1048547 Ontario Inc. v. Canada

1048547 Ontario Inc. v. Canada Court (s) Database Federal Court of Appeal Decisions Date 2024-06-17 Neutral citation 2024 FCA 113 File numbers A-93-23 Decision Content Date: 20240617 Docket: A-93-23 Citation: 2024 FCA 113 [ENGLISH TRANSLATION] CORAM: DE MONTIGNY C.J. LEBLANC J.A. WALKER J.A. BETWEEN: 1048547 ONTARIO INC. KOSTANTINOS SKOTIDAKIS JOHN SKOTIDAKIS ANTIGONI SKOTIDAKIS KOSTANTINA SKOTIDAKIS Appellants and HIS MAJESTY THE KING Respondent Hearing held at Montreal, Quebec, on June 17, 2024. Judgment delivered from the bench at Montreal, Quebec, on June 17, 2024. REASONS FOR JUDGMENT OF THE COURT BY: LEBLANC J.A. Date: 20240617 Docket: A-93-23 Citation: 2024 FCA 113 CORAM: DE MONTIGNY C.J. LEBLANC J.A. WALKER J.A. BETWEEN: 1048547 ONTARIO INC. KOSTANTINOS SKOTIDAKIS JOHN SKOTIDAKIS ANTIGONI SKOTIDAKIS KOSTANTINA SKOTIDAKIS Appellants and HIS MAJESTY THE KING Respondent REASONS FOR JUDGMENT OF THE COURT (Delivered from the bench at Montreal, Quebec, on June 17, 2024.) LEBLANC J.A. [1] This is an appeal from a judgment by Justice Dominique Lafleur of the Tax Court of Canada (the Judge) dated February 28, 2023 (2023 TCC 24). In her judgment, the Judge confirmed the notices of reassessment issued to the appellants by the Canada Revenue Agency (the Agency) under the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the Act) for the taxation year ending on December 31, 2015, in the case of the appellant 1048547 Ontario Inc. (the Corporation), and for the 2014 and 2015 taxation years in the case of the other appellants. Those appellants are siblings who are all closely linked to the operations of the Corporation, whether as shareholders, officers or employees. [2] The notices of reassessment in question were issued in connection with certain disallowed business expenses of the Corporation. A very large majority of those expenses are travel expenses that the Agency determined, after a business audit of the Corporation was carried out under the Act, to be personal expenses from which the other appellants benefited, and not business expenses for which the Corporation was claiming the deduction. Once the deduction was denied for the purposes of computing the Corporation’s net business income for the taxation year ending on December 31, 2015, the amount of the expenses was added to the other appellants’ incomes for the 2014 and 2015 taxation years. The expenses were added to each of their incomes in the amount of the personal benefit that, according to the Agency, they each received as a taxable benefit either as shareholders or as employees of the Corporation, as permitted under subsection 15(1) and paragraph 6(1)(a) of the Act, respectively. [3] The Judge dismissed the appeal filed by the appellants against the notices of reassessment primarily on the basis that the appellants had not succeeded in rebutting, even on a prima facie basis, the assumptions of fact on which the notices were based. She noted that the appellants had provided no documentary evidence in this respect and found the testimony of the Agency’s auditor who had carried out the audit in question to be more credible and reliable. Among other things, the Judge preferred her testimony to that of the Corporation’s controller, who had been tasked with answering any questions the auditor might have and providing her with the documentation requested. She found the controller’s testimony to be vague, unconvincing and not credible. The Judge also drew a negative inference from the fact that three of the four other appellants did not testify at the trial without offering a valid explanation; that the testimony of the appellant who did testify was also vague, unconvincing and not credible; and that no documentary evidence was adduced by the appellants to even minimally rebut the notices of reassessment. [4] Before us, the appellants argue that the Judge breached the rules of procedural fairness by refusing to adjourn the trial given the tight deadlines that their new counsel, who had replaced their former counsel at the very last minute, had to deal with in preparing for the hearing. That issue requires that we consider whether “the procedure was fair having regard to all of the circumstances” (Canadian Pacific Railway Company v. Canada (Attorney General), 2018 FCA 69 at para. 54). [5] The appellants further submit that the Judge erred in accepting the Agency’s position that the expenses in issue were personal in nature, and, if that were the case, in accepting that a portion of those expenses should be added to the incomes of the other appellants on the basis that, for two of the four appellants, they were shareholder benefits, and, for the other two, they were employee benefits. Those issues must be reviewed on the appellate standard of review developed by the Supreme Court in Housen v. Nikolaisen, 2002 SCC 33. Thus, any questions of law to be resolved are to be reviewed on the correctness standard, while findings of fact or of mixed fact and law are subject to the deferential standard of palpable and overriding error. [6] We are all of the opinion that the arguments raised by the appellants before us are without merit. With respect to the procedural fairness argument, suffice it to say that counsel for the appellants, who also said that he was ready to proceed at the start of the trial (Appeal Book, vol. 3 at 684–85), merely proposed an adjournment because he thought it preferable that the trial, which had been scheduled for one day 18 months earlier, take place over two consecutive days (Appeal Book, vol. 3 at 693–97). It was entirely open to the Judge to reject that proposal, as she also agreed to extend the trial by a day and to schedule the second hearing day for one week after the first, and thus give the appellants’ counsel the time needed to review the book of exhibits filed by the respondent at trial and to prepare his cross-examination of the Agency’s auditor, the only witness called by the respondent at trial. There was no breach of the rules of procedural fairness here; far from it. [7] The three other criticisms of the Judge’s judgment raise fact-based issues. As this Court has had occasion to illustrate, the palpable and overriding error standard calls for more than simply pulling down leaves and branches if it is to be met; the “entire tree must fall” (Canada v. South Yukon Forest Corporation, 2012 FCA 165 at para. 46). That conveys the stringency of the standard, which, in turn, calls for a high degree of deference on our part. That burden has not been met in this case. [8] First, it was entirely open to the Judge to adopt the Agency’s assumptions of fact regarding the personal nature of the travel expenses in issue. The appellants seem to have forgotten that, under subsection 152(8) of the Act, an assessment (or reassessment) is deemed to be valid and that it is then up to the taxpayer to “demolish” those assumptions. To do that, the taxpayer must adduce evidence to meet the civil standard of the balance of probabilities (Eisbrenner v. Canada, 2020 FCA 93 at paras. 24–25; see also Amiante Spec Inc. v. Canada, 2009 FCA 139 at para. 23). In this case, the Judge determined that this burden had not been met given how little evidence was adduced by the appellants. In her opinion, the evidence adduced amounted, for all intents and purposes, to a lack of evidence. In our opinion, that conclusion is unassailable. To successfully attack those assumptions, it is not sufficient to criticize the process followed by the auditor as the appellants have done. As the Judge correctly noted, it is settled law that the conduct of a tax official who authorizes an assessment—in this case a reassessment—is not relevant to the determination of its validity or correctness (Ereiser v. Canada, 2013 FCA 20 at para. 31). [9] In short, the Judge weighed the evidence before her; noted the lack of evidence adduced by the appellants and, most importantly, the total absence of any documentary evidence to support the witnesses’ general statements that the expenses in issue were expenses incurred for the purpose of generating business income; and found the respondent’s evidence to be more credible, reliable and convincing. We reiterate that there is no ground for intervening here. [10] Second, the same finding applies with respect to the final two criticisms. The evidence in the record shows that the two appellants considered by the Agency to have received a taxable benefit as employees of the Corporation are employees of the Corporation (Appeal Book, vol. 3 at 933). Those appellants argue before us that the respondent had to also prove that they were employees in 2014 and 2015 in order to validate the notices of reassessment issued in their respect. The appellants are mistaken, however, since that burden rested on them and they failed to discharge it. The other two appellants are of the opinion that, as holders of preferred shares, they could not be assessed as shareholders for the benefit relating to the personal expenses that were attributed to them. As the respondent noted in his memorandum, subsection 15(1) of the Act does not distinguish between common shareholders and preferred shareholders, and these appellants failed to submit any authority in support of that argument, just as they failed to prove that the shares they held at the relevant time did not entitle them to payment of a dividend on the same footing as a common shareholder. [11] For all of the foregoing reasons, this appeal will be dismissed. There will be a separate order as to costs after the parties’ written representations on that issue have been received. “René LeBlanc” J.A. Certified true translation Margarita Gorbounova, Senior Jurilinguist FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: A-93-23 STYLE OF CAUSE: 1048547 ONTARIO INC., KOSTANTINOS SKOTIDAKIS, JOHN SKOTIDAKIS, ANTIGONI SKOTIDAKIS, KOSTANTINA SKOTIDAKIS v. HIS MAJESTY THE KING PLACE OF HEARING: MontrEAL, QUEBEC DATE OF HEARING: JUNE 17, 2024 REASONS FOR JUDGMENT OF THE COURT BY: DE MONTIGNY C.J. LEBLANC j.a. WALKER j.a. DELIVERED FROM THE BENCH BY: LEBLANC J.A. APPEARANCES: Michel Jasmin FOR THE APPELLANTS Gabriel Girouard FOR THE RESPONDENT SOLICITORS OF RECORD: Michel Jasmin, counsel Quebec, Quebec FOR THE APPELLANTS Shalene Curtis-Micallef Deputy Attorney General of Canada Ottawa, Ontario FOR THE RESPONDENT