Date: 20021101
Docket: 2001-2615-IT-I
BETWEEN:
GEORGIA PANAGAKOS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Docket: 2001-2620(IT)I
BETWEEN:
JIMMY PANAGAKOS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] These appeals were heard on common evidence by way of the informal procedure. The Appellants were assessed pursuant to a net worth statement prepared by an auditor of the Minister of National Revenue (the "Minister").
[2] The assumptions of fact that the Minister took into account in reassessing the Appellant Jimmy Panagakos are set out in paragraph 14 of the Reply to the Notice of Appeal (the "Reply") as follows:
a) the Appellant and his wife, Mrs. Georgia Panagakos (hereinafter, the "wife") owned a business called "Fifth Avenue Restaurant Reg'd" (hereinafter, the "business");
b) the Appellant and his wife have shared the profit from their business;
c) as an estimate of the source and application of funds indicated that the expenses exceeded income, the auditor of the Minister requested the Appellant and his wife a personal balance sheet;
d) the balance sheet for the restaurant business was not accurate with reference to the liabilities for which the Appellant and his wife could not submit evidence of the balances;
e) as the balance sheet for the restaurant business was not accurate, the auditor proceeded with a Net Worth assessment (see attached annexes);
f) from the Net Worth assessment, the Auditor of the Minister determined additional income in the amount of:
1997 1998
$12,705 $15,540
[3] Paragraph 14 of the Reply for the Appellant Georgia Panagakos is identical except for the differences reflecting the fact that she is the wife of Mr. Jimmy Panagakos.
[4] At the beginning of the hearing, the Court noted with surprise that the auditor who had prepared the net worth statement was not present in Court. Counsel for the Respondent explained that he felt his presence was not necessary on the basis that the burden of proof was on the Appellants. I was to a certain extent shocked by this absence as the auditor is usually in Court to explain to the Court and the other party the various elements of the net worth statement that he has prepared. At one point in the hearing, after counsel for the Respondent had objected to the production of a document on the basis that the signatory was not there to be cross-examined, the Appellants' representative asked that the net worth statement be disregarded since the auditor was not there to be cross-examined.
[5] On the basis of paragraph 152(8) of the Income Tax Act (the "Act") which provides that an assessment shall, subject to being varied or vacated on an objection or appeal, be deemed to be valid and binding, I asked the Appellants' representative to continue presenting evidence. I asked counsel for the Respondent to speak to the matter of evidence in his argument.
[6] The two Appellants testified. The first point raised by the Appellants' representative is found in Annex I to the Replies. It concerns the "withdrawals from restaurant" in the amount of $16,101 for the year 1997 and $17,277 for the year 1998. The Appellants produced as Exhibit A-1 excerpts from the General Ledger showing these withdrawals.
[7] The Appellants' explanation as to the purpose of the withdrawals was similar to that given in paragraphs 13 to 18 of their Notice of Appeal. I will refer here to paragraphs 15 to 18:
15) The 1996 Skylark and then later replaced by the 1996 Pontiac Bonneville were predominately used for business purposes. Among other business uses, they were used to purchase fresh food daily seven days a week. Daily purchases include trips to the markets, butchers, bakeries, Club Price, etc.
16) Included in the 1998 drawings account were payments pertaining to the leased vehicles. Regarding the Pontiac Bonneville, one payment for $625.20 and eleven for $631.06 totalling $7,566.86 were made to GMAC. The payments in the drawings account were taken directly from the bank statements and are shown as $883.15 ($625.20 + $257.95) and $889.01 ($631.06 + $257.95). There was a minor adjustment in the payments, however, it represents the same car. The $257.95 payments pertain to the 1994 Pontiac Grand Prix, used for personal purposes. Regarding the 1997 drawings account, four payments for $599.37 regarding the Buick Skylark and seven for $625.20 regarding the Pontiac Bonneville totalling $6,773.88 were also made to GMAC, (see Exhibit 4 - Lease Contracts & Exhibit 2 - Drawings Accounts).
17) Included in the drawings account were payments made to Gestion D'Assurance R.B. Inc. totalling $2,939.70 for the 1998 fiscal period. These amounts represent insurance payments regarding the cars. Out of the total, $988 pertains to the Pontiac Bonneville. The amount on the invoice does not match the amounts in the drawings account as the invoice was paid by installments, (see Exhibit 5 - Automobile Insurance & Exhibit 2 - Drawings Accounts).
18) Included in the drawings were payments made to Ville de Montreal for $2,262.63 regarding the 1997 fiscal period. These amounts represent property taxes for the triplex owned by Mr. and Mrs. Panagakos where they reside. The amount should be adjusted by $1,509 (2/3 x $2263) which represents the two rental units, (see Exhibit 6 - Property Taxes & Exhibit 2 - Drawings Accounts).
[8] The Appellants stated that a good portion of the withdrawals was for payments on the car leases and that those vehicles were used in large part in their restaurant business. Counsel for the Respondent chose not to cross-examine the Appellants on these aspects. He explained in argument that it was his view that whether these withdrawals were for business purposes or not was not relevant.
[9] The Appellants annexed to the Notice of Appeal their various proposed adjustments to the net worth statement.
[10] According to these adjustments, the business portion of the car lease payments for 1997 would be $6,774 and, for 1998, $7,567. For 1998, there should be added an amount of $988 for automobile insurance. These amounts should be deducted from the withdrawal amounts.
[11] According to the proposed adjustments, for the year 1997 an amount of $1,509 determined through an apportionment of the property taxes should also be deducted from the withdrawal amounts for the reason mentioned in the above-cited paragraph 18 of the Notice of Appeal, namely that this expense was incurred for the rental business.
[12] The second point raised by the Appellants concerned the liabilities set out in Annex III to the Replies. They proposed that the liabilities for the year 1998 be increased by an amount of $5,000 to reflect a loan made to them by one of their sons, Mr. George Panagakos. A document dated July 5, 2001 and signed by Mr. George Panagakos was produced as Exhibit A-3 for the purpose of proving that loan. Counsel for the Respondent objected to the production of this document as Mr. George Panagakos was not present to be cross-examined. I accepted the document stating that I would give it the weight that it should have depending on other documentary evidence or other circumstances revealed by the evidence.
[13] In the course of their testimony, Mr. and Mrs. Panagakos stated that their children and themselves would make loans to each other as the restaurant was a common venture, but they also said that the loans were usually reimbursed.
[14] The third point raised concerned Annex IV to the Replies, in which the personal expenses are calculated. More specifically, this point concerned the mortgage expense in the amount of $3,540 for both 1997 and 1998. The Appellants explained that they own a triplex of which two units are rented. Consequently, an amount of $2,360 should be deducted from the amount of $3,540 as only one third of the mortgage payment was for personal purposes.
[15] The fourth point raised concerned income tax paid. The amount of federal tax was not an estimate but the amount of provincial tax was. It was estimated to be the same as the federal tax. I will say right away that the difference between the estimated amount and that proposed by the Appellants without any supporting documentary evidence is too slight to be worth discussing further.
[16] A fifth point raised by the Appellants is that the additional income should be split between them and their three sons because the sons helped their parents in carrying on the restaurant business. The sons did not file income tax returns and no salaries were paid to them.
[17] Counsel for the Respondent referred to the decision of Judge Bowman of this Court in Ramey v. Canada, [1993] T.C.J. No. 142 (Q.L.), at page 4:
. . . The net worth method of estimating income is an unsatisfactory and imprecise way of determining a taxpayer's income for the year. It is a blunt instrument of which the Minister must avail himself as a last resort. A net worth assessment involves a comparison of a taxpayer's net worth, i.e. the cost of his assets less his liabilities, at the beginning of a year, with his net worth at the end of the year. To the difference so determined there are added his expenditures in the year. The resulting figure is assumed to be his income unless the taxpayer establishes the contrary. Such assessments may be inaccurate within a range of indeterminate magnitude but unless they are shown to be wrong they stand.
Conclusion
[18] It is my view that it is preferable in the interest of justice that the auditor who has prepared a net worth statement, or another auditor who is knowledgeable about that net worth statement, attend the hearing to explain or clarify the document. That document is the basis of the assessment. It is prepared not by the appellant but by the Minister's agent. It is true that the onus is on the appellant to prove that it is erroneous, but if there is no one to explain the auditor's entries, the appellant's explanation may be more easily accepted.
[19] In the present case, regarding the apportionment of the payments on the car leases, I remarked to counsel for the Respondent that no business expenses were taken into account in the net worth assessment and that in establishing a net worth statement, it did matter whether the expenses were for business or personal purposes. Counsel then had me peruse the T2124 Statement of Business Activities forms pertaining to the restaurant business, which were filed with the Appellants' annual tax returns (Exhibits R-1 to R-4). He showed me that there were no car expenses included in them, which meant in his view that there was no need of the use of a car in this business.
[20] Those comments are evidentiary in nature. As there were no questions put to them regarding whether or not the cars were useful or were used for business purposes, I accept the evidence of the Appellants that the cars were for business purposes in the proportion reflected by the amounts proposed in the Appellants' adjustments.
[21] In this regard, the adjustments proposed by the Appellants' representative regarding the amounts paid for the car leases are accepted. These adjustment amounts are given in paragraph 10 of these Reasons.
[22] There did not seem to be any dispute regarding the apportionment of the property taxes referred to in paragraph 11 of these Reasons or the apportionment of the mortgage payments described in paragraph 14 of these Reasons; consequently, the amounts so determined are accepted.
[23] Regarding the amount of $5,000 allegedly owed to one of the sons, I am of the view that the evidence did not reveal that it was a binding liability. It cannot be added to the Appellants' liabilities for the year 1998.
[24] The splitting of the additional income with the children cannot be accepted. The children were not the owners of the restaurant business and they did not file income tax returns. The income tax returns of both Appellants were produced as exhibits R-1 to R-4. The business income was divided half-and-half between the two Appellants. Consequently the additional income has to be split between the two Appellants, who are the owners of the business.
[25] The appeals are allowed on the basis described in paragraphs 21 and 22 of these Reasons.
Signed at Ottawa, Canada, this 1st day of November 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.
COURT FILES NOS.: 2001-2615(IT)I & 2001-2620(IT)I
STYLES OF CAUSE: Georgia Panagakos and The Queen
Jimmy Panagakos and The Queen
PLACE OF HEARING: Montreal, Québec
DATE OF HEARING: September 11, 2002
REASONS FOR JUDGMENT BY: The Hon. Judge Louise Lamarre Proulx
DATE OF JUDGMENT: November 1, 2002
APPEARANCES:
Agent for the Appellant: Tony Soares
Counsel for the Respondent: Simon Nicolas Crépin
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2615(IT)I
BETWEEN:
GEORGIA PANAGAKOS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Jimmy Panagakos (2001-2620(IT)I) on September 11, 2002 at Montreal, Québec by
the Honourable Judge Louise Lamarre Proulx
Appearances
Agent for the Appellant: Tony Soares
Counsel for the Respondent: Simon-Nicolas Crépin
JUDGMENT
The appeals from the assessments made under the Income Tax Act for 1997 and 1998 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 1st day of November 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.
2001-2620(IT)I
BETWEEN:
JIMMY PANAGAKOS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Georgia Panagakos (2001-2615(IT)I) on September 11, 2002 at Montreal, Québec by
the Honourable Judge Louise Lamarre Proulx
Appearances
Agent for the Appellant: Tony Soares
Counsel for the Respondent: Simon-Nicolas Crépin
JUDGMENT
The appeals from the assessments made under the Income Tax Act for 1997 and 1998 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 1st day of November 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.