Tom Brown v. Minister of National Revenue, [1985] 1 CTC 2108, 85 DTC 73

Tremblay, TCJ:—This appeal was heard on June 6, 1984, in the city of London, Ontario.

1. The Point at Issue

The point at issue is whether the appellant is correct in not including in the computation of his income for the taxation year 1979, the amount of $19,376.54. The appellant contends mainly that the respondent, in reassessing him on the difference of capital between 1978 and 1979:

(a) did not take into account in the computation of the assets at the end of 1978, many items among them four gold bars, plus cash of $2,775; and,

(b) included in 1979 mining equipment which was received only in 1980.

Considering the appellant’s assets at the end of 1978 and at the end of 1979, considering the personal and living expenses for 1979 which were not less than $13,189, the respondent concluded to include $19,376.54 in the appellant’s 1978 income.

2. The Burden of Proof

2.01 The burden of proof is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment, the court decided that the assumed facts on which the respondent based his assessment or reassessment are also deemed to be correct. In the present case, the assumed facts are described in the reply to notice of appeal as follows:

5. The respondent based his assessment upon the following facts:

(a) at 31 December, 1978, the appellant had assets of not greater than $18,787.47 and liabilities of not greater than $5,160;

(b) at 31 December, 1979, the appellant had assets of not less than $28,334.95 and no liabilities:

(c) during 1979, the appellant expended a sum of not less than $13,189.32 on personal and living expenses;

(d) during 1979, the appellant received more than $2,570.34 from a non-taxable source;

(e) in his return of income filed with the respondent for the 1979 taxation year, the appellant reported income of $5,949.92, and failed to include income of $19,376.54 earned in the year.

The different figures, on which the reassessment is based, are shown in the comparative net worth statement attached with the reply to notice of appeal. This statement is as follows:

TOM BROWN

COMPARATIVE NET WORTH STATEMENT

1979
ASSETS	DEC. 31/78 DEC. 31/79
Bank account Toronto-Dominion No 21002-2	$	157.47	$ 2,195.75
Cars — 1972 Mercury		1,500.00
— 1980 Honda			5,850.84
Trucks — 1969 Chev		500.00
— 1976 Ford net of CCA in 1979			4,995.50
Roadster and trailer			4,000.00
Home stereo		3,300.00	4,846.80
Video recorder			1,710.93
Mining equipment		6,000.00	1,435.13
Farm equipment net of CCA in 1979		700.00	800.00

ASSETS	DEC. 31/78 DEC. 31/79
Gold nugget and pendant	1,600.00
Olympic coins	1,505.00
Log splitter	500.00
Chainsaw	200.00
Little red barn	500.00
Kitchen cabinet, fireplace brick, TV tower
aerial, roter	600.00
Welding machine	450.00
8 HP riding tractor	475.00
36” woodlathe	200.00
8 track tapes and player	300.00
Snowblower	300.00
Starcraft boat, Mercury outboard & trailer		2,500.00
TOTAL ASSETS	$18,787.47	$28,334.95
LIABILITIES
Bank loan	5,160.00	—
NET WORTH	$13,627.47	$28,334.95
Deduct Opening net worth		13,627.47
		$14,707.48
Add: Personal expenditures (see schedule)		13,189.32
		$27,896.80
Less: Non taxable sources—1978 income tax refund		2,570.34
		$25,326.46
Reported		5,949.92
APPARENT UNREPORTED INCOME		$19,376.54

3. The Facts

A. Generality

3.01 The appellant, born in December 1943, was 36 years old in 1979. He had been a boilermaker for 19 years before starting a business in market gardening on a ten acre rented farm. And this was his main occupation in 1979. Sweet corn, tomatoes, cucumbers and melons were the vegetables that grew on the farm. (TS pp 50, 51)

In the said year, he declared in his income tax return a net income of $3,060.92 from farming operation.

3.02 The appellant contends in his notice of appeal that:

(a) during the said year 1979, he generated cash by liquidating a lot of his assets: 8,000 B.T.U. Air Conditioner, Canadian and U.S.A. Coin Collection, etc. totalling $7,480; and

(b) that the respondent included in his assets of the 1979 and therefore in the net worth statement, a mining equipment which was not received until 1980; and

(c) that in 1978 the respondent gave no provision for gold bars on hand, the value of which was $2,775.44.

