Delmer
E
Taylor:—This
is
an
appeal
against
an
income
tax
assessment
in
which
the
Minister
of
National
Revenue
increased
the
taxable
income
of
the
appellant
by
an
amount
of
$34,144.12
for
the
year
1972,
alleged
to
be
unreported
income,
and
further
imposed
penalties
in
addition
to
the
income
tax
liability
calculated.
The
respondent
relied,
inter
alia,
upon
section
3
and
subsections
9(1)
and
163(2)
of
the
Income
Tax
Act,
SC
1970-71-72,
chapter
63
and
on
section
17
of
the
Income
Tax
Act
of
Ontario.
Facts
At
the
start
of
the
year
in
question
the
appellant
had
been
employed
for
only
a
short
period
of
time,
earning
$596.62.
He
also
received
$1,631.40
as
unemployment
insurance
and
had
some
rental
income
from
a
property
at
1212
Dundas
St
W,
Toronto,
Ontario.
His
home
address
was
133
Beaconsfield
Ave,
Toronto,
Ontario
where
he
lived
with
his
wife,
who
was
gainfully
and
separately
employed
during
1972.
Although
the
date
is
not
precisely
fixed,
some
time
during
the
summer
of
1972
he
started
to
buy
grapes
on
a
wholesale
basis,
and
sell
them
retail
from
the
Dundas
St
West
address.
The
issue
in
this
appeal
arose
from
the
alleged
profit
derived
from
this
operation
while
he
was
using
part
of
this
Dundas
Street
property
as
both
a
store
and
a
storage
area.
Contentions
The
appellant’s
notice
of
appeal
stated:
The
fact
is,
for
period
from
August
9th
to
December
31st
1972
there
was
some
cheques
were
not
included
by
the
Inspector
and
everybody
can
understand
that
a
profit
for
$34,144.12
in
five
months
is
not
possible
for
anyone.
The
position
of
the
respondent
in
the
reply
to
notice
of
appeal
was:
—in
filing
his
return
of
income
for
the
1972
taxation
year,
the
appellant
reported
income
in
the
amount
of
$2,226.12;
—from
August
9th,
1972,
until
October
28th,
1972,
the
appellant
in
partnership
with
one
Jose
M
Santos
operated
a
business
known
as
Lakeview
Fruit
Market;
—the
partnership
income
for
that
period
was
$22,172.99
and
in
filing
his
return
of
income
for
the
1972
taxation
year
the
appellant
failed
to
report
his
share
thereof
in
the
amount
of
$11,086.49;
—after
October
28th,
1972,
the
appellant
operated
the
Lakeview
Fruit
Market
as
a
sole
proprietorship;
—in
filing
his
return
of
income
for
the
1972
taxation
year,
the
appellant
failed
to
report
income
earned
from
the
proprietorship
from
October
29th,
1972,
to
December
31st,
1972,
in
the
amount
of
$23,057.63;
—in
filing
his
return
of
income
for
the
year,
the
appellant
has
knowingly
or
under
circumstances
amounting
to
gross
negligence,
made
or
has
participated
in,
assented
to
or
acquiesced
in
the
making
of,
an
omission
in
a
return,
as
a
result
of
which
the
tax
that
would
have
been
payable
by
him
for
the
taxation
year,
if
the
tax
had
been
assessed
on
the
basis
of
the
information
provided
in
the
return,
is
less
than
the
tax
payable
by
him
for
the
year.
Evidence
Mr
Gaspar
generally
corroborated
the
outline
of
his
business
activities
given
by
the
respondent
noted
above,
but
described
an
unsatisfactory
relationship
with
Mr
Santos,
leading
to
a
break-up
of
the
“partnership”
about
October
28,
1972,
and
attempts
at
settling
and
collecting
amounts
outstanding
from
Santos
through
accountants
and
lawyers.
Serially
numbered
duplicate
sales
books
(Exhibit
A-1)
which
seemed
to
cover
to
some
degree
the
period
of
the
“partnership”
were
submitted.
While
the
books
themselves
had
numbers
on
them,
the
highest
being
No
17,
no
books
were
presented
with
numbers
5,
6,
or
15.
The
available
books
were
used
to
record
the
sales
of
grapes
made
by
Santos
and
Gaspar.
The
appellant
indicated
two
sources
of
grapes—from
the
wholesale
dealers
in
the.
Toronto
area,
mainly
for
California
grapes
which
came
in
cases
of
36
lbs
each;
and
directly
from
the
farmers
in
the
Niagara
region
for
Canadian
grapes
which
came
in
bushels
of
52
lbs
each.
His
evidence
was
that
he
made
a
great
part
of
his
purchases
of
Canadian
grapes
by
cash.
His
evidence
also
was
that
he
took
all
the
money
received
from
his
sales
for
deposit
in
the
bank
and
that
when
he
needed
money
for
cash
purposes,
he
went
to
the
bank
and
withdrew
it.
In
addition
he
alluded
to
substantial
amounts
of
loans
which
were
made
to
him
(and
repaid
by
him)
in
cash
from
friends,
at
times
when
he
needed
money
to
buy
grapes.
The
appellant
did
not
read
or
write
either
English
or
his
native
language
Portuguese,
and
it
is
observed
by
the
Board
at
this
point
that
although
he
arrived
in
Canada
about
20
years
ago,
his
understanding
of
English
and
his
ability
to
express
himself
in
it
was
still
very
limited.
