REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
Lawrence Aimurie and Josleyn Charles are spouses
of one another and their appeals were heard on common evidence.
[2]
The issue in Ms. Charles appeal was whether she
was entitled to claim a non-refundable tax credit in respect of her spouse in
2008 and 2009 (the “spousal amounts”). The Minister of National Revenue (the
“Minister”) determined that she was not entitled to claim these amounts because
her spouse, Mr. Aimurie, earned income over the income thresholds for the years
in question. The Minister assumed that Mr. Aimurie received net business income
in the amounts of $107,635 and $161,979 in 2008 and 2009.
[3]
My decision in Ms. Charles’ appeal is totally
dependent on my conclusions concerning Mr. Aimurie’s net business income for
2008 and 2009. Therefore, I will now consider the issues and evidence presented
in Mr. Aimurie’s appeal.
Lawrence Aimurie
[4]
The Minister of National Revenue (the
“Minister”) performed a bank deposit analysis and reassessed Mr. Aimurie for
his 2003, 2004, 2005, 2006, 2007, 2008 and 2009 taxation years to include unreported
amounts in his income. Mr. Aimurie was arbitrarily assessed for his 2010
taxation year. The reassessments for the 2003 to 2007 years were made beyond
the normal reassessment period pursuant to subsection 152(4) of the Income
Tax Act (the “Act”). Penalties were assessed for the 2003 to 2009
years pursuant to subsection 163(2) of the Act.
[5]
The net business income/loss reported by Mr.
Aimurie and the unreported amounts included in his income were as follows:
|
Year
|
Unidentified
Deposits
|
Net Business Income/Loss
Reported
|
Unreported Income
|
|
2003
|
$20,568
|
$(1,298)
|
$21,866
|
|
2004
|
50,482
|
1,068
|
49,414
|
|
2005
|
45,646
|
114
|
45,532
|
|
2006
|
39,612
|
4,501
|
35,111
|
|
2007
|
58,894
|
176
|
56,718
|
|
2008
|
107,635
|
3,381
|
104,254
|
|
2009
|
161,721
|
782
|
160,939
|
|
2010
|
184,096
|
n/a
|
184,096
|
|
|
|
|
|
[6]
The witnesses at the hearing were Mr. Aimurie
and Macille Poon who is the auditor with the Canada Revenue Agency (“CRA”) who
worked on Mr. Aimurie’s file.
[7]
During the relevant years, Mr. Aimurie operated
a tax preparation, accounting and cheque cashing business (the “Business”). The
Business was operated under various names including, Lawsco Accounting and
Income Tax Services (“Lawsco”), “CashPal” and “Cashpal Financial Management
Services Incorporated”.
[8]
The Minister assumed that each of these
businesses was operated as a sole proprietorship whereas Mr. Aimurie claimed
that “Cashpal Financial Management Services Incorporated” was a corporation and
the money earned by it should not be included in his income. I do not believe
Mr. Aimurie. It would have been very easy for him to support his statement with
a document but he brought no documents in spite of the fact that he knew, prior
to the hearing, that this would be an issue. In addition, there was evidence
that the alleged corporation used the same bank account as “Cashpal”. I have
concluded that Mr. Aimurie operated the entire Business as a sole
proprietorship and I will refer to “Cashpal Financial Management Services
Incorporated” as “Cashpal”.
[9]
In 2011, Mr. Aimurie was investigated by the
Enforcement Division of the CRA with respect to his involvement in making false
charitable donation claims on behalf of his clients in their income tax returns
for the 2003 to 2010 years inclusive. Mr. Aimurie’s home and office were
searched pursuant to two search warrants. Mr. Aimurie held 18 bank accounts and
Production Orders were issued on four of his bank accounts - two Business
accounts and two personal accounts.
[10]
Mr. Aimurie was charged with one count of fraud
of an amount greater than $5,000 by preparing and filing false T1 income tax
returns and false charitable donation receipts between February 12, 2004 and
September 30, 2010. On June 14, 2013, he entered a guilty plea and signed an
Agreed Statement of Facts wherein he agreed that, for the 2006-2009 taxation
years, he e-filed returns in which he claimed false charitable donations that
totalled in excess of $641,000.
[11]
According to the audit report prepared by
Macille Poon, Mr. Aimurie made fictitious charitable donation claims in the
amount of $1,300,000 for the period 2003 to 2010 and his commission was
approximately 10% of the gross donation amount.
[12]
Ms. Poon explained that she used the bank
statements which the Enforcement Division had obtained from the Royal Bank and
the Toronto Dominion Bank (“TD Bank”) to calculate the amounts included in Mr.
Aimurie’s income.
[13]
In particular, Ms. Poon relied on the
information from the Lawsco account with the TD Bank and the Cashpal account
with the Royal Bank. She analysed each account and each year separately. For
each account, she calculated the total annual credits and debits by category.
She then subtracted those debits which she believed were business expenses from
the total credits. The difference was labelled as Unreported Income. Ms. Poon
stated that when she was unable to identify an amount as a business expense,
she included that amount in the Unreported Income.
[14]
Ms. Poon found that some of the amounts debited
from the Business accounts were transferred to Mr. Aimurie’s personal bank
account and his investment account. She also found that the Business accounts
were used to pay household expenses and personal credit cards. She included
these debit amounts and “unknown transfers” and “unknown cheques” in the amount
assessed as Unreported Income.
[15]
At the end of her audit, Ms. Poon sent a
proposal letter to Mr. Aimurie for his comments. He was given 30 days to
respond. He did not reply. She then sent him a second letter confirming that
the CRA would proceed with their proposal. In response to this second letter,
Mr. Aimurie requested an extension of time. His request was refused.
[16]
Mr. Aimurie stated that he did not underreport
his income. He stated that Ms. Poon and the CRA did not understand his
business. To demonstrate his point, he tendered his notice of objection which
included a chart with respect to his tax preparation business. He explained
that he discounted tax refunds to his clients. As a discounter, his fees were
only 15% on the first $300 refund and 5% on the amount of refund over $300.
Using Ms. Poon’s working papers, Mr. Aimurie calculated that in 2004 his
fees from discounting were only $1,337.81. According to his calculations, he
paid his clients $17,777.65 as refunds. He stated that Ms. Poon had only
deducted $10,529.46 as refunds to his clients.
[17]
The problem that I have with Mr. Aimurie’s
argument is that it does not account for the amounts he received from his
clients for e-filing fraudulent income tax returns on their behalf.
[18]
At his sentencing in the criminal prosecution,
Mr. Aimurie admitted that he had charged his clients 10% of the face value of
the false charitable donations which he claimed on their behalf. He also agreed
that the charity did not receive any portion of the 10% fee paid to him. Mr.
Aimurie cannot now deny that he received fees from his clients for e-filing
their tax returns with a claim for false charitable donations.
[19]
Mr. Aimurie has not brought any evidence to
demonstrate that the amounts included in his income were incorrect or too high.
He made various assertions which were not supported by any documents. He stated
that during this period his spouse worked and her salary was between $55,000
and $60,000 annually. Her pay cheque was deposited into his personal account
from which they paid household expenses. Mr. Aimurie also stated that he had
another Royal Bank account into which he had deposited $100,000 in 2007 from
the sale of his home. No bank statements from either of these accounts were
presented to the Court.
[20]
In addition, the documentary evidence filed at
the hearing did not support Mr. Aimurie’s testimony. According to exhibit R-5,
numerous household expenses were paid using the funds from the business
accounts for Lawsco and Cashpal. If Mr. Aimurie received $100,000 in 2007,
there was no evidence that any of this amount was considered in the bank
deposit analysis.
[21]
In raising the reassessments, the Minister
assumed that Mr. Aimurie had total unreported income of $657,930 for the period
2003 to 2010 inclusive. It is my view that Mr. Aimurie has not shown that this
assumption was incorrect.
Statute Barred Years and Gross Negligence Penalties
[22]
The reassessments for the 2003 to 2007 taxation
years were made beyond the normal reassessment period and the onus was on the
Minister to show that Mr. Aimurie made a misrepresentation that was
attributable to neglect, carelessness, wilful default or fraud in filing his
returns.
[23]
When he filed his income tax returns, Mr.
Aimurie reported that he earned total net income of $4,561 in 2003 to 2007.
However, his total net income for this period was $213,202.
[24]
It is my view that the Minister was justified in
opening the five statute-barred years. I have found that Mr. Aimurie did not
report all of the fees which he made from the Business. He was the only person
who handled the fees earned by the Business. I have concluded that many of his
answers were implausible and it is my view that he was not credible. He has not
provided any convincing explanation for the discrepancies between the income he
reported on his income tax returns and the income as shown by the bank account
analysis and that discrepancy was substantial. It is my view that the
misrepresentations made by Mr. Aimurie in filing his income tax returns were
attributable to wilful default.
[25]
The Minister assessed gross negligence penalties
against Mr. Aimurie for the 2003 to 2009 taxation years. Gross negligence was
defined in Venne v The Queen, 84 DTC 6247 (FCTD) at paragraph 37 as:
“Gross
negligence” must be taken to involve greater neglect than simply a failure to
use reasonable care. It must involve a high degree of negligence tantamount to
intentional acting, an indifference as to whether the law is complied with or
not.
[26]
In deciding whether the Minister has established
that gross negligence penalties should be applied, I have considered a number
of factors. They include: the magnitude of the omission in relation to the
income declared; the opportunity the taxpayer had to detect the error; the
taxpayer’s education and apparent intelligence: DeCosta v The Queen,
2005 TCC 545 at paragraph 11.
[27]
I have concluded that Mr. Aimurie earned income
which he did not report on his income tax returns. The unreported income for
the 2003 to 2009 years was huge when compared to the income he reported. Only
he controlled the cash earned by the Business and he filed his own returns. Mr.
Aimurie was educated. He had an accounting diploma and he studied liberal arts
at York University. I am not sure if he obtained his degree. His sole
proprietorship, Lawsco, was authorized by CRA to be an EFILE agent and he prepared
and e-filed tax returns for his clients. There was evidence that during the
period under appeal, Mr. Aimurie actively bought and sold securities. I am
satisfied that Mr. Aimurie knew that he was not reporting all of the income he
earned and the Minister was correct to impose gross negligence penalties.
[28]
Mr. Aimurie’s appeal for the 2003, 2004, 2005,
2006, 2007, 2008, 2009 and 2010 taxation years is dismissed.
Josleyn
Charles
[29]
In calculating the amount of tax she had to pay
in 2008 and 2009, Ms. Charles claimed non-refundable tax credits for
spousal amounts of $8,018 and $5,876 respectively.
[30]
In order to be eligible to claim the spousal
amount in 2008 and 2009, Ms. Charles had to be married to Mr. Aimurie and
she had to support him.
[31]
However, I have found that Mr. Aimurie had net
business income of $107,635 and $161,721 in 2008 and 2009. It is clear that Mr.
Aimurie was not dependent on Ms. Charles for support in 2008 and 2009.
[32]
Ms. Charles’ appeal for the 2008 and 2009
taxation years is dismissed.
Signed at Halifax, Nova Scotia, this 11th day of July 2016.
“V.A. Miller”
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