Luciano Gentile v. Her Majesty the Queen, [1988] 1 CTC 253, [1988] DTC 6130

Dube, J. [Translation]:—The plaintiff is appealing from tax assessments issued by the Minister of National Revenue for the eight taxation years from 1970 to 1977 on income totalling $197,292 distributed equally over the years in question. The plaintiff is appealing on the ground that he earned no income in the aforesaid years.

The evidence disclosed that an auditor from the Department of National Revenue, Roland Lafond, found that the plaintiff had filed no tax returns for the taxation years 1970 to 1977 and asked him to file returns. The taxpayer referred the auditor to his accountant, Yvon Lamarre. The latter told the auditor that he was withdrawing from the case. Subsequently, a Mr. Pizzi filed returns on behalf of the plaintiff disclosing income totalling $110,025 for the eight years in question. Mr. Pizzi nevertheless delayed providing the plaintiff's books of account and supporting documentation for certain expenses claimed, and then refused to do so. The auditor Lafond accordingly submitted draft assessments and gave the taxpayer certain deadlines within which to make representations.

As no representations were made, assessments were issued by the Minister on May 3, 1979 taxing a total income of $223,078. This income was calculated on the basis of the aforesaid return of $110,025 prepared by Mr. Pizzi, plus certain disallowed business expenses and a gain on the disposal of real property, interest on an unpaid balance on the selling price of real property and unreported rental income.

The plaintiff then filed a notice of objection dated July 23,1979. The notice did not deny that the plaintiff had earned substantial income during the years in question, but it disputed the amounts added for rental income and the disallowing of business expenses. Mr. Pizzi then withdrew from the case and the plaintiff's present accountant, Roger Thibault, C.G.A., replaced him.

The latter then met with the Department's appeal officer, Jean Clermont, and came to an agreement with him that his client's file would be revised using the net-worth method. Applying this method Mr. Clermont arrived at income totalling $197,292 and taxed the said income under the provisions of sections 3 and 9(1) of the Income Tax Act.

In his statement on appeal to this Court the plaintiff alleged that the Minister included in his net worth an amount which he had at the outset and which he subsequently gave to his sons, as well as money received from Italy. At the hearing the plaintiff tried to show that the first amount (some $35,000) had been received in trust from his parents to be given to his sons. A second amount (approximately $150,000) came to him from Italy as a result of the sale of property owned by his father, from whom he inherited it.

It should be mentioned at the outset that it is for the taxpayer to prove that the assessments made by the Minister are in error. The plaintiff's arguments regarding these two allegations have to be considered in light of this fundamental principle.

1. The amount of $35,000 intended for his sons

According to the plaintiff's testimony this amount was given to him in Canada by his parents when they visited him in Montreal in 1967 or 1968. He said he deposited this amount in an account with the Canadian National Bank. However, he filed no banking document to this effect. Additionally, no such trust amount was mentioned to the Department's auditor during his investigation. The accountant Lamarre also did not make any mention of it in his balance sheet dated September 30, 1982. It should further be borne in mind that neither of the two sons testified in the case, although one of them was present at the hearing. Moreover, there is no evidence that the plaintiff paid his sons the amounts in question, which were supposedly invested in his business. In his testimony the plaintiff was very vague about the exact amounts in trust which he said he used in his business: he spoke of $5,000, $10,000 or $20,000.

2. The amount of $150,000 from Italy

This amount was no more precisely defined than the preceding one. According to counsel for the plaintiff, some 80 million lire was involved. He suggested an exchange rate of 650 lire to the dollar, which amounts to entries of funds of $123,076.95. However, if the exchange rate in effect during the years in question is used, the entries of funds would only be $114,285.71. Additionally, the evidence for these entries of funds was no more substantial than for the amount in trust.

The plaintiff contended that his father had bequeathed him all his assets (nothing was said as to what his three sisters had received). No documents were filed and none of the three sisters testified in this regard. This inheritance worth over $500,000 allegedly came from the sale of his father's home and land. No document was filed to show that the parents owned such property and no contract of sale was filed to indicate that the property was conveyed to a buyer.

According to the plaintiff his parents came to live with him in Canada in 1970, but left a very substantial sum behind them in Italy. This money was allegedly deposited in the bank account of the plaintiff's mother-in-law, a Mrs. Thérésa Messina, with a power of attorney allowing him to manage the said money. No document from any bank to this effect was filed nor was any copy of such a power of attorney produced. The Mrs. Messina in question was apparently in Montreal, but she did not testify.

The plaintiff called two witnesses, his brother-in-law Vincenzo Magri and his wife’s cousin, Antonino Messina. These two men testified that they had visited Italy during the years in question and brought back to Canada with them money given to them by Mrs. Messina. They did not recall the exact amounts. Vincenzo Magri allegedly brought over some 24 or 25 million lire. Young Mr. Messina (who at the time was only about 14 years old) allegedly brought back some 10 million lire in 1971,14 to 17 million lire in 1972 and 28 to 30 million lire in 1973. After 1973 he went back to Italy every two years but did not bring back any more money for the plaintiff.

Once again, no documentation was filed to support these allegations. If the amounts were deposited by the plaintiff in a bank, bank receipts were not submitted to the Court. The only receipt filed by the plaintiff concerns an exchange of 200,000 lire, worth $312.50 at the time. None of these entries of funds was mentioned to the auditor during the audit years 1977 and 1978. It is hard to believe that the plaintiff kept such large amounts in his possession for years. Moreover the accountant Lamarre, in a balance sheet prepared for the plaintiff in October 1972, stated that the latter had no cash on hand as of September 30, 1972.

The Court must also view with considerable skepticism the plaintiff's categorical statement that he received no income from his operations during the taxation years at issue. It must be accepted that in 1968 he invested $20,000 to purchase a half interest in a business worth $132,000, which was valued at $675,000 in 1977. Among other commercial activities, the plaintiff operates reception rooms. He bought the Sala Cattolica in 1968 for $132,000 and resold it in 1975 for $175,000. He bought the Buffet Sorrento in 1973 for $444,691 and resold it in 1977 for $675,000.

The evidence further indicated that the plaintiff lived with his family in comfortable circumstances, drove a Lincoln Mark IV and had even given one of his parents a Buick Riviera.

It must be borne in mind that it is not enough for the plaintiff to allege he received money from Italy. He must show that the money in question came from a non-taxable source. Under section 3 of the Income Tax Act a Canadian taxpayer is taxable in Canada on his income “from a source inside or outside Canada”.

As regards the plaintiff's argument that he held money in a bank account in Italy, totalling perhaps $400,000, it has to be assumed that such a large amount would generate interest income taxable in Canada. Moreover his present accountant, Mr. Roger Thibault, entered in evidence a document titled "General Information" stating that plaintiff "owned extensive agricultural property" in Italy, that a large part of his property was sold some years before he left and that he “still has sizable investments in Italy”. Nonetheless, the plaintiff himself stated in his testimony at the hearing that the money from Italy came from the proceeds of the sale of his parents' home and agricultural land.

The least that can be said of the evidence submitted by the claimant is that it is ambiguous and dubious. He clearly did not discharge his burden of showing that the assessments issued by the Minister for the taxation years 1970 to 1977 were incorrect. The plaintiff's action is accordingly dismissed with costs.* [1]

Appeal dismissed.