Executive Summary: Key Legal and Evidentiary Issues

• Whether Revenu Québec was justified in resorting to the alternative cash-flow ("mouvements de trésorerie") method under section 95.1 of the Tax Administration Act was the threshold issue.
• Under section 1014 of the Taxation Act, the reassessments enjoyed a presumption of validity that Mr. Mainville bore the burden of rebutting.
• Contested factual points included his cost of living, a $9,600 housing expense for 2020, $6,000 in undeclared 2019 rental income, ownership of $24,000 in cash seized by police, and whether a tractor sold for $5,000 or $12,000.
• Testimonial evidence unsupported by documents, together with the absence of key witnesses, led the court to draw negative inferences against the taxpayer.
• Penalties under section 1049 of the Taxation Act required gross negligence ("négligence flagrante"), which the court found established.
• Reassessment of the 2017 year beyond the normal three-year period was permitted under section 1010.2(b)(i) of the Taxation Act because of misrepresentation attributable to carelessness.

Facts of the case

Michel Mainville described himself as a self-employed worker in the resale of motor vehicles and cellular telephones. For the 2017 to 2020 taxation years, he declared to the Agence du revenu du Québec (Revenu Québec) only business income connected to telephone resale and business services, ranging from $6,576.13 to $19,482.76 per year. On December 12, 2019, his residence was searched by the Service de police de l'agglomération de Longueuil (SPAL), and he later pleaded guilty to possession of prohibited substances for the purpose of trafficking and possession for use in production or trafficking. Among the items seized were $24,675 in cash and prohibited substances valued, on the parties' admission, at $15,292. After the SPAL transmitted the search information, Revenu Québec opened a tax audit for 2017 to 2020 and, on December 16, 2021, sent Mr. Mainville a questionnaire about his financial situation and personal expenses. He did not respond, so the auditor proceeded using the alternative cash-flow method to establish undeclared income. That exercise revealed a gap of $77,974 for 2017 to 2020, representing between 45% and 67% of his total income. On March 28 and April 5, 2023, Revenu Québec issued new notices of assessment totalling $26,150.95. Mr. Mainville filed a notice of opposition on June 26, 2023 without supporting grounds, and on April 29, 2024 Revenu Québec confirmed the assessments. He then contested them before the Court of Québec.

Statutory provisions and evidentiary rules at issue

Several provisions framed the dispute. Section 95.1 of the Tax Administration Act permits the Minister to assess despite, or in the absence of, a taxpayer's return or information, which is the statutory basis for the cash-flow method. Section 1014 of the Taxation Act creates a presumption of validity for tax assessments, meaning the taxpayer must present at least prima facie convincing evidence that the facts underlying the assessment are incorrect. Section 1049 of the Taxation Act authorizes penalties where gross negligence is shown, while section 1010.2(b)(i) allows reassessment at any time where the taxpayer has made a misrepresentation attributable to carelessness or wilful omission, or committed fraud in filing. Section 34.1 of the Tax Administration Act requires anyone carrying on a business to keep records. An evidentiary rule was also raised: Revenu Québec objected to Mr. Mainville's testimony and to a bank draft under article 2862 of the Civil Code of Québec, which restricts proof by testimony of juridical acts exceeding $1,500, but the court, following the Court of Appeal's decision in Pélissier c. Agence du revenu du Québec, held that this restriction applies only between the parties to the act and cannot be invoked by a third party such as Revenu Québec, so the evidence was admissible.

The court's reasoning and analysis

Justice Mélanie Dugré first found that recourse to the cash-flow method was justified. When the decision to use it was made, Mr. Mainville had not returned the questionnaire, his bank accounts showed no current expenses, he kept no personal accounting and no register for his vehicle-resale activities, and the banking information suggested his declared income could not sustain his cost of living. By withholding the requested information, he compelled Revenu Québec to turn to the alternative method. The court then examined whether he had rebutted the presumption of validity. On cost of living, the auditor had used Statistics Canada data only where actual banking figures were unavailable, had already adjusted the calculations to reflect that Mr. Mainville was incarcerated or in a halfway house for most of 2020, and the court noted that his modest-lifestyle argument was raised for the first time at trial without documentary or corroborating evidence. On the $9,600 housing amount retained for 2020, the court found his testimony imprecise, evasive and unconvincing, observed that he frequently transacted in cash, and drew a negative inference from his ex-spouse's failure to testify, since she had declared that amount as rental income. Regarding $6,000 in undeclared 2019 rental income from the Brossard duplex he co-owned with his mother, the notarial deed, his mother's TP-128 slip and his own declarations of rental income in 2017 and 2018 supported the assessment, and his mother did not testify to corroborate him. His claim that $20,000 of the $24,000 seized belonged to a third party for whom he hid drugs was raised for the first time at trial, and the third party's absence was fatal. As for the tractor sold in August 2018, the amount declared to the SAAQ was $500, a $5,000 cheque marked "tracteur souffleuse" was accepted by the auditor, but a $7,000 bank draft naming no issuer, with no traced deposit and no stated purpose, was insufficient — particularly without testimony from the buyer, Mr. Piché — to establish a $12,000 sale price. The court also rejected his proportionality argument, noting that the principle cannot be used to circumvent the rules on the burden and administration of evidence in a dispute whose financial stake was approximately $25,000. Penalties ranging from $165.15 to $4,102.82 for 2017 to 2020 were upheld given the magnitude of the omissions, his business experience, his failure to keep registers, his undeclared illegal-activity income, and a prior audit. Finally, reassessment beyond the normal period for 2017 was justified by his repeated omissions, his failure to keep records, a cost of living exceeding declared income, and his false declaration to the SAAQ, all amounting to carelessness within the meaning of the Act.

Ruling and outcome

For these reasons, the Court of Québec, in a judgment dated July 3, 2026, dismissed Michel Mainville's contestation for the 2017 to 2020 taxation years, the whole with legal costs. The successful party is the Agence du revenu du Québec, whose new notices of assessment totalling $26,150.95 — including penalties of $1,542.90 for 2017, $1,689.82 for 2018, $4,102.82 for 2019 and $165.15 for 2020 — were maintained in full. Legal costs were awarded in its favour, but the judgment does not specify their amount.