Date: 20000308

Dockets 97-2223-IT-G; 97-2226-IT-G; 97-2234-IT-G; 97-2363-IT-G

BETWEEN:

GASPARE MUNGIOVI, OSCAR BERGAMIN, DOMENICO VOMMARO, FRANCESCO IAFANTI,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Counsel for the Appellants: Yves Majeau

Counsel for the Respondent: Marie-Andrée Legault, Simon Crépin

Reasons for Judgment

(Delivered orally from the bench on December 9, 1999, at Montréal, Quebec)

Archambault, J.T.C.C.

[1] Oscar Bergamin, Francesco Iafanti, Gaspare Mungiovi and Domenico Vommaro worked as composition floor layers for Les Planchers de ciment M. Candussi (PMC) from 1989 to 1992. By notices of reassessment, the Minister of National Revenue (Minister) included additional employment income in the previously reported income of each of these appellants for each of those years (relevant taxation years). The following table shows not only the amounts of additional income but also the amounts of previously reported employment income, total revised employment income and the additional employment income as a percentage of revised total income.

Bergamin	89	90	91	92	TOTAL
Reported income	33,358	35,125	26,493	13,957		108,933
Unreported income	18,064	28,433	20,057	22,159		88,713
Total	51,422	63,558	46,550	36,116		197,646
% of total income	35	45	43	61		45
Iafanti
Reported income	31,053	32,583	21,656	16,070		101,362
Unreported income	17,736	29,674	16,019	9,754		73,183
Total	48,789	62,257	37,675	25,824		174,545
% of total income	36	48	43	38		42
Mungiovi
Reported income	31,611	23,977	16,548	14,477		86,613
Unreported income	13,406	14,732	9,275	9,366		46,779
Total	45,017	38,709	25,823	23,843		133,392
% of total income	30	38	36	39		35
Vommaro
Reported income	34,713	35,899	33,530	24,635		128,777
Unreported income	6,551	10,789	5,485	6,089		28,914
Total	41,264	46,688	39,015	30,724		157,691
% of total income	16	23	14	20		18

[2]The parties agreed that the Minister had made these reassessments after the normal reassessment period for the 1989 to 1991 taxation years. Furthermore, the Minister assessed penalties under subsection 163(2) of the Income Tax Act (Act) in respect of the additional employment income of each of the appellants for each of the relevant taxation years.

[3] The four appellants are among a group of 59 PMC employees who were audited by the Minister, of whom 40 received assessments similar to those of the appellants. According to the investigator from the Minister's Special Investigations Service, some employees were not reassessed, for various reasons: either they had died or disappeared or the number of hours or days in issue was not large. I assume as well that other employees were office employees not involved in pouring and finishing cement.

[4]According to the investigator, only six of the 40 persons reassessed have appeals under way at this time. Moreover, all the appeals of those persons were to be heard together, although two were granted an adjournment by the Associate Chief Judge a few days prior to the hearing. The appeals of the appellants, all of whom were represented by the same lawyer, were heard on common evidence.

The Evidence

[5]All the appellants testified at the hearing; they all denied that they had received the income which the Minister had added to the income they had previously reported. The only other person who testified at their request was a manpower consultant from the Commission de la construction du Québec (Commission), who filed the record of their hours worked in the construction industry. He confirmed that those hours corresponded to the hours reported by PMC and stated that the Commission generally does not carry out checks to make sure that they do in fact correspond to all of workers' hours of work unless it receives a complaint. In this instance, the consultant did not know whether the hours reported by PMC had been checked.

[6]Each of the appellants described the duties he performed for PMC. Essentially, PMC used two crews to build concrete floors. The first poured concrete transported by cement trucks, and the second finished the floors using floats, and trowels for the edges. In general, the first crew began its work in the morning and, once the pouring was complete—after a drying period that could run from three to seven hours, depending, among other things, on the weather—the second crew replaced the first in the afternoon or early evening.

[7]The number of persons in a crew could range from two to 20 depending on the size of the job. A worker generally knew when he had to start his work, having been notified the day before or that same morning by a PMC office employee (often Claudia Guenette), but he did not know when the work would end. Many factors could affect this, including the weather, equipment breakdowns, cement truck delays and the drying rate.

[8]The two appellants who appear to have worked for PMC the longest are Vommaro and Bergamin. Mr. Vommaro, aged 51, said he had worked from 1973 to 1993; he belonged to the first crew. Mr. Bergamin, aged 62, worked for PMC from 1976 to 1996 and for the father of PMC's shareholder. He was on the second crew. Although he has about 30 years' experience in the cement field, Mr. Mungiovi seems to have worked the shortest time for PMC, namely from 1982 to 1992 according to his testimony in examination in chief, or from 1998 to 1995 according to what he said in cross-examination. Aged 60, he also worked on the second crew. As to Mr. Iafanti, aged 66, he has worked in the cement field for some 30 years. I am not sure whether he mentioned his number of years of service with PMC, but he worked as a finisher on the second crew during all the relevant taxation years.

[9]Although some of them had worked together for a number of years for a business that had only 24 to 34 employees,[1] not one could describe his fellow crew members' work habits or terms of employment. None could say whether his fellow crew members worked overtime. Each stated that he attended to his own duties and had no knowledge of his fellow crew members' activities. This is quite surprising and intriguing.

[10]Each of the appellants testified that their conditions of employment during the relevant taxation years were as follows. All the appellants received their remuneration in cash in a brown envelope which also contained a pay statement showing the number of hours paid and all source deductions. That envelope was generally handed over to them on the work site on Fridays. Mr. Bergamin however most often went to pick it up at PMC's office in Laval. I note that he lived in Vimont.

[11]Messrs. Bergamin and Mungiovi stated that they had never worked more than eight hours a day; they left after putting in their eight hours even if the concrete finishing was not complete. They testified that they had never worked fewer than four days a week or more than 40 hours. They were paid for a minimum of 32 hours and a maximum of 40 hours a week; in addition, they never worked Saturdays. Thus, they said, they could not have received any overtime pay calculated at an hourly rate plus 50 percent or 100 percent (overtime rate). Both were reimbursed by cheque for their parking expenses.

[12]Mr. Bergamin explained his conditions of employment as follows: [TRANSLATION] "PMC refused to pay overtime at the overtime rate and I don't work overtime unless it's at the overtime rate." And if he had insisted, he would have been punished, that is to say he would not have been given any work for a certain period of time. He also stated that he had not worked from February 29 to April 25, 1992 or from September to December 1992. When he worked outside Greater Montréal, he was not paid for his travel time; he received only a kilometrage allowance for his car.

[13] Mr. Mungiovi explained his conditions of employment by saying that his health did not allow him to work more than eight hours a day or 40 hours a week; his travel time outside Montréal was included in his paid regular hours.

[14]The conditions of employment of Messrs. Vommaro and Iafanti were somewhat different from those of the other two. Unlike them, Messrs. Vommaro and Iafanti could work more than eight hours a day, but they were still paid for 32 or 40 hours of work per week, like the other two workers; their overtime was not paid at the overtime rate. They were also reimbursed for their parking expenses and received a kilometrage allowance for the use of their car when travelling outside Greater Montréal. Payment was generally made by cheque.

[15]Mr. Iafanti testified that he had never worked fewer than four days a week and had never worked Saturdays or more than 40 hours a week. Once he reached 40 hours, he left even if the job was not complete. He therefore did not carry over to another week any of his hours worked during a given week. When he travelled outside Montréal, his travel time was included in his regular hours of work.

[16] Mr. Vommaro sometimes worked more than 40 hours a week. When he did, he carried over his extra hours to the following week or the week after that. He said he had correctly reported all his earnings for the purposes of the Unemployment Insurance Act. He may therefore have sometimes worked fewer than four days a week; in that case, the missing day was replaced by hours worked in excess of 40 during other weeks. He admitted that he had sometimes worked Saturdays, but not pouring or finishing cement. His travel time was paid separately from his regular remuneration and added to the kilometrage allowance. He admitted that this pay was not reported in his income; however, the amounts involved were not large and the investigator also did not take them into account in making the reassessment.

[17] The respondent gave a completely different version of the facts from that of the appellants. She called six witnesses: the investigator, PMC's shareholder and president Michel Candussi, his sister Claudia Guenette and three of the appellants' co-workers, all of whom, like the appellants, had been reassessed but who did not appeal from their reassessments. The investigator was the first to testify for the respondent. He described the various stages of his investigation. First of all, during her audit of PMC, an auditor of the Minister had noted certain indicators of unreported income, in particular the fact that a bank account at the Laurentian Bank did not appear in PMC's books. The amounts passing through that account from January 1989 to June 1994 totalled $1,590,143.

[18]At a meeting on October 29, 1993, the investigator informed Mr. Côté, PMC's negotiator and representative, that PMC was being investigated. The next meeting was held on March 18, 1994. At that time, the investigator informed Mr. Côté that the Department had discovered approximately $2,300,000 in unreported income and asked him whether PMC had incurred certain expenses which it had not claimed as deductions.

[19]In a telephone conversation on April 15, 1994, Mr. Côté informed the investigator that the analysis of the wages paid by PMC was almost complete, except for 1989. At the meeting of May 11, 1994, Mr. Côté verbally provided the figures on the wages being claimed as expenses by PMC. According to the investigator, a letter dated June 17, 1994 restated figures similar to those provided verbally at the meeting of May 11, 1994.

[20]At the June 21, 1994 meeting, the investigator required that Mr. Côté have PMC provide supporting documents for the salary amounts claimed as expenses. He told Mr. Côté that this documentation would have to be reliable and verifiable. In the settlement offer made by Mr. Côté on June 17, 1994, it was proposed that the Minister not assess penalties.

