Date: 19991008
Docket: 97-3179-IT-G
BETWEEN:
KHI C. TRIEU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Counsel for the Appellant: Donald G. Kidd
Counsel for the Respondent: Peter M. Kremer
___________________________________________________________________
Reasons for Judgment
(Delivered orally from the Bench at Toronto, Ontario, on
September 17, 1999)
Bowie J.T.C.C.
[1] These three appeals are from reassessments of the
Appellant for income tax for the taxation years 1992, 1993 and
1994. The reassessments were made on a net worth basis.
[2] The Appellant has worked for a company called Polycon
Industries since 1983. He worked his way up from a relatively low
level to become a program manager. During the years under appeal
he earned between $28,000 and $50,000 a year there. In addition,
he had interests in two rental properties, from which he claimed
relatively small amounts of losses. He is married and has two
children. His mother lived with his family during the relevant
period. During the three years under appeal his wife earned
income of $3,497, $4,612 and $12,606.
[3] Mrs. Karen Quantz is the Revenue Canada officer who raised
these assessments. She testified that she was assigned to
investigate, and possibly reassess, the Appellant's brother
Khai Trieu. She soon discovered that Khai Trieu and
Khi Trieu were brothers, and that they shared ownership of
an income property, and she decided that she should investigate
them both. Her enquiries soon showed that Khai Trieu had
substantial unexplained bank deposits, and that his records were
almost non existent. He had some rudimentary records with respect
to the rental properties, but otherwise no records to indicate
the source or the disposition of the various deposits and
withdrawals of substantial sums from his bank accounts; this,
notwithstanding that during his evidence he testified that he had
registered a business name with the intention of going into a
grocery business, which ultimately did not proceed, and that he
had been involved in what he described as a fake jewellery
business with a Mr. Lam.
[4] Net worth assessments proceed on the assumption that a
taxpayer's income for a year is the difference between his
net worth at the beginning of the year and his net worth at the
end of the year, plus the total of all of the amounts that he has
consumed or gifted away during the year. It has been called an
unsatisfactory and imprecise method of determining income, and
one to be used only as a last resort.[1]
[5] Counsel for the Appellant did not dispute the
Minister's right to proceed by a net worth assessment, nor is
that open to challenge in this court since the judgment of the
Court of Appeal in Morrow v The Queen, 92 DTC 6380. The
state of this Appellant's recordkeeping left the assessor no
real alternative. What makes the net worth method unsatisfactory
and imprecise is in large measure the difficulty in assessing
consumption with any accuracy. There are, of course, also
difficulties in evaluating net worth at the necessary points in
time. The assessment of consumption requires forming an estimate
of the amount expended throughout the year by the taxpayer to
support his family, and including in it both ongoing expenditures
of a routine nature and more intermittent ones such as vacations.
To understate the consumption results in understating the income
for the year.
[6] In the present case much of that uncertainty, perhaps all
of it, is removed by the facts that the Appellant was invited by
Ms. Quantz to provide her with an estimate of his expenditures
for consumption during each of the three years, and that she
accepted his estimates. At the trial his evidence was that if his
estimates were in error, then it is because they were too low and
not too high. In other words, he erred in his own favour, and Ms.
Quantz accepted that. The Appellant also accepted without
reservation the assessor's tabulation of his assets and his
liabilities at the end of each of the years 1991 to 1994.
[7] The area of dispute, therefore, was narrowed to the
adjustments to be made to the assessor's computations in
respect of amounts borrowed by the taxpayer from his mother and
his two brothers, Khai, who like the Appellant lives in Guelph
Ontario, and Tri, who lives in Australia.
[8] In the course of her investigation, the assessor obtained
from the various banks where the Appellant had accounts
particulars of his withdrawals of amounts greater than $1,000
during the period. She proceeded on the assumption that
withdrawals of that magnitude should be included in the
Appellant's expenditures unless there was an explanation of
them which verified that they were accounted for elsewhere in the
computation. For example, a withdrawal to repay a loan or to
purchase an asset would be excluded, because there was an
offsetting decrease in liabilities, or an increase in assets
during the year. Only where the application of the amount
withdrawn could not be established did it form part of the
computation of net worth. Withdrawals of less than $1,000, she
assumed, were for personal living expenses, and so were not
separately included.
[9] The assessor computed the Appellant's income by the
net worth method, and compared it to the income he had reported
for the three years. In this latter amount she included the gross
rental income from the Appellant's income properties, because
the expenses relating to those properties could not be
satisfactorily segregated from his personal expenses due to a
lack of proper recordkeeping. She also included the income
declared by the Appellant's wife for each of the years, as
the Appellant and his wife shared a joint bank account, and the
assumption was that the proceeds of her employment went into that
bank account.
[10] The result of these computations may be summarized as
follows:
|
|
1992
|
1993
|
1994
|
|
Income by the net worth method
|
$65,884.41
|
$108,659.72
|
$126,715.67
|
|
Income reported
|
$45,266.26
|
$ 78,482.73
|
$ 83,543.69
|
|
Shortfall
|
$20,618.15
|
$ 30,176.99
|
$ 43,171.88
|
The reassessments added these amounts to the Appellant's
income previously assessed, as filed by him.
[11] The Appellant's primary position with respect to
these assessments was this. He says that he had no source of
income other than his job at Polycon Inc. and the rental
properties, and that he properly reported all of his income in
each of the years under appeal. This evidence, counsel said,
should be believed and, absent any evidence brought forward by
the Respondent to show an undisclosed source of income, that
should resolve the matter in the Appellant's favour.
[12] The apparent discrepancies, according to the
Appellant's theory, are explained by the fact that he
borrowed money from time to time from his mother and from his two
brothers, and these borrowings have not all been taken into
account by Ms. Quantz. Ms. Quantz did take some borrowings into
account, but only those that could be matched to some evidence
that corroborated the Appellant's statement. For example, she
accepted that the Appellant's mother loaned him $4,000 in
1992, because there was evidence that she had withdrawn that
amount from a Registered Retirement Savings Plan in that
year.
[13] I reject the Appellant's contention that I should
simply accept as true his evidence that he had no other source of
income in 1991, 1992 and 1993, and that the discrepancies between
the net worth computation and his declared income are due to
inter-family loans and transfers of money from one account to
another.
[14] The Appellant testified that he borrowed money from both
his mother and his brother Khai on an ongoing, revolving basis,
that he and they kept no written records of these loans, and that
he could not remember the specifics of them. His mother gave
evidence that she too could not remember the specifics of them,
except that she testified as to a $5,000 loan in addition to the
loan of $4,000 which Ms. Quantz accepted. I shall say more
about that $5,000 loan later. This is not the sort of evidence of
which successful appeals are made. The Federal Court of Appeal
said in Njenga v R., 96 DTC 6593:
The Income tax system is based on self monitoring. As a public
policy matter the burden of proof of deductions and claims
properly rests with the taxpayer. The Tax Court Judge held that
persons such as the Appellant must maintain and have available
detailed information and documentation in support of the claims
they make. We agree with that finding. Ms. Njenga, as the
Taxpayer, is responsible for documenting her own personal affairs
in a reasonable manner. Self written receipts and assertion
without proof are not sufficient.
The problem of insufficient documentation is further
compounded by the fact that the Trial Judge, who is the assessor
of credibility, found the applicant to be lacking in this
regard.
The same applies to the present case.
[15] The Appellant gave specific evidence of loans from family
members which had not been accepted as genuine by
Ms. Quantz, and his counsel's alternative submission was
that I should at least accept that these were genuine loans, and
so adjust the assessments accordingly.
[16] The Appellant testified that he borrowed the sum of
$5,000 from his mother in 1993 to enable him, along with his
brother Khai, to purchase a sixplex during that year. He said
that his mother might keep as much as $2,000 in cash in the
house, but on this occasion she drew $5,000 from her bank account
in cash to make the loan to him. Ms. Quantz testified that she
would have accepted this and given the Appellant credit for it as
a loan, thereby reducing his estimated income for 1993, if only
she had been shown a corresponding withdrawal by the
Appellant's mother. This evidence, counsel says, was
corroborated by the evidence given by the Appellant's mother.
Her evidence as to the amounts that she loaned to the Appellant,
however, was extremely vague. She said that she loaned him $5,000
to buy a house but could give no particulars as to when the loan
was made. Their evidence was consistent that the Appellant now
owes his mother $15,000, but I do not find her evidence to be of
sufficient particularity as to be reliable. Most telling,
however, is that throughout the lengthy period when
Ms. Quantz was conducting her assessment, including at least
two meetings that she had with the Appellant and his accountants,
there was no mention to her of this $5,000 loan which the
Appellant now claims was made to him by his mother. Nor is there
a record of a corresponding deposit by him of $5,000 in any of
his bank accounts in June 1993 or at a time nearby, that being
the time at which he claims to have received the amount in
cash.
[17] Mr. Kidd submitted in argument that there were two $5,000
loans, one in 1993 and one in 1994, both from the Appellant's
mother. I do not believe that the evidence supports this theory.
It is much too vague, and I have no confidence that either the
Appellant or his mother has any clear recollection of these
supposed loans. In my view, it is most likely that if they
existed at all, then Ms. Quantz would have heard of them before
she completed her audit.
[18] The next item which was put forward is a loan which the
Appellant claimed to have received from his brother Tri in
Australia. His evidence was that he took a leave of absence from
his job for a large part of 1992, and during that time he
travelled to Australia to visit his brother there. Part of the
reason for going to visit his brother was to learn from him how
to begin and operate a grocery business. While there, he said,
his brother loaned him 13,000 Australian dollars to be used as
working capital in his proposed business. His brother gave this
to him, he said, in cash, which he brought back to Canada and
changed into Canadian dollars at a currency exchange in Ottawa
where he was visiting his sister. For the amount in question he
obtained $13,569 Canadian by way of a bank draft which he later
deposited to a bank account.
[19] Counsel for the Appellant tendered a four line purported
affidavit of Tri Trieu to corroborate this evidence, and
asserted that I should admit it in evidence under the provisions
of sections 52, 53 and 54 of the Canada Evidence Act and
Rule 143 of the Rules of this Court. I did not admit the
affidavit in evidence. I am not satisfied that it was sworn
before a judicial officer in Australia or any of the other
categories of persons enumerated in section 52 of the Canada
Evidence Act. The person before whom it was sworn is
described simply as a legal clerk to a firm of lawyers in
Melbourne. It bears no seal of the legal clerk, or of a court or
any other person. It is totally devoid of particulars stating
only:
(a) I am the brother of Khi Chi Trieu of 53 Freshmeadow Way,
Guelph, Ontario, Canada;
(b) I have given a loan to my brother Khi Chi Trieu in the
amount of 15,000 Australian dollars during his visit here in the
month of July 1992.
It would, of course, if admitted, not be subject to
cross-examination. No attempt was made by the Appellant's
counsel before trial to have this evidence given in some other
way, such as by video conference, which would allow for a
cross-examination. Certainly a video conference between Canada
and Australia might be difficult to arrange, but I do not think
that it would be impossible. Certainly the possibility should
have been explored before tendering this kind of evidence.
Mr. Kidd submitted that I should admit the declaration for
whatever weight it might have. In my view it deserves no weight,
and even if it complied with the requirements of the Canada
Evidence Act, I would not exercise my discretion under Rule
143 in favour of its admission.
[20] The Appellant testified that he decided not to enter into
the grocery business. After making enquiries, he concluded that
it would not be financially feasible for him to do so. However,
he said his brother Tri, after learning of this, told him that he
should keep the 13,000 Australian dollars as a contribution
towards the support of their mother. I do not accept this
evidence. Not only is it self-serving, but it does not have a
ring of truth about it. It seems unlikely that the Appellant
would carry such a sum about in currency for even a week or two,
rather than use some more conventional means of transferring
funds from his brother's account in Australia to his own
account in Canada.
[21] Finally, Mr. Kidd submitted that I should take into
account two transactions whereby the Appellant claims to have
received $6,000 and $1,800 in cash from his brother Khai Trieu as
an element of the ongoing revolving loan between them. The
Appellant's evidence as to these transactions is as vague as
all his other evidence, and deserves no more weight. It is
significant that Khai Trieu did not testify. I draw the inference
that his evidence would not have assisted the Appellant. It was
suggested by counsel that the reason Khai Trieu did not testify
was because he is the subject of some type of criminal
investigation with which the Appellant would be tainted if he
were to appear and testify in this Court. This is a quite
untenable proposition. Appellants before this Court are judged on
the evidence, and not upon whether or not their relatives are
subject to investigation by the authorities. I emphasize that the
Appellant kept few records relating to his rental properties, and
none relating to his alleged inter-family loans and inter-account
transfers of funds. He had substantial deposits to and
withdrawals from his various bank accounts, which he either could
not or would not explain.
[22] Mr. Kidd submitted that the Appellant's evidence was
sufficient that the onus should pass to the Respondent to show a
source of the incremental income added by these reassessments. I
disagree. The Appellant's evidence is not at all
persuasive.
[23] I have not overlooked that an accountant, Mr. Weiler,
testified for the Appellant in an attempt to show that the net
worth computations were not properly carried out by Ms. Quantz.
His evidence included a net worth calculation which he said was
carried out by his partner in accordance with Revenue
Canada's methodology, and subsequently reviewed by him. That
document purported to show that the Appellant and his wife
between them had not under reported, but that they had in fact
over reported their income by $27,106, $3,074 and $5,004 in the
years 1992, 1993 and 1994. If they had over reported an amount of
$27,000 in 1992, then their combined income for that year would
have been approximately $18,000. But the Appellant had employment
income of $48,000 from Polycon Industries and his wife had a
further income of $3,500 verified by a T4 slip. Mr. Weiler
appears to have achieved the result that he did by the simple
expedient of accepting that all of the unexplained amounts are,
as the Appellant contends, explainable as inter-family loans, and
transfers within his various bank accounts. Significantly,
Mr. Weiler was not able to point to any substantive flaw in
the computation by which Ms. Quantz arrived at her conclusion. I
do not find his evidence to be of any assistance.
[24] The appeals are dismissed with costs.
Signed at Ottawa, Canada, this 8th day of October, 1999.
"E.A. Bowie"
J.T.C.C.
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