Kozar v. The Queen

Kozar v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2010-07-19
Neutral citation
2010 TCC 389
File numbers
2007-3727(IT)G
Judges and Taxing Officers
Frank J. Pizzitelli
Subjects
Income Tax Act
Decision Content
Docket: 2007-3727(IT)G
BETWEEN:
SANDY KOZAR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeals heard on March 29, 30 and 31, April 1, June 9, 10 and 11, 2010, at Windsor, Ontario
Before: The Honourable Justice F.J. Pizzitelli
Appearances:
Counsel for the Appellant:
John Mill
Counsel for the Respondent:
Nicolas Simard
____________________________________________________________________
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 2001 and 2002 taxation years are allowed and the reassessments are vacated.
Costs are awarded to the Appellant on a solicitor and client basis.
Signed at Ottawa, Canada, this 19th day of July 2010.
“F.J. Pizzitelli”
Pizzitelli J.
Citation: 2010 TCC 389
Date: 20100719
Docket: 2007-3727(IT)G
BETWEEN:
SANDY KOZAR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Pizzitelli J.
The Issues:
[1] The Appellant appeals from reassessments issued by the Minister of National Revenue (the “Minister”) for unreported income regarding the 2001 and 2002 taxation years totalling $220,595 and $135,488 respectively. The Appellant also appeals the Minister’s right to reassess the Appellant with respect to the 2001 taxation year, being an otherwise statute-barred year, pursuant to subsection 152(4) of the Income Tax Act (the “Act”) and further appeals the Minister’s assessment of penalties pursuant to subsection 163(2) of the Act for the 2001 and 2002 years, totalling $29,936 and $17,135 respectively for those years.
Background:
[2] The Appellant was a registered nurse during the years in question and reported income in her income tax returns of $44,659 for 2001 and $42,403 for 2002, representing employment income from the Windsor-Essex County Health Unit for whom she has worked for the past eleven years. The Minister initially assessed the Appellant’s tax liability for the years in question by notices of assessment dated April 15, 2002 and March 24, 2003 respectively based on her income from her nursing employment as reported. By notices of reassessment dated October 11, 2005, the Minister reassessed the Appellant’s tax liability by increasing the Appellant’s income substantially and assessing gross negligence penalties on the basis of net worth assessments pursuant to subsections 152(7) and (8) of the Act and, after the filing of notices of objection by the Appellant on December 19, 2005, the Minister reassessed the Appellant’s total income and penalties to those stated in the first paragraph of this decision above.
[3] The Appellant, now a single mother of two, reconnected with her high school boyfriend, Sang Nguyen, in the year 2000 and became engaged to him in 2001. On August 10, 2002, the Appellant married Mr. Nguyen. During the years in question until failure of the business in May 2002 (resulting in the appointment of receivers), Mr. Nguyen operated a satellite receiver decoding business, known as Pirate Satellite Receivers, first in partnership with a Mr. P. Reid, then in proprietorship, and then in incorporated form after October 2001. The Appellant was neither a partner, nor a shareholder, officer or director of her spouse’s satellite business and the Respondent pleaded that the Appellant’s fiancé was the sole shareholder of the business when it was operated in corporate form. The Appellant and her husband separated in August of 2009, after which her husband returned to Vietnam for the balance of the year and returned in the following year. The evidence of the Appellant is that she and her husband are not in contact, with the husband only sparingly phoning to speak with his children, and that she has no address for him nor would he agree to testify at this trial.
[4] The Canada Revenue Agency (“CRA”) audited Pirate Satellite Receivers and expanded their inquiries to the Appellant as a result of investigating her husband’s business. Due to several unexplained bank deposits into the Appellant’s accounts and those the Respondent alleges were the Appellant’s accounts, and due to the CRA’s allegation that the Appellant was not cooperative throughout the audit, an allegation strongly disputed by the Appellant, in addition to the cash nature of the satellite business which placed it in a higher risk category, the CRA’s Special Investigations Branch audited and assessed the Appellant on a net worth basis. The Respondent’s net worth assessment is based on the assumption of facts contained in paragraph 13 of the Amended Reply, and in particular the following paragraphs:
a) in all relevant years, the Appellant and her spouse were involved in the programming and selling of satellite receivers;
…
f) at all material times, the Appellant was an employee of business;
g) the Appellant’s tasks involved the programming of satellite receivers’ cards;
h) the Appellant was remunerated for her work by cash and cheques;
i) during the 2001 and 2002 taxation years, the Appellant was paid at least $220,595 and $135,488 respectively for her work;
…
m) the understated amounts were determined by the net worth method (a copy of the Statement of Personal Net Worth is attached as Schedule “I”);
n) during the 2001 and 2002 taxation years, the Appellant’s personal expenses were equal or superior to the amounts of $16,086 and $108,248 respectively.
