Executive Summary: Key Legal and Evidentiary Issues

• The Tribunal considered whether the Agence du revenu du Québec (ARQ) could reassess Jacques Hamelin outside the normal period based on alleged misrepresentation due to negligence or omission.

• The legitimacy of adding $242,416.83 as business income to Hamelin’s 2013 tax return, based on three invoices issued to his corporation, was examined.

• The Tribunal assessed whether loans made by 6851266 Canada inc. to Hamelin’s brother and friend constituted a taxable benefit for Hamelin.

• The justification for a penalty of $32,719.54 for gross negligence, imposed due to the disputed invoices, was reviewed.

• The sufficiency and credibility of Hamelin’s evidence in rebutting the ARQ’s presumptions regarding both the income and the loans were evaluated.

• The outcome depended on whether Hamelin’s actions regarding the invoices and loans amounted to misrepresentation or gross negligence under the relevant tax statutes.

Background and factual context

Jacques Hamelin is an engineer who operated as a consultant with a few employees through a sole proprietorship. In 2007, he created 6851266 Canada inc. (the Société). From 2010, the Société obtained contracts and invoiced clients, but Hamelin’s sole proprietorship continued to execute the engineering work and invoice the Société. In 2013, all activities and employees were transferred to the Société, and Hamelin stopped invoicing the Société.

The Agence du revenu du Québec (ARQ) audited Hamelin and the Société. For the 2013 tax year, the ARQ claimed that Hamelin should have included additional income based on three invoices (numbers 740, 741, and 742) he issued to the Société, totaling $242,416.83. The ARQ also identified loans made by the Société as taxable benefits and issued a notice of assessment (avis de cotisation) for $123,352.49, which included additional tax, interest, and a penalty. The assessment was based on the addition of $242,416.83 as business income and a $27,000 benefit from loans under the Loi sur les impôts (LI).

Hamelin argued that the ARQ could not reassess him outside the normal period, that the three invoices were issued in error and not recorded, and that part of the taxable benefit from the loans and the penalty were unjustified.

Legal issues and policy terms

The Tribunal addressed four main questions:
A) Whether the ARQ could reassess Hamelin outside the normal period under article 1010 (2) b) i) of the LI, which allows reassessment in cases of misrepresentation by negligence or omission.
B) Whether the sum of $242,416.83 should be added to Hamelin’s business income for 2013.
C) Whether the loans constituted a taxable benefit for Hamelin.
D) Whether the penalty of $32,719.54 was justified.

Analysis and findings

The Tribunal found that the ARQ met its burden to reassess outside the normal period, as Hamelin admitted that a loan to his brother should have been declared as a taxable benefit, constituting a misrepresentation attributable to negligence or omission.

Regarding the $242,416.83 in invoices, Hamelin and his accountant, Gaétane Daigle, testified that these invoices were created in error in January 2015 during a tax audit for GST and QST remittances, solely to balance taxes. The invoices were never paid by the Société and were not included in the financial statements of either Hamelin or the Société. The Tribunal accepted this explanation, noting that the reconciliation work by Daigle was sufficiently reliable and that the ARQ’s evidence did not establish that the invoices represented actual income or expenses. The Tribunal concluded that Hamelin had rebutted the presumption of validity of the ARQ’s assessment for this amount.

On the issue of loans, the ARQ claimed a taxable benefit of $27,000 for two loans: $12,000 to Hamelin’s brother, Bernard Hamelin, and $15,000 to his friend, François Groleau. Hamelin admitted the loan to his brother should have been declared. For the loan to Groleau, the Tribunal found that the evidence (including a 2018 acknowledgment of debt) did not support Hamelin’s claim that the Société had made the loan directly to Groleau. The Tribunal concluded that Hamelin failed to rebut the presumption that the loans constituted a taxable benefit.

As for the penalty, the ARQ imposed a penalty of $32,719.54 for gross negligence based on the three invoices. Since the Tribunal found that the $242,416.83 should not be included as business income, the penalty was annulled.

Conclusion and outcome

The Tribunal partially allowed Hamelin’s contestation, annulling the notice of assessment for the $242,416.83 and the related penalty, but upholding the assessment for the taxable benefit arising from the loans. The matter was referred to the Minister for a new assessment limited to the benefit from the loans, with each party bearing its own costs. No exact amount awarded to either party was specified, as the case was remitted for recalculation of the taxable benefit only.