Citation: 2012 TCC 179
Date: 20120607
Dockets: 2008-1720(IT)I,
2009-705(IT)I
BETWEEN:
JAMES O. GROSSETT,
ONEIL GROSSETT,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Paris J.
[1]
The appellants are
appealing reassessments of their 2002 to 2006 taxation years by which the
Minister of National Revenue disallowed their claims for tax credits for
charitable donations in the following amounts:
|
|
James Grosset
|
Oneil Grosset
|
|
2002
2003
2004
2005
2006
|
$
23,039
9,500
10,500
13,041
8,200
|
$ 10,200
10,900
11,545.98
10,565
3,590
|
[2]
The Minister disallowed
the claims on the basis that the appellants did not make any gifts to charities
in the years under appeal, and that they purchased charitable donation receipts
used to support their claims.
[3]
In the alternative, if
it is found that the appellants made any gifts to any charitable organizations
in the years under appeal, it is the respondent's position that the donation
receipts issued to the appellants do not meet the requirements set out in the Income
Tax Regulations.
[4]
Oneill Grossett was
also reassessed to disallow certain child care expenses claimed in his 2003 to
2006 taxation years. However, this issue was conceded by the respondent at the
hearing.
[5]
The onus of disproving
the Minister's assumptions was on the appellants, except in respect of the
reassessments for the 2002 and 2003 taxation years which were made after the
normal reassessment period in subsection 152(4) of the Income Tax Act (ITA).
Facts
[6]
At the request of the
respondent, and upon the consent of the appellants, the appeals were heard on
common evidence. Both appellants testified at the hearing and the respondent
called three witnesses from the Canada Revenue Agency (CRA).
[7]
The evidence showed
that both appellants used the services of Ambrose Danso-Dapaah, operating
as ADD Accounting, to prepare their 2002, 2003 and 2004 tax returns.
[8]
On December 15, 2008,
Mr. Danso-Dapaah pled guilty to selling false charitable donation receipts for
the 2002 through 2005 taxation years to clients to enable them to fraudulently
reduce their income tax payable. He sold the receipts for a fraction (usually
10%) of the amount of the donation shown in the receipt. Mr. Danso-Dapaah
admitted that he provided false donation receipts with a total face amount of
over $39 million during that period.
[9]
Mr. Danso-Dapaah
issued false donation receipts for several charities of which he was a
director, including Canafrica International Foundation and The Canadian
Foundation for Child Development.
[10]
The CRA began
investigating Mr. Danso-Dapaah's activities in 2006, and seized records
pursuant to search warrants executed in November 2006. Those records included
approximately 6,800 Cantax electronic tax files as well as client invoices from
ADD showing the tax return preparation fee, the face value of the charitable
receipt and a fee equal to 10% of that amount. The senior CRA investigator on
the file, Barbara Lovie, testified that she found invoices from ADD addressed to
Oneil and James Grossett for the preparation of their 2003 and 2004 tax
returns. The invoice for Oneil Grossett's 2003 tax return contained the
notation "receipt $10,900" with a corresponding fee of $1,090. The
invoice for his 2004 tax return contained the notation "receipt
$11,545.98" and a corresponding fee of $1,150. The invoice for the
preparation of James Grossett's 2003 tax return referred to a receipt for
$9,500 and a corresponding fee of $800. Ms. Lovie said she believed that he
received a discount for the receipt fee because he had referred other people to
ADD. James Grossett's invoice for his 2004 tax return stated "receipt
$10,500 Canafrica Foundation" and a corresponding fee of $1,050.
[11]
One of Mr. Danso-Dapaah's
employees, George Gudu, also worked for Frances Kungu, who operated Payless Tax
Inc. At the same time, Mr. Gudu ran his own business under the name Senyo
Accounting. Both Senyo and Payless prepared tax returns, and there appeared to
be some overlap in those operations. In 2007, Mr. Kungu was charged with the
sale of false charitable donation receipts. He failed to appear at his trial
and a warrant for his arrest was issued. Mr. Gudu was also charged and pled
guilty to the sale and use of false receipts in the filing of tax returns. Again,
the receipts were usually sold for 10% of the face amount of the receipt. Over
$4 million of receipts were sold in 2006 alone. Among the charities used in these
schemes were: Pan Africa Multicultural Centre, Avenue Development Foundation
and Bible Teaching Ministries. In searches of Payless' premises, CRA
investigators found electronic copies of tax returns as well as invoices
setting out charges for tax preparation and for charitable receipts. The CRA
also found booklets of donation receipts to the various charities, some of
which were pre-signed, as well as a list of people who were given receipts to
sell and a record of the amounts that were paid for the receipts.
[12]
The lead CRA
investigator on the Payless and Gudu files, Deborah Edyvean, testified that the
seized documents contained invoices for Oneil Grossett for preparation of his
2005 and 2006 tax returns and for James Grossett for the preparation of his
2006 tax return. Oneil's invoices showed a fee of $1,050 for 2005 for a receipt
in the amount of $10,565, and a fee of $360 for 2006 for a receipt of $3,590. The
invoice for James Grossett for the 2006 taxation year showed a fee of $660
corresponding to a figure of "8200". He claimed as a charitable
donation of $8,200 on his 2006 tax return.
[13]
The appellants testified
that they did not purchase false charitable donation receipts for any of the
years in issue. They claim to have made donations of cash and household goods
and electronics equal to the full amount of the charitable donations claimed. They
also said that they checked out the charities on the CRA website and confirmed
that they were registered.
[14]
After considering all
of the evidence that was presented, I find that neither James nor Oneil was a
credible witness. I find it difficult to believe that either of them was in a
financial position to make the donations that they claimed. For example, James
Grossett's supposed donation of $23,039 in 2002, would have been equal to
almost one-half of his total income of $50,702. For Oneil, a single father who
had just begun a job in 2002, his alleged donation of $10,200 would have been
equal to about one quarter of his total income of $45,808. A similar pattern
can be seen in the other taxation years in issue. Even if a portion of such
donations were made up of gifts in kind, I still am unable to see how the
appellants were in a financial position to donate the cash and property they
claim they did. Also, such large gifts would also have been completely
inconsistent with their previous and subsequent donation history. Between 1988
and 2010, James Grossett did not claim any charitable donation tax credits
other than those in issue. No records for years prior to 1988 were available.
Oneil's only other charitable donation claim since he began filing tax returns in
1994 was for $25 in 2001.
[15]
In addition, both
appellants' explanation of how the alleged donations were made was implausible.
Despite the large amounts involved, both said a substantial portion of the donations
was made in cash. The remainder allegedly consisted of donations of used
household goods.
[16]
James Grossett said he
made several donations of cash each year, but got no receipts for them other
than one at the end of each year for the total donation. I find it difficult to
believe that he would simply have given thousands of dollars of cash to
Mr. Danso-Dapaah on many occasions without requesting some record or
receipt from him.
[17]
Oneil Grossett said he
would withdraw cash from his bank account at various times during the year and
keep it at home. After he received his T-4 slip, he said he would leave this cash
in an envelope, along with all of his tax records for his father to take to
Mr. Danso-Dapaah. It does not make sense to me he would withdraw cash at various
times and leave it at home until the time it was taken to Mr. Danso-Dapaah,
rather than leaving it in the bank and writing one cheque to the charity.
[18]
Also, the timing of the
alleged donations did not match the receipts that were given, since Oneil said
he gave them to his father once he had received his T-4 slip for the prior
calendar year. The donation receipts he had, though, were all dated either
sometime during, or on the last day of each year.
[19]
Both Oneil and James
Grossett claimed that members of their community dealt in cash, but it also
appeared that both of them had bank accounts that they used. Neither of them, though,
could tie the alleged cash donations to any specific withdrawals from their
accounts or to any other source of funds.
[20]
A further difficulty I
have with the appellants' testimony is that neither of them could give more
than a vague description of the goods they claim to have donated and neither
had any written record of the goods.
[21]
In summary, the documents
seized by the CRA in the investigations into the activities of Mr. Danso-Dapaah,
Mr. Kungu and Mr. Gudu, show that both appellants participated in the false
donation receipt scheme. Given the total lack of any credible evidence that they,
in fact, made the donations in issue, I am satisfied that they purchased the
charitable donation receipts used to claim the charitable donation tax credits for
the years under appeal.
[22]
The amounts paid for
the receipts would not qualify as gifts, since "a gift is a voluntary
transfer of property owned by a donor to a donee, in return for which no benefit
or consideration flows to the donor" (per Linden J.A. in Her Majesty
the Queen v. Albert D. Friedberg, 92 DTC 6031 at 6032). Here, the
appellants purchased the receipts to obtain a reduction of their taxes, and had
no intention of making a gift to any charitable organization.
[23]
Having found that both
appellants knowingly purchased false charitable donation receipts that were
used to claim tax credits to which they were not entitled, it is clear that
both appellants made misrepresentations in their 2002 and 2003 tax returns (as
well as those for the remaining years). Therefore, the Minister was justified
in reassessing them for their 2002 and 2003 taxation years beyond the normal
reassessment period.
[24]
In light of these
findings, it is not necessary for me to address the respondent's alternative
argument concerning the sufficiency of the donation receipts.
[25]
The appeals of James
Grossett are dismissed. The appeals of Oneil Grossett are allowed in part on
the basis that he be allowed child care expenses of $3,600, $2,100, $4,000 and
$4,000 in the calculation of his income for 2003, 2004, 2005 and 2006 taxation
years respectively.
Signed at Ottawa, Canada, this 7th
day of June 2012.
“B. Paris”
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