2020 QCCQ 1600, 2020 QCCQ 1600

S.P. c. Agence du revenu du Québec 2020 QCCQ 1600 COURT OF QUEBEC Small Claims Division

Summary Appeal under the Tax Administration Act CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-32-158161-184 DATE: February 24, 2020 ______________________________________________________________________ BEFORE THE HONOURABLE ENRICO FORLINI, J.C.Q. ______________________________________________________________________ S. P. Plaintiff v. AGENCE DU REVENU DU QUÉBEC Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ Overview [ 1 ] S.

P. is a single mother of three children. [1] [ 2 ] For each of the tax years 2013, 2014 and 2015 [2] , Ms. S. P. claimed a tax credit for childcare expenses paid to Mr. T.M. [3] when she completed her tax returns. Specifically, she claimed a credit of $8,000 for the 2013 tax year, she claimed a credit of $4,000 for the 2014 tax year, and she claimed a credit of $8,000 for the 2015 tax year. [ 3 ] On November 10, 2016, the Agence du revenu du Québec (‘’ Agency ’’) issued notices of assessments for each of the taxation years 2013, 2014, and 2015, in which it disallowed Ms. S.

P.’s claim for a tax credit for childcare expenses paid to the service provider. [4] [ 4 ] Specifically, the Minister disallowed her claim for a tax credit for childcare expenses in the following amounts: • 2013: $5,137.40; • 2014: $3,000; and • 2015: $5,301.34. [ 5 ] Moreover, the Minister also levied a penalty against Ms. S. P. in the following amount for each of these taxation years for wilfully, or through gross negligence, making a false statement in the filing of her tax returns, pursuant to

section 59.3 of the Tax Administration Act : 2013: $2,760; 2014: $1,500; and 2015: $2,560. [ 6 ] In November 2016, Ms. S. P. filed a notice of objection to the notices of assessment. [5] [ 7 ] On February 8, 2018, the Minister dismissed the notice of objection and confirmed the notices of assessments. [6] [ 8 ] The Minister based his decision on the grounds that Ms. S. P. did not provide sufficient proof of (

i) her needs for childcare services and (ii), that the services were paid. Moreover, the Minister was of the view that the penalties were rightfully assessed because Ms. S. P. wilfully, or in circumstances equivalent to gross negligence, wrongfully claimed a tax credit for childcare expenses. [ 9 ] On April 26 2018, within the delay allowable under the Tax Administration Act , Ms. S. P. filed a

summary appeal in which she asks the Court of Québec to cancel the three notices of assessment issued on November 10, 2016. [ 10 ] While her

summary appeal seeks a reduction of tax computed for each of the taxation years which exceeds the $4,000 threshold of

article 93.2(a)(ii) of the Tax Administration Act , Ms. S. P. signed a voluntary limitation pursuant to

article 93.6 of the Act limiting the object of her appeal to a maximum reduction of $4,000 in tax computed.

[11] Ms. S. P.’s appeal raised the following issues:

a) Has Ms. S. P. rebutted the presumption of validity by proving that (

i) childcare services were needed to enable her to performthe duties of her job, and (ii) she paid the childcare services for which she claimed a credit?

b) Has the Minister proven that Ms. S. P. wilfully, or in circumstances equivalent to gross negligence, made false statements inregards to her claim for tax credits for childcare services in her 2013, 2014 or 2015 tax returns? [12] The tax credit for childcare expenses available under the Taxation Act is unique and generous. To avail themselves of thiscredit, taxpayers must notably firstly establish that they have a need for the childcare services for which they are claiming a credit, andsecondly, that they have actually paid for the amount of the credit they are claiming. [13] In the instant case, the

summary appeal will be dismissed because the taxpayer has not demolished or rebutted the presumptionof validity which attaches to the notices of assessment. Her proof as to the payment of the childcare services for which she claimed a taxcredit is severely deficient; it lacks the requisite level of precision and probability to prove prima facie that she paid for the childcareservices. [14] Secondly, the Agency has discharged its burden of proving that the taxpayer was grossly negligent in asking for the tax credit.Therefore, the Minister was correct to assess the penalties which he did. Analysis and decision Presumption of Validity and Burden of Proof [15] Under

article 1014 of the Taxation Act, the notices of assessments at issue in this

summary appeal are presumed or deemed tobe valid. [16] To rebut or demolish this presumption of validity, a taxpayer must present prima facie evidence that the factual assertions onwhich rest the Minister’s assessments are wrong. If this is accomplished, the burden of proof is reversed and the Agency must bypreponderance of proof, establish the accuracy of the facts supporting its assessment.[7] [17] Recently, the Court of Appeal described the taxpayer’s burden as follows: [26] Le fardeau du contribuable consiste à démontrer « en quoi les faits sur lesquels s’appuie la cotisation sont incorrects.

Cettepreuve doit être suffisante pour convaincre le tribunal, à première vue ». Elle doit aussi « comporter un certain degré de précision et deprobabilité en sa faveur » pour être retenue.[8] [18] As to what constitutes prima facie evidence sufficient to rebut the presumption, the Québec Court of Appeal in St-Georges v.Québec (Sous-ministre du Revenu)[9] explains as follows: [10] Dans Capobianco c. Québec (Sous-ministre du Revenu), 2007 QCCA 1235 , J.E. 2007-1837 aux paragr. 12 à 14(C.A.), la Cour précise que le contribuable n’a pas à établir le montant exact de son revenu imposable.

Cet enseignement metdéfinitivement fin au flottement entourant la question du fardeau de preuve du contribuable qui s’oppose à l’avis de cotisation parce quele montant de son revenu imposable établi par le ministère du Revenu serait inexact. Le contribuable doit seulement démolirl’exactitude de la présomption en présentant une preuve prima facie de son inexactitude. [11] La preuve du contribuable doit toutefois comporter un certain degré de précision et de probabilité en sa faveur par oppositionà des allégations vagues et ambiguës.

Règle générale, la simple affirmation du contribuable ne suffit pas; elle aura avantage à êtresoutenue par une preuve documentaire ou circonstancielle. [12] La thèse voulant qu’une simple négation de la part du contribuable puisse contrer la présomption de validité de l’article1014 L.I. reviendrait à priver cet

article de tout son sens. (Footnotes omitted) [19] In 9027-5967 Québec Inc.[10], the Court of Appeal expanded on the meaning of prima facie evidence: [14] Règle générale, la preuve prima facie se définit comme une preuve suffisante pour établir un fait jusqu’à preuve du contraire.Dans Stewart c.

M.R.N., le juge Cain mentionne qu’« une preuve prima facie est celle qui est étayée par des éléments de preuve quicréent un tel degré de probabilité en sa faveur que la cour doit l’accepter si elle y ajoute foi, à moins qu’elle ne soit contredite ou que lecontraire ne soit prouvé ». (Footnotes omitted) [20] The Court of Appeal has also stated that prima facie evidence constitutes “un début de preuve convaincante”.[11] The Tax Credit for Childcare Expenses Under the Taxation Act [21] In Estil v.

Agence du revenu du Québec[12], Justice Alain Breault, j.c.q., summarized as follows the Québec tax credit forchildcare expenses: [24] Le régime fiscal des frais de garde d’enfants est unique par ailleurs.

[25] En effet, il est ainsi fait que, même si le contribuable n’a aucun impôt à payer, il peut néanmoins bénéficier du crédit de frais de garde d’enfants et obtenir un remboursement.

Le montant auquel le contribuable admissible a droit peut atteindre jusqu’à 75 % des frais de garde payés, qu’il ait ou non des revenus suffisants à l’encontre desquels des impôts peuvent être prélevés. [26] Pour le Tribunal, dans le contexte de notre régime fiscal d’autocotisation et d’autodéclaration, cet avantage singulier a pour contrepartie, lorsque la situation se présente, d’être plus exigeant envers le contribuable quant à la qualité de sa preuve. De simples affirmations, de façon générale, ne suffiront pas à satisfaire à son fardeau de preuve. [27] La

section de la L.I. traitant des frais de garde d’enfants comporte d’ailleurs plusieurs dispositions détaillées qui établissent des conditions spécifiques pour avoir droit à ce crédit. [28] L’

article 1029.8.67 L.I. prévoit ainsi que l’expression « frais de garde d’enfants » « désigne des frais qui ne sont ni prescrits, ni exclus en vertu de l’

article 1029.8.68 [ L.I. ] et qui » sont engagés dans le but « d’assurer, à un enfant admissible d’un particulier pour l’année des services de garde d’enfants au Canada… », si l’enfant est gardé pour permettre au particulier, ou encore à la personne assumant les frais d’entretien de l’enfant, « qui réside avec l’enfant au moment où les frais sont engagés », d’occuper un emploi, d’exploiter une entreprise, d’effectuer de la recherche ou un travail semblable, de fréquenter une maison d’enseignement ou de chercher activement un emploi. [29] Par ailleurs, l’

article 1029.8.69 L.I. énonce qu’un particulier ne peut, pour une année d’imposition, inclure dans l’ensemble de ses frais de garde d’enfants admissibles, un montant payé à ce

titre que si « la preuve du paiement de ce montant est faite par la production au ministre d’un ou de plusieurs reçus délivrés par le bénéficiaire du paiement et contenant, lorsque celui-ci est un particulier, le numéro d’assurance sociale de ce particulier ». [ 22 ] The issued raised by this

summary appeal will be analyzed within the framework described and suggested by Justice Breault in Estil .

a) Has Ms. S. P. rebutted the presumption of validity by proving that (

i) childcare services were needed to enable her to perform the duties of her job, and (ii) she paid the childcare services for which she claimed a credit? [ 23 ] The Agency argues that the Minister rightfully refused Ms. S. P.’s claim for a tax credit for childcare expenses because she did not establish that she needed the childcare services for which she sought a credit during the timeframe relevant to this

summary appeal in order for her to perform her job duties. Moreover, the Agency argues that even if Ms. S. P. established her needs for childcare services, she has not provided proof of payment of the amount for which she claimed a tax credit for childcare services, as required by

section 1029.8.69 of the Taxation Act . [ 24 ] Ms. S. P. argues that the requirements of her job are such that she regularly needed childcare services between 2013 and 2015. Moreover, she adds that she paid the amounts for which she is claiming a tax credit. [ 25 ] The Court will first address whether Ms. S. P. has provided prima facie proof of her need for childcare services and secondly whether she has provided prima facie evidence of the payment of the services for which she seeks a tax credit. The need for childcare services [ 26 ] Ms. S.

P. is a single mother of three children. [ 27 ] In 2013, she had two children, X, who was 10 years old at the time, and Y who was between 7 and 8 years old. [ 28 ] In February 2014, she gave birth to Z She was on maternity leave between January 2014 and January 2015. During that year, Y was between 8 and 9 years old and X was 11 years old. Both attended a local elementary school. [ 29 ] During the 2015 taxation year, Z was 1 year old, whereas Y was 9 and X was 12. The latter continued to attend a local elementary school during this taxation year. [ 30 ] Between 2013 and 2015, Ms. S.

P. was employed by Pro X TCD, a business that provides trade show services to clients. She was employed as a representative of the company, which meant that her job entailed meeting with clients on the road, evaluating their trade show needs, supervising the setting up and disassembling of booths of the firm’s clients at various trade shows and providing services to the client during the entire length of the trade show. [13] [ 31 ] Ms. S. P.’s job requires her to attend trade shows in Montréal but also in Ottawa, Saint-Hyacinthe, Québec city, and sometimes even in Toronto. [ 32 ] Her work

schedule during the 2013 to 2015 period (in except during the one year maternity leave) was irregular. She often had to work evenings and week-ends. Ms. S. P.’s testimony in this regard was corroborated by her immediate superior, Christine Lachance. [ 33 ] Because of this schedule, she needed childcare services after school, regularly during evenings and once in a while on week- ends. She also needed these services during the March school break week and over the summers. [ 34 ] She turned to the service provider to provide these childcare services. She had met him through a friend.

