Alsamman v. The Queen, 2007 TCC 224 (Informal Procedure)

                                                                                                Court File No. 2006-865(IT)I

TAX COURT OF CANADA

IN RE:   the Income Tax Act

BETWEEN

                                                WALID W. A. ALSAMMAN

                          Applicant

- and -

HER MAJESTY THE QUEEN

Respondent

ORAL REASONS FOR JUDGEMENT GIVEN BY

MR. JUSTICE PARIS

in Courts Administration Service,

180 Queen Street West, Toronto, Ontario,

on Friday, February 13, 2007 at 2:11 p.m.

APPEARANCES:

Mr. Costa A. Abinajem                                                                                   for the Appellant

Mr. Laurent Bartleman                                                                                 for the Respondent

Also Present:

Mr. Colin Nethercut                                                                                          Court Registrar

A.S.A.P. Reporting Services Inc. 8 (2007)

200 Elgin Street, Suite 1004                          130 King Street West, Suite 1800

Ottawa, Ontario K2P 1L5                              Toronto, Ontario M5X 1E3

(613) 564-2727                                               (416) 861-8720

                                  Toronto, Ontario

-‑- Upon commencing the oral reasons on Friday,          February 13, 2007 at 2:11 p.m.

THE REGISTRAR:  Please be seated, the hearing is resumed.

THE COURT:  This is the reasons for judgement in the case of Walid Alsamman versus The Queen in 2006-865(IT)I.

This is an appeal from reassessment to the appellant's 2001 and 2002 taxation years by which the Minister of National Revenue increased the appellant's income from business by $20,668 and $22,492 respectively and levied penalties under Subsection 163(2) of the Income Tax Act on the unreported business income.

The assumptions relied upon by the Minister in reassessing are set out in Paragraph 9 of the reply to Notice of Appeal and will form part of these reasons.

The appellant's position is that the unidentified deposits in his bank account, which were treated as income from business by the Minister, were in part deposits of amounts he received from his family and in part deposits received from clients as reimbursements for amounts he spent on materials used in his business.

He claimed that he did not deduct the cost of those materials in calculating his income from business and that if the reimbursements for materials were included in his income, he should be able to deduct what he paid for the materials.

The appellant admits that he had unreported business income of $17,885 in 2002 but says that he should not be liable for penalties because he had just started his business in 2001, had difficulties with record keeping, that he was trying to do all the record keeping himself, and that he had no formal education and was depressed at the time.

No supporting documents were produced by the appellant with respect to the amounts he allegedly received as reimbursements from clients for materials. He said that he had receipts but these were not produced. The amounts involved were not detailed in any way and the evidence as a whole on this point was unconvincing.

With respect to the appellant's claim he received amounts from family members, the appellant produced a letter from his mother and a letter from his brother, Mohamad, stating they had given him a total of $25,200 in cash and a copy of a cheque received from another brother in 2002 for $4,000.

None of these persons were called to testify. Also, the appellant did not produce any evidence tying the cash he supposedly received with deposits made to his bank account.

In the case of his mother the appellant said she had lived outside Canada and would visit him and give him cash. According to his mother's letter, she gave him $16,000 in 2001 and 2002. No particular dates or amounts of payments were given.

The appellant did not attempt to identify any particular bank deposits as ones made with the cash received. This was also the case for the alleged $100 cash payment the appellant's brother said he made weekly to the appellant for room and board. No evidence was led to show the appellant deposited the amounts if in fact he received them to his bank account.

The appellant also produced, as Exhibit A-5, a list of deposits to his bank account for 2001 and 2002 with a note explaining the deposit, in some cases as a transfer or an amount from a credit card, and in others, as amounts received for family members.

I note that according to the appeals officer who testified, many of the amounts were accepted as not being business income. I refer to Exhibit R-1, Tab 6 and 7. For the remaining amounts no corroboration of the source of the deposits was provided in court.

Overall, I am not satisfied that the appellant has shown on the balance of probabilities that he received these amounts, or that these amounts were deposited to his bank account and form part of the unidentified deposits.

The remaining amount, the $4,000 the appellant received by cheque from his brother was supported in evidence by a copy of the cheque. This amount was shown to have been deposited to the appellant's bank account and treated as unreported income by the auditor.

I'm of the view that the appellant has made a prima facie case that the $4,000 was not connected to his business and the respondent has let no evidence to show any reason that the amount should be considered as business income.

Therefore the appellant's business income should be reduced by $4,000 in 2002 to the amount of $18,492. This is largely consistent with the appellant's admission that he had unreported business income of $17,885 for 2002.

As already indicated, the appellant has not met the onus on him to show that any reductions to his business income are warranted for his 2001 taxation year.

I turn now to the issue of penalties imposed under Subsection 163(2) of the Income Tax Act.

The respondent has the onus to show that the appellant knowingly or in circumstances amounting to gross negligence made false statements or omissions in his 2001 and 2002 tax returns. The evidence shows the appellant reported his business income as $10,008 and $25,001 in 2001 and 2002 respectively.

I'm also satisfied the evidence shows the appellant had unreported income from business of $17,885 in 2002, as admitted by the appellant.

However, I'm not satisfied the respondent has met the burden of proving on the balance of probabilities the appellant had unreported business income in excess of the amount stated for 2002 or that the Minister has proven independently of the assumptions relied on by the Minister in assessing the appellant that he had unreported business income for 2001.

The respondent's burden of proving in this representation issue is independent of the onus on the appellant in relation to the underlying reassessment of tax.

The respondent did not call as a witness the auditor who reviewed the books and records of the appellant to provide details of the reassessment and the evidence of the appeals officer shows that he did not review or analyse the source documents obtained originally from the appellant.

I am satisfied, though, that the respondent has shown that the misrepresentation with respect to the appellant's income in 2002 was made in circumstances amounting to gross negligence.

The materiality of the misrepresentation, $17,885, compared to the total business income for that year, taken along with the appellant's admission that his record keeping was inadequate, that he did not know what he was doing with respect to the accounting for his business, all these lead to conclude that he was more than simply negligent in his approach to fulfilling the obligations placed on him under the Income Tax Act to accurately report his income.

With respect to the appellant's submission that he was depressed at the time, I note that he was carrying on his handyman business throughout the period at issue and that this depression did not seem to affect him to the point of being unable to perform those activities.

There's no basis for assuming that the alleged depression would therefore have impeded him in carrying out the duties to accurately account for his income as required by the Income Tax Act.

A taxpayer in the appellant's position of not knowing how to go about recording and reporting income should seek the help of a bookkeeper or accountant and when he chooses not to, engages in conduct tantamount to a wilful disregard of his legal obligations.

For all of these reasons the appeal is allowed in part. The amount of the appellant's income from business in 2002 will be reduced by the amount of $4,000 and the penalties under Subsection 163(2) with respect to the 2001 taxation year shall be deleted and any penalties on amounts in excess of $17,885 of unreported income in 2002 should be deleted as well.

--- Whereupon proceedings adjourned at 2:30 p.m.

I HEREBY CERTIFY THAT I have, to the best

of my skill and ability, accurately transcribed

             the foregoing interview.

   Antoinette Forcione, Legal Transcriptionist