2019 QCCQ 3115, 2019 QCCQ 3115

Shenker c. Agence du revenu du Québec 2019 QCCQ 3115 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL “Civil Division” No: 500-80-035245-175 DATE: May 23, 2019 ______________________________________________________________________ BY THE HONOURABLE JEFFREY EDWARDS, J.C.Q. ______________________________________________________________________ BRIAN SHENKER Plaintiff v.

L’AGENCE DU REVENU DU QUÉBEC Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ Overview [ 1 ] The Agence du revenu du Québec (Quebec Revenue Agency or “ QRA ”) does not accept the explanation of Mr. Brian Shenker regarding the origin of certain cash deposits totaling $84,840 into his bank accounts in the 2012 taxation year. QRA has assessed these amounts as “other income” in his tax return (line 154). Mr.

Shenker objects to this assessment and affirms that these deposits are from cash withdrawals previously made by him from his bank accounts and that the origin of such deposits is after-tax employment income. Question in issue Are the cash deposits of $84,840 made by Mr. Shenker correctly assessed as “other income” in respect of the 2012 taxation year under the Taxation Act [1] ? Context [ 2 ] Mr. Shenker is a Montreal businessman. Born in Montreal, he has, except for a short stint during university, always resided in the Province of Quebec.

He obtained a Bachelor of Business Administration from Concordia University in 1995 and then obtained a Bachelor of Common Law from the University of Ottawa in 1998. He never became a lawyer. Instead, his passion has always been to work in the family business started in the early 1970’s by his father in the garage of the family home in the Montreal area. JAM, the family business: from modest beginnings to market leader in North

America [ 3 ] The family business eventually became Jam Industries Ltd ( JAM ), a private corporation resident in Quebec. JAM specialized in the import and resale to retailers of musical instruments principally from Japan. At first, the business focused on the Canadian market.

In approximately 2004, JAM expanded its operations to the United States (US) through the acquisition and integration of various similar US businesses. [ 4 ] JAM also gradually expanded the scope of its product line to include professional audio equipment, lighting and consumer electronics, including iPhone accessories. [ 5 ] This twin development of expansion into the US market and the widening of its product lines resulted in exponential growth of operations and revenues for JAM. [ 6 ] In 2017-2018, JAM’s annual sales were in the range of $500 million dollars and JAM had approximately 700 employees (300 Canada; 400 US).

JAM’s headquarters always remained in Montreal, specifically in Ville Saint-Laurent (more recently the Borough of Saint-Laurent, City of Montreal). [ 7 ] After graduating from law school in 1998, Mr. Shenker immediately joined JAM. He was a key player involved in the expansion and growth of the company over the years. [ 8 ] Since 1998, Mr. Shenker has held the successive positions of Vice-President and then Executive Vice-President of JAM and, has had various responsibilities including Human Resources, Logistics and operations and IT. [ 9 ] For the 2010 to 2012 taxation years, Mr.

Shenker’s declared income, almost entirely derived from employment income from JAM, was as follows: 2010: $474,636 2011: $547,156 2012: $1,167,891 [ 10 ] Mr. Shenker states that since 2010, his salary normally varies between $500,000 and $1,200,000. Eddy Shenker [ 11 ] Mr. Shenker’s father, Eddy Shenker, was a founding shareholder of JAM. From Brian Shenker’s testimony, it is clear that his father had an important influence on him as did his father’s life experience. [ 12 ] Eddy Shenker was born in 1942 on a train in transit from Poland to Russia, while his mother was fleeing the Nazis.

After the war, Eddy Shenker found refuge in a displaced persons camp. He arrived in Canada in 1948 at the age of six. He studied hard and eventually became a Professional Chartered Accountant before starting the business that eventually became JAM. [ 13 ] On June 11, 2012, Eddy Shenker passed away at the age of 70. When his father passed away, Brian Shenker inherited approximately 10 million dollars. Brian Shenker’s Relationship with Cash and Preference to Make Payments in Cash

[ 14 ] Mr. Shenker explained to the Court that he has a personal comfort level with cash. For most transactions in his personal life, his preferred, if not exclusive, means of payment is by legal tender or cash. Furthermore, he enjoys possessing and holding cash. [ 15 ] He ascribes part of his preference and comfort in that regard to his family history and to the importance that he attaches to mobility and assurance of acceptance of payment by way of hard currency. He has a limited comfort level with electronic payment methods.

He only uses them when absolutely necessary. [ 16 ] Brian Shenker recognizes that, in the present market place, with the ever growing electronic economy, his personal approach to payments may be perceived as somewhat “odd” or “old-fashioned”. He states though that he continues to enjoy paying his everyday expenses, as much as he can, in cash, including all consumer transactions. [ 17 ] This high-liquidity financial lifestyle is Mr. Shenker’s personal choice. He concedes that some of his friends are of the view that it is somewhat “strange” in these current times.

But this is what he has done all his life. [ 18 ] This high-liquidity lifestyle gives rise to certain inconveniences for him. He has to provide for the safe-keeping of significant and even large sums of cash on hand. To do so, he acknowledges having to make security arrangements [2] . This lifestyle also necessitates many visits by him to his banks to make cash withdrawals and cash deposits. But he enjoys doing these routine transactions. He states that the bank tellers at his bank branches know him by name. And he likes that also.

Philanthropy [ 19 ] Another part of Brian Shenker’s upbringing was the encouragement of philanthropy. His father stressed the importance of giving back to the community. Since graduating in 1998, Brian Shenker estimates that he has given away, either directly or through family foundations, approximately $3,000,000. During the taxation years 2010 to 2012, Brian Shenker gave charitable donations in the following amounts: 2010: $273,892 2011: $240,817 2012: $700,000 [3] [ 20 ] Some charitable donations made by Brian Shenker have been more meaningful to him than others. Mr.

Shenker speaks warmly of a schoolyard created in honour of his grandmother. [ 21 ] For many other charitable donations, however, he is not emotionally engaged with the causes of the recipients.

But it remains important for him to give. [ 22 ] For example, in 2018, after briefly enquiring with some friends as to worthy charitable causes of which they were aware, he gave away over a period of two or three days, hundreds of thousands of dollars to various charitable organizations: the first donation was to a homeless shelter (Old Brewery Mission); the second was to a community center supporting social services; and the third was to a shelter for battered women. [ 23 ] He did not make any follow-up with regard to the use of the money or developments at the charities involved. Audit Process of the QRA

[ 24 ] On May 7, 2014, Mr. Marouf Abderrahmane, QRA auditor, sent Mr. Shenker a letter advising him that the QRA was conducting an audit of his tax returns for the taxation years 2010, 2011 and 2012 [4] .

The letter requested the following documentation for those years: « ​ Copie des TP-1 avec pièces justificatives; • Registres et documents relatifs à la ligne 139; • Registres et documents relatifs à la ligne 154; • Registres et documents relatifs à la ligne 164; • Registres et documents relatifs à la ligne 393; • Relevé de tous les comptes bancaires, personnels et d’affaires; • Relevés de cartes de crédit personnelles et d’affaires; • Tout autre document justifiant un revenu, une dépense ou un crédit. » [ 25 ] According to QRA’s audit report, the reasons for the audit were the high amounts of Mr.

Shenker’s reported income and his many charitable donations. [ 26 ] Strangely, for a person of the financial means and given the professional activities of Mr. Shenker, he decided to handle the audit matter himself. Apart from an initial one-hour meeting between the auditor, Mr. Shenker and his personal accountant, Mr. Shenker collected and remitted all the requested documents and information to the QRA auditor. [ 27 ] QRA agrees that it obtained the full cooperation of Mr. Shenker.

He located, photocopied and remitted to the auditor, at several meetings, all the requested information and documentation. [ 28 ] Mr. Shenker explained that this process was very time-consuming for him, considering his many professional activities. But as a point of honour, he tried to obtain and remit everything requested to the QRA. [ 29 ] The documents obtained were voluminous, and when stacked together, had a height of several feet. One of Mr. Shenker’s banks stated that they would not provide further documentation to him. When he reported that answer back to the QRA auditor, a proposed solution was that Mr.

Shenker sign an authorization form in favour of the QRA so that it could request the documents directly from the bank. Mr. Shenker agreed and signed the authorization. Subsequently, the bank complied with the QRA request for further documentation. [ 30 ] After review and analysis of all the requested documentation and information, the QRA auditor recommended no change to Mr. Shenker’s amounts of charitable donations made in the relevant taxation years.

