Tax Court of Canada Judgments

Date: 20010319

Docket: 97-2224-IT-G,

97-2225-IT-G

BETWEEN:

ALESSIO RAVAGNOLO,

FRANCESCO PIPIA,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

P. R. Dussault, J.T.C.C.

[1]            These appeals were heard together. For each appellant, the appeals are from assessments made on January 29, 1996, for 1989, 1990, 1991 and 1992. Through those assessments, the Minister of National Revenue ("the Minister") added amounts to each appellant's income as unreported earnings and also assessed a penalty under subsection 163(2) of the Income Tax Act ("the Act") for each year. The details of each assessment are as follows:

Alessio Ravagnolo	Year	Unreported income	Penalty 163(2) I.T.A.
	1989	$4,474	$510.45
	1990	$11,018	$1,267.04
	1991	$6,055	$697.41
	1992	$9,776	$1,118.49

Francesco Pipia	Year	Unreported income	Penalty 163(2) I.T.A.
	1989	$6,067	$690.70
	1990	$13,150	$1,513.01
	1991	$6,262	$720.79
	1992	$6,925	$871.84

[2]            The assessments for 1989, 1990 and 1991 were made after the normal reassessment period. Thus, it is up to the respondent to prove that each of the appellants made a misrepresentation attributable to neglect, carelessness or wilful default in filing his tax return for each of those years.

[3]            It is also up to the respondent to prove that each appellant knowingly, or under circumstances amounting to gross negligence, failed to report the above-mentioned amounts in his tax returns.

[4]            During the years at issue, the appellants worked laying and installing large-surface cement floors for Les Planchers de Ciment M. Candussi Ltée ("PCMC" or "the employer"), a company that operated in the industrial and commercial construction sector. The appellants were composition floor layers or [TRANSLATION] "cement finishers", as they described themselves.

[5]            The assessments resulted from an audit of the employer's books and accounting records. In subparagraph 14(d) of the Reply to the Notice of Appeal of the appellant Alessio Ravagnolo and subparagraph 13(d) of the Reply to the Notice of Appeal of the appellant Francesco Pipia, the Minister assumed that [TRANSLATION] "these unreported income amounts reflect clandestine work and/or overtime done by the appellant, for which he was paid by the employer, most often in cash and occasionally through cheques charged to the employer's 'travel expense' account".

[6]            Testimony was given by the appellant Alessio Ravagnolo and his spouse, Ginette Ravagnolo, and by the appellant Francesco Pipia and his spouse, Raymonde Gamache.

[7]            Guy Léonard, who was a Revenue Canada investigator at the relevant time, testified for the respondent. Testimony was also given for the respondent by Michel Candussi, who was PCMC's president and sole shareholder at the time, his sister Claudia Guénette, who worked for the company as a secretary at the time, and Francesco Pulciani, another employee who worked for the company as a composition floor layer during the years at issue.

[8]            Francesco Pipia testified first. He began working for PCMC in 1982. He said that, in his job as a composition floor layer or cement finisher, he was basically on call and had a variable schedule; his workday could start at almost any hour and was generally eight hours. He said that it was usually Claudia (Candussi) Guénette, Michel Candussi's sister, who called him at home to tell him which work site he was to go to and when he had to be there. The work, which was generally done by crews, involved pouring and levelling the cement. The cement then had to be smoothed, which, according to Mr. Pipia, was generally done by another crew that he referred to as the evening crew.

[9]            As regards his own hours of work, Mr. Pipia said that he usually worked eight hours a day, for a total of 32 or 40 hours a week at the most, depending on what Michel Candussi decided. He initially said that he did not necessarily stop working after eight hours on a given day and that it depended on whether everything was [TRANSLATION] "OK" or whether he was still needed. He later claimed that everyone stopped after eight hours of work.

[10]          Mr. Pipia maintained that he was always paid only for his regular hours and never for overtime, which he admitted doing only occasionally. He explained that his arrangement with Michel Candussi was that he was to be paid for either 32 or 40 hours a week. Thus, he said, the overtime he may have done occasionally, just a few hours at a time-although he could not give any figure for the overtime he worked overall or on a yearly basis-was always done without pay, since Michel Candussi did not pay for overtime.

[11]          Mr. Pipia said that it was possible that he worked at some sites outside Montréal and that in such cases he was paid for the kilometrage, for meals and for parking expenses, if any. He asserted that he was not paid for his travel time when he worked outside Montréal. He was reimbursed by cheque for his expenses, and he said he thought the other employees had the same arrangement.

[12]          Mr. Pipia stated that he was given his basic pay in cash every week. The money was put in an envelope that was handed over to him at the work site. The envelope contained a pay slip showing the number of hours, the hourly rate, the gross wages, the various source deductions and the net amount paid. The envelope could sometimes also contain a cheque for the reimbursement of expenses, as mentioned above. Mr. Pipia said that he did not check the envelope's contents at work but checked them with his wife once he got back home. He kept his pay slips for the years at issue, aside from a few that he said were lost. The pay slips were adduced in evidence. A document indicating the hours compiled at the Commission de la construction du Québec ("C.C.Q."), which were based on information provided by the employer, was also adduced in evidence. However, Mr. Pipia stated that he had no personal record of the hours or days he worked and had not used the individual time sheets in a book provided by the employer to show on a weekly basis the hours he worked each day. He merely said that Michel Candussi knew how many hours he had worked.

[13]          Mr. Pipia admitted that he saw C.C.Q. inspectors at the work sites from time to time. He said that he never complained to those inspectors, who, according to him, knew that overtime was not being paid for and did nothing.

[14]          Mr. Pipia said that Alessio Ravagnolo and Francesco Pulciani were on the same crew as him. He said that he was not aware of the other employees' working conditions, particularly as regards overtime, and that he never discussed the matter with them. Mr. Pipia also asserted that he did not know what an hour bank was at the time and that he subsequently found out from Mr. Ravagnolo.

