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Docket: 2001-2285(IT)G |
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BETWEEN: |
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LENCY TURNER, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
[OFFICAL ENGLISH TRANSLATION]
Appeals heard on May 29, 2003 at Chicoutimi, Quebec
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Before: The Honourable Judge François Angers |
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Appearances: |
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Counsel for the Appellant : |
Éric Le Bel |
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Counsel for the Respondent: |
Martin Gentile |
____________________________________________________________________
JUDGMENT
The appeals from assessments made under the Income Tax Act for the 1994, 1995, 1996 and 1997 taxation years are dismissed with costs in accordance with the attached reasons for judgment.
Signed at Ottawa, Canada, this 16th day of October 2003.
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"François Angers" |
Angers, J.
Translation certified true
on this 24th day of March 2004.
Gerald Woodard, Translator
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Citation: 2003TCC631 |
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Date: 20031016 |
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Docket: 2001-2285(IT)G |
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BETWEEN: |
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LENCY TURNER, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
MOTIFS DU JUGEMENT
Angers, J.
[1] By means of notices of reassessment dated March 20, 2001 for the Appellant's 1994, 1995, 1996 and 1997 taxation years, which notices were confirmed on May 24, 2001, the Minister of National Revenue (the "Minister") added amounts to the Appellant's income as unreported business income and unreported interest income for each year, as indicated below:
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1994 |
Unreported business income |
$33,000 |
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1995 |
Unreported business income Unreported interest |
$5,000 $2,492 |
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1996 |
Unreported business income Unreported interest |
$4,000 $3,058 |
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1997 |
Unreported business income Unreported interest |
$3,085 $2,300 |
[2] The Minister also assessed penalties for the taxation years in question pursuant to subsection 163(2) of the Income Tax Act (the "Act"). The Appellant is thus appealing the reassessments.
[3] These reassessments were made following an investigation conducted by Mr. Roland Pelletier of the Special Investigations Section of the Canada Customs and Revenue Agency. In the fall of 1998, Mr. Pelletier was assigned two files in which a large refund was granted at the federal level, while not as much was given at the provincial level in Quebec. Based on his investigation, he found that the refunds in question were not justified, that they had been entered on-screen internally and that it was certainly a case of internal fraud committed at the Jonquière Tax Centre. His investigation also revealed four other similar files. According to the investigator, the names that often came up were Réjean Simard, Mario Boucher, who is the Appellant's spouse, and the Appellant herself.
[4] At the time, the Appellant and her spouse, Mario Boucher, were employees at the Jonquière Tax Centre. The Appellant was employed as an office clerk and her spouse worked in refunds.
[5] Search warrants were thus executed at the homes of the three individuals and a total of 42 taxpayers were then questioned regarding the fraudulent refunds. The investigation revealed that the taxpayers were solicited by Réjean Simard or Mario Boucher and that, once the refund was received by the taxpayer, the latter would split it equally with Simard and Boucher. Of the 42, 15 stated that they had not given anything to Simard and Boucher, 16 had given cash to Mario Boucher and the rest had either made bank transfers, written cheques to Simard or Boucher or given cash to one of the two. In one case, that of Luc Gauthier, the taxpayer had made out two cheques, one to the order of the Appellant's spouse and the other to the Appellant. Both were given to the Appellant's spouse.
[6] Following the investigation, charges were laid against Réjean Simard and Mario Boucher and both pleaded guilty to the charges. No charges were laid against the Appellant.
[7] During the investigation, the investigator, Roland Pelletier learned that, during the taxation years at issue, the Appellant deposited the following amounts at Lévesque Beaubien Geoffrion, then Lévesque Beaubien and now Financière Banque Nationale Inc., on the dates indicated:
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October 28, 1994 |
$31,000 |
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December 30, 1994 |
$2,000 |
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December 12, 1995 |
$5,000 |
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December 16, 1996 |
$3,000 |
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December 1, 1997 |
$3,085 |
[8] These same investments generated interest income in the amounts indicated in the assessments for 1995, 1996 and 1997. Those amounts thus correspond to those of the reassessments at issue. The witness Pelletier had good reason to believe, and alleged so, that the Appellant had received the funds in question from fraudulent refunds created by her spouse and Réjean Simard and that she must have received funds, as Luc Gauthier had stated that he had made a cheque out to the Appellant.
[9] Among the taxpayers questioned during his investigation who had received refunds, Mr. Pelletier learned that some, including the Appellant's father and brother, paid her nothing despite having withdrawn two thirds of the money from their bank accounts. Two other taxpayers who were investigated and who had paid the two thirds of the refund they received told Mr. Pelletier that they only knew the Appellant and another two were friends of the Appellant. Unable, during the investigation, to find the source of the funds used in the cash deposits by the Appellant with Lévesque Beaubien, he then assumed that she had participated in the fraud. Not only was the Appellant reassessed, but she was also dismissed from her job and that dismissal is still before the administrative courts.
[10] Under cross-examination, the witness Pelletier further clarified the case of Luc Gauthier, stating that it was at the request of Mario Boucher that Mr. Gauthier had made a cheque to the order of the Appellant and that the cheque had been given to Mario Boucher. He admitted that he did not know who had endorsed the cheque made out to the Appellant. The cheque was for $3,685 and is not included in the money indicated in the assessments in the case at bar. Mr. Pelletier repeated that he believed the funds used for the deposit with Lévesque Beaubien were from the Appellant being involved in the fraudulent refunds.
[11] The Respondent called Luc Gauthier to testify. The latter stated that he was approached in 1994 by his friend, Mario Boucher, who spoke to him of a tax refund strategy, saying that all he needed was his social insurance number. He testified that, according to the agreement with Mario Boucher, he would divide the refund in three equal parts, one for Mario, one for the latter's alleged superior and one for himself. After having received the refund, he wanted to pay by cheque, but Mario Boucher insisted that it be in cash. He finally made out two cheques, one to Mario Boucher and the other to the Appellant. According to the witness, the cheques were cashed. He stated, however, that he had never discussed the affair with the Appellant and did not know who cashed the cheque made out to her.
[12] The Appellant testified that the funds used for the deposit with Lévesque Beaubien were her mother's and that she had investments in her name for herself and for her brothers and sister, with whom she was to share the money on the death of her mother. She stated that it was, in part, money that her mother had received between 1977 and 1980 following an injury in a car accident and that the rest was savings accumulated by her mother during her life. She stated that her mother spends very little.
[13] In 1994, the Appellant and her mother agreed that the Appellant would manage her assets. As the mother kept a certain amount of money at home, they agreed on the aforementioned investment with Lévesque Beaubien and met there with Stéphane Labbé. The investment was made in the Appellant's name because her mother no longer wished to manage her affairs; the Appellant was to share the money with her brothers and sister following her mother's death. The first deposit, in the amount of $31,000, was made on October 28, 1994 and the second, $2,000, on December 30, 1994. Both deposits were in cash.
[14] A few days later, on January 6, 1995, the Appellant's mother, Ms. Marie Bouchard, signed a power of attorney in favour of her daughter before a notary, as well as an incapacity mandate, again in favour of her daughter. On April 21, 1987, the Appellant agreed to share the proceeds of her mother's $5,000 life insurance equally with her brothers and sister. A document was produced to support this fact.
[15] The Appellant testified that she reported the income from the investments on her tax returns. She prepared two income tax returns, one with the interest and one without. The difference between the two showed how much income tax she was paying as a result of the interest and her mother reimbursed her that amount. She testified that she had done that in 1998 and maybe something similar in 1994. The Appellant admitted that she did not report the investment income in 1995, 1996 and 1997, but claimed that it was because she had not received a T5 from Lévesque Beaubien. She stated, however, that the interest received by her mother had always been reported since 1989.
[16] According to Exhibit I-1, $14,000 was withdrawn from Lévesque Beaubien by the Appellant in May 1997. The Appellant testified that her mother had purchased a house for her brother and that the withdrawal was used for that purchase. A purchase agreement in her mother's name was produced, indicating that she had, on May 13, 1997, purchased a mobile home at a cost of $15,865.
[17] On September 14, 1999, the Appellant was suspended by her employer because she was suspected of having been involved in a fraudulent scheme. She then withdrew the money from Lévesque Beaubien and gave it back to her mother. She did not empty her other bank accounts. Her mother is now 73 years old and, according to the Appellant, is allegedly very ill.
[18] Under cross-examination, the Appellant admitted that her mother had been divorced since 1973 and received social assistance, not having worked prior to receiving her old age pension. The Appellant stated that her mother kept her money in a sock, but could not explain why she did so. Questioned regarding the amount of money that her mother had received following a car accident, the Appellant claimed that it was between $15,000 and $20,000 and that it was then that her mother began to save money. A judgment from the Quebec Provincial Court dated October 21, 1977 awarded her mother $1,035.15 as compensation for damages to her vehicle.
[19] As regards the matter of the taxpayers who, during the investigation, stated that they knew the Appellant, the latter admitted to having known them for a long time. She added that those people were her friends and that she had introduced them to her spouse, Mario Boucher. The Appellant admitted to having the access code to the Revenue Canada system, but stated that she only accessed her father's file. She added that, at the time when she did so, there was more leniency and her actions were not necessarily serious. The Appellant claimed that she had not received any penalty by her employer for having done so.
[20] In rebuttal, the Appellant stated that she never cashed a cheque from Luc Gauthier and indicated that she was not aware of her spouse's files. She denied receiving commissions from fraudulent refunds or being involved through her spouse. No charges were laid against her.
[21] It is thus a matter of determining whether or not the Minister was justified in adding the amounts of $33,000, $5,000, $4,000 and $3,085 to the Appellant's income for the 1994, 1995, 1996 and 1997 taxation years, respectively, adding interest of $2,492, $3,058 and $2,300 for the 1995, 1996 and 1997 taxation years, respectively, and assessing a penalty for taxation each year in question.
[22] The Appellant bears the burden of demonstrating on the balance of probabilities that the Minister was not justified in adding $33,000, $5,000, $4,000 and $3,085 to her income for the 1994 to 1997 taxation years, respectively, and adding unreported interest of $2,492, $3,058 and $2,300 for the 1995, 1996 and 1997 taxation years, respectively The Appellant, in her version of the facts, testified that this money belonged to her mother and that the interest is also attributable to her, even though the investments were made in the Appellant's name. According to the Appellant, it is not money from any tax fraud, as she was not involved in the fraud.
[23] The Respondent is not required to justify the assessments being appealed before the Court, even though the Appellant claims that the funds deposited at the Financière Banque Nationale were not from the fraud committed by her spouse. The Appellant must present sufficient evidence to demonstrate that the deposited money is not taxable income.
[24] The Appellant testified that most of the money in the first deposit, that of $31,000 made on October 28, 1994 at Lévesque Beaubien Geoffrion, was from a settlement of approximately $15,000 to $20,000 in favour of her mother between 1977 and 1980 following a car accident. The only document confirming her mother's involvement in a car accident is the copy of the judgment by the Quebec Provincial Court awarding the Appellant's mother $1,035.15 in damages following a car accident on August 19, 1977. Those damages were for repairs made to her vehicle. No documentary evidence was presented regarding compensation for bodily injury.
[25] The money was allegedly kept by the Appellant's mother at her home during those years and was allegedly finally used, with other money, for the deposit in question. According to the Appellant, the subsequent deposits were additional savings accumulated by her mother during the year. The evidence revealed that the Appellant's mother had been receiving social assistance for a good number of years.
[26] The Appellant also stated that she was in charge of administering her mother's affairs. In this regard, she produced a document dated April 21, 1987 indicating that she had a life insurance policy on her mother in the names of her brothers and sister. However, the document indicates that it was the Appellant who took out the life insurance, not her mother. It seems to me that it would have been easier to name all the children as beneficiaries of the policy than to do it through the document in question.
[27] The Appellant also produced a second document, a power of attorney dated January 6, 1995, to confirm her involvement in administering her mother's affairs. This document was signed after the first deposit on October 28, 1994. Nonetheless, the power of attorney in question does not allow me to conclude that it removes the principle's ability to continue managing her own affairs, particularly as, on May 13, 1997, several months after signing the power of attorney, the Appellant's mother entered into a contract to purchase a mobile home in her own name for more than $15,000. It thus seems quite obvious to me, in light of that contract, that the Appellant's mother was able in 1997 to enter into a contract and to manage her affairs. Even if that contract is used in an attempt to demonstrate that the money in question belonged to the Appellant's mother and that the withdrawal at the time proves this, the reason for which the Appellant's mother would deposit her money in her daughters name must be questioned. She seems to me to be fully competent and able to administer her own affairs.
