2021 QCCQ 13468, 2021 QCCQ 13468

Shawnfar c. Agence du revenu du Québec 2021 QCCQ 13468 COURT OF QUÉBEC Administrative and Appellate Division CANADA PROVINCE OF QUÉBEC DISTRICT OF MONTREAL TOWN OF MONTREAL Civil Division No: 500-80-037393-189 500-80-037394-187 DATE: December 23, 2021 _____________________________________________________________________ PRESIDED BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ Shahram SHAWNFAR -and- Norma LUCAS Plaintiffs v.

AGENCE DU REVENU DU QUÉBEC (L’) Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] The Plaintiffs, a married couple, contest [1] , pursuant to the Tax Administration Act, RSQ c A-6.002 (“ T.A.A. ”) articles 93.1.10 and following, the new assessments made in their respective files with Revenue Québec. The audits spanned the taxation years 2008 through 2013.

In the case of Shahram Shawnfar the reassessments include the taxation years 2010 through 2013 and, in the case of Norma Lucas, the taxation years 2008 through 2013. [ 2 ] The audits were carried out intermittently between 2014 and 2017. [ 3 ] These are, for the most part, reassessments pursuant to

article 1010. 2. (

b) i of the Taxation Act, CQLR c I-3 . (“ TA ’) as they are made outside the period of three years that limits the power of the Minister under

Article 1010 1. T.A. The Agence du Revenu du Québec (“ARQ”, “Revenu Quebec”) asserts that the Minister had the power to reassess in the present matter outside the three-year limit alleging that the taxpayers made misrepresentations that are attributable to negligence or wilful default or that they have committed fraud in the context of their filings. [ 4 ] The reassessments for 2013 are made within the three-year limit for both taxpayers.

All the other reassessments are made outside the three-year limit. [ 5 ] The charts provided to the Court jointly by the taxpayers and the ARQ illustrate this: AVIS DE COTISATION DE SHAHRAM SHAWNFAR Année d’imposition Numéro de l’avis de première cotisation Date de l’avis de première cotisation Numéro de l’avis de nouvelle cotisation Date de l’avis de nouvelle cotisation 2010 MS793126J00 27 juin 2011 MS793126C02 27 février 2017 2011 MS919513J00 21 juin 2012 MS919513C01 27 février 2017 2012 MW691914J00 2 juillet 2013 MW691914C02 27 février 2017 2013 MW890245C00 8 juillet 2014 MW890245C01 27 février 2017 AVIS DE COTISATION DE NORMA LUCAS Année d’imposition Numéro de l’avis de première cotisation Date de l’avis de première cotisation Numéro de l’avis de nouvelle cotisation Date de l’avis de nouvelle cotisation 2008 MN240304J00 1er juin 2009 MN240304C01 29 février 2016 2009 MN358604J00 16 juin 2010 MN358604C01 29 février 2016 2010 MS840118J00 22 juin 2011 MS840118C01 27 février 2017 2011 MS919514C00 21 juin 2012 MS919514C01 27 février 2017 2012 MW692926C00 28 juin 2013 MW692926C01 27 février 2017

2013 MW891938R00 23 juin 2014 MW891938RC01 27 février 2017 The reassessments [ 6 ] Those relating to the taxation years 2008 through 2010, were made on the basis of a cash-flow analysis carried out by the auditor with respect to each taxpayer. This audit procedure generated the hypothesis that the taxpayers had outgoing amounts greater than their incoming amounts, thus they had failed to report substantial income, which the auditor estimated and added to the taxable income as “other income”.

This audit makes no effort to determine whether this hypothesised income is related to the livelihood of one or another of the taxpayers. [ 7 ] The years 2011 through 2013 however related only to certain interest payment deductions from rental income gained from an immovable property owned jointly by the couple. The auditor disallowed the deduction of interest on the ground that the interest on loans, although it may well have been paid, did not relate to the immovable in question as there was no security taken over the rental property by the lender.

Grounds of contestation of the reassessments [ 8 ] For most of the assessments, the Plaintiffs take the position that the Minister was not permitted to reassess outside the three- year period of

article 1010. 1. T.A. , because the Minister has not established the misrepresentation or fraud as required by

Article 1010. 2. (

b) i T.A. This argument applies to taxation years 2010 through 2012. [ 9 ] Subsidiarily, they assert other defenses based upon their income situation in respect of those years. [ 10 ] More specifically, in respect of the cash-flow method used, they assert that: - The cash-flow audits of 2008, 2009 and 2010 failed to take into account inflows consisting of substantial gifts made in those years by the mother of Mr.

Shawnfar; - Outflows were over-assessed in respect of supposed payments on loans in connection with motor vehicles which were, in fact, not subject to financing and in respect of presumed costs of fuel, maintenance and repairs to personal use vehicles that were not incurred; - Deductions for interest incurred in respect of rental income should not have been refused in 2009 through 2013, i.e. after the acquisition of the new home and the refinancing of debt as a result of this new acquisition. (this is a principal, not a subsidiary argument for 3013) - A deduction should be allowable for interest incurred in respect financing of taxi permits and vehicles during the tax years 2010 through 2013. (this is a principal, not a subsidiary argument for 2013) [ 11 ] The assessment of penalties is also challenged in respect of any and all years where a reassessment would be valid, on the ground that the ARQ has not proved the elements of “knowingly or under circumstances amounting to gross negligence” and “false statement or omission” required by

Article 1049 T.A. [2] Factual analysis [ 12 ] Mr. Shawnfar moved to Québec from the city of Rasht in the Province of Gilan in Iran in 1996. [ 13 ] Prior to his move from Iran, after his studies, he had worked with his father, who was afflicted with a heart condition, in the operation of a business of buying, repairing and selling used cars. His father was successful in his family life, having six children, and in his business, having several rental properties in addition to his car business.

The Plaintiff was a healthy and energetic man and was very helpful in the business. [ 14 ] When the Plaintiff came to Canada, alone, at the age of 32, he began working in the taxi business. He married the co-Defendant Norma Lucas in 2001. [ 15 ] The couple purchased a duplex on Lasalle Avenue, renting one unit and living in the other. [ 16 ] The couple, severally, acquired three taxi permits. Mr. Shawnfar managed the business. During the years 2008 through 2010, he rented the taxis with their respective permits to drivers. He also drove himself prior to the birth of their daughter. Mrs.

Lucas also drove a little prior to the birth. Income from the taxi business was declared chiefly by Mr. Shawnfar, who owned most of the assets and was the only one active in the business. The couple also declared income on a 50/50% basis from the rental of the immovable property they own jointly. [ 17 ] The audit initially began with an auditor named Jamal Agoun in 2012 and continued intermittently up until the reassessments in 2016 and 2017. Another auditor replaced Jamal Agoun, Tanya White-Roy, in June 2013 several months after the first auditor left the file. The definitive work was done by Mr.

Gerald Paquet, beginning on December 4, 2013 after a period of inactivity. He took contact with Madame Lucas in March 2014. He testified on behalf of the ARQ. [ 18 ] The ARQ takes the position that the parties’ finances had to be segregated because there was no authorisation on file to permit sharing information from one taxpayer’s file to the other’s. Mr. Shawnfar obtained, through the access to information process, a “procuration” dated January 22, 2013, on form that was in the Revenu Québec files. (P-46)

[ 19 ] Though the form was signed, it was irregular in that it appears to be an authorization by Mr. Shawnfar appointing Mrs. Lucas to represent him. It is signed by Mrs. Lucas as though she was appointing Mr. Shawnfar to represent her. The true intention, taking into account the situation, was that Mr. Shawnfar would represent Mrs. Lucas and the information could therefore be shared between his file and hers. [ 20 ] This is not the way the auditor saw the situation.

Feeling bound by the formal deficiency of the document which for him was the absence of any authorisation, he did not attribute the extra income demonstrated by the audits between the two taxpayers equally, something he says he might have done if, permitted to share the information between them, he could have worked this out in discussions prior to finalising the reassessments.

In the Court’s view, with respect, the auditor confuses the sharing of information with the equalisation of the extra income to be taxed, but that is a matter that raises a number of complexities which we attempt to resolve later in this judgment. [ 21 ] Nor did he attribute the surplus primarily to Mr. Shawnfar. This is surprising because he readily admits that this “ écart ” should be considered as income of Mr. Shawnfar. He acknowledges that Mr. Shawnfar was the member of the couple who was operating the taxi business, his wife being in the traditional stay-at-home role.

In the years that she worked as a daycare worker, she declared that income and it was obvious that she could not have actively operated a business. She was the owner of one of the rental permits and, passively, could be considered as benefitting from the income derived from its rental. But it would not be possible to attribute to her the “other income” resulting from the cash-flow analysis. The ARQ’s lack of justification for the indirect method [ 22 ] The audit was carried out essentially as a cash-flow assessment.

The ARQ does not make a case for the necessity of opting for this approach rather than to audit the books and records of the business. The auditor, acting in a programme where taxpayers were targeted because they appeared to have extra wealth, given their declared income, saw it as a self-evident fact that there was undeclared income: the outflows exceeded the inflows in substantial amounts in the years 2008, 2009 and 2010.

Although the audit process was slow and laborious, and interrupted by changes of auditor and gaps of time with no auditor on the file, both tax-payers gave complete access to the data required to the extent that they could, and as time permitted. The genesis of the gifts [ 23 ] During the years in issue, 2008 through 2010, Mr. Shawnfar did not work a great deal driving taxi because of serious unresolved heath issues requiring pain medication for which he developed a dependence. [ 24 ] Norma Lucas began to study at Lasalle College in 2008.

At that time she spent most of her time taking care of her child and was therefore less able to work. The Parseh transfers, 2008 through 2010 and the manual gift in 2010 [ 25 ] Mr. Shawnfar’s mother came to Montreal to visit the family for the first time in May 2004. During this visit, she did not see him much because of his work, and she was disappointed that he worked so much and lacked material comforts. [ 26 ] In 2008, as the family’s needs increased, she began sending him some money, $ 2,000 to $ 2,500 at a time. Mr.

Shawnfar’s understanding of the process is that his father’s lifelong friend (like an uncle to the children) Hussein Golparvar (phonetic), a real-estate agent with connections to an exchange office in Tehran, known as “Parseh”, assisted the family by facilitating conversion of Iranian currency to Canadian dollars and the transfer of this money at a low cost to Canada. The mother would remit Iranian currency through her son to Mr. Golparvar who would arrange for the transfer by Parseh.

The money was delivered in Canadian currency by a contact known as “Ali” who would call from an unknown number to arrange a meeting with Mr. Shawnfar to remit the currency at a mutually convenient time and place usually in the NDG neighbourhood. No record of the transaction was remitted to Mr. Shawnfar. [ 27 ] Mr. Shawnfar received funds in this manner several times from 2008 through 2010. From memory, Mr.

Shawnfar speaks of 16 to 17 such meetings per year. [ 28 ] The documentary evidence tendered shows the following totals for these “ hawala ” transfers: Year 2008 2009 2010 Amount $ 57,650 $ 63,100 $ 43,500 [ 29 ] The documents showing this, P-5, P-6 and P-5, were produced under reserve of an objection as to their admissibility.

The non-admissibility of the documents [ 30 ] The Court is compelled to exclude the documents as evidence of the juridical acts they purport to prove, i.e. the amounts and times of the transfers referred to in the chart above. [ 31 ] There is no way to authenticate the documents, as no witness from Parseh provided testimony. The context of the production the document is the narrative of Reza Derakhtshanfar, Mr. Shawnfar’s brother, who testified from Rasht, Iran by Teams [3] through a farsi interpreter present in the Courtroom. Mr. Golparvar having passed away in 2012, Reza testified having asked the son, Mr.

Abdullah Golparvar, who is also a friend of the family, to provide documentary proof of the transfers his father made on Mrs. Sarii’s behalf through Parseh. He produced copies of the letters he received from the son, Abdullah. The letters P-4, P-5 and P-6 are each dated, as though they were written in the corresponding years, and refer to the payments made through Parseh for the total amounts, e.g. in 2008, $ 57,650 on the request of Ms./Mrs. Daliri Pasikhan Sarii.

The documents give her address as well, and are in English. [ 32 ] They bear what appears to be a seal of Parseh Exchange with an unidentified signature below.

[ 33 ] Presuming good faith on the part of Reza, who would have requested written proof of the transfers from Abdullah Golparvar as late as 2018, it is, despite this good faith, not possible for the Court to put aside the rules pertaining to authentication, and to accept these documents in evidence. They would not be, evidently, contemporaneous with the transfers, because they were only asked for and obtained in the preparation of the trial. No evidence was given to the Court about the records kept at Parseh.

Given the untraceable means of transfer in Canada, an undocumented handover of cash from a person identified only by his first name, it cannot be presumed, without sufficient proof, that a record referring to the transferor and transferee would have been archived at the Tehran office of Parseh.

There is no suggestion, and certainly no evidence, that the documents are forgeries or that they contain false information, nor that Reza is not sincere in his testimony, but neither is it possible to authenticate these documents to establish probative value for the information they contain. [ 34 ] The Court must therefore consider only the testimony.

The Plaintiff, states spontaneously that he recalls a frequency of payments in a range between 15 and 17 transfers per year, for amounts around $ 2,000 to $ 2,500. [ 35 ] His brother Reza, testifying from Rasht, explained that he was the intermediary between his mother, who would remit amounts of Iranian currency to him and Mr. Golparvar (the father), to whom he would remit these funds for conversion and transfer. He cannot recall the exact amounts or frequency, but, in cross examination, he answered that there were 17 or 18 times in 2008, perhaps 19 times in 2009 and about 15 times in 2010.

The amounts were equivalent to approximately $ 2,000 to $ 3,000 each time a transfer was made. [ 36 ] He also confirms that his mother asked him to prepare $ 30,000 in Canadian currency so that she could give it to the Plaintiff in person as a surprise during her visit to Montreal in 2010 for a lengthy stay. [ 37 ] His testimony about the manner of the conversion of the funds ($ 30,000) from Iranian currency to Canadian dollars was, at first, at variance with what is mentioned in the third letter from Parseh, P-6 where it is stated that, of a total of $ 73,500, ordered in 2010, Mrs.

Sarii received in cash in the amount of $ 30,000 in Tehran. Initially, in cross examination, he stated that he converted the currency with friends in Rasht who were jewelry dealers, who also exchanged some of his mother’s tomans for some gold jewelry so that she could give it to Shahram’s wife and daughter during her upcoming trip to Montreal. In re-examination he referred back to the involvement of Parseh in the exchange of the $ 30,000, which is consistent with the document, P-3. [ 38 ] The testimony of the mother, Mrs.

Sarii, confirms essentially the narrative given by her sons, in that she gave money by way of transfers arranged through Mr. Golparvar, and that she made the manual gift of 30,000 Canadian dollars and jewelry during her 2010 visit to Montreal. In answer to a question about how often this was done, she replied “three or four times”. It was not clear whether she was referring to the number of times she remitted funds to Reza, or the number of separate small transfers Parseh was asked to make with those funds. It is also not clear whether the three or four payments were per year or throughout the three years.

She could not recall the amounts, the frequency nor the times when the transfers occurred. [ 39 ] These difficulties of memory were not surprising given her advanced age and the fact that she was being asked to remember, under the pressure of testifying at a distance, in 2021, dates and numbers from 11 to 13 years earlier for which she had not kept records. Banking records would not have been conclusive, because part of the money came from funds she kept at home. Communication was also extremely difficult during her examination by Teams.

She was looking at a smart phone and trying to speak through the Farsi interpreter in the courtroom. She had difficulties in seeing and hearing him. She became frustrated and flustered at times during the testimony, which is not surprising, given the difficulty of conducting the examination by Teams with an interpretor. [ 40 ] In reply to one of the questions about the reasons for using the agency of Mr. Golparvar and Parseh, she simply said that she did not know: “Reza knows”. The bank transfer in 2008 [ 41 ] This international bank transfer of $ 208,744 is accepted by the auditor and by the ARQ.

It was considered as an inflow in Mr. Shawnfar’s cash flow, but not in that of Mrs. Lucas. [ 42 ] Mr. Shawnfar required funds to purchase a home in 2008. He asked his mother to help him. She was happy to do so and decided to sell a rental property in order to provide the funds. She, and the family generally, felt a moral obligation to her son because he had worked hard assisting the father in building the family fortune in the car business. He was the eldest and dearest son of the father. The two were inseparable in the years they worked together. His help was essential, because of the father’s health problems.

The family’s happiness about its own good fortune was seriously impaired by the difficulty of Mr. Shawnfar’s fate. [ 43 ] The ARQ accepted the evidence of this gift because it was made in the form of an international transfer between banks. [ 44 ] While not necessarily scrutinizing the question of the source of the funds from a particular real-estate transaction, the auditor was satisfied by the documentation of a transfer on September 8, 2008, between a bank in Dubai and Mr. Shawnfar’s account at RBC (P- 8) of $ 208,749 and the use of the funds for an immovable purchase in Montreal.

He treated it as an inflow of a gratuity, for the purpose of the cash-flow analysis. It therefore did not add to income. [ 45 ] This acceptance, by the auditor, tends to confirm the credibility of the Plaintiff’s case for the general notions that the family had wealth, that the relations were such that the transfer of some of this wealth to Mr. Shawnfar was in order, because of his proximity to his late father and the fact that he had worked for the family business helping to create this wealth and because he was in financial need. [ 46 ] Mr.

Shawnfar’s testimony, as well as that of his mother, Daliri Pasikhan Sarii, and his brother, Reza Derakhtshanfar all provide corroborative evidence of these general motivations and intentions and the fact that several transfers of relatively small amounts every time were given in the relevant taxation years. Small amounts were easy to make because banks and other intermediaries, who charge high fees and conversion rates, were not involved. [ 47 ] This testimony also establishes the circumstances of the transfer of the lion’s share of the proceeds of the sale of the rental

property that occurred in 2008. The production of the bilateral promise to sell on the part of Mrs. Sarii (P-28) with an accurate translation adds to this proof to establish, with high probative value, both the reality of this gratuitous payment and the general capacity and volition of the family, and particularly of the mother, to favour Mr. Shawnfar by transferring to him a substantial portion of her wealth, which was the family’s wealth. Outflows for payment of loans on motor vehicles acquired [ 48 ] This issue pertains to amounts added in the cash-flow assessments as presumed outflows.

The auditor took the position, and generated the hypothesis through the assessment, that the purchase of two of three cars used as taxis were financed and that, in the relevant years, 2008, 2009 and 2010, amounts must have flowed out to cover payments of principal and interest. [ 49 ] The

summary prepared by Mr. Paquet shows that he added, for each of the years, $ 6,481. The detail, in

Annexe 2, relate to a Nissan Altima 2002 acquired on April 4, 2005 and Hyundai Santa Fe 2002, acquired on March 24, 2006. The assumption, thus, is that they were paid for in equal installments over several years. [ 50 ] Assuming, for the moment, that the ARQ establishes that the criteria of

article 1010.2.(

b) i are met, the assessment would create the presumption that these outlays were made unless this presumption is rebutted by the taxpayer with evidence of sufficient probative value. In that case, Mr.

Shawnfar’s outflows would have to be reduced, reducing the assessment of his additional income, with any remaining surplus of inflow over outflow being transferred by “ ajustement fiscal ” to Norma Lucas to reduce her surplus of outflow over inflow in that year. [4] [ 51 ] The question is therefore of substantial importance in these files. [ 52 ] It is often difficult to prove a negative fact, in this case the fact the purchases of these two vehicles were not financed by loans. The evidence shows that the credit file of Mr.

