John v. Ball v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2474

Christie, A.C.T.C.C.J.:—This appeal is governed by the informal procedure prescribed by section 18 and following sections of the Tax Court of Canada Act.

The appellant in this appeal is the fifth appellant in a series of appeals pertaining to the deductibility of charitable gifts allegedly made to the Don- elian Museum of Oriental Art ("the museum") which was a registered charity under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") at the time relevant to the appeal. The first appeal was that of Gardner v. Canada, [1993] 2 C.T.C. 2480 (T.C.C.). In that appeal, as in the appeal at hand, Gustave Tasch, John Donelian and the museum were important factors. Reasons for judgment in Gardner are attached. The evidence of Maria T. Gia- llonardo in that appeal is relevant to the appeal at hand. So is the evidence of Arthur C. Payne in that appeal, to the extent that it did not focus on the actions of Bruce Thomas Gardner. Another person who played an important role in this appeal and who was an appellant along with his wife, Beverley, in the series is Jeffrey R. Ball. He is the son of the appellant in the appeal at hand. Also attached is copy of the reasons for judgment in Beverley Ball v. Canada, [1993] 2 C.T.C. 2475.

In his return of income for 1987 the appellant deducted $7,000 in calculating his taxable income. The $7,000 related to two artifacts that he gave to the museum. In return he received a receipt from the museum for tax purposes in the sum of $9,000. The artifacts are described in the receipt thus: nineteenth century Belouch tribal mat rug" and “nineteenth century northwest Persian Shahsevan sumack weaving.” In assessing the appellant the Minister of National Revenue disallowed the deduction. On the appeal to this Court the appellant has limited his claimed deduction to $1,600.

Jeffrey Ball testified that in May 1987 he purchased two small rugs from Tasch for the appellant. Jeffrey Ball had told his father that Tasch was selling artifacts at "greatly below their market value.” The total price for the two artifacts was $1,600. The payment was made by cheque on May 13, 1987. These artifacts were delivered to the museum by Carol Thompson at the same time she delivered artifacts there in respect of which Jeffrey Ball and his wife sought to make deductions in computing their taxable incomes. This is referred to at page 2478 of the reasons for judgment in Beverley Ball v. Canada.

The appellant lives in his son's home. The latter stated:

Those rugs (the two) were part of the same, they were together with the same three that I had purchased. They sat actually in my office for a period of about a week or so. My father and I took all five pieces, my three and his two, we took them around various parts of our home. We hung them on walls, did all sorts of things. In the end we decided they didn't fit in very well at all and we, after great consternation, we decided perhaps it was wise to donate them to the museum. The reason primarily being that they were museum pieces, not home pieces.

The cross-examination was relatively lengthy. But much of it did not really pertain to the issue on the appeal at hand. For example, evidence was adduced that Jeffrey Ball had purchased artifacts from clients who had bought them on his advice. He said:

What happened was that some of my clients had bought pieces that they had in their homes. When I became aware of the fact there was an investigation I immediately contacted those people that had made purchases and I said to them, you know, I don't know what the values of these pieces are, I'm not really sure. I know Revenue Canada is investigating and they're alluding to the fact that there is no value whatsoever. I indemnified all my clients and bought them back from them for the amount they had paid.

The appellant testified that he bought the artifacts because: “It appeared to me, at the time, to be a good deal for me. The price was reasonably low and the market value was considerably high for later consideration. That was my motivation.” He added that he trusted Tasch's judgment.

The appellant has failed to establish on a balance of probability that he made a charitable donation in the amount of $1,600, which is the amount he claims to be deductible. What was said about Tasch and Donelian at page 2479 of the reasons for judgment in Beverley Ball v. Canada applies to the case at hand.

The appeal is dismissed.

Appeal dismissed.

Beverley Ball and Jeffrey R. Ball v. Her Majesty The Queen (informal

[Indexed as: Ball (B.) v. Canada]

Tax Court of Canada (Christie, A.C.T.C.C.J.), April 28, 1993 (Court File Nos. 92-2109/10).

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63)—

The appellants were husband and wife. The appellant was a financial adviser who was knowledgeable about accounting matters related to income tax. In December 1986, the appellant was approached by T about making a donation to a museum. The appellant was aware through talking to his clients and T that he would be receiving a charitable receipt for far more than the amount he would be paying for the artifact to be donated. In December 1986, the appellant purchased a “rare anatolian prayer saph" from T for $4,800 cash. T then took the saph to the museum and the appellants received a receipt for income tax purposes in the amount of $29,000. In his return of income for 1986, the appellant and his wife claimed a joint donation to the museum of $29,000. In addition, in 1987, both appellants claimed deductions for charitable donations but these claimed deductions only totalled $3,600, the amount actually paid for the artifacts. Of the $3,600 total, the appellant claimed $1,600 and his wife claimed $2,000. By reassessment, the Minister disallowed the claimed deductions for both appellants for 1986 and 1987 and imposed penalties pursuant to subsection 163(2). The appellants appealed.

HELD:

The appellant failed to establish on a balance of probabilities that he made a charitable donation of $4,800 in 1986, which was the sum he claimed was deductible. The same was true of the $1,600 deduction claimed in respect of 1987. The conduct of T and D, the owner of the museum, regarding these deductions was riddled with dishonesty. No credence could be placed on anything said by them about the value of the artifacts in question. In their hands they were not the subject of honest commercial dealings. Rather they were simply part and parcel of fraudulent schemes. Accordingly, the appellant's appeal with respect to the charitable donations was dismissed. In addition, the penalty was confirmed with respect to the appellant because the appellant was guilty of wilful blindness. Having regard to the nature of the appellant's business and his experience in commerce, including matters relating to income tax, he must have been alerted almost from the beginning to the fact that there was something very wrong about T, D and the museum.

The wife, like her husband, had failed to establish on a balance of probability that she made a charitable donation in the amount of $2,000 in 1987, which is the sum she claimed was deductible. However, her appeal with respect to the penalty should be allowed. She placed her income tax affairs during the years under review in the hands of her husband and was guided by his advice. She did not exercise truly independent judgment in significant matters related to income tax. Consequently she was not within the ambit of subsection 163(2). Appeal dismissed except to the extent of the wife's penalty.

D.S. Bellamy for the appellants.

E. Bundgard and D. Spiro for the respondents.

Cases referred to:

Patricio v. The Queen, [1984] C.T.C. 360, 84 D.T.C. 6413;

Gardner v. Canada, [1993] 2 C.T.C. 2480.

Christie, A.C.T.C.C.J.:—These appeals are governed by the informal procedure prescribed by section 18 and following sections of the Tax Court of Canada Act.

The appellants are husband and wife. Their appeals were heard together following the appeal of Gardner v. Canada, [1993] 2 C.T.C. 2480 (T.C.C.). Reasons for judgment in the appeal are attached. It was agreed that the evidence of Maria T. Giallonardo in that appeal is accepted as evidence in these appeals. It was also agreed that the evidence of Arthur C. Payne, to the extent that it did not focus on the actions of Bruce Thomas Gardner is accepted as evidence in these appeals.

The appeals of both appellants relate to 1986 and 1987. The issues to be decided regarding 1986 with respect to the appellant Jeffrey R. Ball are whether in computing his taxable income for that year he is entitled to deduct $4,800 as a charitable donation and whether he is liable to a penalty under subsection 163(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). The issue to be decided regarding 1987 is whether in computing his taxable income for that year he is entitled to deduct $1,600 as a charitable donation.

The issue to be decided in the appeal of Beverley Ball regarding 1986 is whether she is liable to a penalty under subsection 163(2) of the Act. The issue to be decided regarding 1987 is whether in computing her taxable income for that year she is entitled to deduct $2,000 as a charitable donation.

Only Jeffrey R. Ball testified in support of the appeals. Beverley Ball adopted her husband's evidence in support of her appeals.

In what follows a reference to "the appellant” is a reference to Jeffrey R. Ball.

The appellant stated that he is a“ "financial adviser” and is “ knowledgeable with accounting matters related to income tax". He met Tasch through one of his clients, Dr. Felice Rossi, who had been to a meeting at Tasch's home. The doctor described it as being “full of treasures and all sorts of artifacts, very unusual artifacts.” Tasch attended at the appellant’s home in December 1986. The appellant and his wife were present at this meeting.

A magazine called HALI was produced that Tasch said was an "international magazine for people who studied this type of artwork”. It contained an article entitled "A Museum without Walls” that commented favourably about the museum. It describes Tasch as “a collector and dealer in nearby Burlington, Ontario, who has himself made an important contribution to the development of the museum”. A copy was placed in evidence. Tasch asked the appellant if he was interested in donating something to the museum. He said yes. He was convinced that Tasch was bona fide and stated: "He (Tasch) had documented evidence that he was. He had numerous references from clients such as people like Dr. Gardner [the appellant in Gardner v. Canada] and various others who had worked with this man for some time. He wasn't a carpetbagger that just came in and out of town. He lived in the community and had been there many, many years. He worked with these people. It wasn't as if he had just shown up. If he had just shown up I would have shown him the door. I think he had good references."

Tasch returned to the appellant’s home a few days later — this is still in December 1986 — and brought an artifact described as a” rare anatolian prayer saph” with him along with a number of books about art that refer to the artifact. That day the appellant or his wife had withdrawn $5,000 from the bank. After carefully considering the appellant concluded that the saph was "certainly worth $5,000”. It was purchased for $4,800 which was paid in cash. Tasch took the saph to the museum for which the appellants received a receipt from it for income tax purposes in the amount of $29,000. This extract from the evidence relates to this transaction:

MR. BELLAMY: Q. Mr. Ball, can you describe for us your activities in connection with donations, the timing of them, the dollar volumes involved and perhaps lend some perspective of the other thing you were doing in your life at the time in your business?

A. This particular donation in my own case in 1986 where we donated $4,800.00. We did it, we made the decision to do so just prior to Christmas. At the time. . . .

HIS HONOUR: Prior to Christmas of what year?

THE WITNESS: 1986. It was about December 16 or 17, somewhere around there. We were very busy at that time. My business is very busy. I say at that time I had a hotel in England, I was back and forwards six, seven times a year. We were very busy in the development business here in Canada. We had numerous investments we were reviewing for clients at times. In fact I would say at any time in 1986 we were looking at millions of dollars of investments for clients, various Journeys End hotel properties that we helped put financing together for and so on. The net result being that his was a very small decision for us.

The appellant placed in evidence an article from the Financial Post magazine in which Tasch is described as a“ rug expert”. It is the same article that was placed in evidence in Gardner v. Canada.

The appellant also did some “ checking out” of Tasch with members of the dental community in addition to Dr. Gardner and they "spoke very highly of the man.” The appellant found Tasch to be "quite amazing, a very convincing individual. If you want to use the term con man he was certainly the best con man I had come across and I come across a lot in the financial business”.

Around the beginning of June 1987 the appellants were "becoming suspicious of this whole arrangement”. At that time an employee of the appellants corporation, Carol Thompson, took the artifacts in respect of which the appellant and his wife sought deductions in computing their incomes for 1987 to the museum. The employee said to the appellant: "I do not think this is good". He asked why and: "She (the employee) said I’m not sure that this is a real museum and at this point we recognized oh, we've got a problem. We made no further donations after that point and at that point we just started chasing Tasch to provide an explanation. We had numerous meetings with him after that and eventually we became aware of Revenue Canada's investigation some months later and so on".

The appellant said that he paid the $4,800 in cash to Tasch because the latter did his banking at the Royal Trust which was tardy in clearing cheques. The artifacts relating to 1987 were paid for by cheque at the insistence of the appellant. Receipts were not sought at the time the money was paid to Tasch. They were obtained about July 1987.

In May 1987 the appellant purchased some artifacts from Tasch that he still has.

The appellant appeared as a witness for the Crown in the criminal proceedings against Tasch and Donelian.

Cross-examination followed. The appellant did not meet Donelian until September 1987 and he has never seen the museum. The appellant is the president of Monterey Financial Services Inc. which was established in 1981. There were five or six employees and: “Primarily we are involved in giving financial advice to medical and dental health professionals. We give a full range of services ranging all the way from bookkeeping in their office through to accounting through tax returns and then through to investing their money."

The appellant had meetings with clients of his and Tasch. The purpose thereof was the making of donations to the museum and related tax deductions. There were two meetings with five or six clients present plus three or four individual meetings. These took place from December 1986 to the first week of January 1987 plus one at the middle or end of February 1987. All transactions at these meetings were on a cash basis. Tasch showed up at one of these meetings with a suitcase that was filled with cash.

In his return of income for 1986 the appellant indicated that he and his wife had made a joint donation to the museum of $29,000 and in this regard he included a receipt issued by the museum for $29,000 respecting a "rare an- atolian prayer saph”. This is the artifact that was acquired from Tasch for $4,800. This was repeated in the appellant's return of income for 1987. On June 2, 1987, three receipts were issued to the appellant and his wife by the museum. One numbered 139 was for $7,000 and related to a "19th century Ning Hsia CMH throne back cover". The second numbered 140 was for $4,000 and related to "19th century Chinese pillow mat rug". The third numbered 141 was for $4,000 and related to a 19th century Chinese chair cover or seat mat carpet". The amount paid for all three artifacts was $3,600. The appellant sought to deduct only $1,600 of the $3,600. By this time he was aware that Revenue Canada was investigating the museum and individuals related thereto.

In her return of income for 1986, Beverley Ball claimed as a deduction a portion of the $29,000 pertaining to the rare anatolian prayer saph". In her return of income for 1987 she claimed the balance of the $3,600 previously mentioned, or $2,000.

As indicated at the commencement of these reasons, at trial the issues had been reduced to the following: whether in respect of 1986 the appellant was entitled to deduct $4,800 as a charitable donation and whether he was liable to a penalty under subsection 163(2) of the Act. The issue pertaining to 1987 is whether he is entitled to deduct $1,600 as a charitable donation. With respect to Beverley Ball the issue with regard to 1986 is whether she is liable to a penalty under subsection 163(2) of the Act and the issue regarding 1987 is whether she is entitled to deduct $2,000 as a charitable donation.

Arthur C. Payne who testified in Gardner v. Canada also testified on behalf of the respondent in the appeals at hand. Regarding the artifact relating to the museum's receipt for $29,000 the investigators ascertained that Tasch bought it from Cryker Markarian of New York City for $2,000. The items pertaining to museum receipts 139, 140 and 141 were also bought from Markarian by Tasch. Markarian issued duplicate receipts for these items. The witness suggested it was for customs purposes. Two receipts were issued regarding the item in museum receipt 139, one for $500 US and another for $120 US. Receipts for $100 US and $750 US were issued regarding the item in museum receipt 140. Receipts for $90 US and $700 US were issued regarding the item in museum receipt 141.

In my opinion the appellant has failed to establish on a balance of probability, which is the applicable standard of proof, that he made a charitable donation in the amount of $4,800 in 1986, which is the sum he claims as deductible. The same can be said of the $1,600 in respect of 1987. The conduct of Tasch and Donelian regarding these deductions and deductions sought by others is riddled with dishonesty. No credence can be placed on anything said by them about the value of the artifacts in question. In their hands they were not the subject of honest commercial dealings. Rather they were simply part and parcel of fraudulent schemes.

As for the penalty imposed on the appellant under subsection 163(2), I believe he was guilty of wilful blindness, to adopt the phrase used by Reed, J. in Patricio v. The Queen, [1984] C.T.C. 360, 84 D.T.C. 6413 (F.C.T.D.) at page 365 (D.T.C. 6418). Having regard to the nature of the appellant’s business and his experience in commerce, including matters relating to income tax, he must have been alerted almost from the beginning to the fact that there was something very wrong about Tasch, Donelian and the museum. The inference I draw is that the appellant thought that what Tasch and Donelian were engineering was refined and plausible enough to put it over on the taxing authorities.

With respect to Beverley Ball, her appeal regarding 1986 is allowed without costs. I have concluded that essentially she placed her income tax affairs during the years under review in the hands of her husband and was guided by his advice. She did not exercise truly independent judgment in significant matters related to income tax. Consequently she is not within the ambit of subsection 163(2) in respect of her 1986 taxation year. On the other hand she, like her husband, has filed to establish on a balance of probability that she made a charitable donation in the amount of $2,000 in 1987, which is the sum she claims to be deductible.

Appeal dismissed.