I
cannot
presume
it
was
better
in
the
year
under
appeal
or
in
the
immediately
subsequent
years
during
which
the
respondent’s
examination
was
being
conducted.
The
general
season
covered
by
his
grape
operation
was
that
which
coincided
with
the
private
wine-making
by
his
customers.
The
appellant
had
one
old
truck
which
he
used
to
pick
up
grapes,
store
them
for
a
few
days
when
necessary,
and
then
deliver
them.
His
partner
Santos
had
also
purchased
both
wine
bottles
and
wine
barrels
which
he
had
available
as
a
convenience
and
for
sale
through
the
business
to
customers.
Submitted
as
Exhibit
A-2
was
a
financial
statement
prepared
according
to
the
evidence
by
a
Mr
Pimentai
upon
the
appellant’s
instructions,
for
the
purpose
of
determining
the
liability
of
Santos
to
him
(the
appellant)
at
the
date
of
the
break-up
of
the
partnership.
Evidence
was
also
given
that
the
appellant
commenced
preliminary
legal
action
against
Santos
in
early
1973.
A
separate
statement
(Exhibit
A-3),
showing
dealings
in
barrels,
was
also
submitted.
Due
to
dissatisfaction
with
Mr
Pimentai,
the
appellant
engaged
a
new
accountant,
a
Mr
H
de
Figueiredo,
who
prepared
his
1973
income
tax
return
during
which
period
he
engaged
more
generally
in
the
fruit
business
rather
than
almost
exclusively
dealing
in
grapes.
Mr
Gaspar
Stated
that
on
California
grapes
he
attempted
to
receive
20
to
25
cents
more
per
case
at
retail
than
he
paid
it
at
wholesale.
Each
case
of
such
grapes
cost
him,
depending
on
the
fluctuations
of
the
market,
apparently
from
$5
to
$7.
On
Canadian
grapes,
which
cost
about
$5
to
$7
a
bushel,
he
tried
to
obtain
a
gross
profit
of
50¢
to
750
per
bushel.
Under
cross-examination
by
counsel
for
the
respondent,
it
was
clear
that
the
appellant
had
not
engaged
in
the
business
of
winemaking
and
selling
at
all,
restricting
the
making
of
wine
to
his
own
use.
The
barrels
and
bottles
to
which
reference
has
earlier
been
made
were
for
sale
in
conjunction
with
his
main
business
of
selling
grapes.
When
a
Mr
Charny,
an
assessor
from
Revenue
Canada
(a
later
witness)
visited
him
in
May
or
June
1974,
the
appellant
did
turn
over
to
him
the
few
records
he
had
and
referred
him
to
Mr
Figueiredo.
About
the
time
of
the
break-up
of
the
partnership
with
Santos,
Gaspar
had
received
from
Santos
two
cheques,
one
for
$3,000,
the
other
for
$1,000,
as
some
form
of
settlement
of
their
outstanding
affairs,
but
the
cheques
had
not
been
honoured
by
Santos’
bank.
A
series
of
7
duplicate
receipts
numbered
6,
5,
4,
3,
2,
1,
and
6
again,
were
submitted
by
counsel
for
the
respondent
through
the
appellant,
all
except
no
6
for
$56,
having
been
signed
by
Gaspar.
These
totalled
$10,056.70,
were
indexed
as
Exhibit
R-1,
and
will
be
dealt
with
later
in
this
decision.
Photostatic
copies
of
five
cheques
totalling
$13,800
from
Santos
to
Gaspar,
issued
and
apparently
honoured
during
the
period
October
4,
1972
to
October
23,
1972,
were
submitted
by
counsel
for
the
respondent
as
exhibit
R-2.
It
was
further
pointed
out
that
Mr
Figueiredo
has
now
been
replaced
as
the
accountant
for
the
appellant
by
a
Mr
Niles
who
«will
also
later
give
evidence.
Mr
Merchino,
President
of
Merchino
Banana
Co,
one
of
the
appellant’s
major
suppliers
in
1972,
and
so
continuing
until
the
present,
stated
that
he
was
both
a
wholesaler
and
a
retailer
of
California
grapes,
but
that
he
did
not
deal
in
Canadian
grapes.
He
sold
to
the
appellant
during
1972
at
his
usual
wholesale
price—200
to
25¢
per
crate
less
than
his
own
usual
retail
price—and
from
that
transaction
forward,
a
retailer
such
as
Mr
Gaspar
would
be
effectively
in
competition
with
him
(Merchino)
in
the
retail
trade.
Their
prices
could
not
differ
materially,
and
it
had
been
Merchino’s
experience
over
many
years
that
on
California
grapes
the
gross
profit
margin
would
be
about
4
or
5%—rarely
more.
When
responding
to
a
question
by
the
presiding
member,
Mr
Merchino
stated
that
he
was
personally
familiar
with
the
appellant’s
place
of
business
and
that
it
would
have
been
impossible
for
Gaspar
to
have
stored
1114
cases
or
bushels
of
grapes
on
his
property
as
indicated
for
inventory
at
October
28,
1972
(Exhibit
A-2).
This
would
require
more
like
the
storage
space
available
in
a
railway
car,
the
usual
manner
in
which
Mr
Merchino
received
the
grapes
at
his
own
place
of
business.
He
confirmed
that
the
appellant
could
not
read
or
write,
since
Merchino’s
own
staff
would
make
out
the
cheques
payable
for
grapes
purchased
by
the
appellant.
The
major
grape
harvesting
and
marketing
period
was
normally
over
by
early
November,
and
it
would
have
been
the
practice
of
Mr
Merchino
to
have
little
or
no
inventory
by
the
end
of
October
of
each
year.
Mr
Douglas
Niles,
chartered
accountant,
entered
as
Exhibits
A-4
and
A-5
financial
statements
to
which
he
applied
the
term
“reconstructed”
from
the
records
and
available
information,
in
response
to
the
examination
conducted
by
Revenue
Canada
regarding
the
affairs
of
the
appellant.
These
dealt
with
the
same
two
periods,
referred
to
as
the
“partnership”
and
the
“proprietorship”
periods—up
to
and
subsequent
to
October
28,
1972
respectively.
Net
loss
attributable
to,
the
appellant
(50%
of
the
total)
for
the
partnership
period
was
$1,065.09,
and
for
the
proprietorship
period
$6,012.07,
reduced
by
$2,640
for
rental
income.
The
balance
sheets
which
took
into
account
the
rental
real
estate
and
fixed
asset
holdings
of
the
appellant
showed
a
net
equity
position
of
$5,496.35
at
October
28,
1972
which
had
been
reduced
to
$1,991.28
by
December
31,
1972.
Mr
Niles
in
the
preparation
of
these
statements
had
accounted
for
only
those
expenses
which
could
be
supported,
usually
by
receipts
and
vouchers,
and
for
which
evidence
of
payment
had
gone
through
the
bank.
He
had
seen
no
evidence
of
substantial
cash
purchases
by
the
appellant
but
had
been
assured
that
all
sales
receipts
had
been
deposited
in
the
bank,
and
that
the
appellant
was
not
aware
of
accounting
records
other
than
the
duplicate
sales
slips
(Exhibit
A-1).
Similar
duplicate
sales
slips
had
not
been
made
available
to
him
for
the
period
subsequent
to
October
28,
1972.
Mr
Niles
had
seen
no
indication
that
the
appellant
dealt
in
anything
but
grapes
during
1972,
except
on
the
most
limited
scale,
which
included
the
barrels
and
bottles
for
which
an
income
statement
was
available.
The
bank
records
did
not
show
that
it
had
been
the
general
practice
of
the
appellant
to
withdraw
from
the
bank
large
amounts
of
cash,
purportedly
for
the
purchase
of
grapes.
No
allowance
had
been
provided
by
Mr
Niles
in
the
preparation
of
the
financial
information
for
any
expenses
of
the
appellant
(including
such
grape
purchases)
if
these
had
been
made
in
cash.
In
other
words,
this
witness
assumed
that
if
there
had
been
any
sales
income
not
deposited
in
the
bank,
corresponding
cash
had
been
expended
largely
for
expenses.
The
income
of
the
appellant’s
wife
and
son
had
been
the
main
source
of
household
support
requirements,
and
the
witness’
own
personal
observations
of
the
lifestyle
of
the
appellant
were
consistent
with
what
might
be
expected
from
someone
with
only
very
limited
financial
resources
or
current
income.
There
had
been
no
indication
in
his
“net
worth’’
examination
of
the
appellant’s
affairs
to
support
a
conclusion
that
the
income
of
Mr
Gaspar
during
1972
(determined
by
Revenue
Canada
to
be
about
$35,000)
was
reflected
in
any
way
in
assets
accumulated
by
him.
This
witness
identified
as
documentary
evidence,
bank
statements
for
the
period
June
1972
through
December
1972
(Exhibit
A-6),
cancelled
cheques
covering
some
of
the
same
period
(Exhibit
A-7)
and
bank
debit
notes
dealing
with
dishonoured
cheques
deposited
by
the
appellant,
including
those
two
referred
to
earlier
for
$3,000
and
$1,000
from
Santos
(Exhibit
A-8).
During
cross-
examination,
Mr
Niles
stated
that
he
was
not
aware
there
had
been
any
“sales
journal”
or
“purchase
journal”
reflecting
the
appellant’s
affairs
for
the
year
in
question.
Mr
Harry
Charny,
field
auditor
for
Revenue
Canada,
was
called
by
counsel
for
the
respondent.
The
following
were
introduced
either
with
consent
of
counsel,
or
by
identification
of
the
witness:
Exhibit
R-3—Writ
of
Summons
between
Antonio
Gaspar
and
Jose
Santos
dated
October
30,
1973.
Exhibit
R-4—Analysis
of
cash
receipts—September
18,
1972
to
October
28,
1972.
Exhibit
R-5—Additional
expenses
allowed—to
October
28,
1972.
Exhibit.
R-6—Income
earned
October
29,
1972
to
December
31,
1972.
Exhibit
R-7—Additional
expenses
allowed
to
December
31,
1972.
Exhibit
R-8—Summary
of
unreported
income
from
1972
operations.
The
evidence
of
Mr
Charny
was
that,
as
a
result
of
an
audit
on
another
taxpayer,
certain
matters
had
come
to
light
which
involved
Mr
Gaspar.
