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Citation: 2006TCC161
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Date: 20060721
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Docket: 2005-1825(IT)I
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BETWEEN:
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LINDA KIELBINSKI,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
[OFFICIAL ENGLISH TRANLATION]
Tardif J.
[1] These
are appeals concerning the 1999, 2000 and 2001 taxation years.
[2] These
are the outstanding issues:
(a) Determine whether
the notice of reassessment of February 25, 2005, for the 1999 taxation
year is valid;
(b) Determine whether
the sums of $26,410 for the 1999 taxation year, $14,226 for the 2000
taxation year and $15,823 for the 2001 taxation year were correctly
added in the calculation of the Appellant’s income as undeclared business
income;
(c) Determine whether
it was justified to levy the penalty provided for under subsection 163(2) of
the Income Tax Act (the “Act”) against the Appellant for the 1999, 2000
and 2001 taxation years.
[3] During
the periods in dispute, the Appellant owned two businesses. One of them sold
promotional items under the name “Médailles et portes clés enr” and the other
one, named “9030-6457 Québec inc.,” performed work exclusively for Canada
Post Corporation; this work consisted of snow removal near mailboxes belonging
to the corporation in several places in a defined area.
[4] In
support of her appeal, the Appellant called several witnesses: the accountant
who kept her books, her spouse Luc Létourneau and others whose testimony
was intended to confirm the content of Mr. Létourneau’s testimony.
[5] Mr.
Létourneau mainly stated that he was practically always paid in cash when he
worked; he even had a property owner confirm that he had hired his services,
for which he paid him in cash.
[6] The
Appellant also called an accountant who had already worked for Revenue Canada
and Revenu Québec and whom she had instructed to represent her at the draft
assessment and the objection stage.
[7] The
Minister called the person in charge of the audit as well as the person who
reviewed the file after the objection.
[8] The
Minister of National Revenue (the “Minister”), on the assumption that there was
no internal auditing or adequate bookkeeping, used the net worth method to
calculate the reassessments.
[9] There
was a significant discrepancy between the income declared by the Appellant and
her financial needs. As well as adding penalties to the taxation of 2000 and
2001, the Minister also taxed 1999 on the basis that the Appellant deliberately
hid significant income, which justified the Minister in assessing the Appellant
beyond the statutory period of three years.
[10] The Minister concluded that significant income had been concealed,
which justified reassessments and the penalties provided by the Act, given the
significance of the undeclared amounts.
[11] Mr. Létourneau, a former public servant engaged as a consultant by the
Appellant during discussions when the draft assessment was filed, submitted to
the auditor that the discrepancy was justified by the income received by the
Appellant’s spouse under the table as well as the income generated through the
operation of a business related to cigarette contraband.
[12] The explanations were accepted in part and the assessment issued took
into consideration some of the submissions of Mr. Létourneau, agent for the
Appellant. These same explanations were used at the objection stage.
[13] At trial, the agent
for the Appellant again submitted the same arguments, adding another element to
explain certain inconsistencies in the filings. He stated that the Appellant’s
spouse had been in the habit of cashing the paycheques of several people
including his son and his friends, which obliged him to regularly make
withdrawals, but also deposits.
[14] The Appellant’s
spouse admitted declaring $3,257 in income for the 1999 taxation year,
$16,940 for the 2000 taxation year and $5,106 for the 2001
taxation year, while the income declared by the Appellant for the same years
was $14,558 for the 1999 taxation year, $11,477 for the 2000 taxation
year and $8,043 for the 2001 taxation year.
[15] The Appellant’s
spouse stated that he regularly worked for various people and got paid in cash.
Being particularly skilled in construction and automobile mechanics, he
regularly took on contracts and got paid most of the time in cash that he did
not declare as income.
[16] He indicated that he
made several attempts to convince those who had benefited from his services to
come and confirm, but most of them were unavailable for all kinds of reasons,
except for two who came to say that they had indeed paid for the services
received from the Appellant’s spouse in cash.
[17] He also stated that
he transported contraband cigarettes and always received $25 cash per case for
this work.
[18] He also indicated
that at a certain time, when his son was twenty years old, he loaned them money
and that he paid them board since he was a bartender in Montreal and often came
to spend weekends with them in Québec.
[19] I did not believe a
word of the verbal explanations submitted by the Appellant’s spouse; most of
them preposterous and completely implausible, in particular concerning the
board paid by his son.
[20] He stated that he
had tried to obtain the cooperation of numerous people associated with his
various activities, but without success; his explanations went from inability
to reach them, to the car that wouldn’t start to illness and so on.
[21] The evidence
revealed that he still had a bank account and that he was the only one who
could make transactions with it. He was unable to provide a single document to
validate his claims.
[22] Therefore, I accept
absolutely nothing of this evidence, as it is neither reliable nor credible. I
found some explanations ridiculous, others completely implausible. As for the
explanation that he cashes cheques, explaining the numerous withdrawals and
deposits, I believe that it is a pure invention in that he undoubtedly
exaggerated considerably a few isolated transactions.
[23] As for the
Appellant, she testified and explained that the auditor came to the conclusion
that her accounting for the company that had one client, i.e. Canada Post
Corporation, was correct.
[24] With regard to the company or business dealing in
key-chains and medals, the Appellant explained that her clients were mainly
associations, municipalities and various organizations. She stated that she was
the only one in charge of the management and administration of the two
entities. To one question, she even answered that she did not rely on her
spouse as she obviously had little or no trust in him. And yet she would like
the Court to trust him.
[25] She said she gave the accountant, whose services she retained, all of
the supporting documentation pertaining to the revenue and expenses arising
from operation of the two businesses from which she earned the income that she
declared.
[26] The discrepancy between the declared income and the income necessary
for the couple’s lifestyle, determined based on the answers provided on the
form sent by the Department, was so significant that it is completely
implausible that the Appellant could have not noticed it or realized that her
declared income could not permit her standard.
[27] The unavoidable reality of such a discrepancy is that the family unit
enjoyed an income much higher than the declared income; the Minister assumed
that the undeclared income came from various economic activities that the
spouses were involved in.
[28] Based on this conclusion and the assessment determined accordingly, it
was up to the Appellant, who carried the burden of proof, to refute such claims
using reasonable, plausible, appropriate and documented explanations.
[29] In order to do this, the Appellant submitted some explanations; her
only explanations were that she had declared all of her income and that her
accounting was impeccable, essentially claiming that the considerable
discrepancies between income and cost of living were explained by the
undeclared income of her spouse.
[30] For the reasons already mentioned, I give no credibility to the
explanations submitted by the Appellant’s spouse. The Appellant’s evidence
alone is not sufficient to conclude that she met the burden of proof that was
on her. Moreover, she was aware that the income she declared was insufficient
to explain or justify the lifestyle she was associated with.
[31] Indeed, the discrepancy was considerable; to
accept the simplistic explanations that were submitted would be to accept a
version of the facts amounting to true voluntary blindness. Accordingly, as the
burden of proof was not met, I confirm that the assessments were well founded.
[32] As for the penalties, considering that the discrepancy between the
declared income and the income needed for their lifestyle was significant
enough that any normally reasonable person should have understood and indeed
realized, the mathematical impossibility of declaring such a modest income
given the expenses incurred to maintain their lifestyle.
[33] This is the case for the 1999 taxation year,
theoretically statute-barred. How can a reasonable person declare income of
about $15,000 and meet needs requiring over $50,000 in gross income?
[34] Only total indifference, heedlessness amounting
to gross negligence and obvious voluntary blindness can explain such a reality,
which in itself is sufficient to justify the assessment and the penalties for
the 1999 taxation year.
[35] For these reasons, the appeals are dismissed; the assessments and
inherent penalties are confirmed accordingly.
Signed at Ottawa, Canada, this 21st day of
July 2006.
Tardif
J.
on this 2nd day of January 2007.
Gibson Boyd, Translator
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