Citation: 2010 TCC 157
Date: 20100318
Docket: 2007-4355(IT)G
BETWEEN:
WAI SUM TAM,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
EDITED VERSION OF TRANSCRIPT
OF REASONS FOR JUDGMENT
[delivered
orally from the Bench at Ottawa, Canada, on
February 11, 2010]
Boyle J.
[1]
These are my Reasons in
the Tam decision heard today in Ottawa.
[2]
The appellant,
Mr. Tam, is appealing from so‑called net worth assessments of his
2002 and 2003 income. In the years in question, Mr. Tam carried on a
Chinese restaurant as a sole proprietor. Penalties were also assessed for each
year.
[3]
It is trite that in tax
litigation the general rule is that a taxpayer has the onus of proof to satisfy
the Court with credible evidence on a balance of probabilities standard that
the appealed assessments are incorrect. Unless the taxpayer makes out a
coherent, credible, prima facie case, it is not required that the Crown
satisfy the Court the assessments are correct.
[4]
In appealing a net
worth assessment, it is open to a taxpayer to challenge whether a net worth
approach to estimating his income was needed or was the most appropriate
method. This could be done by satisfying the Court, with what evidence there
is, what the amount of the taxpayer’s income is from the source or sources in
question. In this case, the taxpayer has not tried to do that.
[5]
The alternative way to
challenge a net worth assessment is for the taxpayer to challenge specific
aspects of the net worth calculations.
[6]
In this case, there are
four challenged items: (i) the amount of business assets in 2002 and the
related business liabilities shown on the assets and liabilities schedules;
(ii) the cost of the taxpayer’s interest in the Inverkip townhome and the
extent of his interest in the home as shown on the assets and liabilities
schedules; (iii) whether the fact that the taxpayer’s gain on the sale of his
Malibu Terrace home was a tax‑exempt principal residence was properly
accounted for, and whether the Bellingham home purchased with the proceeds is
properly shown on the asset schedule; and (iv) whether goods and services tax
was properly accounted for on the withdrawal analysis.
[7]
The taxpayer’s counsel
raised a fifth item relating to whether the proceeds of the sale of the Honda
were properly accounted for, but was able to satisfy himself during the course
of the trial such that it was no longer in dispute.
[8]
The taxpayer did not dispute
the penalties assessed.
[9]
At the commencement of
the trial, the Crown conceded that an unrelated amount of $20,250 should be
included in Schedule 3 of the net worth computations as a gift for 2003
relating to an Acura.
[10]
The taxpayer did not
testify. On consent, the taxpayer filed one book of exhibits and the respondent
filed two. The taxpayer called one of the Canada Revenue Agency (the “CRA”)
officers involved with the reassessments to testify. The taxpayer also called a
self‑described friend of a friend who had helped him with his tax dispute
but who could not provide any direct evidence of the taxpayer’s activities in
the years in question.
[11]
With respect to the
first item in issue, the business assets and liabilities listed in 2002, the
taxpayer has been unable to satisfy me that any change to the reassessments is
needed. I am satisfied from what evidence there is that the taxpayer commenced
to carry on his business in 2002, even though his restaurant did not open its doors
to customers until January 2003.
[12]
There is therefore
every reason to expect to see business assets and liabilities in 2002. The
schedule of assets was prepared by the taxpayer in the course of the audit and
the CRA auditor said she was told they were purchased in late 2002, with a
$50,000 bank loan and cash. No other evidence was proffered.
[13]
With respect to the second
issue, the Inverkip townhome, I have not been satisfied by the taxpayer with
credible and persuasive evidence that any change is needed to the
reassessments. There is evidence that he bought the property as a joint tenant
with a relative. There is also evidence that he paid all of the down payment
and closing costs.
[14]
The CRA auditor said
she was told by the taxpayer that the joint tenant was to make the payments needed
to carry the mortgage. There is no evidence that payments were made otherwise
by the taxpayer. There was no evidence of the terms of the joint tenancy
investment venture between the two parties as to how profits would be shared or
whether there would be reimbursements or other accounting between them for the
down payment paid by the taxpayer or the mortgage payments made by the other
joint tenant.
[15]
The taxpayer has not
satisfied me that the net worth computations are incorrect in showing the cost
of the taxpayer’s interest in the townhouse as the amount of the down payment
he paid for it.
[16]
With respect to the
third issue, the principal residence exemption on the sale of the Malibu
Terrace home, I am satisfied on the evidence that the tax‑free nature of
the proceeds was properly accounted for in the net worth assessments and that
the net worth computations did not indirectly tax that gain.
[17]
I am also satisfied
that the cost of the Bellingham home was properly shown on the asset schedule
and that its cost need not be reduced to reflect that it was purchased with the
proceeds of sale of a tax‑exempt gain on the sale of the prior principal
residence.
[18]
With respect to the
fourth issue, the GST collected and remitted, I am not satisfied by the
taxpayer on a balance of probabilities that any specific adjustment should be
made. I note that there are significant input tax credits and GST‑paid
amounts shown on the withdrawal analysis. I recognize that those amounts
differed and were less than the amounts of GST shown as collected on the tax
return as filed by the taxpayer.
[19]
However, there was no
evidence called to explain the reason for the discrepancy or to establish that
there should not be a discrepancy and that the higher amount deducted by the
taxpayer from gross revenues in his tax return should be the number used in the
withdrawal analysis.
[20]
I should note that
there are several published decisions of this Court which seek to explain and
demystify CRA’s net worth income computation methodology. I sense that much of
this trial might have been unnecessary if the taxpayer and his advisers
acquainted themselves with the methodology.
[21]
More importantly, net
worth assessments are resorted to when a taxpayer has not kept adequate books
and records to verify the amount of income and expenses reported. It is not an
exact method of arriving at a correct amount of income for a year. It is a
reasonable method of estimation if properly understood and followed. Any
injustices a taxpayer may feel at the end of the process result from the taxpayer’s
decision not to keep books and records and to inaccurately report his income.
[22]
The appeal is allowed
in part, only with respect to the conceded amount of the $20,250 gift. The
appeal will be dismissed in all other respects. Costs are awarded in favour of
the Crown.
[23]
Court is adjourned.
Thank you, counsel, Mr. Mostyn and Mr. Miller. Thank you, Madam
Registrar and Court Reporter.
Signed at Ottawa, Canada, this 18th day of March 2010.
"Patrick Boyle"
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