Chevalier D.J.A.:
This appeal is from a judgment rendered in the Tax Court of Canada by Madame Justice Lamarre-Proulx, in which, amongst other conclusions, she found:
a) that the Minister had satisfied the burden of proving, by a preponderance of evidence, that he was entitled, under subparagraph 152(4)
(a) (1), to reassess the Appellant beyond the normal reassessment period, on account of the fact that, in filing his tax returns for the taxation years 1986, 1987 and 1988, he has made an erroneous representation which was attributable to neglect, carelessness or wilful default;
b) that the gains realized by the Appellant from the acquisition and sale of 100,000 shares during the years in question were on income account and not on capital account, as had been claimed by the Appellant, and that he ought to be taxed accordingly.
The evidence establishes that, during the years above mentioned, the Appellant was a stock transfer account officer of National Trust. In that capacity, he was administering an account for a company, Punters Graphics Inc. (“Punters”), which was dealing with a venture capitalist named Robert Freeland. In June 1986 the Appellant received from Mr. Freeland 100,000 shares, for which no consideration was given and no payment was even claimed.
His tax returns were filed by an accountant to whom he told that he had paid 10 cents a share while he never mentioned that he was an employee of the transfer agent, National Trust, which was dealing with Punters.
Following an investigation, the Minister concluded that the Appellant had acquired the shares in return for services rendered and that, by his statement concerning the price paid as well as by the non disclosure of his business connection with National Trust and Punters, he had caused his accountant to make, in his tax returns, representations which were erroneous.
The Appellant claims that the first finding of the Tax Court judge is based on a misinterpretation of subparagraph 152(4) (a) (i) and is not substantiated by evidence sufficient to satisfy the burden imposed upon the Minister in that regard. As to the second conclusion, he argues that the conditions under which he could be characterized as a trader cannot be found in his behaviour, in the circumstances revealed by the evidence.
We find that this appeal cannot succeed. In the present case, the legal principle which is applicable is that, if the Minister wants to reassess a taxpayer beyond the normal assessment period, he bears the burden of satisfying the requirements of subparagraph 152(4) (a) (i). Once this is done, he may proceed to reassess and the burden is then on the taxpayer to disprove the assumptions made for the purpose of the reassessment.
As to the first conclusion, we are satisfied that the trial judge asked herself the right question, that is: was the care exercised by the Appellant, in filing his tax returns, that of a wise and prudent person? To answer it, she made a satisfactory review of the evidence and, as a result, she found that by omitting to inform his accountant of the factual circumstances of the acquisition of the shares and by failing to disclose to him that no payment was made for them, he did not exercise the care of a prudent person. In her opinion, such conduct amounted to neglect, carelessness or wilful default, in the sense that must be given to those words in the statute referred to.
We cannot find any error in the appreciation of the facts on which she has based her conclusion, nor in the rational application that she made of subparagraph 152(4) (a) (1).
With respect to the second conclusion, after an analysis of the facts revealed by the evidence, the trial judge found that “the value given by Mr. Freeland to the Appellant was given for some purpose and this purpose had something to do with the sale of shares at a good price”. Moreover, she was satisfied that the Appellant was “actively engaged in the enhancement and resale of all Punters shares” which was, in her opinion, “clearly indicative of a trader’s activity” and not that of a person “waiting passively for his shares to increase in value”.
In the absence of any reasonable explanation by the Appellant as to why he received shares of such a value, the Tax Court judge was entitled to conclude that the assumptions made by the Minister had not been disproved.
For these reasons, the appeal will be dismissed with costs.
Appeal dismissed.
Email this Content