Tax Court of Canada Judgments

[OFFICIAL ENGLISH TRANSLATION]

2000-269(IT)I; 2000-323(IT)I

2000-329(IT)I; 2000-342(IT)I

2000-698(IT)I

BETWEEN:

GEORGES YOUNES,

DENISE AUDETTE,

JULIEN AUDETTE,

FRANCE BENARD,

OTTAVIO SPIEZIA,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on September 10, 11 and 12, 2001, and judgment rendered orally

on September 27, 2001, at Montréal, Quebec, by

the Honourable Judge Pierre Archambault

Appearances

Agents for the Appellants:                             The Appellants themselves

Counsel for the Respondent:                         Simon Crépin

                                                                   Nathalie Lessard

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1991 and 1992 taxation years, in the case of Denise Audette, are dismissed; the appeals concerning the 1989, 1990, 1991, 1992 and 1993 taxation years, in the case of Julien Audette, are dismissed; the appeals concerning the 1991, 1992, 1993 and 1995 taxation years, in the case of France Benard, are dismissed; and the appeals concerning the 1994 and 1995 taxation years, in the case of Ottavio Spiezia, are dismissed.

          In the case of Georges Younes, the appeals from the assessments made under the Income Tax Act for the 1990 and 1991 taxation years are allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that Mr. Younes was entitled to no tax credit for charitable donations in respect of the purported gift of $10,000 made to the Order but, for the purposes of computing the penalty and for those purposes alone, on the basis that he was entitled to a tax credit with respect to a $1,500 charitable donation. Consequently, the penalty will be computed solely on the basis of the tax credit in respect of charitable donations of $8,500.

Signed at Ottawa, Canada, this 2nd day of October 2001.

"Pierre Archambault"

J.T.C.C.

Translation certified true

on this 28th day of February 2003.

Erich Klein, Revisor

[OFFICIAL ENGLISH TRANSLATION]

Date: 20011031

Docket: 2000-269(IT)I

2000-323(IT)I

2000-329(IT)I

2000-342(IT)I

2000-698(IT)I

BETWEEN:

GEORGES YOUNES,

DENISE AUDETTE,

JULIEN AUDETTE,

FRANCE BENARD,

OTTAVIO SPIEZIA ,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

(Delivered orally from the bench

on September 27, 2001, at Montréal, Quebec,

and edited for greater

clarity and completeness.)

Archambault, J.T.C.C.

[1]      Georges Younes, Denise Audette, Julien Audette, France Benard and Ottavio Spiezia have instituted appeals from income tax assessments made by the Minister of National Revenue (Minister), who disallowed the tax credits claimed by these appellants in respect of purported charitable donations made to the Ordre Antonien Libanais des Maronites (the Order). The Minister maintains that the appellants did not actually make the following donations:

	1989	1990	1991	1992	1993	1994	1995
Georges Younes		$ 9,025	$      975
Denise Audette			$ 3,000	$ 3,500
Julien Audette	$12,000	$12,000	$10,000	$11,500	$6,000
France Benard			$ 5,000	$ 5,000	$1,600		$3,000
Ottavio Spiezia						$3,000	$2,400

[2]      The respondent acknowledges that some of the assessments were made outside the normal reassessment period and that the burden is on her to establish that the appellants made a misrepresentation that is attributable to neglect, carelessness or wilful default or committed some fraud in filing their income tax returns. The respondent admits that this burden is on her with respect to all the appellants, except for Mr. Spiezia and Ms. Benard for the 1993 and 1995 taxation years. The burden of proof is also on the respondent with respect to the penalties which the Minister assessed under subsection 163(2) of the Income Tax Act (Act) for each of the relevant taxation years.

Facts

Respondent's Evidence

[3]      Two representatives of the Minister, an investigator from the Criminal Investigations Service and an auditor, described the fraudulent scheme (scheme) put in place by the Order. In some cases, the Order issued a receipt to a taxpayer showing a cash donation equal to the amount that that taxpayer had paid to the Order by cheque and, at the same time, the Order returned a portion of that sum in cash to the taxpayer. The repayment often amounted to 80 percent of the amount appearing on the cheque. In other instances, the Order made out a receipt to a taxpayer showing a donation of a certain amount, when the taxpayer had either paid nothing or had paid a much smaller amount than the amount indicated, generally 20 percent of the latter amount. In addition, some of the receipts falsely stated that the purported gift had been made in the year preceding that in which the Order received the cash and issued the receipt. In other words, the receipts were antedated.

