Citation: 2014 TCC 118
Date: 20140428
Docket: 2012-1998(IT)I
BETWEEN:
VICTORIA DAIMSIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Masse D.J.
[1]
These Appeals are from
Notices of Reassessment with respect to the Appellant’s 2003 and 2004 taxation
years.
[2]
The Appellant filed
income tax returns for the taxation years wherein she reported the following
income:
$4,600.00 for the 2003 taxation year; and
$24,410.00 for the 2004
taxation year.
[3]
The Minister of
National Revenue (the “Minister”) initially accepted the income tax returns as
filed and issued a notice that no tax was payable for the 2003 taxation year.
As a result of information received from the Quebec Revenue Agency, on November
1, 2007, the Minister issued a Notice of Assessment for the 2003 taxation year
and a Notice of Reassessment for the 2004 taxation year. As a result, the
income of the Appellant was adjusted as follows:
Taxation Year Reported
Revised Adjusted Revenue
2003 $4,600.00 $24,412.00 $29,012.00
2004 $24,410.00 $16,034.00 $40,444.00
[4]
On January 24, 2008
the Appellant served Notices of Objection with respect to the Notices of
Assessment and Reassessment. On February 2, 2012, the assessments were varied
to allow a reduction in the amount of $4,568 for the 2003 taxation year and
$1,583 for the 2004 taxation year but the Notices of Assessment and
Reassessment were otherwise confirmed. Hence, the Appeals to this Court.
Factual Context
[5]
The Appellant is a
woman who presently works as a bill collector. During the relevant time period,
she was engaged to be married. In fact, she claimed that she and her fiancé
were cohabiting at the time. She claimed that she did not work for much of that
period and hence she had little income to report. What income she did earn, she
reported. Her fiancé wanted her to stay at home and he wanted to be the
provider – he did not want her to work, according to her. She stated that her
fiancé paid for all of her living expenses – he was going to marry her and he
would take care of all of her needs – 100%. He was earning a good income and
could easily afford to support her. She did not really know what he did for a
living; she testified that he was a business owner and he had an internet
advertising company or was involved in telemarketing.
[6]
She testified that he
wanted her to have a good life. In addition to rent, he paid for outings,
groceries, hydro, Videotron, her clothes, her car payments, everything. They
often went out for dinner to high end restaurants and he often took her on
mini-vacations. He would pay cash and she does not even think he had a credit
card. He would randomly leave her spending money on top of the television so
she could take care of incidental expenses. She never went without. Whenever
they needed furniture, they would use her Sears card and he would always pay
the bill or reimburse her.
[7]
Unfortunately, the
relationship soured and they were no longer engaged as of the end of 2004.
However, he was still helping her out. She stated she went back to work in 2005
but it was obvious that she did have some employment income that she reported
in 2004 (see Ex. R-5). She has been working since.
[8]
She was the subject of
a random audit as a result of which the Minister alleges that she earned much
more than she reported. She testified that she provided the Minister with
credit card statements and advised that her bank account was in an overdraft
position. She told the authorities that she had a fiancé who paid for all of
her living expenses. The authorities wanted to know who he was. She objected to
providing this information and did not want to provide his name. This was part
of her private life as well as his and she wanted it to remain private. In
addition, her fiancé refused to give her permission to tell the authorities who
he was. He would always tell her never to give out his name and she respected
his wishes. Had she provided his name, it would not have gone well with the
relationship which she hoped might be salvaged.
[9]
She is now willing to
provide the contact information for her former fiancé but she still hesitated
to do so while on the witness stand. It was clear that she still would rather
not do so. It is difficult to resist the conclusion that she still has a great
deal of attachment to her former fiancé even though he has since married and
had a child.
[10]
In cross-examination,
she stated that she began to live with her fiancé in 2003 at 283 Hurteau,
Dollard-des-Ormeaux. They lived as a common law couple for about a year but
when their relationship ended, they continued to live under the same roof and
he continued to pay her expenses. He was providing her money throughout 2004
but not in 2005. She cannot say when in 2004 he stopped paying for her expenses
but she estimates that it may have been for about a half year that he continued
to support her. She left there in 2007.