[15]          During an examination for discovery on September 14, 1999, Mr. Pipia stated that he had always been paid for eight hours a day even if he worked only two or four, that he had rarely worked overtime because it was not paid for and that he had been obliged to accept those working conditions. As regards work sites outside Montréal, Mr. Pipia said that he had worked at such sites but did not remember where or on which dates. He said that he had driven there in his own car and been paid for the kilometres driven but not the travel time.

[16]          Raymonde Gamache, Mr. Pipia's spouse, also testified. Her testimony was, for the most part, similar to her husband's, as she said that he had a more or less variable daily work schedule but usually worked from 8:00 a.m. to 4:00 p.m., since he was always there for "dinner". She also said that he sometimes worked less than eight hours a day but that he told her it could happen that he went to the office to help Frank Candussi, Michel Candussi's brother. However, she said that her spouse was always paid the same amounts-that is, for either 32 or 40 hours of work a week-and that the pay envelope therefore never contained any additional amounts, even though he may have sometimes worked more than 32 or 40 hours during a week. Thus, she stated that he may have worked overtime but that he was not paid for it. Similarly, she admitted that he may have worked an occasional Saturday but said that he was paid as if it were regular time, no doubt because he had missed another day during the week. She said that the hours he worked on Saturdays may have been carried over to another week. Ms. Gamache admitted as well that she had heard of an hour bank. She said that the pay envelope occasionally also contained a cheque reimbursing parking expenses. However, she asserted that her husband did not use his own car to go to work on sites outside Montréal.

[17]          Ms. Gamache said that, although the employer did not pay overtime, [TRANSLATION] "at least her spouse got his weeks". She also mentioned that he wanted to quit his job at times but that, since the employer was [TRANSLATION] "the biggest in Montréal", he had to avoid turning that employer against him.

[18]          On the more specific question of complaints to the C.C.Q. about the employer's failure to pay overtime, Ms. Gamache asserted that she had called the C.C.Q. about the matter. She said she was asked for the social insurance number of the employee concerned and was given to understand that the employer would be notified and that the employee would lose his job and would no longer be able to work because he would be put on a "blacklist" established by the contractors, who all knew one another.

[19]          Alessio Ravagnolo started working in 1957, first as a labourer, then as an apprentice and finally as a composition floor layer or cement finisher with a competency card. He began working for the employer in 1967 or 1968.

[20]          Mr. Ravagnolo too said that his schedule varied and that he could work six, eight or nine hours a day, that it was [TRANSLATION] "never the same". He said that he worked overtime 25 to 30 times over four years but that he was always paid, at the regular rate, for 32 or 40 hours a week. When he did overtime, it was not paid for as such but was simply transferred into an "hour bank" and eventually paid for as part of a regular week of 32 or 40 hours. According to him, the overtime could thus be used a month or two later. He said that he noted down his overtime on a piece of paper that he destroyed when it was finally paid for. The payment method was the same as for Mr. Pipia, namely in cash with a pay slip containing the same information and occasionally a cheque reimbursing his expenses. Mr. Ravagnolo said that that was his agreement with Michel Candussi because Mr. Candussi refused to pay him overtime on the ground that the prices charged to clients were not high enough for him to be able to afford to do so.

[21]          Mr. Ravagnolo admitted that he may have worked 60 or even 70 hours during a week a few times but said that when he did he was paid for only 40 hours and the overtime was put into the hour bank. He said that he filled out an "individual time sheet" when he worked overtime and that the sheet was then given to the employer. According to him, the book of "individual time sheets" provided by the employer, which was used by only a few employees, did not contain a copy that the employee could keep. On cross-examination, Mr. Ravagnolo recognized photocopies of individual time sheets that he claims to have given the employer. However, with regard to one such sheet in particular, he noted that it was not he who had written the circled number 8 that appears several times at the bottom of the sheet.[1] Yet the handwriting does seem to be the same on the entire sheet.

[22]          When asked to explain how the overtime entered on a number of individual time sheets was dealt with, Mr. Ravagnolo maintained that he was paid for only 40 hours and that the overtime was indeed carried over and paid for later. He said that he did not know whether other employees were paid for overtime and that they may have been. He said that he had asked them but that no one told him the truth. He maintained that, as for himself, he had an agreement with Michel Candussi and did not know whether other employees, including Mr. Pulciani, had entered into the same agreement.

[23]          Mr. Ravagnolo stated that he had been asked by C.C.Q. inspectors whether he worked overtime and that he told them that he did but that overtime was not paid for. He said that he never laid a complaint himself. A document from the C.C.Q. confirming the hours of work recorded with that agency was filed in evidence. Mr. Ravagnolo said that the hours shown corresponded to those listed on the pay slips but that, unlike Mr. Pipia, he did not keep his slips.

[24]          Mr. Ravagnolo admitted that he worked at sites outside Montréal and was reimbursed by cheque for his car expenses based on kilometrage and for his meal, accommodation and parking expenses. Like Mr. Pipia, Mr. Ravagnolo claimed that he was not paid for travel time. However, the letters "TT", which might mean "travel time", appear on an individual time sheet for the week of March 27, 1990.[2] In response, Mr. Ravagnolo asserted that the employer did not pay for travel time outside Montréal.

[25]          Ginette Ravagnolo testified after her husband. She said that his work schedule was variable but that he generally began his day at about 7:00 or 8:00 a.m. and was back for "dinner". She stated that he often came back before working a full eight hours and that he very rarely worked overtime. She said that she did not remember precisely but that it could have occurred from time to time, perhaps once a week.

[26]          Mrs. Ravagnolo also stated that her husband was not paid if he worked more than eight hours in a day. She said that overtime was carried over to another week for which he was then paid for either 32 or 40 hours. She explained that sometimes her husband worked only a single day in a week and the week was completed using the hour bank system. Thus, she admitted that he was paid for his overtime but at the regular rate. Mrs. Ravagnolo stated that she did not remember whether he may have worked more than 50 hours or even 60 hours in a week, but she said that it was possible.

[27]          As regards work sites outside Montréal, she said that her husband had worked at such sites occasionally and been reimbursed by cheque for his accommodation, meal and parking expenses and for the kilometres driven. She said that he was not paid for travel time.

