Citation: 2013TCC226
Date: 20130710
Docket: 2008-2863(IT)G
BETWEEN:
TERRY PIERSANTI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller J.
[1]
At the beginning of the
hearing, the Appellant brought a motion for an Order to exclude all documents
relied on by the Minister of National Revenue (the “Minister”) when he issued
the reassessments against her. It was the Appellant’s position that the
documents used to raise the reassessments under the Income Tax Act (“ITA”)
were obtained without judicial authorization during the course of a criminal
GST investigation and her sections 7 and 8 rights under the Canadian Charter
of Rights and Freedoms (the “Charter”) were violated. The Appellant
also requested that the assumptions in the Reply to Notice of Appeal be struck
and the notices of reassessment be vacated.
[2]
In support of her
motion, the Appellant intended to use the transcript from the discovery of the
Respondent’s nominee, John Di Rito, and to examine Mr. Di Rito at the hearing
of the motion. As the appeal was set down for five days and to avoid
duplication of evidence, the parties agreed that all evidence would be
presented during the week but that I would make my decision on the motion
first. A decision on the merits of the appeal would only be necessary if I
allowed the motion in part or dismissed it.
[3]
The issue in the appeal
relates to the Appellant’s 1995, 1996 and 1997 taxation years which were
reassessed by notices dated December 14, 2001 to include the amounts of
$108,51.49, $680,392.51 and $116,182.32, respectively in her income. The
reassessments were made beyond the normal reassessment period and subsection
163(2) penalties were also assessed.
(a) Motion
Facts
[4]
John Di Rito is a team
leader in the Criminal Enforcement Division of the Canada Revenue Agency
(“CRA”) and he has conducted criminal investigations with the CRA for 16 or 17
years.
[5]
In 1999, Mr. Di Rito
obtained a lead from the audit division of CRA that various corporations which
owned shopping centres were not reporting the Goods and Services Tax (GST) which
they collected from their commercial tenants. He prepared a preliminary report
but in order to advance the case he needed the financial records of the
corporations. On June 30, 1999 he sought a search warrant from a Justice of the
Peace. It was declined. He then sought a search warrant from a Judge who
granted his request.
[6]
The search warrant was
exercised on July 14, 1999 at the law office of Piersanti & Co. Among the
documents seized were the records of various corporations which Mr. Di Rito
thought were controlled by the Appellant and her spouse.
[7]
The Appellant’s spouse
made a claim of solicitor/client privilege on the seized documents and the
documents were sealed. Apparently, there were numerous hearings over a period
of years with respect to these sealed documents.
[8]
After the privilege
claim was made, to further the investigation, Mr. Di Rito began to use
Requirements issued pursuant to section 289 of the Excise Tax Act (the “ETA”).
He stated that he did not seek any information which he thought might be
covered by solicitor/client privilege. He served the Requirements on various
banks, credit card companies and real estate firms and he interviewed tenants
of the shopping centres which were owned by the corporations. According to Mr.
Di Rito, he served between 50 and 60 Requirements from October 1999 until July
2001. Most of the Requirements were with respect to information concerning the
corporations but some of the Requirements referenced the Appellant and/or her
spouse.
[9]
Mr. Di Rito relied on
the documents he received from the Requirements to lay a total of 68 charges in
the Superior Court of Justice against the Appellant, her spouse, Glenwoods
Properties Inc., Hanlon Properties Inc., and Tottenham Properties Inc. All
charges were laid under the ETA. Pursuant to an Agreed Statement of Fact
dated February 22, 2005, the Appellant entered a guilty plea to 35 of the
charges. These charges detailed offences that occurred from 1995 to 1998. The
charges against the Appellant’s spouse were dropped and the charges against the
corporations were stayed.
[10]
Mr. Di Rito used the
same documents which he received as a result of the Requirements to raise the
income tax reassessments at issue in this appeal.
