2017 QCCQ 11483, 2017 QCCQ 11483

Dandona c. Agence du revenu du Québec 2017 QCCQ 11483 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL “Civil Division” No: 500-80-029763-142 DATE: October 2, 2017 ______________________________________________________________________ BY THE HONOURABLE JEFFREY EDWARDS, J.C.Q. ______________________________________________________________________ BADA KSHITIJ DANDONA Plaintiff v.

L’AGENCE DU REVENU DU QUÉBEC Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Bada Kshitij Dandona appeals from a decision of the Quebec Revenue Agency ( QRA ) regarding the legal nature of certain monies received by him further to the sale of certain property owned by him. [ 2 ] In 2011, the QRA took the position that certain net sale proceeds obtained over the years 2004 to 2008 should be considered as business income, that certain expenses claimed by Mr.

Dandona should not be allowed and that the tardy filing of Mr. Dandona’s 2008 personal tax return should give rise to a penalty. [ 3 ] Mr. Dandona first contested assessments regarding the years 2004, 2006, 2008 and the application of the penalty. Progressively, Mr. Dandona withdrew his contestation of the bulk of new assessments. He now does not contest that the net sale proceeds received over the various years should be considered as business income. However, one issue remains to be decided.

He considers that certain of the renovation expenses claimed with regard to the sale of two of the Linton Properties (3900 and 3910) should be allowed as business expenses. QRA maintains its refusal. Question in Issue For the 2008 taxation year, should the Siya Renovation invoices refused by QRA relating to the 3900 and 3910 Linton Properties be allowed as a business expense?

Context [ 4 ] Mr. Dandona is a doctor working as a full time cardiologist at the McGill University Health Center. At the time of the events in the current matter, he was working at the Royal Victoria Hospital. [ 5 ] Plaintiff acquired and sold certain properties located in the Montreal metropolitan area. He tended to acquire rental properties. He proceeded to renovate and sell them. He sometimes subdivided the rental property to convert apartments to undivided co-ownership units in which case he sold each unit to a different buyer. [ 6 ] Further to the acquisition of properties, Mr.

Dandona normally carried out certain renovations. One of the renovation companies that he hired was Siya Renovation. [ 7 ] On November 3, 2006 [1] , Mr. Dandona acquired four (4) apartment blocks or revenue properties located on Linton Street in Montreal.

In 2008, in four (4) separate sale transactions, he sold these properties. [ 8 ] The relevant information on the Linton Properties can be summarized as follows: Purchase and Sale of Linton Properties Civic Address Date of Purchase Date of Sale 3860 Linton November 3, 2006 (Exhibit PD-10) January 30, 2008 (Exhibit PD-14) 3880 Linton November 3, 2006 (Exhibit PD-10) February 25, 2008 (Exhibit PD-15) 3900 Linton November 3, 2006 (Exhibit PD-10) February 25, 2008 (Exhibit PD-16) 3910 Linton November 3, 2006 (Exhibit PD-10) January 30, 2008 (Exhibit PD-17) [ 9 ] Further to these sales in 2008, Mr.

Dandona submitted as business expenses Siya Renovation invoices relating to work carried out on these properties. [ 10 ] He submitted fifty

(50) Siya invoices which are detailed at Exhibit PD-9, a document prepared by QRA’s auditor. The total amount of these invoices is $187,880.53. [ 11 ] The QRA’s auditor requested from Mr. Dandona the proof of payment of these invoices. She received payment cheques [2] . [ 12 ] However, the first problem was that the payment cheques do not correlate with the invoices. In particular, the amounts on the cheques do not match the amounts on the invoices.

[ 13 ] Mr. Dandona explained to the Court that he paid Siya Renovation on a “rolling” basis. He would pay them approximately $5,000 per month. They would send invoices with specific amounts charged but Siya Renovation was satisfied to receive constant partial payments. Mr. Dandona stated to the Court that Siya Renovation worked on various properties belonging to him, including the Beaudry, Clark and Bedford Properties.

There was therefore a working relationship with Siya Renovation based upon trust. [ 14 ] The second problem was that, after analysis, the QRA auditor noted that the total amount of the claimed invoices does not line up with the total amount of the payment cheques issued. [ 15 ] The total amount of the claimed Siya Renovation invoices is $187,880.53 [3] . But the total amount of the payment cheques is $147,152 [4] . That leaves an unjustified short fall of $40,728.53. [ 16 ] The third problem was the dates appearing on the Siya Renovation invoices.

On one hand, of the fifty (50) invoices submitted, nine (9) are dated before Mr. Dandona acquired the Linton Properties. These total $84,768.64.

