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Citation: 2003TCC138
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Date: 20030318
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Docket: 2002-620(IT)I
Docket: 2002-622(IT)I
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BETWEEN:
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JACOB COHEN, and
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LAURENCE COHEN,
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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
Bowie J.
[1] Jacob Cohen has appealed from
reassessments for income tax for the 1996 and 1997 taxation
years. Laurence Cohen has appealed from reassessments for the
taxation years 1994 and 1995. In all these appeals, the only
issue raised is whether the Appellants in fact made certain
charitable donations for which the Minister of National Revenue
(the Minister) alleges that they claimed non-refundable tax
credits in the years in issue.
[2] Of the four reassessments, only
that of Jacob Cohen for 1997 was made within the normal
reassessment period, as that expression is used in section 152 of
the Income Tax Act (the Act). The parties all
agreed that the appeals of Laurence Cohen and the appeal of Jacob
Cohen for 1996 should be heard together on common evidence. They
also agreed that I should adjourn the appeal of Jacob Cohen for
1997, and I have done so. The Respondent has the burden of
proving that the Minister was authorized by paragraph
152(4)(a) of the Act to make the remaining
reassessments. At the relevant time, the applicable part
read:
152(4) Subject to subsection (5), the Minister may at
any time assess tax for a taxation year, interest or penalties,
if any, payable under this Part by a taxpayer or notify in
writing any person by whom a return of income for a taxation year
has been filed that no tax is payable for the year, and may
(a) at any
time, if the taxpayer or person filing the return
(i) has made
any misrepresentation that is attributable to neglect,
carelessness or wilful default or has committed any fraud in
filing the return or in supplying any information under this
Act, ...
The misrepresentations pleaded and relied on by the Respondent
in respect of the appeals of both Appellants consist of claiming
non-refundable tax credits for charitable gifts in excess of the
amount actually donated, and supporting those claims with
receipts which are said to have been issued for inflated amounts.
The Respondent has described the alleged scheme in subparagraphs
6(e) to (l) of the Reply to the Notice of Appeal in the case of
Jacob Cohen.
6. In so
assessing the Appellant, the Minister made the following
assumptions of fact:
...
(e) on March 29,
2001, Rabbi Leon Edery was convicted for issuing false receipts
in a tax-evasion scheme (the "scheme") involving Or
Hamaarav, Abarbanel S. Learning Centre ("Arbanel") and
Gedolah;
(f) Edery was
the only individual who had been authorized by the registered
organizations to acknowledge donations;
(g) a tax preparer
and some other individuals acting as agents for Edery also
participated in the scheme as intermediaries;
(h) in the scheme,
donors "purchased" receipts for 10-20% of their face
value. These purchases were made either by giving cash for the
discounted amount or by giving a certified cheque for the entire
face value of the charitable donation receipt and receiving 90%
of the face value back in cash;
(i) many of
the receipts issued by the registered organizations were
backdated so that the receipts are false as to both amount and
date;
(j) in the
1996 and 1997 taxation years the Appellant made payments in the
amounts of $742 and $1,634 respectively to other bona fide
charitable organizations;
(k) the Appellant
did not make donations to Or Hamaarav in the 1996 taxation year,
as recorded in the fraudulent receipt filed by the Appellant in
support of his claim for charitable donations in that year;
(l) the
Appellant did not make donations to Gedolah in the 1998 taxation
year, as recorded in the fraudulent receipt filed by the
Appellant in support of his claim for charitable donations in the
1997 taxation year;
Other than differences in the amounts involved, essentially
the same allegations are made in the case of Laurence Cohen.
[3] According to the Replies filed by
the Respondent, the Minister also assessed penalties against both
taxpayers, although there is no evidence of that before me.
