Joyce Redekopp v. Her Majesty the Queen (Informal Procedure), [1994] 1 CTC 2437

McArthur, J.T.C.C.:—These are appeals from a reassessment of income tax for the 1989, 1990 and 1991 taxation years under the informal procedure of this Court. In the reassessment, the Minister disallowed certain expenses against rental income for each year in that he is not satisfied that they occurred and $4,094.04 was disallowed as being on account of capital and not revenue.

Facts

The appellant owned an 11-room residential house since 1978. During the 1989, 1990 and 1991 taxation years she occupied the upper six rooms personally and rented the lower or basement five rooms to tenants.

The appellant claimed the following expenses against rental income for each year as follows:

The Minister of National Revenue (the "Minister' ') reduced the appellant's claim for expenses against rental income for each year as follows:

In 1991, the Minister disallowed expenses in respect of repairs in the amount of $4,094.04 as being on account of capital. The appellant testified that she was not able to submit vouchers for all expenditures incurred in 1989 and 1990 because they were lost when repairs were done to the rental units. Further, she was away on two occasions during the illness and subsequent death of her sister and receipts were lost during her absence. Substantial repairs were necessary due to damage by tenants including the repair and replacement of fixtures, flooring, carpet and cupboards.

The appellant represented herself and identification of details of expenditures to include dates and exact amounts were sketchy. The respondent made an effort to, in a fair manner, identify and label the expenditures in each year. Without receipts and precise details of expenditures under the heading of maintenance and repairs, the task was a difficult one, particulaly for the years 1989 and 1990.

During the taxation year 1991, the appellant did have most vouchers and receipts. The largest expenditure claimed, in that year, was $9,649.99 for repairs of which the Minister disallowed $5,440.03 on the basis that there were no vouchers for $1,036.73, cancelled cheques only for $232.37, and $4,094.04 was deemed a capital expenditure and $76.89 taken as being personal.

The appellant did not appear to have made an allocation between expenditures that resulted in a permanent and enduring benefit and those that were merely repairs that would restore the apartment to its original state. A refrigerator, electrical fixtures, curtains and carpeting all were included as repairs.

While interpretation bulletins are to be taken as guides or indications of the Department of National Revenue’s interpretation of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), Interpretation Bulletin IT-128R has this helpful paragraph 4(b):

Maintenance or Betterment—Where an expenditure made in respect of a property serves only to restore it to its original condition, that fact is one indication that the expenditure is of a current nature. This is often the case where a floor or a roof is replaced. Where, however, the result of the expenditure is to materially improve the property beyond its original condition, such as where a new floor or a new roof clearly is of better quality and greater durability than the replaced one, then the expenditure is regarded as capital in nature. Whether or not the market value of the property is increased as a result of the expenditure is not a major factor in reaching a decision. In the event that the expenditure includes both current and capital elements and these can be identified, and appropriate allocation of the expenditure is necessary. Where only a minor part of the expenditure is of a capital nature, the Department is prepared to treat the whole as being of a current nature.

I do not intend to review the case law with respect to allocation of expenditure but the following merits mention [McLaughlin v. Canada, [1992] 1 C.T.C. 2001, 92 D.T.C. 1030, at page 2004 (D.T.C. 1032)]:

The Supreme Court of Canada in the Algoma Central case [M.N.R. v. Algoma Central Ry., [1968] S.C.R. 447, [1968] C.T.C. 161, 68 D.T.C. 5096, at pages 449-50, C.T.C. 162, D.T.C. 5097] cited the Privy council in B.P Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Australia, [1966] A.C. 224, [1965] 3 All E.R. 209, where Lord Pearce said at pages 264-65 (All E.R. 218):

The solution to the problem is not to be found by any rigid test or description. It has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other. One consideration may point so clearly that it dominates other and vaguer indications in the contrary direction. It is a commonsense appreciation of all the guiding features which must provide the ultimate answer.

[Emphasis in original.]

The appellant has not satisfied the burden of proof with respect to the allocation of capital expenditures in 1991 and the $4,094.04 designated as capital expenditure will stand.

Although, for the most part, the Minister did apply common sense in arriving at the assessments, the appellant did satisfy the Court that there were some valid expenditures in each year that were disallowed.