[11]
Darrell Garfield is the
Appellant’s former fiancé. He was an unwilling witness and not very
forthcoming. In fact, he had to be arrested pursuant to a warrant which I
issued when he failed to respond to a subpoena. In his testimony, he admitted
that he and the Appellant lived together for some time about 10 years ago. It
was in the West Island, he believes on Hurteau. He does not remember the exact
time frame. They were supposed to be married and he did buy her a ring but it
did not work out. He testified that he does not recall if she was working while
they lived together. He was clear, however, that he did pay the majority of the
bills including the rent and groceries. He stated that he was working at the
time. He stated that she continued to live there even when he was not. He would
not pay the bills when he was not living there since he believed that she was
working at the time. They did buy furniture and he allows that it is possible
that he gave her money. He does not think that he helped out with any car
payments, contrary to what she stated. He paid for living expenses. The
relationship ended abruptly, he stated that she threw him out with the dog.
[12]
Odette Mathieu is
employed by Revenue Quebec. She performed the Appellant’s audit because there
was a significant difference between her expenses and her reported income such
that it would lead one to conclude that the Appellant was not reporting all of
her income. Her first contact with the Appellant was August 19, 2005 when she
sent the Appellant a questionnaire to fill out. This questionnaire was for the
purpose of verifying non taxable revenues. The questionnaire was returned
having been duly completed but it is not available today since it has been
destroyed. Ms. Mathieu sent a demand for supplementary information to the
Appellant on September 7, 2005 (Ex. R-7). She wanted information regarding the
following:
a)
a lease contract for a
1999 Pontiac Sunfire for the period from January 1, 2002 to April 31,
2002;
b)
a 2002 Mazda MX for the
period from March 28 to December 31, 2002;
c)
details of a loan
agreement with City Financial showing amount borrowed and payments made;
d)
all bank statements for
the two year period under review; and
e)
Statement of Personal
Expenses.
[13]
On September 19, 2005
the Appellant provided documentary information regarding the two vehicles; the
loan agreement and the Statement of Personal Expenses (see Ex. R-8, R-9 and
R-10). However, the information was not complete. In her Statement of Personal
Expenses, the Appellant indicated that she had been with Mr. Garfield since
1999 and that he helped her pay her personal expenses. This additional
information certainly gave rise to more questions than answers. No bank
statements were provided.
[14]
At this point, it
became difficult to contact the Appellant or to get further information from
her. Ms. Mathieu wanted contact information for Mr. Garfield; none was
forthcoming. On November 17, 2005, the Appellant faxed bank statements to Ms.
Mathieu but these statements only showed the end of year balances for the two
years being reviewed rather than all the monthly statements (see Ex. R-11).
However, in fairness to the Appellant, the demand letter dated September 7,
2005 (Ex. R-7) was ambiguous since it asked for “your bank statements showing
the balance on your personal bank accounts as of December 31, 2001, 2002, 2003
and 2004”. It is to be noted that the account number on these bank statements
was blanked out. The Appellant was resistant to providing any additional
information and particularly did not want to provide any contact information for
Mr. Garfield. It was only in March of 2007 that she provided a copy of the
first page of the lease agreement for a one year term beginning April 1, 2003,
in relation to 283 Hurteau. The name and address of Mr. Garfield was blacked
out except for his first name, “Darrell”.
[15]
Ms. Mathieu had only
limited information. However, using the information available, Ms. Mathieu
explained that she used a cash flow method in order to determine the income
that was necessary for the Appellant to maintain her lifestyle during the years
under review as a single person. All of the information used in her analysis
came from the Appellant, from information on file or from Statistics Canada,
including the fact that she had always declared her marital status as single in
her returns. Ms. Mathieu’s calculations are set out in Exhibit R-13.
[16]
On December 14, 2005,
Ms. Mathieu sent the Appellant a letter indicating the results of her analysis
as well as the proposed assessment (Ex. R-12). In this letter, Ms. Mathieu
invited the Appellant to supply any further information which might change the
assessment. None was forthcoming and formal Notices of Assessment for the 2003
taxation year and Reassessment for the 2004 taxation year were issued on
November 1, 2007 revising the Appellant’s income upwards by $24,412 and by
$16,034 for 2003 and 2004 respectively and also subjecting the amounts to
penalties as provided by subsection 163(2) of the Income Tax Act
(the "Act").
Theory of the Appellant
[17]
The
Appellant maintains that she reported all the income that she earned during the
taxation years and that the amounts reported represented her true income. She
simply was not working during most of the 2003 and 2004 taxation years. She
maintains that Mr. Garfield paid all of her living expenses during the relevant time
frame and that is how she was able to get by.
[18]
She
reported all of her income, she never hid any income and she paid all of her
taxes. These Appeals should, therefore, be allowed and the Notice of Assessment
for the 2003 taxation year and the Notice of Reassessment for the 2004 taxation
year should be set aside.
Theory of the Respondent
[19]
The
Respondent submits that the Appellant has been less than cooperative during
this saga. The Appellant provided so little information that the Ministry had
to use the alternative method of cash flow analysis in order to come up with an
estimate of the Appellant’s income during the taxation years. The assessments
based on this analysis are presumed valid and it is up to the Appellant to
demonstrate that they are not valid. This whole case depends on credibility and
the credibility of both the Appellant and Mr. Garfield is very suspect. The
Appellant’s bald assertions that Mr. Garfield paid all of her living expenses
are in and of themselves insufficient to refute or demolish the basis upon
which the Minister made its assessments. These Appeals should therefore be
dismissed.
Analysis
[20]
It is clear that Ms.
Mathieu used a cash flow analysis in order to estimate the undeclared income of
the Appellant for the taxation years. This is an indirect method which is
necessary when the taxpayer does not provide information regarding total income
and expenses. This is a method of last resort. It showed a significant
disparity between the amount that the Appellant declared as revenue and the
amount necessary to pay for her lifestyle. In Hsu v. The Queen, 2001 FCA
240, Justice Desjardins of the Federal Court of Appeal had the following to say
about net worth assessments which is an indirect method similar to the cash flow
method of assessment:
Net worth assessments are a method of
last resort, commonly utilized in cases where
the taxpayer refuses to file a tax return, has filed a return which is grossly
inaccurate or refuses to furnish documentation which would enable Revenue Canada to verify the return (V. Krishna, The Fundamentals of Canadian Income Tax Law,
5th ed. (Toronto: Carswell, 1995) at 1089). The net worth method is
premised on the assumption that an appreciation of a taxpayer's wealth over a
period of time can be imputed as income for that period unless the taxpayer
demonstrates otherwise (Bigayan, supra, at 1619). Its purpose is to
relieve the Minister of his ordinary burden of proving a taxable source of
income. The Minister is only required to show that the taxpayer's net worth has
increased between two points in time. In other words, a net worth assessment is
not concerned with identifying the source or nature of the taxpayer's
appreciation in wealth. Once an increase is demonstrated, the onus lay entirely
with the taxpayer to separate his or her taxable income from gains resulting
from non-taxable sources (Gentile v. The Queen, [1988] 1 C.T.C. 253 at
256 (F.C.T.D.)).
By its very nature,
a net worth assessment is an arbitrary and imprecise approximation of a
taxpayer's income. Any perceived unfairness relating to this type of assessment
is resolved by recognizing that the taxpayer is in the best position to know
his or her own taxable income. Where the factual basis of the Minister's
estimation is inaccurate, it should be a simple matter for the taxpayer to
correct the Minister's error to the satisfaction of the Court.
[21]
In the case at bar, the
Appellant was not forthcoming in providing information to the Minister other
than maintaining that Mr. Garfield was paying all of her expenses. Yet, she
would not, until just very recently, disclose any contact information for Mr.
Garfield other than his first name. Hence, the Respondent could not verify the
exactitude of the information provided to it by the Appellant and it had to
resort to an alternative method of analysis in order to estimate the
Appellant’s income. I find that Ms. Mathieu was fair and reasonable and
restrained in her use of the cash flow method. Ms. Mathieu was quite justified
in assessing the Appellant on the basis of the limited information provided to
her by the Appellant and on information obtained by Statistics Canada. She was
justified in assessing the Appellant on the basis of a single person who shared
rental expenses and whose fiancé paid for vacations, trips, holidays and
outings such as restaurants.
