Date: 19981110
Docket: 97-467-IT-G
BETWEEN:
GEORGE MAATOUK (ALSO KNOWN AS GEORGE MAATOUR),
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Rip, J.T.C.C.
[1] George Maatouk, the Appellant, appeals from income tax
assessments issued by the Minister of National Revenue
(“Minister”) under the Income Tax Act
(“Act”) for 1990, 1991 and 1992, in which the
Minister reassessed the Appellant on a net worth basis pursuant
to subsection 152(7) of the Act and also issued penalties
in accordance with subsection 163(2) of the Act.
[2] The primary issue before me is whether Mr. Maatouk’s
changes in net worth were due to unreported income or from
capital forwarded to him from Lebanon. If the changes in his net
worth resulted from the transfer of funds from Canada to Lebanon
his income will be reduced and the penalties assessed will be
deleted.
[3] The evidence consisted of the testimony of Mr. Maatouk,
his son, George Maatouk Jr., and Mr. Yori Ayoub as well as a
book of documents submitted by the Appellant’s counsel, and
consented to by counsel for the Respondent. The book of documents
includes a copy of a Purchase and Sale Agreement of land located
in Lebanon (including an English translation), customer records
of bank drafts drawn on Canada Trust and a letter from Mr.
Maatouk to the Minister dated June 10, 1996. The Respondent did
not enter any evidence nor did she call any witnesses. Mr.
Maatouk testified through English and Arabic language
interpreters.
[4] Mr. Maatouk emigrated from Lebanon and commenced to reside
in Canada on June 6, 1990. During the years 1990, 1991 and 1992,
he owned and operated a convenience store, previously owned by
his son-in-law, in Halifax, Nova Scotia.
[5] Mr. Maatouk’s wife, Marie Maatouk, opened a bank
account with Canada Trust on June 13, 1990 and deposited $500.
Further quantities of Canadian currency in small denominations
were deposited to the account throughout 1990, 1991 and 1992. The
balance in the account on December 31st in each of 1990, 1991 and
1992 was $162,568, $229,742, and $226,696, respectively.
[6] Interest was earned on the Canada Trust account in the
amounts of $5,008.35, $16,163.80 and $12,374.81 in 1990, 1991 and
1992, respectively and none of the interest was reported by
either the Appellant or Mrs. Maatouk in their returns of income.
Mr. Maatouk, at trial, conceded that he failed to report the
interest in his return of income; he said he was not aware he had
to do so.
[7] In assessing Mr. Maatouk, the Minister assumed that the
balances in the Canada Trust account represented income from the
Appellant’s convenience store operations and interest. Mr.
Maatouk reported only the following amounts of income in the
years in appeal:
1990 $5,490
1991 $8,938
1992 $3,476
Accordingly, the Minister assessed Mr. Maatouk on the basis
his income for each year was as follows:
1990 $173,142
1991 $ 81,093
1992 $ 41,275[1]
[8] The Minister also assessed Mr. Maatouk penalties on the
basis that he knowingly, or under circumstances amounting to
gross negligence, in the carrying out of a duty or obligation
imposed under the Act, made or participated in or
assented to or acquiesced in the making of false statements or
omissions in his income tax returns for 1990, 1991, and 1992, as
a result of which the tax that would have been assessed on the
information provided in his income tax returns filed for those
years, was less than the tax in fact payable by the amounts of
$62,677, $29,356 and $13,683, respectively. The penalties
assessed were as follows:
1990 $24,758.56
1991 $10,754.60
1992 $ 3,518.80
[9] The Appellant’s main thrust in opposing the
assessments was that in June 1989 he sold one of two lots he
owned near Kfar Yachite, Lebanon, for 88,000,000 Lira (Lebanese
pounds), the equivalent, according to his evidence, of about
$840,000 in Canadian funds and during the years in appeal the
proceeds of the sale were sent to him in Canada. (Mr. Maatouk
estimated that in 1989 one Canadian dollar was equal to 600-700
Lira.)
[10] Mr. Maatouk declared that when he had received the
88,000,000 Lira he did not invest the proceeds or deposit the
proceeds in a bank but kept the money in his home in Lebanon. In
cross-examination, Mr. Maatouk acknowledged that there were
international banks operating in Tripoli, yet he stated he
preferred to keep his money at home since he was concerned over
the stability of Lebanese banks and of banks in general.
