Swicheniuk v. The Queen, docket 98-2156-IT-G

Date: 20000428

Dockets: 98-2156-IT-G; 98-2157-IT-G

BETWEEN:

JUDY SWICHENIUK, GERALD SWICHENIUK,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Beaubier, J.T.C.C.

[1] These appeals pursuant to the General Procedure were heard together on common evidence at Saskatoon, Saskatchewan on April 17, 2000. Both Appellant's testified. Their counsel also called their chartered accountant in the years in question, Graham Holm, and, pursuant to Rule 146, the Respondent's auditor, Barry McKenzie.

[2] The Appellants have appealed reassessments for their 1991 and 1992 taxation years. Both assessments were done after the three year period on the basis that the Appellants made misrepresentations attributable to neglect, carelessness or wilfully or fraudulently filed their returns. Penalties were also assessed on each Appellant pursuant to subsection 163(2) of the Income Tax Act.

[3] The first question to be dealt with is whether the Appellants' statute barred years can be assessed beyond the normal assessment periods. The evidence is that:

1. Judy did not report $17,335.40 in grain sales in her name in 1991.

2. Judy did not report $8,221.01 in grain sales in her name in 1992.

3. Both Appellants failed to report anything about a partnership "Royal Distributors" which they operated in 1991 and which had gross sales of over $50,000 that year.

4. The Appellants underreported net income from Royal Distributors in 1992 in the amount of $3,964.36 each.

5. Gerald failed to report his total sales of farm products in 1991 including part of Judy's grain ticket and private grain sales of $2,237.64, but he reported some of Judy's grain ticket sales.

6. Aside from Judy's assessment respecting $8,221.01, Gerald failed to report $17,365.27 of income from various operations and GRIP and NISA in 1992.

[4] These actions, except for the private grain sales, related to numerous cheques with accompanying records or stubs made to each Appellant in their names. They simply did not assemble these records and report them to their accountant although the overwhelming majority of them are records which every grain farming family in western Canada receives every year. These were accompanied by cheques which were banked or cashed. The volume was such that even without the records, their cash flow would indicate errors. Moreover, the switching of some of Judy's cheques to Gerald's name and the volume of failures to record, report and file in income tax returns, indicates misrepresentation which was done by the wilful default of both Judy and Gerald. Gerald and Judy testified that they sorted these documents out together and Judy completed the list of income and expenses which they gave to their accountant. A great deal was made of the failure to report a GRIP payment of $9,440.33 to Gerald in 1992. Judy's alleged error in reading that form is not accepted. One reason it is not accepted is that Gerald was then an elevator agent and he would be very knowledgeable about all of these kinds of payments. He received this money and this form and despite his protests to the contrary, he would have known the form and concept of GRIP in detail from his duties as an elevator agent. The amount was quite large in relation to his total income. Finally, both Gerald and Judy were doing this misrepresentation of payments on a large scale and had been misrepresenting Judy's grain sales since 1988. On the evidence, by 1991 and 1992 they were very experienced in misrepresenting income and they were doing it together constantly in both years.

[5] For these reasons, the assessments of both Appellants for 1991 and 1992 are not statute barred.

[6] In his opening statement Appellants' counsel advised the Court of his method of proceeding. In his view, the assessments and eventually the Replies and their assumptions deal with the Appellants' income. They take no position respecting the expenses claimed. Therefore, he argued, the Respondent bears the onus of disproving the expenses which the Appellants claimed.

[7] The evidence is that the Respondent's audit did not dispute the expenses which the Appellants claimed in the income tax returns which they filed for 1991 and 1992. The audit was completed by June 20, 1996 when Mr. McKenzie wrote to the Appellants (Exhibit A-1, Tab 31) and detailed his findings. This was followed by a further letter from Revenue Canada to Mr. Holm dated October 2, 1996 (Exhibit A-1, Tab 43) attaching the final adjustments. This accepted the expenses as filed with an amendment allowing $6,000 for cost of goods sold.

