What You Need to Know – If you Can’t Jail him, Tax Him
On January 7, 2016, the S?reté du Québec1? raided the home of Mr. Karl Ringuette, the Plaintiff in the case Ringuette vs Agence revenu du Québec.[i] [ii] The S?reté “…seized 3.85 grams of cannabis, 1.65 grams of Hashish, 0.68 grams of cocaine, 24 amphetamine tablets and $75,854.00 in cash [mainly in Canadian dollars but also in American dollars, Mexican pesos and Euros]… a brass knuckle, seven Viagra tablets and two mobile phones.[iii] Mr. Ringuette was also arrested and charged with 4 offences under the Food and Drug Act and the Criminal Code, but he was acquitted due to “… a defect in the evidence.”[iv]
?The Agence du Revenu du Québec (“ARQ”) conducted an audit of the Plaintiff’s affairs for the years 2014, 2015, and 2016. As part of that audit, the ARQ’s auditor, Mr. Rémi Bélanger, sent the Plaintiff a questionnaire regarding “…the number of people living with [the Plaintiff], his cash receipts, liquid assets, investments, loans, etc.” Mr. Ringuette failed to? the questionnaire.[v]
?Mr. Belanger then drafted an income tax assessment, using the cash flow method,[vi] to determine the Plaintiff’s income for the years 2014, 2015, and 2016. An additional $24,485.00 was added to his declared income for 2014, $6,427.00 for 2015, and $80,884.00 for 2016.[vii]
?After the drafted assessment was sent to the Plaintiff, the Plaintiff and Mr. Bélanger spoke on the telephone. During that conversation, Mr. Bélanger noted in his file that the Plaintiff said that the $75,854.00 had been given to him by his father, Mr. Lucien Ringuette, who instructed him that the money be given to his mother, Ms. Gaétane Savoie.[viii]
?Mr. Bélanger issued a formal assessment which was identical to the draft.[ix]
?As required by law, the Plaintiff filed a Notice of Objection to the final assessment, which, in due course, was rejected by the Minister of Revenue.[x] Thereafter he appealed[xi] the assessment to the Court of Québec, hence the Judgment [xii]
?In both his Objection and appeal, the Plaintiff sought the cancellation of the assessment on the basis that he did not earn income assessed for 2014, 2015, and 2016 and that in any event, the 2014 portion of the assessment was issued after the three-year limit set by law. [xiii] He also contested penalties imposed upon him for flagrant negligence is declaring his income in those years.
?Generally, assessments by tax authorities are presumed to be correct and the taxpayer has the burden of proving that it is wrong.[xiv]
?However, if a taxpayer, in a tax return “…has made a representation that is attributable to negligence or willful default or has committed any fraud in [filing a tax] return…,”[xv] then:
?1.???? There is no limit as to when an assessment can be issued; and
?2.???? Such assessment does not benefit from the presumption of validity.[xvi]
?In this case, the portion of the assessment, for 2015 and 2016, fell within the three-year limit and therefore benefitted from the presumption of validity. As a result, the Plaintiff had the burden of proving, by a preponderance of evidence, that that portion of the assessment was wrong.[xvii] As the assessment was issued after the three-year statutory delay for the portion of the assessment? for 2014, the ARQ had the burden of proving, by a preponderance of the evidence, that ?it was correct.[xviii]? “Preponderance of evidence” means that A party having the burden of proof must satisfy the court that its version of the facts is more likely than the opposing party’s version of the facts.
?The trial was held in March 2024. The Court concluded that the Plaintiff’s testimony with respect to 2015 and 2016 was “impossible and not credible.”[xix] Here are some of the reasons why:
?l? At the beginning of 2015, Mr. Karl Ringuette purchased a lock box, placed the $75,854.00 dollars inside it and asked Ms. Josée Francoeur, his mother-in-law, to keep the lock box in her home until December 2015.[xx]
?l? On January 8th, 2016, the Plaintiff told ARQ’s investigator, Mr. Eric Gagnon, that he had received more than $50,000.00 from his father. The Court noted that while $50,000.00 is an important sum of money, it is not as important as $75,854.00. At trial, the Plaintiff’s testimony was “imprecise.” Additionally, he did not explain why his father would have given him the money rather than directly to his mother.[xxi]
?For her part, Ms. Savoie told Mr. Gagnon that, prior to his death, Mr. Lucien Ringuette had given $10,000.00 each to her, to the Plaintiff and Cynthia. When Mr. Gagnon questioned Cynthia, she “… was careful to avoid the subject…” of the supposed $10,000.00 gift from her father.[xxii]
?l? On November 6, 2019, is his written pleadings filed in Court, the Plaintiff alleged that the $75,854.00 found by the police in his home was given to him by his late father, in small amounts, for him to turn over to his mother, Ms. Gaétane Savoie.[xxiii]
?This contradicted his testimony at trial where he stated that he received the money as an inheritance in August, 2015.[xxiv] It also contradicted his testimony, and that of his mother’s, that his late father had no savings in a bank account, no investments, no pension funds and no life insurance policies. In fact, he stated his father had no assets other than his car and some furniture.[xxv]
?The Court found it implausible that the Plaintiff’s father, Mr. Lucien Ringuette, would have entrusted $75,854.00 to the Plaintiff for the benefit of Ms. Savoie, to whom Mr. Lucien Ringuette was married to for 42 years. The Court questioned why Mr. Lucien Ringuette would not have simply given the money to his wife. Moreover, the Court questioned why the Plaintiff did not remit the $75,854.00 to his mother after his father passed away. The Court wrote that Plaintiff “… did not explain himself probably because there is no logical explanation.”[xxvi]
?l? Perhaps most curiously, during the raid of the Plaintiff’s home, the $75,854.00, was separated into various plastic bags each containing $10.00 or less purportedly for distribution to his mother and sister. The Plaintiff did not provide “…any logical explanation for this…,” The Court accepted Investigator Gagnon’s explanation for the money being in $10.00 bags. He testified that “…that this is a way of proceeding in organized crime.” [xxvii]
?The Court concluded that the Plaintiff’s “…? behavior is only conceivable in a context where money came from a crime which was to be hidden from sight of others.”[xxviii] The Court went on: “All of these facts confirm the investigators’ version that the Plaintiff was involved in drug trafficking, that the $75,854.00 seized came from such trafficking...”[xxix]
?In short, the Court found that the Plaintiff’s and his mother’s testimony, were “… not critical credible because they are riddled with inconsistencies and contradictions.”. Therefore, the Court held that Mr. Kirk Ringuette failed to rebut the presumption of validity of the portions of the assessment for 2015 and 2016.[xxx]
?Regarding 2014, the result was different. As noted above, the burden of proof shifted from the Plaintiff to the ARQ. The ARQ had to prove, by preponderance of the evidence, not only that the Plaintiff mispresented his income for that year but also that such misrepresentation was due to his”…carelessness or willful default.[xxxi] The Court noted that its finding that the Plaintiff failed to meet his burden of proof with regard to the 2015 and 2016 had no bearing on the Court’s analysis for 2014. ?
