BETWEEN:
and
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on common evidence with the appeal of 2848-6819 Québec Inc. (2003-2894(IT)I), on July 7, 2005, at Chicoutimi, Quebec
Before: The Honourable Justice Alain Tardif
Appearances:
|
|
|
____________________________________________________________________
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1997, 1998 and 1999 taxation years is allowed, without costs, and the penalty is vacated, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 28th day of July 2005.
"Alain Tardif"
Translation certified true
On this 13th day of February, 2006.
Garth McLeod, Translator
Docket: 2003-2894(IT)I
BETWEEN:
2848-6819 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on common evidence with the appeal of Louis Tremblay(2003-431(IT)I), on July 7, 2005, at Chicoutimi, Quebec
Before: The Honourable Justice Alain Tardif
Appearances:
|
Counsel for the Appellant: |
Isabelle Simard
|
|
Counsel for the Respondent: |
Martin Gentile |
____________________________________________________________________
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1998 and 1999 taxation years is allowed, without costs, and the penalty is vacated, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 28th day of July 2005.
"Alain Tardif"
Tardif J.
Translation certified true
On this 13th day of February, 2006.
Garth McLeod, Translator
2003-2894(IT)I
BETWEEN:
LOUIS TREMBLAY,
2848-6819 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
[1] These are two appeals under the Income Tax Act. The issues are set out as follows in the Replies to the Notices of Appeal:
- 2848-6819 Québec Inc., docket 2003-2894(IT)I:
[TRANSLATION]
6. In computing the Appellant's income for the 1998 taxation year, was the sum of $23,800 correctly added as unreported income?
7. Was the imposition on the Appellant of the penalty under subsection 163(2) of the Act for the 1998 taxation year justified?
- Louis Tremblay, docket 2003-431(IT)I:
[TRANSLATION]
(a) In computing the Appellant's income for the 1997 taxation year, was the amount of $14,500 correctly added as benefits conferred on a shareholder by 2848-6819 Québec Inc.?
(b) Was the imposition on the Appellant of the penalty under subsection 163(2) of the Act for the 1998 taxation year justified?
(c) Was the Minister justified in including the amount of $5,167 in the Appellant's income for the 1999 taxation year as underpaid loan to 2848-6819 Québec Inc.?
[2] Given the elements that both matters have in common, the parties agreed to proceed on common evidence.
[3] At the beginning of the hearing, counsel for the Respondent told the Court that the assessment of Louis Tremblay for the 1997 taxation year had been vacated. I therefore confirm this vacation.
[4] Only the Appellants called witnesses. The Appellant Louis Tremblay, his brother Bernard Tremblay, and Julien Dufour, the person responsible for the company's account at the Caisse populaire, testified.
[5] The explanations given are very simple. Following a transaction with a former business partner, the Appellant allegedly received $100,000. This amount is not in doubt (Exhibits A-1 and A-2). After a cheque in this amount was deposited, the Appellant allegedly asked Julien Dufour, the person responsible for his account, to get him 75 one-thousand-dollar bills, which he wished to withdraw after making the $100,000 deposit.
[6] After receiving the 75 one-thousand-dollar bills, an employee of the Caisse handed him the currency in the presence of Mr. Dufour. Then, the Appellant allegedly put the bills in an envelope, which he gave to his brother for safekeeping in a family vault. Whenever he needed to, he would go to his brother's home to get what he required.
[7] Mr. Dufour also explained that the company which the Appellant controlled had constant liquidity problems, and that its $40,000 line of credit was almost always exhausted, which required him to phone the Appellant regularly so that he could make the deposits necessary to prevent the Caisse from returning certain cheques as dishonoured. The witness said that the Appellant would generally come by promptly to cover the shortfall with an equivalent deposit.
[8] Faced with this constant lack of funds, Mr. Dufour proposed applying for a second $40,000 line of credit which would be 100% secured by personal savings.
[9] Consequently, the Appellant supplied $40,000 in savings as security in the name of his brother Bernard Tremblay, who testified that he essentially acted as a mere nominee in the matter. As for the Appellant, he also explained that the numerous cash deposits that he had to make in order to cover his cheques after being called by the Caisse were always from the money in the family vault.
[10] To explain why the deposits were generally made using one-hundred-dollar bills even though the money in the vault consisted of thousand-dollar bills, the Appellant stated that he often made interest-free loans to family members or friends in thousand-dollar bills but was paid back in smaller denominations, which he used when making his numerous deposits.
[11] The outcome of these two appeals essentially turns on the credibility of the evidence adduced. Are Louis Tremblay's explanations credible? One thing is certain: if I had to be satisfied beyond a reasonable doubt, I would certainly not accept the explanations.
[12] In order to deal with the explanations given in support of the appeals, I must take elements beyond my simple intuition into consideration. The issue of the amount of $100,000 was established unimpeachably at the outset, and all the relevant documents were tendered in support (Exhibits A-1 and A-2).
[13] The $75,000 withdrawal was also clearly proven and then corroborated by the Caisse populaire's representative, who was very much aware of the situation since he handled the order for the currency notes and was present when they were handed over.
[14] The same Caisse populaire representative also testified that he frequently had to contact the Appellant in order to ask him to come in and make a deposit to cover the cheques which the line of credit could not cover. Each time, the Appellant came in to make a deposit equal to the shortfall created by the cheque or cheques, which showed that he had quick access to cash.
[15] Why did he resort to this rather unorthodox and uncommon approach, which involved the frequent use of one-thousand-dollar bills, a private vault and a nominee?
[16] To address this question, the Appellant stated that he had acquired some attractive assets at one point, but then lost them all following a divorce. He also said that he went through some difficult financial times during the days that he had a business partner.
[17] These bad experiences apparently caused him to be suspicious, and fearful of the prospect of losing everything again. He therefore decided to do everything he could to shelter himself from such a possibility. Thus, these experiences purportedly account for his marginal business methods.
[18] Is this plausible? It is always difficult to decide whether explanations should be rejected or ruled out as unworthy of credibility. It is often possible to detect inconsistencies; in some cases, the explanations are patently implausible and far-fetched. In other cases, the explanations are uncorroborated, find no support in reliable evidence and are simply far-fetched.
[19] While the explanations in the case at bar are unusual and perhaps even suspect, they are nonetheless consistent and possible. Consistency aside, I cannot disregard testimony that is not open to doubt, namely the testimony Mr. Dufour (the Caisse populaire representative) or the documents tendered by the Appellant, which are proof of their content.
[20] Consequently, but not without some hesitation, I find that the explanations provided are plausible, and, on a preponderance of the evidence, I allow the appeals.
[21] As for the penalties, they must be vacated, because their only basis was that the Respondent did not accept the explanations provided. The acceptance of the explanations must automatically result in the penalties being vacated.
Signed at Ottawa, Canada, this 28th day of July 2005.
"Alain Tardif"
Tardif J.
Translation certified true
On this 13th day of February, 2006.
Garth McLeod, Translator
DOCKET FILE NOS.: 2003-431(IT)I and 2003-2894(IT)I
STYLES OF CAUSE: Louis Tremblay and 2848-6819 Québec Inc. v. Her Majesty the Queen
PLACE OF HEARING: Chicoutimi, Quebec
REASONS FOR JUDGMENT BY: The Honourable Justice Alain Tardif
DATE OF JUDGMENT: July 28, 2005
APPEARANCES:
|
Counsel for the Appellants: |
Isabelle Simard
|
|
Counsel for the Respondent: |
Martin Gentile |
COUNSEL OF RECORD:
For the Appellants:
Name: Isabelle Simard
Firm: Simard Boivin Lemieux
City: Chicoutimi, Quebec
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada