Tax Court of Canada Judgments

[OFFICIAL ENGLISH TRANSLATION]

2000-286(IT)I

BETWEEN:

DOMINIQUE ABOUANTOUN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeals of Jean Abouantoun (2000-238(IT)I) and of

Gritta Saroufim (2000-663(IT)I)

on February 8 and 9, 2001, at Montréal, Quebec, by

the Honourable Judge Pierre Archambault

Appearances

For the Appellant:                                         The Appellant himself

Counsel for the Respondent:                         Simon Crépin

                                                                   Nathalie Lessard

JUDGMENT

The appeals from the assessments made under the Income Tax Act for the 1991, 1992, 1993 and 1994 taxation years are dismissed.

Signed at Ottawa, Canada, this 15th day of February 2001.

"Pierre Archambault"

J.T.C.C.

Translation certified true

on this 27^th day of January 2003.

Sophie Debbané, Revisor

[OFFICIAL ENGLISH TRANSLATION]

2000-238(IT)I

BETWEEN:

JEAN ABOUANTOUN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeals of Dominique Abouantoun (2000-286(IT)I) and of

Gritta Saroufim (2000-663(IT)I)

on February 8 and 9, 2001, at Montréal, Quebec, by

the Honourable Judge Pierre Archambault

Appearances

For the Appellant:                                         The Appellant himself

Counsel for the Respondent:                         Simon Crépin

                                                                   Nathalie Lessard

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1992, 1993 and 1994 taxation years are dismissed.

Signed at Ottawa, Canada, this 15th day of February 2001.

"Pierre Archambault"

J.T.C.C.

Translation certified true

on this 27^th day of January 2003.

Sophie Debbané, Revisor

[OFFICIAL ENGLISH TRANSLATION]

2000-663(IT)I

BETWEEN:

GRITTA SAROUFIM,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeals of Jean Abouantoun (2000-238(IT)I) and of

Dominique Abouantoun (2000-286(IT)I)

on February 8 and 9, 2001, at Montréal, Quebec, by

the Honourable Judge Pierre Archambault

Appearances

For the Appellant:                                         The Appellant herself

Counsel for the Respondent:                         Simon Crépin

                                                                   Nathalie Lessard

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1991, 1992 and 1993 taxation years are dismissed.

Signed at Ottawa, Canada, this 15th day of February 2001.

"Pierre Archambault"

J.T.C.C.

Translation certified true

on this 27^th day of January 2003.

Sophie Debbané, Revisor

[OFFICIAL ENGLISH TRANSLATION]

Date: 20010926

Dockets: 2000-286(IT)I

2000-238(IT)I

2000-663(IT)I

BETWEEN:

DOMINIQUE ABOUANTOUN,

JEAN ABOUANTOUN,

GRITTA SAROUFIM,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

(Delivered orally from the Bench

on February 9, 2001, at Montréal, Quebec,

and modified for greater clarity and completeness)

Archambault, J.T.C.C.

[1]      Gritta Saroufim, Jean Abouantoun and Dominique Abouantoun have appealed from income tax assessments made by the Minister of National Revenue (the Minister). The Minister disallowed the tax credits claimed by the appellants in relation to alleged charitable donations to the Lebanese Antonine Maronite Order (the Order). The Minister alleges that the appellants did not really make the following donations:

	1991	1992	1993	1994
Gritta Saroufim	$2,000	$1,500	$2,000
Dominique Abouantoun	$1,500	$2,500	$3,000	$2,600
Jean Abouantoun		$2,500	$4,000	$3,500

[2]      The respondent acknowledges that some of the assessments were made outside the normal assessment period and must therefore show that the appellants made a misrepresentation attributable to neglect, carelessness or wilful default or committed a fraud in filing their income tax returns. The respondent acknowledges this burden in respect of all the taxation years at issue in the appeals of Ms. Saroufim and in respect of the taxation years prior to 1993 for the other two appellants. The respondent also has the burden of proof with respect to the penalties assessed by the Minister under subsection 163(2) of the Income Tax Act (the Act) for each of the taxation years in question.

