Citation: 2008 TCC 584
Date : 20081024
Docket: 2007-4909(IT)I
BETWEEN:
ZEVART HOVHANNESSIAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J
[1]
This is an appeal from
assessments made by the Minister of National Revenue (Minister) for the
2001, 2002 and 2003 taxation years. The Minister added additional amounts to
the Appellant's income for those years, in rounded figures, of $18,647 in 2001,
$19,183 in 2002 and $26,470 in 2003.
[2]
During those years, the
Appellant operated a clothing manufacturing business of which she was the sole
owner. In rounded figures, she reported, in 2001, gross revenue for this
business of $239,600 and a final loss of $7,031; in 2002, gross revenue of
$510,509 and net revenue of $1,649; and in 2003, gross revenue of $463,953 and net revenue of $3,762 (Exhibit I‑3).
[3]
The Minister audited
the Appellant's income using the net worth method since the net family income
seemed low.
[4]
To establish the income
shown in Exhibit I‑4, the Minister determined the growth in family
net worth between the end of 2000 and the end of 2003, to which he added the
family's personal expenses. From this total, the Minister deducted refunded
taxes (Goods and Services Tax and Quebec Sales Tax), income tax refunds
(including the Canada Child Tax Benefit) and a non‑taxable amount of
$7,718.50 received from the Appellant's brother in November 2002. This
exercise enabled the Minister to calculate a total taxable family income of
$34,671.77 in 2001, $43,712.02 in 2002 and $53,992.06 in 2003.
[5]
The Minister then
reduced this total taxable family income by the reported family income to
arrive at an unreported net taxable family income of $18,646.77 in 2001,
$19,183.02 in 2002 and $26,470.06 in 2003.
[6]
Since the Appellant's
spouse received employment income, which he reported in full according to the T‑4
slips issued by his employer, and there were no other sources of income
reported by the family other than the Appellant's business, the Minister added
the unreported family income to the Appellant's income, as she was the sole
owner of the business. The Minister also imposed a penalty pursuant to
subsection 163(2) of the Income Tax Act on these unreported
amounts.
[7]
Here is a summary table
of what I have just explained above to establish the additional amounts
included by the Minister in the Appellant's income.
|
|
2001
|
2002
|
2003
|
|
Growth in net worth
|
3,387.98
|
7,814.91
|
(6,516.28)
|
|
plus
|
|
|
|
|
Personal expenses
|
36,686.29
|
47,395.01
|
64,645.91
|
|
Total
|
40,074.27
|
55,209.92
|
58,129.63
|
|
|
|
|
|
|
less
|
|
|
|
|
Deductions (GST + QST received, amount
received from brother (2002), tax refunds)
|
5,402.50
|
11,497.90
|
4,137.57
|
|
Total taxable family income according to
net worth
|
34,671.77
|
43,712.02
|
53,992.06
|
|
|
|
|
|
|
less
|
|
|
|
|
Reported income
|
|
|
|
|
Appellant
|
(7,031.00)
|
1,649.00
|
3,762.00
|
|
Spouse
|
23,056.00
|
22,880.00
|
23,760.00
|
|
Total taxable income unreported and
assessed
|
18,646.77
|
19,183.02
|
26,470.06
|
[8]
In this summary table,
the Appellant contests mainly the amount of personal expenses. According to two
reports from the auditor (Exhibits I‑5 and I‑6), the amounts
for personal expenses are based on credit card statements, bank statements and
cost of living sheets completed and signed by the Appellant at the request of
the Canada Revenue Agency (CRA). I reviewed with the Appellant the
description of these expenses established by the Minister (Exhibits I‑1
and I‑2) and she indicated the personal expenses with which she
disagreed. I will deal with these expenses only.
Restaurant expenses
[9]
The Minister
established an amount of $1,000 per year. The Appellant states that she never
goes to restaurants. According to the table of personal expenses
(Exhibit I‑2), there was an expenditure in September 2002, paid
by TD Visa credit card, in the amount of $138.12 at the Waltham Hotel in Maine
in the United States. There are other restaurant charges paid with the American
Express credit card in the amounts of $100.38 in June 2003 and $102.34 in
October 2003.
[10]
Gaétanne Rodgers, the
head of the audit team at CRA, testified in the absence of the auditor, who is
on maternity leave. She explained that these credit card charges showed that it
was not true that the Appellant never went to restaurants with her family. The
Appellant then stated that these expenses were business expenses. However, the
Appellant did not claim any meal expenses on her business's revenue and
expenditure statements submitted with the business's tax returns (Exhibit I‑3).
The auditor therefore concluded that the Appellant and her family had
restaurant expenses and estimated a cost of $1,000 per year, based on figures
established by Statistics Canada for a couple with one child, who was
10 years old in 2001.
Clothing
[11]
The Minister set the
family expenses for this item at $4,000 in 2001, $4,200 in 2002 and $4,613.35
in 2003. Ms. Rodgers explained that these amounts came from credit card
expenditures and bank withdrawals related to clothing stores. These amounts
were then compared with the figure established by Statistics Canada. The Appellant
mentioned that she often paid for her sisters who then paid her back. None of
her sisters was present to confirm this statement. Apparently at least one of
them lives in Lebanon.
Gas
[12]
The Minister
established expenses for this item of $1,623.44 in 2001, $1,659.71 in 2002 and
$1,705.73 in 2003. The Appellant claimed that she did not spend more than
$1,000 annually on gas. The family car is a 1995 Sunfire. During the audit,
credit card expenditures were tracked and the final amount was estimated based
on Statistics Canada figures. The Appellant did not adduce any documentation in
court to justify her annual figure of $1,000.
Leisure
[13]
The Minister
established total expenses of $974.95 in 2001, $996.72 in 2002 and $1,024.36 in
2003. Amounts paid by credit card for sports activities were tracked and the
final figure was established using a Statistics Canada estimate. The Appellant
stated that her son has worked since the age of 13 to pay for his personal
and sports activities. However, during the years in issue, her son was not yet
13 years old.
Alcohol and tobacco
[14]
The Minister set an
amount of $200 per year for this item. The Appellant stated that no one smokes
or drinks alcohol in the family. However, a credit card charge (American
Express) of $136.95 was found for the Société des alcools du Québec in
December 2003. The auditor therefore estimated the annual expense at $200
for this item.
Life insurance premiums
[15]
The Minister established
an annual expense of $840, while the Appellant told the Court it was $720.
However, she did not provide any corroborating documentation.
Cash gifts
[16]
The Minister
established a figure of $758.41 in 2001, $775.35 in 2002 and $796.86 in 2003.
The auditor apparently relied on estimated figures from Statistics Canada. The
Appellant stated that she did not make any gifts.
Licence and registration
[17]
The Minister included
an annual amount of $682 for this item. It appears under the heading "Other"
and Ms. Rodgers explained that the amounts under this heading are not
estimates but tracked expenditures actually paid. The Appellant did not provide
any related documentation.
Vidéotron
[18]
The Minister set an
amount of $480 in 2001 only. The Appellant stated that she was never a
Vidéotron subscriber. However, expenditures made to Vidéotron were found on the
BMO (Bank of Montreal) bank statement in the amount of $502.64 in 2001
(Exhibit I‑2, p.7/7).
[19]
Other than the issue of
the personal expenses, the Appellant claimed that the discrepancies established
by net worth assessment were the result of gifts she allegedly received in cash
from her family in Lebanon. She produced a letter she had given to the auditor,
signed by her sister but not dated, in which the sister states that she gave
the Appellant US$5,000 in July 2001 (Exhibit I‑7). According to
this letter, the Appellant's sister has worked for the "Social Welfare
Agency" since 1971. We do not know if this is in Canada or Lebanon. The
auditor did not accept this document as evidence because she was unable to find
entries for equivalent amounts in the Appellant's bank account. The Appellant
stated that her sister was in Lebanon and was unable to come to testify.
However, if I understand correctly, her sister was in Canada in
August 2008 with her own bankbooks, but the Appellant said that she did
not think to ask her to make copies. She also stated that she received cash
from other people in Lebanon, but she did not deposit these amounts in the
bank.
[20]
Under cross‑examination,
the Appellant acknowledged that she herself had provided the auditor with the
information used to establish her cost of living. She also responded that she
is not in the habit of asking for written acknowledgments of the cash she
claims to have received.
[21]
In her arguments, the
Appellant stated that the auditor established her personal expenses in part
from expenditures found on her credit cards. However, she pointed out that the outstanding
balances on those credit cards should also be taken into account. In response
to this argument, it can be seen that this was accounted for in the net worth
liabilities under loans (Exhibit I‑4).
[22]
The Appellant also
stated that she received non-taxable Canadian Child Tax Benefits. This also was
taken into account in the deductions under the CTB heading (Exhibit I‑4).
[23]
Counsel for the
Respondent relied on the recent decision of the Federal Court of Appeal (FCA)
in Lacroix v. Canada, [2008] F.C.J. No. 1092 (QL), in which the Court
stated that, to the extent that the Minister assumes that the income determined
by net worth assessment is taxable, the onus is on the taxpayer to prove this
assumption wrong. If there is no credible evidence adduced by the latter, the
Minister is not required to adduce evidence of the existence of this income
(paragraph 20).
[24]
The Court goes on to
say that if the taxpayer does not provide such credible evidence, it must
inevitably be concluded that the taxpayer knowingly filed a false return under
circumstances amounting to gross negligence (paragraph 30).
[25]
Counsel for the
Respondent also cited another FCA decision, Hsu v. Canada, [2001] F.C.J.
No. 1174 (QL), in which it states:
[30] 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.
[26]
The Appellant contests
the amount of personal expenses established by the Minister. However, this
amount was first established from amounts provided by the Appellant on cost-of-living
forms, which she signed and submitted to the auditor. It is true that some of
these amounts appear to have been established using values estimated by
Statistics Canada. However, these amounts appear reasonable to me for a family
of three, with a child between 10 and 12 years of age in the years in issue.
The Appellant's testimony was contradicted on several occasions by documents
adduced in evidence, which brings the credibility of her testimony into
question. In the circumstances, she should have brought with her documents
showing more explicitly the grounds on which she based her opposition. This was
not done. The same reasoning applies to the gifts that the Appellant says she
received from her family in Lebanon and which were not accepted by the
Minister. She did not establish conclusively the existence of such gifts.
[27]
In light of the
evidence before me and the case law cited, I must dismiss the appeals in whole,
thus confirming the assessments under appeal, including the penalties.
Signed at
Montréal, Quebec, this 24th day of October 2008.
"Lucie Lamarre"
Translation
certified true
on this 3rd day of December 2008.
Brian McCordick,
Translator
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