REASONS
FOR JUDGMENT
Favreau J.
[1]
This is an appeal against reassessments made
under the Income Tax Act, R.S.C. 1985 (5th supp.),
c. 1, as amended (the “Act” ), by the Minister of National Revenue
(the “Minister”) dated June 8, 2015 in respect of the appellant’s 2005 and 2006
taxation years.
[2]
By way of the reassessments, the Minister
disallowed donations of $9,000 and $8,000 claimed by the appellant for the 2005
and 2006 taxation years respectively.
[3]
In determining the appellant’s tax liabilities
for the 2005 and 2006 taxation years, the Minister made the following
assumptions of fact, set out in paragraph 8 of the Reply to the Notice of
Appeal:
a)
the Appellant’s Tax Returns were prepared by
Nathaniel Okoroafor (the “Tax Preparer”);
b)
the Tax Preparer made false charitable donation
claims in preparing his clients’ tax returns;
c)
in his Tax Returns, the Appellant claimed
charitable donations in respect of Christ Apostolic Church International
Canada, Evidence Ministries and The Christ Healing Church (the “Organizations”)
in the following amounts:
|
ORGANIZATION
|
2005
|
2006
|
|
Christ Apostolic
Church International
Evidence
Ministries
The Christ
Healing Church
|
$4,800
4,200
|
$8,000
|
d) the Canada Revenue Agency (the “CRA”) revoked the registered charity
status of the Organizations, as detailed below:
|
ORGANIZATION
|
Date
of Revocation
|
|
Christ Apostolic
Church International
Evidence
Ministries
The Christ
Healing Church
|
August 21, 2010
July 14, 2007
September 5, 2009
|
e)
the CRA revoked the registered charity status of
the Organizations for:
i)
issuing receipts for amounts greater than the
amounts donated;
ii)
issuing receipts for transactions that did not
qualify as gifts; and/or
iii)
not keeping proper records to support their
activities;
f)
the receipts issued by the Organizations did not
contain the information prescribed by section 3501 of the Income Tax
Regulations;
g)
the Appellant did not make gifts to the
Organizations with a fair market value of $9,000 and $8,000 in the respective
2005 and 2006 taxation years, as detailed in paragraph 8c) above;
h)
any cash paid to the Organizations by the
Appellant was to obtain inflated donation receipts to be enriched from the
expected non-refundable tax credits;
i)
the Appellant did not have a charitable intent
with respect to the Disallowed Donations;
j)
the amount of charitable donations claimed by
the Appellant in the 2005 and 2006 taxation years was inconsistent in relation
to donations claimed in other taxation years, with the exception of the 2004
taxation year as detailed below:
|
Taxation
Year
|
Donation Claimed
|
Net
Income Reported
|
%
|
|
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
|
$ −
952
−
6,000
9,025
8,145
−
78
−
−
520
−
−
|
$ 39,715
42,887
41,204
36,101
43,644
51,092
54,388
50,539
51,805
57,007
57,699
53,550
55,060
|
0%
2%
0%
17%
21%
16%
0%
0%
0%
0%
1%
0%
0%
|
k)
the amount of charitable donations claimed by
the Appellant were materially significant representing 21% and 16% of the
reported net income in the respective 2005 and 2006 taxation years, as detailed
in the preceding paragraph;
l)
the Appellant did not make any in-kind donations
in the 2005 and 2006 taxation years; and
m)
the Appellant did not make charitable donations
in excess of $25 and $145 in the respective, 2005 and 2006 taxation years.
[4]
In determining that the appellant made
misrepresentations attributable to neglect, carelessness or wilful default in
filing his tax returns for the 2005 and 2006 taxation years, the Minister
relied on the following facts set out in paragraph 9 of the Reply to the Notice
of Appeal:
a)
the facts as described in paragraph 8 above;
b)
the Tax Preparer’s clients’ purchased donation
receipts from the Tax Preparer for a percentage of the amount of donations
claimed;
c)
the payments to purchase the donation receipts
were made to the Tax Preparer, not the Organizations;
d)
the payments in respect of the donation receipts
were made after the taxation years in which the amounts were claimed, when the
tax returns were being prepared;
e)
the amount of payments made in respect of the
donation receipts were less than the amounts purported to be donated;
f)
the amounts paid by the Appellant in respect of
the donation receipts to the Tax Preparer were a fraction of the face value of
the donation receipts; and
g)
the Appellant signed his 2006 tax return.
[5]
Mr. Rafeek Khan testified at the hearing. He
could not recall the exact amounts of the donations he made in the years prior
to 2005 and to what organizations. He said that his reason for making the
donations to churches was to improve his life. He explained that the donations
in 2005 and 2006 were made every week or every two weeks when he attended services
at the churches and were done by bank transfers or bank notes. To make the
donations, he used different bank accounts and a $20,000 line of credit.
[6]
He also explained that in 2005 and 2006, he was
working at a hospital and a nursing home and was earning between $50,000 and
$60,000 per year. He stated that, after 2006, he did not make any large
donation and that he stopped donating money to churches, firstly, because he
was disappointed with the requirement to donate 10% of his income and messages
of radicalization and secondly, because he had to repay his line of credit.
[7]
He explained that the $8,000 donation to The
Christ Healing Church was made monthly during the 2006 taxation year and that
the treasurer of the organization kept track of the donations and issued him a
receipt shortly after the end of the year.
[8]
He stated that he had received the tax receipts
for donations he made from the organizations but never himself filed them to
the Canada Revenue Agency (“CRA”). He also said that he never bought tax
receipts from anybody.
[9]
The appellant did not remember the names of the
persons who prepared and filed his 2005 and 2006 tax returns because during
that period, he was under the influence of alcohol. His 2005 tax return was
filed electronically and was not signed by him but his 2006 tax return was not
filed electronically and was signed by him.
[10]
Mr. Michel Chénard, a litigation officer with
the CRA, testified at the hearing and filed the Option C summary of the
appellant’s tax returns for the 2001 to 2013 taxation years to show the amounts
of donations claimed by the appellant in each year and the amount of net income
reported by the appellant in each year.
[11]
The appellant provided no bank records to show
the withdrawals of money from his bank accounts to match the donations that he
allegedly made during 2005 and 2006. At trial, he provided only one receipt in
the amount of $8,000 from the Christ Healing Church, out of the three
organizations to which he claimed to have made a substantial donation. This
receipt dated February 18, 2007, was attached to his 2006 tax return.
[12]
The appellant did not contest the fact that (a)
the Christ Apostolic Church International’s registered charitable status was
revoked for cause on August 21, 2010, (b) the Evidence Ministries’ registered
charitable status was revoked for cause on July 14, 2007, and (c) the Christ
Healing Church’s registered charitable status was revoked for cause on
September 5, 2009.
[13]
There are two issues in this appeal:
(a)
whether the appellant made charitable donations
in the amounts claimed; and
(b)
whether the appellant made a misrepresentation
attributable to neglect, carelessness or wilful default in filing his 2005 and
2006 tax returns, allowing the Minister to reassess those years beyond the
normal limitation period?
[14]
As the Minister reassessed the appellant’s 2005
and 2006 taxation years beyond the normal limitation period, the Minister must
rely on subsection 152(4) of the Act to validate such
reassessments. Paragraph 152(4)(a) of the Act reads as follows:
Assessment and
reassessment. The Minister may at any time make an
assessment, reassessment or additional assessment of tax for a taxation year,
interest or penalties, if any, payable under this Part by a taxpayer or notify
in writing any person by whom a return of income for a taxation year has been
filed that no tax is payable for the year, except that an assessment,
reassessment or additional assessment may be made after the taxpayer's normal
reassessment period in respect of the year only if
(a) the taxpayer
or person filing the return
(i)
has made any
misrepresentation that is attributable to neglect, carelessness or wilful
default or has committed any fraud in filing the return or in supplying any
information under this Act, or
(ii)
has filed with the
Minister a waiver in prescribed form within the normal reassessment period for
the taxpayer in respect of the year;
[15]
Based on the evidence before me, I have come to
the conclusion that the appellant claimed donations for amounts which he did
not donate. Mr. Khan’s explanations are not credible for the following reasons:
(a)
the huge discrepancy in the amounts donated in 2005
and 2006 and the years before 2004 and after 2006;
(b)
the ratio of the alleged donations compared to
his net income for the 2005 and 2006 years at a time when he was in financial
difficulties as he was forced to change bank because it has recalled his line
of credit;
(c)
the lack of bank records from which I draw a
negative inference as any such records would have helped the appellant to prove
the amounts of his donations;
(d)
the appellant’s inability to explain why he has
chosen to donate to the three organizations and to provide information
concerning the causes supported by these organizations; and
(e)
the appellant’s inability to give the names of
the persons who prepared and filed his tax returns for the 2005 and 2006
taxation years.
[16]
The appellant has not shown on a balance of
probabilities that he made the donations he claimed to have made.
[17]
The appellant has certainly made a
misrepresentation in his tax returns. He knew or ought to have known that the amounts
of $9,000 and $8,000 were far in excess of any cash donations actually made. He
certainly reviewed his 2006 tax return prepared by Mr. Nathaniel Okoroafor
before signing it. He solely relied on the receipt provided by the Christ
Healing Church without questioning the significant amount claimed as charitable
donation. He was at the very least, neglectful, in signing a return with the
knowledge that the receipt overstated the actual donation.
[18]
In the circumstances, the Minister is right to
reassess beyond the normal reassessment period pursuant to subsection 152(4) of
the Act. The Minister has met his burden of proof as the appellant is
not credible.
[19]
For these reasons, the appeal is dismissed.
Signed at Ottawa,
Canada, this 14th day of September 2017.
“Réal Favreau”
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