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Docket: 2002-2667(IT)I |
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BETWEEN: |
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DANIEL LACASSE, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeals heard on January 29, 2003, and October 23 and 24, 2003,
at Montreal, Quebec
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Before: The Honourable Justice P.R. Dussault |
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Appearances: |
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Counsel for the Appellant: |
Éric Morin |
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Counsel for the Respondent: |
Yanick Houle |
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[OFFICIAL ENGLISH TRANSLATION]
JUDGMENT
The appeals from the assessments made under the Income Tax Act ("Act") for the 1996, 1997, and 1998 taxation years are allowed, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment, on the basis that
- all of the calculations from the statement of net worth for the three years must be adjusted using the expenditures of a family of only two adults as a basic assumption;
- the addition of the $20,000 loan to the adjustments for 1998 must be removed; and
- the penalties under subsections 162(1) and 163(2) of the Act, as well as the interest, must be adjusted as a result.
The appeal from the reassessment made for the 1999 taxation year is dismissed.
The whole is without costs.
Signed at Ottawa, Canada, this 16th day of September 2004.
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"Pierre R. Dussault" |
Dussault J.
Translation certified true
on this 12th day of January 2005.
Colette Beaulne, Translator
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Citation: 2004TCC611 |
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Date: 20040916 |
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Docket: 2002-2667(IT)I |
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BETWEEN: |
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DANIEL LACASSE, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
DussaultJ.
[1] This case concerns appeals from assessments for the 1996, 1997, 1998, and 1999 taxation years made under the Income Tax Act ("the Act"). These are appeals under the informal procedure.
[2] The assessments were made on May 31, 2001, following an audit by the Minister of National Revenue ("the Minister") based on the net worth method by which the income of the appellant, who had not declared any income for those years, was established at $23,308, $45,508, $43,792, and $46,147 for each year from 1996 to 1999 respectively.
[3] A penalty for filing income tax returns late and a penalty for gross negligence were also assessed under subsections 162(1) and 163(2) of the Act for each of the years at issue.
[4] Mr. Lacasse's file had been opened by Ms. Louise Laroche, Auditor, Special Investigations, of the Canada Customs and Revenue Agency ("CCRA"), further to information obtained from the police. After finding that Mr. Lacasse had not filed an income tax return, the first letter was sent from the CCRA on May 27, 1999, asking him to file a signed statement of assets and liabilities as of December 31 for the years from 1995 to 1998; a statement of continuity of the capital account from January 1, 1996, to December 31, 1998, including the details of his personal expenditures during that period; and an income tax return for each of the 1996, 1997, and 1998 taxation years (Exhibit I-1, Tab 1).
[5] As the first request remained without a response, requirements to file the same documents were served to Mr. Lacasse on September 3, 1999 (Exhibit I-1, Tab 2).
[6] On October 5, 1999, the appellant filed his income tax returns for 1996, 1997, and 1998 and declared no income. The initial assessments for those years were made on November 8, 1999.
[7] On November 4, 1999, Mr. Mario Leporé, the appellant's accountant, requested additional time to file the other documents required. He was granted additional time up to December 20, 1999. The appellant's balance sheet as of December 31 for the years from 1995 to 1998 and a statement of changes in his financial position, including the details of his personal expenditures from January 1, 1996, to December 31, 1998, in the form of a statement of net worth of the appellant and his wife, Ms. Edith Blais, were filed by Mr. Leporé on December 8, 1999 (Exhibit I-1, Tab 8).
[8] The statement of net worth submitted by Mr. Leporé indicates an unexplained gap of $15,187 for the 1996 taxation year, an unexplained gap of $19,025 for the 1997 taxation year, and income of $9,000 for the 1998 taxation year, whereas the income tax returns previously filed for those years do not indicate any income.
[9] On July 10, 2000, a new request was addressed to the appellant, this time to file his income tax return for the 1999 taxation year. Despite the date of April 28, 2000, that was recorded on it, the subsequently filed return did not indicate any income (Exhibit I-1, Tab 10).
