Date: 20031209
Docket: A-496-01
Citation: 2003 FCA 472
CORAM : DÉCARY J.A.
LÉTOURNEAUJ.A.
NADON J.A.
BETWEEN:
HUBERT MORNEAU
Applicant
and
HER MAJESTY THE QUEEN
(MINISTER OF NATIONAL REVENUE)
Respondent
Hearing held at Québec, Quebec, on November 27, 2003.
Judgment rendered at Ottawa, Ontario, on December 9, 2003.
REASONS FOR JUDGMENT: NADON J.A.
CONCURRED IN BY: DÉCARY J.A.
LÉTOURNEAU J.A.
Date: 20031209
Docket: A-496-01
Citation: 2003 FCA 472
CORAM : DÉCARY J.A.
LÉTOURNEAU J.A.
NADON J.A.
BETWEEN:
HUBERT MORNEAU
Applicant
and
HER MAJESTY THE QUEEN
(MINISTER OF NATIONAL REVENUE)
Respondent
REASONS FOR JUDGMENT
NADON J.A.
I. The applicant is asking the Court to reverse the judgment by Judge Tardif of the Tax Court of Canada on July 27, 2001, which dismissed the appeal filed by him from the reassessments made by the Minister for the 1995, 1996 and 1997 taxation years.
II. Those reassessments, dated April 19, 1999, resulted from an audit that lasted for three weeks as a result of which the Minister concluded, by the "net worth method", that the applicant had failed to report substantial income, namely $8,588 for 1995, $14,353 for 1996 and $600 for 1997.
III. Pursuant to notices of objection filed by the applicant for the years at issue, the Minister reduced the respondent's unreported income by $300 in 1995, $1,675 in 1996 and $50 in 1997.
IV. It should be noted that for the years at issue the applicant had reported as income $9,916 for 1995, $12,195 for 1996 and $13,822 for 1997.
V. In view of the applicant's failure to report all his income, the Minister, by notices of reassessment dated February 16, 2000, imposed on him penalties of $577.99 for 1995, $1,365.51 for 1996 and $375.69 for 1997, pursuant to subsection 163(2) of the Income Tax Act ("the Act").
VI. After hearing all the evidence, including the testimony of the applicant and his wife, as well as that of Étienne Sabourin, a chartered accountant who was responsible for the Minister's file at the time of review, Judge Tardif drew the following conclusions:
(i) the "net worth" method used by the Minister had not been discredited and the information given by the method was [TRANSLATION] "determinative";
(ii) the testimony by the applicant's wife was confused and vague;
(iii) the applicant's arguments and the figures he put forward were [TRANSLATION] "mathematically impossible and implausible";
(iv) the Minister's auditors had conducted the audit of the applicant and his wife [TRANSLATION] "judiciously and above all with great generosity";
(v) there could be no doubt that the applicant had failed to report significant income during the three years at issue;
(vi) the Minister had discharged his burden of showing that the penalties could be imposed under section 163(2) of the Act.
VII. In the applicant's submission, Judge Tardif erred in not taking into account the evidence he submitted on three specific points, namely:
(i) his wife was owner of the family home and consequently the rental income from the rental of an apartment in that home in the three years at issue, namely $4,239 for 1995, $2,858 for 1996 and $2,707 for 1997, was not his but belonged to his wife;
(ii) his business occupied part of the family home, and consequently the rental expenses of $500 a month should have been allocated to him;
(iii) the judge should not have taken into account a letter dated March 5, 1999, which his accountant Denise Tremblay, of the firm Samson, Bélaire, Deloit et Touche, sent to the auditor of his files.
VIII. The first error which the applicant alleged was made by Judge Tardif concerned rental income from the rental of an apartment in the family home. The applicant maintained that the evidence showed that his wife was owner of the property, and that consequently the rental income from that property belonged to her. Accordingly, in the applicant's submission, the sum of $9,797 should have been deducted from his income.
IX. In my opinion, Judge Tardif made no error in this regard. First, as the respondent noted, the only evidence regarding ownership of the family home was the testimony of the applicant's wife, which Judge Tardif concluded was confused and vague. Further, the evidence showed that the applicant had reported the rental income as his own in his tax returns for the years at issue. It should also be noted that the applicant had never maintained that his wife was owner of the family home in his discussions with the Minister's representatives about his objections.
X. Secondly, even if Judge Tardif had accepted the applicant's argument on this point, it would have had no impact on the determination of his unreported income by the "net worth" method, since for the purposes of that determination the method took into account the net worth of the applicant and of his wife and the income reported by them. In other words, the fact of moving the sum of $9,797 from the column showing the applicant's income to that for his wife's income would have given the same results: that is, the difference between the applicant's total income as determined by the "net worth" method and his reported income would have been the same (see applicant's record, page 18, Appendix A _ [TRANSLATION] "calculation of difference by net worth").
XI. The second error which the applicant alleged was made by Judge Tardif concerned the rental expenses of $500 a month which he maintained should have been allocated to him, since his business occupied part of the family home.
XII. I feel that this argument by the applicant is also wrong. Judge Tardif was right not to alter the difference between the applicant's total income by net worth and his reported income, since the $6,000 expense claimed by the applicant was only an estimate. In fact, the applicant's business incurred no rental expense.
XIII. Further, accepting the applicant's argument would have the effect of increasing the difference between the total income by net worth and the reported income, since the addition of a $6,000 expense would reduce the business income reported by the applicant.
XIV. The final error allegedly made by Judge Tardif was considering the letter of March 5, 1999, sent by his accountant Denise Tremblay to the auditor of his files. In her letter Ms. Tremblay told the auditor that the applicant accepted his draft assessment dated March 1, 1999, [TRANSLATION] "except for the cost of food-related expenses, which in his opinion is clearly lower. However, he admits he is not in a position to prove this". In the applicant's submission, this letter was in no way relevant to determining his unreported income.
XV. I also consider that this argument by the applicant is incorrect. It seems clear from Judge Tardif's decision that he felt that Ms. Tremblay's letter had no conclusive effect on the findings he had to make regarding the validity of the Minister's assessments. Additionally, although Ms. Tremblay's letter was not conclusive, in Judge Tardif's opinion, it was still a good indication of the accuracy of the reassessments, since the applicant accepted the information presented by the Minister's representatives.
XVI. In my opinion, the conclusions arrived at by Judge Tardif can only be described as reasonable, based on the evidence as a whole. The applicant was unable to persuade the Court that in reaching the conclusion that he did Judge Tardif made an error that would warrant its intervention.
XVII. For these reasons, I would dismiss the applicant's application for judicial review with costs.
"I concur.
Robert Décary J.A."
"I concur.
Gilles Létourneau J.A."
Certified true translation
Suzanne M. Gauthier, C. Tr., LL.L.
FEDERAL COURT OF CANADA
SOLICITORS OF RECORD
DOCKET: A-496-01
STYLE OF CAUSE: HUBERT MORNEAU v. HER MAJESTY THE QUEEN (MINISTER OF NATIONAL REVENUE)
PLACE OF HEARING: QUÉBEC, QUEBEC
DATE OF HEARING: NOVEMBER 27, 2003
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
NADON J.A.
REASONS FOR JUDGMENT: NADON J.A.
CONCURRED IN BY: DÉCARY J.A.
LÉTOURNEAU J.A.
DATE OF REASONS: December 9, 2003
APPEARANCES:
Hubert Morneau FOR HIMSELF
Alain Gareau FOR THE RESPONDENT
SOLICITORS OF RECORD:
Hubert Morneau FOR HIMSELF
Chicoutimi, Quebec
Department of Justice _ Canada FOR THE RESPONDENT
Montréal, Quebec
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