Docket: A-92-17
Citation:
2018 FCA 6
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CORAM:
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STRATAS J.A.
NEAR J.A.
WOODS J.A.
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BETWEEN:
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THANH TRUC
TRUONG
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Appellant
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and
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HER MAJESTY THE
QUEEN
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Respondent
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REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Toronto, Ontario, on
January 11, 2018).
WOODS J.A.
[1]
This is an appeal by Thanh Truc Truong from a
judgment of the Tax Court of Canada concerning net worth assessments made under
the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) and the Excise
Tax Act, R.S.C. 1985, c. E-15.
[2]
Net worth assessments were issued by the
Minister of National Revenue in this case because the records provided by the
appellant were grossly inadequate. The assessment methodology involves making
an estimate of increases to a taxpayer’s net worth. This is acknowledged to be
a very rough assessment tool, but its use is justified in this case by the
appellant’s failure to keep proper records as required by the relevant
legislation.
[3]
The assessments under the Income Tax Act
added to income an aggregate amount of $1,682,509 for the 2005 to 2009 taxation
years, inclusive. They also imposed gross negligence penalties with respect to
these amounts. The assessments under the Excise Tax Act assumed that the
appellant had unreported GST collectible for the same periods in an aggregate
amount of $92,185. Gross negligence penalties were also imposed on these
amounts.
[4]
The assessments were appealed to the Tax Court,
which upheld them except for a very small reduction in unreported income (2017
TCC 22).
[5]
In the Tax Court’s analysis (per Justice
Bocock), it determined that the appellant had operated several businesses,
owned five properties and maintained various bank accounts over the relevant
period. It also commented that no books or records were ever produced.
[6]
In reference to the Minister’s determination of
unreported income and GST, the Tax Court commented at paragraph 51 of its
decision that the appellant had admitted that she owned a substantial amount of
assets and yet no explanation was provided as to non-taxable sources of funds
for the amounts assessed.
[7]
In largely upholding the Minister’s
determinations, the Court stated its general conclusion in this way, at
paragraph 48 of the decision: “Vague assertions,
inconsistent challenges of actual evidence from interested and related parties
and no documentary evidence cannot defeat the cogent third party documentation,
disinterested testimony and logical conclusions embedded within the Minister’s
alternative assessment, based upon third party records and buttressed by clear
testimony at trial.”
[8]
As for the assessment of gross negligence
penalties, the Tax Court determined that the facts amply supported the
imposition of the penalties, especially given the magnitude of the difference
between the income, as reported by the appellant, and her admitted net worth
and business activity.
[9]
I now turn to a consideration of the issues in
this appeal, and begin with the well-known standard of review described in the
case of Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.
Essentially, this Court must uphold the decision of the Tax Court unless the
Court made an error in determining a question of law or made a palpable and
overriding error in respect of questions of fact or factually suffused
questions of mixed fact and law. The terms “palpable”
and “overriding” in this context mean obvious
and affecting the heart of the result in the case.
[10]
In this case, we are satisfied that the Tax
Court made no such reviewable error, and that the appeal should be dismissed.
[11]
The appellant submits that the Tax Court made
two errors of law, first in admitting records of gambling that were obtained
from casinos, and second in requesting proof from the appellant that her
expenditures were funded from non-taxable sources. In our view, no such errors
were made.
[12]
As for the Tax Court’s admission of gambling
records, these records appear to be computer-generated records of gambling
results received from several casinos that the appellant frequented. In
general, net gambling losses would be added to unreported income in a net worth
determination where the source of the funding for the losses is not known. This
appears to be a significant item in the net worth determination. Based on the
auditor’s worksheet at page 389 of the Appeal Book, it appears that the
Minister concluded that the appellant had gaming losses in an aggregate amount
of over $750,000 over the five years at issue.
[13]
The appellant submits that the Tax Court erred
in admitting these documents on the grounds that they were hearsay. Although
the appellant does not challenge the authenticity of the records as being
computer-generated records of the casinos, she submits that the records do not
reliably represent the amounts spent at the casinos by the appellant.
[14]
In our view, there is no reviewable error in the
approach taken by the Tax Court with respect to these documents. The records
were admissible as business records. From there, the Tax Court had to assess
what weight to place on the documents in determining the likely amount of the
appellant’s gambling losses.
[15]
The Tax Court acknowledged that the records do
not establish the amount spent by the appellant with perfect accuracy, but it
concluded based on the evidence as a whole that it was proper to take the
records into account in the net worth determination. This is a question of
mixed fact and law for which the test is palpable and overriding error. There
is no such error in the Tax Court’s approach. Net worth assessments are
recognized as blunt instruments to determine income, but as mentioned earlier
it is an accepted method if a taxpayer fails to produce adequate books and
records, as required by law.
[16]
At the hearing, when asked what approach the Tax
Court should have taken to gambling expenditures in the net worth
determination, counsel for the appellant stated that the Tax Court should have
preferred the evidence of the appellant’s friends and relatives over the
evidence of a former boyfriend. As discussed below, there is no palpable error
in the Tax Court’s conclusion to prefer the evidence of the former boyfriend.
[17]
The appellant also submits that the Tax Court
made an error of law when at paragraph 37 of the decision it requested proof
from the appellant that the assessed amounts were sourced from non-taxable
funds.
[18]
Again, we disagree. The appellant misapprehends
the test that is set out in paragraph 37 of the Tax Court’s decision. In that
paragraph, reference is made to the need for evidence of non-taxable sources of
funds. However, this reference, which is from an excerpt from the case of Golden
v. The Queen, 2009 TCC 396, 2009 D.T.C. 1273, only applies if the taxpayer
challenges the need for a net worth assessment at all. This is not the case
here. The appellant is only challenging specific aspects of the net worth
determination.
[19]
The appellant also submits that the Tax Court
made a palpable and overriding error in its assessment of facts due to bias on
the part of the trial judge. We also disagree with this submission.
[20]
First, it is important to note that allegations
of bias on the part of a judge are serious allegations which should not be made
lightly (Es-Sayyid v. Canada (Public Safety and Emergency Preparedness),
2012 FCA 59, [2013] 4 F.C.R. 3 at paragraph 50). In this case, the appellant
has failed to establish any real foundation for an allegation of bias. The
allegation is bald and falls far short of the mark.
[21]
Second, the appellant suggests that the Tax
Court was partial in preferring the testimony of the appellant’s former
boyfriend over the testimony of the appellant and her friends and relatives.
The Tax Court’s determination in this regard is based on a bona fide
assessment of credibility and weight and is, thus, entitled to deference. It
does not amount to a palpable error.
[22]
The appellant also suggests that the Tax Court
misstated some of the evidence and ignored other evidence. The instances of
error mentioned in the appellant’s memorandum are relatively minor. Taken
individually or together, they do not amount to an overriding error that would
go to the heart of the outcome in the case.
[23]
We have concluded that this appeal should be
dismissed, with costs to the respondent.
“Judith Woods”
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