[OFFICIAL ENGLISH TRANSLATION]
2000-5156(IT)I
BETWEEN:
MAURICE SAMSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on February 26, 2002, at Québec, Quebec, by
the Honourable Judge P.R. Dussault
Appearances
Counsel for the Appellant: Richard Cliche
Counsel for the Respondent: Dany Leduc
JUDGMENT
The appeal from the assessment made under the Income Tax Act (the "Act") for 1996 is dismissed. The appeal from the assessment made under the Act for 1997 is allowed, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the unreported income in the amount of $8,085 shall be reduced to $8,065 and the interest and penalty shall be reduced accordingly, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 22nd day of March 2002.
|
"P.R. Dussault" |
J.T.C.C.
Translation certified true
on this 23rd day of July 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020322
Docket: 2000-5156(IT)I
BETWEEN:
MAURICE SAMSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
P.R. Dussault, J.T.C.C.
[1] These are appeals from assessments made under the Income Tax Act (the "Act") for 1996 and 1997. By those assessments, the Minister of National Revenue (the "Minister") added the amounts of $12,966 and of $8,085 to the appellant's income as unreported income for 1996 and 1997 respectively. Penalties of $1,954.33 and $1,270.04 were also assessed under subsection 163(2) of the Act for each of the years.
[2] In making the assessments, the Minister assumed inter alia the facts stated in subparagraphs 6(a) to (i) of the Reply to the Notice of Appeal, which read as follows:
[TRANSLATION]
(a) during the years in issue, Maurice Samson was employed by P.A. Lessard Inc., where he worked approximately 50 hours a week;
(b) during that period, the appellant also operated a snow removal and wood-cutting business (hereinafter the "business");
(c) during the audit of the business's financial statements, the books of account, the documents in support of the amounts entered into the financial statements, the appellant's personal bank accounts, and the appellant's personal and family expenses were analyzed;
(d) it was shown during the audit that the sources of the unreported income in issue was as follows:
1996 1997
- unexplained bank deposits $ 1,070 $5,085
- unreported sale $ 159
- cash payments $11,737 $3,000
Total $12,966 $8,085
(e) the source of the funds deposited to the appellant's personal account was checked and identified in part, taking into account, inter alia, inter-account transfers and the appellant's salary;
(f) in 1997, a cash payment of $3,000 was made for subcontracting work, while, in 1996, cash payments were used to acquire capital property;
(g) for the 1996 and 1997 taxation years, the Minister thus added to the appellant's income the deposits the appellant made to his personal bank account, the unreported sale, and the cash payments for which the appellant was unable to provide sufficient explanation showing conclusively that those amounts were not taxable;
(h) in failing to report income of $12,966 and $8,085 for the 1996 and 1997 taxation years, 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 tax return for each of the taxation years in issue, as a result of which the tax that he would have been required to pay based on the information provided in the federal tax returns filed for those years in issue was less than the amount of tax payable for those years;
(i) as a result of the appellant's failure to report all his income, the Minister, in making the notices of reassessment of November 16, 2000, assessed him penalties of $1,954.33 for the 1996 taxation year and $1,270.04 for the 1997 taxation year under subsection 163(2) of the Income Tax Act (hereinafter the "Act");
[3] Counsel for the respondent admitted that a minor error had to be corrected in that the amount of $5,085 in respect of unexplained bank deposits for 1997 should be reduced to $5,065 and, therefore, that the total of $8,085 for the year should be reduced to $8,065.
[4] Counsel for the appellant moreover emphasized that the sum of $159 relating to an unreported sale in 1996 was not in dispute since, as a result of an error, it had in fact not been accounted for and reported.
[5] The appellant's accountant, Réjean Champagne, C.M.A., the appellant himself and his spouse, Suzanne Lachance, testified. Jean-Paul Fortin testified for the respondent.
[6] Mr. Lachance had represented the appellant only since the Revenue Canada audit in 1999.
[7] Mr. Champagne explained that, following the audit, Revenue Canada had considered as unreported income all the deposits whose origin could not be traced, but that at the objection stage he had subsequently attempted to show that a number of deposits had been made twice. Amounts deposited to a particular account had been withdrawn and deposited to another account. Mr. Champagne also stated that the fact that certain deposits represented amounts received as family allowances, tax benefits or tax refunds had been disregarded. He said that the result was that Revenue Canada had decided to reduce the assessments by disregarding all the small deposits, that is to say, those of less than $500. In fact, as we shall see, all deposits of $1,000 or less were excluded as a result of the objection. The result was that the unreported income relating to the deposits whose source could not be identified was reduced from $17,709 to $1,070 for 1996 and from $27,135 to $5,085 for 1997.
