Date: 20010831
Docket: 2000-1276-IT-I,
2000-1278-IT-I
BETWEEN:
DÉCOR DU LOGIS DU VIEUX QUÉBEC INC.,
CATHERINE VERMETTE,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1] It was agreed to proceed on common evidence.
[2] The issues are as follows:
Appeal of Décor du Logis du Vieux Québec Inc. (2000-1276(IT)I)
[TRANSLATION]
Did the appellant report all of its income for the 1994, 1995, 1996 and 1997 taxation years?
Was the Minister of National Revenue ("the Minister") justified in denying the appellant expenses of $3,417 for 1993, $6,821 for 1994 and $7,627 for 1995?
Did the Minister correctly calculate the capital cost allowance that could be deducted for the years at issue?
Was the Minister justified in assessing a penalty against the appellant under subsection 163(2) of the Income Tax Act ("the Act") for the years at issue?
Appeal of Catherine Vermette (2000-1278(IT)I)
[TRANSLATION]
Did the Minister correctly include the company's funds appropriated by the appellant in the appellant's income for the 1993, 1994, 1995, 1996 and 1997 taxation years?
Did the Minister correctly calculate the automobile benefit allocated to the appellant for each of those years?
Was the Minister justified in assessing a penalty against the appellant under subsection 163(2) of the Act for the years at issue?
Was the Minister justified in assessing a late filing penalty against the appellant under subsection 162(1) of the Act for the 1993, 1994 and 1995 taxation years?
[3] The assessments were made using what is called the "net worth" method. That method had to be used because the available accounting records were deficient and totally inadequate, which was, moreover, admitted by the individual appellant and her accountant.
[4] Since the individual appellant disagreed with the assessments at issue in these appeals, she instructed Mario Tremblay, CA, to prepare financial statements for the period from 1993 to 1997.
[5] Mr. Tremblay described the nature and scope of the mandate he was given. He explained that he did not examine the invoices and that he relied on the explanations given by his client. Rather surprisingly, he admitted that the figures and conclusions arrived at by the respondent as a result of her audit work struck him as reasonable and realistic.
[6] However, the accountant added that, in his view, the individual appellant's income had never been very substantial. Indeed, his findings were that her income had always been quite modest. In support of this view, he stated that the individual appellant had cashed in registered retirement savings plans (RRSPs) and that she drove an old car.
[7] I intervened a few times to ask specifically what complaints he had concerning the way the file had been dealt with during the audit. Despite my questions, Mr. Tremblay basically just reiterated the limits of his mandate. On his client's behalf, he asked for sympathy in light of her modest financial situation.
[8] Although Mr. Tremblay testified in a professional manner, he did not provide any information that might discredit the assessments. As regards the penalties, his testimony shows that the individual appellant truly wants to take a disciplined approach to accounting in future, but it provides nothing that could justify the Court's intervention.
[9] Basically, Mr. Tremblay testified that the individual appellant had neglected her accounting; he also noted that she had not drawn a line between her personal affairs and those of the company.
[10] The individual appellant's testimony, while it inspired sympathy, did not bring out anything that could discredit the net worth assessments.
[11] From the outset, she admitted that accounting was not her strength. Moreover, her various comments clearly illustrated the fact that she often mixed up her personal affairs with those of the company she controlled.
[12] She explained that things had not always been easy and that, because of illness, she had had to go through a very difficult period that had forced her to cut expenses.
[13] She explained that she had chosen to cut management and accounting expenses because she felt that they were less important than other expenses.
[14] Although the individual appellant said she understood the corporate reality of the business, the evidence shows that there was no real division or separation between the two patrimonies, namely her own and that of the company she controlled. The company's business was decorating, design and renovation. The individual appellant maintained that, in some circumstances, she considered the fees to be the salary she was owed for her work. In such cases, the company did not receive the amounts in question. On the other hand, the evidence showed that the company paid expenses that basically had nothing to do with it.
[15] The evidence did not demonstrate that the accounting data were handled with any consistency or logic that could have reflected a certain concern with doing things properly.
[16] The weight of the evidence showed rather that everything that had to do with accounting was inadequate, neglected, late and incomplete. Admittedly, the individual appellant maintained that she never acted in bad faith, which I accept. However, total indifference and constant disinterest manifested over a number of years indicate blatant neglect of one's tax responsibilities. In my humble opinion, such carelessness and the abdication of such a basic responsibility amount to gross negligence.
[17] Except as regards the penalty part of the assessments, the burden of proof was on the appellants. They had to show on a balance of probabilities, through such evidence as testimony, documents and various data, that the assessments were wrong. Yet, no evidence was adduced in that regard.
[18] First of all, the accountant hired to clarify the accounting admitted that the work done by the respondent was correct. Given his qualifications, he might have been able to demonstrate some abuses, mistakes or breaches. He did nothing of the sort and so the burden on Ms. Vermette was a heavy one.
[19] Given her obvious lack of accounting knowledge, Ms. Vermette's testimony basically referred to her various problems, and was rounded out by several comments showing that her accounting was now transparent and consistent. Unfortunately, good intentions for the future are not a relevant factor in vacating or even reducing an assessment made long before the result that will be generated by the good intentions.
[20] In this case, the individual appellant explained that she had had to cut expenses and that she had chosen to stop consulting an accountant. She did not explain why she eliminated that kind of expense as opposed to other items.
[21] Taxpayers are not obliged to use an accounting specialist; however, all taxpayers must have an accounting system that makes a review or audit possible, failing which they run the risk of having results that may be surprising imposed on them.
[22] Indifference to and total disregard of accounting matters constitute gross negligence, especially where there is or may be confusion between a company's accounting data and the accounting data relating to the personal affairs of the shareholder who controls the company.
[23] Here, the individual appellant admitted that she did not have the knowledge needed to present consistent accounting data. Despite that, she deliberately chose to neglect that important-for both the company she controlled and her personal affairs-aspect of things.
[24] She certainly showed a real interest in mending her ways in future; however, good intentions cannot have retroactive effect. The Court must dispose of the appeals based on the facts that existed at the time the assessments were made. In this regard, the weight of the evidence shows that the appeals are unfounded and accordingly they must be dismissed.
Signed at Ottawa, Canada, this 31st day of August 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 31st day of May 2002.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-1278(IT)I
BETWEEN:
CATHERINE VERMETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of
Décor du Logis du Vieux Québec Inc. (2000-1276(IT)I)
on July 16, 2001, at Québec, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Stéphanie Côté
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1993, 1994, 1995, 1996 and 1997 taxation years is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 31st day of August 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 31st day of May 2002.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-1276(IT)I
BETWEEN:
DÉCOR DU LOGIS DU VIEUX QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of
Catherine Vermette (2000-1278(IT)I)
on July 16, 2001, at Québec, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Agent for the Appellant: Catherine Vermette
Counsel for the Respondent: Stéphanie Côté
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1993, 1994, 1995, 1996 and 1997 taxation years is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 31st day of August 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 31st day of May 2002.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]