[10] After finding, among other things, contradictions between the tax returns and the statement of net worth filed, Ms. Laroche carried out an audit using the net worth method, for which the results were translated into reassessments made on May 31, 2001 (Exhibit I-8, Volume 1, Tab 1, and supporting documents; Exhibit I-8, volumes 1, 2, and 3, Tabs 2 to 8). The reassessments were objected to, and they were confirmed on May 22, 2002.
Issues
[11] The appellant's objection was based on the following four questions, namely:
· Were the assessments for 1996 and 1997 made after the normal reassessment period?
· Is the penalty for filing the returns late for the 1996 to 1999 taxation years justified?
· Is the inclusion of the undeclared income, as established by the reassessments, justified?
· Is the imposition of the penalty set out in subsection 163(2) of the Act for each year from 1996 to 1999 justified under these circumstances?
1) Reassessments for 1996 and 1997
[12] With regard to this first issue, it seems that the initial assessments for 1996, 1997, and 1998 were made on November 8, 1999, after the tax returns for those years were filed further to the CCRA's requests in this respect. The first request was dated May 27, 1999, and the second was dated September 3, 1999 (Ms. Louise Laroche's transcript, October 23, 2003, page 145). Under these circumstances, it is clear that the normal reassessment period expired only on November 9, 2002, according to the application of subsection 152(3.1) of the Act. Thus the assessments made on May 31, 2001, were within that period. Therefore, it is up to the appellant to show, on a balance of probabilities, that the assessments for 1996 and 1997 are erroneous, just as he must do for the assessments for 1998 and 1999.
2) Application of subsection 162(1) of the Act
[13] In these circumstances, there were no difficulties with the second issue. It was clearly established that the return for each of the years at issue had not been filed on or before the following April 30, as required by paragraph 150(1)(d) of the Act. They had been filed on October 5, 1999, for 1996, 1997, and 1998 and only in July 2000 for 1999. All of the returns had been filed only further to requirements, despite the different dates typed and indicated under the appellant's signature on the returns themselves, thereby implying that they had been filed within the prescribed timeframe, which is obviously not the case. Therefore, the application of the penalty set out in subsection 162(1) of the Act is justified, given the circumstances. As for the rest, it remains simply to establish the quantum based on the tax payable for each year on the normal filing date and the tax unpaid on that date until the effective date the return is filed.
3) Undeclared income and use of the net worth method
[14] In his testimony, the appellant categorically affirmed that he had earned absolutely no income during the four years at issue, not even the $9,000 his representative, Mr. Mario Leporé, had indicated in the statement of net worth submitted to the authorities as being income in 1998 from 9055-4460 Québec Inc., which does business under the name D.L. Contact. According to the appellant, that company, which was created in August 1997 and for which he is the sole shareholder and administrator, had operated a truck transport business as of December 1997 under a contract with Les Transports Yvon Turcotte Ltée ("Transports Turcotte"). The appellant said that he considered the $9,000 a loan but his accountant would need to be consulted to find out the true nature of the amount. However, as mentioned previously, the accountant considered the amount in question to be income.
[15] With no income during the years at issue, the appellant is essentially claiming that he and his spouse, Ms. Edith Blais, had lived - or rather, survived - on his wife's salary from Disque Améric Inc. and on two loans: one of $20,000, agreed to by Transports Turcotte on May 29, 1998; and the second of $22,000 granted by a friend, Mr. Stéphane Gauthier, on June 3, 1999. I will point out right away that the existence of the first loan was recognized by the CCRA, but its use for personal expenditures was disallowed so that the amount first indicated as a liability was later added to personal expenditures in the statement of net worth prepared by Ms. Laroche of the CCRA for 1998 (Exhibit I-8, Volume 1, Tabs 1 and 2). The existence of the second loan, the $22,000 granted by Mr. Stéphane Gauthier in 1999, was never recognized by the CCRA.
[16] The appellant's objection initially concerned the recognition of these two loans, but later the appellant challenged the amount of personal expenditures established for the years at issue by Ms. Laroche, particularly using the statistics compiled by Statistics Canada regarding the personal expenditures of individuals or families according to the various regions of the country. According to the appellant and his accountant, Mr. Leporé, the use of those statistics is completely inappropriate and fully abusive in the instant case, since all of the actual personal expenditures of the appellant and his wife were disclosed to the CCRA as part of the statement of net worth submitted by Mr. Leporé with all of the supporting documents. Indeed, in his testimony, Mr. Leporé maintained that he himself had prepared the statement of net worth submitted to the authorities, particularly 90% to 95% of the statement of personal expenditures, after having obtained all of the relevant information from the financial institutions, the suppliers of goods and services, and the credit card companies. Thus, according to him, nearly all of the expenditures indicated in the statement correspond to actual expenditures supported by documentation. Only a few expenditure items, such as food, were estimated since there was no supporting documentation. Mr. Leporé said that the first document filed was later amended to take into account some information obtained later; however, no amended statement was submitted as evidence.
[17] In his testimony, Mr. Leporé also noted that it was impossible to file a taxpayer's statement of net worth that was completely consistent since the perfect matching of revenues and expenditures is not realistic or realizable by taxpayers, who are not required to keep all vouchers of their expenses, of which a good portion may, furthermore, have been paid in cash.
[18] Although the issue of the two loans and the CCRA's use of statistics are the main points of the appellant's objection, one other specific item in the statement of net worth established by Ms. Laroche was challenged at the hearing.
[19] This issue concerns the family unit of reference used by Ms. Laroche of the CCRA to determine the personal expenditures according to the methods established by Statistics Canada. It seems that, for 1996, 1997, and 1998, Ms. Laroche used the data compiled by Statistics Canada for a family of two adults and one child. For 1999, she used the statistics for a family with two adults only since Mr. Patrick Lacasse, the son of the appellant and his wife, had left the family home in the fall of 1998. It seems that Patrick Lacasse had turned 18 on October 13, 1996, he was already earning an income, and he was supporting himself. His tax returns for 1996 to 2001 were submitted as evidence (Exhibit A-3). The appellant's counsel maintains that the auditor should have taken that income into account.
[20] Although I did not allow the appellant's counsel to re-amend his notice of appeal so late so that he could add this specific reason for challenging the statement of net worth prepared by Ms. Laroche, I did not find it appropriate to ignore this issue and the evidence presented in this respect. I will return to this in a little while.
a) Loan issue
[21] In his testimony, the appellant maintained that he had obtained the $20,000 loan granted by Transports Turcotte in the form of a cheque on May 29, 1998 (Exhibits A-2 and I-8, Volume 3, Tab 15). The cheque had allegedly simply been cashed at the bank. The appellant first said that he had kept the cash hidden in a desk drawer at his home and then used it to pay his current expenses (transcript of the appellant's testimony, January 29, 2003, page 31). Later the appellant said that a number of people, members of his family, had lent him money and he had used the money received from Transports Turcotte to pay back amounts of $1,500, $1,800, and $2,000 that he owed such that the $20,000 had been completely spent by the end of 1998 (transcript of the appellant's testimony, January 29, 2003, pages 74 and 75). Later he said that the loans he had received were $1,500 and $2,000, but also $3,000, $4,000, and $5,000. Without providing more details, he estimated that approximately half of the $20,000 amount may have been used to pay back those personal loans (transcript of the appellant's testimony, January 29, 2003, pages 131 and 132). It is clear that the appellant's testimony is vague, confused, and incomplete - even contradictory - regarding the actual use of the $20,000 received from Transports Turcotte. However, the existence of that loan was indeed recognized by the CCRA, and the amount was carried over to the liabilities of the 1998 statement of net worth prepared by Ms. Laroche. However, considering that the exact use of the loan amount was not known, Ms. Laroche later added the $20,000 as a positive adjustment to the 1998 statement of net worth (Exhibit I-8, Volume 1, Tab 1). I think that, given the circumstances, this adjustment was not justified.
[22] I will immediately acknowledge that no debt to individuals appeared in the statement of net worth prepared by Mr. Leporé, the appellant's accountant, nor did any such debt appear in the statement of net worth prepared by Ms. Laroche. Furthermore, as with Mr. Leporé, Ms. Laroch traced all of the assets of the appellant and his wife, and it was never alleged that they may own other property. It should also be noted that the statement of net worth established by Ms. Laroche, more specifically the use of the statistics with regard to a number of types of expenditures, leads to the unquestionable conclusion that a major proportion of the total expenses were paid in cash (transcript of Ms. Laroche's testimony, October 23, 2003, pages 138 to 141, and Exhibit I-8, Volume 2, Tab 1). In my opinion, the fact that the $20,000 the appellant received from Transports Turcotte was used to pay back loans that do not even appear in the liabilities or to assume the cost of personal expenditures is of no significance and its addition for the purposes of establishing the appellant's gap in net worth for 1998 does not seem justified to me since the existence of the loan was indeed recognized by the CCRA.
[23] Now what about the second loan? The second loan, in the amount of $22,000, was allegedly granted to the appellant by Mr. Stéphane Gauthier on June 3, 1999. A document that is called a loan agreement under private seal but that seems instead to be an acknowledgement of debt was submitted as evidence (Exhibit A-1). That document, which was allegedly signed by the two parties on June 3, 1999, states that the loan of $22,000 bore no interest and was to be paid back on or before June 3, 2004.
[24] The authenticity of this loan was not recognized by the CCRA because the very existence of Mr. Gauthier was doubtful. Yet Mr. Gauthier does indeed exist. He testified regarding the loan granted to the appellant, whom he describes as being his acquaintance and friend for some 10 years. According to Mr. Gauthier, the appellant had told him several times that he had financial problems, particularly because he had started a truck transport company, and so he had asked him if he could borrow some money from him.
[25] Mr. Gauthier said that his father had given him, as with his three brothers, $50,000 after he had sold his farmland in March 1999, and he had lent part of that amount to the appellant (transcript of Stéphane Gauthier's testimony, October 24, 2003, pages 7 and 13). The loan to the appellant had allegedly been made in cash, which Mr. Gauthier had withdrawn from the bank a few days earlier. The appellant maintained that he had kept the amount in cash at his house and had used it to pay his expenditures and pay back some loans.
[26] In his testimony, the appellant maintained that he had known Mr. Gauthier for approximately seven years at that time, that Mr. Gauthier had become a friend, and that he saw him practically every second day (transcript of the appellant's testimony, January 29, 2003, pages 75 and 76). Yet, according to the appellant, it was because Mr. Gauthier had received an inheritance from his deceased father that he had the money needed to provide him with a loan (transcript of the appellant's testimony, January 29, 2003, pages 26 and 27). That statement concerning Mr. Gauthier's inheritance following his father's death is very different from the version given by Mr. Gauthier, who simply said that his father had sold his land in March 1999 and had made a gift to each of his four sons. If the appellant and Mr. Gauthier truly saw each other every second day, as the appellant had maintained, the appellant should have known that Mr. Gauthier's father had not passed away.
[27] Furthermore, it was adduced in evidence that Mr. Gauthier's income had been $8,700, $19,000, and $18,000 for each year from 1996 to 1998 respectively. Even though Mr. Gauthier had explained that his income was not very high because he had also worked on his father's farm for approximately one year before it was sold and had received food and accommodation, it is difficult to believe that someone with such a modest income would agree to lend an amount greater than his annual income, particularly when the loan was for a period of five years with no interest (transcript of Mr. Gauthier's testimony, October 24, 2003, pages 10 and subsequent).
