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Docket: 2002-2273(IT)I
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BETWEEN:
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XIAO-PEI HUANG,
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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 together with the appeals of Wen Ling Zhu
(2002-2292(IT)I) on May 6, 2003 at Toronto, Ontario
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Before: The Honourable Judge L.M. Little
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Appearances:
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Agent for the Appellant:
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Wen Ling Zhu
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Counsel for the Respondent:
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P. Michael Appavoo
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____________________________________________________________________
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1997 and 1998 taxation years are allowed, without
costs, and the assessments are referred back to the Minister of
National Revenue for reconsideration and reassessment in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 21st day of May 2003.
J.T.C.C.
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Docket: 2002-2292(IT)I
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BETWEEN:
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WEN LING ZHU,
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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 together with the appeals of Xiao-Pei Huang
(2002-2273(IT)I) on April 10, 2003 at Vancouver, British
Columbia
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Before: The Honourable Judge L.M. Little
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Appearances:
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For the Appellant:
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The Appellant herself
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Counsel for the Respondent:
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P. Michael Appavoo
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____________________________________________________________________
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1997 and 1998 taxation years are allowed, without
costs, and the assessments are referred back to the Minister of
National Revenue for reconsideration and reassessment in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 21st day of May 2003.
J.T.C.C.
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Citation: 2003TCC324
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Date:20030521
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Dockets: 2002-2273(IT)I
2002-2292(IT)I
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BETWEEN:
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XIAO-PEI HUANG,
WEN LING ZHU,
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Appellants,
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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
Little, J.
A. FACTS:
[1] The above appeals were heard on
common evidence in Toronto, Ontario on the 6th day of May
2003.
[2] In May 1996 the Appellants each
purchased a one-half interest in the J and J Bar and
Restaurant (the "Restaurant"). The Restaurant was
operated by Wen Ling Zhu with assistance provided by her
husband.
[3] In September 1997 the Appellant,
Wen Ling Zhu, was diagnosed with a serious health problem and she
required a medical operation.
[4] As a result of the serious health
problem the Appellants sold the Restaurant for $45,000.00. The
Appellant, Wen Ling Zhu, testified that in addition to the
payment of $45,000.00 for the Restaurant the Appellants also
received $4,300.00 for the inventory that was used in the
Restaurant (Exhibit A-6). (Note: In reviewing deposits. to the
bank account, the Minister of National Revenue (the
"Minister") accepted the $45,000.00 that was received
on the sale of the Restaurant but has not recognized the amount
of $4,300.00 that was received on the sale of inventory.)
[5] When the Appellants filed their
income tax returns for the 1997 and 1998 taxation years they
each reported their share of the loss suffered by the
Restaurant.
[6] Meetings were held with officials
of the Canada Customs and Revenue Agency (the "CCRA")
and various adjustments were made to the income from the
Restaurant. Counsel for the Respondent stated that additional
income was determined by officials of the CCRA carrying out an
analysis of all deposits shown in the bank account of the
Restaurant and in the personal bank accounts of the
Appellants.
[7] On the 19th day of April 2002, the
Minister issued Notices of Reassessment for the Appellants'
1997 and 1998 taxation years. In the said Reassessments the
Minister determined that the understated net income from the
Restaurant was as follows:
WenLing Zhu
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1997
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1998
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i)
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Understated business income
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$20,644
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($1,964)
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ii)
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Disallowed eligible capital expense
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- 0
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11,250
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Understated net income
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$20,644
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$9,286
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Xiao-PeiHuang
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1997
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1998
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i)
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Understated business income
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$20,644
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($1,964)
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ii)
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Disallowed eligible capital expense
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- 0
-
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11,250
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Understated net income
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$20,644
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$9,286
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B. ISSUE:
[8] The issue is whether the Minister
was correct when he issued the Notices of Reassessment.
C. ANALYSIS
[9] The Appellant, Wen Ling Zhu,
testified that when her parents returned to China in 1996 her
parents left her with cash in the amount of $19,800.00
(Cdn. $). The Appellant said that she deposited this money
into the bank account of the Restaurant. The Appellant said that
she used this money to pay for the operating expenses of the
Restaurant. The Appellant has not produced any evidence to
corroborate this statement and the Minister has not recognized
that the Appellant received a gift of $19,800.00 from her parents
in 1996.
[10] During the hearing of the appeals the
Appellant, Wen Ling Zhu, testified that she and her husband
received a total of $3,000.00 in cash as wedding gifts when her
daughter was married in 1997. The Minister has recognized the
amount of $3,000.00 and allowed a deduction of $3,000.00 in
reviewing the bank deposits. (Note: This amount was deducted by
the Minister before the Reassessments were issued.)
[11] During the hearing of the appeals, the
Appellant, Wen Ling Zhu, testified that she and her husband had
received cash payments totalling $28,000.00 from their friend,
Mr. Luo Pei En. Wen Ling Zhu testified that this amount was
deposited in the bank account of the Restaurant. The Appellant
said that this money was used to pay for the operating expenses
of the Restaurant. The Appellant also stated that this money was
later returned to Luo Pei En. (Note: The Minister recognized the
deposit of this loan in the bank account before the Reassessments
were issued.)
[12] During the hearing of the appeals the
Appellant, Wen Ling Zhu, testified that the parents of her
son-in-law made a gift to the Appellants of $20,000.00. At the
conclusion of the hearing Mr. Michael Appavoo, Counsel for the
Respondent, advised the Court that the Minister was prepared to
accept the Appellants' testimony and recognize the gift of
$20,000.00 from the parents of the Appellants'
son-in-law.
[13] The Appellant, Wen Ling Zhu, also
testified that they had received the sum of $4,300.00 when they
sold the Restaurant and the money was deposited in the bank
account of the Restaurant. I have carefully considered the
testimony of the Appellant and I accept her testimony.
[14] However, I agree with the decision of
the Minister regarding the unproven statement that Wen Ling Zhu
was given the sum of $19,800.00 by her parents in 1996.
[15] The Appellants' appeals will be
allowed and the Minister is instructed to issue Notices of
Reassessment on the following basis:
WenLing Zhu
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1997
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1998
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Understated Net Income
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$20,644
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$9,286
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Deduct $10,000 re gift from parents of son-in law[1]
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$10,000
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Deduct $2,150 re sale of inventory
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$2,150
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Understated net income
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$10,644
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$7,136
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Xiao-PeiHuang
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1997
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1998
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Understated Net Income
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$20,644
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$9,286
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Deduct $10,000 re gift from parents of son-in law[2]
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$10,000
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Deduct $2,150 re sale of inventory
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$2,150
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Understated net income
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$10,644
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$7,136
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[16] In reviewing the documents that were
filed as exhibits with the Court, I could not reconcile the
recommendations contained in the Report on the Notice of
Objection (See Exhibit R-2). For example, in the Report it is
stated that the revised net business income for 1997, for each
Appellant was to be $14,753.00. However, according to the Reply
to the Notice of Appeal the understated net income for each
Appellant for 1997 was $20,644.00. I request that officials of
the CCRA carefully review the Reports prepared by the officials
of the Appeals Section when they are making the adjustments
referred to above.
Signed at Ottawa, Canada, this 21st day of May 2003.
J.T.C.C.
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