Citation: 2008TCC378
Date: 20080709
Docket: 2003-4614(IT)G
BETWEEN:
LYNETTE L. MENSAH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowman, C.J.
[1] These appeals are from
assessments made under the Income Tax Act for the appellant’s 1993,
1994, 1995 and 1996 taxation years. The appellant was a professor at Dalhousie University. She also
carried on a delicatessen business known as Lyn D’s Deli. It is the computation
of her income or loss from that business that is in issue in these appeals.
[2] There are several preliminary
points that should be mentioned. The first is that for 1993, 1994, 1995 and 1996
the appellant used a fiscal year‑end of January 1 for her business. The
result of this was that the income or loss from the business for the 1993
taxation year was for the period January 2, 1992 to
January 1, 1993. Similarly, the income or loss reported for 1994 was
for the period January 2, 1993 to January 1, 1994. In 1995, the Income
Tax Act required the computation of business income to be on a calendar
year basis and so the income or loss reported for 1995 ought to have included
that for the periods from January 2, 1994 to January 1, 1995 as well
as the period from January 2, 1995 to December 31, 1995. Nevertheless,
the appellant only included the loss from the January 2, 1994 to
January 1, 1995 period on her 1995 return. She included the loss from
the January 2, 1995 to January 1, 1996 period on her 1996 return.
Later, she attempted to file another 1996 return that included the calendar
year 1996 loss, but the Canada Revenue Agency (“CRA”) refused to accept this
return. In continuing to use the January 1 fiscal year‑end the
appellant was clearly acting in a manner adverse to her own interest.
[3] The second point is
that the assessments were made using the “net worth” method. I shall comment
further later in these reasons on the appropriateness of the net worth method
in the circumstances of this case.
[4] The third point is
that the appellant impressed me as a highly credible and honest witness. Her
credibility was at no time impugned in cross-examination or argument (See Browne
v. Dunn (1893) 6 R. 67 (H.L.) at 70-71.) I have no hesitation in accepting
her testimony that she conscientiously and carefully recorded the revenues and
expenses from the business and reported them.
[5] If mistakes were
made they appear to have been minor ones and they were made in good faith. They
did not warrant the heavy handed use of the net worth method which has been
described as a “blunt instrument”. Moreover, it is a method of last resort where
other methods of determining income are impossible. See Ramey v. The Queen,
93 DTC 791 at paragraph 6.
6 I
am not unappreciative of the enormous, indeed virtually insuperable,
difficulties facing the appellant and his counsel in seeking to challenge net
worth assessments of a deceased taxpayer. The net worth method of estimating
income is an unsatisfactory and imprecise way of determining a taxpayer's
income for the year. It is a blunt instrument of which the Minister must avail
himself as a last resort. A net worth assessment involves a comparison of a
taxpayer's net worth, i.e., the cost of his assets less his liabilities, at the
beginning of a year, with his net worth at the end of the year. To the
difference so determined there are added his expenditures in the year. The
resulting figure is assumed to be his income unless the taxpayer establishes
the contrary. Such assessments may be inaccurate within a range of
indeterminate magnitude but unless they are shown to be wrong they stand. It is
almost impossible to challenge such assessments piecemeal. The only truly
effective way of disputing them is by means of a complete reconstruction of a
taxpayer's income for a year. A taxpayer whose business records and method of
reporting income are in such a state of disarray that a net worth assessment is
required is frequently the author of his or her own misfortunes. Mr. Boudreau
stated that Mr. Allan Ramey's records were inadequate, that he had a history
for years prior to 1981 of being assessed on a net worth basis and that his
business, that of owning coin operated machines, such as pinball machines and
slot machines of various types, was cash based and was therefore difficult to
audit. The Minister had no alternative but to proceed as he did. While I have
sympathy for someone in the position of the appellant whose liability for his
father's tax is secondary, I can see no basis for adjusting the assessments
made against his father to any greater degree than that to which the respondent
has already agreed.
[6] As will be seen
from the evidence, this case is about as far from the Ramey case as can
be imagined. However inappropriate the net worth method may be here it is the
way in which the Minister chose to proceed. For reasons which I set out below
there is a far more acceptable means of determining the appellant’s income,
specifically the method she herself used. The majority of the Supreme Court of Canada stated in The Queen
v. McLarty, 2008 SCC 26 at paragraph 75:
75 The Minister has numerous basis
for challenging the deductions taken by a taxpayer. He may rely on sham or the GAAR
to name just two. He did not do so in this case. In reassessment cases, the
role of the court is solely to adjudicate disputes between the Minister and the
taxpayer. It is not a protector of government revenue. The court must decide
only whether the Minister, on the basis on which he chooses to assess, is right
or wrong. In this Court, the Minister relied on contingent liability and
non-arm's length dealing. The liability incurred by McLarty was not contingent
and there was no basis to interfere with the findings of the trial judge that
McLarty's dealings with Compton were
at arm's length.