They are detailed as follows: Siya Renovation Invoices Dated Before Purchase of Linton Properties Auditor’s Page Reference Reference Number Used During Court Hearing Date Amount Period Before Purchase Date (approx.) 1) 7.378 1 May 1, 2006 $16,592.63 6 months 2) 7.379 2 May 5, 2006 $12,642.00 6 months 3) 7.380 3 May 30, 2006 $1,015.88 5 months 4) 7.381 4 July 6, 2006 $13,996.50 4 months 5) 7.382 5 August 4, 2006 $12,642.00 3 months 6) 7.383 6 August 20, 2006 $1,241.63 2 1/2 months 7) 7.384 7 September 15, 2006 $12,642.00 2 months 8) 7.385 8 October 2, 2006 $12,642.00 1 month 9) 7.386 9 November 2, 2006 $1,354.50 1 day Total: $84,769.14 [ 17 ] On the other hand, eight (8) of the submitted invoices are dated after the sale of the relevant property mentioned in the respective invoices.

These total $9,255.88. They are detailed as follows: Siya Renovation Invoices Dated After Sale of Linton Properties

Auditor’s Page Reference Reference Number Used During Court Hearing Date Amount Address of Linton Property Period After Sale of Property (approx.) 1) 7.420 11 [5] March 15, 2008 $564.38 3910 March 15, 2008 Sold January 30, 2008 (45 days) 2) 7.421 12 March 18, 2008 $4,063.50 3900 March 18, 2008 Sold Feb. 25, 2008 (20 days) 3) 7.422 13 March 25, 2008 $564.38 3910 March 25, 2008 Sold January 30, 2008 (53 days) 4) 7.423 14 May 12, 2008 $338.63 3910 May 12, 2008, sold Jan. 30, 2008 (100 days) 5) 7.424 15 May 16, 2008 $451.50 3910 May 16, 2008 Sold Jan. 30, 2008 (104 days) 6) 7.425 16 June 20, 2008 $1,918.88 Unidentified and withdrawn by Plaintiff June 20, 2008 Sold Jan. 30, 2008 (128 days) 7) 7.426 17 July 1, 2008 $225.75 3910 July 1, 2008 Sold Jan. 30, 2008 (140 days) 8) Illegible 18 August 19, 2008 $1,128.75 3910 Aug. 19, 2008 Sold Jan. 30, 2008 (189 days) Total: $9,255.77 [ 18 ] QRA’s auditor accepted the other thirty-three (33) invoices totalling $93,855.62.

The total amount of the refused invoices is $94,024.91. [ 19 ] In her testimony, the QRA auditor Sylvie Gauthier stated that, without adequate justification, she could not accept the refused invoices. She stated that if the refused invoices had borne a date that was after the purchase or before the sale of the relevant property, she would have accepted it. [ 20 ] Mr.

Dandona testified as to why the dates on the contested invoices were either prior or subsequent to the purchase and sale of the properties. [ 21 ] With regard to the invoices before the purchase, he stated that the Promise to Purchase of the Linton Properties was signed on March 26, 2006, some 7 1/2 months before he actually acquired them. The first contested invoice is after that date, namely May 1, 2006. [ 22 ] There was an objection by the attorney of QRA regarding testimony on the existence and date of the stated Promise to Purchase. The Court took that objection under reserve.

The attorney of QRA had previously asked the attorney of Mr. Dandona for a copy of the Promise to Purchase and did not receive it. The QRA attorney even alleged his request in QRA’s defence [6] . [ 23 ] In his testimony regarding the Promise to Purchase, Mr. Dandona states that he has made every inquiry in order to obtain the Promise to Purchase, including to the real estate agent, but that no one has retained a copy, including himself.

[ 24 ] However, the Deed of Purchase [7] of the Linton Properties refers to this Promise to Purchase and gives its date. Clause 9 of the Deed reads as follows: “9. DECLARATION CONCERNING THE PRELIMINARY CONTRACT This sale is made in execution of the preliminary contract dated the twenty-sixth (26 th ) day of March, Two thousand and six (2006) and its amendments and counter-proposals, and accepted by the Vendor.

Unless conflicting herewith, the parties confirm the agreements contained in the said documents but not reproduced herein.” [8] [ 25 ] Given the clause in the Deed of Sale and that it was written by the notary, the Court considers that there is sufficient probability as to the existence and date of this document. Accordingly, the Court will dismiss QRA’s attorney’s objection in that regard. [ 26 ] In any event, it is not because there is a Promise to Purchase, that it is reasonable and credible that a potential future owner may claim expenses for work done to a property before he acquired it.

The Court will come back to this later. [ 27 ] Mr. Dandona explained to the Court that he expected to become owner and that the reason the pre-contractual period took so long was that he had to assume a hypothec of the owner and that the discussions in that regard were protracted. This delayed the signing of the Deed of Purchase. [ 28 ] However, there is no proof regarding these discussions during the pre-sale period. When asked what would happen to his incurred expenses if the sale transaction was not signed, Mr. Dandona stated that he would be “exposed”.

