Appearances:
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For the Appellant:
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The Appellant herself
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Counsel for the Respondent:
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Samantha Hurst
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JUDGMENT
The appeal from the reassessments made under the Income
Tax Act for the Appellant’s 2006, 2007, 2008 and 2009 taxation years is
allowed and the reassessments are referred back to the Minister of National
Revenue for reconsideration and reassessment on the basis of the concessions
made by the Minster of National Revenue at the hearing of this appeal as
follows:
a)
The amount of $18,615, $30,869.90 and $9,479.95
is deleted from the Appellant’s income in 2006, 2007 and 2008 respectively;
b) The amount of unreported income for 2009 is reduced to $53,689;
c) Gross negligence penalties
are deleted from the Appellant’s income in 2006, 2007, 2008 and 2009.
Signed at Halifax,
Nova Scotia, this 27th
day of July 2016.
“V.A. Miller”
REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
On October 22, 2009, the Toronto Police Services
executed a search warrant at the Appellant’s residence. They seized drugs,
weapons and cash from her sons’ bedroom and $63,990 and US$4,004 in cash from
the Appellant’s bedroom. In an affidavit, the Appellant made oath and said that
the money taken from her bedroom belonged to her and her spouse. The cash taken
from her bedroom was returned to the Appellant. In Canadian dollars, the cash
was $69,273.19.
[2]
The Minister of National Revenue (the
“Minister”) used a net worth analysis to reassess the Appellant’s income tax
liability for her 2006, 2007, 2008 and 2009 taxation years. The 2006 and 2007
taxation years were reassessed beyond the limitation period pursuant to
subsection 152(4) of the Income Tax Act and gross negligence penalties
were assessed in accordance with subsection 163(2) for each of the taxation
years at issue. According to the net worth analysis, the Appellant failed to
include the following amounts in her income:
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Taxation Year
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Reported Income
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Unreported Income
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2006
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$9,393.00
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$18,615.00
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2007
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9,843.00
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30,869.90
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2008
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9,127.00
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9,479.95
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2009
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10,318.00
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72,663.24
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[3]
The amount included in the Appellant’s income as
unreported income was calculated by deducting her total liabilities from her
total assets and adding her personal expenditures to the result. Adjustments
were made for her income tax refund, GST/HST credit refund and the Child Tax
Benefit.
[4]
The Appellant’s total assets included the
results from a bank deposit analysis and the cash found in her home. She had no
liabilities. The personal expenditures were calculated using Statistics Canada
information.
[5]
At the beginning of the hearing, counsel for the
Respondent conceded that the amounts included in the Appellant’s income for
personal expenditures were too high. Counsel stated that the amounts estimated
by the Appellant for personal expenditures were more accurate and counsel
submitted a document with those amounts. The result of this concession is that
there is no unreported income for 2006, 2007 and 2008 and the unreported income
for 2009 is reduced to $53,689. With the deletion of the unreported income for
2006, 2007 and 2008, the gross negligence penalties are also deleted for those
years. The Respondent conceded that the gross negligence penalties for 2009
should also be deleted.
[6]
The main component of the unreported income for
2009 is the amount of $69,273.19 which was found during the search of the
Appellant’s home.
[7]
The Appellant gave her evidence through a
Cantonese Interpreter.
[8]
The Appellant immigrated to Canada in 1985. She married
in 1988 but she and her spouse are now separated. The Appellant stated that it
was only a coincidence that her husband was in her home when the police
executed its search warrant. In 2009, the Appellant was single with three
dependent children.
[9]
The Appellant stated that she worked from the
time she immigrated to Canada; she lived frugally and she always saved her
money. It was her evidence that the amount of $69,273.19 was her savings. She
testified that all of the money belonged to her. None of it belonged to her
spouse. She further explained that the Canadian funds of $63,990 were her
savings from gifts given to her at her wedding; gifts given to her at her
children’s births; and, amounts she saved from her earnings. She was not sure
how much she saved each year from her earnings. She stated that the US$4,004
did not belong to her; it was her mother’s money. She was holding it for her
mother so that her mother could save the money.
[10]
In cross-examination, the Appellant stated that
she received approximately $30,000 cash as gifts at her wedding. She also
stated that she received $30,000 from her mother-in-law. However, she was
unable to give any details as to when she received the money from her
mother-in-law or whether it was given to her as one lump sum or several small
amounts.
[11]
In cross-examination, the Appellant admitted
that she worked selling lottery tickets in 2009 and that she did not report
these earnings. She hesitated to make this admission because, during the
period, the Appellant and her family received social assistance benefits and
subsidized housing. The Appellant was afraid that Social Services would learn
that she had income which she did not report. According to the Appellant’s
evidence, she earned only $3,744 in 2009.
Analysis
[12]
I found that the Appellant’s evidence was
implausible. She stated that she was “holding” US$4,400 for her mother but she
did not have her mother attend at the hearing to corroborate her testimony.
[13]
The Appellant stated that $30,000 of the money
found in her bedroom were gifts which she received at her wedding in 1988.
Besides the Appellant’s self-serving testimony, there was no evidence to
support her statement that she received $30,000 as wedding gifts.
[14]
There are several reasons why I have difficulty
believing that the Appellant had $30,000 for 21 years and she did not use it to
help pay for the basic necessities of daily life. First, she reported that she
had little employment income for several years and no employment income for
other years. For the 18 year period from 1988 to 2005, the Appellant reported
total net income of $119,848. I note that in 1999 and 1998, the Appellant
reported net income of $1 each year. For the period 2006 to 2009, the Appellant
did not report any employment or business income. Her only reported income
consisted of social assistance payments, Child Tax Benefits and Universal Child
Care Benefits. Second, the Appellant had three dependent children. Third, her
spouse did not contribute towards her support or that of their children since
at least 2002.
[15]
It is also my view that it is unlikely that the
Appellant earned only $3,744 in 2009. Counsel for the Respondent suggested that
it was reasonable to infer that the Appellant earned $30,000 in 2009 and the
unreported income for 2009 should be reduced to reflect this amount. However,
the difficulty I have with this suggestion is that the Appellant gave no
evidence which would allow me to reach this conclusion. Her evidence was that
most of the $69,273.19 cash consisted of gifts and I found that this
explanation was not credible.
[16]
The appeal is allowed only to the extent of the
concessions made by the Respondent as follows:
a)
The amount of $18,615, $30,869.90 and $9,479.95
is deleted from the Appellant’s income in 2006, 2007 and 2008 respectively;
b) The amount of unreported income for 2009 is reduced to $53,689;
c)
Gross negligence penalties are deleted from the
Appellant’s income in 2006, 2007, 2008 and 2009.
Signed at Halifax, Nova Scotia, this 27th day of July 2016.
“V.A. Miller”
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