[21]After alerting Mr. Côté, the investigator went to PMC's place of business on August 26, 1994 with a letter from his director to take possession of the documents that might support PMC's claims with respect to the salary expenses that had not been claimed as deductions. The investigator left with a number of boxes of documents containing, in particular, weekly reports, time sheets, the payroll and documents concerning source deductions. According to the investigator, the boxes contained between 10,000 and 12,000 documents.

[22]The time sheets show the number of hours worked daily for a given week. They had generally been prepared by the employees themselves or by members of their families. They were handed over to Michel Candussi, who used them to provide his administrative staff with the necessary information for preparing the weekly reports. These reports are internal documents of PMC. It was on the strength of the weekly reports that the Minister fixed the amounts of each appellant's unreported income in the reassessments.

[23]The investigator said that he had made photocopies of each of these documents obtained from PMC's office. The originals were returned to PMC, as will be seen below. He confirmed, however, that the originals he had consulted appeared to him to have been handled a number of times and were stained. He observed multiple perforations indicating that the documents had been stapled several times. He also admitted that some of the documents were in good condition.

[24]In his opinion, the vast majority of the documents had been prepared by the same person. However, it was necessary to distinguish between two periods: the first, from January to October 1989, and the second, after October 30, 1989. During the first period, the documents were apparently prepared by a certain Mr. Lafrance. Starting on November 1, 1989, the date on which she was hired, it was Claudia Guenette who prepared the documents.

[25]Mr. Candussi used the weekly reports to prepare the pay and the contents of the brown envelopes to be handed over to the employees. An examination of the weekly reports revealed a vast quantity of information. First of all, there was the calculation of the regular hours worked by an employee during a given week. This information is shown at the bottom of the weekly report. The figure appearing there is the net amount of remuneration paid at the regular rate and that figure is generally entered in PMC's payroll.

[26]The upper portion of the weekly reports contains a breakdown of overtime which was not entered in the payroll. These reports also revealed that certain hours worked by some of the appellants were carried over to another pay period.

[27]The weekly reports also provide other information. For example, it may be seen that certain hours of work put in by Mr. Bergamin were paid in kind, in the form of a hunting trip. It can also be seen that overtime worked by the appellants was converted to regular hours in order to remunerate them for days not worked. In addition, certain hours reported as regular work hours were apparently paid at less than the regular rate provided for in the Construction Decree (Decree) and do not appear in the payroll. Lastly, the weekly reports provide information on the time spent by an employee travelling outside Greater Montréal and on the number of kilometers travelled on those trips in a given week.

[28]The general ledger contains entries confirming that the figures appearing in the weekly reports were used to calculate the kilometrage allowance and, in certain cases, the amount paid as an allowance for travel time. The investigator stated that these amounts were generally not included in the unreported income, with the exception of a larger amount of $701.

[29]After completing his analysis of the documents obtained at PMC's place of business, the investigator observed that there were discrepancies between the total annual wages claimed by PMC as expenses and the amounts that he himself had calculated. Thus, on November 17 and 18, 1994, he returned the originals of the weekly reports to PMC so that it could explain the discrepancies.

[30]At the January 18, 1995 meeting, Mr. Côté was able to explain the discrepancies by saying that the annual totals that had been used corresponded to calendar years, whereas they should have been calculated on the basis of fiscal years which, in PMC's case, ended on April 30. Once the adjustments were made to take this fact into account, the figures provided appeared to the investigator to correspond to those he had determined.

[31] The investigator and PMC's representative subsequently agreed on the wage amounts that could be allowed as expenses. In his letter of June 17, 1994, Mr. Côté claimed a wage expense of $400,000 as a deduction for 1991, but the investigator was prepared to allow only $309,535, which Mr. Côté ultimately accepted. The amounts of income not reported by PMC totalled $1,448,748 for the three fiscal years 1989, 1990 and 1991. The figures for 1992 were not provided, but it was stated that the unreported income was equal to the wage amounts that the Department was prepared to allow as expenses.

[32] The wage amounts that the investigator allowed as expenses for the 1989, 1990 and 1991 fiscal years are respectively $480,470, $361,711 and $309,535, leaving PMC with additional net income of $72,845 in 1989, $61,617 in 1990 and $162,570 in 1991. The investigator also included in Michel Candussi's income additional income which he taxed as an appropriation of funds; this additional income amounted to $65,360 for 1989, $128,919 for 1990 and $54,190 for 1991.

[33]In addition, Crown counsel laid criminal fraud charges against Mr. Candussi and PMC under section 239 of the Act for 1989 and 1990. In PMC's case, the amounts of income in respect of which it was accused of evading tax are $72,845 in 1989 and $61,617 in 1990 for a total of $134,462. For Mr. Candussi, the amounts are $65,360 in 1989 and $128,919 in 1990 for a total of $194,279.

[34]Those two taxpayers pleaded guilty and were fined 75 percent of the tax evaded.The investigator said that neither Mr. Candussi nor PMC were given preferential treatment and that the civil case was negotiated separately from the criminal case. Moreover the investigator and the Minister's representatives have no role to play in the prosecution of a criminal charge; rather, it is the representatives of the Department of Justice who conduct these matters.