Position of the Parties:
[5] The Appellant’s position is that she was not an employee of the business and never received any remuneration of any kind in such capacity, directly or indirectly, and that she was not very computer savvy, had very little to do with her then-fiancé’s business, rarely attending at the store location, and at best only answered the phone once and passed the line to another party or may have helped distribute the satellite cards on a few extremely busy days. Her testimony is that she was a full-time registered nurse working 8:30 a.m. to 4:30 p.m. shifts and had no time to take other employment, and hence, was never an employee of the business nor received compensation from the business as assumed by the Respondent. She advised never having attended at the business location when it was located on Shephard Street and only recalls ever having attended several times when at the newer location on Howard Street.
[6] The Respondent’s position is that the Appellant was involved in the programming and sale of satellite receivers and was at all times an employee of the business who was paid by cash or cheque the entire amount of income, directly or indirectly, that the Respondent alleges was unreported income calculated using the net worth reassessment method.
The Burden of Proof and Order of Presentation:
[7] There is no dispute between the parties as to which party bears the burden of proof with respect to the issues to be decided. The Respondent bears the burden of proving that the taxpayer has made any representation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing a return as required under subsection 152(4) of the Act in opening up a statute-barred year, namely the 2001 taxation year of the Appellant. The onus is on the taxpayer to demolish the assumptions made by the Minister in assessing the taxpayer pursuant to the section 152 reassessment. Finally, the onus is on the Respondent to establish the facts justifying the assessment of the penalties under subsection 163(2). While I will make reference to the onus applicable to the issues in the context of the law and evidence shortly, it should be noted that due to the fact the Respondent has the onus to prove a misrepresentation contemplated under subsection 152(4), the Appellant sought at the beginning of the hearing, by way of motion, to have the Respondent present his evidence of misrepresentation with respect to the 2001 statute-barred year first, which motion was opposed by the Respondent. I dismissed the motion of the Appellant by oral decision at the commencement of the hearing on the basis I would provide more detailed reasoning within the judgment on this matter and now propose to provide such more detailed reasons.
Reasons for Dismissing the Preliminary Motion:
[8] Rule 135(2) of the Tax Court of Canada Rules (General Procedure) reads as follows:
135(2) Unless the judge directs otherwise, the parties shall put in their respective cases by evidence or by putting before the Court the facts on which they rely, in the following order,
(a) the appellant,
(b) the respondent, and
(c) the appellant in respect of rebuttal evidence.
[9] The Appellant in effect asked this Court to “otherwise decide” and require the Respondent to lead evidence of the misrepresentation alleged on the basis of both case law argued and in the interests of practicality.
[10] The Appellant relied on the case of Minister of National Revenue v. Maurice Taylor, 61 DTC 1139 (Exch Ct), which required the Respondent to proceed first and on 943372 Ontario Inc. v. Canada, 2007 TCC 294, 2007 DTC 1051. Re Maurice Taylor only dealt with the issue of misrepresentation with no underlying dispute as to an assessment so it would make sense for the Crown to proceed first in those circumstances as there was only one onus of proof involved and it was on the Crown. The Respondent referred to paragraph 11 of former Chief Justice Bowman’s decision in 943372 Ontario Inc. where he simply stated:
11 Since the initial burden lies upon the Crown to justify the statute-barred assessments and the penalties, counsel for the respondent opened …
[11] Unfortunately, the former Chief Justice Bowman undertook no detailed review of the law that would be of assistance to this Court in deciding the issue and dealt with a non-suit motion that was adjourned for further argument, and accordingly such case is of little assistance here.
