Darlene Boulet v. Minister of National Revenue, [1981] CTC 2705, 81 DTC 617

D E Taylor:—This is an appeal heard in Halifax, Nova Scotia, on July 28 and 29, 1981, against income tax assessments based upon net worth comparisons for the years 1974, 1975, 1976 and 1977. The Minister of National Revenue had increased the reported income of the appellant by amounts of $3,829.99, $3,540.12, $4,586 and $25,042.32 respectively, for a total of $36,998.43. There was no penalty imposed on the assessments of tax.

The assessments in question all referred to the income added as: “unexplained deposits deemed to be revenue from unreported sources”. It was alleged by the Minister that:

— at all material times the appellant was closely involved in the operation of the various businesses of E L Morash and operated them when he was away attending other business interests;

— beginning in 1974 the appellant made small regular deposits of cash to accounts at Central and Eastern Trust Company and its predecessors;

— the appellant at all material times had signing authority with respect to Mr Mo- rash’s businesses;

— the deposits totalling $36,998.43 represented income from the businesses with which the appellant was associated;

— the appellant in 1977 had an apparent net worth totalling $170,603 composed of the following:

Cash and GIC’s	$ 82,603
Residence	65,000
Furniture	15,000
Vehicle	8,000
	$170,603
— the appellant had no liabilities in 1977.

The appellant resides at Waverley in Halifax County, Nova Scotia, where she has lived since she moved from Toronto in 1973. It was her principal submission that “except with respect to income already reported by the appellant and the $2,500 of “commissions” from Spryfield Used Furniture in 1977, the deposits to her bank account do not represent income to her, and she should not have been arbitrarily taxed on the assumption that they were”. In assessing, the respondent relied, inter alia, upon sections 4, 9, and 248 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The appellant contended:

— she had inherited some money from her late husband and realized further

amounts from the sale of furniture from her Toronto home.

— she had kept substantial amounts of cash at home and deposited amounts in the bank only as required for particular expenditures. After some robbers had

occurred, she began in 1975 and 1976 to keep more of her money in the bank and less at home.

— through the years in question, she had worked for the Canadian Imperial Bank of Commerce from July 1974 to April 1975; received unemployment insurance from May 1975 to April 1976; worked for Melvin S Clarke Company (1976) Limited

from April 1976 to November 1976; was not working from November 1976 to the end of April 1977; and worked for Spryfield Used Furniture from May 1,

1977 to October 1978. At no time was she in business for herself as an owner or principal.

— she had agreed to lend money to Mr Morash as he required for business purposes,

and these loans were frequently made and frequently repaid. She also advanced money to Morash to acquire a house and to acquire a car. She did

not request or obtain promissory notes or other documentary evidence of indebtedness from Mr Morash, because she totally trusted him, and his repayments

to her were made in cash, which she deposited in her bank account as received.

— she had agreed to work for Mr Morash commencing May 1, 1977, toward the end of the period under appeal. She was not paid a salary for her services, but was paid “commissions” of $2,500 in 1977 by Spryfield Used Furniture, which admittedly should be included in her income as remuneration from employment

for that year.

The appellant testified on her own behalf and Mr Morash gave evidence in support of her contention. Both denied that Mrs Boulet was directly involved with Mr Morash’s affairs, or that she operated his businesses, even as an employee, except for short periods of time. Neither the appellant nor Mr Morash filed any physical evidence.

For the respondent, Mrs Tims (an auditor with Revenue Canada), gave testimony and filed certain documents and information upon which the assessments had been based. Some of the Minister’s testimony and evidence placed the appellant in close proximity to the business affairs of Mr Morash, and showed she was directly involved in certain aspects of the operations on occasions at least, and did have signing authority for certain matters at certain times.

While the appellant and particularly counsel for the appellant in his able argument cast a certain cloud of doubt over some of the assumptions made and hypotheses advanced by the Minister, little time need be spent on the testimony of either the appellant or Mr Morash. The central question is not whether the Minister proved his case, but whether the appellant presented a sufficiently convincing alternate explanation for the discrepancy. I would refer to a quotation to be found in Peter Rawsthorne v MNR, [1981] CTC 2187; 81 DTC 116, at pages 2200 and 124 respectively:

As I see it, in an appeal against a net worth assessment, the appellant must establish either (a) the amount at issue upon which he has been taxed was only a calculated illusion, and therefore did not exist for purposes of the imposition of tax; or (b) that although the amount in question was real, it was not income subject to tax.

I am satisfied that whether she was regularly employed, or paid, the appellant maintained a continuing and vigilant interest in the affairs of Mr Morash, and was in a position of confidence and trust with him which was known to his colleagues and employees, and thereby she was accorded access and authority in the business matters. The appellant has not provided a viable explanation, let alone any proof, to demonstrate a source for the disputed funds which would warrant their exemption from the assessment of income tax.

Decision

The appeal is dismissed.

Appeal dismissed.