[OFFICIAL ENGLISH TRANSLATION]
2001-3165(IT)I
BETWEEN:
GUY DIONNE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on May 27, 2002, at Percé, Québec, by
the Honourable Judge Alain Tardif
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Claude Lamoureux
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1995, 1996 and 1997 taxation years is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 13th day of June 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 4th day of September 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020613
Docket: 2001-3165(IT)I
BETWEEN:
GUY DIONNE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal concerning the 1995, 1996 and 1997 taxation years.
[2] The assessments being appealed from were made on the basis of the following assumptions of fact:
(a) Generalities
(i) during the taxation years at issue, the appellant worked as an electrical contractor;
(ii) during the 1995 and 1996 taxation years, the appellant did not have a contractor's licence from the Régie du Bâtiment du Québec;
(iii) for the 1995 and 1996 taxation years, the appellant stated that he was unable to draw up financial statements because he had apparently destroyed all the documentation on income and expenditures;
(iv) for the 1997 taxation year, the appellant filed his income tax return on time but declared income for an abbreviated period from August 1 to December 31, 1997.
(b) Notice of Reassessments dated December 6, 1999
(i) in 1997, the Minister contacted the appellant in order to request that he file his tax returns for the 1995 and 1996 taxation years;
(ii) on February 10, 1998, the Minister received tax returns for the 1995 and 1996 taxation years in which the appellant reported no business income;
(iii) in April 1998, the appellant filed his tax return for the 1997 taxation year on time but declared business income only for the period from August 1 to December 31, 1997;
(iv) on June 9, 1999, the Minister sent the appellant a letter informing him that the Minister intended to reconstruct the tax returns for the 1995, 1996 and 1997 taxation years by adding to them undeclared business income of $89,981, $111,162 and $87,781 respectively and to apply to these amounts the penalty set out in subsection 163(2) of the Act, conditional on any relevant information the appellant might kindly send the Minister within thirty (30) days;
(v) the appellant or the agent for the appellant sent amended tax returns for the 1995 and 1996 taxation years to the Jonquière Tax Centre, instead of sending them to the auditor working on the file;
(vi) on September 14, 1999, the Minister reassessed the appellant for the 1995 and 1996 taxation years, in order to take into account the following amended declared amounts of gross and net income earned by the appellant as an electrical contractor:
1995 1996
"Guy Dionne Électricien enr."
Gross income $61,234 $57,443
Net income $2,227 $2,558;
(vii) On September 30, 1999, the Minister sent the appellant a letter informing him of the Minister's decision to establish the undeclared net business income in the amount of $28,747, $53,719 and $86,975 for the 1995, 1996 and 1997 taxation years respectively and to apply to those amounts the penalty set out in subsection 163(2) of the Act;
(viii) the Minister computed the undeclared business income as follows:
1995 1996
Income according to proposal $89,981 $111,161
(bank account deposits
identified)
Declared gross income
according to amended
tax returns $61,234 $57,443
$28,747 $53,718;
(ix) for the 1997 taxation year, the Minister computed the undeclared business income as follows:
Accounts receivable as at April 30, 1997 $ 6,139
Sales invoices $30,192
Deposits # 19262 $36,339
# 30194 $14,305 $50,644
$86 975;
(x) in a Notice of Reassessment dated December 6, 199[9], the Minister established the following amounts of net income from the operation of the business "Guy Dionne Électricien enr.":
1995 1996 1997
Net income
already assessed $2,227 $2,558 $2,829
Undeclared
income added $28,747 $53,718 $86,975
Net income $30,974 $56,276 $89,804.
(c) Notice of Reassessments dated June 20, 2001
(i) at the objection stage, the Minister agreed that the undeclared income should be reduced by the following amounts:
1995 1996
Net business income
assessed $30,974 $56,276
Less:
Deposits from sources
other than the business $2,596 $15,432
Deposits already taxed
by means of invoices $5,787
Bad debts $2,687
Revised net business income $28,378 $32,370;
(ii) by failing to declare $26,150, $29,812 and $86,975 for the 1995, 1996 and 1997 taxation years respectively, the appellant knowingly or under circumstances amounting to gross negligence made a false statement or omission in the tax returns he filed for those taxation years or he participated in, assented to or acquiesced in the making of that false statement or omission, with the result that the income tax payable according to the information provided in the tax statements filed by the appellant for each of those taxation years was lower than the income tax that would have been payable for each of those taxation years.
(d) Late filing penalty
(i) the appellant's tax returns for the 1995 and 1996 taxation years should have been filed no later than April 30, 1996, and April 30, 1997, respectively;
(ii) the appellant's tax returns for the 1995 and 1996 taxation years were not filed until February 10, 1998;
(iii) in the June 20, 2001, reassessments a total late filing penalty of $517.54 and of $454.74 for the 1995 and 1996 taxation years respectively were assessed.
[3] The issues are as follows:
(a) whether in computing the appellant's income, the amounts of $26,150, $29,812 and $86,975 were correctly included as undeclared business income for the 1995, 1996 and 1997 taxation years respectively;
(b) whether the Minister of National Revenue was entitled to assess a total late filing penalty of $517.54 and of $454.73 against the appellant for the 1995 and 1996 taxation years respectively; and
(c) whether the Minister was justified in assessing the penalty set out in subsection 163(2) of the Income Tax Act ("the Act") against the appelant for the 1995, 1996 and 1997 taxation years.
[4] The appellant and Régina Francoeur, in her capacity as the appellant's bookkeeper (although only from 1997), testified. Their testimony revealed that the appellant did not have any accounting records. Until 1997, all transactions concerning the business were processed through a single bank account that was also used for the appellant's personal affairs and the transactions of "Paguy-Hena Inc.", a real estate company controlled by the appellant.
[5] At the time of the audit, the appellant had not filed any tax returns for the 1995, 1996 or 1997 taxation years.
[6] As a result of a formal request that he file tax returns for the taxation years at issue, the appellant filed returns for the 1995 and 1996 taxation years, indicating that no income had been earned, thereby contradicting his initial and oral statements that the business had been inoperative during those years. For the 1997 taxation year, the appellant filed a return covering only the period from August to December 1997.
[7] At the outset, the appellant admitted and acknowledged that he had not filed tax returns for the taxation years at issue within the time limits set out in the Act.
[8] Not having any vouchers or accounting records concerning the appellant's business, the auditor was obliged to compute the appellant's income on the basis of bank deposits, the only method possible under the circumstances.
[9] During the review, a number of corrections were made; the respondent accepted nearly all the explanations provided and reduced the income initially established for the appellant by the corresponding amounts.
[10] Concerning the 1997 taxation year, the Appeals Officer indicated that he had repeatedly and unsuccessfully tried to contact the appellant, and he even indicated the exact date on which he had notified the appellant that, unless the appellant co-operate, he would be closing the file and making final assessments.
[11] At the hearing, I explicitly explained to the appellant the nature of the burden that he had and that, in order to discharge it, he would have to establish on the balance of evidence that his income was consistent with his claims, by means of documentation, evidence and plausible information.
[12] Not only did the appellant not adduce this evidence, he basically criticized the respondent's method of proceeding. Despite being cautioned that he needed to establish the accuracy of his claims, the appellant never adduced, produced or established anything whatsoever that would discredit the quality of the auditor's work.
[13] Essentially, the evidence adduced by the appellant consisted in stating that he had done what he could, in repeating that construction businesses were not profitable, and in stating that by himself he could not have made the sales attributed to him and that usually materials accounted for 40 per cent of costs and labour for 60 per cent.
[14] The appellant criticized the fact that his business income was computed on the basis of bank deposits, citing various other possibilities including tax rebates, reimbursements of expenses, and loan amounts. According to the appellant, those amounts might have been deposited into his account without constituting income at all.
[15] Ms Francoeur's testimony provided nothing whatsoever in support of the appellant's claims. Essentially, she confirmed that there were no accounting records and she, too, criticized the arbitrary method used (computing income on the basis of bank deposits). She provided examples of amounts that did not constitute income, such as reimbursement of expenses incurred by the appellant in the course of volunteer activities, tax rebates, and loan amounts. However, it was established that all individual deposits that did not constitute income had been deducted from income at the time of the review.
[16] In other words, at the time of the review, all the deposits that had been explained were deducted from income. As well, the appellant was unable to provide a single concrete example of any errors whatsoever; he did not point to any amount recorded as income that did not in fact constitute income.
[17] The appellant adduced no evidence that could allow me to accept any or all of his claims.
[18] Varying an assessment is essentially a rational and mathematical exercise. In this case, I cannot arbitrarily or intuitively find that the audit was performed in a wilful or flawed manner or find that the figures forming the basis for the assessment should have been different since nothing in the evidence calls for such a correction.
[19] In order to have the assessment being appealed from amended or reduced, the appellant would have had to provide this Court with the indispensable material to do so. Since the appellant has provided nothing of the sort, I must confirm the merits of the assessment.
The penalties
[20] Concerning the late filing penalties under paragraph 150(1)(d) of the Act, the appellant initially acknowledged the justification for those penalties; he provided all sorts of unacceptable reasons in an effort to explain his complete negligence and carelessness.
[21] Penalties were also assessed against the appellant under subsection 163(2), which reads as follows:
163(2) 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 total of
...
[22] On this point, the burden was on the respondent. The evidence adduced in order to discharge this burden showed that there was considerable income, not all of which had been declared.
[23] After being formally notified of his obligation to file tax returns for the 1995, 1996 and 1997 taxation years, the appellant first stated orally that his business had not operated in 1995 and 1996.
[24] Changing his mind, the appellant then confirmed everything in writing by filing signed statements that he had earned no income in the 1995 and 1996 taxation years. Later on, the appellant again filed other statements in which, this time, substantial income was reported for the same taxation years.
[25] These points are largely sufficient for me to find that the appellant knowingly made false statements and misrepresentations concerning the taxation years at issue in this appeal.
[26] The evidence has established that the appellant was a businessperson who had operated a business for several years. He operated a business that yielded substantial income; he maintained no accounting records or books and kept essential vouchers jumbled together in a box.
[27] Furthermore, the appellant's misrepresentations did not involve trivial amounts¾the amounts involved were substantial. The appellant's income had to be determined on the basis of bank deposits because the appellant was negligent to the point that he had absolutely nothing that would have made it possible to conduct an audit; more importantly, a single bank account was used to process all of the appellant's personal business as well as the transactions of the business and those of a company that the appellant controlled.
[28] As a result, the court should not intervene concerning the justification of the penalties, which were completely justified in the circumstances.
[29] The appeal is therefore dismissed.
Signed at Ottawa, Canada, this 13th day of June 2002.
|
"Alain Tardif" |
J.T.C.C..
Translation certified true
on this 4th day of September 2003.
Sophie Debbané, Revisor