|
Citation: 2004TCC295
|
|
Date: 20040420
|
|
Docket: 2003-1836(IT)I
|
|
|
|
BETWEEN:
|
|
|
|
PETER JENCIK,
|
|
Appellant,
|
|
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
|
|
Respondent.
|
REASONS FOR JUDGMENT
Bonner, J.
[1] These are appeals from
reassessments of income tax for the taxation years 1994, 1995,
1996, 1997 and 1998. Three issues must be addressed:
a) was the Minister of
National Revenue (the "Minister") entitled to reassess
by reason of misrepresentations of the sort described in
subparagraph 152(4)(a)(i) of the Income Tax Act
(the "Act");
b) to the extent that he was so
entitled, did the Appellant establish that the Minister's
additions to declared income were too high; and
c) was the Minister
justified in assessing penalties under subsection 163(2) of
the Act.
[2] Subsection 152(4) of the
Act provides in part:
(4) The Minister may at any time make an assessment,
reassessment or additional assessment of tax for a taxation year,
interest or penalties, if any, payable under this Part by a
taxpayer 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 year, except that an assessment, reassessment or
additional assessment may be made after the taxpayer's normal
reassessment period in respect of the year only if
(a) 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
...
[3] The term "normal reassessment
period" is defined in subsection 152(3.1) of the
Act. It reads:
(3.1) For the purposes of subsections (4), (4.01), (4.2),
(4.3), (5) and (9), the normal reassessment period for a taxpayer
in respect of a taxation year is
(a) where at
the end of the year the taxpayer is a mutual fund trust or a
corporation other than a Canadian-controlled private
corporation, the period that ends 4 years after the earlier
of the day of mailing of a notice of an original assessment under
this Part in respect of the taxpayer for the year and the day of
mailing of an original notification that no tax is payable by the
taxpayer for the year; and
(b) in any
other case, the period that ends 3 years after the earlier of the
day of mailing of a notice of an original assessment under this
Part in respect of the taxpayer for the year and the day of
mailing of an original notification that no tax is payable by the
taxpayer for the year.
[4] The dates and mailing dates of
notices of the original assessments for 1994 to 1998 were,
respectively, May 1, 1995, May 6, 1996, September 15, 1997,
May 4, 1998 and March 25, 1999.
[5] The Minister reassessed tax on
November 7, 2001 for all five years. All those reassessments were
made after the "normal reassessment period" defined in
subsection 152(3.1) of the Act. The Minister's right
to reassess for 1994 to 1998 (the "statute barred
years") was therefore dependant on the Appellant having made
misrepresentations attributable to neglect, carelessness or
wilful default or having committed fraud as set out in
subparagraph 152(4)(a)(i) of the Act. It is settled
law that the onus is on the Respondent to establish that such
misrepresentations were made.
[6] I turn first to the pleaded
misrepresentations. The Respondent pleaded in paragraph 9 of the
Reply to the Notice of Appeal that in reassessing he made certain
assumptions of fact including the following:[1]
(g) in computing
income for the 1994, 1995, 1996, 1997 and 1998 taxation years,
the Appellant failed to report income in the amounts of
$6,151.00, $13,943.00, $2,872.00, $22,760.00 and $24,173.00 in
the 1994, 1995, 1996, 1997 and 1998 taxation years, respectively
(the "Unreported Income ") as per
Exhibit "A" attached hereto;
(d) the unreported
income was determined by a review of the Appellant's bank
accounts undertaken by officials of the Canada Custom and Revenue
Agency;
(e) the review of
the Appellant's bank accounts for the years under appeal
indicated significant deposits, which were unaccounted for;
(h) the unreported
income was determined after allowing for reasonable expenses as
per Exhibit "A" attached hereto;
(j) in not
reporting income in the amounts of $6,151.00, $13,943.00,
$2,872.00, $22,760.00 and $24,173.00 for the 1994, 1995, 1996,
1997 and 1998 taxation years, the Appellant made
misrepresentations that are attributable to neglect, carelessness
or wilful default;
(k) in failing to
report the Unreported Income, the Appellant understated his
income by the amounts of $6,151.00, $13,943.00, $2,872.00,
$22,760.00 and $24,173.00 in the 1994, 1995, 1996, 1997 and 1998
taxation years, respectively, and, in so doing, knowingly or
under circumstances amounting to gross negligence in carrying out
a duty or obligation imposed under the Act, made or
participated in, assented to or acquiesced in the making of false
statements or omissions in the income tax returns filed by him
for the 1994, 1995, 1996, 1997 and 1998 taxation years, as a
result of which the federal tax that would have been payable by
him for the said taxation years, if the tax had been assessed on
the basis of the information provided in his income tax returns,
was less than the federal tax in fact payable by the amounts of
$ nil, $1,953.41, $ nil, $3,139.89 and $4,582.76 in the
1994, 1995, 1996, 1997 and 1998 taxation years respectively.
[7] Exhibit "A" referred to
in (g) and (h), supra, reads:
|
Revised Amounts for Reassessment
|
|
Tax Year
|
|
1994
|
1995
|
1996
|
1997
|
1998
|
|
Business Income* Expenses:
|
|
8,931
|
16,623
|
5,512
|
26,407
|
28,211
|
|
|
|
|
|
|
|
|
|
|
Purchases
Membership
|
320
|
320
|
320
|
390
|
393
|
|
|
Business Insurance
|
|
|
|
|
|
|
|
Meals & Entertainment
|
|
|
|
|
|
|
|
Office Supplies
|
50
|
50
|
50
|
50
|
50
|
|
|
Tools
|
100
|
|
|
|
|
|
|
Legal & Accounting
|
50
|
50
|
50
|
60
|
75
|
|
|
Cell Phone
|
|
|
|
|
|
|
|
ETR
|
|
|
|
|
46
|
|
|
Casual Labor
|
|
|
|
|
500
|
|
|
Uniforms
|
|
|
|
|
|
|
|
Office in the Home
|
995
|
1,007
|
683
|
1,234
|
1,186
|
|
|
Parking
|
|
|
|
|
|
|
|
Vehicle
|
1,121
|
1,144
|
1,162
|
1,176
|
1,109
|
|
|
Bank & Interest
|
144
|
109
|
376
|
738
|
680
|
|
|
Office Help
|
|
|
|
|
|
|
|
Total expenses
|
2,780
|
2,680
|
2,640
|
3,647
|
4,039
|
|
Revised Unreported Business Income
|
6,151
|
13,943
|
2,872
|
22,760
|
24,173
|
|
|
|
|
|
|
|
|
Vehicle:
|
|
|
|
|
|
|
|
|
Gas
|
2,195
|
2,242
|
2,278
|
2,314
|
2,046
|
|
|
repairs
|
720
|
735
|
747
|
759
|
761
|
|
|
Insurance
|
1,477
|
1,509
|
1,532
|
1,557
|
1,554
|
|
|
License
|
90
|
90
|
90
|
74
|
74
|
|
|
CCA
|
|
|
|
|
|
|
|
Total
|
4,482
|
4,576
|
4,647
|
4,704
|
4,435
|
|
|
25% Business Use
|
1,121
|
1,144
|
1,162
|
1,176
|
1,109
|
|
|
|
|
|
|
|
|
|
Home Office:
|
|
|
|
|
|
|
|
|
Gas/Hydro/Water
|
2,191
|
2,238
|
2,273
|
2,310
|
2,266
|
|
|
Property Tax
|
1,807
|
1,846
|
1,875
|
1,906
|
1,645
|
|
|
Insurance
|
388
|
397
|
403
|
409
|
394
|
|
|
Mortgage Interest
|
2,250
|
2,231
|
|
3,600
|
3,600
|
|
|
Total
|
6,636
|
6,712
|
4,551
|
8,225
|
7,905
|
|
|
15% Business Use
|
995
|
1,007
|
683
|
1,234
|
1,186
|
Note: - bank and interest charges
taken at 50% claimed
for home office Statistics Canada figures were used for
everything except the mortgage which we accepted
- for vehicle used Statistics Canada figures
* This is a reference to the bank deposits.
[8] The next question is whether the
Respondent has established that the Appellant made the
misrepresentations alleged. It must be noted that the
misrepresentations relied on must be pleaded with particularity.
In Gardner v. R., [2001] 4 C.T.C. 2868, Bowie J. said the
following at 2872:
The requirement to plead the misrepresentation specifically is
found stated this way in Odgers' Principles of Pleading
and Practice, Twenty-second Ed., at page 100:
Each party must state his whole case. He must plead all facts
on which he intends to rely, otherwise he cannot strictly give
any evidence of them at the trial.
In this Court it has been put this way by Bowman J., as he
then was, in Ver v. R.:
Finally, the Reply to the Notice of Appeal is inadequate in a
case of this type. Bald assertions that the Minister
"assumed" a misrepresentation are inappropriate where
the Minister must prove a misrepresentation. The precise
misrepresentation alleged to have been made must be set out with
particularity in the reply and proved with specificity. Three
essential components must be alleged in pleading
misrepresentation:
(i) the representation;
(ii) the fact of its having been made; and
(iii) its falsity.
[9] In this case, the relevant
representations relate to the reporting of business income. The
fact of making them was not seriously disputed. Moreover those
elements of the Respondent's case were sufficiently
established by the production of copies of the Appellant's
returns for 1994, 1995 and 1996[2] and by the production of printouts[3] which, as the witness
Raymond Maciel testified, were copies of CCRA computer
records of information taken from the Appellant's 1997 and
1998 tax returns. The Appellant's return for 1994 declares no
business income. The returns for 1995 and 1996 declare business
income of $146.00 and $2,930.00 respectively. The computer
records for 1997 and 1998 indicate that no business income was
reported.
