BETWEEN:
and
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Appeal heard on October 19, 2006 at Toronto, Ontario
Before: The Honourable Justice G. Sheridan
Appearances:
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JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 2000 taxation year is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the amount of $15,200.83 ought not to have been included as employment income in the Appellant's 2000 taxation year in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 8th day of November, 2006.
BETWEEN:
PARINAZ BINIAZ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant, Parinaz Biniaz, is appealing the assessment of the Minister of National Revenue in which the value of a debt paid by her former employer was included as employment income for her 2000 taxation year. The Minister based his reassessment on the assumptions set out in paragraph 8 of the Reply to the Notice of Appeal:
8. In reassessing the Appellant's tax liability for the 2000 taxation year and confirming the reassessment, the Minister assumed the following facts:
a) during the 2000 taxation year, the Appellant provided secretarial work for Dr. Ariel Reyhanian;
b) in 1997, Dr. Ariel Reyhanian co-signed a car loan for the Appellant in the amount of $20,000 with Canada Trust;
c) in June 25, 1999, the Appellant filed an assignment in bankrupcy and Canada Trust was listed as a creditor;
d) Canada Trust recovered the Appellant's debt from Dr. Ariel Reyhanian;
e) during the 2000 taxation year, Dr. Reyhanian paid the Appellant's debt with Canada Trust in the amount of $15,200.83;
f) during the 2000 taxation year, the Appellant worked for Dr. Reyhanian on a voluntary basis in order to repay the amount of the loan paid to Canada Trust on her behalf;
g) in computing income for the 2000 taxation year, the Appellant did not include in income the amount of $15,200.83;
[2] The Appellant disputes the facts assumed in subparagraphs 8(a) and 8(f). She was the only witness to testify; I found her forthcoming and credible in the presentation of her evidence. She furnished, without guile or hesitation, the details of her car loan, Dr. Reyhanian's role as guarantor, her default and the ensuing bankruptcy and her volunteer work at the new dental clinic. Her evidence provided details of the events leading up to the reassessment: from 1990 to 1999, the Appellant was employed as an office assistant in a dental clinic operated by Dr. Reyhanian and his brothers. In 1997, the Appellant borrowed $20,000 from Canada Trust to purchase a car; for reasons not known to the Court, her (then) employer Dr. Reyhanian co-signed the Appellant's loan. In 1999, his association with the Reyhanian brothers' dental practice came to an abrupt end, one consequence of which was the Appellant was suddenly without a job. Her only significant debt was the car loan but with no money coming in, she soon defaulted on her car payments and had to declare bankruptcy. Her creditor, Canada Trust, then looked to the loan guarantor, Dr. Reyhanian for repayment. He paid the outstanding balance of approximately $15,000 in 2000.
[3] In that same year, Dr. Reyhanian opened a new dental clinic. He asked the Appellant and some unidentified "other girls" to volunteer with helping him establish his new office. The Appellant, feeling grateful to Dr. Reyhanian for his payment of her debt, agreed to train his new staff and open files; she provided her assistance on a voluntary basis, receiving (as expected) nothing as salary or wages for her efforts.
[4] For these reasons, she did not even consider reporting income from her volunteer work at her former employer's new office. Thus, she was surprised by the Minister's inclusion of the value of the loan repayment in her employment income for 2000.
[5] Though no mention is made of it in the assumptions, the likely impetus for the Minister's reassessment became evident during the cross-examination of the Appellant. Counsel for the Respondent put to her a photocopy of a document[1] dated March 10, 2003. The text of the letter reads as follows:
Dear Mr. Asebiode,
This letter is to confirm that payments made to Canada Trust by Dr. Ariel Reyhanian on behalf of Ms. Parinaz Biniaz were wages earned for the year in 2000. The loan# 00328 183 775 payments in the year 2000 totaled $15,200.83.[2]
The document concludes with signature lines for "Dr. Ariel Reyhanian D.D.S.", (with a signature appearing in the space provided) and "Ms. Parinaz Biniaz". The Appellant admitted to her signature in the space above her name.
[6] She denied, however, ever having signed a document in the form presented to her on cross-examination. The Appellant's evidence was that she had never seen it before it was disclosed to her just prior to the hearing of this appeal. According to the Appellant, she and Dr. Reyhanian had signed a paper having to do with the loan repayment, but the text of that document did not include the greeting line appearing in Exhibit R-1, Tab 4, "Dear Mr. Asebiode", or the concluding words, "... were wages earned for the year in 2000. The loan # 00328 183 775 payments in the year 2000 totaled $15,200.83." She further stated that she does not know Mr. Asebiode but she thought he was Dr. Reyhanian's accountant.
