Executive Summary: Key Legal and Evidentiary Issues

• The dispute involved whether undeclared income, interest, and capital gains from Swiss and Israeli bank accounts should be included in Feldman’s taxable income under Quebec law.

• The court considered Feldman’s failure to declare foreign income and the source of capital deposits, as well as the application of penalties for false statements and omissions.

• Feldman argued the funds were gifts from his father and father-in-law, but the court scrutinized the lack of corroborating evidence and inconsistencies in his explanations.

• The ARQ’s use of both direct and indirect (alternative) methods to determine undeclared income and capital was a central evidentiary issue.

• The burden of proof was on Feldman to demonstrate that the ARQ’s assessments were incorrect, and the court found his evidence insufficient.

• Legal costs were awarded to the ARQ, with no specific amount stated, and no damages were awarded.

Facts and outcome of the case

Background and factual context

Shlomo Feldman, the plaintiff, contested tax assessments issued by the Agence du revenu du Québec (ARQ) for the years 1994 to 2009 and 2013. The ARQ had added to Feldman’s income undeclared interest and capital gains from funds invested in bank accounts held in Switzerland and Israel. The accounts were held under the name of Simcha Investments Corp, a company incorporated in Panama. Feldman claimed that the funds in these accounts were gifts from his father, Avrum Feldman, and his father-in-law, Guillermo Kohn, intended for his wife, Gilda Kohn Feldman. Feldman admitted that he did not declare the income from these accounts and acknowledged that he should have done so.

The ARQ’s assessments were based on information received from the “Falciani List,” which identified Feldman as a beneficiary of accounts at HSBC Switzerland. The Canada Revenue Agency (ARC) began a tax audit in 2014, and the ARQ followed with its own verification in 2017. During these audits, Feldman failed to provide full documentation regarding the origin of the funds and the operation of the accounts. The ARQ used both direct evidence from available bank statements and indirect methods to estimate undeclared income and capital where records were missing. The ARQ determined that the capital deposited in the accounts in 1994, 2002, 2006, 2007, and 2013 amounted to $757,015.11, $187,525.90, $92,702.52, $180,110.09, and $149,820.37, respectively.

Legal issues and arguments

The main legal issues were whether the ARQ was entitled to reassess Feldman beyond the normal limitation period under article 1010 (2) b) i. of the Loi sur les impôts du Québec (LIQ) due to false representations or voluntary omissions, and whether the undeclared funds and income should be taxed as Feldman’s income. Feldman argued that the capital in the foreign accounts was not his income but gifts from relatives, and that attribution rules should apply to tax his wife instead. The ARQ argued that Feldman was the real beneficiary and had not declared both the capital and the income, justifying the reassessment and penalties.

Court’s analysis

The court found that Feldman did not provide sufficient credible evidence to support his claims that the funds were gifts or that the income should be attributed to his wife. The court noted inconsistencies in Feldman’s explanations and a lack of corroborating testimony or documentation, including the absence of testimony from key individuals such as Beck or family members. The court accepted the ARQ’s use of indirect methods to estimate undeclared income and capital, given Feldman’s failure to cooperate and provide records. The court determined that Feldman’s actions amounted to false representations or voluntary omissions, justifying the reassessment beyond the normal period and the imposition of penalties under article 1049 LIQ.

Outcome and costs

The court rejected Feldman’s motion to contest the tax assessments. The ARQ’s assessments, including the addition of undeclared income, capital, and penalties, were upheld. Legal costs (“frais de justice”) were awarded in favor of the ARQ, but no specific amount was stated in the decision. No damages were awarded.