[11] He sold the land, Mr. Maatouk stated, because in 1989 he
was preparing to immigrate to Canada. Mr. Maatouk’s eldest
son, Ghassan, was to remain in Lebanon but because his position
in Lebanon required him to travel constantly throughout the
country, Mr. Maatouk concluded there would be no one to look
after the land.
[12] Mr. Maatouk also testified that upon receiving the
88,000,000 Lira he converted the proceeds into United States
currency because of the poor state of the Lebanese economy. The
Lira “vibrated a lot”, he said, and there was great
inflation in the country. In cross-examination, Mr. Maatouk
claimed that he desired U.S. currency because it was the most
stable currency. He could not remember, however, the U.S. dollar
exchange rate at the time he converted the Lebanese currency into
U.S. currency.
[13] After converting the Lebanese currency into United States
currency, Mr. Maatouk stated that he subsequently converted
some additional Lira and all of his U.S. currency into Canadian
dollars. He stated this was done piecemeal at various times
through money exchangers on the streets of Tripoli, a
half–hour drive from his village.
[14] When he arrived in Canada, Mr. Maatouk testified, he
brought with him the amount of $80,000 in Canadian currency; on
cross-examination he stated that in addition to the $80,000 he
had other cash for travelling expenses, which, in a letter to the
Minister, dated June 10, 1996, he estimated to be “about a
couple hundred dollars”. On arrival in Canada, he filed a
“record of landing” form with Employment and
Immigration Canada and certified that he had only $800 in his
possession. He was unable to explain the discrepancy. First he
stated he was not asked about money and later in his evidence he
stated he could not remember where or when the form was completed
or who completed the form.
[15] In Canada, Mr. Maatouk first resided for a short time
with his daughter at 95 Circassion Drive in Dartmouth, Nova
Scotia. This residence was located above a convenience store
which earlier had been operated by Mr. Maatouk’s son-in-law
and daughter and which he subsequently acquired. Mr. Maatouk
resided elsewhere in Dartmouth, after leaving his
daughter’s residence but moved back to Circassion Drive
when he started to operate the convenience store.
[16] Mr. Maatouk declared that he kept the $80,000 at home
until his wife convinced him to deposit the funds in a bank for
safekeeping. He said that he asked his wife to open a bank
account for this purpose and she opened the Canada Trust account
on or about June 13, 1990. He stated the bank account was opened
in his wife’s name, and not in his and his wife’s
name jointly, because she shared in the money and he also loved
her.
[17] In any event, amounts aggregating $80,000 and other
amounts were deposited to the Canada Trust account as follows:[2]
1991
|
1992
|
DATE
|
AMOUNT
|
DATE
|
AMOUNT
|
June 13
|
$ 500
|
January 5
|
$ 9,050
|
June 15
|
5,000
|
March 14
|
15,000
|
June 16
|
8,000
|
March 19
|
7,020
|
June 19
|
6,000
|
April 8
|
10,000
|
June 20
|
8,000
|
May 2
|
10,000
|
September 20
|
8,000
|
|
|
September 26
|
11,000
|
|
|
October 22
|
31,000
|
|
|
October 30
|
10,000
|
|
|
November 9
|
5,000
|
|
|
December 28
|
19,000
|
|
|
TOTAL:
|
$111,500
|
TOTAL:
|
$51,070
|
TOTAL FOR TWO YEARS: $162,570
|
[18] In examination-in-chief, Mr. Maatouk testified that he
could not recall exactly how long he kept the $80,000 at home. He
stated “...it could be a month, or month and a half”.
In cross-examination, Mr. Leslie, the Respondent’s counsel,
asked the following:
Q. 285
Mr. Leslie: Okay. Because I’ll tell you, Mr. Maatouk.
Earlier today you said, in response to Mr. Leahey’s
questions, that you kept your cash at your home for a month to a
month and a half before it was deposited into the bank account
that was opened in your wife’s name.
Appellant: Yes.
