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Date: 20030206 |
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Docket: 2002-730(IT)I |
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BETWEEN: |
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MARC KADOCH, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
_______________________________________________________________
Appeals heard on common evidence with the appeals of Judith Kadoch (2002-782(IT)I) on January 14, 2003, at Toronto, Ontario.
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Before: The Honourable Judge Gerald J. Rip |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
P. Michael Appavoo |
____________________________________________________________________
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1994, 1996, 1997 and 1998 taxation years are dismissed.
Signed at Ottawa, Canada, this 6th day of February 2003.
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"Gerald J. Rip" |
J.T.C.C.
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Date: 20030206 |
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Docket: 2002-782(IT)I |
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BETWEEN: |
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JUDITH KADOCH, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
Appeals heard on common evidence with the appeals of Marc Kadoch (2002-730(IT)I) on January 14, 2003, at Toronto, Ontario.
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Before: The Honourable Judge Gerald J. Rip |
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Appearances: |
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Agent for the Appellant: |
Marc Kadoch |
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Counsel for the Respondent: |
P. Michael Appavoo |
_______________________________________________________________
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1994 and 1996 taxation years are allowed and the assessments are vacated.
Signed at Ottawa, Canada, this 6th day of February 2003.
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"Gerald J. Rip" |
J.T.C.C.
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Citation: 2003TCC24 |
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Date: 20030206 |
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Docket: 2002-730(IT)I |
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BETWEEN: |
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MARC KADOCH, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent, |
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AND |
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2000-782(IT)I |
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BETWEEN: |
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JUDITH KADOCH, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Rip, J.T.C.C.
[1] Marc Kadoch and his wife Judith Kadoch appeal income tax assessments for 1994 and 1996 claiming that they made donations to certain registered charities and that they are entitled to the tax credits referable to the donations calculated in accordance with subsection 118.1(3) of the Income Tax Act ("Act"). The appellants also state that in any event, the assessments for 1994 and 1996 are not valid since they were made more than three years after the dates of the original assessments for the years: subsection 152(4). The appellants also appeal penalties assessed pursuant to subsection 163(2) of the Act.
[2] Mr. Kadoch also appeals assessments for 1997 and 1998 for the same reasons: he made donations to certain registered charities in those years and is entitled to the tax credits and he ought not be assessed penalties pursuant to subsection 163(2) of the Act.
[3] The Minister of National Revenue ("Minister") denied the tax credits on the basis that the appellants did not make donations to the registered charities and filed fraudulent receipts in support of their claims for charitable donations. In filing tax returns for 1994 and 1996 the appellants made misrepresentations that were attributable to neglect, carelessness or wilful default and therefore the Minister is not restricted from reassessing after the statutory period set out in subsection 152(4) of the Act. Also, the appellants knowingly, or under circumstances amounting to gross negligence, in carrying out their duties or obligation under the Act made or participated in, assented to or acquiesced in the making of false statements or omissions in their respective tax returns filed for the years under appeal and are therefore liable for penalties in accordance with subsection 163(2) of the Act.
[4] The appeals were heard on common evidence. Mr. Kadoch represented Mrs. Kadoch and was the sole witness for the appellants.
[5] These appeals have their genesis in the activities of a Rabbi Leon Edery. Rabbi Edery arrived in Toronto in 1967 and soon led a small Sephardic Congregation on Bathurst Avenue. In 1971 he received a provincial charter for Or Hamaarav Sephardic Congregation ("Or Hamaarav"). Rabbi Edery testified that at the time he was also teaching and raising funds for Morrocan Jewish families immigrating to Toronto and for the education of their children. He also arranged to distribute clothing, books and other items to recent immigrants.
[6] Rabbi Edery started a day-care centre in 1983 under the name Abarbanel Sephardic Learning Centre ("Abarbanel"). He raised money for Abarbanel as well. The day-care was in the building owned and occupied by Or Hamaarav. Or Hamaarav defaulted on its mortgage in 1985 and lost the building.
[7] Rabbi Edery continued to raise money for his various works. Or Hamaarav and Abarbanel continued to exist but Rabbi Edery discovered it was getting difficult to get donations. As he said, "People don't want to give money to a loser".
[8] Rabbi Edery or a business associate − the evidence is not clear − then presented a marketing scheme to potential donors that they would get a charitable receipt for (generally) ten times the amount of the actual donation, that is, the amount actually donated would represent 10 per cent of the face amount of the receipt. Rabbi Edery testified this was the "only way to raise money". In some cases the donor would write a cheque and Rabbi Edery would return to them 90 per cent of the amount of the cheque in cash and a receipt for the full amount. Thus a cheque for $1,000 would get the donor "cash back" of $900 plus a receipt for $1,000, which he would claim in his tax return. Sometimes the donor got back more or less than 90 per cent of the receipt amount. In other cases a donor would give cash equal to 10 per cent of the receipt. Rabbi Edery did acknowledge that "two or three" people did give donations and did not ask for "cash back". Mr. and Mrs. Kaboch were not the "two or three" people, according to Rabbi Edery.
[9] In 1996 or 1997 Rabbi Edery, formed another charity, Mincha Gedolah Synagogue ("Gedolah"), to assist immigrants from Russia.
[10] In his income tax returns Mr. Kadoch claimed to have made donations in the amounts of $7,500 and $1,500 to Or Hamaarav in 1994 and 1996, respectively, $7,500 to Gedolah in 1997 and $5,000 to Abarbanel in 1998. Mrs. Kadoch claims to have donated $2,300 and $2,500 in 1994 and 1996, respectively, to Or Hamaarav.
[11] During the time he operated the charities and sought contributions, Rabbi Edery stated, he gave a commission, usually 5 to 10 per cent of the actual amount donated, to persons who referred donors to him or who brought him money from donors. The names of Rabbi Edery's agents are on lists seized by officials of Revenue Canada at the time. Mr. Kadoch's name appears on such a list. Mr. Kadoch denied ever receiving a commission. Rabbi Edery declared "the whole community" knew about the commissions.
[12] Rabbi Edery explained that he would cash a cheque within several days of receipt. He said he never lost a cheque. "We kept good records. We never lost anything." Thus, if Mr. Kadoch gave him a cheque on December 28, 1998, he would cash it at the end of 1998 or early January 1999; he would not wait until May 1999, for example. A receipt would be issued sometimes immediately, sometimes days after the donation. The "cash back" would wait until the cheque cleared the bank, unless the cheque were certified. Rabbi Edery admitted that he did not always issue timely receipts. He would agree to backdate receipts to a year prior to the year in which the donation was made.
[13] The only person authorized to issue receipts for all three charities was Rabbi Edery, according to him. All receipts issued to Mr. and Mrs. Kadoch were signed by Rabbi Edery. The rabbi stated that for a period of time an unauthorized person was issuing forged receipts.
[14] The three charitable organizations ceased operation in 2001. Rabbi Edery acknowledged he was found guilty of tax evasion and other offences under the Act and was sentenced to 12 months house arrest, community service and a "penalty" of $32,229.
[15] Mr. Kadoch insisted that he and Mrs. Kadoch made the donations they said they did and they did not receive any "cash back" nor did they obtain any receipt for an amount greater than the amount each actually contributed. Mr. Kadoch declared he had no reason to get any money back from the charities. He said he "gives lot of money as donations". "Last year", he asserted, he gave donations aggregating $22,000. His annual income is approximately $140,000.
[16] Or Hamaarav was situated across the street from Mr. Kadoch's residence and Mr. Kadoch attended services there. He even served as cantor. Mr. Kadoch has known Rabbi Edery for over 30 years. He was aware of Rabbi Edery's organizations. Mr. Kadoch recalled he had relatives who were helped by Rabbi Edery. He described Rabbi Edery as a "person of integrity" who helped "lots of families in Toronto". Mr. Kadoch contributed to Rabbi Edery's charities because the rabbi was "beneficial to the community" and was active in "good causes". He did not suspect Rabbi Edery may have been involved in fraud, although in 1996 or 1997 Rabbi Edery told him fraudulent receipts were being issued in the name of his organizations.