I do not read the comments of the
Supreme Court as meaning that an appellant may not challenge as inappropriate
the Minister’s method. To put it colloquially, if the Minister chooses to put
all his eggs in the net worth basket he may be stuck with that method but it
does not mean that the taxpayer is. At all events the respondent has not chosen
to support the assessment on any other basis.
[7] In the
cross-examination of the CRA assessor, it was admitted by her that there was no
falsification of any of the records. From the evidence that I saw
Ms. Mensah had adequate records and she based her computation of income or
loss from the delicatessen business on those records.
[8] The fourth
preliminary point is that the assessment for the 1993 taxation year is statute‑barred.
The onus is upon the Minister to establish the facts justifying the
reassessment of the 1993 taxation year beyond the normal reassessment period.
The provisions of the Income Tax Act permitting the Minister to open up
statute‑barred years have evolved and the evolution was summarized in 943372
Ontario Inc. v. R., 2007 DTC 1051; [2007] 5 C.T.C. 2001 at paragraph 18:
18 The evolution of these provisions can be
briefly summarized as follows: originally, subsection 152(4) permitted the
Minister to open up a statute-barred year for all purposes if he could find any
misrepresentation of the type described in subsection 152(4), however small,
and reassess any items whether the subject of any type of misrepresentation or
not. This obviously appeared somewhat unfair and the result was paragraph
152(5)(b) which was introduced in 1973-1974 with effect from 1972. This
provision permitted the taxpayer to establish that the omission of an amount of
income was not the result of a misrepresentation that was attributable to
neglect, carelessness, wilful default or fraud. Nonetheless it did cast on the
taxpayer an onus. Subsection 152(4.01) was therefore introduced and its effect,
according to Mr. Kutkevicius, is to remove that onus from the taxpayer and put
a two-fold onus on the Minister to establish:
(a) that there was
misrepresentation, and
(b) that the misrepresentation was attributable
to neglect, carelessness, wilful default or fraud.
I think this is the correct
interpretation. If the onus that was imposed on the taxpayer under former
paragraph 152(5)(b) survived the amendment to subsection 152(5) and the
enactment of subsection 152(4.01), subsection (4.01) would have no purpose.
[9] We have here the
additional complication that the appellant’s entire return for 1993 was not put
in evidence and indeed the signature page was never located. Moreover,
precisely what misrepresentation the appellant is alleged to have made was not
established with any degree of specificity, or, for that matter, at all.
[10] In 943372, supra,
I raised a question whether a net worth assessment can ever meet the conditions
in subsection 152(4.01) at paragraph 10:
10 There is one other problem about the Crown's case against
Valerie Sr. that I find somewhat troubling. The 2001 assessments against
Valerie Sr. are statute-barred and can only be salvaged if the conditions in
subsections 152(4) and 152(4.01) are met. The 2001 assessments against Valerie
Sr. are net worth assessments. They are arbitrary assessments not based on nay
particular sources of income. How can a net worth assessment ever meet the
conditions set out in subsection 152(4.01)? To conform to subsection 152(4.01)
a reassessment under subsection 152(4) must be limited by the words in
subsection 152(4.01) "... to the extent that, but only to the extent that,
it [the reassessment] can reasonably be regarded as relating to a
misrepresentation attributable to neglect, carelessness or wilful default or
any fraud ...". This point was not argued and I express no concluded view
on it.
[11] The final preliminary point is
that penalties under subsection 163(2) were imposed. Subsection 163(2)
reads in part:
(2) False statements or omissions — Every person who, knowingly, or under
circumstances amounting to gross negligence, has made or has participated in,
assented to or acquiesced in the making of, a false statement or omission in a
return, form, certificate, statement or answer (in this section referred to as
a “return”) filed or made in respect of a taxation year for the purposes of
this Act, is liable to a penalty of the greater of $100 and 50% of the total of
. . . . .
There follows a complex formula which I need not
reproduce. The Minister has the onus of establishing, on a balance of
probabilities, that there was a false statement or omission and that it was
made “knowingly, or under circumstances amounting to gross negligence”. While
the standard of proof is a civil and not a criminal one, nonetheless the
evidence adduced in support of a penalty must be scrutinized with great care.