Mr. Leslie: Yes. And I’m looking at Tab 15,
Mr. Matouk, of the exhibit book [Exhibit A-1]. And I’m
looking at the very first page, which is a summary of the
deposits made in 1990, and I don’t see anything nearly
approaching eighty thousand dollars ($80,000) being deposited
within the first couple of months of that account being
opened.
Appellant: Yes. Because at that time I had not deposited that
amount of money. I still kept it in my possession.
[19] During the period June 13, 1990 to October 22, 1990,
there were nine deposits, totalling $82,500, made into the Canada
Trust account. It is not clear whether this money represented the
$70,000 Mr. Maatouk “still kept in my possession”
during the “first couple of months” of the account
being opened or was from some other source.
[20] Mr. Maatouk said that he purchased the contents, or
inventory, of the convenience store at 95 Circassion Drive,
referred to as the “AAA” convenience store, from Yori
Ayoub in October 1990 for $2,000, the value of the inventory. Mr.
Ayoub had purchased the store from Mr. Maatouk’s
son-in-law. Mr. Maatouk insisted the store was a small
business that did not make much money. In cross-examination,
however, Mr. Maatouk stated that he paid $12,000 to
Mr. Ayoub for the store. Mr. Ayoub testified later that he
was paid between $15,000 and $17,000 for the inventory. (There
was no documentary evidence as to the precise date of the sale of
the store, or as to the value of the inventory purported to be
sold.)
[21] After arriving in Canada, Mr. Maatouk recalled he started
to receive money he had left with his son, Ghassan, in Lebanon.
In all, he stated the amount of money he brought to Canada, i.e.,
$80,000, and the amount of $90,000 he received from Lebanon in
cash and by cheques in the mail, aggregated $170,000. However,
there is no evidence of any such cheques being deposited to the
Canada Trust account during the years in appeal. In
cross-examination, he stated that he left $100,000,
“...maybe a little less...”, with his son, but later
testified that Ghassan held more than $60,000 for him. Pages 67
to 69 of the transcript record the following exchange
between Mr. Leslie and Mr. Maatouk.
Mr. Leslie: Mr. Maatouk, you’ve indicated this morning
that money was also sent to you from Lebanon after you came over
here, wasn’t it?
Appellant: Correct.
Mr. Leslie: How much?
Appellant: At one point I received fifty thousand. I do not
recall the amount that I received on a second occasion.
Mr. Leslie: Okay. Fifty thousand what? Canadian dollars?
Appellant: Canadian dollars.
Mr. Leslie: And when did you receive that?
Appellant: If I remember right it was approximately in
1992.
Mr. Leslie: When in 1992?
Appellant: I do not remember.
Mr. Leslie: Can you remember the season? Was it early spring,
fall, summer ---
Appellant: I remember it was in 1992 or even shortly after
1992, but I do not remember exactly what month.
Mr. Leslie: Okay. That is the fifty thousand. You said there
was another amount that was sent over?
Appellant: Yes.
Mr. Leslie: And was that after the fifty thousand?
Appellant: After the fifty thousand.
Mr. Leslie: Do you remember roughly how much that second
amount was?
Appellant: I do not remember.
Mr. Leslie: Okay. Do you know roughly when you got it?
Appellant: If I go back to the written document or if I ask
the woman who had brought the money, I might be able to
remember.
Mr. Leslie: Okay. Was it in 1993, 1994, last year?
Appellant: Like I said, I cannot recall exactly, but to the
best of my memory that was near the end of 1993.
Mr. Leslie: Okay. Mr. Maatouk, who sent these moneys to you,
the fifty thousand dollars ($50,000) and the other amount?
Appellant: My son did.
Mr. Leslie: Which son?
Appellant: My son Ghassan.
Mr. Leslie: Okay. Mr. Maatouk, how much of your money did your
son Ghassan have back in Lebanon?
Appellant: Again I don’t know exactly but I would say
more than sixty thousand. Some people owed me some people [sic].
He received the money and sent it to me.
[22] Mr. Maatouk’s evidence on this point does not
coincide with the deposit records for the Canada Trust account.