Shawnfar (P-31) an Equifax document, records purchases in later years, 2014 and 2016, for much more expensive cars, with financing. The report shows no loans that could be correlated with the purchase of these older vehicles in 2005 and 2006. Mr. Shawnfar’s testimony, which is credible, established that he purchased these vehicles without loans. This is indeed plausible given the low prices paid for the cars, which were used.

As well, it would stand to reason that an interest expense would have been deducted in his income tax filings if he had in fact incurred that expense. [ 53 ] During the audit, he answered negatively to the question about car loans in the years pertaining to the audit. [ 54 ] If there had been loans, the auditor would have found the evidence of movable hypothecs on the RPDRM. [ 55 ] These arbitrary amounts should therefore be excluded from the cash-flow assessment of Mr. Shawnfar.

Outflows for expenses in respect of the motor vehicles [ 56 ] These were hypothesised by the auditor who rejected the amounts shown in the questionnaire that the couple answered during the audit, as he found the amounts to be too low. Instead, he took a larger number derived from statistics, $ 2,711 per taxpayer for each of the three years. [ 57 ] To the extent that the presumption of validity would exist for the auditor’s hypotheses, the evidence given by the taxpayers, consisting simply of their affirmation, made in the questionnaire, of lower amounts, would not have rebutted the presumption.

Interest incurred in the financing of the acquisition of taxi permits and taxi vehicles. [ 58 ] Disallowed interest expenses are in issue for the years 2008 to 2013.

They are the only issue in the reassessments of 2011 through 2013. [ 59 ] The problem arises because of a restructuring of debt on various assets, and also because of a treatment sought by the taxpayers for interest as an expense in connection with the immovable rental property. [ 60 ] The taxpayers demonstrate at trial that a joint line of credit secured on their residential property with the RBC (The “Royal Credit Line account”) was used to buy taxi licences with a disbursement of $ 227,000 on January 25, 2007 (P-48, P-49).

In the taxation year 2018, there was still a balance of approximately $ 100,000 left on this loan, resulting in interest calculated at $ 1,687.50 in the tax year 2018. [ 61 ] The same line of credit was used in October 2009 to acquire a Toyota Camry 2007. Most of the purchase price was financed with a disbursal of $ 11,125 resulting in interest calculated at approximately $ 250 per year from 2010 through 2013. [ 62 ] It was used again to borrow 18,000 $ in February 2011 for the purchase of a 2010 Toyota Camry $ 17,450.

This resulted in interest of approximately $ 500 per year from 2011 through 2013. [ 63 ] These two amounts of interest were raised as an issue for the first time during the trial. Interest claimed as an expense to earn rental income [ 64 ] Refinancing created a problem for the treatment of interest as an expense incurred for the purpose of earning rental income from the property on [...] Lasalle, from 2010 to 2013. Prior to that time, there was a debt with RBC secured on the immovable.

On the “Mortgage Loan” statement for January 1, 2008, until December 31, 2008, we see the reduction of a balance of $ 36,486 to $ 110,809.46 and interest in the period of $ 6,992.72. This “mortgage” is the debt relating to the acquisition of the property.

[ 65 ] Both the property and the debt were jointly that of Mr. Shawnfar and Mrs. Lucas. This same credit facility provided a line of credit, called the RBC “Homeline Plan” which we refer to above, in connection with acquisition of taxi permits and taxi vehicles. [ 66 ] When Mr. Shawnfar received the gift of approximately $ 208,000 in September 2008, he invested $ 123,000 in a GIC in his own name and made a loan payment of $ 85,431.35 (D-7, p. 5.61) reducing to nil the balance then owed, 50% by himself and 50% by Mrs.

Lucas, on the RBC Homeline Plan. [ 67 ] Later, it became possible to purchase, for $ 500,000 a new residence in Côte-St-Luc that the couple moved to in 2009. The entire balance on the Mortgage Loan was acquitted on May 6, 2009. The couple continued to use a credit facility with RBC, financed on the new residence. [ 68 ] The net result of this reorganisation of the couple’s financial affairs makes it difficult to prove an association between interest payments and the income pertaining to the rental property because there is no loan secured specifically on that property.

From year to the next, however, if the family’s financial picture is viewed as a whole, they continued to use financing to own and operate all their assets, including the new residence. [ 69 ] In an economic sense, they continued to benefit from credit which, globally, enabled them to own their various properties, cars, taxi permits and their residential and income properties. In claiming interest as an expense incurred to receive income, they acted in a way that was honest and reflected an economic reality, but the planning of their refinancing in May 2009 did not assist them in making a case for the deductions.

In fact, it worked against them. If they had planned for their taxes effectively, they would have maintained, in their debt to asset ratio, debts demonstrably associated with acquisition of both rental and business properties in order to claim as much interest as possible in connection with the business assets and the passive income property. This would have resulted in the acceptance of the interest deductions they were claiming, in principle.

The exact portion of the interest associated with the income would be debatable. [ 70 ] The reassessment is not based on the hypothesis that the amounts claimed are not reasonable, only that there is no specific hypothecary loan on the rental property after the May 2009 release of the hypothec for what was categorised as the “Mortgage Loan”. [ 71 ] This leads to the “prescription” issue, which we deal with below.

Assessments outside the three-year period: Were there misrepresentations attributable to negligence or wilful default or was there fraud? [ 72 ] It becomes necessary to determine whether the ARQ has met its burden of proving, for each fiscal year that is outside the normal three year period of

article 1010.1 TA ,. an element of misrepresentation or fraud as required by

Article 1010 2. (

b) i, of the T.A. The operative words of the statute are: the taxpayers made “misrepresentations that are attributable to negligence or wilful default” or that they have committed “fraud”: [ 73 ] We reproduce the exact text in French and English for ease of reference:

Article 1010. (2) (

b) i.

Article 1010. 2.

b) i.

(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 [… 2 . Le ministre peut aussi déterminer de nouveau l’impôt, les intérêts et les pénalités en vertu de la présente

partie et faire une nouvelle cotisation ou établir une cotisation supplémentaire, selon le cas: […]

b) en tout temps, si le contribuable ou la personne qui a produit la déclaration: i. a fait une fausse représentation des faits par incurie ou par omission volontaire ou a commis une fraude en produisant la déclaration ou en fournissant un renseignement prévu en vertu de la présente partie; […] Interest claimed as a deduction from rental income [ 74 ] For the assessment of 2010, 2011 and 2012, there is no misrepresentation attributable to negligence or wilful default, as well as no fraud, proved by the ARQ in respect of the interest claimed.