[22]
It is up to the
Appellant to refute or demolish the presumptions upon which the assessment is
based: see Hickman Motors Ltd. v. Canada, [1999] 2 S.C.R. 336. This can only be done by adducing credible
testimonial or documentary evidence.
[23]
The Appellant has not
adduced any documentary evidence. She is relying solely on her viva voce
testimony and that of Mr. Garfield. Hence, the critical issue in this trial is
that of credibility of these two witnesses.
[24]
It is trite law that I
can accept all of the evidence of a witness, none of evidence of the witness or
I can accept some of the witness’ evidence and reject other portions of the
witness’ evidence. The oft quoted dictum of Justice O’Halloran of the
British Columbia Court of Appeal in Faryna v. Chorny, [1952] 2 D.L.R. 354
(B.C.C.A.), at pages 356 and 357 also comes to mind:
If
a trial Judge's finding of credibility is to depend solely on which person he
thinks made the better appearance of sincerity in the witness box, we are left
with a purely arbitrary finding and justice would then depend upon the best
actors in the witness box. On reflection it becomes almost axiomatic that the
appearance of telling the truth is but one of the elements that enter into the
credibility of the evidence of a witness. Opportunities for knowledge, powers
of observation, judgment and memory, ability to describe clearly what he has
seen and heard, as well as other factors, combine to produce what is called
credibility, and cf. Raymond v. Bosanquet (1919), 50 D.L.R. 560
at p. 566, 59
S.C.R. 452 at p. 460, 17 O.W.N. 295.
A witness by his manner may create a very unfavourable impression of his
truthfulness upon the trial Judge, and yet the surrounding circumstances in the
case may point decisively to the conclusion that he is actually telling the
truth. I am not referring to the comparatively infrequent cases in which a
witness is caught in a clumsy lie.
The
credibility of interested witnesses, particularly in cases of conflict of
evidence, cannot be gauged solely by the test of whether the personal demeanour
of the particular witness carried conviction of the truth. The test must
reasonably subject his story to an examination of its consistency with the
probabilities that surround the currently existing conditions. In short, the
real test of the truth of the story of a witness in such a case must be its
harmony with the preponderance of the probabilities which a practical and
informed person would readily recognize as reasonable in that place and in
those conditions. Only thus can a Court satisfactorily appraise the testimony
of quick-minded, experienced and confident witnesses, and of those shrewd
persons adept in the half-lie and of long and successful experience in
combining skilful exaggeration with partial suppression of the truth. Again a
witness may testify what he sincerely believes to be true, but he may be quite
honestly mistaken. For a trial Judge to say ''I believe him because I judge him
to be telling the truth'', is to come to a conclusion on consideration of only
half the problem. In truth it may easily be self-direction of a dangerous kind.
The
trial Judge ought to go further and say that evidence of the witness he
believes is in accordance with the preponderance of probabilities in the case
and, if his view is to command confidence, also state his reasons for that
conclusion. The law does not clothe the trial Judge with a divine insight into
the hearts and minds of the witnesses. And a Court of Appeal must be satisfied
that the trial Judge's finding of credibility is based not on one element only
to the exclusion of others, but is based on all the elements by which it can be
tested in the particular case.
It is
through this jurisprudential lens that I assess the credibility of the two
principal witnesses. In addition, I assess the credibility of the witnesses
making use of human experience, the knowledge of the human condition, the
knowledge that memories fade with time and the fact that human beings are most
imperfect creatures.
[25]
Dealing firstly with the evidence
of Mr. Garfield, the documents that are before the Court in relation to Mr.
Garfield (Exhibits R-1, R-2 and R-3), show that up until 2009, he reported
living at 32 Crois Aldred, Hampstead, and he at no time ever reported living at
238 Hurteau in Dollard-des-Ormeaux. He only reported a change of address to 54
Place Heath, Hampstead in 2009. He at no time reported his marital status as
other than single up until 2008 when he changed his status to married and at no
time prior to that did he claim an equivalent to married deduction. What is
most curious indeed is the fact that he never filed any income tax returns from
2002 up to 2005, which time period includes the taxation years under review. He
says he worked while in a relationship with the Appellant but he does not say
what kind of work he was doing – nor was he asked. If he worked, one has to
wonder why he never filed any income tax returns. In my view, Mr. Garfield
is a man who has something to hide and this is certainly consistent with his
warning to the Appellant that she never disclose anything about him to anybody.