Use of Alternative Calculation Method of Income: Bank Deposit Analysis [ 31 ] However, the QRA auditor testified that, upon review of all the documentation and information, he was of the view that, with regard to Mr. Shenker’s income, there were many, perhaps too many, bank deposits made by him. [ 32 ] On that basis, the QRA auditor decided, for the years in issue, to use an alternative calculation method to determine Mr. Shenker’s income, namely a bank deposit analysis. [ 33 ] The QRA auditor added every bank deposit, of whatever source, made by Mr. Shenker into his bank accounts.

The auditor then subtracted all of the withdrawals made from the total of these deposits. The QRA auditor concluded that the remaining amount was Mr. Shenker’s true income for these taxation years instead of his reported income.

[ 34 ] Based upon this analysis, the QRA auditor calculated, on an interim basis, that Mr. Shenker’s income was underreported. He submitted to Mr. Shenker a draft assessment for the taxation years in issue, as follows [5] : 2010 2011 2012 Reported Income $474,636 $547,156 $1,167,891 Additional Income $354,861 $180,804 $648,821 Total Revised Income $829,497 $727,960 $1,816,712 [ 35 ] The QRA auditor asked Mr.

Shenker to provide further information to justify each and every bank deposit made by him in order to convince the QRA that the amounts deposited into his bank accounts should not be considered as income. [ 36 ] Again, instead of asking for professional assistance, either that of a professional accountant or a tax attorney, Mr. Shenker proceeded to obtain and provide the additional documentation and explanations to the QRA. [ 37 ] Mr. Shenker was able to show that the vast majority of the proposed additional income in the draft assessment was incorrect.

He demonstrated that a great number of the deposits into his bank account were merely reimbursement by JAM of his business expenses incurred to earn income (2010: $121,304.63; 2011: $13,816.92; 2012: $13,186.92). He also established that many bank deposits were merely personal cheques made by himself to transfer funds from one of his bank accounts to another (2010: $87,443.37; 2011: $92,687; 2012: $403,664). Finally, he was able to show that he received certain amounts from friends as interest-free loans (2010: $131,813; 2011: $50,000; 2012: $140,000). Mr.

Shenker states that these latter amounts were simply courtesy transfers amongst close friends. We will examine this point later. [ 38 ] After receiving this additional documentation and information, the amounts alleged to be additional income were reduced dramatically to the following numbers: 2010 2011 2012 Alleged Additional Income $14,300 $24,300 $91,340 [ 39 ] Mr. Shenker explained to the QRA auditor that the source of these cash deposits into his bank accounts were cash withdrawals on hand previously made from his bank accounts and were sourced in after-tax salary deposits.

The QRA auditor rejected that explanation. Notices of Assessment [ 40 ] On March 11, 2016, QRA sent Mr. Shenker new notices of assessment for the 2010, 2011 and 2012 taxation years, adding the amounts referred to in paragraph 38 as “other income” (line 154). The QRA auditor took the position that, in his view, it was not “coherent” that Mr. Shenker obtain personal loans in the same time period that he had “extra cash” on hand. The Court will later review the context of these transfers. Objection and Partial Cancellation of the New Assessments [ 41 ] On June 7, 2016, Mr.

Shenker filed an objection to these new assessments [6] . The objection was reviewed by an appeal officer of the QRA, namely Ms. Meriem Aissaoui.

[ 42 ] Ms. Aissaoui dealt directly with Mr. Shenker. She asked him to support his factual version of the source of the remaining amounts of deposits to his bank accounts over the course of the three (3) taxation years in issue. [ 43 ] On December 19, 2016, Mr. Shenker sent a detailed e-mail to Ms. Aissaoui documenting that, based on his previously sent bank statements, he had withdrawn and had on hand as “surplus cash” more than the amount of the alleged “unexplained” (“non justifiés”) deposits. Mr. Shenker repeated that these withdrawn on-hand cash amounts were the source of the deposits in issue.

He therefore reiterated that none of the deposits were unexplained. [ 44 ] Mr. Shenker wrote in part [7] : “2. The cash amounts deposited in my bank accounts in 2012 were from tax-paid sources of income, as was explained in my Notice of Objection. As was also explained, in years prior to 2012, I withdrew, in the aggregate, more funds from the bank than I deposited. This surplus of withdrawals accounts in full for the amounts deposited in 2012.

Specifically: In 2010 total deposits of cash were: $14,300 In 2010 total withdrawals of cash were: $38,602 Surplus cash on December 31 st 2010: $24,302 In 2011 total deposits of cash were: $24,300 In 2011 total withdrawals of cash were: $129,100 Surplus cash on December 31 st 2011: $129,102 In 2012 total deposits of cash were: $91,340 In 2012 total withdrawals of cash were: $42,338 Surplus cash on December 31 st 2012: $80,100” [ 45 ] Mr.

Shenker went on to detail the various cash withdrawals made by him justifying his numbers and assertions. [ 46 ] On January 12, 2017, in her decision, the Appeal Officer accepted Mr. Shenker’s explanations for the taxation years 2010 and 2011. She wrote that in those years, more cash amounts were withdrawn which made it more plausible that the cash amounts deposited resulted from those withdrawals. [ 47 ] She also stated that for the 2010 and 2011 taxation years, the new assessments were issued outside the normal three (3) year period for assessments.

Therefore, QRA would have to prove a misrepresentation attributable to negligence or wilful default or that Mr. Shenker had committed a fraud in omitting to declare these deposits as income in accordance with Article 1010 (2) (

b) of the Taxation Act . Ms. Aissaoui had her doubts about that. Accordingly, she granted the objection with respect to the taxation years 2010 and 2011. [ 48 ] For the new assessment regarding the 2012 taxation year, Ms. Aissaoui reviewed the various alleged “unexplained” (“non justifiés” per the QRA) cash deposits. She decided to accept Mr. Shenker’s explanation for two (2) deposits, namely those made on November 22, 2012 ($3,000) and December 13, 2012 ($4,000) on the basis that cash withdrawals had in fact been made by Mr.

Shenker shortly before (approximately one month). [ 49 ] With respect to the remaining deposits made in the 2012 taxation year, namely $84,840, she rejected the objection and maintained the new assessment [8] .

[ 50 ] On March 7, 2017, QRA issued a revised new assessment (“ assessment ”) only for the 2012 taxation year [9] . [ 51 ] On May 11, 2017, Mr. Shenker filed the present appeal contesting that assessment. [ 52 ] At trial, the remaining fourteen (14) deposits in issue were: Bank Account no.

Date Amount 251-[…] 14-08-2012 $2,100 251-[…] 18-09-2012 $1,600 251-[…] 04-10-2012 $2,500 251-[…] 17-12-2012 $4,000 251-[…] 20-12-2012 $9,560 96-[…] 21-09-2012 $7,000 96-[…] 01-10-2012 $4,000 96-[…] 17-12-2012 $7,280 96-[…] 17-12-2012 $9,400 000-[…] 01-10-2012 $4,500 000-[…] 14-12-2012 $9,700 000-[…] 17-12-2012 $5,000 000-[…] 17-12-2012 $8,300 000-[…] 21-12-2012 $9,400 Total: $84,840 [For privacy reasons pertaining to Mr. Shenker, the Court has redacted certain personal banking information.] [ 53 ] In his extensive testimony, Mr.

Shenker referred to the bank statements indicating when he had made cash withdrawals from his bank accounts to support his position that he indeed had in his possession, at the time of the deposits in issue, the cash to make them [10] in accordance with his e-mail of December 19, 2016 [11] . He also explained the circumstances under which he made the various deposits. In general, the deposits were made to ensure that there was enough money in the relevant bank account to cover another cheque that Mr. Shenker had written on the same account to be presented for payment at a later date, mostly of several days.

Many of the upcoming cheques were made to charities [12] . Mr. Shenker wanted to ensure that the appropriate amount was in the relevant bank account so that the payment would be duly processed. [ 54 ] The Court asked the QRA auditor Mr. Abderrahmane and the QRA appeal officer Ms. Aissaoui if they had any reason to doubt the honesty or integrity of Mr. Shenker or that the amounts deposited originated from illicit or illegal activities. They stated that they had no reason and no evidence to impugn the honesty or integrity of Mr. Shenker.

