[OFFICIAL ENGLISH TRANSLATION]
96-3997(IT)G
BETWEEN:
AUTO D.L. LAROCHE INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of
Denis Laroche(96-3841(IT)G)
On November 18, 19 and 20, 1998,
and February 7 and 8, 2000, at Montréal, Quebec, by
the Honourable Chief Judge Alban Garon
Appearances
Counsels for the Appellant: Luc Richard
Denis Lavigne
Counsel for the Respondent: Valérie Tardif
JUDGMENT
These appeals from assessments under the Income Tax Act for the 1990, 1991 and 1992 taxation years are dismissed, with costs.
Signed at Ottawa, Canada, this 11th day of May 2001.
|
"Alban Garon" |
C.J.T.C.C.
Translation certified true
on this 8th day of January 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
96-3841(IT)G
BETWEEN:
DENIS LAROCHE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of
Auto D.L. Laroche Inc. (96-3997(IT)G)
On November 18, 19 and 20, 1998,
and on February 7 and 8, 2000, at Montréal, Quebec, by
the Honourable Chief Judge Alban Garon
Appearances
Counsels for the Appellant: Luc Richard
Denis Lavigne
Counsel for the Respondent: Valérie Tardif
JUDGMENT
These appeals from assessment under the Income Tax Act for the 1990, 1991, 1992 and 1993 taxation years are dismissed, with costs.
Signed at Ottawa, Canada, this 11th day of May 2001.
|
"Alban Garon" |
C.J.T.C.C.
Translation certified true
on this 8th day of January 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20010511
Dockets: 96-3841(IT)G
96-3997(IT)G
BETWEEN:
DENIS LAROCHE,
AUTO D.L. LAROCHE INC.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Garon, C.J.T.C.C.
[1] In the case of the individual appellant, Denis Laroche, these are appeals from assessments by the Minister of National Revenue for the 1990, 1991, 1992 and 1993 taxation years. By those assessments, the Minister of National Revenue added the following amounts to the individual appellant's income for the taxation years in question:
amount added taxation year
$39,751.00 1990
$9,616.00 1991
$5,616.00 1992
$4,680.00 1993
[2] The Minister of National Revenue also assessed penalties against the individual appellant under subsection 163(2) of the Income Tax Act for each of the four years at issue.
[3] The corporate appellant, Auto D.L. Laroche Inc., is appealing from assessments by the Minister of National Revenue for 1990, 1991 and 1992. Each of those taxation years of the corporate appellant ended on May 31. By those assessments, the Minister of National Revenue added the following amounts to the corporate appellant's income for the taxation years in question:
amount added taxation year
$6,700.00 1990
$47,762.00 1991
$4,776.16 1992
The Minister also assessed penalties under subsection 163(2) of the Income Tax Act for the corporate appellant's 1990, 1991 and 1992 taxation years.
Appellants' evidence
[4] The first witness was the individual appellant, who is the director and sole shareholder of the corporate appellant. He said that he left school in Secondary III and has been running the corporate appellant's operations since about 1989; before that, he was a steel erector.
[5] At the start of his testimony, the individual appellant described the operations involved in the corporate appellant's business. He said that the cash received when used vehicles were sold was used to have repairs made to damaged cars obtained from recyclers. The individual appellant said that the corporate appellant received only part of the sale price of each car, since it had to give the other part to the firm that had repaired the car. Taxes were not collected on the repair price paid by the consumer because they were included in that price.
[6] The individual appellant then dealt with specific transactions.
[7] The first transaction involved a contract between the corporate appellant and Clémence Noël for the purchase of a Nissan 240. At the time of the transaction, Ms. Noël paid $5,000 in cash and handed a cheque for $6,800. According to the individual appellant, the $5,000 represented the cost of the repairs and was given to the repairer. To support that assertion, he filed an invoice for $5,000 dated January 23, 1990, from Ateliers de Débosselage Pro-Tess enr. An invoice for $4,050 for the purchase of the car from Auto Recyclage Berpa inc. and a cheque for $6,700 given to that company were also adduced in evidence with regard to that transaction. The difference between those two amounts was not explained. Moreover, on cross-examination, the individual appellant stated that the corporate appellant had received a cheque for $11,239 and $5,000 in cash for the Nissan 240 purchased by Ms. Noël.
[8] The individual appellant then referred to the sale of a car to Serge Beauchesne under a contract dated July 10, 1990. As for the price of that car, the corporate appellant received $13,302, including $600 in cash-for which an invoice was issued-that was used to pay for the repairs. The car had been purchased from Auto Recyclage Berpa inc. for $5,000.
[9] The individual appellant testified that the contract between France Lemarier and the corporate appellant was for a 1988 Camaro that the corporate appellant had purchased from Autos Guy & Richard inc. for $5,000. The car was damaged and was repaired by Atelier de Débosselage Pro-Tess enr. for $6,700. It was sold for $6,422 plus $6,700 in cash. The cash amount was given to Atelier de Débosselage Pro-Tess enr. to pay for the repairs.
[10] The individual appellant then referred to a contract between the corporate appellant and Transport AGM Inc., represented by Guylaine Dubé, for the purchase of a GMC pickup truck. The vehicle in question had been purchased from Pièces Fontaines inc. for $7,500 and repaired by Carrosserie G. Boyer for $5,200. Carrosserie G. Boyer has its place of business in Arundel, a town about three and a half hours by car from Victoriaville. On cross-examination, the individual appellant explained that the car was sent to Arundel because the other garages that were nearer were busy at the time. However, the repairs were not completed until two and a half months later.
[11] The sale by the corporate appellant to Transport AGM inc. was made for $25,330, which included the amount of $18,500 ($20,165 after taxes) in addition to the $5,165 paid in cash for repairs. The individual appellant gave the $5,165 to Carrosserie G. Boyer. On cross-examination, the individual appellant was no longer certain whether the $5,165 was received in cash or by cheque. He said that he probably kept the amount. However, when asked whether he had not paid for repairs, he answered as follows: [translation] "yes, that's right, I paid for repairs". Out of the $18,500 portion of the price just referred to, the individual appellant financed $15,000, which was not entered in his books of account because he had [translation] "not been paid yet". The sales tax was remitted to the government, and he said that it was entered in the books of account. The individual appellant admitted that he deposited the monthly payments received from Transport AGM inc. for that transaction in his personal bank account. He admitted that those payments were not included in his income. He said that those amounts were part of the corporate appellant's income and not his personal income. He did not ask the purchaser to make out the cheques to the corporate appellant because he did not want to [translation] "confuse the secretary" of the corporate appellant. He intended to deposit all of the monthly payments in the corporate appellant's account as soon as all the instalments had been paid. He cashed the cheques and put the proceeds in an envelope near another envelope containing cash for repairs. The individual appellant explained that he took the amounts home because he did not have a strongbox at the garage. However, he forgot to deposit the money in the bank once all the payments had been made. He admitted that he had used the amounts for his personal expenses.
[12] The contracting parties in the next transaction were the corporate appellant and Serge Houle. Garage René Martineau inc. made $7,000 in repairs to the car in question. The price set out in the contract was $4,400, and another $7,000 was paid in cash. The $7,000 was given to Garage René Martineau inc. to pay for the repairs. The individual appellant no longer had in his possession the contract proving the corporate appellant's purchase of that car and testified that it had probably been lost.
