Citation: 2007TCC676
Date: 20071107
Docket: 2001-4345(IT)G
BETWEEN:
DAVID BLACK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on September 17 and 18, 2007 and Reasons
for Judgment
delivered orally from the bench on September 19, 2007,
in Fredericton,
New Brunswick
and edited from the transcript on November 7, 2007
REASONS FOR JUDGMENT
Rossiter, J.
Introduction/Background
[1] This matter is
the result of an arbitrary net worth assessment by the Respondent against the
Appellant for the 1995 to 1998 income tax years since the Appellant failed to
file income tax returns for 1995 and 1996 and failed to respond appropriately,
if at all, to requests and inquiries from the Respondent for documentation and
information to establish his income for the years in question.
[2] The Respondent
via net worth assessments has attributed to the Appellant's income as follows:
1995 -
$61,514.78 With no income reported by the Appellant
1996
- $168,634.58 With no income reported by the Appellant
1997
- $224,174.10 With $10,041 income reported by the Appellant
1998
- $53,095.33 With $16,632 income reported by the Appellant
[3] I just had the
response to my inquiry of the Respondent with respect to the income reported by
the Appellant for 1997 and 1998, and I believe they now want to change the
income allegedly reported by the Appellant for 1997 from $10,041 (as schedule
"C" to the Reply), and quite correctly so, to a sum of $14,400, and
with respect to 1998, from the sum of $16,632 to the sum of $19,333.82 (as
shown in Exhibits R-2 and R-1 for 1997 and 1998 respectively).
[4] The Appellant
appealed the various assessments or reassessments by the Notice of Appeal dated
December 4, 2001 with the Respondent replying by Notice of Reply on February
1st, 2002.
[5] The Appellant
has had three legal counsel represent him in this matter. Initially counsel
from Miramichi, followed by counsel from Thorsteinssons in Vancouver, and
finally by counsel in Fredericton, New
Brunswick, who represented the Appellant
as recently as April of 1996.
[6] This matter has
gone on for years with three (3) status hearings, seven (7) court orders in
relation to procedures, and two (2) show cause hearings.
[7] The Appellant
had nine (9) months notice of the date of this hearing, yet sought to
adjournment to retain counsel when the hearing commenced, which motion was
denied for the reasons already given on the record.
Issues
[8] As agreed to by
the parties at the beginning of the hearing, there are basically three (3)
issues:
1. What was the Appellant's total
income, if any, for the 1995 and 1996 income tax years;
2. Did the Respondent's
assessment of income of the Appellant for 1997 and 1998 properly state the
Appellant's income for those years?
3. Did the Minister appropriately
assess a Gross Negligence Penalty to the Appellant for 1997 and 1998?
Facts
[9] The Appellant's Notice of Appeal lays out certain assertions of fact
and the Respondent's reply in paragraph 10 lays out the assumptions of fact
relied upon by the Respondent.
[10] I will not review
these in detail here, other than to provide a thumbnail sketch of the factual
background:
1. The Appellant did not file a
1995 or 1996 income tax return;
2. The Appellant did file a 1997
and 1998 income tax return for income of $14,400 and $19,333 respectively. The
$14,400 for 1997 is all employment income, and the $19,333 for 1998 was made up
of $3,226 employment income and $16,107 in employment insurance benefits;
3. The Appellant is alleged to
have acquired a number of assets over the relevant years, either directly or
through others, including real estate, motor vehicle, motorcycles and
snowmobiles as well as cash, which were well in excess of his visible or
alleged actual earnings;
4. The Appellant is alleged to
have carried out these acquisitions by himself or through others, including
family members, when in fact he was the beneficial owner of the assets;
The
assets included the following:
Real
estate located at Highway number 11, Lower
Newcastle, New Brunswick;
A
1997 Ford F-150 Truck;
A
1996 snowmobile Yamaha;
A
1996 Z-28 Camaro motor vehicle;
A
1997 Harley Davidson motorcycle;
Real
estate located at Russellville Road in a numbered company;
Money
in a joint bank account with his mother;
Money
in a bank account in 502625 N.B. Ltd.
There
may have been another bank account.
Law
[11] Now, what is the law? The law in this matter has been fairly clear for
quite some time. Net worth assessments are performed by Revenue Canada where
there is a concern that a taxpayer's reported income does not reflect the
reality of his or her situation.
[12] The basic
principle according to Vern Krishna, the Fundamentals of Canadian Income Tax
Law, Carswell's edition, Toronto, 2002, at page 152 states as follows:
"Income
is equal to the difference between a taxpayer's wealth at the beginning and at
the end of the year, plus any amount consumed by the taxpayer during the
year."
[13] This method of
calculation is very basic and does not take into account any monies borrowed by
the taxpayer, which would have a diminishing effect on net worth established by
CRA.
[14] Now subsection
152(7) of the Income Tax Act states as follows:
"Assessed not dependent on return or information:
The Minister is not bound by a return or information supplied by or on behalf
of a taxpayer and, in making an assessment, may, notwithstanding a return or
information so supplied, or if no return has been filed, assess the tax payable
under this Part."
[15] Section 152(8) of
the Income Tax Act states as follows:
"Assessment
deemed valid and binding: An assessment shall, subject to being varied or
vacated on an objection or appealed under this Part and subject to a
reassessment, be deemed to be valid and binding notwithstanding any error,
defect or omission in the assessment or in any proceeding under this Act
relating thereto."
[16] The burden of
proof regarding a net worth assessment based upon the assumptions made by the
Minister is with the taxpayer, to establish that the factual findings upon
which the Minister based the assessment were wrong. This is a fundamental
principle with respect to net worth assessments as noted by Peter Hogg in
Principles of Canadian Income Tax Law, Carswell, 2002, page 546.
[17] The adage that
the taxpayer knows best the facts relating to a situation is especially true in
situations of net worth assessment.
[18] The degree of
proof required for the rebuttal of the ministerial presumptions need only be of
prima facie. He must show that the impeached assessment is an assessment
which ought not to have been made, that is to say, he must establish facts upon
which it can be affirmatively asserted that the assessment was not authorized
by the taxing statute or which brings the matter into such a state of doubt
that, on the principles alluded to, tax principles, the liability of the
Appellant must be negated.
[19] The true facts
may be established of course by direct evidence or probable inference. The
Appellant may adduce facts constituting a prima facie case which remains
unanswered, but in considering whether this has been done, it is important not
to forget, if it be so, that the facts are, in a special degree if not
exclusively, within the Appellant's own cognizance.
[20] Where the
taxpayer has no knowledge of facts upon which the CRA relied in assessing on a
net worth basis, the Crown must prove them. As well, the Minister may be called
upon to prove that the audit was also performed correctly. The Respondent's
counsel referred to a case on that particular point.
[21] Even if the
Minister is free to choose the method of arbitrary assessments such as net
worth assessments, he is nonetheless obliged to disclose the basis of the
formulation used. Given that the net worth assessment is based on "the
best evidence available", and absent evidence from the taxpayer that the
assessment is incorrect, the latter will be "valid and binding".
[22] The Respondent
referred to a couple of authorities. One is HSU v. R., a decision of the
Federal Court of Appeal from July 24, 2001. That case is particularly instructive,
and I am bound by precedence to follow this particular case. At paragraph 23,
the Federal Court of Appeal stated as follows:
"Subsection 152(8) grants a
presumption of validity to these assessments and places the initial onus upon a
taxpayer to disprove the state of affairs assumed by the Minister.
Notwithstanding the fact that such an assessment is arbitrary, the Minister is
obliged to disclose the precise basis upon which it has been formulated,
otherwise the taxpayer will be unable to discharge his or her initial onus of
demolishing the "exact assumptions made by the Minister" but no more.
[23] Subsection
152(7) of the Act does not establish a specific method for determining
the tax payable by a taxpayer. In most cases, the Minister follows the
"net worth method". The Taxpayers Operations Manual prepared by
National Revenue describes the net worth method as follows:
[The use of a net worth approach
to major income is based on the premise that a client's income for a period is
the increase in the client's net worth (financial position) between the
beginning and the end of a particular period. A client's net worth is the
excess of his total assets, business and personal, over his total liabilities,
business and personal, at a specific date.]
[24] Simply
put, the amount by which the taxpayer's net worth increases over a particular
period is imputed to the taxpayer as income."
[23] At paragraph 31,
the Federal Court of Appeal stated in part as follows:
"By
its very nature, a net worth assessment is an arbitrary and imprecise
approximation of a taxpayer's income. Any perceived unfairness relating to this
type of assessment is resolved by recognizing that the taxpayer is in the best
position to know his or her own taxable income. Where the factual basis of the
Minister's estimation is inaccurate, it should be a simple matter for the
taxpayer to correct the Minister's error to the satisfaction of the
Court."
[24] Paragraphs 34, 35
and 36 read as follows:
I
would add that it was open to the Tax Court judge to conclude the Minister's
method for determining the Appellant's income was reasonable and logical in the
circumstances of this case. Although the Minister's reassessments were clearly
arbitrary, it cannot be forgotten that this approach was the direct result of
the Appellant's refusal to disclose any financial information or documentation.
As
the Tax Court judge observed, the Appellant has done nothing to ensure a full,
complete and correct audit. The Appellant has consistently failed to provide
any evidence which would prove his actual income during the period in question.
Accordingly, he cannot complain that the Minister has proceeded on the basis of
speculative assumptions. Given that the burden of disproving the reassessments
lay squarely with the Appellant, it is necessary to consider whether the
Appellant successfully discharged that onus."
[25] Now I went on at
length in quoting that particular case and the reason I went on at length in
quoting that particular case is because it is particularly applicable in this
particular case, in particular at paragraph 35:
As
the Tax Court judge observed, the Appellant has done nothing to ensure a full,
complete and correct audit. The Appellant has consistently failed to provide
any evidence which would prove his actual income during the period in
question. Accordingly, he cannot complain that the Minister has proceeded on
the basis of speculative assumptions.
[26] It appears to me
from the evidence that notwithstanding the efforts of the Respondent, the
Appellant has done nothing to ensure a full and complete and correct audit. He
appears to have pretty well consistently failed to provide sufficient evidence,
and in some circumstances no evidence, which could independently prove his
actual income during the periods in question. He cannot really complain that
the Minister has proceeded on the basis of speculative assumptions.
[27] Why the Appellant
would ignore the requests for information and documentation from CRA to support
his position is beyond comprehension. He is only hurting himself and putting a
greater burden upon himself as the case goes on.
[28] Now it is at the
Tax Court of Canada, the burden of disproving the assessments and reassessments
lay squarely with the Appellant. It is necessary to consider whether the
Appellant successfully discharged that onus.
[29] The Appellant can
satisfy that burden in three (3) ways:
1. In the HSU case at
paragraph 36, the Federal Court of Appeal pointed out he can challenge the
Minister's allegations that he did assume those facts. That did not occur here.
2. He can assume the onus of
showing that one or more of the assumptions were incorrect. That is the
position taken by the Appellant.
3. Or he can contend that even if
the assumptions were justified, they do not of themselves support the
assessment. That is not the position taken by the Appellant.
Here,
the Appellant has tried to discharge the burden using method number two (2),
assuming that the onus of showing that one or more of the assumptions were
wrong.
[30] Now in a case of
this nature, credibility is always an issue. The Federal Court of Appeal has
confirmed as recently in the 2006 case of Berube v.Her Majesty the Queen,
[2006] DTC 6354, that the Tax Court judge is correct in assessing the taxpayer's
credibility when the latter introduces his or her own facts in attempt to prove
the Minister erred in the assessment.
[31] In assessing the
credibility of the Appellant, I look to a variety of factors.
Number one (1), I look to his demeanour and
presentation on the witness stand.
Number two (2), I look to the sureness with which he
presents his evidence.
Number three (3), his organization and preparation of
his case and evidence, recognizing that he was without legal counsel.
Number four (4), whether there is corroboration either
in viva voce evidence or documentary evidence to substantiate his case
and his position.
Number five (5), whether there is any conflict of this
evidence, either by his own direct evidence or other information before the
Court.
Number six (6), how he stands up to and responds to
cross-examination.
Number seven (7), whether his story has a ring of
truth or is a manifest of his imagination.
Number eight (8), whether the best evidence available
has been produced.
Number nine (9), the reasonableness and the
practicality of the explanation offered as to the course of conduct, and
finally how important facts come out, whether through his own volition or
through cross-examination.
[32] Now these are
only a few factors that I can consider in determining the credibility of a
particular witness. There may very well be others that I may have overlooked,
but that will certainly come into play.
[33] In dealing with
the credibility of the Appellant, I can state quite candidly I did not find the
Appellant as a particularly credible witness.
[34] His demeanour and
presentation was not up to stock. I found him somewhat avoiding in some ways
and unsure in others. His presentation of his evidence, his organization and
preparation of the case was absolutely abysmal.
[35] He had nine (9)
months to prepare his case. He had three (3) competent legal counsel for a
number of years, complained about the amounts of money he paid to them and his
preparation was nothing short of absolutely terrible.
[36] We had to give an
adjournment to even photocopy the cases and for him to organize his papers and
review them with the Crown.
[37] As to
corroboration, there was very little corroboration. There was some
corroboration with respect to a couple of allegations, and I will deal with
those specifically, but as to others, there was substantially no corroboration
that was really admissible or documentation for which I could attribute very
much weight. There were some conflicts in the evidence, I will review those
later, some contradictions.
[38] I felt that he
stood fairly well in cross-examination, although it was unfortunate he only
revealed certain facts which were important in cross‑examination and not
of his own volition, i.e., he was the one that ordered the Z-28 Camaro, and he
ordered it when he was out of province, i.e. the hydro bill for the Newcastle
property was in his name. These were important facts.Also the fact that he got
$150,000 from his father in cash and not one cent as shown went into any of the
acquisition of these assets. He purportedly paid his lawyers in cash.
[39] His
reasonableness and practicality and explanations offered regarding his course
of conduct were unbelievable, absolutely unbelievable.
[40] Whether his story
has a ring of truth, I think there is a ring of truth to some of it, but it is
mixed in I think with a lot of untruths, and the facts show this.
[41] Whether the best
evidence that is available has been produced? The Appellant had a variety of
witnesses who he could have called who could have given first-hand evidence, it
would not have been hearsay evidence, but first-hand personal knowledge,
including his mother, including his brothers, sisters, relatives, people in the
area.
[42] Not one, not one
person was called to substantiate his story, and he had nine (9) months to do
so.
[43] In dealing with
the arbitrary assessment by the Respondent, let me start by saying that
although it is recognized as a crude and inaccurate and basic manner of doing
an income assessment to use the net worth method described by Mr. Currie
and Mr. Fillmore, it was the only real available instrument to them.
[44] In the
circumstances, it should be modified somewhat when the assessments are over a
term of years and the assets are particularly prone to reduction in true value
as time goes on such as motor vehicles. I will speak to this particular fact
later in my comments.
[45] In dealing with
the income for the Appellant in 1995 and 1996 for which there was no T-1 filed,
no explanation was offered, no explanation was given, no explanation was
presented by the Appellant, notwithstanding he gave evidence.
[46] As to why he did
not see fit to file a T-1 return for 1995 and 1996, no explanation was given as
to what if any income he may have had in each of those years, no explanation
was given as to what if anything he was doing in those years.
[47] Was he working?
Was he doing volunteer work? Was he sick? Was he on holidays? How did he make
ends meet in two (2) years? Two (2) years is a long period of time to go
without income, it's over 700 days. No explanation was offered or provided when
the burden was on him.
[48] The same may be
said in relation to 1997 and 1998.
[49] No information
was offered or presented as to what he was working at, doing or really
anything. Bits of information were provided that he was not living here or was
not living there, but that was really in passing and only to prove I think that
he was not here, therefore he could not have purchased the assets when in fact
the record shows that he ordered an asset, on behalf of his mother according to
him, when he was in British Columbia.
[50] In dealing with
the assets used by the Respondent in determining the net worth of the
Appellant, and therefore the income for 1995 of the Appellant to 1998, I would
note the following:
The
1995 Yamaha snowmobile and the 1997 Yamaha snowmobile.
[51] The assessment of
this value is fair and reasonable and is not really in dispute. I believe that
the 1995 snowmobile Yamaha should be reduced for net worth purposes by 30% in
year one, 15% in year two (2) and 10% in year three (3) to reflect their
true value per the questions I had with Mr. Fillmore.
[52] Therefore, the
1995 Yamaha for 1994 and 1995 will remain at $6,000 each. In 1996, the 1997
Yamaha will be $10,309. In 1997, it will be reduced by 30% to approximately
$7,219.
[53] In 1998, it will
be reduced by a further 15% to approximately $6,138 and in 1999, it will be
reduced further to the sum of $5,525, which is approximately 10%, though my
math may not be very good, so that should be subject to calculation.
So
the net worth assessment will be reduced accordingly of those amounts.
The
1997 Ford F-150 truck.
[54] I believe that the
Appellant has discharged the burden upon him with this particular asset. He has
produced Exhibit A-1, which is a loan payment statement for the Appellant with
the CIBC. This loan statement is roughly consistent with the Appellant's
evidence and shows the liability incurred at acquiring the truck in question.
It is just too bad he did not make the effort to produce the document when
initially asked for it in 1999 by the Respondent.
[55] Therefore, the
1997 Ford F-150 truck should be removed from the Schedule "A" of the
net worth assessment of the Appellant.
The
1996 Chev Camaro Z-28 DTD-413
[56] This vehicle was
purchased by the Appellant's mother, Josephine, in 1996, when she already had a
registered vehicle in her name, which I believe was a 1990 Chevy Caprice, her
having purchased the Camaro shortly after her husband passed away in 1996.
[57] It was basically
a sports car. The mother at the time was 67 years of age. She was a homemaker
all her life. Two (2) years later, the vehicle was transferred to the Appellant
for $1, no good or valuable consideration being provided.
[58] The Appellant
reluctantly admitted that he had placed the order for the vehicle. He had
driven a Camaro for a period of 10 years prior to the purchase of the Z-28
Camaro by his mother.
[59] I do not accept
the evidence of the Appellant on this particular item. It does not ring true.
There was no independent documentation presented to substantiate his story, nor
was the best evidence adduced to corroborate the Appellant's evidence.
[60] What is
consistent is this: The Appellant owned and operated a Camaro from 1985 to
1995. The Appellant ordered a new Z-28 Camaro when he was 36 years of age, very
shortly after he was without his other Camaro that he had had for 10 years. The
Appellant received the registration ownership of the vehicle two (2) years
later without any consideration from his mother.
[61] A lady of 67
years of age, shortly after the death of her husband, buying a Z‑28
sports car, being a homemaker all her life when she already had another motor
vehicle registered to her name does not ring true.
[62] This lady, in my
mind, purchased this vehicle on the instructions of and for and on behalf of
the Appellant.
[63] The Appellant's
demeanour on this particular point and the facts tell me that he was less than forthright
and less than frank with the Court. He says he was not even in New Brunswick
when the vehicle was purchased, yet he ordered it when he was in Vancouver at
the time.
[64] However, even
though I would include this vehicle in the net worth calculation, the value
should be reflected as follows:
[65] In 1996, $25,000.
In 1997, $17,500, a 30% reduction in the first year. In 1998, $15,985, a 15%
reduction. In 1999, $14,387, a 10% reduction. Those figures are subject to
calculation and I do not know if my arithmetic is correct.
1997
Harley Davidson motorcycle
[66] The Appellant
asserts that this motorcycle was purchased by his brother Paul, who happened to
buy a total of three (3) motorcycles in I believe a period of two (2) years,
three (3) brand new motorcycles in the period of two (2) years for $25,000
each.
[67] No documentation
was introduced that could be given any real weight to, except the original
invoice, because this was confirmed by Mr. Fillmore in his evidence of his
conversations with the owner of the dealership, that is that they were bought
by Paul Black.
[68] Mr. Fillmore did
point out however in detail that Paul Black himself was under garnishee by CRA
from January 1996 to June of 1998, going through in detail the actual payments
made on a monthly basis. This is the very period, in the middle of the very
period within which Paul Black purportedly bought these three (3) new Harley
Davidson motorcycles.
[69] Registrations for
these motorcycles were not produced in Paul Black's name for the years in
question. No corroborative evidence was adduced to the Appellant's evidence.
[70] The Appellant
used the motorcycle in question. It was located at the place which is readily
available to him, I believe in a garage at his mother's property or cottage
property.
[71] What is
particularly astounding is that if Paul Black could not pay his tax bill to the
point where he had to be garnished by CRA through his own employer, how could
he afford to purchase three (3) brand new Harley Davidson motorcycles in the
short period of two (2) years at $25,000 approximately each. It simply does not
ring true.
[72] I do not accept
the evidence of the Appellant on this particular point. His evidence does not
withstand scrutiny. Paul Black did not have the financial wherewithal to
purchase motorcycles of this character, of this quality and at these prices.
[73] The Appellant
used the motorcycle on occasion and there was no documentation produced during
the relevant period of time regarding the registration and ownership of the
motorcycle.
[74] The best evidence
was not produced. He could have called his own brother, Paul Black, to testify
to its true ownership.
[75] It was at a
location that he frequented, parked in his mother's garage at the cottage and
notwithstanding that he did not have a bike licence, he testified earlier that
he actually drove the bike, even without a licence.
[76] The asset should
be included in the net worth calculation, but reduced in value over a number of
years as follows: In 1997, $25,000. In 1998, $22,500, a reduction of 10%. In
1999, $20,250, a reduction of 10%.
Bank
account at the Bank of Nova Scotia in Miramichi City # 12912 for the
numbered company 502625 N.B. Ltd; and the bank account at the Bank of Nova Scotia
in BC account # 702500002431
[77] All of these
monies were the property of the Appellant in the BC account, his own personal
account. The account for the numbered company is effectively his money also. He
asserts that he never put in the $160,000 in the company, but I can tell you
that somebody did. Somebody put money into that company for it to acquire the
assets it acquired and there was no explanation given, no documentation
produced which in any way could be attached to it, and no witnesses to produce
or substantiate the story.
[78] The Appellant was
the sole registered Director of the company. He asserts that there were other
shareholders, but he would not or could not identify them or produce any
corporate records to establish any of his shareholders, other than himself.
[79] He asserts
investments by others, but there was no documentation adduced to which any
weight could be attached, nor were any witnesses called to corroborate his
story.
[80] These witnesses
were available to the Appellant: His own sister, his own mother, his own
brother-in-law, and other people in Miramichi, none of whom gave evidence.
[81] I am not
specifically drawing an adverse inference in the Appellant, but the best
evidence was not presented in my mind and the Appellant clearly and unequivocally
had the burden, and he failed to discharge it. These items were properly
included in the net worth, as the amounts due to shareholders for the numbered
company, for the same reasons I have just given.
Bank
of Nova Scotia joint bank account
[82] I do not believe
the Appellant has in any way disputed the ownership or entitlement of the
monies in this account. He did talk about deposits. It appears to have been
accepted and there was no evidence adduced to my satisfaction or otherwise to
discharge the burden upon the Appellant, and these monies also should be
included in the net worth.
Newcastle property
[83] Turning now to
the Newcastle property. The Appellant asserts the property was sold
to his mother by a sister and brother-in-law at the same time she purchased the
Camaro. I have already made comments on the Camaro.
[84] There was a
garage and swimming pool added, but Josephine never lived on the property. The
Appellant asserts he was not in New Brunswick when the property was purchased,
but he also was not in New Brunswick when the Z-28 Camaro was purchased when in fact he
had arranged for that purchase.
[85] Presence or
absence in the jurisdiction for the purchase of an asset is not a significant
factor, if a factor at all.
[86] The jurisdiction
where I come from, Prince Edward Island, over half of Prince
Edward Island is owned by non-residents,
and most of them would not have even driven across the bridge yet and it has
been there for over 10 years.
[87] The hydro bill is
particularly important. The hydro bill in this particular case, for this
particular property, was in the name of the Appellant. That is important. That
indicates some proprietary interest. That indicates more than a passing
interest. That indicates something more than simply helping out his mother as
to which bill relates to which property.
[88] Why would this
bill be in the name of the Appellant if it had nothing to do with ownership?
He said he did not even occupy it.
[89] All and all, I do
not find that the Appellant was particularly credible. He did not produce the
documentation to support his position generally. He did not produce the best
evidence that could corroborate his story. He blamed others for his failure to
produce records, i.e. the police authorities, when the police authorities
returned the records to him or copies.
[90] He had specific
ties to almost every item alleged, for example a hydro bill for the real estate
in question;, he ordered the Z-28 Camaro and received it later from his mother
for $1; he was the only shareholder and Director of the company. He asserts
there were others, but there was no identification provided, no corporate
records produced.
[91] His demeanour as
a witness was not particularly satisfying. He was unsure, terribly disorganized
and not prepared and blaming others for his problems.
[92] The Appellant had
the opportunity to bring out facts which were important to the case which may
or may not help his case, but these were only brought out through
cross-examination.
[93] Most incredible
of all was the story about his father giving him $150,000 in $100 bills and
$1,000 bills in 1995 shortly before his death, which he stored at his house.
[94] When pressed, he
had trouble explaining what he did with the money. His siblings, he was not
sure if they knew, but he did not think they knew and if they knew, he did not
know how they knew. He had 10 or 11 brothers and sisters.
[95] When pressed as
to what he did with the money, he was not exactly sure as to whether or not he
deposited any in the bank.
[96] Then he decided
he did deposit some in the bank, $30,000 or $40,000, and then he was not even
sure which accounts it was deposited in, but then he was sure he deposited in
some of the accounts and as to what he did with the rest of the money, he used
it to pay his lawyers, purportedly in cash.
[97] On top of this
$150,000 he received in cash from his father, which his siblings were not even
aware of, he receives another $32,500 gift from his mother in the form of the
Z-28 Camaro, and in addition receives another $29,000, which was a loan from
his father to his sister, and the sister was going to repay it to the father,
but the father reportedly told him to put it in his bank account. This to me is
a total of $210,000.
[98] What did he do
with it? He deposited some in the bank, but he was not very accurate with
respect to his evidence. He used the rest to pay his lawyers in cash, $100,000
by my account. Interestingly enough, none of the money went into the business.
None of the money went into acquiring the assets, none of the money went into
the numbered company.
[99] That is simply
not believable. I did not find the Appellant to be a particularly credible
witness and as such, I felt I gave appropriate weight to his evidence.
[100] Based on the
evidence as presented, my evaluation of the credibility of the Appellant and
for the reasons already stated, I find that the Appellant has discharged the
burden with respect to the F-150 Ford truck, but that he has failed to
discharge the burden on each of the remaining items used by the Respondent in
the net worth assessment of the Appellant.
[101] I would allow the
net worth assessment to stand, subject to the adjustments for the Ford F-150
truck, and the reductions I mentioned in relation to the snowmobile,
motorcycles and motor vehicle, as well as the reduction or alteration with
respect to the income for 1997 and 1998 shown in Exhibits R-2 and R-1
respectively.
[102] As to the gross
negligence penalty, I find that there was gross negligence in this particular
case. The discrepancies were significant.
[103] The taxpayer put
$160,000 in the corporation somehow when he only earned
$18,000. The assets grew way out of proportion to his disclosed income. There
was no response or cooperation by the taxpayer, and there is no question in my
mind that the penalty under subsection 163(2) of the Income Tax Act is
appropriate and is allowed.
[104] [Post giving these
oral reasons, upon reflection and before signing the Judgment/Order, I advised
the Appellant and Respondent that the Judgment would be amended, such that
there would be no depreciation in the value of the assets owned or beneficially
owned, by David Black during the relative time periods.]
[105] I refer this matter
back to the Minister for recalculation.
Signed at Ottawa, Canada,
this 7th day of November 2007.
"E. P. Rossiter"
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