B. Gold Bars on Hand in 1978

3.03 The appellant testified that on December 31, 1978, he had on hand one- ounce gold bars and half-ounce gold bars. He said that during the years 1977 and 1978, he went to British Columbia. He prospected placer gold. During the year 1978, he sent to Delta Smelting & Refining Co. Ltd. (Delta) 15.850 T oz. of placer gold and asked to smelt them and to manufacture bars. Credit Note 9239 issued by Delta on October 17, 1978 referring to the receipt 8120 was filed as Exhibit A-14 including letter of transfer dated April 12, 1982. The latter reads as follows:

As requested please find the credit note for placer that was refined in October 1978. Trust this is the paper work you were referring to. signed Betty Moody.

The credit note shows that the net weight of the placer when received was 15.850 T oz. The weight after smelt was 13.048 T oz. There was 82.88 per cent of gold and 16.68 per cent of silver. The value of the gold was $2,873.82 and silver $14.25, totalling $2,888.07. There was a charge of $112.63 (refinery: $25; essay fee: $25; bar charges: $40; fine gold charges: $2.63 and mailing charges via Air Canada: $20) giving a “Balance owing to you” of $2,775.44. (TS pp 68 to 70)

3.04 According to the appellant, he received the said gold bars at the end of 1978 or in January 1979. He sold them in 1979, $500 for one-ounce gold bar and $250 for half-ounce gold bar. (TS p 71).

C. Mining Equipment

3.05 According to the appellant, in 1979, he sold, among other things, the mining equipment that he “had up in the Yukon in 1978”. (TS p 53)

In the comparative net worth statement prepared by the respondent, one can see that the appellant had mining equipment for $6,000 at the end of 1978 and for $1,435.13 at the end of 1979.

Concerning this amount of $1,435.13, the appellant said it was composed of $1,207.32 (purchase of mining equipments: dredge, pry bar, harness-regulator and air hose) and $227.81 (exchange). The mining equipments were purchased from Keene Engineering Inc., California, on January 8, 1980 by phone. It was paid by Visa. The date of shipment to Canada from California was January 14, 1980. It was received on February 7, 1980. All this information is confirmed by documents (invoice of Keene Engineering Inc.). Shipper’s Export Declaration Invoice of Direct Motor Express (Quebec) Ltd. was filed as Exhibit A-13.

D. Sale of Different Items in 1979

3.07 The appellant called 10 witnesses who, in 1979, purchased one or more items from him. Most of those items were not new goods. Some, however, were because the appellant had made them: gold lockets from placer gold, water bed, gold watch, etc. Each witness filed receipts giving the description of the goods, the price, the month (without date) in 1979 and the signature. These receipts were written in fact by the appellant’s spouse in 1981 and they were signed by the witnesses during the same year.

Hereinafter the names of those witnesses with appropriate information when available: occupation in 1979, goods purchased and price, etc.

3.07.1 B.K. Pettie, five receipts: Exhibit A-l

Relationship: appellant’s friend for 10 years

Payment: Cash

Occupation in 1979: Part time high pressure water cleaning

He “was not working too much then.” (TS p 8)

3.07.2 R.R. Labine, one receipt: Exhibit A-2

Relationship: appellant’s acquaintance since 1978

Goods purchased: 03/79 Old Army Vehicle ¢ 900

Payment: Cash. He had no bank account. The purchase was financed by a

friend with whom he wanted to go into partnership in logging. However, he kept the vehicle only two weeks. “. . . it blew up and half the parts were stolen and I got rid of it. Junk.”

Occupation in 1979: Carpenter

3.07.3 RI Lemay, two receipts: Exhibit A-3

Relationship: appellant’s brother-in-law

Goods purchased: 02/79 Two Gold Lockets $ 70

01/79 One Strobelight & Book Case 150

In testimony: Lockets: $70, Strobelight: $60, Book case: $200

Payment: Cash

Occupation in 1979: Carwash attendant.

Signature: He said he signed the receipt in 1979 at the time of purchase.

3.07.4 Jim Crow, one receipt: Exhibit A-4

Relationship: appellant’s nephew

Goods purchased: 02/79 Two Gold Lockets $ 70

Payment: Cash

Occupation in 1979: None

Age: He was 16 years old in 1979.

3.07.5 Kathleen Pearl Brown, one receipt: Exhibit A-5

Relationship: appellant’s mother

Goods purchased: 02/79 Two Gold Lockets $ 70

Payment: Cash

Occupation in 1979: Housewife

She showed one of the gold lockets to the court.

3.07.6 Susan Mary Crow, two receipts: Exhibit A-6

Relationship: appellant’s sister and Jim Crow’s mother

Goods purchased: 01/79 Woods Chest Freezer $ 250

07/79 GSW 8000 BTU Air Conditioner 200

$ 450

Payment: Cash

Signature: She said she signed the receipts at the time of purchase.