[28]          Mrs. Ravagnolo admitted that her husband filled out at home individual time sheets in a book. When asked whether she recognized her husband's handwriting on copies of two sheets, she said that the handwriting was indeed his, but that the figures written on the sheets were not in his hand.[3]

[29]          Guy Léonard, an investigator with the Laval investigations office, was given PCMC's file to gather evidence of tax fraud with a view to criminal prosecution. A prior audit had in fact uncovered some indications of fraud, namely unreported income deposited in a concealed bank account that did not appear in PCMC's books. That unreported income corresponded to amounts that were billed to clients by making a second use of numbered invoices already used to bill other clients.

[30]          Mr. Léonard received PCMC's file for investigation purposes on October 26, 1993. On October 29, 1993, he met for the first time with a representative of the company, one Michel Côté, who had been expressly authorized by Michel Candussi to try to reach an agreement or settlement even before the investigation. Mr. Léonard's investigation led him to conclude that PCMC had failed to report $2.3 million from 1987 to 1992. Mr. Léonard first told PCMC's representative of this result on March 18, 1994. According to Mr. Léonard, Mr. Côté knew that there was unreported income but did not know how much. Mr. Côté therefore asked for permission to check into the matter before confirming the amount, while at the same time stressing that there were expenses to be deducted from the income in question. A number of telephone conversations and meetings followed. At a meeting on May 11, 1994, Mr. Léonard was verbally given details by Mr. Côté concerning the amounts of the unreported income and of the wage expenses that had not been claimed. At that time, Mr. Côté said that he had documents concerning the amounts paid to each employee with details on the hours. However, Mr. Léonard insisted on having supporting documents that could prove that the expenses claimed against the additional income with respect to which he planned to assess were genuine.

[31]          On June 11, 1994, Mr. Léonard met with Mr. Côté and Mr. Candussi again. Those two men had prepared a draft agreement which covered both the criminal and the civil aspects of the fraud and set out figures concerning the unreported income and the expenses they considered deductible. However, Mr. Léonard said that, since the supporting documents for the claimed expenses still had not been provided, he told them that he was not in a position to negotiate.

[32]          As he had not obtained the supporting documents for the expenses by the end of the summer vacation period, and since he felt that he had given PCMC and its representatives, including an outside accountant, all the time they needed to make the necessary checks and calculations, Mr. Léonard-after first notifying Mr. Côté-went to PCMC's place of business on August 26, 1994, to obtain the requested documents. The receptionist and Michel Candussi were present. It was at that point that Mr. Léonard was given some 10,000 to 12,000 documents regarding the wages paid to the employees from 1989 to 1992. Those documents included the following:

•                The employer's weekly reports on each employee from June 1989 to December 1992.

•                The individual time sheets filled out by some employees, which were attached to the weekly reports.

•                A certain number of notes from either the employer or the employees, which were attached to the weekly reports.

•                The payroll journal.

•                Documents on the remittance of source deductions, records of employment and summaries of the source deductions.

•                Extracts from the ledger concerning the item "travelling expenses".

[33]          According to Mr. Léonard, there was a separate sheet for each employee in the employer's weekly reports. The reports were sorted by week and by month. The weekly report for an employee often had attached to it an individual time sheet provided by the employee or a note written by either the employer or the employee.

[34]          Photocopies of the documents concerning the two appellants were filed in evidence as part of Exhibit I-1 with respect to Francesco Pipia and as part of Exhibit I-3 with respect to Alessio Ravagnolo. Since counsel for the appellants objected to the filing of those photocopies on the ground that only the originals obtained by Mr. Léonard were admissible in evidence, it is important to note here that Mr. Léonard stated that he himself made two photocopies of each document obtained from the employer. One of the two photocopies was put in the vault at the offices of the Department of National Revenue, while the other was used as a working document and then placed in the file sent to the Department of Justice. The documents adduced in evidence as being from PCMC are therefore photocopies of the copy given to the Department of Justice.

[35]          Moreover, I note that the documents obtained by Mr. Léonard were not so obtained through a seizure or requirement, as argued by counsel for the appellants. The documents were given to Mr. Léonard by Michel Candussi on a strictly voluntary basis.

[36]          I will deal with the above objection later on, in the analysis.

[37]          After obtaining the documents, Mr. Léonard began checking to determine whether the additional expenses claimed, which were mainly wage expenses, were justified. Following the completion of that work, and on being informed of the results-which were substantially different from the figures suggested by PCMC at the meeting on June 11, 1994-Mr. Candussi requested that the documents provided to Mr. Léonard be returned to him so that he could check the calculations and explain the differences. The originals of the documents obtained by Mr. Léonard were therefore returned to Mr. Candussi on November 17 and 18 and December 13, 1994. As Mr. Léonard explained, the documents had been lent to him so that he could check the validity of the additional expenses being claimed against the unreported income. Since the documents belonged to PCMC, they could not be kept by Revenue Canada and had to be given back to their owner at their owner's request.

[38]          Mr. Léonard said that the employer subsequently realized that certain mistakes had been made and so ultimately arrived at about the same amounts that he himself had calculated. Those amounts were therefore used to make reassessments against PCMC and Michel Candussi personally for appropriation of funds. They were also used as a basis for bringing criminal proceedings against those two taxpayers.

[39]          In his testimony, Mr. Léonard admitted that the normal procedure when it is found that income has not been reported is indeed to ask the taxpayer whether the taxpayer can prove that there are expenses deductible against that additional income and to accept such expenses only insofar as it is demonstrated that they are genuine.

[40]          According to Mr. Léonard, the expenses that he ultimately agreed to recognize and that PCMC was able to use to reduce its unreported income resulted from his in-depth analysis of the documents obtained, upon which a number of validation exercises were performed.

[41]          As a result of the same analysis, proposed assessments for unreported income were sent to about 40 employees of PCMC on March 17, 1995. After many meetings were held with employees and submissions were made by a few lawyers, the assessments themselves were finally made against the employees concerned in January and February 1996 for the unreported income for 1989 to 1992. For each appellant herein, those assessments are the ones at issue here, the details of which are set out in paragraph [1] of these Reasons for Judgment.

