Citation: 2011 TCC 442
Date: 20110921
Docket: 2009-1287(IT)G
BETWEEN:
IAN GAINOR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hogan J.
[1]
The Appellant is appealing
the reassessment for his 2004 taxation year by which the Minister of National
Revenue (“Minister”) added $118,000 to his previously assessed income of $3,070
and imposed a penalty in the amount of $12,682. This additional income relates
to funds that were allegedly wrongfully obtained by way of an altered cheque.
The parties who benefited from these funds included Kneale Craine, now
deceased, who, according to the Minister’s calculation, received, directly and
indirectly, $102,000 from the wrongfully obtained funds in the same year.
[2]
The Minister justified
his reassessment of the Appellant’s income for 2004 and the assessment of a penalty
as follows:
(a) $118,000 has been
included in the Appellant’s income because the Appellant received, through
direct and indirect payments, gains from theft, defalcation or embezzlement
totalling $118,000. These gains constitute income from a source and, as such, are
to be included in income under section 3 of the Income Tax Act (“ITA”).
(b) A penalty of $12,682 was
imposed pursuant to subsection 163(2) of the ITA because the Appellant
knowingly, or under circumstances amounting to gross negligence, made an
omission in his return.
THE ISSUES
[3]
There are three issues
in this appeal:
(a) Was the Minister
correct in determining that the proceeds from the altered cheque constituted
income from a source for the Appellant?
(b) What amount of that
income is properly attributable to the Appellant?
(c) Was the Minister
justified in imposing a penalty on the Appellant under subsection 163(2) of the
ITA?
FACTUAL SUMMARY
[4]
The Appellant is a
retired chiropractor, resident in Calgary, Alberta. The
Appellant had declared bankruptcy prior to 2004 and had no access to a personal
bank account. He used the bank account of a company, Canam Seating Ltd.
(“Canam”), of which he had been the director. In actuality, Canam had been
struck from the Alberta corporate registry in 2003. However, its
bank account at the Canadian Imperial Bank of Commerce (“CIBC”) remained
operative. The Appellant was at all material times the only person who had signing
authority for the Canam account.
[5]
The altered cheque in
question was deposited in the Canam account. The cheque was originally drawn on
the Royal Bank of Canada account of Honeywell in Toronto, Ontario, and was payable to Dell Financial Services. The name
of the original payee on the cheque was changed to that of Canam. The cheque
was either mailed or sent by courier to Canam’s CIBC branch in Calgary for deposit into its account.
[6]
Once the cheque was
deposited in Canam’s account, the Appellant, as Canam’s director, immediately
proceeded to disburse the funds. The Appellant appears to have made withdrawals
or payments totalling $319,147 between November 24 and November 26, 2004
inclusively. Apparently, there was no hold on the cheque because the Canam
account had been in operation since 1999 and Canam had a good history with its
bank.
[7]
The larger transfers
that the Appellant made from the proceeds of the cheque included a $200,000
transfer to Custom House Currency Exchange (a company specializing in
international money transfers, now part of Western Union), a $60,000 deposit on
a house purchase made by the late Kneale Craine, and a $20,000 repayment
of Mr. Craine’s personal debt to Glynis Grigg. The smaller payments and
withdrawals, in amounts from $5,000 to $7,000, were made by the Appellant for
the purpose of paying his own and Mr. Craine’s personal debts to third
parties, obtaining cash, and investing in an off-shore investment account.
[8]
By November 26,
2004, the balance remaining in the Canam account was $20,165.39. On November 29,
2004, Honeywell’s Royal Bank of Canada branch called Canam’s CIBC branch to
advise them that the cheque in question was altered and would not be honoured.
[9]
Shortly after the
disbursements were made, the CIBC informed the Appellant that the funds had
been wrongfully deposited in Canam’s account and demanded repayment of the
funds that had been transferred out. The Appellant refunded a portion of those
funds. The CIBC put the Canam account into overdraft for the amount not
returned and charged a monthly overdraft interest fee. By January 1, 2005, the overdraft amount was
$166,998.16. It appears that by April 1, 2005 that balance had risen to
$175,828.97. On April 8, 2005, the overdraft balance was struck out and a
statement with a balance of $0 was issued for the period ending on April 8,
2005. The Appellant claims that the CIBC “wrote off” the outstanding amount.
[10]
A police investigation
was conducted and the investigation revealed that Honeywell did not owe any
money to Canam and that it did not issue a cheque in Canam’s favour. The
Appellant and Mr. Craine were both questioned and later charged with having
committed fraud over $5,000 contrary to paragraph 380(1)(a) of the Criminal
Code and theft over $5,000 contrary to paragraph 334(a) of the Criminal
Code. The total amount stolen was identified by the police as being $166,998.16.