[8] Mr. Champagne also said he had observed that the appellant had been paid by cheque for the woodcutting work done but that he had paid all his expenses, including the purchase of machinery or equipment and current expenses in cash. He moreover emphasized that the purchase of machinery and equipment was entered into the financial statements and that the appropriate capital cost allowance (CCA) schedules had been completed by the accountant at the time.
[9] The appellant began working as a forestry worker at the age of 18. In 1984, he found a regular job as a miller with P.A. Lessard Inc. ("P.A. Lessard").
[10] In 1996, he started up a wood-cutting and snow removal business to which he said he had devoted approximately 15 hours a week. He acquired a tractor and trailer for this purpose in 1996. He also had the necessary snow removal equipment installed on the tractor.
[11] During the years in issue, the appellant had three accounts at financial institutions. The first account at the National Bank ("Bank") was used for direct pay deposits by his employer P.A. Lessard.
[12] The appellant's other two accounts were at the Caisse Populaire Desjardins in Saint-Georges, Beauce ("Caisse Populaire"). The first account (folio 24410), a joint account with his spouse, was used for payments on a mortgage loan and current bills. According to the appellant, the amounts deposited to that account came from cash withdrawals from the Bank account to which his salary was deposited and in which he left only the amounts needed to make certain payments.
[13] The second account at the Caisse Populaire (folio 36088) was used for business purposes. The appellant said that the business's woodcutting income came essentially from the proceeds of the sale of wood to various mills in the region. The appellant stated that he had always been paid by cheque and that he had reported all his income from that business, including an amount between $2,000 and $2,200 for snow removal work in the fall of 1996. He said he had stopped doing snow removal work in January 1997 because he did not have the time for it. As to the cheques from the mills, the appellant said he had in fact deposited to the business account only the amounts needed to make his payments on a loan taken out for purchasing his tractor, a loan that was secured by a second mortgage on his residence. The surplus amount, he said, was kept in cash.
[14] My understanding of the appellant's way of proceeding is that he kept everything that was not needed to repay the various loans and pay current personal bills in cash amounts. As to business expenses, the appellant testified that they had all been paid in cash, that he had rarely made out cheques and that, in that respect, he had proceeded in the same way as his father had always done, that is to say, that he paid all his expenses in cash.
[15] The appellant stated that the cash he had came not only from the surpluses he referred to but also from his savings of some $30 to $40 a week, savings accumulated since the age of 20, thus over a period of approximately 14 years. The appellant said that he kept a box at home containing his weekly savings and that he had thus accumulated a total of approximately $34,000, including the surpluses mentioned. In 1988, a portion of that amount, approximately $10,000 to $15,000, was purportedly used to pay for a lot and for some work done on the family residence acquired that same year.
[16] In 1996, the appellant said that the cash he had was used to pay an amount of $11,737 to acquire a generator and equipment installed on the tractor acquired for the wood-cutting and snow removal business (Exhibit A-4). He also said that a sum of $1,070 had also been deposited in bills to the appellant's account at the Bank (Exhibit I-12). It is the total of those two amounts, $12,807, that is in issue for 1996.
[17] In 1997, a cash amount of $5,065 was apparently used by the appellant to make three payments on his line of credit in the joint account at the Caisse Populaire (folio 24410) (see Exhibit A-5). Payments totalling $3,000 in cash were also apparently made to a certain Mr. Vachon for wood-cutting work under a contract obtained by the appellant. Mr. Vachon has since died, but he gave the appellant a receipt for $3,000 for all the amounts received (Exhibit A-6). It is the total of those two amounts, $8,065, which is in issue for 1997.
[18] The appellant stated that he had reported all his income. He claimed that what was presented as unexplained deposits resulted from the fact that amounts withdrawn from one account had subsequently been deposited to another account and that the cash set aside and the savings accumulated from a number of years, which were stored in the safe, had been used to acquire equipment, repay the line of credit and pay current business expenses, including the payments to Mr. Vachon for his wood-cutting work.
[19] In her testimony, Suzanne Lachance said she had been married to the appellant since 1985. She confirmed his version concerning the bank deposits, withdrawals, and payment of accounts and confirmed that she had conducted all the transactions at the financial institutions. She said that only the money needed for the payments was left on deposit at the Bank or the Caisse Populaire and that she had withdrawn the balance in cash, which was kept with the accumulated savings in the box at home.