Appellant’s Position
[11]
It is the Appellant’s
position that the documents used to raise the reassessments under the ITA
were obtained without judicial authorization during the course of a criminal
GST investigation and her sections 7 and 8 rights under the Charter were
violated.
[12]
Counsel for the
Appellant stated that Mr. Di Rito was engaged in a criminal investigation of
the Appellant from July 1999 and in accordance with the Supreme Court of
Canada’s decision in R v Jarvis, 2002 SCC 73, Mr. Di Rito was obligated
to use search warrants to further the investigation. Instead he used third
party Requirements. As a result, the Appellant was never provided with a proper
warning and it was only in October 2001 that she learned the CRA was
considering a reassessment of her income tax liability. Counsel relied on the
following paragraphs from Jarvis for his position:
88
In
our view, where the predominant purpose of a particular inquiry is the
determination of penal liability, CCRA officials must relinquish the authority
to use the inspection and requirement powers under ss. 231.1(1) and 231.2(1).
In essence, officials “cross the Rubicon” when the inquiry in question engages
the adversarial relationship between the taxpayer and the state. …
…
99
By way of summary, the following points emerge:
1. Although the ITA
is a regulatory statute, a distinction can be drawn between the audit and
investigative powers that it grants to the Minister.
2. When, in light of
all relevant circumstances, it is apparent that CCRA officials are not
engaged in the verification of tax liability, but are engaged in the
determination of penal liability under s. 239, the adversarial relationship
between the state and the individual exists. As a result, Charter
protections are engaged.
3. When this is the case,
investigators must provide the taxpayer with a proper warning. The powers
of compulsion in ss. 231.1(1) and 231.2(1) are not available, and search
warrants are required in order to further the investigation.
[13]
Counsel argued that the evidence
was obtained by an illegal search and seizure, in violation of the Appellant’s
rights under the Charter, and the evidence should be excluded pursuant
to section 24 of the Charter. The reassessments based on this evidence
should be vacated: O’Neill Motors Limited v R, [1996] 1 CTC 2714 (TCC);
affirmed [1998] 3 CTC 385 (FCA).
Respondent’s Position
[14]
It was the Respondent’s position
that the use of Requirements in a civil audit does not violate the
Appellant’s rights under the Charter. Although the evidence gathered in
this case may not have been acceptable in a criminal proceeding, it can be used
in a civil trial. In the alternative, if it is found that the CRA cannot use
section 289 of the ETA when there is a criminal investigation, then the
Appellant has no standing to allege that her rights were violated because the
Requirements were not used to gather documents respecting the Appellant but
were used to gather documents with respect to the corporations she controlled: R
v Edwards, [1996] 1 SRC 128. In the further alternative, if there was a
violation of the Appellant’s rights, the evidence should not be excluded when one
considers the tests in R v Grant, 2009 SCC 32.
[15]
In Grant, the
Supreme Court of Canada noted that the
purpose of subsection 24(2) is to maintain the good repute of the
administration of the justice and the phrase “bring the administration of
justice into disrepute” has to be understood in the long-term sense of
maintaining the integrity of, and the public confidence in the justice system.
Second, determining whether the admission of evidence obtained in a breach
would bring the administration of justice into disrepute engages three lines of
inquiry:
·
The seriousness of the
Charter-infringing state conduct;
·
The impact of the breach on the
Charter-protected interests of the accused; and
·
Society’s interest in the
adjudication of the case on its merits.
It is the trial judge’s task to weigh these factors.
[16]
Counsel for the Respondent spoke
to these three lines of inquiry and concluded that, if there was a Charter
breach in this case, the evidence should not be excluded.
[17]
Prior to making my decision with
respect to the motion, I asked both counsel for their submissions in light of
the recent decision in Romanuk v The Queen, 2013 FCA 133.
[18]
Counsel for the Appellant
referenced paragraph 6 in Romanuk and reiterated that the “predominant
purpose” of Mr. DiRito’s inquiry was criminal in nature. Therefore all
information and documents were obtained without a search warrant and in
violation of the Appellant’s rights under sections 7 and 8 of the Charter.
The documents obtained by the CRA through the use of the Requirements in the
present case were not obtained for the purpose of administering the ITA
but rather for the purpose of furthering a criminal prosecution for GST
evasion. Counsel again submitted that the decision in O’Neill Motors (supra)
is applicable considering the circumstances in this appeal.
[19]
Counsel for the Respondent wrote
that the Federal Court of Appeal decision in Romanuk affirmed that CRA
could continue to use its civil audit powers even after it has begun a criminal
investigation of the taxpayer. The results obtained from the use of the civil
audit powers cannot be used in relation to a prosecution of the taxpayer but
they can be used to raise a reassessment of the taxpayer.
Analysis
[20]
As of July 1999, the predominant
purpose of Mr. Di Rito’s investigation was the determination of the Appellant’s
penal liability under the ETA. The documents received as a result of the
Requirements was in furtherance of that investigation. Such evidence may be
excluded from the prosecution of an offence: R v Ling, [2002] SCC 74 at
paragraph 5. However, the issue before this court is the determination of the
Appellant’s income tax liability not her penal liability. The question is
whether the Appellant’s section 7 and 8 rights under the Canadian Charter of Rights and
Freedoms (the “Charter”) were violated when the documents obtained
through the use of the Requirements were used to reassess the Appellant’s
income tax liability.
[21]
The CRA may conduct both an audit
and an investigation concurrently. They are not mutually exclusive: Ling
(supra) at paragraph 30.
[22]
The Supreme Court of Canada made a
distinction between the procedures that had to be used when CRA officials were
engaged in a criminal investigation rather than the verification of tax
liability. They found that although an audit and an investigation could be
conducted concurrently, the results of the audit could not be used in
furtherance of the prosecution. However, the results of the audit can be used
in relation to an administrative matter, such as a reassessment: Romanuk v
The Queen, 2013 FCA 133 at paragraph 7.
[23]
It is my view that the Appellant’s
rights under section 7 and 8 of the Charter are not violated by using
the information from the Requirements to raise the reassessments at issue. In
fact, the use of Requirements is one of the tools the CRA has to further an
audit. Her section 7 and 8 rights may have been violated by using the
information from the Requirements to prosecute her under the ETA but
that would have been a question for the Superior Court of Justice to decide at the Appellant’s
trial for GST evasion: Romanuk at paragraph 8. The Appellant chose not
to raise that defence at the proceedings before the Superior Court of Justice.
[24]
The Appellant relied on the
decision in O’Neill Motors to assert that the reassessments should be
vacated. However, O’Neill Motors is distinguishable from the present
appeal. At the prosecution of O’Neill Motors, the criminal court found
that the documents relied on to lay the charges were illegally seized under
section 231.3 of the ITA as that section had been found to be
unconstitutional. It also found that the subsequent re-seizure of the documents
under section 487 of the Criminal Code was an abuse of process and a violation
of O’Neill Motors’ rights under sections 7 and 8 of the Charter. There
was no such determination by the criminal court in the present matter. In
addition, unlike the situation in O’Neill Motors, the documents in the
present appeal were not seized pursuant to an unconstitutional section of the ETA.
[25]
It is the Appellant’s position
that the CRA used an improper investigation tool to gather information to
prosecute the Appellant. It is my view that this position should have been
advanced before the criminal court where the Appellant’s penal liability was at
issue. The only issue before this court is the Appellant’s income tax
liability. I find that it was proper for the CRA to use the documents it
received as a result of the Requirements to assess the Appellant’s income tax
liability. In the context of our self-assessment and self-reporting income tax
regime, a taxpayer’s privacy interest in records that may be relevant to his or
her tax liability is relatively low: R v McKinlay Transport Ltd, [1990]
1 SCR 627 at paragraph 38.
[26]
In Romanuk (supra), the
taxpayer alleged that the CRA used its audit powers in subsection 231.1(1) of
the ITA to obtain documents after it had commenced a criminal
investigation. The taxpayer argued that the use of these audit powers by CRA violated
her sections 7 and 8 Charter rights. Webb JA wrote:
[8] The use of such
information or documents in administering the Act and reassessing the
appellant does not violate her rights under either section 7 or 8 of the Charter
because the CRA has the right to continue to use its audit powers provided that
the information or documents are only used for the purposes of administering
the Act. If the information or documents are to be used in an
investigation or prosecution of an offence under section 239 of the Act,
the issue for the particular court dealing with the prosecution of the offence
under section 239 of the Act, will be whether the predominant purpose of
the exercise of such powers was to gather information or documents for such
investigation or prosecution.
…
[10] Even if
the CRA were contemplating an investigation of the appellant before any
requirement for information was made by the CRA, this does not suspend the
right of the CRA to make such requests for information for the purposes of administering
the Act using the inspection and audit powers as set out in subsections
231.1(1) and 231.2(1) of the Act. Any information or documents
obtained using such powers could be used to reassess the appellant (including
the assessment of penalties under subsection 162(1) and 163(2) of the Act).
(emphasis added) Whether such information or documents could also be used
for the purpose of an investigation of an offence under section 239 or the
prosecution of such offence is not a matter for the Tax Court of Canada. The
only issue before the Tax Court of Canada is the validity of the reassessment, i.e.,
whether the appellant’s claim in relation to the losses of the partnership that
were allocated to her is correct and whether the assessment of the penalties
under subsections 162(1) and 163(2) is correct.
[27]
It is my view that the recent
decision by the Federal Court of Appeal in Romanuk answers the question
in this motion. The motion is dismissed.
(b) The Reassessments
[28]
As stated earlier, the issue in the appeal relates to the
Appellant’s 1995, 1996 and 1997 taxation years which were reassessed to include
the amounts of $108,512.49, $680,392.51 and $116,182.32, respectively in her
income. The reassessments were made beyond the normal reassessment period and
subsection 163(2) penalties were also assessed.
[29]
The witnesses at the hearing were
the Appellant, David Fine, a chartered accountant, and John Di Rito, a team
leader in the Criminal
Enforcement Division of the Canada Revenue Agency (“CRA”).
Facts
[30]
The Appellant and her spouse
controlled numerous corporations. Some of those corporations were: Gold
Financial Corporation (“Gold Corp.”), Pier Properties Inc. (“Pier Inc.”), Polar
Property Management Inc. (“Polar Inc.”), 789533 Ontario Limited (“789 Ltd.”),
Yonge Davis Center Inc. (“Yonge Inc.”), Glenwoods Properties Inc. (“Glenwoods
Inc.”), Hanlon Properties Inc. (“Hanlon Inc.”), Tottenham Properties Inc.
(“Tottenham Inc.”) and Justin Properties Inc. I will refer to these
corporations collectively as the Corporations.
[31]
Yonge Inc., Glenwoods Inc., Hanlon
Inc. and Tottenham Inc. owned shopping centres and received rental income from
their operations. I will refer to these operations collectively as the
Commercial Rental Operations. Neither Gold Corp. nor 789 Ltd. carried on
business or had any business activities. They had no income or expenses and
they filed nil income tax returns for each of the years at issue. Pier Inc. has
not filed an income tax return since 1993.
[32]
In analyzing the bank statements
that he received, Mr. Di Rito found that there were numerous disbursements of a
personal nature from the bank accounts held by Gold Corp., 789 Ltd., Pier Inc.,
Polar Inc. and Yonge Inc. (“the Disbursements”). He traced the source of the
funds in the bank accounts held by Gold Corp., 789 Ltd., Pier Inc., and Polar
Inc. and found that the rental income and the unremitted GST from the
Commercial Rental Operations had been transferred to the bank accounts held by
Gold Corp., 789 Ltd., Pier Inc., and Polar Inc.
[33]
The Disbursements were used to pay
for such things as the tuition fees for the private schools which the
Appellant’s children attended, condo fees for a vacation property, membership
at the King Equestrian Club, fees to the Appellant’s children’s orthodontist,
the mortgage on the family residence, the Appellant’s personal credit cards,
cash payments to the Appellant and her spouse’s personal bank accounts,
automobile expenses for vehicles driven by the Appellant and her spouse,
payments on the personal demand loans taken out by the Appellant and her
spouse, life insurance premiums and the property taxes on the family residence.
Attached as an appendix to these reasons is a list of those Disbursements.
[34]
The Appellant was an officer of
the Corporations and she was employed as the property manager for the
Commercial Rental Operations. She was the sole signing authority on the bank
accounts for all the Corporations. She admitted that all Disbursements were
made pursuant to her direction or with her concurrence. However, it was her
position that the Disbursements were repayments of a loan which she had made to
Gold Financial Trust (“Gold Trust”) in 1995.
[35]
The Appellant explained that Gold
Trust is a family trust which was created for the benefit of her children. She
and her spouse are its trustees. She stated that the revenue and expenses from
the Commercial Rental Operations was reported for income tax purposes by Gold
Trust.
[36]
The exhibits tendered by the
Appellant included the income tax returns and Financial Statements for Gold
Trust for 1995, 1996 and 1997. The Appellant stated that the account listed as
“Due to related party” in the 1995 Financial Statements and the account listed
as “Advances from related party” in the 1996 and 1997 Financial Statements
evidenced the loan she made to Gold Trust.
[37]
The Appellant described the
circumstances which gave rise to her making the loan to Gold Trust. She stated
that, in the mid 1990’s, she and her spouse had two other partners in a
corporation called Map Properties Inc. (“Map Inc.”). Map Inc. was indebted to
the Royal Bank for approximately $11 million. The Appellant, her spouse, the
corporations which owned the shopping centres and other parties had guaranteed
Map Inc.’s indebtedness and on December 7, 1994, the Royal Bank called its
loan. It forbore from enforcement of its security until February 28, 1995. It
was the Appellant’s evidence that they were able to arrange refinancing for
approximately $10.5 million but on the very last day they still needed
approximately $1 million. She stated that she went to the CIBC where she
negotiated the balance needed to pay the indebtedness with the Royal Bank. It
is this $1 million which she stated she lent to Gold Trust.
[38]
There was no explanation given
with respect to the relationship between Map Inc. and Gold Trust. However, the
partial accounting records for Gold Corp. and Gold Trust which were submitted
as exhibits showed that the Appellant and her spouse had set up a complicated
structure with respect to their assets. Each of their large assets, including the
family home, was held in a separate corporation. All accounting entries for the
group of corporations were recorded in the books of Gold Corp. and the results
of these records were reported for income tax purposes by Gold Trust.
[39]
The Appellant was not able to
answer any questions with respect to these accounting records. She stated that
it was her accountant who structured the books in this fashion and he told her
bookkeeper how to make the various entries. Neither the accountant nor the
bookkeeper was called as witnesses and I have inferred that their evidence
would not have supported the Appellant. I realize that counsel for the
Appellant stated that the accountant had retired, but it does not follow that
he was not available to be called as a witness.
[40]
Mr. David Fine was called as a
witness to speak to the accounting records. He did not prepare the records and
he did not see any of the source documents which were used to prepare the
records. Any conversations that he had with the maker of the accounting records
are hearsay. I have given no weight to his evidence respecting any of the
accounting records.
[41]
For those Disbursements paid
directly to her, the Appellant was assessed pursuant to paragraph 6(1)(a)
of the ITA on the basis that she received or enjoyed a benefit in the course
of, or by virtue of the office or employment she held with the Corporations.
[42]
With respect to those
Disbursements paid to persons other than the Appellant, the Appellant was
assessed pursuant to subsection 56(2) of the ITA on the basis that they
were benefits which she desired to confer on her spouse or her children.
Analysis
[43]
I have concluded from
the evidence that the Appellant did not make a loan to Gold Trust or to any of
the corporations she controlled. My conclusion is based on the following
reasons.
[44]
Firstly, it was her
evidence that she guaranteed the loan which was received from the CIBC in
February 1995. She stated that she negotiated the loan and that it would not
have been granted but for her “personal guarantee”. The Appellant’s evidence
does not support her position that she made a loan to Gold Trust. She also
stated that the properties were used as collateral for the loan from CIBC.
Based on the Appellant’s evidence and the Financial Statements for Gold Trust,
I have concluded that Glenwoods Inc., Hanlon Inc. and Tottenham Inc. were the
borrowers of the loan from the CIBC and they used their properties as
collateral for that loan. The Appellant gave her personal guarantee for that
loan and she testified that the CIBC has not demanded payment of the loan. In
other words, her guarantee has not been called.
[45]
Secondly, according to
the income tax returns prepared and filed by the Appellant, she did not have
the personal resources to make a personal loan to Gold Trust. The income reported
by the Appellant was as follows:
|
Year
|
Income Reported
|
Source
|
|
1989
|
$13,000
|
T4 Earnings
|
|
1990
|
$22,790
$1,199
|
Dividends
Family Allowance
|
|
1991
|
$10,422
$1,221
|
RRSP Income
Family Allowance
|
|
1992
|
$1,255
|
Family Allowance
|
|
1993
|
$14,400
|
T4 Earnings
|
|
1994
|
$15,600
|
T4 Earnings
|
|
1995
|
$12,600
|
T4 Earnings from her spouse’s law firm,
Piersanti & Co.
|
|
1996
|
$0
|
|
|
1997
|
$0
|
|
[46]
Lastly, if the
Appellant had made a loan to Gold Corp. or Gold Trust or any of the
Corporations she controlled, she ought to have been able to give documentary
evidence to support her position. I do not accept that the entries marked “Due
to a related party” or Advances from a related party” in the Financial
Statements for Gold Trust refer to the Appellant. There has not been any
evidence presented to me which would allow me to conclude that the Appellant
made a loan to Gold Trust. Actually, there has not been any evidence which
verified that these entries “Due to a related party” or Advances from a related
party” are correct. I note that in its 1996 and 1997 income tax returns, Gold
Trust declared that it did not borrow money or incur a debt in a non-arm’s
length transaction since June 18, 1971. In 1995, Gold Trust did not make any
declarations.
[47]
Paragraph 6(1)(a)
of the ITA reads:
6. (1) There shall
be included in computing the income of a taxpayer for a taxation year as income
from an office or employment such of the following amounts as are applicable:
(a)
the value of board, lodging and other benefits of any kind whatever
(except the benefit he derives from his employer's contributions to or under a
registered pension fund or plan, group sickness or accident insurance plan,
private health services plan, supplementary unemployment benefit plan, deferred
profit sharing plan or group term life insurance policy) received or enjoyed
by him in the year in respect of, in the course of, or by virtue of an
office or employment; (emphasis added)
[48]
A review of the
evidence presented by Mr. Di Rito showed that the Appellant used the bank
accounts for the Corporations as her personal banker. Over the period, she
received a net amount of $7,591.37 cash from the Corporations This amount was
taken from the Corporations and deposited into her personal bank account. It is
not difficult to conclude that the amount of $7,591.37 was a benefit received
by the Appellant in respect of, in the course of, or by virtue of her office or
employment with the Corporations: R v Savage, [1983] 2 S.C.R. 428.
[49]
Subsection 56(2) of the
ITA provides:
56....
(2)
A payment or transfer of property made pursuant to the direction of, or with
the concurrence of, a taxpayer to some other person for the benefit of the
taxpayer or as a benefit that the taxpayer desired to have conferred on the
other person shall be included in computing the taxpayer's income to the extent
that it would be if the payment or transfer had been made to him
[50]
The four preconditions
contained in subsection 56(2) are:
(1)
the Disbursement must
be made to a person other than the Appellant;
(2)
the Disbursement must
be made at the direction or with the concurrence of the Appellant;
(3)
the Disbursement must
be for the benefit of the Appellant or for the benefit of another person whom
the Appellant wanted to benefit; and,
(4)
the Disbursement would
have been included in the Appellant’s income if it had been received by her.
[51]
The requirements of
subsection 56(2) have been met in this case for all Disbursements made to
parties other than the Appellant.
[52]
All Disbursements,
except the cash taken by the Appellant personally, were made to third parties. The
Appellant has admitted that the Disbursements were made pursuant to her
direction or with her concurrence. The Disbursements were made for the benefit
of the Appellant’s children and her spouse. They were made to fund her family’s
living expenses. The Disbursements to her spouse alone were $94,354.76. There
is no doubt that the amount of the Disbursements would have been included in
the Appellant’s income if it had been received directly by the Appellant.
[53]
I will speak to the
Disbursement made to Justin Properties Inc. because it was the Appellant’s
position that the amount of $470,550 was a loan to Justin Properties Inc.
[54]
The only asset owned by
Justin Properties Inc. was the family residence at 110 Greenbrooke.
[55]
The Appellant’s
position was not supported by the documents filed with the court. The bank
statements showed that in 1995, 1996 and 1997, the mortgage payments on 110
Greenbrooke were made by Gold Corp. and Pier Inc. There was no evidence as to
which Corporation actually earned these amounts and there was no documentary
evidence to support that the mortgage payments were a loan. In 1997 a lump sum
of $417,000 was deposited into Justin Properties Inc.’s bank account so that it
could pay off its mortgage with the Royal Bank. The paper trail showed that
this deposit was a cheque for $417,000 from Petstuff to Yonge Inc. The cheque
represented a pay out of Petstuff’s lease with Yonge Inc. The General Ledger
for Gold Corp. does not record that Yonge Inc. received the payment or that it
lent it to Justin Properties Inc.
[56]
The Appellant tried to
distance herself from the accounting records by stating that she did not
understand them and they were prepared under the direction of the accountant
who instructed the bookkeeper how to enter the data in the general ledger.
However, in the Notice to Reader in the Financial Statements for Gold Trust,
the accountant wrote that the statements were prepared from information
provided by management. He did not audit, review or verify the information.
[57]
I do not accept the Appellant’s
attempt to blame her Corporations’ records on her accountant or her bookkeeper.
[58]
I have concluded that
the Minister has shown that the Appellant made a misrepresentation in her 1995,
1996 and 1997 income tax returns and that misrepresentation was attributable to
wilful default. The Appellant knew that she reported zero income from her work
with her Corporations. She admitted that she directed the Corporations to pay
her family’s living expenses including paying off the mortgage on her family
home and yet she declared no income. She also knew that she did not give a loan
to Gold Trust. She admitted that she guaranteed the loan to CIBC and I do not
believe that the Appellant did not know the difference between obtaining a loan
and guaranteeing a loan.
[59]
The Appellant tried to
rely on the fact that she has only a high school education as an excuse for not
understanding the accounting records. However, I found the Appellant to be an
intelligent, shrewd business woman. She was the controlling mind of a large
Commercial Rental Operation with assets that were worth in excess of $17
million in 1995 and in excess of $19 million in 1997. She negotiated the leases
for the properties, the loans made to the Corporations and she collected the
rents from her tenants. She ensured that all of the properties were well
maintained.
[60]
The Appellant stripped
substantial amounts from the Corporations and the only income she reported
during the period was $12,600 which she received from her spouse’s law firm in
1995. It is my view that the Minister has satisfied his burden under both
subsections 152(4) and 163(2). I have concluded that the Appellant
intentionally took funds from the Corporations and intentionally did not report
those funds.
[61]
The appeal is dismissed
with costs to the Respondent.
Signed at Ottawa, Canada, this 11th
day of July 2013.
“V.A. Miller”
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