REASONS
FOR JUDGMENT
Boyle J.
[1]
Mr. Joseph has appealed to the Court from net
worth assessments of his 2008 and 2009 taxation years. He represented himself
in this informal procedure and was his only witness. He was assisted somewhat
by Glenn Perrotte of Mobile Income Tax Preparation.
[2]
Mr. Joseph’s primary sources of income in the
years in question were from two sources. Firstly, he is a general construction
subcontractor and, during the years in question, most of his work was for
Mercon Construction Inc. in Pickering. In addition, he worked on sound and
light shows, mainly for live shows in churches. His subcontracting work, at
least, was done under the name Team Executives Services Unlimited. In 2008 and
2009, Mr. Joseph reported $16,527 and $10,157 of income, respectively. This was
made up primarily of his business income from these two sources which grossed
$39,416 and netted $13,765 in 2008, and which grossed $46,511 and netted
$10,157 in 2009.
[3]
The Canada Revenue Agency (“CRA”) reassessed to
include additional net business income of $31,942 and $36,222 in 2008 and 2009,
respectively. CRA used a net worth method to estimate his unreported income.
CRA also assessed penalties of over $4,000 in each year.
[4]
In his appeal, Mr. Joseph does not take the
position that the CRA’s use of the net worth method was inappropriate as he
maintained adequate books and records for his income to be properly verified
and determined. In his Notice of Appeal he takes the position that CRA’s net
worth numbers included as unreported income, amounts borrowed by him on bank
loans, lines of credit and credit cards which are not taxable receipts.
[5]
At the hearing, Mr. Joseph identified four loans
or sets of loans which he felt should be backed out of the CRA net worth
calculations.
[6]
Firstly, Mr. Joseph put into evidence a letter
from Mercon Construction Inc. confirming that in 2008 he borrowed $3,000 from
that company and repaid it in full within the year. Mr. Joseph’s testimony was
that he borrowed the amount in 2008 and repaid it fully in 2009. The Court is
satisfied that no adjustment is required in respect of such a loan as it would
have had no impact on any increase or decrease in net worth between January 1,
2008 and December 31, 2009, since it was both advanced and repaid within that
period.
[7]
The second and third sources of available cash
put forward by Mr. Joseph at the hearing were a series of loans from two of his
sisters-in-law. He gave evidence that Jasmine Watson, one of his wife’s
sisters, made several advances totalling U.S. $3,500 in 2008 and 2009. He also
gave evidence that another of his wife’s sisters, Laurie-Anne Tonge loaned him
another U.S. $1,300 in 2008 and 2009. In addition to his testimony to this
effect, he entered a number of brief letters from his sisters-in-law evidencing
these loans. The Court has too many concerns with these letters and the
evidence relating to these loans to conclude that these amounts were in fact
advanced as described. Firstly, it should be noted that while the two
sisters-in-law live on different islands some distance apart in the British Virgin
Islands, all of the originals of these letters appear to be printed on
identical paper stock, using the same template, the same font, and the same
margins. Further, they are all on crisp, clean, unfolded paper. More
significantly, Mr. Joseph claims they were prepared only recently to evidence
the earlier loans, but it is clear from their wording and dating that the
writer or writers had intended at the time of writing them that they would
appear to have been written in 2008 and 2009. There are references to past
personal events such as birthdays, holidays, schools and trips. Further, Mr.
Joseph’s testimony was clear that the funds were advanced by each of the
sisters-in-law on their various visits to the Toronto region to stay with them,
yet one of the letters clearly says that the sister-in-law is sending the money
with her mother who will be visiting shortly. No supporting evidence recording
deposits or recording repayments of these loans was provided to the Court. Even
if the Court were to accept these loans as having been made, which it does not,
Mr. Joseph said that mostly all of the 2008 loans were repaid before there were
any loans made in 2009, and that part of the 2009 borrowings were repaid in
2009. Specifically, he estimated that approximately only $400 was owing to one
sister-in-law and $200 to the other sister-in-law at the beginning of 2010.
Therefore, as with the Mercon loan, most of the amounts allegedly borrowed
would not have had an impact on his change of net worth between January 1, 2008
and December 31, 2009 in any event.
[8]
Mr. Joseph’s fourth loan that he maintains has
not been properly reflected in the net worth calculations is a loan from
President’s Choice Financial. He did not provide any documents regarding this
loan or these loan amounts beyond bank statements which show that $220 was apparently
paid from his account bi-weekly. His testimony was that this was an approximately
$20,000 five-year loan made in 2005 to enable him to make the down payment on
their house. Even if there were sufficient evidence for the Court to reach any
conclusion on the existence of this loan, which there is not, such an amount
having been borrowed in 2005 and being repaid throughout the years 2008 and
2009 in question, would have increased his net worth, not reduced it, in any
event.
[9]
For these reasons, the Court is not satisfied
that any adjustments are required to the net worth computations used in the
assessments, or the assessments themselves, as a result of anything brought
forward by the Appellant in his Notice of Appeal and at the hearing. For this
reason the appeal will be dismissed.
[10]
I should add that the Court does have some
concerns with respect to the credibility of some of the evidence and Mr.
Joseph’s testimony. Firstly, I have already set out my concerns with respect to
the letters from the sisters-in-law. Secondly, Mr. Joseph’s wife did not
testify though she might have had something relevant to say about the money
received from her sisters-in-law and perhaps and mother-in-law, as well as on
the family’s spending reported in the net worth questionnaire on Personal
Expenditures Worksheet. Further, Mr. Joseph’s testimony about his phone
expenses turned out to only be an estimate of his cell phone expenses and not
his house phone or the other Bell services bundled with it which went otherwise
undescribed until further questioning. The Personal Expenditures Worksheet
numbers estimated by Mr. Joseph are clearly very questionable. In addition to
the phone issue, he estimated that he, his wife and young daughter spent $1,100
annually on food and none of that, or anything else, on cleaning supplies,
health care or personal care, notwithstanding that his infant daughter was
drinking formula and wore disposable diapers. Upon further questioning he
acknowledged that a revised estimate would be more like twice that amount. Most
tellingly, the taxpayer’s reported estimates of payments on his home in respect
of mortgage, principal, interest and taxes, insurance, heat, water, hydro and
payments on the President’s Choice loan used to make the down payment, would
have used up virtually all of his pre-tax reported income.
[11]
The appeal is dismissed, without costs.
Signed at Montréal,
Québec this 23rd day of April 2014.
“Patrick Boyle”
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