There is really a difference of approach to the idea that interest is incurred for the purpose of gaining income on property. The ARQ expects to see proof of debt obtained for the capital acquisition or improvement of each asset, taken specifically. The taxpayer’s approach, rightly or wrongly, was to treat a portion of their overall interest as being associated with the rental property, in a situation where they had made it difficult to prove that as a fact. It is a mixed question of

law and fact to be dealt with in a case where the ARQ has the power to asses and thereby create a presumption of fact that has to be overcome by the taxpayer. Having not proved one of the elements necessary for the establishment of the power to assess “at any time” the ARQ is subject to the three-year limit of

article 1010 for the above-mentioned years. [ 75 ] On the issue of the interest that was not claimed by the taxpayers for the acquisition of taxi permits and vehicles, the Court does not have in the years reassessed outside the three-year limit, a lawful assessment that it can vary. The assessments must simply be vacated because of the failure of the ARQ to prove the elements required by

article 1010.2. (

b) i. [ 76 ] In the year that is reassessed within the three-year limit, 2013, the Court is of the view that the proof offered by the taxpayers is not specific and probative enough to constitute prima facie evidence to overcome the presumption of validity in respect of the disallowed expense in the case of the interest expense on the rental property and, to the extent that could be raised at trial, for the interest expense pertaining to the vehicles.

This is not to say that there is a reason to impose a penalty, as there is not an element of false statement or omission , made, participated in or acquiesced in the making of knowingly or under circumstances amounting to gross negligence . The failure by the taxpayer to meet the burden of proof is not proof of these elements, the onus of which is on the ARQ. Therefore the 2013 assessment is confirmed in respect of this disallowed deduction, subject to the Court’s finding that no penalty should be assessed for that year.

Presumed other income resulting from the cash-flow method. [ 77 ] There are two separate and different analyses to be made because of the distinction between, on the one hand, proof of insufficient probative quality, when the taxpayer has the burden of overcoming the presumption of validity of

article 1014 and, on the other hand, falsehood and the other elements of 1010. 2. (

b) i, when the ARQ has to meet the burden of proof to justify its power to reassess. [ 78 ] The Court has to consider the same evidence for these two distinct purposes using two different burdens of proof. [ 79 ] The Court accepts the sincerity of the Plaintiff’s witnesses, and assesses the probative value of the evidence, as a whole, as sufficient to establish substantial payments from the mother to the son in the relevant taxation years. The amount of the payments in a given year, and the global amount, is only approximately proved in the process of overcoming the presumption of

Article 1014 T.A. , given the lack of specific memory of the individuals, especially the mother, and the inadmissibility of the documentary proof for the reasons given above. [ 80 ] The Court finds it sufficiently probable, however, that the payment of $ 30,000 was made in 2010, because all of the witnesses have knowledge of the specific event. Even though the mother cannot recall the amount, the Court accepts the testimony of the brother, who was aware of the funds he helped prepare, and the son and daughter who were the recipients of the gifts.

It made sense for the mother to give this amount, because she was to stay for a number of months and was not in a position to return the hospitality in Iran, since the Plaintiffs had no opportunity to travel there. [ 81 ] As to the miscellaneous amounts made from time to time through the agency of Parseh, Mr. Shawnfar testified that he deposited these amounts, as well as the $ 30,000 received in 2010, in one of his accounts. The examination that the auditor carried out on the deposits made by Mr.

Shawnfar show that it is possible that he made substantial cash deposits, even deposits in the order of magnitude of the amounts asserted, but it is impossible for him to trace all the deposits to any specific source. [ 82 ] All the evidence about the gifts is given on what, for the taxpayers, is a subsidiary argument, because the principal argument that of “prescription”. [ 83 ] For the Court to establish, for the purpose of the taxpayers’ subsidiary argument, an amount, a cautious approach is necessary. The taxpayers cannot be blamed for not keeping adequate records of these gifts.

The statutory provisions do not provide for record keeping of gifts that are not deductible from income. In this case, gifts are simply not an issue in the taxation of income, and, over time, what occurred here is normal: no one has systematically documented the gifts in a probative way. The taxpayer does not have a duty to anticipate that extra cash will trigger a cash-flow assessment, nor to include his own cash-flow analysis in a self-assessment when he declares his income from year to year.

The lack of records of gifts is not an anomaly, it is a normal circumstance of life, and it does not constitute, ipso facto , a reason to carry out an indirect method of assessment. [ 84 ] It is difficult for the Court to determine precisely something of which the quantum is not knowable scientifically. But it is necessary for the Court to do so, just as it is in any case where an assessment of quantum is made difficult by the of the lack of precision of the evidence.

To allow no amount of the quantum of the miscellaneous gifts would be to deny their existence, which is contrary to the proof when taken as a whole. To allow the amounts appearing in the Parsec documents would be the equivalent of giving these documents an authenticity that has not been established and a probative value that they do not provide. [ 85 ] Mrs. Risii had an incomplete recollection when she guessed that perhaps she had made four or five payments.

It was unclear whether she meant per year or over all the years and whether those remittances were amounts made to her son Reza which he then remitted in smaller amounts to Mr. Golparvar or that the latter broke up into smaller payments for Parseh. [ 86 ] Mr. Shawnfar and Reza are reconstructing a recollection which matches the Parseh documents, but these are not probative.

The Court is satisfied, for the purpose of the burden of proof of the taxpayer, if it applies, that on the balance of probabilities, at least five payments per year of $ 2,500 each (for a total of $ 12,500) were made in each of those three years in the form of Parseh transfers. [ 87 ] This is would only be applicable if the cash flow assessments stand, and therefore can be revised. [ 88 ] However, as we mention above, the probative value of the evidence is only sufficient to overcome the presumption of

Article 1014 T.A. , only one for part of the amounts alleged by Mr. Shawnfar. This being said, even the failure to overcome the presumption of validity is not, ipso facto , proof by the ARQ of a misrepresentation in the meaning of

Article 1010. 2. (

b) i T.A. There are cases where

the evidence as a whole shows that the taxpayer’s conduct in a relevant year in the self-assessment shows misrepresentation, and the results of an indirect assessment method is part of the evidence that establishes it. But in such cases, there are usually specific inaccuracies or omissions in the taxpayers’ declarations that are alleged and proven. Often there are no declarations and no business records. [ 89 ] In the present case, the audit began as the application of the indirect method, and the only evidence of a misrepresentation is the presumption of validity itself.

This presumption is only established by the assessment if the assessment is legal. The burden of proving the legality of the assessment is on the ARQ, and then and only then, the assessment proves, by presumption of law, that the tax self- assessment is false. [ 90 ] We have, essentially, the situation examined by the Court of Appeal in Labrosse c. Agence du revenu du Québec [5] , on appeal from a judgment of the Court of Quebec.

