Citation: 2012 TCC 423
Date: 20121204
Dockets: 2012-666(IT)I, 2012-672(GST)I
2012-663(IT)I
BETWEEN:
TELEPATH CORPORATION,
DALI BENTOLILA,
appellants,
and
HER MAJESTY THE QUEEN,
respondent.
REASONS FOR JUDGMENT
Hogan J.
[1]
The Minister of
National Revenue (the “Minister”) reassessed Dali Bentolila (the “appellant”)
for his 2001 and 2002 taxation years to include unreported income of $38,579.64
and $28,202.16 allegedly appropriated from Telepath Corporation (“Telepath”).
The Minister reassessed Telepath for its 2001 and 2002 taxation years to
include unreported business income of $27,084 and $51,467 for those years. The
Minister also reassessed Telepath for failing to have collected, for the
reporting periods beginning January 1, 2001 and ending December 31, 2003, goods
and services tax (“GST”) on its alleged unreported business income.
[2]
The unreported income
of the appellant and Telepath in the years under appeal was based on an
analysis of deposits to the bank accounts of Telepath and the appellant.
[3]
The appeals were heard
on common evidence under the informal procedure.
[4]
In these appeals, the
Court must decide:
(a) whether the appellant
and Telepath neglectfully, carelessly or wilfully misrepresented their income
for the 2001 and 2002 taxation years, thereby entitling the Minister to
reassess beyond the normal reassessment period;
(b) whether the appellant
and Telepath failed to include as income for their 2001 and 2002 taxation years
the amounts assessed as undeclared income;
(c) whether the Minister
properly assessed penalties against Telepath and the appellant for failure to file
tax returns as and when required under the Income Tax Act (the “ITA”);
and
(d) whether Telepath
failed to collect GST on the amount assessed as undeclared income by the
Minister.
[5]
In making against the
appellant the reassessments at issue herein, the Minister relied on the
following assumptions of fact set out in the reply to the notice of appeal:
7. In determining the tax liability of the appellant, the Minister
relied on the following assumptions:
a) at all material times the appellant was resident in Canada;
b)
at all material times Telepath was a corporation
resident in Canada;
c)
the year-end of Telepath is November 30;
d)
at all material times the appellant was the
president and sole shareholder of Telepath;
e)
at all material times the appellant was involved
in the day-to-day operations of the business of Telepath;
f)
on his income tax returns for the 2001, 2002,
and 2003 taxation years, the appellant reported total income in the amounts of
$3,511, $3,511 and $7,968, respectively;
g)
the appellant did not file tax returns for the
2001, 2002 and 2003 taxation years by their due date;
h)
Telepath had unreported business revenue of
$27,084 and $51,467 for its 2001 and 2002 taxation years, respectively;
i)
deposits totalling $38,579.64 and $28,202.16 in
taxation years 2001 and 2002, respectively, (the “Deposits”) and detailed on
Schedule A, attached, were revenue earned by Telepath and deposited to a
bank account held jointly by the appellant and other family members;
j)
the Deposits were from merchant deposits from a
Moneris point of sale terminal and these deposits were from Telepath’s merchant
account;
k)
the Deposits were not reported as income by
Telepath or the appellant;
l)
the appellant received the Deposits in his capacity
as shareholder of Telepath.
8. In reassessing the 2001, 2002, and 2003 taxation years beyond
the normal reassessment period, the Minister relied on the following facts:
a)
the facts assumed by the Minister as stated
above;
b)
the appellant made a misrepresentation when he
understated his income in the amounts of $38,579.64 and $28,202.16 for the 2001
and 2002 taxation years, respectively; and
c)
by understating his income the appellant made a
misrepresentation attributable to neglect, carelessness or wilful default for
the years in issue.
[6]
The Minister relied on
similar assumptions of fact with respect to Telepath.
[7]
For reasons that were not
disclosed at the hearing, the audits of the appellant and Telepath were
commenced by the Special Enforcement branch of the Canada Revenue Agency
(“CRA”). The CRA auditor who conducted the initial audit of the taxpayers
concluded that the appellant had failed to report income appropriated from
Telepath in the amounts of $197,733, $207,215 and $58,465 for his 2001, 2002
and 2003 taxation years. The initial reassessments were based on the assumption
that all amounts deposited in a Bank of Montreal (“BMO”) bank account in the
names of the appellant, his mother, two of his brothers, and a friend were
undeclared income of the appellant and Telepath.
[8]
At the objection stage,
the appellant was able to convince the CRA auditor that the BMO bank account
belonged to him, his mother, two of his brothers and a friend. The evidence
shows that the bank account was initially opened by the appellant’s mother, who
testified at the hearing that she added two of her sons and a family friend to
the account in order to facilitate electronic transfers of funds among the
signatories on the account.
[9]
The appeals officer
assigned to review the work of the CRA auditor was satisfied with most of the
appellant’s explanations and reduced the unreported business income to the
amounts indicated above.
[10]
The appeals officer
testified that she treated deposits from a Moneris point of sale terminal (the
“Merchant Account”) as undeclared income of the appellant and Telepath. She did
so because the Merchant Account was opened in the name of Telepath and she did
not accept the appellant’s explanations that the income belonged to a business
operated by a friend, and later, by his brother in the circumstances described
below.
[11]
The appellant testified
that the Merchant Account was opened in Telepath’s name at the request of
Michael Schweitzer, a U.S. resident. Mr. Schweitzer travelled to Cuba frequently, where he met his future wife, Aimelin Schweitzer. The couple opened a
business called Cubamall.com (“Cubamall”). That business offered Cuban cigars
and liquor for sale on the Internet. The U.S. had imposed a trade embargo on Cuba, which precluded Mr. Schweitzer from doing business with Cuba from the U.S. He asked the appellant to open the Merchant Account to receive payments made by
Cubamall customers on Visa, MasterCard and American Express credit cards.
[12]
The appellant produced two
Excel spreadsheets.
One spreadsheet, which covered the period from October 5, 2001 to
June 5, 2002, was prepared to track funds received by Telepath and the
appellant on behalf of Cubamall. The other spreadsheet, which covered the
period from October 19, 2001 to July 22, 2002, also recorded funds
spent on behalf of Cubamall’s business by the appellant and Telepath. Finally,
the appellant produced an email from Mr. Schweitzer dated December 23,
2001 asking the appellant to send funds electronically to a relative of
Mr. Schweitzer’s future wife in Cuba. Ms. Schweitzer left Cuba to join her future husband in the U.S. The Cubamall business was terminated at that time and
the Merchant Account was no longer used to receive funds on behalf of Mr. Schweitzer.
[13]
The appellant also
testified that his brother, Will Bentolila, opened a printing shop in the Ottawa area. The appellant is estranged from his brother, who is now living in Russia.
[14]
According to the appellant,
his brother had a poor credit history and a criminal record, which prevented
him from accessing credit and opening a merchant account to receive credit card
payments. To aid his brother, he gave him access to his and Telepath’s Merchant
Account. Payments received from Visa and MasterCard were credited to the BMO
joint account and payments received from American Express were deposited to a
Telepath bank account. The appellant kept detailed Excel spreadsheets that
showed the revenue received on behalf of his brother’s business and the amounts
spent for the business and those used for personal expenses of his brother and
his brother’s common-law spouse.
[15]
These spreadsheets were
shown to the CRA appeals officer, who refused to accept their content without additional
documentary support.
[16]
The appellant’s
testimony is corroborated by the testimony of Kavita Persaud, his
brother’s former common-law spouse. Ms. Persaud explained that Will
Bentolila had a poor credit record, which made it difficult for him to access
credit or establish a merchant account. She stated that she was aware that the
appellant allowed Will to use his and Telepath’s bank accounts. She knew this
because the appellant paid most of their personal expenses and Will Bentolila
had explained to her why the appellant was doing so. I note that the CRA
appeals officer did accept one of the deposits in the BMO bank account as not
belonging to the appellant because the appellant was able to show that the
funds had been transferred electronically to Ms. Persaud’s bank account.
[17]
Subparagraph 152(4)(a)(i)
of the ITA allows the Minister to issue an assessment beyond the normal
reassessment period in the following circumstances:
(i)
[where the taxpayer] 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 . . .
[18]
The respondent bears
the burden of proving that these circumstances exist with respect to the
appellant and Telepath.
[19]
I found the appellant, Lise
Bentolila, and Ms. Persaud to be credible witnesses. Their
testimony confirmed the appellant’s position that he adopted unorthodox banking
arrangements to operate Telepath’s business and to facilitate banking
transactions with friends and family members. I also take comfort from the fact
that the CRA appeals officer was able to establish that most of the funds
deposited in the BMO account belonged to other family members.
[20]
Finally, I note that
the appellant cooperated fully with the CRA during its audit and presented the
CRA with accounting records in which the deposits in the Merchant Account were
highlighted.
[21]
Considering the
evidence as a whole, I am satisfied that the appellant and Telepath did not
fail to report all of their income.
Signed at Ottawa, Canada, this 4th day of December 2012.
“Robert J. Hogan”