[4]      It was the separated wife, a doctor, of one of the Order's leaders who informed the Minister of the scheme's existence in March 1994. In a statement which, with the appellants' consent, was filed at the hearing in lieu of testimony by her, she admitted that she had taken advantage of the scheme in three taxation years, 1988 to 1990 inclusive. In those years, she apparently paid the Order an amount equal to 50 percent of the amount of the receipt.

[5]      Upon receipt of the information regarding the scheme, the Minister's auditor went to audit the Order's books of account and bank statements. Her work was done in September and October 1994 and her analysis enabled her to conclude that the information concerning the false receipt scheme was correct. In particular, she noted that the donation cheques provided by professionals with fairly substantial incomes were deposited at the bank and that large withdrawals were made in the following days, while, in the case of gifts made by taxpayers with more modest incomes, the cheques deposited represented only a fraction of the amount of the receipt made out by the Order.

[6]      The case was then handed over to the Criminal Investigations Service, which conducted a search on November 8, 1995. In that search, the Minister was able to seize documents confirming the existence of the scheme put in place by the Order. Among those documents was spreadsheet program (Bibliorec) from a computer of the Order providing data for 1993. That spreadsheet contained 356 entries concerning 352 receipts, namely those numbered from 32 to 383. The entries state the name of the donor, his or her telephone number, the receipt number, the amount of the purported donation (with an indication that the amount had been paid in cash, if that was the case), the balance to be repaid to the donor, the amount repaid and the balance repayable, the share, if any, belonging to the Order and, in many cases, the Order's portion expressed as a percentage of the amount of the purported gift, as well as the coded name of the intermediary through whom the "donors" had been put in touch with the Order. Unfortunately for the Minister, the spreadsheet did not provide a list of all donors to whom the Order had issued donation receipts. However, it did contain the name of Julien Audette and information showing that, in 1993, he had actually paid only 15 percent of the amount indicated on his receipt for charitable donations and that he had been put in touch with the Order through a certain Ralph (in all likelihood, Ralph Nahas).

[7]      Mr. Nahas was not only the Order's accountant during the relevant years, he was also a neighbour of Mr. and Mrs. Audette, Ms. Benard and Mr. Spiezia, who all lived in Pierrefonds during the relevant years. Furthermore, Mr. Nahas had acted as the accountant of those four appellants (four appellants). Before the Court, Mr. Audette emphasized that he himself had prepared his income tax returns, but he said that Mr. Nahas had checked them. However, Mrs. Audette recognized Mr. Nahas's writing on the income tax returns sent to the Minister and filed in evidence by the respondent. It was also Mr. Nahas who served as an intermediary between the Order and the four appellants.

[8]      In addition to the doctor's testimony, there was that of two other taxpayers who admitted at the hearing that they had included in computing their tax credits for charitable donations amounts greater than those paid to the Order and that they had submitted to the Minister false receipts provided by the Order. Among the investigation documents filed by the respondent were some investigator's interview reports in which a number of taxpayers (approximately 80, whose names, in some cases, do not even appear in Bibliorec) admitted that they had taken part in the scheme. Those documents include a solemn declaration by a Mrs. Cedilot, who admitted she had paid amounts less than those stated on her receipts for the years 1991 to 1994 and who stated that Ralph Nahas had induced her to give to the Order in this way and that she had remitted the money to him, in cash. It was also Mr. Nahas who had obtained the receipts for charitable donations and prepared her income tax returns. There is also an interview report prepared by the investigator following a meeting with a Mrs. Mercier, who also acknowledged that Mr. Nahas had proposed the scheme to her, that she had given him cash in an envelope and that Mr. Nahas had looked after obtaining the charitable donation receipts. Like the Audettes, Mrs. Mercier had met Mr. Nahas through her children.

[9]      In his testimony, the investigator also revealed that more than 1,000 donors had been the subject of reassessments whereby the Minister disallowed tax credits with respect to donations for which the Order had made out receipts for the 1989 to 1995 taxation years. Apparently fewer than 100 taxpayers appealed to the Tax Court of Canada. All the others either accepted their assessments or accepted the offer to settle made at the objections stage to all the taxpayers concerned.

[10]     The investigator also revealed that a number of donors who had claimed substantial amounts for tax credit purposes pleaded guilty to criminal charges relating to the scheme that were laid against them under section 239 of the Act.

Appellants' Evidence

Georges Younes

[11]     Georges Younes described himself as a consultant when he was sworn at the start of his testimony. He is from Lebanon and has lived in Canada for 26 years. He is of the Greek Orthodox faith and thus does not belong to the Order. He has been a claims adjuster and a salesman with a business providing renovation services. During the relevant years, 1990 and 1991, Mr. Younes was living in Kirkland. He has been married since September 16, 1990.