[13] The next transaction to be discussed involved the corporate appellant and Gilles Ducharme. The contract by which the corporate appellant purchased a 1990 Buick Century from Pièces Fontaine inc. for $7,600 was not adduced in evidence. The individual appellant said that the car had been repaired by Centre d'Autobaines for $2,000, but then said that the repairs had been made by Carrosserie G. Boyer for $6,000. Centre d'Autobaines is located in Rivère-des-Prairies near Montréal. The price of the repairs was paid by the purchaser in addition to the price stated in the contract. The invoice for $2,000 refers to a white Buick Century, whereas the invoice for $6,000 refers to a grey Buick Century. On that point, the individual appellant said that there were two Buick Centuries. Since the invoice for the car's purchase refers to a grey car, it would seem that only the invoice for $6,000 applies to the car purchased by Gilles Ducharme for $7,600. The invoice for the repairs costing $2,000 is for Serge Fortin's car. Both cars were purchased by the corporate appellant for consideration that was not specified.
[14] Reference was next made to the sale of a 1990 Jeep Cherokee to Martine Fillion. That vehicle was purchased by the corporate appellant from Alain Lalonde Auto World Ltd. for $12,500 and repaired by Atelier de Débosselage Pro-Tess enr. for $6,400. In this case as well, Ms. Fillion paid $6,400 in cash for the repairs in addition to the price set out in the written contract. The individual appellant gave the $6,400 to Atelier de Débosselage Pro-Tess enr. While cross-examining the individual appellant, the respondent brought up the point that there were two contracts with different prices, one for $25,091 with a $10,00 credit for a car given as a trade-in and the other for $13,853 with a $5,000 credit for another car. The individual appellant was unable to explain this. Later, he added that Mr. Cajelait, his salesperson, remembered the transaction and the fact that there were two contracts but could not remember why. The respondent objected to that part of the individual appellant's testimony on the basis that it was hearsay. According to the individual appellant, the salesperson was the one who drew up the contracts. He stated that one of the two contracts must not reflect reality. He said that Ms. Fillion paid him $6,350 in cash.[1] The corporate appellant [TRANSLATION] "probably" reported a sale for $13,853. The individual appellant said that he received $9,650 of that $13,853 by cheque and $6,350 in cash. Those amounts add up to $16,000, not $13,853.
[15] The last transaction was between the corporate appellant and Michel Caron. The vehicle involved was a 1989 Ford truck purchased from Garage C. Hébert inc. for $4,500 and repaired by Garage René Martineau inc. for $4,066. The truck was sold to Mr. Caron for $10,297. Of that amount, $5,000 was the credit given for a car traded in and $6,500 was paid by cheque. The individual appellant paid $4,000 in cash for the repairs made to that truck.
[16] The individual appellant next said that all of the vehicles purchased and resold by the corporate appellant needed repairs. He said that, in the sale price of the vehicles, he did not include the amounts given in cash to pay the cost of the repairs because [translation] "this helped me make my sale". Moreover, he said that the person that did the repairs wanted to be paid in cash. On cross-examination, he explained that that system helped him sell cars because he could charge less for taxes and the customer had to pay taxes only on the sale price specified in the written contract, which did not include the cost of the repairs. No customer refused that means of payment.
[17] The individual appellant said that he was the corporate appellant's only shareholder and also one of its employees. The corporate appellant had between five and eight employees during the years in question. They included a secretary who came in once a week to make entries in the corporate appellant's books to take account of the cars sold and the invoices. The only other person who looked after the corporate appellant's books of account was its accountant, Jacques Gagnon, who came [TRANSLATION] "to do the month-end work". Mr. Gagnon also prepared the corporate appellant's financial statements and tax returns and the individual appellant's personal tax returns. For that purpose, he spent a few days at the premises of the corporate appellant once a year and met with its secretary. The individual appellant did not make entries in the books of account himself.
[18] Mr. Gagnon determined the corporate appellant's income using the information and documents provided by its secretary. The entries made by the secretary in the books were based on the contracts of purchase and sale and the purchase invoices for parts. The invoices for repairs that were paid in cash and made to the above-mentioned vehicles were not given to the corporate appellant's secretary because, as the individual appellant put it, they were [TRANSLATION] "ins and outs" since the cash received from the purchaser of a vehicle was used to pay for the repairs. The secretary did not see those invoices because she did not have [TRANSLATION] "to do incomings and outgoings". Referring to a given invoice, the individual appellant stated: [TRANSLATION] "I took it with one hand and gave it back with the other".
[19] The individual appellant said that he paid the repairers when he took possession of the car on the corporate appellant's behalf and that he received the same amount when the purchaser of a given vehicle paid for it some time later. He [TRANSLATION] "paid himself back", he said. The repairers would not have agreed to hand the cars to the corporate appellant and be paid later. The individual appellant usually used the cash to pay for repairs made to another vehicle. In the specific case of the vehicle sold to Ms. Lemarier, he could not remember how he had used the $6,700 he had received in cash.
[20] In his testimony, the individual appellant also provided some general information about the corporate appellant's operations.
[21] The individual appellant believed that the corporate appellant used an electronic accounting system during the years at issue. He said that the repairers were paid in cash because that was what they requested.
[22] About half of the 300 to 350 cars sold by the corporate appellant each year were damaged. The individual appellant was not able to describe the repairs made to any of the vehicles in question here. During the years at issue, the individual appellant always did business with the same garages to repair those cars. The garages used were chosen based on their availability. Since they were often busy, the individual appellant occasionally had to go to garages that were farther away from the corporate appellant's place of business in Victoriaville.
[23] When asked to explain what had been done with the amount paid in cash for repairs to the vehicle purchased by Mr. Caron-that transaction being the last involving the receipt of cash-the individual appellant said that he probably paid himself back for the repairs made to the first vehicle purchased by the corporate appellant, since the corporate appellant had had to take out a loan to pay the consideration required for its first transaction. He could not say with certainty who the lender was, but he thought that it might have been his brother, Yvon.
[24] The individual appellant stopped paying for repairs in cash after the sale to Mr. Caron [TRANSLATION] "because it was too much of a nuisance" and the garages [TRANSLATION] "didn't need it as much". He never obtained any receipts for the payments made to the repairers; the invoices were the only documents issued by them.
[25] The individual appellant was unable to explain why a busy garage like Guy Boyer's had apparently issued consecutively numbered invoices for repairs done two months apart. Nor could he clarify why the number on the invoice dated October 6, 1990, was higher than the number on the receipt dated May 30, 1991.
[26] Finally, it was admitted that the individual appellant had pleaded guilty to a single count, namely receiving stolen cars, out of [TRANSLATION] "about 30" charges laid against him in connection with the vehicles at issue in these Reasons for Judgment. The individual appellant paid a $100,000 fine for that charge.
Édouard Tessier
[27] Édouard Tessier, the owner of Atelier de Débosselage Pro-Tess enr., testified that he repaired [TRANSLATION] "maybe" one or two cars a month for the corporate appellant. However, on cross-examination, he changed his story and said that what he meant was that he repaired about one car a month in total for the corporate appellant or any other person. He no longer remembered the specific repairs made to the vehicles at issue that he had repaired. He confirmed that the individual appellant always paid him in cash.
[28] Atelier de Débosselage Pro-Tess enr. was not incorporated during the years at issue. Mr. Tessier said that his gross income from that business was about $50,000 in 1990 and that he had reported that income in his tax return. When counsel for the respondent showed him his 1990 tax return, in which only $22,476 in employment income had been reported, he reconsidered and admitted that he had not reported his business income of $50,000 [TRANSLATION] "most probably" to avoid paying taxes. He also received unemployment insurance benefits in 1991 and 1992 without declaring that he worked for Atelier de Débosselage Pro-Tess enr.
Guy Boyer
[29] Guy Boyer was the owner of Carrosserie G. Boyer in Arundel. He did not remember the particulars of the repairs made to the corporate appellant's vehicles, but he confirmed that the individual appellant paid him in cash. In answer to a question by counsel for the respondent, he said that he repaired [TRANSLATION] "at least one (vehicle) a month" during the years at issue. He said that he did not repair any other vehicles between the repairs he made to the individual appellant's two vehicles, which explains why the two invoices issued to the individual appellant were consecutively numbered. Mr. Boyer stopped carrying on business at the end of 1990 because of health problems. He confirmed that he asked to be paid in cash because he had to pay cash when he stocked up at scrapyards.
Claude Hébert
[30] Claude Hébert was the owner of Garage C. Hébert inc. in Sainte-Hélène, a business whose operations involved the purchase and resale of damaged cars. He sold the individual appellant a Ford F150 for $4,500 ($4,815 after taxes) and was paid by cheque. The witness could not remember the terms and conditions of the sale and said that his son was the one who had sold the car. He said that he purchased the vehicle in question from an insurance company.
Jean Demers
[31] Jean Demers was the manager of Pièces Fontaine inc. during the years at issue. He confirmed in particular that this firm sold the corporate appellant a damaged vehicle for $7,600. He also said that he sold the corporate appellant about 10 vehicles a year.
Respondent's evidence
France Lemarier
[32] In May 1990, France Lemarier purchased a Camaro from the corporate appellant. She said that she paid $6,700 in cash in addition to the $6,999.98 set out in the contract, an amount paid by certified cheque. The total price was therefore $13,699.98. She paid that way because the individual appellant told her that [translation] "what it will do is save on taxes, it will cost less than the asking price". She said that based on her liquid assets she herself had determined how much of the consideration she would pay in cash. The Sûreté du Québec later seized the car on the ground that it was stolen. The car was returned to her eight months later.
[33] In addition to Ms. Lemarier, all the purchasers of vehicles referred to in the testimony of the individual appellant testified at the request of the respondent. They were Clémence Allaire (Clémence Noël), Serge Houle, Gilles Ducharme, Serge Fortin, Michel Caron, Guylaine Dubé and Martine Fillion. They all said that they had purchased a vehicle from the corporate appellant and that, on top of the price set out in the written purchase contract, they had paid an amount in cash ranging from $2,000 in one case to no more than $7,000 in the others.
[34] After those who had purchased vehicles from the corporate appellant testified, evidence was given by Denis Blais and Johanne Couture, two people who worked for Revenue Canada at the relevant time.
[35] It should be noted from the testimony of Mr. Blais, a Revenue Canada appeals officer who was assigned the two appellants' files, that he contacted Jacques Gagnon, the appellants' accountant, several times. On a few of those occasions, Mr. Gagnon asked him for time to discuss the files with his clients. That time was always given to him. On July 2, 1996, Mr. Blais contacted Mr. Gagnon by telephone for the last time. According to Mr. Blais, Mr. Gagnon said: [translation] "Close the file . . . I'm fed up with running after my client". Moreover, in reviewing the objection filed by the appellants to the assessments at issue, Mr. Blais never received any vouchers or other documentation and was therefore unable to thoroughly analyse the file.
[36] From 1991 to 1994, Johanne Couture was an auditor with Revenue Canada. She audited the appellants' files but did not participate in the investigation. Her audit was based, inter alia, on information obtained from the Sûreté du Québec indicating that stolen cars had been resold.
[37] On January 20, 1994, Alain Gingras, who was then an investigator with Revenue Canada, interviewed the individual appellant. Later the same year, Mr. Gingras fell ill and did not return to work afterwards. Since 1996, he has been retired with a permanent disability. Ms. Couture therefore testified concerning Mr. Gingras's interview with the individual appellant. That evidence was objected to on behalf of the appellants. Relying on the notes taken by Mr. Gingras, Ms. Couture stated the following about the interview:
[TRANSLATION]
... The interview was held on January 20, 1994, with Denis Laroche at Auto D.L. Laroche's place of business. Alain Gingras was present. The interview was held as a result of searches conducted in December 1993. One reason was to give him an inventory of the things seized during the search. They gave him the formal warning, which is something we use when we're investigating to inform taxpayers of their rights as far as the criminal aspect of the file is concerned.
One thing Mr. Laroche said was that everything had been reported and that he didn't know anything about the paperwork. He wouldn't allow us to take notes. A little later, at the end of the interview, the investigators asked Mr. Laroche whether there were cash outlays¾whether he had paid certain expenses in cash and not claimed those expenses against the unreported income. Mr. Laroche's answer was no.
So in the work I did to make the reassessments-first, submitting the proposed assessments and then making a reassessment-that was a statement I took into account.
[Transcript of November 19, 1998, at pages 223-24.]
[38] During the audit, Ms. Couture never saw any invoices for the repairs made to the vehicles in question or any contracts by which the corporate appellant purchased those vehicles. She saw the invoices for the first time in October 1998 and the purchase contracts on the first day of the hearing of these appeals.
[39] To make her assessment, Ms. Couture relied on Mr. Gingras's files and the [TRANSLATION] "statutory declarations" made by the corporate appellant's customers to the Sûreté du Québec officers.
[40] Ms. Couture also referred to a note hand written by Mr. Gingras at the bottom of a working document, which reads as follows:
[TRANSLATION]
The total in the contract of sale, specifically $20,165, was removed from Auto D.L.'s books for its fiscal year ending on May 31, 1991. The financing was appropriated by the shareholder, Denis Laroche. The cheques were cashed at Mr. Laroche's branch of the National Bank.
[Transcript of November 19, 1998, at page 228.]
[41] The total amount of the transaction in which Ms. Dubé purchased a vehicle was therefore added to the corporate appellant's income as unreported income. It was also added to the individual appellant's income as an amount that he had appropriated, since the cheques had been made out to and cashed by him. Since the sale to Ms. Dubé had been financed by the corporate appellant, interest income was also added to its income. Ms. Couture could not say whether the sales tax on the transaction had been remitted to the government.
[42] As regards the sale to Ms. Fillion-the transaction for which there were two contracts-$9,650, which was the amount recorded in the corporate appellant's books of account, was subtracted from the $16,000 paid by Ms. Fillion, resulting in $6,350 in unreported income.
[43] Ms. Couture said that, after reading Mr. Gingras's file, she noted that searches were conducted in December 1993 but that they did not have [translation] "the expected results". Ten or so boxes of books of account, vouchers and records were not found. However, Ms. Couture said that, despite the absence of the boxes containing that documentation, she at least had a photocopy of all the documents she needed to make the assessments at issue.
[44] Ms. Couture also obtained information on Édouard Tessier, the owner of Atelier de Débosselage Pro-Tess enr. She stated, inter alia, that Mr. Tessier did not have his firm name registered before May 1994 even though he claimed to have done so in 1992. She also testified that, in his tax returns, Mr. Tessier had reported only employment income for 1989 and 1990 and employment income and unemployment insurance benefits for 1991 and 1992.
[45] Ms. Couture also recommended the assessment of the penalties provided for in subsection 163(2) of the Income Tax Act because the individual appellant seemed to have arranged his affairs for the purpose of not reporting certain income and to have [translation] "set up a tax evasion scheme".
[46] The last two of the respondent's witnesses were Vincent Martin and Gilles Roberge, members of the Sûreté du Québec.
Vincent Martin
[47] Mr. Martin is a police investigator with the Sûreté du Québec. He conducted an investigation in the appellants' files. As part of that investigation, he worked closely with Mr. Roberge, whose role was to determine whether the seized vehicles were in fact stolen vehicles.
[48] The investigation began in 1991 with the seizure of automotive parts at the home of the individual appellant's father-in-law and a similar seizure at Recycleurs Fontaine. Charges were laid in 1992. The second phase of the investigation involved identifying a stolen car ring.