Facts

Evidence of the respondent

[3]      Two representatives of the Minister, that is, an investigator with the Criminal Investigations Service and an auditor, described the scheme organized by the Order. In some cases, the Order issued a receipt to a taxpayer showing a cash donation for the amount that the taxpayer had paid the Order by cheque and at the same time returned a portion of that amount in cash to the taxpayer. There was often an 80% refund of the amount on the cheque. In other cases, the Order issued a receipt to a taxpayer showing a cash donation in a certain amount, although the taxpayer had not paid anything or had paid an amount far less than that indicated, i.e., generally 20% of the amount shown. In addition, some of the receipts falsely indicated that the alleged donation had been made the year previous to when the Order received the cash and issued the receipt. In other words, the receipts were backdated.

[4]      A doctor who was the estranged wife of one of the Order's directors informed the Minister in March 1994 of the existence of the scheme. In a statement, which, with the appellants' agreement, was introduced in evidence at the hearing to take the place of her oral testimony, she acknowledged that she had benefited from this scheme in respect of three taxation years, that is, 1988 to 1990 inclusive. She said she paid the Order an amount equal to 50% of the amount on the receipt.

[5]      As a result of that information, an auditor of the Minister audited the Order's accounting records and its bank statements. Her work was done during September and October 1994 and her analysis showed that the information regarding the false receipt scheme was correct. Among other things, the auditor noted that the gifts made by professionals with fairly substantial incomes were deposited in the bank and that there were sizeable withdrawals in the days following, whereas in the case of gifts made by taxpayers with more modest incomes, the cheques deposited were only a fraction of the amount on the receipt issued by the Order.

[6]      The case was referred to the Criminal Investigations Service, which conducted a search on November 8, 1995. In the course of the search, the Minister was able to locate documents confirming the existence of the scheme organized by the Order. Among the documents was an electronic spreadsheet (Bibliorec) from a computer of the Order containing data for 1993. This spreadsheet shows 356 entries relating to 352 receipts, i.e., those numbered from 32 to 383. The entries show the donor's name, telephone number, the number of the receipt, the amount of the alleged gift (with an indication of whether the amount had been paid in cash if it had), the amount to be refunded to the donor, the amount refunded and the balance to be refunded, the share, if any, that belonged to the Order, and, in many cases, the percentage of the amount belonging to the Order in relation to the amount of the alleged donation, as well as the code name of the intermediary through whom the "donors" had been put in contact with the Order. Unfortunately for the Minister, the spreadsheet does not provide a list of all the donors who were issued donation receipts by the Order. However, it does include the names of the three appellants and information on which it can be concluded that, in fact, they paid only 15% or 20% of the amounts on the receipts.

[7]      In addition to the doctor's testimony, there was the testimony of two other taxpayers who acknowledged at the hearing that, in calculating their charitable donations credits, they had included amounts that were more than what was paid to the Order and that they had submitted to the Minister some false receipts provided by the Order. Among the documents from the investigation that were tendered by the respondent, there are reports of interviews by the investigator in which a certain number of taxpayers (approximately 80, including, in certain cases, some whose names did not even appear on the Bibliorec) acknowledged their participation in the scheme.

[8]      In his testimony, the investigator also revealed that over 1,000 donors had been the subject of reassessments in which the Minister disallowed tax credits claimed for donations for which the Order had issued receipts in respect of the 1989 to 1995 taxation years. Of that number, 500 or 600 donors filed a Notice of Objection. Many of these cases were settled at the objection stage on the following basis: the Minister waived assessment of a penalty and, in some cases, even allowed a tax credit for the amount actually paid by the taxpayer. Fewer than 100 taxpayers, he said, had appealed to the Tax Court of Canada.

[9]      The investigator also revealed that a certain number of donors who had claimed tax credits for substantial amounts pleaded guilty to charges brought against them under section 239 of the Act in connection with the scheme. However, the fathers of the Order involved in the scheme were not prosecuted since they had left Canada.

