2018 QCCQ 1534, 2018 QCCQ 1534

Schwartz c. Agence du revenu du Québec 2018 QCCQ 1534 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL CIVIL Division No: 500-80-021406-120 DATE: March 8, 2018 ______________________________________________________________________ BY THE HONOURABLE ELIANA MARENGO, J.C.Q. ______________________________________________________________________ ERWIN SCHWARTZ Plaintiff v. L’AGENCE DU REVENU DU QUÉBEC Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] On October 26, 2010, Erwin Schwartz filed a

summary appeal respecting 3 income tax assessments covering taxation years 2004, 2005 and 2006. [ 2 ] On January 31, 2012, Schwartz et l’Agence du Revenu du Québec (“ARQ”) consented to the transfer of the

summary appeal to the Civil Division of this Court. [ 3 ] Schwartz’s grounds for appeal are outlined in the

annexe attached to his

summary appeal (hereinafter “the Annexe”). He is essentially arguing:

a) double taxation;

b) the existence of an alleged settlement agreement between the parties;

c) the location of the corporate offices in his residence;

d) the allegedly inaccurate and prejudicial mode of sampling used by the ARQ to assess his income;

e) the refusal of the heat pump expense;

f) an alleged right to correct his income tax declarations post facto ; and

g) his company’s financial difficulties and inability to pay him, in 2009 and 2010. [ 4 ] ARQ has agreed to accept the expenses related to the heat pump (lines 8 and 107 in chart, exhibit D-9), so this is no longer an issue at bar. [ 5 ] Regarding the other grounds for appeal, it is important to underline that, in virtue of

section 1014 of the Taxation Act , [1] notices of assessment are deemed valid and binding. The burden was therefore on Schwartz to prove that the notices of reassessment issued on February 7, 2011, bearing numbers MT342847C02, MU273595C02 and MU329207C02, respectively for years 2004, 2005 and 2006, are unfounded. [ 6 ] It is to be noted that, as a matter of procedure, at trial, the Court allowed Schwartz to amend his

summary appeal, with a view to have it apply to the above notices of reassessment, as, originally, it applied to notices MT342847C01, MU273595C01 and MU329207C01, dated February 7, 2011.

Given that the facts and grounds for appeal remained the same, the Court deemed the amendment to be in the best interests of justice and not prejudicial to ARQ. [ 7 ] With respect to Schwartz’s argument regarding double taxation, it is rejected, as he had a duty to declare the expenses detailed in exhibit D-9 as shareholder benefits, in virtue of sections 111, 128 and 133 of the Act , [2] that which he did not do. [ 8 ] The Court also rejects Schwartz’s argument pertaining to an “agreement” between the parties and “a compromise amount”, as he did not fulfill his burden of proof in this regard.

This is vehemently denied by ARQ, and witness Diane Beauséjour credibly stated that no such agreement ever intervened between the parties. Schwartz was unable to produce any testimonial or documentary evidence to support his allegation (arts. 2803 and 2804 of the Civil Code of Quebec ). The argument is therefore rejected, as above stated. [ 9 ] With regards to his argument of an alleged “inaccurate method” mentioned in paragraph 4 of the Annexe, Schwartz failed to meet his burden of proof. ARQ used no such “method” or “sampling” to assess his income.

ARQ based itself on the documents and other information provided by Schwartz, in order to be as accurate as possible. There were no “assumptions” or “extrapolations”, as alleged by Schwartz. [ 10 ] With regards to Schwartz’s argument that he should be allowed to make changes to his declarations and statements “retroactively”, this is simply not a sound argument:

“[6] Le Tribunal ne peut retenir une telle interprétation. En effet, en vertu de la

Loi sur l'impôt, toute personne tenue de produire une déclaration fiscale au terme du présent

titre doit dans cette déclaration estimer le montant de l'impôt payable. Permettre comme l'a fait l'appelant, à un individu de faire assumer des dépenses personnelles par sa compagnie pour ensuite les rembourser si elles sont découvertes et cela, sans aucune contrainte, ne peut se justifier. [7] L'appelant ne pouvait donc rectifier après coût les irrégularités descellées par la vérificatrice en remboursant comme il l'a fait sa société, en corrigeant ses états financiers après coup.

L'appelant doit assumer les conséquences fiscales découlant de ses actes et des dépenses personnelles qu'il a fait supporter par sa société. Il doit donc payer l'impôt sur les avantages dûment cotisés.” [3] [ 11 ] Finally, Schwartz’s argument that he received no salary in 2009 and 2010, as his company did not do well financially, is of absolutely no import or consequence to the present appeal. [ 12 ] With regards to the penalties: given

section 1049 of the Act ; whereas Schwartz is not a repeat tax offender; whereas Schwartz cooperated with ARQ’s assessment and reassessment processes; whereas Schwartz admitted that his bookkeeping and accounting practices were not up to par and were in need of an overhaul to improve accuracy and transparency; whereas Schwartz was a credible witness; and whereas Schwartz has since set up better bookkeeping and accounting practices; the Court does not believe that ARQ proved that Schwartz was grossly negligent in the filing of his tax returns, nor that the penalties are warranted under the circumstances. [4] [ 13 ] In closing, the Court agrees with Schwartz with respect to the matter of interest and the delays incurred in this case. [ 14 ] The hearing began on June 7, 2017, and should have been continued, on June 8, 2017.

However, both the undersigned and counsel for ARQ fell ill, and the second day of hearing was postponed until January 25, 2018. Accordingly, no interest shall be charged to Schwartz for the period commencing June 8, 2017, and ending January 25, 2018. [ 15 ] The evidence is however insufficient to attribute fault to any one party with respect to the other delays incurred. Suffice it to say that Schwartz consented to ARQ’s motion to postpone, dated November 20, 2014 (email of B.C.F. lawyers, dated November 20, 2014).

WHEREFORE THE COURT HEREBY: GRANTS the appeal, in part; ANNULS notices of reassessment MT342847C02, MU273595C02 and MU329207C02, dated February 7, 2011; DEFERS the minister’s file for a new assessment and the issuance of new notices of assessment in conformity with the present judgement; THE WHOLE with adjusted interest and without penalties; EACH PARTY paying its own costs, given the mitigated results of this appeal. __________________________________ ELIANA MARENGO, J.C.Q.

Erwin Schwartz Representing himself Me Patrick Guay LARIVIÈRE MEUNIER Lawyers for defendant Dates of hearings: June 7, 2017, January 25 and 26, 2018