Citation: 2004TCC432
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Date: 20040730
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Docket: 2000-1812(IT)G
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BETWEEN:
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RAYMOND BÉRUBÉ,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
[OFFICIAL ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
(Delivered orally from the Bench on May 7,
2004, at Montréal, Quebec, and revised
at Ottawa, Canada)
ParisJ.
[1] The Appellant is appealing
from the reassessments for his 1993 to 1997 taxation years,
in which the Minister of National Revenue (the "Minister")
included the following amounts as unreported income:
$29,504.58 in 1993, $61,366.22 in 1994, $15,596.55 in 1995,
$6,814.89 in 1996, and $32,373.82 in 1997.
[2] In reassessing the
Appellant, the Minister calculated the Appellant's income
on the basis of a net worth audit. In addition, the
Minister imposed penalties on the unreported amounts under
section 163.2 of the Income Tax Act. For the
1993 taxation year, an assessment under section 152.4 of
the Act was also made. The evidence shows that during
the relevant period, the Appellant was employed and
operated a business selling crafts. He sold items at
flea markets and, beginning in 1994, he also sold items to
some stores. His file was referred to the Minister
following a Revenu Québec audit of the business
losses claimed by the Appellant. Ms. Lise Ouellette, the
federal auditor, stated that, after her initial
investigation, she decided to conduct a net worth audit of
the Appellant, because a number of transactions in his
business were made in cash, and she felt that the
Appellant's books were not complete. The results of
her audit are attached to the Reply to the Notice of Appeal
served by the Respondent. These attachments form a
part of these reasons.
[3] The Appellant disagrees with
eight items calculated by Ms. Ouellette, namely, the cash
on hand at the beginning of each period, the amounts of
investments in shares in 1996 and 1997, personal loans,
provincial tax refunds and donations and inheritance in
1996, personal expenses for clothing and transportation,
insurance, and room and board received from his
children.
[4] Regarding the provincial tax
refunds, counsel for the Respondent acknowledges that the
Appellant received amounts that were larger than those the
auditor allowed and that the unreported income should be
reduced by $2,038.85 for the 1993 taxation year and by
$1,635.31 for the 1997 taxation year.
[5] The Appellant claimed that
he received $10,000 from his brother, André
Bérubé, as a repayment for personal loans
made in 1987 and 1991. He received the money in two
payments in 1994 and 1995. Accordingly, he filed
copies of the recognition of debt signed by André
Bérubé and receipts for the repayments.
[6] Regarding the donations and
inheritance, the Appellant is claiming an additional amount
of $4,174 received as an inheritance from his son, Martin,
in 1996. This amount includes two components.
Firstly, he claims that he sold his son's motorcycle for
$2,000 in cash. Secondly, he submits that the value
of the shares transferred to him was $2,714 more than the
amount allowed by the auditor.
[7] He also submits that the
shares received from his son's estate should not be added
to his assets in 1996 and 1997. The Appellant is
objecting to the amounts for personal expenses allowed by
the auditor for clothing and transportation.
According to him, he did not buy clothing, and nearly all
of his travels were for the purpose of his business and
were paid by his company. Moreover, he lived near his
work. The amounts used by the auditor were arbitrary
amounts, because she did not agree that the Appellant had
not spent any money on these items.
[8] Regarding insurance, the
Appellant is requesting a reduction in the amounts entered
to reflect the fact that a portion of the expenses were
incurred for automobile insurance policies on his
children's vehicles and that his children repaid these
amounts to him. Some of these policies were filed in
evidence.
[9] The Appellant claims that he
received payments for room and board from his children for
amounts totalling $3,900 in 1993 and 1994, $7,800 in 1995,
$7,000 in 1996, and $7,800 in 1997. When his children
reached the age of majority, he charged them $75 per week
to live with him. The auditor rejected these amounts,
because she felt that his children did not earn a
sufficient amount of income to pay this amount of room and
board to their father.
[10] Finally, the Appellant testified
that he had $55,000 in cash at the beginning of 1992 and
1993 and that this amount decreased to $25,000 at the
beginning of 1994 and 1995, $15,000 in 1996, and $0 in
1997. The auditor set the amount of cash on hand at
the beginning of each period at $1,000. The Appellant
explained that the nature of his business required that he
keep a large sum of cash as working capital, with which he
paid his suppliers. When he started selling to the
store in 1994, his requirement for cash on hand in his
business decreased, and at that time, he obtained a line of
credit and invested the cash. During
cross-examination, the Appellant claimed that he kept this
cash at home and that he did not use a safe. He also
admitted that he sent a letter to the objections officer in
which he stated that he had a large sum of cash on hand to
shelter it from claims by his wife, from whom he had
separated.