3.07.7 Neil McCallum, one receipt: Exhibit A-7

Relationship: appellant’s friend for 6 or 7 years

Goods purchased: 02/79 One Electric Clothes Dryer $ 100

Payment: Cash

Occupation: Bell Splicer, Bell Canada

Signature: He said he signed the receipt at the time of purchase.

3.07.8 A L James Thomas Crown, one receipt: Exhibit A-8

Relationship: appellant’s nephew

Goods purchased: 01/79 One Pair of Colororgans $ 200

Payment: Cash

Occupation: Full-time student

Signature: He said he signed the receipt when he bought the goods.

Age: In 1979, he was 17 years old.

3.07.9 Gary Brown, two receipts: Exhibit A-9

Relationship: appellant’s friend for 8 years

Goods purchased: 07/79 One Industrial Bug Light $ 200

06/79 Pair of Trailer Mirrors

& Trailer Hitch 60

$ 260

Payment: Cash

Signature: He said he signed the receipts when he bought the goods.

Occupation: Truck driver

3.07.10 T. Wayne O’Donnel

Relationship: appellant’s friend for 6 years

Goods sold to the appellant:

04/79 a 16 foot Starcraft Boat,

a Mercury out-board Motor

and Trailer $1,500

Occupation: Process operator

The appellant filled out the receipt in April 1979 when he bought the boat.

Payment: Cash

3.08 Moreover, the appellant filed 11 receipts (Exhibit A-15) signed by the following people who did not come to testify for different reasons: out of the prov- ince, jury duty, etc.:

Bill Pettit

01/79 One Canadian Coin Collection

One U.S.A. Coin Collection $380

Ed Unsworth

02/79 Four Gold Lockets $140 05/79 Truck Camper, homemade 300

Joseph LeMay

02/79 Two Gold Lockets $ 70 08/79 Marantz Cassette Player 200

Lorna LeMay

02/79 Two Gold Lockets $ 70 11/79 Simplicity Superspin Twin Washer 150

Mike Tracey

08/79 One ounce Gold Bar $500

One half-ounce Gold Bar $250

Paul Comeau

08/79 One ounce Gold Bar $500 02/79 Four Gold Lockets $140 08/79 One Realistic Turntable $200 E. Gold Watch

3.09 The appellant filed as Exhibit A-16, a photograph of a gold watch. He contended he owned it in December 1978. (Exhibit A-12)

The watch is Seiko movement, quartz watch, gold . . . the band eight stainless steel sections . . . the gold nuggets are gold, soldered onto each section of the band . . . a sold band of gold. (TS p 83)

The appellant used placer gold to fabricate the watch. This watch was sold in 1979 to a Mr Nick Longley for $3,250 pursuant to a statutory declaration (Exhibit A-17) before a public Notary Public in the province of Alberta, Daniel J Roger, on March 26, 1982. The second paragraph reads as follows:

In 1978, I purchased a gold nugget watch and ring from Tom Brown for a price of $3,250 and had the money deposited in his bank account.

The appellant contends that the figure 1978 is a typographical error. It should read 1979. A photocopy of the ledger of the appellant’s bank account No. 2100- 2, was filed by the respondent as Exhibit R-1. It appears from these documents that on June 7, 1979 an amount of $3,250 was deposited in the said bank account. Exhibits R-3 and R-4 also confirmed the deposit of $3,250 on June 7, 1979.

F. Evidence in Civil Case v Criminal Conviction

3.10 Counsel for the appellant made objections to questions whether two witnesses had been previously convicted for conspiracy to traffic drugs.

3.10.1 The said counsel contended that a conviction in a previous criminal matter at a subsequent civil trial is inadmissible evidence. He referred to The Law of evidence in civil cases by Sopinka and Lederman. On page 26, the authors referred to the Hollington v F. Hewthorn & Company Limited case ([1943] KB 587). The British Court of Appeal held that:

A conviction in a criminal court cannot be used as evidence, not even prima facie evidence, in a civil case. The rationale of the decision is that the conviction is a decision in law, only as to the fact of conviction and no more. It is not a decision in law estopping the person found guilty from denying his guilt in subsequent civil proceedings.

Although the Hollington case has been over-ruled in England by statute, it was followed in Canada before that statute was passed and is considered the law in Canada by some courts.

Counsel for the appellant said that there is a Canadian precedent Meshwa v Meshwa “that followed the rule in the English case and is cited 13 DLR, 3rd, 1971’’. (TS p 10)

Counsel for the respondent however argued as follows:

. . . the Hollington and Hewthorn case was a situation where an individual had been convicted of assault — if I recall the case correctly. There was a subsequent civil proceeding and the Plaintiff, in attempting to prove his having been physically assaulted by the Defendant, sought to enter the Defendant’s conviction and offer that as prima facie proof, that is to say, the Plaintiff was saying to the Court, Your Honour, this Defendant has already been criminally convicted for the same assault for which I am seeking civil damages. Therefore, it’s been proved that he assaulted me. And the Court said, No, you cannot use a criminal conviction for assault to prove your civil case of assault. You’ll have to go ahead and, through ordinary evidence before this Court, prove that that assault occurred and prove that it occurred by this Defendant. In those, situations, a previous conviction is not admissible when it is sought to be admitted to prove your case.

3.11 The court’s opinion is that the British decision is correct inasmuch as it concerns “facts”. However, the rationale of this decision cannot apply when it is the credibility of the witness which is involved.

This does not mean, however, that the whole testimony of the witness must be set aside. It depends always on the nature of the criminal conviction and the points involved in the civil litigation.

In the instant case, the two people previously convicted were the appellant himself and Mr B K Pettit. Their convictions invite the court to be more severe in the application of the best evidence rule.

4. Law — Analysis

4.01 Law

The main provision of the Income Tax Act was 152(7) which reads as follows:

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.

4.02 Analysis

4.02.1 As underlined above, the previous conviction for the appellant requests the court to be more severe in the application of the best evidence rule. Confirmation by document or other evidence of oral testimony is necessary for any witness and even more so in the case of previously convicted witnesses and furthermore when the appellant is involved.

4.02.2 Concerning the items “gold bars on hand in 1978”, the court, considering the evidence, especially Exhibit A-14, concludes that the preponderance of the evidence is in favour of the appellant’s thesis (see par 3.03 and 3.04). The said gold bars must be included in the 1978 inventory.

4.02.3 The court arrived at the same conclusion to favour the appellant’s thesis concerning the mining equipment. Especially because of Exhibit A-13, this item must not be included in the 1979 inventory. (See par 3.05 and 3.06).

4.02.3 The court again agrees with the appellant concerning the gold watch. The statutory declaration (Exhibit A-17) by itself would not be accepted. However Exhibit R-l, R-2 and R-3 filed by the respondent confirm the substance of Exhibit A-17. The transaction occurred in 1979. The figure 1978 is a typographical error. Therefore the gold watch must be included in the 1978 inventory.

4.03 Concerning the different testimonies summarized in paragraph 3.07 and the receipts, the court makes the following comments and decisions.

4.03.1 The receipts and payment concerning all those receipts were written by the appellant’s wife and signed approximately two years after 1979. One is forced to admit that this is not standard business procedure. Moreover despite the fact that it is admitted by the appellant himself, that this was the method which was used for all the receipts. Six of the ten witnesses testified that they had signed the receipts in 1979, at the time of purchase.

Some of the witnesses, who were not working in 1979, paid substantial cash amounts. Finally, five of the ten witnesses were related to the appellant and three of these relatives testified they signed the receipts when they purchased the goods.

4.03.2 Insomuch as the method used to obtain the receipts is questionable and also the fact that the appellant has close family ties with several of the witnesses, the court cannot accept the receipts filed by the following witnesses:

R I Lemay (par 3.07.3)

Jim Crow (par 3.07.4)

Susan Mary Crow (par 3.07.6)

A L James Thomas Crow (par 3.07.8)

4.03.3 The court accepts, however, the receipt by K P Brown (par 3.07.5) because she showed, in court, one gold locket purchased. She is the appellant’s mother.

4.03.4 Concerning the documents filed by B K Pettit (par 3.07.1), the court does not accept them on the basis of the reasons given concerning previous convictions (par 3.11 and 4.03.1).

Moreover Mr Pettit admitted that in 1979 he was not working too much and that he did not have much money. Despite these facts he purchased cash items in the amount of $850, among them gold lockets, waterbed and a gold bar. The latter are not goods normally purchased by a person with little money.

4.04 The court is ready to accept the receipts filed by the following, despite some contradictions concerning the time of the signatures:

R R Labine (par 3.07.2)

Neil McCallum (par 3.07.7)

Gary Brown (par 3.07.9)

T Wayne O’Donnel (par 3.07.10)

Moreover the goods purchased and sold seem normal under the circumstances.

4.05 The court does not accept the eleven receipts filed as Exhibit A-15 (par 3.08). The respondent had no opportunity to cross-examine the indicated purchasers who were not in court, despite the fact that they had good reasons not to be there. The fact of the questionable method used to obtain such receipts is also a basis not to accept them and for the necessity to cross-examine the indicated purchasers.

5. Conclusion

The appeal is allowed in part and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeal allowed in part.