They also stated that they had no evidence that the cash amounts deposited were sourced from illicit or illegal activities. Analysis and Decision Are the cash deposits of $84,840 made by Mr. Shenker correctly assessed as “other income” in respect of the 2012 taxation year under the Taxation Act? Presumption of Validity of Assessment [ 55 ] In accordance with

Article 1014 of the Taxation Act , the QRA benefits from a presumption of validity regarding the assessment. Article 1014 (1) of the Taxation Act reads as follows: An assessment shall, subject to being varied or vacated on an objection, appeal or

summary appeal and subject to a reassessment, be

deemed to be valid and binding notwithstanding any error, defect or omission in the assessment or in any proceeding relating thereto. [56] In order to rebut or demolish QRA’s presumption of validity of the assessment, the taxpayer must present prima facie evidencethat the factual assertions of QRA are wrong.

In that event, the burden of proof is reversed and QRA must, by preponderance of proof,establish the accuracy of the facts supporting its assessment. [57] With respect to that presumption and the respective obligations of the parties to rebut the presumption and to prove theirassertions, the Court of Appeal in St-Georges v. Québec (Sous-ministre du Revenu)[13] states 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 fiscale et des fardeaux de preuve 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 ». Validity of alternative method to calculate income of Mr. Shekner and its effect on thepresumption of validity of the QRA assessment [58] Mr.

Shenker’s attorneys seek to rebut or demolish the presumption of validity of QRA’s assessment on the basis that themethod of calculation used to support its existence, namely the bank deposit analysis, was inappropriate in the present matter. AsMr. Shenker fully cooperated in the audit, provided every requested information and document, the attorneys argue that it was notappropriate to revert to this alternative method of analysis to determine the taxpayer’s income.

They submit that such a method shouldonly be used as a last resort when the taxpayer has kept inaccurate records of his income, illegal sources of income are alleged, or thereexists a large discrepancy between reported income and notional income estimated on the basis of this alternative method[14]. [59] The attorney of the QRA submitted that it has the right to determine the method of its choice to calculate the income, and thatthe volume of deposits and withdrawals by Mr.

Shenker, including cash deposits, justified the use of the method selected[15]. [60] In any event, the taxpayer’s attorneys chose to adduce evidence to rebut or demolish the presumption of validity of theassessment. [61] The Court will review the evidence in light of the test formulated by the Court of Appeal in the leading case of St-Georges v.Québec (Sous-ministre du Revenu)[16] to determine whether the presumption of validity has been rebutted. Sources of cash deposits per Mr. Shenker’s testimony and prima facie evidence [62] Mr.

Shenker’s explanation of the source of the deposits in issue is that they were in fact cash on hand resulting fromwithdrawals of cash from his bank accounts over the 2010 to 2012 period.

[ 63 ] For 2010, Mr. Shenker established that he withdrew in cash from his bank accounts $24,302 more than he re-deposited. [ 64 ] For 2011, Mr. Shenker has established that, after taking into account the deposits made by him, he had in his possession surplus cash of $129,102. [ 65 ] For 2012, Mr. Shenker has established that, after making all the deposits, including those that were initially assessed by the QRA and taking into account additional cash withdrawals in that year, he had surplus cash on hand in his possession on December 31, 2012 of $80,100. [ 66 ] Accordingly, the evidence entirely corroborates Mr.

Shenker’s factual version that he had in his possession in 2012 more than enough cash to make the cash deposits which are now subject to QRA’s assessment as “other income”. [ 67 ] Mr. Shenker has also established that the principal source of the cash that he had on hand throughout those years was after-tax employment income that he earned and was paid by JAM. [ 68 ] This proof adduced by Mr. Shenker constitutes, within the meaning of the leading case St-Georges v. Québec (Sous-ministre du Revenu) of the Court of Appeal, prima facie evidence of the correctness of the assertions of the taxpayer.

Reversal of burden of proof and burden of preponderance of proof on QRA to establish the accuracy and correctness of its assessment [ 69 ] The presumption supporting the validity of the assessment has been rebutted or demolished. In that case, the burden of proof has shifted and reversed. The QRA must, by preponderance of proof, establish the accuracy of the facts supporting the assessment. [ 70 ] First, it should be noted that there is no scintilla of evidence or even a speculative theory put forward by QRA that such deposits were associated with illegal or illicit activities.

