Date: 20111214
Dockets: A-351-10
A-352-10
A-353-10
A-354-10
A-360-10
Citation: 2011 FCA 344
CORAM: DAWSON J.A.
TRUDEL J.A.
MAINVILLE
J.A.
Docket:
A-351-10
BETWEEN:
MICHEL GUIBORD
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket:
A-352-10
BETWEEN:
MEI
GUIBORD
Appellant
and
HER
MAJESTY THE QUEEN
Respondent
Docket:
A-353-10
BETWEEN:
GEORGE
S. SZETO INVESTMENTS LTD.
Appellant
and
HER
MAJESTY THE QUEEN
Respondent
Docket:
A-354-10
BETWEEN:
GEORGE
SZETO
Appellant
and
HER
MAJESTY THE QUEEN
Respondent
Docket:
A-360-10
BETWEEN:
GEORGE
S. SZETO INVESTMENTS LTD.
Appellant
and
HER
MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
MAINVILLE J.A.
[1]
This
concerns five appeals from five judgments of V. Miller J. of the Tax Court of
Canada (the “Judge”):
a. The individual
appellants Michel Guibord (appeal file A-351-10), Mei Guibord (appeal file
A-352-10) and George Szeto (appeal file A-354-10) seek to overturn the
judgments of the Tax Court of Canada which partially allowed their appeals from
reassessments issued by the Minister of National Revenue (the “Minister”) under
the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) for the
1995, 1996 and 1997 taxation years.
b. The corporate
appellant, George S. Szeto Investments Ltd., seeks to overturn a judgment of
the Tax Court of Canada which allowed in part its appeal from reassessments
issued by the Minister under the Income Tax Act for its taxation years
ending October 31, 1995, October 31, 1996 and October 31, 1997 (appeal file
A-353-10)
c. Finally, the corporate
appellant George S. Szeto Investments Ltd. also seeks to overturn a decision of
the Tax Court of Canada which allowed in part its appeal from reassessments
issued under the Excise Tax Act, R.S.C. 1985, c. E-15 in respect to GST
for the period of November 1, 1994 to October 31, 1997 (appeal file A-360-10).
All these appeals were
consolidated by order of this Court dated December 17, 2010.
[2]
Siblings
Mei Guibord and George Szeto are the sole shareholders of George S. Szeto Investments
Ltd. which itself owns and operates the Ruby King Restaurant. The corporate
appellant shall be referred to in these reasons as “Ruby King”. Mei Guibord is
also the spouse of Michel Guibord. During the years reassessed, Mei Guibord and
George Szeto were salaried employees of Ruby King. Michel Guibord was not
directly employed by Ruby King. Rather, he worked for the Department of
National Defence as a computer specialist. However, until February 1997, he was
the bookkeeper for Ruby King. In that capacity, he received the daily sales
receipts for Ruby King and he periodically made deposits to Ruby King’s bank
account.
[3]
In
1995, 1996 and 1997, Michel Guibord reported employment income of $43,933,
$49,111 and $48,779 respectively; Mei Guibord reported employment income of
$10,600, $10,400 and $10, 400 respectively; and George Szeto reported income of
$10,600, $10,400 and $10,400 respectively. Ruby King reported losses for all
relevant periods; however, in each of the relevant years, the financial statements
prepared for Ruby King indicated large amounts as “Due to Shareholders”.
[4]
The
Minister audited Ruby King and found its records to be unreliable and
incomplete. This resulted in additional investigations by the Minister into the
income reported by the individual appellants. A net worth method was finally
used by the Minister to reassess Ruby King and the three individual appellants.
The Minister further relied on subsection 152(4) of the Income Tax Act
to reassess the appellants beyond the three-year limitation period. In
addition, he assessed all of the appellants with penalties under subsection
163(2) of the Income Tax Act and Ruby King with additional penalties
under subsection 298(4) of the Excise Tax Act.
[5]
The
appellants appealed to the Tax Court of Canada. Their appeals were decided on
common evidence following thirteen days of hearings. The Judge was satisfied
that the Minister was justified in opening the three statute barred taxation
years for all the appellants because she found that they had made
misrepresentations relating to their income which, at minimum, were
attributable to neglect and carelessness. The Judge went on to make various
corrections to the appellants’ net worth statements. She then set aside the
penalties imposed upon the individual appellants while confirming the penalties
assessed on Ruby King. The issue of costs was reserved. After receiving written
submissions on costs, the Judge issued reasons and an order with respect to
costs. That order is the subject of separate appeals, and is not dealt with in
these reasons.
[6]
The
appellants appeal to this Court on various grounds. The principal grounds of
appeal may be restated as follows:
a. The Judge erred when
failing to put her mind as to whether or not, in the circumstances, the net worth
reassessments should be vacated because they were not completed in a principled
and rational manner and because they were done in an arbitrary fashion.
b. The Judge erred by (i)
failing to identify the legal test which the appellants had to meet in order to
demolish the Minister’s assumptions, (ii) failing to determine whether the
facts satisfied the legal test for each of the appellants, and (iii) failing to
consider all the relevant evidence when considering the test for each of the
appellants.
c. The Judge erred in
apportioning a part of the income of Michel Guibord to his spouse Mei Guibord.
d. The Judge erred when
she failed to vacate George Szeto’s reassessment on the principle of de
minimus.
[7]
Housen
v. Nikolaisen,
2002 SCC 33, [2002] 2 S.C.R. 235 sets out the standard of review in an appeal
from a judgment of the Tax Court of Canada. The standard of review on a
question of law is correctness, while findings of fact are not to be disturbed
unless it can be established that the trial judge made a palpable and
overriding error. The application of a legal standard to a set of facts is a
question of mixed fact and law which is also subject to deference unless an
extricable question of law can be identified. The appellants’ grounds of appeal
challenge the Judge’s findings of fact or the application by the Judge of a
legal standard to a set of facts. Consequently, unless an extricable question
of law can be identified, the standard of review which applies in these appeals
is that of a palpable and overriding error.
Did the Judge err by
failing to put her mind as to whether or not, in the circumstances, the net
worth reassessments should be vacated because they were not completed in a
principled and rational manner and because they were done in an arbitrary fashion?
[8]
In
certain appropriate circumstances, the Minister may use the net worth
methodology to assess a taxpayer. This methodology has been described as
follows by Bowman J. in Bigayan v. R. (1999), 2000 D.T.C. 1619:
The net worth method,
as observed in Ramey v. The Queen, 93 D.T.C. 791, is a last resort to be
used when all else fails. Frequently it is used when a taxpayer has failed to
file income tax returns or has kept no records. It is a blunt instrument,
accurate within a range of indeterminate magnitude. It is based on an
assumption that if one subtracts a taxpayer's net worth at the beginning of a
year from that at the end, adds the taxpayer's expenditures in the year,
deletes non-taxable receipts and accretions to value of existing assets, the
net result, less any amount declared by the taxpayer, must be attributable to
unreported income earned in the year, unless the taxpayer can demonstrate
otherwise. It is at best an unsatisfactory method, arbitrary and inaccurate but
sometimes it is the only means of approximating the income of a taxpayer.
[9]
Though
it is an arbitrary and imprecise approximation of a taxpayer’s income, the
perceived unfairness of a net worth assessment is somewhat resolved by the fact
the taxpayer is in the best position to know his or her own taxable income.
Where a factual basis of the Minister’s estimation is inaccurate, it should be
a simple matter for the taxpayer to correct the Minister’s error to the
satisfaction of the Court: Hsu v. The Queen, 2001 FCA 240; [2001] 4 C.T.C.
1; 2001 D.T.C. 5459, at paragraph 30.
[10]
The
appellants assert that the use of the net worth method was arbitrary in that
the Minister could have used another audit method. They add that the Minister’s
net worth reassessments were unprincipled since the CRA auditor responsible for
the audits attributed the “Due to shareholders” in Ruby King to the individual
appellants - rather than as unreported earnings of Ruby King - when he knew
(and later acknowledged) that this assumption was questionable. The appellants
thus conclude that their reassessments should be vacated on this basis.
[11]
In
my view, this ground of appeal should fail.
[12]
The
Judge found that the systems used by the appellants for sales and daily cash
reconciliations in Ruby King were haphazard and questionable: Reasons at
paragraphs 31 and 64. She further found that large amounts attributable to
sales at Ruby King’s were not rung into the cash register, and that Michel
Guibord treated his duties as bookkeeper and the Ruby King’s monies “in a cavalier
and frivolous manner”: Reasons at paragraph 64. She further did not believe
Michel Guibord’s explanation that any discrepancies between declared revenues
and his and his spouse’s net worth assessments were attributable to his alleged
large casino gambling gains: Reasons at paragraphs 55 to 58. All these findings
support the position of the Minister that a net worth method was justified in
these circumstances.
[13]
Moreover,
the financial statements of Ruby King set out large amounts as “Due to
shareholders”. Though these amounts were subsequently found by the Judge to
relate to unreported sales in Ruby King, the appellants cannot take issue with
the fact that the Minister used an assumption which they themselves set out in
the financial statements they submitted to the Minister.
Did the Judge err by
(i) failing to identify the legal test which the appellants had to meet in
order to demolish the Minister’s assumptions, (ii) failing to determine whether
the facts satisfied the legal test for each of the appellants, and (iii)
failing to consider all the relevant evidence when considering the test for
each of the appellants?
[14]
Under
subsection 152(7) of the Income Tax Act, the Minister is not
bound by a return or information supplied by a taxpayer and may assess the
taxpayer using any method that is appropriate in the circumstances. Subsection
152(8) of the Income Tax Act sets out that these assessments are deemed
to be valid. The onus is therefore upon the taxpayer to disprove the
assumptions of the Minister by making out a prima facie case. Once the
Minister’s assumptions have been “demolished”, the onus shifts to the Minister
to rebut the prima facie case made out by the taxpayer and to prove the
assumptions.
Ruby King
[15]
Ruby
King asserts that since the Judge found that there was no evidence that its
sales exceeded the deposits in its bank accounts (Reasons at paragraph 64 in
fine), this finding “demolished” the Minister’s net worth assumptions, and
its appeals should thus be granted. It further argued that it was improper for
the Judge to refer the matter back to the Minister for reassessment on a net
worth basis.
[16]
I
find this argument somewhat disingenuous in light of the findings of the Judge
that Ruby King maintained a deficient and frivolous accounting system resulting
in hundreds of thousands of dollars in unreported sales during the three years
in question. There is consequently no merit to this argument.
Mei and Michel Guibord
[17]
Mei
and Michel Guibord assert that the Judge failed to consider that they had
“demolished” the Minister’s assumption that the increase in their net worth
came from undeclared cash revenues in Ruby King. They say that this assumption
was “demolished” when the Judge found that the amounts “Due to shareholders”
reported in the financial statements were in fact unreported sales in Ruby
King, and that only these amounts had been unreported as revenues in Ruby King.
In their view, had the Judge considered the evidence, she would have been
compelled to conclude that the onus had shifted to the Minister to prove the
source of their income which explained their net worth. Since the Minister did
not present any such evidence, they claim that their appeals against the
reassessments should have been allowed.
[18]
They
add that in any event, their testimony and the other evidence they tendered
demonstrated at least on a prima facie basis that Michel Guibord was a
very lucky “slot machine” gambler. Consequently, his gains from “slot machine”
gambling explained prima facie the discrepancies between their net worth
and their declared taxable incomes.
[19]
This
ground of appeal fails to consider that the Minister’s assumptions were not
necessarily tied to revenues obtained by Mei and Michel Guibord in Ruby King.
The proceedings in the Tax Court show that the Minister’s assumptions were that
Mei and Michel Guibord had undeclared taxable revenues from a source other than
their declared income. Moreover, this ground of appeal is largely predicated on
the assumption that the evidence submitted in support of the gambling revenue
source was uncontroversial and credible. It was not.
[20]
The
Judge found Michel Guibord’s testimony on this issue not to be reliable, his
recollection to be incorrect and self serving, and the evidence submitted to be
unpersuasive. She further found that much of the evidence simply did not
support his version of events: Reasons at paragraphs 55 to 58.
[21]
I
have not been persuaded that the Judge made a palpable and overriding error in
reaching these findings. The record before us shows that there was ample
evidence before the Judge to allow her to conclude as she did. There was clear
evidence of substantial withdrawals from bank accounts and credit cards which
contradicted the assertion that all large US dollar deposits by the couple were
from gambling wins. Moreover, no record or tracking of the gambling wins or
losses was supplied. Nor was any evidence tendered as to the amounts spent to
make the alleged gambling wins.
[22]
The
issue here is simply one of credibility. The Judge did not find the testimony
as to the extent of the claimed gambling wins either reliable or credible.
Consequently, neither Mei nor Michel Guibord made out a prima facie case
disputing the Minister’s assumptions. Barring a palpable and overriding error,
this Court should not intervene.
Did the Judge err in
apportioning a part of the income of Michel Guibord to his spouse Mei Guibord?
[23]
The
Minister applied the net worth assessment analysis to the family unit comprised
of both Mei and Michel Guibord, and apportioned as taxable income the
unexplained increases in the net worth equally between Mei and Michel Guibord.
Mei Guibord asserts as an additional ground of appeal that the Judge erred in
confirming this apportionment when the evidence showed that the additional
income was essentially attributable to Michel Guibord.
[24]
The
parties confirmed at the oral hearing before this Court that this ground of
appeal had not been raised in the Tax Court of Canada. Consequently, the Judge
did not address it in her Reasons. Since the issue was not pleaded and put in
issue before the Tax Court, it is now too late to raise the issue.
Did the Judge err when
she failed to vacate George Szeto’s reassessment on the principle of de
minimus?
[25]
Under
the doctrine of de minimus, a fact or thing may be so insignificant that
a court may overlook it in deciding an issue or case: Black’s Law Dictionary,
Eight Edition.
[26]
George
Szeto asserts that since the results of the Minister’s net worth analysis were
substantially reduced by the Judge, she should have accordingly found - on the de
minimus doctrine - that the Minister had not established that he had made
misrepresentations that were attributable to neglect, carelessness or wilful
default. Accordingly, the Judge erred when she found that the Minister was
justified in reassessing Mr. Szeto for the statute barred years.
[27]
The
Crown contends that the de minimus doctrine does not apply in the Tax
Court of Canada in light of the limited statutory jurisdiction of that Court.
We need not decide this issue.
[28]
Indeed,
whether the doctrine applies or not, there was ample evidence before the Judge
demonstrating that George Szeto was grossly negligent in regard to his and Ruby
King’s tax returns. I note in particular the findings of the Judge at paragraph
26 of her reasons that Mr. Szeto “signed both his and Ruby King’s income tax
returns without asking any questions” and that he did not review the financial
statements. In addition, the Judge further found at paragraph 39 of her reasons
that the “evidence submitted at the hearing does not totally support George’s
testimony with respect to the bank accounts”. The Judge also noted
discrepancies in his testimony concerning the net worth statement items
relating to a Honda Civic and certain household goods. There were consequently
ample reasons and evidence for the Judge to conclude that the Minister was
justified in reassessing George Szeto for the concerned years.
Other grounds of appeal
[29]
Though
not emphasizing these issues in their oral arguments, the appellants have also
raised numerous other grounds of appeal concerning notably the cash on hand
which the Guibord couple held, certain personal assets and personal
expenditures of Mr. Szeto, the ownership of certain bank accounts, etc. All
these grounds seek to challenge the assessment of the evidence by the Judge.
The appellants have not convinced me that the Judge committed a palpable and
overriding error on any of the challenged findings.
Conclusions
[30]
I
would consequently dismiss these appeals. I would also award the costs of these
appeals to the respondent. However, there should be only one set of costs for
the appeal files A-351-10, A-352-10, A-353-10, A-354-10 and A-360-10.
"Robert
M. Mainville"
“I
agree.
Eleanor
R. Dawson J.A.”
“I
agree.
Johanne
Trudel J.A.”
FEDERAL COURT OF
APPEAL
NAMES OF COUNSEL AND
SOLICITORS OF RECORD
DOCKETS: A-351-10
APPEAL FROM THE JUDGMENT OF THE
HONOURABLE JUSTICE VALERIE MILLER DATED AUGUST 19, 2010.
STYLE OF CAUSE: Michel
Guibord v. Her Majesty The Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: December 7, 2011
REASONS FOR JUDGMENT
BY: MAINVILLE J.A.
CONCURRED IN BY: DAWSON J.A.
TRUDEL J.A.
DATED: December 14, 2011
APPEARANCES:
|
Charles Gibson
Ian
Houle
|
FOR THE APPELLANT
|
|
Josée Tremblay
Natasha
Wallace
|
FOR
THE RESPONDENT
|
SOLICITORS OF RECORD:
|
Vincent Dagenais Gibson
Ottawa, Ontario
|
FOR THE APPELLANT
|
|
Myles J. Kirvan
Ottawa, Ontario
|
FOR
THE RESPONDENT
|
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND
SOLICITORS OF RECORD
DOCKETS: A-352-10
APPEAL FROM THE JUDGMENT OF THE
HONOURABLE JUSTICE VALERIE MILLER DATED AUGUST 19, 2010.
STYLE OF CAUSE: Mei
Guibord v. Her Majesty The Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: December
7, 2011
REASONS FOR JUDGMENT
BY: MAINVILLE
J.A.
CONCURRED IN BY: DAWSON J.A.
TRUDEL J.A.
DATED: December
14, 2011
APPEARANCES:
|
Charles
Gibson
Ian
Houle
|
FOR THE APPELLANT
|
|
Josée
Tremblay
Natasha
Wallace
|
FOR
THE RESPONDENT
|
SOLICITORS OF RECORD:
|
Vincent
Dagenais Gibson
Ottawa, Ontario
|
FOR THE APPELLANT
|
|
Myles
J. Kirvan
Ottawa, Ontario
|
FOR
THE RESPONDENT
|
FEDERAL COURT OF
APPEAL
NAMES OF COUNSEL AND
SOLICITORS OF RECORD
DOCKETS: A-353-10
APPEAL FROM THE JUDGMENT OF THE
HONOURABLE JUSTICE VALERIE MILLER DATED AUGUST 19, 2010.
STYLE OF CAUSE: George
S. Szeto Investments Ltd. v. Her Majesty The Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: December
7, 2011
REASONS FOR JUDGMENT
BY: MAINVILLE
J.A.
CONCURRED IN BY: DAWSON J.A.
TRUDEL J.A.
DATED: December
14, 2011
APPEARANCES:
|
Charles
Gibson
Ian
Houle
|
FOR THE APPELLANT
|
|
Josée
Tremblay
Natasha
Wallace
|
FOR
THE RESPONDENT
|
SOLICITORS OF RECORD:
|
Vincent
Dagenais Gibson
Ottawa, Ontario
|
FOR THE APPELLANT
|
|
Myles
J. Kirvan
Ottawa, Ontario
|
FOR
THE RESPONDENT
|
FEDERAL COURT OF
APPEAL
NAMES OF COUNSEL AND
SOLICITORS OF RECORD
DOCKETS: A-354-10
APPEAL FROM THE JUDGMENT OF THE
HONOURABLE JUSTICE VALERIE MILLER DATED AUGUST 19, 2010.
STYLE OF CAUSE: George
Szeto v. Her Majesty The Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: December
7, 2011
REASONS FOR JUDGMENT
BY: MAINVILLE
J.A.
CONCURRED IN BY: DAWSON J.A.
TRUDEL J.A.
DATED: December
14, 2011
APPEARANCES:
|
Charles
Gibson
Ian
Houle
|
FOR THE APPELLANT
|
|
Josée
Tremblay
Natasha
Wallace
|
FOR
THE RESPONDENT
|
SOLICITORS OF RECORD:
|
Vincent
Dagenais Gibson
Ottawa, Ontario
|
FOR THE APPELLANT
|
|
Myles
J. Kirvan
Ottawa, Ontario
|
FOR
THE RESPONDENT
|
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND
SOLICITORS OF RECORD
DOCKETS: A-360-10
APPEAL FROM THE JUDGMENT OF THE
HONOURABLE JUSTICE VALERIE MILLER DATED AUGUST 19, 2010.
STYLE OF CAUSE: George
S. Szeto Investments Ltd. v. Her Majesty The Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: December
7, 2011
REASONS FOR JUDGMENT
BY: MAINVILLE
J.A.
CONCURRED IN BY: DAWSON J.A.
TRUDEL J.A.
DATED: December
14, 2011
APPEARANCES:
|
Charles
Gibson
Ian
Houle
|
FOR THE APPELLANT
|
|
Josée
Tremblay
Natasha
Wallace
|
FOR
THE RESPONDENT
|
SOLICITORS OF RECORD:
|
Vincent
Dagenais Gibson
Ottawa, Ontario
|
FOR THE APPELLANT
|
|
Myles
J. Kirvan
Ottawa, Ontario
|
FOR
THE RESPONDENT
|
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