Yip v. The Queen, docket 1999-642(IT)G

Date: 20020115

Docket: 1999-642-IT-G

BETWEEN:

LING YIP,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Beaubier, J.T.C.C.

[1]            These appeals pursuant to the General Procedure were heard at Vancouver, British Columbia on January 7 and 8, 2002. The Appellant testified and called her husband Chak Kung and an immigration lawyer, Richard Uhrle, to the stand. The Appellant also filed the Affidavit of her mother-in-law, Bilan Huang, which was sworn in Hong Kong on December 31, 2001. The Respondent called the auditor on the file, Chester Law, and two appeals officers, Flora Lee and Shirley Walker.

[2]            A summary of matters in dispute is contained in paragraphs 6 and 7 of the Reply to the Notice of Appeal which read:

6.              In so reassessing the Appellant, the Minister relied on, inter alia, the following assumptions:

(a)            that the Appellant and her husband, Mr. Kung reported total income for the taxation years from 1989 to 1995 as follows:

	1989	1990	1991	1992	1993	1994	1995
Ling Yip	$1,203	$ 552	$8,222	$10,204	$15,786	$12,468	$5,245
Mr. Kung	$6,440	$10,610	$6,120	$ 2,870	$ 1,510	$ 3,586	$7,532

(b)            that the West Vancouver Police arrested the Appellant along with two other suspects for stealing clothing from women's fashion stores in the Park Royal Shopping Centre and the Police after seizing large amounts of stolen clothing and large amounts of cash ($32,286.98) charged the Appellant and the two other suspects early in the 1995 year under the Criminal Code with theft under $5,000 and which offense she pleaded guilty to in 1996.

(c)            that Requirements were served on the Appellant to provide Asset & Liability Statements and Personal Expenditure Statements and from these Statements provided by the Appellant and her husband, the Minister's audit determined that there was unreported income of $26,997 in 1993 and $89,460 (this amount subsequently reduced by reassessment to $84,133) in 1994;

(d)            that using the amounts supplied by the Appellant and her husband in their Statement of Assets and Liabilities for 1991, 1992, 1993 and 1994 and their Statement of Estimated Living Costs for 1991, 1992, 1993 and 1995, the Minister complied an initial Net Worth Statement showing an increase in $27,414 in 1992, $29,131 in 1993 and $96,237 in 1994 and that initial Net Worth Statement is attached hereto as Exhibit "A";

(e)            that as a result of representations made by the Appellant's accountant, the Minister issued a Revised Net Worth Statement (attached hereto as Exhibit "B") dated March 6, 1998 revising the unreported income for 1993 to $28,437 and 1994 to $84,133;

(f)             that since the original Notice of Reassessment was issued on March 27, 1997 showing an amount of "additional business income per Net Worth" of $26,967, the Minister did not reassess the 1993 year to reflect the amount of the larger amount in the subsequent Net Worth Statements (Exhibits "A" and "B") in that the difference was inconsequential;

(g)            that based on an audit of financial information provided by the Appellant and her husband, the Appellant did not report "business income" calculated on a net worth basis in the amount of $26,967 for her 1993 taxation year and the amount of $84,311 for her 1994 taxation year; and

(h)            that the Appellant knowingly or in circumstances amounting to gross negligence omitted to include the amounts of $26,967 and $84,133 in her 1993 and 1994 taxation years, with the result that the tax for those years that would have been payable by her under the Income Tax Act if her income for those years was computed by adding to the taxable income reported by her and in her returns for those years, the said amounts, exceeded the tax that would have been payable by her under the Act had her tax payable for those years been assessed on the basis of the information provided in her returns for those years.

B.             ISSUES TO BE DECIDED

7.              The issues are:

(a)            whether the Minister properly included the amount of $26,967 in computing the income of the Appellant for her 1993 taxation year;

(b)            whether the Minister properly included the amount of $84,133 in computing the income of the Appellant for her 1994 taxation year; and

(c)            whether the penalties levied pursuant to section 163(2) were properly levied in circumstances amounting to gross negligence.