Evidence of the appellants

[10]     Dominique Abouantoun and Ms. Saroufim came to Canada in December 1988. They were fleeing Lebanon where a war had been raging since 1975. The appellant husband is 31 years old while his appellant spouse is 19. They were married in Lebanon before immigrating to Canada. A sister of Ms. Saroufim has lived in Canada since 1980. The couple lives in a three-room apartment in Laval. The couple is of the Maronite Catholic religion and they said that they regularly attended the Order's church of St-Antoine, which is located in Outremont. Jean Abouantoun is the brother of Dominique. They all stated that they had genuinely made the donations to the Order for which they claimed tax credits. According to them, the donations were remitted in cash in small envelopes during the Sunday collection at the church of St-Antoine.

Analysis

[11]     In argument, counsel for the respondent, Ms. Lessard, correctly stated the legal principles relating to the burden of proof and the rules for assessing circumstantial evidence. She cited, inter alia, the decision of the Supreme Court of Canada in Hickman Motors Ltd v. Canada, [1997] 2 S.C.R. 336, at page 378, in which Madam Justice L'Heureux-Dubé states: "It is trite law that in taxation the standard of proof is the civil balance of probabilities . . ." Concerning the burden of proof in cases involving the assessment of a civil penalty, counsel cited the following passage from Continental Insurance v. Dalton Cartage Co., [1982]

1 S.C.R. 164, at page 169, a decision referred to by Madam Justice L'Heureux-Dubé in Hickman Motors:

Where there is an allegation of conduct that is morally blameworthy or that could have a criminal or penal aspect and the allegation is made in civil litigation, the relevant burden of proof remains proof on a balance of probabilities.

                                                                                      [Emphasis added.]

[12]     As for the assessment of the evidence, counsel cited, inter alia, the author Jean-Claude Royer, La preuve civile, 2nd ed., Les Éditions Yvon Blais, especially paragraph 175, at page 100:

          [TRANSLATION]

Direct evidence is preferred over indirect evidence - Direct evidence is evidence that applies directly to the fact in issue. Indirect, inferential and circumstantial evidence involve relevant facts from which the existence of the fact in issue may be inferred.

...

Direct testimonial evidence is superior to circumstantial evidence. The rule, however, is not absolute. In some circumstances, the court may prefer inferential evidence to direct evidence.

Counsel also cited a decision of the Quebec Court of Appeal, Légaré v. The Shawinigan Water and Power Co. Ltd., [1972] C.A. 372, in which Chief Justice Tremblay expressed himself as follows:

         [TRANSLATION]

Légaré directs two main criticisms to the trial judge.

He criticized the judge for setting aside his testimony and the testimony of Bureau although they were uncontradicted. But courts are not required to believe witnesses, even when they are not contradicted by other witnesses. Their version may be improbable as a result of circumstances revealed by the evidence or the rules of simple common sense. The bearing and attitude of the witness are also important factors.

[13]     It must be explained at the outset that this case does not involve criminal proceedings: no one is charged with anything. The issue is whether the three appellants are entitled to their charitable donations credit. It must also be determined whether civil penalties are warranted because of the presence in the appellants' statements of misrepresentations attributable to gross negligence, in particular.

[14]     Each appeal must be decided on the basis of the evidence before the Court. For example, in Ghadban v. The Queen (1999-4736(IT)I, an unreported decision from the bench), the taxpayer also claimed he had made donations to the Order. After hearing his testimony, I came to the conclusion that he did in fact make the donations. I must note, however, that in his case, unlike the situation in the case at bar, the respondent had no evidence that tied the donations to the Order's scheme. The name of Mr. Ghadban did not appear on the Bibliorec. There is also the decision rendered by my colleague Judge Lamarre in Korkemaz v. R., 2000 CarswellNat 3636, which raised the same issue regarding alleged donations to the Order. Judge Lamarre was not satisfied that these donations existed.