[42]          In his testimony, Mr. Léonard, backing himself up with examples, explained how he was able to calculate the unreported income of each employee, including the two appellants, by using the weekly reports concerning them. The reports show the employee's name, the employee's basic hourly rate, the date on which the period ended, the name of the work site or client and the number of hours worked each day. The hours are shown in separate boxes depending on whether they are regular hours or hours worked at "double time" or "time and half". The rate paid for overtime is also shown in a separate column under the heading "rate". It is the rate used by PCMC, and it does not correspond to the rate prescribed in the decree, which should normally be twice or one and a half times the basic rate shown. For example, for part of 1990, the basic hourly rate shown for Mr. Pipia is $19.51, while the overtime rate is $24.80.[4] The weekly reports also indicate the total number of regular and overtime hours worked. The "amount" column shows the amount resulting from the multiplication of the hourly rate indicated on the "double time" or "time and half" line by the hourly rate shown in the "rate" column. Moreover, as regards the regular hours, the amount shown is not the result of multiplying the basic rate shown by the number of hours but is rather the amount paid as indicated in the payroll journal. According to the information in the payroll journal,[5] to arrive at the amount paid for regular hours-that is, after all source deductions-the number of hours was multiplied by the applicable hourly rate and an amount corresponding to 10 percent was then added for vacation to obtain the gross wages. Source deductions were subtracted from that amount. To the net amount obtained was added an amount corresponding to 10 cents an hour for the hours shown. This last amount was added to compensate for equipment use by the employees. The information in the payroll journal is actually exactly the same as that on the pay slips, since PCMC used a system involving carbon paper that allowed the information written directly on the pay slips to be printed in the payroll journal and on an additional copy. Finally, through the addition of the gross amount for overtime and the amount paid for regular hours as entered in the payroll journal, the weekly reports indicate the total that was apparently paid to the employee each week.

[43]          Mr. Léonard also explained, again backing himself up with examples, that certain regular or overtime hours were sometimes dealt with in a special way. In such cases, the number of hours in question was generally circled. Thus, some of the hours worked in a given week could be carried forward to another week and paid for as if they were part of the regular working hours that week.[6] Occasionally, on the other hand, a certain number of hours, eight for example-that is, a basic workday-could be advanced.[7]

[44]          In other cases, overtime could be converted to regular hours on the basis of eight regular hours for five overtime hours.[8]

[45]          Mr. Léonard said that, despite the magnitude of his task, he did not have too much trouble determining the overtime that had been paid to PCMC's employees during the years at issue but not reported by them. Occasionally, when he was unable to make out certain entries in the weekly reports, he obtained the information from Mr. Côté or Mr. Candussi. His analysis of the weekly reports and the payroll journal shows that in general, with rare exceptions, the overtime shown in the weekly reports was not entered in the payroll journal, was not paid for in cash based on a rate determined by the employer and was not reported by the employees. The results of Mr. Léonard's analysis regarding Mr. Pipia and Mr. Ravagnolo are compiled at Tab 8 of Exhibits I-1 and I-3, respectively.

[46]          Mr. Léonard explained that a number of validation exercises were performed on the results obtained, inter alia using the individual time sheets or certain notes, where such existed. In the case of Mr. Ravagnolo, there are 26 individual time sheets: nine for 1989, sixteen for 1990 and one for 1991.[9] The hours shown do correspond to those found in PCMC's weekly reports. As for Mr. Pipia, he said that he did not use the individual time sheets. In the documents that the respondent submitted as being from PCMC, there is just one individual time sheet for the week of November 18, 1989.[10] It shows 32 hours of regular time at $18.47 an hour and 11 hours of overtime at $23.50 an hour. The total of $408.88 indicated for the regular hours corresponds to the amount paid according to the payroll journal ($405.68 net plus $3.20) which, moreover, makes no reference to the overtime.[11] PCMC's weekly report for that week is missing, but the individual time sheet seems to have been used as a weekly report, since that sheet indicates that $258.50 gross (or 11 hours at $23.50) was paid for overtime. Since the amount paid for the regular hours takes account of deductions and amounts added based on what is entered in the payroll journal, and since the individual time sheet does not show just the hours worked each day, it can be assumed that the sheet was filled out by a secretary or by Mr. Candussi and not by Mr. Pipia himself.

[47]          Of course, Mr. Léonard also checked the payroll journal to make sure that he did not add amounts that had already been reported. By examining a certain number of PCMC's invoices to its clients that were obtained during the audit, Mr. Léonard also made sure that work had actually been done at the places indicated in the weekly reports.

[48]          Mr. Léonard also checked the reimbursement of the employees' expenses and the matter of payment for travel time for work done at sites outside Montréal. Comparing the information in the weekly reports with that entered in the ledger under the item "travelling expenses",[12] Mr. Léonard determined that the employees were not only reimbursed for kilometrage and other expenses when they had to travel outside Montréal but were also paid for their travel time, contrary to what the appellants stated. The expenses were generally reimbursed and the travel time generally paid for by cheque, which is confirmed by the entries found in the ledger. It should be noted here that Mr. Léonard testified that the amounts so paid to the employees by cheque for travel time were not added to the amounts assessed. Thus, only the amounts that the weekly reports indicated were paid in cash and that did not appear in the payroll journal were added to the employees' income by the reassessments made in January and February 1996. In short, as regards payment for travel time, the comparison that Mr. Léonard made between the information in the weekly reports and the information in the ledger was actually a validation exercise that, in his view, confirmed the reliability of the information in the weekly reports.

