[OFFICIAL ENGLISH TRANSLATION]
98-341(IT)I
BETWEEN:
GEORGETTE TREMBLAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on July 20, 1998, at Québec, Quebec, by
the Honourable Judge Louise Lamarre Proulx
Appearances
Agent for the Appellant: Marc-André Plante
Counsel for the Respondent: Alain Gareau
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1991, 1992 and 1993 taxation years are dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 20th day of August 1998.
|
"Louise Lamarre Proulx" |
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Date: 19980820
Docket: 98-341(IT)I
BETWEEN:
GEORGETTE TREMBLAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] The appellant is appealing from reassessments by the Minister of National Revenue (the "Minister") for the 1991, 1992 and 1993 taxation years. Those reassessments were made using the net worth method.
[2] The facts on which the Minister relied in making the reassessments are set out in paragraph 4 of the Reply to the Notice of Appeal as follows:
[TRANSLATION]
a. when she reported her income for the 1991, 1992 and 1993 taxation years, the appellant did not include all the income she had received in those years;
b. the amounts of income not reported by the appellant amounted to $17,614 in 1991, $24,096 in 1992 and $45,679 in 1993;
c. the unreported amounts were determined using the so-called net worth method (copies of the appellant's net worth statement and the accompanying schedules are attached hereto);
d. when filing her tax returns for the 1991 and 1992 taxation years, the appellant made a misrepresentation that is attributable to neglect, carelessness or wilful default;
e. in thus failing to report all her income, the appellant knowingly, or under circumstances amounting to gross negligence made or participated in, assented to or acquiesced in the making of, a false statement or omission in the tax returns filed for the 1991, 1992 and 1993 taxation years, as a result of which the tax which she would have been required to pay based on the information provided in the tax returns filed for those years was less than the amount of tax payable for those years;
f. as a result of the appellant's failure to report all her income, the Minister, in the notices of reassessment of June 3, 1996, assessed penalties against the appellant of $1,222.56, $1,671.11 and $3,851.06 for the 1991, 1992 and 1993 taxation years respectively, in accordance with subsection 163(2) of the Income Tax Act (the "Act").
[3] The income reported for 1991, 1992 and 1993 was $4,979, $4,792 and $3,087 respectively, and the additional income was $17,614, $24,096 and $45,679 respectively.
[4] The following grounds were advanced in the notice of appeal:
[TRANSLATION]
The facts we wish to rely on are as follows:
The cost of living as determined by Statistics Canada is an arbitrary figure;
In the appeal, we will be able to provide a statement from the mortgagee concerning the source of an amount of $20,000 that was used to reduce the mortgage at the time it was renewed in 1993 and which should in no way be considered as income.
[5] The appeal was set down for hearing on July 22, 1998. By letter dated July 15, 1998, received by fax that same day, the agent for the appellant requested an adjournment in order to be able to determine the source of a sum of $20,000 which had been used in 1993 to reduce, by that amount, the mortgage on a house acquired by the appellant in 1992. That request was denied. The same request was repeated at the start of the hearing. The Court having asked where, according to the appellant, that amount had come from, the appellant's agent answered that he had not asked her but said that he wanted to obtain the answer to that question from the financial institution where the deposit had been made. As the deposit could not have been made except with the appellant's knowledge, it was she first of all who had to explain its source, if it had not come from her income for the year. It should be noted that the appellant was not present at the hearing. As the Court found the reason for the request for an adjournment invalid, the request was dismissed and the hearing of the case proceeded.
[6] The appellant's agent indicated to the Court three grounds for contesting the reassessments: the first was that the amount of the spouse's contribution was too high. When he understood that that amount did not increase, but rather reduced the appellant's net additional income, the agent dropped that point. The second point was that the cost of living amount determined for the appellant and her husband was too high, and the third point had to do with the source of the sum of $20,000 which had been used in 1993 to reduce a mortgage loan.
[7] Jean-Claude Delisle, an auditor at Revenue Canada, explained the report he had prepared for the purpose of establishing the appellant's net worth for the three years in issue. That report was filed as Exhibit I-1.
[8] The net worth determination was based on documents. Nothing was estimated except certain expenses relating to the cost of living of a family of two adults. I cite the auditor's explanatory notes found in Exhibit I-1:
[TRANSLATION]
Following the filing of personal balance sheets by the T/P, we used the net worth method to audit her tax returns. We proceeded to examine her bank accounts at financial institutions. All the balance sheet items were audited using contracts, invoices or other relevant supporting documents, adjusted where necessary.
. . .
Additional income:
We established this additional income by looking at variations in capital. Using contracts and an analysis of the T/P's bank accounts, we corrected certain assets shown on the T/P's balance sheets and entered others which did not appear in the original balance sheets. Personal expenses were determined based on the T/P's data on the one hand and on Statistics Canada data on the other.