[12] On the other hand, the precedents relied upon by the Respondent in my view support the Respondent’s position as a more acceptable view of the law on this matter. In The Queen v. Wellington Taylor, 84 DTC 6459 (F.C.T.D.), Rouleau J. decided that in the case of an assessment of taxes in dispute with subsection 163(2) penalties also assessed, the taxpayer should proceed first and stated at page 6463:
Where there is an onus on each party, the taxpayer shall begin first. …
[13] Rouleau J. reasoned at page 6461 that:
… On an appeal, the burden is on the taxpayer to overturn the assessment. It is deemed valid because of subsection 152(8) of the Act; it is the taxpayer’s appeal and he must therefore show that the impeached assessment is an assessment which ought not to have been made; …
[14] While one might argue that Re Wellington Taylor did not deal with the issue of a statute-barred year, in the case of Levy v. The Queen, 89 DTC 5385 (F.C.T.D.), a case similar to the one before us in that it did deal with a statute‑barred year, a disputed assessment and an issue of unreported income and penalties under subsection 163(2), Teitelbaum J. stated at page 5389:
After the procedural issue was raised, I decided that notwithstanding that the onus to prove misrepresentation is on the Crown for the 1976 and 1977 taxation years, the taxpayer who has the onus to prove an assessment for income tax invalid must proceed first. The issue of “statute-barred” is a secondary issue.
[15] That Court too found that a reassessment under subsection 152(8) is deemed valid notwithstanding an error, defect or omission until the taxpayer proves he does not owe the tax.
[16] It should be noted that Rouleau J., in Can-Am Realty Limited v. The Queen, 94 DTC 6069 (F.C.T.D.), at page 6070 relied on Re Wellington Taylor and Re Levy as correct statements of the law and the Federal Court of Appeal in Pompa v. Canada, 94 DTC 6630 (F.C.A.) confirmed same in paragraph 17 wherein it stated:
17 … the applicable rules as to the Minister’s burden of proof in cases of a penalty and when s. 163 of the Income Tax Act is in question were correctly stated by Rouleau J. in The Queen v. Taylor, 84 D.T.C. 6459, …”
[17] The above cases confirm in my view that due to the validity of assessments of the Minister under subsection 152(8) of the Act, the main issue in all such appeals also containing issues of statute-barred years and penalties will still be whether the underlying assessment is valid. It should be noted that assessments for statute-barred years where the Minister relies on subsection 152(4) are assessments “under this part” pursuant to subsection 152(8), and accordingly, are deemed valid until found otherwise, as reasoned by Teitelbaum J. in Re Levy above.
[18] Notwithstanding that a taxpayer may fail to meet the onus to rebut the assumptions of the Minister in a section 152 assessment, the possibility is still open that due to the onus on the Minister under subsections 152(4) and (4.01) or subsection 163(3) that the taxpayer may still succeed in not having a statute‑barred year opened for reassessment or not being assessed the gross negligence penalties. The Court still has a duty to decide whether the Minister has met his onus in both situations. Moreover, the onus with respect to the underlying assessment in a section 152 assessment is a shifting onus as made clear in Dick v. Canada (Minister of National Revenue – M.N.R.), [1991] 2 C.T.C. 2034, 91 DTC 811, also a case of a net worth assessment with no admission as to unreported income, where it may fall to the Crown to prove his assumptions where the Appellant can provide evidence regarding a source of funds different than the Crown’s.
[19] I should also make reference to the case of Farm Business Consultants Inc. v. Her Majesty the Queen, 95 DTC 200, brought to the Court’s attention by the Respondent, and in which former Chief Justice Bowman, after considering Re Wellington Taylor and Re Levy above, found for the Appellant and ordered the Respondent to proceed with his case first. As Counsel for the Respondent noted, that case is also distinguishable from the case at hand, and from the above cases themselves in that there was no issue as to unreported income in that case, but rather a dispute as to the value of goodwill. Moreover, the former Chief Justice Bowman relied on Re Maurice Taylor, which as stated above was a case that dealt only with the issue of misrepresentation where no competing onus regarding the underlying assessment was in issue and which was found in Re Wellington Taylor and Re Levy to not be applicable in cases where each of the parties has a different onus to deal with.
[20] The Appellant’s secondary argument for the motion brought was that practicalities would favour the Crown proceeding first. The Appellant argued firstly, to know the Crown’s evidence first would assist the Appellant in knowing the case it has to meet rather than simply try to prove a negative; secondly, would expedite the case since the Appellant, if successful, would not need to call all its witnesses; and thirdly, would leave the option open to exercise a motion of non-suit if the Crown failed to establish evidence of misrepresentation.
[21] In the case at hand, the source of income alleged by the Respondent was pleaded. In fact, on a motion by the Appellant before Justice Webb of this Court, the Respondent was ordered to amend its Reply to identify such source. Moreover, the parties have had discoveries in this case. I do not accept that the Appellant does not know the case it must meet.
[22] I also do not consider this to be a case where the Appellant must, as stated by her counsel, prove a negative. The Appellant must demolish the assumptions of the Respondent, particularly that the Appellant received employment income, by cash or cheque, being the source of income for the entire amount of the alleged unreported income. The Appellant need only establish, on the balance of probabilities, that she received such funds from other non-taxable sources or that there were no sources for all or part of the funds. The onus, as earlier referred to in Re Dick, then shifts to the Crown to prove otherwise. The Appellant has in fact pleaded that the sources of the income were loans or gifts, or property that did not belong to her or incorrect assumptions on personal expenditures by the Crown. I do not see this as having to prove a negative in the sense argued.
[23] From a practical perspective, the Court must hear all the evidence dealing with the issue of income for the statute-barred year in order to determine both the amount and source of income for the 2002 year and whether the issue becomes redundant or not and to determine whether the different onuses were met. It is, as referred to in the above cases, still possible that the Appellant may not satisfy its onus to rebut the assumptions on which the reassessments were made, but still not be liable for penalties or still have the statute-barred year reassessment vacated. This Court has a duty to and is able to deal with the different onuses in its judgment.
[24] As for the Appellant’s concern that she would be deprived of her ability to motion for non-suit if the Crown is not required to go first, an Appellant is always free to motion before submitting any evidence if it feels appropriate having regard to the pleadings or evidence on discovery or after it submits its evidence. In any event, such issue would have existed in any of the above cases cited which dealt with the issue of who goes first and were decided despite such expressed potential procedural matter.
[25] In Lennox v. Arbor Memorial Services Inc., (2001) 56 O.R. (3d) 795 (C.A.), 2001 O.J. No. 4725 (C.A.) (QL), the Court held at paragraph 13 that:
13. A trial judge is expected and entitled to take reasonable steps to ensure that the issues are clear, that evidence is presented in an organized and efficient manner and that the trial runs smoothly and proceeds in a timely manner. …
[26] All the issues in this case are, to put it simply, interconnected and in my view the most efficient and fairest way to deal with these appeals is to have the Appellant follow the ordinary rules of the Tax Court of Canada and go first and deal with the primary issue of the underlying assessment.
2001 and 2002 Reassessments:
Burden of Proof
[27] As I stated above and as confirmed by the Supreme Court of Canada in Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, relying on its decision in Johnston v. Canada (Minister of National Revenue – M.N.R.), [1948] S.C.R. 486, the onus is on the Appellant to demolish all the exact assumptions made by the Minister in supporting the reassessments and no more and such initial onus is met where the Appellant makes out at least a prima facie case. As the Appellant pointed out in F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41, the Supreme Court of Canada confirmed that there is only one standard of proof in civil cases and that is proof on a balance of probabilities, the standard of proof necessary to establish a prima facie case. In paragraph 49 of such decision, Justice Rothstein went on to say:
49 … In all civil cases, the trial judge must scrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred.
