Docket: 2005-86(IT)G
BETWEEN:
DAVID SABBAH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeals heard on April 24 and May 16, 2007 at
Montreal, Quebec
Before: The Honourable
Justice G. A. Sheridan.
Appearances:
|
For the Appellant:
|
The
Appellant himself
|
|
|
|
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Counsel for the Respondent:
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Suzanne Morin
|
____________________________________________________________________
JUDGMENT
In
accordance with the attached Reasons for Judgment, the appeals from the assessments
made under the Income Tax Act for the 1995, 1996, 1997 and 1998 taxation
years are dismissed, with costs to the
Respondent.
Signed at Ottawa, Canada,
this 11th day of October, 2007.
"G. A. Sheridan"
Citation: 2007TCC601
Date: 20071011
Docket: 2005-86(IT)G
BETWEEN:
DAVID SABBAH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant,
David Sabbah, is appealing a net worth assessment pursuant to which the Minister
of National Revenue added over $150,000 in unreported income to his income for
the years 1995-98. The net worth assessment was conducted following an audit of
the Appellant’s company. The Appellant’s position is that the assessment ought
to be reduced by $74,619 as such funds had come from a savings account the
Appellant had opened sometime in the mid-1980's. According to the Appellant,
during the years 1995-98, funds totalling $74,619 had been withdrawn, as
needed, from the savings account to help run his company; personal advances were
then taken from the company account in repayment of that loan. The Appellant also
contended that the Minister had arbitrarily over-estimated his family's living
costs.
[2] As in any tax
appeal, the Appellant has the onus of proving wrong the Minister's assumptions.
In the present case, the Appellant faced an uphill battle. The bank where his
savings were allegedly held had since merged with another financial institution.
While that made access to already-dated records all the more difficult, such
efforts would not have been necessary had the Appellant kept adequate books and
records as required under the Income Tax Act. Notwithstanding his
insistence that the banking records would prove his case, he had rejected the
auditor's offer to authorize her to use her powers under the Act to make
a search on his behalf. As a result, he was unable to produce, either during
the audit or at the hearing of his appeal, corroborative evidence such as bank
statements showing withdrawals from the alleged savings account or T-5's for
the period showing the interest earned on that account. Nor did he produce his
corporate banking records to show deposits to the company account from the
savings account. For proof of his case, the Appellant relied primarily on a
letter from an official at the bank stating merely that he
had once had a savings account there. It was not sufficient to prove his
allegations.
[3] The Appellant
also claimed to have relied on his accountant, Haim Pinto, to ensure that his records
were in order. His practice was, more or less, to present Mr. Pinto
annually with a box of his company's sales receipts, bank statements and other documents
for Mr. Pinto's use in preparing the company’s financial statements and his
personal and corporate tax returns. After completing his testimony on April 24,
2007, the Appellant advised the Court of his concern that his lack of accounting
expertise had hampered his ability to explain properly his affairs. He
requested an adjournment to call Mr. Pinto as a witness. His request was
granted and the hearing was adjourned to May 16, 2007. As it turned out,
Mr. Pinto's testimony was not particularly helpful. In addition to being
under the (self-induced) misapprehension that he was to testify as an expert
witness, Mr. Pinto had no personal knowledge of the savings account or its
use as a source of funding for the Sabbah family. Further, his accounting
practices were no more rigourous than the Appellant's records keeping system. Finally,
Mr. Pinto's strategy in responding to counsel for the Respondent during
cross-examination was to go on the offensive rather than giving sensible
answers to her quite straight‑forward questions. All in all, I gave very
little weight to his evidence.
[4] The Respondent
called the net worth auditor, Julie St. Amant. I found her to be a very
credible witness. Her evidence showed that she had carefully reviewed what
little information the Appellant supplied to her and had prepared, with the
same diligence, the net worth statement. In her very able argument, counsel for the
Respondent reviewed the Appellant's evidence in detail, comparing it to the
figures in the net worth assessment and highlighting the numerous flaws in his
portrayal of his financial situation in 1995-98. She referred the Court to a
passage in Hsu v. The Queen
reviewing the theory behind the net worth assessment:
I would add
that it was open to the Tax Court judge to conclude that the Minister's method
for determining the appellant's income was reasonable and logical in the
circumstances of this case. Although the Minister's reassessments were clearly
arbitrary, it cannot be forgotten that this approach was the direct result of
the appellant's refusal to disclose any financial information or documentation.
In Dezura, supra at 1103-1104, the President of the Exchequer Court of
Canada explained:
The object of
an assessment is the ascertainment of the amount of the taxpayer's taxable
income and the fixation of his liability in accordance with the provisions of
the Act. If the taxpayer makes no return or gives incorrect information either
in his return or otherwise he can have no just cause for complaint on the
ground that the Minister has determined the amount of tax he ought to pay
provided he has a right of appeal therefrom and is given an opportunity of
showing that the amount determined by the Minister is incorrect in fact. Nor
need the taxpayer who has made a true return have any fear of the Minister's
power if he has a right of appeal. The interests of the revenue are thus
protected with the rights of the taxpayers being fully maintained. Ordinarily,
the taxpayer knows better than any one else the amount of his taxable income
and should be able to prove it to the satisfaction of the Court. If he does so
and it is less than the amount determined by the Minister, then such amount
must be reduced in accordance with the finding of the Court. If, on the other
hand, he fails to show that the amount determined by the Minister is erroneous,
he cannot justly complain if the amount stands. If his failure to satisfy the
Court is due to his own fault or neglect such as his failure to keep proper
account or records with which to support his own statements, he has no one to
blame but himself.
[5] Like the notional taxpayer described above, the Appellant, to a large extent, was the author of
his own misfortune. He failed to keep proper books and records. From the
records he did have, the Appellant was selective in what he chose to show to
the auditor. A comparison of the net worth assessment figures with the few
records the Appellant produced revealed that on more than one occasion, the
estimates used by the Minister in the net worth assessment were, in fact, more
generous to the Appellant than the figures he had used himself. The Appellant's
contention that the Minister had failed to take into account the $36,000
received as family allowance was shown by the auditor's evidence to be, quite
simply, incorrect. Another weakness in the Appellant's estimate of his income was
his tendency to discount expenditures made in the furtherance of what might be
described as "good works": charitable donations, religious and
educational costs, a loan to his sister. However, just like mortgage payments
and insurance premiums, such disbursements require a source of income. He refused
to consent to the auditor making inquiries to financial institutions on his
behalf. He rejected her invitation to meet with her, recklessly abdicating that
role to Mr. Pinto. I accept the Appellant’s evidence that he and his family
lived a modest lifestyle, often relying on their extended family to help out
with the necessities. Even allowing for their contribution to the Sabbah family
budget, however, I found inordinately low the Appellant's estimates of the
amounts spent on food, clothing and household items for a single-breadwinner family
that expanded from five to seven during the taxation years in question. The
result is that the Appellant failed to prove wrong the assumptions upon which
the net worth assessment was based. Accordingly, the appeals must be dismissed.
[6] The Minister
also assessed gross negligence penalties against the Appellant under subsection
163(2) of the Act:
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 ...
[7] The Minister has
the onus of proving such penalties are justified.
For many of the same reasons considered above, I am persuaded by counsel's argument
that the Respondent's evidentiary burden has been met. The Appellant took
little care in keeping records capable of accurately reporting his income. He
was not forthcoming, either personally or through his accountant, in his
disclosures to the auditor. At the hearing, the Appellant stated that he would
not do things any differently in the future, an assertion that may have had
more to do with his frustration over the difficulty he found himself in than a
true declaration of intent. In any event, I am satisfied on a balance of
probabilities that the Appellant acted with a degree of indifference with
regard to his obligations under the Act sufficient to justify the
imposition of gross negligence penalties for the taxation years in question.
[8] The Respondent's
request for costs, especially in light of the delay caused by the Appellant's
last-minute request for an adjournment to allow his accountant to testify, is
also granted.
[9] Accordingly, the
appeal is dismissed with costs.
Signed at Ottawa, Canada, this 11th day of October, 2007.
"G. A. Sheridan"
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