He stated he received $50,000 in 1992 and an unspecified amount
at some time after that. However, the Canada Trust account
records of deposit show that $167,570 in cash was deposited in
the account in sixteen separate transactions between June 13,
1990 and May 2, 1991. There were no cash deposits made after May
2, 1991. If Mr. Maatouk received $50,000 from a person he
identified as Branka Amiouni and an unknown amount from unknown
persons in 1992 and subsequent years, these amounts were not
deposited in any of his bank accounts, or those of his wife, and
were not included in the calculation of net worth. It also raises
doubts in my mind as to whether Mr. Maatouk received money from
Lebanon on the occasions and in the amounts he is claiming.
[23] Mr. Maatouk and Mr. Ayoub testified that Mr.
Ayoub’s family lived not far from Mr. Maatouk in Lebanon
and that Mr. Ayoub’s father and Mr. Maatouk were
“good friends”. Mr. Ayoub said he operated the
convenience store for about nine months before selling it to Mr.
Maatouk in October 1990. He agreed that the store was
“...not very profitable”. He said he made
“maybe” $6,000 to $7,000 during the nine months he
operated the store. Mr. Ayoub agreed that he sold the store
“for inventory” since there was not much business. He
was unable to say how Mr. Maatouk paid him or where he was when
Mr. Maatouk gave him the cash. He stated that after selling the
store to Mr. Maatouk, he purchased another “AAA”
store.
[24] George Maatouk Jr. testified on behalf of his father.
Since Mr. Maatouk is unable to speak or understand English, his
son acted as his interpreter when his father instructed counsel.
Mr. Maatouk Jr. was born in Lebanon in 1972 and immigrated to
Canada in February 1990. He confirmed that his father owned two
pieces of land in Lebanon and sold one of the lots before coming
to Canada. He also stated that once his father sold the lot, he
converted the proceeds of sale into U.S. currency. He testified
“he saw a bundle” of Canadian currency when his
father arrived in Halifax. He said his father kept the money in
“a little cabinet” in the house since this was his
practice in Lebanon. He also said his mother kept money in her
purse. Mr. Maatouk Jr. stated that on occasion he accompanied his
mother to the Canada Trust branch to deposit funds.
[25] Mr. Maatouk Jr. agreed that his father did not deposit at
once all of the money he brought with him from Lebanon because
his father feared banks. His mother had to convince his father to
deposit money in the bank. He also agreed that his father
received additional funds from friends who came to Canada from
Lebanon during the years in appeal; Ghassan sent money with these
people to give to his father. He said his father was
“trying to invest in Canada”.
[26] Mr. Maatouk Jr. helped his father operate the convenience
store, he said. Since his father did not speak English, Mr.
Maatouk Jr. worked at the front of the store to deal with
customers. He said that the net income from the store was about
$25,000 a year. Mr. Maatouk Jr. said he did not get any salary
working for his father. If he needed any money, he took the money
out of the till. The amounts withdrawn from the till were not
recorded in the books of the business. Mr. Maatouk Jr. confirmed
that daily records were not kept for the convenience store. He
also acknowledged he had studied bookkeeping in Lebanon. Finally,
Mr. Maatouk Jr. conceded that he did not have personal knowledge
as to the amount of money his father brought into Canada.
[27] Mr. Maatouk Jr. confirmed that eventually his father
returned the money to Lebanon to provide funds for Ghassan to
purchase land.
Analysis
The Tax Assessments:
[28] My colleague Bonner, J.T.C.C. described a net worth
assessment as follows[3]:
A net worth assessment involves an indirect measurement of
income over a period. The net worth of an individual, that is to
say, the excess of his assets over his liabilities is calculated
at the end of a period and at the beginning of the period. The
assessment proceeds on the assumption that the total of any
increase in net worth over the period (to the extent that such
increase cannot be attributed to non-taxable sources such as
gifts and inheritances) plus expenditures made during the period
for personal consumption is the amount of the individual’s
income for the period. ...
... In an appeal from an assessment of income tax the onus is
on the taxpayer to establish on the balance of probabilities that
the assessment is too high having regard to the law and the
relevant facts. It is not enough for the taxpayer to show that
the assessment might conceivably be too high. He must adduce
credible evidence showing that on a proper and complete net worth
his income is lower than the Minister founded [sic] to be. Where
a taxpayer has placed himself in a position in which a direct and
accurate measurement of income is impossible he can hardly
complain in the course of an appeal from a net worth assessment
of the inaccuracies inherent in that method. ...
