[OFFICIAL ENGLISH TRANSLATION]
1999-4871(IT)I
BETWEEN:
JAY BASSILA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on June 26, 2001, at Montréal, Quebec, by
the Honourable Judge Lucie Lamarre
Appearances
Counsel for the Appellant: Nabih Srougi
Counsel for the Respondent: Nathalie Lessard
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1990, 1991, 1992 and 1993 taxation years are dismissed.
Signed at Ottawa, Canada, this 24th day of August 2001.
|
"Lucie Lamarre" |
J.T.C.C.
Translation certified true
on this 14th day of February 2003.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20010824
Docket: 1999-4871(IT)I
BETWEEN:
JAY BASSILA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre, J.T.C.C.
[1] These are appeals under the informal procedure from assessments made against the appellant pursuant to section 118.1 of the Income Tax Act ("Act") for the 1990, 1991, 1992 and 1993 taxation years. Through those assessments, the Minister of National Revenue ("Minister") disallowed credits claimed by the appellant for charitable gifts to the Ordre Antonien libanais des Maronites ("Order") amounting to $7,000 for 1990, $6,000 for 1991, $5,000 for 1992 and $6,000 for 1993. The Minister also assessed penalties under subsection 163(2) of the Act. Since the Minister reassessed the appellant outside the normal reassessment period, the onus is on the Minister to show that the appellant made a misrepresentation attributable to neglect, carelessness or wilful default or committed some fraud with respect to the charitable gifts, as required by subsection 152(4) of the Act (see M.N.R. v. Taylor, [1961] C.T.C. 211 (Ex. Ct.)).
Facts
[2] The appellant was born in Lebanon and immigrated to Canada in 1987. He is part of Montréal's Lebanese Maronite community.
[3] From 1990 to 1993, the appellant, who was then in his early 20s, had regular dealings with the Order. He explained that the Lebanese community gathered together to help Lebanese people who had recently arrived in Canada adapt socially and financially to their new country and also to make Canadian authorities aware of the war in Lebanon.
[4] He said that he gave the Order $7,000, $6,000, $5,000 and $6,000 in 1990, 1991, 1992 and 1993 in a number of cash payments. He also said that he may have donated by cheque a few times. He gave the amounts to fathers Joseph El-Kamar and Claude Nadras when he went to church for various political, religious or social events. According to the appellant, the fathers recorded the amount of the gift. He was given a receipt at the end of the year, at which point he checked to make sure that the receipt corresponded to the money he had given. However, he did not keep any written record of his gifts. He relied on his memory.
[5] As of 1994, he no longer made gifts to the Order. He got married in 1992 and had two children, one in 1994 and the other in 1996. He said that he lived with his parents in 1990, 1991, 1992 and 1993 and had no financial responsibilities. He said he had a house built in 1994. He explained that his needs changed as of that time, the situation in Lebanon was no longer the same and he felt that he had done his part for the Lebanese cause. He therefore started investing in his registered retirement savings plan ("RRSP").
[6] He said that he learned of the Order's existence through a teacher who had taught him in Lebanon and through other people whom he no longer sees. The Order, he stated, solicited him for donations, which were said to have been used to meet the needs of orphanages, universities and monasteries in Lebanon as well as the needs of Lebanese people in Canada. The appellant maintained, moreover, that he did not merely give money; he also gave furniture and clothing to people in the community who were starting a new life in Canada. He chose to donate through the Order because it was an organization that provided for the needs of Lebanese Christians, whereas other religious orders were not devoted exclusively to that cause.
[7] The appellant said that he heard about the misappropriation of money by the Order when he read an article in the newspaper The Gazette in 1996. He said that he was very surprised to learn of such a scheme. However, he did not subsequently do anything to ascertain that the money he had given had been used for the needs of Lebanese people. He maintained that his life had changed at that time and that he was no longer as involved in the Lebanese cause.
[8] The appellant did not keep his bank statements. He moved a few times in 1990, 1991, 1992 and 1993 and did not keep his files any longer than three or four years. Nor did the appellant approach the Royal Bank, with which he was dealing at the time, to track down his bank books. He said that he no longer deals with that bank, with which he was not on the best of terms on leaving.
[9] The appellant's income was about $37,000 in 1990. It rose to about $52,000 in 1991 and 1992 and $80,000 in 1993 and 1994. He started contributing to RRSPs in 1993.
[10] He explained that his brother was much too young at the time to make donations. His brother was still a student, and his sister was not living in Canada.
[11] The respondent called Adel Bassal and Mariette Chamberland as witnesses. They both testified that they had colluded with the Order during the years at issue by giving it money in return for a receipt showing a much larger gift than was actually made.
[12] Finally, the testimony of Colette Langelier and Gaétan Ouellette, who were an officer and an investigator respectively with the Canada Customs and Revenue Agency, revealed the fraud involving the issuing of false receipts by the Order during the years at issue. Under the scheme, the Order issued receipts for an amount that was on average five times higher than the actual amount of the gift. More than a thousand taxpayers were denied the charitable donations credit they had claimed using false receipts issued by the Order. According to a calculation done by Ms. Langelier (Exhibit I-13), the taxpayers who participated in the scheme derived therefrom a monetary benefit going beyond the mere tax credit. Thus, where a receipt was issued for $7,000 but the taxpayer had donated only 20 percent of that amount, or $1,400, the taxpayer got a charitable donations credit (federal and provincial) of $3,400, for a profit of $2,000.
[13] Ms. Langelier also said that the scheme may well have been devised so that the Order could finance its administrative expenses. In point of fact, a charity cannot allocate more than 10 percent of the amounts shown on receipts to non-charitable purposes. Since the Order's fixed costs were quite high, the scheme it developed enabled it to allocate more money to its fixed costs while attracting donors who derived a monetary benefit from the scheme. Moreover, according to Ms. Langelier, the balance sheet in the Order's financial statements did not show the total amounts that ought to have been received if the amounts shown on the receipts reflected the actual amounts paid to the Order. Thus, in her view, it is much more plausible that the Order issued donors with false receipts than that it misappropriated the donors' gifts to its own purposes.
[14] Moreover, it was impossible to track down anything concerning the cash donations, since the Order did not keep any record of them. Nor was the Order able to trace any of those amounts in its safes or bank accounts. Finally, Ms. Langelier found that most of the issued receipts had been backdated to the end of the year for which the taxpayers were filing their tax returns.
[15] Mr. Ouellette seized during his investigation a document called the "Bibliorec", that brought to light the fraud involving the issuing false receipts for 1993. He was unable to find a similar document for the other years. His investigation further revealed that the names of the donors who participated in the scheme did not all appear in the Bibliorec.
[16] As for the appellant in particular, he is claiming that he made cash donations to the Order amounting to $7,000 in 1990, $6,000 in 1991, $5,000 in 1992 and $6,000 in 1993. According to a document prepared by Ms. Langelier, the appellant's net income for each of those years was $37,352, $51,681, $52,346 and $78,834 respectively. According to the same document (Exhibit I-14), his disposable net income (after deducting taxes and other contributions, medical expenses and his education expenses) was $27,112 in 1990, $36,109 in 1991, $34,849 in 1992 and $50,282 in 1993. It can be seen from that document that the appellant's income increased significantly after 1993 (up to $293,000 in 1998 and $219,000 in 1999) but that he stopped making any substantial gifts after 1993.
Respondent's argument
[17] The onus is on the respondent to prove on a balance of probabilities that the appellant made a misrepresentation attributable to neglect, carelessness or wilful default or committed some fraud in filing his tax return. Being unable to adduce any direct evidence, since no record of the cash donations was found during the investigation, the respondent had to proceed on the basis of circumstantial evidence. She had to show on a balance of probabilities that the appellant did not actually make those cash gifts or that, if he did, their amounts were less than the amounts on the receipts.
[18] Counsel for the respondent argued that a negative inference must be drawn from the fact that the appellant did not adduce any evidence other than his own testimony at the hearing. Although he had been served with a subpoena duces tecum requiring him to bring with him the bank statements that could be used to trace the gifts he claims to have made, he made no effort to try to track the statements down.
[19] As well, the appellant suggested in his testimony that he took money to the monastery at least twice a year and that the fathers noted down the amount he gave in a book; he himself, however, kept no personal notes. If this is really true, one wonders of why the appellant did not attempt to obtain that book containing all the information or to contact the priests he had dealt with in order to try to prove that he really did make gifts. In view of Ms. Langelier's testimony, it is more likely that such a record did not exist. Moreover, the appellant testified that he dealt with fathers Joseph El-Kamar and Claude Nadras and that the receipts were prepared in front of him and given to him personally. It seems, however, from the receipts issued for 1992 and 1993 (Exhibit I-1, Tab 4) that these were not signed by either Father Joseph El-Kamar or Father Claude Nadras. This is also shown by the audit conducted by Ms. Langelier, who found that the signature on the two receipts did not correspond to that of Father Claude Nadras, which she had seen on other bank documents.
[20] Although the priests were not present to attest their signatures, the respondent argued that these facts cast doubt on the reliability of the receipts issued to the appellant and on the appellant's credibility.
[21] According to counsel for the respondent, the appellant's testimony is not very credible and must be rejected. The appellant said that he had heard about "money mishandling" by the Order in the newspapers in January 1996. Yet the newspaper article in question (Exhibit I-17) states that the Order issued false receipts, not that it misappropriated money. At the time, the appellant did not see fit to go and get proof of the gifts he claims to have made. He argued that he wanted to distance himself somewhat from the Order at that point. His testimony indicates that he did not remember how much he had given the Order, but he knew he had given a lot. It is therefore surprising that, after he learned of the fraud in which the Order was involved, he did nothing to ensure that the receipts he had been given were valid.
[22] Counsel for the respondent also argued that the appellant's testimony was very evasive, especially as regards the people who put him in touch with the Order, the role he played in the Lebanese and Maronite community, and the way he made the gifts in question. How can he claim that he was not all that involved in that community (page 53 of the transcript of his testimony) and yet have made such generous gifts to it? How can he explain the fact that he stopped making any gifts (even minimal ones) to that community after 1993 when he claims that he did not learn of the fraud until January 1996 and although his income increased significantly starting in 1993? In his Notice of Appeal, the appellant tried to explain this by stating that his financial situation had changed after his marriage. Yet the appellant got married in 1992 and continued to make donations that were just as substantial in 1992 and 1993.
[23] According to counsel for the respondent, it is more likely that the appellant stopped making gifts to the Order in 1994 because Revenue Canada's investigation had begun in the fall of 1994. The fact that, as Ms. Langelier's testimony indicates, the appellant more than likely received a receipt when it was time to prepare his tax return for the previous year, which would have been in the spring of 1995 for the 1994 taxation year, and that the Order had stopped issuing false receipts by then, would explain why the appellant no longer reported any gifts to the Order for 1994 or subsequent years.
[24] Moreover, the appellant was unable to give any precise explanation about his financial responsibilities (such as the amount of the mortgage he had to pay) during the years at issue. He merely stated that he had no financial obligations since he was living with his parents. Yet his testimony shows that it was his parents who were living with him and not the reverse (pages 123-24 of the transcript of his testimony).
[25] For the following reasons, counsel for the respondent concluded from the evidence that the appellant was more than likely told about the scheme used by the Order and that he took part in it: (1) the priests involved in the scheme, fathers Joseph El-Kamar and Claude Nadras (according to Adel Bassal's testimony, pages 151-52 of the transcript), were in constant contact with the appellant during the years at issue; (2) the appellant claims that he made substantial cash gifts but has no documentary evidence; (3) the appellant made substantial gifts only during the years in which the scheme was in effect; (4) the appellant's testimony was vague and imprecise, even contradictory at times. Counsel concluded that, in the circumstances, it would be very surprising if the appellant had been kept out of the scheme.
[26] Counsel for the respondent therefore argued that, on a preponderance of evidence, the appellant did not make gifts in the amounts indicated on the receipts issued to him. According to her, the appellant's aim was not only to be compensated for the amount paid to the Order but also to make a profit through the tax credit he obtained.
[27] She thus argued that there was no intent to give and that donations therefore cannot be said to have been made in this case. She relied on two decisions by the Federal Court of Appeal, Friedberg v. Canada, [1991] F.C.J. No. 1255 (Q.L.), and The Queen v. Burns, 88 DTC 6101 (F.C.T.D.), affirmed by 90 DTC 6335 (F.C.A.), in contending that there can be no gift where the taxpayer who claims to have made a gift derived a benefit therefrom rather than diminishing his substance thereby. Linden J.A. stated the following in Friedberg, at page 2:
Thus, a gift is a voluntary transfer or 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 [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.
Moreover, Pinard J. of the Federal Court-Trial Division stated the following in Burns, at page 6105:
I would like to emphasize that one essential element of a gift is an intentional element that the Roman law identified as animus donandi or liberal intent (see Mazeaud, Leçon de Droit Civil, tome 4ième, 2ième volume, 4ième edition, No. 1325, page 554). The donor must be aware that he will not receive any compensation other than pure moral benefit; he must be willing to grow poorer for the benefit of the donee without receiving any such compensation.
[28] Counsel for the respondent also contended that the receipts do not meet the requirements imposed by section 118.1 of the Act and section 3501 of the Income Tax Regulations (for example, the date on the receipt is not consistent with the actual dates of the donations and the amounts indicated are not correct).
[29] Lastly, she concluded that there was gross negligence on the appellant's part and that the penalty assessed under subsection 163(2) of the Act should be upheld.
Appellant's argument
[30] Counsel for the appellant argued that the appellant was introduced to the Order by former friends and that he felt obliged to participate financially through charitable gifts in its plan to help Lebanese people. Since he had few financial responsibilities during the years at issue, he was able to contribute generously. According to counsel, the appellant stopped contributing to the Order after his marriage, when his financial obligations changed. He renovated the house in which he was living in order to sell it and buy a bigger house. It was at the request of fathers Joseph El-Kamar and Claude Nadras that the appellant donated the cash for which he was given a receipt at the end of the year. According to counsel, the appellant donated in all sincerity and had no control over the Order's actions. He was neither an employee nor an agent of the Order.
[31] Counsel reiterated that the onus is on the respondent to prove on something more than a balance of probabilities that the appellant took an active part in the fraudulent scheme. According to counsel, the respondent has not discharged that onus. The appellant did not know the two witnesses who said they participated in the scheme. As well, counsel argued that the respondent relied on hearsay evidence, opinion evidence and speculative evidence, all of which is unacceptable in the circumstances.
Analysis
[32] In reply to the appellant's argument concerning the evidence tendered by the respondent, it is my opinion that the respondent, who bears the onus of proof here, tried to make her case through presumptive evidence because she was unable to adduce any direct evidence. Such evidence is entirely admissible to try to prove the correctness of one's arguments in a sufficiently convincing way (see Canadian Titanium Pigments Ltd. v. Fratelli D'Amico Armatori, [1979] F.C.J. No. 206 (Q.L.) (F.C.T.D.)).
[33] As for the degree of proof, the respondent has to show on a simple balance of probabilities that the assessments are correct (see Hickman Motors Ltd. v. The Queen, [1997] 2 S.C.R. 336). This is so even if there is an allegation of morally blameworthy conduct that may involve a penal aspect, where that allegation is made in civil litigation as is the case here (see Continental Insurance Company v. Dalton Cartage Co. et al., [1982] 1 S.C.R. 164). To discharge that onus, the respondent must satisfy the Court that the existence of a particular fact is more likely than its non-existence (see Jean-Claude Royer, La Preuve Civile, 2nd edition (Les Éditions Yvon Blais, 1995), at pp. 98-102).
[34] In the circumstances, my view is that the respondent has adduced evidence that is sufficiently convincing to allow me to conclude on a balance of probabilities that the appellant was aware of and participated in the fraudulent scheme devised by the Order during the years at issue.
[35] The appellant's evasive and sometimes exasperated testimony casts serious doubt on the credibility of that testimony. Although he said that he had no financial responsibilities, it later emerged from his testimony that his parents were actually staying with him and not the reverse. He subsequently gave a very ambiguous answer when asked how much it cost him to support the household. In the circumstances, it is therefore hard to believe that he had no financial responsibilities.
[36] Moreover, it is not clear from his testimony why he stopped making substantial gifts in 1994. In his Notice of Appeal, he stated that he had gotten married and that his priorities had changed. Yet the evidence showed that he got married in 1992. This explanation loses all plausibility when one notes that he continued to report substantial gifts to the Order in 1992 and 1993. I agree with counsel for the respondent that it is much more likely, given the evidence, that the appellant stopped claiming charitable gifts in 1994 because that was the year the Order, which was being investigated, ceased issuing false receipts for an amount much higher than the actual amount of the gift.
[37] The fact that the appellant's income increased significantly in the following years along with the fact that he never again made any substantial gifts, when considered in light of the respondent's extensive evidence demonstrating the existence of the fraudulent scheme devised by the Order and specifically by fathers Joseph El-Kamar and Claude Nadras, with whom the appellant dealt regularly, casts serious doubt on the appellant's philanthropic side.
[38] More than likely, the appellant was seeking only to benefit personally through the alleged gifts to the Order. I consider the appellant's testimony to have very little credibility in the circumstances, and the respondent's evidence convinces me fully, on more than a simple balance of probabilities, that the appellant in all likelihood took part in the fraudulent scheme and accordingly made a misrepresentation attributable to neglect, carelessness or wilful default. The Minister was therefore entitled to reassess after the normal reassessment period.
[39] Moreover, having concluded that the appellant took part in such a scheme, I cannot conclude that he made a gift within the meaning given that term by the courts. Indeed, Ms. Langelier demonstrated that, in acting as he did, the appellant not only recovered his outlay but also derived a benefit therefrom through the tax credit. Thus, not only did he not diminish his substance, but he also derived a benefit beyond the tax benefit normally provided for by the Act.
[40] One must therefore speak not of impoverishment but of enrichment in these circumstances. I share the respondent's view that there were in this case no gifts within the meaning of section 118.1 of the Act.
[41] Furthermore, I find that the Minister has shown on a balance of probabilities that the appellant knowingly, or under circumstances amounting to gross negligence, made a false statement or omission in filing his tax returns for the years at issue. The penalties assessed under subsection 163(2) are therefore maintained.
[42] The appeals are accordingly dismissed.
Signed at Ottawa, Canada, this 24th day of August 2001.
|
"Lucie Lamarre" |
J.T.C.C.
Translation certified true
on this 14th day of February 2003.
Erich Klein, Revisor