?The ARQ’s evidence was limited to a cash flow statement showing that, for 2014, there was a $20,458.00 discrepancy between the Plaintiff’s declared income and his actual income.[xxxii] This evidence was not sufficient, in the Court’s view. to prove that Mr. Karl Ringuette misrepresented his 2014 income and that his misrepresentation was due to his carelessness or willful default. Consequently, the portion of the assessment, relating to the 2014 tax year, was quashed as if it been made beyond the three-year statutory deadline.[xxxiii]
?Finally, the Court turned to penalties which were assessed by the ARQ against Mr. Karl Ringuette. The Court found that Mr. Karl Ringuette made false statements by omitting income on his 2015 and 2016 tax returns “… amounting to flagrant negligence”[xxxiv] and maintained the penalties assessed against him for those years.
?WHAT YOU NEED TO KNOW:
?·?????? All income, even income derived from criminal activity, is taxable and must be declared to the fiscal authorities;
?·?????? Tax authorities can use various methods to determine a taxpayer's true income. One method is to compare a taxpayer's cash flow with the amount of income declared for a given period;
?·?????? It the tax department issues a tax assessment or reassessment with the delays set by law, such assessment or reassessment benefits from a presumption that it is correct. As a result, it is for the taxpayer to prove, on the balance of probabilities, that the assessment or reassessment in question is wrong;
?·?????? However, if the tax department can prove that the taxpayer negligently or knowingly misstated their income, the tax department can issue an assessment or reassessment even after the time limit set by law but, in such case, the burden is on the tax authorities to prove that their assessment or reassessment is correct.
?If you found this interesting or useful, please feel free to circulate it among your friends, colleagues, and clients.
?
If you have any comments or queries, please feel free to contact us.?
[i] 2024 Q.C.C.Q. 8391 ?
[ii] The Agence revenu du Québec, or the Quebec Revenue Agency, is the Québec government agency charged with collecting, among other taxes, provincial income tax.
[iii] Paragraphs 9 & 10 of the Judgment (Unless otherwise indicated all references to paragraph numbers refer to paragraph numbers of the Judgment with all internal citations and footnotes omitted and all extracts are taken from the mechanical translation into English of the original French version of the Judgment.,)
[iv] Paragraphs 11 & 12
[v] Paragraphs 16 & 17
[vi] The cashflow method simply compares (1)? the amount to money flowing through a taxpayer’s as appears from their banking and other financial records, pay stubs, cash on hand, etc. with (2) the amount of income declared by a taxpayer in their tax returns.
[vii] Paragraph 17.
[viii] Paragraph 22
[ix] Paragraph 24
[x] Paragraph 4
[xi] The appeal of a tax assessment is in fact a trial conducted in the normal way, with witnesses etc.
[xii] Paragraph 1
[xiii] Paragraph 3
[xiv] Paragraphs 67 & 68. Such presumption applies provided that the assessment has been sent within three years of the date that the taxpayer has filed their tax return or has received a notice that no tax is owed to the taxation year in question or, in the case of a reassessment, within three years of the sending of the original assessment, whichever is later. Sub-section (101) (2) (a) (of the taxation act Québec). There are exceptions which allow for assessments or reassessments beyond the three year limit.
[xv] Subsection 1010 (2) (B) of the taxation act (Québec)
[xvi] Paragraph 69
[xvii] Paragraph 67.
[xviii] Paragraph 69
[xix] Paragraph 70
[xx] Paragraph 82
[xxi] Paragraph 77.
[xxii] Paragraph 79
[xxiii] Paragraph 72
[xxiv] Paragraphs 51 & 72.
[xxv] Paragraph 75
[xxvi] Paragraph 76
27 Paragraph 80
[xxviii] Paragraph 84
[xxix] Paragraph 85.
[xxx] Paragraph 101
[xxxi] Paragraph 107
[xxxii] Paragraphs 103 & 104.
[xxxiii] Paragraph 111
[xxxiv] Paragraph 114