Citation: 2012 TCC 196
Date: 20120605
Docket: 2011-2880(IT)I
BETWEEN:
ROSETTA TYSKERUD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Margeson J.
[1]
This appeal is with
reference to the 2005 taxation year when the Minister of National Revenue (the
“Minister”) assessed the Appellant by increasing her income for that year by
$41,765.58 and assessed gross negligence penalties.
[2]
The increased income
came from a transfer from 647876 B.C. Ltd.’s (the “Corporation”) bank
account to the personal line of credit account located at the TD Canada Trust
which account was held jointly by her and her husband. This transferred
amount was equal to the overdraft amount that existed in the account at that
time.
[3]
Following that
transfer, the account was closed.
Evidence
[4]
The Appellant
testified that she was the incorporator, sole shareholder and sole director of
the Corporation. It was incorporated in 2002. In December of 2005, it purchased
Terminal Park Stationery. It sold lottery tickets, stationery and small gifts.
[5]
The Corporation entered
into a Small Business Banking Credit Agreement with the TD Canada Trust which
advanced a $204,000 line of credit to the Corporation.
[6]
The Appellant and her
husband had a $50,000 personal line of credit. The $41,765.58 transferred
amount was owed by her and her husband personally.
[7]
She identified a $5,000
entry to the company’s bank account shown in Exhibit A-1 at Tab 3 as the only
personal deposit made to the Corporation’s bank account. All of the other
deposits were from business resources.
[8]
She said that prior to
December 15, 2005, there was $41,765.58 owing on her personal line of credit
and after that date the Corporation had an overdraft of $17,962.71.
[9]
She did not report the
$41,765.58 as personal income. Deposits made to the Corporation account were
mostly cash.
[10]
The Respondent called
Roberta Groenig who was an investigator for Canada Revenue Agency (“CRA”).
This case was referred to her to check on the flow of funds between the
Appellant and her Corporation. There was a transfer of funds from the
Corporation to pay out the Appellant’s personal line of credit. An assessment
was made for these funds and gross negligence penalties were assessed. The $204,000
line of credit was used by the Corporation. She said that monies were
transferred from the Corporation’s account to close out the personal line of
credit of the Appellant. There was a large flow of funds from the Corporation’s
account. These funds were used to pay off the husband’s credit cards.
[11]
All documents received
from the Appellant were scanned and put on discs and provided to the Appellant.
[12]
She recommended
penalties under subsection 163(2) because the payment in question closed out a
personal line of credit. The corporate line of credit was paid off. The size of
the transfer compared to the amount of income was also a factor in deciding to
assess penalties.
Argument on behalf of the Appellant
[13]
In essence, the
Appellant takes the position that the Corporation did not confer a benefit on
her as a shareholder. She refers to the definition of “confer” as “to award,
grant or to be given away”. She opines that since she is personally liable for
the $41,765.58, there is no benefit.
[14]
With respect to the
“gross negligence penalties”, the Appellant says that she knows that the bank
is holding her personally liable for this debt and it has to be paid back to
the bank so there is no benefit to her and therefore no requirement for it to
be included in her income.
[15]
The Appellant asks the
Court to allow the appeal and deem that the $41,765.58 is not a benefit
conferred upon her in her capacity as a shareholder and that the penalties
should be deleted.
Argument on behalf of the Respondent
[16]
In argument, counsel
for the Respondent submitted that the Appellant did not loan the Corporation
the $41,765.58 at issue in this appeal nor was it a repayment of a
shareholder’s loan.
[17]
None of the exceptions
in paragraphs 15(1)(a) through (d) apply. Therefore, the amount
is required to be included by the Appellant in calculating her income. It was
a benefit conferred upon her by the Corporation in her capacity as a
shareholder. “The Appellant purposefully withdrew the money from the
Corporation’s bank account, which consisted of business revenues and money withdrawn
from the Corporation’s line of credit, and used this money for her own personal
benefit.” She used the Corporation’s money to pay off her personal debts, and
not for the purpose of paying off the Corporation’s debts. Through her own
actions, her personal debt became the Corporation’s debt.
[18]
The Appellant knew or
ought to have known that she received a benefit as she used the Corporation’s
money to retire her own personal debt. She knew or ought to have known that it
was the Corporation’s business account and line of credit that she was taking
the money from.