[8] On the Appellants' instructions, Mr. Holm reconstructed two "general ledgers" for their 1991 (Exhibit A-2) and 1992 (Exhibit A-3) years which lumped Judy and Gerald together. These exhibits merely listed incomings and outgoings from documents which the Appellants supplied to him. Mr. Holm submitted these to Revenue Canada as substantiation of, in particular, claims for increased expenditure deductions. In response, Revenue Canada asked for verifications with particulars from the Appellants by letter of June 17, 1997 (Exhibit A-5). This was not provided. Indeed, the Appellants did not provide this in their testimony in Court. Nor did Gerald accept Revenue Canada's offer of March 12, 1998 (Exhibit A-6).

[9] The only allegations about these alleged increases in expenses which are in evidence are Mr. Holm's ledgers and his testimony about them. His testimony does not establish anything since, at best, it is based on hearsay. Even the word "hearsay" is an exaggeration because there is no evidence that the Appellants told him about these items. All that is known is that they sent him documents from which he compiled two lists, in "general ledgers".

[10] In cross-examination it was established that "Miscellaneous Expenditures" of $3,296.68 duplicated the "Humboldt Flour Mills" items totalling $3,296.68 and that Mr. Holm did not know what either heading represented; "Professional Fees" of $751.57 duplicated "carrying charges" claimed in 1991 of $751.57 which Mr. Holm did not know the details of; 1991 property taxes for the Appellants' home were not treated as partly personal; 1992 "R & J Mooney Diesel" totalling $982.33 duplicated "Hrapchuk Farm Products" bill of $982.33; and $4,454.00 "business expenses" may have been employment expenses. The Appellants relied on Mr. Holm and the "ledgers" which presented the lists with additional "expenses" after they had filed their income tax returns and after the auditor had investigated their affairs. The final reassessment simply ignored this on the basis that the Appellants had not verified these claims when asked to do so, whereas the auditor had accepted the expenses claimed on the income tax returns which they filed.

[11] In these circumstances, where the alleged additional expenses did not form part of the original expenses claimed on the Appellants' income tax returns at the time of the audit and where the Appellants have failed to verify the additional expenses claimed, the onus remains on the Appellants to establish these alleged expenses. In this case, they did not do so. There is no acceptable evidence that the new amounts listed in Exhibits A-2 and A-3 are business expenses, there is evidence of duplication and there is evidence that at least one item was in part personal.

[12] For these reasons, the Court has no acceptable evidence of any additional deductible expenses incurred by either Appellant in 1991 and 1992 over the amounts allowed by the assessments which are appealed.

[13] Paragraphs 5 to 10 inclusive (without the attached Schedules) of the Reply to Judy Swicheniuk's Notice of Appeal read:

5. By Notice of Reassessment dated October 7^th, 1996, for the 1991 taxation year, the Minister reassessed as follows:

a) Included in income from the farming business the amount of $17,335.40 and increased income from this business to the amount of $17,335.40; and

b) Assessed penalties pursuant to subsection 163(2) of the Income Tax Act (the "Act") in the amount of $1,895.30.

6. By Notice of Reassessment dated October 7^th, 1996, for the 1992 taxation year, the Minister reassessed as follows:

a) Increased the amount to be included in income from the farming business by the amount of $8,221.01, and increased income from this business to the amount of $12,385.00;

b) Increased the amount to be included in business income from Royal Distributors by the amount of $3,964.37, and increased the income from this business to the amount of $10,283.00; and

c) Assessed penalties pursuant to section 163(2) of the Act in the amount of $1,562.20.

7. In the Notices of Reassessment referred to in paragraph numbers 5 and 6 of the Reply, the Minister increased the Appellant's net income and assessed penalties pursuant to subsection 163(2) of the Act by the following amounts:

TAXATION YEAR	INCREASE IN INCOME	REVISED NET INCOME	AMOUNT PENALIZED
1991	$17,335.40	$37,435.00	$17,335.40
1992	$12,185.37	$40,493.00	$12,185.37

8. In determining the penalties to be assessed in respect of the 1991 and 1992 taxation years, the Minister made the following calculations:

TAX YEAR	NEW AMOUNT OF FEDERAL TAX	PREVIOUS AMOUNT OF FEDERAL TAX	DIFFERENCE	PENALTY FOR FALSE STATEMENT OR OMISSIONS AT 50%
1991	$6,151.00	$2,360.40	$3,790.60	$1,895.30
1992	$6,160.50	$3,036.10	$3,124.40	$1,562.20