He lived in an apartment on Ile-Bizard while she resided with her three children in the West Island of Montréal. [ 35 ] When Ms. S. P. had to work late evenings or stay out of town to attend trade shows, her two eldest children would sleep over at the service provider’s house. [ 36 ] The Court is satisfied that Ms. S. P.’s evidence as to her need for childcare service constitutes prima facie proof of her needs for childcare services so that she could perform the duties related to her employment.

Proof of payment of the childcare services [ 37 ] It is not sufficient for a taxpayer to prove that she/he needed childcare services.

Section 1029.8.69 of the Taxation Act also requires the taxpayer to provide proof of payment of the childcare services for which she/he is claiming a tax credit by filing with the Minister one or more receipts issued by the childcare provider. These receipts must contain the childcare provider’s social insurance number. [ 38 ] Ms. S. P. paid for the childcare services in cash.

She filed three receipts to support her claim that she paid for childcare services: a receipt for $8,000 for 2013, a receipt for $4,000 for 2014, and a receipt for $8,000 for 2015. [ 39 ] The receipts are identical, but for the amount and the year. The receipt for 2015 is reproduced below: CASH RECEIPT Amount $ 8,000.00 Description Childcare K[P] and Y 2015 Received by Service Provider (SIN) Approved by S. P. (followed by her signature) [ 40 ] None of the receipts are signed by the service provider. [ 41 ] Ms. S. P. did not produce the service provider as a witness.

In normal circumstances, the Court would have expected him to testify as to the quantity of childcare services provided and the schedule, as well as to the payments made by the taxpayer. [ 42 ] However, because the service provider was charged under the Criminal Code with committing, in 2017, a sexual assault on one of the children that used to be under his care, it is understandable that Ms. S. P. did not call him as a witness. [14] No negative inference can be drawn from this absent witness. [ 43 ] However, Ms. S.

P. did not produce as a witness any of the two children who were under the service provider’s care. They were 17 and 14 years old at the time of the trial. Ms. S. P. did not explain why they did not testify. Their testimony on the frequency of the childcare services provided and the payments would have been relevant to the issues raised by this

summary appeal. The Court draws a negative from their absence. [ 44 ] The quality and the sufficiency of the taxpayer’s proof with respect to the payment of the amount of childcare service for which she sought a tax credit is deficient in the instant case. It lacks the precision and plausibility required by the Taxation Act and the case law. [ 45 ] In Beauvais v.

Québec (Sous-ministre du revenu) , Justice Laliberté writes that a receipt issued by a person or enterprise that provides childcare services can constitute proof of the payment of the services, but the taxpayer must be able to explain the receipt when the tax authority so requests, notably by providing specific details as to the periods of time during which the services were provided, for which child, the precise remuneration. [15] [ 46 ] Since then, the case law of this Court, in the context of the tax credit for childcare services, has consistently held that absent detailed documentary proof, a taxpayer’s evidence based solely on receipts is insufficient to rebut the presumption of validity. [16] [ 47 ] In Bernadeau v.

Agence du revenu du Québec , Justice Vincenzo Piazza commented as follows concerning receipts that had been entered into evidence by a taxpayer to prove the payment of childcare services in circumstances very similar to the case at bar: [22] En l’occurrence, madame Bernadeau est l’unique auteure de la preuve documentaire qu’elle produit. En ce sens, il s’agit d’une preuve préconstituée, mieux désignée en anglais par l’expression « self-serving evidence ». Cette preuve, en fait, n’a d’écrit que la forme.

Sa force probante ne dépasse pas celle, justement, de « la simple affirmation du contribuable ». [23] Comme l’écrivait récemment le juge Breault, « s’il est exact de dire qu’il n’est pas illégal au Québec de payer une dette en argent liquide, la jurisprudence enseigne en revanche qu’en matière de crédits pour frais de garde d’enfants, la seule présentation d’un reçu est généralement insuffisante pour faire la démonstration que les frais réclamés sont réellement admissibles ». [24] Dans l’affaire Beauvais , la juge Laliberté remarquait quant à elle : [25] Il est exact d’affirmer que les reçus émis par les personnes ou organismes gardant des enfants puissent servir comme preuve de paiement des frais de garde : cependant, et sur demande des autorités fiscales, le contribuable doit être en mesure d’expliquer lesdits reçus, soit de préciser les périodes de garde et la rémunération versée pour établir que les argents (sic) ont été réellement payés à ces fins. [26] En l’espèce, force est pour le Tribunal de constater que la preuve offerte par madame Nancy Beauvais n’est pas élaborée ni convaincante, et qu’à toutes fins utiles, elle a offert en preuve son témoignage ainsi que les reçus signés par sa mère : le Tribunal est d’avis qu’il n’est pas suffisant d’affirmer d’avoir versé à madame Berthe Morin les sommes apparaissant sur les reçus pour les frais de garde et indiquées aux déclarations de revenus des années concernées, et que preuve devait être apportée qu’elle a effectivement déboursé toutes ces sommes pour faire garder ses enfants.

Madame Beauvais n’a pas été en mesure de prouver ses allégations de paiement par la production de chèques, de preuves de virements de fonds, de preuves d’ordres de paiement, d’agendas de garde, de budgets, ou autres documents domestiques ayant pu soutenir ses allégations : elle n’a pas été en mesure de quantifier avec exactitude les jours, les heures ainsi que le tarif de garde applicable, échappant ainsi à son fardeau de prouver l’existence de réels transferts d’argent à sa mère. La déclaration pour valoir témoignage de madame Berthe Morin datée du 30 mars 2011 ne suffit pas pour prouver qu’elle a

touché les sommes d’argent indiquées aux déclarations de revenus des années 2003, 2004 et 2005. [25] Ces observations sont parfaitement transposables ici. [26] Bien que la rigueur du contribuable soit généralement de mise dans ses relations avec le fisc, cela est d’autant plus vrai en matière de crédit pour frais de garde d’enfant. Cette exigence s’explique aisément. [27] En effet, le régime fiscal des frais de garde d’enfants au Québec est unique.

Même si le contribuable n’a aucun impôt à payer, il peut bénéficier du crédit et obtenir un remboursement pouvant atteindre 75% des frais de garde payés au cours d’une année. [28] C’est pour cette raison que la preuve du contribuable doit non seulement être constituée de reçus véridiques, mais également contenir la démonstration crédible du paiement véritable des sommes indiquées à ces reçus. [ 48 ] Justice Piazza’s comments apply to this case. [ 49 ] While Ms. S.

P. entered into evidence, in addition to the three receipts, excerpts from her bank account transaction history which show cash withdrawals, this evidence is not sufficiently probative to prove that payments were made to the childcare service provider in the amount for which she claimed a tax credit. [17] For example, there is no direct link between the date of the withdrawals and the dates on which the services were provided.

The amount and the frequency of the payments is irregular and does not match any payment schedule. [18] For the 2014 taxation year, only withdrawals for the time period January 6 to February 19, 2014 are provided and the withdrawals do not match the amount of the receipt for that year. [ 50 ] It is telling that the receipts are for precise dollar amounts: $8,000 for 2013, $4,000 for 2014, and $8,000 for 2015. How each annual amount was arrived at was left unexplained. The Court ignores how many days were spent by the children in the care of the service provider, much less how many hours.

No records were kept; no log books or attendance sheets were entered into evidence. [ 51 ] There are other factual elements which lead the court to lend little probative value to the receipts and to the other evidence adduced by the taxpayer:

a) The receipts are not signed by the service provider;

b) The service provider did not complete a Relevé 24 for any of the relevant taxation years;

c) The service provider did not file annual tax returns within the legal delays in 2013, 2014 and 2015 and thus did not declare the revenue allegedly paid to him by Ms. S. P. during those years. He only filed tax returns in July 2016. Coincidentally, these tax returns were only filed after the Agency’s auditor spoke to Ms. S. P. and raised the fact that the service provider had not declared any revenues to the tax authority. The only revenue declared by the service provider are those paid to him by the taxpayer for childcare services. Moreover (

i) the envelope in which the service provider’s tax returns were sent also contained the taxpayer’s bank records, and (ii) the signature on the service provider’s driver’s licence differs significantly from the signature on his tax return, leaving one to question as to who actually prepared and signed his return; [19]

d) During the audit, the Agency’s auditor was not able to speak to the service provider to corroborate information provided by the taxpayer, despite calling him numerous times; messages were left but were never returned;

e) According to the records of the RAMQ and the SAAQ, Z’s father provides a home address that matches the taxpayer’s home address during the 2013-2015 period. The government records also show that the father was unemployed and received social assistance. The taxpayer writes in her letter to the Agency that Z’s father lives with the Service Provider. [20] Finally, the children (X and