The charges against the Appellant and Mr. Craine were subsequently stayed. According
to the Appellant, Mr. Craine passed away in June 2008.
[11]
The CIBC appears to
have covered Honeywell’s loss. The CIBC also appears to have chosen not to
launch a claim against Canam or the Appellant for the funds the Appellant
failed to refund.
[12]
Although the police
identified the CIBC’s loss in relation to the falsified cheque as being in the
amount of $166,998.16, the Minister reassessed the Appellant as having received
a benefit of $118,000. The Appellant stated at trial that he had returned the
amount in excess of $118,000 to the CIBC.
[13]
In the reply to the
Appellant’s notice of appeal, the Minister itemized as follows the Appellant’s
disbursements of the proceeds from the falsified cheque, accepting the amounts
and purposes of those disbursements:
|
Date
|
Item
|
Amount
|
|
Nov. 24/04
|
Repayment of TK
Craine’s personal investment to T. Pearce
|
$10,000
|
|
Nov. 24/04
|
Payment to
Craine, money order
|
5,000
|
|
Nov. 24/04
|
Repayment of TK
Craine’s personal loan to Glynis J Grigg
|
20,000
|
|
Nov. 24/04
|
Cash withdrawal
by Ian Gainor, withdrawal slip signed by Ian Gainor
|
6,000
|
|
Nov. 25/04
|
Repayment of Ian
Gainor’s personal loan to M. Leigh
Money order and
withdrawal slip signed by Ian Gainor
|
5,000
|
|
Nov. 25/04
|
Cash withdrawal
by Ian Gainor, withdrawal slip signed by Ian Gainor
|
5,000
|
|
Nov. 26/04
|
Payment to
Century 21, bank draft signed by Ian Gainor
|
60,000
|
|
Nov. 26/04
|
Repayment of TK
Craine’s personal loan to D Anderson, bank draft – withdrawal slip
signed by Ian Gainor
|
7,000
|
|
Total
|
|
$118,000
|
[14]
At the hearing, the
Appellant provided an account of other events that allegedly took place during
the time preceding the depositing of the falsified cheque. The Appellant
testified that he had been expecting a wire transfer of a similar amount of
money from an overseas angel investor into the Canam account. When the November 23,
2004 deposit occurred, he therefore proceeded to disburse the funds, believing
they had been rightfully transferred.
[15]
The Appellant claims
that he hired Mr. Craine to assist him in raising capital to fund an innovative
chiropractic clinic business in the United States that
the Appellant claims he intended to establish in 25 cities. He alleges that he
engaged students in the University
of Calgary’s Master of Business Administration
program to prepare a business plan for his project. At trial, the Appellant
submitted as Exhibit A-R 1, Tab 6, a copy of a summary of this business
plan.
[16]
The Appellant stated
that Mr. Craine, his long-time accountant, financial advisor and friend,
located an angel investor in England who was willing to advance $5,000,000 for
the Appellant’s clinic venture.
[17]
The Appellant did not
state whether the investor had replied with a counter-offer with respect to the
deal. According to the Appellant, the angel investor was Mr. Craine’s
personal contact and the deal was something that Mr. Craine arranged
without the Appellant’s assistance.
[18]
The Appellant was not
clear in his testimony as to whether or not he knew that the first advance from
the angel investor was to be in the amount of $350,000. The Appellant claims
that he notified the CIBC that he was expecting a wire from Europe of an amount
of $340,000 or $350,000. Further, the Appellant appeared unable to state with any
confidence whether the investor had confirmed that the amount transferred would
constitute the first “tranche” of the total investment.
[19]
The Appellant stated
that the angel investor was apparently aware prior to the first advance being
made, that there was no clinic business in existence and that the advance was
to help the Appellant both draw up a plan for how the venture was to proceed
and set up the required corporation and a bank account. The Appellant further
stated that because neither he nor Mr. Craine had a bank account in his
own name, the angel investor was to send the funds to the Canam bank account at
the CIBC.
[20]
The Appellant testified
that Mr. Craine told him that when the angel investor discovered that the Canam
account had been closed by the CIBC, he no longer wished to extend additional
funding. The Appellant stated that after Mr. Craine’s passing, the Appellant
and Mr. Craine’s family looked through Mr. Craine’s documents but did not find
any information regarding the angel investor.
[21]
It was noted in the police
file that Mr. Craine stated to the investigating officer that the
Appellant owed him $30,000 for income tax accounting and investment advice he had
provided to the Appellant for six to eight years prior to 2005.
[22]
The Appellant stated at
trial that he declared his profit resulting from the altered cheque in 2004 in
his 2006 income tax return.
[23]
The parties’ Joint Book
of Documents contains copies of documents pertaining to a house purchase by Mr. Craine
for the down payment on which the Appellant issued a draft in the amount of
$60,000. The documents include a copy of the $60,000 draft on Canam’s CIBC
account in favour of Century 21 and a copy of the associated Residential Real
Estate Purchase Contract. The contract indicates that the purchase price of the
property was $1,325,000, that the initial deposit was $60,000 and that the
buyer was 1038967 Alberta Inc. Included also is a fax cover sheet that
indicates that 1038967 Alberta Inc. was associated with Mr. Craine.
POSITIONS OF THE PARTIES
The Appellant’s Position
[24]
The Appellant’s
position is that because the bulk of the money from the proceeds from the
fraudulent cheque was disbursed to or on behalf of Mr. Craine, a fact which
the Minister acknowledges, Mr. Craine or his estate, and not the
Appellant, should be taxed on the amount that was so disbursed. The Appellant
argues that only the amount that he benefited from should be attributable to
him for tax purposes.
[25]
The Appellant’s
alternative position is that he paid off a debt he owed to Mr. Craine, so the
amount of the repayment should be treated as an expense for the Appellant.
The Minister’s Position
[26]
The Minister’s position
is that, although the bulk of the monies went to other parties, they were
transferred by Canam on the direction of the Appellant. Therefore, the funds
are attributable to and taxable in the hands of the Appellant pursuant to
subsection 56(2) of the ITA. The Minister did not provide any case law
to support his position with respect to the application of subsection 56(2). The
Minister focused mostly on the issue of the source of the income in question. He
relied on The Queen v. F E Poynton
and Buckman (H.S.) v. Minister of National Revenue for guidance
with respect to the determination of what constitutes income.
[27]
The Minister
acknowledges that there is no certainty as to who committed the theft, but
argues that the fact that the Appellant cooperated with Mr. Craine with
respect to the angel investor funding and then shared the proceeds of the
fraudulent cheque should play a role in determining that the proceeds were
taxable in the Appellant’s hands.
[28]
The Minister referred
to Obodoechina v. The Queen
and Nigro v. The Queen
in support of the proposition that monies that are merely passing through a
taxpayer’s account are attributable to the taxpayer.
[29]
While the Minister
recognizes that deductions against income derived from illegal activities are
in some cases allowable, he argues that this is not such a case because the
Appellant was not in the business of stealing. Further, public policy reasons
should prevent the allowance of such a deduction.
[30]
With respect to the
Appellant’s 2006 income, the Minister’s counsel did not know whether or not the
Appellant had in fact been assessed as having reported in 2006 the 2004 income at
issue. However, the Minister’s position is that the 2006 income tax return
should not have any impact on the reassessment for the Appellant’s 2004 taxation
year.
[31]
With respect to the
penalty, the Appellant was aware of the unreported income and knew or ought to
have known that the amounts received were required to be reported.
ANALYSIS
[32]
Paragraph 3(a)
of the ITA provides that a taxpayer’s income for a taxation year is
determined by totalling his income from all sources.
[33]
Section 4 of the ITA
provides that a taxpayer’s income for a given taxation year is to be calculated
on the assumption that the taxpayer had no income or loss except from the
applicable sources.
[34]
Section 9 of the ITA
clarifies that a taxpayer’s income for a taxation year from a business or
property is the taxpayer’s profit from that source:
9(1) Subject to this Part, a taxpayer’s income for a taxation year
from a business or property is the taxpayer’s profit from that business or
property for the year.
(2) Subject to section 31, a taxpayer’s loss for a taxation year
from a business or property is the amount of the taxpayer’s loss, if any, for
the taxation year from that source computed by applying the provisions of this
Act respecting computation of income from that source with such modifications
as the circumstances require.
(3) In this Act, “income from a property” does not include any
capital gain from the disposition of that property and “loss from a property”
does not include any capital loss from the disposition of that property.
[35]
Subsection 248(1) of
the ITA defines the term “business” as, essentially, an enterprise of
any kind:
“business” includes a profession, calling, trade, manufacture or
undertaking of any kind whatever and, except for the purposes of paragraph
18(2)(c), section 54.2, subsection 95(1) and paragraph 110.6(14)(f),
an adventure or concern in the nature of trade but does not include an office
or employment.
