affairs. After auditing the books of account, he finally had to use the "net worth" method. He said that he contacted individuals at Matériaux Blanchette with whom Mr. Chassé dealt. He found that that business advanced Mr. Chassé money—a kind of line of credit—to purchase land and subsequently reimbursed itself. Mr. Chassé had apparently purchased around six properties using that type of financing. Mr. Bernard said that he checked the year-end loan balances with Matériaux Blanchette and found that the figures corresponded to those given to him by Mr. Chassé. Although Mr. Chassé had told him that he had paid $25,000 more than the amount stated in the contract for the appellant's land, Mr. Bernard admitted that he did not check the advances made to Mr. Chassé on a given date. He was therefore unable to connect the advances made with the purchase of a particular lot. In Mr. Bernard's opinion, it was not in Mr. Chassé's interest to tell him that he had paid $25,000 more for the appellant's land, since that increased his "net worth" by the same amount. All I will say about that assertion is that, insofar as his liabilities would have increased by that same amount, the admission was perhaps of little consequence for Mr. Chassé's "net worth" and was not objective evidence of how much was actually borrowed from Matériaux Blanchette at the relevant time or of how the borrowed money was actually used, at least as regards the amount over and above that stated in the contract of December 13, 1995.
[17] Christiane Lebel, a Revenue Canada appeals officer, testified that, faced with two contradictory versions as regards the price actually paid for the appellant's land, she called in an accredited appraiser. The appraiser confirmed a value corresponding to the price of $85,000 that Mr. Chassé said he paid. As a result, she automatically concluded that the appellant had deliberately failed to report the taxable capital gain and she therefore maintained the penalty under subsection 163(2) of the Act.
[18] It was Yvon Bergeron who made the appraisal for the respondent. He testified that he went to visit the property concerned in these proceedings for about an hour and that the visit was, obviously, a partial one. He examined four transactions that he considered comparable. He said that Mr. Chassé was a party to two of them. Mr. Bergeron did not give any specific information about those transactions.
[19] For some reason that remained rather vague, counsel for the respondent did not send Mr. Bergeron's appraisal report to the appellant. She therefore refrained from having him testify as to his opinion on the land's value.
[20] We are therefore back at square one, with contradictory testimony by two individuals on the amount actually paid by Mr. Chassé for the appellant's land. Mr. Chassé claims that he paid $25,000 more than the price of $60,000 stated in the contract of December 13, 1995, which amount he himself declared therein was the full consideration on the basis of which various taxes, including the goods and services tax and the Quebec sales tax, were calculated. The same is true of the transfer duties. The appellant denies receiving more than $60,000 and is sticking strictly to the terms of the contract.
[21] Of course, the Minister is not bound by the contract and may rely on any other agreement existing between the parties. In this regard, reference may be made to the decision in Tanguay v. The Queen, T.C.C., No. 94-2562(IT)G, January 14, 1997, at page 7 (97 DTC 947, at page 950), where I referred to the principle that the prohibition enacted by article 1234 of the Civil Code of Lower Canada against testimony for the purpose of contradicting the terms of a valid written instrument does not apply in tax matters. Indeed, it had previously been held that the prohibition was applicable only in respect of the contracting parties and not in respect of a third party such as the Minister of National Revenue. The new article 2863 of the Civil Code of Québec is now very clear on this.
[22] That said, the fact remains that taxpayers have often been required to adduce evidence that goes well beyond their mere testimony when they try to repudiate a contract they have validly signed in order to claim, vis-à-vis the tax authorities, that a different agreement exists.
[23] In the Supreme Court of Canada's decision in Hickman Motors v. Canada,[1997] 2 S.C.R. 336, L'Heureux-Dubé J. pointed out the following at page 378:
It is trite law that in taxation the standard of proof is the civil balance of probabilities: Dobieco Ltd. v. Minister of National Revenue, [1966] S.C.R. 95, and that within [that] balance of probabilities, there can be varying degrees of proof required in order to discharge the onus, depending on the subject matter: Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164; Pallan v. M.N.R., 90 D.T.C. 1102 (T.C.C.), at p. 1106.
