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Citation: 2003TCC9
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Date: 20030203
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Docket: 2001-4498(IT)I
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BETWEEN:
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AMI BENARROCH,
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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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_______________________________________________________________
Appeals heard on January 24, 2003 at Toronto,
Ontario
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Before: The Honourable D.G.H. Bowman, Associate Chief
Judge
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Appearances:
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Counsel for the Appellant:
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Moses Muyal, Esq.
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Counsel for the Respondent:
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Michael Appavoo, Esq.
Joel Oliphant, Esq.
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_______________________________________________________________
JUDGMENT
It is
ordered that the appeals from assessments made under the
Income Tax Act for the 1992, 1993, 1994, 1995, 1996, 1997
and 1998 taxation years be allowed and the assessments be
referred back to the Minister of National Revenue for
reconsideration and reassessment solely to delete the penalties
under subsection 163(2) of the Income Tax Act.
There will
be no order for costs.
Signed at Vancouver, Canada, this 3rd day of February
2003.
A.C.J.
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Citation: 2003TCC9
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Date: 20030203
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Docket: 2001-4498(IT)I
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BETWEEN:
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AMI BENARROCH,
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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
Bowman, A.C.J.
[1] The appeals are
from reassessments for the taxation years 1992, 1993, 1994, 1995,
1996, 1997 and 1998. They involve the denial of tax credits in
respect of charitable donations allegedly made to the Or Hamaarav
Sephardic Congregation in the amounts of $9,750, $9,750, $19,000,
$14,000 and $18,000 in the years 1992 to 1996 respectively. For
1997 the appellant claimed credits for donations of $15,000 and
$1,000 made to the Mincha Gedolah Synagogue and the Abarbanel S.
Learning Centre respectively. For 1998 the appellant claimed to
have made charitable donations of $13,000 to the Mincha Gedolah
Synagogue. The tax credits in respect of these alleged charitable
donations were denied by the Minister of National Revenue.
[2] The reassessments
for at least some of the years were made outside the three-year
"normal reassessment period". Accordingly, to justify
the reopening of these statute-barred years the respondent has
the onus of establishing that the appellant made
misrepresentations that were attributable to neglect,
carelessness or wilful default.
[3] Also, penalties
were imposed under subsection 163(2) of the Income Tax
Act and the Minister has the additional burden of
establishing that the appellant made false statements or
omissions in his returns "knowingly or under circumstances
amounting to gross negligence".
[4] The
appellant's appeals are one of many that the judges of this
court have heard in recent months involving charitable receipts
issued by the Or Hamaarav Sephardic Congregation founded by Rabbi
Leon Edery.
[5] Rabbi Edery came
to Canada from Morocco in 1967. He founded a synagogue at
2939 Bathurst Street, North York, and a charter was granted
in 1971 to the Or Hamaarav Sephardic Congregation.
[6] The moving force
behind this congregation was Rabbi Edery. He was particularly
interested in newcomers to Canada and was concerned to ensure
that Jewish children obtained a proper Jewish education.
[7] He raised money
for a Hebrew school and in 1983 he obtained a second charter, the
Abarbanel S. Learning Centre, a day care centre for Jewish
children.
[8] In 1985 the
building in which the day care centre was located was lost
through foreclosure and it became difficult to raise money and so
he embarked upon a scheme which, however laudable his objectives,
was quite illegal. It involved giving receipts for charitable
donations far in excess of the amount actually given. This was
accomplished in one of two ways: either the full amount shown on
the charitable receipt would be given and between 80% and 90%
would be returned to the donor or the donor would give only 10%
to 20% of the amount shown on the receipt.
[9] In 1996 Rabbi
Edery founded a further organization, Mincha Gedolah Synagogue.
He was the only person authorized to issue charitable receipts on
behalf of the three organizations mentioned above.
[10] The fundraising that I
described above was done generally through fundraisers, one of
whom was one Meier Cohen (now deceased).
[11] Rabbi Edery's
practice of issuing inflated charitable receipts came to light
when the CCRA (or Revenue Canada) began examining the returns of
the clients of a tax preparer, one Jacob Abacassis. The unusually
large charitable donations and business losses claimed by his
clients caught the attention of the tax authorities. Both
Mr. Abacassis and Rabbi Edery were charged criminally under
section 239 of the Income Tax Act. Mr. Abacassis
pleaded guilty. Rabbi Edery fought the charges but he was
convicted by Judge Rebecca Chamail and sentenced to pay a fine of
$32,000, a year of house arrest and 240 hours of community
service. The charters of the charities were also revoked.
[12] What makes this case
different from the other cases in which the Crown has denied
credits for charitable gifts is that in the other cases the
allegation has been that charitable receipts issued by Rabbi
Edery on behalf of his charities were for amounts that were far
in excess of the cash given by the donor and received by the
charities.
[13] Here the situation is
rather different. The appellant was acquainted with Rabbi Edery
since about 1970 or 1971. The appellant came to Canada from
Algiers in 1968 at the age of 15. He has always been active in
Rabbi Edery's congregation and in the Jewish community. He
was involved in raising funds for Rabbi Edery's synagogues
and his charitable activities. He has prospered and is at present
the president of a large company and earns a substantial
income.
[14] He believes in giving
10 to 15% of his earnings back to the community.
[15] He was extremely
active in fund raising for Rabbi Edery's charitable and
religious activities. He testified that he gave cash and goods
such as clothing that were distributed to the needy or used by
Rabbi Edery's charities.
[16] We have then a pillar
of the community actively involved in charitable works and
community service.
[17] The problem is that
Rabbi Edery testified that he paid the appellant a commission of
between 5 and 15% of the substantial amounts of money raised but
those commissions were in the form of charitable receipts.
[18] I was initially
uncertain whether the commissions were 5-15% of the net amount
received by the charities (i.e. 5-15% of the 10-20%) of the
amount actually received by the charity or 5-15% of the full
amount shown on the charitable receipts given to the donors. This
was however cleared up by Rabbi Edery from Exhibit R-8
which shows the 15% being applied to the amount of charitable
receipts given in March 1997 to persons from whom the appellant
solicited donations. That part of the exhibit is clear enough,
although the portion at the bottom of the page, after the
calculation of 15% of $50,000 on charitable receipts is not. The
Crown's witness, an investigator, Mr. Menniti, was
unable to explain the figures behind the additional receipts.
[19] It comes to this. The
charitable receipts submitted by the appellant in his return of
income seem to have represented in part the commissions paid to
him by Rabbi Edery, in part cash donations and in part donations
in kind. He was unable to say what part were cash donations, what
part the value of donations in kind and what part represented
commissions. He accepted the receipts Rabbi Edery gave him.
[20] Clearly the Minister
was justified in opening up the statute-barred years on the basis
of negligence on the part of the appellant and in disallowing the
credits claimed in respect of the receipts. Charitable receipts
issued as commissions for fund raising for a charity are
obviously not eligible for the charitable donations tax credits
and if the appellant is unable to identify at least which
receipts are for valid gifts and which are simply commissions for
fund raising, none qualify.
[21] The penalties under
subsection 163(2) of the Act are another matter. The
type of negligence ("gross negligence") required to
support a penalty under subsection 163(2) is of a higher
order than that required to permit the Minister to reassess
outside the normal reassessment period (Farm Business
Consultants Inc. v. The Queen, 95 DTC 200 (T.C.C.)
aff'd 96 DTC 6085 (F.C.A.)).
[22] That higher standard,
which requires the Crown to demonstrate an indifference amounting
almost to recklessness has in my view not been demonstrated. The
evidence is equally consistent with simple negligence and gross
negligence and any doubt should therefore be resolved in favour
of the subject.
[23] The appeals are
allowed and the assessments for the years 1992 to 1998 inclusive
are referred back to the Minister of National Revenue for
reconsideration and reassessment solely to delete the penalties
under subsection 163(2) of the Income Tax Act.
[24] There will be no order
for costs.
Signed at Vancouver, Canada, this 3rd day of
February 2003.
A.C.J.
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