Citation: 2011TCC495
Date: 20111020
Docket: 2009-2342(IT)G
BETWEEN:
CHANDLER TURNNIR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller J.
[1]
The Appellant has
appealed the reassessment of his 1999, 2000 and 2001 taxation years in which
the Minister of National Revenue (the “Minister”) included unreported income in
the Appellant’s income as follows:
|
Year
Reassessment
|
Employment/
Other Income
|
Taxable Dividends
|
Interest
Income
|
|
1999
April 29, 2005
|
$ 64,200.00
|
$ 15,375.00
|
|
|
2000
March 7, 2002
April 29, 2005
|
$ 20,000.00
$444,000.00
|
$ 12,741.00
$ 3,750.00
|
$122.00
|
|
2001
April 29, 2005
|
$ 16,283.63
$ 4,500.00
$ 10,205.00
|
|
|
The Minister also assessed gross negligence
penalties in each of the years and a late filing penalty for the 2000 taxation
year.
[2]
The Appellant reported
nil income on his income tax returns for 1999, 2000 and 2001.
[3]
In 2006, the Appellant
was convicted by the Provincial Court of British Columbia of evading the
payment of taxes by failing to report taxable income in the amount of $574,075
between December 31, 1999 and May 1, 2002. The Appellant’s defence at the
criminal proceedings was that he was a “natural person”.
[4]
According to the Reply,
the Minister made the following assumptions of fact when he determined the
Appellant’s income tax liability:
a)
at all material times the Appellant was the sole
shareholder, director and the president of Chandler Holding Ltd. (“Chandler”) which was formerly known as Fair
Garbage Disposal Ltd. (“Fair Garbage”);
b)
Fair Garbage changed its name to Chandler on February 18, 2000;
c)
at all material times the Appellant was an
employee of Fair Garbage and Chandler;
d)
Fair Garbage’s and Chandler’s year end were both October 31;
e)
Fair Garbage and Chandler operated as a garbage disposal business;
f)
in February 2000 Chandler sold the garbage disposal business after which it operated as a
holding company;
1999 Unreported Employment Income: $64,200.00
g)
in 1999 Fair Garbage paid the Appellant
employment income in the amount of $64,200.00 as follows:
i) salary in the amount of $5,000.000 per month from
January to December; and
ii) vacation pay in August 1999 in the
amount of $4,200;
h)
Chandler issued the
Appellant a T4 slip indicating that the Appellant received the amount of
$64,200.00 in employment income in 1999;
i)
the Appellant did not include his receipt of
$64,000.00 in employment income that he received from Chandler in 1999 in his tax return filed with the Minister for the 1999
taxation year;
1999 Unreported Taxable Dividends: $15,375.00
j)
in 1999 the Appellant withdrew funds from Chandler utilizing his shareholder loan
account in the amount of $12,300.00 (the “1999 Funds”);
k)
the Appellant used the 1999 funds for his
personal investment purposes;
l)
the Appellant and his accountant determined that
Chandler would treat these 1999
Funds as dividends received by the Appellant in 1999;
m)
Chandler issued the
Appellant a T5 slip indicating that the Appellant received the amount of
$15,375.00 in taxable dividends in respect of the 1999 Funds;
n)
the Appellant did not include his receipt of the
1999 Funds in the amount of $15,375.00 that he received from Chandler in 1999
in his tax return filed with the Minister for the 1999 taxation year;
2000 Unreported Employment Income: $20,000
o)
in 2000 Chandler paid the Appellant salary in the amount of $5,000.00 per month from
January to April for a total amount of employment income of $20,000.00;
p)
Chandler issued the
Appellant a T4 slip indicating that the Appellant received the amount of
$20,000 in employment income in 2000;
q)
the Appellant did not include his receipt of
$20,000 in employment income that he received from Chandler in 2000 in his tax return filed with the Minister for the 2000