[28] Also keeping in mind the lack of credibility of the appellant's testimony and the fact that he in no way hesitated to lie and even use a false tax information slip to obtain a bank loan in February 1998, as I will explain later, I also have some very serious doubts as to the authenticity of this loan from Mr. Gauthier, so much so that I am not prepared to acknowledge its existence. Therefore, I am of the opinion that it is with good reason that the CCRA refused to acknowledge this loan.
b) Statement of net worth prepared by the CCRA and the use of statistics
[29] We know that the appellant did not indicate any income in his returns filed to the CCRA on October 5, 1999, for 1996, 1997, and 1998 and that the statement of net worth prepared by Mr. Leporé, signed by the appellant and his wife and submitted to the authorities on December 8, 1999, states not only a positive gap for 1996 and 1997, but also an income of $9,000 for 1998.
[30] The information obtained by Ms. Laroche from the CCRA during her audit also enabled her to find that, when applying for a loan to the National Bank of Canada on February 20, 1998, the appellant had stated that his annual income had been more or less $50,000 in 1997, that is, a gross monthly income of $4,166, and that income was from Transports Turcotte (Exhibit I-2).
[31] Ms. Laroche also obtained a copy of a relevé 1 from the bank for 1997, which is an information slip indicating employment income and other income for Quebec income tax purposes. The appellant had given it to the bank to attest to his income (Exhibit I-3). The relevé, which had seemingly been issued by Transports Turcotte, showed employment income of $35,906.14 for 1997 and various source deductions.
[32] The blatant contradictions identified by Ms. Laroche both in the documents filed by the appellant and the documents obtained from the bank were, in my opinion, sufficient to cast serious doubt on the authenticity of any information provided by the appellant and on the magnitude of his personal expenditures as they were established in the statement of net worth prepared by Mr. Leporé.
[33] However, there is much more, and the appellant's testimony itself leads to the conclusion that the financial situation he presents, particularly his standard of living, has little to do with his claims.
[34] First I will point out that, in his testimony, the appellant categorically denied the truth of the information provided to the bank in order to obtain the loan just mentioned. According to him, it was clearly a lie told specifically so that he could obtain a loan. With regard to the relevé 1 provided to the bank, the appellant maintained that it was false, and he himself had completed it and given it to the bank in support of his loan application (transcript of the appellant's testimony, January 29, 2003, pages 116 to 118).
[35] It is extremely difficult to reconcile the appellant's personal expenditures, as indicated in the statement of net worth prepared by his accountant, Mr. Leporé, and the statements established by Ms. Laroche of the CCRA using statistics. The fact that different headings were used makes the exercise dangerous, even completely futile, with regard to certain points. Nevertheless, it was clearly shown that the statement of personal expenditures prepared by Mr. Leporé and attested to by the appellant and his wife far from represented the actual disbursements for some expenditures that were more easily verifiable.
[36] Thus, under the heading for miscellaneous insurance, the statement submitted by the appellant indicates an amount of $500 for each year in 1996, 1997, and 1998 (Exhibit I-1, Tab 8, page 4). Yet Ms. Laroche of the CCRA traced amounts of $1,398, $1,738.10, and $1,218.70 for insurance premiums alone related to transportation for each year from 1996 to 1998 respectively (Exhibit I-8, Volume 2, Tab 11, 1996 page 2, 1997 page 2, 1998 page 2).
[37] Another example concerns vehicle rentals. For 1997, the statement submitted by the appellant indicates that his expenditures for gasoline and travel amounted to $2,600 for each year from 1996 to 1998 and that his expenditures for vehicle maintenance and repair were $569, $409, and $443 for each year from 1996 to 1998 respectively (Exhibit I-1, Tab 8, page 4). Yet Ms. Laroche of the CCRA discovered that the appellant had rented vehicles several times in 1997 and the total cost of those rentals was allegedly $9,383.43 for the year (Exhibit I-8, Volume 2, Tab 11, 1997 page 2). In his testimony, the appellant denied having rented vehicles for that amount, and obviously, the amount of $9,383.43 did not appear anywhere in his statement of expenditures submitted to the authorities.
[38] To the extent that the audit could show that the statement submitted by the appellant was incomplete in that some expenditures were either understated or simply ignored and therefore presented very little, if any, guarantee of reliability, resorting to statistics seemed to be the only realistic option for completing this audit and endeavouring to establish, certainly in an approximate manner but at least somewhat realistically, the standard of living of the appellant and his wife during the years in question. In my opinion, the use of statistics is completely justified when the information provided by a taxpayer proves to be false or incomplete in one aspect or another.
