Maatouk v. The Queen, docket 97-467-IT-G

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

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