[36]
The ITA does not
define the concepts of income and source. Nor does the legislation contain any
enumerated income source for wrongfully received income resulting from fraud or
theft.
[37]
The courts, however,
have recognized that income from illegal activity is taxable. The 1972 Ontario
Court of Appeal decision in Poynton is the leading authority for the
principle that proceeds from criminal activities constitute taxable income:
The question is, what quality must be attached to a profit, gain or
benefit before it can be characterized as "income" for the purpose of
taxation? There is no doubt that the word “income” in the Income Tax Act
is sufficiently wide to include money other than that received from bona fide
transactions. The fact that profits are derived from an illegal business does
not make them immune to taxation (Minister of Finance v Smith, [1927] AC
193) and Courts have been equally consistent in allowing, as deductions from
income, expenses which are tainted with illegality. In ascertaining the net
profits of a business, items of expense which are of an illegal nature are
nonetheless deductible if they come within the provisions of the Act as
payments made wholly, exclusively and necessarily for the purpose of earning
the income sought to be taxed (Espie Printing Company Limited v MNR
[1960] Ex. CR 422; [1960] CTC 145; 60 DTC 1087).
The words of Lord Haldane in the Smith case (supra)
have application in the present case when he stated at page 197:
Nor does it seem to their Lordships a natural construction of the
Act to read it as permitting persons who come within its terms to defeat
taxation by setting up their own wrong. There is nothing in the Act which
points to any intention to curtail the statutory definition of income, and it
does not appear appropriate under the circumstances to impart any assumed moral
or ethical standard as controlling in a case such as this the literal
interpretation of the language employed. There being power in the Dominion
Parliament to levy the tax if they thought fit, their Lordships are therefore
of opinion that it has levied income tax without reference to the question of Provincial
wrongdoing.
. . .
I am of the opinion that there is no difference between money and
money's worth in calculating income. They are both benefits and fall within the
language of sections 3 and 5 of the Act, being benefits received or enjoyed by
the respondent in respect of, in the course of, or by virtue of his office or
employment. I do not believe the language to be restricted to benefits that are
related to the office or employment in the sense that they represent a form of
remuneration for services rendered. If it is a material acquisition which
confers an economic benefit on the taxpayer and does not constitute an
exemption, e.g. loan or gift, then it is within the all-embracing definition of
section 3.
[38]
In Poynton, the
taxpayer had obtained payments from his employer’s subcontractors through a
fictitious billing scheme. Evans J.A., for the court, found that the amounts
obtained constituted income from theft:
In view of the above finding I do not consider it necessary to refer
in detail to paragraph 8(1)(b) and subsection 137(2). These provisions would
appear to refer to those situations in which the taxpayer obtains a benefit
with the knowledge and consent of the donor-employer and would have no
application in the present factual situation. The benefits sought to be taxed
did not accrue to Poynton nor were they conferred upon or received by him qua
director, qua officer or qua shareholder but qua thief.
[39]
In the 1991 Tax Court
decision in Buckman,
it was held, where the taxpayer lawyer had embezzled funds from his clients and
did not treat the funds as a loan, that the embezzlement had all the earmarks
of a business and, as a result, the funds were treated as income from a source.
In Buckman, the appellant had represented himself to his clients as
investing their money in mortgages, when, in fact, he was not. The appellant
was charged and convicted of numerous counts of fraud in connection with the
misappropriation of his clients’ funds. Judge Sobier held as follows:
The appellant received the money, appropriated it unto himself and
used and enjoyed it for his own benefit. It was never treated by him as a loan.
There was no intention to repay the Funds. Mr. Buckman was engaged in an
on-going, long term scheme to steal from his clients. In reality, he intended
to hold the Funds for his own account and did so in fact.
The number of misappropriations and the methods employed by the appellant
had all the earmarks of a business. He took risks in stealing the Funds and
being found out. His reward however, was his hope of escaping detection and
keeping the Funds for his own use. There is no difference whether the thief
acted as a solicitor, agent or employee. The fact that the Funds are to be
treated as income flows from the realities of the situation. Paraphrasing Evans
J.A. in Poynton: What is being sought to be taxed didn’t accrue to Mr.
Buckman qua solicitor or qua mortgage broker but qua
thief.
