Citation: 2008TCC87
Date: 20080206
Docket: 2005-4305(IT)G
BETWEEN:
AMID AGHAHOSSEINI NAEINI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Miller J.
[1] Mr. Amid
Aghahosseini Naeini appeals the Minister of National Revenue’s (the “Minister”)
assessment of his 2001 and 2002 taxation years, on the basis that the Minister
incorrectly included in his income interest of $71,015 in 2001 and $61,117 in
2002. Mr. Naeini argues that the interest arose on money belonging to his
mother-in-law, Mehlagha Mostafavi Shirazi.
[2] Mr. Naeini and his
wife immigrated to Canada from Iran in 1995, returned briefly to Iran before returning again
to Canada in 1998. Mr. Naeini was
a journalist and writer in Iran. He described in some detail problems he encountered with
Iranian authorities in post-revolution Iran. This resulted in some
considerable time in prison in 2001 as well as the loss of most of his assets
in his newspaper business.
[3] Mrs. Naeini
described her mother, Mrs. Shirazi,as “wealthy”. She had run a beauty school in
Tehran until the revolution,
and then she worked for a couple of years from home. After her husband died, Mrs.
Shirazi’s wealth increased. According to Mrs. Naeini, her mother wanted to move
this wealth out of Iran
to America for the purpose of acquiring a property in the United States, which would ultimately
lead to her being able to obtain a Green Card and live in the United States. Her mother has not
been well in the last several years, suffering from depression. Mrs. Naeini
described the situation in Iran as difficult, particularly for women. It was hard for
women to get visas and leave the country. It was also difficult to openly
withdraw funds from the country. Mrs. Shirazi had friends and relatives in
California.
[4] Mr. Naeini
testified that he offered to help his mother-in-law shift her wealth to the
United States by opening US accounts with the Bank of America in San Francisco. He opened and
controlled several accounts with Bank of America in San Francisco from 1999 to 2006. For
a period of time in 2001, while Mr. Naeini was in prison in Iran he was unable to do
anything regarding his mother-in-law’s financial affairs.
[5] According to Mrs.
Naeini, her mother liquidated her wealth by the selling of jewellery and
antiques. Mrs. Shirazi would sell these belongings from home and would receive
cash or what Mr. Naeini referred to as “cheque money”, something akin to money
orders or some such money equivalent. Mrs. Shirazi would either deposit these
cheque monies into a bank in Tehran or accumulate it and deposit it with an exchange office.
The “exchange place” was the term used by the interpreter to describe the
office that Mr. and Mrs. Naeini referred to as the place where Mrs. Shirazi
would deliver funds for forwarding on to the United States. According to Mr. Naeini,
the exchange place would receive either the cheque monies or the cash and would
transfer these funds through an office in Dubai to the Bank of America accounts
set up by Mr. Naeini in San Francisco. He further testified that one simply did not use banks
in Iran to transfer monies:
things were not done in the open.
[6] Mr. Naeini set up the
Bank of America accounts in San Francisco in early 1999 with a deposit of $500. He claimed
that this would allow his mother-in-law a conduit to deposit funds for the
purpose of acquiring a US property and also to create a record for her so she could
ultimately get a visa. According to Mr. Naeini, the accounts could not be
put in Mrs. Shirazi’s name as she was not present in the United States; neither
could she simply sign banking documents as they required confirmation from a US embassy, which did not
exist in Iran. Mrs. Shirazi was
unwell, according to Mr. Naeini, suffering from depression and was unable to
secure a visa to get to the United States. She had in fact only visited Canada on one occasion.
[7] In March 1999, a
deposit of $100,000 was made into the Bank of America account set up by Mr.
Naeini in his own name. The Bank of America monthly statement for that month
shows the following:
03/08 Funds transfer Ref. NTA06720261
source: Fedwire Sender Ref: G0090670610201 Benef: Mr. Amid A Naeini Orig:
Abbas Aghahosseini Naeini
[8] Mr. Abbas Naeini is
the Appellant’s brother, who Mr. Naeini claimed helped his mother-in-law with
this first transfer. With respect to the many subsequent transfers, Mr. Naeini
indicated that his mother-in-law was assisted by friends and family in Tehran, as she was not well
enough to handle it herself.