taxation year;
2000 Unreported Other Employment Income: $444,000.00
r)
in April 2000 the Appellant withdrew funds from Chandler utilizing his shareholder loan
account in the amount of $905,000.00 (the “2000 Funds”);
s)
the Appellant used the 2000 Funds for his
personal investment purposes;
t)
the Appellant and his accountant determined that
Chandler would offset this
$905,000.00 shareholder loan debit by declaring a shareholder bonus in 2000 in
the amount of $444,000.00;
u)
Chandler did not issue a
the Appellant a T4 slip indicating that the Appellant had received a
shareholder bonus in the amount of $444,000.00 in 2000;
v)
the Appellant did not include his receipt of the
shareholder bonus in the amount of $444,000.00 that he received from Chandler in his tax return filed with the
Minister for the 2000 taxation year;
2000 Unreported Taxable Dividends: $12,741.00
w)
in 2000 received dividends of $9,000.00 from Chandler
x)
Chandler issued the
Appellant a T5 slip indicating that the Appellant received the amount of
$11,250.00 in taxable dividends in 2000;
y)
in 2000 the Appellant received a dividend amount
of $1,193.00 from Odlum Brown Ltd. (“Odlum”);
z)
Odlum issued the Appellant a T5 slip indicating
that the Appellant received the amount of $1,491.00 in taxable dividends in
2000;
aa)
in his 2000 tax return filed with the Minister
the Appellant did not include taxable dividends from Chandler of $11,250.00 or from Odlum of $1,491.00;
2000 Unreported Taxable Dividends: $3,750.00
bb) in November 2000 the Appellant received additional dividends from Chandler in the amount of $3,000.00;
cc)
Chandler did not issue
the Appellant a T5 slip indicating that the Appellant received the amount of
$3,750.00 in taxable dividends in 2000;
dd) the Appellant did not include his receipt of taxable dividends from Chandler in the amount of $3,750.00 in 2000
in his tax return filed with the Minister for the 2000 taxation year;
2001 Unreported Employment Income: $16,283.63
ee)
the Appellant withdrew salaries in the amount of
$16,283.63 itemized as “contract labour”;
ff)
Chandler expensed these
amounts through the “salaries” account and at year end adjusted these amounts
to the “contract labour” account;
gg)
Chandler did not issue a
T4 slip to the Appellant for the employment income it paid to the Appellant in
the amount of $16,283.63 in 2001;
hh)
the Appellant did not report his receipt of
employment income from Chandler
in 2001 in the amount of $16,283.63 in his tax return filed with the Minister
for the 2001 taxation year;
2001 Unreported Employment Income: $4,500.00
ii)
the Appellant received an additional amount of
employment income from Chandler
in 2001 in the amount of $4,500.00 in respect of “contract labour”;
Unreported Other Employment (Vehicle Standby Charge and Operating
Cost Benefit)
jj)
the Appellant had a 1991 Cadillac Seville
automobile made available to him by Chandler 2001 (the “Cadillac”);
kk) in 2001 Chandler paid
all of the operating costs of the Cadillac;
ll)
in 2001 the Appellant did not reimburse Chandler for any of the operating costs
associated with the Cadillac;
mm)
in 2001 the Appellant did not keep a mileage log
to record his business use or personal use of the Cadillac;
nn)
the Appellant drove the Cadillac approximately
18,000 kilometres per year in 2001;
oo) in 2001 the Cadillac had a 10% business use;
pp) the cost to Chandler
for providing the use of this Cadillac to the Appellant was $31,722.60;
qq) the Appellant received a standby charge from Chandler in 2001 in the amount of $7,613.00
in respect of the Cadillac; and
rr)
the Appellant received an operating cost benefit
for Chandler in 2001 in the
amount of $2,592.00 in respect of the Cadillac.
[5]
At the hearing of this
appeal, it was the Appellant’s position that he is the “authorized
administrator of the legal person named” in the Reply. He stated that all of
the assumptions were false because he is a “sovereign person” and as such he
does not have to pay taxes unless it can be shown that there is a contract
between him and the Government of Canada. It was his opinion that only
government employees had to pay taxes. The Appellant made other statements
which reflected his displeasure with the governments of Canada and British Columbia. He stated that he was not relying on the “natural
person” argument which I note was his position in his Notice of Appeal.
[6]
Subsequent to the
hearing, the Appellant filed documents with the court which purported to show
that there was a Security Agreement between him, “the flesh and blood living
man” and the straw man / legal entity CHANDLER TURNNIR.
[7]
The Appellant did not
attempt to satisfy the burden of proof. Aside from stating that the assumptions
were incorrect, he adduced no evidence to challenge the assumptions.
[8]
The Appellant’s
argument that he is a “sovereign person” and cannot be taxed unless there is a
contract between him and the government is without merit. The Income Tax Act
(the “Act”) does not distinguish between “person”, “natural person” and
“sovereign person”. The definition of “person” in section 248 of the Act
includes a “flesh and blood living man” such as the Appellant. As stated by
Gauthier J. in M.N.R. v Stanchfield , 2009 FC 99 at paragraph 17:
…The whole
notion of their being a second capacity distinct from the one of a natural
person or human being is a pure fiction, one which is not sanctioned by law.
One can describe nothing in any terms one wishes; it still remains nothing.
[9]
The Appellant is a
“person” who was resident in British
Columbia, Canada in 1999, 2000, and 2001 and the income he received in
those years is taxable.
[10]
It is worth mentioning
that the Appellant has argued that he is not liable for income taxes; and yet,
he seeks the benefits of being a person resident in Canada.
In his income tax returns he applied for the GST credit. Also, the 2000 T4
corporate summary showed that he had the maximum pensionable earnings for Canada
Pension Plan purposes. At the criminal proceedings, the Appellant explained
this by stating that “the taxpayer is entitled to any benefits which he is
entitled to” and the “taxpayer” wanted to maximize his Canada Pension.
[11]
The Minister has the
burden to show that gross negligence penalties were properly assessed. According
to the Federal Court in Venne v. The Queen, 84 DTC 6247, gross
negligence involves a high degree of negligence tantamount to intentional
acting or indifference as to whether the law is complied with or not.
[12]
The evidence has shown
that prior to 1999 the Appellant reported his income and paid taxes on it. He
stated that in 1999 he found out that there must be a contract between the
legal person and the government in order for him to be liable for taxes. He
wrote to the Canada Revenue Agency (“CRA”) and was told that he had to report
all of his income. In spite of this, the Appellant reported nil income in his
income tax returns for 1999, 2000 and 2001. The Appellant was also advised by
his former accountant, R. W. Burr, C.A., that he had to
report the amount of $444,000 which he withdrew in 2000 from his corporation,
Chandler Holdings Ltd. In a letter dated December 18, 2001 to the Appellant,
Mr. Burr wrote:
I am concerned that $444,000 of wages were shown in the company
records, paid to you in the prior year, that you have not reported on a
personal tax return nor prepared T4 slips for (both of which I would argue are
necessary).
You
should be aware that you have a risk of having the wage deduction disallowed in
the company because you have failed to report it personally.
In view of your opinion that you do not agree with the current
assessment of personal income taxes, I am enclosing a photocopy of a recent
release concerning a tax court case that went against a taxpayer with similar
views. You might find this of interest and you should consider it carefully in
your current stand.
[13]
The Appellant’s failure
to report his income was intentional and I am satisfied that the Respondent has
met the onus in this appeal and the subsection 163(2) penalties were properly
assessed.
[14]
The late filing penalty
was also properly imposed and the Appellant did not speak to the issue.
[15]
The appeal is dismissed
with costs.
Signed at Ottawa, Canada, this 20th day of October 2011.
“V.A. Miller”
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