Sarchuk,
TCJ:—The
appeals
of
Gladys
Balsillie
are
in
respect
of
her
1973,
1974
and
1975
taxation
years.
The
respondent’s
reassessments
were
based
on
the
following
facts
and
assumptions:
At
all
material
times
the
Appellant
operated
a
licensed
beverage
room
known
as
the
Constellation
Room
at
the
Airport
Hotel,
and
also
owned
and
operated
the
Basillie
Entertainment
Agency
and
the
Balsillie
School
of
Bartending,
all
at
the
City
of
Winnipeg,
Province
of
Manitoba.
The
Appellant
filed
unaudited
financial
statements
with
her
returns
of
income
for
the
1973,
1974
and
1975
taxation
years
reporting
income
as
follows:
YEAR
|
SOURCE
|
REVENUE
|
1973
|
Constellation
Room
|
$
68,860.60
|
|
Entertainers
|
322,816.17
|
|
Bartending
School
|
4,500.00
|
|
Rental
Income
|
2,880.00
|
|
$399,056.77
|
|
Cost
of
Goods
Sold
|
|
|
and
Expenses
|
388,909.79
|
|
Net
Profit
|
$
10,146.98
|
YEAR
|
SOURCE
|
REVENUE
|
1974
|
Constellation
Room
|
$193,784.26
|
|
Entertainers
|
496,643.25
|
|
Bartending
School
|
4,500.00
|
|
$694,927.51
|
|
Cost
of
Goods
Sold
|
|
|
and
Expenses
|
684,639.08
|
|
Net
Profit
|
$
10,288.43
|
YEAR
|
SOURCE
|
REVENUE
|
1975
|
Constellation
Room
|
$209,675.70
|
|
Entertainers
|
478,309.35
|
|
Bartending
School
|
4,800.00
|
|
Rental
Revenue
|
3,000.00
|
|
$695,785.05
|
|
Cost
of
Goods
Sold
|
|
|
and
Expenses
|
675,085.49
|
|
Net
Profit
|
$
20,699.56
|
He
(the
Respondent)
determined
that
although
the
Appellant
reported
profits
and/or
losses
from
the
Constellation
Room
in
the
said
financial
statements
by
deducting
the
aggregate
of
the
costs
of
goods
sold
and
expenses
from
revenue,
the
Airport
Hotel
prepared
weekly
settlement
sheets
wherein
the
cost
of
goods
sold
and
expenses
(e.g.
liquor
costs,
salaries
and
rent
etc.)
were
deducted
from
the
proceeds
of
the
sales
of
liquor
and
drinks,
and
the
Appellant
was
paid
and
received
the
difference
in
settlement
payments,
in
the
following
amounts:
|
SETTLEMENT
|
YEAR
|
PAYMENTS
|
1973
|
$66,070.10
|
1974
|
$58,849.04
|
1975
|
$64,038.66
|
Taking
into
account
the
said
settlement
payments,
he
(the
Respondent)
computed
the
Appellant's
total
income
for
the
years
under
appeal
as
follows:
YEAR
|
SOURCE
|
AMOUNT
|
1973
|
Entertainers
|
$322,816.17
|
|
Constellation
Room—
|
|
|
Settlement
Payments
|
68,860.60
|
|
Bartending
School
|
4,500.00
|
|
Rental
Income
|
2,880.00
|
|
C.P.P.
Benefits
|
693.54
|
|
Interest
Income
|
80.35
|
|
TOTAL
|
$399,830.66
|
YEAR
|
SOURCE
|
AMOUNT
|
1974
|
Entertainers
|
$496,643.25
|
|
Constellation
Room—
|
|
|
Settlement
Payments
|
58,849.04
|
|
Bartending
School
|
4,500.00
|
|
C.P.P.
Benefits
|
1,071.00
|
|
Interest
Income
|
10.45
|
|
TOTAL
|
$561,073.14
|
YEAR
|
SOURCE
|
AMOUNT
|
1975
|
Entertainers
|
$478,309.35
|
|
Constellation
Room—
|
|
|
Settlement
Payments
|
64,038.66
|
|
Bartending
School
|
4,800.00
|
|
Rental
Income
|
3,000.00
|
|
C.P.P.
Benefits
|
818.28
|
|
Interest
Income
|
454.97
|
|
TOTAL
|
$551,421.26
|
He
(the
Respondent)
determined
the
total
of
all
deposits
made
to
the
Appellant’s
bank
acounts
for
the
years
under
appeal
and
deducted
therefrom
the
total
known
income
of
the
Appellant
for
the
said
years
to
yield
gross
unidentified
deposit
as
follows:
|
Gross
|
|
Total
|
Total
Known
|
Unidentified
|
Year
|
Deposits
|
Income
|
Deposits
|
1973
|
$485,459.64
|
$399,830.66
|
$
85,628.98
|
1974
|
$652,838.99
|
$561,073.74
|
$
91,765.25
|
1975
|
$671,131.08
|
$551,421.26
|
$119,709.82
|
Cheques
drawn
on
the
business
account
of
the
Balsillie
Entertainment
Agency
and
negotiated
at
the
Airport
Hotel
to
replenish
the
cash
float
of
the
Constellation
Room
were
identified
and
deducted
from
the
gross
unidentified
deposits
to
yield
net
unidentified
deposits
as
follows:
|
Gross
|
Cash
|
Net
|
|
Unidentified
|
Float
|
Unidentified
|
Year
|
Deposits
|
Cheques
|
Deposits
|
1973
|
$
85,628.98
|
$
26,168.73
|
$
59,460.25
|
1974
|
$
91,765.25
|
$
36,879.81
|
$
54,885.44
|
1975
|
$119,709.82
|
$
41,219.03
|
$
78,490.79
|
In
reassessing
the
Appellant
for
the
1973,
1974
and
1975
taxation
years
he
(the
Respondent)
assumed,
inter
alia,
that
(a)
net
unidentified
deposits
of
$59,460.25
in
1973
represented
unreported
income
of
the
Appellant
in
the
1973
taxation
year;
(b)
net
unidentified
deposits
of
$54,885.44
in
1974
represented
unreported
income
of
the
Appellant
in
the
1974
taxation
year;
(c)
net
unidentified
deposits
of
$78,490.79
in
1975
represented
unreported
income
of
the
Appellant
in
the
1975
taxation
year;
(d)
the
Appellant
made
misrepresentations
attributable
to
neglect,
carelessness
or
wilful
default
in
filing
her
1973
return
by
failing
to
report
income
in
the
amount
of
$59,460.25;
(e)
the
Appellant
made
misrepresentations
attributable
to
neglect,
carelessness
or
wilful
default
in
filing
her
1974
return
by
failing
to
report
income
in
the
amount
of
$54,885.44.
Examination
of
the
financial
statements
submitted
with
the
income
tax
returns
show
losses
from
the
Constellation
Room
whereas
the
settlement
payments
received
by
the
Appellant
from
the
Airport
Hotel
were
largely
net
of
expenses,
therefore
corroborating
the
assumptions
that
income
was
understated
by
at
least
the
amounts
of
the
unidentified
deposits:
|
Net
|
|
Income
|
|
Apparent
|
Unidentified
|
|
or
Loss
|
Settlement
|
Understatement
|
Deposits
by
|
Year
|
Reported
|
Payments
|
of
Income
|
Comparison
|
1973
|
$
6,518.02
|
$66,070.10
|
$59,552.08
|
$59,460.25
|
1974
|
$(19,459.96)
|
$58,849.04
|
$78,309.00
|
$54,885.44
|
1975
|
$(18,932.78)
|
$64,038.66
|
$82,971.44
|
$78,490.79
|
The
appellant’s
position
is:
|
|
(a)
that
the
respondent
has
no
jurisdiction
to
reassess
her
for
the
1973
and
1974
taxation
years
since
she
has
not
made
any
misrepresentations
attributable
to
neglect,
carelessness
or
wilful
default
and
has
not
committed
fraud
in
the
filing
of
her
return
or
in
supplying
any
information
under
the
Act;
and
(b)
that
the
unidentified
deposits
assessed
by
the
respondent
were
comprised
of
the
following
(as
set
out
in
her
notice
of
appeal):
The
taxpayer,
in
the
course
of
her
business
operations,
wrote
cheques
on
her
business
account
made
payable
to
various
individuals
in
her
employ.
Such
cheques
were
cashed
at
the
Constellation
Room
of
the
Airport
Hotel
and
made
up
a
significant
portion
of
the
receipts
of
the
day
on
which
settlement
between
the
taxpayer
and
the
hotel
was
made.
The
named
payees
of
the
cheques
were
named
for
convenience
only,
and
the
cash
taken
out
of
sales
was
received
by
the
taxpayer.
The
taxpayer
utilized
the
cash
received
to
cash
cheques
for
customers,
employees
and
others.
The
balance
of
cash
and
such
cheques
received
from
customers,
employees
and
others
were
deposited
in
the
bank
of
the
taxpayer,
constituting
deposits
of
a
non-income
nature.
Records
of
the
taxpayer
were
lost
in
two
separate
floods
and
she
is
unable
to
produce
all
of
the
cancelled
cheques
of
this
nature.
Part
of
the
“unidentified
deposits'"
included
in
the
assessment
by
the
Minister
consist
of
loans
from
banks
and
individuals,
gifts,
and
funds
deposited
in
trust
for
the
entertainers
hired
by
the
taxpayer.
The
taxpayer
says
that
there
has
been
no
increase
in
her
net
worth
for
any
of
the
taxation
years
1973,
1974
or
1975,
other
than
that
attributable
to
the
appreciation
of
assets
owned
by
her.
The
appellant
describes
herself
as
an
entertainment
consultant
and
inter
alia
acted
as
booking
agent,
placing
entertainers
and
musicians
into
some
30
Winnipeg
area
hotels
as
well
as
booking
them
for
private
functions.
During
the
relevant
taxation
years
the
appellant
also
operated
the
Constellation
Room,
a
dining
and
beverage
room
located
at
the
Airport
Hotel
in
Winnipeg.
All
of
the
appellant’s
businesses
were
carried
on
under
the
name
Balsillie
Entertainment
Agency.
Revenue
from
all
sources
was
deposited
into
and
all
expenses
incurred
were
paid
from
an
account
maintained
by
the
appellant
at
the
Sargeant
and
Erin
Branch
of
the
Toronto-Dominion
Bank.
