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Citation: 2009 TCC 379
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Date: 20091021
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Docket: 2007-2115(IT)I
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BETWEEN:
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ABDOLLAH VALIBEIGI,
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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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AMENDED REASONS FOR JUDGMENT
Little J.
A.
FACTS
[1] In 1998, the Appellant commenced to
operate a business (the “Business”).
[2] The Business was operated under the
name of Pacific Renovation and Painting.
[3] In the 2002 and 2003 taxation years,
the Business involved residential renovations and painting services and was
operated by the Appellant as a sole proprietorship.
[4] The Business was operated by the
Appellant from his principal residence located at #1107
Charland Avenue in Coquitlam,
British Columbia.
[5] In the 2002 and 2003 taxation years, approximately
60% of the income of the Business came from providing painting services and 40%
of the income of the Business came from carrying out renovations.
[6] The Appellant’s spouse, Nina Medic, was
the bookkeeper for the Business.
[7] The Appellant testified that all of the
revenue from the Business was deposited into the Business bank account located
at TD Canada Trust Bank: account #0936‑0322039.
[8] The Appellant and his wife also had a
personal joint bank account at the Canadian Imperial Bank of Commerce: account
#77-46237.
[9] When the Appellant filed income tax returns for the Business
for 2002 and 2003 he reported the following amounts:
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Gross Income
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Net Income
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2002
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$26,400.00
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$9,665.80
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2003
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$44,036.74
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$8,067.26
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[10]
The Minister of National Revenue (the “Minister”) determined that the Appellant
failed to report all of the revenue received from the Business. The Minister
determined that the Appellant failed to report the following revenue in 2002
and 2003:
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Unreported Income
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2002
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$37,415.00
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2003
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$ 3,857.00
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[11] When the Appellant filed the income tax returns for the Business
he claimed business expenses as noted below. The Minister also allowed
additional business expenses.
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Business Expenses Claimed
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Additional Expenses
Allowed by the Minister
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2002
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$16,734.20
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$12,501.00
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2003
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$ 6,500.00
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$ 511.00
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[12] The Minister also imposed penalties under subsection 163(2) of
the Income Tax Act on the basis that the Appellant understated the
income from the Business for the 2002 and 2003 taxation years.
B.
ISSUES
[13] The issues are:
a)
Did the Minister properly determine that the
Appellant failed to report gross business income from the Business for the 2002
and 2003 taxation years in the amounts of $37,415.00 and $3,857.00
respectively?
b)
Did the Minister properly levy gross negligence
penalties?
[14] At the commencement of the hearing counsel for the Respondent
stated that the unreported sales for the 2002 taxation year should be reduced
from $37,415.08 to $36,601.71 and that the unreported sales for the 2003
taxation year should be reduced from $3,857.18 to $2,649.70.
C. ANALYSIS
[15] The evidence presented by counsel for the
Respondent indicated that the Minister determined the unreported amounts by
carrying out a bank deposit analysis of deposits made to the Appellant’s bank
accounts. In carrying out the bank deposit analysis, the Minister determined
that there was a discrepancy between the Appellant’s reported income and a
number of unidentified deposits made to the Appellant’s bank accounts. (Note: The
deposits used by the Canada Revenue Agency (the “CRA”) did not include any
amounts identified as being from Freybe Sausage Ltd. (the Appellant’s wife’s
former employer) or from the Government of Canada (i.e. Employment Insurance
benefits paid to the Appellant’s wife).)
[16] In cases of this nature, officials of the CRA are
entitled to challenge the income reported by a taxpayer by carrying out a net
worth analysis or by reviewing the actual deposits made to the taxpayer’s bank
account in order to determine if the taxpayer reported all of his income when
he filed his income tax returns.
[17] Officials of the CRA concluded that the
Appellant did not include as income all of the deposits made to his bank
accounts and issued Reassessments for the 2002 and 2003 taxation years to
include unidentified bank deposits as income for those years.
[18] The law is clear that when the Minister issues
Reassessments against a taxpayer, the taxpayer has the onus of proving that the
unidentified bank deposits that were included as income did not represent
unreported income.
[19] I have considered that evidence that was
presented and I have concluded that the majority of the unidentified bank
deposits made to the Appellant’s bank accounts represent unreported income from
the Business.
Inheritance Received by the Appellant’s
Wife
[20] The Appellant’s wife testified under oath that
she had received an inheritance from her grandfather in the amount of $15,000.00.
The Appellant’s wife testified that she visited her mother in Bosnia in 2002 and during the visit she received an amount
of $11,000.00 in Canadian funds from her mother.
[21] The Appellant’s wife testified that upon her return
to Canada she deposited the amount of $11,000.00
in the joint bank account (see Exhibit R-1, Tab 2, working paper 5000-2). This
exhibit indicates that the amount of $11,000.00 was deposited to the joint bank
account at the C.I.B.C.: account #77-46237 on October 7, 2002.
[22] The Appellant’s wife also testified that a
friend of hers visited her mother in Bosnia a few months
later and received a further sum of $4,000.00 from the Appellant’s wife’s
mother. Upon her return to Canada the friend gave the Appellant’s wife the
$4,000.00 that she had received. The Appellant’s wife deposited this amount of
money in the joint bank account at the C.I.B.C.
[23] I accept the evidence provided by the Appellant’s
wife with respect to the inheritance of $15,000.00 that she received from her
grandfather. It therefore follows that the following amounts should be reduced
from the Appellant’s income:
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2002
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$11,000.00
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2003
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$ 4,000.00
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Total:
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$15,000.00
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Expenses
[24] The Appellant’s agent said that he does not
dispute the expenses that the Appellant has been allowed by officials of the
CRA in 2002 and 2003.
Penalties
[25] I have concluded that the Minister was correct
to impose penalties with respect to the unidentified bank deposits. I have
reached this conclusion because of the numerous unidentified bank deposits. For
example, in 2002 there were 26 unidentified deposits to the C.I.B.C. bank
account and in 2003 there were 14 unidentified deposits to this bank
account. In addition, in 2002 there were 14 unidentified deposits made to
the TD Canada Trust bank account and in 2003 there were 14
unidentified deposits made to the TD Canada Trust bank account. In my opinion a
taxpayer who operates a business such as the Business in question must have an
accounting system which enables him to properly identify bank deposits. I have
concluded that the failure by the Appellant to maintain a proper accounting
system to identify bank deposits justifies the Minister in imposing the
penalties.
[26] The appeals are to be allowed, without
costs, to enable the Minister to deduct a total of $15,000.00 from the
unidentified bank deposits. No further adjustments should be made to the
unreported income as determined by the Minister.
[26] By letter dated August 10, 2009,
counsel for the Respondent indicated that the Respondent is prepared to allow
additional deductions of $2,020.85.
[27] In the letter dated August 10, 2009,
counsel for the Respondent stated as follows:
… the total deductions
allowed should be $11,813.37 for 2002 and $5,207.48 for 2003. …
[28] I agree with the position as outlined
by counsel for the Respondent and I order that the appeals be allowed, without
costs, to recognize the concessions as noted above.
Signed at Vancouver,
British Columbia, this 21st
day of October 2009.
Little
J.
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