Linda Martz v. Minister of National Revenue (Informal Procedure), [1993] 2 CTC 2355, 93 DTC 952

Bonner, T.C.C.J. (orally):—The appellant appeals under the informal procedure provisions of the Tax Court of Canada Act from assessments under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") for the 1979 to 1982 taxation years. She contends that the Minister of National Revenue (the "Minister") erred in computing income on the net worth basis. As well, she contends that the penalty imposed under subsection 162(1) in respect of a failure to file a return of income for 1979 was improper and that penalties were improperly imposed under subsection 163(2) of the Act for 1980, 1981 and 1982.

During the period in question, the appellant was proprietor of a used car sales lot in Toronto. She was and is married to a man who, at all relevant times, was an undischarged bankrupt. Both the appellant and her husband testified at the hearing of the appeals.

The appellant stated that she did not work and did not have unreported income. She asserted that Revenue officials have arrived at varying figures for income or loss and for tax in connection with the years under appeal. She asserted that her husband paid any personal expenses by her over the years. She stated that she did not understand how Revenue Canada arrived at the figures used and that for each year she had handed her books over to an accountant to prepare the tax returns.

When questioned about the balance sheets of the used car business, the appellant asserted that she did not have anything to do with the business and was not familiar with the balance sheets. She stated that “the business was in my name". I assume she was seeking to suggest by that that the business was hers in name only. However, she did treat the business as hers in her tax returns and in the absence of clear, credible and cogent evidence, I am not prepared to conclude that the business was really owned by some other person.

In her tax returns for 1980, 1981 and 1982, the appellant declared net income of $3,908, $22,942 and $26,920, respectively. During the same period, she made very substantial term deposits in a number of banks. No explanation of the source of the funds was given. I observed the appellant as she gave her evidence. She did not impress me as a truthful witness. Her attitude seemed to be that her income must be taken to be what she said it was unless and until the contrary was established. Although the subsection 163(2) penalties were under appeal for 1980, 1981 and 1982, the onus was on the appellant to establish that the income figure arrived at by the Minister in making the assessments under appeal was wrong. See The Queen v. Taylor, [1984] C.T.C. 436, 84 D.T.C. 6459 (F.C.T.D.).

The appellant's husband was an equally unimpressive witness. He claimed to be the source of moneys used by the appellant for personal expenses. He gave no detail whatever as to the source of the funds allegedly so used. He did produce a sort of IOU for $10,000, dated in August of 1976, which was said to have been repaid to him. There was no acceptable evidence tendered as to the identity of the borrower or the time of the alleged repayment. I simply cannot believe that this witness was prepared to tell the truth on any relevant matter.

Thus, the appellant has failed to adduce any reliable evidence on which I can reach a conclusion that the Minister erred in the computation of income. I have, therefore, concluded that the appellant, in her tax returns for 1980, 1981 and 1982 understated her income by the amounts as found by the Minister on reassessment.

Having regard to the size of those amounts and the fact that the appellant understated her income for each of three consecutive years, I have concluded that the circumstances amounted to gross negligence, that is to say, a very high degree of negligence tantamount to intentional acting, and in that regard I refer to the decision of the Federal Court-Trial Division in Venne v. The Queen, [1984] C.T.C. 223, 84 D.T.C. 6247. The appeals from the subsection 163(2) penalties, therefore, fail.

Finally, I will observe that there is no basis for a conclusion that the subsection 162(1) penalty was improperly assessed.

The appeals will, therefore, be dismissed.

Appeals dismissed.