2019 QCCQ 7245, 2019 QCCQ 7245

Parrik c. Agence du revenu du Québec 2019 QCCQ 7245 COURT OF QUEBEC (Administrative and Appeal Division) CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL No: 500-80-028315-142 DATE: October 28, 2019 ______________________________________________________________________ BEFORE THE HONOURABLE ENRICO FORLINI, J.C.Q. ______________________________________________________________________ ALBINA PARRIK Plaintiff v.

AGENCE DU REVENU DU QUÉBEC Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Albina Parrik appeals from notices of reassessments issued by the Minister of Revenue with respect to the 2003 to 2008 taxation years. [ 2 ] In May 2012, further to an audit which relied on the cash flow method, the Minister issued new notices of assessments to Ms. Parrik for the 2003 to 2008 taxation years. Substantial undeclared income was added to Ms.

Parrik’s declared income as the table below summarizes: Tax Year Date Tax Return Filed [1] Reported Income [2] Revised Income [3] Undeclared Income Percent Increase 2003 May 26, 2008 $2,500 $21,783 $19,283 772% 2004 May 26, 2008 $8,480 $17,214 $8,734 103% 2005 May 26, 2008 $10,360 $40,895 $30,535 295% 2006 May 8, 2009 $15,031 $54,327 $39,296 262% 2007 May 8, 2009 $15,176 $51,363 $36,187 239% 2008 May 8, 2009 $15,335 $48,192 $32,857 215% [ 3 ] Ms.

Parrik argues that the Minister erred by adding additional income to her reported income for each of the tax years at issue. [ 4 ] She further asserts that the Minister was wrong to reassess her for the tax years 2003, 2004, 2005 and 2008 as these years are prescribed. Finally, she argues that the Minister was equally wrong to impose the penalties provided for by sections 1045 and 1049 of the Taxation Act. [ 5 ] The Agency counters by arguing that the Minister was warranted in resorting to the cash flow method to revise Ms.

Parrik’s taxable income and adds that the taxpayer has not rebutted the presumption of validity of the assessments (section 1014 Taxation Act ). [ 6 ] It argues that the Minister properly imposed the penalty provided for by

section 1045 Taxation Act given the taxpayer’s late filing of her tax returns. Similarly, it contends that the penalty imposed pursuant to

section 1049 Taxation Act was justified given her gross negligence. [ 7 ] For the reasons that follow, the Court concludes that the taxpayer has failed to rebut the presumption of validity of the assessments for each of the tax years at issue. The Minister properly used the cash flow method. Ms. Parrik did not present prima facie evidence to show that the Minister’s assessments were inaccurate. [ 8 ] Moreover, considering that the Minister proved that the taxpayer made misrepresentations that are attributable to her negligence, the 2003. 2004, 2005 and 2008 taxation years are not prescribed. [ 9 ] Likewise, the late filing penalties were justified.

[10] Finally, because Ms. Parrik was grossly negligent, the Minister rightfully imposed the penalties under

section 1049 TaxationAct. Issues [11] The taxpayer’s appeal raises the following issues:

a) Whether the Minister properly revised Ms. Parrik’s taxable income for the 2003 to 2008 taxation years using the cash flowmethod?

b) Are the 2003, 2004, 2005 and 2008 taxation years prescribed?

c) Whether the Minister was correct in assessing the late filing penalties of

section 1045 Taxation Act?

d) Whether the Minister was correct in assessing the penalty for gross negligence of

section 1049 Taxation Act? Analysis

a) Whether the Minister properly revised Ms. Parrik’s taxable income for the 2003 to 2008 taxation years using the cash flowmethod? The Law Presumption of Validity of the Tax Assessments [12] According to

section 1014 Taxation Act, tax assessments are deemed to be valid. [13] To rebut or demolish this presumption of validity, the taxpayer bears the burden of demonstrating by prima facie proof that thefacts on which the assessment is based are incorrect.[4] [14] If the taxpayer accomplishes this, the burden of proof is reversed and the Agency must by preponderance of proof, establish theaccuracy of the facts on which the assessment rests. [15] This rule was summarized by the Québec Court of Appeal in 9027-5967 Québec Inc. v. Québec (Sous-ministre du Revenu)[5] asfollows: [13] Dans l'arrêt Durand c.

