|
Citation: 2007TCC702
|
|
Date: 20071206
|
|
Docket: 2006-914(IT)G
|
|
BETWEEN:
|
|
LUCIE THOMASSIN,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal in relation to the
1999, 2000 and 2001 taxation years.
[2] To determine the assessments that are
being appealed from, the Respondent relied on the following assumptions of fact:
[Translation]
...
6. During the years in issue, the Appellant
operated a business as a clairvoyant and naturopath, and for the sale of
natural products, as a sole proprietor.
7. During these years, the Appellant
did not prepare any sale invoices for her business and kept no books of
account.
8. The lack of adequate records
prompted the Minister to conduct an audit using the net worth method. The result
is attached to this reply as Schedule "A" and it shows a significant
discrepancy in relation to the income reported on the Appellant's income tax
returns for the years in issue.
9. During the years in issue, the Appellant
played "video poker" on an almost daily basis, necessitating the
withdrawal of large sums of money from her bank accounts and on her credit
cards.
10. A number of unexplained deposits
were discovered during the analysis of the Appellant's bank account and credit
card records.
11. When filing her returns for the
years in issue, the Appellant reported total incomes of $8,141, $6,623 and
$7,454, respectively, for the 1999, 2000 and 2001 taxation years.
12. By notice of reassessments dated
March 7, 2005, the Minister of National Revenue made the following changes in
the Appellant's income for each of the years in issue:
|
|
1999
|
2000
|
2001
|
|
Total income reported
Previouly
|
$8,141
|
$6,623
|
$7,454
|
|
Add: Undeclared business income
established by net worth
|
$63,821
|
$104,664
|
$113,639
|
|
Subtotal:
|
$71,962
|
$111,287
|
$121,093
|
|
Subtract: Business expenses
allowed by reassessments:
|
|
|
|
|
Housing cost (additional
portion allowed)
|
($2,442)
|
($2,455)
|
($2,455)
|
|
Purchase of products
|
|
($8,463)
|
($31,256)
|
|
Business travel (training)
|
|
($200)
|
($400)
|
|
Subcontracting (housekeeping)
|
|
($1,351)
|
($3,825)
|
|
Revised total income:
|
‑‑‑‑‑‑‑‑‑‑‑
$69,520
|
‑‑‑‑‑‑‑‑‑‑‑
$98,818
|
‑‑‑‑‑‑‑‑‑‑‑
$83,157
|
|
|
|
|
|
|
Penalty under subsection 163(2) ITA
|
$6,201
|
$11,129
|
$10,944
|
Housing cost:
13. When filing her income tax
returns, the Appellant claimed a deduction for the costs of using her residence
for business purposes in the amounts of $3,372.70 for the 1999 taxation year
and $3,390.10 for each of 2000 and 2001, representing 29% of her total housing expenses.
14. In the reassessments dated March 7, 2005, the Minister of National Revenue allowed an
additional deduction in the amount of $2,442 for 1999 and $2,455 for each of
2000 and 2001 respectively, thereby increasing to 50% the proportionate use of
the residence for business purposes.
Purchase of products:
15. In the reassessments dated March
7, 2005, the Minister of National Revenue allowed a deduction in the amount of
$8,463 for 2000 and $31,256 for 2001 on the basis of the invoices supplied by
the Appellant and on the basis of the amounts indicated on her credit card
statements.
Travel:
16. In the reassessments dated March 7, 2005, the Minister of National Revenue allowed a deduction
in the amount of $200 in 2000 and $400 in 2001 for the expenses related to
training that the Appellant claims to have taken in Switzerland. No documents were supplied in support of the additional expenses
claimed by the Appellant in this regard.
Subcontracting – housekeeping:
17. During an interview with the
Minister's representative, the Appellant reported paying some sums of money to
Colombe Legros for housekeeping services at her residence during the years in issue.
The Minister of National Revenue allowed 50% of the amount claimed in 2000 and
2001 as an expense, that is, the proportion of the residence used for business
purposes.
18. By notice of objection received
by the Minister on April 4, 2005, the Appellant objected to the notices of
reassessment issued on March
7, 2005 for her 1999, 2000
and 2001 taxation years.
19. By notice of reassessments dated
December 28, 2005, the Minister of National Revenue reduced the penalties under
subsection 163(2) of the Income Tax Act to $5,883 for the 1999 taxation
year, $9,529 for the 2000 taxation year and $6,581 for the 2001 taxation year.
20. Concerning the 1999 and 2000
taxation years, the Appellant made a misrepresentation of facts through neglect,
carelessness or wilful default, warranting the reassessments after the normal reassessment
periods applicable to the Appellant for those years.
21. Concerning the three years in issue,
the Appellant knowingly or under circumstances amounting to gross negligence
made a false statement or omission when filing her income tax returns.
[3] The issues in the case at bar are:
(a) Was the Minister of National Revenue warranted
in adding the amounts of $61,379, $92,195 and $75,703 to the Appellant's income
for the 1999, 2000 and 2001 taxation years, respectively?
(b) Did the Appellant make a misrepresentation of
the facts attributable to neglect, carelessness or wilful default, warranting
the reassessments after the normal reassessment periods applicable to the Appellant
for the 1999 and 2000 taxation years?
(c) Did the Appellant knowingly or under
circumstances amounting to gross negligence make a false statement or omission
when filing her income tax returns for the 1999, 2000 and 2001 taxation years?
[4] At the outset of the hearing, the Appellant
stated that she admitted the content of paragraphs 1, 3 and 10 of the Reply to
the Notice of Appeal ("the "Reply), which reads as follows:
[Translation]
1. He denies the facts set out in
paragraph 1 of the notice of appeal and states that the Department of National
Revenue allowed the Appellant a business deduction for the purchase of products
in the amount of $8,463 for the 2000 taxation year and $31,256 for the 2001
taxation year;
. . .
3. Concerning paragraph 4 of the
notice of appeal, he admits that the portion of Appellant's home which was used
for business purposes was 50%, but he points out that the Appellant had
previously claimed a deduction of 29% of housing expenses when filing her
income tax returns for the years in issue, and that an additional deduction of
21% of the housing expenses was allowed as a deduction when the reassessments
dated March 7, 2005 were issued for each of the years in issue.
. . .
10. A number of unexplained deposits
were discovered during the analysis of the Appellant's bank account and credit
card records.
[5] The Appellant testified in support of
her appeal. For the years in question, she said, she worked as a fortune-teller
with tarot cards. At the same time, she operated a business selling natural products.
She also stated that she was a compulsive gambler with a particular attraction
to video poker machines. In order to engage in this activity, she frequented
various gambling places, such as bars and the racetrack, where she did her best
to go unnoticed.
[6] She stated that she had no assets
other than her car and her home, both leased; she explained that she generally
received clients in the morning who wanted their fortune told.
[7] In 1999, in return for her services,
her clients gave her what money they wished to give her, which was generally
paid in cash. For 2000 and the following years, she charged a fixed amount of
$20, always paid by cheque.
[8] Concerning business activities related
to the sale of natural products, she did not keep any record of her purchases
or her sales; the profits were determined at the end of the year not from
accounting entries or any documents but essentially from estimates made
arbitrarily according to a percentage recommended by the natural products
suppliers. In other words, she was determining her profit in a totally
arbitrary way based on a percentage of profit suggested by the wholesaler.
[9] She also confessed that her passion
for gambling was certainly an illness but that this activity had nevertheless
proved to be very profitable during the years 1999, 2000, 2001 and 2002.
[10] To demonstrate the profitability of her
gambling activities, she prepared and submitted a table; she said more than
once that her winnings were larger than those appearing in the table. She used
a portion of her winnings to live, buy clothes and indulge herself, and did not
record this spending.
[11] It may be useful to reproduce the
table the Appellant prepared (Exhibit A-1):
|
1999
|
2000
|
2001
|
2002
|
|
Withdrawal
|
Deposit
|
Withdrawal
|
Deposit
|
Withdrawal
|
Deposit
|
Withdrawal
|
Deposit
|
|
53,994.25
|
55,151.42
|
74,542.52
|
74,026.39
|
83,519.86
|
84,499.21
|
5,744.29
|
5,246.78
|
[12] To explain the considerable
discrepancies between reported income and determined income, she stated that she
had received substantial amounts from a certain Robert Bilodeau: $25,000 on two
occasions, for a total of $50,000. No documents evidenced these payments. He
was a person living in the United States who died during the assessment period. According to the Appellant,
this person was courting her and sometimes resided with her. He was, she said,
a very generous person.
[13] The audit revealed that the Appellant
had made trips to Switzerland, as shown by exhibits attesting to the purchase
of plane tickets.
[14] She stated that these were business
and training trips for which she requested the deduction of her expenses, as
they were made for the purpose of earning income.
[15] Asked to provide supporting documents
so that the auditor could analyze their relevance, she said she did not have
any, notwithstanding some attempts made unsuccessfully to obtain them, and she
added that if it was important she could always try to obtain them.
[16] Those are the Appellant's main
submissions in support of her appeal.
[17] The Respondent called the auditor to
testify about the origin of the assessment that was made using the net worth
method.
[18] To justify his use of this method, the
witness explained that the Appellant had no system of bookkeeping and almost no
supporting documents, as she had confirmed in the course of her testimony.
[19] He also reported some confused, vague
and general explanations that could not be supported since there was no
bookkeeping or documentation.
[20] The auditor stressed that it had been
completely impossible for him to draw any reliable conclusions, adding that the
Appellant had altered her version of the facts several times.
Analysis
[21] I have seldom seen a case that
combined so many inconsistencies, and especially so many equally dubious
explanations. I note that the burden of proof was on the Appellant.
[22] The substantial income that was
determined by the net worth method, and that the Appellant had not reported, is
described in paragraph 12 of the Reply.
12. By notice of reassessments dated
March 7, 2005, the Minister of National Revenue made the following changes in
the Appellant's income for each of the years in issue:
|
|
1999
|
2000
|
2001
|
|
Total income reported
previously
|
$8,141
|
$6,623
|
$7,454
|
|
Add: Undeclared business income
established by net worth
|
$63,821
|
$104,664
|
$113,639
|
|
Subtotal:
|
$71,962
|
$111,287
|
$121,093
|
|
Subtract: Business expenses
allowed by reassessments:
|
|
|
|
|
Housing cost (additional
portion allowed)
|
($2,442)
|
($2,455)
|
($2,455)
|
|
Purchase of products
|
|
($8,463)
|
($31,256)
|
|
Business travel (training)
|
|
($200)
|
($400)
|
|
Subcontracting (housekeeping)
|
|
($1,351)
|
($3,825)
|
|
Revised total income:
|
‑‑‑‑‑‑‑‑‑‑‑
$69,520
|
‑‑‑‑‑‑‑‑‑‑‑
$98,818
|
‑‑‑‑‑‑‑‑‑‑‑
$83,157
|
|
|
|
|
|
|
Penalty under subsection 163(2) ITA
|
$6,201
|
$11,129
|
$10,944
|
[23] To explain the very large
discrepancies, the Appellant advanced in support of her claims some
explanations that were essentially oral and not validated or confirmed by
anything whatsoever. Here are some of the dubious and thoroughly improbable
explanations:
·
A certain Robert Bilodeau gave her $25,000 on
two occasions during two different years. He resided in the United States and is now deceased.
·
She won money by playing video poker, over a
four-year period.Yes, after thousands and thousands of times playing video
poker, she made some profits that she even described by means of a table. She
even added that the winnings were greater than those appearing in the table,
since she was using a portion of them to live and indulge herself.
·
She was carrying on a particular activity
(fortune telling); but, contrary to the usual practice in this area, she agreed
to be paid in cash only during the first year, in 1999. Subsequently, she
accepted only payments by cheque.
[24] The table prepared by the Appellant to
show that playing games of chance had been profitable for her, and the income
she reported for the years in question, after determination through a totally
arbitrary estimate, are highly unusual elements that raise such doubts as to
their likelihood that they dictate a finding that they are simply not credible.
After stating that this was her net income, she corrected herself and said it
was actually gross income.
[25] Asked to reconcile her tax return with
the income she had reported in the process of attempting to lease a car, she
was unable to provide a reasonable explanation.
[26] The Appellant's appeal is founded
essentially on the credibility of the explanations she has submitted. In other
words, everything rests on the quality, but also on the plausibility, of her
explanations. Her testimony was replete with inconsistent, confused and
unfounded explanations, which is unacceptable for a person who is operating a
business. And I found it very strange that the only available accounting was
that demonstrating the profitability of her activities connected with games of
chance.
[27] During her testimony the Appellant
sought to demonstrate that she was unaware of the common practices involved in
the operation of a business and that she suffered from an illness which,
surprisingly, was extremely profitable for her financially.
[28] The Appellant provided no document or
reasonable explanation to support her reported income, which was estimated,
moreover, in an essentially arbitrary manner.
[29] In reply to a question, the Appellant
at first said this was her net income, then, when it was pointed out to her that
this contradicted the contents of her income tax returns, corrected herself and
stated that this was her gross income.
[30] Is it plausible that the Appellant was
paid exclusively by means of cheques for her fortune telling services? To ask
the question is to answer it. Indeed, I put no faith in her explanation since,
for a start, the amounts in question are marginal. Furthermore, the cheques
generally come from people with no known address; and finally, the custom in
such matters is that the services are paid for in cash.
[31] As to the burden of proof that the Respondent
had to discharge before being able to establish an assessment for the 1999 and
2000 taxation years after the normal the limitation period, we reproduce here
subsection 152(4) of the Act. The applicable penalties are provided for in
subsection 163(2) of the Act. These read as follows:
152. ...
(4) Assessment and reassessment
[limitation period] – The
Minister may at any time make an assessment, reassessment or additional
assessment of tax for a taxation year, interest or penalties, if any, payable
under this Part by a taxpayer or notify in writing any person by whom a return
of income for a taxation year has been filed that no tax is payable for the
year, except that an assessment, reassessment or additional assessment may be
made after the taxpayer's normal reassessment period in respect of the year
only if
(a) the taxpayer or person
filing the return
(i) has made any misrepresentation that is
attributable to neglect, carelessness or wilful default or has committed any
fraud in filing the return or in supplying any information under this Act, or
(ii) has filed with the Minister a waiver in
prescribed form within the normal reassessment period for the taxpayer in
respect of the year; or
(b) the assessment, reassessment or additional
assessment is made before the day that is 3 years after the end of the normal
reassessment period for the taxpayer in respect of the year and
(i) is required pursuant to subsection 152(6) or would
be so required if the taxpayer had claimed an amount by filing the prescribed
form referred to in that subsection on or before the day referred to therein,
(ii) is made as a consequence of the assessment or
reassessment pursuant to this paragraph or subsection 152(6) of tax payable by
another taxpayer,
(iii) is made as a consequence of a transaction
involving the taxpayer and a non-resident person with whom the taxpayer was not
dealing at arm's length,
(iii.1) is made, if the taxpayer is non-resident and
carries on a business in Canada, as a consequence of
(A) an allocation by the taxpayer of revenues or
expenses as amounts in respect of the Canadian business (other than revenues
and expenses that relate solely to the Canadian business, that are recorded in
the books of account of the Canadian business, and the documentation in support
of which is kept in Canada), or
(B) a notional transaction between the taxpayer and
its Canadian business, where the transaction is recognized for the purposes of
the computation of an amount under this Act or an applicable tax treaty.
(iv) is made as a consequence of a payment or
reimbursement of any income or profits tax to or by the government of a country
other than Canada or a government of a state, province or other political
subdivision of any such country,
(v) is made as a consequence of a reduction under
subsection 66(12.73) of an amount purported to be renounced under section 66,
or
(vi) is made in order to give effect to the
application of subsection 118.1(15) or 118.1(16).
163. ...
(2) False statements or omissions – Every person who, knowingly, or under
circumstances amounting to gross negligence, 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 for the
purposes of this Act, is liable to a penalty of the greater of $100 and 50% of
the total of
(a) the amount, if any, by which
(i) the amount, if any, by which
(A) the tax for the year that would be payable by the
person under this Act
exceeds
(B) the amounts that would be deemed by subsections
120(2) and (2.2) to have been paid on account of the person's tax for the year
if the person's taxable income for the year were
computed by adding to the taxable income reported by the person in the person's
return for the year that portion of the person's understatement of income for
the year that is reasonably attributable to the false statement or omission and
if the person's tax payable for the year were computed by subtracting from the
deductions from the tax otherwise payable by the person for the year such
portion of any such deduction as may reasonably be attributable to the false
statement or omission
exceeds
(ii) the amount, if any, by which
(A) the tax for the year that would have been payable
by the person under this Act
exceeds
(B) the amounts that would be deemed by subsections
120(2) and (2.2) to have been paid on account of the person's tax for the year
had the person's tax payable for the year been
assessed on the basis of the information provided in the person's return for
the year, ...
[32] The facts constituting the evidence,
both for the prescribed years' assessment and to justify the penalties, are appreciably
similar:
·
The total absence of any bookkeeping and, what
is even more serious, the absence of all the basic documents required to
support such bookkeeping;
·
A false and misleading statement made to a third
party in order to obtain financing in the context of a car leasing contract;
·
A huge difference among the reported incomes, which
were established not on the basis of any documents or records but by arbitrary
estimate;
·
Gross neglect amounting to gross negligence as a
result of her reckless lack of concern about her basic duty to establish the
most elementary bookkeeping.
[33] I simply do not believe the Appellant.
Her testimony as a whole must be dismissed without hesitation. In matters of
credibility, there are often some disquieting aspects that make the assessment
a more difficult, if not painful, exercise, since the consequences are often
disastrous for the person who gives testimony that is not credible. In this
case, it is quite otherwise, as there is no doubt that I must reject the
testimony, the sole component of the evidence.
[34] The Appellant has or had serious problems
as a compulsive player of video poker games. Intelligent and talkative, she
said she is very honest and, when it comes to the management of her business,
self-taught. Notwithstanding the qualities she claims to have, she retained no
supporting documentation, although that has been shown to be absolutely basic
for any minimal supervision in the management of a business. Yet she argued,
with a chart in support, that her gambling activities were profitable.
[35] During the periods in question, the Appellant
was either an ignorant or naive person or someone who knew perfectly well what
she was doing by failing to keep any bookkeeping records or any supporting
documentation as to her business activities, hoping that this would serve her
cause well. I think that the second hypothesis is the one that must be
favoured.
[36] Not only were the statements and
explanations unconvincing, they seemed to me, on the contrary, simply
implausible.
[37] Consequently, the appeal is dismissed
on the ground that the assessments for the years covered by the appeal are
indeed warranted.
[38] I reach the same conclusion concerning
the penalties and the Respondent's right to assess for the years for which the normal
assessment period has expired. Costs to the Respondent.
Signed at Ottawa, Canada, the 6th day of December 2007.
Tardif
J.
on this 20th day of February 2008.
François Brunet, Revisor
Email this Content