[39] To me, it also seems worthwhile to highlight the fact that Mr. Robert Larochelle, an appeals officer, said that, during a meeting held on January 7, 2002, with Mr. Leporé, Mr. Leporé had attempted to justify the appellant's low cost of living by saying that the appellant was an aspiring biker who travelled all over the country and lived in biker clubs. Yet in his testimony Mr. Leporé denied having made such comments, and he claims that he had simply mentioned that the appellant was a truck driver and travelled in Canada. However, I do not believe that Mr. Larochelle invented these comments. As for the appellant, he admitted that he had visited biker clubs during the years at issue.
[40] If I hold to the appellant's testimony, I believe he only reinforced the auditor's finding that the statement of expenditures submitted did not fully represent reality. Thus, throughout his testimony the appellant constantly tried to establish that his personal expenditures had been reduced, actually reduced right down to the poverty line. One example involves the food expenditures assessed for 1996, 1997, and 1998 at $3,900 per year or $75 per week in the statement of expenditures submitted (Exhibit I-1, Tab 8, page 4). However, according to the appellant, this amount included not only groceries but also restaurant expenditures and the costs of personal care products and household cleaning products (transcript of the appellant's testimony, January 29, 2003, pages 36 and subsequent). Obviously, this comprehensive amount of $3,900 per year is well below the average expenses a family devotes to these various types of expenditures, which is approximately $8,000 per year.
[41] However, the most surprising and striking aspect of the testimony of the appellant, who was constantly attempting to minimize his cost of living, was that he did not remember or categorically denied certain expenditures that could easily be traced since they had been paid by cheque or credit card. Take his telephone costs, for example. In the appellant's testimony, he mentioned only costs of $26 per month for the telephone, costs which, according to him, were included in the housing costs. Furthermore, he said he did not remember whether he had owned a cell phone or a pager at that time; however, it can be seen that the costs paid to Cantel were $3,369.71 and $2,135.79 in 1996 and 1997 respectively and the statement of net worth prepared by Mr. Leporé and submitted to the authorities specifically includes these costs under the heading for communications (transcript of the appellant's testimony, January 29, 2003, pages 41 and subsequent, and pages 138 and subsequent; Exhibit I-1, Tab 8, page 4; Exhibit I-8, Volume 2, Tab 11, 1996 page 2, 1997 page 2).
[42] Another example of the appellant's vague, confused, and incomplete or even contradictory testimony involves donations. The appellant maintained that he had never given gifts or donations to anyone and had, at the very most, purchased flowers only once during the years at issue, whereas the auditor traced a number of purchases at florists and jewellers (transcript of the appellant's testimony, January 29, 2003, pages 149 and 150, and October 23, 2003, pages 27 and 28; transcript of Ms. Louise Laroche's testimony, October 23, 2003, pages 121 and 122, and Exhibit I-8, Volume 2, Tab 11).
[43] The appellant's testimony is no longer credible regarding his stays in hotels. While he first said that he may have stayed in a hotel once for his wife's birthday in 1996 and later that it was possible that he had stayed in a hotel and that his wife may have also done so, the hotel costs may be traced on his credit cards and his wife's credit cards on nearly 30 different occasions during the years at issue (transcript of the appellant's testimony, January 29, 2003, page 60, and October 23, 2003, pages 18 and 19; transcript of Ms. Louise Laroche's testimony, October 23, 2003, pages 106 and subsequent; and Exhibit I-8, Volume 2, Tab 11). The appellant later added to this point by stating that he may have also lent his credit card to one of the truck drivers hired by his company for trips to the United States whereas he himself was ineligible to enter the U.S. (transcript of the appellant's testimony, October 23, 2003, page 30).