Québec (sous-ministre du Revenu), la Cour a réitéré les règles relatives à la présomption de validité dela cotisation fiscale et des fardeaux de preuve qui en découlent. Reprenant les principes énoncés par la Cour suprême dans HickmanMotors Ltd. c. Canada, la Cour dit : - La cotisation fiscale jouit d'une présomption de validité (art. 1014

Loi sur les impôts), qui peut être repoussée par le contribuable. - Le fardeau initial du contribuable consiste à « démolir » l'exactitude de la présomption en présentant une preuve prima facie. - Lorsque le contribuable présente une telle preuve, il y a renversement du fardeau de la preuve. - Le fisc doit alors réfuter la preuve prima facie et prouver la cotisation établie par présomption. (Footnotes omitted) [16] As to what constitutes prima facie evidence sufficient to rebut the presumption, the Québec Court of Appeal in St-Georges v.Québec (Sous-ministre du Revenu)[6] explains as follows: [10] Dans Capobianco c.

Québec (Sous-ministre du Revenu), 2007 QCCA 1235 , J.E. 2007-1837 aux paragr. 12 à 14(C.A.), la Cour précise que le contribuable n'a pas à établir le montant exact de son revenu imposable. Cet enseignement metdéfinitivement fin au flottement entourant la question du fardeau de preuve du contribuable qui s'oppose à l'avis de cotisation parce quele montant de son revenu imposable établi par le ministère du Revenu serait inexact.

Le contribuable doit seulement démolirl'exactitude de la présomption en présentant une preuve prima facie de son inexactitude. [11] La preuve du contribuable doit toutefois comporter un certain degré de précision et de probabilité en sa faveur par oppositionà des allégations vagues et ambiguës. Règle générale, la simple affirmation du contribuable ne suffit pas; elle aura avantage à êtresoutenue par une preuve documentaire ou circonstancielle. [12] La thèse voulant qu'une simple négation de la part du contribuable puisse contrer la présomption de validité de l'article1014 L.I. reviendrait à priver cet

article de tout son sens. (Footnotes omitted) [17] In 9027-5967 Québec Inc.[7], the Court of Appeal expanded on the meaning of prima facie evidence: [14] Règle générale, la preuve prima facie se définit comme une preuve suffisante pour établir un fait jusqu'à preuve du contraire.Dans Stewart c. M.R.N., le juge Cain mentionne qu'« une preuve prima facie est celle qui est étayée par des éléments de preuve quicréent un tel degré de probabilité en sa faveur que la cour doit l'accepter si elle y ajoute foi, à moins qu'elle ne soit contredite ou que le

contraire ne soit prouvé ». (Footnotes omitted) [ 18 ] The Court of Appeal has also stated that prima facie evidence constitutes “un début de preuve convaincante”. [8] [ 19 ] Finally, as a general rule, the only statement of the taxpayer is not enough, it will benefit from being supported by documentary evidence. [9] This rule is particularly relevant in a case like the case at bar where the Minister relies on the cash flow method to calculate the taxpayer’s undeclared income. Cash Flow Method [ 20 ] The Minister is not bound by the information provided by a taxpayer in his/her return.

The Minister may, notwithstanding the return, make an assessment using alternative methods to measure taxable income. [10] [ 21 ] The Minister’s reassessments which are the subject matter of this appeal are based on the cash flow method. This is an alternative method sometimes used by the Agency’s auditors to calculate taxpayers’ taxable income. [ 22 ] The Minister’s auditor in this case, Mr. Boutin, used the cash flow method to estimate Ms. Parrik’s undeclared income over the taxation years 2003 to 2008.

This is an indirect method which is necessary when the taxpayer does not provide information regarding total income and expenses. This is a method of last resort. [11] [ 23 ] The cash flow method is a method of calculating a taxpayer’s income that is derived from the net worth method (“ avoir net ”). [ 24 ] The purpose of the cash flow method is not to determine the source of revenue, but rather to establish a deficit or a shortfall in the cash inflows relative to the cash outflows required to fund a household’s lifestyle.

This income deficit is then added to the taxpayer’s declared income to establish the taxable income required by

section 28 Taxation Act . [12] [ 25 ] The following excerpt from Benoit v. Québec (Sous-ministre du Revenu) explains the cash flow method (“ mouvements de tresorerie ”) : : [13] [13] Le Ministère du Revenu a utilisé la méthode indirecte de vérification sur les mouvements de trésorerie pour établir les revenus des contribuables.

Cette méthode est résumée dans le document émanant du Ministère du Revenu (pièce D-15) qu'il y a lieu de reproduire en partie: « Description de la méthode La méthode indirecte de vérification sur les mouvements de trésorerie est une méthode alternative de traitement au bureau des dossiers à risque en matière d'indices de richesse dérivée de la méthode de l'avoir net qui a été largement éprouvée dans différentes causes devant les tribunaux. La méthode de vérification basée sur les mouvements de trésorerie est appliquée en vertu de l'article 95.1 de la

loi sur le Ministère du Revenu (ci-après appelée LMR). La méthode indirecte des mouvements de trésorerie permet de compiler toutes les entrées de fonds ($) et toutes les sorties de fonds ($) qui sont survenues au cours de la période vérifiée pour un ménage et de déceler un écart possible entre ces entrées et les sorties de fonds effectués par le ménage.

Les entrées de fonds comprennent tous les types de revenus imposables qui sont ajustés pour tenir compte des fonds réellement disponibles pour faire face aux obligations financières et tous les types de revenus non imposables ainsi que toutes les autres entrées de fonds possibles.

Les sorties de fonds représentent les déboursés qui ont été effectués par le ménage, c'est-à-dire les sorties de fonds qui sont liées aux frais de subsistance (coût de vie) tels la nourriture, l'achat de vêtements, le logement, etc., les sorties de fonds ayant un impact fiscal tels les impôts, les contributions à un REER, les frais de garde, etc. et les toutes autres sorties de fonds tels les mises de fonds, les frais de financement, les frais d'utilisation des actifs, etc..

L'existence d'un déficit ou écart entre les entrées de fonds de tous types et toutes les sorties de fonds effectués par le ménage indique la présence de revenus additionnels pour le ménage qui n'ont pas été déclarés au MRQ. Les entrées et sorties de fonds sont compilées dans un tableau intitulé «rapport sur le mouvement de trésorerie» pour chacune des années d'imposition vérifiées.

Les différentes données nécessaires pour compléter le rapport sur le mouvement de trésorerie sont obtenues en suivant des étapes de vérification clairement établies dans le cadre de la méthode sur les mouvements de trésorerie qui seront décrites à la

section suivante. Les données utilisées pour compléter ce tableau peuvent provenir de plusieurs sources dont: ⇒ Le MRQ (données disponibles dans la TP-1 soient les revenus imposables et le coût de vie TP-1); ⇒ Les organismes externes (informations sur les acquisitions et les dispositions de certains actifs, sur les placements, etc.); ⇒ Le contribuable (revenus non imposables, dépenses effectuées par le ménage et autres particularités).

Lorsqu'un écart (déficit entre les entrées et les sorties de fonds) est constaté dans le rapport sur les mouvements de trésorerie et qu'aucune explication plausible n'est apportée par le contribuable pour justifier son train de vie, le ministère détermine alors le montant de revenu additionnel à ajouter au ménage pour combler l'écart entre ses entrées et ses sorties de fonds. »

[26] This definition corresponds to the description of the method used by the auditor in the case at bar to calculate the Parrik-KutterHousehold’s taxable income and is depicted in his cash flow report.[14] [27] The rational for using an alternative method was explained by Justice Desjardins of the Federal Court of Appeal in Hsu v. TheQueen:[15] 29. Net worth assessments are a method of last resort, commonly utilized in cases where the taxpayer refuses to file a tax return, has fileda return which is grossly inaccurate or refuses to furnish documentation which would enable Revenue Canada to verify the return (V.

Krishna, The Fundamentals of Canadian Income Tax Law, 5th ed. (Toronto: Carswell, 1995) at 1089). The net worth method is premisedon the assumption that an appreciation of a taxpayer's wealth over a period of time can be imputed as income for that period unless thetaxpayer demonstrates otherwise (Bigayan, supra, at 1619). Its purpose is to relieve the Minister of his ordinary burden of proving ataxable source of income. The Minister is only required to show that the taxpayer's net worth has increased between two points in time.

Inother words, a net worth assessment is not concerned with identifying the source or nature of the taxpayer's appreciation in wealth. Oncean increase is demonstrated, the onus lay entirely with the taxpayer to separate his or her taxable income from gains resulting from non-taxable sources (Gentile v. The Queen, (FC), [1988] 1 C.T.C. 253 at 256 (F.C.T.D.)). 30. By its very nature, a net worth assessment is an arbitrary and imprecise approximation of a taxpayer's income.

Any perceivedunfairness relating to this type of assessment is resolved by recognizing that the taxpayer is in the best position to know his or her owntaxable income. Where the factual basis of the Minister's estimation is inaccurate, it should be a simple matter for the taxpayer to correctthe Minister's error to the satisfaction of the Court. … 37…As I noted above, the net worth approach is based on the assumption that an increase in the taxpayer’s net worth over any periodcan be attributed as his or her income for that period.

The onus is on the taxpayer to demonstrate that the increase resulted from a non-taxable source. [28] In Chenel, the Québec Court of Appeal, relying notably on sections 28 and 95.1 Taxation Act and Hsu, affirmed that theMinister may resort to an alternative method to calculate a household’s taxable income where the circumstances warrant it: [29] Il ressort que le contribuable a un devoir de diligence minimale.

Malgré qu'il soit le mieux placé pour comprendre l'ensemblede sa situation financière, il ne peut se plaindre s'il n'est pas en mesure de démontrer le bien-fondé de ses calculs. D'autre part, leministre peut s'ingérer si le train de vie d'un citoyen ou des actifs récemment acquis font voir une nette disproportion entre les revenusdéclarés par ce citoyen et ce train de vie ou les actifs récemment acquis.

Du moment que le contribuable peut s'opposer à l'évaluation,expliquer ses chiffres et ainsi démolir les prétentions du ministère, aucune règle de droit n'est enfreinte. [30] De nos jours, le raisonnement du juge Thorson est reflété dans les pratiques fiscales fédérales et provinciales. La liberté dontjouit le ministère s'étend même jusqu'à une certaine forme d'arbitraire. Face à une déclaration inexacte, irréaliste ou non conforme (voireinexistante), l'État peut tenter de deviner la véritable ampleur d'une valeur donnée. Bien entendu, il devra éviter la pure fantaisie.

Despratiques de comptabilité préjudiciables seraient une forme intolérable d'abus administratif.

Toutefois, la marge de manœuvre est large etles conclusions du ministère sont présumées exactes. … [37] Il est clair que la méthode de l'avoir net a traditionnellement été appliquée aux particuliers et qu'elle constitue une méthodenécessaire dans les cas où le contribuable refuse de produire une déclaration ou que sa déclaration est fort inexacte ou qu'il refuse defournir des documents qui permettent de vérifier un rendement ou que les renseignements sont tellement embrouillés, incomplets ouvagues qu'il est impossible d'y voir clair. [38] Le ministère peut aussi, à mon avis, utiliser la méthode dite de l'avoir net combiné lorsqu'il y a des indices qu'un contribuableutilise l'unité familiale pour camoufler l'ampleur de ses revenus.

Il est évident que le ministère devra faire montre de grande prudence etqu'il ne pourra consolider, pour fins de calcul, les revenus de deux époux ou conjoints de fait que lorsqu'il y a confusion manifeste despatrimoines et des passifs et dépenses. [29] Since Chenel, the cash flow method has been approved by the Court of Québec on numerous occasions as a valid method tocalculate a taxpayer’s income.[16] [30] To rebut the presumption of validity in an assessment based on the cash flow method, the taxpayer has the burden ofestablishing, through prima facie evidence, that the method used by the Minister is not reliable or that it contains importantinaccuracies.[17] Application to the Facts of this Case [31] This appeal deals with the Minister’s reassessments of Ms.

Parrik for five taxation years, from 2003 to 2008. [32] Ms. Parrik and her spouse Aivo Kutter (Kutter-Parrik Household) were audited in 2010. Their file was selected at random bythe Agency as part of the signs of affluence (“indices de richesse”) tax evasion project.[18] [33] When the Agency compared the declared income of the Kutter-Parrik family with their expenses and lifestyle, it determined thatthere was a risk of undeclared income. It pushed its audit further. Its investigation revealed the following. [34] The Kutter-Parrik Household includes Mr. Kutter, Ms. Parrik, and their three teenage children.

The family lived in a singlefamily dwelling in Montréal.

[ 35 ] Ms. Parrik and Mr. Kutter were directors and shareholders of 9121-8370 Québec Inc., which operated a truck transportation business. [ 36 ] Ms. Parrik filed her tax returns for the 2003, 2004 and 2005 taxation years in May 2008.

One year later, she filed her tax returns for the 2006, 2007 and 2008 taxation years. [19] [ 37 ] In October, November and December 2008, the Agency issued its original notices of assessments for the 2003, 2004 and 2005 taxation years. [20] [ 38 ] In October, December and May 2009 respectively, the Agency issued its notices of assessments for the 2006, 2007 and 2008 taxation years. [21] [ 39 ] In the spring 2010, Mr. Kutter and Ms. Parrik are audited and the Agency requests numerous documents and information from them. Ms.

Parrik collaborated poorly with the Agency. [ 40 ] On March 2, 2010, the Agency’s auditor, Mr. Boutin, wrote to Ms. Parrik to inform her that the Minister was reviewing her file for the 2003 to 2008 taxation years given that her reported income was substantially less than the income it had estimated based on a comparison of her reported income with the estimated value of her property and the family’s costs of living. [22] [ 41 ] She is asked to complete and return a questionnaire which pertains to her costs of living expenses and sources of income. [ 42 ] Ms.

Parrik does not respond to the Agency’s March 2 letter. Accordingly, on May 26, 2010, the Agency sends her a reminder letter. [23] [ 43 ] Sometime in June 2010, Ms. Parrik sends the Agency a completed questionnaire. [24] [ 44 ] According to her answers, Ms. Parrik has no mortgage payments for the tax years in issue. Similarly, she indicates that she has no automobile loan or lease payments for those years, despite the family possessing at least three vehicles. [ 45 ] Ms. Parrik’s responses contradict the information obtained by the Agency’s auditor.

For example, the taxpayer’s automobile purchase contracts indicate that the vehicles are financed. [25] [ 46 ] Given these discrepancies, the auditor pursues his investigation. On September 27, 2010, he requests from Ms. Parrik information or documents pertaining to any borrowings she may have, including banks statements, credit cards statements and line of credits statements. [26] [ 47 ] Ms. Parrik does not respond to this request. On October 26, 2010 the Agency sends Ms. Parrik a formal demand requesting the same information. [27] [ 48 ] On or about October 28, 2010, Ms.

Parrik responds and sends the Agency a list of bank account numbers, credit card numbers and line of credit account numbers held by the Kutter-Parrik Household at two financial institutions, TD and Scotia Bank. [28] [ 49 ] In November 2010, the Agency sends formal demands for information concerning Ms. Parrik and Mr.

Kutter to TD and Scotia Bank. [29] TD responds to the Agency’s formal demand later in that month and provides bank statements and other financial documents. [ 50 ] Scotia Bank does not respond at that time. [ 51 ] Based on the TD documents, the auditor estimates a cost of living for the Kutter-Parrik Household and performs a cash flow analysis. [30] [ 52 ] Using this method, the Agency’s auditor calculates undeclared income for the Kutter-Parrik Household for each of the taxation years 2003 to 2008 and apportions it equally between Mr. Kutter and Ms. Parrik. [31] [ 53 ] On May 26, 2011, the Agency sends Ms.

Parrik a draft assessment based on the cash flow method in which it proposes to add undeclared income to her previously reported taxable income. [32] Ms. Parrik is invited to send the Agency any new information or documents that could change this assessment. [ 54 ] Ms. Parrik does not respond to the Agency’s draft assessment. [ 55 ] On June 28 and November 22 2011, the Agency writes to Ms. Parrik to give her the opportunity to correct its draft assessment. [33] Ms. Parrik does not respond to any of these letters. [ 56 ] In February 2012, the Agency again writes to Ms.

Parrik to give her the opportunity to explain transactions revealed through her banking statements and possibly lower the amount of unreported income that had been established through the Agency’s cash flow method. [34] [ 57 ] Ms. Parrik does not respond. [ 58 ] In May 2012, the Agency issues new notices of assessments to Ms. Parrik for the 2003 to 2008 taxation years. [35] [ 59 ] In the same timeframe, similar new notices of assessment are also issued to Mr. Kutter. [ 60 ] Ms. Parrik filed notices of opposition to these new notices of assessments.

[ 61 ] In February 2014, the Agency rejects her notices of opposition. [ 62 ] In May 2014, Ms. Parrik files her Motion Introductive of Suit in Appeal of the new notices of assessment. Mr. Kutter also files an appeal of the new notices of assessment (file 500-80-028316-140). [ 63 ] The trial in regards to Ms. Parrik’s tax appeals was originally scheduled to be heard on October 20 and 21, 2016 along with the tax appeal filed by Mr. Kutter. A few days before the scheduled trial date, Ms. Parrik and Mr.

Kutter’s lawyer asks for and obtains a postponement of the trial on the grounds that he is not obtaining any collaboration from his clients. [36] The trial is rescheduled and postponed on two other occasions. [ 64 ] During the course of the proceedings, Mr. Kutter files for bankruptcy and his tax appeal is discontinued. [ 65 ] The trial in Ms.

Parrik’s tax appeal finally came before the Court in October 2019. [ 66 ] The timeline summarized above establishes that the Agency’s auditor acted fairly and reasonably in regards to calculating the Kutter-Parrik Household’s unreported income using the cash flow method. [ 67 ] The auditor gave Ms. Parrik every opportunity to correct any potential mistakes. She did not collaborate or even attempt to correct any assessments made by the Agency. [ 68 ] This same conduct was repeated at the trial. [ 69 ] Ms.

Parrik did not attempt to prove that the Minister should not have resorted to the cash flow method to calculate the Kutter- Parrik Household’s undeclared income. The Court does not have the obligation to raise ex officio this issue considering the presumption of validity of the assessments. [37] [ 70 ] She filed no documentary evidence to try to rebut the presumption of validity of the assessments. [ 71 ] Her testimony was brief and vague. [ 72 ] She claims she played no role in the company and that her husband controlled everything.

She adds that she held the title of president on paper, but in really, she was not involved in the day to day affairs of the corporation. [ 73 ] Ms. Parrik adds that Mr. Kutter was violent throughout the relationship and abandoned the family in 2013. [ 74 ] Even if the Court were to believe the testimony given by Ms. Parrik, none of her evidence establishes that the reassessments contain inaccuracies or errors. In any event, Ms. Parrik has not demonstrated by prima facie proof that the facts on which the assessments for 2003–2008 are based are incorrect. [ 75 ] Ms.

Parrik claims that she could not file any documents to refute the Agency’s calculations since Mr. Kutter destroyed them in 2013. [ 76 ] However, the Agency repeatedly gave her the opportunity between 2010 and 2012 to provide documents to refute its assessments, yet she did nothing then. [ 77 ] The Agency’s auditor was quite justified in assessing Ms. Parrik on the basis of the cash flow method given the limited information provided to him by the taxpayer. He was likewise justified in assessing Ms.

Parrik on the basis of a family unit [ 78 ] To rebut an assessment based on the cash flow method, mere oral testimony is generally not sufficient. [38] It would simply be too easy for a taxpayer to state that he has received monetary gifts to fund his lifestyle.

Unless the gifts are supported by documentary evidence, mere assertions of gifts do not constitute sufficient prima facie evidence. [ 79 ] The taxpayer should present documentary evidence which explains how it was able to afford the living expenses that have been estimated by the Minister. [ 80 ] As the Federal Court of Appeal pointed out in Hsu , the auditor’s calculation of Ms. Parrik’s cost of living (outflows) and the amount by which outflows exceed inflows is an imprecise approximation. [39] She was in the best position to know her own taxable income.

If the Minister miscalculated her taxable income, it would have been relatively simple for her to correct the error. She was given ample opportunity to do so during the audit process, yet did nothing. The trial was not any different. [ 81 ] For example, she could have adduced evidence like the taxpayer did in Gagnon to prove that she received monetary gifts or loans from third parties, funds which she used to pay for the Kutter-Parrik Household’s expenses, but no such proof was adduced. [40] [ 82 ] In conclusion, the Minister acted properly in using the cash flow method to revise Ms.

Parrik’s taxable income for the 2003 to 2008 taxation years. Ms. Parrik did not adduce prima facie evidence that rebuts or demolishes the presumption of validity of the Minister’s assessments for that time period.

b) Are the 2003, 2004, 2005 and 2008 taxation years prescribed? [ 83 ] The Agency argues that the Minister was justified in reassessing because Ms. Parrik for the 2003, 2004, 2005 and 2008 taxation years because she made a misrepresentation that is attributable to negligence or wilful default. [ 84 ] The table below illustrates how the Minister reassessed Ms. Parrik beyond the 3 year period for the taxation years 2003, 2004,

2005 and 2008: Taxation Year Date Return Filed [41] Date of Original Notice of Assessment [42] Date of New Notice of Assessment [43] 2003 May 26, 2008 December 22, 2008 May 15, 2012 2004 May 26, 2008 October 16, 2008 May 15, 2012 2005 May 26, 2008 November 19, 2008 May 15, 2012 2006 May 8, 2009 October 15, 2009 May 15, 2012 2007 May 8, 2009 December 7, 2009 May 15, 2012 2008 May 8, 2009 May 13, 2009 May 15, 2012 [ 85 ] The Minister’s right to make reassessments “at any time”, and thus beyond the normal three year prescription period, is set out in section 1010(2)(b)ii Taxation Act : 1010.

(1) The Minister may at any time determine the tax, interest and penalties payable under this Part, or give notice in writing to any taxpayer who filed a fiscal return for a taxation year that no tax is payable for that taxation year.

(2) The Minister may also redetermine the tax, interest and penalties payable under this Part and make a reassessment or an additional assessment, as the case may be, (

b) at any time, if the taxpayer or the person who filed the return, i. has made a misrepresentation that is attributable to negligence or wilful default or has committed any fraud in filing the return or in supplying any information provided for in this Part, or… [Underlining added] [ 86 ] The Minister bears the burden of proving the facts which constitute a misrepresentation. [ 87 ] As per the table in paragraph 84 above, there is no question that the reassessments for the 2003, 2004, 2005 and 2008 taxation years were issued by the Agency more than three years after the date of the original notices of assessments. [ 88 ] A misrepresentation constitutes a misrepresentation for the purposes of section 1010(2)(b)ii Taxation Act even in the absence of fraudulent or malicious intent.

All that is required is for the representation to be inexact. [ 89 ] The Agency’s burden is to prove the taxpayer’s objective fault.

A negligent misrepresentation is one that results from lack of objective diligence. [44] [ 90 ] While the misrepresentation must be evaluated at the time of the filing of the tax return, the taxpayer’s subsequent conduct, including during the audit process, may be considered by the Court to evaluate whether the taxpayer objectively acted with negligence when the return was filed. [45] [ 91 ] Misrepresentation by neglect or lack of diligence, recklessness, disorganisation, or carelessness is sufficient for the purposes of section 1010(2)(b)ii. [46] [ 92 ] In Lacroix v.

The Queen , the Federal Court of Appeal was called upon to interpret the scope of sections 152(4) and 163(2) of the federal Income Tax Act , the sections of the federal statute corresponding to sections 1010 and 1049 Taxation Act , in the context of an assessment based on an alternative method of taxation. The Court described as follows the tax authority’s burden of proof: [30] The facts in evidence in this case are such that the taxpayer’s tax return made a misrepresentation of facts, and the only explanation offered by the taxpayer was found not to be credible.

Clearly, there must be some other explanation for this income. It must therefore be concluded that the taxpayer had an unreported source of income, was aware of this source and refused to disclose it, since the explanations he gave were found not to be credible. In my view, given such circumstances, one must come to the inevitable conclusion that the false tax return was filed knowingly, or under circumstances amounting to gross negligence. This justifies not only a penalty, but also a reassessment beyond the statutory period . …. [32] What, then, of the burden of proof on the Minister?

How does he discharge this burden? There may be circumstances where the Minister would be able to show direct evidence of the taxpayer’s state of mind at the time the tax return was filed. However, in the vast majority of cases, the Minister will be limited to undermining the taxpayer’s credibility by either adducing evidence or cross- examining the taxpayer.

Insofar as the Tax Court of Canada is satisfied that the taxpayer earned unreported income and did not provide a credible explanation for the discrepancy between his or her reported income and his or her net worth, the Minister has discharged the burden of proof on him within the meaning of subparagraph 152(4) ( a )(

i) and subsection 162(3). [Underlining added] [ 93 ] In the instant case, the Court considers that Ms. Parrik has made a misrepresentation attributable to negligence or willful default considering the following factors: • Ms. Parrik earned unreported income, failed to report it over a six year period and did not provide a credible explanation for the discrepancy between her reported income and her revised income as calculated by the Minister. In fact, she provided no explanation whatsoever;

• The repetitive character of the misrepresentations; • The importance of the misrepresentations made by Ms. Parrik. Indeed, as per the table reproduced in paragraph 2 of these reasons for judgment, the percentage of non-declared taxable income varies between 103% and 772% of the reported income during the time period 2003 to 2008; • The consistent late filing of the tax returns by the taxpayer, some of which were filed more than four years beyond the statutory requirement; • The taxpayer’s poor collaboration with the Agency. [ 94 ] Accordingly, the 2003, 2004, 2005 and 2008 taxation years are not prescribed.

c) Whether the Minister was correct in assessing the late filing penalties of

section 1045 Taxation Act ? [ 95 ] As the table below shows, the Minister assessed Ms. Parrik penalties totaling $4,328.98 because she failed to file her tax returns in a timely manner. Year Penalty for Late Filing [47] 2003 $377.97 2004 $26.27 2005 $1,115.84 2006 $1,461.77 2007 $1,347.13 2008 N/A Total: $4,328.98 [ 96 ]

Section 1045 of the Taxation Act empowers the Minister to levy a penalty when the taxpayer files his/her returns late: 1045. Every person who fails to make a fiscal return on the prescribed form and within the prescribed time, in accordance with

section 1000 , 1001 , 1003 or 1004 , incurs a penalty equal to 5% of the tax unpaid at the time when the return must be filed and an additional penalty of 1% of that unpaid tax for each complete month, not exceeding 12 months, in the period between the time when the return must be filed and the time when it is actually filed. [ 97 ] Except for the taxation year 2008, Ms. Parrik consistently filed her tax returns beyond the prescribed time period. Her 2003 tax return was filed more than five years beyond the prescribed time.

Her subsequent tax reports were similarly filed late as it appears from the table in paragraph 84 of these reasons for judgment. [ 98 ] The Minister acted within the scope of his authority by imposing the penalties for late filing.

d) Whether the Minister was correct in assessing the penalty for gross negligence of

section 1049 Taxation Act ? [ 99 ] The Minister imposed penalties totalling $15,731.78 to Ms. Parrik, as the table below illustrates: Year Penalty under

section 1049 T.A. [48] 2003 $1,111.70 2004 $658.36 2005 $2,924.65 2006 $4,056.30 2007 $3,775.53 2008 $3,205.24 Total: $15,731.78 [ 100 ] The Agency argues that the Minister was justified in levying the penalties because Ms. Parrik’s conduct rose to that of gross negligence. [ 101 ] The Minister’s right to impose a penalty is governed by

section 1049 Taxation Act : 1049. Every person who, knowingly or under circumstances amounting to gross negligence, has made or has participated in or acquiesced in the making of, a false statement or omission in a return, certificate, statement or answer, in this

section referred to as a “return”, made or filed in respect of a taxation year for the purposes of this Act, incurs a penalty equal to the greater of $100 and 50% of the amount by which…. [ 102 ] According to

section 1050 Taxation Act , the Minister has the burden of proving that the taxpayer was grossly negligent. [ 103 ] In St-Georges [49] , the Québec Court of Appeal lists the criteria that a court must look at to determine if the taxpayer has been grossly negligent: [19] Les critères appliqués par les tribunaux afin de déterminer si le contribuable a fait preuve de « négligence flagrante » au sens de l'

article 1049 L.I. sont connus : • l'importance des sommes omises, la valeur des justifications fournies par le contribuable et les circonstances dans lesquelles l'omission est survenue;

• la qualité des registres comptables tenus par le contribuable; • l'éducation, les connaissances et l'expérience en affaires du contribuable; • le fait que le contribuable ait reconnu ou déclaré volontairement les omissions, ou les faussetés, affectant les déclarations litigieuses; • la nature des relations antérieures entre le contribuable et le fisc; • la crédibilité du contribuable. [ 104 ] The Court considers that Ms. Parrik was grossly negligent for the reasons outlined in paragraphs 92 and 93 of these reasons for judgement.

FOR THESE REASONS, THE COURT: [ 105 ] DISMISSSES the taxpayer’s appeal; [ 106 ] WITH LEGAL COSTS. __________________________________ ENRICO FORLINI, J.C.Q. Albina Parrik Not represented by counsel Me Alnashir Tharani Larivière Meunier Defendant’s lawyer Date of hearing: October 10, 2019