9. In so reassessing the Appellant the Minister made the following assumptions of fact:

a) The facts admitted above;

b) In the 1992 taxation year, the Appellant was a fifty-percent partner with her husband, Gerald Swicheniuk, in a business called Royal Distributors;

c) In the 1991 taxation year, the Appellant received income from the farming business in the amount of $17,335.40 from income receipts which were in her name. Attached as Schedule "A" is a breakdown of this amount;

d) In reporting income for the 1991 taxation year, the Appellant understated her income from the farming business by $17,335.40 by failing to report the amount of $17,335.40 as income;

e) The Appellant made misrepresentations attributable to neglect, carelessness or wilful default in filing her 1991 Income Tax Return by failing to report income in the amount of $17,335.40;

f) In the 1991 taxation year, the Appellant reported no income from the business of farming;

g) In the 1991 and 1992 taxation years, Gerald Swicheniuk included in his income from the farming business some of the income receipts that were in the name of the Appellant;

h) The Appellant had income receipts in relation to grain sales in her name since 1988, but did not report any gross income from the farming business until the 1992 taxation year;

i) In the 1992 taxation year, the Appellant reported income in the amount of $4,164.34 from the business of farming;

j) In the 1991 and 1992 taxation years, the Appellant did not claim any expenses relating to a farming business;

k) It has not been shown by the Appellant and Gerald Swicheniuk how they determined the allocation of income from the farming business to be reported by each of them;

l) The Minister could not determine what allocation of income from the farming business should be used for reporting this income by the Appellant and Gerald Swicheniuk;

m) On June 20, 1996, the Appellant and Gerald Swicheniuk were requested to keep better records for income tax purposes;

n) In the 1991 and 1992 taxation years the Appellant and Gerald Swicheniuk were jointly involved in the banking activities of the farming business, Royal Distributors, and in relation to their personal banking accounts;

o) In the 1991 and 1992 taxation years the Appellant and Gerald Swicheniuk were jointly involved in the completion of application forms and documents in relation to the various agencies (The Canadian Wheat Board, Pioneer Grain, Saskatchewan Crop Insurance Corporation) that paid amounts of money to them;

p) The Appellant's representative, Graham Holm, prepared the Income Tax Returns for the 1991 and 1992 taxation years based on the information that the Appellant and Gerald Swicheniuk provided to him;

q) The Appellant knowingly, or under circumstances amounting to gross negligence in carrying out a duty or obligation under the Act, made or participated in, assented or acquiesced in the making of false statements or omissions in her return of income in respect of the 1991 taxation year, as a result of which the tax that would have been payable assessed on the information provided in the Appellant's Income Tax Return filed for that year was less than the tax payable by the amount of $3,152.63;

r) In the 1992 taxation year, the Appellant received income from the farming business in the amount of $8,221.01 from receipts which were in her name. Attached as Schedule "B" is a breakdown of this amount;

s) In reporting income for the 1992 taxation year, the Appellant understated her income from the farming business by the amount of $8,221.01 by failing to report the amount of $8,221.01 as income;

t) In the 1992 taxation year, Royal Distributors received income in the amount of $13,928.73. Attached as Schedule "B" is a breakdown of this amount;

u) In reporting income for the 1992 taxation year, the Appellant understated her income from Royal Distributors by the amount of $3,964.36 (1/2 of $7,928.73), by failing to report the amounts of $13,928.73 as income and $6,000.00 as an expense of Royal Distributors;

v) The Appellant made misrepresentations attributable to neglect, carelessness or wilful default in filing her 1992 Income Tax Return by failing to report income in the amount of $12,185.37; and

w) The Appellant knowingly, or under circumstances amounting to gross negligence in carrying out a duty or obligation imposed under the Act, made or participated in, assented to or acquiesced in the making of false statements in her return of income in respect of the 1992 taxation year, as a result of which the tax that would have been payable assessed on the information provided in the Appellant's Income Tax Return filed for that year was less than the tax payable by the amount of $6,866.29.

B. ISSUES TO BE DECIDED

10. The issues are:

a) Whether the Appellant understated her income from the farming business in the 1991 and 1992 taxation years;

b) Whether the Appellant understated her business income from Royal Distributors in the 1992 taxation year;

c) Whether the Minister is statute barred from reassessing the Appellant's 1991 taxation year and including in income the amount of $17,335.40; and

d) Whether the Minister properly assessed penalties pursuant to subsection 163(2) of the Act in the 1991 and 1992 taxation years.

[14] Assumptions 9(f), (g), (h), (i), (j), (k), (l), (m), (p), (t), (u), (v) and (w) are correct and were confirmed by the evidence. Assumption 9(b) was not refuted, since the Appellants did not describe their shares in Royal Distributors although they admitted that it was a partnership. Assumptions 9(c), (d) and (e) arise from the fact that Judy did not report grain sales in her name in these amounts in 1991. She did not deny that this grain was hers and therefore, the Court finds that these sales were hers and that she deliberately and knowingly did not report income of $17,335.40 in 1991 when she prepared and submitted her resumés of income to her chartered accountant and subsequently signed her 1991 income tax return which did not report this income. Therefore, assumptions 9(c), (d) and (e) are found to be correct. Assumptions 9(n) and (o) were not refuted by the evidence; in consequence, assumption 9(q) was not refuted.

[15] With respect to 1992, assumptions 9(r) and (s) were confirmed by the evidence and as a result the remaining assumptions are correct.

[16] Paragraphs 5 to 11 inclusive of the Amended Reply to the Notice of Appeal (without the attached Schedules) of Gerald Swicheniuk read:

5. The Minister of National Revenue (the "Minister"), initially assessed the Appellant for the 1991 taxation year by Notice dated May 27^th, 1992, and for the 1992 taxation year by Notice dated May 4^th, 1993.

6. By Notice of Reassessment dated October 7^th, 1996, for the 1991 taxation year, the Minister reassessed as follows:

a) Included in income from the farming business the amount of $22,652.00, and increased income from this business to the amount of $12,729.00; and

b) Assessed penalties pursuant to subsection 163(2) of the Income Tax Act (the "Act") in the amount of $3,469.19.

7. By Notice of Reassessment dated October 7^th, 1996, for the 1992 taxation year, the Minister reassessed as follows:

a) Increased the amount to be included in income from the farming business by the amount of $25,586.28, and determined the Appellant's loss from this business to be in the amount of $6,370.00;

b) Increased the amount to be included in business income from Royal Distributors by the amount of $3,964.37, and increased the income from this business to the amount of $10,283.00;

c) Disallowed the amount of $14,948.49 as a deduction from income as a capital outlay and determined that the 1979 Peterbilt Truck overhaul was property of Class 10 of Schedule II of the Income Tax Regulations; and

d) Assessed penalties pursuant to section 163(2) of the Act in the amount of $3,736.60.

8. In the Notices of Reassessment referred to in paragraph numbers 5 and 6 of the Reply, the Minister increased the Appellant's net income and assessed penalties pursuant to subsection 163(2) of the Act by the following amounts:

TAXATION YEAR	INCREASE IN INCOME	REVISED NET INCOME	AMOUNT PENALIZED
1991	$22,652.00	$79,455.00	$22,156.25
1992	$29,550.65	$53,232.00	$29,550.65

9. In determining the penalties to be assessed in respect of the 1991 and 1992 taxation years, the Minister made the following calculations:

TAX YEAR	NEW AMOUNT OF FEDERAL TAX	PREVIOUS AMOUNT OF FEDERAL TAX	DIFFERENCE	PENALTY FOR FALSE STATEMENT OR OMISSIONS AT 50%
1991	$17,981.40	$10,887.02	$7,094.38**	$3,469.19**
1992	$9,430.40	$1,957.20	$7,473.20	$3,736.00

(**Difference on which penalties assessed was $6,938.38).

10. In so reassessing the Appellant the Minister made the following assumptions of fact:

a) The facts admitted above;

b) In the 1992 taxation year, the Appellant was a fifty-percent partner with his wife, Judy Swicheniuk, in a business called Royal Distributors;

c) In the 1991 taxation year, the Appellant received income from his farming business in the amount of $17,335.40 from income receipts which were in the name of Judy Swicheniuk. Attached as Schedule "A" is a breakdown of this amount;

d) In the 1991 taxation year, the Appellant failed to report additional income in the amount of $5,317.35 as income from his farming business. Attached as Schedule "A" is a breakdown of this amount;

e) In reporting income for the 1991 taxation year, the Appellant understated his income from the farming business by $22,652.75 by failing to report the amounts of $17,335.40 and $5,317.35 as income;

f) The Appellant made misrepresentations attributable to neglect, carelessness or wilful default in filing his 1991 Income Tax Return by failing to report income in the amount of $22,652.75;

g) In the 1991 taxation year, Judy Swicheniuk reported no income from the business of farming;

h) In the 1991 and 1992 taxation years, the Appellant included in his income from the farming business some of the income receipts that were in the name of Judy Swicheniuk;

i) Judy Swicheniuk had income receipts in relation to grain sales in her name since 1988, but did not report any gross income from the farming business until the 1992 taxation year;

j) In the 1992 taxation year, Judy Swicheniuk reported income in the amount of $4,164.34 from the business of farming;

k) In the 1991 and 1992 taxation years, Judy Swicheniuk did not claim any expenses relating to a farming business;

l) It has not been shown by the Appellant and Judy Swicheniuk how they determined the allocation of income from the farming business to be reported by each of them;

m) The Minister could not determine what allocation of income from the farming business should be used for reporting this income by the Appellant and Judy Swicheniuk;

n) On June 20, 1996, the Appellant and Gerald Swicheniuk were requested to keep better records for income tax purposes;

o) In the 1991 and 1992 taxation years the Appellant and Judy Swicheniuk were jointly involved in the banking activities of the farming business, Royal Distributors, and in relation to their personal banking accounts;

p) In the 1991 and 1992 taxation years the Appellant and Judy Swicheniuk were jointly involved in the completion of application forms and documents in relation to the various agencies (The Canadian Wheat Board, Pioneer Grain, Saskatchewan Crop Insurance Corporation) that paid amounts of money to them;

q) The Appellant's representative, Graham Holm, prepared the Income Tax Returns for the 1991 and 1992 taxation years based on the information that the Appellant and Judy Swicheniuk provided to him;

The Appellant knowingly, or under circumstances amounting to gross negligence in carrying out a duty or obligation under the Act, made or participated in, assented or acquiesced in the making of false statements or omissions in his return of income in respect of the 1991 taxation year, as a result of which the tax that would have been payable assessed on the information provided in the Appellant's Income Tax Return filed for that year was less than the tax payable by the amount of $6,938.38;

...

t) In the 1992 taxation year, the Appellant failed to report additional income in the amount of $17,365.27 as income from his farming business. Attached as Schedule "B" is a breakdown of this amount;

u) In reporting income for the 1992 taxation year, the Appellant understated his income from the farming business by the amount of $25,586.28 by failing to report the amounts of $17,365.27 and $8,221.01 as income;

v) In the 1992 taxation year, Royal Distributors received income in the amount of $13,928.73. Attached as Schedule "B" is a breakdown of this amount;

w) In reporting income for the 1992 taxation year, the Appellant understated his income from Royal Distributors by the amount of $3,964.37 (1/2 of $7,928.73), by failing to report the amounts of $13,928.73 as income and $6,000.00 as an expense of Royal Distributors;

x) The Appellant made misrepresentations attributable to neglect, carelessness or wilful default in filing his 1992 Income Tax Return by failing to report income in the amount of $29,550.65;

y) On or about April 18, 1992, the Appellant purchased a 1979 Peterbilt Truck for $11,500.00;

z) The Appellant had the engine overhauled on this Peterbilt Truck at a cost of $14,948.49, which was billed to him on June 29^th, 1992;

aa) The cost of the overhaul of the engine ($14,948.49) was substantial in relation to the cost of the Peterbilt Truck ($11,500.00);

bb) The overhaul of the engine was not regular maintenance but was a betterment of the Peterbilt Truck acquired;

cc) The engine of the Peterbilt Truck could be considered a separate marketable asset;

dd) The overhaul of the engine was necessary to put the Peterbilt Truck into suitable condition for use;

ee) The overhaul of the Peterbilt Trust was for the enduring benefit of the farming business;

ff) The Appellant also had work done on this Peterbilt Trust to pass a road safety inspection in August or September of 1992 at a cost of $1,521.85;

gg) The Peterbilt Truck was sold in 1994 for $25,000.00;

hh) The cost of the overhaul ($14,948.49) was on account of capital;

(ii) The Appellant knowingly, or under circumstances amounting to gross negligence in carrying out a duty or obligation imposed under the Act, made or participated in, assented to or acquiesced in the making of false statements in his return of income in respect of the 1992 taxation year, as a result of which the tax that would have been payable assessed on the information provided in the Appellant's Income Tax Return filed for that year was less than the tax payable by the amount of $7,437.20;

B. ISSUES TO BE DECIDED

11. The issues are:

a) Whether the Appellant understated his income from the farming business in the 1991 and 1992 taxation years;

b) Whether the Appellant understated his business income from Royal Distributors in the 1992 taxation year;

c) Whether the Minister is statute barred from reassessing the Appellant's 1991 taxation year and including in income the amount of $22,652.00;

d) Whether the Minister properly determined the allowable capital cost allowance deduction for the 1992 taxation year; and

e) Whether the Minister properly assessed penalties pursuant to subsection 163(2) of the Act in the 1991 and 1992 taxation years.

[17] By assumption, in paragraph 10 of the Reply to Gerald's Notice of Appeal, the Court finds:

(b) Correct;

(c) That income of $17,335.40 has been found to be Judy's;

(d) Correct;

(e) After removing $17,335.40, the net of $5,317.35 is found to be the correct number and thereupon this assumption is correct;

(f) The correct figure is $5,317.35 whereupon this assumption is correct;

(g), (h), (i), (j), (k), (l), (m), (n), and (o) are correct;

(p) Not refuted, therefore correct;

(q) Correct;

(r) Correct, subject to adjustment for the removal of $17,335.40 which is found to be Judy's income in 1991;

(s) Wrong, the $8,221.01 is found to be Judy's income;

(t) Correct, subject to the reduction of $8,221.01 in income for 1992 which has been found to be Judy's;

(u) Is correct after removal of Judy's income of $8,221.01;

(v) Correct;

(w) Correct;

(x) Is correct after the deduction of $8,221.01 which is found to be Judy's income;

(y) Correct;

(z) Correct;

(aa) Correct;

(ff) Correct.

(gg) Correct.

(ii) Is correct subject to adjustment respecting the findings already made herein as to the amount of income upon which the tax should be calculated.

[18] In Johnston v. M.N.R., (SCC) (1948), 3 DTC 1182 at 1183 and 1994, Rand, J., speaking for the majority of the Court said:

Notwithstanding that it is spoken of in section 63(2) as an action ready for trial or hearing, the proceeding is an appeal from the taxation; and since the taxation is on the basis of certain facts and certain provisions of law either those facts or the application of the law is challenged. Every such fact found or assumed by the assessor or the Minister must then be accepted as it was dealt with by these persons unless questioned by the appellant. If the taxpayer here intended to contest the fact that he supported his wife within the meaning of the Rules mentioned he should have raised that issue in his pleading, and the burden would have rested on him as on any appellant to show that the conclusion below was not warranted. For that purpose he might bring evidence before the Court notwithstanding that it had not been placed before the assessor or the Minister, but the onus was his to demolish the basic fact on which the taxation rested.

Instead, the taxpayer abstained from making that allegation. As fact it was not raised by the defense although involved in the reference to the rule of the schedule applied by the assessor, but in the reply it was denied as fact. There, then, appeared the first reference to an allegation that should have been in the claim; and on principle I should call it an indulgence to the taxpayer, assuming that he desired to raise that point in appeal, to be permitted so to cure a defective declaration. The language of the statute is somewhat inapt to these technical considerations but its purpose is clear: and it is incumbent on the Court to see that the substance of a dispute is regarded and not its form.

I am consequently unable to accede to the view that the proceeding takes on a basic change where pleadings are directed. The allegations necessary to the appeal depend upon the construction of the statute and its application to the facts and the pleadings are to facilitate the determination of the issues. It must, of course, be assumed that the Crown, as is its duty, has fully disclosed to the taxpayer the precise findings of facts and rulings of law which have given rise to the controversy. But unless the Crown is to be placed in the position of a plaintiff or appellant, I cannot see how pleadings shift the burden from what it would be without them. Since the taxpayer in this case must establish something, it seems to me that something is the existence of facts or law showing an error in relation to the taxation imposed on him.

The assessment was therefore in order and the appeal must be dismissed with costs.

[19] In these two Replies the Respondent has pled two sets of assumptions that are not usually found in a Reply's assumptions of facts. The first set occurs in the Replies respecting both Appellants. They are the assumptions that each Appellant received $17,335.40 from grain sales in 1991 and $8,221.01 from grain sales in 1992, when in fact there was only one such grain sale in each year. The second set is contained in subparagraphs 10(bb), (cc), (dd), (ee) and (hh), which refer to the $14,948.49 engine overhaul of the Peterbilt truck as a cost on account of capital.

[20] The first set respecting the grain sales is based on the auditor's report. He found these sales which were evidenced by grain tickets for sales in Judy's name. None were reported by Judy. Some were reported by Gerald. Neither Appellant would admit to the ownership of the grain and the proceeds of sales. In cases such as this, where the parties are husband and wife, such sales could, in either fact or law, be the sales of either one of them, or of both of them, whether as partners or in some other capacity. The Appellants refused more than once to commit themselves respecting these sales. But they knew the true facts. They alone had created the confusion to the on-looker for their own purposes. This set of assumptions is the logical result of the actions of the Appellants. They retain the right to testify to the truth in the course of the appeal. In such circumstances they bear the onus to do so.

[21] The second set of assumptions concerning the engine overhaul does not arise from any findings by the auditor. His audit only dealt with the Appellants' income. He frankly, to his credit, testified that the Respondent had not yet reclassified this to capital. He had left it as an expense when he found it among Gerald's expenses. These assumptions are not based on the auditor's report. They were described to the Appellants as an alternative open to the Minister. But they first appeared as a finding in the Reply. Thus, they are not valid or proper assumptions. There is no onus on Gerald to refute them.

[22] Often Appellants in the Tax Court of Canada are not represented by a lawyer. They do not know enough to bring out the facts respecting an incorrect or faulty pleading of an assumption. Such assumptions are to be struck from the paragraph of assumptions by the Court. If the Respondent makes such a pleading that is not based on the contents of the auditor's report, that pleading should be in a separate paragraph and proved by the Respondent.

[23] Gerald testified about the engine overhaul and stated that it constituted an expense respecting the Peterbilt. In the circumstances of this case, that testimony of Gerald's, alone, is accepted as describing the true facts respecting the engine overhaul and his appeal respecting it is allowed.

[24] The schedules attached to both Replies show that the auditor dealt solely with unreported income and with misallocations of income by the Appellants. The auditor left each Appellant's reported expenses as they reported them except for his examination of Royal Distributors. These were not net worth assessments.

[25] The Appellants defend their actions in part on the basis that Judy did not use double entry accounting when preparing reports to the chartered accountant. This does not explain transfers of cheques from Judy to Gerald since 1988. Nor does it explain the failure to report anything about Royal Distributors in 1991. The failure to report Gerald's GRIP receipt and some other income is alleged to be a misreading of the forms by Judy. But Gerald, an elevator agent, was highly experienced in such forms and they related to his income. These excuses, in the light of consistent acts by both Appellants in assembling their records and signing false income tax returns respecting their incomes, fly in the face of the facts. As a result (and subject to the exception for Gerald's testimony respecting the engine overhaul as described in paragraph [23] hereof), all of their testimony lacks credibility. Mr. Holm's Exhibits A-2 and A-3 also lack any substance to establish them as legitimate records of expenses. They are merely compilations of figures which could signify anything and as a result signify nothing for the purposes of these appeals.

[26] The Appellants' consistent actions in falsely reporting varieties of income are a deliberate, knowledgeable, and concerted manufacturing of false statements in their income tax returns. The misstatements by both Appellants were made knowingly and deliberately. On this basis the assessment of penalties on both Appellants pursuant to subsection 163(2) of the Income Tax Act is confirmed subject to a recalculation as to the amounts of income upon which the penalties are based pursuant to these Reasons for Judgment.

[27] As a result of these findings, Judy Swicheniuk's appeals are dismissed. Gerald Swicheniuk's assessments are referred to the Minister of National Revenue for reconsideration and reassessment in accordance with these Reasons for Judgment.

[28] The Respondent is awarded its costs, in any event, in respect to both Appellants' appeals subject to the affixing of one set of costs for the hearing itself which is imposed jointly on both Appellants.

Signed at Ottawa, Canada this 28^th day of April 2000.

"D.W. Beaubier"

J.T.C.C.