[49] Mr. Martin said that, after the automotive parts were seized, the Sûreté du Québec found serial numbers of vehicles [translation] "that were total losses on the engines or the transmission". A check showed that the vehicles were still registered.
[50] Mr. Martin recognized all the names of the people involved in the transactions at issue except the name of Guylaine Dubé. He then explained how the vehicles presumed to be stolen were traced.
[51] In the case of the Camaro purchased by Ms. Lemarier, Mr. Martin found the vehicle and then seized it. The vehicle was then examined by Mr. Roberge. Mr. Martin was not involved in the examination. According to Mr. Martin, Mr. Roberge gave him a serial number belonging to a car that had been stolen on February 20, 1990. Once it was established that the vehicle had been stolen, he asked the prosecuting attorney to bring proceedings against the individual appellant.
[52] The same process was used for Ms. Noël's Nissan 240, and it was concluded that this car had been stolen on May 4, 1990. It was also determined that the cars purchased by Mr. Beauchesne, Ms. Dubé, Mr. Houle,[2] Mr. Ducharme and Mr. Fortin were stolen cars. Mr. Martin reached the same conclusion about Ms. Fillion's car, except that this vehicle was examined by the Sûreté du Québec in Québec. Mr. Martin did not participate in the investigation concerning that car, but he laid charges involving it and other vehicles. Mr. Martin did not have any documentation on the vehicle purchased by Mr. Caron and remembered little about it.
[53] Mr. Martin confirmed that 53 charges involving the vehicles in question were laid against the individual appellant and subsequently withdrawn. Only one count was retained.
[54] A number of objections were made to Mr. Martin's evidence on the basis that it was largely hearsay and did not comply with the best evidence rule. The respondent argued that Mr. Martin's testimony was necessary to demolish the individual appellant's credibility, something that counsel for the respondent said was essential to her case.
Gilles Roberge
[55] Mr. Roberge has been a police officer with the Sûreté du Québec since 1973. Before the 1980s, he was assigned to that police force's forensic identification unit. From then on, his duties included the restoration of altered serial numbers on automotive parts by using acid. In the 1980s, Mr. Roberge received training from the insurance crime prevention bureau of the Sûreté du Québec. Later, in 1990, he attended a two-week vehicle identification seminar at the Canadian Police College. The seminar enabled him to work particularly in the field of identifying vehicles by means of the secondary serial numbers on them. That is the job he still holds today.
[56] Mr. Roberge's status as an expert witness was admitted on behalf of the appellants and accepted by the Court.
[57] The investigation involving the individual appellant's file started around May 1991. Mr. Roberge acted as a specialist in restoring the altered serial numbers on engines and transmissions seized in the corporate appellant's garage and on a school bus.
[58] The first step in the investigation was to identify the secondary serial numbers on the engines and transmissions. Mr. Roberge then contacted the Société de l'assurance automobile du Québec to obtain the complete serial number. With that number, he obtained the name of the vehicle's owner at the relevant time, general information on the vehicle and the vehicle's history from the Centre de renseignement policier du Québec. Mr. Roberge was also told whether the vehicle was on the road. Since the vehicles were on the road, the next step in the investigation was the seizure of the vehicles by teams of police officers with the assistance of officer Vincent Martin. Mr. Roberge then had to examine each seized vehicle and prepare a positive identification report.
[59] During his testimony, Mr. Roberge briefly summarized the procedure he followed to identify the vehicles: the secondary serial numbers on the seized part were restored, the complete serial number was identified by the Société de l'assurance automobile du Québec, a check with the Centre de renseignement policier du Québec was made to obtain the stolen vehicle report and the vehicle with the serial number in question was seized and then examined by him.
[60] One of the appellants' counsel objected to the admissibility of Mr. Roberge's testimony concerning the restoration work done on the engine of a vehicle owned by Serge Houle because the work was not done by Mr. Roberge. It was another police officer, Luc Savard, who did the restoration. The report was prepared by Mr. Savard and Mr. Roberge. Counsel for the appellants argued that, since Mr. Savard did the restoration, he should be the one to testify about the findings. Mr. Roberge explained that he did not think he was present when Mr. Savard did the restoration and that he did not know who took the photographs in document 59 of Exhibit I-7 (book of photographs of the red 1990 Pontiac Sunbird). However, Mr. Roberge said that he had prepared part of the report, had contacted the Société de l'assurance automobile du Québec to obtain the complete serial number and had requested the stolen vehicle report.
[61] When asked questions about the photographs in document 53 of Exhibit I-7 (book of photographs of a school bus with several car engines inside), Mr. Roberge admitted that the secondary serial numbers on most of the engines had been forged by grinding them down, even though he had previously said that the serial numbers had almost all been hammered with a pointed tool. He confirmed that he achieved varying results in his examination of more than 20 engines. The secondary serial numbers on eight engines were restored, leading to vehicle seizures; for some vehicles, the Société de l'assurance automobile du Québec did not have the complete serial numbers so the investigation was not continued; for others, the secondary serial numbers simply could not be restored, so the result was negative. Mr. Roberge said that the secondary serial numbers sometimes corresponded to complete serial numbers of vehicles on the road in Quebec and not to stolen vehicles.
[62] Subject to an objection by counsel for the respondent, Mr. Roberge was cross-examined on his restoration of serial numbers of vehicles not at issue in these proceedings. Mr. Roberge confirmed that, in a given case, the Société de l'assurance automobile du Québec may not have the complete serial numbers corresponding to the restored secondary serial numbers. In such a case, he concludes that the vehicle in question is not on the road in Quebec, since it has never been registered in Quebec. Mr. Roberge admitted the possibility that a part whose serial number is restored might come from a damaged vehicle from the United States or Ontario and that the vehicle would not have subsequently been put back on the road in Quebec with those secondary serial numbers.
Submissions of the appellants
[63] One of the appellants' counsel noted that the Minister of National Revenue did not make assessments for the 1990 and 1991 taxation years against each of the appellants within the normal assessment period and that, under subparagraph 152(4)(a)(i) of the Income Tax Act, it was therefore up to the Minister to prove that he was entitled to assess them. To justify the assessment of penalties under section 163 of the Income Tax Act, the Minister had to prove that the appellants failed to report all of their income knowingly or under circumstances amounting to gross negligence. As regards the individual appellant, the Minister concluded that there was an appropriation of funds, and penalties were also assessed under section 163 of the Income Tax Act.
[64] Relying on the Supreme Court of Canada's decision in Hickman Motors Limited v. The Queen, 97 DTC 5363, and the Exchequer Court of Canada's decision in M.N.R. v. Pillsbury Holdings Ltd., 64 DTC 5184, the appellants argued that they had to adduce sufficient evidence to cast doubt on the facts assumed by the Department. Once that was done, the burden of proof was reversed. According to the appellants, the Minister did not take account of certain facts when he made his assessments, and the amounts received in cash represented [translation] "expenses for repairs that had been done; therefore, unreported income versus unreported expenses". It was added that [translation] "naturally, if there are expenses equal to income, there is no business income in accordance with section 9".
[65] With regard to the deductibility of those expenses, the appellants also referred to the following cases: Fortin et al. v. The Queen, T.C.C., No. 94-907(IT)G, October 8, 1996 (97 DTC 950); Lafrenière v. M.N.R., 83 DTC 345 (T.R.B.), Epsie Printing Co. Ltd. v. M.N.R., 60 DTC 1087 (Ex. Ct); M.N.R. v. Eldridge, 64 DTC 5338 (Ex. Ct), and United Color and Chemicals Limited et al. v. M.N.R., 92 DTC 1259 (T.C.C.).
[66] According to the appellants, all that they had to prove was that expenses were incurred to make repairs. For most of the vehicles, the repairers testified that they made the repairs and were paid in cash for them. The [TRANSLATION] "statutory declarations" made to the police officers by the people who purchased vehicles from the appellants and the purchase contracts between the corporate appellant and those people confirm that the purchasers bought damaged vehicles that had been repaired. There is no evidence that contradicts that testimony or challenges the fact that expenses were incurred for repairs. The appellants also argued that it is not contested that the corporate appellant had between 300 and 400 vehicles repaired by various firms each year.
[67] According to the appellants, it was up to the respondent to rebut the evidence concerning the expenses by proving that the corporate appellant did not incur expenses equal to the unreported income. In this regard, one of the appellants' counsel argued that the appellants' evidence had not been contradicted. Even if counsel for the respondent had proven on a balance of probabilities-which she did not-that the individual appellant knew the vehicles were stolen, the fact remains that the repairs were done and paid for by the corporate appellant. The deduction of the expenses should therefore be allowed.
[68] As regards the transaction between the corporate appellant and Guylaine Dubé in which the corporate appellant gave Ms. Dubé $15,000 in financing, it was admitted for the appellants that this amount was not included in the corporate appellant's income. The failure to do so was explained as a mere accounting oversight by an inexperienced accounting clerk. According to the appellants, [translation] "it was the only case in which income was omitted". One of the individual appellant's counsel made the following comments about this:
[TRANSLATION]
I don't think it can be said in that case that there was such negligence that, first, it became possible to assess outside the required assessment period and, second, it can be likened to neglect or even a very high degree of fault.
[Transcript of February 7, 2000, at page 153.]
[69] Reference was then made to the decision by the Federal Court-Trial Division in Venne v. The Queen, 84 DTC 6247.
[70] One of the appellants' counsel expressed their main position as follows:
[TRANSLATION]
. . . I think it's the basis of all my argument: the expenses relating to the omitted income may be deducted even where a penalty is being calculated. This is my main position, but it's also my position as regards the penalties.
The rest, Your Honour-my client's degree of fault, degree of involvement, degree of any knowledge about the possession of stolen goods-does nothing to change the fact that the vehicles were repaired vehicles the cost of which had to be paid.
[Transcript of February 7, 2000, at page 154.]
[71] It was also argued on behalf of the appellants that they did not have any equipment to repair vehicles. Without equipment, they could not do all the work needed for repairs. It was noted that officer Roberge had testified that falsifying serial numbers on a vehicle is a complex operation and that it took him many hours to uncover a falsified vehicle. According to the appellants, the evidence they put forward is more plausible than the respondent's theory that the individual appellant repaired the vehicles in question.
[72] As regards the respondent's argument that it is unlikely that repairs could have been done by a repairer located more than a two-hour drive from the corporate appellant's garage, it was explained for the appellants that the vehicles were repaired near the places where they were when the corporate appellant purchased them. For example, three vehicles purchased in Montréal were repaired near Montréal in Contrecoeur and then returned to Victoriaville.
[73] It was argued for the appellants that, if they were in possession of stolen vehicles or vehicles with stolen parts, those vehicles were resold to the corporate appellant's customers in the condition in which the vehicles or parts were received. Just a few cases out of 600 are involved, since the evidence shows that only six vehicles were altered. The work was done at the repairer's shop.
[74] The fact that the appellants did not keep accounting records or books concerning the income and expenses at issue here does not preclude them from proving that the expenses were real. He added that it is [translation] "one of the only ways in which unreported income and unreported expenses can be brought before the Court". The appellants argued that they proved the expenses were real by the invoices they filed and the testimony of the witnesses.
[75] The appellants, while ready to accept the respondent's position that the purchasers were impartial witnesses, took the view that the purchasers could not testify that there was unreported income or testify about the validity of the expenses. They could testify only that they [translation] "contributed to unreported income".
[76] It was also explained that the corporate appellant did not report the income at issue in these proceedings because [translation] "it is obvious that, if it was doing its customers a favour by not having them pay taxes, it wasn't going to include it in its income, report the taxes and take a risk that its customers would have problems in that regard". Counsel admitted that the corporate appellant and its customers mutually decided not to pay the provincial taxes, but the appellants should not suffer [translation] "tax consequences insofar as there was no net profit".
[77] According to the appellants, it was up to the respondent to prove that the expenses were not incurred or paid by either of the appellants. The appellants' evidence shows that the vehicles were delivered to the repairers. Although the invoices are imprecise, the repairers that testified are credible, and they stated that they made repairs to the damaged vehicles at issue in these appeals. If the repairers are credible, then their invoices providing few details are also credible. Moreover, the reason the invoices are imprecise is that the individual appellant often dealt with the same repairers. Given their longstanding business relationship, the individual appellant checked only whether the price proposed to the corporate appellant by the vendors was reasonable. The invoices did not have to be corroborated by the corporate appellant's secretary and accountant.
[78] One of the appellants' counsel admitted that repairs were made to stolen vehicles. The Court does not have to decide whether the individual appellant is the one who stole the vehicles. According to that counsel, what the Court must decide is whether the corporate appellant incurred the expenses in question. As regards the appropriation of funds, the individual appellant does not agree with the respondent's position that he admitted appropriating funds. What the individual appellant admitted is that he took cash and put it in an envelope at his home. He paid the expenses incurred to repair the vehicles with cash that he kept in an envelope. The fact that he brought the money home does not imply that he used it for personal purposes. On that point, the appellants referred to the decision by the Federal Court-Trial Division in Berbynuk v. The Queen, 78 DTC 6322, at page 6324:
... I see nothing in any of those provisions which would authorize the attribution of a corporation's suppressed income to an employee or a shareholder simply because it was suppressed income. In order for it to be attributable the individual, whatever the relationship to the corporation, the individual must have either received the money or its value in the form of a benefit or advantage.
Submissions of the respondent
[79] After admitting that the assessments for the appellants' 1990 and 1991 taxation years were made after the normal assessment period, counsel for the respondent argued that all she had to prove was that the taxpayer did not act with reasonable care because a misrepresentation was made. In the instant case, it is clear that a misrepresentation was made, since part of the total price on numerous sales of vehicles was not reported in the corporate appellant's income. As for the individual appellant, the Minister had to prove that there was an appropriation of funds.
[80] According to counsel for the respondent, the evidence as a whole shows, first, that the Minister was entitled to assess, second, that there was unreported income and, third, that that income [translation] "could be penalized" in the hands of both the corporate appellant and the individual appellant.
[81] The following evidence shows that a misrepresentation was made: sales were recorded incorrectly in the corporate appellant's books; [translation] "the amortization schedules were not changed"; and there are cheques-for the vehicle sold to Ms. Dubé, for example-that were made out to the individual appellant and cashed by him personally. The individual appellant himself testified that amounts were paid in cash by the purchasers of vehicles and given to him directly.
[82] On the question of the "statute-barred" assessment years, counsel for the respondent relied on two decisions. The first is Regina Shoppers Mall Limited v. The Queen, 90 DTC 6427, in which Addy J. of the Federal Court-Trial Division stated the following at page 6429: "It has also been established that the care exercised must be that of a wise and prudent person and that the report must be made in a manner that the taxpayer truly believes to be correct." The second is this Court's decision in Plante v. M.N.R., 85 DTC 117, which sets out the principle that, as soon as the Minister has proven that a misrepresentation was made, the burden is on the taxpayer to prove that the assessment is incorrect.
[83] Counsel for the respondent went on to argue that the case at bar involves a taxpayer whose accounting was deficient, with some amounts not being reported. Moreover, the respondent referred once again to the corporate appellant's sale of a vehicle to Guylaine Dubé, noting that the individual appellant admitted in his testimony that he had appropriated $5,165, since the cheque for that amount was made out to him. The individual appellant also appropriated $15,000 in that transaction. A misrepresentation was therefore made.
[84] It is not in dispute that part of the sale price in each of the transactions at issue was paid in cash. The individual appellant himself testified that those amounts were not indicated in the contracts of sale for the vehicles, deposited in the corporate appellant's bank account or entered in the corporate appellant's books.
[85] Counsel for the respondent argued that it is rather "odd" that repair invoices were submitted at the last stage of challenging the assessments, that is, the appeal, when they had never been submitted at any other stage prior to the hearing in this Court. In her view, that lack of co-operation by the appellants may taint their cases. According to the respondent, the individual appellant's behaviour is highly significant in establishing whether or not the appellants' evidence is credible.
[86] It was argued for the respondent that the evidence resulting from the testimony of the police officers, Vincent Martin and Gilles Roberge of the Sûreté du Québec, is crucial in determining whether expenses were incurred and whether they were legitimate. The description of the investigation conducted by the Sûreté du Québec and, in particular, the origin of the vehicles and the history of the serial numbers that were tampered with and forged are important elements that discredit the appellant's position that repair expenses were incurred in relation to the vehicles.
[87] Moreover, counsel for the respondent noted that it is strange that the amounts of money some purchasers were prepared to pay in cash, which did not appear in the contracts of sale, were almost indentical to the cost of the alleged repairs even though two or three of the purchasers testified that they themselves determined the amount they would pay in cash according to the liquid assets they had at the time of a given contract. Furthermore, some purchasers stated that they paid an amount in cash precisely to reduce the taxes and the sale price of the vehicle. As well, the purchasers did not testify that there was an agreement between each of them and the individual appellant whereby the amount that each was to pay in cash for a given vehicle would correspond to the cost of the repairs made to the vehicle. According to the respondent, the purchasers did not support the appellants' position.
[88] The eight purchasers who testified had no interest in testifying one way rather than another. Their testimony carries enormous weight with the Court and supports the respondent's position and not the appellants'. It is testimony that cannot be refuted by the appellants. As regards the individual appellant's evidence, it is obvious that, when he testified, it was in his interest to win his case. The recyclers and repairers that testified deal with the individual appellant regularly. It was therefore in their interest not to give testimony that could harm the appellants.
[89] According to the respondent, the individual appellant's explanation that not including the amounts at issue made it easier to sell a vehicle is not plausible. She understands that the reduction in a vehicle's sale price resulting from what the corporate appellant did so that the purchaser pay less in taxes could help make a sale. However, the failure to record the sale price in the corporate appellant's books had no effect on the sale. The individual appellant also said that this approach made it possible for the purchaser to obtain credit. That submission is not plausible either.
[90] Counsel for the respondent next referred to the individual appellant's testimony concerning the bookkeeping and, in particular, his assertion that his secretary looked after the billing and that his accountant, who was responsible only for the year-end work, was not aware that certain expenses were paid in cash. According to the respondent, this way of doing things constitutes a misrepresentation. Moreover, she expressed the view that it was illogical for the individual appellant to allow a purchaser to pay cash to reduce the provincial sales tax and at the same time refuse to allow the cash amount to exceed the cost of the so-called repairs on the ground that his accounting would no longer be accurate.
[91] Counsel for the respondent referred to the individual appellant's explanation that, when repairs were paid for by cheque to the various repairers, the amount was recorded by the secretary. She then wondered why the secretary did not record the expenses paid in cash for repairs to the above-mentioned vehicles, if not to hide something. Counsel for the respondent noted that the individual appellant's testimony with respect to the accounting was not corroborated, aside from Ms. Couture's evidence on this point.
[92] Ms. Couture testified that Revenue Canada did not see any invoices for the expenses at issue here and that the individual appellant told Alain Gingras, a Revenue Canada auditor, that everything had been reported and that there were no unreported expenses. As regards the appropriation of the funds paid on the sale of a vehicle to Guylaine Dubé¾a contract involving $15,000 in financing¾ Ms. Couture explained that she included the following amounts in the corporate appellant's income: two payments in 1990 totalling $936; 12 payments in 1991 totalling $5,616; 12 payments in 1992 totalling $5,616 and; 10 payments in 1993 totalling $4,680.
[93] Referring to the testimony of the two Sûreté du Québec officers, counsel for the respondent noted in particular that, after obtaining the "real" serial numbers for the engines in question and after checking with the Société de l'assurance automobile du Québec, those officers realized that most of the vehicles were still on the road even though they had been recorded as total losses. After the real owners were identified, the Sûreté du Québec seized the vehicles. The serial numbers on all the vehicles except the vehicle of Michel Caron had been forged. Mr. Martin and Mr. Roberge testified that, after the "real" serial numbers on the seized vehicles were found and after a technical examination of those vehicles was done, the vehicles were identified as stolen vehicles. Six of them were new vehicles stolen from dealers, while three others were very recent vehicles.
[94] According to the respondent, it can be inferred on the balance of evidence from the testimony of the police officers, Vincent Martin and Gilles Roberge, that the vehicles in question are stolen vehicles whose serial numbers were forged, and that they were subsequently sold. The respondent argued that this evidence contradicts the appellants' position, since they cannot claim that they have invoices for repairs-the invoices have little information and the repairers' testimony about them has no weight-when the vehicles in question are new vehicles that were stolen. Counsel for the respondent argued that it would be unlikely for damaged vehicles to have been stolen.
[95] As regards the penalty under subsection 163(2) of the Income Tax Act, counsel for the respondent was of the view that the Minister penalized both the corporate appellant's unreported income and the individual appellant's appropriation of funds. Everything took place in order to evade taxes and enable the individual appellant to appropriate funds. The individual appellant testified that he personally received cash that he kept at home in an envelope. The fact that he then said that the money was used to pay for repairs is neither plausible nor credible. He did not submit any documentation to support his testimony that he had some kind of accounting system at home.
Analysis
[96] Before analysing the evidence and discussing the issues, it is worth making some general comments concerning the many objections to evidence made primarily by counsel for the appellants.
Evidence
[97] When Mr. Martin and Mr. Roberge testified, the appellants objected to the admissibility of certain parts of their testimony. In support of their objections, they argued that the evidence was contrary to the rule that hearsay evidence is not admissible and that it did not comply with the best evidence rule.
[98] The basic rule against hearsay was stated as follows by J. Sopinka, S.N. Lederman and A.W. Bryant in their book The Law of Evidence in Canada, 2d ed. (Toronto: Butterworths, 1999), at page 173:
Written or oral statements, or communicative conduct made by persons otherwise than in testimony at the proceeding in which it is offered, are inadmissible, if such statements or conduct are tendered either as proof of their truth or as proof of assertions implicit therein.
[99] Exceptions to the rule against hearsay were created in situations having the following four characteristics:[3]
(1) It was impossible or difficult to secure other evidence.
(2) The author of the statement was not an interested party in the sense that the statement was not in his favour.
(3) The statement was made before the dispute in question arose.
(4) The author of the statement had a peculiar means of knowledge not possessed in ordinary cases.
[100] The following comments by the same authors should be considered in determining whether a hearsay exception may apply:[4]
Necessity has given rise to a number of clearly defined exceptions to the rule against hearsay. The requirement that testimony be subjected to the test of cross-examination has been dispensed with in situations where the declarant of the words in question is unavailable and the oral or written statement was made under circumstances which, it can be presumed, would impress the remarks with a genuinely trustworthy quality. In many situations, such declarations are the only cogent evidence available and to exclude them would result in considerable inconvenience.
