Citation: 2011TCC29
Date: 20110120
Docket: 2010-500(IT)I
BETWEEN:
PIERRE HOBSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Pierre Hobson, is
appealing the reassessment of the Minister of National Revenue pursuant to
which $6,554 was added to his 2007 income as unreported business income from
his dance school.
[2]
The Appellant represented himself
and testified on his own behalf. The Minister called the auditor in charge of
the Appellant’s file, Siradiou Barry. Both were credible in their evidence.
[3]
The Appellant denied that the $6,554
discovered during Mr. Barry’s deposit analysis was business income. He
accounted for the amount as follows: he and his then girlfriend, JM, had been
living together since 2003. As will be explained below, JM was not present at
the hearing of this appeal. According to the Appellant, in 2007 he received a
total of $10,154 from JM: $3,600 for her share of their annual apartment rent
of $7,200; $2,700 for her share of their household expenses other than rent and
$3,800 in various increments to finance certain business expenses i.e., deposits
on the rental of dance performance space, lighting equipment and so on.
[4]
The Appellant’s explanation of the
receipt of $3,600 for apartment rent was accepted at the audit stage leaving in
issue in this appeal only the amounts of $2,700 and $3,800. However, the $3,600
allowed at the audit stage amount is relevant to the interpretation of the
words “monthly expenses” which appear in a declaration sworn by JM and upon
which the Appellant primarily relies in support of his position. This document
was also provided to the Appeals Officer at the objection stage. The text of JM’s
sworn declaration reads as follows:
I, the
undersigned, [JM], living & residing at 2638 Lionel-Groulx apt # 1,
Montreal, Quebec, H3J 1J8 do hereby declare as follows:
a.
That I was living with Mr. Hobson at the same address since June 2003.
b.
That I paid share of my monthly expenses in the amount of $ 400
to $ 500 in cash to Mr. Hobson from time to time.
c.
That the total amount paid to him for my share during the year 2007 was
$ 2700.00.
d.
That I lend him the money to meet his daily business expenses in various
payments totaling $ 3800.00 during the year 2007.
I make this
declaration conscientiously believing it to be true and knowing that it is of
the same force and effect as if made under oath in virtue of the Canada
Evidence Act.
AND IT HAVE
SIGNED at Verdun, Quebec this twenty one day of May Two thousand Nine.
[Emphasis
added.]
[5]
Also in evidence was a list
of the Appellant’s 2007 non-rental apartment expenses totalling approximately
$5,400; this document was also provided to the Appeals Officer.
[6]
By way of background, JM is a
volunteer worker with Oxfam Québec; as such, her living expenses are covered
but she does not receive wages for her work. According to the Appellant, she
lived a modest lifestyle, minimizing her expenses wherever possible. From
October 2008 to March 2009, she was posted in Nicaragua on a
youth development project; during the objection stage JM was working in the Montreal office
of Oxfam Québec. From October 25, 2009 up to and including the time
of this hearing she was in the Democratic
Republic of the Congo where she was
responsible for a “clean water” project.
[7]
In these circumstances, I accept the
Appellant’s argument that it would have been unreasonable to require JM to
return from volunteer work in Africa to testify in an informal procedure appeal
challenging an assessed amount of $1,480.42.
Similarly, I find nothing untoward in the Appellant’s choice to proceed with
the disposition of his appeal rather than accepting the Respondent’s offer to
ask the Court to adjourn it until such time as JM might return to Canada. As I
understand it, this offer was made for the first time at the hearing of the
appeal; it presumes that the Court would have granted such an adjournment and
overlooks the expenses already incurred by the Court and the parties to be
ready to proceed on the scheduled day.
[8]
Thus, while I am not prepared to
draw a negative inference from the Appellant’s failure to call JM as a witness,
it is not without other repercussions. The Appellant’s position is that the
words “monthly expenses” in JM’s sworn declaration refer to her contribution to
household expenses in addition to the $3,600 she paid for her share of the
apartment rent. This makes some sense if one considers that when the declaration
was sworn on May 21, 2009, the Minister had already accepted in his
reassessment of April 23, 2009 that the Appellant had received $3,600 from JM
as apartment rent. From this it would follow that there would be no need to
make any further reference to the receipt of an amount for rent in the sworn
declaration prepared for use at the objection stage. Hence, it could be
inferred that the words “monthly expenses” refer only to the non-rental
expenses.