[29] In the present case the Appellant did not challenge the
Respondent’s calculation of his assets, liabilities or
living expenditures except for $20,000 added to income for 1992.
Counsel was not aware that this amount was a bank draft withdrawn
from Canada Trust and made payable to Mr. Ayoub.[4]
[30] The Appellant is seeking an adjustment to the amount that
would increase his net worth prior to June 6, 1990 since any
upward adjustment would result in a decrease of taxable
income. In other words the Appellant is asking me to find that
the amounts deposited to the Canada Trust account represented
amounts earned or saved by him before June 6, 1990 and therefore
are not taxable under the Act.
[31] The Respondent did not submit any evidence at trial. Her
position is that the cash that was deposited in the Canada Trust
bank account was neither savings nor was it proceeds from the
sale of land in Lebanon. The lack of corroboration, the
Appellant’s apparent lack of credibility and the fact that
his story does not match the evidence that his own counsel
submitted, all lead me to believe that the cash did not come from
the source that the Appellant would have me believe. However, the
Appellant was successful in showing that it is not likely that
all of the cash in 1990 came from the “AAA”
convenience store operated by him during the relevant
periods.
[32] The Appellant, through his testimony and that of Mr.
Ayoub and George Maatouk Jr., has successfully shown that
not all of the funds deposited to the Canada Trust account could
have come from the convenience store, as assumed by the Minister
when making the assessments. I cannot imagine, for example, that
the convenience store grossed, let alone netted, $162,568 during
the three months Mr. Maatouk owned the store in 1990, or for
that matter, during the whole of the year.
[33] In Pollock v. Her Majesty the Queen, 94 DTC 6050,
at 6053, Hugessen, J.A., held that the failure or inaccuracy
of some of the Minister’s assumptions of fact did not put
the Minister to the proof of the remaining assumptions. It was
for the Court to determine from the remaining unchallenged
assumptions whether the Minister’s assessment was
valid.
[34] The bulk of the amounts included in Mr. Maatouk’s
income is supported by the facts, even if I find the income
assumed by the Minister to be earned from the convenience store
in 1990 was overestimated. However, I cannot determine from the
evidence precisely the overestimated amount. It may be reasonable
to conclude that the sum of $27,500 deposited in June 1990 was
from Mr. Maatouk’s personal capital prior to arriving in
Canada. (I note the Minister’s schedule shows
Mr. Maatouk had cash on hand of $25,000 at the beginning of
1990 and the $27,500 may be an amount he had in addition to the
$25,000.) He testified his wife convinced him to deposit his cash
into a bank and he agreed with her. After June 1990, he made
no cash deposits to the Canada Trust account until
September 20, 1990. The amounts of interest in the Canada
Trust account are not disputed; neither are the balances in the
other bank accounts or cash on hand. The assessments of living
expenses are also not challenged.
[35] As for the rest of the cash deposits, namely $135,070
(the difference between $162,570 and $27,500), I find that the
Appellant has not established to my satisfaction the balance of
the cash deposits was from non-taxable sources. The Appellant
possibly may have submitted proof that no portion of the cash
deposits was from the convenience store if he had accurate books
and records for the store. Mr. Ayoub’s testimony was to
corroborate the date of the inventory purchase by the Appellant.
However, I am not convinced that the sale necessarily took place
in October. Neither the Appellant nor Mr. Ayoub could be sure of
the date of sale, the amount paid or received and where the sale
was finalized, all facts that should have readily come to them in
the normal course. Further, none of the witnesses could testify
with any degree of certainty as to the convenience store’s
income. No actual records were kept and no cash controls were in
place. I refer to Bowman, J.T.C.C. in Ramey v. Her
Majesty the Queen, 93 DTC 791 (TCC), who stated,
at 793:
... A taxpayer whose business records and method of reporting
income are in such a state of disarray that a net worth
assessment is required is frequently the author of his or her own
misfortunes.[5]
...