He
(Charny)
had
visited
the
appellant
in
1974,
as
indicated
by
Mr
Gaspar,
but
had
been
informed
by
him
that
he
(Gaspar)
had
not
been
in
business
in
1972.
Having
been
referred
to
Mr
Figueiredo,
he
had
received
the
documents
introduced
as
Exhibits
A-2
and
A-3,
apparently
prepared
by
Mr
Pimentai.
He
spoke
to
Mr
Pimentai
on
the
telephone,
and
during
subsequent
visits
to
the
office
of
Mr
Figueiredo
was
provided
with
both
a
sales
journal
and
a
purchase
journal.
His
examination
of
the
duplicate
sales
slips
(Exhibit
A-1)
confirmed
that
the
sales
journal
reflected
appropriately
these
transactions.
There
were
differences,
but
in
general
the
sales
slips
supported
the
sales
journal,
which
in
turn
had
a
global
relationship
to
the
bank
deposits
during
the
period,
although
individual
deposits
could
not
be
correlated.
He
had
not
done
a
net-worth
assessment
on
the
appellant,
and
had
prepared
exhibits
R-8
and
R-6
to
reflect
as
well
as
he
could
from
documentation
provided
to
him
the
financial
results
of
the
two
periods.
Some
12%
(about
100)
of
the
amounts
entered
in
the
sales
journal
were
not
supported
by
duplicate
sales
slips.
This
would
have
amounted
to
about
$10,000
or
$11,000,
an
amount
the
witness
agreed
was
surprisingly
close
to
the
total
of
duplicate
sales
slips
for
which
amounts
had
not
been
entered
in
the
sales
journal
(Exhibit
R-1).
He
had
been
aware
from
conversations
with
the
appellant’s
lawyers
that
certain
legal
action
had
been
going
on
between
Gaspar
and
Santos.
Argument
Essentially,
the
assertion
of
counsel
for
the
appellant
was
that
the
taxpayer’s
evidence,
supported
by
that
of
Mr
Merchino
and
Mr
Niles,
should
be
accepted
since
the
gross
profit
percentages
indicated
by
the
Minister’s
calculations
of
income
(about
23.8%
for
the
first
period
and
67.57%
for
the
second
period)
were
totally
unrealistic
when
considered
against
the
average
in
the
industry
of
4
to
5%.
The
“net
worth”
approach
of
Mr
Niles
to
the
preparation
of
the
financial
statements
was
logical
and
sound,
in
addition
to
being
an
accepted
method
under
such
circumstances.
The
appellant’s
recollection
of
events
must
take
into
account
his
difficulty
with
the
language
and
the
concept
he
had
of
being
in
business—really
to
him
this
meant
making
a
profit—
and
according
to
the
evidence
he
had
not
made
a
profit.
While
counsel
recognized
the
difficulties
encountered
by
Mr
Charny
in
trying
to
calculate
income
for
the
period
involved,
the
schedules
he
had
submitted
in
support
of
his
assessment
did
not
reflect
properly
the
happenings
in
the
year
1972.
Counsel
for
the
respondent,
in
dealing
first
with
the
question
of
the
penalties
added,
related
the
lack
of
records,
the
denial
of
the
appellant
to
Mr
Charny
that
he
had
been
in
business,
the
appellant’s
concurrent
knowledge
that
there
were
financial
statements
(those
prepared
by
Pimentai)
being
used
for
other
court
proceedings,
the
inadequacy
of
the
appellant’s
later
argument
that
he
had
been
waiting
to
ascertain
exactly
the
income
situation
from
his
lawyers
and
his
accountant,
and
finally
that
when
the
appellant
had
more
complete
information,
he
had
not
filed
amended
income
tax
returns
for
1972.
On
the
substantive
issue
itself
(the
assessment
based
on
income
of
some
$35,000),
counsel
agreed
that
there
was
some
confusion
about
the
figures
involved
and
that
evidence
brought
out
at
the
hearing
had
cast
some
doubt
on
the
total
accuracy
of
the
Minister’s
calculations
as
shown
in
exhibits
R-6
and
R-8.
The
testimony
of
the
appellant
had,
at
best,
been
vague
and
probably
contradictory.
The
Board
should
not
accept
any
assertion
that
the
financial
statements
Exhibits
A-2
and
A-3
were
only
for
purposes
of
court
action
against
Santos,
and
had
no
validity
in
this
matter.
In
summary,
although
the
Board
might
find
that
the
amounts
assessed
as
income
which
are
under
dispute
should
be
moderated,
nevertheless
a
positive
amount
of
income
still
remained
and
on
that,
the
appellant
should
be
taxed
and
also
be
charged
penalty.
Findings
As
a
matter
of
information,
certain
particularly
relevant
exhibits
are
reproduced:
Exhibit
A-2
LAKEVIEW
FRUIT
MARKET
STATEMENT
OF
PROFIT
AND
LOSS
FOR
THE
PERIOD
SEPTEMBER
18,
1972
TO
OCTOBER
28,
1972
(GRAPES
ONLY)
SALES
|
Cases
|
Total
|
Total
|
|
ALICANTE
|
4777
|
|
$37,409.00
|
|
MUSCAT
|
2490
|
|
18,004.75
|
|
CARIGNANE
|
760
|
|
5,489.25
|
|
RIBEIR
(sic)
|
906
|
|
6,293.00
|
|
CANADIANA
|
2446
|
|
15,068.10
|
|
$82,264.10
|
COST
OF
SALES
|
Cases
|
Total
|
|
Purchases—Alicante
|
5188
|
36,625.75
|
|
Less
inventory
|
411
|
2,877.00
|
33,748.75
|
|
Purchases—Muscat
|
2630
|
17,653.50
|
|
Less
inventory
|
140
|
938.00
|
16,715.50
|
|
Purchases—Carignane
|
840
|
5,732.50
|
|
Less
inventory
|
80
|
552.00
|
5,180.50
|
|
Purchases—Rebeir
|
975
|
5,850.00
|
|
Less
inventory
|
69
|
414.00
|
5,436.00
|
|
Purchases—Canadiana
|
2860
|
15,245.10
|
|
Less
inventory
|
414
|
2,194.20
|
13,050.90
|
74,131.65
|
GROSS
PROFIT
|
|
$
8,132.45
|
EXPENSES
NOT
INCLUDING
OCCUPANCY
COSTS
|
|
Supplies
|
|
30.00
|
|
Casual
labour
|
|
168.00
|
|
Office
|
|
30.58
|
|
Truck
rental
|
|
31.19
|
|
Telephone
|
|
40.00
|
299.77
|
NET
INCOME
|
|
$
7,832.68
|
Exhibit
A-3
LAKEVIEW
FRUIT
MARKET
ANALYSIS
OF
BARREL
PURCHASES
AND
SALES
FOR
THE
PERIOD
AUGUST
9,
1972
to
SEPTEMBER
8,
1972
SALES
157
barrels
$1,981.50
Cost
of
sales:
Purchases:
-■
SANTOS
Melchers
Dist
377
at
the
cost
of
$992.04
Freight
589.43
1,581.47
Cdn
Schenley
150
at
the
cost
of
735.00
Freight
376.80
1,111.80
Total—SANTOS
$2,693.27
GASPAR
W
&
A
GILBER
CO
115
at
the
cost
of
525.00
Truck
rental
31.19
556.19
Total—GASPAR
556.19
Totals
642
at
the
cost
of
$3,249.46
Less
Inventory:
485
at
$5.06
each
$2,454.10
795.36
GROSS
PROFIT
$1,186.14
Exhibit
A-4
ANTONIO
GASPAR
OPERATING
AS
LAKEVIEW
FRUIT
MARKET
BALANCE
SHEET
AS
AT
OCTOBER
28,
1972
Assets
Current
Cash
clearing
Account
|
|
$
5,864.79
|
Bank
Account—
-CIBC
#69132
|
.
|
2,343.90
|
Prepaid
Finance
Charges
|
|
206.03
|
Due
from
SANTOS
|
|
532.54
|
|
$
8,947.26
|
Fixed
|
|
|
Accumulated
|
|
|
Cost
|
Depreciation
|
-A.V
|
|
Land
|
$19,552.45
|
—
|
$19,552.45
|
Building
|
40,233.75
|
—
|
40,233.75
|
Truck
(EE)
|
1,510.00
|
—
|
|
1,510.00
|
|
$61,296.20
|
|
$61,296.20
|
OTHER—Deferred
Mortgage
Discount
|
|
800.00
|
|
$71,043.46
|
Liabilities
Current
Bank
loan
|
|
3,000.00
|
|
Bank
Account—B
of
M—#1017-307
|
\
|
188.83
|
|
Note
Payable—Truck
(EE)
|
|
969.30
|
|
Deferred
rental
income
|
|
2,200.00
|
|
|
5,958.13
|
|
Long-Term
|
|
Mortgage
payable—Dundas
Property
(DD)
|
|
39,638.12
|
|
Mortgage
payable—Beaconsfield
Property
(DD1)
|
|
19,950.86
|
|
|
59,588.98
|
|
|
65,547.11
|
|
Proprietor’s
Equity
|
|
Capital—introduced
during
period
(GG)
|
|
6,691.90
|
|
Share
of
net
loss
for
the
period
|
|
(532.55)
|
|
Drawings
for
the
period
|
|
(663.00)
|
|
|
5,496.35
|
|
|
$71,043.46
|
(#1)
|
ANTONIO
GASPAR
|
|
OPERATING
AS
LAKEVIEW
FRUIT
MARKET
|
|
STATEMENT
OF
EARNINGS
FOR
THE
PERIOD
ENDED
|
|
OCTOBER
28,
1972
|
|
Shares
|
$84,404.91
|
|
Cost
of
Shares
|
|
82,040.78
|
|
Gross
Margin
|
$
2,364.13
|
|
|
(2.80%)
|
|
EXPENSES
|
|
Tax
account—Beaconsfield
|
|
180.00
|
|
Mortgage
Interest—Beaconsfield
|
|
659.12
|
|
Mortgage
Interest—Dundas
|
|
1,238.12
|
|
Transport
in
|
|
376.80
|
|
Part-time
help
|
|
630.00
|
|
Repairs
and
maintenance
|
|
299.36
|
|
Finance
interest
|
|
45.82
|
|
|
$3,429.22
|
|
NET
(LOSS)
FOR
THE
PERIOD
|
($1,065.09)
|
|
Allocated
?