The appeals are allowed to permit the following amounts of allowable expenses:

The reassessment for the appellant’s 1989, 1990 and 1991 taxation years are referred back to the Minister of National Revenue for reconsideration and reassessment.

Appeal allowed in part.

Grant C. Werry v. Her Majesty The Queen

[Indexed as: Werry (G.C.) v. Canada]

Tax Court of Canada (Mogan, J.T.C.C.), February 3, 1994 (Court File No. 92-1884).

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63)—152(4)(a)(i), (7), 163(2), 171, 230(1)—Net worth assessment—Penalties—Capital or income expense—Minister’s ability to reassess statute-barred year.

The appellant was a cattle drover who purchased cattle for immediate resale. He bought the cattle from individual farmers and from local barn sales. For the years 1983 to 1987, the appellant filed income tax returns showing gross revenue from his cattle sales in the range of $2,700,000 to $4,500,000. The appellant did not maintain any books and records. His tax returns were prepared by his accountant from his bank statements. For the taxation years from 1983 to 1987, the appellant was assessed using the net worth method. Using that method, the Minister determined that the appellant had not reported the full amount of his income for the years 1983, 1986 and 1987. Accordingly, the Minister made the following adjustments to the appellant’s income. For 1983, the appellant’s income was increased from a loss of $5,424.95 to a profit of $87,054.79; for 1986, his income went from $20,034.92 to $29,759.65 and for 1987, from $20,665.24 to $66,437.53. The appellant accepted the concept of the net worth statement but sought relief through adjustments to that statement. The principal adjustment related to a "payment to B” of $60,472.15 ("the payment”) which was a negative adjustment to the appellant’s apparent increase in net worth during 1983. At trial, the Minister claimed that the amount should be nil but the appellant contended that it should be $107,000. The facts relating to the payment were as follows. At one point, the appellant and B decided to work together in the business of buying and selling cattle. During the duration of this partnership, 21 farmers sold cattle to B and did not get paid. Those farmers collectively sued B and the appellant. In order to protect his reputation, the appellant agreed to pay $107,000 to settle the lawsuits. The appellant put his lawyer in funds by endorsing two cheques issued to him in the amounts of $32,408.15 and $35,901.59 and by issuing his own cheque for $38,690.26. At trial, there was also an issue with respect to the imposition of penalties under subsection 163(2) and the Minister’s ability to reassess the 1983 taxation year which was statute-barred.

HELD:

The appeals from 1986 and 1987 were dismissed because the appellant had failed to prove the Minister’s net worth assessment was incorrect. The penalties imposed under subsection 163(2) were confirmed because the appellant was grossly negligent in failing to keep ordinary books and records when he operated a business with gross sales in the range of $3 to $4 million and because the appellant had received cheques which did not go through his bank account and which were therefore not picked up by his accountant. In addition, notwithstanding that it was statute-barred, the Minister was entitled to reassess the appellant for the 1983 taxation year because the appellant had failed to exercise reasonable care in the preparation of his tax return for that year. However, the evidence indicated that the appellant was correct to characterize the $107,000 "payment to B" as an income payment because the payment went to persons who had sold cattle to the partnership and the cattle purchased from those 21 farmers had been sold on revenue account. Accordingly, the $107,000 should be a negative adjustment to the net worth statement for 1983 (this represented a net adjustment of only $46,527.85 because the item appeared in the net worth statement as $60,472.15). Finally, the evidence indicated that the Minister had erred by listing an item called "farm supplies" at $10,000 in 1983. In fact, the amount should have been nil. In the result, the appeal for 1983 was allowed so that the two adjustments ($10,000 and $46,527.85) could be made to the appellant’s 1983 net worth statement. Appeal for 1983 allowed; appeals for 1986 and 1987 dismissed unless there was a ripple effect from the two adjustments to the 1983 taxation year. Appeals dismissed.

The appellant appeared on his own behalf.

Josée Tremblay for the respondent.

Cases referred to:

Clayholt v. M.N.R., [1990] 2 C.T.C. 2163, 90 D.T.C. 1543;

Venne v. The Queen, [1984] C.T.C. 223, 84 D.T.C. 6247.

