Citation: 2008TCC65
Date: 20080225
Docket:
2005‑3944(IT)G
BETWEEN:
PAUL BEAUDOIN,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
REASONS FOR
JUDGMENT
Angers, J.
[1]
The Appellant appeals from a reassessment made by the Minister of
National Revenue ("the Minister") dated May 27, 2003. By this notice
of reassessment, the Minister amended the Appellant's income for the 1997,
1998, 1999 and 2000 taxation years as follows:
|
|
Reported Income
|
Unreported Income
|
Revised Income
|
|
1997
|
$28,030
|
$11,961
|
$39,991
|
|
1998
|
$4,070
|
$30,649
|
$34,719
|
|
1999
|
$13,295
|
$24,108
|
$37,403
|
|
2000
|
$3,811
|
$31,308
|
$35,119
|
[2]
In addition, the Minister imposed the penalty set out in
subsection 163(2) of the Income Tax Act ("the Act"),
which was computed for each of the amounts and imposed for each of the years in
issue.
[3]
The unreported income was computed using the net worth method.
According to the Minister, the unreported amounts in the table represent the
income that the Appellant failed to report and which must be taken into
consideration for the purpose of calculating his taxes for the years in issue.
[4]
The Minister also submits that the Appellant, in filing his
income tax returns for the 1997 through 1999 taxation years, did not present
his true situation because he failed to declare significant income.
Accordingly, the Minister submits that he was justified under the circumstances,
pursuant to subsections 152(4) and 152(7) of the Act, in making a
reassessment after the expiry of the normal assessment period. Finally, the
Minister submits that the Appellant has knowingly or in circumstances amounting
to gross negligence made false statements or an omission in his income tax
returns for the 1997 through 2000 taxation years, thereby warranting imposition
of the penalty set out in subsection 163(2) of the Act.
[5]
During the years in issue, the Appellant operated a business in
the construction field; he performed snow removal, excavations and the
installation of septic tanks. The evidence established that the Appellant did
not keep any accounting records for his business for the years in issue and
that he personally completed his income tax returns.
[6]
The Appellant was audited in 2003. According to the auditor, the Appellant
was uncooperative and maintained that he had not earned any income in 1997 and
1998 from his snow removal and excavation business. However, the auditor succeeded
in obtaining evidence of purchases from some suppliers, which clearly indicated
that the Appellant had purchased certain materials, showing that he had in fact
performed excavation work during those two years.
[7]
Following the issuance of letters of requirement seeking to
obtain his bank accounts, the Appellant provided answers to a questionnaire
regarding his living expenses, and the amounts were computed using the net
worth method. Only the figures under the heading [TRANSLATION]
"Unidentified Personal Expenses" were challenged by the Appellant at
the hearing.
[8]
His objection is based on the fact that the auditor accepted only
about half of his receipts for business expenses, which therefore increases the
amount shown under the heading of unidentified personal expenses and as a
result, the difference in income. However, the Appellant did not submit in
evidence any receipt nor provide any explanation allowing me to change in any
way the figures obtained through the net worth method.
[9]
The auditor based his refusal to allow almost half of the
business expenses on the fact that he was unable to connect the expense
referred to in the receipt to a corresponding bank withdrawal. If the Appellant
pays his bills in cash, this means that he has funds in cash that he has not
deposited. The audit also established that the Appellant had cashed a number of
cheques without depositing the amounts. Since the Appellant did not keep any
accounting records for his business, the auditors were obliged to reconstruct
the Appellant’s business transactions in the years in issue.
[10]
The Appellant did not report any income from his excavation and
snow removal business in his income tax returns for the 1997 and 1998 taxation
years. However, it bears repeating, the auditors obtained from him receipts for
expenses relating to these two activities for both years in issue. At the
hearing, when asked if he had carried on business in the years in issue, the Appellant
was evasive, despite receipts showing that he had performed certain activities;
he finally admitted that he had carried on his business in this field in these
two years.
[11]
The issues are the following:
First, did the
Appellant inaccurately report his income for the 1997 through 1999 taxation
years?
Second, was
the Minister entitled to add to the Appellant’s reported income the sums of
$11,961 for the 1997 taxation year, $30,649 for the 1998 taxation year, $24,108
for the 1999 taxation year and $31,308 for the 2000 taxation year?
Third, did the
Minister properly impose penalties on the Appellant for the 1997 through 2000
taxation years, in accordance with subsection 163(2) of the Act?
[12]
Subsection 152(4) of the Act allows the Minister to
make an assessment after the expiry of the normal period for reassessment:
Assessment and reassessment
The Minister
may at any time make an assessment, reassessment or additional assessment of
tax for a taxation year, interest or penalties, if any, payable under this Part
by a taxpayer or notify in writing any person by whom a return of income for a
taxation year has been filed that no tax is payable for the year, except that
an assessment, reassessment or additional assessment may be made after the
taxpayer’s normal reassessment period in respect of the year only if
(a) 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
(ii)
has filed with the Minister a waiver in prescribed form within
the normal reassessment period for the taxpayer in respect of the year; or
(b) the assessment, reassessment or
additional assessment is made before the day that is 3 years after the end of
the normal reassessment period for the taxpayer in respect of the year and
(i) is required pursuant to subsection 152(6) or would be so
required if the taxpayer had claimed an amount by filing the prescribed form
referred to in that subsection on or before the day referred to therein,
(ii) is made as a consequence of the assessment or reassessment
pursuant to this paragraph or subsection 152(6) of tax payable by
another taxpayer,
(iii) is made as a consequence of a transaction involving the
taxpayer and a non‑resident person with whom the taxpayer was not dealing
at arm's length,
(iv) is made as a consequence of a payment or reimbursement of any
income or profits tax to or by the government of a country other than Canada or
a government of a state, province or other political subdivision of any such
country,
(v) is made as a consequence of a reduction under
subsection 66(12.73) of an amount purported to be renounced under
section 66, or
(vi) is made in order to give effect to the application of
subsection 118.1(15) or 118.1(16).
[13]
In the case at bar it is obvious, in view of the evidence, that the
Appellant failed to report his income from his snow removal and excavation
activities for 1997 and 1998, since he had in his possession receipts for
expenses showing that he made purchases and therefore performed this kind of
work. In fact, he finally admitted that he had indeed carried on business in
these two years. Based on the balance of evidence, I can conclude that he did
not report all his income from his snow removal and excavation activities in
1999. In my opinion, the Minister was therefore justified, in the
circumstances, in assessing the Appellant after the expiry of the normal reassessment
period. The Minister has therefore established, on a balance of probabilities,
that the Appellant reported his income for the 1997 to 1999 taxation years
inaccurately.
[14]
As to whether the Minister acted lawfully in adding to the income
reported by the Appellant the sums of $11,961 for 1997, $30,649 for 1998,
$24,108 for 1999 and $31,308 for 2000, I must allow the appeal for the 1997 and
2000 taxation years. At the beginning of the hearing, the Minister consented to
judgment reducing the amount of income for 1997 from $11,961 to $1,960, and for
2000 from $31,308 to $30,307. The penalties must obviously be imposed on the
basis of these new amounts.
[15]
It cannot be denied that calculating a taxpayer's income based on
the net worth method does not necessarily present a true picture; and one of
the ways to avoid this result is for the taxpayer to keep adequate accounting
records for his business and to keep supporting documentation. In this case,
the Appellant chose not to maintain adequate records, not to keep bills and
even not to report all his income. In view of the evidence, I am unable to make
any change whatsoever to the figures resulting from the net worth method for
the years in issue, particularly those relating to unreported income.
[16]
Therefore the Appellant has not satisfied me, on a balance of
probabilities, that the Minister was not entitled to add these amounts to the income
that the Appellant had already reported, subject of course, to the changes
submitted by the Minister for the 1997 and 2000 years.
[17]
The Minister also imposed penalties for the years in issue.
Subsection 163(2) of the Act provides:
False statements or omissions. Every person who,
knowingly, or under circumstances amounting to gross negligence, has made or
has participated in, assented to or acquiesced in the making of, a false
statement or omission in a return, form, certificate, statement or answer (in
this section referred to as a "return") filed or made in respect
of a taxation year for the purposes of this Act, is liable to a penalty of the
greater of $100 and 50% of the total of the following amounts
…
[18]
Having determined that the Appellant reported
his income inaccurately, and in view of the fact that the Appellant admitted
having made inaccurate statements to the auditors as to his business
activities, the Minister was lawfully entitled to impose the penalties set out
in subsection 163(2).
[19]
The appeal is allowed and the
assessments are referred back to the Minister of National Revenue for reconsideration
and reassessment: the amounts of unreported income for 1997 and 2000 will be
amended in accordance with the consent provided by the Minister's agent: a
reduction to $1,960 for the 1997 taxation year and to $30,307 for the 2000
taxation year as well as an adjustment of the penalties. The appeal from the
assessments for the 1998 and 1999 taxation years is dismissed and the
assessments are upheld. Each party shall pay its costs.
Signed
at Ottawa, Canada, this 25th day of February 2008.
"François Angers"
Translation certified true
on this 11th day of April 2008.
Brian McCordick, Translator
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