http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/97820/index.do
Pouliot v. The Queen (September 30, 2014 – 2014 TCC 273, D’Auray J.).
Précis: The appellant’s files were audited by the Agence du revenu du Québec in respect of the 2000, 2001, 2002 and 2003 taxation years following two police investigations in connection with allegations of keeping a bawdy house and loan-sharking. ARQ used an alternative audit method, a bank deposit analysis, to raise the assessments. Apart from some minor matters the Court dismissed the appeal.
Decision: This is an example of the use of an alternative audit method as a result of the unorthodox business interests of the appellant:
[1] The appellant’s files were audited by the Agence du revenu du Québec in respect of the 2000, 2001, 2002 and 2003 taxation years following two investigations launched by the Sûreté du Québec (SQ). The first investigation was related to keeping a bawdy house and the second followed a citizen’s complaint against the appellant regarding loan-sharking. With respect to the first investigation, a restraint order was issued, and with respect to the loan-sharking, no charges were laid against the appellant.
[2] At the hearing, Mr. Gadreau, who was responsible for auditing the appellant’s tax files, explained why he used the alternative audit method based on deposits.
[3] Mr. Gadreau indicated that he had used the bank deposit audit method because the appellant had kept no accounting records for his personal businesses. In addition, the amounts and the large number of the deposits in the appellant’s bank accounts did not match the income reported by the appellant. The milieu in which the appellant conducted his business activities also led Mr. Gadreau to use an alternative audit method.
[4] During the years at issue, the appellant was the sole shareholder and director of 2320-7459 Québec inc. (2320). During the 2003 taxation year, he was also a shareholder and director of 3098-1211 Québec inc. (3098).
[5] The corporation 2320 operated a transport business as well as a strip club in Saint‑Henri‑de‑Lévis and loaned money to individuals. The corporation 3098 operated a strip club in Shawinigan.
[6] In his personal capacity, the appellant owned a rental property in Sainte‑Anne‑de‑Beaupré, loaned money and was an employee of 2320 and 3098.
The appellant put forward a number of bases upon which he contended that the assessments should be reduced:
[30] The appellant argues as follows:
(a) His income must be reduced by the amounts he borrowed from his family members to invest in a Ponzi scheme.
(b) The large number of deposits in his personal bank accounts reflects cheque kiting transactions and his income should be reduced accordingly.
(c) The “DIs”, that is, direct deposits from Loto-Québec, are not income.
(d) His income must be reduced by the amounts of the cheques he cashed for his employees and some of his clients, which he deposited in his bank accounts.
It appears that the respondent conceded point (c). The Court rejected the other points on the basis that they were not supported by the evidence. The respondent also agreed to reduce the assessments by the amount of NSF cheques which had been included in the total deposits. The Court allowed some minor adjustments to the taxable benefits assessed. Apart from that the Court held that the respondent had met the onus of opening statute-barred years and establishing gross negligence on the part of the appellant.
The appeal was allowed to make these comparatively minor adjustments. Costs were awarded to the respondent.