Citation: 2009 TCC 1
Date: 20090108
Docket: 2006-3362(IT)G
BETWEEN:
WALTER STURZER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bédard J.
[1]
The Appellant is
appealing the reassessments made in his regard by the Minister of National
Revenue (“the Minister”) for the 2000, 2001 and 2002 taxation years (“the years
in issue”). In making these reassessments, the Minister determined, using the
net worth method, that the Appellant had unreported income of $213,115 in 2000,
$1,132,169 in 2001 and $626,649 in 2002, as set out in detail in Schedule A attached
hereto, and, for each of those years, the Minister imposed a penalty under
subsection 163(2) of the Income Tax Act (“the ITA”).
[2]
When making the
reassessments in issue in the case at bar, the Minister made the following assumptions
of fact set out in paragraph 9 of the Amended Reply to the Notice of Appeal:
[TRANSLATION]
(a)
Since March 16, 1989, the
Appellant had been a Canadian resident within the meaning of the
version of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (“ITA”)
applicable to this case. (admitted)
(b)
The Appellant was the
sole shareholder of Les investissements W.M. Inc. (Investissements W.M.) and
3090-1714 Québec Inc. (3090‑1714). (admitted)
(c)
Investissements W.M.
was in the amusement and gambling machine business, and 3090-1714 operated a bistro/bar.
(admitted)
(d)
Investissements W.M. and
3090-1714 were dissolved in July 1997. (admitted)
(e)
The Appellant went
bankrupt on December 24, 1997. (admitted)
(f)
In his bankruptcy
proceedings, the Appellant declared that he owed Revenue Canada Taxation, now
the Canada Revenue Agency (CRA), $900,000. (admitted)
(g)
The Appellant gave as
the reason for this bankrupt of his having assumed the debts of Investissements
W.M. and 3090-1714 following the issuance of goods and services tax (“GST”), Quebec
sales tax (“QST”) and income tax assessments by Revenu Québec. (admitted)
(h)
The Appellant was
discharged from his bankruptcy on September 24, 1998. (admitted)
(i)
On the said discharge
date of September 24, 1998, the Appellant was intercepted by Canadian customs
authorities at Dorval Airport (now Pierre
Elliott Trudeau Airport) carrying the equivalent of
approximately C$48,000 in foreign currency. (admitted except as to the
amount)
(j)
On
November 10, 1999, the Appellant, in consideration of $40,000,
acquired from Léopold Beaulieu, a person not related to the Appellant within
the meaning of subsection 251(2) of the ITA, a parcel of land (“the first
parcel”) located in the municipality of Saint‑Sauveur, Quebec. (admitted)
(k)
On March 2, 2000, the
Appellant, in consideration of $5,000, acquired from Les roulottes des Monts Inc.,
a business corporation not related to the Appellant within the meaning of
subsection 251(2) of the ITA, a parcel of land (“the second parcel”)
adjacent to the first parcel. (admitted)
(l)
On the same day, March 2, 2000,
the Appellant acquired, by gift inter vivos from his wife, Lyne
Brunet, another parcel of land (“the third parcel”) adjacent to the first
parcel. (admitted)
(m)
On September 18, 2000, the
Appellant, in consideration of $150,000, acquired from Développement Golfmont Inc.,
a business corporation not related to the Appellant within the meaning of
subsection 251(2) of the ITA, a 5688.7‑square-metre vacant lot (“the
lot”) in the municipality of Morin Heights, Quebec.
(admitted)
(n)
During the taxation
years in issue, the Appellant incurred the following expenses (“the
construction expenses”) for the construction of a residence (“the residence”)
on the lot. (admitted)
|
Taxation year
|
Construction expenses
|
|
2000
|
$39,990
|
|
2001
|
$978,753
|
|
2002
|
$519,940
|
|
Total
|
$1,538,683
|
(o)
On November 5, 2002, the
Appellant disposed of the first, second and third parcels to Les Roulottes des
Monts Inc. for $100,000. The Appellant did not include the gain from this
disposition in his 2002 income tax return. (denied)
(p)
The only income
reported by Appellant in his income tax returs for the taxation years in issue
(“the reported income”) was the following: (admitted)
|
Taxation year
|
Commission income
|
|
2000
|
$52,000
|
|
2001
|
$41,000
|
|
2002
|
$45,000
|
(q)
Using the assessment
method based on change in net worth (see Tables I and II and Schedules I
through V), the CRA determined that the Appellant had failed to report the
following income amounts (“the unreported income”) in his income tax returns
for the taxation years in issue: (denied)
|
Taxation year
|
Unreported income
|
|
2000
|
$213,115
|
|
2001
|
$1,132,169
|
|
2002
|
$626,649
|
|
Total
|
$1,971,933
|
(r)
The unreported income
is primarily from the Appellant's operation of amusement machines. (denied)
(s)
The Appellant paid the
construction expenses using solely the reported income and the unreported
income. (denied)
(t)
No liabilities were
identified with respect to the residence. (denied)
(u)
For each taxation year
in issue, the Appellant filed a T1135 Form (“Foreign Income Verification
Statement”) indicating that he held funds outside Canada
worth more than $100,000, and real property outside Canada
worth more than $500,000. According to these forms, the funds and real property
were located in Europe (other than UK). (admitted)
(v)
In January 2003, the
Appellant told a Canadian customs inspector that he was returning from a
business trip to Vienna, Austria, and that he travels to Austria roughly five times a year. (denied)
(w)
In addition, he told
the inspector that he was a consultant to European casinos, which paid him by
transferring funds to his Canadian bank accounts. (denied)
(x)
By failing to report
the unreported income in his tax returns for the taxation years in issue, the
Appellant made a misrepresentation attributable to neglect, carelessness or wilful
default, or committed fraud. (denied)
[3]
The Appellant's
objections pertain to
(i)
the Minister's
imposition of a penalty with respect to the additional income for each year in
issue, and
(ii)
the specific
considerations set out below, with regard to the additional income for the
years in issue.
Gifts from his father
(a)
The Appellant argued
that the Minister's net worth calculations should have taken into account gifts
received from his father during the years in issue. In this regard, the
Appellant claimed that, during those years, his father, Rudolf Dominkovits,
deposited a total of about $750,000 into a bank account that he held jointly
with the Appellant.
The Appellant maintained that, during the years in issue, he used for personal
purposes all the amounts thus deposited by his father into that account (“the
joint bank account”).
Loans
(b)
The Appellant submitted
that the Minister's calculations of his net worth should have taken into
account loans made to him by an Austrian bank (“the Raiffeisen Bank”) and by Samisa
Anstalt (“Samisa”), a company having its head office in Liechtenstein. In this regard, the Appellant claimed that he owed
the Raiffeisen Bank $424,728 as at December 31, 2001, and $434,390 as at
December 31, 2002. The Appellant also claimed that he borrowed the
following amounts from Samisa:
-
€109,009.25 on March 22, 2001
-
$300,000 on February 8,
2002
-
$100,000 on March 13, 2002
-
€273,250 on June 6, 2002.
[4]
Canada Customs and
Revenue Agency (“CRA”) auditor Danielle Langlois was the only witness to
testify in support of the Minister’s position in this appeal. The Appellant himself
testified, and Yves Ladouceur, the executing notary in connection with, inter alia,
the Appellant's acquisition of the various properties and the creation of the
$1,500,000 hypothec that the Appellant granted to Samisa, also testified in
support of the Appellant's position.
Analysis
[5]
The first
question to be addressed is the burden of proof on the Appellant in the present
appeal. My colleague Judge Tardif had occasion to deal with the burden of proof
in a matter where, as here, a net worth assessment was involved.
[6]
In Bastille
v. Canada, [1998] T.C.J. No. 1080 (QL),
99 DTC 431, [1999] 4 C.T.C. 2155, he wrote as follows, at paragraphs 5 et
seq.:
[5] I think it is
important to point out that the burden of proof rests on the appellants, except
with respect to the question of the penalties, where the burden of proof is on
the respondent.
[6] A NET WORTH assessment can never reflect the kind of mathematical
accuracy that is both desired and desirable in tax assessment matters.
Generally, there is a certain degree of arbitrariness in the determination of
the value of the various elements assessed. The Court must decide whether that
arbitrariness is reasonable.
[7] Moreover, use
of this method of assessment is not the rule. It is, in a way, an exception for
situations where the taxpayer is not in possession of all the information,
documents and vouchers needed in order to carry out an audit that would be more
in accordance with good auditing practice, and most importantly, that would
produce a more accurate result.
[8] The bases or
foundations of the calculations done in a net worth assessment depend largely
on information provided by the taxpayer who is the subject of the audit.
[9] The quality, plausibility
and reasonableness of that information therefore take on absolutely fundamental
importance.
[7]
Another of
my colleagues, Judge Bowman (as he then was), made the following remarks in Ramey
v. Canada, [1993] T.C.J. No. 142 (QL), [1993] 2 C.T.C. 2119, 93
DTC 791:
I am not
unappreciative of the enormous, indeed virtually insuperable, difficulties
facing the appellant and his counsel in seeking to challenge net worth
assessments of a deceased taxpayer. The net worth method of estimating income
is an unsatisfactory and imprecise way of determining a taxpayer's income for
the year. It is a blunt instrument of which the Minister must avail
himself as a last resort. A net worth assessment involves a comparison of
a taxpayer's net worth, i.e. the cost of his assets less his liabilities,
at the beginning of a year, with his net worth at the end of the year. To the
difference so determined there are added his expenditures in the year. The
resulting figure is assumed to be his income unless the taxpayer establishes
the contrary. Such assessments may be inaccurate within a range of
indeterminate magnitude but unless they are shown to be wrong they stand.