In Farm Business Consultants Inc. v. The Queen, 95 DTC 200 at 205
(aff’d) 96 DTC 6085 (F.C.A.), the following appears:
A court must be extremely
cautious in sanctioning the imposition of penalties under subsection 163(2).
Conduct that warrants reopening a statute-barred year does not automatically justify
a penalty and the routine imposition of penalties by the Minister is to be
discouraged. Conduct of the type contemplated in paragraph 152(4)(a)(i)
may in some circumstances also be used as the basis of a penalty under
subsection 163(2), which involves the penalizing of conduct that requires a
higher degree of reprehensibility. In such a case a court must, even in
applying a civil standard of proof, scrutinize the evidence with great care and
look for a higher degree of probability than would be expected where
allegations of a less serious nature are sought to be established.3
Moreover, where a penalty is imposed under subsection 163(2) although a civil
standard of proof is required, if a taxpayer's conduct is consistent with two
viable and reasonable hypotheses, one justifying the penalty and one not, the
benefit of the doubt must be given to the taxpayer and the penalty must be
deleted.4 I think that in this case the required degree of
probability has been established by the respondent, and that no hypothesis that
is inconsistent with that advanced by the respondent is sustainable on the
basis of the evidence adduced.
3
Cf.
Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164; 131 D.L.R. (3d) 559;
25 C.P.C. 72,
per Laskin, C.J.C. at 168-171; D.L.R. 562-564; C.P.C. 75-77); Bater v. Bater,
[1950] 2 All E.R. 458 at 459; Pallan et al. v. M.N.R., 90 DTC 1102 at
1106; W. Tatarchuk Estate v. M.N.R., [1993] 1 C.T.C. 2440 at 2443.
4 This is not simply an extrapolation
from the rule in Hodge's Case (1838) 2 Lewin 227; 168 E.R. 1136,
applicable in criminal matters such, for example, as section 239 of the Income
Tax Act where proof beyond a reasonable doubt is required. It is merely an
application of the principle that a penalty may be imposed only where the
evidence clearly warrants it. If the evidence is consistent with both the state
of mind justifying a penalty under subsection 163(2) and the absence thereof --
I hesitate to use the words innocence or guilt in these circumstances — it
would mean that the Crown's onus had not been satisfied.
[12] I might add that I
have the same type of problem with basing penalties on a net worth assessment
as I have with opening up statute-barred years. The principles stated in the
passage from Farm Business Consultants Inc. were based upon the
decisions of the Supreme Court of Canada referred to in footnote 3 and were
approved by the Federal Court of Appeal. The expression “on a balance of
probability” was discussed in the House of Lords in In re Doherty, 2008
UKHL 33 and In re B UKHL 35. It is an interesting discussion of
the meaning of the expression but of course if the observations made in the
House of Lords differ from the principles stated in the Supreme Court of
Canada, I am bound by the latter.
[13] In filing her return of income for 1993 the appellant
declared, in addition to her salary as a professor and other smaller items of
income, a loss of $33,995.17 from the delicatessen business for the period
January 2, 1992 to January 1, 1993. The 1993 return was apparently prepared by
a bookkeeper or accountant but as stated the copy that was put in evidence does
not have a signature page. The incomplete return is found at Tab 13, Vol. 1
of Exhibit R‑1. Assuming the statement of business income is that
which was filed with the return, it shows sales of $10,985.47, cost of goods
sold of $15,252.72 and total expenses of $29,727.92 for a loss of $33,995.17.
[14] The initial assessment for 1993 was, according to the Reply
to the Notice of Appeal, dated April 3, 1995, the reassessment for 1993
was issued March 6, 2001 and on objection a further reassessment was
issued on October 6, 2003. The reassessment for 1993 that was made in 2001
was out of time and this defect is not corrected by the reassessment made in
2003. Unless the Respondent can justify, under subsections 152(4) and
152(4.01), the out of time assessment made in 2001 (and she has not), the
assessments for 1993 made in 2001 and 2003 will be vacated. The reassessment made
in 2001 for 1993 increased the appellant’s total income by $17,382.40 as
“unreported income networth”. On objection the Minister reassessed to reduce the
adjustment by $1,173.16.
[15] For 1994 the T-1 General filed by the appellant shows
that for the period January 2, 1993 to January 1, 1994 the deli
business had sales of $37,541.45 less GST of $2,294, cost of goods sold of
$42,504 and expenses of $55,862 for a loss of $63,120.76. A large part of the
expenses was for rent ($18,860) and salaries ($23,092). It was in 1993 that the
business moved to new premises. The Minister added $90,785.89 to her total
income on the basis of the net worth calculated and a gross negligence penalty
of $10,432.82 was imposed. Following the objection filed by the appellant, the
income was reduced by $5,706.26 and the gross negligence penalty was reduced to
$9,800.15.
[16] For 1995, the deli business had sales of $44,756.36 less
GST of $53,679.79, cost of goods sold of $32,543 and expenses of $61,983 for a
loss of $53,415.10 in the period January 2, 1994 to January 1, 1995. On
assessing the 1995 taxation year the Minister added $90,556.16 and imposed a
penalty of $11,737. The additional income was reduced by $35,942.94 on
objection and the penalty was reduced to $6,145.13. According to schedule A of
the reply for the period ending December 31, 1995, the appellant declared
a business loss of $47,539. This is not what is shown in the return. The amount
of $47,539 was shown as a business loss in 1996. I have not found in the exhibits
a copy of the return with the business income or loss calculated for the period
December 31, 1995. The figure obviously comes from the 1996 return which
includes the financial results for the period January 2, 1995 to January 1,
1996.
[17] For calendar year 1996, the appellant reported a
business loss of $22,181.22 calculated as sales of $38,942.12 less GST of
$2,700, cost of goods sold of $17,650.41 and expenses of $40,772. For 1996 the
Minister reduced the appellant’s total income by $9,518.80. What happened is
this: the appellant filed a 1996 return showing a business loss of $47,539 for
the period beginning January 2, 1995 and ending January 1, 1996. Later, she
filed another return for 1996 showing a business loss of $22,181.22 for the
calendar year 1996. She should have moved the $47,539 loss back to 1995.
[18] The reason for the problem may in part be explained by
the fact that in calculating the net worth assessment, the Minister shifted the
business losses into the period in which they arose in order to match the
appellant’s receipts and expenditures. The net effect of this, however, was to
remove the benefit of the January 1 fiscal year‑end. Under the net worth
method, the business losses were recognized as they occurred and not one year
later. This would have posed a greater problem had the business been
profitable.
[19] Throughout my preparation of these reasons I have had
great difficulty in reconciling the figures in the reply with the documents put
in as exhibits. We have a variety of calculations of net worth statements and
other calculations made by the representative of the CRA but the only solid
bedrock on which I can found any conclusion about the appellant’s income is her
own figures subject only to the problems of timing that I mentioned earlier. I
shall set out below a number of observations that I have on the net worth
calculations which make the CRA’s conclusions unreliable even if I were to
accept the premise that the net worth method was the only appropriate way to
calculate the appellant’s income (which I do not).
[20] Let us start with an overview. The appellant is a woman
of mature years who came to Canada from Guyana in 1969. She studied in England
and her then husband was employed by Dalhousie University in
research. She has a bachelor’s and master’s degree in nursing and a doctorate
in education. She was a full-time professor at Dalhousie in obstetrics and
community health from 1971 until her retirement in 1998. She traveled
extensively throughout the world in connection with her work and was reimbursed
by Dalhousie for her expenses.
[21] She started the business in about 1992 and it was run
for the first period by her daughter Shelley. The appellant took over the
operation in about 1992 or 1993. The genesis of the idea of opening a Caribbean
delicatessen had some element of idealism. Ms. Mensah testified in answer
to a question by her counsel Mr. Tompkins.
33. Q. With your background
and your experience and your expertise, why, can you explain to us, did you
stay involved in this restaurant business?
A. This restaurant, I
started it to have a Caribbean presence here in the - - in Halifax.
There was nothing ethnic here. I also wanted to give some jobs to some
minorities, and so – because they were not having employment. So maybe there
was some altruistic perspective, but I did want it to be a successful business
as well. And why I stayed in it that long – tenacity, I presumed. I was always
hoping that it would do well, that I could grow it. I’m a persistent person.
Part of my training, to make a difference in the lives of people in whatever
you do, and I just kept on hoping it would improve.
Nevertheless, the deli business was clearly a business and was
operated with the intent of earning a profit. The assessor considered whether
to apply the late and unlamented REOP principle, (which has been given a decent
burial by the Supreme Court of Canada). She wisely rejected the idea.