Basically, that he would have no compensation for that loss. [ 29 ] With regard to the invoices after the sale of the properties, Mr. Dandona offered two explanations. [ 30 ] First, the dates of the invoices do not correspond to the date that the work was actually performed. He said that as a result of his relationship of trust with Siya Renovation, they were being paid monthly a similar amount regardless of the amounts of their invoices.

Furthermore, they were working on various properties for him and invoices could come in after the work was actually performed. [ 31 ] Second, he had a recollection that there was a “hold back” agreement between him and the buyers of the properties. He was contractually required to carry out certain work as part of the sale process and his obligations thereunder. [ 32 ] The only reference in the sale documents regarding such a hold back was with regard to the sale of the 3860 Linton Property [9] . However, none of the invoices refused by QRA for alleged work after the sale relate to the 3860 Linton Property.

When pressed by the Court as to whether there was any written or contractual document of any sort regarding the relevant properties, namely 3900 or 3910 Linton, the answer was that there was no such document.

Analysis and Decision [33] In the context of an appeal from a QRA assessment,

Article 1014 of the Taxation Act[10] states that the QRA benefits from apresumption of validity as to the accuracy of the assessment. With respect to that presumption and the respective obligations of theparties to rebut the presumption and to prove their assertions, the Court of Appeal in St-Georges v. Québec (Sous-ministre duRevenu)[11] stated as follows: “Dans 9027-5967 Québec inc. (Sous-Ministre du Revenu), 2007 QCCA 47 , J.E. 2007-223 (C.A.), la Cour rappelle lesconséquences de cette présomption sur le fardeau de la preuve, aux paragr. 13 et 14 : [13] Dans l’arrêt Durand c.

Québec (sous-ministre du Revenu), la Cour a réitéré les règles relatives à la présomption de validité de lacotisation fiscal et des fardeaux de prévue qui en découlent. Reprenant les principes énoncés par la Cour suprême dans Hickman MotorsLtd. 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. [14] Règle générale, la preuve prima facie se définit comme une preuve suffisante pour établir un fait jusqu’à preuve du contraire. DansStewart c.

M.R.N., le juge Cain mentionne qu’« une preuve prima facie est celle qui est étayée par des éléments de preuve qui créent untel 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 contrairene soit prouvé ». [références omises]” [34] Accordingly, in order to demolish or rebut QRA’s presumption, Mr. Dandona must present prima facie evidence that the factualassertions and legal conclusions of QRA are wrong.

In that event, the burden of proof is reversed and QRA must, by preponderance ofproof, establish the accuracy of the facts and judicial conclusions supporting its assessment. Invoices Dated Before Purchase of the Linton Properties [35] With regard to the refused Siya Renovation invoices (1 to 9 of the table at paragraph 16 of the present judgment) for workallegedly carried out before the purchase of the Linton Properties, based upon the evidence, the Court concludes that Mr. Dandona hasfailed to present sufficient credible prima facie evidence to demolish the legal presumptions and to refute them.

[ 36 ] The Court comes to this conclusion for the following reasons: 1) There is a short fall of proof of payment of the invoices in the order of 22% ($40,728.53 out of $187,880.53). Accordingly, there is no proof of payment of $40,728.53 of the invoices. The refused invoices total $94,024.91 or 43% of the unsupported invoices. 2) At the hearing, QRA raised serious grounds to question the credibility and veracity of the claimed invoices. In particular, the invoices 2) and 5) above dated respectively May 5, 2006 and August 4, 2006 relate to work supposedly carried out to units 2 and 5 of the 3860 Linton Property.

However, QRA filed a Memorandum of Adjustments , signed by Mr. Dandona, dated some two years later , namely January 30, 2008, which acknowledges that the same work indicated in those invoices had not been done at that date. This effects the credibility of all the submitted invoices. 3) There was a gap of apparently one year between the request of the auditor for the invoices and their communication to the auditor.

The implication is that certain of these invoices were prepared and issued at that time only and well after the actual events. 4) Given that the payment cheques do not correlate to the invoices, there is doubt as to whether these cheques relate to the invoices. At the trial, the QRA auditor raised that these cheques could have been for other work, including possibly work to the personal residence of Mr. Dandona. Another possibility is that they relate to work carried out at the same time to other properties already owned by Mr.

Dandona and not yet sold by him, namely the Beaudry Property that was acquired in 2005 and only sold in 2007 [12] . 5) It is unlikely that without sufficient written or other guarantees of protection and compensation, Mr. Dandona would have started work on a property that he did not own for a period of six (6) to two (2) months before he actually acquired it and when he knew that legal discussions potentially preventing the sale were ongoing. 6) It is the responsibility of the taxpayer to keep records and appropriate documents to support and justify the expenses he claims [13] . Mr.

