Philip v. R., [1996] 2 CTC 2174, 96 DTC 1893 (Informal Procedure)

Christie A.C.J.T.C.C.: — The appellant appeals from reassessments made against him on a net-worth basis for the 1988, 1989, 1990 taxation years. In reassessing, the Minister of National Revenue (“the Minister”) added these amounts to the appellant’s total income: 1988 - $4,918.51; 1989 - $92,043.55; 1990 - $30,711.51. In addition, the Minister assessed penalties under subsection 163(2) of the Income Tax Act (“the Act”). Paragraph 6 of the reply to the notice of appeal reads:

6. In so reassessing, the Minister made the following assumptions of fact:

(a) the facts admitted above;

(b) in reporting income for the 1988, 1989 and 1990 taxation years the

Appellant did not include all of the income received in those years;

(c) the Appellant has made an unknown but important amount of income from dealings in narcotics and drugs;

(d) the Appellant withdrew $143,028.45 from his bank account between the fall of 1988 and the spring of 1989, the approximate period of time during which the house at 36 Nesbitt Street, Ottawa was constructed;

(e) the Appellant failed to keep and maintain adequate books and records of both income and expenses during the taxation years in issue;

(f) the income of the Appellant during the 1988, 1989 and 1990 taxation years was understated by the amounts of $4,918.51, $92,043.55 and $30,711.51 respectively;

(g) the understated amounts were determined by the net worth method (a copy of the Statement of Comparative Net Worth is attached as exhibit “A” to this Reply);

(h) the Appellant knowingly, or under circumstances amounting to gross negligence in carrying out a duty or obligation imposed under the Income Tax Act (the “Act”) made or participated in, assented to or acquiesced in the making of false statements or omissions in the income tax returns filed for the 1988, 1989 and 1990 taxation years, as a result of which the tax that would have been payable assessed on the information provided in the Appellant’s income tax returns filed for those years was less than the tax payable by the amounts of $825.77, $25,910.69 and $7,749.26 respectively;

(i) as a consequence of the said understatement of income, the Minister assessed the Appellant penalties for the 1988, 1989 and 1990 taxation years in the amounts of $412.89, $13,040.24 and $4,052.28.

The Statement of Comparative Net Worth (Exhibit “A”) reads:

1996-06-20

Schedule "A" to Exhibit "A" reads:

Personal Assets 01\31\87 01\31\88 01\3 1\89 01\3 1\90

36 Nesbitt Ave., Nepean (Land) 118,515.00 118,515.00

1,053.00 1,053.00

Ring

Furniture 7,670.00 7,670.00 8,170.00 12,609.00

Canada Trust #801747 1,196.79

Total

	$204,955.67	$221,993.29	$348,985.87	$364,923.75
Total	$204,955.67 $221,993.29 $348,985.87 $364,923.79

been dealing with since about 1977, and I would present these to Mr. Touhey. We would sit down for an hour or two and go over things. He would ask questions and I would answer them. And then we would part company and he would call me a couple of days before the income tax was to be sent in and said: Kirk, this is what you owe and I’m going to send it in for you. Fine, thank you very much and I would receive a bill in the future coming.

This exchange between the appellant and his counsel followed:

Q. You used Mr. Touhey as your bookkeeper-accountant since 1977?

A. Yes.

Q. Did you ever have any difficulty with the manner in which your income tax returns were prepared?

A. Not once.

Q. Was it ever suggested to you by Mr. Touhey or anyone else that your manner of keeping your books or records was deficient?

A. No. I believe most small businesses operate in this manner.

Q. Did you physically make the entries in your books, or were you assisted by anyone?

A. No.

Q. You did it yourself?

A. Yes.

Paragraph 6(c) of the reply to the notice of appeal was brought to the attention of the witness. It reads: “The Appellant has made an unknown but important amount of income from dealings in narcotics and drugs”. He denied this but admitted being charged with and, after pleading guilty, convicted of being in possession of 65 grams of cocaine for the purpose of trafficking. A lawyer acted on his behalf. He was similarly charged with respect to hashish. But this charge was not proceeded with. The appellant said he had the 65 grams of cocaine “for personal use”.

Paragraph 6(d) of the reply was also brought to the appellant’s attention. It reads: “The Appellant withdrew $143,028.45 from his bank account between the fall of 1988 and the spring of 1989, the approximate period of time during which the house at 36 Nesbitt Avenue, Ottawa was constructed.” With respect to that statement he related this history about acquiring homes. In 1977 he and his wife, Toni, purchased their first home in Barrhaven for $38,000. It was sold in 1984 for $69,500. A debt of about $33,000 secured by a mortgage was paid. In 1982 while living at Barrhaven the appellant and his wife purchased a lot at 3 Grandview Drive for $39,000. A home was built on this lot in 1984. This was financed by the profit from the sale of the Barrhaven residence plus a construction loan that was secured by a mortgage on the Grandview Drive property. That property was sold in 1988 for a profit of about $163,000 and in September of that year a lot at 36 Nesbitt Avenue was purchased for $117,000, leaving a balance of $46,000. A construction loan of $80,000 to $85,000 was then obtained from the Canada Trust and this, plus the profit from the sale of the Grandview home, was used to construct the house at 36 Nesbitt. A further loan of $15,000 was obtained in 1989 from Canada Trust. Documents are in evidence pertaining to the transactions involving the Barrhaven, Grandview and Nesbitt properties.

The appellant testified that the $143,000 referred to in paragraph 6(d) of the reply was used in building the home at 36 Nesbitt. Some was also used for living expenses. That home was built in the same manner as the house on Grandview: “I acted as the general contractor because I’m in the construction business, and the things that I couldn’t do or my friends couldn’t do, I would sub-contract that out to different contractors in the Ottawa area, and my friends and I, through our own labour, built number 3 Grandview Road. And also, because I’m in the construction business, I’m well connected in the area of buying building materials and also obtaining large discounts on building materials and also discounts on different subtrades that I would be connected with.”

The appellant said the cost of construction at 36 Nesbitt was $126,901. Photocopies of a considerable number of cheques dated in 1988 and 1989 are in evidence. Some are not legible. Also in evidence is a three page document prepared by the appellant. It purports to be a list of all payments made by cheque or cash regarding the construction. The numbers total $126,901. The source of this information is memory and cancelled cheques. Also this appears in a number of places “KP & friends”. It is related to such things as framing, roofing, bricklaying and labour. “NC” for no charge is noted with respect to these items. There is also no charge for building plans because this work is said to have been done gratis by a friend of the appellant. A “List of Friends” is in evidence. It has 11 names and adds: “Plus others who I have forgotten.”

The witness spoke of the large discounts he was able to obtain from suppliers because of friendship and past dealings. Particular reference was made to invoices for windows and doors to be shipped on November 1, 1988. The total price of $43,179 was reduced to $17,596. This is what “KP and friends” are said to have done:

They did the brick; the framing; shingles; installation of the windows and doors; siding, deck, patio deck; all the landscaping. Basically, things that we didn’t do were the excavating; the foundation; the drywall; the plumbing; the electrical. Basically, we did everything else.

Turning now to the piano, the appellant said his daughter Crystal who was born in 1981 started taking piano lessons in 1986. After a couple of years the teacher suggested that Crystal have a piano of her own. The appellant’s mother heard of this and, as he could not afford a piano, she offered to buy it. In the summer of 1989 the appellant’s mother and father, who lived in Manitoba, visited him. At that time she gave him approximately $4,000 in bills which he used to buy the piano. For reasons of family harmony the appellant’s mother requested him not to disclose her gift of $4,000 to the appellant’s brother or father. The appellant’s mother died in September 1990.

As for the gambling proceeds of $7,000 the appellant says that around Christmas of 1988 he was drinking at his home with a friend named Paul Cafik. This went on for the better part of a day, during which time they gambled in relation to darts, shuffleboard, ping-pong, cards and “closest to the wall” i.e. throwing coins with that object. The appellant said: “We were drinking all this time”. At the end of it all Cafik owed the appellant $7,000 which was paid about February 9, 1989.

The appellant’s evidence regarding the $15,000 loan received from Kurt Reichenberger is that Reichenberger was a Toronto businessman he has known since the late 19703. They became friends and went south on holidays together. In 1987 the appellant and his wife visited Reichenberger and his wife. The Reichenbergers said they would like to holiday again with the Philips. In this regard the appellant testified as follows:

I said: I am unable to go on a vacation for a number of reasons. Financial reasons mainly, and secondly, I wanted to finish off construction of Grandview Road, such as the rec-room in the basement. But he (Reichenberger) said to me: I’ll loan you the money, Kirk, to finish off your home and then we can also go on a vacation. And that loan took place in December of 1987, I believe ....

There was entered in evidence a photocopy of a letter dated December 12, 1987, said to have been signed by Reichenberger. It reads:

Enclosed find a promissory note. Please sign this note as soon as possible. Upon receiving your note, I will advance $15000.00 with the understanding, that once the house has been sold, I will receive my investment plus 25% annual interest.

There is also in evidence a photocopy of a promissory note dated December 12, 1987 in favour of Reichenberger for $15,000 with interest at 25% per annum. The note was due “upon sale of house”. The loan was not paid and the $15,000 was spent in this way:

We were to go on this vacation in February or March of 1988, and subsequently his marriage broke down, so they were unable to go, and also my son died in April of 1988, so I was unable to finish the construction of number 3 Grandview Road, and consequently, I used that money just for living expenses and whatever. So I never did get to go away on holiday and since Mr. Reichenberger’s marriage had failed and they split.

Reichenberger now lives in Austria. A letter dated April 25, 1994, said to be signed by him is in evidence. It reads:

To whom it may concern,

this letter is to verify a loan made to Kirk Philip in December 1987 for 15 thousand dollars ($15,000.00).

I am aware of Mr. Philip’s financial situation; and do not expect repayment of this loan until he is able to do so.

What follows relates to the “double counting” referred to earlier. Attached to the Statement of Comparative Net Worth as Schedule E.1 is a document entitled “KIRK PHILIP SCHEDULE OF PERSONAL EXPENDITURES”. It reads:

The appellant pointed to the figures $4,530.55 and $700.00 under 1990 as double counting. The $1,800 for automobile insurance for 1988 and 1989 are said to be expenses of Carlingwood Aluminum. Further, travel to Florida in 1988 - $600 and in 1989 - $600 is in partial error in that only one trip was made in those years.

It will be noted that Schedule E. 1 includes references to purchases under two Canada Trust Mastercards. Under one card the amounts are $66, $9,886.96, $2,923.92 in the years 1988, 1989, 1990 respectively. Purchases of $4,234.28, $58, $3,053.59 in the same years relate to the other card. The appellant, in rather vague testimony alleged these transactions pertained to double counting. This is what was said:

Q. You’re referring to Canada Trust Mastercard purchases?

A. Yes.

Q. Did you review those purchases?

A. I reviewed those purchases and I found a number of indiscretions. Q. When you say “indiscretions”, what do you mean?

A. What I mean by that is in three of the years, ’88, ’89 and ’90, on those Mastercard receipts, were a number of cash advances which total approximately $5,000, and those cash advances would have been used for living expenses such as health and personal care; household operation; fuel bill; lawyer bill; food and so they have been double-counted.

Now also in the Mastercard statements that I received, there are a number of — many items in the Mastercard statements that indicate a lot of those things would have been business expenses such as purchases made: Bytown Lumber; Beaver Lumber; Home Hardware; Rentalex and they were counted as personal. So there’s a lot of double counting in there that inflate all those figures.

In the course of cross-examination reference was made to gambling with Cafik and the appellant was asked this question by counsel for the respondent and he gave this answer: “Q. We’re talking about a couple of drunk guys here? A. Yes sir, we are.”

The appellant’s returns of income for 1988, 1989, 1990 show total income of $16,069.77, $18,507.93 and $22,933.26 respectively. In a Canada Trust loan application dated May 17, 1990, for $22,000 to purchase a motor vehicle the appellant’s income is shown as $65,400. The current value of 36 Nesbitt is given as $495,000. In this regard he said:

It doesn’t mean that the house is worth $495,000. All these figures, Mr. Leclaire, indicate information that I provided to the bank verbally to make it easier for them to grant me the loan. Those figures are embellished so that the loan would be looked at in a favourable light. It’s much easier to loan money - first of all, its difficult for a small businessman to loan money from a bank. We don’t have a regular pay cheque. And secondly, I’m sure you’re aware that if you go to a bank for a loan, if you can tell them that you can afford to pay back the loan - much easier if, I were to tell them that I make even a $100,000, and my home, if I would tell them that it was worth $750,000, there would be a much better chance of them granting me the loan, then for me to tell them my home is worth $100,000 or my income was $5,000. That’s the reason that those figures are inflated, so the loan would be granted much easier.

He added that what is said in the credit application is misinformation. He received the loan.

The appellant was then confronted with a Canada Trust mortgage application made by him and his wife. It is dated August 5, 1988, and the amount sought was $80,000. The appellant’s income is said to be $35,000. Next was a Canada Trust loan application by the appellant and his wife dated September 11, 1987. The amount sought was $15,000, which was granted. The appellant’s income is stated to be $41,000 or $3,400 per month. It refers to $11,000 in stocks and bonds, which the appellant admits he did not have. A further Canada Trust loan application dated January 24, 1989, was placed in evidence by counsel for the respondent. The amount sought was $15,000 and the application is made by the appellant and his wife. His monthly income is stated to be $2,916.25. In this application the present value of 36 Nesbitt is said to be $300,000. The Court then asked the appellant this question, and this reply was given:

Q. In these documents R-4 to R-7, that you’ve just seen and they’ve been put to you, I am left with the distinct impression from what you were saying that you didn’t hesitate to make incorrect statements in those documents, if it served your purpose of getting the loan.

A. That’s correct, yes.

Three additional witnesses testified on behalf of the appellant. Michael R. Wilcox said that he has been in the business of construction carpentry for about 22 years and has had his own company since 1979. The company ceased to be active in 1990. His is one of the names that appears on the “List of Friends”. Wilcox said he was at 36 Nesbitt basically to frame the whole house. He was also involved in bricklaying, roofing, trim work and general labour. Usually there were six or seven persons at the site. Included among those he saw there are Peter and Paul Cafik who he knew previously. He met Danny Orban at the site. The Cafiks and Orban are included in the list of friends.

Wilcox was not paid for work although the appellant would occasionally give him $10 or $20 if needed for cigarettes or something of that kind. The total would not exceed $350. Work commenced around the middle of September 1988 and went on for three, four or five months. He added: “The actual days and everything, it’s past, I can‘t really recall.” He estimated the value of his work at $10,000 to $12,000.

Paul Cafik testified that he worked at 36 Nesbitt in 1988 and 1989. The work consisted of framing, deck work, carpet installation, roofing and “maybe some ceramic tiling.” He received no remuneration for this. Among those at the work site were his brother Peter, Mike Wilcox, Jim Sutherland, John Hart and Danny Orban. Others were there whom he did not know. Jim Sutherland and John Hart are also in the list of friends.

The examination then turned to the $7,000 debt he incurred with the appellant. The main losses arose out of poker. They also played shuffleboard, ping-pong and closest-to-the-wall. No darts were involved. This gambling occurred around Christmas of 1988 and “lasted one night and part of a day.” There is in evidence an account statement regarding a current account in the name of Paul Cafik Fitness Consultants. It is with the Royal Bank and shows withdrawals of $10,720.52 on February 8, 1989 and $7,000 on February 9, 1989. Cafik says that from these withdrawals he paid the gambling debt to the appellant. There is also in evidence a statement dated August 7 or 9, 1995, which is less than a month before the hearing of these appeals, signed by the appellant. It states: “To whom it may concern - please find attached copy of bank statement showing withdrawal of $7,000 in payment of debt (gambling) to Kirk Philip.”

In cross-examination Cafik said that he worked at 36 Nesbitt: “through the December of ’88 and January, February or March, whatever.” He was there on a frequent basis and was not paid for the work done. He and the appellant are old friends. They met in 1975 and previous to that the appellant had lived with Peter Cafik for five years.

There was a lot of drinking during the gambling session. Cafik did not write anything down. This exchange followed between counsel for the respondent and the witness:

Q. How is it sir, that after this happened that you accepted the $7,000 tally?

A. I have a very good mind for numbers. That’s all I ever do is numbers, sales.

Q. And despite the booze sir, you accepted that?

A. We kept running tabs, so I knew how much I owed him by the end of the night.

Albert Hart was the final witness on behalf of the appellant. His full name is Albert John Hart and he is usually called John. He has known the appellant since about 1980. The appellant began construction at 36 Nesbitt around September 1988. The witness worked there, gratis, doing framing, brick work, roofing. This went on for six to nine months and he was there two or three days a week 10 to 12 hours a day. He identified Peter and Paul Cafik, Mike Wilcox and his brother Allen as being at the work site. He added: “There was lots of guys there.” This exchange took place between the witness and counsel for the appellant:

Q. How were you living during that period of time if you weren’t being paid for your labour?

A. Back at that time, when I was at Kirk’s house, it was a part-time thing, you know. Two or three days a week, a weekend, this kind of stuff, you know, and working ten, twelve hours a day, you know, get some stuff done. Kind of like in the tradition of a barn raising, where neighbours pull together and help one another.

In cross-examination Hart said that while he was working at 36 Nesbitt he was also working at Sears. He said that besides his stepbrother Allen, a brother Andrew worked on the construction. Andrew is not on the list of friends.

Domenic Amendola testified for the respondent. He has been with Revenue Canada since 1985 and has been in the Audit Section since 1987. He conducted the audit that led to the reassessments under appeal. He is the author of Exhibit A and attached schedules referred to in paragraph 6(g) of the reply to the notice of appeal. After identifying sources of information relied on in the preparation of the Statement of Comparative Net Worth he identified the cost of construction at 36 Nesbitt as being “the bone of contention”. The Appraisal Section at Revenue Canada estimated $253,600 as the cost of construction. A statement of cost of construction prepared by the appellant that was seized from him by the police in the course of investigating possible infractions of the Narcotic Control Act arrived at a total of $215,000. Revenue Canada gained access to this seized document under a Court order. The amount settled on by the witness for cost of construction is, as previously indicated, $210,000, which is below both the figure set by the Appraisal Section and the figure on the seized document.

With respect to the Reichenberger loan, Amendola said:

We could not verify the source of the funds or the manner in which the loan was made, whether it was cash or cheque, or whatever that might be. And also, we could never speak to Mr. Reichenberger to verify that this loan had in fact occurred. So based on that, we denied it.

With respect to the piano:

Again we really couldn’t verify where the source of funds was from. We didn’t see the money going through a bank account. We didn’t speak to Mr. Philip’s - obviously we couldn’t at the time - speak to Mr. Philip’s mom, so again we denied it.

Regarding double counting, the witness said:

I prepared the Net Worth based on what information I had at the time and the contention that certain expenses could be double counted, yes, sir, it could be. I tried to insure that did not occur but again, there could be things that are double counted. I was never made aware of what they were at the time of the audit.

He added that he cannot specifically point to double counting, and double counting was sought to be avoided.

A letter dated March 9, 1992, addressed to Revenue Canada, attention Mr. Domenic Amendola, was brought to the attention of the witness. The letter was sent by William G. D. McCarthy who, at that time, was acting for the appellant. It was in reply to a letter to the appellant from Revenue Canada dated February 21, 1992, indicating the manner in which the Minister intended to reassess the appellant’s liability to tax. The letter reads:

I am responding to your letter of February 21, 1992, addressed to Kirk Philip.

I have had an opportunity to review your letter with Mr. Philip and with his accountant. There are a number of matters which do not appear to be reflected accurately in your analysis.

By far the greatest inaccuracy is your estimate of the cost to Mr. Philip of construction of 3 Grandview Drive, Nepean and 36 Nesbitt Street, Nepean. You appear to have used a rate of $65.00 per square foot in estimating construction costs. That figure grossly over-estimates the actual cost to Mr. Philip. You will appreciate that, while $65.00 per square foot may be an industry standard for construction costs of residential premises, that industry standard assumes profit to the general contractor and retail prices for materials. It also assumes that labour utilized is fully contracted. In building his homes, Mr. Philip performed much of the labour himself and virtually never bought material for a price greater than wholesale. Indeed, as Mr. Philip was himself engaged in the provision of building materials, he was well positioned to cut his own costs in that regard. Obviously, no factor for profit should be used since he was building a home for his own use.

I am advised that Mr. Philip’s construction costs for 3 Grandview Drive would have been in the order of $30.00 per square foot while his construction costs for 36 Nesbitt Street would not have exceeded $40.00 per square foot.

If these construction costs are substituted for those which you have used, you will see that the increases in net worth which you have attributed to Mr. Philip during the years 1989 and 1990 have been over-stated dramatically.

There are several other items which I will bring to your attention when I have received a detailed report from the accountant.

It may be appropriate for us to meet to discuss these matters after you ;have had an opportunity to review our position. Please advise.

In a letter dated March 26, 1992, Revenue Canada asked for further particulars and McCarthy replied on April 6, 1992, as follows:

I acknowledge receipt of your letter of March 26, 1992. Your demand for further information is based upon an internal assessment of Mr. Philip’s building costs. I have advised you that the basis for your appraisal is inaccurate. Building costs of $65.00 per foot simply cannot be justified in a case where an individual acts as his own general contractor, obtains trade discounts on material and performs labour himself.

While my client can use his best efforts to provide you with the information you seek, I would request that you make further inquiry of your appraiser to determine the cost per square foot figure which he would use after having been made aware of the circumstances of this particular case. If his assessment of building costs remains the same, I would ask that you advise me of that fact as well. Your early attention to this matter would be greatly appreciated.

There were no “other items” arising out of “a detailed report from the accountant” received by Revenue Canada regarding the construction of 36 Nesbitt.

With respect to liability for income tax the onus is on the appellant to establish that the reassessments are in error. This can be achieved by adducing evidence establishing that, on a balance of probability, the reassessments are incorrect.

Except to a relatively minor degree the evidence adduced on behalf of the appellant failed to discharge that onus. I find his evidence and that of Wilcox, Paul Cafik and Hart lacking in persuasiveness. Why this is so is probably manifest on the face of these reasons as, for example, the misstatements in the applications to Canada Trust for loans. But I will underscore some of the highlights in this regard. The appellant said that he had cocaine for personal use only, yet he pleaded guilty to the offence created under the Narcotic Control Act of being in possession of cocaine for the purpose of trafficking. By definition, trafficking excludes posses- sion for personal use. The offence of possession for that purpose is a different and is a much less serious crime. For a person to have narcotics in his possession for personal use only is punishable on summary conviction or on conviction on indictment. If a prosecutor proceeds by way of summary conviction, a convicted person is liable for a first offence to a fine not exceeding $1,000 or to imprisonment for a term not exceeding six months or to both and, for a subsequent offence to a fine not exceeding $2,000 or to imprisonment for a term not exceeding one year or to both. If the prosecutor proceeds by way of indictment, a convicted person is liable to imprisonment for a term not exceeding seven years. On the other hand a person convicted of having cocaine in his possession for the purpose of trafficking is guilty of an indictable offence and liable to imprisonment for life. The appellant pleaded guilty to possession for the purpose of trafficking on the advice of his counsel and in the absence of evidence showing a high degree of probability to the contrary I have concluded that he received that advice and acted upon it because it constituted the truth of the matter.

Even assuming that the appellant and Cafik did engage in that prolonged gambling session one must bear in mind the conditions under which it is said that it occurred and the allegation that Cafik worked for the appellant at 36 Nesbitt for three or four months for no remuneration. If that is done it strikes me that even a credulous listener would reject the notion that payment of the $7,000 was expected and was in fact made.

With respect to all of the free work said to have been done by friends at 36 Nesbitt it will be noted that in his letters to Revenue Canada of March 9, 1992 and April 6, 1992, the appellant’s then counsel, Mr. McCarthy, makes no mention of it. He does say that the appellant performed much of the labour himself and virtually never paid for material at a price greater than wholesale.

The evidence about the appellant’s mother giving him $4,000 in currency to purchase a piano and the $15,000 loan by Reichenberger is not to be considered in isolation. It is to be weighed in the context of the other evidence referred to.

The evidence at the hearing about double counting is in very large measure too imprecise to give effect to it. What was required and is lacking is evidence showing that there was double counting that resulted in an error of X dollars and showing that this sum was made up of specified identifiable items. This was not forthcoming. The evidence regarding the $5,000 in cash advanced under the Canada Trust Mastercards is simply too anamorphous to affect the result of these appeals.

Amendola did concede that double counting may have occurred inadvertently. The only two areas that, in my view, can properly be acted upon because of that is the $700 item in Schedule E.l under 1990 and one of the trips to Florida involving an expenditure of $600. These are, of course, of little significance in the entire context of these appeals.

Turning now to the penalties. The view held at one time was that unreported income determined under net worth assessments was at best an estimate and not sufficiently precise to allow imposition of penalties under subsection 163(2) of the Act: Fortis et al. v. Minister of National Revenue, [1986] 2 C.T.C. 2378, 86 D.T.C. 1795 (T.C.C.); Chopp et al. v. Minister of National Revenue, [1987] 2 C.T.C. 2071, 87 D.T.C. 374 (T.C.C.). The current view is that penalties can properly be imposed in relation to net worth assessments: Kerr v. R. (sub nom. Kerr v. Canada), [1989] 2 C.T.C. 112, (sub nom. Kerr v. The Queen), 89 D.T.C. 5348 (F.C.T.D.). These cases are all referred to in a very recent decision rendered by my colleague, Judge Dussault, in Miucci v. Minister of National Revenue, [1996] 1 C.T.C. 2431, (sub nom. Miucci v. R.) 96 D.T.C. 1039 (T.C.C.).

Included in what is said under subsection 163(2) of the Act is that every person who, knowingly, or under circumstances amounting to gross negligence has participated in, assented to or acquiesced in the making of a false statement in a return filed in respect of a taxation year is liable to a penalty. The subsection goes on to prescribe the manner in which the penalty shall be calculated. Subsection 163(3) provides: “Where, in any appeal under this Act, any penalty assessed by the Minister under this section is in issue the burden of establishing the facts justifying the assessment of the penalty is on the Minister.”

Having regard to the amounts reassessed (1988 - $4,918.51; 1989 - $92,043.55; 1990 - $30,711.51) in relation to the total income reported in those years (1988 - $16,069.77; 1989 - $18,507.93; 1990 - $22,933.26); the duration of the failure to report income and the other relevant evidence, I believe that the inference that must be drawn is that the conduct of the appellant went even beyond gross negligence and that he knowingly participated in, assented to or acquiesced in the making of false statements or omissions in his returns for the years under review.

The appeal is allowed and the matter is referred back to the Minister for reconsideration and reassessment on the basis that the amount of $700 appearing under 1990 in Schedule E.1 to Exhibit A be deleted and that the amount of $600 in that document pertaining to “Travel — Florida” under 1988 be deleted. The appellant is entitled to no other relief.

Appeal allowed.