Roland
St-Onge:—
The
appeals
of
Beverley
and
Eugene
Henderson
came
before
me
on
October
16
and
17,
1980,
at
the
City
of
Toronto,
Ontario
and
were
heard
on
common
evidence.
The
issue
is
whether
the
appellants
failed
to
report
income
on
their
1974,
1975
and
1976
taxation
years.
As
usual,
the
Minister
resorted
to
the
net
worth
assessment
method
and
imposed
penalties
pursuant
to
subsection
163(2)
of
the
Income
Tax
Act.
The
facts
of
these
appeals
are
well
set
forth
in
the
reply
to
notice
of
appeal
at
paragraph
4
which
reads
as
follows:
4.
In
assessing
taxes
as
aforesaid,
the
respondent
relied
upon
the
following
findings
or
assumptions
of
fact:
(a)
the
appellant,
at
all
material
times
was
a
half-partner
in
a
tourist
resort,
Turtle
Creek
Lodge,
with
her
husband,
Eugene
Henderson;
(b)
the
appellant’s
net
worth
with
respect
to
the
1974,
1975
and
1976
taxation
years
as
reflected
in
her
assets
and
liabilities
is
set
out
in
the
attached
Schedule
I—“Statement
of
Increase
in
Net
Worth”;
(c)
the
appellant
earned
during
the
1974,1975
and
1976
taxation
years
but
failed
to
report
the
amounts
as
set
out
in
the
attached
Schedule
II
“Calculation
of
the
Discrepancy
per
Net
Worth”;
(d)
the
appellant
maintained
totally
inadequate
books
and
records;
(e)
the
appellant
knowingly,
or
under
circumstances
amounting
to
gross
negligence
made
or
participated
in,
assented
to
or
acquiesced
in
the
making
of
statements
or
omissions
in
her
1974,
1975
and
1976
income
tax
returns,
as
a
result
of
which
the
tax
that
would
have
been
payable
by
her
for
her
1974,
1975
and
1976
taxation
years,
if
the
tax
had
been
assessed
on
the
basis
of
the
information
provided
by
her
in
her
income
tax
return
was
less
than
the
tax
payable
by
her
for
the
said
taxation
years
by
the
amounts
of
$254.44,
$1,926.01
and
$1,379.88.
The
respondent
has
failed
to
prove
the
allegations
in
his
subparagraphs
4(c),
(d)
and
(e).
Also,
the
Board
was
not
impressed
by
the
way
the
field
auditor
made
his
field
work
in
the
present
case.
On
the
other
hand,
the
Board
was
satisfied
with
the
explanations
of
Mr
Skinner,
CA,
the
appellants’
accountant
and
his
four
major
points
that
he
explained,
namely:
(1)
cash
existing
at
the
opening
period;
(2)
the
exact
nature
of
the
amount
of
$9,930;
(3)
the
personal
and
living
expenses;
(4)
the
land
transaction
as
being
capital
gain.
The
respondent
did
not
introduce
any
evidence
to
prove
that
there
was
serious
omission
in
the
appellants’
income
tax
returns.
As
a
matter
of
fact,
the
appellants
reported
their
taxable
income
and
declared
all
their
real
estate
transactions.
Apparently,
there
was
sufficient
information
given
to
the
assessor
in
order
to
allow
him
to
reconstitute
the
appellants’
income
for
the
tourist
lodge
business.
Furthermore,
the
amounts
added
by
the
respondent
to
each
appellant,
namely:
(1)
in
1974,
$5,593;
(2)
in
1975,
$19,901;
(3)
in
1976,
$8,250;
all
are
explained
by:
(1)
the
existence
of
cash
money
at
the
beginning
of
the
period,
namely
the
sale
of
the
residence
for
$35,000,
and
the
savings
that
both
appellants
had
made
on
a
certain
period
of
time;
(2)
by
the
real
estate
transactions
that
could
be
considered
as
producing
capital
gain;
(3)
the
nature
of
the
amount
of
$9,930
as
being
money
belonging
to
a
third
party;
(4)
the
overstated
personal
and
living
expenses
of
$4,000;
(5)
the
increase
in
the
appellants’
assets
by
the
physical
work
provided
by
Mr
Henderson
when
he
built
his
five
cottages;
this
tremendous
value
of
work
is
not
taxable.
As
to
the
penalties
imposed
for
the
1974,
1975
and
1976
taxation
years,
there
is
not
a
tittle
of
evidence
to
justify
such
penalties.
The
fact
that
there
was
no
disbursement
or
an
income
journal
is
not
sufficient
to
penalize
the
appellants
the
way
it
was
done.
Mr
Skinner
testified
that
the
records
were
not
inadequate.
Furthermore,
the
size
of
the
tourist
lodge
business
was
not
sufficient
to
justify
an
income
of
$50,000
for
both
appellants
as
appraised
by
the
respondent
for
their
1975
taxation
year.
If
there
was
anything
to
be
done
against
the
appellants,
it
was
for
the
Minister
to
reassess
them
with
respect
to
their
real
estate
transactions
to
determine
whether
these
transactions
produced
income
or
capital.
Looking
at
the
evidence
as
a
whole,
I
have
to
believe
the
two
appellants.
Consequently,
the
appeals
are
allowed
and
the
assessments
are
vacated.
Appeals
allowed.
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