Citation: 2011 TCC 439
Date: 20110920
Docket: 2008-3972(IT)G
BETWEEN:
ISABELLE GINGRAS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
These are appeals from reassessments made under the Income
Tax Act, R.S.C. 1985, c. 1 (5th
Supp.), as amended (the Act), dated October 2, 2008, in respect of the
2001, 2002 and 2003 taxation years. In
making these reassessments, the Minister of National Revenue (the Minister) added
to the appellant’s income the following amounts:
2001: $32,787.20
2002: $28,062.21
2003: $17,466.00
and imposed penalties under subsection 163(2) of the
Act with respect to each of the 2001, 2002 and 2003 taxation years.
[2]
In determining the tax
payable by the appellant for the 2001, 2002 and 2003 taxation years, the Minister
relied on the following facts set out in
paragraph 10 of the Reply to the Notice of Appeal:
[Translation]
(a) A statement of the appellant’s net worth of which a copy is
hereby attached in Annex A as forming an integral part;
(b) During the 2001, 2002 and 2003 taxation years, the appellant’s
family consisted of two adults and two children;
(c) For the 2001, 2002 and 2003 taxation years, the appellant and
her spouse reported the following income:
|
|
YEARS
|
|
|
2001
|
2002
|
2003
|
|
Isabelle Gingras
|
$7,707
|
$11,886
|
$13,083
|
|
Donald Audy
|
($1,734)
|
$7,825
|
$24,625
|
|
Total income
|
$5,973
|
$19,711
|
$37,708
|
(d) For the 2001, 2002 and 2003 taxation years, the appellant and
her spouse received the following amounts of money:
|
|
YEARS
|
|
|
2001
|
2002
|
2003
|
|
CCTB & NCBS
|
$4,551
|
$5,062
|
$5,148
|
|
Tax reimbursement
|
$888
|
$0
|
$3,020
|
|
Total additional funds
|
$5,439
|
$5,062
|
$8,168
|
(e) During the 2001, 2002 and 2003 taxation years, the appellant and
her spouse incurred the following expenses:
|
YEARS
|
|
|
2001
|
2002
|
2003
|
|
Personal expenses
|
$30,171
|
$46,853
|
$52,800
|
|
Provincial income tax payments
|
$0
|
$287
|
$0
|
|
Joint federal
source deductions
|
$0
|
$1,378
|
$2,867
|
|
Joint provincial
source deductions
|
$0
|
$1,480
|
$3,359
|
|
Total expenses
|
$30,171
|
$49,998
|
$59,026
|
(f) During the 2000, 2001, 2002 and 2003 taxation years, the assets
and liabilities reported in the balance sheets of the appellant and her spouse were
as follows:
|
|
YEARS
|
|
|
2000
|
2001
|
2002
|
2003
|
|
Total assets
|
$67,227
|
$71,489
|
$68,306
|
$71,295
|
|
Total liabilities
|
$129,271
|
$116,568
|
$102,359
|
$96,982
|
|
Net worth
|
($62,044)
|
($45,079)
|
($34,053)
|
($25,687)
|
(g) Following the evolution of the assets and liabilities described in
paragraph (f) above, for the 2001, 2002 and 2003 taxation years, the assets of
the appellant and her spouse increased by $16,965, $11,026 and $8,366, respectively.
(h) For the 2001, 2002 and 2003 taxation years, the expenses incurred
by the appellant and her spouse leading to an increase in their assets required
the following amounts:
|
|
YEARS
|
|
|
2001
|
2002
|
2003
|
|
Total expenses
|
$30,171
|
$49,998
|
$59,026
|
|
Increase in
assets
|
$16,965
|
$11,026
|
$8,366
|
|
Total
|
$47,136
|
$61,024
|
$67,392
|
(i) During the 2002 taxation year, the appellant and her spouse
incurred a loss on personal-use property in the amount of $2,600:
(j) For the 2001, 2002 and 2003 taxation years, the discrepancies
between the income and the other amounts of money of which the appellant and her
spouse availed themselves and the amounts that should have been paid to cover
their expenses and to increase their assets were as follows:
|
|
YEARS
|
|
|
2001
|
2002
|
2003
|
|
Differential
|
$35,724
|
$38,851
|
$21,516
|
(k) Following new submissions at the objection stage, for the 2001,
2002 and 2003 taxation years, the discrepancies described in paragraph (j) above
were decreased $2,936.80, $10,788.79 and $4,050.00, respectively.