[101] In R. v. Khan[5] and R. v. Smith,[6] the Supreme Court of Canada further defined the circumstances in which hearsay evidence may be admitted. The Court adopted the criteria of necessity and reliability rather than trying to fit hearsay into one of the exceptions accepted by the courts or expanding those exceptions. In Smith, Lamer C.J. stated the following about hearsay evidence at page 933:
This Court's decision in Khan, therefore, signalled an end to the old categorical approach to the admission of hearsay evidence. Hearsay evidence is now admissible on a principled basis, the governing principles being the reliability of the evidence, and its necessity.
[102] Thus, Lamer C.J. clearly confirmed that the approach recognized in Khan involving the twofold criterion of necessity and reliability should not be limited to the specific facts of that case.
[103] The same judge then provided further information about those criteria at pages 933-34:
The criterion of "reliability"-or, in Wigmore's terminology, the circumstantial guarantee of trustworthiness-is a function of the circumstances under which the statement in question was made. If a statement sought to be adduced by way of hearsay evidence is made under circumstances which substantially negate the possibility that the declarant was untruthful or mistaken, the hearsay evidence may be said to be "reliable", i.e., a circumstantial guarantee of trustworthiness is established....
The companion criterion of "necessity" refers to the necessity of the hearsay evidence to prove a fact in issue....
... the criterion of necessity must be given a flexible definition, capable of encompassing diverse situations. What these situations will have in common is that the relevant direct evidence is not, for a variety of reasons, available. Necessity of this nature may arise in a number of situations. Wigmore, while not attempting an exhaustive enumeration, suggested at § 1421 the following categories:
(1) The person whose assertion is offered may now be dead, or out of the jurisdiction, or insane, or otherwise unavailable for the purpose of testing [by cross-examination]. This is the commoner and more palpable reason....
(2) The assertion may be such that we cannot expect, again or at this time, to get evidence of the same value from the same or other sources.... The necessity is not so great; perhaps hardly a necessity, only an expediency or convenience, can be predicated. But the principle is the same.
Clearly the categories of necessity are not closed. In Khan, for instance, this Court recognized the necessity of receiving hearsay evidence of a child's statements when the child was not herself a competent witness. We also suggested that such hearsay evidence might become necessary when the emotional trauma that would result to the child if forced to give viva voce testimony would be great. Whether a necessity of this kind arises, however, is a question of law for determination by the trial judge.
[104] Finally, the learned judge concluded as follows at page 935:
... Where the criteria of necessity and reliability are satisfied, the lack of testing by cross-examination goes to weight, not admissibility, and a properly cautioned jury should be able to evaluate the evidence on that basis.
[105] In his book Précis de la preuve, Professor Ducharme discussed the application of Khan and Smith to cases governed by Quebec law. That law applies even to federal matters, on a suppletive basis, in view of what is stated in section 40 of the Canada Evidence Act. Professor Ducharme stated the following at pages 373-74:
[TRANSLATION]
Although . . . Khan, Smith and R. v. B. [[1993] 1 S.C.R. 740] were criminal cases, they were also authoritative in civil cases in Quebec. Inasmuch as the exceptions to the prohibition against hearsay evidence in Quebec law were common law exceptions, any Supreme Court decision clarifying or changing the common law rules in this area also had to be applied in Quebec.
[Footnotes omitted.]
[106] One of the appellant's counsel objected to the filing of computer reports from the Centre de renseignement policier du Québec and occurrence reports from the Sûreté du Québec on the ground that they were not the best evidence.
[107] The practical disadvantages resulting from the application of the best evidence rule have prompted Parliament and the courts to create numerous exceptions to that rule. One such exception recognized by the courts is that secondary evidence of the content of public documents is admissible.[7]
[108] Moreover, the Supreme Court of Canada accepted the admissibility of "public documents" in Littley v. Brooks and Canadian National Ry. Co.,[8] in which Rinfret J. stated the following at page 426:
... Documents such as these will be received in evidence when they contain the results of inquiries made, as here, under competent public authority in the exercise of a judicial or quasi-judicial duty and concerning matters in which the public are interested. (See speech of Lord Blackburn in Sturla v. Freccia (1880) 5 App. Cas., 623; see also Phipson, Law of Evidence, 6th ed., p. 355).
The Supreme Court of Canada thus adopted the following definition of "public document" provided by Lord Blackburn at page 643 in Sturla: ". . . a document that is made for the purpose of the public making use of it, and being able to refer to it".
[109] In Canada, that exception was subsequently incorporated into specific legislation. Section 24 of the Canada Evidence Act[9] is one of several provisions intended to encourage secondary evidence of public documents. That section reads as follows:
24. In every case in which the original record could be admitted in evidence,
(a) a copy of any official or public document of Canada or of any province, purporting to be certified under the hand of the proper officer or person in whose custody the official or public document is placed, or
(b) a copy of a document, by-law, rule, regulation or proceeding, or a copy of any entry in any register or other book of any municipal or other corporation, created by charter or Act of Parliament or the legislature of any province, purporting to be certified under the seal of the corporation, and the hand of the presiding officer, clerk or secretary thereof,
is admissible in evidence without proof of the seal of the corporation, or of the signature or official character of the person or persons appearing to have signed it, and without further proof thereof.
[110] Thus, secondary evidence involving the filing of a copy of a document is admissible as evidence of the content of the original public document without it being necessary to certify that the copy is a true copy. It is also not necessary to certify that the public document was validly made.[10]
[111] In my analysis of the evidence, I have taken account of these principles concerning the exclusion of hearsay evidence and the best evidence rule.
[112] First of all, as noted by the parties, the Minister of National Revenue's right to make assessments against the two appellants for the 1990 and 1991 taxation years was statute-barred unless it could be shown that the appellants made a misrepresentation attributable to neglect, carelessness or wilful default, as stated in subparagraph 152(4)(a)(i) of the Income Tax Act. It was also assumed that the burden of proof concerning the misrepresentation was on the Minister of National Revenue.
[113] I consider it appropriate to review the evidence as a whole as regards the assessments for the individual appellant's four taxation years-1990, 1991, 1992 and 1993-and the corporate appellant's three taxation years-1990, 1991 and 1992.
[114] The individual appellant, who was the corporate appellant's sole director and shareholder, testified that, in running the corporate appellant's used car purchase and sale business, he received part of the consideration from the purchasers in cash and the rest by cheque. According to the individual appellant, the part he received in cash was used to pay for repairs to vehicles. He said that he purchased cars from recyclers. Taxes were not collected on the cost of the repairs because they were included in the repair price. The individual appellant himself testified that the amounts received in cash on the corporate appellant's behalf were not entered in its books of account. The cash was taken to the individual appellant's home and put into envelopes.
[115] The individual appellant also admitted that he did not tell the corporate appellant's accountant about this way of handling the cash he received.
[116] In the circumstances of this case, what reason could the individual appellant have had for not recording the cash if not to conceal part of the corporate appellant's income and enable himself to appropriate the cash and not include it in his income?
[117] To illustrate, I would like to discuss two specific transactions.
[118] I will first refer to the corporate appellant's sale of a Camaro to France Lemarier on May 5, 1990, for $13,799.98, $6,700 of which was paid in cash. Ms. Lemarier said that she paid in that manner at the individual appellant's suggestion to avoid paying taxes. The individual appellant said that he usually used the money he received to pay for repairs to another car. In the specific case of the money received from Ms. Lemarier, he could not remember what he had done with the $6,700 paid to him in cash. Thus, the individual appellant himself was not positive about how the cash received in that transaction was used.
[119] It is interesting to note that Ms. Lemarier testified that, when she purchased her car, she even determined the amount-payable in cash-that did not appear in the contract. How can it be argued that this amount corresponded exactly to the cost of the repairs to that vehicle paid for by the corporate appellant?
[120] I turn now to a second example, namely, the sale of a vehicle by the corporate appellant to Transport AGM inc. on October 6, 1990. The testimony of Ms. Dubé, the representative of Transport AGM Inc., shows that a financing contract was entered into for $15,000 out of the sale price of $20,165 and that the balance of $5,165 was paid in cash. At the individual appellant's request, Ms. Dubé made out the cheques for the instalment payments on the $15,000 to the individual appellant personally and not to the corporate appellant. When he testified, the individual appellant explained that he deposited those monthly payments in his personal bank account. While waiting for all the payments to be made, he put the proceeds of the cheques in an envelope. He intended to deposit all of the monthly payments in the corporate appellant's bank account, but he admitted that he used the money for his personal expenses. The individual appellant was rather vague about how he used the $5,165 paid in cash in that same transaction. When asked whether he had paid for repairs to the vehicle, he admitted that he had, whereas before he stated that he had probably kept the amount.
[121] The individual appellant admitted that the $15,000 covered by the financing contract with Transport AGM inc. was not recorded in the corporate appellant's books or included in its income. I cannot believe that this was a mere accounting oversight.
[122] Even if I were to consider the individual appellant's testimony alone, the terms and conditions of the two transactions to which I have just referred show indisputably that the cash received by the individual appellant was not used solely to pay the cost of the repairs to the used cars.
[123] With regard to the credibility of the testimony, I kept in mind the very appropriate comments made by Professor Ducharme at page 154 of his book mentioned above:
[TRANSLATION]
When it comes to assessing the value of testimony, the factors governing the credibility of witnesses are what matter, particularly the following factors: the witness' means of knowledge, sense of observation, reasons for remembering, experience, reliability of memory and independence from the parties involved. The person who calls a witness must bring out the factors favourable to the witness' credibility, while the opposing party must bring out the unfavourable factors. Those unfavourable factors may relate, inter alia, to the witness' morality. Thus, in one particular case, a court found that a witness' propensity for trying to evade tax liabilities was a factor unfavourable to the witness' credibility.664
_______________________
664 B.C.v. Dame S.S. et les Héritiers de Dame S.S. (1988), 12 Q.A.C. 266.
[124] I examined the individual appellant's behaviour while he was giving evidence. I also examined his testimony, which was evasive at times. I detected a number of contradictions as well. In considering the question of the individual appellant's credibility, I need not point out that he pleaded guilty to one count of receiving stolen cars during the years at issue.
[125] All in all, I found that his testimony was not credible.
[126] In my view the evidence provided by officers Martin and Roberge that seems to indicate that the vehicles at issue in these Reasons for Judgment were stolen and, furthermore, were not damaged when they were acquired by the corporate appellant fails in some respects to meet the criteria for the admissibility of hearsay evidence and to comply with the best evidence rule. In any event, I do not have to make a definitive ruling on the admissibility of that evidence given the conclusion I have reached on other grounds concerning the disposition of these appeals.
[127] I find that the Minister of National Revenue was entitled to assess both of the appellants for their 1990 and 1991 taxation years because it is indisputable, based on the evidence, that the appellants made a misrepresentation attributable to neglect, carelessness or wilful default. By the individual appellant's own admission, the corporate appellant's tax returns did not report the amounts received in cash in the transactions in question. As for the individual appellant, he appropriated funds from the corporate appellant. If we refer to the two transactions discussed earlier, this has been proven directly for the 1990 taxation year. As for the 1991 taxation year, I infer from all of the evidence concerning the vehicle sales that the individual appellant probably appropriated the cash he had received that year and kept at his home.
[128] I have concluded that the respondent has discharged her burden of proof, that the corporate appellant probably did not report all of its income for its 1990 and 1991 taxation years and that the individual appellant appropriated part of the corporate appellant's funds during those same two years. The Minister of National Revenue was therefore entitled to assess the two appellants for the 1990 and 1991 taxation years.
[129] Based on all of the evidence concerning the assessments for the 1990, 1991, 1992 and 1993 taxation years in the case of the individual appellant and the 1990, 1991 and 1992 taxation years in the case of the corporate appellant, I am satisfied that the Minister's assumptions concerning the amounts not reported by the corporate appellant and the amounts appropriated by the individual appellant have not been rebutted. I have in fact concluded that the evidence clearly shows that the corporate appellant did not report all of its income for the years at issue and that the individual appellant appropriated funds during the four years referred to above.
[130] I give no credence, inter alia, to the testimony of certain car suppliers of the corporate appellant, especially the testimony of Édouard Tessier. I note in particular that Mr. Tessier first said that his gross income for the 1990 taxation year was $50,000. When confronted with his 1990 tax return, he reconsidered and admitted that he did not report that gross income in his tax return for that year. Nor did he state that he was self-employed in 1990 and 1991 when he applied for unemployment insurance benefits. Those suppliers, or at least most of them, had a personal interest in not causing harm to the appellants when they gave evidence in this case.
[131] I must still consider the question of the assessment of penalties against the two appellants.
[132] Based on the evidence and, in particular, by the individual appellant's own admission, it is indisputable that the corporate appellant's accounting was totally inadequate. The amounts received in cash from the corporate appellant's customers when they purchased cars were not recorded. Those amounts were substantial, and this element was an important part of each of the transactions at issue during the taxation years involved. Obviously, we are dealing with misrepresentations and wilful default by the appellants. The fact that some of the cash was used to pay for repairs-assuming that this is true-cannot, of course, justify the failure to fully reproduce the accounting data in this regard. Both of the appellants knowingly failed to report all of their income during the years at issue.
[133] The assessment of penalties against the two appellants under subsection 163(2) of the Income Tax Act was therefore justified. The Minister of National Revenue has discharged the burden of proof set out in subsection 163(3) of the Income Tax Act.
[134] The appellants' appeals from the assessments by the Minister of National Revenue for the taxation years at issue are dismissed with costs.
Signed at Ottawa, Canada, this 11th day of May 2001.
|
"Alban Garon" |
C.J.T.C.C.
Translation certified true
on this 8th day of January 2003.
Sophie Debbané, Revisor
[1] There is a reference to $1,350 in cash at page 151 of the transcript of November 18, 1998, but I think that it is a mistake.
[2] Mr. Houle's name is not mentioned explicitly, but it can be inferred that it is his car because reference is made to a 1990 Pontiac Sunbird (transcript of November 20, 1998, at page 83).
[3] Sugden v. Lord St. Leonards (1876), 1 P.D. 154, [1875-80] All E.R. 21 (C.A.), at page 240 (P.D.); Sopinka, Lederman and Bryant, supra, at page 188.
[4] Sopinka, Lederman and Bryant, supra, at pages 187-88.
[5] [1990] 2 S.C.R. 531. In Khan, a sexual assault case, the Supreme Court had to determine the admissibility of statements made by a four-and-a-half-year-old girl to her mother shortly after the incident. The trial judge had ruled that the child's direct testimony was inadmissible.
[6] [1992] 2 S.C.R. 915. In Smith, the Supreme Court had to determine the admissibility of statements made by the victim the night she was murdered.
[7] Sopinka, Lederman and Bryant, supra, at pages 1015-18.
[8] [1930] S.C.R. 416.
[9] R.S.C. 1985, c. C-5.
[10] Sopinka, Lederman and Bryant, supra, at pages 1018-19.