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Docket: 2002-823(IT)G |
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BETWEEN: |
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ROBERT YOUNG, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
Appeal heard on February 21, 2005 at Saskatoon, Saskatchewan
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By: The Honourable Justice D.W. Beaubier |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Lyle Bouvier |
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1994 and 1995 taxation years are dismissed.
The Respondent is awarded its taxable costs and disbursements respecting the appeals.
Signed at Vancouver, British Columbia, this 15th day of March 2005.
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"D.W. Beaubier" |
Beaubier, J.
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Citation: 2005TCC183 |
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Date: 20050315 |
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Docket: 2002-823(IT)G |
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BETWEEN: |
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ROBERT YOUNG, |
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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
Beaubier, J.
[1] This appeal pursuant to the General Procedure was heard at Saskatoon, Saskatchewan, on January 10, 2005. The Appellant testified and called John Ostoforoff, C.M.A. and subpoenaed Bill Jensen, C.A., his accountant during 1994 and 1995, the years in question. The hearing of January 10 was adjourned to February 21, 2005 to enable Mr. Jensen to search for documents; no documents were found. His office did a general shredding in 2002, after the Appellant had retained another firm. On February 21 the Appellant also called Terrance Hanchar, C.M.A. and the Appellant's wife, Margaret Young, and the Appellant testified for a second time. The Respondent called the auditor on the file, Timothy Murphy, B.Comm. At the outset, an interpreter in Cantonese, Jimmy Fung, was sworn in.
[2] Paragraphs 3 to 7 inclusive of the Reply to the Notice of Appeal set out the matters in dispute. They read:
3. The Minister of National Revenue (the "Minister") initially assessed the Appellant for the 1994 and 1995 taxation years by Notices of Assessment dated October 22, 1999.
4. The Minister added $52,312.92 to the Appellant's income in each of the 1994 and 1995 taxation years as a result of benefits received from Chow Enterprises Ltd. ("Chow").
5. In so assessing the Appellant for the 1994 and 1995 taxation years, the Minister relied on, inter alia, the following assumptions:
a) The facts herein before admitted;
b) Chow was incorporated August 28,1980;
c) The Appellant was the controlling mind of Chow;
Mortgage Payments on 215 Whiteswan
d) The Appellant directed Chow to deposit $2,147.41 per month into the personal bank account of himself and Margaret Young;
e) These payments were not accounted for in the books and records of Chow;
f) The Appellant's mortgage payments on his personal residence located at 215 Whiteswan Drive in the City of Saskatoon were $2,147.41 per month;
g) Chow deposited $25,768.92 into the Appellant's personal bank account in each of the 1994 and 1995 taxation years;
h) Chow conferred benefits totalling $25,768.92 in both the 1994 and 1995 taxation years on the Appellant in his capacity as shareholder;
Mortgage Payments on 800 3rd Avenue North
i) The Appellant, Margaret Young and John Young jointly own an apartment complex located at 800 3rd Avenue West in the city of Saskatoon;
j) The mortgage on the apartment building was in the names of the Appellant, Margaret Young and John Young;
k) The Appellant directed Chow to pay the mortgage on the apartment building on his behalf;
l) Chow made mortgage payments to the Royal Bank in the amount of $2,212.00 per month on behalf of the Appellant;
m) Chow conferred benefits totalling $26,544.00 in both the 1994 and 1995 taxation years on the Appellant in his capacity as shareholder;
163(2) Penalties
n) The Appellant is an experienced businessman;
o) The Appellant has been a director and controlling mind of Chow since Incorporation;
p) The Appellant directed that Chow deposit an amount equal to his monthly mortgage payments into his account;
q) The Appellant reported net rental income from 800 3rd Ave. of $6,685.00 in 1994 and $5,797.00 in 1995;
r) The payments Chow made on 800 3rd Ave. were $26,544.00 each year;
s) The amount of the mortgage payments was significant in relation to the amount of income earned;
t) The Appellant knowingly, or under circumstances amounting to gross negligence in carrying out a duty or obligation imposed under the Income Tax Act (the "Act"), made or participated in, assented to or acquiesced in the making of false statements or omissions in the income tax returns filed for the 1994 and 1995 taxation years, as a result of which the tax that would have been payable assessed on the information provided in the Appellant's income tax returns filed for those years was less than the tax payable by the amounts of $10,043.11 and $10,452.48 respectively.
B. ISSUES TO BE DECIDED
6. The issue are:
a) whether the Appellant received a benefit of $52,312, 92 in the 1994 taxation year and $52,312.92 in the 1995 taxation year from the corporation in his capacity as shareholder;
b) whether the Minister is statute barred from assessing the 1994 and 1995 taxation years; and
c) whether the Minister properly assessed penalties pursuant to subsection 163(2) of the Act in those years.
C. STATUTORY PROVISIONS RELIED ON
7. He relies on subsections 15(1), 163(2) and 248(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (the "Act").
[3] Assumptions 5 a), b), c), d), e), f), g), h), i), j), k), l), m), n), o), p), q), r) and s) were not refuted by the evidence. The statute-barred claim referred to in subparagraph 6 b) was refuted by the auditor's evidence.