The arrêt points out clearly that the presumption of validity does not create, ispo facto , a presumption of false representation in the context of penalties. [42] En effet, la disposition relative à la présomption de validité et d'exactitude des cotisations émises par Revenu Québec, et invoquée par l'intimé dans son mémoire, me paraît inapplicable à cette question. Il me paraît nécessaire de faire une distinction fondamentale entre le mérite de la cotisation, à savoir que le montant versé par 9052-0404 Québec inc. à l'appelant ainsi que la

partie du montant versé à l'épouse de ce dernier, en 1999, et inutilisé par celle-ci, constitue un revenu de l'appelant, à défaut d'une preuve prépondérante au contraire de celui-ci au soutien de sa thèse que l'argent lui fut versé à

titre de mandataire, laquelle cotisation bénéficie de la présomption d'exactitude, mais qui ne crée pas ipso facto une présomption de fausse représentation des faits par omission volontaire, ou fraude au sens de la disposition précitée, laquelle doit être prouvée. [43] En d'autres mots, la présomption dont peut se prévaloir l'intimé est que son interprétation de la situation fiscale est celle qui est valable, sous réserve d'une preuve prépondérante au contraire, mais elle ne s'applique pas à la qualification du caractère frauduleux ou sciemment faux et erroné de la déclaration. [ 91 ] The arrêt also denounces the hazard of the circularity argument for the jurist who applies 1049 T.A. together with 1010 T.A. [50] L'erreur, à mon avis, tant de Revenu Québec dans sa position que du juge, est d'utiliser un argument circulaire fondé sur l'article 1049 L.I. que l'on retrouve au

chapitre 1 du

titre 5 de la loi (« pénalité ») et qui parle de « négligence flagrante », « faux énoncés » et « omission dans une déclaration », mais aux fins de justifier l'imposition d'une pénalité lorsque, de toute évidence, le montant de base relève d'une cotisation valablement faite d'un montant non déclaré. [51] En l'espèce, de plus, la position de l'intimé en vertu de l'article 1010 L.I., mais par l'application de l'article 1049 L.I., repose sur deux arguments majeurs, à savoir que l'appelant est avocat et que la somme est importante, arguments qui, à mon avis, ne répondent pas au fardeau qui incombait au ministère en vertu de l'article 1010 L.I. [52] Bref, à mon avis, le juge commet une erreur de droit en concluant que, parce que la pénalité serait justifiée en vertu de la présomption de l'article 1049 L.I., une fois la cotisation présumée exacte, ceci signifierait que, en vertu de l'article 1010 L.I., la cotisation deviendrait valable nonobstant le délai de prescription écoulé, et ce, en l'absence de présomption de fausse représentation ou de revenus sciemment cachés. [ 92 ] In the present case, if indeed the taxpayers here, chiefly Mrs.

Lucas and, to a lesser extent, Mr. Shawnfar, had knowingly failed to disclose tens of thousands of dollars of other income in her/his income tax filings, that would, surely, constitute grounds for Revenu Québec to reassess outside the three-year period and, probably to impose penalties as well. But the ARQ must allege and prove this. The assessment itself provides presumptive evidence of the other income, and thus of the failure to report it, shifting the onus of proving the contrary to the taxpayer. This works somewhat seamlessly in an assessment made within the three-year period.

But it does not provide presumptive evidence for the ARQ to assess outside the three-year period. To establish that power, the mere result of a net-worth assessment is not, taken alone, sufficient. [ 93 ] The facts of the present case illustrate the point. The auditor readily admitted that his assessment of Mrs. Lucas was not representative of reality because it was obvious that, if undeclared income was earned, it would be Mr. Shawnfar who earned it: he was the one engaging in business while Mrs. Lucas was a daycare worker and a person in a traditional role of mothering a child.

The reason the computations worked to generate the hypothesis that the wife had substantial income was the presumption that she had contributed substantially to the family payments, and did not have enough declared income to cover them. He admitted that it would have been more appropriate to equalize the “ écarts ” by treating the family as one household, but, even at that, patently there is no evidence of misrepresentation, by Mrs. Lucas, of income that she did not make, and that her husband might have made. It should not be necessary to affirm this in 2021, but she is a separate person from her husband.

She cannot have made a false statement by not including income of her husband in her own income-tax declarations. [ 94 ] There is no presumption that her husband made this income in 2008 and 2009, because he was not assessed for it. [ 95 ] Based on the lack of evidence of Mrs. Lucas making undeclared income, in fact, the presence of evidence that she did not, as admitted candidly by the auditor who attributes it in his testimony to the husband, and given the principle that Mrs.

Lucas is not responsible for her husband’s income tax disclosure, the assessments are clearly “prescribed” in so far as she is concerned, i.e. the Minister was not empowered to reassess her income for 2008 through 2010. [ 96 ] It becomes necessary to examine the ARQ case for reassessing Mr. Shawnfar for 2010, a year for which the auditor hypothesised $ 8,749 as a result of the additional “other” income of cash-flow assessment. This number is the difference between outflows of $ 55,964 and inflows of $ 47,215.

Included in the outflows is $ 6,484, the posited payments of capital and interest on the Hyundai Santa Fe 2002 and the Nissan Altima 2002 (schedule 2 in D-6). [ 97 ] Removing these fictitious and wrongly hypothesized payments from the equation, the shortfall (“ écart ”) would be $ 2,268. This modest amount is the result of the hypothesis on which the cash-flow analysis is based, i.e. the negative fact that no amounts of inflows

into Mr. Shawnfar’s patrimony were gifts from his mother in that year. The basis of the negative fact is the presumption created in law by the reassessment based on this supposition. This circularity cannot be treated as a misrepresentation for the purpose of

Article 1010. 2. (

b) i. because the untruth necessary to permit the reassessment is nothing other than the reassessment itself. There is no other basis for it. The reassessment of Mr. Shawnfar for 2010 must therefore be vacated. [ 98 ] What’s more, all the reassessments by the cash-flow method are also subject to being vacated because resorting to this method was a premise, because the file was part of a programme, not because it was a last resort based on demonstrable grounds. [6] [ 99 ] These are the primary findings of the Court, reflected in the conclusions of the present judgment.