The
licence
issued
by
the
Manitoba
Liquor
Control
Commission
permitting
the
Constellation
Room
to
sell
liquor,
beer
and
wine
was
held
by
the
Airport
Hotel.
As
a
result
thereof
a
special
arrangement
was
utilized
by
the
appellant
and
the
management
of
the
hotel
with
respect
to
liquor
sale
receipts
and
with
respect
to
Balsillie’s
payment
to
the
hotel
for
the
right
to
operate
the
Constellation
Room
under
their
licence.
Each
business
day
the
appellant
prepared
a
daily
report
of
her
sales
broken
down
into
liquor,
beer,
food
and
taxes.
At
the
close
of
business
this
report
was
submitted,
together
with
the
cash
receipts,
to
the
Airport
Hotel.
At
the
end
of
each
week
a
settlement
statement
was
prepared
by
the
hotel.
From
the
gross
receipts
submitted
by
Balsillie
the
hotel
deducted
the
amounts
it
was
required
to
pay
to
the
Manitoba
Liquor
Control
Commission,
Balsillie’s
Constellation
Room
payroll
(waitress,
bartenders
etc)
including
tax,
UIC
and
other
remittances
as
well
as
the
Airport
Hotel’s
rental
charge
with
respect
to
the
use
of
its
licence.
The
balance
remaining
was
paid
to
the
appellant
by
way
of
cheque
which
cheque
was
in
the
normal
course
deposited
by
Balisillie
to
the
credit
of
Balsillie
Entertainment
Agency
at
the
Toronto-Dominion
bank.
Certain
other
expenses
including
such
items
as
entertainment,
produce,
meat,
all
restaurant
supplies,
menus,
uniforms
and
linen
were
paid
by
Balsillie
separately
but
also
from
this
account.
To
rebut
the
respondent's
assumptions
that
the
unidentified
deposits
represented
income
Balsillie
advanced
a
number
of
explanations.
In
her
pleadings
she
alleged
that
these
deposits
were
of
a
non-income
nature
and
were
comprised
of
loans
from
banks
and
individuals;
gambling
gains;
mortgage
proceeds;
funds
deposited
and
held
in
trust
for
entertainers
engaged
by
the
appellant;
personal
gifts
and
the
redepositing
of
funds
paid
out
to
customers
by
way
of
cashing
customer
cheques.
In
the
course
of
her
testimony
two
further
reasons
were
advanced.
The
first,
that
certain
expenses
incurred
by
the
Constellation
Room
for
items
such
as
produce
and
supplies
were
paid
for
by
Balsillie
personally.
The
second
was
that
a
number
of
years
prior
to
the
taxation
years
in
question
small
amounts
of
cash
would
disappear
at
some
point
of
time
after
the
daily
report
and
the
cash
receipts
were
turned
over
to
the
Airport
Hotel
and
that
as
a
result
the
appellant
began
taking
all
of
the
cash
out
of
the
till
at
the
end
of
each
day
and
replacing
it
with
a
Balsillie
Entertainment
cheque.
These
cheques
were
not
made
payable
to
the
Airport
Hotel
as
one
might
expect.
Her
evidence
was
as
follows:
Q.:
And
to
whom
would
those
cheques
be
made
payable
that
you’d
put
in
the
till
to
replace
the
cash
you
were
taking
out?
A.:
Well,
they
could
be
made
payable
to
anybody
that
was
there.
My
leg
was
very
bad
in
those
days,
too,
and
Elsa,
Elsie
Landau,
I'd
write
a
cheque
to
her,
she'd
endorse
it
and
she'd
go
up
to
the
till
and
bring
the
cash
back.
Q.:
Who
would
she
endorse
it
over
to?
A.:
She'd
just
mark
her
name
and
then
give
me
the
cash
and
I
took
that
cash
every
night,
in
those
days
it
was
not
much
cash
flow,
so
I
needed
the
cash
too,
and
I'd
take
that
cash
and
put
it
in
my
bank
the
next
day.
With
respect
to
cheques
cashed
for
customers
the
appellant
testified:
Q.:
What
about
customers
and
their
cheques?
How
did
you
deal
with
customers
who
wanted
to
cash
cheques?
A.:
Well,
if
they
were
personal
cheques
the
hotel
said
they
would
like
me
to
look
after
the
personal
cheques,
rather
than
put
them
in
the
till
and
have
them
come
back
NSF,
I
used
to
act
as
a
banker,
more
or
less,
and
I'd
cash
many
personal
cheques.
I'd
put
them
in
my
bank
account,
Balsillie
Entertainment;
they
were
not
revenue.
Ninety
per
cent
of
the
time
it
was
cash
given
to
them
for
the
cheque.
Q.:
If
they
gave
you
a
cheque,
say
a
customer
gave
you
a
cheque,
a
personal
cheque,
where
would
you
get
the
cash
to
cash
that
cheque
for
that
customer?
A.:
Out
of
the
till.
Q.:
And
how
would
you
then
account
to
the
Airport
Hotel
for
the
deficiency
in
the
cash
float?
A.:
Well,
at
the
end
of
the
night
I
had
to
make
sure
there
was
enough
cheques
from
Balsillie
Entertainment
to
pay
for
the
cheques
that
I
cashed.
Q.:
Where
did
you
put
those
customers'
cheques?
Which
account
did
you
deposit
them
in?
[Emphasis
added.]
A.:
I
deposited
them
in
Balsillie
Entertainment,
but
I
wasn't
aware
at
the
time
that
I
should
have
identified
that
I
cashed
a
cheque
for
John
Brown
or
whatever
other
name
there
might
have
been
that
night,
and
I
just
put
it
into
the
bank
and
it
made
my
total
cash
deposit
for
the
day,
or
cheque
deposit,
the
whole
total
deposit
was
in
there.
[Emphasis
added.]
The
cheques
falling
into
this
category
were
referred
to
by
the
appellant
as
“funny
cheques”.
None
of
these
“funny
cheques”
were
available
to
substantiate
her
evidence.
To
account
for
the
absence
of
such
cheques
and/or
other
documents
the
appellant
stated
that
all
books
of
account
and
records
pertaining
to
the
Constellation
Room
for
the
relevant
taxation
years
had
been
maintained
by
her
accountant,
Mr
Herman
Buechler
(“Buechler”).
It
was
his
responsibility
to
prepare
the
financial
statements
and
income
tax
returns.
According
to
Balsillie
she
had
nothing
to
do
with
the
books
or
returns
personally,
stating
“well
I
just
handed
everything
over
to
him,
you
know,
that
we
had,
that
he
said
he
needed.”
The
cancelled
cheques
relating
to
the
Constellation
Room
were
kept
by
Buechler
at
her
residence
in
a
small
office
provided
to
him
for
that
purpose.
In
1975,
a
flood
damaged
these
and
other
related
documents.
Some
water-logged
documents
were
taken
to
another
office
maintained
by
Balsillie
Entertainment
Agency
at
172
Main
Street
in
Winnipeg,
and
in
1978,
according
to
Balsillie,
were
further
damaged
by
another
flood.
The
appellant
maintains
that
following
each
of
these
mishaps
she
asked
officials
at
the
“Tax
Department”
to
examine
the
documents
but
they
refused
to
do
so.
These
documents,
which
could
have
supported
her
position,
were
kept
until
recently
when
they
were
destroyed,
apparently
notwithstanding
the
ongoing
dispute
with
the
respondent.
In
light
of
certain
other
evidence
adduced
her
testimony
must
be
weighed
and
examined
with
care.
A
former
Revenue
Canada
investigator,
Mr
William
D
Baluk
(“Baluk”)
stated
that
in
1977,
his
initial
investigation
led
him
to
conclude
that
the
documents
obtained
from
the
appellant
and
from
Buechler
were
far
from
complete,
as
a
result
of
which
he
was
not
able
to
determine
the
validity
of
the
appellant's
financial
statements
for
those
taxation
years.
Buechler
alleged
that
he
had
returned
all
of
the
documents,
including
his
working
papers,
to
Balsillie
and
as
a
result
he
could
not
say
how
he
had
prepared
the
financial
statements.
Following
this
initial
review
Baluk
made
further
attempts
to
obtain
records,
ledgers,
additional
cheques
and
any
other
pertinent
documents
from
the
appellant.
During
the
latter
part
of
1977
and
1978
a
few
invoices
and
the
bank
statements
were
provided
to
him
by
Balsillie.
Authorization
was
re-
ceived
from
her
giving
the
respondent
access
to
the
bank
records
and
by
1978
Baluk
had
reviewed
all
of
the
transactions
at
the
bank.
In
particular
he
analysed
all
deposit
slips
to
determine
their
nature
and
source.
This
formed
the
basis
of
the
subsequent
unidentified
deposit
analysis.
A
number
of
meetings
took
place
between
Baluk
and
the
appellant’s
accountants
and
documents
were
produced
to
Baluk
on
several
occasions
including
some
cheques
which
were
tendered
to
support
some
of
the
appellant's
cheque
cashing
practices.
Acting
in
what
appeared
to
the
Court
to
be
a
reasonable
and
prudent
manner
the
investigating
auditor
allowed
all
items
that
were
even
remotely
supported
by
documents
(principally
the
“cash
for
float”
cheques)
and
as
a
result
adjusted
the
proposed
assessments
in
favour
of
Balsillie
by
$41,219.03,
$36,879.81
and
$26,168.73
in
1975,
1974
and
1973
respectively.
With
respect
to
the
“funny
cheques"
Baluk
testified:
Q:
But
you
do
accept,
and
you
did
accept,
and
one
of
the
assumptions
that
you
used,
was
that
she
did
from
time
to
time
use
the
float,
the
till
money
to
give
to
employees
or
to
customers
in
exchange
for
their
personal
cheques?
A:
Well
the
explanation
we
got,
and
it
was
received,
I
believe
during
an
interview
with
herself
and
Mr
Bingham,
that
in
a
lot
of
these
cases
she
wrote
up
the
cheques
themselves.
They
were
fictitious
people,
also.
Q:
They
were
funny
cheques?
A:
Funny
cheques,
right.
Q:
But
do
you
also
accept,
and
did
you
accept,
that
there
might
be
a
customer
there,
say
at
eleven
o'clock
at
night,
who
needed
a
couple
of
hundred
dollars
for
whatever
reason,
and
would
write
a
cheque
for
$200
and
she'd
give
them
$200
cash?