[15]     In the case at bar, I have heard the testimony of the three appellants and the witnesses called by the respondent. Essentially, I accept almost all of the reasons put forward by counsel for the respondent in support of the Minister's assessments. I do not intend to cite them all here; I will limit myself instead to the ones that I find most significant. In addition, I will focus on certain aspects of the appellants' testimony, which, by the end of the first day of hearing, raised a great deal of doubt in my mind because their testimony was often evasive and sometimes contradictory or improbable.

[16]     To begin with, there is the fact that the amounts of the alleged donations are substantial compared with the income earned by each appellant and are often close to the maximum amounts allowed for a charitable donations credit.[1] The situation in which the appellants found themselves at the time must be remembered. They were all recently arrived immigrants in Canada and they held unstable employment, as is shown by their receiving employment insurance benefits. In 1991, in particular, the first year in which he decided to make a donation (of $1,500) to the Order, Dominique Abouantoun's income came primarily from employment insurance benefits ($12,600 out of a total income of $12,993). In 1992, he claimed a credit for a donation of $2,500 when his employment insurance benefits represented $13,662 out of his total income of $13,762.

[17]     At the outset of her testimony, Ms. Saroufim said that before 1991, she had sent her family, who had remained in Lebanon, between $1,000 and $1,500 in financial assistance, but towards the end of her testimony, she stated the opposite. There is also her rather surprising testimony that she decreased the amount of this assistance so that she could make donations to the Order. It is also rather disturbing that the appellants, and in particular Ms. Saroufim, refused to name the couriers used to take the money for their family members to Lebanon. No valid reason- such as the unlawfulness of such activity-was provided. The impression it conveys is that they did not mention any names for fear that someone might check the truth of their explanations.

[18]     Another disturbing element in these appeals is the fact that there is no evidence establishing the existence of the donations: no cheque and no representative of the alleged donee to confirm receipt of such donations. Unfortunately for the appellants, they said the donations were all made in cash. In view of the appellants' limited financial means at the time and the size of the donations, it is surprising that they did not personally meet with one of the Order's priests to remit the money by hand. Obviously, there are the receipts, but the overwhelming evidence produced by the respondent reveals that the Order had organized a scheme consisting in issuing false receipts; the receipts have therefore little or no probative value.

[19]     They refused to name the persons who might have told the appellants about the possibility of making donations to the Order or they said they did not know their names. It is nonetheless rather surprising that they would not know the names of those persons when they went to church almost every Sunday, or in the case of Jean Abouantoun, at least twice a week. How then can one not know the names of the people with whom one has social contacts on such occasions?[2]

[20]     I was also rather surprised-even to the point of wondering if this were really true-to learn that from 1988 to 1994, Ms. Saroufim attended church every Sunday. In the first place, she had some difficulty remembering the name of the church and did not seem to know that the church of St-Antoine was also called a monastery. Furthermore, I was quite astonished that she was unable to describe the route between Laval and Outrement (where the monastery was located), a route that she must have taken at least 600 times.[3] Quite intriguing¾and no way to lend credibility to Ms. Saroufim's testimony. Another thing that struck me is the fact that she and her brother-in-law, although they are practically neighbours in Laval, never went to the church of St-Antoine together, when she said that she visited her in-laws, who lived with her brother-in-law, regularly, almost on a daily basis.

[21]     It is also worth mentioning that when the Minister disallowed the tax credits, the appellants seem to have made little effort to obtain corroborative evidence from the Order. In fact, in order to obtain access to some documents such as their bank accounts, counsel for the respondent had to subpoena them.

[22]     There is also Ms. Saroufim's statement that she had heard rumours about the scheme in 1994, that she had thought about taking advantage of it and, in the end, had decided not to do so. The search did not take place until November 1995 and the stories only began to appear in the press in early 1996. Obviously, it is possible that Ms. Saroufim got wind of the audit carried out in September and October 1994. But how is it, then, that there was no donation in 1994 when the appellants said they put money in envelopes almost every week during the Sunday collections? Could it be that Ms. Saroufim was given backdated receipts? This seems to be the case, incidentally.[4] Moreover, how is it that Dominique and Jean Abouantoun say that they did not get wind of the scheme before 1995 or 1996? If Ms. Saroufim had heard rumours in 1994, one would expect her husband and her brother-in-law to have known about it and to have stopped making their alleged donations to the Order as well.

