[OFFICIAL ENGLISH TRANSLATION]
2000-3571(IT)I
BETWEEN:
JEAN-YVES COLLIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeal of
Gestion Jean-Yves Collin Ltée (2000-3570(IT)I)
on July 18, 2001, at Québec, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant: Daniel Cantin
Counsel for the Respondent: Pascale O'Bomsawin
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1994 and 1995 taxation years are allowed in part in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 14th day of January 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 1tst day of April 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-3570(IT)I
BETWEEN:
GESTION JEAN-YVES COLLIN LTÉE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence
with the appeal of Jean-Yves Collin (2000-3571(IT)I)
on July 18, 2001, at Québec, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant: Daniel Cantin
Counsel for the Respondent: Pascale O'Bomsawin
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1994 and 1995 taxation years are allowed in part in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 14th day of January 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 1tst day of April 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020114
Docket: 2000-3570(IT)I
BETWEEN:
GESTION JEAN-YVES COLLIN LTÉE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2000-3571(IT)I
BETWEEN:
JEAN-YVES COLLIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] The parties agreed to proceed on evidence common to both cases. The appeals concern unreported income and penalties assessed for the 1994 and 1995 taxation years.
[2] The appellant Collin alone testified in support of the appeals. He first described the various corporate structures at the centre around which he operated. He stated that, during the years in issue, the appellant company, Gestion Jean-Yves Collin Ltée, owned a woodlot, which it had acquired by notarial deed dated May 31, 1992 (Exhibit A-4).
[3] He also said that, at the same time, he himself had owned a woodlot under a notarial deed dated October 29, 1984 (Exhibit A-8).
[4] On December 27, 1993, he entered into an agreement with Benoît Deschamps to cut wood. That contract is cited below (Exhibit A-6).
[TRANSLATION]
Montmagny, December 27, 1993
Agreement
Between:
J.Y. Collin and Benoît Deschamps
911 Vancouver 412 Trans-conté
Boucherville, Qué. Montmagny, Qué.
J4B 5Z3 G5V 3R9
It is agreed that B. Deschamps will cut, haul and transfer wood on the lot on the 4th concession to the sawmill offering the best price for the wood. The work will begin as soon as possible in January 1994.
In return, J.Y. Collin agrees to pay Benoît Deschamps half of the earnings, that is 50 percent of sales to defray his costs.
. . .
[5] Under the contract for 1994, wood sales generated the total amount of $22,715.77 (Exhibit A-7).
[6] Of that amount, he purportedly paid half, that is $11,357.88, to Mr. Deschamps for expenses relating to cutting the wood, hauling it to the public road and, lastly, transporting it to the sawmill. He said he had no receipt or proof of payment, adding that he moreover had never obtained any for payments made in cash.
[7] The following year, in 1995, the same scenario continued, but, this time, the wood was cut and sold from the woodlot that the appellant Collin personally owned (Exhibit A-9). This time, he purportedly obtained $41,257.60, half of which he says he remitted to Mr. Deschamps, that is $20,628.80, for the same cutting and transportation services. He testified that in both years he had paid cash and obtained no receipts or other proof of payment.
[8] In 1995, Mr. Deschamps apparently received a certain number of payments directly from the sawmill, which, according to the appellant Collin's testimony, were deducted from the amount to which he was entitled under the extended agreement.
[9] With respect to the cutting and sale of wood from the lot owned by the company, the appellant Collin stated that he had never handed over the proceeds of the sale of the wood to the company in 1994; he stated that he had kept the cash amount of $11,357.88 and had never deposited it.
[10] On the whole, Mr. Collin admitted in testimony receiving $11,357.88 for 1994 and $20,628.80 for 1995, adding that he had not reported those amounts as a result of error or oversight.
[11] After learning of the existence of the cheques, the Minister of National Revenue (the "Minister") wanted to obtain information and details on the cheques from the appellant. Mr. Collin did not cooperate in any way. In particular, he refused to provide the name of the contractor who had performed the wood-cutting and selling work. He refused to provide the contracts of ownership of the woodlots and kept silent about the existence of the contract concerning the wood-cutting and selling work and the income-sharing.
[12] Mr. Collin was more talkative before the Court and testified in a plausible manner. His explanations concerning the wood cutting, transportation and sale of wood, as well as those involving the outlays required for the performance of the work seemed to be consistent with the practices and customs in the very particular field of the forest industry.
[13] Mr. Collin, a calm and shrewd businessman, has always remained in perfect control of the situation. I have no trouble understanding why, during the audit interviews, it was difficult, indeed, impossible, to obtain the information, which was nevertheless highly relevant for the purpose of analyzing his case and the case of the company.