[20] On the issue of savings, Ms. Lachance said that there had always been a box at home, except in the first year. I suppose that means since the very start of her marriage to the appellant in 1985, except for the first year. She said the weekly savings had amounted to $25 or $30 and that she or the appellant had put the money in the box.
[21] To the question how much money might have accumulated in the box since the start, she answered $15,000 and subsequently confirmed the answer given.
[22] To the question how much money might there have been in the safe in 1996, she answered that she did not know. To the same question for 1997, she answered that the business was the appellant's and provided no further details.
[23] Ms. Lachance moreover stated that she herself had made the cash payment to purchase the equipment for the tractor in 1996. As to the cash payment for the generator, she did not remember. In addition, the deposit slip for an amount of $1,070 in cash in 1996 bears her signature. She was also the one who made the three cash payments on the line of credit in 1997. The deposit slips moreover bear her signature. All those payments were purportedly made with the cash kept in the safe at home.
[24] Jean-Paul Fortin, appeals officer, was assigned to the case in response to the notice of objection. Mr. Fortin first had telephone discussions with Mr. Champagne, the appellant's agent. He then called a meeting with Mr. Champagne, the appellant, and Ms. Lachance. In view of the appellant's salary and cheques obtained as part of his wood-cutting business, the auditor considered all the deposits whose source could not be explained to be unreported income, whereas Mr. Fortin decided to disregard all deposits of $1,000 or less as a result of the explanations provided, particularly concerning the withdrawals from one account and deposits to another. According to the compilation made by the auditor, there were 36 deposits of less than $1,000 in 1996 and 51 in 1997 (Exhibit I-9). Mr. Fortin explained that the decision was made primarily because the appellant had not devoted many hours to his business each week and, somewhat arbitrarily, because it was possible for the appellant to have kept amounts of $1,000 or less in cash and to have subsequently deposited them to another account. Furthermore, all those deposits of more than $1,000 that could have been explained by cheques received by the appellant were allowed (see Exhibits I-10 to I-16).
[25] According to Mr. Fortin, the auditor had also added to the appellant's unreported income an amount of $11,737 in 1996, the total of two invoices paid in cash (see Exhibits I-8 and A-4). At the meeting, the appellant purportedly told him that the cash payments came from an amount of nearly $34,000, which he had accumulated at a rate of approximately $40 a week since he began working and which was available in 1996. Mr. Fortin said that the appellant was not referring at the time to the total amount he had accumulated from the start, part of which he had used for the house in 1988 as stated in his testimony. Mr. Fortin contended that he had specifically asked the appellant why he had not been tempted to use the money before, to buy furniture or a car, for example. He said the appellant simply answered that it was because he had not wanted to.
[26] Furthermore, Mr. Fortin said the auditor had previously asked the appellant whether he had a safe or accumulated cash, and the appellant had answered no. When confronted over this earlier statement, the appellant purportedly answered that he had no cash at the time of the interview but had had some before.
[27] The appellant apparently gave the auditor and Mr. Fortin the same explanation regarding the $3,000 payment to Mr. Vachon in 1997.
[28] Mr. Fortin said he had found it difficult to accept the appellant's version and had thus decided to confirm the assessments in the amount of $12,966 and $8,085 for 1996 and 1997 respectively and to confirm the penalties under subsection 163(2) of the Act.
[29] Counsel for the appellant relied on the testimony of the appellant and that of the appellant's spouse. He emphasized that their version of the facts was corroborated by the various documents filed by the respondent and contended that their good faith and cooperation with authorities could not be disputed. He added that, if their way of proceeding might have caused problems for the audit, the evidence as a whole supported their testimony. On that point, counsel underscored the few hours the appellant had devoted to his wood-cutting business and the fact that the appellant was quite thrifty. He said the appellant had a fairly modest lifestyle, as shown by the nature of the property acquired over the years.
[30] While admitting that he had been unable to adduce direct evidence of the existence of unreported income, counsel for the respondent contended that it was open to him to bring indirect evidence by presumption, whereas counsel for the appellant had presented evidence by witnesses and their testimony had not been contradicted by other witnesses. He recalled that the courts are not required to believe witnesses if their versions seem implausible in light of circumstances put in evidence or the rules of common sense. He referred on this point to Jean-Claude Royer in La preuve civile, 2e éd., Cowansville, Éditions Yvon Blais Inc., 1995, pages 1100 and 1102, paragraphs 175 and 178, and to the decisions in Canadian Titanium Pigments Ltd. v. Fratelli D'Amico Armatori, [1979] F.C.J. No. 206 (F.C.T.B.), paragraphs 11 to 14, Légaré v. The Shawinigan Water and Power Co. Ltd., [1972] C.A. 372 (C.A.Q.), at pages 372 and 373, and Abouantoun v. Canada, [2001] T.C.J. No. 653 (T.C.C.), paragraphs 11 and 12.