[35]As the final stage of his investigation, on March 17, 1995, the investigator sent each of the appellants a letter informing them that he proposed to add unreported wage amounts to their incomes.

[36]The investigator explained why he had allowed the wages appearing on the weekly reports as expenses in computing PMC's income and why he had reassessed PMC's employees, in particular the four appellants. He stated that his reassessment was based on those weekly reports, which constituted reliable supporting documents, and he described the indicators supporting that statement.

[37]First of all, he mentioned the existence of a large amount of information appearing in the weekly reports which was not necessary in order for PMC to prove the amounts of the wages it had paid to its employees. In particular, he noted indications of hours of work carried over to other periods (hours carried over), indications of hours of work appearing in the weekly report for periods after the date on which they were entered (advanced hours), annotations concerning a strike at certain customers of PMC, entries deducting the purchase price of lottery tickets from employees' wages or showing payment of wages in the form of a hunting trip, and annotations concerning reimbursement for a trowel.

[38] In addition to this mass of superfluous information, there is the fact that the figures appearing in the weekly reports are consistent with those in other documents. For example, the weekly reports are consistent with the time sheets which some of PMC's employees admitted they had signed. In addition, the billed disbursements appearing in the weekly reports are consistent with those shown in the general ledger: in particular the amounts paid for travel time and the kilometrage allowances. As well, cheque numbers shown in the weekly reports correspond to those in the general ledger. The hours of work paid at the regular rate are consistent with those appearing in the payroll. Furthermore, the work site names given in the weekly reports correspond to those appearing in the statements of account sent to PMC's customers.

[39] There is also the fact that Claudia Guenette's handwriting does not appear on the weekly reports until November 1, 1989, the date on which she began working for PMC. The weekly reports prior to that date were apparently prepared by Mr. Lafrance whose employment ended around October 21, 1989.

[40]Other indicators also confirm the reliability of the weekly reports. For example, certain regular hours were remunerated at less than the regular rate provided for by the Decree. Similarly, overtime is reported at a rate higher than the regular rate, but lower than the overtime rate established by the Decree. Mr. Candussi's explanation for this state of affairs was that these amounts were paid under the table. The investigator emphasized that if anyone had wanted to fabricate the weekly reports in order to claim a deduction for false wage expenses, he would not have used a rate of remuneration for regular hours lower than that normally used for employees. Furthermore, he would not have used a remuneration rate lower than the overtime rate in computing overtime pay. Instead he would have used the regular rate and the overtime rate to maximize the wage amounts claimed as expenses by PMC.

[41]Another indicator, according to the investigator, was the enormous effort that would have been required to make all the information appearing in the weekly reports consistent with that in the various documents to which I have referred. There was also the risk that employees might still have copies of their time sheets in their possession and thus be able to establish that the weekly reports were false.

[42]The investigator pointed out that PMC had provided him with between 10,000 and 12,000 documents. According to him, it was around May 11, 1994 that PMC truly realized the scope of the problem that confronted it. It will be remembered that the figures for the wages which PMC claimed as expenses were provided in the letter of June 17, 1994 and that the Minister took possession of the weekly reports on August 26, 1994. Thus, in the investigator's view, the approximately three-month period between May and August 1994 was not long enough for someone like Claudia Guenette to prepare all these documents herself while performing all her other administrative duties at PMC.

[43]The investigator mentioned other indicators found in the physical examination of the weekly reports, in particular the stains on them and the perforations resulting from multiple staplings. He also noted that the documents he had received had been stapled together by pay period, not on an individual basis for each employee.

[44]Another indication that led him to conclude that these documents were reliable is that, based on his experience in the construction field, there was always overtime and particularly in the field of cement floor construction where it is essential that the laying of the cement be completed before the workers leave the job.

[45]Lastly, the final factor which, in the investigator's view, pointed to the reliability of the information provided by the weekly reports is that some of the employees, as well as PMC itself, admitted that PMC made payments under the table. Of the 40 employees who were reassessed, only seven had not settled up to very recently. Furthermore, one of those seven discontinued his appeal a few days prior to the hearing of these appeals and only six are now before the Court.

[46]In his testimony, the investigator commented on the weekly reports relating to the appellants. He noted in Mr. Vommaro's case, for example, that time sheets, some of which were signed by Mr. Vommaro and others probably by members of his family, were found stapled to the weekly reports. He also noted that some hours which Mr. Vommaro had worked during a given period had been carried over to other periods.

[47] With respect to the weekly reports relating to Mr. Bergamin, the investigator observed that Mr. Bergamin had worked overtime and that hours had been carried forward and carried back to other periods.

[48] In the cases of Messrs. Iafanti and Mungiovi, there were weekly reports confirming that they had worked on Saturdays and that hours had also been carried over to other periods.