[24] In Pallan, to which L'Heureux-Dubé J. referred, taxpayers sought to adduce testimonial evidence to contradict what they had agreed on in documents that were prepared to achieve certain commercial objectives but that had unfavourable tax consequences. Judge Christie of this Court, stressing the insufficiency of the evidence adduced, dismissed the appeals. His conclusion is explained in the following terms, which I take directly from the text of the reasons for judgment at page 1107 (adding the text of the official French translation at page 13):
|
It must be understood that if taxpayers create a documented record of things said and done by them, or by them in concert with others, to achieve a commercial purpose and then seek to repudiate those things with evidence of allegations of conduct that is morally blameworthy in order to avoid an unanticipated assessment to tax, they face a formidable task. And that task will not be accomplished, in the absence of some special circumstance, an example of which does not occur to me, by their oral testimony alone. That evidence must be bolstered by some other evidence that has significant persuasive force of its own. The appellants have not done this. |
Il faut comprendre que, si les contribuables créent un dossier écrit de choses qu'ils ont dites et faites, que ce soit seuls ou de concert avec d'autres, pour atteindre un but commercial et qu'ils cherchent ensuite à répudier ces choses en alléguant que la conduite était moralement blâmable afin d'éviter une cotisation d'impôt qui n'avait pas été prévue, ils auront fort à faire pour réussir. De plus, en l'absence de circonstance spéciale dont aucun exemple ne me vient à l'esprit, ils ne pourront le faire en présentant uniquement leur témoignage. Cette preuve doit être appuyée par d'autres éléments qui ont eux-mêmes une grande force persuasive. Les appelants ne l'ont pas fait. |
[25] The decisions I rendered in Kiliaris et al. v. The Queen, 97 DTC 7, and Morin v. The Queen, T.C.C., No. 95-650(IT)G, February 17, 1998 (98 DTC 1434), involved situations in which it was necessary not only that testimony be accepted with the greatest caution but also that independent, objective evidence be required insofar as the taxpayers were trying precisely to renounce their earlier positions or repudiate a validly signed contract.
[26] The situation here is different, since this time it is the Minister who is trying to have a validly signed contract put aside by relying, when all is said and done, on the mere testimony of another taxpayer. An appraisal by a Revenue Canada appraiser of the woodlot sold by the appellant cannot be accepted here as evidence that the price of $60,000 indicated in the contract was not the real price when the appraiser's report was not entered in evidence and the appraiser did not testify regarding the factors on which he based his opinion because counsel for the respondent failed to file his appraisal report at the Registry and serve it on the appellant as required under section 7 of the Tax Court of Canada Rules (Informal Procedure).
[27] Thus, it is essentially on the basis of Mr. Chassé's testimony that counsel for the respondent is requesting that the assessment be confirmed by arguing, basically, that Mr. Chassé's version is more credible than the appellant's. It will be recalled that, through that assessment, the Minister not only added a taxable capital gain of $18,750 to the appellant's income, alleging that he had received $25,000 more than the price set out in the contract, but also assessed a penalty under subsection 163(2) of the Act.
[28] Mr. Chassé's testimony is a repudiation of the contract he validly signed and of the declarations he made therein concerning the amount of the consideration. As well, we know that Mr. Chassé has been assessed in the past by the "net worth" method and that as a result it apparently "cost" him $125,000 to pay his tax liabilities. On that basis alone, some doubts about his honesty may certainly be entertained. Now he is repudiating the signed contract and the declarations made therein by admitting himself that he was involved in fraud, and it is solely on that testimony that the Minister is relying. I consider that to be insufficient, especially since the penalty under subsection 163(2) was assessed automatically, without additional verification with the Caisse populaire de St-François in Montmagny as to the paying out of the proceeds of the $25,000 cheque written by Mr. Chassé to himself, which was allegedly cashed for $25,000 in cash given directly to the appellant by the teller. The cheque itself is not evidence that the money was given to the appellant, and it would be necessary to come back to Mr. Chassé's testimony to accept that version. Of course, no one from the Caisse populaire was called to testify, which is something the respondent can be criticized for in the circumstances, especially since, under subsection 163(3) of the Act, the Minister bore the burden of establishing the facts justifying the assessment of a penalty under subsection 163(2) of the Act.
[29] As a result of the foregoing, the appeal from the assessment for the 1995 taxation year is allowed and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the taxable capital gain of $18,750 added to the appellant's income must be deducted and the assessed penalty cancelled.
Signed at Ottawa, Canada, this 23rd day of August 2000.
"P.R. Dussault"
J.T.C.C.
Translation certified true on this 18th day of October 2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-4973(IT)I
BETWEEN:
JEAN-PAUL SIMARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on July 31, 2000, at Québec, Quebec, by
the Honourable Judge P.R. Dussault
Appearances
Agent for the Appellant: Jean Simard
Counsel for the Respondent: Susan Shaughnessy
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1995 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the taxable capital gain of $18,750 added to the appellant's income must be deducted and the assessed penalty cancelled.
Signed at Ottawa, Canada, this 23rd day of August 2000.
|
"P.R. Dussault" |
J.T.C.C.
Translation certified true
on this 18th day of October 2001.
Erich Klein, Revisor