Dandona’s performance in that regard is generally not satisfactory. [ 37 ] However, with regard to the invoices dated before the purchase, the Court will grant the appeal with regard to invoice number 9. This invoice is dated only one day before the closing and purchase of the property. It is highly probable that the closing meeting to finalize the transaction was scheduled at least one week before it occurred. In these circumstances, Mr. Dandona had received the green light that the sale was proceeding.

It was reasonable to authorize that work [14] . [ 38 ] While 22% of the invoices do not have proof of payment, the auditor refused 50% ($94,024.91 out of $187,880.53) of the submitted Siya Renovation invoices. Notwithstanding the credibility issues regarding the invoices, the QRA auditor testified at Court that she would have authorized the refused invoices had they been dated during the period that Mr. Dandona was the owner of the relevant property. Accordingly, QRA acknowledged that the invoices submitted were in

part credible. [ 39 ] The Court considers that, based upon the evidence, Plaintiff did authorize the work outlined in invoice 9 and that the amount claimed therein was incurred by Plaintiff as a business expense in the pursuit of business income. Invoices Dated After the Sale of the Linton Properties [ 40 ] The reasons mentioned above at 1, 2, 3, 4 and 6 regarding invoices dated before the sale of the Linton Properties also support QRA’s refusal to accept most of these invoices claimed after the sale of the Linton Properties. [ 41 ] The Court reiterates that Mr.

Dandona was unable to provide to the Court any document to support a legal obligation on his part to carry out work after the sale with respect to the 3900 and 3910 Linton Properties.

[ 42 ] For these reasons, the Court concludes that, with respect to the invoices bearing numbers 4 to 8 (after the sale) of the table above (par. 16), Mr. Dandona has not presented prima facie evidence that would demolish or rebut the presumption of validity of the QRA assessments regarding these invoices. [ 43 ] However, in light of the evidence, Mr. Dandona is correct to state that the invoices dated after the sale could relate in part to work carried out before the sale.

Clearly, it is unreasonable to expect that, for ongoing construction and renovation projects, the invoice be issued on the same day as the actual performance of the work. It is reasonable and common practice that invoices are issued thirty (30) or sixty (60) days after the completion of the work. The time gap could, when justified by evidence, be longer. This is not something that the client can control. [ 44 ] In the circumstances based upon this reasoning and the evidence presented, the Court considers that Mr.

Dandona has presented prima facie evidence sufficient to demolish or rebut the presumption of validity regarding invoices 1, 2 and 3 of the after sale invoices. Invoice 1 was issued forty-five (45) days after the relevant sale. Invoice 2 was issued twenty (20) days after the relevant sale. Invoice 3 was issued fifty-three (53) days after the relevant sale. All these periods fall within a period of sixty (60) days.

This evidence reverses the burden of proof. [ 45 ] The Court reiterates that the issues regarding credibility and veracity of the invoices must be weighed by the reasons mentioned above including that the QRA did accept all invoices presented during the timeframe of ownership by Mr.

Dandona of the Linton Properties and that the QRA auditor at trial declared that she would have accepted the refused invoices had they been dated inside that timeframe. [ 46 ] The Court considers that QRA has failed, on the balance of probabilities, to establish that invoices 1, 2 and 3 (after sale) are not legitimate business expenses in pursuit of business income. [ 47 ] With regard to the other after sale invoices (4 to 8), they were issued between approximately 100 to 189 days after the relevant sale of the property. Based upon the evidence and the considerations stated above, the Court considers that Mr.

Dandona has not rebutted the presumption of validity with regard to the QRA assessments regarding these invoices. [ 48 ] As both parties’ claims have been, in part, sustained, the Court will not order either party to pay legal costs. FOR THESE REASONS, THE COURT: CONFIRMS , in part, the Notice of Appeal; VARIES , in part, the assessments; DECLARES that the following Siya Renovation invoices should be considered and calculated as business expenses in the pursuit of business income for Bada Kshitij Dandona in the relevant year(

s) of taxation: Invoice numbers:

1007 dated November 2, 2006: $1,354.50 1050 dated March 15, 2008 $564.38 1051 dated March 18, 2008 $4,063.50 1052 dated March 25, 2008 $564.38 Total: $6,546.76 DEFERS the assessments to the Quebec Revenue Agency for reconsideration; WITHOUT LEGAL COSTS . __________________________________ Jeffrey Edwards, J.C.Q. Me Marc-Antoine Deschamps Morency So ciété d’avocats, sencrl Attorneys for Plaintiff Me Christian Lemay Me Olivier Charbonneau-Saulnier Revenu Québec Attorneys for Defendant Date of hearing: September 18, 2017