[49]          The testimony of Claudia Guénette, Michel Candussi's sister, who worked for PCMC as a secretary at the relevant time, did not really add anything of any significance for the purposes of the disposition of these cases. Ms. Guénette said that one of her duties was to complete, at least in part, the weekly reports based on the information obtained from various people in various ways. The information could come from her brother or the employees themselves. It could sometimes be obtained in person, and it was occasionally obtained over the telephone. Otherwise, it was taken from pieces of paper or from the individual time sheets used by certain employees. Her testimony, which was incredibly vague and imprecise on a number of points, did not really clarify how the weekly reports were actually completed each week, aside from the fact that she did part of the work and that the other secretary or even Ms. Guénette's brother, Michel Candussi, might take care of entering the additional information needed to prepare the pays. When questioned about certain features of the weekly reports, she admitted that her brother Michel had made agreements or arrangements with the employees, that the payroll journal in which she made entries generally showed only 32 or 40 hours of work a week, that overtime was sometimes converted into regular hours and that some hours may have been carried over and paid for in subsequent weeks. What emerges from her testimony, when all is said and done, is that the information was entered in the weekly reports according to the instructions given by Michel Candussi based on his agreements with the employees. However, she asserted that she did not know exactly what those agreements were or the names of the employees with whom her brother Michel had such agreements. When asked to comment on some of the weekly reports, she admitted that the employees' travel time in connection with work sites outside Montréal was paid for and that the payment could be made either in cash or by cheque.

[50]          An important point, however, is that there was not the slightest thing in her testimony that could suggest that the information in the weekly reports does not reflect reality or that the reports may have subsequently been altered.

[51]          As we know, the investigation by Mr. Léonard of Revenue Canada was initially directed at PCMC's activities as directed by its sole shareholder and director, Michel Candussi. Having pleaded guilty to the criminal charges laid, PCMC and Mr. Candussi also had to face reassessments based on the results of Mr. Léonard's investigation. However, the criminal proceedings and the assessments reveal that PCMC's unreported income, as determined by Mr. Léonard, was reduced by the wage amounts that were paid to the employees but not entered in the books.

[52]          Although the appellants in the instant cases claimed that, pursuant to a special agreement with Michel Candussi, they were never paid cash by PCMC for overtime, they never called him to testify to confirm their version of the facts.

[53]          Mr. Candussi, who was called as a witness by the respondent, constantly equivocated in his testimony. Obviously concerned with doing his former employees as little harm as possible, he did nothing but make one contradictory statement after another. For example, he first stated that he paid all the employees for all the hours they worked. He then said that, if he did not pay for all the hours, no one ever came and claimed payment for those hours. Finally, he stated that, if the appellants said that he did not pay for those hours, it must be because he did not pay for them.

[54]          Mr. Candussi testified that, [TRANSLATION] "most of the time", he himself recorded the overtime information in the weekly reports based on his agreements with the employees. He said that most of PCMC's employees took advantage of the system of unreported hours of work that were paid for in cash and not entered in the payroll journal. It seems as well that those hours, which generally involved overtime, were paid for not at the rate set out in the decree, namely time and a half or double time, but rather in cash at a rate agreed on with each employee, without any source deductions. However, Mr. Candussi also said-and this was something that had already been shown by Mr. Léonard's testimony-that another type of agreement or part of an agreement involved carrying the hours worked beyond 40 hours in a given week over to another week. When asked whether Mr. Pipia worked only 32 or 40 hours a week pursuant to the agreement they had reached, Mr. Candussi answered as follows: [TRANSLATION] "I think so, it's noted down". In the context, it is not very difficult to interpret that answer. According to Mr. Candussi, insofar as hours were carried over, it was to complete another week of 32 or 40 hours, and he thought in this regard that his agreement with Mr. Ravagnolo was the same as his agreement with Mr. Pipia. Mr. Candussi also said that Mr. Pipia and Mr. Ravagnolo did not work much overtime. He answered the next question, namely whether it was possible that those two employees were not paid at all for overtime during the four years at issue, as follows: [TRANSLATION] "I don't remember that. I must not have paid them, in that case." The weekly reports for 1990 alone show 530 hours of overtime for Mr. Pipia and 453 hours for Mr. Ravagnolo. Yet Mr. Candussi said that, if those men worked a little overtime, it was for small amounts of money, that the agreements had changed over the years and that he did not really remember whether an hour bank was used for them. He finished his testimony by saying that, generally speaking, he did not remember the precise facts.

[55]          In my opinion, there is no point in referring to other parts of Mr. Candussi's testimony, which, on the whole, proved to be a muddle of evasive and contradictory answers punctuated by numerous lapses of memory. Suffice it to add that Mr. Candussi referred to a black book he had at the time that he said contained certain details about amounts to be paid to the employees. That book was never handed over to the authorities, and Mr. Candussi said that he had since destroyed it. Thus, no one has been able to verify the information it actually contained.

[56]          Here again, it is important to note that there is nothing to suggest that the weekly reports do not reflect reality or that they may have subsequently been altered in any way.

[57]          The testimony of Francesco Pulciani, a composition floor layer who worked for PCMC for 20 years, was brief. He was one of the employees who used individual time sheets to record the hours they worked every day of the week for a number of years. Copies of those time sheets, of the weekly reports and of extracts from the payroll journal and the ledger, as well as Mr. Léonard's work sheets concerning Mr. Pulciani, were adduced in evidence. As he had done in the case of the appellants, counsel for the appellants objected to the filing of the documents from PCMC on the ground that they were copies, and even copies of copies, of the original documents.

[58]          Mr. Pulciani said that, in their original form, the individual time sheets used were in duplicate, like invoices. One copy was to be kept by the employee and the other was given to the employer, that is, either to Michel Candussi or to one of the truck drivers, who then gave it to the secretary. Mr. Pulciani stated that his own time sheets were filled out by his daughter since he himself had little education. With regard to overtime, he said that nearly all the employees were paid for overtime in cash because Michel Candussi refused to pay the time-and-a-half rate. Mr. Pulciani admitted that he made a mistake and said that he has since paid both his federal and his provincial taxes.

[59]          After objecting to the filing of the copies of the documents from PCMC obtained by Mr. Léonard for his investigation, counsel for the appellants maintained in his very lengthy argument that, through their own testimony and that of their spouses, the appellants had adduced prima facie evidence that they had not received the amounts indicated in the weekly reports for overtime. Moreover, he argued that the respondent, whose evidence was based essentially on the entries in those weekly reports, had not discharged her burden of proving that the amounts in question had likely or even probably been received. Counsel for the appellants thus stressed that the appellants both had a special agreement with Michel Candussi whereby they would be paid for only 32 or 40 hours of work a week, inter alia to ensure that their earnings would be steady and regular, which was why some overtime was carried over to other weeks on rare occasions. He argued that the appellants were therefore paid for only 32 or 40 hours a week and sometimes for fewer hours during the years at issue. They also, he said, occasionally received a cheque to reimburse them for travel expenses in connection with work on sites outside Montréal. The appellants therefore never received any amounts over and above their basic pay, and this, he said, was corroborated by their spouses.