The QRA representatives testified that they do not impugn the honesty or integrity of Mr. Shenker. They also state that he was, throughout the audit process, cooperative and transparent in providing all sources of his income and all documents in support of his financial and banking activities. [ 71 ] Nevertheless, QRA submits that Mr. Shenker’s explanation that the cash deposits in issue were sourced by cash withdrawals made in the previous years of 2010 and 2011, as well as in 2012, is not credible for two reasons. QRA’s First Ground: Mr.

Shenker held on to the withdrawals of cash for too long [ 72 ] QRA submits that, in its view, cash should be spent within one month of its withdrawal [17] . [ 73 ] In light of the uncontradicted evidence of Mr. Shenker regarding his personal banking practices, QRA’s submission is not serious and quite insufficient to discharge its burden of proof regarding the accuracy of the assessment. Mr. Shenker’s evidence, supported by his banking documentation and his testimony, is that he maintains a high-liquidity lifestyle.

He likes to withdraw cash from his bank accounts; he likes to pay as much as possible his personal transactions, especially his everyday purchases, with cash; in order to maintain this lifestyle, he accumulates and maintains large amounts of cash that is readily accessible. [ 74 ] That personal financial lifestyle is of course entirely legal. In fact, according to the legislator, under both Canadian and Quebec law, payment of a debt by cash is set out as the primary and principal method to extinguish a debt.

[ 75 ] The relevant sections of the Currency Act [18] read as follows: 8

(1) Sous réserve des autres dispositions du présent article, les offres de paiement ont pouvoir libératoire si elles sont effectuées avec :

b) les billets qui ont cours légal en vertu de l’article 7.1. 8 (1)(

b) Subject to this section, a tender of payment of money is a legal tender if it is made : (

b) in notes that are current under

section 7.1. 13

(1) Les actes et opérations , notamment contrats, ventes, paiements, effets, billets, titres et valeurs, relatifs à une somme d’argent ou prévoyant soit le paiement d’une somme d’argent , soit l’obligation d’en payer une, se font d’après la monnaie canadienne , s’ils ne se font pas suivant :

a) soit la monnaie d’un pays étranger;

b) soit une unité de compte définie par rapport aux monnaies de plusieurs pays. 13

(1) Every contract, sale, payment, bill, note, instrument and security for money and every transaction , dealing, matter and thing relating to money or involving the payment of or the liability to pay money shall be made, executed , entered into, done or carried out in the currency of Canada , unless it is made, executed, entered into, done or carried out in (

a) the currency of a country other than Canada; or (

b) a unit of account that is defined in terms of the currencies of two or more countries. [Emphasis added.]

Article 1564 of the Civil Code of Quebec reads as follows: 1564. Le débiteur d’une somme d’argent est libéré par la remise au créancier de la somme nominale prévue, en monnaie ayant cours légal lors du paiement .

Il est aussi libéré par la remise de la somme prévue au moyen d’un mandat postal, d’un chèque fait à l’ordre du créancier et certifié par un établissement financier exerçant son activité au Québec ou d’un autre effet de paiement offrant les mêmes garanties au créancier, ou, encore, si le créancier est en mesure de l’accepter, au moyen d’une carte de crédit ou d’un virement de fonds à un compte que détient le créancier dans un établissement financier. 1564. Where the debt consists of a sum of money, the debtor is released by paying the nominal amount due in money which is legal tender at the time of payment .

He is also released by remitting the amount due by money order, by cheque made to the order of the creditor and certified by a financial institution carrying on business in Québec, or by any other instrument of payment offering the same guarantees to the creditor, or, if the creditor is in a position to accept it, by means of a credit card or a transfer of funds to an account of the creditor in a financial institution. [Emphasis added.] [ 76 ] Accordingly, Mr.

Shenker is entirely within his legal and civil rights, if he so chooses, to maintain a high-liquidity lifestyle and to prioritize and apply a cash payment method to his transactions under Canadian and Quebec law. [ 77 ] Mr. Shenker is also entirely within his legal and civil rights to organize his personal system of safekeeping of cash in order to implement his high-liquidity lifestyle. He is under no obligation to spend or re-deposit cash withdrawals within a certain defined time period.

[ 78 ] A high-liquidity lifestyle or the accumulation and safekeeping of cash over periods of years may not be methods employed by most people who would identify themselves as being lower to middle or even upper level wage-earners. [ 79 ] But Mr. Shenker does not belong to either of those groups. He is a high net worth individual whose annual personal earnings far exceed the income of middle to upper level wage-earners. [ 80 ] Mr.