[3]
The appellant submitted
in her Notice of Appeal that she had reported all of her income during the
years in question and that the Minister was not justified in using the net
worth method during his audit in view of the clear, simple and sincere explanations
she provided with respect to the sources of her income.
[4]
Moreover, the appellant
relied on the following facts in her Notice of Appeal:
(a) The appellant and her
spouse, Donald Audy, benefitted from the financial assistance of their
respective parents. The appellant claims that she received approximately $9,000
from her father, Gaston Gingras, over the course of each year in question,
and the following amounts from her in-laws, Mr. and Mrs. Audy: $6,500, in 2000,
$5,000 in 2001 and $4,500 in 2002;
(b) An amount of $5,800 was
added to her income which was a cheque issued to her spouse for work he
performed and for which he paid subcontractors, that is, an amount of $3,400 to
Dany Awashich and an amount of $1,800 to Daniel Audy;
(c) the appellant’s spouse
sold personal movable property and tools for about $10,230;
(d) the acquisition cost of
a four-wheel vehicle registered to the appellant’s spouse’s name was added to
her income when said vehicle belonged to her spouse and his three brothers who
each collectively paid the amount of $2,500;
(e) the auditor did not take
into account the assistance provided by her spouse to one of his friends, Richard
Morisette, by lending him about $5,500 on his credit card which was subsequently
reimbursed to him;
(f) the auditor did not take
into account the fact that the appellant and her spouse lived off of money
derived from credit cards and the home-equity line of credit.
[5]
Following the appellant’s
submissions at the objection stage, the objections officer requested that the auditor
assigned to the file, Chantal Pichette, conduct a supplementary audit.
The auditor took into consideration all the submissions provided by the appellant.
Her analysis resulted into a decrease of $17,775 in the net worth
differential for the three years in question. The points raised in the Notice
of Appeal were dealt with as follows:
(a) gifts from the parents and in-laws
No amount was considered to be a gift from
the family for the year 2001 because no such amount is included in the analysis
of receipts by the appellant dated January 25, 2007. The analysis of receipts includes
all amounts of money received by the appellant, whether or not they were deposited
into the bank accounts.
For 2002, the analysis of receipts shows an
amount of $8,000 derived from her parents as a gift. Seeing as an amount
of $5,117.71 was considered as being received from the parents (that is, an amount
of $6,317.71 considered as being received and not deposited into the bank
accounts, decreased by an unreported amount of $1,200 derived from the
sale of blueberries), the difference between $8,000 and $5, 117.71, that
is, $2,882.29, was considered as an amount received and deposited. Seeing as
that amount is already included in the personal expenses, it was subtracted
from the adjustments as a gift.
For 2003, an amount of $10,300.43 was treated
as a gift from the parents. Nevertheless, seeing as such amount was not
deposited into the bank accounts, it is not included in the personal expenses. As
a result, such an amount was added to the adjustments as personal expenses.
In order to facilitate understanding, it
should be noted that the personal expenses were established by the disbursements
from the bank accounts. Therefore, any receipts not deposited into the bank
accounts are not included in the personal expenses as they did not go through
the bank accounts. As a result, receipts of money not deposited must be
included in the personal expenses paid in cash. According to the analysis of receipts
by the appellant of January 25, 2007, and according to the analysis of deposits
by the auditor, as corroborated by the analysis by the appellant of March 20,
2007, the amounts of money received and not deposited total $8,670.05 for 2001,
$6,317.71 for 2002 and $11,750.43 for 2003.
(b) sale of personal movable
property and tools for an
amount of approximately $10,230
The proceeds from the sale of movable
property and tools in 2001 in the amount of $10,230 was considered money not
deposited that was used to pay personal expenses. The appellant, according to
the auditor, confirmed that such an amount was not deposited and was not
included in the analysis of amounts cashed by the appellant of January 25, 2007.
Seeing as such an amount was not deposited, it was not included in the disbursements
and must therefore be considered as having been used to pay personal expenses
in cash.
(c) cheque of $5,800 issued
to Donald Audy dated August 17, 2001
The cheque was added to the appellant’s
income and the two cheques made payable to the subcontractors totalling $5,200
were subtracted from the personal expenses as disbursements.
(d) the acquisition of a
four-wheel vehicle in the name of Donald Audy which he owned with his four
brothers
The investment by the three brothers in the
amount of $7,500 was considered. The acquisition cost of $8,971,95 initially
indicated was subtracted from the appellant’s assets and an amount of $2,500 (that
is the ¼ of the total purchase price plus associated costs) was added to the
assets. The loan contracted from Corporation Financière Household Inc. in the amount
of $8,971.95 to finance the purchase price continued to be included in the
appellant’s liabilities as there was a receipt of $7,500 as consideration.
Therefore, no adjustment was made for the loan. However, seeing as a reimbursement
of $3,000 was traced, the source of which is unknown, the auditor decreased by
$3,000 the receipt of $7,500 which was to be used to reimburse the loan. The
balance of the receipt in that respect was brought to $4,500 in 2001 and to
zero for 2002 because the loan was reimbursed in full.
(e) loan of $5,500 from Donald Audy to Richard
Morisette
The advance to Mr Morisette was considered
in the final net worth. It was added to the appellant’s assets in 2001 with the
balance of a previous advance of $250 totalling $5,750. The amount added to the
assets was brought to $3,150.00 in 2002 and to $550 for 2003 to take into
account reimbursements of $2,600 made by Mr. Morisette over the course of each
of the years 2002 and 2003.
(f) validation of the cost of
living
The cost of living was
established based on the disbursements and was compared with the analysis of disbursements
provided by the appellant. The results of that analysis demonstrated that the
cost of living was an accurate reflection of reality.
[6]
During her testimony, the
auditor explained why it was decided to audit the appellant. Those reasons were
the low level of income reported by the appellant and her ability to reimburse her
debt. Seeing as the net worth estimate yielded positive results, she therefore
decided to proceed with the audit using the net worth method. Faced with the refusal
of the appellant and her spouse to collaborate in the establishment of the cost
of living for a family of four, that is, two adults and two children, the
auditor had to establish the personal expenses using the cumulative disbursements
from the personal bank accounts.
[7]
Although the gifts from
the appellant’s parents and in-laws were taken into account by the auditor, the
manner in which they were dealt with was not very favourable to the appellant. Whether
or not they went through the bank accounts, the amounts of the gifts were added
to the personal expenses and it is because they did not go through the bank
accounts that they were included in the adjustments as gifts, i.e. as a
non-taxable source of income. If the appellant had collaborated in establishing
the cost of living, the gifts could have been dealt with differently and more favourably.
The appellant failed to provide evidence making it possible to establish her
true cost of living over the course of the period in question. She cannot
therefore complain that the Minister used an arbitrary method to determine her
cost of living.
[8]
The initial audit and
the supplementary audit showed that the appellant did not report
all of her income. The justification for the discrepancies between the income
and the amounts of money of which the appellant and her spouse availed
themselves and the amounts paid to cover their expenses and increase their
assets was the exclusive responsibility of the appellant. Considering the absence
of supporting documents, the appellant was unable to identify the source of the
unreported income and establish the non-taxable nature of her income.
[9]
In view of these circumstances,
one must come to the inevitable conclusion that the false tax return was filed
knowingly, or under circumstances amounting to gross negligence. This justifies
the imposition of penalties under subsection 163(2) of the Act.
[10]
For these reasons, the appeals
from the reassessments made under the Act for the 2001, 2002 and 2003 taxation
years are dismissed with costs.
Signed at Ottawa, Canada, this 20th day of September 2011.
“Réal Favreau”
Translation
certified true
on this 29th day
of November 2011.
François Brunet,
Revisor
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