Citation: 2013 TCC 289
Date: 20130916
Docket: 2009-177(IT)G
BETWEEN:
BRADMAN LEE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
The appellant, Bradman
Lee, appeals from reassessments made under the Income Tax Act for the
1999, 2000, 2001 and 2002 taxation years. The appeal relates to commission
income that was earned by Mr. Lee as a real estate salesman with Sutton Group Commitment Realty Ltd. (“Sutton Group”).
[2]
This is not the first
court proceeding in relation to this income. Previously, there was a criminal
proceeding and an appeal to this Court from GST assessments.
[3]
In 2007, Bradman Lee was found guilty of tax evasion by an
Ontario court for failing to report commission income paid by Sutton Group. The
reasons of Cowan J. are reported as R v Lee, [2008] GSTC 65; [2008] 5
CTC 117. It is my understanding that there are no appeals currently outstanding
from this decision. The taxation years involved in the criminal proceeding are
the same as in this appeal, except that the criminal matter did not involve the
2002 taxation year.
[4]
In addition to disputing the
criminal charges, Mr. Lee also filed objections to the assessments of income
tax and GST relating to the Sutton Group income. The CRA considered the
objections and confirmed the assessments after Mr. Lee was found guilty in the
criminal proceeding.
[5]
Appeals to this Court were then
filed. The GST appeal came before me first and involved four separate days of
hearing.
[6]
The outcome in the GST appeal is
that the assessments were generally upheld, except for a portion of input tax
credits that had not been at issue in the criminal proceeding. The GST decision
is reported as Lee v The Queen, 2010 TCC 400.
[7]
This matter is the income tax
appeal that was scheduled subsequently and also came before me. The hearing
lasted five days, and had to be scheduled over a fairly lengthy period of time.
[8]
Mr. Lee represented himself at the
hearing. His notice of appeal raises a number of issues, as follows:
(a)
whether the reassessments are
statute barred;
(b)
whether the Minister correctly
calculated taxable income;
(c)
whether there is any amount of tax
owing; and
(d)
whether gross negligence penalties
were properly imposed.
[9]
Before discussing these issues, it
is useful to comment on the criminal proceeding.
Criminal proceeding
[10]
The basis for the
criminal charges was that Mr. Lee failed
to report any commission income from the Sutton Group in his income tax
returns. He was convicted of offences under paragraphs 239(1)(a) and (d) of the
Income Tax Act that he knowingly made false statements in income tax
returns and willfully evaded the payment of tax.
[11]
Subsection 239(1) provides in
part:
239. (1) Other offences and
punishment - Every person who has
(a) made, or participated in, assented
to or acquiesced in the making of, false or deceptive statements in a return,
certificate, statement or answer filed or made as required by or under this Act
or a regulation,
[…]
(d) wilfully, in any manner, evaded or
attempted to evade compliance with this Act or payment of taxes imposed by this
Act,
[…]
is guilty of an offence [...]
[12]
It was agreed for
purposes of the criminal proceeding that
the initial tax returns did not include income from the Sutton Group. The issue
really boiled down to whether Mr. Lee was aware of the failure. His counsel
argued at the criminal trial that the tax return preparer inadvertently omitted
these amounts from the returns (R v Lee, para. 85).
[13]
The tax return preparer, Farooz
Mohamed, testified in the criminal proceeding that he included all the income
that was provided to him and the judge found his testimony credible.
[14]
Mr. Lee also testified at the
criminal trial. His evidence was disbelieved, as illustrated by the excerpts below
from the criminal decision.
114 On the other hand. I found Lee to be an
extremely evasive witness. He was a man with wide experience in the field of
real estate involving not only in buying and selling houses but also the
financial aspects of arranging financing and running his own business. But on
the stand he sought to portray himself as heavily reliant on accountants, who
on two occasions died suddenly in the midst of preparing his late filings.
Strangely, on both occasions no record could ever he found of the work they had
been doing nor any backup documentation he had left with them.
115 When confronted with his lack of payment
of income taxes and GST on substantial earnings, he verbally ventured into
convoluted visits with unnamed but numbered representatives of the CRA who,
despite all his efforts, rejected his efforts to pay. His evidence was
inconsistent, unresponsive at times to the questions and evasive.
116 If I accept his evidence, I would have to
find that despite him leaving the proper T4A slips with Mohamed and after
spending about half an hour, reviewing his returns, that he did not see that there
was no mention, in any of the returns, of the large amounts of commissions that
he received.
[…]
120 He would further have me believe that
having not reported income in the amount of $148,623.57 over three years that
he believed he owed no taxes and was owed money by the government.
121 He stretches my credulity beyond its
limits.
122 I
simply do not believe his evidence, nor does it leave me in doubt that he knew
the information provided in these returns was false and deceptive and he thereby
committed the offences charged.
Are reassessments statute
barred?
[15]
Mr. Lee asserts in the notice of
appeal that the “Notice of Reassessment” is statute barred since it was issued
after the expiration of the normal reassessment period. No facts or arguments
were provided except to state that the Crown has the burden to establish the
necessary facts.
[16]
In general, the Crown has the burden to establish that the
Minister issued and mailed a notice of reassessment in time, provided that the
taxpayer alleges that he has not received the notice of reassessment and that
none was ever issued: Aztec Industries Inc. v The Queen, 95 DTC 5235
(FCA), at p 5237.
[17]
In this case, Mr. Lee did make
allegations that the reassessments were not received, but these allegations
were made in cross-examination and not in the notice of appeal. It is
questionable whether the principle from Aztec applies in this case.
[18]
Nevertheless, I have concluded
that the Crown has established that the relevant reassessments are not statute
barred.
[19]
In the absence of a
misrepresentation in the return, the Minister has three years from sending an
assessment to make a further reassessment. The relevant provisions are set out
below.
152(3.1)
Definition of “normal reassessment period” – For
the purposes of subsections (4), (4.01), (4.2), (4.3), (5) and (9), the normal
reassessment period for a taxpayer in respect of a taxation year is
[…]
(b)
in any other case, the period that ends 3 years after the earlier of the day of
mailing of a notice of an original assessment under this Part in respect of the
taxpayer for the year and the day of mailing of an original notification that
no tax is payable by the taxpayer for the year.
152(4)
Assessment and reassessment [limitation period] –
The Minister may at any time make an assessment, reassessment or additional
assessment of tax for a taxation year, interest or penalties, if any, payable
under this Part by a taxpayer or notify in writing any person by whom a return
of income for a taxation year has been filed that no tax is payable for the
year, except that an assessment, reassessment or additional assessment may be
made after the taxpayer’s normal reassessment period in respect of the year
only if
(a) the taxpayer or person filing the
return
(i)
has made any misrepresentation that is attributable to neglect, carelessness or
wilful default or has committed any fraud in filing the return or in supplying
any information under this act, or
(ii)
has filed with the Minister a waiver in prescribed form within the normal
reassessment period for the taxpayer in respect of the year; […]
[20]
The evidence
establishes that the initial income tax returns were received by the Canada
Revenue Agency (CRA) in June of 2003 for 1999, 2000 and 2001 and in May of 2004
for 2002 (Ex. R-2, Tabs 1-4).
[21]
The evidence also
establishes that the CRA received notices of objection to reassessments for the
1999, 2000, 2001 and 2002 taxation years on March 18, 2005 (Ex. R-1).
[22]
It is clear from this
evidence that the relevant reassessments dated March 5, 2005 were received by
or on behalf of Mr. Lee within three years of the initial tax returns. It is
unlikely that the CRA issued assessments prior to the filing of the initial tax
returns and Mr. Lee has not asserted that they did. Accordingly, I find that
the relevant reassessments were issued within the normal reassessment period.
[23]
Before leaving this
issue, I would comment that I had difficulty with some of the evidence led by
the Crown respecting the statute bar issue. The Crown led evidence that
established the date on which notices of assessment were issued, but the
evidence did not establish that the notices were actually mailed or otherwise
sent by the CRA. If it had been necessary for the Crown to establish this, I
would have found the evidence to be unsatisfactory.
[24]
Nevertheless, I am satisfied that
all of the relevant reassessments were made in time and are not statute barred.
Did the Minister correctly
calculate taxable income?
[25]
In the notice of
appeal, Mr. Lee submits that the Minister
incorrectly calculated taxable income. As with the statute bar issue, there are
no material facts in the notice of appeal to support the allegation.
[26]
The income that is in dispute was
earned by Mr. Lee as a commission real estate salesman with the Sutton Group
from 1999 to 2002.
[27]
The 1999, 2000 and 2001 tax
returns did not report any income from the Sutton Group. The Minister submits
that the income from the Sutton Group is $60,126 for 1999, $36,985 for 2000,
$67,703 for 2001.
[28]
For the 2002 taxation
year, Mr. Lee reported gross income from
Sutton Group in the amount of $121,830 and net income in the amount of $15,804.
The Minister assessed on the basis that gross income was underreported by the
amount of $5,350[1]
and improper deductions were claimed in the amount of $57,122 (Reply, para
12(e) and (f)). Based on these amounts, the Minister made an aggregate
adjustment to the net income for 2002 in the amount of $62,472.
[29]
Mr. Lee has the burden to establish
what the proper amounts of taxable income should be. The evidence was
completely insufficient to satisfy this burden.
[30]
At the hearing, Mr. Lee seemed to
focus more on establishing that he reported, or attempted to report, the Sutton
Group income rather than in trying to disprove the amount of taxable income
that was assessed. In other words, Mr. Lee appeared to have his sights on
proving that he was wrongly convicted of tax evasion. Mr. Lee suggests that he
gave the proper amounts to the tax preparer and that the tax preparer failed to
include them in the initial returns. Mr. Lee also submits that he filed proper
amended returns with the CRA and that he paid all the tax that was owing.
[31]
None of this is helpful in
disputing the amount of taxable income as determined by the Minister.
[32]
Notwithstanding the inadequacy of
Mr. Lee’s evidence, that is not the end of the matter because I have concerns
about possible unfairness caused by differences in the calculation of income
for purposes of the assessments and for purposes of the criminal charges.
[33]
The relevant amounts for purposes
of the criminal charges are set out in the first paragraph of Cowan J.’s
decision. It reads:
1 Bradman
Lee is charged with three counts of unlawfully making, participating in,
assenting to or acquiescing in the making of false or deceptive statements in
his T1 individual income tax returns for the taxation years 1999, 2000 and 2001
by understating his taxable income for those years in the amounts of
$59,985.74, $29,189.36 and $59,448.47 respectively, thereby committing an
offence in each case under paragraph 239(1)(a) of the Income Tax Act.
[34]
These amounts are all less than the amounts referred to
in the Reply.
[35]
As far as I can recollect, this
discrepancy was not mentioned at the hearing. In my view, it would not be fair
to change the allegations without some explanation so that Mr. Lee could deal
with it at the hearing.
[36]
I propose, therefore, to require
an adjustment to the reassessments for 1999, 2000 and 2001 so that the amounts
correspond with the amounts on which Mr. Lee was convicted of tax evasion.
[37]
Before leaving this issue, I would
also comment that the Crown took the position at the hearing that the criminal
convictions were only prima facie proof that income was falsely
reported. It was submitted that Mr. Lee has the opportunity to rebut the
criminal findings at this hearing.
[38]
I am not clear why the Crown took
this position because the authority that counsel relied on concluded that a
criminal conviction may be dispositive and not merely prima facie proof:
Toronto (City) v Canadian Union of Public Employees Local 79 (“CUPE”),
2003 SCC 63, [2003] 3 S.C.R. 77, para 56 – 58.
[39]
If Mr. Lee had presented persuasive
evidence which called into question the criminal convictions, this Court would
be in a difficult position of potentially undermining a finding of a competent
court reached on a very high standard of proof. The Supreme Court of Canada in
the CUPE decision makes it clear that this situation undermines the
integrity of the criminal justice system.
[40]
In any event, in light of the conclusions
that I have reached regarding the evidence in this case, I am not faced with a
situation of casting doubt on the criminal convictions.
Is any amount owing to the
Minister?
[41]
In the notice of appeal, Mr. Lee
seeks relief on the ground that no amounts are owing to the Crown.
[42]
The problem with this submission
is that this Court has no jurisdiction to determine whether taxes have been
paid. Reference may be made to my reasons in Mr. Lee’s GST appeal.
Were penalties properly
imposed?
[43]
Mr. Lee was assessed penalties
under subsection 163(2) for making false statements in income tax returns. The
amount of the penalty is 50 percent of the tax which was underreported. The
relevant provision is reproduced in part below.
163. (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
(a) the amount, if any, by which
(i) the amount, if any, by which
(A) the tax for the year that would
be payable by the person under this Act
exceeds
(B) the amounts that would be
deemed by subsections 120(2) and (2.2) to have been paid on account of the
person’s tax for the year
if the person’s taxable income
for the year were computed by adding to the taxable income reported by the
person in the person’s return for the year that portion of the person’s
understatement of income for the year that is reasonably attributable to the
false statement or omission and if the person’s tax payable for the year were
computed by subtracting from the deductions from the tax otherwise payable by
the person for the year such portion of any such deduction as may reasonably be
attributable to the false statement or omission
exceeds
(ii) the amount, if any, by which
(A) the tax for the year that would
have been payable by the person under this Act
exceeds
(B) the amounts that would be
deemed by subsections 120(2) and (2.2) to have been paid on account of the
person’s tax for the year
had the person’s tax payable for
the year been assessed on the basis of the information provided in the person’s
return for the year,
[…]
[44]
The evidence to support the
imposition of penalties for 1999, 2000 and 2001 is overwhelming. Tax returns
were filed which failed to include any commission income from the Sutton Group.
[45]
Mr. Lee’s defence is based largely
on a conspiracy theory involving the CRA, the tax return preparer, and his
lawyer in the criminal proceeding. This testimony was so far-fetched as to be
completely unreliable.
[46]
The penalties for 1999, 2000 and
2001 should be upheld, except that they should be based on the unreported
income as determined by the criminal proceeding.
[47]
The 2002 taxation year is
different because income was reported from the Sutton Group and no criminal charges
were laid for false statements in this income tax return.
[48]
I have several difficulties with
the position of the Crown with respect to the imposition of penalties for this
year.
[49]
First, the Reply did a poor job of
describing the amount of the penalty that was imposed and how it was
calculated. Paragraph 17 of the Reply states that the false statement for 2002
is failing to report income of $5,952. Paragraph 18 then states that the difference
in the federal tax that was paid and should have been paid is $11,751 and that
the penalty should be at least $1,117.86. This is not satisfactory disclosure
regarding this penalty.
[50]
Second, the tax return that was
filed for 2002 was introduced into evidence. It includes the T4A from the Sutton
Group which shows the full income. This amount was also included in the
statement of business income attached to the return. I have a hard time
concluding that Mr. Lee was grossly negligent in not reporting this amount.
[51]
As for the expenses, these were no
doubt wildly inflated, but there is not sufficient evidence before me that
penalties were assessed with respect to the expenses. It appears that the
penalty for 2002 may have been imposed only on the failure to report gross
income in the amount of $5,952.
[52]
In the circumstances, I propose to
delete the penalty for the 2002 taxation year.
Conclusion
[53]
In the result, the appeal will be
allowed on the following basis:
(a)
for the 1999 taxation year, the
net income that should be added is $59,985.74 and the gross negligence penalty
should be adjusted accordingly;
(b)
for the 2000 taxation year, the
net income that should be added is $29,189.36 and the gross negligence penalty
should be adjusted accordingly;
(c)
for the 2001 taxation year, the
net income that should be added is $59,448.47 and the gross negligence penalty
should be adjusted accordingly; and
(d)
for the 2002 taxation year, the
net income that should be added is $62,472 and the gross negligence penalty
should be deleted.
[54]
As for costs, counsel for the
Crown should provide written submissions as to costs within 20 days of the date
of these reasons. Mr. Lee may file written submissions in response to the
Crown’s submissions within 20 days of the filing of the Crown’s submissions.
[55]
Finally, I would comment that it
seemed to be very inefficient to have separate GST and income tax hearings in
this matter. The issues overlapped to a great extent.
Signed at Toronto, Ontario this 16th day of September
2013.
“J. M. Woods”
Email this Content