Docket: 2010-3320(IT)I
BETWEEN:
DUY THINH BUI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
____________________________________________________________________
Appeals
heard on September 3, 2013 and decision rendered orally
on September 10, 2013, at Toronto, Ontario.
Before: The Honourable Justice B. Paris
Appearances:
For the appellant:
|
The appellant himself
|
Counsel for the respondent:
|
Louis L'Heureux
|
____________________________________________________________________
JUDGMENT
The
appeals from the reassessment for the 2005 taxation year and from the
assessment for the 2008 taxation year made pursuant to the Income Tax Act
are dismissed, without costs, in accordance with the attached reasons for
judgment.
Signed at Ottawa, Canada, this 15th day of October
2013.
"Brent Paris"
Translation certified true
on this 4th day of November 2013.
Elizabeth Tan,
Translator
Citation: 2013 TCC 326
Date: 20131015
Docket: 2010-3320(IT)I
BETWEEN:
DUY THINH BUI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Paris J.
[1]
There are appeals filed
pursuant to the informal procedure from assessments and reassessments in which
the Minister of National Revenue (the Minister) disallowed rental losses,
capital losses and business losses, as well as the refundable tax credits for
beneficiaries residing in Canada claimed by the appellant for the 2005 to 2008
taxation years. At the hearing, the respondent asked the Court to quash the
appeals for the 2006 and 2007 taxation years on the ground that the assessments
made for those years were "nil" assessments. The appellant agreed to
this request and the appeals for those taxation years are quashed.
[2]
The amounts reported as
rental losses were $518,470 in 2005 and $4,695,984 in 2008. The capital loss
reported for 2005 was $1,869,546. The amount of the business loss reported for
2005 was $50,446. Lastly, the appellant claimed a $6,110,851 refundable
tax credit for beneficiaries residing in Canada for 2008.
[3]
At
the beginning of the hearing, the appellant confirmed that he understood there
were monetary limits for appeals governed by the informal procedure.
[4]
The
factual assumptions on which the Minister relied to make the assessments in
question are set out in paragraph 10 of the Reply to the Notice of Appeal,
reproduced in the appendix attached to these reasons.
[5]
The appellant has the
burden of proving that these facts are not true.
[6]
I will summarize the
relevant facts. The appellant's father died in France in 2004. His wife and 14 children,
including the appellant, are the beneficiaries of his estate.
[7]
Among other things, the
estate includes four real properties in Vietnam and six in France. The
appellant reported rental losses with regard to eight of these properties in 2005,
and nine of these properties in 2008. (The appellant stated that he established
the losses he reported in the tax return by estimating a rental value for each
property.)
[8]
In disallowing the
rental losses, the Minister presumed that at all relevant times, the appellant
was not the owner of any of these properties since they had not been
distributed by the estate.
[9]
The appellant testified
that these properties belonged to him. He seemed to state that the other
beneficiaries of his father's estate lost their right to inherit because they
acted in bad faith towards their father and towards the estate. He stated that
he had taken legal action with regard to the estate, but that his cases were
still before the courts in France and the United States. He asked this Court to
wait for the judgments in France since the administration of the estate is
being processed there.
[10]
It is not appropriate,
in my opinion, to wait for the liquidation of the estate to be completed or
even for a final decision to be rendered by the French court with regard to the
estate. First, the appellant did not prove the nature or content of any case
brought by the appellant in France. Therefore, I am not able to assess its
relevance. Second, Associate Chief Judge Bowman of this Court found, in Kovarik
v The Queen, 2001 CanLII 513 (TCC), 2001 2 CTC 2503 (at paragraph 22) that:
... This court's function is to
decide whether an assessment is right on the facts
before it, not whether it might be changed as the result of
a subsequent event such as a rectification order. If, every time a particular
transaction had unexpected or unwanted tax consequences and the Minister
assessed accordingly, this court on an appeal were to defer making a decision and
grant a sort of stay of execution while the taxpayer
sought a rectification order to reverse the adverse
effects of the
earlier transaction a goodly number of our cases would be hoist into judicial
never-never land pending the
disposition of the
application by the
provincial court. Acting as a form of judicial limbo is not part of this
court's mandate.
I agree. All the
documentary evidence and testimony presented at the hearing before me supports
the respondent's theory that the appellant was not the owner of any of the
property in question. The property tax bills for the real properties in France,
produced by the appellant himself, show that these properties are still
registered in his late father's name or in his late father and his wife's names
together. The estate statements also show that the real properties in France and
Vietnam are part of the estate. During cross‑examination, the appellant
himself admitted that the estate had not yet been distributed. As such, in
Ontario, the appellant did not have ownership of the property that was part of
the estate. If the appellant wanted to show that French law granted him
ownership of the property that was still part of his late father's estate, he
should have submitted evidence through an expert witness on French law in this
regard. In the absence of such evidence, I must find that French law is the
same as Canadian law on this matter. In Backman v Canada, 2000 1 FC 555,
at paragraph 38, the Federal Court of Appeal ruled on this issue as follows:
38 Where
foreign law is relevant to a case, it is a question of fact which must be
specifically pleaded and proved to the satisfaction of the Court. Professor
J.-G. Castel has summarized the effect of the failure of a party to establish
foreign law as a fact before the Court:
If foreign law is
not pleaded and proved or is insufficiently proved, it is assumed to be the
same as the lex fori. This seems to include statutes as well as the law
established by judicial decision.
[11]
The appellant did not
show that he was entitled to receive income from the estate during the 2005 and
2008 taxation years either. If he was not entitled to this, he could not claim
any loss related to this income.
[12]
Moreover, the appellant
admitted that the rental losses he reported were estimated amounts, determined
based on a rental value for each property, calculated by the appellant himself.
I am not at all convinced that these estimates reflect reality. Therefore, even
if the appellant had shown that he was the owner of these properties, which he
did not do, I would have disallowed the deduction of these losses on the ground
that the amounts were not established. I rely on the Federal Court of Appeal
decision in Northwood Pulp and Timber Ltd. v Canada, 1998 CanLII 8602 (FCA),
98 DTC 6640, in which the court stated the following, at paragraph 9:
[9] The appellant's position in the present case in inconsistent with
"established case law principles". We agree with what the learned
Trial Judge said in the present case:
|
The thrust of the cases referred to by
both counsel show that the Courts have consistently disqualified for income
tax purposes, in calculating taxable profits, amounts that are provisional
estimates, are conditional, contingent or uncertain. The estimates disallowed
by the Minister here were certainly of that nature.
|
[13]
The capital loss the
appellant claimed for the 2005 taxation year was composed of many elements, all
detailed at subparagraph 10(h) of the Reply to the Notice of Appeal. With
regard to the alleged losses regarding the two properties in Vietnam (the first
two elements), the appellant admitted that in 2005 there had been no disposition
of these properties. Paragraph 39(1)(c) of the Income Tax Act (the
Act) states that a capital loss must result from the disposition of a property.
[14]
The loss claimed with
regard to the property in Los Angeles (the third element), the former principal
residence of the appellant and his family, cannot be allowed either. According
to the appellant's wife's testimony, this house was seized by the bank holding
the mortgage on the house. The seizure took place in the early 1990s.
[15]
Pursuant to
sub-paragraph 40(2)(g)(iii) of the Act, any loss resulting from the
disposition of a personal-use property is deemed to be nil. Moreover, the loss
in question occurred well before 2005, and could not be claimed in 2005. For
these reasons, the claim for a loss with regard to the disposition of the Los
Angeles house is disallowed.
[16]
The fourth element of
the capital loss consists of an amount the appellant claims he should have
received, but did not receive, following the sale of an apartment situated at 9
boulevard Barbès in Paris, fax dated 15-4-2011 pp. 133/A-6, which he held in
co-ownership with his brother. With no clarifications about the date of
disposition or any document whatsoever to collaborate the appellant's testimony
that he was the co-owner, I find that he did not show that he suffered a
capital loss with regard to this property.
[17]
The fifth, sixth and
seventh elements of the capital loss claimed are with regard to gold and
amounts of cash that, according to the appellant, were stolen from his late
father's estate. He stated that the gold and cash belonged to the estate. If
this were the case, he cannot claim a capital loss because the loss was
incurred by the estate not him, if there had indeed been a loss.
[18]
The last element of the
capital loss was described by the appellant as a mathematical adjustment
between him and his wife regarding a promissory note. With no clarifications
about the nature of this loss, I cannot allow the deduction.
[19]
I must now consider the
issue of the business losses reported by the appellant for the 2005 taxation
year, regarding the firm Thinh Bui and the business TNT E‑Commerce. During
cross-examination, the appellant admitted that the expenses resulting in these
losses were incurred for the administration of his late father's estate. Moreover,
nothing in the evidence shows that the appellant operated any type of
commercial business in 2005 or that the expenses claimed were incurred for the
purpose of earning an income in the course of a commercial activity. The
Minister properly disallowed these losses.
[20]
Lastly, there is the
issue of refundable tax credits for beneficiaries residing in Canada that the
appellant claimed pursuant to subsection 210.2(3) of the Act. Subsection
210.2(3) allows for a refund of the tax paid by a trust under Part XII.2 of the
Act. The refund to beneficiaries is allowed if the conditions listed at
subsection 210.2(3) are met. Without going into the details of the application
of Part XII.2 of the Act, I will simply note that the tax refund provided under
subsection 210.2(3) is dependent on whether the trust paid an amount of income
tax pursuant to the Act.
[21]
In this case, the appellant
admits that there was no tax paid by a trust. It is therefore clear that he is not
eligible for the tax credits claimed because there is no amount to be refunded.
[22]
Having analyzed the
appellant's claims and the evidence he submitted, and having heard his arguments
and the respondent's arguments, I find that the appellant did not show that the
Minister erred in fact or in law when making the assessments for the 2005 and
2008 taxation years. The appeals regarding these two years are therefore dismissed.
Those regarding the 2006 and 2007 taxation years were already quashed.
Signed at Ottawa, Canada, this 15th day of October
2013.
"Brent Paris"
Translation
certified true
on this 4th day of
November 2013.
Elizabeth Tan,
Translator
APPENDIX 1
[translation]
10.
To determine the tax payable by the appellant for the 2005, 2006, 2007 and 2008
taxation years, the Minister relied on the following assumptions of fact:
1. Rental losses
(a) in his tax returns for the 2005 to 2008 taxation years,
the appellant claimed rental losses with regard to properties in Vietnam and
France as follows:
|
Properties
Vietnam
|
2005
|
2006
|
2007
|
2008
|
1
|
1095 Tran Hung
Dao, Vietnam
|
$114,773
|
$190,879
|
$418,770
|
$887,473
|
2
|
1097 Tran Hung
Dao, Vietnam
|
$114,763
|
$190,731
|
$418,770
|
$887,473
|
3
|
1099 Tran Hung
Dao, Vietnam
|
$228,514
|
$381,442
|
$4,692,622
|
$2,817,011
|
4
|
67 Duy Tan Pho
Hue, Vietnam
|
$58,385
|
|
$12,683
|
$66,723
|
5
|
5 avenue de Lattre
de Tassigny,
France
|
$500
|
|
$15,708
|
$16,157
|
6
|
9 Bd. Bardes,
France studio Lot 4
|
|
|
$9,534
|
|
7
|
9 Bd. Bardes,
France –
Commercial
|
$500
|
|
$6,048
|
$6,212
|
9
|
8 rue Châteaudun,
France
|
$535
|
|
$6,624
|
$6,360
|
10
|
69 rue Montpanasse,
France
|
$500
|
|
$2,491
|
$1,098
|
11
|
2 avenue Tourelle,
France
|
|
|
$4,208
|
$7,477
|
(b) at all
relevant times, the appellant was not the owner of any of these properties;
(c) at all
relevant times, these properties were held by the estate of the appellant's
father, of which he is one of the 14 beneficiaries;
(d) at all
relevant times, no distribution had been made by the estate of the appellant's
father;
(e) the
appellant did not incur a rental loss with regard to the properties in question
during the years in question;
(f) to
determine the amount of the rental losses, the appellant used a hybrid
accounting system that seems to be allowed under the Code général de l’impôt
français. Pursuant to this method, a tenant can choose to not pay rent for
a period of 5 years and the landlord would not have to report rental income for
as long as the rent is not received;
(g) with this
in mind, the appellant calculated his rental losses using, for the most part,
the following reasoning:
o
he
claimed rental expenses under various titles, including "administration
fees", "office expenses", or "other expenses", in
order to bring his net rental income to nil;
o
these
rental expenses were not paid or incurred by the appellant and the amounts
claimed are arbitrary;
o
the
appellant also claimed a terminal loss under subsection 20(16) of the Act
although none of the properties in question were subject to a disposition
during the years in question;
o
the
rental expenses, combined with the terminal losses claimed under subsection
20(16) of the Income Tax Act, R.S.C. (1985) c. 1 (5th Suppl.) (the Act),
created the rental losses the appellant claimed.
2. Capital losses
2005
(h) the appellant
declared capital losses in his 2005 tax return with regard to the following
properties:
Item
|
Nature of property
in question
|
2005
|
1
|
Property at 67 Duy
tan, Pho Hue,
Vietnam
|
$280,000
|
2
|
Property at 1099
Tran Hung Dao,
Vietnam
|
$2,489,760
|
3
|
Property at 724
Genese Ave. LA
900046
|
$209,020
|
4
|
Property at 9 Bd
Bardes, France
|
$10,000
|
5
|
Gold
|
$1,470,546
|
6
|
SCI Duncan France
(cash)
|
$161,000
|
7
|
SCI Immoretel France
(cash)
|
$238,000
|
8
|
Promissory note by
Monique Metrasse
|
$45,800
|
(i) the appellant did not
incur any loss with regard to items 1 to 8;
(j) none of
the items 1 to 8 were the subject of a disposition during the years in question;
Real property: items
1, 2, 3 and 4
(k) at all
relevant times, the appellant was not the owner of the real property noted at
items 1, 2, 3 and 4;
(l) at all
relevant times, these properties were held by the estate of the appellant's
father, of which he was one of the 14 beneficiaries;
(m) at all
relevant times, no distribution had been made by the estate of the appellant's
father;
(n) none of the
real properties noted at items 1, 2, 3 and 4 were the subject of a disposition
during the taxation years in question;
(o) items 3 and
4, for which the associated losses are a result of foreclosures on mortgages,
had not been acquired or used by the appellant for the purpose of earning
business or property income;
Gold and cash: items
5, 6 and 7
(p) items 5, 6 and
7 represent gold and cash allegedly stolen from the estate of the taxpayer's
father;
(q) at all
relevant times, the appellant was not the owner of items 5, 6 and 7; this
property belonged to the appellant's father and, after his death, to his estate;
(r) moreover, items
5, 6 and 7 were not acquired by the appellant to earn property or business
income;
Promissory note by
Monique Metrasse: item 8
(s) item 8, which
represents a promissory note issued by the appellant's spouse Monique Metrasse,
was not acquired by the appellant for the purpose of earning business or
property income;
2006
(t) in his 2006
tax return, the appellant also declared capital losses totalling $658,210;
(u) the
appellant did not provide any documentation or justification to explain such
losses;
(v) the
appellant did not incur such losses in 2006 for property acquired for the
purpose of earning business or property income;
3. Business losses
(w) the
appellant claimed business losses in his 2005 and 2007 tax returns as follows:
|
2005
|
2007
|
Thinh Bui Firm
|
$25,283
|
|
TNT E-Commerce
|
$25,163
|
$10,911
|
Thinh Bui Firm
(x) the appellant did not
operate a business with regard to the firm Thinh Bui;
(y) no gross income was
declared with regard to the firm Thinh Bui;
(z) the
expenses claimed with regard to the firm Thinh Bui represent personal expenses
incurred to manage the estate of the appellant's father in France and are not
related to a business operations;
(aa) the expenses
claimed with regard to the firm Thinh Bui were not all paid or incurred;
TNT E-Commerce
(bb) the appellant did not
operate a business with regard to TNT E-Commerce;
(c) the
appellant did not report any gross income for 2005, and reported $800 for 2007;
(dd) the expenses
claimed with regard to TNT E-Commerce are personal and not related to the
operation of a business; some of these expenses are related to the management
of the estate of the appellant's father;
(ee) the expenses
claimed with regard to TNT E-Commerce were not all paid or incurred;
4. Refundable tax
credit for beneficiaries residing in Canada
(ff) in his 2007
and 2008 tax returns, the appellant claimed "refundable tax credits for
beneficiaries residing in Canada" pursuant to subsection 210.2(3) of
the Act, for the amounts of $4,388,337.68 and $6,110,866.91 respectively;
(gg) in order to
claim these credits, the appellant provided the Minister with T3 slips,
"Statement of Trust Income Allocations" apparently issued by the
trust "BUI Ngoc Chau BUI Duy Thinh" whose address is allegedly 5 Ave
de Lattre de Tassigny, Saint-Maur, France.
(hh) at all
relevant times, this trust that issued the T3 slips for the appellant was a
non-resident trust and was not registered for tax purposes; and
(ii) at all
relevant times, this trust that issued the T3 slips, whether validly registered
or not, did not pay Part XII.2 taxes.
CITATION: 2013 TCC 326
COURT FILE NO.: 2010-3320(IT)I
STYLE OF CAUSE: DUY THINH BUI AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: September 3 and 10, 2013
REASONS FOR
JUDGMENT BY: The Honourable Justice B. Paris
DATE OF JUDGMENT: October 15, 2013
APPEARANCES:
For the
appellant:
|
The appellant himself
|
Counsel for the respondent:
|
Louis L'Heureux
|
COUNSEL OF RECORD:
For the appellant:
Name:
Firm:
For the respondent: William F. Pentney
Deputy
Attorney General of Canada
Ottawa,
Canada