[36] The Appellant has not adduced adequate evidence that the
deposits to the Canada Trust account were from his personal
savings or the sale of land in Lebanon. However I would revise
the Minister’s net worth schedule to show the
Appellant’s cash on hand at the end of 1989 was $52,500:
the aggregate of $25,000 and $27,500 deposited in June 1990; that
in 1990 he paid $15,000 for the “AAA” convenience
store and his personal living expenses in 1990 were 208/365 of
that estimated by the Minister, that is,
208/365 x $16,064 or $9,154.[6] On the balance of probabilities, I
must conclude that all other amounts in the schedule are
correct.
Penalties:
[37] The burden is on the Minister to show that assessed
penalties under subsection 163(2) of the Act are
justified. Subsection 163(2) states in part:
Every person who, knowingly, or under circumstances amounting
to gross negligence in the carrying out of any duty or obligation
imposed by or under this Act, 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 as required by or under this Act or
a regulation, is liable to a penalty...
[38] Professor Vern Krishna discussed the meaning of the word
“knowingly” in the Fundamentals of Canadian Income
Tax, 5th Ed. (Carswell: Scarborough, 1995):
There are three degrees of knowledge: (1) Actual knowledge;
(2) Deliberate refraining from making inquiries; and (3)
Constructive knowledge.
In the first category, the taxpayer must have actual knowledge
of misstatement or omission on the return. The second category
deals with a situation where a person deliberately shuts his or
her eyes to an obvious means of knowledge—in other words,
deliberately refrains from making inquiries the result of which
he or she might not care to know. The third category, generally
referred to as “constructive knowledge”, is concerned
with what a taxpayer “ought to have known”.
[39] Respondent’s counsel agreed that the Appellant was
wilfully blind in that he did not make any inquiries into his tax
obligations, taking the approach that if “[y]ou don’t
make the inquiries, you don’t get bad news”.
Conversely, counsel for the Appellant argued that the Appellant,
being from another country and having a poor grasp of English,
was genuinely mistaken in thinking that the interest earned in
Canada on his savings from outside of the country was not
taxable.
[40] In the oft quoted case of Venne v. The Queen, 84
DTC 6247 (F.C.T.D.), Strayer, J. (as he then was) found that the
Appellant was not grossly negligent in underreporting his
business income or in not reporting interest earned. Mr. Venne
was a 49-year-old male who was raised in a French speaking home.
Mr. Venne testified that he did speak and read both languages but
neither very well, that his brother looked after his business
interests. The following comments by Judge Strayer at
6256-58 are appropriate for the present case:
...The taxpayer here is a man with a grade five
education, working and paying taxes in a language which is not
his first language nor that in which he was educated, a man who
is more at ease in a garage than in an office. Not only do these
factors militate against a finding that the misstatements in his
returns were made knowingly by him, but also his entire course of
conduct is not consistent with that of a person who had
deliberately set out to conceal large amounts of taxable income.
He kept what appear to be quite complete records of sales in his
business, then turned these over to his bookkeeper. As far as one
can judge from the evidence, all or most of the revenues from the
business were deposited in the bank where the monies could
readily be traced. He also lodged all but one or two of the
mortgages on which he lent money with banks and trust companies
which kept careful records of the income earned from these
“escrow mortgages”. It is unlikely that a person
planning to conceal income would have handled his affairs in this
manner. ...
With respect to the possibility of gross negligence, I have
with some difficulty come to the conclusion that this has not
been established either. “Gross negligence” must be
taken to involve greater neglect than simply a failure to use
reasonable care. It must involve a high degree of negligence
tantamount to intentional acting, an indifference as to whether
the law is complied with or not. I do not find that high degree
of negligence in connection with the misstatements of business
income. To be sure, the plaintiff did not exercise the care of a
reasonable man and, as I have noted earlier, should have at least
reviewed his tax returns before signing them. A reasonable man in
doing so, having regard to other information available to him,
would have been led to believe that something was amiss and would
have pursued the matter further with his bookkeeper.
[..]