Shenker has the financial ability and means to cultivate and maintain a non-conventional and idiosyncratic high-liquidity lifestyle which give rise to the permanent safekeeping of accumulated cash withdrawals over the years. Furthermore, persons of any economic and earning stratum may prefer a high-liquidity lifestyle. [ 81 ] It should be noted that the cash deposits in issue, from 2010 to 2012, represent a mere fraction of Mr. Shenker’s overall reported income for the period.

The deposits made in 2010 and 2011 (the additional assessments in these years are now abandoned by the QRA but are still relevant since Mr. Shenker states that withdrawals in those years funded in part the deposits made in 2012), and in 2012 total $129,940 (2010: $14,300; 2011: $24,300 and 2012: $91,340). For these years, Mr. Shenker’s total reported income was $2,189,683 (2010: $474,636; 2011: $547,156 and 2012: $1,167,891). Therefore, the amounts in issue represent 5.9% of his reported income. [ 82 ] It is therefore entirely credible and plausible that, if Mr.

Shenker chose to organize his financial affairs in this way, he had the financial ability and latitude to maintain in safekeeping cash funds that is a small amount for him. [ 83 ] The Court therefore concludes that this argument does not suffice to discharge QRA’s burden of proof regarding the accuracy of the assessment. QRA’s Second Ground: loans made to Mr. Shenker over the period [ 84 ] QRA also submits that Mr. Shenker’s explanation as to the source of the cash deposits is not credible since over the same time period, he had received loans. QRA argues that this means that Mr.

Shenker was under financial pressure at the time and that, in such circumstances, it is not consistent or logical to have unused cash reserves on hand. After analysis of the proof, this ground is also not supported by the evidence. [ 85 ] First, the evidence showed the particular context of these loans: Barry Segal made loans to Mr. Shenker totaling $142,000 (2010: $30,000 + $12,000; 2011: $50,000; 2012: $50,000) [19] ; Nattan Glaich made loans to Mr. Shenker of $160,000 (2010: $50,000 + $20,000; 2012: $90,000) [20] .

It is however important to note that these loans were made interest free and for an indefinite term. [ 86 ] Mr. Shenker testified that Mr. Segal and Mr. Glaich are amongst his close personal friends. Mr. Segal and Mr. Shenker know each other from their days at the law faculty of the University of Ottawa. Mr. Glaich is a close friend since Mr. Shenker’s teenage years. Mr. Shenker stated that these were loans made for investment purposes for the benefit of Mr. Segal and Mr. Glaich. Mr. Shenker knew of a promising investment and wanted to share the opportunity with his close friends.

He told his friends that he would guarantee repayment of the capital to them if the investment was not successful. But if it was successful, he would be happy to have them also benefit. He proposed that the investment money simply be given to him as a loan. That is what was done. Apparently, the investment returned handsome profits. [ 87 ] Mr. Shenker states that, within his entourage of close friends, that is what they do for each other for investment opportunities. [ 88 ] Mr. Shenker’s version of events is supported by the fact that these amounts were loaned to him on an interest-free basis. A loan

that is given interest-free is not subject to the same reservations as one that bears interest. For the recipient, it is essentially without risk. Mr. Shenker’s version of events and the background of these cheques are also supported by the fact that the loans were for an indefinite period of time. Obviously, these type of terms do not exist for a conventional loan from a financial institution. [ 89 ] With respect, these important distinctions to normal loans do not appear to have been properly considered or understood by the auditor or appeal officer of the QRA.

Given these types of terms (interest-free and for an indefinite period), these were not loans for someone in need. These were courtesy money transfers between friends. [ 90 ] It was Mr. Shenker who voluntarily provided copies of these cheques to the QRA auditor. [ 91 ] For Mr. Shenker, these types of financial managements are simply how close friends, having at their disposal significant financial means, act between themselves. [ 92 ] The

interpretation of these loans as courtesy money transfers is confirmed by two other important facts: - in 2010, Mr. Segal also sent Mr. Shenker another cheque for $19,184.31 [21] . It is admitted that that cheque was to refund Mr. Shenker who advanced that amount on behalf of Mr. Segal for the purchase of certain Miele appliances for Mr. Segal’s home [22] . Had Mr. Shenker been under financial stress at the time, it is unlikely that he would be advancing amounts of monies of this nature; and - it was also established by the evidence that Mr. Shenker had completed the construction of his new home by July 2011.