It is almost impossible to challenge such assessments piecemeal. The only
truly effective way of disputing them is by means of a complete reconstruction
of a taxpayer's income for a year. A taxpayer whose business records and method
of reporting income are in such a state of disarray that a net worth assessment
is required is frequently the author of his or her own misfortunes. . . .
[8]
In
assessing the evidence adduced by the Appellant, I must comment on the failure
to call certain witnesses and provide appropriate documentary evidence that
could have confirmed the Appellant's assertions. In Huneault v. Canada, [1998]
T.C.J. No. 103 (QL), 98 DTC 1488, at paragraph 25, my colleague Judge
Lamarre noted certain remarks made by Sopinka and Lederman in their book The
Law of Evidence in Civil Cases, and quoted by Judge Sarchuk of this Court
in Enns v. M.N.R., 87 DTC 208, at page 210:
In The Law of Evidence in Civil Cases, by
Sopinka and Lederman, the authors comment on the effect of failure to call a
witness and I quote:
In Blatch v. Archer, (1774), 1 Cowp. 63,
at p. 65, Lord Mansfield stated:
“It is certainly a maxim that all evidence is to
be weighed according to the proof which it was in the power of one side to have
produced, and in the power of the other to have contradicted.”
The application of this maxim has led to a
well-recognized rule that the failure of a party or a witness to give evidence,
which it was in the power of the party or witness to give and by which the
facts might have been elucidated, justifies the court in drawing the inference
that the evidence of the party or witness would have been unfavourable to the
party to whom the failure was attributed.
In the case of a plaintiff who has the evidentiary burden of
establishing an issue, the effect of such an inference may be that the evidence
led will be insufficient to discharge the burden. (Lévesque et al.
v. Comeau et al. [1970] S.C.R. 1010, (1971), 16 D.L.R. (3d) 425).
[9]
In the case at bar,
before analyzing the relevant facts in detail, it would be helpful to make a
few general comments about the Appellant's credibility. In my opinion, it
would be dangerous to accord any weight to the Appellant's testimony in the
absence of corroborative and probative evidence in the form of reliable
documentation or the testimony of credible witnesses.
[10]
Not only were the Appellant's
answers and explanations generally vague and imprecise, and frequently
incomprehensible, they were sometimes contradictory, and contradicted by
documentary evidence. Quite telling in this regard is the Appellant's testimony that he
deposited some $200,000 from the operation of his consulting business abroad,
into the joint bank account during the years in issue. The Appellant explained
that the roughly $200,000 deposited into the joint account was related to the
consulting fees billed to his clients, as shown by the invoices tendered as
Exhibits A‑1 through A-5. With respect to the invoice tendered as Exhibit
A‑1, I would note that the $108,000 in fees billed on
December 31, 2002, are related to services supposedly rendered in
2001 and 2002. The Appellant explained that about $54,000 of these fees was
earned in each of those years, and that he had had to incur approximately
$10,000 in expenses during each of those same years in order to earn that income.
It should be pointed out that the Appellant admitted that the allocation of that
income to 2001 and 2002 and the amount of the expenses incurred during each of
those years were merely estimates, because he was unable to refer to accounting
records or supporting documents, since no such documentation existed. The Appellant
explained that he had reported roughly $44,000 in net revenue from the client
in question for each of those taxation years. I would also note, on the basis
of the document filed as Exhibit A‑1, that the Appellant reported
approximately $44,000 in fees for 2001 before he had even sent his invoice to
his client, who, I repeat, was billed on December 31, 2002. Lastly, the
Appellant testified that his client paid the $108,000 in fees in full by cheque
in 2003 (i.e. not during the years in issue), but he did not specify the date
on which the cheque was cashed. I would add that the Appellant did not think it
necessary to produce a true copy of the cheque. With respect to the invoice
tendered in evidence as Exhibit A‑2, I would note that the $14,000 in
fees billed on September 15, 2002, were related to services supposedly
rendered in the same year. The Appellant explained that his client had paid him
in cash, but did not specify the date of the payment. It should be noted that, when
questioned about this, the Appellant admitted that he did not recall what
he did with the cash. With respect to the invoice tendered in evidence as
Exhibit A‑3, I would note that the $7,400 in fees billed on
February 24, 2000, were related to services supposedly rendered in
January and February of that year. The Appellant explained that he did not
incur any expenses to earn that income, and that he was paid in cash, but he
did not specify the date of the payment. It should also be pointed out that, at
the end of his testimony, the Appellant admitted that he did not recall what he
did with the cash. With respect to the invoice tendered as Exhibit A‑4,
I would note that the $90,000 in fees billed on April 21, 2000, were related to
services supposedly rendered in 1999 and 2000. The Appellant also stated that,
in order to earn that income of $90,000, he incurred expenses of roughly $5,000
in 1999 and $10,000 in 2000. It should be noted that the Appellant
tendered in evidence a document (Exhibit A‑26) suggesting that the
client paid the billed fees in 2000 by transferring $90,000 directly to the
joint bank account. With respect to the invoice tendered in evidence as
Exhibit A‑5, I would note that the $10,000 in fees billed on
February 15, 2001, were related to services supposedly rendered that same
year. The Appellant explained that he had incurred no expenses to earn that
income, and that the fees so billed were paid in cash, but he did not specify
the date of the payment. It should also be noted that, at the end of his
testimony, the Appellant admitted that he did not recall what he did with
that money.
[11]
The invoices tendered
in evidence and the Appellant's testimony concerning them show that the fees billed
in this fashion totalled $229,400 and that the expenses incurred by the
Appellant (assuming the fees paid in cash were deposited into the joint bank
account during the years in issue) to earn those fees totalled approximately $35,000;
thus, no more than $121,400 out of the fees received could have been deposited
into the joint bank account during the years in issue. Again, I point out that,
at the beginning of his testimony, the Appellant stated that, during the years
in issue, he deposited into the joint bank account some $200,000 in fees from
the operation of his consulting business abroad.
[12]
I would add that the
Appellant's attitude with respect to our self-assessment-based taxation system only
added to my doubts about his credibility. The evidence in this regard discloses
as follows:
(i)
The Appellant did not
retain any supporting documents concerning the expenses that he allegedly
incurred to earn his business income during the years in issue.
(ii)
The Appellant kept no accounting
records in respect of his business income during the years in issue.
(iii)
The Appellant did
not state his gross and net business income on the appropriate lines of his
income tax returns filed for the years in issue, nor did he attach to those
returns an income statement for his business. The Appellant explained that the
chartered accountant who helped him fill out his income tax returns for the
years in issue told him that, at the very most, he was required to enter his
net business income on the “other income” line of his returns. I do not believe
a word of that. Rather, it is my view that the Appellant wanted to conceal
things from the CRA.
(iv)
In his 2002 income tax
return, the Appellant did not include a $55,000 capital gain from the
disposition of properties acquired for $45,000 in 2000. The Appellant's
explanations in this regard are worth quoting:
Q. Did you declare the gain on the sale of that?
A. No, I did not declare the gain. I was believing that, so that I
was living there, beside it and I wanted to build a home there, a new home
there, it was also like personal property, you know, so it is why I did not
declare this at that time.
I would note that the Appellant obviously did
not ask the accountant who prepared his income tax returns during the years in
issue for any explanations regarding the tax treatment of this gain.
(v)
The Appellant did not
file an income tax return for his 2004 taxation year, the year in which he
ceased to be a Canadian resident. Naturally, the Appellant said that he did not
know that Canadian residents must file an income tax return for the year in
which they cease to be a Canadian resident. And of course, the Appellant did
not ask his accountant about the nature of his tax obligations in such a case.
(vi)
The Appellant did not
declare the significant capital gain from the disposition of the residence
built on the lot acquired on September 18, 2000 for $150,000. The
Appellant's explanations in this regard are so revealing as to his attitude
regarding our tax system that they are worth quoting:
[63] Q. Okay. So your capital gain from the
disposition of the house is $100,000?
A. It should be, yes.
[64] Q. Yes. Have you
filed a tax return for the 2007…
A. No, no, I did not.
[65] Q. . . . taxation year?
A. Not yet, I don't have the money.
[13]
Lastly, I would point
out that the Appellant's testimony that his loan agreement with Samisa was an oral
one was contradicted by the credible testimony of Mr. Ladouceur, the
notary, who stated that the Appellant had told him that he had a written loan
agreement with Samisa.
Gifts from the Appellant’s father
[14]
I refer again to the
Appellant’s submission that the Minister's computation of his net worth should
have taken into account gifts received from his father (who is apparently 80
years of age and lives in Austria) during the years in issue. The Appellant's
evidence in this regard consisted of his own testimony and two documents filed
as Exhibits A‑9 and A‑20, which, in my view, assuming that they are
even admissible in evidence, do not in any way establish that Mr. Dominkovits,
who is supposedly the Appellant's father, deposited a total of $750,000 into
the joint bank account during the years in issue. The Appellant's testimony
concerning the alleged gifts can be summarized as follows: His father, who has
been retired for about 20 years, made his fortune in construction. During the years
in issue, he made deposits of amounts totalling approximately $750,000, some of
which the Appellant used during those years to defray the costs of building his
residence in the municipality of Morin Heights, Quebec.
The Appellant explained that, given his father's age and state of health, he
could not ask him to come and testify. Lastly, the Appellant testified that he
could not adduce banking documents showing that his father had deposited the
amounts in question into the joint bank account because the documents issued by
Austrian banks do not contain such information.
The Appellant went so far as to add that Austrian banks do not even provide
their customers with monthly statements that set out all the transactions done
by those customers on their bank accounts during a given month.
[15]
I immediately note that
I find it implausible that Austrian banks do not provide their customers with
periodic statements showing the transactions (deposits and withdrawals) that
they make on their accounts. If the father's bank statements and the joint bank
account statements had been tendered in evidence and corroborated by representatives
of the banks concerned, the plausibility of deposits by the father into the
joint bank account could have been established. The Appellant could also have
provided adequate proof of his father's personal assets (assuming that
Mr. Dominkovits — whose
surname is, I stress, very different from the Appellant's — is even his father) and thereby established the
likelihood that his father was financially able to make such astronomical
gifts. The Appellant had the ability to provide such evidence, but he did not
do so. From this I infer that such evidence would have been unfavourable to
him. Since I have already decided that I will accord no weight to the
Appellant's testimony in the absence of corroborative or probative evidence in
the form of reliable documentation or credible testimony, I am compelled to
find here that Mr. Dominkovits did not make gifts totalling roughly
$750,000 to the Appellant during the years in issue.
Loans from Samisa
[16]
As we have seen, the
Appellant submitted that the Minister's calculation of his net worth should
have taken into account loans that were allegedly made to him by Samisa during
the years in issue. In this regard, the Appellant claims that he borrowed the
following amounts from Samisa.
(i)
€109,009.25 on March 22, 2001;
(ii)
$300,000 on February 8,
2002;
(iii)
$100,000 on March 13,
2002;
(iv)
€273,250 on June 6, 2002.
[17]
The Appellant's testimony
regarding the loans that he claims to have received from Samisa discloses the
following:
(i)
One of his friends referred
him to Samisa in 1998. The Appellant's testimony regarding the circumstances of
his introduction to Samisa, the nature of his relationship with Samisa, and,
lastly, the nature of Samisa's activities, is worth quoting:
[163] Q. Who were you dealing with when you were
dealing with Samisa during those years?
A. In this time, Mr. Hoops(?)
[164] Q. How did you meet Mr. Hoops, Mister...
A. Through a friend of mine, he
introduced me to him in '98 or '99.
[165] Q. In what circumstances, Mr. Sturzer?
A. What?
[166] Q. In what circumstances did you meet this
friend who introduced you to such...
A. I made... for this friend I made a
consulting job at this time and he introduced me after to the people from
Samisa.
HIS HONOUR:
[167] Q. So Mr. Hoops is the one who introduced
you to...
A. No, Mr. Zaunmaier(?), it was this
name who has introduced me, it was Mr. Zaunmaier.
[168] Q. He's a friend...
A. A friend of mine. He introduced me to
Mr. Hoops.
Me SERGE FOURNIER:
[169] Q. So in 1998 you were doing business with
Mr. Zaunmaier?
A. Zaunmaier, yes.
[170] Q. Can you spell the name for us?
A. I have to write it down. So it was Z-A-U-N-M-A-I-E-R.
HIS HONOUR:
[171] Q. So who's that person?
A. He's a friend of mine, he introduced
me to Samisa.
Me SERGE FOURNIER:
[172] Q. What kind of friend, Mr. Sturzer?
A. A business partner, a business
friend.
[173] Q. Okay. And when was the first time you
met Mr. Hoops?
A. Mr. Hoops, in '98.
[174] Q. And what were the activities of Samisa
as they were described to you?
A. The activities of Samisa were lending
money while making investments in numerous businesses. The exact extent I don't
know of it exactly.
(ii)
He is in no way related
to Samisa. He explained that he had no interest in Samisa, whether direct or
indirect.
(iii)
Samisa granted him the
following loans:
(a)
€109,009.25 on March 22, 2001;
(b)
$300,000 on February 8,
2002;
(c)
$100,000 on March 13,
2002;
(d)
€273,250 on June 6, 2002;
(e)
€30,000 on October 7, 2003;
(f)
$145,000 on January 4,
2004;
(g)
€20,000 on October 12, 2004;
(h)
€20,000 on November 18, 2004;
(iv)
The loan (line of
credit) agreement between the Appellant and Samisa was an oral one. The Appellant
explained that, under this oral agreement, Samisa granted him a $1,500,000
unsecured line of credit bearing interest at a rate of 5% per annum (calculated
annually). The principal was to be repaid, together with accrued interest, when
the loan came due. It should be noted that the due date of the loan that is
alleged to have been initially agreed to by the Appellant and Samisa cannot be
gleaned from the Appellant's testimony. However, that testimony does establish
that the parties subsequently agreed that the principal, along with the interest,
would be repayable upon the sale of the residence.
(v)
Under the loan, Samisa transferred
directly into the bank account of Construction Raymond & Fils Inc., on
behalf of the Appellant, a sum of $300,000 on February 8, 2002, and
$100,000 on March 13, 2002, in payment of construction costs with respect
to the Morin Heights residence.
(vi)
By late 2002, and more
insistently starting in 2004, Samisa was asking the Appellant to grant it a
hypothec on the residence as security for the payment of the debt.
(vii)
The hypothec that
Samisa was asking for was finally granted on July 7, 2005, a few days
prior to the reassessments under appeal herein. The Appellant explained
that the fact that the deed of hypothec was signed a few days prior to the
issuance of the reassessments was purely coincidental. He explained that he had
asked the notary, Yves Lamoureux, to prepare the deed of hypothec as early
as the beginning of May 2005. It should be noted that
Mr. Lamoureux confirmed this assertion in his testimony. The notary
also said that in May 2005 Samisa and the Appellant had sent to another notary
at his firm a power of attorney for the signature of the deed of hypothec.
[18]
In addition, the sworn statement
of Hans‑Joachim Mechnig, a Samisa representative, along with
documents attached thereto, shows that Samisa granted the Appellant a
$1,500,000 line of credit and released pursuant thereto the amounts indicated
below:
2.- Samisa's commercial
activities include loans to clients, and in fact opened a line of credit of
$1,500,000, for Mr. Walter Sturzer;
3.- Samisa disbursed
numerous sums, as follows:
|
o March 22nd, 2001
|
Euros 109 009,25
|
|
o February 8th, 2002
|
Cdn $300,000.
|
|
o March 13th, 2002
|
Cdn $100,000.
|
|
o June 6th, 2002
|
Euros 273 250,00
|
|
o October 7th,2003
|
Euros 30 000,00
|
|
o October 7th, 2003
|
Euros 30 000,00
|
|
o January 7th, 2004
|
Cdn 145,000.
|
|
o October 12th, 2004
|
Euros 20 000,00
|
|
o November 18th, 2004
|
Euros 20 000,00
|
as it appears from the wire transfer statement annexed under as
Exhibit S-1.
[19]
The Appellant has not
satisfied me that the amounts thus disbursed by Samisa for his benefit were
disbursed under the terms of a genuine loan. Indeed, I find it entirely
implausible that a loan company, even a foreign one, that is unrelated to
the borrower, would grant a $1.5-million unsecured loan (with interest at 5%
per annum, calculated annually, and the principal, along with the accrued
interest, to be repaid when a residence under construction is ultimately sold)
to any such borrower having the same profile as the Appellant had at the time
that Samisa is alleged to have granted the Appellant that $1.5-million loan. I
would point out that, at the time that the alleged loan was made, the Appellant
was a new client of Samisa's who had hardly just recovered from a bankruptcy
and whose income was but modest. In my opinion, it is more likely than not that
the amounts that Samisa disbursed for the Appellant's benefit were not
disbursed under the terms of a genuine loan. I am also of the opinion that it
is more likely than not that the signing of the deed of hypothec a few days before
the assessments under appeal were made was no coincidence. More likely than not,
the people whom CRA auditor Danielle Langlois met with in early May 2005
notified the Appellant at that time that he was being investigated. The
Appellant claims that Samisa was demanding such a hypothec as early as the end
of 2002. I do not believe that for a second. How could Samisa possibly have been demanding such a
hypothec to secure its loan in late 2002 when it continued to advance
significant sums of money under the line of credit which it had allegedly
extended to the Appellant? In my opinion, the hypothec is merely a sham intended
to conceal the truth. I emphasize that it would have been very interesting
to hear the testimony of a Samisa representative regarding all the
circumstances surrounding this purported loan. On the basis of the foregoing, I
find that, in computing the Appellant's net worth, the Minister was entitled
not to take into account the amounts disbursed by Samisa for the Appellant's
benefit.
Loan from the Raiffeisen Bank
[20]
As we have seen, the
Appellant submits that the Minister's net worth calculation should have taken
account of loans allegedly made to him by the Raiffeisen Bank. In this
regard, the Appellant submits that he owed that bank $424,728 as at
December 31, 2001, and $434,390 as at December 31, 2002.
The Appellant's evidence on this point essentially consisted of his
testimony, and of documents from that bank which were tendered as Exhibits A-10,
A-11, A-16 and A‑17 under the objections of counsel for the Respondent. Exhibit A‑10
is a letter dated September 8, 2006, from the Raiffeisen Bank to counsel
for the Appellant. The letter states that the Appellant owed the bank
$151,838.35 and €147,833.83 as at
December 31, 2001. Exhibit A-16 is a computer statement from the
Raiffeisen Bank showing that the Appellant's account #502-02664803 had a debit
balance as at December 31, 2001, and that the Appellant's account #1‑02614.827
had a debit balance of €147,583 on
the same date. The letter tendered in evidence as Exhibit A‑10 also
states that the Appellant owed the Raiffeisen Bank €220,000 as at December 31, 2002. One of the
documents filed as Exhibit A‑11 is a computer statement from the
same bank showing that the Appellant's account #1‑02614.802 had a debit
balance of €220,000 on December 31, 2002. Also
filed by the Appellant as part of Exhibit A‑11 was a computer statement
from the same bank showing that the Appellant's account #2 641 827 had
a debit balance of €43,267.21 on
December 31, 2002. I would immediately note that the letter to counsel for
the Appellant (which is a sort of summary of the amounts that the Appellant
owed the Raiffeisen Bank as at December 31, 2001, and
December 31, 2002) does not make reference to this liability of €43,267.21 as at December 31, 2002. It can be
concluded from this that the documentary evidence adduced by the Appellant,
assuming that it is even admissible, is not reliable. Since I have already decided
that I will accord no weight to the Appellant's testimony in the absence of corroborative
or probative evidence in the form of reliable documentation or credible
testimony, and since the documentary evidence adduced by the Appellant does not
appear to me to be reliable, I am compelled to find, in the instant case, that the
Minister was not required to take into account the alleged loans to the
Appellant from the Raiffeisen Bank in computing the Appellant's net worth.
[21]
It now remains to answer
the question of whether the Minister discharged the onus placed on him under subparagraph
152(4)(a)(i) and subsection 163(2) with regard to reassessing a taxpayer
beyond the normal period and then imposing a penalty on him. Since I am
satisfied that the Appellant received income that he did not report, and that
his explanation for the identified discrepancy and the increase in his assets
is not credible, the Minister has discharged the onus of proof resting upon him
under those provisions.
[22]
For these reasons, the appeal
is dismissed, with costs.
Signed at Ottawa, Canada, this 8th day of January 2009.
“Paul Bédard”
SCHEDULE A
[TRANSLATION]
|
PERSONAL BALANCE SHEET
|
|
AS AT DECEMBER 31
|
|
ASSETS
|
1999
|
2000
|
2001
|
2002
|
|
|
|
|
|
|
|
Financial institutions
(see Schedule I)
|
$13,507
|
$7,167
|
$26,415
|
$2,062
|
|
Capital assets (see
Schedule II)
|
$40,000
|
$234,990
|
$1,213,743
|
$1,688,683
|
|
Furniture (see
Schedule III)
|
$1
|
$1
|
$1
|
$1
|
|
Investments (see
Schedule IV)
|
‑
|
$5,000
|
$5,000
|
$5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$53,508
|
$247,158
|
$1,245,159
|
$1,695,746
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
$0
|
$0
|
$0
|
$0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET WORTH
|
$53,508
|
$247,158
|
$1,245,159
|
$1,695,746
|
Table I
[TRANSLATION]
|
CALCULATION OF CHANGE IN NET WORTH
|
|
|
1999
|
2000
|
2001
|
2002
|
|
|
|
|
|
|
|
Closing net worth
(Table I)
|
$53,508
|
$247,158
|
$1,245,159
|
$1,695,746
|
|
|
|
|
|
|
|
Opening net
worth (Table I)
|
|
$53,508
|
$247,158
|
$1,245,159
|
|
|
|
|
|
|
|
Increase
(decrease) in net worth
|
|
$193,650
|
$998,001
|
$450,587
|
|
|
|
|
|
|
|
Adjustments
(additions):
|
|
|
|
|
|
Personal expenses
and unexplained withdrawals (see Schedule V)
|
|
$60,410
|
$165,015
|
$248,341
|
|
Instalments Federal
income tax paid
|
|
$11,055
|
$10,153
|
$3,044
|
|
Total additions
|
|
$71,465
|
$175,168
|
$251,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
(deductions):
|
|
|
|
|
|
Gain upon
disposition of land parcels
|
|
‑
|
‑
|
$27,500
|
|
Federal income
tax refund (according to N.5)
|
|
‑
|
‑
|
$2,823
|
|
|
|
|
|
|
|
Total deductions
|
|
0
|
0
|
$30,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
adjustments
|
|
$71,465
|
$175,168
|
$221,062
|
|
|
|
|
|
|
|
Total income per
net worth method
|
|
$265,115
|
$1,173,169
|
$671,649
|
|
|
|
|
|
|
|
Less: Total
income reported by Walter Sturzer
|
|
$52,000
|
$41,000
|
$45,000
|
|
|
|
|
|
|
|
Change in
net worth
|
|
$213,115
|
$1,132,169
|
$626,649
|
|
|
|
|
|
|
|
|
|
|
|
|
Table II
[TRANSLATION]
|
FINANCIAL INSTITUTION
|
|
AS AT DECEMBER 31
|
|
|
1999
|
2000
|
2001
|
2002
|
|
|
|
|
|
|
|
|
Name of
financial institution
|
acct #
|
|
|
|
|
|
|
|
|
|
|
|
|
Caisse
Desjardins de la Vallée de St-Sauveur
|
#23740
|
$13,507
|
$7,167
|
$26,415
|
$2,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
financial institution balance
|
$13,507
|
$7,167
|
$26,415
|
$2,062
|
|
|
|
|
|
|
|
|
|
|
|
|
Appendix I
[TRANSLATION]
|
CAPITAL ASSETS
|
|
AS AT DECEMBER 31
|
|
|
1999
|
2000
|
2001
|
2002
|
|
|
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building – 17 St.
Andrews, Morin Heights
|
|
‑
|
$39,990
|
$1,018,743
|
$1,538,683
|
|
Lot – 17 St. Andrews,
Morin Heights
|
Sept. 18, 2000
|
‑
|
$150,000
|
$150,000
|
$150,000
|
|
|
|
|
|
|
|
|
Land – Lot 259
part 2
|
Nov. 10, 1999
|
$40,000
|
$40,000
|
$40,000
|
‑
|
|
Land – Part 334
|
Mar. 2, 2000
|
‑
|
$5,000
|
$5,000
|
‑
|
|
Land – Lot 334 part 208
|
Mar. 2, 2000
|
‑
|
‑
|
‑
|
‑
|
|
|
|
|
|
|
|
|
Total capital
assets
|
|
$40,000
|
$234,990
|
$1,213,743
|
$1,688,683
|
|
|
|
|
|
|
|
Appendix II
[TRANSLATION]
|
FURNITURE
|
|
AS AT DECEMBER 31
|
|
|
1999
|
2000
|
2001
|
2002
|
|
|
|
|
|
|
|
Furniture
|
$1
|
$1
|
$1
|
$1
|
|
|
|
|
|
|
|
Total furniture
|
$1
|
$1
|
$1
|
$1
|
|
|
|
|
|
|
Appendix III
[TRANSLATION]
|
INVESTMENT
|
|
AS AT DECEMBER 31
|
|
|
1999
|
2000
|
2001
|
2002
|
|
|
|
|
|
|
|
|
|
Date acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
Caisse
Desjardins St-Sauveur
#23740-ET
|
April 14, 2000
|
‑
|
$5,000
|
$5,000
|
$5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment
|
|
‑
|
$5,000
|
$5,000
|
$5,000
|
|
|
|
|
|
|
|
Appendix IV
[TRANSLATION]
|
PERSONAL EXPENSES AND UNEXPLAINED
WITHDRAWALS
|
|
AS AT DECEMBER 31
|
|
|
|
2000
|
2001
|
2002
|
|
|
|
|
|
|
|
Personal
expenses and unexplained withdrawals:
|
|
|
|
|
|
Purchases
|
|
$21,363
|
$9,973
|
$23,565
|
|
Administration
costs
|
|
$91
|
$75
|
$704
|
|
Cheques
|
|
$44,628
|
$124,328
|
$131, 984
|
|
ATM withdrawals
|
|
$5,383
|
$61,979
|
$126,009
|
|
Pre-authorized
debits
|
|
‑
|
$52
|
$280
|
|
NSF charges
|
|
‑
|
$10
|
‑
|
|
Transfers
|
|
‑
|
$6,200
|
$18,800
|
|
Service charges
|
|
‑
|
‑
|
$43
|
|
|
|
|
|
|
|
Payments related
to construction of residence
|
|
‑
|
($28,823)
|
($50,000)
|
|
|
|
|
|
|
|
Federal income
tax payments
|
|
($2,496)
|
($2,329)
|
($1,956)
|
|
|
|
($3,000)
|
($1,374)
|
($544)
|
|
|
|
($63)
|
($2,538)
|
($544)
|
|
|
|
($2,748)
|
($2,538)
|
‑
|
|
|
|
($2,748)
|
‑
|
‑
|
|
|
|
|
|
|
|
Total personal
expenses and unexplained withdrawals
|
$60,410
|
$165,015
|
$248,341
|
Appendix V
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