[60]          Counsel for the appellants also challenged the conclusions reached by Mr. Léonard, whose investigation, he said, lacked rigour because it was based only on PCMC's weekly reports and a few individual time sheets in the case of Mr. Ravagnolo. Counsel for the appellants stressed that it was shown at the hearing that at least two people completed those weekly reports, namely Michel Candussi and his sister, Claudia Guénette, and that it was not possible to really know who wrote what, although Michel Candussi admitted that his sister [TRANSLATION] "entered the regular time" while he [TRANSLATION] "entered the overtime". Given that the weekly reports were completed by more than one person, counsel for the appellants argued that the most plausible assumption is that they could have been completed not every week but rather-as far as the overtime is concerned-much later, namely in 1993 during the audit preceding Mr. Léonard's investigation.

[61]          Emphasizing again that the documents submitted are merely copies and, even worse, copies of copies, of which no expert assessment is possible, and going on to assert that, as regards the overtime, the documents were likely completed much later either to comply with the C.C.Q.'s regulations or for tax reasons, counsel for the appellants argued that the weekly reports are not reliable enough to give credence to what is stated therein. He therefore maintained that, absent other contemporaneous notes or documents, including the black book containing information on how the hours worked by the employees were dealt with, which Michel Candussi had but has since destroyed, the weekly reports do not have sufficient probative value, especially since Mr. Candussi, in his testimony, did not clearly establish that the little overtime worked by the appellants was paid for in cash.

[62]          In support of his arguments, counsel for the appellants referred, inter alia, to this Court's decisions in Esteves v. Canada, [1995] 1 C.T.C. 2884, [1994] T.C.J. No. 353, and Simard v. R., [1998] 3 C.T.C. 2839, [1997] T.C.J. No. 1321, which bear some similarity to the instant appeals. Counsel for the appellants also referred to the decision in Firestone Stores v. Ste-Marie, [1978] C.P. 377, which referred to the statement by authors Nadeau and Ducharme[13] that [TRANSLATION] "entries in the business records [or] books kept by merchants . . . are domestic records and papers that are in no way evidence in favour of the merchants, since it would be too easy to create probative documents oneself". In this regard, counsel for the appellants also referred to the rule set out in article 2832 of the Civil Code of Québec. I will simply say here that it is difficult to see how that rule, which states that a writing that is neither authentic nor semi-authentic which relates a fact is admissible as proof against the person who wrote it, by way of testimony or admission, can work in the appellants' favour in this case.

[63]          Counsel for the respondent began by noting certain contradictions in the testimony of the appellants and their spouses as regards the hours and days worked. He then pointed out the contradictions between Mr. Ravagnolo's statements and his own individual time sheets. Counsel for the respondent next expressed surprise that the appellants could have worked so long for an employer that refused to pay overtime and that they were unable to complain about this to anyone or they would be fired and blacklisted. If they were exploited in this fashion and there was nothing they could do, it is implausible, argued counsel for the respondent, that they did not know whether the other employees were being paid for overtime, since they had been working together for years.

[64]          Counsel for the respondent then referred to certain parts of Mr. Candussi's testimony concerning, inter alia, the preparation of the weekly reports, the existence of clandestine work in an industry in which there was fierce competition and the use of the hour bank system. He also pointed out that Mr. Candussi had referred to a black book in which may have been entered certain amounts that were owed and not paid. However, he emphasized that no one had ever been able to see that black book.

[65]          Furthermore, counsel for the respondent argued that Mr. Pulciani's testimony showed in fact that all the hours were paid for, either through the use of an hour bank or under the table. He noted that Mr. Pulciani had said that most of the employees received money under the table.

[66]          Counsel for the respondent then pointed out that the documents adduced in evidence, and primarily the weekly reports, contradict the version given by the appellants. The reports show that the hour bank system was used and that some hours were indeed carried over and paid for as part of another period. However, the reports also indicate that the hours entered in the payroll journal and the hours not so entered were dealt with differently. Thus, while regular hours were generally entered in the payroll journal at the rate set out in the decree, the weekly reports show that overtime was paid for at a rate lower than that required by the decree.

[67]          Counsel for the respondent admitted that the weekly reports in which there is more than one handwriting may have been prepared by more than one person but said that they were prepared in the ordinary course of the company's business. He argued that there is no basis for thinking that they may have been completed, even in part, during a subsequent year, contrary to the assumption put forward by counsel for the appellants. Moreover, he stressed that Mr. Candussi was not asked any questions about this, and that, if he had wanted to build a defence for himself against assessments totalling some $2.3 million, he would have gone all the way and indicated the overtime rate provided for in the decree in order to increase the amount of deductible expenses he was claiming.

[68]          Counsel for the respondent pointed out that the use of the hour bank system is identified in the weekly reports by circled figures showing the hours carried forward, the advances and the payment of arrears. For the overtime not dealt with in that way, the weekly reports show a special rate that applied and the calculation of the amount that was apparently paid. In fact, the use of that special rate was, he said, the main part of the arrangement involving under-the-table payments. In this regard, counsel for the respondent noted the almost complete absence of overtime in the payroll journal. In the case of the appellants, there are only three entries: two for Mr. Pipia and one for Mr. Ravagnolo. In Mr. Pipia's case, the special notation "C.C.Q." appears in the corresponding weekly reports.[14] In Mr. Ravagnolo's case, the special notation [TRANSLATION] "noted down" appears in the corresponding weekly report.[15] Counsel for the respondent stressed the exceptional nature of those notations, which correspond to the only overtime entered in the payroll journal for the appellants.