[40]
In the majority of Tax
Court decisions that deal with the taxability of fraudulently obtained funds,
the taxpayer had, prior to the proceedings in the Tax Court, been convicted
criminally for his actions in obtaining the proceeds sought to be taxed.
However, the absence of a criminal conviction is not fatal to a finding that
income was obtained through theft or fraud, as confirmed by Bowman C.J. in Biros
v. The Queen:
21 Where, then, are we? We have evidence of a large scale
fraud against the banks using stolen identities, fraudulently opened bank
accounts and fraudulently obtained ATM cards. We have evidence of a large
number of stolen cheques being deposited to those bank accounts with forged
endorsements.
22 We have conclusive evidence of Mr. Biros’ fingerprints on
20 cheques and clear visual evidence of Mr. Biros transacting business in the
accounts at a number of ATMs.
23 There is another piece of evidence that must be handled
somewhat carefully and that is Mr. Biros’ outright and categorical denial of
any involvement in the scheme. He denies that it is his picture on the video
surveillance tapes and he suggests that the police must have somehow fabricated
his fingerprints on the cheques. His denial of the obvious and unrefuted and
irrefutable evidence has the effect of confirming and strengthening the
conclusion that he was deeply involved in the fraud. Detective Inspector Thomas
stated that fraud was a sophisticated one requiring a high degree of planning,
cooperation and organization. Mr. Biros did not strike me as a great
criminal mastermind like Dr. Moriarty or Lex Luthor. Had he admitted to a
lesser involvement in the scheme, or said that he was really a small player, I
might have found such evidence credible but to deny any involvement whatsoever
in the face of overwhelming evidence of his involvement leaves no alternative.
. . .
25 Here, the Crown has proved that Mr. Biros received funds
from the banks in furtherance of a fraudulent scheme. He failed to declare
these amounts as income. They are income from a business. (Neeb v. The Queen,
97 DTC 895 at 897; Svidal v. The Queen, [1995] 1 C.T.C. 2692). . . .
[41]
The fact that the
proceeds in question herein were received as a result of fraud has not been
denied by the Appellant. However, it is not clear who committed the fraud. The
Appellant’s position is that he himself was a victim of it. With respect to Mr. Craine,
the Appellant confirmed that he is helping Mr. Craine’s son clear his late
father’s name in relation to the allegation that the latter used stolen funds
for the down payment on the house purchase. This indicates that the Appellant
is not accusing Mr. Craine of having partaken in the fraud.
[42]
The evidence pertaining
to the disbursement of the funds suggests, in my opinion, that the Appellant
was aware that the funds had been fraudulently obtained. The way in which he
rushed to disburse the money ― beginning on the day the cheque was deposited and disposing of the
bulk of the funds within four days ― is indicative of the Appellant’s knowledge that he
was dealing with unlawfully obtained funds that could be recalled momentarily. Further,
the Appellant’s transfer of $200,000 to Custom House, from which amount further
disbursements may have been planned, constitutes evidence that the Appellant
wanted to minimize the traceability of the funds. The Appellant stated that he
transferred the $200,000 in order to have the funds available for his business
venture in the U.S. However, this entirely contradicts his
testimony that he owed Mr. Craine at least $300,000 of the so-called
initial transfer of $350,000 or so for arranging the so-called angel investor
funding. According to the Appellant, the bulk of that amount belonged to Mr. Craine.
At the time the $200,000 transfer was made, the Appellant was supposedly not
yet aware that the funds were not from the angel investor.
[43]
There are additional
questions with respect to the Appellant’s credibility. For instance, on the
CIBC Small Business Account Application and Agreement dated November 26,
2004, the Appellant indicated that he was the sole director and 100%
shareholder of Canam. That application contained a dual misrepresentation: the
Appellant was never a shareholder of Canam, according to the Appellant’s own
testimony, and, at the time he signed the application, Canam was no longer in
existence.
[44]
When the CIBC called
the Appellant to come in to discuss the falsified cheque, the Appellant went to
meet with the account manager accompanied by Mr. Craine. This confirms
that the Appellant worked very closely with Mr. Craine. No one other than
the Appellant and Mr. Craine had any reason to alter the cheque and
deposit it into Canam’s bank account with the CIBC. The Appellant and
Mr. Craine were the only persons who benefited from the fraud. The
evidence is sufficient for me to conclude that, at the very least, the
Appellant was aware that the funds had been obtained illegally.
[45]
In Poynton,
Evans J.A. held that a repayment of misappropriated funds in a later year does
not affect the taxability of the funds in the year in which they were obtained.