[17] During the early years, Mr. Kadoch recalled, he gave cash contributions; later, when Rabbi Edery said fraudulent receipts were being issued, Mr. Kadoch was requested to give cheques. Mr. Kadoch recalled that he would put cash in an envelope and then get a telephone call that receipts were available for him.
[18] Mr. Kadoch was cross-examined with respect to two cheques he issued, one dated December 31, 1997, payable to Gedolah and presented for payment on February 5, 1998, the other cheque, dated December 28, 1998, was payable to Abarbanel and was presented for payment on May 25, 1999. The respective receipts were dated December 31, 1997 and December 28, 1998. The former cheque apparently represented donations made during 1997 although Mr. Kadoch could not explain the late date the cheque was presented for payment. The latter cheque was made to replace an earlier cheque made in 1998 that was lost by Rabbi Edery, he explained. I note that this evidence is contrary to that given by Rabbi Edery who took pride in declaring he never lost a cheque.
[19] At no time did he receive money in consideration of services performed by him, Mr. Kadoch insisted. He never solicited funds for Rabbi Edery's organizations, except from family members. He gave of his time freely when performing cantorial services.
[20] Mr. Kadoch testified that Mrs. Kadoch was not involved in making any donations. He acted for his wife; he made the contributions for his wife in cash; he prepared his wife's income tax returns.
[21] An investigator for the Canada Customs and Revenue Agency ("CCRA"), Mr. Frank Menniti, testified that the scheme practiced by Rabbi Edery was concocted by a tax preparer named Jacob Abacassis. Revenue Canada, the predecessor to the CCRA, was attracted to Mr. Abacassis' clients because they claimed large business losses and receipts for substantial donations from charities under the control of Rabbi Edery. Search warrants were executed against Or Hamaarav and Abarbanel. Many contributors informed the CCRA they obtained receipts for payments equal to 10 to 20 per cent of the amount of the receipt. The CCRA seized carbon copies of donation receipts, donor lists and bank records of the charities.
[22] Mr. Menniti was able to trace large amounts of money deposited into the relevant bank accounts and large withdrawals by way of cash or draft. He concluded that money did go to the charities but about 90 per cent of the donations were withdrawn and given back to the donors.
[23] Mr. Menniti testified that there was a great disparity between what the organization reported to Revenue Canada and what they received. For example, Abarbanel reported on its tax return for 1994 that it received $285,967 but the total amount of the receipts issued for the year, as taken from the carbon copies seized, was $758,807. The $285,967 was "close to the amount that actually went into the bank", according to Mr. Menniti. But the CCRA today has no idea how much money was actually collected. According to Mr. Menniti records of the charities do not indicate where the funds withdrawn from the bank accounts were going, that is, to help needy families or for some other purpose.
[24] Exhibit R-10 is a list of contributors with family names starting with the letter 'K'. Mr. Kadoch's name appears in the margin beside one name (other than his and his wife's) on that list. According to Mr. Menniti, Mr. Kadoch was responsible for that donation. Mr. Menniti also went through other lists of names and found Mr. Kadoch's name was in the margin opposite eight donors' names. Most of these contributors resided on the island of Montreal. Mr. Kadoch stated these people were related to him. Two contributors, Mr. and Mrs. Laffredo, told Mr. Menniti they paid Mr. Kadoch the full amount indicated on their receipts.
[25] These appeals are determined on who is more or less credible, Rabbi Edery or Mr. Kadoch. Rabbi Edery acknowledged that he was convicted of several charges under the Act as well as the penal sanction against him. He explained clearly his participation and guilt in the scheme he caused Or Hamaarav, Abarbanel and Gedolah to participate in. He has served his sentence and he has nothing to gain in giving coloured or false testimony. Although I am confident from observing him that Rabbi Edery would not hesitate to colour his evidence if it would assist him, there is nothing in his evidence in these appeals that causes me to suspect any significant portion of it.