That was confirmed by Mr. Shenker in his examination on discovery taken on March 15, 2018 [23] . [ 93 ] The QRA auditor [24] and appeal officer [25] erroneously understood that Mr. Shenker’s new house was completed much later, namely in 2013. They were unfortunately mislead by an incorrect reference in Mr. Segal’s letter [26] that was provided to the QRA by Mr. Shenker. [ 94 ] Significantly, two (2) of these money transfers, one from Mr. Segal (October 3, 2012: $50,000 [27] ), the other from Mr. Glaich (September 30, 2012: $90,000 [28] ) are subsequent to the completion of Mr. Shenker’s house.

The dates of these cheques therefore support the explanation of Mr. Shenker that these cheques were in reality courtesy money transfers since his house was at the time long completed. These dates also confirm that Mr. Shenker was not under financial pressure at the time. [ 95 ] Second, the extent of Mr. Shenker’s charitable donations from 2010 to 2012 is not consistent with a person who is under financial pressure. [ 96 ] It is uncontested that, during that period, Mr. Shenker made charitable donations of $1,214,709 (2010: $273,892; 2011: $240,817; 2012: $700,000).

Those charitable donations represented 55% of his reported income of $2,189,683 (2010: $474,636; 2011: $547,156 and 2012: $1,167,891) over this period. A person who donates money of that magnitude and which is a significant percentage of his income is not under financial pressure. [ 97 ] Third, Mr. Shenker testified that, after his father’s death on June 11, 2012, he inherited approximately 10 million dollars from his father’s estate. [ 98 ] All of the deposits questioned by QRA were made from August to December 2012, therefore after the passing of Mr. Shenker’s father Eddy Shenker.

Also, two (2) of the money transfers by Mr. Segal (October 2012) and Mr. Glaich (September 2012) took place after the passing of Eddy Shenker. These facts again confirm that the loans were mere courtesy money transfers and unrelated to any need or financial pressure of Mr. Shenker. Furthermore, all things being equal, a person who inherits an amount of money of that size is not under financial pressure. [ 99 ] Mr. Shenker’s high-liquidity lifestyle is not the only indication of somewhat unconventional choices on his part. Most law school graduates become lawyers. He chose not to.

Upon receiving the notice of an audit from the QRA, most persons of his means would have simply mandated an accounting or legal professional to represent him. He preferred to handle it himself. Most who donate to

charities are emotionally engaged in the causes that they support. Mr. Shenker often is not. Mr. Shenker’s personal banking practices reviewed in this matter are entirely consistent with that propensity. [ 100 ] Therefore, on the balance of probabilities, QRA has failed to discharge its burden to prove that the assessment is accurate or correct. Conclusion [ 101 ] Mr. Shenker has established that his explanation as to the source of the cash deposits in issue is entirely credible. That explanation is based upon documentary evidence. Mr.

Shenker has also proven that the source of the deposits is previously taxed income that he withdrew from his various bank accounts and kept as cash on hand in accordance with his usual personal banking practice. Mr. Shenker’s explanation of the source of the cash deposits has never changed since he was first the subject of an audit of the QRA. [ 102 ] Accordingly, Mr. Shenker succeeded in rebutting the presumption of validity of the QRA assessment for the 2012 taxation year. [ 103 ] The burden of proof shifted to the QRA to show that the contested cash deposits constituted “other income” of Mr. Shenker.

QRA did not provide credible evidence to support that position and has failed to discharge its burden of proof to support the validity of the assessment. [ 104 ] Mr. Shenker’s appeal will be allowed and the QRA assessment vacated, with legal costs in favour of Mr. Shenker. FOR THESE REASONS, THE COURT: ALLOWS Brian Shenker’s appeal; VACATES the Notice of Assessment dated March 7, 2017 bearing number MU348129C02 [29] ; WITH LEGAL COSTS in favour of Brian Shenker. __________________________________ Jeffrey Edwards, J.C.Q.

Me Dominic Charles Belley Me Catherine Dubé Norton Rose Fulbright Canada Attorneys for Plaintiff Me Cornelia Herta Zvezdin Larivière Meunier Attorneys for Defendant Dates of hearing: April 4 and 5, 2019