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Citation: 2005TCC183
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Date: 20050315
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Docket: 2002-823(IT)G
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BETWEEN:
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ROBERT YOUNG,
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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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REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the
General Procedure was heard at Saskatoon, Saskatchewan, on
January 10, 2005. The Appellant testified and called
John Ostoforoff, C.M.A. and subpoenaed Bill Jensen, C.A.,
his accountant during 1994 and 1995, the years in question. The
hearing of January 10 was adjourned to February 21, 2005 to
enable Mr. Jensen to search for documents; no documents were
found. His office did a general shredding in 2002, after the
Appellant had retained another firm. On February 21 the Appellant
also called Terrance Hanchar, C.M.A. and the Appellant's wife,
Margaret Young, and the Appellant testified for a second time.
The Respondent called the auditor on the file, Timothy Murphy,
B.Comm. At the outset, an interpreter in Cantonese, Jimmy Fung,
was sworn in.
[2] Paragraphs 3 to 7 inclusive of the
Reply to the Notice of Appeal set out the matters in dispute.
They read:
3. The
Minister of National Revenue (the "Minister") initially assessed
the Appellant for the 1994 and 1995 taxation years by Notices of
Assessment dated October 22, 1999.
4. The
Minister added $52,312.92 to the Appellant's income in each of
the 1994 and 1995 taxation years as a result of benefits received
from Chow Enterprises Ltd. ("Chow").
5. In so
assessing the Appellant for the 1994 and 1995 taxation years, the
Minister relied on, inter alia, the following
assumptions:
a) The facts
herein before admitted;
b)
Chow was incorporated August 28,1980;
c)
The Appellant was the controlling mind of Chow;
Mortgage Payments on 215 Whiteswan
d) The
Appellant directed Chow to deposit $2,147.41 per month into the
personal bank account of himself and Margaret Young;
e)
These payments were not accounted for in the books and records of
Chow;
f)
The Appellant's mortgage payments on his personal residence
located at 215 Whiteswan Drive in the City of Saskatoon were
$2,147.41 per month;
g)
Chow deposited $25,768.92 into the Appellant's personal bank
account in each of the 1994 and 1995 taxation years;
h)
Chow conferred benefits totalling $25,768.92 in both the 1994 and
1995 taxation years on the Appellant in his capacity as
shareholder;
Mortgage Payments on 800 3rd Avenue
North
i) The
Appellant, Margaret Young and John Young jointly own an apartment
complex located at 800 3rd Avenue West in the city of
Saskatoon;
j) The
mortgage on the apartment building was in the names of the
Appellant, Margaret Young and John Young;
k) The
Appellant directed Chow to pay the mortgage on the apartment
building on his behalf;
l) Chow
made mortgage payments to the Royal Bank in the amount of
$2,212.00 per month on behalf of the Appellant;
m) Chow conferred
benefits totalling $26,544.00 in both the 1994 and 1995 taxation
years on the Appellant in his capacity as shareholder;
163(2) Penalties
n)
The Appellant is an experienced businessman;
o)
The Appellant has been a director and controlling mind of Chow
since Incorporation;
p)
The Appellant directed that Chow deposit an amount equal to his
monthly mortgage payments into his account;
q)
The Appellant reported net rental income from 800 3rd
Ave. of $6,685.00 in 1994 and $5,797.00 in 1995;
r)
The payments Chow made on 800 3rd Ave. were $26,544.00
each year;
s)
The amount of the mortgage payments was significant in relation
to the amount of income earned;
t)
The Appellant knowingly, or under circumstances amounting to
gross negligence in carrying out a duty or obligation imposed
under the Income Tax Act (the "Act"), made or participated
in, assented to or acquiesced in the making of false statements
or omissions in the income tax returns filed for the 1994 and
1995 taxation years, as a result of which the tax that would have
been payable assessed on the information provided in the
Appellant's income tax returns filed for those years was less
than the tax payable by the amounts of $10,043.11 and $10,452.48
respectively.
B. ISSUES
TO BE DECIDED
6. The issue
are:
a) whether the
Appellant received a benefit of $52,312, 92 in the 1994 taxation
year and $52,312.92 in the 1995 taxation year from the
corporation in his capacity as shareholder;
b) whether the
Minister is statute barred from assessing the 1994 and 1995
taxation years; and
c) whether the
Minister properly assessed penalties pursuant to subsection
163(2) of the Act in those years.
C.
STATUTORY PROVISIONS RELIED ON
7. He relies
on subsections 15(1), 163(2) and 248(1) of the Income Tax
Act, R.S.C. 1985, c. 1 (5th Supp.), as amended
(the "Act").
[3] Assumptions 5 a), b), c), d), e),
f), g), h), i), j), k), l), m), n), o), p), q), r) and s) were
not refuted by the evidence. The statute-barred claim referred to
in subparagraph 6 b) was refuted by the auditor's evidence.
[4] The Appellant was born in China in
about 1930 and came to California in 1947 with no English. He
moved to Canada in the mid 1950s and then went into business. His
spoken English is generally good, but broken, and he has some
knowledge of written English. For 1994 and 1995 he had his
accountant, a C.A., prepare his income tax and accounting
material and the Appellant signed them. Both his 1994 and 1995
income tax returns were filed on June 11, 1996, along with his
1992 and 1993 returns.
[5] Part of the Appellant's evidence
was Mr. Ostoforoff's testimony that the Appellant was devastated
when his son died of cancer in California in 1993 after being
hospitalized for about 3 years and from the Appellant's emphasis
of his son, that is believed. However part of the Appellant's
explanation respecting the money in question is that he received
money during 1994 and 1995 from this son, who was not alive in
those years. The Appellant testified that he collected the son's
rents after his death; however his wife Margaret said that their
daughter, Jean, collected these rents. They were Jean's
inheritance from the son. As a result, the Appellant is not
believed.
[6] In the examination of Mr. Jensen,
who was the Appellant's witness, the Appellant led evidence that
the income tax returns for Mr. Young for the years 1992 to 1995
inclusive were all filed together. Two different financial
statements of "Chow" were prepared for each of 1992 and 1995 and
were reviewed by Mr. Jensen on the stand. He could recall no
explanation for this except to say that the ones filed with
Revenue Canada were correct and the others may have been drafts.
In summary, Mr. Jensen testified that the Chow returns were based
on Mr. Young's instructions and that his firm ceased to act for
Mr. Young when he failed to provide the Jensen firm with
information to respond to Revenue Canada's proposal. He said that
the drafts may have been submitted to Mr. Young who then had them
corrected - the statements and returns filed showed less
income.
[7] Mr. Jensen's testimony is in
accord with what Mr. Young demonstrated in Court: no
substantiation of his business or property allegations by way of
documents or witnesses. As Mr. Jensen testified, if Mr. Young
filed his 1992 - 1995 income tax returns in June of 1996, that is
Mr. Young's responsibility. Mr. Young had the opportunity to
satisfy Revenue Canada at the audit stage, to satisfy Mr. Jensen
at the proposal stage and at this Court on January 10, 2005. On
February 21, 2005 Mr. Young came up with some explanations based
on his taking money from his son's rental property and from his
wife's payments on an agreement for sale. No documents
substantiated this alleged usage of these funds and there is no
evidence that such funds were ever reported for income tax
purposes by any party, including Mr. Young. In all of these
circumstances, this explanation is rejected by the Court.
[8] Mr. Young admitted to the auditor
and the financial statements of Chow relating to the years in
question confirm, respectively, that assumptions 5 d) to h) and 5
i) to m) were the case and these admissions of Mr. Young were the
basis of the assessments. The multitude of protests to the
contrary without documentary substantiation reversing Mr. Young's
initial statements and reversing Chow's financial statements are
not accepted.
[9] Mr. Jensen testified that upon
discussing Revenue Canada's proposal on the audit with Mr. Young,
Mr. Young failed to supply supporting documents for his income
tax returns and instead said "Let's talk to my M.P. and have him
look after this for me." Mr. Young had a number of prominent
M.P.s, including Paul Martin, as guests in his house. Mr.
Jensen also testified that Mr. Young, an experienced businessman,
understood English and the various financial statements and the
income tax returns of Chow Enterprises Ltd. and himself. The
Court finds this to be true based upon Mr. Young's demeanor and
testimony. On one occasion, when Mr. Young was testifying in
English, his wife rose in Court and, in Chinese, told him to
speak in Chinese.
[10] Based on the foregoing facts and for
all of these reasons, the Court finds that Mr. Young's testimony
lacks credibility generally.
[11] Mr. and Mrs. Young both testified that
Mr. Young was deeply affected and depressed by the death of his
son John in 1993 and that this was the cause of his failures to
file income tax returns. However Mr. Young's own evidence is that
he continued to manage Chow and the apartment building and
collect their monies and clean Chow's car wash. He also alleged
that he collected his son's and Jean's rents thus his own
statements are that he continued to carry on day-to-day business
affairs despite John's death. For this reason this is not
accepted as an excuse for the failure to file income tax returns
by Mr. Young from 1992 to 1995 inclusive.
[12] For the same reasons and on the
foregoing facts, the Court finds that Mr. Young knew his
income, its sources and his duty to file correct and timely
income tax returns. Knowing that, he knowingly made false
statements and omissions intentionally on his 1994 and 1995
income tax returns and filed them for these years. His knowledge,
so found, is also based on the fact that he had an earlier audit,
on which a judgment was consented to, in which Chow made payments
on "800 3rd Avenue" in Saskatoon. Moreover the amount
not reported is more than 9 times the amount Mr. Young reported
in both 1994 and 1995. Therefore the penalties are confirmed and
the Appellant is liable for them.
[13] The appeals are dismissed in their
entirety.
[14] The Respondent is awarded its taxable
costs and disbursements respecting the appeals.
Signed at Vancouver, British Columbia, this 15th
day of March 2005.
Beaubier, J.
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