The subsidiary issues [ 100 ] The taxpayers and the ARQ spent considerate time debating the specifics of the cash-flow assessments which required answers, if the decision of the Court to vacate the assessments (except that of 2013) because of

Article 1010. 2. (

b) i T.A. were to be put aside. To complete its analysis, the Court will endeavour to resolve these subsidiary issues. [ 101 ] The approach taken by the auditor was to carry out two separate cash-flow analyses, one for each individual, and then to carry out adjustments between the spouses. More particularly, a lot of attention was paid to the problem that arises in 2008 where an amount of $ 208,749, the gift from the mother from the proceeds of her sale of a property, is considered as an “other inflow”. [ 102 ] This results in a surplus of $ 26,311 of inflows over outflows which has then transferred from Mr.

Shawnfar’s “ rapport sur le mouvement de trésorerie ” to that of Mrs. Lucas. This has a net effect of that amount in the reduction of the shortfall (“ écart ”). (P-12, p. 5.1 &

Annexe 5, p.5.13) [ 103 ] The auditor explained this transfer as an equitable approach to lessen the distortion of the cash-flow assessment when it falls unduly on one of the taxpayers. The amount of surplus transferred in respect of 2009 is less dramatic, but still significant ($ 7,899). However, in 2010, there is no transfer because Mr.

Shawnfar’s Rapport sur le mouvement de trésorerie gave a positive shortfall (“ écart ”). [ 104 ] The taxpayers mentionned, in their subsidiary argument, two alternate ways of adjusting the cash-flow reports: one which carried out an averaging of all items between the two spouses, which would decrease considerably Mrs. Lucas shortfall (“ écart ”). They used, for this argument, the report prepared by the auditor as part of his method. (P-61). [ 105 ] The results can be summarized as follows: 2010 2009 2008 Total $ 53,953 $ 61,844 $ 59,404 Mrs.

Lucas’ 50% share $ 26,976.50 $ 30,922 $ 29,704.50 [ 106 ] These 50% shares of the global cash-flow assessments would have to be adjusted because of other amounts mentioned in this judgment, but the result would, even without these adjustments, be favourable as compared with the shortfalls assessed to Mrs. Lucas: 2010 2009 2008 Mrs.

Lucas’ 50% of global shortfall $ 26,976.50 $ 30,922 $ 29,704.50 Shortfall in actual assessment $ 45,204 $ 61,985 $ 59,411 [ 107 ] The averaging approach would not however follow the jurisprudential trend, which is to consider spouses as individuals, not as partners in a merged financial arrangement, unless there is truly confusion of the two patrimonies. [ 108 ] The facts of the present case resemble those of Sayah c.

Agence du revenu du Québec [7] , also a cash-flow method case, where only the husband carried out the business that could have generated the other revenue, and therefore, it was not appropriate to attribute the cash-flow shortfall to the wife. [ 109 ] A subsequent case, Giard c. Québec (Sous-ministre du Revenu) [8] , takes the same approach, citing Sayah , in a situation where there was no evidence that the wife had participated in an illegal commerce carried out by the husband.

The case of Chenel [9] is distinguishable as a case where the method, “ avoir net combiné ”, was permitted when there are indications of the spouse who refuses to disclose his income to the fiscal authorities using the family unit to camouflage the extent of his income. [37] Il est clair que la méthode de l'avoir net a traditionnellement été appliquée aux particuliers et qu'elle constitue une méthode nécessaire dans les cas où le contribuable refuse de produire une déclaration ou que sa déclaration est fort inexacte ou qu'il refuse de fournir des documents qui permettent de vérifier un rendement ou que les renseignements sont tellement embrouillés, incomplets ou vagues 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 contribuable utilise l'unité familiale pour camoufler l'ampleur de ses revenus.

Il est évident que le ministère devra faire montre de grande prudence et qu'il ne pourra consolider, pour fins de calcul, les revenus de deux époux ou conjoints de fait que lorsqu'il y a confusion manifeste des patrimoines et des passifs et dépenses. [39] Il s'agira donc principalement d'une question de fait qui devra être tranchée par le juge de première instance. [ 110 ] In the present case, there was no such confusion of patrimonies and, in the audit process, the auditor received and analyzed the

assets, income, and expenditures using bank records. When the asset, for example the immovable, was owned jointly, he treated each spouse as an individual owning a one-half interest and common expenses that were estimated as outflows were applied in equal shares, but essentially, the two patrimonies were treated individually and two distinct cash-flow analyses were carried out.

The auditor explained the adjustments of the husband’s surplus not as a confusion of patrimonies, but as a mitigation of the results, which would be a distortion were it not for the adjustment. [ 111 ] The case of Costa [10] raises the problem of jurisdiction.

The court rejects the ARQ’s subsidiary argument for permission to reassess the husband to re-attribute to him the amounts refused in respect of the “ cotisation miroir ” carried out regarding the wife. [ 112 ] Citing Rémillard [11] , Judge Lareau concluded that the Court of Quebec is without jurisdiction to defer to the ARQ an assessment for it to be increased. [ 113 ] This is rather crucial in the present case because the auditor stated several times that if corrections were made to his analysis of the Lucas cash-flow report, as reductions, he would have to carry out corresponding corrections to increase that of Mr.

Shawnfar. This reassessment of the husband is impossible for the Court to do in the present case. [ 114 ] This leads to the other submission made by the taxpayers for adjustment of Mrs. Lucas’s assessments for 2008, 2009 and 2010. [ 115 ] The auditor confirmed in cross-examination that, in order to carry out separate cash-flow reports for each taxpayer, he should treat inflows and outflows of joint accounts as representing an operation by each spouse of 50%.

In this way, just as with the joint net income from property, he could individualise the effects of the flows. [ 116 ] For the gift of $ 208,749 made in 2008, after the initial deposit it was divided, using $ 123,000 to purchase a GIC held in the patrimony of Mr. Shawnfar and $ 85,431.45 to reimburse a joint credit margin. The auditor did not, however, treat 50% of that loan reduction, $ 42,715, as an inflow to Mrs. Lucas. The entire $ 85,431.45 is treated as in inflow to Mr. Shawnfar only. The effect of the inflow, in the year 2008, brought Mr.

Shawnfar into a surplus position of $ 29,692. [ 117 ] This surplus is then applied as an adjustment to Mrs. Lucas account, thereby correcting, only in part, the departure from the methodology. The impact is to attribute $ 13,123 of other income to Mrs. Lucas that should not be, if the method is used coherently. [ 118 ] In addition to the difficulties associated with the gift in 2008, the analysis carried out in the cross-examination revealed a series of impacts on the Lucas cash-flow because of payments made by Mr.

Shawnfar in 2010 from his RBC Visa Gold and against the joined debt on the couple’s RBC Homeline plan. There are in total $ 43,000, of which the auditor failed to consider half ($ 21,500) as being an inflow for Mrs. Lucas (P-56). [ 119 ] Taking this amount as an inflow reduces her 2010 shortfall from $ 45,204 to $ 23,796 (due to a calculation error, P-56 shows an amount of $ 15,213. This error does not appear in the “grand total” calculation of P-52). [ 120 ] Likewise, a MBNA credit card held by Mr. Shawnfar was used to pay down the joint RBC Homeline Plan by $ 7,400.