[14] Mr. Collin was clearly more talkative at the hearing than in the stages prior to the trial. What was the purpose of not providing the relevant information? He said he had wanted to avoid causing problems for the person who had performed the wood-cutting and selling work. This behaviour was generous toward that third person but had significant consequences on his own situation and the situation of the company. Apart from that ground, there is reason to believe that the scenario was to his advantage. In other words, he also benefited from concealing all the logging operations.
[15] For the trial, the appellant changed his mind and decided to answer all the questions. Such an about-face could have cast doubt on the quality and plausibility of the explanations given to the Court and have negative effects since these are cases in which credibility is of great importance.
[16] To disregard testimony in whole or in part, it is essential that a number of factors or facts justify such a course. Irrational, improbable and implausible explanations often make the task easier. The presence of contradictions, an absence of direct answers, the discomfort of the witness, confused answers, evasive answers and double-talk are also revealing and significant factors in assessing a witness's credibility.
[17] In the instant case, Mr. Collin seemed to reply frankly and directly. He gave plausible explanations, which I found consistent with the various practices in that field of economic activity.
[18] It seems reasonable that the appellant necessarily had to pay expenses to have wood cut, removed and transported to the sawmill, and so on. All those outlays, according to his testimony, represented 50 percent of the value of the wood sold. Once again, I find that percentage plausible and realistic.
[19] However, I do not believe the appellant when he states that he failed to hand over the net amount of money from the first contract to the management company, which he controlled and which owned the wood that was cut and sold.
[20] The appellant is a shrewd businessman who has experience and highly elaborate knowledge of corporate organization. He managed a business, which he controlled perfectly well. Did he not say he had an office in his own residence for the purpose of exercising very tight control over all cheques and important documents? He added that he wanted those various documents and cheques to be sent to his home to enable him to review them before handing them over to the accountant or to accounting. Is this not the behaviour of a meticulous, thorough and highly alert businessman in the management of his affairs?
[21] Is it possible and plausible that a man with such a sense of control and as much experience and administrative knowledge would prepare a contract not referring to or stating the very object of the contract, the cutting and selling of wood? My answer is no.
[22] Is it possible that such a shrewd man would cash a number of large cheques and hand over half of the proceeds to a third party without obtaining a receipt, acknowledge and admit that he had not deposited the other half and plead an oversight or error? I could accept the explanation if one or two transactions and very small amounts of money had been involved, but that was not the case.
[23] I refuse to accept error or oversight as an explanation; all the actions were carried out in the same way and involved large amounts in the context of special, and positively non-routine activities.
[24] The fact the appellant candidly admitted that 50 percent of the net proceeds from the sale of the wood was never deposited, and especially that he agreed to pay large amounts to Mr. Deschamps in cash, without obtaining a receipt, to cover expenses relating to the cutting and transportation of wood, knowing full well that such expenses were fully deductible from income, seems to me revealing, and decisively so, of a firm will to conceal the income in question.
[25] This assessment is moreover corroborated by Mr. Collin's initial answers to the auditor, Marilyne Bourgeois, in which he squarely denied the facts.
[26] Why did the appellant decide to acknowledge the existence of unreported income? Simply because of the undeniable facts emerging from the conclusive documentary evidence in the respondent's hands.
[27] Although the respondent's evidence was highly conclusive on certain points and Mr. Collin refused to cooperate, that is not sufficient, however, to show that the assessments are valid as made. However, the respondent did not have much choice since she had to proceed by deduction, the appellant having refused to provide the documentation required to prepare the appropriate assessments.
[28] As to the allocation of income, the evidence did not establish satisfactorily which work sites had generated the income for the 1994 and 1995 taxation years.
[29] I attach no probative value to the explanations given with regard to the chronology of the work. I rely on the contract entered into between the appellant and Mrs. Deschamps on December 27, 1993, which does not refer to "Gestion Jean-Yves Collin Ltée".
[30] It would have been important to hear Benoît Deschamps. Should his absence from the trial mean that the expenses relating to the sale of the wood are ineligible? I refer to the costs to cut, remove and deliver wood to the sawmill. I do not believe so.
[31] I accept the explanations the appellant gave under oath to the effect that he had to pay out half the amounts received. Those outlays were made to Mr. Deschamps in respect of all costs relating to the marketing of the wood from his land.
[32] The best evidence would have been to have Mr. Deschamps testify with regard to the amounts received from the appellant. Since he may have excluded the amounts received from his income, it is possible that he in turn will have to provide certain explanations.
[33] The weight of evidence suggests that the unreported income should have been accounted for and determined as follows:
|
Company's files |
Taxation year |
Unreported gross income |
Allowable expenses |
Unreported income |
Taxable income |
|
2000-3570(IT)I |
1994 |
|
|
|
|
|
2000-3570(IT)I |
1995 |
$41,257.60 |
$20,628.80 |
$20,628.80 |
$20,628.80 |
|
Appellant Collin's files |
Taxation year |
Unreported gross income |
Allowable expenses |
Unreported income |
Unreported taxable income |
|
2000-3571(IT)I |
1994 |
$22,715.77 |
$11,357.88 |
$11,357.88 |
$11,357.88 |
|
2000-3571(IT)I |
1995 |
|
|
$20,628.80* |
$20,628.80 |
* benefits conferred on the appellant shareholder
[34] The appellant Collin contended that the provisions of subsection 15(1) of the Income Tax Act (the "Act") did not apply. In support of his claims, he referred to Les principes de l'imposition au Canada, December 1998, 12th edition, page 443, paragraph 2.3.1, which reads as follows:
[TRANSLATION]
Benefits conferred on a shareholder
Subsection 15(1) provides that a shareholder, or a person in contemplation of the person becoming a shareholder, shall include the value of a benefit conferred on him by the corporation in computing his income.
. . .
For subsection 15(1) to apply, the shareholder must have the intention of obtaining a benefit, a benefit granted inadvertently is presumably not subject to the application of that subsection.
[35] The appellant contended that the facts did not justify the assessment, the basis of which was a "benefit conferred on the shareholder" because there had been a simple mistake.
[36] He emphasized the fact that a shareholder had to intend to obtain a benefit in order to be subject to the provisions of the Act and to the application of subsection 15(1) of the Act.
[37] The appellant clearly retained from his reading only a general statement of principle; he forgot that the same treatise states that a taxable benefit exists where the shareholder should have known when the benefit was conferred.
[38] In light of what I saw and heard at the trial, I have no hesitation in concluding that the net amount for the 1994 taxation year was not inadvertently excluded from the appellant company's accounting; the appellant clearly knew perfectly well what he was doing and was equally aware of the consequences of his acts. This was, in my view, a situation that Parliament undoubtedly had in mind when it enacted subsection 15(1) of the Act.
[39] The evidence does not support such a broad and generous interpretation of Mr. Collin's actions. Quite the contrary, I find that things were done in full knowledge of the facts; Mr. Collin simply hoped that the respondent would never be informed.
PENALTIES
[40] The respondent completely discharged her burden of proof with respect to the penalties. The evidence adduced by the appellants in order to cancel the penalties is immaterial.
[41] The facts at the time the income was not declared were largely sufficient to justify the penalties. The appellant's subsequent behaviour confirms that this is correct; in particular, I refer, inter alia, to the initial general denial of the facts, followed by weak and incomplete cooperation and, lastly, to admission of collusion in failing to provide the name, address and telephone number of the entity to which large amounts were paid.
[42] The appellants appear to have forgotten the context following which the reassessments were made. Having shown bad faith at the time of the audit, they changed their ways at trial. This turnaround is essentially the result of the exceptional quality of the respondent's evidence.
[43] There is no doubt that the penalties in the assessments to be made are justified and appropriate having regard to the gross negligence demonstrated by the evidence.
INTEREST
[44] I have no jurisdiction to cancel or reduce the interest assessed in an assessment; only the Minister has the power to assess, reduce or cancel the interest arising from an assessment.
[45] For all these reasons, the appeals are allowed on the basis that the cases shall be the subject of reassessments made having regard to the following facts.
[46] It was shown on a balance of probabilities that the company received and concealed taxable net income of $20,628.80 for the 1995 taxation year. That income was not reported and was cashed directly by the appellant, thus conferring on him a taxable benefit of the same amount. As a result, reassessments shall be made on the basis that "Gestion Jean-Yves Collin Ltée" failed to report income of $20,628.80 for the 1995 taxation year.
[47] The evidence moreover showed that the appellant had also excluded from his personal income the net sum of $11,357.88 for the 1994 taxation year in net income from the cutting and sale of wood on the land, which he personally owned. For 1995, the appellant received a benefit of $20,628.80, which he did not add to his reported income. Consequently, reassessments shall be made on the basis that the appellant Jean-Yves Collin failed to report income of $11,357.88 for the 1994 taxation year and $20,628.80 for the 1995 taxation year.
[48] The penalties provided for in subsection 163(2) of the Act shall be added to the reassessments to be made in both cases.
Signed at Ottawa, Canada, this 14th day of January 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 1tst day of April 2003.
Sophie Debbané, Revisor