[28] I might have understood that the Appellant's mother did not want that money being attributed to her, as she was receiving social assistance. That could have explained the money being deposited in the Appellant's name, but evidence of that was not presented at the hearing. How can a person on social assistance have that much money and accumulate such savings - $5,000 in 1995, $4,000 in 1996 and $3,085 in 1997, not to mention the $31,000 in 1994 - even with the settlement received following the car accident?
[29] The Appellant's mother did not testify. She would have, in my opinion, been an important witness, who undoubtedly could have confirmed the Appellant's version and clarified many questions regarding the issues before us. Even though her health would seem to the reason for her absence, I find it difficult to justify. The consequences of not having a witness appear are well known. Since Levesque et al. v. Comeau et al., [1970] S.C.R. 1010, and even before, failure to present evidence that a party could have presented and that could have clarified the facts forces the Court to assume that such evidence would have been detrimental to that party.
[30] In my opinion, in the case at bar, testimony by the Appellant's mother would have undoubtedly clarified the facts by providing more information regarding the source of the funds, her means of saving (to justify the amounts of the deposits), the withdrawals, the purchase of the mobile home and the Appellant's role in administering her mothers affairs.
[31] The absence of such evidence and the unlikelihood of the facts related by the Appellant convince me that the evidence presented is clearly insufficient to allow me to conclude that the Appellant met the burden of proof upon her.
Penalties
[32] The Respondent assessed penalties under subsection 163(2) of the Act. I thus refer to Venne v. Canada, [1984] F.C.J. No. 314 (Q.L.), in which Strayer J. analyzes gross negligence in the following terms:
. . . "Gross negligence" must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not . . .
[33] In Morin v. M.N.R., 88 DTC 1592, at pages 1593 and 1594, former Chief Justice Couture of this Court stated:
To escape the penalties provided in subsection 163(2) of the Act, it is necessary, in my opinion, that the taxpayer's attitude and general behaviour be such that no doubt can seriously be entertained as to his good faith and credibility throughout the entire period covered by the assessment, . . .
[34] I have already concluded that the explanations put forth by the Appellant were unlikely. The latter's admission, without plausible explanation, that she did not report the interest in her income for three years in a row must also be considered in examining this matter. The fact that, at the time, she was employed at Revenue Canada should have been enough to further deepen her sense of obligation to comply with the law. This entire affair demonstrates a certain attitude of indifference toward fiscal obligations. As she was unable to demonstrate the source of the funds used in the investments, it must be concluded that the Appellant did not report all her income.
[35] In the case at bar, I am convinced that, on the balance of probabilities, the Respondent was justified in assessing penalties for the years in question.
Prescribed Years
[36] As with the penalties, the Respondent bears the burden of proving the justification of assessments for the prescribed years. The Respondent must convince the Court, on the balance of probabilities, that the Appellant made a misrepresentation attributable to neglect, carelessness or wilful default or has committed any fraud in filing her return or in supplying any information, as set forth in subparagraph 152(4)(a)(i) of the Act.
[37] In another excerpt from Venne, supra, Strayer J. describes this burden of proof as follows:
I am satisfied that it is sufficient for the Minister, in order to invoke the power under sub-paragraph 152(4)(a)(i) of the Act to show that, with respect to any one or more aspects of his income tax return for a given year, a taxpayer has been negligent. Such negligence is established if it is shown that the taxpayer has not exercised reasonable care. This is surely what the words "misrepresentation that is attributable to neglects" must mean, particularly when combined with other grounds such as "carelessness" or "wilful default" which refer to a higher degree of negligence or to intentional misconduct. Unless these words are superfluous in the section, which I am not able to assume, the term "neglect" involves a lesser standard of deficiency akin to that used in other fields of law such as the law of tort.
[38] I have already dealt with the evidence and the Appellant's conduct. As I have concluded that her explanations were unlikely, the source of the funds remains unexplained. I therefore conclude that there was misrepresentation of the facts regarding the Appellant's income during the prescribed years, thus justifying the assessment made for those years.
[39] For these reasons, the appeals are dismissed with costs.
Signed at Ottawa, Canada, this 16th day of October 2003.
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"François Angers" |
Angers, J.
Translation certified true
on this 24th day of March 2004.
Gerald Woodard, Translator