[9] The Respondent
produced about 600 pages of Bank of America statements covering the period from
1999 to 2006 consisting of seven Investment CD accounts, one Interest Maximizer
account and one Prima account, all in Mr. Naeini’s name. During this
period, over $4 million was deposited into these accounts. As several monthly
statements were missing, it is difficult to say with any certainty exactly how
much was deposited. Both Mr. and Mrs. Naeini were adamant that the funds were
Mrs. Shirazi’s, arising from the sale of her personal property and transferred
into these several accounts.
[10] While numerous
deposits into the accounts appeared in the statements over the years, there were
only a handful of withdrawals. Mr. Naeini offered an explanation for one of the
withdrawals of $5,000, which he suggested was for a friend in need. He claimed
he sought his mother-in-law’s approval before using these funds and he
redeposited the $5,000 to his mother-in-law’s bank in Tehran within a couple of months. With
respect to another withdrawal for $15,000, Mr. Naeini could not recall
what this pertained to. There were also cheques of $100,000, $400,000 and
$500,000 for which no explanation was given. Mr. Naeini’s position was
generally that all the money that was deposited in the accounts remained in the
accounts for his mother-in-law, though there may have been movement amongst the
accounts. In November 2006, $4,256,990 was withdrawn from the Bank of America
to a Swiss bank account to his mother‑in‑law’s credit.
[11] Mr. Naeini
acknowledged that he directed the management of the accounts, for example advising
the Bank on the term for certificates of deposit. He explained that his
mother-in-law did not understand the difference in accounts and simply left it
to him. According to Mr. Naeini, Mrs. Shirazi wanted the money untouched and
was prepared to leave it in accounts which yielded a low rate of return. Mr.
Naeini stated that had it been his money, he would have sought greater returns.
[12] When asked if he had
any record of the wire transfers from Iran to Dubai, or any evidence of withdrawals
from his mother-in-law’s bank accounts in Tehran, Mr. Naeini responded that these
transfers were done on trust. That is the way it had to be in Iran according to Mr.
Naeini: it could not be handled through Iranian banks.
[13] The trial was
adjourned to allow Mr. Naeini time to arrange for a representative from the
Bank of America to provide evidence. He was unsuccessful in making these
arrangements.
[14] Finally, Mr.
Naeini’s 2000, 2001 and 2002 tax returns indicate that he owned five or six
rental properties yielding gross rental of approximately $120,000 a year with
approximately $15,000 of net income annually.
[15] The Minister
reassessed Mr. Naeini for his 2001 and 2002 taxation years in January and May
2005, respectively, to include in Mr. Naeini’s income interest from the Bank of
America accounts in the amounts of $71,015 and $61,117.
[16] The issue is simply
whether the interest income is Mr. Naeini’s income subject to tax in Canada. This is entirely a
factual determination.
[17] The Naeinis’ description
of post-revolution Iran
paints a bleak picture of repression and censorship. It is difficult for
Canadians to fully appreciate how such a society functions. So, when Mr. Naeini
talks in terms of moving funds offshore, not openly, but having to rely on
trust, and without the documentary trace that a North American might expect,
one cannot immediately leap to a negative inference. Yet there were actions
that took place in North America or within the international financial
community, outside of Iran, that I would expect might leave a paper trail. What I am
really faced with is Mr. and Mrs. Naeini testifying that Mrs. Shirazi deposited
her own money with Mr. Naeini to invest in the United States pending its use to
buy property in the United States. The only documentary records I have are incomplete bank records
indicating all accounts are in Mr. Naeini’s name. Millions of dollars were
deposited into those accounts between 1999 and 2006, mainly through something
called “International Media Services”, purportedly from Dubai, and in 2006, $4.2
million was withdrawn to Mrs. Shirazi’s credit. Neither side provided any sort
of reconciliation to satisfy me that what was deposited equated to what was
ultimately released to Mrs. Shirazi plus any accumulated interest.
[18] The concerns I have
with Mr. Naeini’s story are as follows:
(a) As
a registered owner of the several Bank of America accounts Mr. Naeini had
complete control over the investments. There is no evidence he took any regular
directions from Mrs. Shirazi. Neither was there any correspondence, let alone
agreement, governing how Mr. Naeini was to handle millions of dollars for his
mother-in-law.
(b) Most
of the funds came through something called “International Media Services”.
