[OFFICIAL ENGLISH TRANSLATION]
2000-2249(IT)I
BETWEEN:
MARCELLIN LAVOIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of 3102-8483 Québec Inc.
(2000-2251(IT)I) on June 20, 2001, at Québec, Quebec,
by the Honourable Judge Alain Tardif
Appearances
Agent for the Appellant: Robert Cloutier
Counsel for the Respondent: Stéphane Arcelin
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1994 taxation year is dismissed, with costs, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 28th day of January 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 30th day of April 2003.
Sophie Debbané, Revisor.
[OFFICIAL ENGLISH TRANSLATION]
2000-2251(IT)I
BETWEEN:
3102-8483 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of Marcellin Lavoie,
(2000-2249(IT)I) on June 20, 2001, at Québec, Quebec,
by the Honourable Judge Alain Tardif
Appearances
Agent for the Appellant: Robert Cloutier
Counsel for the Respondent: Stéphane Arcelin
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1994 taxation year is dismissed, with costs, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 28th day of January 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 30th day of April 2003.
Sophie Debbané, Revisor.
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020128
Docket: 2000-2249(IT)I
BETWEEN:
MARCELLIN LAVOIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Docket: 2000-2251(IT)I
BETWEEN:
3102-8483 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] The relevant facts being analogous, the parties agreed to proceed on common evidence for both cases.
[2] These are appeals for the 1994 taxation year.
[3] In making and confirming the reassessments in issue, the Minister of National Revenue (the "Minister") made the following assumptions of fact:
File 2000-2249(IT)I:
[TRANSLATION]
(a) the corporation 3102-8483 Québec Inc. was incorporated on December 10, 1993, under the authority of Part 1A of the Companies Act;
(b) as a result of the creation of that new business, Ferme Louis-Hébert Inc. became a management company, and all its day-to-day operations were transferred to 3102-8483 Québec Inc.;
(c) at all relevant times, Marcellin Lavoie was the sole shareholder of Ferme Louis-Hébert Inc., which was the sole shareholder of 3102-8483 Québec Inc.;
(d) during that period, Marcellin Lavoie was the sole director of both corporations and managed all the activities of the entities in place;
(e) Les Équipements d'Érablière CDL Inc. (hereinafter the "corporation") signed a contract in June 1993 with Ferme Louis-Hébert Inc. (hereinafter the "contract");
(f) the purpose of that contract was to market the corporation's equipment in exchange for a sales commission and reimbursement of expenses relating to that work;
(g) Marcellin Lavoie was Ferme Louis-Hébert Inc.'s resource person for the purpose of performing that work;
(h) during the 1994 taxation year, the corporation paid $26,539 in commissions and $13,319.26 to reimburse Ferme Louis-Hébert Inc. for expenses;
(i) all the amounts received from the contract were credited to the "Director Advance" account of Ferme Louis-Hébert Inc.;
(j) twenty-two entries totalling $39,958.34 were necessary to credit to the "Director Advance" account all of the cheques issued by the corporation and cashed by Ferme Louis-Hébert Inc.;
(k) adjustment entry no. 7 in the amount of $13,319.26 reads as follows: "Reversal Travel and Telephone" for all the expenses reimbursed by the corporation;
(l) Marcellin Lavoie, the appellant, did not report that benefit of $26,539 in his federal tax return for the 1994 taxation year;
(m) in failing to report the sum of $26,539 as income for 1994, the appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of, a false statement or omission as a result of which the tax he would have been required to pay based on the information provided in the federal tax return filed for that year in issue was less than the amount of tax payable for that year;
(n) as a result of the appellant's failure to report all of his income, in the notice of reassessment of August 10, 1999, the Minister assessed him a penalty of $2,148.46 under subsection 163(2) of the Income Tax Act (hereinafter the "Act") for the 1994 taxation year;
(o) the appellant having made a misrepresentation attributable to neglect, carelessness or wilful default in filing his tax return for the 1994 taxation year, the Minister issued the notice of reassessment of August 10, 1999, under subparagraph 152(4)(a)(i) of the Act.
File 2000-2251(IT)I:
[TRANSLATION]
(a) the corporation 3102-8483 Québec Inc. was incorporated on December 10, 1993, under the authority of Part 1A of the Companies Act;
(b) as a result of the creation of that new business, Ferme Louis-Hébert Inc. became a management company, and all its day-to-day operations were transferred to 3102-8483 Québec Inc.;
(c) at all relevant times, Marcellin Lavoie was the sole shareholder of Ferme Louis-Hébert Inc., which was the sole shareholder of 3102-8483 Québec Inc.;
(d) during that period, Marcellin Lavoie was the sole director of both corporations and managed all the activities of the entities in place;
(e) Les Équipements d'Érablière CDL Inc. (hereinafter the "corporation") signed a contract in June 1993 with Ferme Louis-Hébert Inc. (hereinafter the "contract");
(f) the purpose of that contract was to market the corporation's equipment in exchange for a sales commission and reimbursement of expenses relating to that work;
(g) Marcellin Lavoie was Ferme Louis-Hébert Inc.'s resource person for the purpose of performing that work;
(h) during the 1994 taxation year, the corporation paid $26,539 in commissions and $13,319.26 to reimburse Ferme Louis-Hébert Inc. for expenses;
(h)[sic]all the amounts received from the contract were credited to the "Director Advance" account of Ferme Louis-Hébert Inc. instead of being credited to the appellant's income;
(i) the only income reported by Ferme Louis-Hébert Inc. for the year in issue was management income totalling $7,500 paid by the appellant;
(j) the appellant reported gross income of $49,287 from farming operations;
(k) neither the appellant nor Ferme Louis-Hébert Inc. reported the income of $26,539 from the contract with the corporation;
(l) the unreported income is very significant in relation to the gross income reported by the appellant and by the management company;
(m) twenty-two entries totalling $39,958.34 were necessary to credit to the "Director Advance" account all of the cheques issued by the corporation and cashed by Ferme Louis-Hébert Inc.;
(n) adjustment entry no. 7 in the amount of $13,319.26 reads as follows: "Reversal Travel and Telephone" for all the expenses reimbursed by the corporation and relating to the unreported income;
(o) in failing to report the sum of $26,539 as income for 1994, the appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of, a false statement or omission as a result of which the tax he would have been required to pay based on the information provided in the federal tax return filed for that year in issue was less than the amount of tax payable for that year;
(p) as a result of the appellant's failure to report all of his income, in the notice of reassessment of September 13, 1999, the Minister assessed him a penalty of $1,703.80 under subsection 163(2) of the Income Tax Act (hereinafter the "Act") for the 1994 taxation year;
(q) the appellant having made a misrepresentation attributable to neglect, carelessness or wilful default in filing his tax return for the 1994 taxation year, the Minister issued the notice of reassessment of September 13, 1999, under subparagraph 152(4)(a)(i) of the Act;
(r) at this stage of the proceedings, the Minister has taken note that the commission income earned from the corporation under the contract binding on the corporation and Ferme Louis-Hébert Inc. was not included in Ferme Louis-Hébert Inc.'s income but rather in the appellant's income for the 1995 taxation year, even though the said contract had not changed since 1993.
[4] Robert Cloutier, a chartered accountant (C.A.), represented the appellants in his capacity as an accountant. In support of the appeals, he stated that he wanted to raise four specific points:
- that an error for which he accepted full responsibility had been committed and that the assessment was based solely on an error of interpretation by the person doing the accounting;
- that the appellant had never benefited or derived an advantage from the error in question;
- that it was a simple error having nothing to do with the commission of gross negligence or any kind of negligence; and
- that the Minister had not assessed the right company.
[5] Mr. Cloutier explained the circumstances of the error, emphasizing that the "advance" account had a large credit balance and that the appellant therefore had derived no benefit from the increase resulting from the incorrect accounting entry. He also added that there was a complete lack of interest in acting in that manner.
[6] The evidence revealed that the appellant was the sole shareholder and director of Ferme Louis-Hébert Inc., which had been in business since 1977. The corporation 3102-8483 Québec Inc. was incorporated on December 10, 1993; Ferme Louis-Hébert Inc. was the sole shareholder and the appellant Lavoie the sole director of that company.
[7] On December 29, 1993, the corporation 3102-8483 Québec Inc. began its operations; it purchased the farming operation of Ferme Louis-Hébert Inc. The bank account of Ferme Louis-Hébert Inc. was transferred to the name of 3102-8483 Québec Inc., and all the transactions of both corporations and the appellant's personal transactions subsequently went through the same bank account.
[8] In June 1993, an agreement was entered into between Mr. Lavoie and Équipements d'érablière CDL Inc. ("CDL"). Under that agreement, the appellant Lavoie rendered consulting services to CDL in return for a five percent commission on CDL's sales increases and for a reimbursement of his expenses.
[9] In 1994, CDL transferred to 3102-8483 Québec Inc.'s bank account the fees owed in consideration of consulting services rendered by Mr. Lavoie starting in 1993. Those fees were not reported in any tax return and were credited to the director advance account of Ferme Louis-Hébert Inc.
[10] On August 10, 1999, a notice of reassessment for the 1994 taxation year was issued to the appellant Lavoie for failing to include the taxable benefit constituted by the inclusion of the amount of $26,539 in the director advance account of Ferme Louis-Hébert Inc. The parties agreed that the amount of $26,539 was accurate.
[11] On September 13, 1999, the Minister issued a notice of reassessment of 3102-8483 Québec Inc. for its failure to include the amount of $26,539 in its tax return for the 1994 taxation year. The Minister assessed the appellants penalties under subsection 162(3) of the Act.
[12] During those years, Mr. Cloutier acted as an accountant for both the appellant Lavoie and for the company and had done so for more than 10 years. Mr. Cloutier has also been the son-in-law of the appellant Lavoie for 17 years.
[13] Mr. Cloutier said that he had prepared the financial statements under a mandate defined as a compilation mission; he made year-end adjustment entries. He also acted as a financial adviser.
[14] Although the appellants' cases should have been structured for easy analysis as a result of Mr. Cloutier's training and experience, the situation was quite different, as appears from the following passage from the transcript, at pages 40 to 45:
[TRANSLATION]
. . .
MR. ARCELIN
Q. But at what point did you feel the need to correct that?
ROBERT CLOUTIER
A. It's not a correction, it's a . . . This has always been done this way and since 1994 . . . the creation of a numbered company; it was always done that way until 2000. I didn't feel any need to make an adjustment; it's simply that Mr. Lavoie sometimes used the numbered company's credit card for personal expenses. Those expenses were not allowable within the company; I had to remove them from the company, and the way to do that was this: I transferred the advance to Ferme Louis-Hébert and Ferme Louis-Hébert reduced Mr. Lavoie's advances. It's as simple as that.
MR. ARCELIN
Q. Can you please explain to me what the rationale was? You mentioned the decision to create the numbered company?
A. There were a number of reasons. Since Mr. Lavoie had a new activity, which was to render services to CDL at the provincial level, farming activities must normally be excluded in order to qualify for a capital tax exemption. Okay? So, that's what we did to begin with. It was simply from a tax standpoint. And Ferme Louis-Hébert had carried over losses that were about to expire. And by conducting this type of transaction, we were simply creating a capital gain, which we applied against those losses, and this is perfectly legal. These were mainly tax issues.
Q. A moment go, you referred to the fact that your client, Mr. Lavoie, regularly, or more or less regularly, used - I believe that's roughly what you said - the business's account for personal purposes, and you made entries to adjust the situation. Is that correct?
A. Yes, it is.
Q. Was the account in question the account of the numbered company or the account of Ferme Louis-Hébert?
A. I would say it was Ferme Louis-Hébert's account; when the account was created, it was created for Ferme Louis-Hébert.
Q. I would like to show you a statement of account that was obtained by the audit as part, by the Agency as part of the audits. You see here on page 1 . . . this is a statement of account addressed to the numbered company in question. And we see here, on page 2, that there is a deposit slip, again with the same folio number, folio number 3183. And we see that, at present, the deposit slip is, reference is made to Ferme Louis-Hébert Inc., again during the same periods. Can you explain this situation to me?
A. Yes.
Q. Does the account belong - because we can see on the statement of account - I would like to file this document, Your Honour.
EXHIBIT I-2: Statement of account addressed to the numbered company (filed jointly)
STÉPHANE ARCELIN:
Q. We see that all the transactions were, they all went through an account, which it seems to me from this document, was the account of the numbered company.
A. Yes, I'm going . . . I'm going to try to explain the account to you briefly. That account, the folio number of which is 3183, was opened probably 20 years ago by Ferme Louis-Hébert. In 94, Mr. Lavoie, in good faith, surely mentioned that the farming operations were transferred to the numbered company along with certain debts, among other things. And the Caisse populaire simply changed the name on the bank statement to that of the numbered company since the debts followed, the farming debts followed the numbered company. On the deposit slip, Ferme Louis-Hébert was effectively still being used, and Ferme Louis-Hébert Inc. also appeared on the cheques, thus referring to that account, and so everything was Ferme Louis-Hébert, except the name at the top, which was . . . Ultimately, there was one bank account for all the transactions of the two businesses.
Q. So it was a bank account that was used for the transactions of both businesses, a bank account registered at the Caisse populaire.
A. For 20 years and was opened by Ferme Louis-Hébert.
Q. Was opened . . .
A. By Ferme Louis-Hébert.
Q. . . . by Ferme Louis-Hébert at the start and was subsequently changed . . .
A. changed . . .
Q. . . . to the name of the numbered company?
A. Well, they changed the name. Everything was done under the name of Ferme Louis-Hébert, except that the name was changed.
Q. And is it not true to say that that account was also the account through which Marcellin Lavoie also conducted virtually all his personal transactions?
A. He conducted . . ., well, all, . . . he conducted a few . . . he conducted personal operations through that account, yes.
Q. So there were personal transactions; there were transactions of Ferme Louis-Hébert, and there were also transactions of the numbered company.
A. That's why I told you there were expenses that were charged to him personally.
Q. Uhuh. You said . . . Can you explain to me . . .
THE COURT: Just a moment.
STÉPHANE ARCELIN: Yes.
THE COURT:
Q. You are the accountant of that business?
A. Yes.
Q. And have been for a very long time. You are also the business's advisor.
A. Normally.
Q. Is it good practice to have a bank account of this kind for three entities?
A. Three entities? No, it's not . . . This is the first time I have seen this, but, for Mr. Lavoie, it was a way of simplifying things. So I respected Mr. Lavoie's decision.
Further on, at pages 63 and 64:
[TRANSLATION]
. . .
ROBERT CLOUTIER: Indeed, it seems mixed up, but, look, Mr. Lavoie's businesses are small businesses that generated income that, from one year to the next, could vary between $50,000 and $100,000 a year. To simplify his existence, Mr. Lavoie had one bank account¾ always had one bank account.
THE COURT: Q. No, I will never accept those arguments. When you play by major league rules, you have to use the rules in effect in that league. This business of saving on costs, saving on expenses because audits are expensive is something I will never accept.
A. It wasn't necessarily to save on costs, but rather to spare the effort of transferring amounts from one account to another. That is my understanding of matters and I obviously recommended a number of times that Mr. Lavoie open separate bank accounts, that he have a personal bank account and regularly transfer amounts to his personal bank account for personal expenses. But for that year, 93, 94, 95, things were done that way. I don't really have any other argument to make. This obviously complicated the accounting for us. It obviously required an effort every year when we did the bookkeeping. This obviously resulted in additional surcharges but that was Mr. Lavoie's decision. I intend to call Mr. Lavoie as a witness and perhaps he will have reasons to offer you on this point. I can't speak for Mr. Lavoie.
. . .
[15] Claire Melançon testified in her capacity as an accounting technician. She explained that she had done bookkeeping since 1991, and that she had never received instructions from the appellant Marcellin Lavoie, but only from the accountant Robert Cloutier. She described her mandate as follows at pages 66 and 67:
[TRANSLATION]
. . .
ROBERT CLOUTIER:
Q. Can you explain to me briefly how Ferme Louis-Hébert's bookkeeping was normally done?
MS. MÉLANÇON:
A. We did the bookkeeping once a year. It was annual bookkeeping, not monthly, as it is for certain clients. For him, it was done annually.
[My emphasis.]
Further on, at pages 74, 75 and 76:
[TRANSLATION]
THE COURT:
Q. You are going to explain to me what an accounting technician does. I know, but I would like, I want to know in your case.
MS. MÉLANÇON:
A. In my case?
Q. Yes.
A. Everything depends on the clients I work for. For some, as I said a moment ago, it's monthly, others annually. If it's annually, we have a box, we have all the bank statements, and we usually have everything we need to do all the bookkeeping for the year.
Q. Okay.
A. For that client.
Q. Now, I understand from your answer that you are an employee of Mr. Cloutier?
. . .
Q. You did that once a year?
A. Once a year, always roughly in the spring.
Q. But how was it done? He came to your place with boxes?
A. No, Mr. Cloutier brought me that, all the bank statements from the Caisse populaire, the returned cheques with . . . I have a pile of cheque stubs and I took all the cheques. They had to be coded by code because the bookkeeping is done . . .