[9]
Counsel for the Respondent argued,
however, that it was clear on the face of JM’s sworn declaration that the total
amount paid toward their expenses in 2007 was $2,700. As $3,600 was allowed by
the auditor for rent alone, the Appellant had already experienced a windfall of
some $900. (No adjustment can be made in this respect as the jurisprudence is
clear that the Minister cannot use a taxpayer’s appeal to correct errors in his
assessment that would result in more tax payable.) At the very least, counsel
argued, the sworn declaration is not clear enough to justify a finding that the
Appellant had received a payment of $2,700 from JM in respect of household
expenses in addition to the $3,600 he claimed she had paid as rent.
[10]
I agree with counsel for the
Respondent that the sworn declaration is ambiguous and that only JM could
provide the necessary clarification. I also accept his argument that the list
of household expenses in Exhibit R-2 showing a total of $5,400 (half of which
just happens to be $2,700) does not take into account the percentage of those
expenses which were attributed to business expenses at the audit stage.
[11]
It seems to me that because the Appellant
bears the onus of proving that the $2,700 amount was not unreported business
income, any ambiguity in JM’s sworn declaration must be resolved in favour of
the Respondent. In all the circumstances, there is insufficient evidence before
me to conclude that the Appellant received $2,700 for household expenses in
addition to the $3,600 the Minister accepted as having been received from JM
for rent in 2007.
[12]
That leaves, then, the Appellant’s
claim that he received and deposited in his account approximately $3,800 from JM
as a loan for use in his business. At the objection stage, the Appeals Officer was
unconvinced: there was no written loan agreement between the Appellant and JM,
the Appellant had made no repayments on the loan and there was no deadline for
doing so. The Appeals Officer was also troubled by the Appellant’s inconsistent
statements at the audit and the objection stage; first he said that all amounts
had been deposited; when confronted with the discrepancy between the
unaccounted-for amount of $9,154 identified by the auditor in his accounts and
the $10,154 total the Appellant said JM had advanced to him, the Appellant said
that he had kept some of the amounts received from her rather than depositing
them. On these grounds, the Appeals Officer decided that the Appellant had not shown
“hors de tout doute raisonnable” that any such loan had been made.
[13]
The standard of proof attached to
the Appellant’s onus of proving wrong the Minister’s reassessment is on a
balance of probabilities. On that basis, I am satisfied that the Appellant has
met this burden in respect of the $3,800 loan. JM’s sworn declaration is
unequivocal that she paid that amount to the Appellant for that purpose and I
have no reason to think the Appellant was untruthful in his testimony.
[14]
Had the Appellant maintained a
separate account for his business and kept better records, he might well have
avoided having to distinguish JM’s contributions from his business income.
While the standard required under the legislation is adequacy, not perfection,
his failure to strive towards the latter contributed, in no small part, to his
problems. On the positive side, the auditor’s notes and the objection report
reveal that the Appellant was quick to co-operate with officials, complied with
their requests for additional information and made reasonable attempts to
substantiate his claims. At the hearing, he admitted his memory was not
perfect: but for his mother having jogged his memory about her contributions to
his finances in 2006 and 2007 and providing copies of the supporting cheques, those
amounts would also have been attributed to unreported business income. By the
same token, the Appellant also forgot about having received insurance proceeds
of $638; this did not come to him until the objection stage when he was able to
substantiate his claim by producing the cancelled cheque.
[15]
In these circumstances, I am less
troubled than the Appeals Officer by the apparent inconsistency in the Appellant’s
statements as to exactly how much of JM’s contributions were deposited in his
accounts. Given their payment in various increments on an irregular basis and
the precariousness of the Appellant’s financial situation, it strikes me as
more, rather than less, likely that some of the cash received from JM would
have gone directly to meet immediate needs rather than having been deposited
into his account. While he failed to mention the loan during the audit, the
reassessment no doubt sharpened his attention, inciting him to take a closer
look at his records, such as they were, and to provide a more detailed account
of his affairs at the objection stage. When considered in light of his personal
relationship with JM and the Appellant’s approach to records keeping, that they
did not reduce their financial arrangements to writing or embark on a rigourous
repayment schedule is hardly surprising. It is certainly not sufficient in
itself to justify the conclusion that no such loan was made. I am satisfied
that $3,800 of the $6,554 treated by the Minister as unreported business income
in 2007 was in respect of a loan received by the Appellant from JM.
[16]
For the reasons set out above, the
appeal is allowed and referred back to the Minister for reconsideration and
reassessment on the basis that the Appellant’s unreported business income in
2007 was not more than $2,754.
Signed at Ottawa,
Canada, this 20th day of January, 2011.
“G. A. Sheridan”
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