Citation: 2011TCC376
Date: 20110802
Docket: 2008-3450(IT)G
BETWEEN:
SAM SAAD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Sam Saad, is
appealing the reassessment by the Minister of National Revenue which, following
an audit by Revenu Québec, added $46,000 to his 2002 income.
[2]
The Appellant represented himself
and was the only witness to testify on his behalf. For the reasons discussed
below, I did not find the Appellant to be a particularly convincing witness nor
was his supporting documentation sufficiently reliable to justify interfering
with the Minister’s assessment.
[3]
Testifying for the Respondent were
Mr. Stéphane Sigouin, an auditor with Revenu Québec (“Quebec Auditor”) and Mr.
Alain Marcoux, an auditor with the Canada Revenue Agency (“Federal Auditor”).
Both were thorough, candid and credible in the presentation of their evidence
regarding their involvement in the Appellant’s file.
[4]
The reassessment arose as a result
of a Revenu Québec audit of a third party, 9115-5028 Québec Inc. (also known as
Karma Distributions) during which it was discovered that 9115-5028 Québec
Inc. had made a payment of $46,000 to the Appellant. That led, in turn, to an audit
of the Appellant’s 2002 taxation year and ultimately, to a reassessment of
provincial tax on that amount. Revenu Québec then reported its findings to the
Canada Revenue Agency and federal tax was reassessed in respect of the $46,000
payment.
[5]
In his Notice of Appeal, the
Appellant admitted that a cheque from 9115-5028 Québec Inc. for $46,000 had
been deposited into his personal account on July 30, 2002 but denied that it
was income in his hands. In support of his position, he pleaded that the
payment had been immediately transferred to 141075 Canada Inc. on August 2,
2002. At the hearing, however, the Appellant presented an unpleaded alternative
version of events; briefly put, that the $46,000 had been retained by the
Appellant as part of a duly authorized shareholder’s loan which he later paid back
to the company.
[6]
The Appellant’s company, 141075
Canada Inc., was in the business of producing identification and security
cards. His wife, Lila Pardiak, was its sole shareholder.
[7]
In 2001, the Appellant, as the
principal of 141075 Canada Inc., was seeking a $50,000 loan from BDC to upgrade
the company’s equipment. To assist him in this initiative, the Appellant retained
the services of a “consultant” known only as “Fadi” whose whereabouts at the
time of the trial were unknown to the Appellant. Fadi held himself out as a
“friend” of the BDC representative handling the company’s loan application and
was to act as a liaison between the BDC representative and the Appellant and
his accountant. The Appellant could not remember the name of either the BDC
representative or his accountant.
[8]
Fadi charged a flat fee of $2,000
for his services with a further commission payable upon financing having been
obtained. According to the Appellant, Fadi told him that before BDC would agree
to the loan, the Appellant would have to prove that he had sufficient cash in
his personal account to secure the company’s loan of approximately $50,000.
Furthermore, the money could not be seen to have been placed in the Appellant’s
personal account by 141075 Canada Inc. To get around this snag, the
enterprising Fadi proposed that 141075 Canada Inc. write a cheque to his (Fadi’s)
company, the third party subsequently audited by Revenu Québec, 9115‑5028
Québec Inc./Karma Distributions. Then, he said, 9115-5028 Québec Inc. would
immediately make a payment back to the Appellant for deposit into his personal
account. Apparently to gild these transactions with a patina of the everyday,
Fadi suggested that 141075 Canada Inc. make the cheque to 9115-5028 Québec Inc.
in the amount of $50,611 rather than $50,000, the additional $611 making it
seem “taxes” had been paid.
[9]
This was done on July 30, 2002
and the same day, 9115-5028 Québec Inc. wrote a cheque to the Appellant
personally for $46,000. The Appellant said he received less than the full
$50,000 advanced by 141075 Canada Inc. because Fadi retained $4,000 of it as
his commission; he did not explain why Fadi was entitled to do so when the
financing for 141075 Canada Inc. had not yet been (and, as it turned out, never
would be) obtained. He testified that on August 2, 2002, $45,000 was then transferred
from the Appellant’s personal account to an account numbered 3228860. The
Appellant explained that he kept $1,000 of the $46,000 for himself as a
management charge of some sort.
[10]
When first asked about the $46,000
payment by the Quebec Auditor in September 2004, the Appellant had difficulty
remembering it. He initially denied having received it and asked to see a copy
of the cancelled cheque from 9115-5028 Québec Inc. Such a request was not in
itself unreasonable as the inquiry came some two years after the fact and
numbered companies often operate under other names. After having examined the
cheque, however, the Appellant again denied its receipt. It was not until some two
months later when the Quebec Auditor informed the Appellant that Revenu Québec
inquiries had confirmed the cheque from 9115-5028 Québec Inc. had been
deposited into his personal account that the Appellant finally admitted its
receipt.
[11]
At the objection stage, the
Appellant told the Federal Auditor that the $46,000 payment had been
immediately transferred to 141075 Canada Inc. and provided bank statements
for his personal account showing a transfer of $45,000 to another account
numbered 3228860 on August 2, 2002. On the basis of this information, the
Minister initially assumed that the account numbered 3228860 was that of 141075
Canada Inc. The Appellant made the same allegation in his Notice of Appeal and
attached the relevant pages of the bank statements.
[12]
However, at the hearing, the Federal
Auditor testified that, contrary to the impression left that the account
numbered 3228860 belonged to 141075 Canada Inc., information subsequently obtained
by the Canada Revenue Agency from TD Canada Trust under paragraphs 231.2(1)(a)
and (b) of the Income Tax Act
revealed that it was, in fact, a line of credit jointly held by the Appellant
and his wife.
[13]
Confronted with the Federal
Auditor’s evidence, the Appellant explained firstly, that he did not think of a
line of credit account as an account per se, suggesting the inference
that it was simply by oversight that he had incorrectly identified account
numbered 3228860 as the account of 141075 Canada Inc. However, the Appellant
produced no other records to show that the $45,000 was ever transferred from
the line of credit account back to 141075 Canada Inc.
[14]
Apparently abandoning his initial
defence, the Appellant went on to say that the payment had not been transferred
back to 141075 Canada Inc. on August 2, 2002; rather, it was retained by the
Appellant as part of a shareholder’s loan which, coincidentally, had been approved
in July 2002. He then brought to light a Shareholder’s Resolution which purported to show
that on July 1, 2002, 141075 Canada Inc. had authorized a loan to the Appellant
for $50,000 “for the purchase of a new house”. Neither the loan nor the document
had been mentioned to the Quebec Auditor or the Federal Auditor during their
inquiries. The loan was not pleaded nor was the Shareholder’s Resolution disclosed
to the Respondent in the Appellant’s List of Documents or at any time prior to
the trial. The Appellant said he had suddenly come across the document just
before the hearing. He contended that it supported his claim that, whatever the
original reasons for the $46,000 finding its way from 141075 Canada Inc. to
9115-5028 Québec Inc. and ultimately into the Appellant’s personal account, the
payment was ultimately treated as a loan from 141075 Canada Inc. as
contemplated by the Shareholder’s Resolution. The Appellant repaid the money to
141075 Canada Inc. in 2002 (or at the very worst, in the following years) by making
advances of varying amounts to keep the faltering company afloat. Because he
had no other documentation to support his claims, when asked about the purposes
of such advances, the Appellant could only speculate that they would have been
for such expenses as rent and salaries.
[15]
Taxpayers have an obligation under
the Act to keep adequate books and records. Failing to do so is not only
contrary to a taxpayer’s legislative duty but also makes significantly more
difficult the task of recreating and justifying possibly legitimate
transactions several years after the fact. While it is not always necessary to
the success of his appeal for a taxpayer to support his testimony with
documentary evidence, it certainly makes it easier for him to meet the onus he
bears of proving his claims. This is no more true than when, as in the present
case, the taxpayer’s testimony suffers from a lack of credibility.
[16]
Here, in addition to overlooking
the procedural deficiencies of his appeal, the Appellant effectively asked the
Court to take him at his word - no easy task given the inconsistencies in his
testimony and his generally blasé attitude to ethical conduct. I was in no way
reassured by the Appellant’s easy recital of his role in what effectively
amounted to tricking BDC into lending a substantial amount of money to 141075
Canada Inc. In providing the Federal Auditor with (and later, attaching to his
Notice of Appeal) copies of statements for his personal account showing a transfer
of the payment to an unidentified account number, the Appellant was gambling
that no one would bother verifying that it was not that of 141075 Canada Inc. When
that strategy proved unsuccessful, the Appellant tried another tack: the
suddenly remembered shareholder’s loan. Even if I were to believe that the
Shareholder’s Resolution was a legitimate document that had suddenly been located
on the eve of trial, it does not explain the Appellant’s failure ever to
mention the existence of a loan. And even if I were to accept the fact of the
shareholder’s loan, there is no reliable evidence that any of that amount was
ever repaid to 141075 Canada Inc. thus making it income in the hands of the
Appellant. All in all, the Appellant’s version of events is just not credible.
In these circumstances, there is no justification for the Court’s interference with
the Minister’s reassessment.
Penalties
[17]
Penalties were assessed against
the Appellant under subsection 163(2) of the Act. The Minister
bears the onus of proving their imposition was justified.
The Federal Auditor cited the fact that the undeclared amount was nearly double
the Appellant’s reported income, $46,000 and $24,500, respectively. He relied
as well on the fact that the Appellant was an experienced businessman and that
he had signed his 2002 return certifying it to be true. The Appellant made no
response to the Minister’s position. In all the circumstances, I am satisfied
that the Minister met his onus and accordingly, the penalties stand as
assessed.
Conclusion
[18]
For the reasons set out above, the
appeal from the Minister’ reassessment of the 2002 taxation year is dismissed,
with costs to the Respondent.
Signed at Ottawa, Canada, this 2nd day of August 2011.
“G.A. Sheridan”
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