Marceau J.A.:
The decision under review comes from the Tax Court of Canada. It dismissed appeals that the applicants, husband and wife, had taken in relation to assessments made against each of them by the Minister of National Revenue, pursuant to the /ncome Tax Act, for the 1992 taxation year. In spite of the able argument of counsel, we have not been persuaded that it should be reversed.
We readily concede that the reasons given by the Tax Court judge in support of his conclusion are not all quite convincing and some are even disputable. But, for our intervention to be justified, we would have to go much further in our criticism. We would have to say that the trial judge was wrong in his overall assessment of the situation when trying to come to a view as to whether the applicant couple, considering their financial situation and their revenue, in this unique lending and mortgage transaction, were simply investing their money, or rather making a move that was akin to a trading adventure. That, we cannot say.
The judge was obviously well aware of the teachings of the jurisprudence as to the principles involved, and, in his appreciation of the whole of the evidence, he was entitled to give precedence to certain facts over others. For him, the facts that the applicants held their mortgage for only seven months, that the bonus represented a significant portion of their total income and that they obtained financing through a mortgage on their home, after having sought legal advice, were more important than other facts such as that they were inexperienced in the lending business and had failed to manage the mortgage or to investigate financial information from the borrower. There is no reviewable error in this approach. Given both the manner in which the loan agreement was constructed, and the fact that the only interest the applicants had in making the loan was to realize on the bonus, the conclusion of the Tax Court judge cannot be seen as capricious.
We are likewise unable to dispute the reasoning of the Tax Court judge with respect to the penalty imposed on the applicants pursuant to subsection 163(2) of the Act for having failed to report monies derived from the transaction with respect to both the interests received and the alleged capital gain. Of course, the burden of proof was on the Minister and, since the provision imposes a penalty, its application must be reserved to situations where the facts do not allow for a rational interpretation favourable to the taxpayer. But nothing indicates that the trial judge was not conscious of that and he was entitled to find, in all the circumstances, especially the awareness of the applicants that they were obliged to report capital gains and interest as they had done so in the past, that the explanation given, pure inadvertence, was not credible, and gross negligence was clear enough.
This application will therefore be dismissed.
Application dismissed.
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