This was not treated as an inflow of $ 3,700 to Mrs. Lucas, (P-57, P-58) also in 2010. [ 121 ] In 2009, an aggregate of payments made by Mr. Shawnfar from his CPG account to the benefit of Mrs. Lucas in her CELI account ($ 5,000) and in the joint Homeline Plan ($ 35,037) were both treated as inflows for Mrs. Lucas. An amount of $ 8,000 would have to be added to her 2008 inflows as well (P-60). [ 122 ] The auditor protests the corrections proposed because it was not possible to segregate each outflow from a joint account and relate it specifically to one or another of the taxpayers.

He proposes that a joint treatment globally would be more appropriate. On January 13, 2016, he produced the joint cash-flow analysis, but did not use it in the assessments. [ 123 ] However, the taxpayers argue that, since Mrs.

Lucas has substantial declared income, it would not be unreasonable to presume that she had contributed proportionally to the family’s expanses, and to treat her inflows individually. [ 124 ] The aggregate of the adjustments proposed by the Plaintiff Lucas on the issue are set out in a table (P-62) of which we produce the relevant parts: 2010 2009 2008 Total inflows $ 38,917 $ 100,272 $ 56,155 Revised total inflows $ 64,117 $ 140,309 $ 106,655 Total outflows $ 84,121 $ 162,117 $ 115,566 Shortfall ($ 45,204) ($ 61,845) ($ 59,411) Revised shortfall ($ 20,004) ($ 21,808) ($ 16,911) [ 125 ] The opposition to the auditor to these proposed adjustments is not that they are inappropriate, but that, if the shortfall (“ écart ”) of the wife is reduced by recognizing them, then the shortfall of the husband should be increased by the same amount. [ 126 ] The point is logical, but the Court is bound by the limits of its jurisdiction.

The assessment of Mrs. Lucas should be reduced to take into account the impact summarized in P-62. [ 127 ] There is one consequential adjustment however that would be necessary in 2008 and 2009 where the surpluses of Mr. Shawnfar’s cash-flow report were credited as inflows in Mrs. Lucas’ report. Correlative reductions of the income tax adjustments are necessary, as illustrated in the following table:

2009 2008 Proposed revised shortfall ($ 20,808) ($ 16,911) Reduction of tax adjustment $ 7,899 $ 29,692 Applicable revised shortfall ($ 29,707) ($ 46,603) [ 128 ] The Court makes a distinction between its incapacity to increase the assessment of Mrs. Lucas and its duty to fully take into account the impact of the adjustments to the inflows of Mrs. Lucas. The fiscal adjustment accorded by the auditor in 2008 and 2009 to Mrs. Lucas because of the surplus in Mr. Shawnfar’s cash-flow report must be reduced by the amount of the reduction of that surplus made because of the inflows re-attributed to Mrs.

Lucas. [ 129 ] As well, while the Court does not have the jurisdiction to increase an assessment, it can order the recalculation of an assessment by various factors if the overall effect does not result in an increase to the amount of the reassessment that is the object of the contestation.

Summary of the Court’s findings on the subsidiary grounds of defense [ 130 ] Were it not for the Court’s primary decision to the effect that the 2008, 2009 and 2010 reassessments are null because of the three-year limitation on the Minister’s reassessment power, its decision would have been to refer the files back to the ARQ to reassess in accordance with the following instructions in regard to the cash-flow reports: 1. Take into account as additional inflows to Mr. Shawnfar the gifts of $ 30,000 in 2010 plus $ 12,500 in each of 2008, 2009 and 2010; 2.

Remove as outflows the amounts of $ 6,481 per year by Shawnfar in regard to “ versement sur emprunt automobile ”; 3. Add inflows to Norma Lucas cash-flow report to take into account the “grand total” adjustments of P-62, but taking into account the consequential reduction of the tax adjustments because of consequential changes to Mr. Shawnfar’s cash-flow surplus in 2008 and 2009;/ 4.

When the above changes to the cash-flow reports are complete, apply, as a tax adjustment in each year, the surplus, if any, of one taxpayer’s cash-flow report to reduce the shortfall (“ écart ”) of the other in that year. [ 131 ] In respect of the other three years where the cash-flow method was not resorted to, and considering the Court’s finding that the three-year limitation has not been overcome by the ARQ, the reassessments should be vacated for 2011 and 2012.

But, subsidiarity, in the event that these years are to be reassessed, the Court’s view would be that the file should be returned to the ARQ in order to remove the penalties. [ 132 ] In 2013, the presumption of

article 1014 TA applies. The file should be returned to the ARQ for reassessment in order to remove the penalties.

Conclusions WHEREFORE, THE COURT: In case no: 500-80-037393-189 (Shawnfar) ALLOWS in part the Plaintiff’s contestation of the assessments referred to in the present matter; VACATES , purely and simply, notices of assessment numbers MS793126C02, MS919513C01 and MW691914C02 pertaining to 2010, 2011 and 2012 respectively; VACATES notice of assessment number MW890245C01 pertaining to 2013 and REFERS the file back to the Minister of Revenue for a reassessment for 2013, confirming the amounts assessed as income tax, but removing the penalties and adjusting the interest accordingly; In case no: 500-80-037394-187 (Lucas) ALLOWS in part the Plaintiff’s contestation of the assessments referred to in the present matter; VACATES , purely and simply, notices of assessment numbers MN240304C01, MN358604C01, MS840118C01, MS919514C01, and MW692926C01 pertaining to 2008, 2009, 2010, 2011 and 2012 respectively; VACATES notice of assessment number MW891938RC01 pertaining to 2013 and REFERS the file back to the Minister of Revenue for a reassessment for 2013 confirming the amounts assessed as income tax, but removing the penalties and adjusting the interest accordingly; THE WHOLE , with costs in favour of the Plaintiffs in both files. __________________________________ DAVID L.

CAMERON, J.C.Q. Me David COUTU De GRANPRÉ CHAIT S.E.N.C.R.L/LLP Lawyers for the Plaintiffs

Me Kamal SAOUD Larivière Meunier Lawyers for the Defendant Dates of hearing : February 10, 11, and 15, March 1, May 10, 2021. Suspention of délibéré for supplemental questions to lawyers discussed by Teams on November 30, 2021. Stipulations by lawyers by joint letter November 30, 2021. [2] 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 (

a) the aggregate of […]