[7] For his part, counsel for the Respondent was equally surprised by the Appellant's reaction to the letter. He was given a moment to reflect on whether the Respondent wished to request an adjournment of the hearing to permit Dr. Reyhanian to be subpoenaed. Counsel ultimately did not make such a request but even had he done so, I would not have been inclined to grant it. The Respondent had had Exhibit R-1, Tab 4 in its possession well before the hearing; indeed, I suspect it was that document that triggered the Minister's interest in the Appellant's 2000 income tax return. If so, the Appellant ought to have been made aware of its existence and given an opportunity to respond to it at the objection stage. Further, it was fully within the Respondent's power to subpoena Dr. Reyhanian as a witness or to seek to join him as a party under section 174 of the Income Tax Act.
[8] In any event, the question is whether, on the evidence presented, the Appellant received employment income from Dr. Reyhanian when he paid the outstanding balance on the Appellant's debt with Canada Trust. In my view, she did not.
[9] To be employment income, there must exist a link between the repayment of the car loan and the Appellant's so-called "voluntary" work at Dr. Reyhanian's new office. The use of the word "voluntary" in assumption 8(f) is in itself somewhat contradictory to the Minister's position: the usual dictionary meaning of "voluntary" is "without payment" or "without legal obligation", both of which describe the basis upon which the Appellant says she helped out at Dr. Reyhanian's office. I accept her evidence that she did so out of a feeling of gratitude or moral obligation to Dr. Reyhanian. She did not expect to be paid for her help, either in wages or by the repayment of her loan. It must also be borne in mind that as the guarantor of the loan, Dr. Reyhanian was legally obliged to pay Canada Trust on demand in the event of the Appellant's default. What motivated Dr. Reyhanian to co-sign the Appellant's car loan in the first place is not known. It could have had to do with her employment in 1997; it might have been a gift or a loan or a random act of kindness. Without Dr. Reyhanian's testimony, one can only speculate. Further, apart from assuming the Appellant "provided secretarial services"[3], the Minister made no factual assumptions as to the existence of an agreement to "work off" the loan payment, the nature of the work, the number of hours worked and what correlation, if any, there was with the value of that work and the $15,000 assessed as employment income. Accordingly, the onus is on the Respondent to establish this connection; this has not been done. What is known is that in 2000, the Appellant was no longer in his employ. There is no evidence of any agreement between the Appellant and Dr. Reyhanian obliging her to work for free at his new office in exchange for his having had to meet his obligations under the guarantee he gave to Canada Trust. This is not to say he is without remedy vis-à-vis the Appellant, but that is not the issue in this appeal.
[10] As for Exhibit R-1, Tab 4 it does little to advance the Respondent's case. The document produced is a photocopy; the whereabouts of the original, which might assist in assessing its reliability, are not known to the Court. While there is not sufficient evidence before me to find that this document was altered and if so, by whom or for what purpose, I accept the Appellant's evidence that the document she signed was not in the form presented to her at the hearing and that she was unaware of its existence prior to its disclosure at the hearing.
[11] Counsel for the Respondent also put in evidence copies of two letters[4] written by the Appellant in response to CRA officials following her objection. I do not read these as admissions that her volunteer work was done in exchange for the repayment of the loan. The Appellant is not trained in the law and it is unreasonable to imbue her words with a technical legal meaning. What her letters do demonstrate is a plain and honest effort to comply with the department's request for additional information regarding the circumstances surrounding her volunteer work and the loan repayment.
[12] I am satisfied that the Appellant has successfully met her evidentiary burden of showing that the value of the car loan repayment was not received by her as employment income in the 2000 taxation year. Accordingly, the appeal is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the amount of $15,200.83 ought not to have been included as employment income in the Appellant's 2000 taxation year.
Signed at Ottawa, Canada this 8th day of November, 2006.
"G. Sheridan"
Sheridan, J.
COURT FILE NO.: 2005-3794(IT)I
STYLE OF CAUSE: PARINAZ BINIAZ AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: October 19, 2006
REASONS FOR JUDGMENT BY: The Honourable Justice G. Sheridan
DATE OF JUDGMENT: November 8, 2006
APPEARANCES:
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For the Appellant: |
The Appellant herself |
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Counsel for the Respondent: |
Laurent Bartleman |
COUNSEL OF RECORD:
Firm:
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada