[OFFICIAL ENGLISH TRANSLATION]
2001-1131(IT)I
BETWEEN:
ROBERT DEMERS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 17, 2002, at Québec, Quebec, by
the Honourable Chief Judge Alban Garon
Appearances
Counsel for the Appellant: Charles Côté
Counsel for the Respondent: Stéphanie Côté
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1994 taxation year is dismissed.
Signed at Ottawa, Canada, this 25th day of June 2002.
|
"Alban Garon" |
C.J.T.C.C.
Translation certified true
on this 8th day of September 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020625
Docket: 2001-1131(IT)I
BETWEEN:
ROBERT DEMERS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Garon, C.J.T.C.C.
[1] These reasons for judgment concern only the appeal instituted from the reassessment of the Minister of National Revenue made for the 1994 taxation year, although in his Notice of Appeal, the appellant purportedly also included the Minister's assessment for the 1995 taxation year. At the start of the hearing, the Court was informed that the appellant had discontinued his appeal for 1995 when he filed the required document.
[2] By his reassessment for the 1994 taxation year, the Minister of National Revenue disallowed the deduction of $47,068.80 representing the wages of the employees of Les Entreprises Robert Demers Inc.
[3] The only issue in this appeal concerns the application of subparagraph 152(4)(a)(i) of the Income Tax Act. The point for determination is whether the Minister of National Revenue could reassess after the normal period for doing so had expired.
[4] The appellant was his own principal witness. Johanne Tremblay, an auditor with the Canada Customs and Revenue Agency, testified for the respondent.
[5] The essential facts relating to the assessment in appeal may be summarized in a few words.
[6] The appellant was the sole shareholder and director of the business corporation Les Entreprises Robert Demers Inc., hereinafter called the "corporation". The corporation was incorporated in 1983 and operated in the fields of painting and wallpaper application.
[7] In 1993, the corporation submitted a bid to Construction Defco Inc. and subsequently contracted with that company, at an unspecified date, for painting, wallpaper and staining work to be performed at a hotel in the Holiday Inn chain located in Kuwait. In the context of the contract in Kuwait, the appellant defrayed the corporation's expenses in respect of the work performed in Kuwait by paying the wages of its employees. Those expenses had been billed to the appellant by Michel Allard of P-Omax Canada International Ltd. Two invoices issued in February and April 1994 were filed in respect thereto. They were paid a few days later by the appellant. To make those payments, the appellant used his personal funds from an RRSP and part of the proceeds from the sale of a rental property that he owned. The corporation was not able to pay those expenses because it was, to use the appellant's expression, "operating at a loss" in 1993 and 1994. I note in passing that, on March 24, 1993, the corporation signed an exclusive commercial agency contract with Press-O-Max Canada Inc. respecting wallpaper applications in the Middle East and Pakistan. However, that contract was not directly related to the work concerned in the instant case.
[8] In his testimony, the appellant stated that he had claimed the deduction of the expense amounting to $47,068.80 in his own tax return because it was he who had paid out the funds in question. On this point, he added that his personal tax return for 1994 and that of the corporation for the same period had been prepared by the same accountant, who had been acting for him and for the corporation for a number of years and to whom he had handed over all the appropriate documentation for the period concerned. Incidentally, at the relevant time, the corporation's fiscal year ended on December 31. The appellant admitted that the revenue from the contract performed in Kuwait was included in the corporation's income. The corporation had a separate bank account from that of the appellant and a line of credit that had been granted to it by a financial institution. The appellant feared that that institution would recall its line of credit if the corporation paid the expense relating to the employee wages in question.
Analysis
[9] To determine whether the Minister of National Revenue could validly assess the appellant, I must now apply to the facts of the instant appeal subparagraph 152(4)(a)(i) of the Act, which, at the relevant time, read as follows:
Subject to subsection (5), the Minister may at any time assess tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, and may
(a) at any time, if the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or
...
[10] Subparagraph 152(4)(a)(i) of the Act enables the Minister, in particular, to reassess at any time after the normal reassessment period has expired if a taxpayer has made a misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing his return or in supplying any information under the Act. The onus is on the Minister of National Revenue to make that proof.
[11] With respect to the application of subparagraph 152(4)(a)(i) of the Act, Strayer J.A. of the Federal Court of Appeal wrote as follows in Nesbitt v. Canada, 96 DTC 6588; [1996] F.C.J. No. 1470 (QL):
Whether or not there is misrepresentation through neglect or carelessness in the completion of a return is determinable at the time the return is filed. A misrepresentation has occurred if there is an incorrect statement on the return form, at least one that is material to the purposes of the return and to any future reassessment.
[12] In the instant case, it has been established that it was the corporation, not the appellant, which contracted with Construction Defco Inc. and dealt with Press-O-Max Canada Inc. under that contract with respect to the painting and wallpapering contracts at a Holiday Inn in Kuwait. The revenues and expenditures relating to that contract must unquestionably be included in the calculation of the income from the corporation's business. The appellant could not claim the deduction of $47,068.80 in computing his own income because that expense paid by the appellant solely concerned the corporation's business. The business was the only party that had to include that expense in computing its income or loss for the 1994 taxation year. The appellant himself did not operate a painting business; he had incorporated a business corporation for that purpose. The appellant was totally clear on this point in his testimony. The fact that the appellant claimed a deduction in respect of that expense in computing his own income constitutes a misrepresentation for the purposes of subparagraph 152(4)(a)(i) of the Act.
[13] The appellant alleges that the Minister of National Revenue had in hand all the necessary information in the tax returns of the appellant and the corporation to make the necessary changes to those returns and to reassess within a reasonable period of time. Such an argument was dismissed in Nesbitt, supra, in which Strayer J.A. wrote:
It remains a misrepresentation even if the Minister could or does, by a careful analysis of the supporting material, perceive the error on the return form. It would undermine the self-reporting nature of the tax system if taxpayers could be careless in the completion of returns while providing accurate basic data in working papers, on the chance that the Minister would not find the error but, if he did within four years, the worst consequence would be a correct reassessment at that time.
[14] For subparagraph 152(4)(a)(i) of the Act to apply, not only must there be an error or inaccuracy in a taxpayer's tax return or in the documentation provided to the Minister of National Revenue, but the taxpayer must also have failed to show due diligence, as appears from the decision of Strayer J. in Venne v. Canada, 84 DTC 6247; [1984] F.C.J. No. 314 (QL), when he was a judge in the Federal Court, Trial Division. In his conclusion, Strayer J. made the following comments:
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. Unless these words are superfluous in the section, which I am not able to assume, the term "neglect" involves a lesser standard of deficiency akin to that used in other fields of law such as the law of tort. See Jet Metal Products Limited v. The Minister of National Revenue (1979), 79 DTC 624, at 636-37 (T.R.B.).
[15] In my view, it is clear from the evidence that the appellant did in fact distinguish between himself and the legal personality of the business corporation. The following excerpt from the appellant's testimony in cross-examination is in my opinion indicative of his understanding of the interaction between himself and the corporation with respect to the revenues and expenses relating to this contract:[1]
[TRANSLATION]
Q. All right. So they billed Robert Demers personally, not Entreprises Robert Demers. Was that because you asked them to proceed that way?
A. It was because I was the one who had provided the money; they sent the invoice to me.
Q. Okay. So you told him: "I'm the one who's paying, send me the invoice."
A. Well, no, he sent it to me so that I would pay it because until it was sent to me, I didn't know what the amount was.
Q. So, in that case, why did you not include the Kuwait income in your personal tax return?
A. Because the contract was with Entreprises Robert Demers.
The court noted that he did not directly answer the question as to whether it was he who had asked the Press-O-Max representative to make out the invoice in his name.
[16] I am unable to believe that the appellant did not realize that it was illogical to include the revenue from the contract in question in the corporation's income and to deduct from his own income the expenses relating to that contract in respect of the wages of the corporation's employees.
[17] Furthermore, in his testimony, the appellant admitted that the persons who had performed the work here in question were indeed the employees of the corporation. He did not apply the same logic to this expense as the one he applied to the corporation's income, as appears from the excerpt from his testimony cited above.
[18] All things considered, I cannot accept the appellant's explanations regarding the $47,068.80 deduction. As a result, I am satisfied that he did not show due diligence when, in computing his personal income, he deducted the wages of the corporation's employees who had performed the work in Kuwait in issue in the instant case.
[19] The main reason (or one of the reasons) why the appellant personally deducted the expense of $47,068.80 is that he feared that if the corporation were to assume the expense, the financial institution involved would recall the line of credit granted to the corporation given the difficult situation in which it found itself. Nor am I forgetting that in handling the expense relating to the employees' wages under the Kuwait contract the way the appellant did, that also appreciably reduced his own income and, consequently, the income tax he himself had to pay as an individual.
[20] The appellant claims that the error cannot be attributed to him since he had relied on the authority of the accountant who, for a number of years, had prepared his tax returns and those of the corporation.
[21] It is well-settled case law that a taxpayer cannot be released from his responsibility by entrusting the preparation of his tax returns to an accountant. See on the subject the decision of Rouleau J. of the Federal Court, Trial Division, in Can-Am Realty Limited et al. v. The Queen, 94 DTC 6293:
... it is the taxpayer himself who carries the ultimate responsibility for ensuring his tax returns contain accurate data. That obligation is not altered by the fact the taxpayer has engaged the professional services of an accountant or other agent to prepare and complete his returns.
[22] I therefore reach the conclusion that the appellant made a misrepresentation of the type contemplated in subparagraph 152(4)(a)(i) of the Act and that the Minister of National Revenue has therefore discharged the burden that was on him.
[23] For these reasons, the assessment in appeal is confirmed and the appeal is dismissed.
Signed at Ottawa, Canada, this 25th day of June 2002.
|
"Alban Garon" |
C.J.T.C.C.
Translation certified true
on this 8th day of September 2003.
Sophie Debbané, Revisor