Do
you
accept
that
she
did
that?
A:
It's
possible,
but
that
was
never
brought
out
during
my,
up
to
the
—
leading
to
the
date
of
that
final
letter
of
my
assessment.
That
issue
was
never
brought
up..
.
.
.
.
.
Q:
Did
you
see
any
deposits,
or
were
you
able
to
see
from
the
bank
records
that
you
had,
some
cheques,
say,
from
someone
like
Richard
Good?
A:
No.
Q:
Is
that
because
you
didn't
have
the
deposit
slips
themselves?
A:
No,
we
had
all
the
deposit
slips.
We
analysed
all
the
deposit
slips
and
every
cheque
noted
on
those
deposit
slips
was
identified.
The
only
amount
not
identified
was
cash.
[Emphasis
added.]
Q:
Well
she's
testified
this
morning
that
she
didn't
identify
cheques
when
they
were
going
into
the
account.
[Emphasis
added.]
A:
Well
I
have
the
deposit
slips.
I
noted
them
in
my
examination
and
all
the
cheques
were
identified
on
the
deposit
slips.
[Emphasis
added.]
Q:
And
if
a
cheque
wasn't
identified
what
did
you
assume?
[Emphasis
added.]
A:
I
didn't
notice
any
that
weren't
identified.
..
.
[Emphasis
added.]
.
.
.
Q:
Could
you
just
repeat
what
you
answered
in
regard
to
that,
what
you
understood
the
question
to
be?
A:
Okay,
all
cheques
that
were
deposited
into
her
bank
account
came
from
the
various
hotels
in
the
city
plus
her
payments
she
received
from
the
Constellation
room,
or
the
Airport
Hotel.
These
were
the
cheques
that
we
only
noticed
as
being
deposited
in
her
bank
accounts.
Q:
Yes,
and
you
assumed
that
all
these
cheques
were
income?
A:
That's
right.
THE
COURT:
Were
these
cheques
the
ones
that
you
said
were
identified
on
the
deposit
slips?
A:
That's
right.
THE
COURT:
Were
there
cheques
other
than
from
the
hotels?
[Emphasis
added.
I
A:
I
didn't
notice
any.
[Emphasis
added.]
THE
COURT:
So
there
were
no
cheques
deposited
from
individuals
or
anything
of
that
nature.
[Emphasis
added.]
A:
I
didn't
notice
anything
other
than
from
the
hotels.
[Emphasis
added.
]
MR
HILL:
Your
Honour,
may
I
ask
a
question
arising
out
of
your
question?
THE
COURT:
Well
I
hope
l’m
understanding
the
witness
correctly.
Go
ahead,
yes.
MR
HILL:
Q:
Were
you
then
only
looking
for
cheques
that
you
could
identify
by
the
deposit
slips
from
the
Constellation
Room?
A:
No,
we
were
looking
at
all
the
cheques
that
were
deposited,
as
to
the
sources.
Q:
You
said
you
didn't
notice
other
cheques.
A:
I
didn't
notice
any
other
cheques
being
deposited.
With
respect
to
the
cheques
to
cover
the
cash
removed
from
the
till
Mr
Baluk
stated:
She,
I
believe,
indicated
that
she
was
going
to
be
busy
the
following
month
and
if
she
could
have
some
time,
which
resulted
in
the
sending
of
that
letter
of
December
7th
to
her.
Following
that
we
did
receive
a
contact
from
her
accountant
at
that
time,
which
was
Mr
Cove,
and
together
with
him,
myself,
my
group
head
and
Mrs
Balsillie,
we
had
an
interview,
I
believe
in
the
middle
part
of
February.
.
.
.
.
.
.
Q:
And
I
believe
there
was
also
a
listing
of
so-called
cash
float
cheques
that
came
with
this
letter
for
the
amount
of
$26,000,
which
—
A:
That’s
right.
Q:
—
is
shown
here.
Now,
were
you
given
cheques
at
this
point
in
time
—
A:
No,
not
at
this
point
in
time.
Q:
When,
were
you
subsequently
given
cheques?
A:
We
were
given
cheques
by
the
next
accountant,
which
was
Mr
Bingham,
and
these
cheques
were
received,
I'm
not
exactly
certain,
either
the
spring
or
the
early
summer
of
that
year,
1979.
Q:
In
the
spring
or
the
early
summer
of
1979;
had
you
previously
received
these
cheques
in
all
your
efforts
to
obtain
documentation?
A:
No.
Q:
And
what
happened
as
a
result
of
these,
of
your
receipt
of
these
cheques
and
these
representations.
A:
We
reviewed
the
cheques
and
tried
to
obtain
a
satisfactory
explanation
as
to
the
purpose
behind
them.
We
had
several
conversations
with
Mrs
Balsillie
and
her
representative
at
that
time,
Mr
Bingham,
concerning
these
cheques,
and
at
the
latter
part
of
the
year
it
was
determined
that
these
cheques
were
called
cash-
for-float
cheques,
I
believe,
and
were
deposited
by
Mrs
Balsillie
into
the
Airliner
(sic)
bank
account
and
in
receipt
she
took
out
cash.
In
essence
she
was
saying
that
she
put
these
cheques
in,
took
the
cash
out,
which
would
indicate
that
she
was
making
a
double
entry
into
her
Constellation
Room
proceeds.
The
names,
we
had
questioned
her
on
the
names
on
these
cheques
and
who
these
people
were;
any
reply
we
did
receive
was
that
they
were
various
people
that
worked
in
the
Constellation
Room,
etc.
A:
Reviewing
these
cheques,
we
allowed
them
as
a
deduction
against
the
total
source.
Q:
I
am
showing
you
a
letter
dated
7
February
1980,
which
is
addressed
to
the
Appellant
and
was
sent
by
yourself.
Did
you
send
this
letter
to
her?
A:
That's
right.
Q:
And
basically
this
is
a
letter
where
you're
saying
“We
will
allow
these
float
cheques
that
we’ve
just
discussed".
A:
That's
right.
Q:
And
for
the
three
years
that
total
sum
of
$104,000
adjustment
—
A:
That's
right.
.
.
.
During
one
of
these
meetings
with
the
appellant’s
accountant
Baluk
received
a
document
captioned
“Proceeds
received
in
1973
.
.
.
from
Bankloans,
Personal
loans
etc"
(Ex
R-3).
In
fact
the
list
included
no
bank
loans,
but
did
include
as
sources
of
income
personal
loans,
“winnings
—
races”,
and
one
item
classified
“?”,
all
totalling
$50,300.
These
items
were
presented
as
a
source
of
some
of
the
unidentified
deposits.
The
appellant’s
evidence
with
respect
to
the
items
listed
in
Ex
R-3
was
not
credible
and
the
Court
rejects
it.
It
seems
to
be
more
than
a
coincidence
that
many
of
the
persons
whose
names
appeared
in
this
list
were
deceased
or
were
out
of
the
country.
Not
a
shred
of
supporting
evidence
was
presented
to
the
Court.
It
is
the
view
of
this
Court
that
the
Minister
quite
properly
treated
these
items
as
fictitious.
With
respect
to
the
1973
and
1974
taxation
years
the
respondent
has
the
right
to
reassess
for
more
than
four
years
from
the
date
of
reassessment
provided
that
he
can
show
that
the
provisions
of
subsection
152(4)
of
the
Income
Tax
Act
have
been
complied
with.
The
relevant
portion
of
this
section
reads:
152(4)
The
Minister
may
at
any
time
assess
tax,
interest
or
penalties
under
this
Part
or
notify
in
writing
any
person
by
whom
a
return
of
income
for
a
taxation
year
has
been
filed
that
no
tax
is
payable
for
the
taxation
year,
and
may
(a)
at
any
time,
if
the
taxpayer
or
person
filing
the
return
(i)
has
made
any
misrepresentation
that
is
attributable
to
neglect,
carelessness
or
wilful
default
or
has
committed
any
fraud
in
filing
the
return
or
in
supplying
any
information
under
this
Act,
or
.
..
.
reassess
or
make
additional
assessments,
or
assess
tax,
interest
or
penalties
under
this
Part,
as
the
circumstances
require.
According
to
the
appellant
the
onus
which
rests
upon
the
respondent
had
not
been
met.
Counsel
argued
that
the
respondent,
in
his
reply,
alleged
that
the
appellant
made
misrepresentations
attributable
to
neglect,
carelessness
or
wilful
default
in
filing
her
returns
“by
failing
to
report
income"
and
this
means
that
the
respondent
was
required
to
establish
that
the
unidentified
deposits
represented
income
failing
which
there
could
be
no“misrepresentation
as
to
income".
Since
the
respondent's
auditor
conceded
that
the
reference
in
the
reply
to
unidentified
deposits
could
just
as
readily
have
been
a
reference
to
deposits
from
an
“unknown
source”
counsel
argued,
and
I
quote:
If
these
deposits,
which
they
started
in
their
bank
approach
are
“unknown
sources”,
to
use
his
words,
as
he
agreed
with
me,
then,
with
respect,
the
Minister
has
not
even
etablished
that
this
is
income
from
a
source.
He
hasn't
even
established
the
source.
So
there
is
as
we
say,
the
first
burden
on
the
Minister.
It
has
to
be
misrepresentation.
But
here
they
have
said
that
it
is
a
misrepresentation
by
failing
to
report
income.
Income
must
come
from
a
source,
it
is
is
admitted
that
these
are
unknown
sources;
then
they
haven't
established
that
it
is
income.
Another
way
of
trying
to
prove
that
would
be
via
a
net
worth,
where
you
could
show
that
over
the
years
there
is
$192,000
that
the
taxpayer
really
increased
her
asset
picture
by,
or
at
least
her
expenses,
perhaps
by.
And
they,
of
course,
did
not
do
that
in
this
case.
So
the
evidence
here
is
that
it
is
unknown
sources.
Therefore
we
say
that
it
can’t
be
income.
Therefore
we
say
it
doesn't
—
they
haven’t
met
the
very
first
burden
upon
them.
In
essence
the
appellant
asks
the
Court
to
find
that
the
source
of
the
unexplained
deposits
was
not
an
income
source.
The
word
“income”
is
a
wide
term
and
covers
almost
all
receipts
of
a
person.
It
is
not
defined
in
precise
terms
in
most
taxing
statutes
including
the
Income
Tax
Act.
Section
3
of
the
Income
Tax
Act
appears
to
define
income
only
as
“income”.
Dictionary
meanings
are
equally
unproductive
and
do
not
provide
a
great
deal
of
assistance
to
the
Court.
—
Shorter
Oxford
—
“income”
“.
.
.
That
which
comes
in
as
the
periodical
produce
of
one’s
work,
business,
lands,
or
investments
(commonly
expressed
in
terms
of
money);
annual
or
periodical
receipts
accruing
to
be
a
person
or
corporation;
revenue.
.
.
.”
—
Webster
—
“income”
66
.
.
a
gain
or
recurrent
benefit
usu.
measured
in
money
that
derives
from
capital
or
labor;
also:
the
amount
of
such
gain
received
by
an
individual
in
a
given
period
of
time.”
The
enumeration
in
section
4
of
the
Income
Tax
Act
of
the
three
typical
and
most
often
found
sources
of
income
(business,
property
and
employment)
is
only
exemplary
and
does
not
restrict
in
any
way
the
principle
that
it
is
income
from
all
sources
that
is
taxable
under
the
Act.
In
Coltness
Iron
Co.
v
Black
(1881),
6
App
Cas
315
the
Lord
President
stated:
The
general
principle
of
the
property
and
income
tax
to
which
effect
is
given
by
the
statutes
is
that
everything
of
the
nature
of
income
shall
be
assessed,
from
what
source
soever
it
may
be
derived,
whether
from
invested
capital
or
from
skill
and
labour,
or
from
a
combination
of
both,
and
whether
temporary
or
permanent,
steady
or
fluctuating,
precarious
or
secure.
and
in
Att-Gen
of
British
Columbia
v
Ostrum,
[1904]
AC
144,
147
the
following
view
was
expressed:
Their
Lordships
are
of
opinion
that
there
is
no
ground
for
cutting
down
the
plain
and
ordinary
meaning
of
the
word
“income”.
In
their
view
the
expression
was
intended
to
include,
and
does
include,
all
gains
and
profits
derived
from
personal
exertions,
whether
such
gains
and
profits
are
fixed
or
fluctuating,
certain
or
precarious,
whatever
may
be
the
principle
or
basis
of
calculation.
In
the
case
at
bar
the
volume
and
the
amount
of
the
unexplained
deposits
during
those
two
taxation
years
(totalling
$59,460.25
and
$54,895.44),
coupled
with
the
absence
of
any
acceptable
explanation
as
to
the
source
of
those
deposits
entitles
the
Court
to
draw
the
inference
that
these
deposits
were
undisclosed
income
within
the
meaning
of
the
Income
Tax
Act.
I
hasten
to
add
that
there
is
no
requirement
upon
the
appellant
at
this
stage
of
the
proceedings
to
establish
the
nature
of
these
deposits,
however,
in
light
of
the
evidence
adduced
by
the
respondent
and
the
totally
unacceptable
evidence
given
by
the
appellant
no
other
inference
can
be
drawn.
In
the
case
Lucien
Venne
v
The
Queen,
[1984]
CTC
223;
84
DTC
6247,
Strayer,
J
stated
at
228
(DTC
6251):
I
am
satisfied
that
it
is
sufficient
for
the
Minister,
in
order
to
invoke
the
power
under
subparagraph
152(4)(a)(i)
of
the
Act
to
show
that,
with
respect
to
any
one
or
more
aspects
of
his
income
tax
return
for
a
given
year,
a
taxpayer
has
been
negligent.
Such
negligence
is
established
if
it
is
shown
that
the
taxpayer
has
not
exercised
reasonable
care.
This
is
surely
what
the
words
“misrepresentation
that
is
attributable
to
neglect”
must
mean,
particularly
when
combined
with
other
grounds
such
as
“carelessness”
or
“wilful
default”
which
refer
to
a
higher
degree
of
negligence
or
to
intentional
misconduct.
Unless
these
words
are
superfluous
in
the
section,
which
I
am
not
able
to
assume,
the
term
“neglect”
involves
a
lesser
standard
of
deficiency
akin
to
that
used
in
other
fields
of
law
such
as
the
law
of
tort.
See
Jet
Metal
Products
Limited
v
MNR,
[1979]
CTC
2738;
79
DTC
624
at
2755
[636-37].
The
Court
is
satisfied
that
in
the
case
at
bar
the
respondent
has
met
the
onus.
The
discrepancies
between
the
amounts
of
the
unidentified
deposits
in
those
years
and
the
reported
income
are
sufficient
to
establish
misrepresentation
that
is
attributable
at
the
very
least
to
neglect
and
carelessness
on
the
part
of
the
appellant.
The
Court
is
convinced
that
the
appellant
was
aware
that
her
income
was
understated
in
those
years.
Her
evidence
that
she
lacked
the
capacity
to
understand
financial
statements,
income
tax
returns
and
proper
accounting
and
record
keeping
procedures
cannot
be
believed.
Her
attempt
to
shift
responsibility
to
Buechler
for
the
statements
and
returns
and
to
place
all
blame
for
the
inadequacy
of
the
records
and
material
submitted
by
her
to
the
respondent
is
not
acceptable.
Accordingly,
the
court
concludes
that
the
respondent
was
entitled
to
reassess
the
1973
and
1974
taxation
years.
With
respect
to
the
reassessments
themselves
the
Court
must
determine
the
validity
of
the
appellant's
position
that
the
amounts
added
to
her
taxable
income
were
amounts
which
the
respondent
had
wrongly
included
since
they
did
not
arise
from
a
source
of
taxable
income
for
the
appellant.
Counsel
for
the
appellant
argued
that
a
pattern
of
cheque
cashing
had
been
established
but
that
such
pattern
had
never
been
analysed
or
considered
by
the
respondent.
Had
that
been
done
the
pattern
would
have
been
obvious
—
and
should
have
led
to
a
conclusion
that
cheques
were
missing
and
that
the
amounts
represented
by
those
missing
cheques
accounted
for
the
majority,
if
not
all
of
the
unidentified
deposits
as
Balsillie
had
claimed.
The
appellant
called
Mr
Gavin
Todd,
a
chartered
accountant
retained
to
act
as
a
consultant
with
respect
to
these
appeals.
He
reviewed
all
of
the
material
available
including
the
bank
records,
cheques
and
documents
submitted
to
the
respondent
by
the
appellant
and
her
former
accountants
as
well
as
the
summaries
prepared
by
Baluk
and
other
officers
of
the
respondent.
It
was
Todd's
conclusion
that
there
were
gaps
in
the
recorded
frequency
of
the
so-called
"funny
cheques”
and
that,
as
a
result
the
respondent
should
have
accepted
the
hypothesis
that
additional
cheques
existed.
Furthermore,
it
was
his
view
that
the
method
utilized
by
Revenue
Canada,
that
is
the
deposit
analysis,
was
inadequate
and
that
a
net
worth
analysis
of
the
taxpayer
should
have
been
carried
out.
In
1981
utilizing
the
material
available
to
him
Todd
prepared
a
net
worth
analysis
(Ex
A-3).
His
conclusion
was
that
the
appellant
could
not
have
had
an
increase
in
assets
totalling
$192,000
in
the
taxation
years
at
issue.
In
cross-examination
he
conceded
that
the
validity
and
accuracy
of
his
analysis
depended
totally
on
the
answers
given
to
him
by
the
appellant
with
respect
to
her
assets
and
liabilities;
on
the
accuracy
of
the
financial
statements
that
were
originally
prepared
and
on
an
accurate
determination
of
the
appellant’s
personal
expenditures.
Todd
admitted
that
there
were
discrepancies
in
the
financial
statements
prepared
by
Buechler.
However,
as
he
did
not
have
access
to
the
original
documents
he
was
unable
to
prove
the
validity
of
certain
figures
contained
therein.
The
Court
notes
that
Buechler
was
neither
called
nor
subpoenaed,
nor
was
there
any
evidence
that
Todd
consulted
with
him.
Without
in
any
way
calling
into
question
Mr
Todd's
integrity
or
professional
competence
it
is
clear
that
his
analysis
is
only
as
sound
as
the
material
supporting
it.
The
appellant
herself
was
very
critical
of
Buechler's
work.
In
fact
her
counsel
sought
and
obtained
confirmation
from
Mr
Baluk
that
the
financial
statements
were
of
questionable
validity.
In
evaluating
the
evidence,
taken
as
a
whole,
the
crucial
consideration
is
whether
the
Court
can
accept
the
testimony
and
explanations
of
the
appellant.
The
appellant’s
allegation
that
there
were
cheques
in
amounts
sufficient
to
account
for
the
deposit
discrepancies
is
not
supported
by
any
acceptable
evidence.
The
allegation
that
the
missing
cheques
were
destroyed
by
floods
is
simply
not
acceptable.
The
cheques
were
kept
in
one
location
in
a
relatively
organized
fashion.
The
likelihood
that
only
certain
cheques
from
a
particular
month
were
destroyed
is
too
remote
to
have
much
validity.
The
absence
of
any
cheques
allegedly
cashed
for
customers
or
indeed
any
record
of
such
cheques
casts
grave
doubts
on
that
explanation.
Furthermore,
there
was
absolutely
no
evidence
to
support
the
appellant’s
allegations
that
some
of
the
deposits
were
comprised
of
loans,
gambling
gains,
moneys
held
in
trust
and
personal
gifts.
Careful
consideration
was
given
to
her
evidence
and
to
her
explanations
with
respect
to
the
unidentified
deposits.
They
were
in
the
Court's
view
not
credible
and
were
inconsistent
with
other
proven
facts
on
vital
points.
On
a
number
of
occasions
the
appellant
was
less
than
responsive
to
questions
and
in
general
lacked
the
candour
and
frankness
which
is
the
hallmark
of
a
credible
witness.
There
was
no
corroboration
of
any
material
point
notwithstanding
a
number
of
allusions
to
the
existence
of
both
documentary
evidence
and
witnesses
capable
of
supporting
her
evidence.
My
conclusion
is
therefore
that
the
appellant
has
failed
to
rebut
the
respondent's
assumptions
that
unidentified
deposits
represented
undisclosed
and
unreported
income
of
the
appellant
in
the
1973,
1974
and
1975
taxation
years.
Accordingly,
the
appeals
are
dismissed.
Appeals
dismissed.