D
E
Taylor:—These
are
appeals
heard
on
common
evidence
in
Toronto,
Ontario,
On
December
9,
1980,
against
income
tax
assessments
which
provided
the
following
information:
Dona
Legros
—
dated
November
20,
1979.
|
Other
Income
|
|
|
Added
|
Total
Tax
|
Penalty
|
1973
|
|
$5,091.74
|
$3,770.48
|
|
Nil
|
1974
|
|
3,000.04
|
4,010.83
|
|
Nil
|
1975
|
|
115.92
|
3,783.37
|
|
Nil
|
Barbara
M.
Legros
—
dated
November
26,
1979
|
|
|
Other
|
|
Interest
|
Total
|
|
|
Income
|
|
Income
|
Additional
|
|
|
Added
|
|
Added
|
Income
|
Total
Tax
|
Penalty
|
1973
|
$2,741.70
|
$
|
949.88
|
$3,691.58
|
$1,951.75
|
$250.00
|
1974
|
1,615.41
|
1,625.13
|
3,240.54
|
2,211.69
|
235.82
|
1975
|
62.42
|
2,897.93
|
2,960.35
|
2,066.01
|
230.17
|
1976
|
Nil
|
5,658.61
|
5,658.61
|
5,198.37
|
429.41
|
A
schedule
of
“Net
Worth
Discrepancy”
provided
with
the
reassessments
reads:
Dona
and
Barbara
Legros
Revised
Schedule
of
Net
Worth
Discrepancy
For
the
Taxation
Years
1973-1976
|
Dec.
31/73
|
Dec.
31/74
|
Dec.
31/75
|
Dec.
31/76
|
Increase
in
Net
Worth
|
$21,955.60
|
$21,955.60
|
$21,955.80
|
$21,955.80
|
Add:
|
|
Personal
Expenditures
|
|
(Per
Schedule)
|
11,815.88
|
14,356.69
|
15,328.64
|
16,696.97
|
Apparent
Income
|
$33,771.68
|
$36,312.49
|
$37,284.44
|
$38,652.77
|
Deduct:
|
|
Reported
Not
Income
|
(18,150.25)
|
(20,417.55)
|
(26,047.32)
|
(29,785.35)
|
R.R.S.P.
Contributions
|
(
2,629.00)
|
(
4,030.00)
|
(
4,088.00)
|
(
1,581.00)
|
Board
Money
|
(
2,280.00)
|
(
2,200.00)
|
(
2,340.00)
|
(
2,880.00)
|
Income
Tax
Refunds
|
(
1,129.11)
|
(
1,824.36)
|
(
1,732.85)
|
(
|
966.37)
|
Total
Discrepancy
|
$
9,583.32
|
$
7,840.58
|
$
3,076.27
|
$
3,440.05
|
Deduct:
|
|
Unreported
Interest
Income
|
(
|
949.88)
|
(
1,625.13)
|
(
2,897.93)
|
(
5,658.61)
|
Sale
of
Excess
Furniture
|
|
(6/73-12/74)
|
(
|
800.00)
|
(
1,600.00)
|
|
Unexplained
Discrepancy
|
$
7,833.44
|
$
4,615.45
|
$
|
178.34
|
$
|
|
Nil
|
To
be
allocated
as
follows:
|
|
Mrs
Legros
|
|
Unreported
Interest
Income
|
$
|
949.83
|
$
1,625.13
|
$
2,897.93
|
$
5,658.61
|
Unexplained
Portion
of
|
|
Discrepancy
|
|
2,741.70
|
1,615.41
|
|
62.42
|
$
|
|
Nil
|
Total
|
$
3,691.58
|
$
3,240.54
|
$
2,960.35
|
$
5,658.61
|
Mr
Legros:
|
|
Unexplained
Portion
of
|
|
Discrepancy
|
$
5,091.74
|
$
3,000.04
|
$
|
115.92
|
$
|
Nil
|
*Unexplained
portion
of
discrepancy
allocated
on
an
availability
of
funds
basis.
W
K
Furtney
July
9,
1979.
WKF:dc
At
the
commencement
of
the
hearing
counsel
for
the
appellants
agreed
that
the
amounts
indicated
on
the
above
schedule
for
“Personal
Expenditures”
and
for
“Unreported
Interest
Income”
should
be
accepted.
Contentions
For
both
appellants:
—
The
calculation
of
the
net
worth
discrepancy
has
been
based
on
faulty
calculation
by
the
Minister
of
National
Revenue.
For
Barbara
Legros
only:
—
There
should
not
be
any
penalty
.
.
.
upon
the
following
grounds:
(a)
the
taxpayer
contacted
the
Minister
with
respect
to
the
aforesaid
interest
income,
at
which
time
it
was
indicated
to
the
taxpayer
not
to
include
this
interest
income;
(b)
under
the
circumstances,
the
omission
of
the
said
interest
income
does
not
amount
to
gross
negligence
in
the
circumstances
and
does
not
support
an
application
of
penalty
as
authorized
by
subsection
163(2)
of
the
Income
Tax
Act
and
section
17
of
The
Income
Tax
Act
(Ontario);
(c)
The
taxpayer
relies
on
subsection
163(3)
of
the
Income
Tax
Act
and
puts
the
Minister
to
the
task
of
discharging
the
burden
of
establishing
the
facts
justifying
the
assessment
of
the
aforesaid
penalty.
For
the
respondent:
—
The
appellants
failed
to
report
income,
whether
“other
income”
or
“interest
income”
as
assessed.
—
Penalties
as
imposed
are
warranted.
Evidence
Mr
Keith
Furtney,
an
officer
of
Revenue
Canada,
reviewed
the
history
of
the
audit
of
the
appellants’
affairs
and
of
the
reassessments
at
issue.
With
regard
to
the
penalties,
Mr
Furtney
pointed
out
that
(a)
since
some
mortgage
interest
income
had
been
reported
in
the
year
1976
by
Barbara
Legros,
and
(b)
since
the
period
involved
was
a
total
of
4
years,
it
was
decided
by
Revenue
Canada
that
the
penalties
were
warranted.
No
reasons
were
provided
for
imposing
penalties
(which
only
show
up
in
the
Barbara
Legros
assessments)
with
regard
to
the
“net
worth
discrepancy”
portion
of
the
added
income.
The
appellants
testified
that
on
two
separate
occasions
they
had
telephoned
Revenue
Canada
and
been
assured
that
amounts
received
from
mortgages
need
not
be
reported
if
the
money
was
being
reinvested.
They
did
not
provide
names
of
the
officials
of
Revenue
Canada
who
gave
such
advice;
neither
was
it
clear
from
their
testimony
that
the
question
asked
by
the
appellants
had
distinguished
between
interest
and
principal
payments
received
from
mortgages.
The
apparent
total
“net
worth
discrepancy”
for
both
appellants
arose
as
a
result
of
a
$100,000
payment
to
them
in
1976
by
a
Mr
Robert
Page,
representing
amounts
apparently
loaned
by
Barbara
Legros
to
Mr
Page
over
a
long
period
of
time,
according
to
counsel
for
the
appellants.
No
information
regarding
the
“loans”,
the
“repayments”
or
anything
else
about
this
part
of
the
appeals
was
provided
to
the
Board,
but
it
was
agreed
by
counsel
that
indeed
there
had
been
some
payment
from
Page
in
1976.
Counsel
for
the
appellants
submitted
some
calculations
which
he
contended
showed
that
a
proper
distribution
of
the
apparent
“net
worth
discrepancy”
over
the
four
years
involved
(as
opposed
to
the
Minister’s
allocations),
plus
acceptance
of
the
fact
that
there
had
been
an
overpayment
from
Page,
effectively
eliminated
all
the
amounts
as
income
to
the
appellants.
The
Minister
did
not
accept
the
assertion
that
Mr
Page
had
overpaid
Mrs
Legros,
nor
did
the
Minister
attach
any
importance
to
the
revised
allocation
statistics
presented
by
counsel
for
the
appellants.
Argument
Little
in
the
way
of
direct
or
specific
argument
was
given
by
counsel,
other
than
a
repetition
by
them
of
the
contentions
noted
earlier.
Findings
The
case
made
by
the
Minister
regarding
the
penalty
imposition
is
only
a
very
modest
reflection
of
the
responsibility
imposed
under
subsection
163(3)
of
the
Act.
Merely
informing
the
Board
that
the
Minister
was
of
the
opinion
that
the
omission
of
the
amounts
in
question
was
a
matter
of
gross
negligence,
without
proper
identification
and
definition,
his
hardly
satisfactory
in
a
matter
of
this
kind.
While
the
circumstances
and
views
noted
in
Isadore
Waxstein
v
MNR,
[1980]
CTC
2398;
80
DTC
1348,
may
not
be
totally
applicable
in
the
instant
appeals,
the
Minister’s
efforts
in
this
matter
must
be
judged
against
the
standards
of
“justification”
exhibited
in
the
array
of
pre-
vious
cases
dealing
with
subsections
163(2)
and
(3)
of
the
Act.
It
is
clear
from
the
evidence
that
Barbara
Legros
was
aware
that
she
had
received
“interest
income”,
and
that
she
“knowingly”
left
it
out
of
her
tax
returns.
Such
omission
was
not
the
result
of
simple
negligence
or
carelessness,
and
the
telephone
calls
allegedly
made
to
Revenue
Canada
do
not
alter
that
fact.
In
Jet
Metal
Products
Limited
v
MNR,
[1979]
CTC
2738;
79
DTC
624,
at
2756
and
637
respectively,
the
Board
outlined
the
following
general
scale
of
offences
in
order
of
their
relative
seriousness.
(a)
Misrepresentation
Carelessness
152(4)
Negligence
152(4)
Gross
negligence
163(2)
Wilful
Default
152(2)
Knowingly
163(2)
(b)
Fraud
.....................:
152(4)
It
is
the
conclusion
of
the
Board
that
the
penalties
imposed
were
warranted
with
regard
to
the
interest
omitted
from
the
reported
income
of
Barbara
Legros.
The
Board
has
no
information
or
data
upon
which
to
quantify
this
part
of
the
total
penalty
portion
of
the
assessments,
and
that
aspect
of
it
is
left
to
the
Minister
in
reassessing
the
appellant’s
income.
With
regard
to
the
portion
of
the
penalties
assessed
against
Barbara
Legros
which
related
to
the
“net
worth
discrepancy”
income,
the
Minister
has
not
discharged
the
burden
of
“establishing
.
.
.
the
facts
justifying
the
assessment
of
the
penalty”.
It
is
even
more
puzzling
to
note
that
for
exactly
the
same
income
source
(whatever
it
was),
penalties
were
assessed
against
Barbara
Legros
but
not
against
Dona
Legros.
The
part
of
the
penalty
assessed
against
Barbara
Legros
which
is
related
to
the
“net
worth
discrepancy”
income
added
is
to
be
reversed
in
the
reassessments.
Turning
to
that
particular
item
in
dispute
—
the
“net
worth
discrepancy”
itself,
the
appellants
in
their
minimal
evidence
have
failed
to
provide
any
rationale
which
would
either
eliminate,
or
account
for
the
alleged
amounts,
as
anything
other
than
taxable
income
as
assessed.
To
this
extent,
the
appellants
have
failed
to
discharge
the
obligation
upon
them
in
the
appeals
to
overturn
the
basis
of
the
Minister’s
assessments
for
tax,
even
though
the
basis
upon
which
the
Minister
did
assess
is
less
than
completely
clear
to
the
Board.
Counsel
for
the
appellants
attempted
to
discharge
the
onus
by
simply
restating,
reshaping
or
restructuring
the
known
facts
and
certain
assumptions
around
a
different
hypothesis
than
that
used
by
the
Minister.
That
is
not
an
adequate
process
for
the
conduct
of
an
income
tax
appeal.
Decision
The
appeals
of
Barbara
M
Legros
for
the
1973
to
1976
taxation
years
inclusive
are
allowed
in
part
and
the
matter
referred
back
to
the
Minister
for
reconsideration
and
reassessment
in
order
that
any
portion
of
the
penalties
imposed
which
relate
to
the
“net
worth
discrepancy”
income
shall
be
reversed.
In
all
other
respects
her
appeals
are
dismissed.
The
appeals
of
Dona
Legros
for
the
1973
to
1975
taxation
years
inclusive
are
dismissed.
Appeal
of
B
M
Legros
allowed
in
part.
Appeal
of
D
Legros
dismissed.