Citation: 2010 TCC 457
Date: 20100901
Docket: 2009-3318(IT)I
BETWEEN:
KAYVON BOGZARAN,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
In net worth assessments issued to
Kayvon Bogzaran under the Income Tax Act, his income was determined to
be $37,321.82, $38,185.40 and $81,651.37 for the 2004, 2005 and 2006 taxation
years, respectively. The question for determination is whether these amounts
are a proper estimate of the appellant’s income.
[2]
The assessments
included penalties under s. 162(1) of the
Act for the failure to file income tax returns on time. The appellant
acknowledges that this penalty is appropriate because he did not file on a
timely basis.
[3]
The appellant was self-represented
at the hearing and testified on his own behalf. The only witness for the respondent
was the auditor, John Suen, who testified first.
Audit and objections
process
[4]
This matter was brought
to the attention of the Canada Revenue Agency (CRA) by the RCMP in British Columbia who had seized $46,600 from the appellant’s vehicle on
October 3, 2007. The appellant was arrested but there is no evidence that he
was ever charged.
[5]
These assessments were issued a
few weeks after the money was seized and without the prior knowledge of the
appellant. Although this appears to be appropriate in the circumstances, the
audit was fairly cursory as a result. The assessments were based largely on the
police report relating to the seizure (Ex. R-3) and property registration
searches undertaken by the auditor.
[6]
After the assessments were issued,
an accountant acting on behalf of the appellant filed notices of objection as
well as income tax returns for the years assessed. In the returns, income of
approximately $20,000 annually was reported from a business of selling body
building supplements and personal training services.
[7]
The appeals officer was not
satisfied that any adjustment to the net worth analysis was warranted and the
assessments were confirmed.
[8]
It is worth noting that, just
before the assessments were confirmed approximately 18 months after the
objections were filed, the appeals officer wrote to the appellant in care of
the accountant and asked for supporting documentation. In a follow up call with
the accountant, the appeals officer was advised that the accountant had not
been in touch with the appellant for some time. The assessments were confirmed
shortly thereafter. It appears that no effort was made to locate the appellant.
Net worth determination
[9]
As mentioned above, the auditor
determined the appellant’s income to be $37,321.82, $38,185.40 and $81,651.37
for the 2004, 2005 and 2006 taxation years, respectively.
[10]
As far as the auditor could
determine, the appellant, who was in his late 20s at the time, did not have any
assets during this period except for $46,000 in cash that was seized by the
police in 2007. The cash was assumed to be income earned in 2006, which was the
last taxation year that was under audit.
[11]
It was also assumed that the
appellant’s income included his personal expenditures, which on scant
information were determined for each year to be $40,707.35, $41,043.38 and
$41,366.97, respectively.
[12]
Except for two items, the personal
expenditures were based on general information published by Statistics Canada.
The exceptions were for rent and vehicle payments, which were assumed to be
approximately $17,000 and $9,600 annually. These amounts were based on
statements found in the police report to the effect that the appellant had said
that his monthly rent was $1,350 and his monthly vehicle payments were $850.
Discussion
[13]
Net worth assessments are
generally undertaken when the CRA does not have sufficient information to
determine what a taxpayer’s income is. I have no issue with the CRA’s decisions
to undertake a net worth analysis in this case and to issue the assessments
without informing the appellant.
[14]
As a general proposition, the
appellant has the onus of establishing that the net worth calculation is wrong.
This can be done by establishing non-taxable sources that account for the net
worth or by establishing that errors were made in the determination of the net
worth.
[15]
As mentioned earlier, the
appellant testified on his own behalf. He stated that the cash found in the
vehicle was in part savings from his supplement and training business and
partly represented gifts and a bequest. The explanation provided was that he
did not have a bank account and kept money in a safe. He also testified that he
had lived in his grandfather’s house and paid about $350 in rent.
[16]
As a whole, the testimony was far
too brief and vague to be convincing. I would also note that to some extent the
testimony was contrary to the police report. For example, the appellant
testified that the cash was not hidden in the vehicle whereas the police report
stated that the money was found in a suitcase lid liner. In addition, the
police report states that the appellant informed them that he rented a house in
the west end of Vancouver and lived by himself. At this hearing, the appellant
testified that he had lived with his grandfather.
[17]
My overall conclusion was that the
appellant’s testimony was not at all reliable.
[18]
I reached a similar conclusion
with respect to the hand-written receipts which were entered into evidence in
support of the appellant’s business income. The receipts could easily have been
fabricated and actually looked as if they had been.
[19]
None of the evidence provided by
the appellant was reliable. Nevertheless, that is not the end of the matter. It
is appropriate to make a couple of adjustments to the net worth calculation.
[20]
First, I am not satisfied that
there was sufficient disclosure to the appellant in respect of his vehicle
expenses. An appendix to the reply identifies an annual personal expenditure of
$9,600, citing only “taxpayer’s representations” in explanation. There is no
link to vehicle payments.
[21]
I am not satisfied that the
appellant understood what this item represented, especially in the
circumstances where he was not involved in the audit and was not contacted
during the appeals stage. Unless this item was clearly identified in the reply,
it would be unfair to expect the appellant to lead evidence regarding vehicle
expenses.
[22]
Further, the police report states
that the appellant was found driving a new Cadillac Escalade. It is likely that
the vehicle payments that he reported to the police at that time were not made
in the taxation years at issue.
[23]
In these circumstances, this item
should be excluded from the appellant’s net worth.
[24]
Second, in my view the seized cash
should not be attributed to 2006 income. Based on the evidence as a whole, it
is more likely than not that this amount represented income earned in the
latter half of 2007, shortly before the police seized the money on October 3,
2007.
[25]
According to the appeals report
(Ex. R-6), the Minister’s position was that the appellant had “amassed his
wealth through illegal activity.” This assumption was not stated in the reply,
and it should have been; however nothing turns on this as I am satisfied that
the appellant was aware that this was the Minister’s position.
[26]
There is very little evidence
before me. However, based on a balance of probabilities it is likely that the
seized money was earned through illegal activities.
[27]
Although there is no evidence that
the charges were ever laid, half of the seized money was forfeited in 2008
pursuant to a consent order pursuant to the Civil Forfeiture Act. The
order was produced when I enquired what happened to the seized funds. Counsel’s
position was that this was not relevant to this appeal but he did provide a
copy of the forfeiture order. According to the order, the balance of the seized
money went to the Receiver General of Canada. Counsel informed me that this was to satisfy the appellant’s
tax obligation.
[28]
In response, the appellant stated
that his lawyer did not have the authority to consent to this order. In the
circumstances of this appeal, this statement cannot be considered to be reliable.
[29]
Although it is not directly relevant,
I would also note that the appellant has a criminal record. Although no
evidence was led with respect to this, according to published reasons of the
B.C. Provincial Court dated January 19, 2009, the appellant received a
sentence of 2½ years as a result of pleading guilty to a charge of unlawful
confinement. According to the reasons, the appellant had been associating with
persons involved in criminal activity.
[30]
With this background, and given
that the appellant did not provide a credible explanation for the funds, I find
it likely that the seized money was derived from illegal activity.
[31]
As a result, I find that the
Minister was correct to add $46,000 to the appellant’s income, but I do not
think that it was reasonable to assume that the income was earned in the 2006
taxation year.
[32]
The police found the money in
October 2007; it was probably earned shortly before seizure. Accordingly, it
should have been included in the appellant’s income for the 2007 taxation year.
[33]
Counsel for the respondent argued that
the Minister’s assumption that this amount was income in 2006 should stand
unless the appellant satisfies the onus of demolishing the Minister’s assumptions.
That is certainly the general rule, but the assumptions made should take into
account the information that is known by the Minister. In circumstances where
the appellant was found with a large amount of suspected proceeds of crime in
October 2007, the most reasonable assumption is that the income was earned in
the 2007 taxation year.
[34]
In the result, the appeal will be
allowed, and the assessments will be referred to the Minister of National
Revenue for reconsideration and reassessment on the basis that income for 2004
and 2005 should each be reduced by $9,600 and income for 2006 should be reduced
by $55,600.
[35]
Each party shall bear their own
costs.
Signed at Ottawa,
Canada this 1st day of September 2010.
“J. M. Woods”
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