The great majority of the additional income came from the acquisition of 3250 Rue Duc de Milan in Beauport, in which her son Mario lives. Our audit showed us that the T/P lives in her residence on Boulevard Blanche in Baie-Comeau with her spouse, Guilmond Tremblay. She also works in that region. The income not reported by Mrs. Tremblay was used to acquire the Beauport residence and to make mortgage, tax, insurance, maintenance and other payments.
. . .
We submitted the written draft to the T/P on September 28, 1995. At the request of J.L. Martel, the T/P's agent, we also sent him a copy. On November 3, 1995, Mr. Martel communicated with us and he was provided with all the information he requested. Another discussion took place with Mr. Martel on February 6, 1996. On February 26, I met Mr. Martel at his Baie-Comeau offices and finalized the information required as well as our position regarding this file (see the T2020 in the file).
. . .
Mr. Martel had "no quarrel with our figures". However, no final agreement could be obtained from the T/P's agent. As for Mrs. Tremblay, we never were able to contact her.
[9] The auditor's explanatory notes concerning the assessment of a penalty under subsection 163(2) of the Act read as follows:
[TRANSLATION]
The amounts established by the net worth method are significant.
The increase in net worth and the benefit from personal expenses are not consistent with the total income reported.
The taxpayer could not be unaware that her returns were incomplete and that her income was understated.
The balance sheets were prepared on the basis of information obtained from third parties and/or from the client, and from copies of microfiches from banking institutions. The personal expenses were determined in accordance with Statistics Canada data, and we have added certain payments not included in the Statistics Canada data.
[10] Schedule 4 of the net worth report is the compilation of the personal expenses of the appellant and her husband, Guilmond Tremblay. As indicated in paragraph 8 of these reasons, that compilation was based in large part on information provided by the appellant's accountant and on statistics on the cost of living for two adults.
[11] The expenses were put at approximately $26,000 a year. Mr. Tremblay said in his testimony that the couple did not spend more than $300 a week. However, the compilation of personal expenses contains a number of headings: food, housing, household maintenance, clothing, transportation, health care, personal care, recreation, reading material and other material, education, tobacco and alcoholic beverages, security, gifts and contributions, miscellaneous, and personal income tax. It should be noted that none of the headings was specifically attacked by the appellant's agent or her witness.
[12] Once the personal expenses compilation was done, the auditor showed it to the appellant's accountant and it was reduced by approximately $5,000 to the present amount. The auditor said that the accountant was satisfied with the statement of the appellant's personal expenses. As to the appellant, the auditor never succeeded in contacting her.
[13] The penalties were assessed on account of the large difference between the income reported and that established by the net worth method, as referred to in paragraph 9 of these reasons. The appellant was informed in writing of the Minister's intention to assess a penalty under subsection 163(2) of the Income Tax Act (the "Act"), but no representations were made on the subject by her agents. It should also be noted that this aspect was not raised in the notice of appeal.
Conclusion
[14] Subsections 163(2) and 163(3) of the Act read as follows:
(2) False statements or omissions - Every person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this section referred to as a "return") filed or made in respect of a taxation year for the purposes of this Act, is liable to a penalty of the greater of $100 and 50% of the total of
. . .
(3) Burden of proof in respect of penalties - Where, in any appeal under this Act, any penalty assessed by the Minister under this section is in issue, the burden of establishing the facts justifying the assessment of the penalty is on the Minister.
[15] With regard to the net worth determined by the Minister's auditor, as no valid evidence against it was adduced, I must therefore conclude on a balance of probabilities that the net worth was correctly determined and that the Minister's reassessments were correctly made in fact and in law.
[16] As for the penalties, no specific representations concerning them were made in the notice of appeal. However, since these are appeals under the informal procedure and the appellant was not represented by counsel, I consider in the circumstances that the assessment, including the assessment of the penalties, is disputed. The appellant was not present at the hearing and was not subpoenaed by the respondent.
[17] The burden of proving the facts establishing the intention to misrepresent or of proving the existence of circumstances indicating the intention to misrepresent is on the Minister. I would have preferred to have the appellant subpoenaed to come to the hearing and testify concerning the assessment of the penalty because the appellant was the principal witness as regards that evidence. However, the Minister's official who established the income by the net worth method came to explain to the Court on what he had relied in so doing. He had also requested explanations from the appellant, who never responded. In the circumstances and in light of the substantial difference between the income initially reported and the additional income established based on objective information, I find that the Minister discharged his burden of proof concerning the assessment of the penalties.
[18] Therefore, the appeals are dismissed.
Signed at Ottawa, Canada, this 20th day of August 1998.
|
"Louise Lamarre Proulx" |
J.T.C.C.