[28] As confirmed in paragraph 94 of Re Hickman Motors above, the onus is a shifting onus:
94 Where the Minister’s assumptions have been “demolished” by the appellant, “the onus shifts to the Minister to rebut the prima facie case” made out by the appellant and to prove the assumptions: …
[29] There is no dispute between the parties as to the application of the above law pertaining to the burden and standard of proof as relates to the 2002 taxation year. With respect to the 2001 taxation year however, the Respondent takes the position that in light of the fact the onus is on the Respondent to prove a misrepresentation by the Appellant in order to meet the requirements of subsection 152(4) in order to assess outside the normal assessment period, the onus is on the Respondent first to prove the Appellant’s source of income was from employment as pleaded and not on the Appellant to demolish the assumptions of the Minister. There is no dispute the 2001 reassessment was outside the normal reassessment period defined in subsection 152(3.1) of the Act.
[30] With respect to the Appellant, to some extent, this goes back to the same chicken and egg issue the Appellant raised on the preliminary motion at the start of this hearing for which my reasons were given above, as well as before Justice Margeson on a pre-trial motion. For my same reasons above, it is not necessary that I first must find a misrepresentation as proven by the Respondent before considering the validity of the assessment based on a net worth analysis pursuant to subsection 152(7) of the Act, from which the Minister derives his power to assess on a net worth basis and which is not disputed by the parties. As stated in my earlier reasons dealing with the motion brought at the beginning of this trial, subsection 152(8) presumes that an assessment, including one under subsection 152(7) which is under the same part, is deemed to be valid and binding notwithstanding any error, defect or omission in the assessment until found otherwise and as per Re Wellington and Re Levy above, the issue of statute‑barred is a secondary issue to the first issue of whether the assessment is valid, hence I am not required to address the statute-barred issue first as a matter of order as earlier explained.
[31] As to whether the onus shifts when dealing with a statute-barred year, I am satisfied the onus is on the Appellant to demolish the assumptions made by the Minister, even in cases where the net worth assessment is the basis for calculating the assessment. This has been confirmed by the Federal Court of Appeal in Lacroix v. Canada, 2008 FCA 241, 2009 DTC 5029 (F.C.A.), where Pelletier J.A., who relied on Re Hickman Motors and Re Johnson above, stated in paragraph 18 thereof:
18 In my view, this jurisprudence does not establish a rule to the effect that the Minister may not use the net worth method to add unreported income to a taxpayer’s income unless the Minister can establish the source of the unreported income. Our tax collection system is based on the taxpayer’s self-reporting of the income he or she has earned during a taxation year. Should the Minister doubt, for whatever reason, the accuracy of the taxpayer’s return, the Minister may conduct an investigation in such manner as deemed necessary. The Minister may then make a reassessment. If the taxpayer appeals the reassessment, the Minister does not have to prove the facts giving rise to the reassessment. In the reply to the notice of appeal, the Minister need only set out the presumptions of fact used in the reassessment. The onus is on the taxpayer, who knows everything there is to know about his or her own affairs, to “demolish” the Minister’s assumptions; otherwise, they are presumed to be true.
[32] The Court in Re Lacroix above adopted the reasoning of Létourneau J.A. of the Federal Court of Appeal in Molenaar v. Canada, 2004 FCA 349, 2005 DTC 5307 (F.C.A.) where for statute-barred years, counsel for the Appellant submitted that in a net worth method assessment the Minister should have the burden of proving the source of income was from taxable income. Létourneau J.A. responded to the position in paragraphs 2 to 4 of his judgment as follows:
2 … In other words, in order to limit the application of the net worth method, there would be a presumption in the taxpayer’s favour that unreported and unexplained “cash in” comes from non-taxable income.
3 With respect, such a presumption would make the net worth method useless and inapplicable for all practical purposes. Additionally, it would undermine the very basis of our taxation system, which is founded on voluntary reporting, since it would amount to favouring a crafty taxpayer who is best able, most effectively and for the longest time, to conceal his or her income and his or her failure to report it.
4 Once the Ministère establishes on the basis of reliable information that there is a discrepancy, and a substantial one in the case at bar, between a taxpayer’s assets and his expenses, and that discrepancy continues to be unexplained and inexplicable, the Ministère has discharged its burden of proof. It is then for the taxpayer to identify the source of his income and show that it is not taxable.
[33] This approach was also considered by the Federal Court of Appeal in Hsu v. Canada, 2001 FCA 240, 2001 DTC 5459 (F.C.A.) where Desjardins J.A. in paragraph 29 states:
29 … The net worth method is premised on the assumption that an appreciation of a taxpayer’s wealth over a period of time can be imputed as income for that period unless the taxpayer demonstrates otherwise (Bigayan, supra, at 1619). Its purpose is to relieve the Minister of his ordinary burden of proving a taxable source of income. The Minister is only required to show that the taxpayer’s net worth has increased between two points in time. In other words, a net worth assessment is not concerned with identifying the source or nature of the taxpayer’s appreciation in wealth. Once an increase is demonstrated, the onus lay entirely with the taxpayer to separate his or her taxable income from gains resulting from non-taxable sources. …
[34] There is ample evidence and admission by both parties that the Minister established the discrepancy in net worth between the years in issue through examination and use of the information provided by the Appellant and her bankers under Requests for Information issued by the Minister, all of which are clearly reliable information for the purposes of so doing.
[35] In order to determine whether the Appellant successfully discharges her onus, the Court in Re Hsu, at paragraph 35, effectively explained that this burden can be satisfied in three ways:
35 …
(a) challenging the Minister’s allegation that he did assume those facts;
(b) assuming the onus of showing that one or more of the assumptions were wrong; and
(c) contending that, even if the assumptions were justified, they do not of themselves support the assessment.
Facts:
[36] As stated above, the Respondent takes the position the Appellant was an employee of Pirate Satellite Receivers and, as assumed by the Minister, received $220,595 in 2001 and $135,488 in 2002 as remuneration for her work by cash or cheque, either directly or indirectly through payments made to her parents. The aforesaid figures in the Minister’s assumptions are based on the net worth analysis of the Minister, and according to the audit report and the testimony of the Respondent’s witness, the audit officer, it was unexplained deposits into the Appellant’s bank accounts of $76,640.50 in 2001 and $10,969.52 in 2002 discovered on the bank deposit analysis conducted by the Minister that gave rise to the Minister proceeding with a net worth analysis.
[37] It should be noted, as will be examined later, that the Minister conceded that with respect to the 2002 unexplained bank deposits of $10,969.52, $9,900 was a money order representing a wedding gift, and accordingly there seems little to explain in respect to the 2002 taxation year. There is also evidence of cash gifts from the Appellant’s parents that would certainly account for the difference and there was absolutely no evidence whatsoever linking the balance to any amount received from Pirate Satellite Receivers. In fact, the business ceased operating in early 2002.
[38] With respect to the 2001 year, deposits totalling $23,475 were deposit activities into a TD Canada Trust bank account No. 526177 which was in the name of the Appellant’s mother and the Appellant jointly.
[39] The position of the Respondent was that these funds belonged to the Appellant and not to her mother and hence could not be a gift or loan. The Respondent based its position on the fact there were three unexplained cash deposits into that bank account by the Appellant’s fiancé to the Appellant’s mother, totalling $15,000 as alluded to earlier and that there were further deposits and almost immediate withdrawals by the Appellant both totalling $8,475, for a total of $23,475. In addition, there were two transfers of $30,000 and $35,000 respectively for a total of $65,000 from the Appellant’s parents’ joint bank account to this bank account, which the Respondent suggested were initially “parked” into the parents’ joint bank account since the Appellant failed to prove the parent’s initial source of such funds.
[40] The evidence was that this account was opened in 1994 and was in joint names only for estate planning reasons, to enable the Appellant to assist her mother with financial matters and allow ownership to pass on her death. The Appellant tendered evidence that her T4s were issued in at least five years to her mother and that her mother’s SIN appeared on all T4s for all years except one. She also submitted evidence her mother claimed all interest income from this account when filing taxes. Moreover, the evidence is that the majority of funds in this account, namely the $65,000 representing the two transfers above, came from a different bank account owned by the Appellant’s parents jointly and I fail to see why the Appellant should have to explain her parents’ source of funds in this regard although a satisfactory explanation was provided in paragraph 65 hereof. There is evidence the Appellant’s fiancé gave the Appellant’s mother funds for the $5,000 deposits which the Respondent contends is proof it was not the mother’s account. However, this was explained by the Appellant as contributions her fiancé wished to make towards the purchase of the lot which was to be funded by her parents and I see no reason why this is not a credible explanation in the circumstances of two young people about to get married and build their home. When one considers that the Respondent’s pleadings themselves evidence that the Appellant’s fiancé earned $160,966.39 in 2001, it certainly seems credible he would have been in a position to make a contribution towards the lot. As for the deposits made into the account totalling $8,475 made by the Appellant, the Appellant explained that these funds were deposited in error into the joint account by the bank and immediately taken out of the account and deposited into her own personal account on discovery of the error, almost immediately. The Appellant has explained the source of funds in the mother’s account and the questionable deposits, if one can even call them that, to the satisfaction of this Court and the Respondent gave no evidence whatsoever to contradict or disprove these explanations. In my view, the Appellant has explained to this Court’s satisfaction that this account belonged to her mother and satisfactorily explained the so-called unexplained deposits.
[41] As for the balance of the deposits, the sum of $36,970 represents deposits into the Appellant’s TD Canada Trust account No. 531661 and the sum of $16,195.50 into the Appellant’s CIBC account No. 67229169.
[42] Dealing with the TD Canada Trust account, the deposit analysis revealed the following deposits into the Appellant’s bank account in 2001:
April 25 $9,000 Cheque issued by Pirate Satellite Receivers
April 27 $3,000 Cash deposit
June 9 $9,500 Cheque issued by Pirate Satellite Receivers
Sept. 18 $1,820 Cash deposit
Nov. 5 $13,100 Cash deposit
[43] Dealing with the CIBC account, the deposit analysis revealed the following deposits into the Appellant’s bank account in 2001:
$4,800 Total cash deposits in January deposited on three separate days; and
$11,395.50 Cheque from Pirate Satellite Receivers
[44] The Appellant’s explanation for these deposits was as follows.
[45] The three cheques received from Pirate Satellite Receivers totalling $29,895.50 together with all the cash deposits, with the exception of $7,920 of the November 5, 2001 cash deposit which represented a deposit of her cash engagement shower gifts to be discussed later, were contributions by her fiancé for her to apply towards their future expenditures in connection with creating their new home together as a married couple including the purchase of furniture and other home expenses. Her fiancé was the owner of the business and chose to have cheques issued from it to her. Frankly, the Respondent admits her fiancé was the owner of the business, first in partnership with a Mr. P. Reid, then as sole proprietor and later as sole shareholder after October 2001 and further admitted he had taxable income of $160,966.39 in 2001 as earlier stated. I find nothing sinister in such transactions and find the Appellant’s explanation credible in the circumstances of their upcoming wedding. The Respondent led no evidence whatsoever, notwithstanding its admission that the fiancé was also audited, to suggest these payments were to her from a taxable source but instead admits her fiancé had sufficient income from his taxable source to be able to give the money out. Moreover, the Respondent could have made inquiries of the former partner, P. Reid, by way of Request for Information, but decided not to do so, passing on an opportunity to prove otherwise once the Appellant satisfied her onus.
[46] I also note that these deposits were not made over the length of the year on any periodic payment basis nor in identical amounts to suggest payment of wages or salary and moreover accept the Appellant’s testimony that she was employed full-time as a registered nurse with the Windsor-Essex County Health Unit. I do not accept that just because the Appellant visited her fiancé at his place of business from time to time and ran errands such as picking up lunch for her fiancé on occasions or even that she assisted in handing out programmed cards during busy times on three occasions to be evidence of employment with Pirate Satellite Receivers as alleged by the Respondent, and in fact found the evidence of the Appellant and her friend and co-worker at the Windsor-Essex County Health Unit that she was computer illiterate and had no time to work at her fiancé’s business very credible. Moreover, the contention of the Respondent that the Appellant knew the business hours of operation, the names of the other employees, the name of the person who cleaned the premises, who handled the cash payments and similar general knowledge of the business suggesting she was an employee is simply not sufficient evidence of such status and frankly is more consistent with information any casual observer or visitor to the business premises could easily absorb.