[12]     Mr. Younes said he had organized a concert for a childhood friend, a certain Joe Saadé, who was living in France. Mr. Saadé was considering emigrating to Quebec. The concert, which was to be organized in cooperation with Father Joseph Kamar, one of the fathers of the Order and an acquaintance of Mr. Saadé's, was held on December 22, 1990, in a room at the Order's monastery in Outremont. Mr. Younes had agreed to pay the Order $2,000 to rent the room and to give it 25 percent of the receipts from the bar that would be open during the concert. In a statement on his honour, Mr. Saadé said that there were only 40 people at the concert. According to him, a snowstorm had prevented a large audience from attending. However, Mr. Younes filed a monthly weather summary from Environment Canada showing that there had been freezing rain on December 21, 1990, that it had turned into rain during the day on December 22 and that there had been drizzle between 4:00 p.m. and 10:00 p.m. As Mr. Younes remembered, the price of tickets for the concert was $30. However, the ticket provided by Mr. Saadé with his statement on his honour shows a price of $15 per person. According to Mr. Younes, some 600 tickets had been printed, 300 of which were given to Father Kamar, who had assured him that he should consider those tickets as sold.

[13]     At the end of the concert, Mr. Younes says, he gave Father Kamar a cheque for $2,000 for the rental of the room and $200 in cash from the bar receipts and tried to obtain the proceeds of sale from the tickets sold by Father Kamar. Father Kamar thereupon apparently told him that he could not hand over the proceeds because the ticket buyers might ask to be reimbursed because of the weather that evening and the Order had not received payment for all the tickets. Mr. Younes admitted that he did not know how many tickets the Order had purportedly sold. He did not even know how many tickets had been sold at the door. However, Father Kamar apparently gave Mr. Younes an "official receipt for tax purposes" showing a donation of $10,000. Mr. Younes explained the amount of the receipt as follows. The $10,000 was the total of three amounts: $2,000 remitted by cheque and $200 in cash (from the bar receipts) for the rental of the room and the balance of $7,800, representing the proceeds of sale for the tickets sold by the Order (260 tickets at $30). In answering questions that I put to him, Mr. Younes indicated that, when he left the monastery on the evening of December 22, 1990, he had no intention of giving the Order the proceeds from the sale of those tickets; he expected to receive those proceeds later. He said he never received the money and never took any steps to collect it from Father Kamar, being embarrassed to make such a request of a representative of a church.

[14]     Mr. Younes said he had paid Mr. Saadé $6,900 in cash for his performance and paid his living expenses, Mr. Saadé having stayed at Mr. Younes' home for two weeks. In addition, Mr. Younes may have paid fees to two Quebec musicians who accompanied Mr. Saadé at the concert. Mr. Younes said that he had lost more than $10,000 as a result of the concert. His accountant, he said, told him that it would be more advantageous to deduct that amount as a business loss. Having claimed a deduction for major expenses in computing his "total income", Mr. Younes could receive the tax credit for charitable donations solely in respect of donations of $5,069. He therefore had to carry over a portion of the balance, namely $4,602, to 1991, and the rest was apparently used by his wife. Mr. Younes nevertheless preferred to use the receipt for charitable donations given him by Father Kamar. According to Mr. Younes, the Order's receipt had more certain probative value.

[15]     Following a reassessment denying Mr. Younes a significant portion of the aforementioned expenses that he had claimed, which accordingly increased his "net income", the Minister recomputed the tax credit for charitable donations in respect of an amount of $9,025 for 1990 and $975 for 1991. On August 7, 1997, after discovering the scheme, the Minister made new notices of reassessment for the 1990 and 1991 taxation years, denying Mr. Younes the credits for charitable donations in respect of the receipt issued by the Order. The Minister also assessed penalties under subsection 163(2) of the Act.

Evidence of the Four Appellants

[16]     When being sworn, Mrs. Audette described herself as an assistant manager; Mr. Audette said he held a products manager's position; Ms. Benard said she was a travel counsellor; and Mr. Spiezia stated that he was assistant to the meat department manager at a grocery store. Since November 1993, Mr. Spiezia has been living in the same house as Ms. Benard, but in the basement. Even though the latter has been separated since 1990 and the former divorced since February 1993, they do not appear to be living in a conjugal relationship. Ms. Benard and the Audettes seemed to me to have known each other for a number of years. Ms. Benard admitted that she was a co-worker of Mr. Nahas's wife and that she knew the Nahas family well.

[17]     All four appellants asserted that they had given the full amounts appearing on the receipts issued by the Order. They all stated that they had wanted to help the children of Lebanon who were victims of the war. None of the four is of Lebanese extraction or has relatives in Lebanon. None is a Maronite.

Analysis

[18]     In her argument, Ms. Lessard, counsel for the respondent, correctly stated the legal principles relating to the burden of proof and the rules concerning the assessment of circumstantial evidence. Included in her book of authorities is the decision by the Supreme Court of Canada in Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, in which L'Heureux-Dubé J. affirms at page 378: "It is trite law that in taxation the standard of proof is the civil balance of probabilities". As to the burden of proof in cases involving the application of a civil penalty, L'Heureux-Dubé J. cites in Hickman Motors the following passage from the decision in Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164, at page 169:

Where there is an allegation of conduct that is morally blameworthy or that could have a criminal or penal aspect and the allegation is made in civil litigation, the relevant burden of proof remains proof on a balance of probabilities.

                                                                                      [Emphasis added.]

[19]     With respect to the assessment of the evidence, counsel cited in particular Jean-Claude Royer, La preuve civile, 2nd edition, Les Éditions Yvon Blais, and specifically paragraph 175, at page 100:

[TRANSLATION]

Direct evidence is preferred over indirect evidence - Direct evidence is evidence having an immediate bearing on the fact in dispute. Indirect evidence, inferential evidence or presumptive evidence concerns material facts which make it possible to infer the existence of the fact in dispute.

. . .

Direct testimonial evidence is superior to presumptive evidence, although this rule is not absolute. In some circumstances, a court may prefer inferential evidence to direct evidence.

Counsel also cited the decision by the Quebec Court of Appeal in Légaré v. The Shawinigan Water and Power Co. Ltd., [1972] C.A. 372, in which Tremblay C.J. wrote as follows:

[TRANSLATION]

Légaré criticizes the trial judge on two main points.

He complains that the trial judge has disregarded his testimony and that of the Bureau, although that testimony was not contradicted. But the courts are not required to believe witnesses, even if they are not contradicted by other witnesses. Their version may be implausible given the circumstances revealed by the evidence or based on the rules of plain common sense. The witness's demeanour and attitude are also important factors.

[20]     First, it is important to state that no criminal proceedings are involved here: no charges have been laid against anyone. The question is whether the five appellants are entitled to their tax credits for charitable donations. It must also be determined whether civil penalties are justified on the basis of the presence in the appellant's returns of false statements amounting to gross negligence.

[21]     Each appeal must be decided on the evidence brought before the Court. For example, in Ghadban v. The Queen (1999-4736(IT)I, a decision delivered orally and not reported), the taxpayer also claimed that he had made donations to the Order. After hearing his testimony, I concluded that he had in fact made the donations. The fact that the Order "sold" false receipts does not mean that it must necessarily be concluded that all the Order's donors used false receipts. In Abouantoun et al. (2000-286(IT)I, 2000-238(IT)I and 2000-663(IT)I), on the other hand, I held that the taxpayers had taken part in the scheme. I should mention, however, that, in their case, unlike in Ghadban, the respondent had adduced evidence linking their donations to the Order's scheme. In particular, the names of those taxpayers appeared in Bibliorec.

[22]     Here, I heard the testimony of the five appellants and the witnesses called by the respondent. In my view, a distinction must be drawn between Mr. Younes' appeals and those of the four appellants. The circumstances of their claims for tax credits for charitable donations are quite different.

Georges Younes

[23]     I believe the respondent did not prove that Mr. Younes took part in the scheme. I was not satisfied on a balance of probabilities that Mr. Younes purchased a false receipt for charitable donations at a cost of 20 percent of the amount indicated thereon, as the respondent claims. First of all, there is quite obviously the testimony of Mr. Younes, who said he had never been informed of the scheme. There is also the fact that Mr. Younes obtained only one receipt. There were not a number of purported donations for more than one taxation year, as was the case with the other appellants. In addition, Mr. Younes' name does not appear in Bibliorec, since the data contained therein concern only 1993. Mr. Younes' alleged gift was apparently made in 1990.

[24]     Even if he did not participate in the scheme, that does not mean that he is entitled to his credit for charitable donations and that the penalty assessed by the Minister is unjustified. Mr. Younes stated that he had handed over a cheque for $2,000 and $200 in cash in payment for the room at the Order's monastery, which he had rented in order to present a concert by a childhood friend. When I asked Mr. Younes to explain to me how he could have claimed a tax credit for charitable donations in respect of that rent, he answered that, in his mind, any sum of money given to a church was a charitable donation. When one receives a consideration for money handed over to a person, there can be no question of a donation, even if the recipient of the payment is a charity. A donation supposes a reduction of the donor's patrimony for the benefit of that of the donee.

[25]     Furthermore, when he left Father Kamar at the end of the evening of December 22, 1990, Mr. Younes had no intention of giving the Order the proceeds of the sale of tickets for the concert. In addition, even though Mr. Younes believes that Father Kamar sold approximately 260 tickets at $30 each, that does not prove that Father Kamar collected the sum of $7,800 for those tickets. First of all, the only probative evidence of the price of the tickets is the ticket filed as Exhibit A-10 which establishes the price at $15. As there were no reserved seats, it is unlikely that any of the tickets were sold at twice the price of the other tickets. There is no evidence at all that the concert was a benefit concert for the Order. At any event, if such had been the case, it is the ticket buyers who could have derived a tax benefit therefrom. Furthermore, the fact that only 40 persons attended the concert on December 22, 1990, raises serious doubts as to Father Kamar's having sold that many tickets. It should also be pointed out that, contrary to what appears in Mr. Saadé's written declaration, there was no snowstorm on the evening of December 22, 1990, but rather it was drizzling.

[26]     Consequently, I do not believe that the receipt made out by the Order confirms the existence of a $10,000 donation, and I conclude that Mr. Younes did not make such a donation to the Order.[1] Mr. Younes did not become poorer when he paid the Order $2,200 since he obtained the use of a concert room in consideration for that sum. As to the balance of $7,800, the evidence is insufficient to enable one to conclude that the Order realized that amount on the sale of tickets; consequently, Mr. Younes is unable to establish that he in fact waived that amount in favour of the Order.

[27]     As he made his assessments in 1997, that is to say, outside the normal reassessment period, the Minister first had to prove that Mr. Younes made a misrepresentation attributable to neglect, carelessness or wilful default or committed some fraud in filing his income tax return.[2] In dealing with this question, it is useful to consider at the same time the application of the penalty prescribed in subsection 163(2) of the Act. That subsection provided as follows:

163(2)      False statements or omissions

Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this section referred to as a "return") filed or made in respect of a taxation year as required by or under this Act or a regulation, is liable to a penalty of the greater of $100 and 50% of the aggregate of

. . .

[28]     Strayer J. analyzed these two questions in Venne v. The Queen, 84 DTC 6247. With respect to assessment outside the normal reassessment period, he wrote, at page 6251:

I am satisfied that it is sufficient for the Minister, in order to invoke the power under sub-paragraph 152(4)(a)(i) of the Act to show that, with respect to any one or more aspects of his income tax return for a given year, a taxpayer has been negligent. Such negligence is established if it is shown that the taxpayer has not exercised reasonable care. This is surely what the word "misrepresentation that is attributable to neglect" must mean, particularly when combined with other grounds such as "carelessness" or "wilful default" which refer to a higher degree of negligence or to intentional misconduct.

[Emphasis added.]

However, Strayer J. stated that the respondent's onus is heavier with regard to the assessment of a penalty (page 6249):

It will be noted that for the penalty to be applicable there appears to be a higher degree of culpability required, involving either actual knowledge or gross negligence, than is the case under sub-section 152(4) for reopening assessments more than four years old where mere negligence seems to be sufficient.

[Emphasis added.]

He described what constitutes gross negligence as follows (page 6256):

"Gross negligence" must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not.

[Emphasis added.]

[29]     I do not think it plausible that Mr. Younes could have believed he was entitled to deduct as a charitable gift rent paid to a church. In 1990, Mr. Younes had been living in Canada for some 15 years. He had held employment in business, working in particular in claims adjustment and as a salesman in the renovation services field. There is no indication that Mr. Younes did not have the necessary judgment to realize that one is not making a gift when one receives a consideration for the money paid.

[30]     I also find it hard to see how his accountant could have suggested to him that he deduct as a business loss the loss incurred in organizing the concert. That concert was the only one Mr. Younes organized. All he hoped was to recover his expenses. He did not do it to earn a profit from the activity. He did it to help a friend. In such circumstances, no business is being carried on because there is no source of income. It is unfortunate that Mr. Younes did not have his accountant testify to shed light on the discussions that took place between them. I believe the most plausible explanations concerning the accountant's recommendation are the following: either Mr. Younes did not provide his accountant with all the relevant information, or he did so and the accountant did not perform his work in a professional and ethical manner.

[31]     The fact that Mr. Younes could not deduct a business loss might also explain why he did not try to deduct his loss and preferred to use an "official receipt for tax purposes" prepared by a church, believing that such a receipt gave him a better chance of avoiding having the tax authorities question things. Consequently, I conclude that Mr. Younes knowingly, or under circumstances amounting to gross negligence, made a false statement in his income tax return for 1990 and 1991. It is therefore clear that Mr. Younes made a misrepresentation attributable to neglect, carelessness or wilful default, which enabled the Minister to make his assessments outside the normal reassessment period.

[32]     However, as to the calculation of the penalty, I am prepared to admit that Mr. Younes may have believed he was entitled to a tax credit for charitable donations in respect of a portion of the $10,000 amount. I am prepared to acknowledge that Mr. Younes may have believed that Father Kamar and the Order had been able to sell a certain number of tickets for the concert and had kept the proceeds from the sale for the Order's charitable works. In view of the small number of people present at the concert, considering the weather conditions, which, however, were not as disastrous as described by Joe Saadé, and given the fact that the concert was to be held so close to the Christmas holiday period, Mr. Younes could have believed that Father Kamar had sold 100 of the 300 tickets given to him. As the evidence showed that the price of the tickets was $15, I conclude that Mr. Younes could have believed that the amount withheld by Father Kamar and the Order was $1,500 ($15 x 100) and that he was entitled to a tax credit in respect of that amount. It is true that, when he left Father Kamar on December 22, 1990, he had no intention of giving that amount to the Order. However, having abandoned any effort to obtain payment, he may have resigned himself to having made a gift of it to the Order, particularly since he left that evening with an official tax receipt for income tax purposes.

The Four Appellants

[33]     In the case of the four appellants, I am satisfied on a balance of probabilities that they took part in the Order's scheme and that they acquired false charitable donation receipts. The evidence supporting this finding is as follows.

[34]     First of all, there is the fact that none of the four appellants made donations, or that they made only small donations, to other charities. Thus, from 1988 to 1998, the Audettes ostensibly made gifts to the Order totalling $58,000 over a period of five years, whereas the total of their gifts to other charities during the entire 11 years did not exceed $420. In Ms. Benard's case, her alleged gifts[3] to the Order totalled $14,600 for the years from 1990 to 1998, whereas her other donations for the same period were limited to $25. As to Mr. Spiezia, his purported donations[4] to the Order amounted to $5,400 for the period from 1990 to 1998, while he made no other charitable gift during that period.

[35]     Furthermore, the alleged gifts of each of the four appellants represent an appreciable percentage of their disposable net income, that is to say, the amount of their total income after deduction of, in particular, their contributions to retirement savings plans and to the Quebec pension plan and amounts of tax withheld at source by their employers. Mr. Audette's purported donations to the Order represent between 22 percent and 27 percent of his disposable net income for the relevant years. For Mrs. Audette, the figure is between 22 percent and 23 percent, for Ms. Benard, between 10 percent and 16 percent, and for Mr. Spiezia, between 14 percent and 23 percent. It must also be considered that the Audettes had three children, as did Ms. Benard, during the relevant period. In Ms. Benard's case, her purported gifts totalled $14,600 for the four taxation years in question, whereas her disposable annual net income during that period varied between $15,255 and $34,741, in addition to which she was divorced and occasionally had trouble collecting support for her children.

[36]     In Mr. Spiezia's case, it should be mentioned that he had to pay his former spouse support for his children. In 1994, for example, his disposable net income was $12,773, and yet he claims he made a $3,000 donation to the Order. Mr. Spiezia attempted to explain that he had the money to make the donation because his mother had given to him, as she did to his brother, $5,000 in 1994. However, based on the amounts reported by Mr. Spiezia's mother, her income was very modest. It is therefore very surprising in the circumstances that Mr. Spiezia, whose disposable net income was only $12,773 in 1994 and $17,256 in 1995, could have made such large gifts as $3,000 in 1994 and $2,400 in 1995.

[37]     Furthermore, the amount of the alleged gifts for which the four appellants claimed tax credits represents a very high percentage of the maximum amount which they were entitled to deduct. In Mr. Audette's case, the donations to the Order represent, for the years from 1991 to 1993, between 90 percent and 98 percent of the eligible maximum amount (20 percent of net income) for the purposes of computing the tax credits. For 1989 and 1990, his purported donations represent between 60 percent and 66 percent of the maximum. As to Mrs. Audette, her gifts represent 81 percent and 86 percent of the maximum amount. Ms. Benard's alleged gifts represent between 38 percent and 70 percent of the maximum, and, in Mr. Spiezia's case, the figures are 46 percent and 75 percent.

