Citation: 2010 TCC 480
Date: 20100923
Docket: 2007-3710(IT)G
BETWEEN:
MARTHA LAWRENCE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
McArthur J.
[1] These appeals are
from reassessments of the Minister of National Revenue using the net worth
method and adding to the Appellant’s income the amounts of $11,663.50,
10,969.19. $190,997.63 and $70,211.04 for the 2000, 2001, 2002 and 2003
taxation years, respectively. To these amounts, the Minister added interest and
penalties pursuant to subsection 163(2) of the Income Tax Act.
[2] The unusual facts
as presented by the Appellant and her husband and by the Minister’s auditor are
difficult to unravel and accept. No doubt the witness’ memories were selective.
I am left with the task of discerning the actual historical past. These appeals
revolve around their facts.
Brief Facts
[3] The Appellant was
involved with a Ms. Ann Didur (“Ann”), who appears to have been carrying on a
scam or modified Ponzie scheme. She collected money from various people
ostensibly for investment in penny stocks through a lawyer in Las Vegas, Nevada. For unknown
reasons, she was unable to have her own bank account and convinced or conned
the Appellant to permit her to use the Appellant’s bank account. With Ann, the
Appellant and her husband met the lawyer involved in Las Vegas, Mr. Drange, who apparently convinced,
at least the Appellant, of the legitimacy of the business. At the outset, some apparent
profits were paid to the duped investors, but subsequently, they received no
returns. The Canadian police authorities commenced an investigation. During
this period, Ann committed suicide and there was no further evidence about the Las Vegas attorney.
[4] An edited version
of the Minister’s assumptions of fact is as follows. Throughout the relevant
period, the Appellant was married to Virden Lawrence and they maintained joint
bank accounts and lines of credit with their son. During the period, the
Appellant had financial dealings with Ann which included many deposits to the
Appellant’s bank accounts. Ann, in fact, did her substantial banking through
the Appellant’s bank. For inexplicable reasons, Ann was unable to have her own
banking facilities. That alone should have raised a serious red flag in the
face of the Appellant.
[5] The Appellant made numerous
bank deposits, most of which were paid out of her accounts, apparently to Ann.
The Appellant did not include these deposits in her income tax returns. It is
beyond my comprehension that there was no paper trail of any description to
document the flow of over $200,000 in and out of the Appellant’s bank account
other than the bank records obtained by the Minister. Set out in the Reply to
the Notice of Appeal are the following assumptions:
(j) the understated
income in each year was determined by the net worth method …
(k) the Appellant
received amounts from her financial relationship with Ann Didur of $11,663.50
in 2000, $10,969.19 in 2001, $190,997.63 in 2002 and $70,211.04 in 2003.
As well, the assumptions
the Minister made in determining the Appellant’s liability for the penalties
under subsection 163(2) of the Act are:
(a) …
(b) the Appellant
has been involved in investment business ventures since at least 1998;
(c) the Appellant previously had
ownership in a Laundromat business;
(d) the Appellant had experience
in financing a business;
(e) the Appellant had experience
in investment transactions;
(f) substantial
amounts were flowing through the Bank Account and the Appellant’s credit cards;
(g) the Appellant did not maintain
any books or records;
(h) the Appellant
was responsible for transferring funds between accounts and making withdrawals
of cash from the Bank Accounts;
(i) the Appellant was aware of
her financial situation at a given time;
(j) the Appellant
should have known income was understated in the years under appeal as known
personal expenditures amounted not less than $76,900.34 in 2000, $64,612.45 in
2001, $210,071.61 in 2002 and $94,231.75 in 2003.
(k) the unreported
income of $11,663.50, in 2000, $10,969.19 in 2001, $190,997.63 in 2002 and
$70,211.04 in 2003 are material amounts.
[6] At pages 16, 19 and
20 of the transcript, the Appellant stated the following:
It got to the point where we
were just really, really needing more money, so we said to give us our money back,
just our money back, that’s all we want. She says, well, no, because it’s all
tied up in the penny stock and it will all, you’ll get it all back.
However, she didn’t, she
wanted – she said there was lots of opportunities to be made so she approached
Terry Bell, who is one of my witnesses, and asked him if he wanted to put some
money in, which he did and he through him, he was - - other people were
investing through him because they wanted to get a good return back, which was
supposedly going to be the return.
In the meantime though, I
have to say before this started, we met the lawyer in the States who she was
investing with, Mr. Drange was his name, and he told us everything was fine. We
went down to the States to meet him. Ann Didut took us down there. She wanted
us to meet him. He said everything was fine. He said it was hitting the floor
and we’d be fine.
Okay, so these people, all
these other people put money in with, Terry’s acquaintances, through my
account. I took the money out and gave it to Ann Didur to invest.
He has since then paid all
these people back all this money, because Ann Didur, I guess it’s almost three
years ago, took her life because the lawyer in the States took the money and he
said there wasn’t - - he shafted all of us, in other words. I don’t know
another way to put it. He took all our money and we got nothing.
And that’s all, really that’s
all I can say at this point. So everybody’s out their money. We are and we put
in $367,000. We got nothing back. She gave us a few dollars here and there over
the time, but never anything to amount to what we put in.
[7] Terry Bell testified.
He is a successful businessman (herbalist) who advanced over $100,000 to the
Appellant for Ann’s scheme. He stated, in part:
So I had this $1,500. I give
her another $1,500 which is $3,000, and that was the game. It started going a
little bigger, the plot that Ann Didut kept coming back, she would come back
with a bigger pot each time, but at the same time she would tell me the story
of how she give Martha, put money in and Martha knew all about this and I felt,
well, Martha’s credibility was very good with us.
… boy, was I stupid, she can’t have a
bank account because the banks have suspended her bank account. So could I give
it to Martha to put in the bank and Martha would go to the bank, which one of
them she did right away, the CIBC in Selkirk. So I followed her there because I
had to see if she was doing this, went to the bank, would get the money and
then come back out with the money and give it to Ann, and it kept happening
like that.
Finally, I even hired a
private detective because she would see me following right? She was getting
pretty smart. She was smart to start with. And the detective followed her and
found out, she said she was going back to the lawyer to give the money. Well, the
detective found out that she didn’t go to the lawyer she just went to Sobeys,
over to another place and then back home.
But did I believe that Martha
kept that money? No, I know that because little things that went back and
forth to find out if she did. She’d go right into the bank. I had another lady
follow her, go into the bank where she was going and I would drive away and she
would stand there, her name and Wanda, and she’d come out and get into the car
and give all of the money over to Ann Didur in the car and they would sit in
there and count it.
And one of the guys that
followed her too was, his name was Marcel, and he said if this is a scam, it’s
a hell of a good one. Well, that’s what it was.
But, like I say, I’m
laughing, why am I - - why am I so stupid to keep on, because I’d invested some
money and I thought by investing a little more I’d get at least my money back. I
wouldn’t be such a fool.
And I’m not meaning to laugh.
I just thought, boy am I stupid. I’m just nervous.
[8] Also, the
Appellant’s husband, Virden Lawrence, testified in part as follows:
… And I think we started with a couple
thousand dollars and then we’d get a couple of dollars back, and then she would
want more money and it started escalating.
And then I started, her and
my wife started carrying on with this investing, what was supposed to be
investing what wound up to be a fraudulent thing, an she met some of these
people, most of these people, I don’t’ know. I just know Terry well.
And it just kept escalating
and once I found out how much money we were in for, then we tried to find a way
to get some money back, trying to get information from her and trying to get
some documentation where the money went, and obviously we didn’t get anywhere
with that.
Then all of a sudden I knew
that I - - all of a sudden I had a $100,000 overdraft at the bank and my wife
had cashed in all our RRSPs, and I wound up having to sell my house to keep
afloat and pay the bank off and at 66 years old I have to go back to work to put
bread on the table.
[9] The Appellant
entered into evidence a letter dated February 22, 2007, purportedly written by
Ann to Canada Revenue Agency that reads as follows:
TO WHOM IT MAY CONCERN:
Please be advised by way of
this letter the balance owing of $202,392.49 charged to Martha Lawrence which
she is appealing should be charged to myself as all monies in Mrs. Lawrence’s
acct. were transferred to myself.
Should you have any
questions, please call me at XXX-XXXX.
Thank
you.
(Ann
Didur) “Ann Didur”
Obviously, it adds
little to the evidence, but I do accept that it was written by the deceased. I
do not place any weight on the veracity of its contents. The Appellant’s
statements of naivety and complete innocence from the fraudulent scheme were
somewhat corroborated in part by Terry Bell, by her husband and by the letter
of Ann. All of this evidence was dubious.
[10] The Minister’s
position includes that the Appellant worked as a bookkeeper and assisted in the
operation of a laundromat much of her working days and her spouse operated, successfully,
a vending business which he sold due, I believe, to his illness.
Analysis
[11] The first issue I
will consider is whether the Minister was warranted in reassessing the
Appellant beyond the normal reassessing period for the 2000 and 2001 taxation
years. The burden is on the Minister to justify the application of subsection
152(4) of the Act. There was no challenge raised by the Appellant. In
any event, there was sufficient evidence advanced through the Minister’s
auditor, Mr. Kozyra, together with the cross‑examination of the Appellant,
to open the statute-barred years of 2000 and 2001. Simple negligence is
sufficient as opposed to gross negligence required to impose subsection 163(2)
penalties. The Appellant would agree that she was negligent.
[12] She took thousands of dollars into and out of her
bank account without identifying records of any kind other than the banks.
Subsection 152(7) is the Minister’s authority to use the net worth method of
assessing, which is a last resort. Simply put, the Minister compares a
taxpayer’s net worth at the beginning of the year with his or her net worth at
the end of that year. The amount of increase, if any after adjustment, is
assumed to be the taxpayer’s income. Presently, Mr. Kozyra obtained and
carefully reviewed bank records of the Appellant, her husband and her son
Parish, along with credit card information.
[13] The Appellant
testified that money from investors was deposited to her account and would go
to Ann the same day or shortly thereafter. This scenario did not happen with
regularity. There is an instance when $60,000 was deposited to her account, but
it is difficult to follow when it was paid out. The Appellant explained that
Ann gave her a cheque for $15,000 that bounced and the Appellant deducted the
$15,000 from investment money she received. But this was months after the
$60,000 was deposited to her account. Earlier we had been told that
Ann had no banking privileges.
[14] There is very little
substantial evidence before me that corroborates the Appellant’s testimony to
satisfy her onus to counter the Minister’s assumption that the unidentified
deposits were paid to her by investors and were turned over promptly to Ann.
The Appellant provided some bank drafts made payable to Ann, which are of
little value since they deal with 1998 and 1999. The money in question was
deposited in the Appellant’s personal bank account and commingled with her own
funds with no apparent attempt to keep them separate and identifiable. This is particularly
surprising given that she was an experienced bookkeeper, her husband an experienced
small business owner. She has an obligation under section 30 of the Act
to keep proper books and records. Presently we have none.
[15] In cross-examination
counsel for the Minister asked the Appellant to identify the amounts deposited
to her personal bank account of approximately $343,000 over the four-years in
issue. She replied that she could not, but added that it is obvious that it was
people’s investments through my account.
[16] The funds were commingled
with her personal funds and she stated that she did not know what was hers and
what were the investors. She had no records. Mr. Bell was not sure what
happened to the money he advanced to the Appellant for investment through Ann.
His suspicions were alerted to the point where he followed the Appellant and
Ann and witnessed what appeared to be a turnover of money from the Appellant. He
also had a private investigator follow the two ladies. Although his
investigations were limited, his evidence was consistent with that of the
Appellant, and he trusted her believing that Ann would pay a 10-fold return on
money advanced. She was not the first to be taken in by a get-rich scheme. With
hindsight, as incompetent and fairytale like it appears, I do not doubt that
some of her story is accurate. The problem is trying to sort out fact from
fiction.
[17] The Appellant’s husband’s
evidence was of little assistance. He stated that his wife looked after the
banking.
[18] The Appellant agreed
with the Minister’s assumption of the facts, but for 11(g), (j) and 12(j). The
Appellant stated that Ann destroyed most of the documentation.
11(g) in reporting her
income for the 2000, 2001, 2002 and 2003 years the Appellant failed to include
all of the income she received in those years;
. . .
11(j) the Appellant
received amounts from her financial relationship with Ann Didur of $11,663.50
in 2000, $10,969.190 in 2001, $190,997.63 in 2002 and $70,211.04 in 2003.
. . .
12(j) the Appellant
should have known income was understated in the years under appeal as known
personal expenditures amounted not less than $76,900.34 in 2000, $64,612.45 in
2001, $210,071.61 in 2002 and $94,231.75 in 2003;
These statements are dealt with in
these reasons.
[19] I have no difficulty
concluding that the Minister was justified in assessing pursuant to subsection
152(7) and using the net worth method given the Appellant’s lack of records and
documentation explaining the more than $300,000 that passed through her account
over the relevant years.
[20] The Appellant and
her husband are presently in their mid 60s. The Appellant’s evidence, either as
admitted or as I interpret it, includes the following. She, Mr. Bell and others
were attracted, if not mesmerized, by the promise of Ann that they would obtain
a 10-fold return on their investments. Nathan Grange was the US lawyer. The Appellant
and her husband met him in Las Vegas. Ann paid their way.
[21] As stated Appellant’s
credibility was enhanced by a) her husband; b) Terry Bell; c) the fact that she
and her husband are all but financially destitute; d) they lost their home; and
e) the letter of Ann. I accept that Ann was very convincing. The Appellant
stated “You had to know Ann”. She had seen penny stock certificates which Ann
kept. If the penny stocks were purchased with the Appellant’s money it remains
a mystery why the Appellant could not have possession of the certificate.
[22] The conclusion Mr.
Kozyra came to after his careful analysis is that even if we accepted the
Appellant’s explanation that she paid out all the money at issue to Ann, there
remained $120,000 unexplained dollars in her account for her personal living
expenses. The Appellant’s answer was that she could not explain this nor could
she follow Mr. Kozyra’s evidence. Accepting Mr. Kozyra’s evidence, although at
times it was difficult to follow, I have little else to go by, and he and his
colleagues concluded that $120,000 of the mystery deposits was used by the
Appellant and her husband for their personal expenditures and was not paid out
to Ann for investment purposes. This leads me to conclude that she was being
paid for banking efforts.
[23] The Appellant’s
primary position is the following, taken from her Notice of Appeal:
All monies that were
deposited to our bank account were withdrawn the same day and given to Ann
Didur for investment purposes in penny stock in the U.S.A.
I find as a fact that not all
monies deposited to her account were withdrawn the same day and no money was
invested in penny stock.
[24] The Appellant’s
general evidence, her lack of specifics with respect to the deposits and
withdrawals from her bank account together with the lack of any bookkeeping is bewildering.
What we are left with is that the Appellant entered into a get rich scheme with
a friend, Ann, now deceased, and a US lawyer who remains a mystery. I accept that Ann and/or the
lawyer swindled the Appellant and others of an amount that remained unknown. The
Appellant’s position is that she was simply a conduit or banker for Ann and
when she received money she immediately turned it over to Ann. The evidence
refutes this. First, $120,000 of the unexplained deposits remained in her
account and was converted to her personal use. Secondly, if she was simply
Ann’s banker, why did she go with her husband to visit the U.S. attorney in Las Vegas. Thirdly, Mr. Kozyra
clearly established that much of the unexplained money that was not turned over
within a few days as she stated. For months, some of the money was not paid out
and some ($120,000) not at all. While I am sure that some of the amount
assessed is legitimately not properly added to the Appellant’s income, we are
left with no means to calculate what this amounts to. There are too many
inconsistencies in the Appellant’s evidence to accept that she was an innocent
participant without compensation. I am not prepared to guess what may be
accurate.
[25] The Appellant was a
bookkeeper most of her working days, yet she kept no records or other
documentation. She also commingled investment trust funds with her and her
husband’s personal funds and did not know what belonged to whom. I do not
believe the man on the street (the reasonable man) would accept the Appellant’s
tale. I have no doubt that the Appellant’s evidence was a combination of fact
and fiction. Her memory was selective and did not always coincide with the
historical past.
[26] As to penalties, the
Appellant has not discharged her onus of establishing that the Minister’s assumptions
in paragraph 12 of the Reply were incorrect. She had experience in record
keeping and surely knew the importance of separating other people’s money from
her personal funds.
[27] In conclusion I
find:
16. … that the
Appellant failed to include in her income the amounts of $11,663,50 in 2000,
$10,969.19 in 2001, $190,997.63 in 2002 and $70,211.04 in 2003.
17. In the filing of
her income tax returns for the 2000, 2001, 2002 and 2003 years, the Appellant
knowingly, or in the alternative under circumstances amounting to gross
negligence, in carrying out a duty or obligation imposed under the Act, made or
participated in, assented to or acquiesced in the making of false statements or
omissions, as a result of which the tax that would have been payable assessed
were less that the taxes in fact payable, within the meaning of subsection
163(2) of the Act. … that the penalties pursuant to subsection 163(2) of
the Act have been properly assessed.
18. … that in filing
her income tax returns for the 2000 and 2001 years, the Appellant made
misrepresentations that were attributable to neglect, carelessness or wilful
default, by not including the amounts of $11,663.50 in 2000 and $10,969.19 in
2001. Therefore the Minister was entitled to reassess the Appellant beyond her
normal reassessment period pursuant to subsection 152(4) of the Act.
[28] The appeals are
dismissed, with costs.
Signed at Ottawa, Canada, this 4th day of January, 2011.
“C.H. McArthur”
Email this Content