Erna Dietrich v. Minister of National Revenue, [1988] 2 CTC 2356, 88 DTC 1677

St-Onge, T.C.J. [Orally]:—The appeals of Erna Dietrich were heard on August 9, 1988, at the City of Montreal, Quebec, and it has to do with the net worth reassessment with respect to her 1974 to 1981 taxation years.

The Minister reassessed the appellant by alleging the following facts (paragraphs 3 to 7 of the reply to the notice of appeal):

3. During the 1974 to 1981 taxation years, Appellant declared (after numerous requests by the Department of National Revenue) the following total and taxable income:

Year	Total Income	Taxable Income
1974	950,00$	NIL
1975	2 114,00	NIL
1976	5 010,00	1 820,00
1977	9 542,00	6 172,00
1978	9 246,97	5 716,97
1979	10 334,55	6 584,55
1980	12 878,32	8 781,37
1981	18 686,85	12 121,35

4. Appellant's 1974 to 1980 taxation years were reassessed on December 8th, 1983 while the 1981 taxation year initial assessment was also issued on December 8th, 1983;

5. These notices of assessment and reassessment in respect to Appellant's 1974 to 1981 taxation years, the Minister of National Revenue added to Appellant's income undeclared interests and dividends income, undeclared capital gains and undeclared business income the whole summarized and calculated by using a net worth method;

The Minister of National Revenue also levied late filing penalties in respect to Appellant's 1974, 1975, 1976, 1977 and 1981 taxation years and penalties under section 163(2) of the Income Tax Act in respect to the 1974 to 1981 taxation years;

6. Appellant submitted a Notice of Objection for each of her 1974 to 1981 taxation years on January 9th, 1984 and the Minister of National Revenue issued a Notice of Confirmation on February 21st, 1986;

7. In assessing and reassessing Appellant's 1974 to 1981 taxation years, the Minister of National Revenue relied upon the following facts:

a) Appellant (who also used from time to time her maiden name “Lena Hagen") declared during her 1974 to 1981 taxation years the income alleged in paragraph 3 as if recited at length;

b) during her 1974 to 1981 taxation years, Appellant carried on a trade related to prostitution, solicitation for prostitution and the operation of a common bawdyhouse (maison de débauche), a fact which she has admitted on several occasions;

c) Appellant was paid cash for her services and kept no books of records;

d) from December 31st, 1973 to December 31st, 1981, Appellant's capital increase from 11 273,13$ to 1 025 194,85$ as computed by a net worth method as appear from the statements annexed hereto as if recited at length;

e) during the 1974 to 1981 taxation years, funds available to Appellant for investment purposes were provided for by her trade mentioned in subparagraph b);

f) further, since 1972 Appellant has been convicted from 6 to 8 times of charges relating to prostitution;

g) during her 1974 to 1981 taxation years, Appellant failed to declare taxable income comprising of net additional business income, dividends and interests income and taxable capital gains for the following amounts:

Year	Additional	Revised	Revised
	Income	Total Income	Taxable Income
1974	48 847,00$	49 797,00$	46 829,00$
1975	48 994,00	51 108,00	47 889,00
1976	124 063,00	129 073,00	125 613,00
1977	164 148,00	73 690,00	70 019,00
1978	131 578,00	140 825,00	136 958,00
1979	166 072,00	176 406,00	172 276,00
1980	225 954,00	238 832,00	134 312,00
1981	154 345,00	154 344,00	149 242,00

h) during 1974 to 1981 taxation years, Appellant, under circumstances amounting to gross negligence, omitted to declare substantial amounts of her taxable income in filing her returns for said taxation years which justified the following penalties under section 163(2) of the Income Tax Act, namely for the following amounts:

Year	Amount of Penalty
	Under 163(2)
1974	2 884,77$
1975	2 885,26$
1976	10 540,41$
1977	4 371,84$
1978	10 029,14$
1979	13 106,25$
1980	18 407,38$
1981	10 462,61$

i) in respect to Appellant's 1974, 1975, 1976, 1977, taxation years, Appellant failed to submit said returns within the delay prescribed by the law and penalties for late filing amount to the following:

Year	Date Returns	Late Filing
	Submitted	Penalty
1974	June 12/1979	500,00$
1975	June 12/1979	500,00$
1976	March 26/1979	500,00$
1977	March 26/1979	500,00$
1981	Sept. 23/1982	3 891,03$

j) further, in addition to Appellant's misrepresentations and gross negligence, she attempted to willfully evade payment of her income tax during said years by various Ways.

i) she kept no books of records;

ii) her increase in capital is so important compared to her declared income that she could not fail to recognize her gains;

iii) Appellant's transactions were conducted in cash or through documents using the names of third parties and also their addresses;

iv) since 1976, Appellant transferred funds to Gran Cayman Island or Switzerland under either her name or maiden name with the intention of dissimulating her income earned from prostitution, to invest said income, hide the income from her investments;

v) although she knew she was under inquiry, she continued to move money from Canada to foreign countries without reporting the investments income;

vi) she voluntarily ignored T-5 slips issued under maiden name;

vii) she further tried to induce an employee of the Banque d'Épargne to destroy a T-5 slip. [sic]

At the hearing, the appellant admitted paragraph 3 and subparagraphs 7(a), (b), (c), (e), (f), and denied subparagraphs 7(d), (g), (h), (i) and (j) of the reply to the notice of appeal.

The appellant also admitted paragraphs 14 and 15 of the said reply, but she was not able to file any evidence to contest the subparagraphs she had denied.

Mr. Picard, an employee of Revenue Canada, special investigations, did substantiate all the subparagraphs of the reply to the notice of appeal that the appellant had denied. He found all the necessary documents at the bank or at the appellant's home, to prepare the financial statements with respect to the figures mentioned at subparagraphs 7(g), (h) and (i) and also to determine the amount of the penalties.

The evidence has also shown that the appellant has never produced any document before and during the hearing, to disturb the amount of the opening statement of December 31, 1973.

The respondent has proven his allegations of paragraph 7(h) with respect to the penalties, and the appellant has failed to prove that the reassessments were ill-founded in facts and in law.

Consequently, the appeals are dismissed.

Appeals dismissed.