... One must keep in mind, as Cattanach, J. said in the
Udell case supra that this is a penal provision and it
must be construed strictly. The subsection obviously does not
seek to impose absolute liability but instead only authorizes
penalties where there is a high degree of blameworthiness [sic]
involving knowing or reckless misconduct. The section has in the
past been applied subjectively to taxpayers, taking into account
their intelligence, education, experience, etc., and I believe
this implies that an ignorance of the law which is not
unreasonable for the particular taxpayer in question and the
particular circumstances may be acceptable as a defence to the
application of penalties. On this basis, and having regard to the
fact that the onus is on the Minister to prove that the penalty
should be applied, I find the evidence ambiguous and therefore
conclude that the penalty should not be applied even in respect
of the unreported income from interest.
[41] The only similarity Mr. Maatouk has with Mr. Venne is
that he does not speak English. Also, his claim that he was not
hiding the money under a mattress seems to accommodate Judge
Strayer’s reasoning that such things “militate”
against finding gross negligence. Unlike Mr. Venne, however, the
Appellant did not advise his accountant of anything. He did not
review or even sign his tax returns before they were submitted to
the Minister. He deposited what were allegedly his funds into a
bank account in his spouse’s name and the interest earned
on these funds was not reported. He kept no records of any of his
financial activities.
[42] Furthermore, I am far from satisfied that the sources of
the other unreported income were non-taxable, either from capital
he brought to Canada or brought to him subsequently. I do not
believe Mr. Maatouk’s testimony that people from Lebanon
were visiting Halifax regularly and bringing him cash. It strains
my sense of what could be considered reasonably probable.
[43] The Appellant was in fact aware that he had to pay taxes
on income earned in Canada. He was aware that the Canada Trust
account earned interest. By his own admission, the Appellant,
when it suited him, made inquiries into his tax responsibilities,
but when it did not, he did not make inquiries.
[44] The Appellant rebutted the Minister’s assumption
that all of the funds deposited in the Canada Trust account were
unreported revenues of the convenience store. I find it highly
improbable that the convenience store in Dartmouth would generate
this level of income. Counsel for the Respondent did not argue
that the store did in fact produce this income. He submitted that
nobody really had a “firm fix” on where the money
came from, and that the Appellant’s explanation was not
reasonable. The Appellant, in many situations, was his own worst
enemy in that his story did not correlate with the evidence
submitted at trial. His testimony lacked the necessary
credibility from which I could find that he truly did have the
$162,568 in cash before he came to Canada, aggregating the
$80,000 he said he brought to Canada, but did not immediately
deposit, and the $82,568 he deposited during the period June 13,
1990 to October 22, 1990. It is, however, for the Minister
to establish the facts justifying a penalty issued under
subsection 163(2). In the case at bar, the Minister did not
establish the facts to my satisfaction that Mr. Maatouk did not
have $80,000 when he entered Canada. A penalty is not imposed on
the basis of a balance of probability. Subsection 163(2) is a
penal provision and it must be interpreted as a penal provision.
Therefore for 1990, the penalty assessed ought to be reduced to
reflect that Mr. Maatouk had $80,000 in his possession when he
entered Canada, the reduction for living expenses and the
adjustments in living expenses I referred to earlier.
[45] The penalties assessed under subsection 163(2) for 1991
and 1992 ought not to be disturbed. I am not satisfied with Mr.
Maatouk’s explanations for the sources of the other cash
deposits and there is no reasonable doubt in my mind he knowingly
or under circumstances amounting to gross negligence failed to
include these amounts in income.
Conclusion:
[46] Therefore the appeal for 1990 will be allowed and the
assessment is referred back to the Minister of National Revenue
for reconsideration and reassessment on the basis that income for
1990 be reduced to reflect that the Appellant’s cash on
hand at the beginning of the year was $52,500, he paid $15,000
for the convenience store and his personal living expenses were
$9,154. The penalty, however, will be reduced to take into
account that Mr. Maatouk had cash on hand at the beginning of
1990 in the amount of $80,000, he paid $15,000 for the
convenience store and his personal living expenses were
$9,154.
The appeals for 1991 and 1992 are dismissed.
The Respondent is entitled to her costs.
Signed at Ottawa, Canada, this 10th day of November 1998.
"Gerald J. Rip"
J.T.C.C.
SCHEDULE “A”
GEORGE MAATOUK
Schedule of Net Worth