[49] The investigatorassessed penalties based on the reliability of the weekly reports, on the fact that the time sheets, some of which were in the handwriting of the taxpayers concerned, confirmed that those taxpayers had worked overtime, and on the fact that the employer and certain employees—as well as at least one representative of those employees—had confirmed that payments had been made under the table. The investigator testified that the employees knew that the T4 slips did not include all the income they had received and he pointed out again that 33 of the 40 employees who had been reassessed had settled with the Minister.

[50] Following the investigator's testimony, five PMC employees appeared at the respondent's request. All testified hesitantly and reluctantly, particularly when it came to discussing the appellants' conditions of employment. With the exception of Francesco Pulciani, they were even reluctant to answer questions that concerned themselves. The most frank of all these witnesses was Mr. Pulciani, who described his situation very clearly, without equivocation or hesitation. This employee was on the first crew, which poured the cement. He had worked for Mr. Candussi for 20 years and admitted that the number of hours he worked each day varied with the length of the job. He also admitted that it was important to stay until the job had been completed or else he would run the risk of losing his eight hours' wages. He stated that Mr. Candussi was an honest person who paid all the hours worked by his employees.

[51] The most important fact revealed by his testimony is that he received part of his remuneration under the table, particularly for the overtime that he worked: he admitted that the amounts stated in his weekly reports corresponded to the remuneration he had actually received. He also testified that he had been reassessed by the Minister, that his accountant had handled his case and that he had paid the tax he owed.

[52] Claudia Guenette testified to describe the work she had performed for PMC. She admitted that she began her employment with PMC on November 1, 1989 and that she left it in 1996. She believed that the employee who had previously completed the weekly reports was Serge Lafrance and confirmed that she had only prepared the weekly reports for the periods starting after October 30, 1989. However, some reports were occasionally prepared by someone else, namely the business's receptionist.

[53] Ms. Guenette testified that these weekly reports were prepared each week. They were usually written on blue paper, although the paper could also be white or green.

[54] Ms. Guenette declared that she did not know Mr. Côté at all and that she hardly knew Mr. Roy. She did not discuss anything with Mr. Roy while the weekly reports and payroll were being audited. In addition, no one had asked her at that time to prepare those documents. The information appearing in the weekly reports was provided to her by Mr. Candussi and, after completing the reports, she handed them over to him and did not see them again after that.

[55] She admitted that she had prepared the pay slips but said she had not prepared the brown envelopes, which were rather Mr. Candussi's responsibility. Ms. Guenette said it was possible that employees had worked more or less than eight hours a day, but she indicated that the time sheets were handed over to Mr. Candussi. It was moreover with him that the terms of payment at the regular rate and overtime rate as well as Saturday work and the carrying over of hours could be negotiated.

[56] Mr. Candussi also testified. He revealed that PMC had gone bankrupt in 1998 and that he himself had as well. He admitted that it was he who had prepared the brown envelopes in which he placed the pay slips, the cash and, quite regularly, a slip indicating the employees' hours of work. The amounts were paid in cash because this left no trail. Overtime did not appear on the T4s or in the pay records. The pay rate for overtime had been negotiated with the employees and fixed at a level lower than the overtime rate because these amounts were paid cash and not reported to the tax authorities.

[57] He provided the same explanation for the fact that some work done during regular hours had been remunerated at less than the regular rate provided for by the Decree. He testified that the money contained in the envelopes generally corresponded to the amounts shown in the weekly reports.

[58] Mr. Candussi also provided explanations concerning the hour banking system. Some weekly reports bore the inscription "hold", often in the upper left-hand corner. This hour banking system had been introduced at the employees' request. When counsel for the respondent asked him to explain why that request had been made, he was very reluctant to answer. He said at first that it had been done as a favour to the employees and, when she insisted, he answered that it was in order to keep his employees happy. It was not until counsel for the appellants cross-examined him that the truth finally emerged and he admitted that it was in order to help the employees obtain unemployment insurance benefits.

[59] He confirmed that the weekly reports were prepared by Claudia Guenette based on the information he provided her, that is to say information from the time sheets and that obtained from telephone conversations with his employees or at meetings with them. The weekly reports were prepared once a week, every week. He also admitted that the colour of the weekly reports could be blue, white or green.

[60] When I questioned him, Mr. Candussi revealed that he had a little book (little black book) which he had not shown to the investigator and in which he recorded certain information concerning the hours of work carried over to subsequent or previous periods. He also noted in this little black book the amounts he might owe his employees because he did not always have the necessary money to pay them.

[61] When he was asked directly whether the weekly reports might have been fabricated, he answered: [TRANSLATION] "Unfortunately, no." To confirm what he said, Mr. Candussi relied on the fact that he believed that the weekly reports had been seized by the Minister's investigator early in the investigation. He also asserted that he had not been informed by the Laurentian Bank that the Minister had discovered his bank account. Lastly, he said it was impossible that Mr. Côté could have prepared the weekly reports. In general, the weekly reports were an adequate representation of what had happened during the relevant taxation years.

[62] Mr. Candussi was also questioned on the subject of his employees' work. He had difficulty remembering the exact number of his employees; he said there were between 24 and 34. He admitted that these people worked variable hours which might range from four to 15 hours a day, sometimes even on Saturdays.