[16] The appellant stated that he had hired an expert to whom he paid fees to handle his accounting affairs. He said the following at pages 97, 98, 99 and 100:
[TRANSLATION]
. . .
MR. ARCELIN:
Q. And you, at the end of the year, if I understand correctly, as you are doing it at present and with Mr. Cloutier, you sign the bank statements and the income tax returns?
MARCELLIN LAVOIE:
A. Well, we rely on the accountant, and I think we pay him for that.
Q. Uhuh. But you look -
A. I mainly look, yes, at the balance sheet, which is very important.
Q. You look at the balance sheet?
A. Yes.
Q. The income statement as well surely because that must be . . .
A. Well, the results, the balance sheet pretty much states all the results. I don't go into the details because I give . . . Besides, on the statements, it's clearly marked personal or whatever, so I give that to the accountant.
Q. Okay, but when you look at the income statement at the end of the year, for example, you see you have made $50,000, to the extent . . .
A. Well, I always look at what's left.
Q. Yes, I know, but you are able to see what sales you have made? You take note of that? You look at that?
A. Yes, well . . . Well, I always look at what is . . . of course; that's normal.
Q. So explain to me, Mr. Lavoie, why did this not draw your attention. I am referring, Your Honour, to Exhibit I-4. We see the financial statements that you signed and that you filed with the tax return of 3102-8483 Québec Inc. reporting income of $49,287. However, that income was understated by $26,000. That means by approximately 50 percent. Did that not draw your attention?
A. No, not at all. I should tell you I look at the balance sheet. Naturally, I don't compile those things; it's too bad, but I didn't look at those details, those things, definitely. I see the balance sheet, period, which (inaudible). What is important for me is the balance sheet; it's for the bank; it's very important.
. . .
Q. So you, when . . . it didn't draw your attention that $26,000 of income was missing, taking that for granted?
A. No, not at all, not at all.
Q. You had completely forgotten the income from CDL?
A. No, no, look, I did not . . . Look, I rely on an accounting firm, you know, I did not . . . I'm willing to believe, but I don't go into, I'm sorry, but I don't check everything. If I was going to check, I would do the accounting myself.
. . .
[17] According to the accountant, the fact that the benefit conferred to the advance account had no effect¾not benefiting anyone¾confirms the argument that an inconsequential error was made. This is an unacceptable interpretation since it completely overlooks the benefit arising from the ultimate withdrawal of the funds.
[18] As to the argument that the respondent did not assess the right company, I do not accept it, for two reasons. First, there was no satisfactory and convincing evidence on this point, and, second, I believe that the purpose of the confusion deliberately maintained through rudimentary and confused accounting was to keep all options open as long as possible.
[19] To justify himself, the appellant Lavoie claimed that he had paid substantial fees so that everything would be done correctly. The accountant, directly involved by the explanation, recognized that there had been certain deficiencies in the accounting and answered that he had made the appropriate recommendations on this matter to the appellant, who had not seen fit to authorize him to make the desired changes. These are frivolous explanations. I believe instead that the method tacitly in place offered the flexibility that was sought and desired.
[20] The appellant had and was required to take all measures to ensure that the accounting was transparent and coherent. Not only was this not the case but everything was ambiguous. I believe the confusion of information had a self-serving function.
[21] The accountant contended that he had not put an adequate system of accounting in place because he had been instructed to do so. The mandator had nothing to do because he had handed everything over to an expert. What is more, the accounting technician who handled the filing operated without instructions and essentially by intuition.
[22] The fact that such confusion was allowed, accepted and tolerated, whereas it would have been so easy to correct it by putting a coherent and transparent system in place, utterly discredits the argument that an error was made.
[23] Having regard to the size of the amount in question relative to the other income, that is $26,539 versus income of $49,287, it is unreasonable to credit the excuse that an error was made. The accountant had to act in a particularly meticulous manner since he was very well acquainted with the weakness of the accounting system.
[24] The controls should have been carried out in a very meticulous manner since, first, the information compiled was vague and unclear, and this the accountant knew. Second, the person who had been instructed to sort out the accounting paperwork had no contact with the person who had incurred the expenses or with the person or persons who had received the income.
[25] Although the appellant Lavoie claimed that he did not have the necessary knowledge to understand all the accounting, I am satisfied that he understood and was very familiar with the predominant information on his personal affairs and those of the companies in which he had interests, particularly since an amount of $26,539, relative to reported income of $49,287, is not a trivial or marginal amount.
[26] The evidence showed that the appellant was a shrewd, resourceful and conscientious businessman. He moreover admitted that he had examined the financial statements before signing them.
[27] The evidence established that the appellant had organized, structured and planned his affairs so as to minimize his tax burden. This was an entirely lawful and legitimate concern for a businessman of the appellant's calibre, who was moreover advised by an accountant.
[28] That being the case, he had to assume all the consequences and especially comply in full with the logic of the vehicle chosen to minimize the tax payable. Apparently, despite his accountant's advice and recommendations, he chose to satisfy himself with a deficient and inadequate system.
[29] Such behaviour shows beyond a shadow of a doubt that he colluded in the commission of what he characterized as an error. So gross an error was tantamount to gross negligence, responsibility for which is equally attributable to the appellant himself and the accountant.
[30] On this point, I think it relevant to cite a passage from the judgment by Judge Strayer in Venne v. Canada [1984] F.C.J. No. 314 (Q.L.):
... "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....
[31] In the instant case, did the evidence not show that the accountant had recommended that the appellant make the appropriate corrections to his accounting? That same evidence also showed that the appellant had given no instructions to the person who attended to the clerical aspect of the accounting; lastly, the evidence never indicated that the appellant had made any effort whatever to comply with the accountant's instructions, if indeed any instructions were actually given.
[32] Finally, the appellant had an obligation to ensure that the tax returns were in order before signing them. He could not discharge himself from his responsibility by holding responsible the accountant to whom he paid fees.
[33] The appellant did not discharge the burden that was on him to show that the respondent had made an error in assessing 3102-8483 Québec Inc. instead of Société Ferme Louis Hébert Inc. for the mere reason that the available documentation simply did not make it possible to adduce such evidence. There was only one bank account in which all the income and expenses of the appellant and the two companies went through.
[34] The accountant Cloutier referred to the decision in Chopp v. Canada, [1995] T.C.J No. 12 (Q.L.), at paragraph 15, where Judge Mogan wrote as follows:
I cannot accept the Respondent's argument so broadly stated that a bookkeeping error which benefits a shareholder to the disadvantage of his corporation is a benefit within subsection 15(1) even if the error was not intended and was not known to the shareholder. In my opinion, if the value of a benefit is to be included in computing a shareholder's income
under subsection 15(1), the benefit must be conferred with the knowledge or consent of the shareholder; or alternatively, in circumstances where it is reasonable to conclude that the shareholder ought to have known that the benefit was conferred....
[35] The evidence in the instant case simply does not support the conclusion that the benefit was conferred on the shareholder without his knowledge or that he was not aware of the error, mainly for three reasons:
· first, the appellant Lavoie is a shrewd businessman, very much aware of his affairs;
· second, he signed all the accounting documents;
· third, the amount represented more than half of the reported income of $49,287.
[36] Lastly, I think it appropriate to recall a passage widely cited in cases of this kind. It is a passage from the judgment by Linden J.A. of the Federal Court of Appeal in Friedberg v. Canada, [1991] F.C.J. No. 1255 (Q.L.), in which the honourable judge wrote as follows:
...
In tax law, form matters. A mere subjective intention, here as elsewhere in the tax field, is not by itself sufficient to alter the characterization of a transaction for tax purposes. If a taxpayer arranges his affairs in certain formal ways, enormous tax advantages can be obtained, even though the main reason for the arrangements may be to save tax (see The Queen v. Irving Oil 91 D.T.C. 5106, per Mahoney J.A.). If a taxpayer fails to take the correct formal steps, however, tax may have to be paid. If this were not so, Revenue Canada and the courts would be engaged in endless exercises to determine the true intentions behind certain transactions. Taxpayers and the Crown would seek to restructure dealings after the fact so as to take advantage of the tax law or to make taxpayers pay tax that they might otherwise not have to pay. While evidence of intention may be used by the Courts on occasion to clarify dealings, it is rarely determinative. In sum, evidence of subjective intention cannot be used to 'correct' documents which clearly point in a particular direction.
...
[37] For all these reasons, the appeals are dismissed, with costs.
Signed at Ottawa, Canada, this 28th day of January 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 30th day of April 2003.
Sophie Debbané, Revisor.