[4] Rabbi Leon Edery gave evidence,
describing the scheme that he had developed to cope with an
exigent need for funds to support the three charities in
question. In its essential elements, it was much as described in
the Respondent's pleadings. It should be said, however, that the
money that Rabbi Edery collected in this scheme did go to support
the charitable works that he described, and that he rationalized
his activity on the basis that, unlike many charities, his did
not pay a large percentage of the money donated for
administrative costs connected with the raising of funds.
[5] Rabbi Edery testified specifically
as to the circumstances in which he issued 17 receipts, 15 of
them on behalf of Or Hamaarav Sephardic Congregation, one on
behalf of Abarbanel S. Learning Centre, and another on behalf of
Mincha Gedolah Synagogue. All of these are registered charities
as to which Rabbi Edery was, at the relevant time, the only
person authorized to sign receipts for donations. Thirteen of
those receipts acknowledge gifts made by Jacob Cohen, and four
acknowledge gifts made by Laurence Cohen. Particulars of them are
set out in Appendix "A" to these Reasons. His evidence
was that he signed and issued these receipts for ten times the
amount of money that was gifted, that the gifted money was
brought to him by Meir Cohen, the father of Jacob Cohen and
father-in-law of Laurence Cohen, and that he gave the receipts to
Meir Cohen. Under his normal practice, he said, one-half of the
money actually gifted would have gone to Meir Cohen as the
go-between who brought the donations to him, but in this case
Meir Cohen declined to take his usual percentage because the
gifts were from family members. He also testified that he was
able to refresh his memory as to these particular donations from
entries in a notebook in which, he said, were recorded all the
donations that he received during the period that his scheme was
in operation. He said that his wife made the entries in the
notebook from information that he gave to her. The book contains
many entries. Some of those, on a page to which the Rabbi was
referred, relate to the two Appellants, but the amounts shown
against their names correspond to only 6 of the 17 receipts
identified by him. I have been unable to find any other entries
in the book that relate to these Appellants.
[6] I do not find Rabbi Edery's
evidence to be entirely convincing. I have no doubt that he was
in the habit of issuing false receipts; he was convicted of that
and served a conditional sentence in addition to paying a
substantial fine. He testified that he also gave receipts that
were not for inflated amounts, and that he had a list of those,
but that it was not with him in court. He could not, I am sure,
remember after more than five years every receipt that he issued
and whether it was for a donation of the full amount or only a
percentage. After examining the copy of his notebook that is
Exhibit R-1, I fail to see sufficient entries, or sufficient
particulars of the entries that are there, to identify all the
receipts that he identified in his evidence. I have no doubt that
Rabbi Edery believed that the evidence he gave was accurate.
However, I am not convinced that his recall, even with the
notebook before him, was sufficiently complete and accurate to
establish that all of the receipts he identified were issued for
amounts ten times the amount actually donated.
[7] There is another reason that these
appeals must succeed, however. As I have said, the Minister's
right to make the reassessments under appeal depends upon there
having been misrepresentation by each of the taxpayers, and the
burden of proving those misrepresentations lies with the
Respondent. At the trial, counsel for the Respondent produced a
book of documents in respect of each of the Appellants. Each book
was divided into four sections, two containing the copies of
receipts to which I have referred, and two containing what appear
to be copies of the income tax returns of the Appellants for the
years under appeal. The copies of receipts were identified by
Rabbi Edery, whose signature appears on them, and they were
entered into evidence. The copies of income tax returns were not
identified at all. The taxpayers were in the courtroom and could
have been called and asked to identify the copies of their
returns, but they were not. No affidavit of an officer of Canada
Customs and Revenue Agency having charge of the returns was
tendered under subsection 244(9) of the Act. The returns
were not entered in evidence, and so there is no evidence before
me to establish that any representation was made to the Minister
by either of these Appellants as to gifts to the charities in
question, or for that matter as to anything at all. Absent any
evidence as to the alleged misrepresentations, the appeals must
be allowed and the original assessments restored.
Signed at Ottawa, Canada, this 18th day of March, 2003.
J.T.C.C.
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