[44] In his testimony, the appellant also said several times that his accountant would need to be consulted for explanations regarding certain expenditures. He also admitted a number of times that he had paid for numerous expenditures in cash. When questioned about specific expenditures, he often replied that it was a possibility or that he simply could not confirm whether he had incurred that expenditure. In my opinion, it is the person who incurred an expenditure, not the accountant, who is primarily able to testify to the expenditure.
[45] As I have mentioned, the general impression is that the appellant was, throughout his testimony, constantly trying to minimize the magnitude of his personal expenditures either by simply denying their existence or by hiding behind vague or even contradictory answers so as to deliberately create confusion or ambiguity from which no definite conclusions could be drawn. On the one hand, the appellant demonstrated a very spartan lifestyle: his expenses had been reduced to a minimum, he did not go out, he ate very rarely at restaurants other than McDonald's once a month, he did not participate in any sports, he had no recreational activities, he did not give any gifts to anyone, he did not smoke other than occasional cigarettes other people offered him, and he occasionally went to bars but did not drink.
[46] On the other hand, we find communication expenses for more than $3,300 for 1996 and more than $2,100 for 1997, a number of purchases from florists and jewellers, vehicle rentals for more than $9,000 in 1997, approximately thirty stays in hotels during the years at issue, not including a one-week trip to Ixtapa in Mexico, gifts from friends for favours . . . or for being in some way their confidant . . . in short, points that are not consistent with the minimal and austere lifestyle described.
[47] In reality, as the appellant's testimony is riddled with pretences and sprinkled with falsehoods, it becomes nearly impossible to distinguish what is true from what is false. The least I can say is that he certainly did not convince me by a preponderance of evidence that the Minister's assumptions underlying the assessments, particularly the use of statistics to establish his personal expenditures, were not justified or well-founded under the circumstances; this is with the exception of one specific point referring to the assumption used by the auditor, Ms. Laroche, for the family unit of reference including two adults and one child for 1996, 1997, and 1998. I will deal with this question later.
[48] As for Mr. Leporé's testimony, he by no means convinced me that the statement of net worth prepared by Ms. Laroche was erroneous in any way except in regards to the issue of the family unit of reference, which I just mentioned.
[49] For example, Mr. Leporé challenged a positive adjustment regarding a non-deductible loss of $7,150 further to the sale of a Harley Davidson motorcycle by the appellant to his wife in 1997. The motorcycle purchased by the appellant for $16,500 in 1995 was transferred to his wife for $9,350, yet in the statement of net worth prepared by Ms. Laroche, the addition of this loss is offset by the decrease in the appellant's assets at the end of 1997, and the cost for the appellant's wife plus the costs incurred is registered under his wife's assets at the end of that year. It is then carried over to his assets at the beginning of 1998 (Exhibit I-8, Volume 1, Tabs 1 and 7, Volume 2, Tab 14). Therefore, the addition of the non-deductible loss has no impact in 1997 or the subsequent years because the addition is offset by the reduction in cost. In fact, the results are the same as if the loss resulting from the transaction had been completely ignored.
[50] In reality, since this was a transaction between spouses involving a fixed asset, subsection 73(1) of the Act establishes that the transaction is deemed to have taken place for proceeds equal to the adjusted cost base of the property so that there are no losses for the appellant, and the cost of the property for his wife is equal to the initial cost of the property for the appellant. Therefore, the transaction does not give rise to any losses, and the results are the same as Ms. Laroche's results.
c) Family unit of reference
[51] In her testimony, the auditor, Ms. Laroche, said that she had used the statistics for a family of two adults and one child as a basic assumption to establish the personal expenditures of the appellant and his wife for 1996, 1997, and 1998. However, for 1999, the assumption used was that of a family with only two adults since she had been informed that the appellant's child had left the family home in the fall of 1998 (transcript of Ms. Laroche's testimony, October 23, 2003, pages 147 and subsequent).