[47] I also note that the three cheques and several deposits above alluded to are the only payments received by the Appellant that could be said to link her to her fiancé’s place of business and total less than 25% of the alleged wages and salaries presumed by the Respondent to have been paid to the Appellant and all explained by the Appellant as not relating to same.
[48] In the case at hand, I find that the Appellant met the onus of proving on the balance of probabilities that she was not in the employment of Pirate Satellite Receivers nor received any wages or salaries from it, which in and of itself would, in my view, demolish the assumptions of the Minister who assumed employment income to be the sole source of funding the discrepancies in her net worth. However, she also provided evidence, beyond a balance of probabilities, in establishing that she received such funds or assets from other non-taxable sources, which as adjustments to the Minister’s assessment would in my view render it bare and unsupportable. The Appellant’s evidence was credible and logical and the Respondent led no evidence to prove otherwise.
[49] The Supreme Court of Canada in Re Hickman Motors, made it clear that where the Income Tax Act does not require supporting documentation, credible oral evidence from a taxpayer is sufficient notwithstanding the absence of records. I do not accept the Respondent’s argument that the Appellant, in her alleged role as employee, should be the one who should produce documentary employment evidence. The Respondent pleaded she was an employee only and not a director, shareholder, officer or partner of the business, so why would it be her obligation to keep any such records? In Re Hickman Motors, the Court also said at paragraph 48:
48 … Moreover, the respondent adduced no evidence whatsoever that could be weighed against that of the appellant. … Therefore, the appellant’s evidence must stand, …
And in paragraph 93:
93 … The law is settled that unchallenged and uncontradicted evidence “demolishes” the Minister’s assumptions: …
[50] A similar sentiment was echoed in Zink v. Canada (Minister of National Revenue – M.N.R.), 87 DTC 652, quoted by the Supreme Court of Canada in Re Hickman Motors above, where the Court held, in relation to Mr. Zink’s oral evidence at paragraph 3:
3 … his statement under oath, … should suffice to favour his appeal, unless that statement is appropriately challenged and refuted by the Minister. …
[51] It should be noted that in Re Zink above, the Court reasoned that the evidence of the Appellant should be accepted even where there are large gaps in logic, chronology and substance, where the Minister fails to explain why the amounts in issue are assessed as the type of income pleaded.
[52] In the case at hand, I find no large gaps in logic, chronology or substance. The Appellant lead direct evidence as to the source of the unexplained deposits that led to the net worth analysis and in my view proved well beyond a balance of probabilities that she was not an employee and received no funds from employment.
[53] As mentioned above, the Appellant has the onus to demolish each of the Minister’s assumptions of fact. It is clear she has clearly demolished items 13(a), (f), (g), (h) and (i). I would also find that since the assumption in 13(m) refers to “the understated amounts”, which reference payments respectively for work, that she has in fact demolished that assumption as well. However, the Respondent argued that even if the Minister pleads a source of funds, it was not really required to, based on the reasoning of the Lacroix, Molenaar and Hsu cases relied on by the Respondent. I would agree that if a source of income was not pleaded, the Minister could rely on the discrepancy in income pleaded as in those cases, but in this case the only source of funds identified were income from employment so it seems redundant to move to a detailed analysis of the net worth assessment when the underlying basis for it has been demolished.
[54] Notwithstanding such finding however, in the event I am wrong, I will also deal with the various adjustments resulting from the non-taxable sources or non‑sources of income herein, many of which were conceded by the Minister during the course of the trial in relation to the net worth assessment and the assumptions of the Minister in relation thereto:
1. Wedding Gifts
[55] The Appellant claimed that she received wedding gifts from her wedding on August 10, 2002 totalling $77,725 from gifts of cash and money orders which the Minister disputed on the basis that no evidence of bank deposits was provided for same. The Minister only allowed her credit for $7,484.99 as these represented actual cheques received by the Appellant and deposited into her account; which amount was not included in the $77,725 figure still in dispute.
[56] The evidence of the Appellant was that there were over 400 guests at her wedding, most of whom gave cash gifts. A list of the donors was provided to the Court setting out the contributions of the guests. The evidence of the Appellant and four other witnesses corroborated