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Citation: 2004TCC686
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Date: 20041021
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Docket: 2002-2671(IT)G
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BETWEEN:
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ALI GHAITH,
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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
Lamarre Proulx, J.
[1] This is an appeal from assessments
for 1996, 1997 and 1998 taxation years made on the basis of the
net worth method.
[2] The appellant contests two
inclusions:
(1) For the year 1996, the purchase
price of a 1991 Pontiac Bonneville. The purchase price of the
Bonneville was established by the auditor at $12 791 using the
Red Book, a specialized publication on used car value.
(2) For the year 1998, the amount of
$60,000, being the balance of the purchase price of a building
acquired by the appellant. The building is the one in which the
appellant carries on a car wash business, under the name of
Centre d'auto Picci Enr.
[3] As regards the appellant's
income:
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(a)
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The appellant declared the following total income in his
tax returns for the 1996, 1997 and 1998 taxation years:
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1996: $15 276
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1997: $24 204
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1998: $20 374
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(b)
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The minister added the following amounts to the
appellant's income by using the net worth method:
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1996: $13 666
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1997: $18 314
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1998: $69 439
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[4] The appellant produced as part of
Exhibit A-1 a number of documents designated as tabs A
to M. The respondent produced as Exhibit R-1 a book of
documents containing 38 tabs.
[5] Respecting the amount of the
purchase price of the Pontiac Bonneville, the appellant referred
to Tab L of his documents. Tab L is a document, undated
and unsigned, wherein a named person declares that he sold the
appellant a Pontiac Bonneville SSE for $3,500.
[6] In 1997, the car was stolen. The
insurance company paid the appellant an amount of $10,571. The
two pertinent cheques are shown at Tab 18 of
Exhibit R-1.
[7] The auditor stated that these
cheques were not deposited and were not taken into account by
him. However, he did enter for the year 1997 a loss of $2,220 on
the disposition of the car.
[8] Respecting the amount of $60,000
added for the year 1998, the appellant produced documents
emanating from Lebanon to show that a cousin had sent him money
to assist him in paying for a building.
[9] Indeed, on March 24, 1998,
the appellant acquired from Mr. Eddy Wilkinson a building
situated at 11,770 5th Avenue in the City of Montreal. The
clause concerning the price stated that:
Cette vente est faite pour le prix de CENT CINQUANTE MILLE
DOLLARS (150 000,00 $) payé par
l'acquéreur, dont quittance finale de la part du
vendeur.
[10] The contract appears at Tab 37 of
Exhibit R-1. Tab 38 is the mortgage agreement
relating to the mortgage loan granted by La Banque Laurentienne
du Canada. The loan is in the amount of $100,000. However, the
appellant stated that he borrowed $90,000, which is accepted by
the respondent. It is the balance of $60,000 that was added to
his income for the year 1998.
[11] The Appellant said that he did not pay
the entire amount to Mr. Wilkinson at the time of
acquisition and that Mr. Wilkinson had agreed to be paid
later in cash amounts.
[12] As he was being pressed by the vendor
for payment of those amounts, the appellant said, he called his
cousin, Ibrahim Youssef, a businessman residing in Lebanon.
This cousin then sent him money in envelopes entrusted to various
carriers.
[13] There were two amounts of $15,000 sent
on May 23 and June 20, 1998, and three amounts of
$10,000 sent on July 15, August 20 and August 28,
1998. The five carriers came to testify. Their testimony was
about the same: they had gone to Lebanon; they were related to
the appellant and to the rich Lebanese cousin; and they brought
back an envelope for the appellant.
Analysis and conclusion
[14] Respecting the first question at issue,
the document produced at Tab L of Exhibit A-1 and
described in paragraph 4 of these reasons cannot be accepted
as proof of payment in the absence of some other evidence to the
same effect. As it was, there were no official documents showing
the transfer of the car, the name of the previous owner or the
transfer price indicated to the SAAQ. Moreover, the appellant
obtained $10,571 in insurance proceeds on the theft of the car,
and a loss of $2,220 was entered on the statement of net worth. I
thus consider that the appellant received fair tax treatment
regarding that car and that he was dealt with in conformity with
the Income Tax Act.
[15] As for the second point at issue, at
the beginning of the hearing the appellant emphasized the
following appearing in a written statement addressed to counsel
for the respondent and forming part of
Exhibit A-1:
It is impossible and inconceivable that I could have made an
additional $60000 in revenues from washing cars in 1998.
It is a given that in any business there are fluctuations in
revenue from one year to the next, however such an increase
compared to other years is totally unrealistic.
[16] I have previously considered the matter
of a significant increase in income in Badaan v. The
Queen, 2000 DTC 2610, and I expressed the view that where
there is such an increase in income some evidence or at least
some statistical evidence should be adduced by the respondent to
show that this increase may possibly come from the
appellant's type of business activities in that year.
[17] I understand that in fact the
appellant's net worth increased by $60,000, but at the same
time, one should not be taxed on savings from previous years or
from amounts on money borrowed from undisclosed sources in cases
where the increase is really abnormally high in comparison with
other years. I am not convinced that the appellant received the
entire amount of $60,000 from his Lebanese cousin, but neither am
I convinced that this amount came from his business activities in
1998.
[18] Therefore, I find that there could be
added to his income for the year 1998 an amount that takes into
account both the uncertainty as to the source of the money and
the fact that the appellant's net worth did increase in that
year.
[19] The appellant's average income for
the years 1996 and 1997 was $35,730. I have calculated it on the
basis of the declared income and of the added income described in
paragraph 2 of these reasons. I take that amount to have
also been the appellant's income for the year 1998. As an
amount of 20 374 $ was declared by him, I consider that there
could be added for 1998 an amount of $15,356 rather than the
$69,439 added by the Minister.
[20] With respect to the penalties as
assessed pursuant to paragraph 163(2) of the Income Tax
Act, I am of the view that they should be maintained. No
daily record of sales was kept, nor were there any books of
account: the accounting was absolutely deficient. Those are
circumstances in which penalties are warranted.
[21] The appeals are dismissed for the years
1996 and 1997. The appeal for the year 1998 is allowed on the
basis that additional income of $15,356 and not $69,439 should be
added.
Signed at Ottawa, Canada, this 21st day of October, 2004.
Lamarre Proulx, J.
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