[63] He also admitted that employees could work three, four or six days a week. Some employees might have paid the cost of restaurant meals for some of their fellow crew members. He occasionally worked as a replacement for some of his employees.

[64] When counsel for the appellants examined him regarding the terms of employment of each of the four appellants, Mr. Candussi said that he could not remember them. When pressed for an answer, he admitted Mr. Bergamin might have refused to work more than eight hours a day, but he recalled that he had worked more than eight hours a couple of times at least. He did not remember knowing that Mr. Mungiovi had health problems. He said Mr. Mungiovi had worked more than eight hours on a few occasions.

[65] As to Mr. Vommaro, Mr. Candussi believed that hours had been banked for that employee. Overtime might have been exchanged for regular hours, but that was not a regular occurrence. It was also possible that hours had been carried over and that Mr. Vommaro might have worked more than eight hours a day. It was likewise possible that Mr. Iafanti had worked only 40 hours a week over three, four or five days and that he had been paid for a minimum of 32 hours and a maximum of 40 hours. However, Mr. Candussi stated that all of these men had received everything owed them. Otherwise he would have been sued.

[66] Mr. Palumbo is another witness who appeared at the respondent's request. He admitted that he found not only cash and a pay slip in his envelope, but also a slip stating his hours. However, he hastened to say that he did not recognize his handwriting on some of the documents shown him at the hearing, but failed to mention that he needed glasses to see clearly. Later on, however, when asked to comment on a pay slip showing paid hours, he said that he could not read it because he did not have his glasses.

[67] Mr. Palumbo denied that he had told the investigator a few weeks before the hearing that he had received unreported income, that PMC's employees worked overtime and that there was an hour banking system at PMC. When the investigator was questioned again, he stated that Mr. Palumbo had indicated to him that he had not reported all his income, that he had received overtime pay and that hours had been banked for him and other PMC employees.

[68] Mr. Gerbasi testified that he had been employed by PMC from May 1990 until 1994 or 1995. His pay envelopes contained only a pay slip and cash. He said he had used the hour banking system but did not check the hours he had worked, relying instead on his employer. He also indicated that he had suffered a depression and believed that he may have left his job with PMC without receiving all his pay. Surprisingly he asserted that he had not been reassessed for unreported income, whereas the investigator confirmed the contrary.

[69] Mr. Bergamin testified again after hearing the respondent's evidence. He admitted that, while he may sometimes have worked more than eight hours a day, he had done so without pay. All the other appellants also testified again essentially to reaffirm their evidence in chief and to declare that they had never seen the weekly reports.

Appellants' Argument

[70] At the hearing, counsel for the appellants presented a written brief stating the main points of his argument. He argued first of all that PMC had fabricated the weekly reports after learning that it was under investigation. According to him, Ms. Guenette or PMC had had 10 months to fabricate the weekly reports, not three. He asserted that PMC was aware that the problem was looming on the horizon as early as October 1993, not just in May 1994. During that 10-month period PMC would have had all the time needed to fabricate the documents.

[71] Some of the facts on which counsel bases his assertions are as follows. First of all there is the fact that, according to him, the weekly reports were all written with the same pen. The fact that other contemporary documents existed—in particular the little black book—and that they were not handed over to the Minister, raises the possibility of falsification on PMC's part. He states the following in paragraph 10 of his brief:

[TRANSLATION]

The witness Michel Candussi emphasized before the Court that the amounts and/or sums of money entered in the "weekly reports" did not necessarily mean that these amounts were paid at the times entered since he pointed out in Court that there was another notebook, of which the Department had no knowledge, which reflected the non-payment of various sums appearing in the "weekly reports". That is in our view a very important factor suggesting that various pieces of information were falsified, thus strengthening the appellants' argument that Mr. Candussi prepared all the documents in order to deceive the Department by creating a diversion onto the employees in order to lighten his tax burden, which he moreover succeeded in doing.

[72] He also reminded the Court that there were white sheets and green sheets as well as the blue ones. He argued that this confirmed the existence of other documents which might have revealed different information from that gathered by the investigator. Furthermore, the purpose of the extensive superfluous information provided in the weekly reports was to render those reports more plausible. As to the fact that the work site names appearing in the weekly reports corresponded to those on the invoices sent to PMC's customers, this does not necessarily establish that the appellants were on those sites on the dates indicated in the reports.

[73] Counsel for the appellants also thought it important that the weekly reports were prepared unbeknownst to the appellants and without being signed by them. The weekly reports thus cannot be considered reliable documents, according to counsel.

[74] The fact that, in the investigator's experience, it was common practice to work overtime in the field of cement floor construction does not necessarily mean that this practice was followed by PMC since it used several crews which relieved each other and Mr. Candussi admitted that he had hired extra personnel.

[75] Counsel for the appellants argued that, given the presence of unreliable and contradictory documents, the burden was on the respondent to prove that there were reliable documents establishing that the appellants had received payments under the table. He contended that the documents that PMC did not hand over to the Minister might have revealed a situation completely opposite to that which the Minister assumed to exist. He also criticized the Minister for not comparing the total amount of wages not claimed as expenses with the amounts of the unexplained withdrawals from the account at the Laurentian Bank.

[76] Furthermore, no witness testified that the appellants worked overtime and were paid under the table: the only exception was Mr. Candussi who, according to counsel for the appellants, was a tainted witness because he provided the Commission with reports and the Minister with T4 slips which revealed information different from that contained in the weekly reports. To reduce his taxes and penalties as well as those of PMC, it was in Mr. Candussi's interest to maximize PMC's expenditure figures and increase the appellants' wage figures.

[77] Counsel for the appellants contended that, on the contrary, a number of witnesses corroborated the appellants' version by stating that the money they found in the envelopes corresponded to the amount indicated on the pay slip.

Respondent's Argument

[78] Counsel for the respondent argued that the respondent had discharged the entire burden of proof that was on her, particularly the burden of showing that, for the years from 1989 to 1991, the appellants had made a misrepresentation attributable to neglect, carelessness or wilful default under subsection 152(4) of the Act. She likewise discharged her burden with respect to the penalty assessed under subsection 163(2) of the Act, that burden being to show that the appellants had made a false statement under circumstances amounting to gross negligence with respect to the years from 1989 to 1992.

[79] In support of her arguments, counsel for the respondent noted the inconsistencies in the appellants' testimony. First there was the fact that Mr. Bergamin called every Monday to give his hours worked. Why would he have to call every Monday to provide the number of hours if he always worked eight hours a day, four or five days a week? Since it was PMC that called Mr. Bergamin to tell him where and when to work, PMC would have been in a position to know exactly the number of hours to be indicated on the pay slip. Counsel thus suggested that calling every Monday would have been more logical for a person who was reporting irregular hours and overtime.

[80] Mr. Bergamin testified in evidence in chief that he had never worked overtime because PMC refused to pay him at the overtime rate, whereas he admitted in cross-examination that he may have worked overtime on several occasions, [TRANSLATION] a couple of times, to use his expression, but said that he did so without pay. Mr. Bergamin's testimony that he himself paid for his hunting trip with Mr. Candussi was contradicted by the latter's testimony, which was corroborated by the weekly report.

[81] All the appellants, even though they had worked together for many years, said they did not know whether or not a given co-appellant had worked overtime or worked on Saturdays. Counsel contended that they were obviously trying to protect each other.[2]

[82] According to counsel for the respondent, Michel Candussi was credible when he stated that he had paid his employees under the table for certain regular hours as well as for overtime and when he said that he had set up an hour banking system at his employees' request to help them become eligible for unemployment insurance.

[83] Counsel asserted thatMr. Candussi was credible because he had nothing to gain at the time of his testimony and that it would have been more pleasant for him to protect his former employees. Mr. Candussi and PMC were reassessed in respect of the income they had not reported and they were assessed civil penalties. The two were also charged with tax fraud, to which they moreover pleaded guilty. Counsel also pointed out that Mr. Candussi had been very reluctant to come and testify and that certain facts that were harmful to his former employees had to be extracted from him with great difficulty.

[84] However, it was not enough to rely solely on Mr. Candussi's testimony; the fact that his testimony was corroborated by certain documents, in particular the weekly reports, also had to be considered. I will not repeat here the reliability indicators which counsel mentioned since they correspond essentially to those previously mentioned by the investigator in his testimony, which I have stated above.

[85] I will merely refer to the comments that counsel for the respondent made respecting two of the points raised by counsel for the appellants. She stated that, when Ms. Guenette and Mr. Candussi spoke about the colour of the weekly reports, they might have been referring to periods prior to the relevant taxation years. I admit that this is possible in Mr. Candussi's case, but not in that of Ms. Guenette since she was not hired until November 1989. However, as she continued to work after 1992, until 1996, the statement may be valid in her case for the subsequent years.

[86] Contrary to counsel for the appellants, counsel for the respondent asserts that the little black book raises no doubts. In her opinion, the existence of the little black book poses no problems. The weekly reports confirm the existence of a system by which hours were carried back to previous periods or carried forward to subsequent periods and it is not surprising that Mr. Candussi might have kept the necessary information in another record—the little black book—and that he subsequently provided that information to Ms. Guenette. Furthermore, as Mr. Candussi admitted that he did not always have the money necessary to pay his employees, the little black book enabled him to determine how much he owed them.

Analysis

[87] Those are the respective positions of each of the parties. I have before me two totally contradictory versions of what took place. In my opinion, the decision in these appeals depends entirely on the credibility of Ms. Guenette's and Mr. Candussi's testimony as well as on the reliability of the weekly reports. If I were to believe this testimony and the weekly reports, I could not consider the appellants' testimony credible. And if I were to disbelieve the appellants, then the respondent would have discharged her entire burden of proof and the reassessments of all the appellants would thus be affirmed.