[23]     Finally, there is the behaviour of the witnesses during their testimony. I felt that Ms. Saroufim was fairly nervous when she testified. Although on a number of occasions I had to remind them about this, they all had great difficulty addressing their answers to me: instead, they directed them to counsel for the respondent.

[24]     It is because of all these facts that, by the end of the first day, I doubted the truthfulness of the appellants' version. The doubt became a conviction on the second day when the respondent introduced into evidence the fact that the names of the three appellants appeared on the famous Bibliorec, which also showed that they had paid only 15% or 20% of the amount on the receipt issued to them by the Order. I therefore conclude that the evidence as a whole reveals, on a balance of probabilities, that the three appellants participated in the scheme and that they purchased false receipts for charitable donations.

[25]     As Ms. Lessard stated in argument, one would have to be blind not to conclude that the case at bar involves the purchasing of false donation receipts. There can be no question of donations here because I cannot detect any intention to give on the part of the appellants, namely, the intention to impoverish their own patrimony in order to enrich the Order. All that was done was the selling and purchasing of a piece of paper that was supposed to procure a tax benefit for the appellants, whether fraudulently or, at the least, improperly.

[26]     This approach may seem contrary to the one I took in Paradis v. R., 1996 CarswellNat 2261, where I stated:

38 Let us begin by addressing the first condition. The Minister claims that Dr. Paradis's principal motivation in acquiring the paintings and transferring them to the donees was strictly to obtain a tax benefit, not to divest himself of them in their favour. I do not deny that this motivation played an important role in Dr. Paradis's actions during the relevant years. However, I do not believe it is pertinent to consider the tax advantage in order to determine the validity of a gift in Quebec law. I believe this question must be decided strictly in the context of the legal relationship established between Dr. Paradis and each of the donees.

39 Take the case of the gift of the Messier-Leduc painting. Dr. Paradis became the owner of this painting by purchasing it from Galerie des Maîtres Anciens. Under the gift agreement, Dr. Paradis disposed of the painting without receiving any consideration from Musée de Joliette, which as a consequence was enriched by the acquisition of a new painting and Dr. Paradis was impoverished by an amount equal to the value of that painting. I do not believe that the receipt for tax purposes can be looked upon as consideration for the painting. The receipt is merely a document establishing that a gift was received by Musée de Joliette. True, that document is necessary in order to claim the value of the gift for the purposes of the deduction for gifts. However, the extent to which Dr. Paradis is entitled to that benefit does not depend on the Musée de Joliette. That is determined by the Act. In my view, this tax advantage should not be considered in determining whether Dr. Paradis was impoverished.

40 If such advantage were to be taken into account, a number of gifts might not qualify for the purposes of computing the deduction for gifts. I do not believe such an approach to be consistent with the spirit of the Act. This moreover is the point of view adopted by the Federal Court of Appeal in Friedberg v. R., ( (1991), 92 D.T.C. 6031 (Fed. C.A.))(December 5, 1991), A-65-89.* Linden J.A. wrote as follows at page 6032:

            Thus, a gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor (see Heald, J. in The Queen v. Zandstra [74 D.T.C. 6416] [1974] 2 F.C. 254, at p. 261.) The tax advantage which is received from gifts is not normally considered a "benefit" within this definition, for to do so would render the charitable donations deductions unavailable to many donors.

                                      [Emphasis added.]

