Docket: 2006-1822(GST)I
BETWEEN:
HASSAN IDRIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal
heard together on common evidence with the Appeal of
Hassan Idris (2006-1820(IT)I) on August 23, 2007 at Hamilton, Ontario
Before: The Honourable
Justice T. O'Connor
Appearances:
|
For the Appellant:
|
The
Appellant himself
|
|
Counsel for the Respondent:
|
Josh Hunter
|
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under
the Excise Tax Act (“ETA”), notice of which is dated December 18, 2003
for the period from January 1, 1999 to December 31, 2002 is dismissed in
accordance with the attached Reasons for Judgment, provided however that there
shall be no gross negligence penalty.
For greater certainty, the assessment for
the underreported Goods and Services Tax in the amount of $8,042 plus the
penalty of $1,464.11 imposed for late filing under section 280 of the ETA plus
interest of $852.25 have been properly assessed and are maintained.
There shall be no costs.
The whole in accordance with the attached
Reasons for Judgment.
Signed at Ottawa, Canada this 27th
day of September, 2007.
"T. O'Connor"
Citation: 2007TCC575
Date: 20070927
Docket: 2006-1820(IT)I
2006-1822(GST)I
BETWEEN:
HASSAN IDRIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
O'Connor, J.
[1] The Minister of
National Revenue (“Minister”) has reassessed the Appellant under the Income
Tax Act (“Act”) in respect of the taxation years 1997, 1998, 1999
and 2000 principally on the basis that the Appellant has failed to declare all
of his income in those years. The Minister has also, in respect of the taxation
years 1999 and 2000, disallowed certain expenses.
[2] Further, the
Minister has assessed Goods and Services Tax under the Excise Tax Act
(“ETA”) for the period from
January 1, 1999 to December 31, 2002 in respect of the unreported income and
the related supplies.
[3] During all the
years in question and prior thereto the Appellant carried on the business of
computer sales as a sole proprietorship.
[4] It is acknowledged by the Respondent that
the reassessments under the Act in respect of the years 1997 and 1998
were beyond the normal reassessment period. The question, therefore, is whether
the Minister was entitled to re-open those statute barred years under
subparagraph 152(4)(a)(i) which allows the Minister to assess beyond the normal
reassessment period if the taxpayer or person filing the return:
(i) has made any misrepresentation that is attributable to neglect,
carelessness or wilful default or has committed any fraud in filing the return
or in supplying any information under this Act, or …
[5] In my opinion, the Respondent has not
established the necessary misrepresentation by the Appellant and/or his wife,
Anne Idris, who was his bookkeeper for the business. They may have been unaware
of the precise requirements of the Act and may have made innocent
mistakes but in my opinion, the necessary misrepresentation required to re-open
statute-barred years has not been established. Amongst the reasons I have
arrived at that opinion of no misrepresentation is the difficulties the
Appellant and his wife must have encountered in properly preparing the
Appellant’s returns. One need only examine the complex calculations of the
auditor and the appeals officer to appreciate those difficulties. Another
reason for that opinion is that some of the mistakes the Appellant made were
adverse to his interests. As examples, he understated costs of goods sold in
both 1999 and 2000 by fairly substantial amounts and in those years only three
expenses out of several were understated and because of my conclusion (later)
on the rental expenses claim being allowed, that number reduces to two.
[6] The issue under subparagraph 152(4)(a)(i)
is also related to the issue of penalties. If there is a misrepresentation that
was attributable to simple neglect or carelessness not amounting to gross
negligence, the gross negligence penalties under subsection 163(2) cannot be
supported. In my opinion, in all of the years in question, namely 1997, 1998,
1999 and 2000, gross negligence and the conditions of subsection 163(2) have
not been established. Consequently, there shall be no penalties under the Act
in any of those years.
[7] With respect to the
expenses disallowed in the 1999 and 2000 years, the Minister, in the Reply to
the Notice of Appeal, made the following assumptions of fact:
Telephone and utility
(j) the Appellant did not incur telephone and
utility expenses in excess of the amounts of $1,711.51 and $3,227.14 for the
years 1999 and 2000 with respect to his business;
Rent expenses
(k) the Appellant did not incur the rent
expenses in excess of the amounts of $8,932 and $11,748 during the 1999 and
2000 taxation years; and
Vehicle expenses
(l) the Appellant did not incur the vehicle
expenses in excess of the amounts of $489.63 and $500.64 during the 1999 and
2000 taxation years.
[8] These disallowed
expenses were determined on the basis of an extensive and penetrating audit
conducted by Amulya Dave, the Canada Revenue Agency (“CRA”) auditor and as
reviewed by Evelyn Gail Clancey, the appeals officer of the CRA.
[9] The Appellant has
the burden of proof to establish that these assumptions were not correct and,
in my opinion, the Appellant, with the exception mentioned hereafter, has not
met that burden. Moreover, in any event, I accept the testimony of the auditor
and the appeals officer in regard to the disallowed expenses. The only
exception I make is that the Appellant has satisfied me that the rent expenses he
claimed of $9,736.58 and $12,570.36 were correct principally because of his
explanation of having to pay additional rent in respect of common areas.
[10] With respect to the
1999 and 2000 taxation years the amounts of business income understated by the
Appellant and as detailed and calculated in the Reply to the Notice of Appeal
for the income tax appeal were $37,321 in 1999 and $50,764 in the year 2000.
[11] In my opinion, based
on the detailed and extensive testimony of the auditor and of the appeals
officer, the Respondent has established that these amounts were correct. As
more fully detailed in the said Reply, the unreported income amounts were
discovered as a result of unexplained deposits in the business bank account of
the Appellant. The Appellant sought to explain the excess deposits in that
account by producing Exhibits A-1, A-2, A-3 and A-4, which purport to indicate
certain gifts made by the Appellant’s daughter and son. The difficulty is that
the amounts of the alleged gifts have not been proven to have been deposited in
that account. The Appellant also referred to other amounts related to a credit
granted by the Royal Bank and an amount related to American Express and also a
line of credit granted by the bank. In my opinion, based on all of the evidence
the Appellant simply has not been able to establish that the possible source of
the increased amounts in the bank account were explained by these suggestions.
In other words, he has not proved that the increased amounts in the bank
account were not business income. The assumptions have not been rebutted.
[12] The audit was
extensive and penetrating and its conclusion was that in the absence of proof
to the contrary the Appellant’s unexplained bank deposits must have been
business income and, in my opinion, that conclusion was logical and has not
been refuted or rebutted by the testimony of the Appellant. This situation is
not unlike situations involving net worth assessments, where increases in the
value of assets from year to year cannot be explained by the taxpayer and the
Minister therefore concludes that those increases represent under claimed
income. The absence of an alternative explanation leaves the Minister with no
other choice.
[13] For all of the above
reasons, the appeal from the reassessments made under the Act for the
1999 and 2000 taxation years is dismissed, provided however that the rent
expenses to be allowed to the Appellant shall be $9,736.58 in 1999 and
$12,570.36 in 2000 and provided that there shall be no penalties.
[14] As noted above, the
appeal in respect of the 1997 and 1998 years in respect of the Act is
allowed.
[15] Also, as mentioned
above, there shall be no penalties under the Act in respect of any of
the years 1997, 1998, 1999 and 2000.
[16] The Appellant also appeals
against the assessment (“assessment”), notice of which is dated December 18,
2003 under the Excise Tax Act (“ETA”), for the period from January 1,
1999 to December 31, 2002 the (“period”).
[17] The assessment is
for underreported GST in the amount of $8,042 plus interest, a late filing
penalty under section 280 of the ETA in the amount of $1,464.11 and a gross
negligence penalty in the amount of $2,010.50.
[18] The assessment is in
relation to the unexplained bank deposits which the Minister has assumed
represented unreported business income and accordingly, unreported supplies. At
the hearing of these appeals, counsel for the Respondent acknowledged that the
outcome of this ETA appeal would follow and accord with the outcome of the
appeal in the income tax appeal.
[19] As indicated above,
the said Income Tax appeal in
respect of the years 1999 and 2000 has been dismissed with the result that the
Minister’s position with respect to the unreported income and therefore
supplies was maintained. Also in the Income Tax appeal, the gross negligence
penalties for the years 1999 and 2000 were not allowed. Accordingly, the gross
negligence penalty imposed in this ETA appeal is not allowed.
[20] Consequently, the appeal from the assessment made under
the Excise Tax Act, notice of which is dated December 18, 2003, for the
period from January 1, 1999 to December 31, 2002 is dismissed provided however
that there shall be no gross negligence penalty. For greater certainty, the
assessment for the underreported GST in the amount of $8,042 plus the penalty
of $1,464.11 imposed for late filing under section 280 of the ETA plus interest
of $852.25 have been properly assessed and are maintained.
[21] There shall be no
costs.
Signed at Ottawa,
Canada this 27th day of September, 2007.
"T. O'Connor"
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