[OFFICIAL ENGLISH TRANSLATION]
2000-4691(GST)G
BETWEEN:
ALAIN DÉZIEL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on May 6, 7 and 8, at Québec, Quebec by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant: Serge Fournier
Counsel for the Respondent: Ghislaine Thériault
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act (the "Act"), notice of which is dated September 27, 2000, and bearing the number 02304902, is dismissed, and I award the costs claimed by the Respondent, set out in Section 5 and in subsection 147(4), Schedule II, Tariff B of the Tax Court of Canada Rules (General Procedure), as per the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 6th day of December 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 8th day of April 2003
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20021206
Docket: 2000-4691(GST)G
BETWEEN:
ALAIN DÉZIEL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal from an assessment issued on July 16, 1999, made under subsection 191(3) of the Excise Tax Act (the "Act"). Following the objection, the assessment bearing number 02405434 was issued on September 27, 2000, confirming, in substance, the first assessment made on July 16, 1999. The assessment covered the period from April 1, 1994, to June 30, 1996.
[2] The facts assumed when making the assessment are as follows:
(a) the appellant was not a Goods and Services Tax ("GST") registrant;
(b) from 1993 to 1996, the appellant built ten residential complexes, six of which contained ten units on rue Audet, and four of which contained eight units on rue Marion in Trois Rivières West;
(c) on rue Audet, the construction of the complexes was substantially completed and the first units were leased on:
- 4900: June 1, 1994;
- 4700: July 1, 1994;
- 4800: July 1, 1994;
- 4805: July 1, 1994;
- 4905: July 1, 1994;
- 4705: April 1, 1995;
(d) on rue Marion, the construction of the complexes was substantially completed and the first units were leased on:
- 5485: July 1, 1995;
- 5495: December 1, 1995;
- 5505: May 1, 1996;
- 5515: June 1, 1996;
(e) in so doing, the appellant was supplying himself with a multiple unit residential complex, and should have, at that time, performed a self-assessment based on the fair market value of the complexes, which he failed to do, while deducting ITC amounts;
(f) it was following audits conducted by the Respondent that the Respondent discovered the construction of the complexes and, consequently, assessed the appellant on the fair market value by awarding him the ITC amounts;
(g) the ITC amounts were inadmissible for the following reasons:
(i) invoices for part of the expenses are missing;
(ii) information on certain purchase and expense invoices had been crossed out and changed, making it difficult to determine the supply and tax amounts initially indicated thereupon, as well as the nature of the goods and services obtained;
(iii) certain documents do not correspond to the purchase invoices issued by the supplier, such as, tender, purchase order and delivery record;
(iv) certain purchases made are not related to the construction of the complexes;
(v) credit notes were issued by suppliers but were not provided at the time of the audit;
(vi) invoices from "alleged suppliers" contain irregularities with respect to both the taxation rate and the calculations, thereby creating serious doubt as to the validity of said invoices;
(vii) GST amounts were included on some invoices provided by the appellant and issued by non-GST registrants, even though there was no indication of taxes collected by said suppliers on the invoices;
[3] The issues in dispute are as follows:
· What was the fair market value ("FMV") of the complexes at the time the appellant was required to perform a self-assessment?
· What was the amount of the input tax credits ("ITCs") that the appellant could claim?
· Were the penalties added to the assessment justified?
· Was the assessment time-barred?
[4] Under section 123 and subsections 191(3), 238(2) and 286(1) of the Act, the appellant was required to perform a self-assessment on the FMV of the complexes he had built in 1994 and 1995.
[5] From 1993 to 1996, the appellant built ten complexes containing 108 units in Trois-Rivières. In view of the obligations stipulated by the Act, he was required to perform a self-assessment on the FMV of said complexes within the time frames and under the conditions defined by the Act. In order to properly assume this responsibility, he was required to keep and retain records for a period of six years in order to be able to establish his rights, obligations and liabilities.
[6] Between February 25, 1994, and November 6, 1995, the appellant applied for and obtained ten building permits from the municipality responsible for the territory on which the complexes were located.
[7] The complexes were completed and available for lease beginning in June 1994, for those built on rue Audet, and beginning in July 1994, for those built on rue Marion.
[8] The self-assessment process should, therefore, have begun in June 1994, but nothing was done.
[9] The appellant was assessed following an investigation and audit.
[10] The appellant is appealing the assessment, is claiming credits and does not accept the penalties; finally, he submits that the assessment was time-barred. I will first deal with the issue of the assessment of the complexes.
[11] Both parties consulted with an expert to determine what appeared to them to be the FMV of the complexes.
[12] Both are familiar with the different approaches or methods available for determining the FMV of the complexes.
[13] Each expert stated his/her experience and qualifications in order to justify the respective choice of the approach used.
[14] The appellant's expert gave priority to the income approach, stating that multiple unit rental complexes have a FMV based exclusively and essentially on the amount of income generated.
[15] He then took the time to demonstrate the merits of his claims regarding the value based on this approach. He briefly discussed the other methods, that is, parity and replacement cost, but added that neither of these methods was appropriate under the circumstances given the purpose of the complexes. He stressed and repeated that a rental complex should only be assessed based on the income it generates.
[16] He thus determined the FMV based on the income approach.
[17] In explaining his approach, he drew a very gloomy picture of the rental market in the region where the complexes were built. The units were first described as common and ordinary, located in an open field and difficult to access. According to expert Leblanc, supply of these types of units greatly exceeded demand, causing the appellant great difficulties in renting his units. He had to offer a series of incentives, such as lower rent, free months, etc.
[18] He initially took into account rental income for one year only and established a vacancy percentage of 25% in one case and 18% in the other.
[19] He supported the high vacancy rates with statements and comments but did not have any documentation to support them. He distinguished between various sectors, concluding that the vacancy rates were similar or comparable to other complexes in the relevant region.
[20] He also mentioned that high density complexes, containing forty or more units, had experienced vacancy rates of up to 60%. He stated that the vacancy rates retained had not changed greatly over the past few years, thereby justifying the fact that he referred to only one year.
[21] Mr. Leblanc also explained that the high mortgage amounts obtained was the result of the excellent guarantees provided by the appellant. According to the expert, the amount of the mortgages was not a relevant factor for assessment purposes. The same was true for the interest rate paid on the mortgages.
[22] Expert Leblanc based his analysis on the rental rates of the complexes in dispute during the first year of operation. Instead of using certain statistics provided by reliable agencies working in the field of mortgage financing, he preferred to use his own intuitive perception of the rental market.
[23] He excluded from his analysis the consideration obtained, that is, $377,000, for one of the complexes sold in the months following the end of the construction work. The appellant did indeed put the complex located at 4800 rue Audet up for sale in the months following the end of the construction work. He was asking $400,000 and obtained $377,000 (Exhibit I-5).
[24] In order to justify his choices, he submitted that the statistics available were not applicable to his specific region. As for the financing, he mentioned that the appellant had a highly privileged status with lenders. With respect to the transaction, he claimed that this was a particular case and brushed it off.
[25] The presentation made by the appellant's expert was brief and not well documented. Many of the strategic points were not documented and the bases were rather intuitively established and justified, in his opinion, by his vast and long-standing experience in the region. I refer in particular to the choice of comparisons, vacancy rates in the rental market, sites sought by tenants, financing conditions and requirements, and the ordinary quality of the site.
[26] The work done by expert Leblanc was sloppy, superficial and undocumented. It was obviously done in order to justify a previously determined FMV.
[27] The findings are in no way consistent with the usual standards or even with basic logic.
[28] Expert Leblanc preferred to use a very specific and surprising approach to the vacancy rate. Instead of taking into account comparable and objective data available from many agencies that develop these types of statistics, he referred to the situation of the site in the months following the construction. He described the rental market as difficult. He drew a very gloomy picture of the entire market. If the situation had been as gloomy and difficult as he says, then how and why was the appellant able to secure financing, with very attractive terms at that, for an amount over and above the usual standards?
[29] In light of the approach taken by the expert and the comments and observations made by the appellant himself, namely, that he had to grant several months of free rent in order to interest potential tenants, there is reason to believe that the income considered by expert Leblanc was absolutely incorrect since the premises were occupied but did not bring in any revenue because of the owner's free offer. If the rental market had been so gloomy, one can bet that the appellant would have had difficulty obtaining the required financing. Moreover, the appellant stated that the lenders had encouraged him to pick up the pace on his project.
[30] Furthermore, the appellant's evidence failed to show the characteristics justifying his exceptional credibility in obtaining mortgage amounts greater than the value of the complexes and lower interest rates. The evidence failed to show that the appellant had unfailing financial credibility. Actually, the company he controlled in a related field underwent an assignment for the benefit of creditors a few years earlier.
[31] The fact that an appraiser is quite familiar with and lives and works in the region where the complexes undergoing assessment are located does not release him from the obligation to consult and take into account the indexed information available. Intuition, experience and knowledge of the site are all qualities, but they are certainly not enough on which to base an assessment.
[32] For her part, the Respondent's expert tapped into her knowledge of the field. More importantly, she also used objective data. I refer in particular to the various data on which Mrs. Bélanger's work was based:
· choice of comparables;
· the Marshall guide;
· amount of the mortgage loans obtained;
· serious and valid analysis of the income;
· statistics indexed by the Canada Mortgage and Housing Corporation ("CMHC");
[33] She performed an in-depth analysis of the approaches available in order to establish that the best formula, in her opinion, was the cost approach, given that the complexes were new. She therefore gave priority to this approach.
[34] In order to do so, she took into consideration the manuals most commonly used in determining costs: the Boeckh Building Cost Modifier, the Marshall Valuation Service (Marshall and Swift), (the Boeckh cost assessment software), and the manual for property assessments from the Quebec ministère des Affaires municipales (Jean-Guy Desjardins, Traité de l'évaluation foncière, Wilson & Lafleur, pp. 188 and 522).
[35] She also analyzed the data dealing with the rental market vacancy percentage, interest rates and financing percentage. Mrs. Bélanger used statistical data available, stating that said data was reliable because it was updated several times a year and was broken down by region.
[36] I found the Respondent's expert's analysis and findings to be convincing, especially since the information was taken from relevant data, statistics and records recognized in the field.
[37] Unlike the work done by expert Leblanc, the Respondent gave priority to various corrected data, compiled by independent agencies, thereby leaving less room for subjective interpretation.
[38] The only problem that may affect Mrs. Bélanger's work is the fact that she was employed by the Respondent during the entire process leading up to the assessments. This situation could taint the basic rules of independence that all experts are required to follow in the course of an assessment mandate.
[39] Certainly, an expert whose services are retained becomes in a sense an officer of the person paying him/her, but it is a short-lived relationship, without any past or future. This relationship is completely different from that of the employee, whose primary and ongoing duty is to perform assessments for his/her employer.
[40] In this type of matter, the appraiser is often called upon to participate in the analysis of a file in his/her capacity as an expert. The appraiser then puts forward an opinion as to the value. It is most often a brief analysis with little documentation, in which experience is an important aspect. If the matter is not settled, the same person is called upon to review his/her own file and remains bound by his/her first assessment. Should this exercise be redone for a hearing before this Court, it may be somewhat tainted by at least apparent bias that may affect its quality.
[41] In the present case, despite this apparent weakness, I believe that Mrs. Bélanger's findings cannot be rejected for this reason alone. In her testimony, she showed that she was not aiming to reinforce or confirm her first assessment, but essentially to identify the value through objectively reliable and credible data, thereby leaving little room for arbitrariness.
[42] The Respondent's findings have the benefit of appearing to be consistent with a certain number of realities, such as the municipal assessment, the consideration obtained at the time of the sale of one of the complexes and the financing rate obtained through two agencies with extensive knowledge of the market concerned. I refer in particular to the CMHC and the lenders.
[43] As for the assessment method to be used, I fully subscribe to the references identified by the Respondent:
[TRANSLATION]
Indeed, in Évaluation municipale et la valeur réelle, Jacques Forgues, Les éditions Yvon Blais inc., Cowansville, 1995, pp. 158, 159, and 167:
[UNOFFICIAL TRANSLATION]
This technique can always be used, unlike the two others, namely parity and income, which are sometimes unusable ... It is therefore, in principle, preferable to always use this technique, at least as a means of corroborating the result obtained by others.
Certain complexes are easy to assess using the depreciated replacement cost technique. These include, for example, new complexes, as stated by the Board of Revision in Hilton Place Québec inc v. Ville de Québec, affirmed, on this point, by the Provincial Court. Based on the legal doctrine, the Board finds, along with Paul F. Wendt, that since the motel is new, the cost technique should be used and the result thereof retained. (pp. 158-159)
...
In brief, the depreciated replacement cost technique can always be used. It is particularly reliable for new buildings. (p. 167)
[44] The author Jean-Guy Desjardins writes in his book regarding the scope of the cost approach [UNOFFICIAL TRANSLATION] "that the cost approach should only be used in the following cases: ... relatively new buildings" because "when buildings are new or relatively new and have optimal usage, the possibilities of errors in calculating depreciation are significantly reduced." (p. 170)
[45] Also, in Principes et concepts généraux en évaluation foncière, ministère des Affaires municipales, 1974, vol. 1 (p. 14/3), the appraisers come to the same conclusions. Finally, since this is a new building, the cost approach should be given priority as previously shown.
[46] Also, in Sira Enterprises Ltd. v. Canada, [2000] T.C.J. No. 804 (Q.L.), page 12, Justice Margeson reiterates Justice Taylor's comments and writes:
... Of course there would be little if any value to a restructuring of an amount to accomplish "replacement or reproduction costs," and no purpose would be served in going through that exercise. But to eliminate, ignore, or denigrate the usefulness for appraisal purposes of that very total actual cost which had been accumulated during construction and culminated on that very day leaves me in serious disagreement.
...
For me, barring any direct and incontestable variation in that amount of cost, it should also serve as value, and indeed as fair market value.
[47] He also refers to the case of Charleswood Legion Non-profit Housing Inc. v. Canada, [1998] T.C.J. No. 503 (Q.L.)and reiterates Justice Archambault's comments:
I believe that the Cost Approach should not have been ignored by the two experts. In circumstances such as those in this case, the fair market value should be very close to the cost paid by the Appellants because the two buildings were brand new at the relevant valuation date. This is the approach followed by my colleague judge Taylor in Timber Lodge Limited v. The Queen, [1994] G.S.T.C. 73.
[48] The appellant criticized the Respondent's expert for considering as accurate the vacancy rate data published by the CMHC without first analyzing the relevance of said data.
[49] He also criticized the Respondent for basing calculations of the economic value on a nonconforming interest rate, for failing to visit the inside of the units and for deciding on the quality of the appellant's units on the basis of intuition.
[50] He also criticized her for not taking into account the situation of the complexes at the time of their assessment, namely their location in a new
open-field development.
[51] All of these criticisms are groundless and particularly surprising coming from a party who submitted a file with little documentation and which contained several major weaknesses. I refer in particular to the following items:
· How does one explain that serious lenders could have granted the financing needed to build 108 units when similar units were available and vacant at a rate of 20-60%.
· How can one place any trust in an assessment based on income that only takes into account the first year and submit, at the same time, that free months of rent were granted.
· How does one explain that the appellant could have obtained above-standard financing at a preferred rate in a region where the quality of the tenants, according to the expert and the appellant, was debatable, especially in a market where supply greatly exceeded demand.
· How does one explain that the appellant, having an expertise in and a passion for construction, indicated on the permit applications a construction cost that was substantially higher than the actual cost.
· How does one explain that a third party agreed to pay such a high amount for a complex that was worth much less.
· Why would one ask for so high a price ($400,000) for a complex with a much lower value.
· How does one explain such a significant difference between the municipal assessment amount and the FMV for brand new units.
· How can one understand that a project involving over 100 new units could be subject to economic obsolescence of 20% in the first year.
[52] On the whole, all of these elements lead to one conclusion. The assessment retained by expert Leblanc makes no sense, is illogical, and is insulting to the intelligence.
[53] The appellant essentially retained the income approach because this method enabled him to state whatever he wanted under the pretext of his knowledge of the area and of his intuition.
[54] In order to subscribe to the quality of the work done by the appellant's expert, one would have to believe in his intuition wholeheartedly and disregard in the analysis the basic and obvious data required to produce a job of irreproachable quality.
[55] In contrast, all of the elements that disqualify the work of the appellant's expert confirm and enhance the work done by the Respondent's expert. Indeed, the findings made by Mrs. Bélanger are coherent and, above all, much more reliable.
[56] Consequently, the market values of the complexes on rue Audet at $250,000, and those on rue Marion at $210,000 in no way correspond to the FMV.
[57] I am more inclined to subscribe to the FMVs of $370,000 and $295,000 established by the Respondent's expert (Exhibit I-5) and determine that these values should have been used when making the self-assessment.
[58] I will next deal with the issue of the ITCs. In principle, this is a relatively easy exercise. In order to ensure this, the relevant documents would need to be available, accessible and comprehensible.
[59] On the pretext that he was unfamiliar with the provisions of the Act under which he was required to perform a self-assessment, when it was time to claim ITCs, the appellant submitted a rather confusing and jumbled file. He provided confusing and incoherent explanations. He apparently dealt with an accountant who knew neither the rules of self-assessment nor the basic rules for acceptable bookkeeping.
[60] The evidence submitted resulted primarily from the work of Mr. Ronald Gagnon. Mr. Gagnon did what he could, but given the complete absence of proper accounting and of most of the appropriate supporting documents, he was unable to do a very convincing job.
[61] At the very most, the evidence submitted resulted in raising certain doubts, which were indeterminative and, above all, insufficient to justify the merits of the appellant's claims. Mr. Gagnon worked under a special mandate based on incomplete and inadequate information, documents and invoices. The result produced was, therefore, largely shaped by the very poor quality of its bases.
[62] Ronald Gagnon testified in his capacity as the person responsible for the file, given that he had worked on the appellant's tax returns. I understood from his testimony that he has a C.M.A. degree and did the bookkeeping for different clients from his home. He did about 1,500 tax returns per year.
[63] At a certain time, he was apparently in charge of the appellant's bookkeeping. His work was done from the appellant's home, where the documents for the bookkeeping were kept.
[64] At one point, he lost his mandate. His services were once again called upon when the Court issued an order dated February 13, 2002, allowing the appellant to produce new documents. He then compiled the documents and forwarded the result of his work and all of the documents used to the auditor (Exhibit A-14).
[65] Undoubtedly unaware of the scope and complexity of the mandate he had accepted, he was forced to work with a file where everything was jumbled and incomplete. His work showed that he had done what he could to improve the quality of the appellant's file. However, all of this could have been avoided had the appellant shown some cooperation and a minimum amount of transparency.
[66] Clearly not having all of the tools, information and documents required to do an impeccable job, he acknowledged that the appellant had an unsuitable accounting system. He also admitted that he was unaware that a taxpayer who was building for himself had to perform a self-assessment.
[67] Mr. Lachance, tinsmith by trade, testified that he had been employed by the appellant during the construction of the complexes as a job supervisor. As such, he supervised the arrival of materials to ensure that they were adequate; he controlled the quality of the work; and he occasionally paid sub-contractors and for deliveries.
[68] In that respect, he mentioned having paid certain contractors in cash a few times. During the cross-examination, he increased the number of cash payments made.
[69] If the purpose of Mr. Lachance's intervention was to show that paying cash was common practice in the construction field, his testimony was neither sufficient nor decisive in proving this. I am therefore not retaining Mr. Lachance's testimony as a useful element in the decision I am required to render.
[70] The appellant stated that he had a lot of experience in construction such that it was a real passion for him. In the early 1990s, he owned a construction company. This company underwent an assignment for the benefit of creditors given that the real estate market was in a pitiful state.
[71] According to his testimony, he first wanted to build just one complex on a huge plot of land he had acquired, which could not be accessed by roads suitable for motor vehicles, although it was located very close to a new commercial complex in Trois-Rivières, that is, a COSTCO.
[72] Despite the difficult context and all of the accessibility-related problems, the appellant asserted that his lenders encouraged him and prompted him to build other complexes by supporting him financially. This led him to complete the entirety of his project comprised of six complexes with ten units and four complexes with eight units.
[73] He described the situation as being very painstaking because it was extremely difficult to find tenants for his units. In order to lease them, he had to offer free months of rent and often, after taking advantage of the free months and occupying the premises for a few more months, the new tenants would leave the premises without paying or had to be evicted for failure to pay. Since these complexes were financed by financial institutions, he indicated that he had to quickly produce leases outlining the previously described incentives.
[74] As for his financial credibility, he essentially mentioned that he and his family were known in financial circles. He did not go into detail on the extent of his financial wealth, other than to say that things were hard, as could be seen from his income tax returns. The rental amounts were barely enough to meet his mortgage payments.
[75] The appellant was in an accident on August 14, 1995, and stated that he had suffered very serious injuries and continued needing psychiatric treatment. As a result, he was required and continues to take a large quantity of drugs.
[76] On the issue of the injuries and subsequent after-effects, the cross-examination revealed that the appellant had been under observation for 24 hours. As for the period of total disability, the evidence revealed that he himself had signed a large number of cheques after the accident. Furthermore, there is no evidence that one or more third parties were required to take over in order to manage the administration of the projects.
[77] The appellant submitted that he suffered very serious injuries resulting in severe and permanent physical and intellectual after-effects, which prevented him from doing manual work, and also, administrative work in particular. He submitted that he lost an incredible amount of supporting documents at the time of the accident and was never able to recover the documents needed to submit a complete file.
[78] Based on his testimony, I did not notice anything to establish that Mr. Déziel was suffering from a permanent partial intellectual disability.
[79] I understand that I have neither the skills nor the knowledge to make such a diagnosis. However, I was able to notice that the appellant, present in the courtroom during the testimonies that preceded his own, and at the time that I made certain observations, identified the weaknesses of his case. During his testimony, he very subtly tried to correct the situation by using clever expressions.
[80] Once it became difficult, not to mention impossible, to correct the situation, or once the coherence of the explanations given became doubtful, he hid behind the after-effects of his accident.
[81] The appellant tried to demonstrate his good faith, his lack of knowledge and his physical and intellectual disability. Instead, the hearing clearly established that the appellant deliberately chose the route of confusion and refused to cooperate, with the obvious intention of evading his obligations.
[82] Mrs. Langlois, in charge of ITC audits, first described her training and experience with respect to auditing. She testified at length on the number of steps that preceded the audit and finally explained, in detail, the process of her work. She provided in-depth details; she gave several concrete examples clearly showing the quality of her work. Her testimony revealed the following elements:
- the obvious bad faith on the part of the appellant and of his representatives during several attempts to obtain the relevant documents required for the audit;
- the absence of consistent and proper accounting;
- the hiring of a person in charge of working with the auditor, who had neither the information nor the cooperation of the appellant who had retained his services himself;
- several altered invoices;
- numerous invoices on which incorrect calculations of taxes owed were made by a person other than the one who had prepared the invoice, as was apparent from the different ink or handwriting;
- several handwritten notes added to the invoices;
- the use of standard invoices without any indication of the supplier of the service or goods or of the tax number used to identify said supplier;
- the use of identical invoices with consecutive numbers describing supplies made by different suppliers;
- the few documents available were in a completely muddled and disorderly state;
- a very large number of cash payments supposedly made to suppliers of goods, the amounts of which were rounded off, making the entire situation appear suspicious with respect to the payment of taxes;
- the appellant had obviously kept a secret computer-based accounting system because the auditor saw clues leading her to believe this;
- the appellant had neither a proper accounting nor bookkeeping system, as was confirmed by Mr. Gagnon, whose services were retained by the appellant himself;
- systematic and repeated refusal to cooperate;
- attempt to produce the same documents more than once;
- use of a tax number belonging to a completely different entity;
- transactions showing knowledge of the effects of the tax number;
- tax calculation using a rate not corresponding to the period in effect.
[83] Mrs. Langlois' testimony was perfectly clear and exceptionally detailed. This testimony was a determining factor in establishing that several invoices had been glaringly changed, doctored and falsified. Several documents involved substantial amounts. The taxes on several invoices were improperly calculated using the wrong rates.
[84] The burden of proof was on the appellant. In order to meet it and to justify the merits of his ITC claims, the appellant submitted proof that was not only inadequate on several levels but that was also incomplete and, above all, implausible on fundamental aspects.
[85] All of these elements were introduced as evidence through simple statements, which were neither supported nor confirmed.
[86] A considerable number of questions have remained unanswered. The appellant could have submitted more reliable evidence by having different parties, such as bankers, testify. I understand, however, why such evidence was not submitted, because those people in a position to provide it would have obviously shown the complete aberration of most of the appellant's claims. I absolutely did not believe the appellant with respect to the seriousness of the after-effects resulting from his accident.
[87] The appellant basically used this accident to hide certain annoying aspects or elements of his case and to explain certain inconsistencies and numerous memory lapses.
[88] The burden of proof rested on the appellant. Being entitled to ITCs takes more than creating presumptions or affirming a right thereto. The merits must be shown through convincing and decisive evidence. The evidence submitted by the appellant was absolutely inadequate and I have no valid reason to grant an ITC amount greater than the one the Respondent has awarded him.
Penalties
[89] The appellant was an astute businessman, who obviously had exceptional knowledge in construction matters, and also in related fields, such as construction costs, financing conditions and possibilities, and, above all, in the rental market, (tenants' interests, vacancy percentage, cost of rent, etc.).
[90] He had set up a management company. He owned real estate and had several bank accounts. In order to convince lenders to become involved in such a large project, one has to assume that the appellant had the skills, experience and moral credibility to carry it out.
[91] Undertaking a project comprised of 10 complexes with over 100 units in one place, where streets had to be developed and the necessary mortgage financing obtained, proves that the appellant was not the neighbourhood craftsman with limited knowledge, helpless when faced with what needed to be done to obtain the proper information.
[92] Is it possible that this type of businessman is unaware of the self-assessment rules and his ITC rights? Is it possible that such a businessman has not developed a structure providing him with the cooperation and support of a clerical staff in charge of handling the file? Is it possible that a businessman of this calibre would entrust mandates on essential issues to strangers? I think not.
[93] The appellant has provided very few details regarding the management and administration of the various sites at the origin of the dispute. He did not make reference to any type of accounting. He had little to say about any type of accounting system except to state that he hired people with difficulties, who were sponsored to take care of his bookkeeping. He emphasized his inability to take care of his business affairs himself. He also used the fact of having been involved in an accident to claim that he had suffered major after-effects and had lost a great deal of ITC supporting documents.
[94] The evidence submitted by the appellant with respect to all of the matters in dispute was brief, incomplete and, above all, inadequate, not to mention poor. The explanations were often implausible and incoherent, and, at times, contradictory.
[95] The appellant was always in perfect control of the situation. He did whatever he could to avoid complying with the requirements of the Act. He also obviously refused to cooperate by using a whole slew of red herrings with the obvious goal of circumventing his obligations.
[96] The appellant was not a novice in the business world; he had worked in the field of construction well before the start of construction on the complexes in dispute. He had managed a company involved in building complexes, which underwent an assignment for the benefit of creditors in February 1995, after having ceased operations in 1993.
[97] The appellant cannot invoke his negligence and carelessness to excuse his completely inappropriate conduct. He chose to plead lack of knowledge of the rules, which, in the present case, were or should have been basic, that is, to keep records and a proper accounting system given the scope of the project.
[98] All of the elements used by expert Leblanc to support the merits of his assessment lead to one single conclusion: it would have been risky, reckless and even irresponsible to grant any type of financing to build the complexes in dispute.
[99] All the evidence submitted by the appellant regarding the matters in dispute clearly showed systematic bad faith, unjustified obstinacy and recourse to all kinds of schemes to avoid his obligations. Under the circumstances, there is no doubt that the penalties were fully justified.
Limitation of Actions
[100] The appellant was supposed to produce his net tax return monthly and not from the dates of the assessments of the complexes subject to the returns.
[101] The appellant never produced said returns. Consequently, the limitation of actions did not and could not begin to run. Subscribing to the appellant's claims would create absolutely perverse and ridiculous situations.
[102] Indeed, it would be sufficient not to comply with certain obligations stipulated in the Act by pleading lack of knowledge and claiming, after the time had lapsed, the benefits of the limitation of actions. First of all, lack of knowledge of the Act is an inadmissible argument, especially when used for self-serving purposes.
[103] This type of reasoning does not pass the basic test of good sense.
[104] I therefore fully subscribe to the judgment of the Honourable Justice P. R. Dussault in the case of Trudel v. Canada, [2001] T.C.J. No. 82 (Q.L.), rendered on February 8, 2001, in which he expressed his opinion as follows:
19. Paragraph 296(1)(a) provides that the Minister may assess, reassess or make an additional assessment of the net tax of a person under Division V for a reporting period of the person. With regard to a person's net tax for a reporting period, subparagraph 298(1)(a)(i) provides that an assessment may not be made more than four years after the later of the day on or before which the person was required under section 238 to file a return for the period and the day the return was filed. However, the appellant never filed a return pursuant to paragraph 191(1)(e) of the Act, according to which she is deemed to have collected the GST when she rented her complex in April 1991. Thus, the time limit for assessing the appellant had not expired on October 24, 1997. The assessment was therefore validly made on that date.
...
25. In short, I consider that the assessment of October 24, 1997, is valid under subparagraph 298(1)(a)(i) of the Act because the appellant never filed a return as she was required to do pursuant to subsection 191(1) of the Act.
[Emphasis added]
[105] There is no reason to continue analyzing this issue. I therefore find that the appellant's arguments regarding the limitation of actions are groundless.
[106] The Respondent submits that the appellant should, in addition to the usual costs stipulated in subsection 147(4), Schedule II, Tariff B of the Tax Court of Canada Rules (General Procedures) ("Rules"), be required to pay the costs stipulated in section 5 of the Rules, on a solicitor-client basis.
[107] The evidence has clearly shown that the appellant deliberately and systematically did everything he could to sidestep his responsibilities and that, moreover, he acted in an arrogant, cynical and glib manner. All of this resulted in the Respondent's representatives having to do a colossal amount of work in order to prepare the file. The evidence has actually revealed that a large part of this work resulted from the appellant's obstinacy and many unjustified whims in failing to cooperate. He did whatever he could to systematically obstruct the situation.
[108] Consequently, I dismiss the appeal and award the costs claimed by the Respondent, as stipulated in subsection 147(4), Schedule II, Tariff B and section 5 of the Rules.
Signed at Ottawa, Canada, this 6th day of December 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 8th of April 2003
Sophie Debbané, Revisor
COURT FILE NO.: 2000-4691(GST)G
STYLE OF CAUSE: Alain Déziel and Her Majesty the Queen
PLACE OF HEARING: Québec, Quebec
DATES:
HEARING: May 6, 7 and 8, 2002
APPELLANT'S NOTES AND AUTHORITIES: June 12, 2002
RESPONDENT'S WRITTEN ARGUMENT: August 6, 2002
REASONS FOR JUDGMENT BY: The Honourable Alain Tardif
DATE OF JUDGMENT: December 6, 2002
APPEARANCES:
Counsel for the Appellant: Serge Fournier
Counsel for the Respondent: Ghislaine Thériault
COUNSEL OF RECORD:
For the appellant:
Name: Serge Fournier
Firm: Brouillette Charpentier Fortin
City: Montreal, Quebec
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada