Lozon v. R., [1999] 4 CTC 2217, 99 DTC 1122

Garon A.C.J.T.C.:

These are appeals from the assessments made by the Minister of National Revenue for the 1991, 1992, 1993 and 1994 taxation years.

The appeals from the assessments for the 1993 and 1994 taxation years have been disposed of following the hearing of a motion made by the Respondent to quash the appeals with respect to the nil assessments made by the Minister of National Revenue in respect of the 1993 and 1994 taxation years. The Court granted the Respondent’s motion and quashed the appeals with respect to the nil assessments for the 1993 and 1994 taxation years by a Judgment dated June 2, 1999.

The hearing of these appeals, which began on October 13, 1998, was adjourned at the end of the first morning session at the Appellant’s request to accommodate him on account of health considerations. The Appellant asserted that he has an “immune system deficiency”. For the same considerations, the hearing did not proceed at his request the following day, that is on October 14, 1998. That day had previously been made available by the Court for the continuation of the hearing of these appeals.

On the resumption of the hearing of these appeals on May 25, 1999 in respect of the 1991 and 1992 taxation years, the Appellant indicated to the Court, immediately after the first witness produced on behalf of the Respondent had been sworn in and before he was able to testify, that there was no point in pursuing the hearing of these appeals since, in his view, the only matter that he wanted to have investigated was the conspiracy involving, according to him, the Minister of National Revenue, his former commonlaw wife, Ms. Carol Williams, and his former accountant Mr. Houghton. He asserted that he was the victim of such conspiracy. Since I had informed him that the jurisdiction of the Tax Court of Canada is restricted, as a general rule in the income tax area, to dealing with the validity of assessments or reassessments and that the Tax Court of Canada is not a court having jurisdiction in the criminal law area, the Appellant wanted to terminate the hearing. I indicated to him that the result of terminating the hearing before the Respondent had a chance to adduce her evidence would result in the dismissal of his appeals. I construed the Appellant’s observations as a clear indication that he did not want to proceed with the hearing of his appeals in respect of the assessments for the 1991 and 1992 taxation years.

Although I do not think that it is strictly necessary for me to issue written reasons in support of the dismissal of the appeals for the 1991 and 1992 taxation years in the present circumstances, I thought the interests of justice would be served if I would write short reasons.

I shall therefore deal with the appeals from the assessments for the 1991 and 1992 taxation years.

These appeals raise the following issues:

I. Was the Minister of National Revenue entitled to reassess the Appellant in respect of the 1991 taxation year after the normal reassessment period?

2. Was the Minister of National Revenue justified in including in the Appellant’s income for the 1991 taxation year the unreported taxable capital gains with respect to properties referred to at the hearing of these appeals as the Borden and Mountain properties?

3. Were the penalties properly levied pursuant to subsection 163(2) of the Income Tax Act in respect of the unreported taxable capital gains involving the Borden and Mountain properties?

4. Did the Minister of National Revenue properly increase the Appellant’s income for the 1992 taxation year by $4,469 allegedly representing interest from the trust established in favour of the Appellant and Ms. Carol Williams as beneficiaries?

5. And finally, was the Minister of National Revenue justified in increasing the Appellant’s rental income by $30,146 for the 1992 taxation year?

The Appellant was the only one to testify.

The evidence shows that the Appellant was a resident of Canada and that he owned at one point up to 12 rental properties in the Okanagan Valley area of British Columbia.

In 1991, the Appellant and his common-law spouse, Ms. Carol Williams, acrimoniously terminated their relationship.

The Minister of National Revenue assumed that the Appellant and Ms. Carol Williams owned a rental property located at 964 Borden Avenue, Penticton, British Columbia, the “Borden property”, and sold it in 199] with a resulting capital gain. The Appellant contends that he was the sole owner of that property and that Ms. Carol Williams did not possess any interest in that property. At one point in his deposition, the Appellant stated that he did not receive his half share of the proceeds of the Borden property and that he was “not supposed to be paying capital gain on something I did not get”.

From the evidence, I am satisfied that the Appellant’s share of the capital gain was $28,554, as assumed by the Minister of National Revenue.

The Appellant also owned at the material times a property located at 1229 Mountain Avenue in Penticton, British Columbia, the “Mountain property”, and disposed of it in 1991 with a resulting capital gain of $58,326.

With respect to both the Borden and Mountain properties, the Appellant explained that the only reason his former common-law spouse ended up with the properties, was “because of Revenue Canada creating a new legal partnership”. The Appellant made observations, which reflect his perspective on what happened at the time. He expressed himself in part as follows:

A. There’s an awful lot of things happening here. When you have a consumed settlement and then it’s changed to something else, more crimes. Can’t deny consumption, but they did.

But the whole thing, no matter what, goes back to the 1989 conspiracy between Revenue Canada, C.A. Williams alias Lozon, and an accountant by the name of Houghton (ph.), who was supposed to be my accountant, but it turns out I guess he was Revenue Canada’s accountant.

(Transcript at page 39, line 7 to line 15).

The Minister of National Revenue has assumed, inter alia, that the Appellant failed to report the capital gains with respect to the Borden and Mountain properties on his 1991 return of income, or any other return of income, as mentioned in subparagraph 6(g) of the Reply to the Notice of Appeal. The Appellant disagreed with this assumption. However, the evidence establishes that the Appellant’s return of income for the 1991 taxation year does not contain any reference to the capital gains he made on the sale of the Borden and Mountain properties. The Appellant stated that his capital gains were reported and he added that “Ms. Williams reported it through her accountant in 1991”. He went on to say that “there is only one 964 Borden in the city of Kelowna”. He persisted in saying that his accountant took care of the reporting of the capital gains.

The Appellant recognized that on his 1991 income tax return nothing is shown in the Schedule dealing with capital gains. Further, the Appellant made this comment, which describes his general attitude regarding the reporting of capital gains:

A. ... You know, if I was going to go — the point is this, I have never once filed a complete capital gains because I wouldn’t even know how to do it. So why bother doing something you can’t do?

(Transcript at page 68, line 15 to line 18).

The Appellant disagreed with the addition of the amount of $4,669 to his income that he is alleged to have received in 1992 from the Trust of which the Appellant and Ms. Carol Williams were the beneficiaries. In respect of this question, the Appellant made the general comment:

A. There’s more than one way to achieve a situation. You either do it the right way or the criminal way. And Revenue Canada has no power to create partnerships, tax partnership, yes. Certainly not a companion partnership where she gets over half of the houses. That does not work that way with Revenue Canada, they have no such rights, which makes it a criminal conspiracy, crimes committed.

(Transcript at page 29, line I to line 8).

The Appellant admitted the allegation made in subparagraph 6(1) of the Reply to the Notice of Appeal that he deducted the amount of $4,145.57 as legal fees referred to as the “First legal Fees” against his rental income for the 1992 taxation year but denied that this was a personal expense. Rather, he maintained that it was a business expense.

The Appellant also agreed with the assumptions made by the Minister of National Revenue in subparagraphs (o), (p), (q) and (r) of paragraph 6 of the Reply to the Notice of Appeal respecting the property referred to as the “Bello property”.

The Minister of National Revenue also increased the Appellant’s rental income in respect of the 1992 taxation year by $30,146 as a result of a) disallowing the legal fees in the amount of $4,145.57 claimed by the Appellant and referred to in paragraph 18 of these Reasons for Judgment and b) adding revenue in the amount of $26,000 representing the deposit given to the Appellant and retained by him in lieu of rent on the Bello property, as assumed by the Minister of National Revenue in subparagraph 6(r) of the Reply to the Notice of Appeal to which reference has been made in paragraph 19 of these Reasons for Judgment.

I shall make further comments about the five issues.

With respect to the first issue, I have concluded that it was open to the Minister of National Revenue to reassess the Appellant in respect of the 1991 taxation year after the expiry of the normal reassessment period. In effect, I am satisfied that the Appellant has made a misrepresentation that is attributable to carelessness or wilful default. The explanations given by the Appellant for not reporting the capital gains on his return of income for the 1991 taxation year are not credible. The Appellant manifested during the hearing an obviously lack of concern with respect to his duty to report accurately his income to the tax authorities and it is therefore not surprising that he chose at the relevant time not to report his capital gains in respect of the 1991 taxation year.

With respect to the second issue, the Appellant did recognize that he realized capital gains on the sale of the Borden and Mountain properties. He did not really challenge the computation of the capital gains in question.

With respect to the third issue, I have determined that the Minister of National Revenue has discharged the onus imposed by subsection 163(3) of the Income Tax Act. My comments on the first issue are applicable here. The Appellant’s own testimony has persuaded me that he had knowingly or under circumstances amounting to gross negligence made or participated in the omission relating to the unreported capital gains that he made in the 1991 taxation year.

With regard to the fourth and fifth issue, the Appellant did not adduce credible evidence rebutting the Minister of National Revenue’s assumptions regarding the addition to his income of the amounts of $4,469 and $30,146 for the 1992 taxation year.

There is, of course, the further point that the Appellant, by indicating that he did not want to proceed with his appeals in respect of the 1991 and 1992 taxation years, was no longer disputing or challenging the assessments to which a presumption of validity attaches.

For these reasons, the appeals from the reassessments for the 1991 and 1992 taxation years are dismissed, with costs.

Appeal dismissed.