[69]          Counsel for the respondent also pointed out that Mr. Léonard checked some 10,000 to 12,000 documents concerning 40 or so employees and that the validation exercises concerning the weekly reports were performed using the payroll journal and the individual work sheets, where such existed, as well as the ledger in the case of the travel allowances. He noted as well that PCMC's invoices to certain clients were checked to make sure that the work periods actually corresponded to the work sites shown in the weekly reports.

[70]          In short, argued counsel for the respondent, it was only after doing many checks and because he was convinced that the weekly reports were genuine, that Mr. Léonard authorized PCMC to deduct additional expenses, namely the unreported wages.

[71]          Thus, counsel for the respondent maintained that he had adduced the best evidence available in the circumstances given that he could not file the originals of the documents that were obtained from PCMC and subsequently returned. He noted the absence of other documents, such as Mr. Candussi's black book.

[72]          As regards the decision in Esteves, supra, referred to by counsel for the appellants, counsel for the respondent simply observed that the workers' version must first be believed for it to be concluded that they did not receive money under the table. As for the decision in Firestone, supra, counsel for the respondent expressed the view that it merely established that people cannot create evidence themselves through their own writings and he argued that the decision is not relevant here because the evidence adduced by the respondent is based on documents obtained from another person, namely PCMC.

[73]          With respect to the penalty assessed under subsection 163(2) of the Act, counsel for the respondent considered it justified because the amounts paid were received personally and the income was therefore knowingly not reported. He also noted that the scheme lasted for many years, involved substantial amounts and stopped only because of Revenue Canada's investigation. In closing, he pointed out that Mr. Candussi had admitted that he paid for work under the table and used the hour bank system-which was contrary to another statute-because, as he said, it was a matter of survival for him given the fierce competition in the industry.

[74]          I agree with the respondent's position and am of the opinion that the appeals must be dismissed.

[75]          I will begin by dealing briefly with the question of the admissibility in evidence of the copies or, if you will, copies of copies of documents that were obtained from PCMC in the circumstances described above and subsequently returned to PCMC at its request. In his testimony, Mr. Léonard of Revenue Canada said that he himself made two photocopies of the documents obtained from PCMC. He put one copy in the Department's vault and kept the other to conduct his checks. That photocopy remained in the file sent to the Department of Justice and was used to make enough further photocopies for the hearings in the appeals. When he testified, Mr. Léonard referred constantly to these last copies, which he recognized as copies of the originals provided by PCMC during his investigation. I have not the slightest doubt that the original documents were not altered in the process. At the hearing of the appeals, I referred to subsection 231.5(1) of the Act in support of my decision to accept the copies in evidence. That provision reads as follows:

                231.5(1) Copies - Where any document is seized, inspected, examined or provided under sections 231.1 to 231.4, the person by whom it is seized, inspected or examined or to whom it is provided or any officer of the Department of National Revenue may make, or cause to be made, one or more copies thereof and any document purporting to be certified by the Minister or an authorized person to be a copy made pursuant to this section is evidence of the nature and content of the original document and has the same probative force as the original document would have if it had been proven in the ordinary way.

[76]          Moreover, subsection 30(11) and section 40 of the Canada Evidence Act, R.S.C. 1985, c. C-5, provide as follows:

                30(11) The provisions of this section shall be deemed to be in addition to and not in derogation of

                (a) any other provision of this or any other Act of Parliament respecting the admissibility in evidence of any record or the proof of any matter; or

                (b) any existing rule of law under which any record is admissible in evidence or any matter may be proved.

                40. In all proceedings over which Parliament has legislative authority, the laws of evidence in force in the province in which those proceedings are taken, including the laws of proof of service of any warrant, summons, subpoena or other document, subject to this Act and other Acts of Parliament, apply to those proceedings.

[77]          Given the wording of subsection 30(11) and section 40 of the Canada Evidence Act, it is my view that subsection 231.5(1) of the Act is a specific provision of an Act of Parliament that takes priority over any other rule and that it is applicable in this case. I would simply add that it is wrong to argue generally that copies cannot be adduced in evidence where the originals are not available. From a common law standpoint, reference may be made in this regard to the decision of the Supreme Court of British Columbia in R. v. Clarkson, 99 DTC 5527. From a civil law perspective, reference may be made to article 2860 of the Civil Code of Québec.

[78]          As regards the burden of proof, I note that it was up to the respondent to prove that a reassessment could be made for the years that would normally have been statute-barred, namely 1989, 1990 and 1991, on the ground that a misrepresentation had been made that was attributable to neglect, carelessness or wilful default or that fraud had been committed in filing the returns.

[79]          It was likewise up to the respondent to prove that the penalties assessed under subsection 163(2) of the Act for the four years at issue, namely 1989 to 1992, were justified because the appellants knowingly, or under circumstances amounting to gross negligence, made a false statement in their returns. Strictly speaking, therefore, each appellant bore only the burden of proving that he did not receive unreported additional earnings in 1992.

[80]          I also consider it important to point out that the degree of proof applicable in tax cases, as in all other civil cases, is the balance of probabilities. That standard also applies to the penalties.

[81]          In this regard, it is my view that the evidence adduced by the respondent proves on much more than the mere balance of probabilities that the appellants received but failed to report the amounts assessed for each of the years at issue and that the misrepresentation made in their tax returns for each of those years was made knowingly. The most important pieces of that evidence are the testimony of Mr. Léonard and Mr. Pulciani and all the documents submitted in Exhibits I-1, I-3 and I-10, which documents relate to Mr. Pipia, Mr. Ravagnolo and Mr. Pulciani respectively.

[82]          Obviously, the basis of all the evidence adduced by the respondent consists of the weekly reports relating to the appellants and those regarding Mr. Pulciani. The appellants never attempted to directly challenge the entries in those reports concerning either regular hours or overtime, although they had an opportunity to read the documents as soon as the assessments were made, which was thus well before their appeals were heard. Moreover, the accuracy of the entries in the weekly reports was checked as regards not only the appellants but also the 40 or so employees who worked for PCMC during the years at issue. A careful review of the copies of the documents that were obtained from PCMC by Mr. Léonard and adduced in evidence certainly shows that the hour bank system was used for certain hours and that, with rare exceptions, only regular hours were entered in the payroll journal. Thus, payment for certain hours was carried forward to another week and advances were occasionally made by the employer. Furthermore, payment for travel time in connection with work sites outside Montréal was generally by cheque, as was the reimbursement of the travel and other expenses related to those sites. As Mr. Léonard established, the information in the weekly reports is confirmed in the payroll journal where payment for certain hours was carried forward or, conversely, where advances were made. As for payment for travel time, although the amounts paid by cheque were not assessed, the payment of those amounts can be traced in the ledger under the item "travelling expenses".