[22] Exhibit A-16 shows losses of $198,000 over the
four years (actually five calendar years less a day in light of the January 1
year-end). In fact, if we were to put everything on a calendar year basis,
which is what the net worth method appears to do, we would move the $33,995 loss
back to 1992, the $63,120 loss back to 1993, the $53,418 loss back to 1994, the
$47,539 loss back to 1995 and include the $22,181 loss in 1996, for a total loss
of $186,256 for the calendar years 1993 to 1996. Either way, the losses claimed
were substantial, yet the CRA essentially ignored her figures and, using what
it described as a “net worth” method to arrive at a “net worth discrepancy”,
calculated a total loss of $47,000 over the entire period. The difference
between the CRA’s and the appellant’s conclusions is enormous and it casts
doubt in my view on the reliability of the net worth basis in this case. Indeed
in the column marked 1994 which covers the January 2, 1993 to
January 1, 1994 period, the Crown has come up with a profit of about $22,000
even though it accepts that there were losses in all other years. What is most
surprising is that this profit supposedly occurred in the same year that the
deli business moved into and renovated the Queen Street location. If nothing else, common sense tells me that this
year of all years ought not to have been profitable.
[23] Compared to the net worth basis, the appellant’s
figures have a realistic ring and, in my view, are far more reliable than the
CRA’s. No specific attack has been made on the appellant’s figures, which she
has taken from her records. The appellant kept meticulous records of her
expenses (Tabs 31, 32, 33 and 34; Exhibits R‑2 and R‑3). Her calculation
of the business receipts was based on cashier tapes (“Z” tapes) and bank
deposits.
[24] The business was a losing proposition from the outset
but the CRA has not chosen to deny the losses on the basis that the deli was
not a business. The supposed profitability of the business in the year of the
move is, to use a hackneyed expression, like the thirteenth gong of a crazy
clock. It casts doubt on everything else.
[25] There has been, as I mentioned, no attack on the
appellant’s numbers. There has been merely a bald assertion by the assessor
that the records were inadequate and on this unsubstantiated basis this individual
was hit with the juggernaut of a net worth. I cannot accept this in the face of
the multitude of records produced by the appellant and put in evidence. There
is no suggestion of any falsification of records or dissimulation by the
appellant. She was open, cooperative and articulate in her dealings with the
CRA. I accept her testimony and in my view her evidence of the expenses and
revenues of the business is more reliable than that of the CRA based on the net
worth. There is no suggestion in the reply, in the oral testimony or in
argument that the alleged “unreported income” arises from any sources other
than the deli business.
[26] I have carefully reviewed the appellant’s testimony and
I am satisfied that the system that she had in place constituted an accurate
means of recording and accounting for cash and credit card receipts as well as
expenditures. It is worth observing that this money losing operation was kept
afloat by large infusions of cash from the appellant’s own personal bank
account as well as loans or gifts from family and friends. Some of these
infusions were in the form of cash. For example, her salary cheque would be
deposited in her bank account at the Credit Union and then cash would be
deposited to the business bank account at the Royal Bank. These cash
contributions from Ms. Mensah as well as from family members and friends
might well have distorted the net worth calculations upwards within a range of
indeterminate magnitude but they certainly would not result in an
understatement of revenue or an overstatement of expenses. By way of example I
have been able to identify about $18,000 in loans over the period, using prevailing
US dollar exchange rates. The cash contributions by the appellant herself are
of an indeterminate amount but I have concluded that they were substantial.
[27] Nowhere in the evidence or in the argument is it
alleged that any specific items of income have been omitted or understated or
any specific items of expense have been overstated. In other words nowhere in
the evidence is it demonstrated how much of the “net worth discrepancy” the
Minister attributes to alleged under‑reporting of revenue and how much she
attributes to alleged overstatement of expenses. I suppose the imprecise net
worth method does not permit of or even contemplate such a degree of
specificity. Against the approximation and inexactitude of the net worth method
used by the CRA we have the careful and specific recording and reporting of
revenues and expenses by the appellant. Most net worth assessments that I have
seen involve cases where there are no books or records available or the record‑keeping
is haphazard or there are no returns filed as in Ramey. The net worth
method of determining income, for all its deficiencies, may have a place in our
tax system but this is not the case where it should have been used.
[28] Even cast in the light most favourable to the
respondent, the balance of probabilities in a case such as this means merely
this: “Among two or more contradictory or inconsistent hypotheses, which one is
the more probable?” That is essentially what the House or Lords cases that I
mentioned above are saying. In this case the appellant was an honest and
credible witness. I find it highly improbable, indeed inconceivable that she
would have misstated her income to the extent the Minister is alleging or for
that matter at all. Here, I have no hesitation in finding that
Ms. Mensah’s method of calculating her income has a far greater degree of
probability of being right. In Ramey it was stated that the only truly
effective way of disputing a net worth assessment is by a complete
reconstruction of the appellant’s income. That is what we have here. If we are
to talk of “onus of proof” (a much overused expression in income tax
litigation) the appellant clearly has satisfied the onus. In fact, she has gone
beyond a prima facie case. She has overwhelmingly shifted the
onus to the Minister to justify the figures in the net worth assessment and the
respondent has not met that onus.
[29] Both counsel agreed that the court is faced here with
an all or nothing situation, that is to say, I accept either Ms. Mensah’s
calculations as reported or I accept the result of the CRA’s application of the
net worth method. This leaves the court little room to make adjustments to the
calculations. In most net worth cases there is no viable alternative to the net
worth method. That is not the case here, where we have a credible and far more
acceptable alternative.
[30] Indeed, even if I were to accept the net worth method
as the only appropriate way of determining the appellant’s income, which I do
not, the CRA’s calculations in schedule A to the reply contain a number of
errors that make it dangerous to rely upon it. For example they have five years
of what they call “personal expenses” crammed into four calendar years. The
$37,713.17 amount in the column marked January 1, 1995 on page 2 appears to
have materialized out of thin air. Moreover, the figures in the columns marked 1993
and 1994 ought to have been placed in the columns marked 1994 and January 1,
1995 instead. These errors cast doubt on the accuracy of the entire exercise.
[31] It is of course not necessary or even desirable that I
refer to all of the evidence supporting my conclusion that the appellant’s
calculations are more accurate but I shall mention a few.
119. Q. Did you review all of the bank
information?
A.
I reviewed every receipt, every
invoice, all the bank statements. Every possible piece of information that I
have, I reviewed, and I reviewed it several times.
120. Q. Ms. Mensah, based on
what you’ve been dealing with for all these years, today – to tell us today, do
you feel the loss you claimed in your 1993 tax return is accurate?
A. It is accurate.
Ms. Mensah’s reply was the same for the later years as
well. While in most cases of net worth assessments such statements should be
taken with a grain of salt, I accept the appellant’s assertion.
[32] In the examination and cross-examination of Ms. Mensah,
only four areas of possible inaccuracy in her record keeping were identified.
One was the substantial contributions to the business by the appellant herself
and loans by relatives and friends. These went either to pay bills or into the
business bank account at the Royal Bank. And while they may have created the appearance
of greater business revenues than was in fact the case, they cannot be used to
support an allegation of an understatement of revenue.
[33] The second was the receipt of amounts in two years from
the Busker’s Festival. The appellant, in conjunction with a Mr. Reece,
sold Jamaican patties at a street festival of buskers in two years. The net,
after deducting expenses, went into the business bank account and was included
in the business income. From the evidence, the expenses were paid for by
Ms. Mensah and she was apparently not reimbursed. Again, this appears to
be an overstatement of income or an understatement of expense. The net worked
out to a couple of thousand dollars in the two years.
[34] The next is cash payments out of the till of money for
milk, pest control and fire extinguishers. The amounts were minimal and if they
reduced sales slightly they were also offset by a corresponding expense
deduction.
[35] Finally, there was one instance where there was a
suspicion that an employee may have stolen some cash from the till. Again, if
this did result in the reduction in income it is minimal and would in any event
be offset by the deductible expense.
[36] I cite the above as examples of possible minor discrepancies
that have no appreciable effect on the business income. They simply illustrate
that Ms. Mensah was running a typical small business. If these are the
only inaccuracies the Minister can come up with he certainly should not be
hitting her with a net worth.
[37] There has been no evidence adduced to support the
allegations of gross negligence or the other conditions needed to justify the
penalties and in any event I have found no understatement of income. Moreover,
there has been no basis shown to justify opening up the statute-barred 1993
taxation year, even if the respondent had been able to find a signed copy of
the return.
[38] The appeals are allowed with costs. The statute-barred
assessments are vacated and the other reassessments are referred back to the
Minister of National Revenue for reconsideration and reassessment in accordance
with these reasons on the basis that the appellant’s computation of her losses
for the years in question are to be accepted and the net worth basis used by
the Minister of National Revenue is to be rejected. The penalties are deleted.
Signed at Ottawa, Canada, this 9th day of July 2008.
“D.G.H. Bowman”
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