[26] On the other hand, Mr. Kadoch's evidence was self-serving and questionable. For example, he explained a late receipt was due to Rabbi Edery losing one of his cheques. Rabbi Edery stated that his records were immaculate and that he never lost any cheque. At the same time he was prepared to antedate receipts. There is no reason for Mr. Kadoch's name to appear opposite those of several donors, except for the reasons given by Rabbi Edery. In his cross-examination by Mr. Kadoch, Rabbi Edery was not hesitant in declaring that he gave cash back to Mr. Kadoch. Based on what was seized from Rabbi Edery's premises, according to Mr. Menniti, and Rabbi Edery's practice of issuing receipts, I prefer his evidence over that of Mr. Kadoch. I also find that Mr. Kadoch knew of the scheme and willingly participated in it. I have no doubt, however, that Mr. Kadoch did make donations to the three charities, but not in the amounts he says.
[27] Mr. Kadoch referred me to the reasons for judgment in Bentolila et al. v. The Queen.[1] Those appeals were also concerned with claims for non-refundable tax credits for donations made to Or Hamaarav and Abarbanel. The evidence led in those appeals differ from the evidence before me. The appellants in Bentolila did not testify. Miller J. was not prepared to extend the normal reassessment period in subsection 152(4) or confirm penalties assessed under subsection 163(2) simply because the appellants failed to testify. This is not the case at bar.
[28] I have concluded that Mr. Kadoch made donations to the three charities with the expectation that he would get cash back or obtain a receipt for an amount in excess of the amount he gave to the charity. He knew of Rabbi Edery's so-called marketing program. Thus, as far as Mr. Kadoch is concerned he made a misrepresentation in his income tax returns for 1994 and 1996 that was attributable to neglect, carelessness or wilful default or committed fraud in filing the returns: subsection 152(4). The Minister may therefore assess beyond the normal reassessment period.
[29] I find that since Mr. Kadoch was aware of Rabbi Edery's scheme and participated in obtaining receipts that he knew were excessive, he knowingly or under circumstances amounting to gross negligence participated in, assented to or acquiesced in the making of a false statement in his tax returns for 1994, 1996, 1997 and 1998 and is therefore liable to the penalty set out in subsection 163(2) of the Act.
[30] As far as Mrs. Kadoch is concerned the evidence is that her husband made the donations on her behalf, received the false receipts on her behalf and prepared and filed her 1994 and 1996 tax returns. While she appears to have relied on her husband to do all this, there is no evidence before me that she personally signed her tax returns or that she knew what was going on. Her tax returns were not produced. Mrs. Kadoch was present during the trial of the appeals. Even though she was not called as a witness by her husband, the respondent could have called on her to testify. There is no evidence suggesting that I should attach Mr. Kadoch's knowledge of Rabbi Edery's scheme to his wife. There is no evidence that Mrs. Kadoch knew of her husband's participation in the scheme or that she made any representation of any kind in her tax returns. On the evidence before me the Minister did not have the right to assess Mrs. Kadoch beyond the normal reassessment period.
[31] The respondent also had the burden of establishing the facts justifying the assessments of the penalty against Mrs. Kadoch pursuant to subsection 163(2) and did not do so.
[32] Therefore, the appeals of Mr. Kadoch from assessments for 1994, 1996, 1997 and 1998 are dismissed and the appeals of Mrs. Kadoch from assessments for 1994 and 1996 are allowed and the assessments are vacated.
Signed at Ottawa, Canada, this 6th day of February 2003.
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"Gerald J. Rip" |
J.T.C.C.
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CITATION: |
2003TCC24 |
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COURT FILE NO.: |
2002-730(IT)I |
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2002-782(IT)I
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STYLE OF CAUSE: |
Marc Kadoch and Judith Kadoch and The Queen |
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PLACE OF HEARING |
Toronto, Ontario |
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DATE OF HEARING |
January 14, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Gerald Rip |
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DATE OF JUDGMENT |
February 6, 2003 |
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APPEARANCES: |
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Agent for the Appellants: |
Marc Kadoch |
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Counsel for the Respondent: |
P. Michael Appavoo |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |