Angelo Natale v. Minister of National Revenue, [1986] 2 CTC 2015, 86 DTC 1493

Goetz, T.C.J.:—The appellant appeals arbitrary assessments for his 1975, 1976, 1977 and 1978 taxation years. The arbitrary assessments were necessary, says Revenue Canada, because the appellant failed to file his income tax returns for those years and a company which he owned did not keep adequate books of records.

Facts

Since 1970 the appellant operated a trucking company known as Ontario Associated Trucking Limited (O.A.T. or the company) until 1975 when the company was dissolved. He was the president and sole shareholder. In 1974 he incorporated Ontario Haulers’ Association Inc. (O.H.A.). The main object of this company was to represent independent truck owners and operators for the purpose of regulating relations between them and the employers of their services and to negotiate collective agreements. About this time the appellant sold the assets of O.A.T. and according to a Revenue Canada field auditor's report, the appellant received the sum of $12,969.94 in 1975 as wages.

The appellant was president of O.H.A. and, according to him, was the guiding force of that company. In 1978 the R.C.M.P. seized all the books of records of O.H.A. and the appellant was charged with 17 counts of conspiracy to commit extortion. He was incarcerated for six months and was acquitted on all charges. In 1983 the R.C.M.P. is purported to have returned all documents to one of the appellant’s lawyers who, the appellant says, never received them. The appellant invested about $50,000 in O.H.A., a substantial portion of which was paid to various lawyers and accountants. The appellant himself admits receiving $8,000 in 1976 and $7,000 in 1977, although he says he was to receive $18,000 a year and $2,000 rent for use of a portion of his home for the office of O.H.A.

The appellant maintains that he filed his 1975 and 1976 income tax returns by personally delivering them to the taxation office. The 1977 and 1978 income tax returns were, he says, mailed by him to the taxation office.

An officer of Revenue Canada in the Identification and Compliance branch testified that a search of the records of Revenue Canada indicated that no returns had been filed by the appellant for the taxation years 1975 to 1978 inclusive. The appellant claims that his returns were filed in blank with a letter attached stating that he had made no income and that he was living on borrowed money. On July 7, 1977, the Department of National Revenue served a demand for filing the 1975 income income tax return on the appellant by registered mail. The appellant does not recall this. On September 19, 1980, the Department of National Revenue served further demands for filing the income tax returns for the years 1975, 1976, 1977 and 1978. Several extensions were granted to the appellant to file his returns but according to the respondent none were filed. The appellant was interviewed by the Identification and Compliance officer, at which time he was told that the appellant’s accountant was preparing the returns and had problems because of the seizure of the books of O.H.A. Under cross- examination the appellant admitted that for the years 1976 to 1978 inclusive he had access to the books of O.H.A. and that in fact all books were available to him for the years 1975 to 1978 inclusive. On August 31, 1978, the appellant signed a T2020 which was a memo for file and it reads as follows:

August 31/78

The books of the Association (Ontario Haulers Association) are in possession of the Hamilton Police since Aug. 4th 1978. They promised to return within 2 to 4 wks. As soon . .. the books are back the Filing of returns will be made immediately. I hope to have the 1975-1976-1977 by Oct. 15, 1978.

In that the books of O.H.A. seem to have disappeared, there are no records from which the Department of National Revenue could deal with in order to make the regular assessments of tax owing, if any, by the appellant. By virtue of the fact that no information whatsoever was made available to the Department of National Revenue by the appellant relating to his income for the taxation years in question, the Minister resorted to what is known as “arbitrary assessments’" under subsection 152(7) of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended, which reads as follows:

152. (7) The Minister is not bound by a return or information supplied by or on behalf of a taxpayer and, in making an assessment, may, notwithstanding a return or information so supplied or if no return has been filed, assess the tax payable under this Part.

The respondent takes the position that despite letters from the Department of National Revenue to the appellant, advising that if no returns were filed he would be prosecuted. Such warning was ignored, and the appellant was convicted on three charges of failing to file a tax return and fined $200 on each conviction.

In making the arbitrary assessments, on the basis of the auditor’s report, the Minister assessed the appellant’s total income for 1975 as being at least $12,969. This was “grossed up” as follows, as indicated in subparagraphs 5(g), (h), (i) and (j) of the reply to notice of appeal:

5. In assessing Income Tax payable for the Appellant’s 1975 through 1978 taxation years as aforesaid, the Respondent relied, inter alia, upon the following findings or assumptions of fact:

(g) the Appellant’s total income for 1975 was at least $12,969.00;

(h) the Appellant’s total income for 1976 30% was greater that (sic) his total income for 1975 or $16,859.70;

(i) the Appellant’s total income for 1977 was 50% greater than his total income for 1975 or $19,453.50;

(j) the Appellant’s total income for 1978 75% was greater that (sic) his total income for 1975 or $22,695.75.

The purpose of the “grossing up” policy was that it would force the taxpayer to come forward and file his returns. This did not happen and no returns have ever been filed according to the respondent. It was open to the appellant, even at the hearing of his appeal, to establish that his actual income was less than the amount arbitrarily determined by the Minister. This he did not do. The effect of subsection 152(7) is clearly set forth in Dezura v. M.N.R., [1947] C.T.C. 375; 3 D.T.C. 1101, at 378 and 1102, respectively:

. . . The effect of the section is that when the Minister makes an assessment under the section there is a presumption of validity in its favour which is not rebuttable by proof that its amount is different from that shown on the taxpayer’s return or information supplied by or for him or that no return has been made. The power is in the interests of adequate administration of the Act. It extends to the case of every taxpayer and is conferred so that there shall be no gap in the Minister’s administrative power of assessment of every person and the determination of the amount of such assessment so that every one may be made subject to liability for the amount of tax he ought to pay and no one be able to confine the amount of his liability to that which he has himself stated or supplied or to escape liability by not making a return.

In that no information was given to the Minister or tax returns filed by the appellant, Mr. Natale has no reasonable complaint against the arbitrary assessments as this course of action was the only alternative he left the Minister. The appellant had full opportunity to establish that the amounts of income assessed in the arbitrary assessments were incorrect. The appellant in his notices of objection and notice of appeal, did not mention or assert that he had filed his tax returns for the years in question, rather he told Revenue officials that the returns were being prepared by one of his accountants and that the delay was due to his not having the books and records of O.H.A. Nevertheless, the appellant admitted that for the years in question the books and records of the company were available to him. The conduct of the appellant with the Department of National Revenue throughout was uncooperative. He cannot now complain about the arbitrary assessments by the Minister which were necessitated by his own conduct. The appeal is therefore dismissed.

Appeal dismissed.