Mogan, J.T.C.C.:—The appellant is a drover and farmer. As a drover, he purchases cattle for immediate resale usually at the Toronto stockyards through the United Co-Operatives of Ontario ("UCO"). He buys the cattle from individual farmers and from local barn sales. For the years 1983 to 1987, the appellant filed income tax returns showing gross revenue from his cattle sales in the range of $2,700,000 to $4,500,000. The appellant has never maintained any books and records for his business as cattle drover. His bank account is the only record of his transactions. In 1989, the Minister of National Revenue prepared a "statement of net worth" in order to make a fresh determination of the appellant’s annual income for the years 1983 to 1987 inclusive.

From that net worth statement, the Minister determined that the appellant had not reported the full amount of his income for the years 1983, 1986 and 1987 and,

by reassessment, the following adjustments were made to the appellant's income:

The Minister also assessed penalties under subsection 163(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") in the following amounts:

At the commencement of the hearing, counsel for the respondent acknowledged that the reassessment for 1983 was statute-barred because it was issued after the normal reassessment period; and the respondent was required to justify the 1983 reassessment within the terms of subparagraph 152(4)(a)(i) of the Income Tax Act. In his notice of appeal, the appellant does not contest the Minister’s use of a net worth statement in itself as a means of determining income. On the contrary, the appellant appears to have accepted the concept of a net worth statement because he seeks relief only through adjustments to the net worth statement. For example, the following statements are taken (out of sequence) from the notice of appeal:

Whether adjustments to the net worth statement prepared by Revenue Canada for the 1986 taxation year are required, as described below.

The taxpayer submits that the bank loan with the Royal Bank in Arnprior per Revenue Canada’s net worth statement as at December 31, 1986 is understated by $8,000. The taxpayer's records indicated that the balance owing to the Royal Bank in Arnprior at December 31, 1986 was $153,000 as opposed to $145,000 referred to in the net worth statement.

That the notice of reassessment with respect to the 1986 taxation year be varied for the requested adjustments to the net worth statements prepared by Revenue Canada, as described above.

In his testimony, the appellant admitted that he did not keep records and books of account in connection with his business as cattle drover. He has therefore failed to comply with subsection 230(1) of the Income Tax Act which provides:

230 (1) Every person carrying on business. . . shall keep records and books of account (including an annual inventory kept in prescribed manner) at his place of business or residence in Canada . . . in such form and containing such information as will enable the taxes payable under this Act. . . to be determined.

It has been recognized in a number of cases that a statement of net worth is not the best method to measure annual income but, in the absence of acceptable bookkeeping records, it is a method which has been permitted by the courts. See Clayholt v. M.N.R., [1990] 2 C.T.C. 2163, 90 D.T.C. 1543 (T.C.C.) at page 2166 (D.T.C. 1545). The income tax auditor who prepared the net worth statement, Douglas Winchester, testified and explained his methodology. He attempted to determine the appellant's assets and liabilities as at December 31 in each of the years 1982 to 1987 inclusive. By subtracting the liabilities from the assets, he could determine the appellant’s net worth on each of those dates. And then, by comparing the net worth at the end of one year with the net worth at the end of the subsequent year, he could determine if there was an increase in net worth during the subsequent year. An apparent increase in net worth was adjusted downward to recognize non-taxable amounts received in the subsequent year (e.g., an inheritance or the tax-free portion of a capital gain) and was adjusted upward to recognize personal expenses in the subsequent year (e.g., food and clothing). After taking into account all relevant adjustments, the auditor determined a final amount as the change in adjusted net worth from the end of one year to the end of the subsequent year. If this change was a positive amount (i.e., if the adjusted net worth at the end of the subsequent year exceeded the adjusted net worth at the end of the immediately preceding year), the income tax auditor would assume that such positive amount (i.e., the excess) was the taxpayer's net income for the subsequent year.

The appellant was born in 1935. His father was a cattle drover. The appellant himself became a cattle drover in 1955 and has operated in that business ever since. With each income tax return, the appellant filed an income statement showing sales, gross profit, expenses and net profit. For example, the income statement attached to his 1987 return may be summarized as follows:

The above statement looks impressive at first blush but, after hearing the evidence of the appellant himself and Mr. Winchester, I realize that the above statement records only part of the appellant’s bank account plus certain adjustments for opening and closing inventory. According to the appellant’s own testimony, he would give to Mr. Barber (his accountant) at the end of each year a box containing his monthly bank statements and cancelled cheques. Mr. Barber would then prepare an income statement like the one summarized above assuming that the deposits to the bank account represented all of the appellant’s revenue from sales of cattle and that certain cancelled cheques related to the cattle business. When seen in this light, the income statements filed with the appellant's tax returns are not reliable documents because they are not based on any sensible books and records. It is not surprising that the Minister of National Revenue decided to find some other method of measuring the appellant’s income even if he had to resort to a net worth statement. Subsection 152(7) of the Act states:

152 (7) The Minister is not bound by a return or information supplied by or on behalf of a taxpayer and, in making an assessment, may, notwithstanding a return or information so supplied or if no return has been filed, assess the tax payable under this Part.

The appellant's principal objection to the net worth statement concerns a 1983 item identified as "payment to Bennett". This item is a negative adjustment to the appellant's apparent increase in net worth during 1983. Although this item appears in the net worth statement as $60,472.15, it is significant because the respondent now claims that it should be nil whereas the appellant claims that it should be $107,000. Later in these reasons for judgment, I shall consider the question of 1983 as a statute barred year but, for the present, I will simply state that the Minister of National Revenue has satisfied the conditions in subparagraph 152(4)(a)(i) which permit him to reassess tax for 1983 after the expiration of the normal reassessment period.

The appellant purchased his cattle from individual farmers or at barn sales. At the barn sales, he would pay by cheque. From the individual farmers, his purchases would be about 60 per cent by cheque and about 40 per cent in cash. In late 1977, the appellant and Dave Bennett decided that they would work together in the business of buying and selling cattle. It is the usual story of two persons being in partnership, having a dispute, resorting to litigation, and making a final payment. Dave Bennett had little capital and so the appellant provided most of the funds for Bennett's cattle purchases. It became known at the barn sales and among the individual farmers that the appellant and Bennett worked together. It was also known at the office of UCO that the appellant and Bennett worked together because their cattle were shipped to UCO under the name "Norland" and the appellant's cash advances to Bennett were sometimes repaid by UCO from the sale of cattle which Bennett had delivered. In October 1980, Bennett gave a cheque for $13,340 to the appellant but it was returned NSF. After speaking with Bennett and his (Bennett's) bank manager, the appellant tried again to cash the cheque but it was again returned NSF. The appellant then telephoned UCO in Toronto and told them not to make any further payments to Bennett but to remit to the appellant any amounts then owing by UCO to Bennett for cattle.

As a result of that phone call, UCO sent to the appellant certain funds which it would otherwise have sent to Bennett. And there were 21 farmers who had sold cattle to Bennett but did not get paid. Those farmers collectively in three different groups sued Bennett and the appellant. There was a finding by an Ontario court that the appellant and Bennett were partners in the business of buying and selling cattle. On November 10, 1983, at the office of the appellant's lawyer at Pembroke (Huckabone, O'Brien & Co.), the actions by the farmers against Bennett and the appellant were settled on the basis that the appellant would pay 80¢ on the dollar to those farmers who had sold cattle to Bennett and not been paid. The aggregate amount owing to settle the lawsuits was $107,000. The appellant put his lawyers in funds to pay the farmers as follows. He endorsed to Huckabone, O"Brien & Co. two cheques from UCO issued to the appellant in November 1983 in the amounts of $32,408.15 and $35,901.59. The appellant then issued to Huckabone, O'Brien & Co. his own cheque (November 18, 1983) for $38,690.26. The aggregate of these three cheques is precisely $107,000.

The appellant paid these amounts to the farmers for a number of reasons. As a partner of Bennett, the appellant was probably liable to the farmers for cattle purchased by Bennett. Even if he were not a legal partner of Bennett, it was known among cattle farmers that the appellant and Bennett worked together and, because many Cattle purchases were done on a handshake, it was necessary for the appellant to maintain his good name among all farmers from whom he may want to purchase cattle. And in 1983, the appellant was only 48 years of age and he hoped to be a cattle drover for many more years. The appellant therefore claims that there were good business reasons for paying the farmers to settle the lawsuits and that any amounts so paid should be deducted as a negative adjustment from his apparent increase in net worth during 1983.

The respondent argues that the payment of $107,000 to the farmers was a capital payment because it was non-recurring; it was to protect a source of income; and it was for goodwill (i.e., to protect the appellant’s good name). If it was a Capital payment, the respondent further argues that it should not be a negative adjustment to the 1983 net worth. In my view, there is no reasonable basis for holding that the $107,000 was paid on capital account. Although it was paid to settle certain lawsuits by 21 farmers, the payment was made in connection with the Werry/Bennett partnership ("Norland"); the payment went to persons who had sold cattle to the partnership; and the cattle purchased from those 21 farmers had been sold on revenue account. In my opinion, the amount of $107,000 was an income payment andnot a capital payment. That amount should be a negative adjustment in the net worth statement for 1983.

In the net worth statement, one of the assets listed for 1983 was "farm supplies” at $10,000. The appellant claims that this amount should be nil. At the com- mencement of argument, counsel for the respondent conceded that this item should be removed from the 1983 assets, and so there will be a further adjustment to the net worth statement for 1983. The appeal for 1983 will be allowed so that these two adjustments in the net worth statement can be reflected in the appellant's revised income for 1983.

The appellant also claimed that an asset identified as “grain and produce" should be reduced in 1986 from $38,000 to $19,485.12 and in 1987 from $34,850 to $2,845. Mr. Winchester in evidence went through his net worth statement explaining the source of information for his various entries. Because the appellant kept no books and records, Mr. Winchester was required to go to the appellant's bank and obtain the many statements which the appellant would sign and deliver to his bank from time to time listing his assets and liabilities to support his continuing line of credit. Many of the items in Mr. Winchester's net worth statement were taken directly from or based upon information which the appellant himself had provided to his bank. I have concluded that Mr. Winchester was patient, meticulous, fair and careful in assembling the information for his net worth statement. For example, after receiving a letter from Mr. Barber (the appellant's accountant) dated September 1, 1989 in the midst of his audit, Mr. Winchester reduced the "grain and produce" inventory by $10,000 for 1985 and 1986. By contrast, the appellant was not careful and certainly not meticulous in his failure to keep books and records which would permit an accurate measurement of income each year for a business with gross sales in the range of $3 million to $4 million. Having accepted the net worth statement, the appellant has the onus of proving error in those items which he challenged. With respect to the asset “grain and produce" for 1986 and 1987, the appellant has failed to prove that any amounts suggested by him are more reasonable or accurate than the amounts used in the net worth statement.

I turn now to the question of 1983 as a statute-barred year. In order to justify the reassessment for 1983 which is under appeal, the respondent must prove (in the words of subparagraph 152(4)(a)(i)) that the appellant:

. . .. has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act. . . .

In Venne v. The Queen, [1984] C.T.C. 223, 84 D.T.C. 6247 (F.C.T.D.), one of the issues was whether the Minister of National Revenue could reassess statute-barred years and, having regard to the words "misrepresentation that is attributable to neglect", Strayer, J. stated at page 228 (D.T.C. 6251):

I am satisfied that it is sufficient for the Minister, in order to invoke the power under subparagraph 152(4)(a)(i) of the Act to show that, with respect to any one or more aspects of his income tax return for a given year, a taxpayer has been negligent. Such negligence is established if it is shown that the taxpayer has not exercised reasonable care. This is surely what the word "misrepresentation that is attributable to neglect" must mean, particularly when combined with other grounds such as “carelessness” or "wilful default” which refer to a higher degree of negligence or to intentional misconduct. Unless these words are superfluous in the section, which I am not able to assume, the term "neglect" involves a lesser standard of deficiency akin to that used in other fields of law such as the law of tort.

[Emphasis added.]

Adopting the above words of Strayer, J., I have no hesitation in finding that the appellant "nas made a misrepresentation that is attributable to neglect" with respect to his 1983 taxation year because he did not exercise reasonable care when he failed to keep the ordinary books and records which any reasonable business man would keep for a business with gross sales in the range of $3 million to $4 million. There are some concrete examples of that neglect and its consequences. In November 1983, in order to put his lawyer in funds to pay the 21 farmers, the appellant endorsed to his lawyer two UCO cheques in the amounts of $32,408.15 and $35,901.59. Because that aggregate amount of $68,309.74 was transferred directly to the appellant’s lawyer without going through the appellant's bank account, that amount does not appear in the gross revenue of the appellant's cattle drover business which was reported in his 1983 income tax return. This is one of the risks which the appellant ran when he neglected (and I choose that word with care) to keep ordinary books and records and asked his accountant to use the appellant's bank account as an accurate reflection of his cattle business. Mr. Winchester testified that another UCO cheque for $14,000 had been endorsed and cashed in 1980 without going through the appellant's bank account but the 1980 taxation year is not under appeal.

In Venne, supra, Strayer, J. held that a misrepresentation attributable to neglect was established if the taxpayer has not exercised reasonable care, and that other terms like “carelessness” or "wilful default" refer to a higher degree of negligence. I agree with that observation. Having regard to the magnitude of the appellant’s cattle drover business, I would also be prepared to hold, if necessary, that the appellant made a misrepresentation attributable to carelessness or wilful default with respect to his 1983 taxation year. The Minister of National Revenue was certainly justified within the terms of subparagraph 152(4)(a)(i) when he issued the reassessment for 1983 which is under appeal herein.

Lastly, there is the question of penalties assessed under subsection 163(2) of the Act which states:

Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this section referred to as a "return") filed or made in respect of a taxation year as required by or under this Act or a regulation, is liable to a penalty of. . . . (The formula to determine the amount of the penalty is not relevant.)

Mr. Winchester said that he recommended penalties under subsection 163(2) for the following reasons. First, at a meeting on July 31, 1989 in the midst of his audit, Mr. Winchester asked the appellant to sign a letter promising to keep books and records but the appellant flatly refused notwithstanding the fact that Mr. Barber (the appellant’s accountant in attendance at the meeting) advised the appellant that he was required to keep books and records. Second, certain cheques issued by UCO were either endorsed to third parties or cashed by the appellant without going through his bank account; and the amounts of those cheques were not reported as part of the appellant’s income. And third, Mr. Winchester had reviewed the transcript of proceedings in the Ontario Court in an action between Dave Bennett and the appellant. From that transcript, Mr. Winchester read a statement by the appellant's lawyer that he (i.e., the appellant) did not keep books and records so that Revenue Canada Taxation would have difficulty in determining his income. The appellant did not offer any evidence to contradict the above reasons for assessing the penalties.

To the extent that the appellant’s income as determined by the net worth statement (after the adjustments for 1983 in the appellant’s favour described above) is higher for 1983, 1986 and 1987 than the appellant’s income as reported in his income tax returns for those years, I find that the appellant, under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of a false statement or omission in his income tax returns for those years within the meaning of subsection 163(2). I would uphold the penalties but the penalty for 1983 may nave to be adjusted downward after the net worth statement is adjusted for 1983 in the appellant's favour as described above.

Summarizing my conclusions, the Minister was justified in reassessing 1983 under the terms of subparagraph 152(4)(a)(i). The net worth statement shall be amended only for 1983 (i) to delete from the assets at December 31 the item "farm supplies $10,000”; and (ii) to allow a negative adjustment of $107,000 for "payment to Bennett”. The penalty assessed for 1983 under subsection 163(2) of the Act is upheld but shall be reduced if the above amendments to the net worth statement for 1983 cause the appellant's income for 1983 to be reduced. The reassessments of tax and penalties for 1986 and 1987 are upheld unless there should be a ripple effect from the above amendments to the net worth statement for 1983.

Using the words in section 171 of the Income Tax Act, the appeal for 1983 is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment. The appeals for 1986 and 1987 are dismissed subject to the ripple effect referred to above. The respondent has asked for costs. This is a reasonable request because the appeals for 1986 and 1987 are dismissed and the respondent was successful in two basic arguments for 1983: the reassessment of a statute-barred year and the imposition of a penalty under subsection 163(2). The appellant did achieve significant relief, however, in the 1983 negative adjustment of $107,000 (a net adjustment of only $46,527.85 because the item appears in the net worth statement as $60,472.15) for the payment to Bennett. I will therefore not award costs to either party.

Appeal allowed.