[4] The Appellant was born in China in about 1930 and came to California in 1947 with no English. He moved to Canada in the mid 1950s and then went into business. His spoken English is generally good, but broken, and he has some knowledge of written English. For 1994 and 1995 he had his accountant, a C.A., prepare his income tax and accounting material and the Appellant signed them. Both his 1994 and 1995 income tax returns were filed on June 11, 1996, along with his 1992 and 1993 returns.
[5] Part of the Appellant's evidence was Mr. Ostoforoff's testimony that the Appellant was devastated when his son died of cancer in California in 1993 after being hospitalized for about 3 years and from the Appellant's emphasis of his son, that is believed. However part of the Appellant's explanation respecting the money in question is that he received money during 1994 and 1995 from this son, who was not alive in those years. The Appellant testified that he collected the son's rents after his death; however his wife Margaret said that their daughter, Jean, collected these rents. They were Jean's inheritance from the son. As a result, the Appellant is not believed.
[6] In the examination of Mr. Jensen, who was the Appellant's witness, the Appellant led evidence that the income tax returns for Mr. Young for the years 1992 to 1995 inclusive were all filed together. Two different financial statements of "Chow" were prepared for each of 1992 and 1995 and were reviewed by Mr. Jensen on the stand. He could recall no explanation for this except to say that the ones filed with Revenue Canada were correct and the others may have been drafts. In summary, Mr. Jensen testified that the Chow returns were based on Mr. Young's instructions and that his firm ceased to act for Mr. Young when he failed to provide the Jensen firm with information to respond to Revenue Canada's proposal. He said that the drafts may have been submitted to Mr. Young who then had them corrected - the statements and returns filed showed less income.
[7] Mr. Jensen's testimony is in accord with what Mr. Young demonstrated in Court: no substantiation of his business or property allegations by way of documents or witnesses. As Mr. Jensen testified, if Mr. Young filed his 1992 - 1995 income tax returns in June of 1996, that is Mr. Young's responsibility. Mr. Young had the opportunity to satisfy Revenue Canada at the audit stage, to satisfy Mr. Jensen at the proposal stage and at this Court on January 10, 2005. On February 21, 2005 Mr. Young came up with some explanations based on his taking money from his son's rental property and from his wife's payments on an agreement for sale. No documents substantiated this alleged usage of these funds and there is no evidence that such funds were ever reported for income tax purposes by any party, including Mr. Young. In all of these circumstances, this explanation is rejected by the Court.
[8] Mr. Young admitted to the auditor and the financial statements of Chow relating to the years in question confirm, respectively, that assumptions 5 d) to h) and 5 i) to m) were the case and these admissions of Mr. Young were the basis of the assessments. The multitude of protests to the contrary without documentary substantiation reversing Mr. Young's initial statements and reversing Chow's financial statements are not accepted.
[9] Mr. Jensen testified that upon discussing Revenue Canada's proposal on the audit with Mr. Young, Mr. Young failed to supply supporting documents for his income tax returns and instead said "Let's talk to my M.P. and have him look after this for me." Mr. Young had a number of prominent M.P.s, including Paul Martin, as guests in his house. Mr. Jensen also testified that Mr. Young, an experienced businessman, understood English and the various financial statements and the income tax returns of Chow Enterprises Ltd. and himself. The Court finds this to be true based upon Mr. Young's demeanor and testimony. On one occasion, when Mr. Young was testifying in English, his wife rose in Court and, in Chinese, told him to speak in Chinese.
[10] Based on the foregoing facts and for all of these reasons, the Court finds that Mr. Young's testimony lacks credibility generally.
[11] Mr. and Mrs. Young both testified that Mr. Young was deeply affected and depressed by the death of his son John in 1993 and that this was the cause of his failures to file income tax returns. However Mr. Young's own evidence is that he continued to manage Chow and the apartment building and collect their monies and clean Chow's car wash. He also alleged that he collected his son's and Jean's rents thus his own statements are that he continued to carry on day-to-day business affairs despite John's death. For this reason this is not accepted as an excuse for the failure to file income tax returns by Mr. Young from 1992 to 1995 inclusive.
[12] For the same reasons and on the foregoing facts, the Court finds that Mr. Young knew his income, its sources and his duty to file correct and timely income tax returns. Knowing that, he knowingly made false statements and omissions intentionally on his 1994 and 1995 income tax returns and filed them for these years. His knowledge, so found, is also based on the fact that he had an earlier audit, on which a judgment was consented to, in which Chow made payments on "800 3rd Avenue" in Saskatoon. Moreover the amount not reported is more than 9 times the amount Mr. Young reported in both 1994 and 1995. Therefore the penalties are confirmed and the Appellant is liable for them.
[13] The appeals are dismissed in their entirety.
[14] The Respondent is awarded its taxable costs and disbursements respecting the appeals.
Signed at Vancouver, British Columbia, this 15th day of March 2005.
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"D.W. Beaubier" |
Beaubier, J.
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CITATION: |
2005TCC183 |
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COURT FILE NO.: |
2002-823(IT)G |
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STYLE OF CAUSE: |
Robert Young v. The Queen |
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PLACE OF HEARING: |
Saskatoon, Saskatchewan |
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DATE OF HEARING: |
February 21, 2005 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice Beaubier |
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DATE OF JUDGMENT: |
March 15, 2005 |
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APPEARANCES: |
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Agent for the Appellant: |
Terrence Hanchar |
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Counsel for the Respondent: |
Lyle Bouvier |
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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: |
John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada |