Steven Grant Lightburn v. Her Majesty the Queen, [1994] 1 CTC 2634

Beaubier, J.T.C.C.:—This appeal pursuant to the General Procedure of this Court was heard at Vancouver, British Columbia on February 2, 7 and 9, 1994. The appellant called the following witnesses:

Diane Wykes, senior investigator, employed by the Department of National Revenue,

Lome Hains, an auditor employed by the Department of National Revenue, and himself.

The Crown called Dennis Turnbull, an equity valuator, employed by Revenue Canada.

At issue are the assessments for the appellant’s 1980, 1981, 1982 and 1983 taxation years. The Minister’s assumptions are contained in paragraph 21 of the reply, which reads as follows:

In assessing the appellant with respect to his 1980, 1981, 1982 and 1983 taxation years, the Minister of National Revenue relied, inter alia, upon the following assumptions:

(a) all facts hereinbefore admitted:

(b) at all material times the appellant was resident in Canada;

(c) the appellant had no fixed residential address in the U.S.A. during the years in question;

(d) the appellant did not file personal tax returns in the U.S.A. during the years in question;

(e) the appellant did not sever his personal ties with Canada during the years in question;

(f) in his returns of income for his 1980 through 1983 taxation years, the appellant reported the folowing amounts of income:

	1980	1981	1982	1983
Employment income	$44.00	$10,088.69	$450.50	—
Interest and other investment
income	$68.03	—	—	$544.05
Taxable capital gains	—	—	$40,500.00	$19,990.00

(g) the appellant was a director of the following companies for the periods of time set out below:

Northern Horizon Resources
Corporation	January 16, 1979 to March, 1983
DRC Resources Corporation	January 31, 1980 to October, 1984
Prairie Pacific Energy Corporation	September 15, 1977 to March 25,
	1985
Citadel Gold Mines	March, 1980 to February, 1985

(h) the appellant was not an employee of any of the companies referred to in paragraph (g) herein;

(i) Citadel Gold Mines paid the appellant a lump sum payment of $32,250 on December 3, 1980 in respect of fees for management services rendered as follows:

1978	$9,000
1979	$9,000
1980	$2,250 (for 3 months)
1980	$12,000 (for 9 months)
	$32,250

(j) Northern Horizon Resources Corporation paid the appellant $10,000 for management fees in his 1980 taxation year as follows:

April 24, 1980	$3,400
May, 1980	800
July 4, 1980	800
September 8, 1980	5,000
	$10,000

(k) Northern Horizon Resources Corporation paid the appellant $18,000 for management fees on January 19, 1983;

(l) in 1982, Northern Horizon Resources Corporation issued to the appellant 116,667 shares, valued at 30 cents per share, in payment for management fees owed of $35,000;

(m) on March 3, 1981, the appellant exercised a stock option he had with DRC Resource Corporation purchasing 8,000 shares, and in so doing, he received a stock option benefit of $17,200, calculated as follows:

8,000 shares X fair market value of $2.75 per share as at
March 3, 1981	$22,000
LESS:
8,000 shares X option value of $0.60 per share	4,800
Stock option benefit	$17,200

(n) on February 9, 1983, the appellant exercised a stock option he had with DRC Resource Corporation purchasing 10,000 shares, and in so doing, he received a stock option benefit of $13,000 calculated as follows:

10,000 X fair market value of $1.60 per share as at
February 9, 1983	$16,000
LESS:
10,000 X option price of $0.30 per share	3,000
Stock option benefit	$13,000

(o) on July 22, 1982, the appellant exercised a stock option he had with Northern Horizon Resorces Corporation purchasing 26,000 shares, and in so doing, he received a stock option benefit of $7,280 calculated as follows:

26,000 X fair market value of $0.53 per share as at
July 22, 1982	$13,780
LESS:
26,000 X option purchase price of $0.25 per share	6,500
Stock option benefit	$7,280

(p) on May 3, 1983, the appellant exercised a stock option he had with Northern Horizon Resources Corporation purchasing 60,000 shares, and in so doing, he received a stock option benefit of $28,200 calculated as follows:

60,000 X fair market value of $0.72 per share as at May 3, 1983	$43,200
LESS:
60,000 X option purchase price of $0.25 per share	15,000
Stock option benefit	$28,200

(q) on July 22, 1982, Northern Horizon Resources Corporation issued 236,667 shares to the appellant with a fair market value as of that date of $118,333, and in so doing, the appellant received a shareholders benefit of $47,333 calculated as follows:

236,667 X fair market value of $0.50 per share	$118,333
LESS:
Shareholder’s loan	$36,000
Management fees owed	35,000
Total cost of shares	$71,000
Shareholder’s benefit	$47,333

(r) in his 1981, 1982 and 1983 taxation years, the appellant had an allowable capital loss of $317, and taxable capital ains of $5,210 and $1,510, respectively, calculated as set out in Schedule I attached hereto [not reproduced];

(s) in 1983, the appellant earned interest income on brokerage accounts in his name at Yorkton Securities Inc. and Brink Hudson & Lefever in the amounts of $345 and $199, respectively, for a total amount of $544.

The issues to be decided are the following:

1. Whether the appellant was a resident of Canada during the years in question.

2. Whether the amounts described were benefits had or were received by the appellant, as the case may be.

3. Whether the appellant is liable for the penalties assessed for the years in question pursuant to subsection 163(1) of the Income Tax Act, R.S.C. 1952,

c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

In respect to 1982, the Crown conceded:

In his 1982 taxation year the appellant was assessed, inter alia, management fees in the amount of $35,000 and shareholder’s benefit on shares in the amount of $47,333 in respect of 236,667 shares of Northern Horizon Resource Corporation which were transferred to the appellant on July 22, 1982. These amounts were assessed on the basis that at the date of transfer, the shares had a market value of $0.50. The respondent is prepared to concede on the basis of the valuation report of Mr. Denis Turnbull, and his evidence at trial, that the shares which formed the basis of the assessment had a nominal value at the date of transfer of $0.01 Therefore, the respondent concedes that the management fees should be reduced by the amount of $33,833.33 to $1,167.67 and that the shareholder's benefit of $47,333.50 should be deleted.

Except in respect to the matters conceded by the Crown, the appellant did not lead evidence or examine or reexamine witnesses or dispute whether he had benefits or received the amounts described in issue 2. In respect to issue 2, and subject to the Crown's concession, the respondent not only filed the assumptions quoted but obtained substantial evidence from Diane Wykes and Dennis Turnbull which established these amounts and the facts around them to the satisfaction of the Court.

The appellant claimed throughout, testified, filed documents and examined witnesses to establish that he was not a resident of Canada for the years in question, The Crown filed its assumptions and also examined witnesses and filed documents alleging the appellant's residence was in Canada in these years. The onus of proof is on the appellant.

During the years in question the appellant was a director of Northern Horizon Resources Corporation ("NHR"), DRC Resources Corporation ("DRC"), Prairie Pacific Energy Corporation ("PPE") and Citadel Gold Mines Inc. ("Citadel"). These Canadian corporations filed various returns with corporations branches and securities authorities which were filed in evidence as Exhibits R-68 to R-71 inclusive and which showed the appellant’s address during the years in question as that of his wife, namely 101-2136 West 1st Avenue, Vancouver. In particular the appellant was the secretary of DRC and appears to have signed the documents dated January 31, 1981 and 1982 contained in Exhibit R-70.

The appellant claims to have resided at Lynnwood, Washington, U.S.A., where the corporate office of Road Planing, Inc., was situated. The appellant states he was operating that corporation during the years in question. Of his four claimed addresses in Washington, two are post boxes, one is the corporate premises and the fourth is an acreage residence of a friend. Moreover Exhibit R-72 contains the corporate returns of Road Planing, Inc. and shows that the business in 1981 was “NONE” and that the corporation was dissolved on “12/31/83”.

The appellant's wife's 1980 income tax return (Exhibit R-73) states that the appellant has the same address as she does in Vancouver, British Columbia.

Exhibits R-74 to R-77 inclusive indicate that the appellant was actively partaking in NHR's business in 1981 and in 1983. Exhibit R-78 contains some Royal Bank Chargex sheets that show that in December 1979 and December 1983 the appellant used his wife's Vancouver address. Exhibit R-79 shows Road Planing, Inc.’s Canadian broker addressing it at the appellant’s wife's Vancouver address. Similarly Exhibits R-80 and R- 81 contain some Royal Bank and Chevron financial documents in the appellant’s name which show the appellant's wife’s Vancouver and then West Vancouver address in some of the years in question.

The appellant testified that he has held a United States "Green Card" since 1978 which was granted in connection with his investment in and activities connected with Road Planing, Inc. He stated that he resided in the United States since that time. He also stated that he has not voluntarily filed any income tax returns in Canada since then, although he filed one in 1979 at the request of Revenue Canada. In 1988 he filed income tax returns for 1980, 1981, 1982 and 1983 upon the order of the courts in British Columbia and after at least one appeal in those courts. The gist of his testimony is that he lost at every level of these hearings and appeals.

The appellant filed miscellaneous documents in support of his claim to be a resident of the United States. Many referred to Road Planing, Inc. Of those referring to him personally, the address 6217-208th S.W., Lynnwood, Washington was described in personal auto policy certificates filed as A-13 expiring 03/07/81, A-14 expiring 11/17/83 and A-15 expiring 11/17/81.

The appellant stated that he has spent his nights in the United States sleeping in various places — under bridges, in parks, in his vehicle and at Road Planing, Inc.'s address where he kept a cot and some personal property. He also stayed at a friend's acreage from time to time and helped out there.

There is no evidence that the appellant paid any rent. He did not file any leases or documents respecting a residence in the United States, nor did he call any witnesses to verify his alleged residence in the State of Washington.

Upon a review of the evidence presented and the factors of residence outlined by Judge Teskey of this Court in Lee v. M.N.R., [1990] 1 C.T.C. 2082, 90 D.T.C. 1014 at pages 2085-86 (D.T.C. 1017), the Court finds that during the years in question the appellant’s consistent residence of habit was his wife’s residence in Vancouver, British Columbia. His father lived at Mission City, British Columbia and one brother lived in British Columbia. He retained a British Columbia driver's licence throughout all of the years in question although he states that he also had a United States driver's licence. An old truck was owned by him and had a Washington State licence. He had both Canadian and American credit cards. He had been a broker on the Vancouver Stock Exchange and he and Road Planing, Inc. both had brokerage accounts in Vancouver, British Columbia during the years in question. He was a director, an officer and was active in Canadian corporations. All of his income that was reported or located came from or was earned in Canada. Neither the appellant nor Road Planing, Inc. filed any income tax returns in the United States during the years in question nor is there any evidence that they ever paid any income taxes or had any income taxes withheld there. He had and has an American "Green Card" but he did not sever his ties with Canada.

Given the assumptions and preponderance of evidence filed on behalf of the respondent, the Court finds that during 1980, 1981, 1982 and 1983, the appellant was a resident of Canada and in particular resided at his wife's home in British Columbia during those years.

In Murray v. M.N.R., [1990] 2 C.T.C. 2103, 90 D.T.C. 1600 (T.C.C.), at page 2106 (D.T.C. 1603), Rip, J. stated, respecting the liability for penalties pursuant to subsection 163(1):

Three elements must be present for a taxpayer to be liable for a penalty under subsection 163(1) as it read during the years in appeal. First, the taxpayer must have failed to file a tax return as and when required by subsection 150(1). Second, the taxpayer must have attempted to evade the payment of Part I tax. Third, the taxpayer must have been acting wilfully.

The appellant’s obvious answer to the penalties is that he always considered himself to be a resident of the United States of America after 1978 and therefore did not file income tax returns in Canada after 1978. He failed to file income tax returns as and when required by subsection 150(1) in 1980, 1981, 1982 and 1983. The appellant is a geologist and was engaged as a stockbroker in Vancouver in the late 19705. He is familiar with corporate, securities and stock matters as is apparent from the exhibits and the evidence already referred to.

The appellant is a sophisticated person. He is educated. He is articulate. He has prepared and filed his own income tax returns in Canada. He has worked at various tasks requiring the filing of documents in official, government and regulatory circumstances. He has personally filed documents of various kinds that are in evidence and he has filed a great number of his own pleadings. These various documents, together with his testimony and advocacy in Court, indicate intelligence, care and advanced knowledge in many fields which are beyond the competence of most laymen. These, together with the opportunity to see the appellant in Court over a period of three days, indicate that the appellant knew about his income during the years in question, knew about Part I tax and evaded paying that tax and reporting that income as long as he possibly could. The appellant’s acts in evading the payment of tax were wilful as were his failures to file income tax returns in 1980, 1981, 1982 and 1983. They were voluntary, deliberate and intentional acts by him.

There is no satisfactory evidence of any residency outside of Canada by the appellant. There is no satisfactory evidence that Road Planing, Inc. had contracts or did business in the United States. There is no evidence that the appellant earned income in the United States. The evidence and the court file indicate dodging, delay and subterfuge by the appellant.

The assessment of penalties pursuant to subsection 163(1) is confirmed in respect to each of the years 1980, 1981, 1982 and 1983, subject to any adjustment as to amount which may arise as a result of the concession of the Crown in respect to the amount of income tax assessed on account of 1982.

The appeal is allowed in respect to the assessment of income tax for the appellant’s 1982 taxation year and this matter is referred to the Minister of National Revenue for reconsideration and reassessment on the basis that for 1982:

(a) Management fees assessed are reduced from $35,000 to $1,167.67.

(b) The shareholder's benefit assessed of $47,333 is deleted.

In all other respects the assessments are confirmed for 1980, 1981, 1982 and 1983.

The Crown is allowed its costs throughout in respect to the entire action.

Appeal allowed in part.