http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/108733/index.do
Genest v. The Queen (March 26, 2015 – 2015 TCC 76, Boyle J.).
Précis: Ms. Genest was assessed under section 160 with amounts totaling $45,000 transferred to her by businesses controlled by her partner, Martin Tremblay, at a time when he had a substantial income tax liability:
[1] This appeal concerns two reassessments under Section 160 of the Income Tax Act (the “Act”) in respect of amounts totalling over $45,000 transferred by the Appellant’s partner (« conjoint ») Martin Tremblay as part of his Équinoxe Gestion Financière sole proprietorship business (« Équinoxe Enregistrée »), and by a corporation owned by M. Tremblay, Équinoxe Développement Immobilier inc. (« Équinoxe Immobilier inc. »), to the Appellant in the years 2005 through 2008. It is the Appellant’s position that she provided fair market value consideration in the form of accounting, administrative and support services to her spouse’s business Équinoxe Enregistrée.
The Tax Court did not accept the evidence of either the appellant or Mr. Tremblay that she had provided services in exchange for the transferred funds and dismissed the appeal. The Court did not award costs against Ms. Genest as Mr. Tremblay had hidden the facts from her until shortly before the Tax Court hearing.
Decision: While the Court was sympathetic to Ms. Genest her evidence did not bear out the claim that she had provided services worth $45,000:
[8] Mme Genest testified that she worked part-time for Équinoxe Enregistrée beginning in January 2005 until May of that year when their third child was born. She returned to work for Équinoxe Enregistrée throughout 2007 and 2008. She estimates that she worked an average of two to three hours per week for the first five months of 2005 in providing primarily accounting services to clients of Équinoxe Enregistrée. No written or oral evidence was given by either the Appellant or her spouse as to the client names, businesses, dates, projects or timeframes for the 2005 accounting services. For 2007 her services were primarily administrative and support services provided directly to Équinoxe Enregistrée and no longer involved accounting nor working with her husband’s clients. In 2008, her services continued to be primarily administrative and support but she estimated she was working seven to ten hours weekly by 2008. She recalled researching a new business location, meeting with the designer for the office, and developing a new business logo.
[9] Current records of work done, hours worked, and amounts billed were not maintained by either the Appellant nor Équinoxe Enregistrée. Mme Genest could not recall clearly whether she communicated her estimated hours each week to her spouse or only each year, as she testified to both. Similarly, she could not recall if the estimated amounts earned were arrived at by estimating a total annual amount that seemed reasonable, or the total amount reported was the sum of the products of reasonable estimates of hours worked and a reasonable hourly rate.
[10] I do not doubt that the Appellant did assist her spouse’s Équinoxe Enregistrée business at times over the years. However, there is little evidence tying the amounts transferred to Mme Genest to services rendered by her. The amounts, the timing, and the reporting do not align in any way.
The Court was much less sympathetic in dealing with the evidence of Mr. Tremblay:
[22] I do not accept his explanations of these problems as satisfactory, reasonable, sensible or consistent. In his answers to questions on these problems he was trying to explain away, he could not do so in a consistent fashion as between each of these problems or as regards other parts of his evidence.
[23] In answering a direct question for clarification from the judge, M. Tremblay was clear that there was nothing whatsoever in writing in respect of the services his spouse provided to his business and that all was only oral. Later, in responding to another question, he made reference to « la facturation » and, when asked what « facturation » he was referring to, he then clearly described how each year a written bill was prepared by him and his spouse showing the number of hours of work provided, an hourly rate and a total amount billed. He did not bring these bills to Court. He did not describe how these written bills accounted for the prior years’ differences between amounts accrued and amounts paid.
[24] M. Tremblay would not admit or acknowledge that the 2005 tax returns he prepared for his spouse did not include $15,000 of income earned by her working for his business.
[25] M. Tremblay’s inability to explain or defend a four line three column chart he prepared in a manner that conformed to actual tax filings, the estimation method used to arrive at earned amounts, or make consistent use of either accrual or cash accounting, and his overlooking the significance to the Court of the written bills he said were prepared after saying nothing was documented, lead me to the conclusion no weight whatsoever can be given to his testimony regarding the nature, extent or value of the services provided by his spouse to his business. His testimony was unreliable and unsatisfactory.
The appeal was accordingly dismissed. Under the unusual circumstances of the case no order was made as to costs:
[28] In the circumstances, in particular that Mme Genest had not been informed of these assessments nor this appeal until shortly before the hearing by her spouse who had hidden this information from her, I will not be awarding costs against her.