[83]          As Mr. Léonard showed, the overtime information in the weekly reports is also consistent with the individual time sheets filled out by the employees. In Mr. Ravagnolo's case, there are 26 such sheets, and the information on them corresponds to the information in the weekly reports completed by the employer. In the case of Mr. Pulciani, who made much greater use of the individual time sheets, the information again corresponds to the weekly reports. This is all to say that the weekly reports, which Mr. Léonard analysed rigorously by comparing them with the other documents given to him by PCMC, constitute, in my view, reliable evidence from which it can be concluded that the amounts shown for overtime were indeed paid to the appellants. The entering of a total amount made up of the net amount paid for regular hours according to the payroll journal and the gross amount calculated for overtime strongly confirms the respondent's argument that the total amount shown was indeed paid to the appellants. In my view, no other inference is possible, especially since the weekly reports show, where applicable, that payment for certain hours of work in a given week was carried over.[16] It may therefore be concluded that the total amount shown in each weekly report was likely and probably paid to the employee.

[84]          The weekly reports contain a great number of details¾such as the use of the hour bank system to carry over hours to other weeks or the payment by cheque for travel time outside Montréal¾whose accuracy can be verified in either the payroll journal or the ledger. This circumstance renders totally implausible the assumption put forward by counsel for the appellants, namely that part of the reports-the part concerning overtime-may have been completed not each week but several years later, either to comply with some C.C.Q. regulation or to prepare a defence against a possible tax assessment. In my view, that assumption is not supported by any fact put in evidence. In fact, the possibility that part of the weekly reports was prepared much later was not even broached with Ms. Guénette and her brother, Michel Candussi, during their cross-examination by counsel for the appellants.

[85]          Given the evidence adduced by the respondent, I obviously cannot accept the testimony of the appellants and their spouses, which not only contradicts itself in some respects but is also directly contradicted by the copies of the documents obtained from PCMC.

[86]          As an example, I will simply refer to Mr. Pipia's statement that he worked without pay and that he did not know what an hour bank was when in fact he had benefited from the system for years. Reference may also be made to Mr. Ravagnolo's statement that he worked little overtime, even though his own individual time sheets show more than 75 hours of overtime from October 6 to December 23, 1989, a period of only two and a half months.[17] Finally, the statement by each appellant that travel time in connection with work sites outside Montréal was not paid for is directly contradicted by the extracts from PCMC's ledger that were adduced in evidence.[18]

[87]          It is not necessary to refer to Michel Candussi's testimony at any great length. I have already mentioned the many contradictions therein. His statement that the appellants worked only a little overtime and that they may not have been paid if they said they were not is once again directly contradicted by the documents from PCMC that he himself submitted to Mr. Léonard. The only thing that can really be taken from his testimony is that he definitely did not pay for overtime at the rate he should have paid pursuant to the decree and that, in general, only regular hours were entered in the payroll journal. Aside from that, the copies of the documents from PCMC adduced in evidence by the respondent show that various systems were used to pay the employees for their overtime, including the conversion of overtime into regular hours, the hour bank and cash payment at an agreed rate lower than the rate that should normally have applied.

[88]          In short, it is my view that the evidence adduced by the respondent proves, on a standard that goes beyond the mere balance of probabilities, that the appellants received the amounts assessed for the years at issue and that, since the amounts were received in cash, it cannot be otherwise than knowingly that they decided not to report them.

[89]          Accordingly, the appeals are dismissed with costs to the respondent. However, as regards the costs awarded to the respondent for the services of counsel for each day or part day of hearing, only half of such costs are awarded in relation to each appellant.

Signed at Ottawa, Canada, this 19th day of March 2001.

"P. R. Dussault"

J.T.C.C.

Translation certified true on this 6th day of September 2002.

Erich Klein, Revisor

[OFFICIAL ENGLISH TRANSLATION]

97-2225(IT)G

BETWEEN:

FRANCESCO PIPIA,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard with the appeals of Alessio Ravagnolo (97-2224(IT)G)

on November 20, 21, 22, 23 and 24, 2000,

at Montréal, Quebec, by

the Honourable Judge P. R. Dussault

Appearances

Counsel for the Appellant: François Leduc

Counsel for the Respondent:              Simon-Nicolas Crépin

JUDGMENT

                The appeals from the assessments made under the Income Tax Act for the 1989, 1990, 1991 and 1992 taxation years are dismissed with costs to the respondent. However, as regards the costs awarded to the respondent for the services of counsel for each day or part day of hearing, only half of such costs are awarded in relation to each appellant. The whole in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 19th day of March 2001.

"P. R. Dussault"

J.T.C.C.

Translation certified true on this 6th day of September 2002.

Erich Klein, Revisor

[OFFICIAL ENGLISH TRANSLATION]

97-2224(IT)G

BETWEEN:

ALESSIO RAVAGNOLO,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard with the appeals of Francesco Pipia (97-2225(IT)G)

on November 20, 21, 22, 23 and 24, 2000,

at Montréal, Quebec, by

the Honourable Judge P. R. Dussault

Appearances

Counsel for the Appellant: François Leduc

Counsel for the Respondent:              Simon-Nicolas Crépin

JUDGMENT

The appeals from the assessments made under the Income Tax Act for the 1989, 1990, 1991 and 1992 taxation years are dismissed with costs to the respondent. However, as regards the costs awarded to the respondent for the services of counsel for each day or part day of hearing, only half of such costs are awarded in relation to each appellant. The whole in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 19th day of March 2001.

"P. R. Dussault"

J.T.C.C.

Translation certified true on this 6th day of September 2002.

Erich Klein, Revisor

[OFFICIAL ENGLISH TRANSLATION]