Errol Abramson v. Minister of National Revenue, [1993] 1 CTC 2184

Hamlyn, T.C.C.J. (orally):—I am in a position to render judgment. This is the appeal of Errol Abramson v. The Minister of National Revenue, and it is an appeal with respect to Mr. Abramson's 1979, 1981, 1982, 1983, 1984 and 1985 taxation years.

By notice of reassessment, the Minister of National Revenue (the "Minister") reassessed the appellant for his 1979 and his 1981 to 1985 taxation years inclusive, and he included in Mr. Abramson's taxation years moneys that were not reported. These moneys have been set out in the reply “ Schedule A" and the appellant has accepted "Schedule A" [not reproduced] down to the point of “taxable income as reassessed". The appellant does not accept the line “taxable income as reassessed" and does not accept the "late filing penalties assessed" but everything prior to that, as indicated, the appellant accepts.

Pursuant to Schedule "A" for the “taxable income as reassessed", the appellant was assessed "late filing penalties” pursuant to subsection 162(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

The appellant, by notice of objection, objected to these reassessments. The reassessments were confirmed by the Minister on November 2, 1988.

The Minister, in reassessing, made certain assumptions. The first assumption was the appellant reported no income and filed no income tax returns for his 1979 and 1981 through to 1985 taxation years. The second assumption was that in the taxation years in question the appellant earned income as detailed and set forth in the reply (Schedule "A") in total amounts as set out in Schedule "A" and defined as "revised net income" and earned taxable income in the taxation years as set out in the Schedule "A" and defined as "taxable income as reassessed". The last assumption was that the appellant incurred no business losses in the taxation years, and in particular, did not incur an expenditure of $224,767 in his 1982 taxation year for the purpose of gaining or producing income from a business or property.

The appellant, in his notice of appeal before this Court, asserts that he is a businessman in Richmond, British Columbia, that he "acquired various real estate interests located in the Cayman Islands as part of a business venture to subdivide the real estate properties for resale". Also, that he "carried [on] his business and was also a shareholder of two marketing companies located in Vancouver, B.C. whose purpose was advertising the sale of properties". He further asserts he "made various payments for the purchase of real estate properties on agreement to purchase and also made various monthly payments relating to these purchases".

"The appellant proceeded with the sale of properties", he continues: however, due to a failure of the marketing companies to file a prospectus, the marketing activity was suspended by the Superintendent of Brokers of British Columbia, and subsequently, the marketing companies and the appellant were charged for the criminal action related to the above-noted matters”.

The appellant further in the notice of appeal asserts that “through the marketing company, the properties were actively offered for sale and the appellant did proceed with plans to subdivide the properties. The appellant expected that these real estate losses, which he incurred in the various years, would be available to off-set management fee income which he received from a company which he controls in British Columbia”. The appellant also submitted to the Court that he provided proof of these expenditures to the Minister.

So, in effect, from the pleadings and the evidence, we have Mr. Abramson in the 1970s holding himself out to be the selling agent in Vancouver for Omega Bay Estates plan developers in the Cayman Islands. The appellant was also involved on his own behalf, and with another, in buying land for development purposes in the Cayman Islands, as well as in California. He (the appellant) operated his activities through two companies, one of which he was the sole shareholder (Cayman Properties Ltd.) and the other in which he was a 50 per cent shareholder (Omega Marketing Ltd.).

During the taxation years in question, the appellant did not file income tax returns, and as indicated, he was reassessed on the basis that he had unreported income. The appellant accepts the Minister's calculations as to the income received but disputes the tax liability on the basis that he had business losses in his land-related businesses that would reduce his tax liability for the years in question.

Significant evidence

In terms of the significant evidence that was presented to the Court, the first witness was the appellant's, at that time, Canadian lawyer who for the period in question gave general evidence as to the activity of the appellant between Canada and the Cayman Islands. His own records (that is, the lawyer's own records) had been destroyed in a fire two years ago and from the viva voce evidence he gave, he was only able to rely on recollection of some of the events that dated back almost 16 years.

He also stated that prior to the fire, he had no request for record production by the appellant of any documents that may have been in his possession that related to the appellant's activities. He did, as I indicated, however, describe the business activities of the appellant to some degree.

The lawyer described how he went back and forth between the Cayman Islands and Vancouver in relation to real estate transactions involving Omega Bay Estates, Omega Marketing Ltd., and Cayman Properties Ltd., and as well transactions involving the appellant personally. However, because of the destruction of the lawyer's records, the evidence he gave was without any specifics or details.

The appellant also gave evidence of what he could recollect, and save and except certain agreements to purchase that he filed, there was unfortunately a lack of records or documentation or otherwise as to expenditures in relation to the business activities. Precise sums or specific dates as to performance under contracts were not delineated. Cancelled cheques, payroll records, books of account, legal documentation as to acquisition or forfeiture were not clearly delineated, nor were records of any kind presented to the Court beyond what I have indicated.

Analysis

The burden of proof rests on the taxpayer to establish the incorrectness of any tax assessment he opposes. The Act requires taxpayers to keep appropriate accounting records to support the computation of the taxes that they must pay. In this case, the appellant has presented to the court agreements to purchase several real estate properties, which he maintained was his inventory to support his contention he was in the business of purchasing, developing, and marketing real property in the Cayman Islands and in Southern California.

In relation to some of the property transactions, he was apparently convicted of fraud, fined, and committed to a term of imprisonment. While the Criminal Court proceeding continued over several years, he maintained to this Court that he continued to hold the properties by making various deals with vendors and then after his conviction, he stated he was out of the property development business and then claimed that he sustained a loss on these activities. That apparently occurred in 1982.

He also gave evidence that in 1976-77 he was involved in working closely with a certain Mr. Bodden in the Cayman Islands. He also told the Court that while he was involved with Mr. Bodden in one connection, he was also involved with Mr. Bodden in his own (the appellant's) personal land assembly, and, as well, at the same time involved in marketing Cayman Islands properties in Vancouver.

He also stated he was part of a shareholding arrangement in some marketing properties with one other person, while at the same time he was the sole shareholder of another company that he channelled other marketing activities through.

The distinction of who he was working for or what he was doing for the various entities including himself I conclude is a blur, notwithstanding counsel's submission to me this morning that it was clear. I also note from the appellant's pleadings where he indicated that, in fact, he was working only through companies.

He states under oath that he acquired all the properties personally, but an examination of the exhibits does not support that contention. I specifically refer to Exhibits A-17 and A-18. He states that payments were made to sustain some of these properties, but no documentary evidence was presented to support this contention. He states he had an employee, but no records were presented to show wages paid. He submits that when an agreement to purchase land falls into default in the Cayman Islands, there is the forfeiture of those lands. This may very well be. There was an affidavit filed from an apparent British lawyer that would indicate this. However, it has relatively little weight as presented to this Court. Notwithstanding, accepting the position that there is a forfeiture when a default takes place, nothing of any value has been placed before this Court to support the contention the properties had actually been forfeited, other than the appellant stated “1 stopped paying”. Moreover, there is little or no evidence to show when the properties were forfeited.

The appellant maintains his loss occurred in 1982. However, there appears to be little or no activity in the alleged business since 1976 and possibly 1977.

On another issue (credibility), the appellant has no recollection of a meeting between himself and a Revenue Canada appeals officer who appeared before this Court. The appeals officer gave detailed evidence as to what the appellant said to support the loss he was claiming in respect to the Cayman Islands properties. However, he was unable at that time to give the exact point in time he suffered the alleged losses and he was unable to fully support his contention as to ownership of the properties or who was involved, save and except to rely on the documents that were also filed before this Court.

To the specific allegation by the Revenue Canada appeals officer, at that time, that there was revenue from certain sales from a“ plantation” property; the appellant apparently responded that any revenue was used up by develop- ment costs. Counsel on this sought through a cross-examination to show that this was another transaction, and not part of the activities before the Court. And that may very well be, but the Court is left in confusion as to (1) what transaction of the appellant did incur development costs such as road construction? (2) where did that money come from? (3) when did the money come? (4) when was it paid? and (5) to whom was it paid?

Summary

In summation, to oppose the arbitrary assessment of the Minister, the appellant states he agrees with the sums assessed as income previously unreported for the 1979, 1981 through 1985 taxation years, but that he had incurred losses in his purchasing, developing, and ultimate marketing of real properties business that would reduce his taxable income for each of the years in question.

The appellant comes to Court with Exhibits A-5 to A-21, being a series of purported land purchase agreements and little else, no records, bank statements, cheque stubs, vouchers, receipts, disbursements, ledgers, corporate books, shareholder loan documentation, or anything that would support his contention.

The appellant then submits that although he was carrying on business in Canada, the reason he does not have any records is that the business system in the Grand Caymans was haphazard and informal, that the RCMP seized his records, that his accountant lost his records, that his solicitor had a fire and his records were destroyed. He further submits he was subject to a criminal investigation and subsequent trial in relation to his business practices some 10 to 14 years ago.

It does not appear reasonable to me, or credible to me, that the appellant who took the position he took in the prior proceedings in the Criminal Court, and the position he took in this Court, that he would not make every effort to reconstruct the records when they were still fresh 10 to 16 years ago, that is, if the records existed at all.

There may well have been an expenditure of over $200,000 in this failed purported business, but without knowing when the expenditures were made, for who they were made, to whom they were paid, by whom they were made, and how they were made, all in some detail, the Court cannot find the evidence to support the appellant from the vagueness of assertions and assumptions submitted by him.

Moreover, the evidence presented as to expenses incurred, I refer specifically to Exhibit A-22, the accountant's brief, rough working paper; the absence of details as to when the expenses were incurred, what they were expended for, the exact dates of the alleged payments, the subsequent purported defaults and who precisely was involved, that is which person or which corporation was involved, have not satisfied this Court that the losses were sustained as alleged in 1982.

Capitalization argument

The capitalization argument (in terms of expenses) as presented by counsel this morning as it relates to the end of the enterprise does not, in my opinion, alleviate the onus on the appellant to prove the expenditures in detail, including dates, times, places, and when the losses occurred. In an enterprise of this nature that the appellant was involved in, there must be more from the appellant than the evidence he has presented.

Conclusion

To reiterate, to say his accountant lost the documents; to have never demanded the documents from his solicitor before the destruction; to have apparently kept no other records; to have his veracity successfully challenged about a meeting with Revenue Canada that escaped his recollection, when so much was discussed and, in general, his imprecision when answering certain questions on direct and cross-examination, lead this Court to conclude he has not met the onus incumbent upon him.

Counsel's plea to this Court was to the effect that if documents cannot be provided, then the Tax Court of Canada is there to hear viva voce evidence. I totally agree. However, the evidence must, on the balance of probabilities, be credible, clear and strong to show that the assessment was wrong. In this case, the Court concludes that there may have been expenditures, but the Court, without stronger evidence, has no way of determining what the expenditures were, when they were expended, and how they related to the matters before the Court.

As such, the appellant's evidence is not strong enough, does not have sufficient weight, and the onus has not been discharged. The appeals are dismissed.

Appeals dismissed.