|
|
Antonio
Gaspar
t
|
|
($532.55)
|
|
Santos
\
|
|
($532.54)
|
|
|
($1,065.09)
|
|
Exhibit
A-5
ANTONIO
GASPAR
OPERATING
AS
LAKEVIEW
FRUIT
MARKET
BALANCE
SHEET
AS
AT
DECEMBER
31,
1972
Assets
Current
Bank
Account—CIBC
#69132
|
|
426.41
|
|
Prepaid
Finance—Truck
|
|
206.03
|
|
Due
from
SANTOS
|
|
532.54
|
|
|
$
1,164.98
|
|
Fixed
|
|
|
Accumulated
|
|
|
Cost
|
Depreciation
|
|
Land
|
$19,552.45
|
—
|
|
19,552.45
|
|
Building
|
40,233.75
|
—
|
|
40,233.75
|
|
Truck
(EE)
|
1,510.00
|
—
|
|
1,510.00
|
|
|
$61,296.20
|
|
$61,296.20
|
|
|
$62,461.18
|
|
|
Liabilities
|
|
Current
|
|
Bank
Account—B
of
M—#1017-307
|
|
659.91
|
|
Note
Payable—Truck
(EE)
|
|
439.60
|
|
|
1,099.51
|
|
Long-Term
|
|
Mortgage
payable—Dundas
property
(DD)
|
|
39,452.94
|
|
Mortgage
payable—Beaconsfield
property
(DD1)
|
|
19,917.45
|
|
|
59,370.39
|
|
|
60,469.90
|
|
|
Proprietor's
Equity
|
|
CAPITAL
—
Balance—Beginning
of
period
|
|
5,496.35
|
|
—
Net
loss
for
the
period
|
-_
|
(3,372.07)
|
|
—
Drawings
for
the
period
|
|
(133.00)
|
|
|
1,991.28
|
|
|
$62,461.18
|
(#2)
|
|
ANTONIO
GASPAR
|
|
|
OPERATING
AS
LAKEVIEW.
FRUIT
MARKET
|
|
|
STATEMENT
OF
EARNINGS
|
|
FOR
THE
PERIOD
ENDED
DECEMBER
31,
1972
|
|
Shares—Figure
from
cash
clearing
?
|
$14,905.67
|
|
Cost
of
shares
|
|
18,283.17
|
|
Gross
Margin
|
|
($
3,377.50)
|
|
|
(—2.26%)
|
|
EXPENSES
1972
Operations
of
“LAKEVIEW
FRUIT
MARKET”
Exhibit
R-6
Tax
account—Beaconsfield
|
120.00
|
Mortgage
interest—Beaconsfield
|
317.67
|
Mortgage
interest—Dundas
|
614.82
|
Part-time
help
|
101.00
|
Truck
operating
expenses
|
342.00
|
Advertising
|
7.50
|
Bank
Charges
|
331.58
|
Mortgage
Discount
?
|
800.00
|
|
$2,634.57
|
NET
(LOSS)
FROM
OPERATIONS
|
($6,012.07)
|
Rental
Income
|
2,640.00
|
NET
(LOSS)
FOR
THE
PERIOD
|
($3,372.07)
|
Exhibit
R-8
|
|
Santos
|
|
Schedule
|
|
JOSE
M
SANTOS
AND
ANTONIO
GASPAR
|
|
Summary
of
Unreported
Income
from
the
|
|
SALES
PER
SALES
JOURNAL
|
|
$84,973.30
|
—
Grape
sales
per
Profit
and
Loss
Statement—
|
|
September
18
to
October
28-72
|
|
82,264.10
|
—
Sale
of
other
fruits—Bananas—Unreported
|
|
2,709.20
|
ADD
—
Grape
income
for
Sept
18
to
October
28-72
|
|
|
Statement
|
|
$
7,832.68
|
|
—
Cash
sales
of
grapes
and
other
income
|
|
|
not
included
in
sales
of
$84,973.20
per
|
|
|
actual
invoices—WP-2
|
|
10,056.79
|
|
—
Sale
of
wine
bottles
per
Aug
9—Sept
8/72
|
|
|
Statement
|
|
1,186.14
|
|
—
Inventory
of
wine—Aug
9-Sept
8-72
|
|
|
Statement
|
*$
2,454.10
|
|
Deemed
sold
(485
bottles
or
barrels)
be
|
|
tween
Sept
9-Sept
17
1972
since
no
|
|
inventory
is
noted
on
Sept
18-Oct
28
|
|
statement
AND
NOT
INCLUDED
IN
SALES
|
|
of
$84,973.30
per
100%
audit
of
invoices
-
|
|
entered
in
Sales
Journal—Cost
of
inventory
|
|
per
WP
is
3.50
per
case
(bottle
or
barrel).
|
|
Thus
a
credit
is
given
T/P
of
$756.60
as
|
|
follows:
485
cases
at
$3.50
cost
less
|
|
$2,454.10
previously
valued
or
WP3
|
*1,097.50
|
*(756.60)
|
—
485
cases
deemed
sold
for
above
|
|
reasons
at
$12.62
per
case
(See
|
|
WP3).
Thus,
|
$6,120.70
|
|
485
X
$12.62
less
cost
of
|
|
$350
X
485
|
1,697.50
4,423.20
|
22,742.21
|
TOTAL.
UNREPORTED
INCOME
|
|
$25,451.41
|
LESS
Additional
Expenses
allowed
per
WP-1
|
|
3,278.42
|
TOTAL
UNREPORTED
INCOME
|
|
$22,172.99
|
GASPAR
|
50%
|
$11,086.49
|
|
SANTOS
|
50%
|
$11,086.50
|
|
|
SCHEDULE
(4)
|
|
ANTONIO
GASPAR
INCOME
EARNED
IN
1972
FROM
OCTOBER
29
TO
DECEMBER
31,
1972
BANK
DEPOSITS—CIBC
836
Dundas
St
&
Euclid
acct
#69132
October
30
$
3,758.55)
30
10,860.00
)
November
3
11,945.93
)
6
4,611.83
)
10
1,384.75
)
15
625.00
)
T/P
stated
that
money
came
from
27
615.75
)
business
3-9-75
conversation
December
4
50.00
)
4
919.25)
11
339.00
)
14
224.20
)
27
361.75)
TOTAL
DEPOSITS
$35,696.01
Cost
of
inventory—Grapes—Oct
29-1972
per
statement
|
$
6,975.20
|
Purchases
—
MacKay
&
Hughes
Ltd—
|
|
Cheques
Nov
23
1972
|
$2,190.00
|
|
Nov
30
1972
|
2,320.00
|
|
—
Specialty
Fruit
Co
Ltd
|
|
Cheque
Nov
17
1972
|
90.00
|
4,600.00
|
Total
available
for
sale
|
|
$11,575.20
|
Less
Dec
31,
1972
inventory
|
|
NIL
|
Cost
of
goods
sold
|
|
$11,575.20
|
GROSS
PROFIT
|
|
$24,120.81
|
DEDUCT—Additional
expenses
for
2
months
WP
SCH
6
|
1,063.18
|
|
$23,057.63
|
SCHEDULE
(5)
|
|
In
reviewing
this
appeal,
the
Board
is
conscious
of
the
fact
that
the
fundamental
responsibility
for
filing
correct
income
tax
information,
and
making
available
appropriate
supporting
documentation
rests
with
the
taxpayer,
and
many
aspects
of
the
evidence
brought
out
put
into
serious
question
the
extent
to
which
Mr
Gaspar
fulfilled
that
role.
The
result
has
been
considerable
effort
on
the
part
of
Revenue
Canada
officials,
particularly
Mr
Charny,
in
attempting
to
portray
the
operations
of
the
appellant
during
the
year
in
question.
To
that
extent,
the
appellant
in
this
case
has
placed
himself
at
considerable
risk,
and
the
source
documents
(such
as
Exhibit
A-1)
which
were
supplied
by
the
appellant
and
upon
which
Revenue
Canada
was
forced
to
base
its
assessment
have
not
been
very
informative
to
anyone.
Nevertheless,
the
onus
placed
upon
the
appellant
is
to
put
into
question
at
this
hearing
the
assumptions
of
the
Minister
in
assessing
tax,
and
in
this
case
also
imposing
penalty.
These
assumptions
have
been
detailed
earlier
in
this
decision
under
the
hearing
“Contentions”,
and
those
dealing
with
the
income
tax
assessed
were:
the
partnership
income
for
that
period
was
$22,172.39
and
in
filing
his
return
of
income
for
the
1972
taxation
year
the
appellant
failed
to
report
his
share
thereof
in
the
amount
of
$11,086.49;
in
filing
his
return
of
income
for
the
1972
taxation
year,
the
appellant
failed
to
report
income
earned
from
the
proprietorship
from
October
29th,
1972,
to
December
31st,
1972,
in
the
amount
of
$23,057.63;
Exhibits
R-8
and
R-6
(reproduced
earlier)
were
prepared
by
Revenue
Canada
in
support
of
these
assumptions.
Dealing
first
with
exhibit
R-8
(the
“partnership”
period),
there
are
several
points
which
conflict
with
the
evidence:
(1)
While
there
was
some
verbal
evidence
that
the
$2,709.20
might
have
been
from
fruit
sales,
other
than
grapes
(attributed
to
bananas
by
Revenue
Canada),
there
is
adequate
reason
also
to
believe
it
might
also
have
represented
the
sales
of
barrels
and
bottles
(exhibit
A-3).
Including
one
or
the
other
might
be
reasonable,
but
there
is
not
sufficient
evidence
to
include
both
in
the
same
total
reconciliation.
(2)
The
net
income
of
$7,832.68
(Exhibit
A-2)
requires
a
grape
inventory
valued
at
$6,975,
comprised
of
some
1114
cases
or
bushels
of
grapes.
In
my
view,
this
was
a
physical
impossibility,
given
the
evidence
regarding
storage
space
available
to
the
appellant.
It
is
more
likely
that
at
October
28,
1972
the
appellant
had
little
or
no
inventory,
the
grape
season
being
virtually
finished.
The
same
reasoning
places
into
serious
question
the
value
of
Exhibit
A-3
which
showed
some
485
barrels
in
inventory—a
storage
problem
of
substantial
magnitude.
According
to
the
appellant,
Exhibits
A-2
and
A-3
were
prepared
with
one
purpose
in
mind—to
launch
court
action
against
Santos.
It
is
not
for
this
Board
to
question
the
tactics
used
by
the
appellant
in
such
a
venture,
but
it
is
conceivable
that
it
was
desired
by
him
that
the
statements
reflect
the
greatest
possible
profit
that
could
be
determined.
It
is
also
noted
in
passing
that
the
expenses
claimed
on
these
statements
appear
to
be
minimal,
and
Revenue
Canada
did
allow
in
its
own
reconciliation
(Exhibit
R-8)
an
additional
amount
of
$3,278.42.
(3)
I
can
find
no
basis
for
including
as
income
the
amount
of
$10,056.79
for
the
reasons
given
by
the
Revenue
Canada
assessor,
since
there
is
substantial
indication
this
would
only
duplicate
amounts
already
included
in
the
gross
sales
figure
taken
into
income.
(4)
No
basis
other
than
the
fact
that
the
alleged
inventory
of
barrels
on
Exhibit
A-3
did
not
show
up
again
was
given
for
the
conclusion
they
were
sold
at
an
average
selling
price,
and
$4,423.20
included
in
income.
There
is
no
real
reason
to
believe
they
ever
existed
as
inventory,
let
alone
that
they
were
ever
sold.
It
would
not
be
unusual
in
this
particular
kind
of
business,
on
a
large
sale
of
grapes
to
a
customer,
to
provide
the
customer
(as
indicated
by
the
appellant
to
be
a
convenience)
with
the
needed
bottles
and
barrels
at
little
or
no
cost—particularly
near
the
end
of
the
winemaking
season.
In
summary,
I
find
no
basis
from
Exhibit
R-8
to
conclude
that
the
partnership
had
any
income
during
the
period,
certainly
not
$22,172.99.
When
viewed
against
the
evidence
of
Mr
Merchino
that
4
to
5%
gross
profit
would
be
reasonable,
rather
than
the
23.8%
reflected
here,
and
the
financial
information
presented
by
Mr
Niles,
the
conclusion
that
the
partnership
was
of
doubtful
financial
consequence
is
not
difficult
to
reach.
The
same
rationale
holds
true
for
Exhibit
R-6
but
in
even
more
exaggerated
terms.
First,
the
grape
season
was
over
during
this
period,
and
there
is
considerable
evidence
that
the
bank
deposits
of
$35,696.01
(used
to
represent
“sales”)
included
funds
from
sales
made
and
recorded
prior
to
October
28,
1972,
and
may
have
contained
funds
turned
over
to
Gaspar
from
Santos
which
also
had
been
previously
recorded.
There
is
some
indication
the
amount
may
have
even
contained
the
proceeds
of
a
$12,000
property
mortgage
negotiated
by
the
appellant
because
of
his
serious
financial
condition.
The
67.5%
gross
profit
percentage
figure
is
beyond
any
reasonable
conception
of
the
events
in
this
period.
In
my
view,
the
financial
statements
prepared
by
Mr
Niles,
particularly
since
they.
do
give
effect
to
a
form
of
“net
worth”
analysis
are
substantive,
and
present
reasonably
the
results
which
can
be
determined.
It
would
be
unrealistic
to
presume,
and
Mr
Niles
did
not
so
assert,
that
they
were
accurate
and
complete
in
detail.
However,
I
am
satisfied
that
the
profits
attributed
to
the
appellant
in
the
statements
provided
by
the
respondent
are
quite
unreasonable.
I
am
not
prepared,
however,
to
accept
that
the
statements
of
Mr
Niles
should
be
accepted
to
the
degree
that
they
show
operating
losses
of
$532.55
and
$3,372.07
respectively
for
the
appellant
since
far
greater
detailed
analyses
of
these
statements
would
be
required
before
such
a
position
could
be
supported.
The
appellant
has
adequately
met
the
challenge
of
the
Minister,
and
has
demonstrated
to
the
satisfaction
of
this
Board
that
amounts
of
$11,086.49
and
$23,057.63
for
the
two
1972
business
periods
should
not
be
added
to
his
taxable
income,
but
this
is
all
that
is
determined
by
the
Board’s
decision.
The
Board
is
not
prepared,
as
suggested
by
counsel
for
the
respondent,
to
review
the
assessments,
and
determine
which
amounts
are
proper
and
which
should
be
rejected
and
changed.
That
is
the
normal
role
of
Revenue
Canada
and
in
this
case
I
do
not
feel
constrained
to
make
any
such
dissection
and
possible
reallocation
of
the
basis
for
any
assumptions
underlying
the
assessment.
Having
determined
the
main
question
(the
validity
of
the
assessment
itself)
totally
in
favour
of
the
appellant,
the
Board
is
not
required
to
further
examine
the
subsidiary
question
of
the
application
of
the
penalties
involved.
Counsel
for
the
respondent
in
his
argument
did
note,
however,
a
recent
Board
decision
(Michael
S
Mark
v
MNR,
[1978]
CTC
2262;
78
DTC
1205)
which,
in
allowing
an
appeal
against
penalties
imposed,
dealt
at
some
length
with
the
general
question
of
ministerial
responsibility
to
support
the
basis
for
the
penalty.
Decision
The
appeal
is
allowed
and
the
matter
referred
back
to
the
respondent
for
reassessment
accordingly.
Appeal
allowed.