[88] First of all, it should be noted that I essentially have only the word of each of the appellants, who assert that they did not receive the additional income determined by the Minister in his reassessments. No one came to corroborate their version. None of their fellow crew members, whether one of the other appellants or any of PMC's other employees, came to testify under oath that none of the appellants was in the habit of working overtime. At first blush it is quite surprising that they would never have done so, in view of the nature of PMC's operations. When you are pouring concrete or working on finishing, it is essential to complete the job before going home. Of course, it is not impossible that these appellants might in fact have acted as they claimed; however, no one came to corroborate these facts under oath.

[89] I also find it utterly implausible that none of the appellants was able to provide information on the other appellants' work habits. I share counsel for the respondent's view that this seems like the behaviour of someone who wants to protect his co-workers or former co-workers. It is truly a conspiracy of silence. However, silence in these circumstances may be interpreted in a manner unfavourable to those who remain silent. Certainly it may be thought that, if they had been able to speak freely, they might have revealed facts which would have undermined their interests. Furthermore, there are also the inconsistencies which counsel for the respondent previously noted and which undermine the appellants' credibility.

[90] In support of the respondent's version, there is the testimony of Mr. Candussi, corroborated in many important points by the testimony of Mr. Pulciani and Ms. Guenette, indicating that PMC made under-the-table payments and that during the relevant periods the weekly reports were prepared to enable Mr. Candussi to prepare the brown pay envelopes each week.

[91] I also share the view expressed by the investigator and by counsel for the respondent regarding the reliability of the weekly reports. In my opinion, the indicators they mentioned give the weekly reports very considerable probative value. I believe on a balance of probabilities that the weekly reports were drafted in the normal course of PMC's operations and accurately reflect the actual situation, that is to say that the appellants received remuneration under the table for overtime and regular hours which were not reported either in the payroll, on the T4 slips or in their returns of income.

[92] The defence presented by counsel for the appellants essentially consisted in raising doubts as to the validity of the weekly reports. In particular, he suggested that PMC might have had 10 months rather than three months to fabricate the weekly reports. There is also the fact that the handwriting on the reports might suggest that they could all have been prepared using the same pen, after the fact. Since all the weekly reports filed at the hearing were photocopies, it is difficult if not impossible to be convinced that this was the case.

[93] In my view, however, even though these factors may raise doubts, this does not mean that, on a balance of probabilities, these weekly reports were fabricated and that they contain incorrect information on the wages paid to the appellants.

[94] I should add that I have attempted to determine whether the total withdrawals from the account at the Laurentian Bank might correspond to the total wages paid under the table during the relevant taxation years. I have observed that some of the information necessary to check this for 1989 is missing since the bank statement (Exhibit I-5) only shows the withdrawals starting from January 1, 1989. Since the 1989 fiscal year ended on April 30, 1989, the withdrawals for the months from May to December 1988, needed in order to have a complete picture for 1989, are missing. Furthermore, the amount of unreported income and the amount of wages which the Minister allowed as expenses for 1992 were not revealed at the hearing; it merely came out that they were equivalent amounts.

[95] I have nevertheless been able to prepare a table using the withdrawals corresponding to the relevant months of PMC's fiscal year ending on April 30, 1990 and April 30, 1991. I have added to the table the amounts of income not reported by PMC and the amounts of wages which the Minister allowed as expenses as well as the amounts of PMC's net income and the amounts of Mr. Candussi's additional income which the Minister considered to be appropriations of funds when making his reassessment. As an analysis of this table shows, the amounts of wages allowed by the Minister for the 1990 and 1991 fiscal years are less than the corresponding withdrawal amounts. For the 1990 fiscal year, the wages allowed were $361,711, whereas the withdrawals amounted to $408,500. For 1991, the Minister allowed $309,535 in wages, whereas the withdrawals for the corresponding period amounted to $465,000.

WITHDRAWALS	APRIL 90	APRIL 91
May	34,000	51,000
June	74,000	43,000
July	31,000	26,000
August	26,000	49,000
September	20,000	43,000
October	50,000	27,500
November	44,000	42,000
December	23,000	25,500
January	12,000	36,000
February	29,500	60,000
March	37,000	27,000
April	28,000	35,000
TOTAL withdrawals	408,500	465,000
	APRIL 90	APRIL 91
UNREP. INC.[3]	423,328	472,105
WAGES	- 361,711	- 309,535
NET INC. (PMC)	61,617	162,570
UNREP. INC.	128,919	54,190

[96]For 1990 and 1991, it may therefore be seen that the wage expenses allowed by the Minister are entirely consistent with the withdrawals made by PMC. What is more, on analyzing the intervals at which the withdrawals were made from the bank account, I observed that those withdrawals were single bimonthly or weekly withdrawals, which is wholly consistent with PMC's claims that these amounts were used to pay wages under the table.

[97] Thus, for all these reasons, the appeals of all the appellants are dismissed with costs to the respondent.

Signed at Montréal, Quebec, this 8th day of March 2000.

"Pierre Archambault"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 13th day of February 2001.

Erich Klein, Revisor

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