[38]     Another troubling factor in the appeals of the four appellants is that there is no evidence establishing the existence of the donations. There is no cheque and no representative of the purported donee to confirm receipt of such donations. Unfortunately for the four appellants, they all say they made their donations in cash. In addition, all claim to have used money deposited in safety deposit boxes or safes to explain the fact that their bank statements were or would have been of no use in confirming the withdrawals of funds supporting their allegations that they made donations to the Order. It is surprising to say the least that the appellants paid such large amounts in cash. In particular, Mr. Audette alleges that he donated in single cash payments $12,000 in 1990, $10,000 in November 1991 and $10,000 in 1992. The same is true for Ms. Benard's gifts of $5,000 in 1991 and 1992. That is a great deal of money to have in a safety deposit box! A cheque (certified if necessary) or a bank draft would certainly have been a more common method of payment for such large donations. Cash payments are more readily understandable for smaller donations. The four appellants obviously asserted that the receipts made out by the Order constituted proof of their donations. However, the overwhelming evidence adduced by the respondent reveals that the Order had put in place a scheme involving the issuing of false receipts. The receipts thus have little probative value.

[39]     There remains the testimony of the four appellants themselves, all of whom stated that they gave the entire amounts shown on the receipts. However, there is reason to doubt their credibility. They did not always speak frankly during their testimony. In particular, the four were questioned about the letter that each of them had sent to counsel for the respondent in which each stated their reasons for refusing a request to amend the respondent's reply to the notice of appeal. When asked if that letter had been drafted with the help of another person, Mr. Audette and Ms. Benard each said they had written it themselves, without anyone's assistance. Mrs. Audette said it was her husband who had written it, while Mr. Spiezia asserted that he had only had the help of a co-worker to write the letter in French. Although he speaks and understands French, Mr. Spiezia preferred to express himself in English before the Court. As all the letters are virtually identical, it is much more plausible that one of those letters served as a model for the other three or that a model prepared by a third party-for example, by Mr. Nahas, the four appellants' accountant-was used in drafting each of the letters. It should also be noted that Mr. Nahas did not testify at the hearing: according to Mr. Audette, he would not have had a great deal of credibility because he had been found guilty of tax evasion as a result of his participation in the scheme.[5]

[40]     Furthermore, in Mr. Audette's case, it bears repeating that his name appears in Bibliorec. That document shows that Mr. Audette paid 15 percent of the amount of the receipt prepared by the Order for 1993. In addition, Mr. Nahas's given name appears in the intermediaries column and it is he who apparently introduced Mr. Audette to the Order, as Mr. Audette moreover confirmed himself. I would point out that Mr. Nahas was, all at the same time, the Audettes' neighbour, the Order's accountant and the person who reviewed and completed the tax returns of Mr. and Mrs. Audette.

[41]     Another disturbing fact came out of the testimony of Mr. and Mrs. Audette and of Ms. Benard. All three said they had gone to the Order's office on December 31 to make their donations. Mrs. Audette said she went there on December 31, 1991 and 1992; Mr. Audette said he went on December 31, 1993; and Ms. Benard said she was there on December 31, 1991. First of all, it is surprising, if not implausible, that these three appellants would have travelled from Pierrefonds to Outremont on New Year's Eve to make their donations to the Order. It is much more likely that they did the same as Mrs. Cedilot and Mrs. Mercier, who gave Mr. Nahas cash, and that it was he who took care of obtaining the receipts from the Order.

[42]     Furthermore, an analysis by the Minister's auditor supports that auditor's conclusion that these appellants' receipts dated December 31, like some of the other receipts, are antedated. That of December 31, 1991, bearing no. 2301, issued to Mrs. Audette was part of the book containing the receipts numbered from 2301 to 2325. The donation cheque for which the Order issued receipt no. 2304 dated December 31, 1991, was not deposited at the bank until April 24, 1992. Mrs. Audette's receipt of December 31, 1992, bears no. 1246. The cheques for which the Order made out receipts 1229 and 1249 dated December 31, 1992, were not deposited at the bank until May 5, 1993.

[43]     The Minister's auditor conducted a similar analysis of receipt no. 996 dated December 22, 1992, issued to Julien Audette. She learned from her audit that the cheque for which the Order issued receipt no. 978 dated December 31, 1992, was not deposited until May 5, 1993. The fact that the donation amounts on the basis of which Mr. Audette computed tax credits for charitable donations for 1992 and 1993 correspond to 95 percent and 98 percent of the eligible maximum amount suggests that he obtained his receipts after the end of the year because that enabled him to calculate the amount of his net income more accurately, this calculation being necessary to determine the maximum amount deductible for the purposes of the tax credits.

[44]     As for Ms. Benard, she obtained a receipt dated December 31, 1991, bearing no. 2116. The auditor observed that the cheques for which the Order issued receipts nos. 2107 to 2109 dated December 31, 1991, were not deposited until March 25, 1992.

[45]     Moreover, in Mr. Spiezia's case, his receipt for 1994 showing an amount of $3,000 bears no. 1156 and is dated October 11, 1994. Mr. Spiezia says he personally paid this sum in cash at the Order's office. However, during that month, the Minister's auditor was on site auditing the Order's books and had asked the Order to provide her with proof of the amounts held in cash in its safe. She was unable to obtain such proof. Furthermore, analysis of the Order's bank deposits reveals no trace of this $3,000 donation since the Order recorded only deposits of money that had been given to it by cheque.

[46]     It is also disturbing to note that Mr. Spiezia and Ms. Benard, who were living under the same roof, each obtained a receipt for 1995 dated December 5, 1995, bearing no. 1581 in one case and no. 1582 in the other, and that they stated that they had gone to Outremont in person and had not met each other. Ms. Benard says that she did not know that Mr. Spiezia (and the Audettes) had made donations to the Order until she received notices of hearing from the Court.

[47]     It should be mentioned as well that not only did each of the four appellants know Mr. Nahas, the Order's accountant, but Mr. Nahas prepared their income tax returns. As revealed by Mrs. Cedilot's solemn declaration and the report on the interview with Mrs. Mercier, Mr. Nahas had recommended to those persons the purchase of false receipts for charitable of prepared by the Order. It is therefore highly likely that Mr. Nahas did the same with the four appellants.

[48]     Another minor piece of evidence concerning Mr. Spiezia, which adds to all the rest, is the fact that it was 1994, the year after he moved into the same house as Ms. Benard, that Mr. Spiezia began claiming tax credits for charitable donations made to the Order.

[49]     Lastly, it may be mentioned that the four appellants appear to have made few efforts to obtain from the Order evidence corroborating their allegations after the Minister denied them the tax credits. On the contrary, to gain access to certain documents, such as their bank statements, counsel for the respondent had to send them a subpoena.

[50]     As in my decision in Abouantoun,[6] supra, here too one would have to be blind not to conclude that what we are dealing with is purchases of false receipts for charitable donations. There were in fact no donations; there were, rather, sham donations. In the case of the four appellants, there can be no question of donations because I can detect no donative intention on their part, that is, an intention to reduce their patrimony in order to enrich the Order. All that took place was the purchase and sale of a piece of paper which was to secure for the appellants a fraudulent, or at least undue, tax benefit.

[51]     Having concluded that the four appellants did not make actual donations, I must now decide whether subsection 163(2) of the Act applies to the facts of their appeals. As seen above, that subsection provides for a penalty to be assessed against every person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of a false statement or omission in a return for a taxation year.

[52]     The respondent argues that, to the extent that it is found that the four appellants took part in the scheme and that they were fully aware of the content of their returns, it must also be found that the penalty should apply. I share this view. I am satisfied on a balance of probabilities that the four knowingly, or under circumstances amounting to gross negligence, made a false statement in their income tax returns in claiming tax credits for charitable donations and in basing those claims on false receipts which they had purchased. One would have to be wilfully blind not to realize that one cannot be entitled to 100 percent of such credits where only 15 percent or 20 percent of the amount of the receipt has been donated. In my view, the penalty is fully justified in the case of the four appellants. It therefore goes without saying that the Minister has shown on a balance of probabilities that Mr. and Mrs. Audette and Ms. Benard made a misrepresentation that is attributable to neglect, carelessness or wilful default or committed a fraud in filing their returns. Accordingly, the Minister could assess outside the normal reassessment period.

[53]     For all these reasons, the appeals of Mr. and Mrs. Audette and those of Ms. Benard and Mr. Spiezia are dismissed. Mr. Younes' appeals are allowed and the assessments are referred back to the Minister for reconsideration and reassessment on the basis that Mr. Younes was entitled to no tax credit for charitable donations in respect of the purported gift of $10,000 made to the Order but, for the purposes of computing the penalty and for those purposes alone, on the basis that he was entitled to a tax credit with respect to a $1,500 charitable donation. Consequently, the penalty shall be computed solely on the basis of the tax credit in respect of charitable donations of $8,500.

Signed at Montréal, Quebec, this 31st day of October 2001.

"Pierre Archambault"

J.T.C.C.

Translation certified true

on this 28th day of February 2003.

Erich Klein, Revisor

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