Citation: 2009 TCC 141
Date: 20090312
Docket: 2007-1754(IT)G
BETWEEN:
ROBERT ANTHONY MANSOUR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
The taxpayer,
Mr. Mansour, was engaged in a number of Montreal rental real estate ventures together with his partner, Mr. Oberman,
during the period from 1994 to the end of 2000. For each of the properties a
separate partnership was established. In some cases and for some periods of
time, one of the partners’ fathers was also a partner. Each of the partners
shared in the rental income on a pro rata basis according to the cash each had
invested in a particular property. In most cases, Mr. Mansour was a one-third
investor. Each of the partners received an equal management fee for his
non-financial contributions to the venture, without regard to the amount
invested. Mr. Mansour was primarily responsible for ensuring the
properties were maintained, renovated and rented, for collecting the rents,
etc. Mr. Oberman, an accountant by training, was responsible for the books
and records, the accounting and dealing with the outside accountants.
[2]
Mr. Mansour was
reassessed for 2000 and 2001. According to the Canada Revenue Agency ("CRA")
auditor it was Mr. Oberman who had been selected for audit, but
Mr. Mansour was also audited once his relationship with Mr. Oberman
became apparent in the course of the audit of Mr. Oberman.
[3]
Mr. Mansour’s
reassessment for 2000 was issued after that year became statute-barred. The
reassessment for 2000 raises two issues. The first is whether the property on
Queen Mary disposed of in 2000 was disposed of in December as reported or in
July as determined by the Minister of National Revenue (the
"Minister"). Mr. Mansour’s gain was $150,000. The timing is
significant because in 2000 there were three different capital gains inclusion
rates: 75%, 66 2/3%, and 50%. A related issue is whether an offsetting capital
loss of $35,000 was also realized on the disposition of another property on
Côte-St-Luc in 2000. The second issue is whether the management fees received
by Mr. Mansour in 2000 were $44,200 as indicated in the return filed or $75,595
as assessed by the CRA. The respondent has the burden of showing that
Mr. Mansour’s conduct permits the reopening of his 2000 taxation year
beyond the normal reassessment period, as provided for in subsection 152(4)
of the Income Tax Act (the “Act”). Subsection 152(4.01)
requires that the Minister be able to demonstrate misconduct by Mr. Mansour
in respect of each of the issues.
[4]
Mr. Mansour’s
reassessment for 2001 is in respect of an additional $22,390 of management fees
assumed by the Minister to have been received by Mr. Mansour from his
Queen Mary real estate venture with Mr. Oberman. Mr. Mansour did not
report any management fees for 2001 and points out that he had disposed of his
interest in the property to Mr. Oberman by the end of 2000 (according to
the Minister that disposition took place even earlier). The reassessment for
2001 was issued within the normal reassessment period. It is Mr. Mansour
who bears the onus in respect of the 2001 reassessment of additional income.
[5]
The CRA also assessed against
Mr. Mansour so-called gross negligence penalties under subsection 163(2)
in respect of the assumed unreported management fees. It is the respondent who
bears the burden of proof in respect of the penalties.
[6]
Mr. Oberman did
not testify although both parties indicated they hoped he would. The respondent
attempted twice to serve a subpoena upon him. Both times it was in the week
leading up to the trial. On the first occasion the official attempting service
was told by the occupant that Mr. Oberman had not lived at that address for
two and a half years. A few days later service was attempted at another address,
where Mr. Oberman’s ex-wife advised that Mr. Oberman had not lived there
for two years.
[7]
Mr. Oberman’s
evidence would have been helpful to test the correctness of both parties’
positions on the issues. I was not asked to make an adverse inference against
either party resulting from the failure to call Mr. Oberman as a witness,
nor would I be prepared to in the circumstances. However, as discussed in
greater detail below, the absence of Mr. Oberman has left each party
unable to meet its burden of proof. Given the relatively scant and conflicting
evidence in this case, absent Mr. Oberman, neither party has been able to
demonstrate that its position is more than possible or even plausible and is in
fact probable.
[8]
This is a most
unfortunate and unsatisfactory result. I offered to consider adjourning the
trial to allow Mr. Oberman to be located so that a subpoena could be
served, but both parties preferred to proceed.
I. The 2000 capital gain and loss
[9]
The taxpayer entered as
an exhibit a sale agreement dated July 28, 2000 for the sale of
Mr. Mansour’s interest in the Queen Mary property to Mr. Oberman. The
agreement expressly provides for a closing date of December 31, 2000
and specifies that the $150,000 cash portion of the purchase price would be
payable on closing. This formed the basis of the taxpayer’s reporting the
disposition in his 2000 tax return as a December 2000 transaction.
[10]
The respondent takes
the position that the disposition occurred in July. Counsel for the respondent
points out that a cheque for $150,000 was given to Mr. Mansour by
Mr. Oberman on July 7 and the reference line on the cheque shows a
sale of the Queen Mary property to Mr. Mansour. The taxpayer says that this
was a loan to him by Mr. Oberman in the anticipation or expectation that the
Queen Mary sale would occur, and that the loan was made because Mr. Mansour
was in pressing need of cash at the time. Mr. Mansour’s position is
consistent with the clause requiring payment of the purchase price on closing
in December. The Crown suggests − and nothing more − that the
agreement could have been written up after the October 2000 Economic Statement
so as to take advantage of the reduced capital gains inclusion rate. In fact,
the Crown is alleging fraud without being prepared to actually say there was
fraud. Since the Crown has no evidence to support any such thing, the mere
suggestion that it could have happened and that, if it did happen, it would be
consistent with what other evidence there is, is simply insufficient to satisfy
me that it probably happened. Since the agreement to sell the Queen Mary
property also provided for the sale of the Côte-St-Luc property which gave rise
to the capital loss, would a smart cheat not have let that loss be realized in
July when the allowable capital loss would have been greater?
Mr. Mansour’s position that the closing was in December is consistent with
the evidence before me that he continued to receive and report management fees
as well as his share of the net rental income in respect of the Queen Mary
property through to the end of December.
[11]
The Crown’s position
with respect to the capital loss on the disposition of the Côte-St-Luc property,
namely that there was misrepresentation entitling it to reassess beyond the normal
reassessment period, is much less satisfactory. Mr. Mansour reported the
disposition and reported the $35,000 loss. There was some written evidence
relating to the accounting for the sale that put at $35,000 the financial loss
realized by Mr. Mansour as a result of the sale of his interest for one dollar.
If everything was on the up and up, I would take this to mean that the capital
to be returned to him by the partnership was to be $35,000 less than the
aggregate amount he invested, and thereafter his interest was to be transferred
for a dollar. The Crown’s position is that Mr. Mansour could not show his
capital loss to have been $35,000. However, since the burden is on the Crown,
such an approach is inappropriate. The CRA auditor indicated that he was not
shown any calculation of the property’s adjusted cost base, the proceeds of
disposition or the resulting capital loss, that he could not find one in the
box of documents he received from Mr. Oberman, and that he had not
attempted to prepare one, or reconstruct one, himself as part of the audit. In
these circumstances, the respondent has not discharged the burden of
demonstrating the required gross negligence or wilful misconduct. The Crown
cannot meet its burden by trying to reverse that burden. It must begin with a prima
facie case of misconduct which ultimately holds up as probable.
[12]
In argument, the Crown maintained
that all partners in a partnership should be required to monitor and review that
partnership’s financial accounting each year before accounting for their
partnership income or loss in their individual tax returns, and that failure to
do so is misconduct of the type that would always allow the Minister to
reassess beyond the normal reassessment period even if there were no reason to
doubt the accuracy of the information provided by the partnership to its
partners. Such an extreme position is entirely untenable. It would of course be
quite different if there was reason for partners to doubt the accuracy or
correctness of the information provided to them by the partnership, or if it
was otherwise unreasonable for a partner in particular circumstances to accept
such information as correct.
II. The 2000 management fees
[13]
The amount of
additional management fees added to Mr. Mansour’s income for 2000 was said
to be additional amounts recorded in the books and records of the venture as
management or administration fees paid to Mr. Mansour. The CRA auditor
testified that the books and records maintained by Mr. Oberman and
provided to him by Mr. Oberman were neither complete nor adequate for the
business. Mr. Mansour testified that one of the principal reasons for his falling-out
with Mr. Oberman was that Mr. Oberman ended up spending very little
time on, and therefore perhaps giving very little attention to his contribution
of accounting and record-keeping for the ventures. The additional amounts, unlike
the amounts of management fees reported, are neither regularly occurring nor
modest. They are significant lump sum cheques. If these additional amounts were
truly management fees it would also mean the management fees were far from
being distributed roughly equally between the partners.
[14]
Mr. Mansour said
these amounts were loan repayments. There was evidence that he capitalized the
partnership. The CRA auditor said he did not see any evidence of loan accounts
or partner advance accounts in the books and records. However, it is clear from
the exhibits filed by the Crown that loans (other than mortgage loans), inter-company
loans and shareholder loans were recorded. The evidence presented does not
allow me to conclude that the Minister has demonstrated probable misconduct on
Mr. Mansour’s part entitling the Minister to reassess for a stature-barred
year.
[15]
Since the Minister has
not discharged his burden of showing misrepresentation or misconduct on the
taxpayer’s part in reporting the timing of the capital gain, the amount of the
capital loss reported, or the amount of management fees reported, the appeal
concerning the 2000 taxation year will be allowed in full.
III. The 2001 management fees
[16]
The Minister’s
reassessment for 2001 added $22,390 in management fees to Mr. Mansour’s income.
Mr. Mansour had reported none. The amount in question was recorded by
Mr. Oberman in his records for 2001 as having been paid to
Mr. Mansour as management fees in respect of the Queen Mary property. Mr. Mansour
received a $20,000 cheque (no. 1177) dated February 16, 2001 from the
Queen Mary partnership. On the same day a $16,000 cheque (no. 1179) was issued
to Mr. Oberman. According to the CRA, Mr. Oberman reported this
amount as management fees in his tax return.
[17]
Mr. Mansour points
out that this cheque, unlike others, bears no indication that it was in respect
of management or administration fees, and was not a regular payment of a modest
amount. More importantly, he points out that he did not have any interest in
the Queen Mary property at any time in 2001. He says that this was a post-dated
cheque he received in 2000 as part of his final accounting. He points out that
both his and Mr. Oberman’s signatures are on the cheque made out to him
whereas only Mr. Oberman’s signature is on the cheque for
Mr. Oberman.
[18]
While Mr. Mansour
certainly raises doubt about the correctness of the 2001 reassessment, the
evidence giving rise to my doubts and concerns does not rise to the level
needed to satisfy me on a balance of probabilities that Mr. Mansour’s
position is the more likely. All I can conclude is that the evidence is
insufficient to satisfy me that I know what likely happened to give rise to the
entries or the cheques in question. Since the onus is on Mr. Mansour to
satisfy me that the reassessment for 2001 and the assumptions on which it is
based are not correct, his appeal in respect of the unreported management fee
income for 2001 must be dismissed.
IV. Penalties
[19]
Just as the taxpayer
was unable to satisfy me on the totality of the evidence presented that he had
not received any management fees in 2001 in respect of the Queen Mary property,
the Crown was unable to satisfy me that Mr. Mansour misrepresented his
2001 income in that regard. While this leaves Mr. Mansour unsuccessful on
the merits of his appeal for 2001, it leaves the respondent unable to have the
penalties assessed for that year upheld by this Court.
V. Option-C Printouts
[20]
The Crown introduced into
evidence Option-C or OpC printouts to establish the information reported by the
taxpayer in his 2000 tax return, which had been filed electronically. The taxpayer’s
counsel took the position that the Crown’s Option-C printouts do not constitute
evidence of what was in Mr. Mansour’s e-filed return. He put forward several
reasons. The starting point is paragraph 9 of the 1986 decision of this
Court’s current Chief Justice in Markakis v. M.N.R., 86 DTC 1237.
Following that decision, subsection 244(22) was added to the Act.
That subsection requires that a CRA printout must be a printout of the information
received electronically. The CRA’s Option-Cs are awkward documents to work with
in part because they consolidate post-filing assessment and reassessment
amounts. Counsel for the taxpayer takes the position that an Option-C printout
is not a printout described in subsection 244(22) because it includes much
information other than that which was filed electronically by the taxpayer.
Counsel’s further argument is that in this case the Option-C printout for
Mr. Mansour’s 2000 taxation year does not even show a capital gain or
capital loss as having been reported.
[21]
In this case nothing turns
on the 2000 Option-C printout. Mr. Mansour introduced his copy of his 2000
tax return in evidence. Further, I have allowed his appeal for 2000 for other
reasons. While I do not need to decide the point, I must say I certainly have
difficulty seeing how a printout that does not indicate capital gains and
losses where such have been reported can be a printout of the information filed
electronically by the taxpayer for the year that meets the requirements of
subsection 244(22).
[22]
In the result, the
appeal for 2000 is allowed in full and the appeal for 2001 is allowed only to
the extent of vacating the penalties assessed.
[23]
In the circumstances,
there will be no order as to costs.
Signed at Ottawa, Canada, this 12th day of March 2009.
"Patrick Boyle"
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