[52] For various reasons, the hearing of these appeals which had begun on January 29, 2003, could not be continued until October 23, 2003. From the beginning of the hearing on January 29, 2003, the appellant's counsel submitted an amended notice of appeal, and the respondent's counsel filed an amended response to the amended notice of appeal. At the continuation of the hearing on October 23, 2003, the appellant's counsel wanted to re-amend his notice of appeal to include a specific reason for objection in connection with the use of statistics to establish the personal expenditures of the appellant and his wife, a reason based on the financial participation of the appellant's son, Patrick Lacasse, in the family's expenses. If I have properly understood the position of the appellant's counsel, in reality he wanted Patrick Lacasse's income to be taken into account in the statement of net worth established by the authorities for 1996, 1997, and 1998. So I denied the amendment sought by the appellant's counsel, an amendment that I thought was too late and was likely to further delay the hearing of these appeals even more since the appeals were under the informal procedure. However, after reflecting on this and considering the fact that the use of statistics is challenged overall in the amended notice of appeal, I believe I cannot ignore the evidence submitted according to which Mr. Patrick Lacasse turned 18 on October 13, 1996, he was working, he had an income, that income was reported (Exhibit A-3), and, according to the appellant, his son supported himself even though his participation in the family's expenses may seem somewhat marginal (transcript of the appellant's testimony, January 29, 2003, page 120, and October 23, 2003, pages 7 and 8).
[53] Considering that it is still very possible that Mr. Patrick Lacasse supported himself during 1996, 1997, and 1998, given the fact that he was working and was earning an income, albeit a modest one, I think amendments should be made to the calculations made by Ms. Laroche that resulted from the use of statistics by ordering that the necessary adjustments be made to take into account the expenditures of two adults only for 1996, 1997, and 1998. Since Mr. Patrick Lacasse's income was not taken into account and its use was not analyzed by Ms. Laroche, I believe these adjustments constitute a reasonable solution in the circumstances.
4) Penalties under subsection 163(2) of the Act
[54] In the income tax returns for the four years at issue, all of which were filed after requirements were sent to the appellant, the appellant reported absolutely no income, even though the statement of net worth prepared by his accountant and signed by him and his wife indicates major gaps for 1996 and 1997 and even $9,000 of income in 1998 from 9055-4460 Québec Inc., which does business under the name D.L. Contact.
[55] The evidence introduced by the respondent also establishes in a convincing manner that there are major gaps in the statement of net worth submitted to the authorities and the personal expenditures are in many respects significantly understated on it. Furthermore, the appellant's testimony convinced me that he had deliberately sought to lie several times in order to minimize the magnitude of his lifestyle, which is far from modest for someone who claimed to have earned absolutely no income over the four years at issue.
[56] My conclusion is simply that the appellant could only have acted knowingly by making false statements and major omissions in his tax returns for the four years at issue and that the penalties assessed under subsection 163(2) of the Act must be upheld.
[57] As a result of the foregoing,
· the appeals from the assessments made for the 1996, 1997, and 1998 taxation years are allowed, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment, on the basis that
- all of the calculations from the statement of net worth for the three years must be adjusted using the expenditures of a family of only two adults as a basic assumption;
- the addition of the $20,000 loan to the adjustments for 1998 must be removed; and
- the penalties under subsections 162(1) and 163(2) of the Act, as well as the interest, must be adjusted as a result.
· The appeal from the assessment made for the 1999 taxation year is dismissed.
· The whole is without costs.
Signed at Ottawa, Canada, this 16th day of September, 2004.
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"Pierre R. Dussault" |
Dussault J.
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CITATION: |
2004TCC611 |
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COURT DOCKET NO.: |
2002-2667(IT)I |
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STYLE OF CAUSE: |
Daniel Lacasse and Her Majesty the Queen |
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PLACE OF HEARING: |
Montreal, Quebec |
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DATE OF HEARING: |
January 29, 2003, and October 23 and 24, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice P. R. Dussault |
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DATE OF JUDGMENT: |
September 16, 2004 |
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APPEARANCES: |
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Counsel for the Appellant: |
Éric Morin |
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Counsel for the Respondent: |
Yanick Houle |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: City: |
Éric Morin Laval, Quebec |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |