Lucien Lapointe v. Minister of National Revenue, [1973] CTC 2001, 73 DTC 21

The Assistant Chairman:—The appeal of Mr Lucien Lapointe from assessments for the taxation years 1966, 1967, 1968 and 1969 was heard at Ottawa on November 24, 1972.

In 1970 the respondent caused to be prepared a statement in respect of the appellant’s net worth during each of the years 1966, 1967, 1968 and 1969. On the basis of the net worth statement, the respondent added to the appellant’s taxable income for purposes of assessment amounts of $11,834.66 for the year 1966; $2,732.91 for the year 1967; $23,516.33 for the year 1968, and $6,922.56 for the year 1969—the aggregate sum of these increases being $45,006.46. The respondent submits that he is not bound by any return or information supplied by, or on behalf of, the appellant pursuant to subsection 46(6) of the Income Tax Act, and made these assessments notwithstanding any return or information supplied by the appellant.

The appellant claims that the respondent has incorrectly estimated the value of assets held by him for the years pertinent to the appeal, and that annual increases in the appellant’s net worth are not attributable to taxable income earned by the appellant and unreported by him for taxation purposes as alleged by the respondent.

The issue is principally one of credibility as to the facts of this case which are as follows. In 1966 the respondent added $11,834.66 as unreported income to the appellant’s taxable income on the basis of the net worth analysis report. The appellant claims that in 1966, during a visit with his wife to Las Vegas, he won $5,000 in cash at a gambling casino. Part of this money was used for the construction of a cottage at Kemptville, Ontario, for which the appellant spent $3,600. There is evidence (Exhibit A-5) that $3,500 was paid for material and labour to erect a cottage, and an additional $100 was spent on plumbing. When completed the cottage was valued for insurance purposes at approximately $15,000 but several witnesses, nephews and friends testified under oath that they had done considerable work free of charge ameliorating the cottage, with the result that it is not impossible for a cottage valued at $15,000 to have actually cost the appellant in money only $3,600. The appellant’s net worth in December 1966 does not necessarily reflect his taxable earnings for that year.

The appellant claims that the apparent increases in his net worth during the years 1966, 1967, 1968 and 1969 are attributable to his drawing on private savings accumulated by his wife and him during the period 1945 to 1965 inclusive and kept in a metal strongbox in their home until 1968, at which time the savings were deposited in the bank.

There is evidence to the effect that in 1945 when the appellant married he had, with his wife, accumulated savings of $3,000 which were kept in the strongbox and by 1965 it is claimed that there was approximately $25,000 in the strongbox. From evidence adduced, the appellant was a hard worker who started as a cleaner with the Ottawa Transportation Commission at $1.22 an hour, then became a mechanic at $2.25 an hour and finally became a foreman. For a period of years the appellant held a second job doing landscaping work with T A Brulé. The appellant’s wife also worked for a period of some 12 years after her marriage. The appellant and his wife lived with his mother for 11 years and then moved to an apartment where the rent was $50 a month. Under these conditions, is it incredible to believe that by 1965 there was $25,000 accumulated in the strongbox? In my opinion, though it may be unusual to keep such a large amount of money in a strongbox, the savings could, in fact, have been accumulated under the circumstances described at the hearing. In 1945 there was $3,000 in savings in the strongbox and, in order to increase the savings to $25,000 by 1965, it meant that from the salaries of the appellant and his wife an amount of only $1,100 a year or some $92 a month would have to be saved. Since both the appellant and his wife worked most of the period of time involved, since the husband held two jobs part of the time and worked long hours, and since there was no rent to pay for a period of 11 years and subsequently a rent of only $50 a month was paid, the amount of $25,000 could have been saved in a period of 20 years. This does not take into account the amount of $5,000 won by the appellant in Las Vegas in 1966, nor does it take into account the amount of $2,500 which the appellant’s wife claims to have won in a bingo game in 1968.

There is no valid reason or justification to assume that the savings of $25,000 could not have been, or were not, accumulated as stated under oath.

The facts that the appellant borrowed money for the purchase of a car, and that he was losing a large amount of interest on his capital, are not sufficient reasons to conclude that he did not have considerable savings in his strongbox. The fact that the appellant deposited $8,000 in one bank and $7,000 in another bank in 1968, the source of which is otherwise inexplicable, does tend to show that there was a large amount of money in the strongbox in 1965—the exact amount of which was not definitely determined.

I am satisfied from the testimony given by the appellant’s son that the boat and motor valued at $1,500 and included in the appellant’s net worth for 1968 were purchased by, and were the property of, the appellant’s son and wrongly included as property belonging to the appellant.

In 1969 the appellant had the cottage at Kemptville raised and a foundation built underneath it. The work was carried out by Mr Demers and Mr Crête both of whom testified that they did the work free of charge on weekends and holidays. Although the value of the work done might well be in the order of $1,677.51 as claimed by the respondent, and the appellant’s net worth increased by that amount, it does not follow that the $1,677.51 involved is unreported income.

Also in 1969 the respondent showed an increase in the appellant’s personal assets of $1,666.24. No indication as to the nature or the identity of the assets or reason for the increase was given by the respondent either in the Reply to the Notice of Appeal or at the hearing.

Although the burden of disproving the allegation rests with the appellant, an allegation made by the respondent must, in my opinion, provide pertinent information as to exactly what is involved in order to permit the appellant to provide adequate proof of his contention. To couch an allegation in very general and abstract terms, and then to expect the appellant to satisfactorily disprove these allegations, goes beyond the intent of subsection 46(6) of the Income Tax Act and, in my view, is contrary to the elementary principles of natural justice.

In this instance, not only is it not known on what basis the appellant’s personal assets were increased, but the identity of the personal assets are not known. How can the appellant satisfactorily disprove the allegations? How can the Board decide whether the increase in the appellant’s personal assets is justified or not? The personal expenditures of the appellant of $5,034.13, $5,113.92, $4,849.35 and $4,795.10 for the years 1966, 1967, 1968 and 1969 respectively appear to be reasonable for those years and the Minister did not err in so establishing the amounts.

In conclusion I find that, though the appellant’s net worth appears to have increased in the taxation years 1966 to 1969 inclusive, the increase was not attributable to unreported revenue but to [1] cost- free labour in the improvement and landscaping of the appellant’s cottage in Kemptville, [2] an error in considering the appellant as the owner of a $1,500 boat and motor, and [3] substantial accumulated savings of the appellant and his wife prior to 1966.

The appeal is therefore allowed in part and the matter referred back to the Minister for reassessment. The appellant’s personal expenditures for the taxation years 1966 to 1969 inclusive are considered just and reasonable and should not be altered.

Appeal allowed in part.