The Canadian Federation of Independent Business is backing a Quebec restaurant owner’s long fight for financial compensation from the Quebec and federal revenue agencies for being improperly accused of failing to report income.
“When tax authorities make a mistake of this magnitude, it puts a huge financial strain on the business owner, causes them personal stress, hurts their reputation and sometimes leads to the permanent closure or winding down of the business,” said the CFIB’s Corinne Pohlmann.
“We urge the Supreme Court to do the right thing and review the Relais decision by the Quebec Court of Appeal.”
In 2003, Revenue Quebec began a tax audit of Le Relais de Saint-Jean, a restaurant in Saint-Jean-sur-Richelieu just south of Montréal, and incorrectly concluded in 2004 that the eatery had not reported $1 million in sales. By late 2004 that amount had been reduced to $500,000.
Revenue Quebec conducts tax audits of businesses on behalf of the Canada Revenue Agency in Quebec.
Owner Gary Chinois and his wife Isabelle Desbiens denied failing to report the $500,000 in revenue but said they were told to start repaying the debt in increments of $6,000 a month. Failing to make the payments, they were told, would result in seizure of their assets and bank accounts.
Chinois said he hired accountants and lawyers to fight the audit findings. He said he borrowed against his home, business and investment properties in an effort to stay open while making the payments and funding the legal battle.
That battle was won in 2012 when a tax court in Quebec ruled that the method used to determine a failure to report revenue was flawed. The CRA and Revenue Quebec were ordered to refund all of the money Chinois had paid.
By this point, Chinois said, he was in debt to accountants and lawyers to the tune of $350,000. He launched a lawsuit against both the CRA and Revenue Quebec in 2012 for compensation for his costs and for pain and suffering.
That same year, Chinois said, he had to shut down his business because he could no longer afford to run it. He rented half the space to another business, starting up a small bar in the remaining space.
The lawsuit was not heard at Quebec Superior Court until 2017. Chinois said the court ruled against him, telling him that he should have filed his suit within three years of being told they had not reported revenue in 2004.
That decision was appealed before Quebec’s Court of Appeal in 2019, which overturned the lower court’s decision.
Appealing to the Supreme Court
That decision did not award compensation or costs, however. Chinois said he now hopes the Supreme Court of Canada will hear his case for compensation, which he said would set a precedent making the CRA and RQ liable for mistakes that cause financial harm to individuals or businesses.
“In one way, I feel happy that I managed to get that decision in the appeal court so I could avoid a nightmare like this happening to somebody else. But at the same time, I feel that I’ve been cheated,” Chinois told CBC News.
“There is nothing worse than being accused of anything, and especially something that destroyed my business, destroyed family relationships and destroyed me financially.”
Chinois and his wife were partners in the business with his brother; the stress of the long financial fight, he said, has ruined that relationship.
He told CBC that he estimates he will owe at least $800,000 in legal and accounting fees by the time his case is heard by Canada’s top court. Chinois said he is seeking $5 million in damages for the stress and aggravation the 16-year fight has caused him and his family.
In its affidavit supporting Chinois’ application to the Supreme Court, the CFIB’s Pohlmann said her organization wants to see the case heard because tax agencies in Canada should be held accountable for their mistakes.
“Guidance from the Supreme Court of Canada on this matter can have the effect of reversing the current confrontational culture found in parts of Canada’s tax administration regimes and bring a more collaborative approach to their relations with taxpayers by allowing them to achieve their taxation mission while respecting the realities of independent businesses,” Pohlmann said in the filing.
The CRA said it was unable to respond to CBC’s questions by the time this story was published.