Mr. Poynton, after a civil action was instituted against him, repaid his
employer the amounts he had unlawfully misappropriated. Evans J.A. found that
the taxability of the misappropriated funds was not affected:
The fact that here the stolen money was repaid by Poynton following
the institution of a civil action by his employer does not affect the result as
the repayment was not made in the years in which the funds were misappropriated
and in which they were sought to be taxed. Whether the moneys would attract tax
if repaid during the year in which they were misappropriated; whether the
taxpayer is entitled to claim a deduction in the year in which repayment is
made or whether the employer would be taxable on the repayment are not matters
for consideration and determination in the instant case.
[46]
In the 2003 Tax Court
decision in Nigro, above, on which the Minister relies, Judge Bonner held
that where the appellant could not substantiate the true ownership of amounts
deposited into his bank accounts, those amounts were deemed to constitute income
of the appellant’s. In Nigro, the appellant agreed to accept deposits to
his bank accounts on behalf of a business associate, Mr. Muto. The amounts
deposited totalled $2,700,000, in the taxation year at issue. The bulk of these
deposits were disbursed to Mr. Muto or to third parties on his direction. However,
$150,349 of the funds appears to have remained in the appellant’s account.
Because the appellant could not explain why Mr. Muto did not use his own
bank account for the transactions and provided no documentation or any other
explanation with respect to the nature of the transactions, it was held that
the $150,349 was income of the appellant’s.
[47]
Nigro was referred to in the 2006 Tax Court
decision in Obodoechina, above, on which the Minister also relies. In Obodoechina,
Margeson J., similarly to Judge Bonner, held that, because the appellant failed
to substantiate his claim that the funds that had gone through his bank account
belonged to other people, those funds had to be attributed to him.
[48]
In the case at bar, the
evidence shows that the Appellant and Mr. Craine both participated in the
fraudulent cheque scheme. The cases of Nigro and Obodoechina establish
that where the amounts of payments are substantiated as being attributable to
another person and as having been made for that person’s purposes, those
amounts are not to be taxable in the hands of the taxpayer. The Minister
accepts that the Appellant transferred $102,000 to or for the benefit of
Mr. Craine. That amount appears to be Mr. Craine’s share of the
proceeds from the scheme. As a result, the funds so transferred to or on behalf
of Mr. Craine are not income for the Appellant. This leaves $16,000 to be
included in the Appellant’s income for 2004.
[49]
The Respondent argues
that the Appellant is subject to tax on the $102,000 transferred to or on
behalf of Mr. Craine by virtue of subsection 56(2) of the ITA. That
provision would apply, for example, if the amounts deposited in Canam’s account
actually belonged to Canam and the Appellant caused Canam to transfer the funds
to Mr. Craine. However, this is not the case. The funds never belonged to
Canam. Canam’s bank account was simply used as an instrument to perpetrate the
fraud against the CIBC. The evidence shows that Mr. Craine received his
agreed upon share of the amount. A corporate asset was not transferred by Canam
to Mr. Craine on the direction of the Appellant. The evidence suggests
that both men participated in the scheme.
[50]
The Appellant’s
statement that he reported in his 2006 taxation year his 2004 income at issue
does not affect the determination of his taxable income for 2004. Firstly, Poynton
establishes that, even where wrongfully obtained funds are repaid in a future
year, the fact that they had to be included in the taxation year in which they
were obtained is not affected by the restitution. Secondly, the Appellant’s
evidence with respect to how he determined the 2004 amount that he allegedly
included in his return for his 2006 taxation year is unclear: the Appellant’s
position is that his income from the funds at issue amounted to no more than
$10,500, yet the purport of his statement is that he reported $27,235.50.
Further, there is no additional evidence to show that such an amount was in
fact reported in 2006. While the Appellant included an income tax return information
sheet for 2006 in his evidence at trial, that document does not provide any
breakdown of the Appellant’s “professional income” in 2006.
[51]
In the present appeal,
the Appellant maintained that he did not regard the full proceeds of $118,000
as his income. However, he acknowledged that a portion of it was his income.
The Appellant stated that he declared the applicable 2004 income in his 2006
tax return, a fact which indicates that the Appellant was aware that such
income needed to be reported or that he needed to consult an accountant to
inquire about the taxability of such income. The Appellant was a sophisticated person
who had had dealings with the Canada Revenue Agency with regard to his income
tax in the past. This justifies the imposition of a penalty with respect to the
Appellant’s unreported income of $16,000.
Signed at Ottawa, Canada, this 21st day of September, 2011.
“Robert J. Hogan”
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