Date: 20020506
Docket: 2001-751-IT-I
BETWEEN:
SATYA PAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
(Delivered orally at Toronto, Ontario on March
15, 2002 and subsequently edited as to form)
Bonner, T.C.J.
[1]
The Appellant appeals from assessments of income tax and section
163(2) penalties for the 1994, 1995 and 1996 taxation years.
During those years the Appellant earned income from the rental of
a taxi cab which he owned. He rented the cab out because he had
sustained injuries in an automobile accident which prevented him
from driving the cab himself. The Appellant is married and lives
with his wife. She is not well and does not work outside the
home.
[2]
In the first instance the Appellant's income tax returns for
the years under appeal were filed electronically. Income as
reported by him was: for 1994, $3,997.00; for 1995, $7,403.00 and
for 1996, $20,848.00.
[3]
The Revenue authorities investigated the Appellant's
financial affairs after discovering that the Appellant had, for
purposes of inflating GST input tax credits, claimed personal
expenses.
[4]
It was clear that the Appellant's income could not be
measured directly. The Appellant apparently did not keep, and
certainly did not produce at the hearing, any reliable financial
records which would permit the direct measurement of income. A
net worth assessment therefore followed.
[5]
It was explained in detail by the witness, James Wynen.
[6]
Broadly speaking a net worth calculation of income starts with
measurement of the increase, if any, of net worth over the
relevant period. That is followed by the addition of personal
outlays over the period. Non taxable receipts are deducted and
the resulting figures are assumed to represent income for the
period. Net worth is a crude method for the measurement of income
and should be utilized only when income cannot be measured
directly. Such was the case here.
[7]
After the Minister of National Revenue (the "Minister")
had made his net worth calculations, the Appellant produced
amended tax returns for three years. Income as reported in the
amended returns was: for 1994, $2,096.00; for 1995, $11,315.00
and for 1996, $768.00.
[8]
The evidence does not explain the discrepancies between the
earlier returns and the amended returns either in matters of
detail or in matters of final result. While, as already
explained, the indirect measurement of income by the net worth
method may not produce a perfect result, there was simply no
evidence here indicating that the Appellant's calculations
are any more accurate than the Minister's net worth
calculations.
[9]
The attacks on the net worth calculation made by the Appellant
centred on personal expenditure figures and evidence of payment
from an insurance company, which payments may have constituted
reimbursements of expenses of other years. The Appellant offered
no comprehensive credible evidence which would support a
conclusion that his personal expenses were less than found by the
Minister.
[10] The exact
nature of the benefits paid by the Wellington Insurance Company
and set out in Exhibit R-7 was not explained.
[11] The onus
is on the Appellant to establish on a balance of probabilities
that the Minister's calculations of income are wrong. The
onus is one which is relatively easy to discharge where the
Minister has relied on a net worth calculation because of the
inherent imprecision of the method. However, there must be some
credible evidence showing error in the result in order to
discharge the onus. Such evidence was not adduced here.
[12] Section
163(2) authorizes the imposition of penalties on every person
who, knowingly, or under circumstances amounting to gross
negligence has made or has participated in, assented to or
acquiesced in the making of, a false statement or omission in a
return, form, certificate, statement or answer filed or made in
respect of a taxation year for purposes of the Act.
[13] In light
of the findings which I have made there can be no doubt that the
requisite false statements were made in the Appellant's
original returns. In my opinion the amount of the discrepancies
in the case of someone whose income is as easy to calculate as
that of the Appellant is sufficient to establish, at the least,
indifference to whether the law is complied with or not.
[14] The
Appellant offered no explanation for the widely varying reports
of income and expense except to blame his absent accountant. He
did not show that the accountant was furnished with accurate data
in the first place. The Appellant cannot be permitted to shrug
off of his personal responsibility to file accurate returns in
this way. The Respondent was discharged the onus of establishing
the making of false statements in circumstances amounting to
gross negligence.
[15] The
appeal is therefore dismissed.
Signed at Toronto, Ontario, this 6th day of May 2002.
"M.J. Bonner"
T.C.J.
COURT FILE
NO.:
2001-751(IT)I
STYLE OF
CAUSE:
Satya Pal and H.M.Q.
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
March 15, 2002
REASONS FOR JUDGMENT BY: The
Honourable Judge M.J. Bonner
DATE OF
JUDGMENT:
March 22, 2002
DATE OF REASONS
FOR
JUDGMENT:
May 6, 2002
APPEARANCES:
Agent for the
Appellant:
Manmohan Duggal
Counsel for the
Respondent:
Scott Simser
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
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