Citation: 2009TCC90
Date: 20090209
Docket: 2008-1145(IT)I
BETWEEN:
YIM SAN CHOW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] This is an appeal by Yim San Chow in respect of
assessments made under the Income Tax Act for the 2003 and 2004 taxation
years.
[2] There are two issues: (1) do certain amounts deposited
in Mrs. Chow’s bank accounts represent income to her; and (2) are gross
negligence penalties appropriate.
Background
[3] According to Mrs. Chow’s testimony, she is a
stay-at-home housewife and mother. Only small amounts of interest income have
been reported in her income tax returns for the relevant years.
[4] For reasons that were not explained at the hearing,
the Canada Revenue Agency conducted an audit of Mrs. Chow in 2006 which
commenced with a visit to her home.
[5] Two auditors came to Mrs. Chow’s home, one of whom had
a limited role as an interpreter because Mrs. Chow does not speak English well.
[6] During this visit, the auditor reviewed Mrs. Chow’s
bank books and determined that there were numerous deposits in varying amounts
up to $40,000.
[7] The auditor requested to take the books away for the
purpose of making photocopies. Mrs. Chow did not want the books removed from
the home and she informed the auditor that she would make the photocopies
herself.
[8] Upon receiving the photocopies, the auditor was not
satisfied with their completeness and the auditor then obtained the relevant
deposit information directly from Mrs. Chow’s banks.
[9] The audit investigation led to reassessments which
added to Mrs. Chow’s income amounts that were deposited into several bank
accounts that Mrs. Chow kept, either on her own or jointly with her husband or
other relatives.
[10] The amounts that were added to Mrs. Chow’s income were
$138,980 for the 2003 taxation year, and $29,000 for the 2004 taxation year.
Gross negligence penalties were also imposed due to the large under-reporting
of income.
[11] At this point, Mrs. Chow retained the assistance of
her accountant, Gary Liang, to assist her with this matter. Mr. Liang also
represented Mrs. Chow at the hearing.
[12] Detailed submissions were made to the Canada Revenue
Agency at the objections stage with Mr. Liang’s assistance. The general thrust
of the submissions was that none of the deposits were sourced from income. Most
of the money came from relatives, often elderly, or close family friends, it
was suggested.
[13] As a result of the submissions, revised reassessments
were issued which deleted some of the deposits from income. Although the
testimony was not as clear on this point as I would have liked, it appears that
the appeals officer removed an item from income if there was sufficient proof
that the deposit came from relatives or friends.
[14] The adjustments were significant. The new
reassessments reduced the additional income to $52,941 and $19,000, for the
2003 and 2004 taxation years respectively. The gross negligence penalties were
also adjusted to take the reductions into account.
[15] For the most part, the deposits for which no
adjustment was made represented deposits in cash which were difficult to
verify. For many of these, Mrs. Chow claims that funds were received
either from elderly family members or close family friends who either needed,
or might need, assistance with finances.
Analysis
[16] For the reasons that follow, I have concluded that the
appeal should succeed.
[17] The appellant in my opinion has made a prima facie
case that the deposits which are the subject of this appeal are either gifts or
loans from relatives or close friends or are monies held in trust for the
benefit of such persons.
[18] When a prima facie case has been established,
the burden shifts to the respondent to provide some evidence to the contrary: Hickman
Motors Ltd. v. The Queen, 97 DTC 5363 (SCC), at 5376. The respondent has
not been able to satisfy this burden.
[19] During the respondent’s argument, it was made clear
that the respondent was not alleging that Mrs. Chow’s testimony was deceitful.
If the testimony was not intentionally deceitful, it is difficult to understand
how income could have been earned.
[20] Either Mrs. Chow’s testimony was intentionally
deceitful, or the deposits do not represent income. It is difficult to imagine
another plausible scenario.
[21] In coming to the conclusion that Mrs. Chow has made a prima
facie case that the deposits do not represent income, I have also taken the
following factors into account.
1)
There was a significant amount of
supporting evidence provided by Mrs. Chow, including evidence of withdrawals
from other bank accounts, which amounts were allegedly given to Mrs. Chow. This
evidence was not perfect, but it does suggest that Mrs. Chow made a bona
fide effort to provide the Court with supporting documentation.
2)
The appeal was heard under the
informal procedure and some tolerance for deficiencies in evidence should be
given.
3)
Mrs. Chow has no obvious source of
income other than the interest income that was reported. The facts in this
appeal are quite different from other cases in which there is an obvious source
of income, such as a cash business. The respondent introduced into evidence a bank
form in which Mrs. Chow’s occupation was listed as babysitter. During cross‑examination,
she testified that she had no idea where that statement came from. It is
reasonable to believe that this was a misunderstanding with the bank due to
language difficulties.
4)
Mrs. Chow provided plausible
explanations for not having further supporting documentation from her
relatives. The explanations were consistent with the evidence as a whole.
5)
During the objections stage, the
reassessments were reduced significantly because the Canada Revenue Agency was
satisfied that the majority of the deposits came from relatives.
[22] For these reasons, I conclude that Mrs. Chow has
satisfied the burden of making a prima facie case, and that the
respondent has not been able to rebut it.
[23] In this
case it is possible that some or all of
the assessed amounts represent income to Mrs. Chow.
[24] However, Mrs. Chow did present a significant amount of
evidence in support of her position. In these circumstances, it is appropriate
in my view that the respondent be required to provide greater evidence that
there has in fact been unreported income.
[25] For these reasons, the appeal will be allowed. The
reassessments will be referred back to the Minister for reassessment on the basis
that, subject to the restrictions on relief that are provided for in the
informal procedure, none of the deposits should be included in Mrs. Chow’s
income and gross negligence penalties should be deleted.
[26] Mrs. Chow is also entitled to costs in accordance with
the tariff.
Signed at Toronto, Ontario this
9th day of February 2009.
“J. Woods”
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