Based on Mr. Naeini’s testimony that the money flowed through Dubai, I conclude
International Media Services has some Dubai connection. It was not suggested that Dubai suffered under
a similar repressive regime as Iran such that records of a Dubai financial institution could not be
accessed.
(c) Both
the Naeinis testified that Mrs. Shirazi sought real estate in the United States and had at least one
possible acquisition, which fell apart due to a problem with asbestos. The
Appellant deemed it unnecessary to provide documentary support for any possible
real estate deal.
(d) While I accept Mrs.
Shirazi may have been too unwell, and that there may be too many hurdles to
have had her come to Canada to provide evidence, the complete lack of
any corroboration from her is of concern.
(e) Although I received
some 600 pages of monthly bank records covering 1999 to 2006, there were many
gaps. What occurred in those missing months? Were funds withdrawn? Were funds
deposited from different sources? Some attempt to provide a clear picture of
what went in, what interest accumulated and what came out would have been most
useful. Instead I am left to speculate as to what happened to create balances
that do not align. More significantly, I am left with no explanation for
cheques of $100,000, $400,000 and $500,000 in the year 2000. Were they all
re-invested? Were they all paid out to Mr. Naeini? I was provided no
explanation.
(f) I recognize that
commercial transactions in Iran might be conducted to a different standard that
might be expected in Canada, especially as they might pertain to
moving funds offshore. Yet I find the explanation that Mrs. Shirazi had people
coming to her house to buy jewellery and antiques, paying with cash or with
“cheque money” running into the millions of dollars highly suspect. I then am
asked to believe she rarely put the funds into banks, but used the family to
take the cash to an exchange place from where it got transmitted to Dubai and not to the United States. It is a remarkable story.
[19] I balance against
these concerns the Naeinis’ testimony that the amounts would have been in Mrs.
Shirazi’s name except that she could not complete the necessary paperwork
either in the United States or Iran. On balance, I find Mr. Naeini has not proven that
the monies were the property of his mother-in-law. As there is no other
explanation put forward as to whose money it is, I conclude the money belongs
to the person in whose name the bank accounts are established – Mr. Naeini.
[20] I have found this
matter a close call. There are, however, too many gaps, unexplained cheques,
insufficient corroboration, documentary or otherwise, to allow Mr. Naeini’s
appeals.
[21] Had I found that
Mrs. Shirazi did in fact send her money to Mr. Naeini, there are still several
possible scenarios I would have had to consider:
(a)
The
money always remained Mrs. Shirazi’s as Mr. Naeini contends.
(b)
Mrs. Shirazi simply
gave the money to her son-in-law and daughter.
(c)
Mrs. Shirazi lent the
money to Mr. Naeini to be repaid on demand.
(d)
Mrs. Shirazi entered into
a family financial arrangement whereby Mr. Naeini controlled the funds
subject to some sort of recall right to Mrs. Shirazi for some or all of the
funds.
[22] The evidence that
supports the position that the money remained Mrs. Shirazi’s was primarily
the fact that in 2006, $4.2 million was sent to her. What has not been proven,
however, was whether this represented all monies paid into the accounts by her,
plus interest. As indicated earlier, there were cheques in 2000 alone totalling
$1 million, which have not been adequately explained. That fact, combined with
gaps in the monthly records, is not proof that Mrs. Shirazi got back all she
put in, plus interest. The records are equally consistent with a loan to Mr.
Naeini or some family arrangement whereby he had use of the money until Mrs.
Shirazi wanted some or all of it back. Families can enter peculiar financial
arrangements for any number of reasons. I find the fact that $4.2 million was
sent to an account in Mrs. Shirazi’s name is not conclusive that the money
always belonged to her. As the Crown pointed out, this occurred after these
appeals had been brought.
[23] I find Mr. Naeini
has not proven the facts favour one interpretation over another. Indeed, the
control that Mr. Naeini had over the accounts, including the ability to write
cheques, some of which are unaccounted for, tips the balance to a finding that
the family arrangement, whatever it might have been, rendered the money his for
the purposes of earning income on it. It is for Mr. Naeini to demolish the
Minister’s assumption that he received interest in 2001 and 2002 as registered
owner of the Bank of America accounts. He has been unable to do so. The case is
dismissed, with costs.
Signed at Ottawa, Canada, this 6th day of February, 2008.
“Campbell J. Miller”
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