[31] Counsel for the respondent noted on this point that it is hard to believe that Ms. Lachance could have testified against her husband or to his disadvantage and that the savings issue was implausible and the subject of inconsistent versions. For example, the appellant told the auditor that he had no safe or accumulated cash, whereas he told the appeals officer that in 1996, he had cash savings of nearly $34,000. When asked why he had not previously used a portion of that money, he simply answered that he had not wanted to. Similarly, when the appellant claimed that the amount of $34,000 represented the total amount saved from the start, Ms. Lachance said that the total savings since the start came to $15,000. Furthermore, whereas the appellant said he had saved $30, $40 or $50 a week, Ms. Lachance indicated savings of $20 to $25 a week. Counsel for the respondent also emphasized the fact that Ms. Lachance had said she did not know how much money there was in the safe in 1996 and 1997, when it was she who had conducted all the transactions at the Bank and Caisse Populaire.
[32] Lastly, counsel for the respondent emphasized that the appellant had been given the benefit of the doubt regarding the bank deposits of $1,000 or less and that it should have been possible to trace the origin of those exceeding that amount.
[33] As to the penalties, counsel for the respondent contended that they were justified in the circumstances. With regard to the factors that should be considered, he relied on the decisions in Venne v. The Queen, 84 DTC 6247 (F.C.T.B.), Patricio v. The Queen, 84 DTC 6413 (F.C.T.B.), and Abouantoun v. Canada, supra.
[34] The appellant began operating a business in 1996. He was responsible for keeping the books and records of account required by subsection 230(1) of the Act so that an adequate audit of his operations could be made for tax purposes. In view of the absence of such records and books of account and the appellant's particular way of proceeding, the audit could only be conducted indirectly through an examination of bank deposits and expense invoices. There is no doubt that the numerous withdrawals and deposits of unequal cash amounts from one account to another made it difficult, indeed impossible, to trace the origin with a modicum of precision. When one operates a business, proceeding without detailed bookkeeping is not acceptable.
[35] At the objection stage, Mr. Fortin gave the appellant the benefit of the doubt by excluding the amounts of all the deposits of $1,000 or less from the total of what the auditor had considered as unreported income. Deposits greater than that amount and for which an explanation was given were excluded as well.
[36] Only the cash deposits greater than $1,000 and the equipment purchases, also in cash, remain. The explanations given by the appellant and his spouse, Ms. Lachance, are based on the existence and amount of savings kept in a box at home. If their testimony had been completely coherent and consistent on this point, the appellant might have succeeded, but that is not the case. First, the appellant's answer to the auditor concerning the existence of accumulated cash or a box was completely different from the answer given to the appeals officer, Mr. Fortin. Moreover, there were differences in statements made at the hearing and in discussions with Mr. Fortin concerning the amount of cash the appellant had saved since he began working and that he had in hand in 1996. Ms. Lachance as well did not give the same version as the appellant as to the moment he began putting his savings in a box kept at home and as to the amount it contained. What is most surprising, however, was that she did not know how much money there was in the box in 1996 and 1997, whereas it was she who had purportedly conducted all the transactions at the financial institutions, including the cash withdrawals and deposits. Furthermore, Ms. Lachance said that, like the appellant, she had also put savings in the box. It was she who also purportedly withdrew the large amounts required for most of the cash deposits and payments in issue. It seems implausible that she did not know how much money there was in the box at the time of those transactions. As a result of these various factors, it is impossible to conclude that the appellant showed on a balance of probabilities that the cash deposits and payments in issue in the case at bar did not come from unreported income, even though some doubt might remain on this point.
[37] As to the penalties assessed under subsection 163(2) of the Act, I find that the circumstances are such that the appellant can only knowingly have failed to report the additional income assessed.
[38] Having regard to the foregoing, the appeal from the assessment made under the Act for 1996 is dismissed. The appeal from the assessment made under the Act for 1997 is allowed, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the amount of unreported income of $8,085 shall be reduced to $8,065 and that the interest and penalty shall be reduced accordingly.
Signed at Ottawa, Canada, this 22nd day of March 2002.
|
"P.R. Dussault" |
J.T.C.C.
Translation certified true
on this 23rd day of July 2003.
Sophie Debbané, Revisor