I would have difficulty accepting anything Mr. Garfield has to say in a
situation where his own pecuniary or other interests are under scrutiny.
[26]
On the other hand, it is clear
that he came to Court under arrest. He simply did not want to be there and he
was not at all sympathetic to the cause of the Appellant. He was at worst
hostile to the interests of the Appellant and at best totally disinterested and
indifferent to her situation. The relationship he had with her ended rather
dramatically when she “threw him out with the dog” but he has moved on and has
made a new life of his own. It is clear that he did not have a chance to
discuss his testimony with the Appellant or her representative and so he did
not know what was required of him. He has no interest whatsoever in the outcome
of this litigation and he has no reason to favour either the Appellant nor the
Respondent. He admits having paid many of the Appellant’s expenses and having
supported her while she was living with him at 283 Hurteau and while she was
not working. Although it is true that his evidence is somewhat vague and
imprecise, it must be remembered that this all took place approximately 10
years ago and memories do fade; especially regarding things that were not
important to him.
[27]
In relation to the credibility of
the Appellant, her evidence is not without some difficulties. From the end of
2005 right up to the present time, she has been difficult to contact. She has
declared her marital status to be single during the taxation years even though
she tells us that she was living with Mr. Garfield. She is not a very well
organized person and she filed her income tax returns late for the two years
under consideration; June 2004 for the 2003 return and May 2005 for the 2004
return. She was not very cooperative with the Minister when requests were made
for further information and documentation. When she did provide information, it
was not timely and it was incomplete. I get the impression, however, that this
was not so much a matter of a deliberate attempt to be obstructive but rather
she simply preferred to put her head in the sand hoping the problem would go
away. It is true that she protected the identity of Mr. Garfield,
even before the Cour du Québec at her trial held September 27, 2010. She seems
to have done this out of some misguided sense of loyalty to Mr. Garfield and
also some notion of protection of privacy. I get the impression that she was
quite subservient to the wishes of Mr. Garfield and that he was
quite controlling in the relationship. She was stubbornly wrong and badly
advised in this regard since it was up to her to satisfy the Minister that Mr. Garfield was in fact paying her expenses. She was very emotional when
testifying about her relationship with Mr. Garfield and she still was
hesitant to disclose his identity. It is very clear that she finds it very
difficult to let go even though he has moved on.
[28]
It is clear that she and Mr.
Garfield would not have had any time to collaborate and discuss their evidence.
In spite of this, it is clear that both she and Mr. Garfield agree that he paid
her living expenses. I find that the Appellant was credible when she testified
that he paid her living expenses and she is corroborated in her testimony by
the evidence of Mr. Garfield in that regard. Even though I have some difficulty
in accepting the evidence of Mr. Garfield, since he does have something to
hide, he was independent as between the Appellant and the Respondent regarding
the issues before the Court. The issue of credibility is therefore resolved in
favour of the Appellant.
[29]
In spite of the lack of
documentary evidence, I find that it is more likely than not that:
a) Mr. Garfield and the
Appellant cohabited together throughout most of 2003 and part of 2004,
b) Mr. Garfield paid all
of the Appellant’s living expenses when she could not afford to do so.
Conclusion
[30]
For all of the
foregoing reasons, these Appeals are allowed and the reassessments are referred
back to the Minister for reconsideration
and reassessment on the basis that:
a) The Appellant was
living with Mr. Garfield in a common law relationship.
b) Mr. Garfield was
paying all of her living expenses.
c) The Appellant earned
no more income other than what was reported.
d) No argument was
presented to me regarding the late filing penalty pursuant to subsection 162(1)
of the Act and, therefore, I make no ruling as to those penalties.
Signed at Kingston, Ontario, this 28th day of April 2014.
"Rommel G. Masse"
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