[10] The next question is whether the
Appellant's representations regarding business income were
false. Proof by the Minister that the Appellant misrepresented
his income requires more than an assertion by the Minister that
he "assumed" that the Appellant did so. In Markakis
v. M.N.R., [1986] 1 C.T.C. 2318, Rip J. stated at page
2321:
The question I must first deal with in respect of the
1976 tax assessment is whether the respondent has met the onus of
establishing that Mr. Markakis made misrepresentation
attributable to neglect, carelessness or wilful default in filing
his 1976 income tax return. It is sufficient for the Minister to
show that a taxpayer is negligent if he has not exercised
reasonable care: Lucien Venne v. The Queen, [1984] C.T.C.
223 at 228; 84 D.T.C. 6247 at 6251.
For the Minister to show the taxpayer has not exercised
reasonable care requires, in my view, something more than simply
submitting evidence that the taxpayer has made deposits to his
bank accounts in amounts greater than his employment income and
advising the Court that he, the Minister, does not accept the
taxpayer's explanation of the source of funds...
[11] The well-known rule[4] which places on the taxpayer the
onus of establishing that facts as found or assumed or assessment
are incorrect does not apply in appeals from statute-barred
reassessments unless the Minister first establishes facts which
show that he was entitled to reassess when he did.
[12] Here the reassessments rested on the
premise that the "unexplained" deposits in the
Appellant's bank account were the revenues of an undisclosed
business, and that the expenses of that business were not greater
than set out in Schedule A to the Reply with the consequence that
the profits were properly calculated by the Minister. The onus
which rested on the Minister included proof of the factual
elements of that premise.
[13] I should add that the onus encompasses
not only proof of the falsity of the Appellant's
representations regarding his business income but also proof that
they were attributable to neglect, carelessness or wilful default
as pleaded.
[14] The position taken by the
Appellant's representative was rather complex. She maintained
throughout that the assessments were statute barred and that the
burden was on the Minister to establish that he had the right to
reassess. She also took what was in essence an alternative
position, namely that the reassessments were too high.
[15] She argued that some if not all bank
deposits were monies borrowed by the Appellant and that one
deposit in 1997 was counted twice. Finally with respect to
quantum, she argued that the Minister underestimated the cost of
earning the alleged revenues. With respect to penalties her
position was that the Appellant "simply erred on his
returns".
[16] At the hearing evidence was given by
Raymond Maciel, an appeals officer with CCRA, by Ferdinando Di
Spirito, an auditor with CCRA and by the Appellant.
[17] Mr. Maciel issued the reassessments
under appeal following objection under section 165 of the
Act by the Appellant to the reassessments of
November 7, 2001.
[18] The Appellant did not maintain books
and records of any business activity conducted by him during the
years under appeal. Accordingly the Minister had to face the task
of reconstructing revenues and expenses of the business which he
believed was carried on by the Appellant.
[19] The witness Ferdinando Di Spirito was a
GST auditor. He obtained records of deposits in the
Appellant's accounts. He was able to obtain some information
from the records of other taxpayers, in particular a Mr.
Patterson, of payments to the Appellant. None of the payers was
called to show either that the Appellant carried on business or
that the payments were the revenues of the business.
[20] The witness Raymond Maciel was the
appeals officer who dealt with the Appellant's
representative. She made submissions with respect to the source
of the bank deposits. She contended that for 1994, 1995 and 1996
the otherwise unexplained deposits were advances on the
Appellant's line of credit. She contended that the Patterson
payments were counted twice. She accepted that some deposits for
1997 and 1998 represented business receipts but asserted that
expenses exceeded revenues for 1997 and that revenues exceeded
expenses for 1998 by less than $2,000.
[21] It is clear from the evidence of Mr.
Maciel that the reassessments made under section 165 of the
Act rest on acceptance by the Minister of some but not all
of the representations made by Ms. Belzner, the Appellant's
representative, both as to revenues and as to expenses.
[22] The Appellant testified at the hearing.
I note that on the one hand I have serious reservations about his
credibility. On the other had his evidence provided no support
for the assumptions on which the Respondent relied.
[23] The misrepresentations alleged in the
Reply rest on Mr. Maciel's conclusions. Those conclusions
rest in turn on the assumption that bank deposits were the
revenues of a business. In my opinion that assumption is
unsupported by any inference which can reasonably be drawn from
the evidence. Equally the Respondent failed to show that costs of
earning the revenues alleged did not exceed such revenues. In
short the Respondent's case rests on conjecture. That is not
enough to discharge the onus.
[24] For the foregoing reasons, the appeals
will be allowed and the reassessments will be vacated.
Signed at Toronto, Ontario, this 20th day of April 2004.
Bonner, J.
Email this Content