[27]         It may also seem contrary to the approach taken by the Federal Court of Appeal in Duguay v. R., F.C.J., Nos. A-756-98 and A-757-98, November 3, 2000 (2000 CarswellNat 3240, 2000 DTC 6620 (Fr.)), when it affirmed a decision of my colleague, Judge Garon (as he then was):

8 The Tax Court of Canada judge applied to the transactions in question the rules in the Civil Code of Lower Canada which at the time governed the making of gifts, and in particular arts. 755 and 776. He concluded that the conditions necessary for a gift to exist, namely the intention to give, delivery of the property and acceptance by the donee, had been met. Applying The Queen v. Friedberg, 92 DTC 6031, a judgment of this Court, he found that even though the respondents' primary motivation in the case at bar was to obtain a tax benefit, that did not nullify the donors' intent to give. He was also of the opinion that obtaining a receipt from the recipient organization could not be regarded as consideration that eliminated the gratuitous and liberal nature of the transaction.

9 Finally, the subject-matter of the gifts seemed sufficiently clear to him and he was satisfied that the items given had become the property of the charitable organizations that issued the receipts for tax purposes.

10 In my opinion, the judge correctly directed himself on the legal principles applicable in the case at bar. Similarly, I was not persuaded that he erred in applying these principles to the facts before him. Consequently, I would dismiss the appeal with costs.

                                                          [Emphasis added.]

[28]     However, the situation appears to be quite different in the case at bar. It is not a matter of a donation in kind where there could be a divergence of opinion regarding its value. In the case at bar, there is instead a mock donation. It is claimed that cash was donated whereas it was really the price paid to purchase a false receipt in respect of the donation whereby an undue tax benefit could be obtained. The undue benefit could offer a return of more than 200% on the purchase price of the false receipt.[5] This, moreover, was implicitly acknowledged by one of the witnesses who participated in the scheme, when he frankly admitted that he had not been concerned at all with the use made of the money remitted to the Order. All that mattered to him was the tax benefit he sought.

[29]         Having found that the appellants did not make genuine donations, it must be decided whether subsection 163(2) of the Act applies to the facts of these appeals. This subsection assesses a penalty on every one who, knowingly, or under circumstances amounting to gross negligence, has made or participated in, assented to or acquiesced in the making of, a false statement or omission in a return filed or made in respect of a taxation year. More precisely, subsection 163(2) reads as follows:

163(2)      False statements or omissions.

Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this section referred to as a "return") filed or made in respect of a taxation year as required by or under this Act or a regulation, is liable to a penalty of the greater of $100 and 50% of the aggregate of

...

[30]     The respondent claims that to the extent it is found that the appellants participated in the scheme and were really aware of the contents of their statement, the conclusion must also be that a penalty should be assessed. The respondent maintains that, in view of [TRANSLATION] "the crudeness of the scheme, which is to pay only a fraction [of the amount of the receipt], a person, knowing what the appellants knew, would have to willingly close his eyes not to understand that this is not right." And the respondent went on to say:

              [TRANSLATION]

And to the extent, as well, that they completely deny participating in the scheme, this is another factor that indicates that they were not unaware of it ... [I]f they had thought that it was right, they would simply admit doing what they did, thinking that it was right and that this entitled them to a credit, but that is not the case.

[31]     On a balance of probabilities, I am satisfied that the appellants knowingly, or under circumstances amounting to gross negligence, made a false statement in their tax returns by claiming tax credits for charitable donations and by basing their claims for tax credits on false receipts purchased by them. One has to show wilful blindness not to realize that one cannot be entitled to 100% of such tax credits when one has only paid 15% to 20% of the amount on the receipt. This was a brazen scheme unworthy of a religious organization, and some of the people who took part in it have had to plead guilty to a criminal offence under the Act. The case at bar, however, does not involve such an offence but involves the assessment of a civil penalty. In my opinion, the penalty is fully justified in the case of the three appellants. It goes without saying that the Minister established, on a balance of probabilities, that they made a misrepresentation attributable to neglect, carelessness or wilful default or committed a fraud in filing their returns. The Minister could therefore assess outside the normal assessment period.

[32]     For all of these reasons, the appeals are dismissed.

Signed at Ottawa, Canada, this 15th day of February 2001.

"Pierre Archambault"

J.T.C.C

Translation certified true

on this 27^th day of January 2003.

Sophie Debbané, Revisor