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Citation: 2007TCC501
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Date: 20071207
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Dockets: 2005-4203(GST)G
2005-4204(IT)G
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BETWEEN:
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WILLIAM J. CAMPBELL,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The
above appeals were heard together on common evidence.
[2] Under the name of Metro One
Commercial the Appellant was involved in the following business activities from
1993 to 2004:
- sales of used furniture and office
equipment;
- photocopier repair;
- the operation of a 1-900 number
service which involved a free trip to a resort;
- production of music CDs and office
equipment.
[3] The
Appellant did not file income tax returns for the 1994 to 2000 taxation years
until the Minister of National Revenue (the “Minister”) served Demands for
Income Tax Returns on the Appellant.
[4] Following
the service of the Demands the Appellant filed income tax returns for the 1994
to 2000 taxation years and declared losses in the following amounts:
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Taxation Year
1994
1995
1996
1997
1998
1999
2000
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Total Income (Loss) Reported
($15,868)
($25,141)
($34,736)
($27,715)
($37,507)
($14,410)
($24,241)
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[5] By
Notices of Reassessment dated January 9, 2004 the Minister reassessed the
Appellant for the 1994 to 2000 taxation years on the basis that the Appellant
understated his income for those taxation years by the following amounts:
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Taxation Year
1994
1995
1996
1997
1998
1999
2000
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Revised Income
$39,952
$43,012
$48,049
$48,431
$62,905
$27,172
$37,163
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[6] The
Minister also imposed gross negligence penalties on the unreported business
income.
[7] The
Appellant filed Notices of Objection to the Reassessments. On August 17,
2004 the Minister issued a Notification of Confirmation confirming the Reassessments.
[8] The
Minister also reassessed the Appellant for Goods and Services Tax (“GST”). The
following adjustments were made by the Minister for the period January 1, 1995
to December 31, 2000 (the “Period”).
1. The Appellant
failed to report and remit $16,480.56 in GST.
2. The Appellant over‑claimed
Input Tax Credits (ITCs) by $14,147.13.
3. Penalties –
The Minister imposed penalties for the 1995, 1996, 1997 and 1998 taxation years
pursuant to subsection 298(4) of the Excise Tax Act.
[9] The
Appellant filed Notices of Appeals to the Tax Court on November 15, 2005.
ISSUES:
[10] The issues are:
a) whether the Appellant
underreported his income in the 1994 to 2000 taxation years;
b) whether the Appellant made or
incurred any expenses in excess of the amounts allowed by the Minister for the
purpose of gaining or producing income from a business for those years;
c) whether the Minister properly
assessed penalties pursuant to subsection 163(2) of the Income Tax Act
in respect of the Appellant’s failure to report his income in those years;
d) whether the Appellant failed to
report GST collectible in those years;
e) whether the Appellant
over-claimed ITCs in those years;
f) whether the Minister properly
assessed penalties pursuant to section 285 of the Excise Tax Act in
respect of the Appellant’s failure to report the GST collectible on the
underreported income in those years; and
g) whether the Appellant in filing
his GST returns for the annual reporting periods ending on December 31 for
1995, 1996, 1997 and 1998 made misrepresentations attributable to neglect,
carelessness or wilful default.
[11] In his argument the Appellant raised the following points:
Audit
[12] The Appellant maintained that the Canada Revenue Agency (the “CRA”)
should not have carried out a net worth audit in this situation.
[13] In considering whether the CRA Auditor (Ms. Yang) was justified in
carrying out a net worth in this situation, I have considered the following
points:
(a) The Appellant did not file income
tax returns for the 1994 to 2000 taxation years until the Minister sent Demands
for Income Tax Returns.
(b) Following the receipt of the
Demands from the Minister the Appellant filed income tax returns for the 1994
to 2000 taxation years and reported losses for each year. The total of all
losses reported was $179,618.00.
(c) The evidence before the Court also
established that the Appellant had been prosecuted in the Province of Alberta for failing to file income tax returns
for the 1985, 1986 and 1987 taxation years. The Appellant entered a guilty plea
on April 21, 1987.
(d) It was also established that the
Appellant filed for bankruptcy on October 15, 1992 and that he has never been
discharged from bankruptcy.
(e) The evidence filed by the
Respondent’s Auditor indicated that the Appellant’s financial records were
incomplete.
[14] The following additional points should be noted:
(a) The Appellant did not use a
double entry accounting system.
(b) The Appellant operated several
businesses under his main company ‑ Metro One Commercial.
However, he failed to report the revenue and expenses from different sources.
(c) The CRA auditor testified that
the books and records were incomplete.
(d) Since the Appellant reported
losses of $179,618.00 for the 1994 to 2000 taxation years the Auditor
questioned how the Appellant could support his lifestyle while suffering losses
in this amount.
[15] Based on the facts as outlined above, I have concluded that the
Minister was justified in carrying out a net worth audit.
Re: Deposits to the Appellant’s Bank Account
[16] The Appellant said that he lent money to a number of individuals or
purchased inventory from these individuals:
1. Delia Roulstone (the Appellant’s common-law spouse)
2. Lowell Campbell (the Appellant’s son)
3. David Campbell (the Appellant’s son)
[17] The Appellant noted that the Minister included cheque transfers or loan
repayments from these individuals as his income.
[18] In argument the Appellant referred to these transactions and said:
…This boosted my deposits higher than what my sales were and this gave
me the ability to cover expenses that normally my sales wouldn't be able to
support. (Transcript page 3 – lines 22-24)
The Appellant also said:
…In
all, there were loans going back and forth and payments for inventory,
advertising, telephone, utilities, transport and rents and storage, et cetera,… (Transcript page 5
– lines 14-17)
[19] Counsel for the Respondent filed a letter from Mr. Wong of Pacific
Regent Financial Services dated May 23, 1997 (Mr. Wong was the Appellant’s
accountant). This letter refers to Delia Roulstone and says:
Delia is Bill’s common-law wife and
as well she is a partner of Metro One Office Furniture. Payments to Delia were
draws or loans from Metro One Office Furniture. (See Exhibit R-1, Tab 4)
[20] The net worth calculation prepared by Ms. Yang indicated that the
Appellant made the following payments to Delia Roulstone:
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Taxation Year
1994
1995
1996
1997
1998
1999
2000
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Total Income Reported
$3,600.00
$6,902.00
$12,832.00
$9,120.00
$815.00
$625.00
$2,475.00
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[21] The CRA Auditor also testified that Delia Roulstone was on social
assistance from 1993 to 1996 and reported accumulated losses of $53,848.00 from
1997 to 2001.
[22] In the audit Ms. Yang considered payments made by the Appellant to
Delia Roulstone as income of the Appellant.
[23] Based on the above comments, I have concluded that Delia Roulstone did
not have the financial ability to lend funds to the Appellant.
Re: Loans and Repayments from Son – Lowell Campbell
[24] The Appellant argued that payments that he made to his son Lowell
should not be treated as the Appellant’s income.
[25] Counsel for the Respondent noted that Ms. Yang testified that Lowell Campbell
was on social assistance from 1993 to 1995 and that he had no ability to lend
any funds to the Appellant.
[26] Counsel for the Respondent also noted that by letter dated May 23, 1997,
Mr. Wong (the Appellant’s accountant) wrote to the CRA (Note – This letter
relates to the 1995 – 1997 period). The letter said:
Since Lowell is Bill’s son, most of the
payments to Lowell were for his allowance as well as for Lowell to obtain cash for
purchasing office furniture. Lowell did not earn enough (sic) the weekly insurable earnings
for him to qualify the source deductions. (Exhibit R1-Tab 4)
[27] It should also be noted that the Appellant did not call Delia
Roulstone, Lowell Campbell or David Campbell to testify as to the loans and
repayments or the purchases of inventory.
[28] Based on the above comments, I have concluded that the comments made
by the Appellant with respect to loans and repayments received from
Delia Roulstone or his sons Lowell and David or
the purchase of inventory from them are not credible.
Discrepancies between Sales Reported and Deposits to
the Bank Account:
[29] Ms. Yang testified that she compared the sales reported by the
Appellant on his income tax returns to the bank deposits that he had made in
his bank account and she determined that significant discrepancies were found
for the years 1994 to 2000 except 1997 when the Appellant inherited $50,000.00
Credibility of Appellant
[30] During the hearing the Appellant testified that all Metro One
businesses had ceased operating in 2003. However, Counsel for the Respondent
established that the following business activities are still being carried on
by the Appellant:
- He is currently
advertising vehicles, electronics, RVs and boats for sale on website
skydeal.net: Exhibit R3.
- Advertising copiers
and office furniture for sale “for Office Shop” on his skydeal.net website.
- He admitted that the skydeal.net
website was created in June 2003.
- The skydeal.net
website runs under the Metro One Commercial Service banner: see first page of
website.
- He is currently still
advertising CDs and books for sale on his “billcampbellcanada.com” website:
Exhibit R4.
- He admitted that on a
CIBC Aerogold VISA application that he filed out on November 18, 2003, that he
stated his current employment was with Metro One, that his position was President,
and that he earned $55,000.00 per year.
- He admitted that in
2005 he still had a bank account under the name Metro One Office Furniture.
Re: Further Deductions
[31] During her testimony Ms. Yang said that based on her analysis there
are some additional expenses that she would now allow but she did not have
sufficient evidence when she carried out her audit. Counsel for the Respondent also
agreed with this comment. Counsel for the Respondent said that the percentage
of expenses to be allowed was a judgment call.
[32] I have considered this point and I have concluded that the Appellant
should be allowed to deduct an additional 30% of the expenses that were
disallowed in the income tax Reassessment.
Conclusion
[33] The Appellant also called Mr. Malik as a witness. Mr. Malik attacked
the calculations used by Ms. Yang in her net worth audit. I reject Mr. Malik’s
evidence on this point.
[34] Mr. Malik also maintained that the Appellant received loans from
family, friends and associates. As I have indicated above, the Appellant’s
comments about loans from family, friends and associates are not credible.
Furthermore, there was no evidence provided by the Appellant or Mr. Malik to
establish this point.
[35] The onus of proof is on the Appellant to prove that the Reassessments
were incorrect.
[36] I have carefully analysed the testimony of the Appellant and examined
all of the books, records and documents that were filed as exhibits. I have
concluded that the Appellant did not satisfy the onus of establishing that the
Reassessments were incorrect.
[37] I have also concluded that the gross negligence penalties were
properly imposed by the Minister for Income Tax purposes and Excise Tax
purposes.
[38] The appeals filed under the Income Tax Act are allowed to
enable the Minister to allow a deduction of 30% of the expenses that were
disallowed in the income tax Reassessments.
[39] The appeal filed under the Excise Tax Act is dismissed.
Signed at Vancouver, British Columbia,
this 7th day of December 2007.
Little
J.
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