Prince George businessman Irvin Leroux had no formal bookkeeping system in place when auditors visited his home to review documents, a Canada Revenue Agency auditor told the court Monday.
Leroux is alleging misfeasance and negligence by the federal government's tax collector ruined him financially and is seeking compensation. A B.C. Supreme Court case on the matter began Sept. 23 and is continuing this week.
CRA auditor Shannon Clarke said Leroux presented her and a now-deceased colleague with two boxes of envelopes containing receipts stapled to till tape for the years 1994 and 1995 when they showed up for a prearranged visit in October 1996.
Clarke said it was the only time in the years she was a CRA auditor that she came across a small business owner without a bookkeeping system in place and the consequence was plenty of work for the auditors.
"We went through all envelopes, reviewed every single receipt, documented whether there was a description, a date, the amount, the GST on it," Clarke said. "So basically, we reconstructed the records. Because there was no formal bookkeeping system, we had to go and check every receipt."
In the case of small business owners, Clarke said it was common practice for auditors to visit a subject's home to review records because that is usually where they also operate their venture.
They were given boxes for the 1994 and 1995 years but not for 1992 and 1993, and Leroux told them his accountant had lost those records. Leroux is claiming the CRA did the same thing with the documents they took away from the home at the end of the October 1996 visit.
Clarke also gave testimony contradicting Leroux's claim the auditors removed papers from his office without his consent after giving them permission to remain at his home while he drove out to Valemount where he was in the process of developing an RV park and a subdivision.
After spending about two hours at the home, she said Leroux gave them signed permission to take the boxes away. If a taxpayer had to leave the house, "then we would have to leave," Clarke said.
They eventually determined the records were "very incomplete," Clarke said, and noted he lacked a separate business bank account. By their account, Leroux's claims on his income tax and GST returns "didn't even come close" to matching the amounts calculated from the documents.
Larger issues included confusing capital gains with business income.
"In 1993, there was capital gains claimed, in 1994 the same activity was claimed as business income," Clarke said. "So there was two different treatments for the same transaction."
Leroux also failed to properly match his business expenses to the appropriate source of revenue, called "revenue recognition," the court was told.
The trial continues today at the Prince George courthouse.