Conclusion
[11] I accept the fact that the
Appellant received loan repayments from his brother during
the years at issue and that they were not taxable
income. The Appellant's testimony is corroborated by
the documents, and I note that the auditor stated that, at
the time of the audit, the Appellant had discussed these
loans with her. I also accept the fact that the
inheritance amounts from the estate of Martin
Bérubé are to be increased by $2,000 to take
into account the sum received as a result of the sale of a
motorcycle.
[12] The Appellant's testimony in this
regard was not placed in doubt during his
cross-examination. The shares received from the
estate should be entered at their value at the time of
transfer, namely, $18,128.42, as requested by the
Appellant. It is also necessary to reflect this
change in the Appellant's assets for the 1996 and 1997
taxation years, because shares valued at this amount were
transferred to him. For the purposes of the net worth
calculation, these two changes offset each other.
[13] Regarding the personal expenses,
the amounts for transportation and clothing will be reduced
by fifty per cent (50%). I accept the Appellant's
arguments, but I am not satisfied that he did not spend any
money over a five-year period for transportation and
clothing; the sums of $450 and $400 per year, respectively,
seem reasonable to me.
[14] Regarding insurance, I am
satisfied with the documentary evidence that shows that the
Appellant paid these amounts for his children, and I accept
the fact that his children repaid the amounts identified:
$1,025.08 in 1993, $783.99 in 1994, $1,284.82 in 1995,
$147.25 in 1996, and $1,267.12 in 1997.
[15] I am also satisfied that the
Appellant received the amounts he is claiming for room and
board. It appears reasonable to me that he would ask
his children to pay the modest sum of $75 per week to live
with him. Again, the evidence shows that the
Appellant discussed these payments with the auditor, early
in the audit.
[16] Finally, the Appellant did not
discharge the burden of proving that there were other
errors in the statement of net worth. It is firmly
established in law that the responsibility for proving the
inaccuracy of facts on which a tax assessment is based is
that of the Appellant. The Appellant's testimony
regarding the amount of cash on hand was not corroborated,
the Appellant was unable to provide the Court with any
supporting evidence whatsoever, and he did not produce any
witnesses to support his claims. He did not have his
suppliers testify about potential large transactions
carried out in cash during the periods at issue, and he did
not have anyone corroborate the fact that he kept such
large sums of cash. Where one party fails to have
someone who could provide relevant evidence testify, the
Court may draw negative conclusions. Moreover, it is
my opinion that the allegation whereby the Appellant kept
sums of cash up to $55,000 is unlikely, even where he
claims that he paid his suppliers in cash; nothing
prevented him from depositing the proceeds of his sales in
the bank and withdrawing his money as he needed it to make
payments, as he appears to have done after 1994.
[17] I must also consider the issue of
the penalties that were imposed pursuant to section 163.2
of the Taxation Act [sic]. The burden
of proving that a penalty should be imposed is that of the
Respondent. In Venne v.
Canada(Minister of National Revenue-M.N.R.)
[1984] F.C.J. No. 314, Strayer J. explains the degree of
negligence necessary for the imposition of a penalty.
Gross negligence must be taken to involve greater neglect
than simply a failure to use reasonable care. It must
involve a high degree of negligence tantamount to
intentional acting, an indifference as to whether the Act
is complied with or not. In this case, even after the
reductions have been allowed, the unreported income for the
1993, 1994, and 1997 taxation years is high in comparison
with the amounts reported. The Appellant was aware of
his obligation to report all of his income, and he is
knowledgeable in business matters. Considering these
facts and the fact that the Appellant repeatedly failed to
report all of his income, the required degree of negligence
exists to justify the imposition of penalties for the three
years noted above. I also conclude that the Minister
was justified in issuing the reassessment for the 1993
taxation year pursuant to section 152.4 of the Taxation
Act [sic].
[18] To summarize, the Appellant's
income must be reduced by $7,813.93 for 1993, $10,533.99
for 1994, $14,934.82 for 1995, $10,997.25 for 1996, and
$11,552.43 for 1997. These are the amounts allowed
for transportation and clothing, insurance, amounts
received as an inheritance from his son, provincial taxes,
repayment of loans, and payments for room and board.
The appeal is allowed in part, without costs.
Signed at Ottawa, Canada, this 30th day of
July 2004.
Paris J.
Translation certified true
on this 25th day of January 2005.
Colette Dupuis-Beaulne, Translator
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