Y) attended after-school childcare programs at their elementary school between 2013 and 2015. [ 52 ] The following excerpt from the Federal Court of Appeal in Njenga v. The Queen applies equally to the case at bar: The tax system is based on self-monitoring. As a public policy matter the burden of proof of deductions and claims properly rests with the taxpayer. The Tax Court Judge held that persons such as the Appellant must maintain and have available detailed information and documentation in support of the claims they make. We agree with that finding. Ms.

Njenga as the Taxpayer is responsible for documenting her own personal affairs in a reasonable manner. Self-written receipts and assertion without proof are not sufficient. [21] [ 53 ] When evaluated globally, the evidence adduced by the taxpayer does not convince the Court prima facie that the facts relied on by the Minister to issue the notices of assessment are incorrect. Her evidence lacks the requisite level of precision and probability to prove prima facie that she paid the service provider the amounts for childcare services for which she claims a tax credit in 2013, 2014, and 2015. [ 54 ] Ms. S.

P.’s proof concerning the payment of childcare services does not constitute prima facie evidence required to rebut the presumption of validity of the notices of assessment.

b) Has the Minister proven that Ms. S. P. willfully, or in circumstances equivalent to gross negligence, made false statements in regard to her claim for tax credits for childcare services in her 2013, 2014 or 2015 tax returns? [ 55 ] The Minister levied a penalty against Ms. S. P. for each of the taxation years 2013, 2015 and 2105 for willfully, or through gross negligence, making a false statement in the filing of her tax returns, pursuant to

section 59.3 of the Tax Administration Act . [ 56 ] The Agency has the burden of proving that a taxpayer has willfully, or in circumstances equivalent to gross negligence, made false statements in regards to her claim for tax credits for childcare services. [22]

[ 57 ] The Agency relied on the following facts to levy the penalty: • The importance of the tax credit claimed annually; • The Agency was not able to get in touch with the service provider; and • The taxpayer was unable to prove her childcare needs or the payments. [23] [ 58 ] Since the language of

article 59.3 of the Tax Administration Act is similar to that of

article 1049 Taxation Act , these provisions are interpreted similarly and the test for imposing a penalty under these provisions is identical. [24] [ 59 ] Gross negligence or willfulness for the purposes of

article 59.3 Tax Administration Act includes a gross fault, or conduct which shows recklessness, gross carelessness or total disregards for the interests of others. [25] [ 60 ] In St-Georges v.

Québec (Sous-ministre du Revenu) , the Court of Appeal held that the following criteria should be considered to determine whether the Minister rightfully assessed the penalty for grossly negligence: • the importance of the sums omitted or declared, the value of the justifications provided by the taxpayer and the circumstances in which the omission or false statements occurred; • the quality of the accounting records kept by the taxpayer; • the taxpayer’s education, knowledge and business experience; • the fact that the taxpayer has voluntarily acknowledged or declared the omissions, or the falsehoods, affecting the disputed declarations; • the nature of the previous relations between the taxpayer and the tax authority; • the credibility of the taxpayer. [26] [ 61 ] In the instant case, the following factors proven by the Agency support the Minister’s imposition of the penalty under

article 59.3 of the Tax Administration Act : • The amount of the tax credits claimed and the period over which they were claimed; [27] • The circumstances in which the service provider’s tax returns were filed; and • The poor quality of the accounting records kept by Ms. S. P.. FOR THESE REASONS, THE COURT: [ 62 ] DISMISSES S. P.’s

summary appeal; [ 63 ] WITHOUT LEGAL COSTS . [28] __________________________________ ENRICO FORLINI, J.C.Q. Date of hearing: May 28, 2019 and September 30, 2019