[3]            Assumptions 6(a) to (e) inclusive were not refuted by the evidence. The issue between the parties is the sources of the increase to the Appellant's net worth. The Appellant states that the source of a majority of the increase is gifts from her mother-in-law in mainland China together with a relatively small sum from the proceeds of sale of a Cambridge Street condominium in Vancouver in 1994. The Reply's assumptions state that the source is "business income" which was never reported.

[4]            The Appellant and Mr. Kung's explanation describes a chronology of events which follows. Both the Appellant and Mr. Kung entered Canada illegally and applied for refugee status. He was born in mainland China, went to Hong Kong and entered Canada in 1985 on a false Hong Kong passport. He was granted Canadian citizenship on compassionate grounds in 1989. Since then he held several itinerant jobs in Vancouver. For the last four years he has been employed as a truck driver driving containers from ships in the Vancouver harbour to customers. His wife, the Appellant, Ms. Yip, was also born in mainland China, entered Canada illegally and was refused refugee status. She met Mr. Kung in 1987 and after she married Mr. Kung in 1989 she became a Canadian citizen. Ms. Yip was born in 1964; she and Mr. Kung appear to be about the same age. They have two children, Eric who is 11 1/2 years old and Amanda who is 8 1/2 years old. Ms. Yip had a number of seamstress-type or garment industry jobs and was also a cashier from 1986 to 1994. In 1987 Ms. Yip was injured in an automobile accident on account of which she received damages totalling about $64,000 of which the final instalments were $45,000 in February, 1992 and $14,000 in June, 1992.

[5]            In December, 1990, Mr. Kung visited his mother in China for about four days when she was ill.

[6]            In February, 1991 Ms. Yip bought Suite 312, 2222 Cambridge Street in Vancouver for $105,000 and paid about $30,000 to $37,000 cash with the balance borrowed pursuant to a mortgage to London Life. The family moved into this condominium.

[7]            In March, 1991 Mr. Kung took Eric to China to visit Mrs. Huang. They stayed there until September, 1991. Mrs. Huang gave Mr. Kung between $20,000 and $30,000 Canadian which he brought back with him in cash in Canadian dollars which he had exchanged in Hong Kong. He testified that this money was not put in a bank. His mother's home in mainland China is about a two-hour train ride from Hong Kong. Mr. Kung's sister and her husband live and work in Hong Kong.

[8]            In January, 1993 Mr. Kung, Ms. Yip and Eric again visited Mr. Kung's mother. They state that they then learned that Mrs. Huang had sold her home to her son-in-law from Hong Kong and that she gave Mr. Kung 450,000 Renminbi, the equivalent of about $90,000 Canadian. They testified that Ms. Yip returned to Canada with about $20,000 Canadian of this in cash and Mr. Kung and Eric followed later with about $60,000 Canadian in cash. They testified that the exchange to Canadian dollars occurred in Hong Kong and that this money was never transferred through, or deposited in, a bank.

[9]            In October, 1994, Ms. Yip sold the Cambridge Street condominium from which she netted about $72,000 cash.

[10]          In November, 1994 Ms. Yip purchased 3656 Napier Street as a family home for the price of $346,000 and paid a deposit of $15,000 cash and the further sum of $152,262.51, cash, to a mortgage of $185,000 from London Life. It is the source of cash in this transaction ($167,262.51) which constitutes an element of concern in this case.

[11]          The constituents of the $167,262.51 can be broken down as follows:

                Total                                                                        $167,262.51

                Cash proceeds from Cambridge - 72,000.00

                Net balance (1994)                                $ 95,262.51

[12]          The Appellant and Mr. Kung's explanation of the source of the funds assessed is, essentially, that they were gifts from Mrs. Huang to Mr. Kung which he, in turn, gave to Ms. Yip. They presented Mrs. Huang's affidavit in substantiation of their testimony. However the prepared, written and translated material from Mrs. Huang contains serious discrepancies. They are especially questionable and important in view of the fact that these written documents were

prepared with matters such as this proceeding in contemplation and the fact that Mrs. Huang could not be cross-examined concerning them. They include:

1.              The Appellant's accountant, Mr. Seto, never recorded the alleged gifts from Mrs. Huang in his initial reports of income and assets of the couple.

2.              In a certificate filed and dated September 1, 1995 Mrs. Huang stated that she gave Mr. Kung the $450,000 Renminbi in 1991.

3.              The Agreement between Mrs. Huang and her son-in-law and daughter dated January 20, 1992 states that Mrs. Huang is giving 450,000 Renminbi "support money". "Support money" is not money to be passed on to a son. Moreover the house was not sold in that Agreement. Rather, the agreement stated that Mrs. Huang was to will the house to her son-in-law and her daughter.

4.              In contradiction to the above, Mrs. Huang's affidavit of December 31, 2001, filed as Exhibit A-2, states in paragraph 11 that she gifted the 450,000 Renminbi to Mr. Kung sometime between January and June, 1993.

[13]          The result is that Mrs. Huang's affidavit is not credible and it does not confirm the Appellant or Mr. Kung's testimony. Moreover, it is not credible that Mr. Kung and the Appellant would change money from Renminbi to Hong Kong dollars and then go to Hong Kong and change that into Canadian dollars (as they testified) and not transfer sums of this size to Canada by bank transfer. Nor is it credible that they would not place these alleged "gift" monies in a bank once they were in Canada both for security and for interest income. Both Mr. Kung and Ms. Yip had bank accounts in Canada.

[14]          The Appellant's counsel argued that once the Appellant had explained the funds in question, the onus was on the Respondent to establish the "business" from which the funds in question were derived. However, this Court does not believe Mr. Kung and Ms. Yip without some acceptable verification of their stories. That verification does not exist. Therefore the appeals of the assessments for tax are dismissed.

[15]          With respect to the penalties assessed, the Appellant testified that she gave all of her income information to the accountant who prepared her income tax returns. The evidence has not refuted the assumption that the Appellant had "business" income during the years in dispute. Thus the Court finds that the amounts of income assessed were "knowingly" not reported by the Appellant contrary to subsection 163(2) of the Income Tax Act. She deliberately made or participated in making a false statement or omission in her 1993 and 1994 income tax returns. In both years the amounts, which were not reported, were extremely large when compared to the income which she reported. For these reasons, the assessments of penalties are confirmed.

[16]          The appeals are dismissed in their entirety. The Respondent is awarded costs in this matter.

Signed at Ottawa, Canada, this 15^th day of January, 2002.

"D. W. Beaubier"

J.T.C.C.

COURT FILE NO.:                                                 1999-642(IT)G

STYLE OF CAUSE:                                               Ling Yip v. Her Majesty the Queen

PLACE OF HEARING:                                         Vancouver, British Columbia

DATE OF HEARING:                                           January 7 and 8, 2002

REASONS FOR JUDGMENT BY:                      The Honourable Judge D. W. Beaubier

DATE OF JUDGMENT:                                       January 15, 2002

APPEARANCES:

Agent for the Appellant:                     Scarlet R. McGladery

Counsel for the Respondent:              Linda Bell

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                Deputy Attorney General of Canada

                                                                                Ottawa, Canada

1999-642(IT)G

BETWEEN:

LING YIP,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on January 7 and 8, 2002 at Vancouver, British Columbia, by

the Honourable Judge D. W. Beaubier

Appearances

Agent for the Appellant:                       Scarlet R. McGladery

Counsel for the Respondent:                Linda Bell

JUDGMENT

          The appeals from the reassessments made under the Income Tax Act for the 1993 and 1994 taxation years are dismissed in accordance with the attached Reasons for Judgment.

          Signed at Ottawa, Canada, this 15^th day of January, 2002.

"D. W. Beaubier"

J.T.C.C.