[19]
She testified that
apart from $5,000, the $21,527.31 in the Corporation’s bank account prior to
the transfer was business revenue from Terminal Park Stationery. She knew this
and said that she could not pay the amount out of her own account because she
did not have the funds. This was not an innocent error such as a bookkeeping
error and was an active appropriation. She knew or ought to have known what was
happening here.
[20]
The $41,765.58 was not
a shareholder’s loan at all as alleged by the Appellant. It was the line of
credit extended to the Corporation up to $204,000. The Corporation was
responsible for making payments on the line of credit. The Appellant
provided security for the line of credit, by granting a mortgage on her
personal residence but this does not make it a loan from the Appellant to the
Corporation. The $204,000 was not advanced to the Corporation by the Appellant.
[21]
Apart from the $5,000,
the Appellant provided no evidence that she had made any loans to the
Corporation.
Therefore, it was not the repayment of a shareholder’s loan.
[22]
The mere fact that a
shareholder advances money to a Corporation is not sufficient to establish a
loan to the Corporation nor as to the balance of any loan alleged to have been
made in that the money advanced was even to be considered as a loan.
[23]
The Appellant was
grossly negligent in not including the amount of $41,765.58 in her income for
the 2005 taxation year. She was the sole shareholder of the Corporation and was
responsible for keeping the payroll records and for conducting the banking. She
was involved in the daily operation of the Corporation. She personally withdrew
the money from the Corporation’s line of credit and used it to pay off her
personal debt. She paid off her personal line of credit with the Corporation’s money
and she would no longer be required to make payments for this personal debt.
How could she not have realized that she had received a personal benefit?
[24]
The amount of the
benefit was substantial in relation to her reported income of $12,925. She either
intentionally failed to report the income or was wilfully blind to the fact
that this amount should have been included in her income tax return.
[25]
The Appellant has
failed to meet her burden of proof that the assessment was in error. The appeal
should be dismissed.
Rebuttal
[26]
In rebuttal, the
Appellant argued that she has provided evidence that she was personally liable
for the Corporation’s debt.
[27]
The Respondent has not
provided the evidence that the Appellant received a benefit and has not refuted
the Appellant’s evidence that she did not receive a benefit. The Minister has
not proved its claim.
Analysis and Decision
[28]
In light of the
Appellant’s submission in the rebuttal that the Minister has not provided the
evidence to dispute the Appellant’s position that she did not receive a
benefit, and therefore, the appeal should be allowed, the Court must point out
that the burden upon the Appellant in this case is to satisfy the Court, on the
balance of probabilities, that the assessment is incorrect. The Minister has no
such burden as alleged by the Appellant. It is the Minister’s duty to satisfy
the Court that the requirements of subsection 163(2) have been met but that is
the Minister’s only burden.
[29]
On the principle
issues, the Court is satisfied that the Appellant received the benefit as
alleged. There can be no doubt that the funds in question were those of the
Corporation’s and were not those of the Appellant.
[30]
The Appellant clearly
withdrew these funds and used them for her own purposes.
[31]
The Court is not
satisfied that the Appellant had an outstanding loan to the Corporation in the
amount of the withdrawn funds or that the amount of $5,000 referred to by the
Appellant as having been advanced to the Corporation by the Appellant was ever
a loan, ever intended to be and the outstanding balance has not been
established. The Court is satisfied that the Appellant’s actions in obtaining
the line of credit for the Corporation did not amount to the making a loan to
the Corporation for that amount. Therefore, the receipt of the funds in
question by the Appellant from the Corporation was not the repayment of a
shareholder’s loan.
[32]
The receipt of the
funds in question by the Appellant from the Corporation was clearly a benefit
conferred upon the Appellant in her capacity as a shareholder and as such is
caught by the provisions of section 15 of the Act.
[33]
With respect to the
penalty, the Court is satisfied that the Minister has met the burden in that
regard. The Appellant either knew or should have known that the funds in
question were a benefit received from the Corporation and should have been
reported in the taxpayer’s income in the year in question. The amount in
question is significant in relation to her reported income. She was not a
business novice and was indeed responsible for the Company’s accounts,
its banking and its operations. She obviously received accounting advice
and banking advice throughout and was familiar with the Corporation’s bank
accounts.
[34]
Under these
circumstances, the Court must conclude that the Appellant is liable for the
penalties assessed under subsection 163(2) of the Act.
[35]
The appeal is dismissed
and the Minister’s reassessment is confirmed.
Signed at
Ottawa, Canada, this 5th day of June 2012.
“T.E. Margeson”
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