Kang v. The Queen

Kang v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2015-01-27
Neutral citation
2015 TCC 18
File numbers
2010-3913(IT)G, 2010-3915(IT)G, 2010-3917(IT)G
Judges and Taxing Officers
Alain Tardif
Subjects
Income Tax Act
Decision Content
Dockets: 2010-3913(IT)G
2010-3915(IT)G
2010-3917(IT)G
BETWEEN:
CHHANG ANG KANG,
UY KEAK TANG,
BIJOUTERIE YONG MEER INC.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
Appeals heard on common evidence on May 30 and May 31, 2013 (by conference call), and from January 20 to January 24, 2014, at Montréal, Quebec.
Before: The Honourable Justice Alain Tardif
Appearances:
Counsel for the appellants:
Jean-Francois Poulin
Marie-Hélène Tremblay
Counsel for the respondent:
Vlad Zolia
JUDGMENT
The appeals from the assessments made under the Income Tax Act are allowed in that the files are to be reassessed on the basis that the unreported income is established as follows:
(a) The appellant Bijouterie Yong Meer inc. (docket 2010-3917(IT)G), for the fiscal year ended March 31, 2007: $1,357,969;
(b) The appellant Tang (docket 2010-3915(IT)G), for the 2007 taxation year: $893,918.50;
(c) The appellant Kang (docket 2010-3913(IT)G), for the 2007 taxation year: $817,097.50.
The penalties are justified and are consequently confirmed; they must however be amended based on the amounts established as unreported.
Costs in favour of the respondent, to be established, however, on the basis of two dockets only, i.e. costs equivalent to a single docket for the two appellants, Chhang Ang Kang (2010-3913(IT)G) and Uy Keak Tang (2010-3915(IT)G), and a second with respect to the docket of the corporate appellant, Bijouterie Yong Meer Inc. (2010-3917(IT)G).
Signed at Ottawa, Canada, this 27th day of January, 2015.
“Alain Tardif”
Tardif J.
Translation certified true
On this 1st day of October 2015
François Brunet, Revisor
Reference: 2015 TCC 18
Date: 20150127
Dockets: 2010-3913(IT)G
2010-3915(IT)G
2010-3917(IT)G
BETWEEN:
CHHANG ANG KANG,
UY KEAK TANG,
BIJOUTERIE YONG MEER INC.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This matter involves three appeals that were heard on common evidence at the request of the parties. The facts that gave rise to the notices of assessment are relatively simple and few in number.
[2] The two appellants are from Cambodia. They both arrived in Canada in the early 1980s; they immigrated to Canada because the war in their country of origin was threatening their safety.
[3] When they arrived in Canada, neither of them had any knowledge of Canadian language or culture. They settled in the Greater Montréal Area with their respective families on different dates.
[4] They were hard‑working and immersed themselves completely in low‑paying work. Since they were very family-oriented and wanted to work as many hours as possible, they quickly accumulated patrimonies that enabled them to improve their circumstances considerably, notably by purchasing a home.
[5] In addition to these qualities, the appellants and their spouses proved to be daring and determined people by quickly becoming entrepreneurs themselves in relatively difficult economic activity sectors, namely, making various types of apparel. Later, as they became impatient about the growth of their patrimony, they made investments by operating highly profitable but illegal businesses, i.e. money laundering through currency exchanges.
[6] It is relevant to provide a chronology of their time in Canada from their arrival to 2007, the year to which pertain the assessments that are now under appeal.
1980 to 2006 [7] Mr. Kang immigrated to Canada with his family on January 16, 1980.
[8] Mr. Tang immigrated to Canada in October 1980.
[9] Mr. Tang’s spouse, Shu Xian Zhang, joined her spouse in 1987.
[10] In 1984, just four years after arriving in Canada, a company called Création Yong Ang Meer was created. This company, which manufactured apparel, was operated until 1989.
[11] In 1989, the company 171283 Canada inc. was created; the company’s name was Mode NSTD and its business essentially consisted of continuing the manufacturing operations of Création Yong Ang Meer, which had been established in 1984. This company was in operation from 1989 to 1996.
[12] On January 28, 1997, the appellants Kang and Tang created a new company called Bijouterie Yong Meer Inc. (Jewellery Store), which was a jewellery business, namely, diamonds.
[13] In the context of creating this new legal entity, the appellants each invested $120,000 from their respective savings.
[14] Part of the premises of the Jewellery Store was quickly set up as a currency exchange to satisfy Mr. Tang’s interest in this type of economic activity, which is highly lucrative but illegal when the transactions involve money laundering.
[15] Serious disagreements quickly arose between the appellants, the only two shareholders of the Jewellery Store; the entire situation resulted in a break‑up such that the association lasted just over three months.
[16] On May 15, 1997, a few months after the creation of the company that was operating the Jewellery Store, Mr. Tang created a new legal entity, 3374335 Canada inc., known and identified as BCC, whose business essentially consisted of operating a currency exchange. At the time of the break‑up, Mr. Tang had recovered the $120,000 he had invested in the Jewellery Store.
[17] Between 1997 and 2002, the appellants Tang and Kang operated the business in which they held all of the shares, i.e. the Jewellery Store in the case of Mr. Kang and the currency exchange in the case of Mr. Tang, under the same roof and at the same address, 6951 St-Denis Street in Montréal.
[18] In 2002, the disagreement resurfaced; Mr. Tang therefore decided to continue the activities of his currency exchange on Jean-Talon Street, still operating under the company name Saint-Denis BCC.
[19] Following Mr. Tang’s departure in 2002, Mr. Kang in turn changed the business operations of the Jewellery Store by adding a currency exchange, such that as of 2002, the appellants Tang and Kang each owned a currency exchange; Mr. Kang’s was located on St-Denis Street while Mr. Tang’s was located on Jean‑Talon Street.
[20] Between 2002 and 2006, Messrs. Tang and Kang each operated their own business and did so primarily as the owner of a currency exchange.
[21] In 2006, Mr. Kang informed his brother-in-law, Mr. Tang, that he had decided to retire. As luck would have it, since the lease on Mr. Tang’s currency exchange had just expired, the appellants quickly reached an agreement, and Mr. Tang moved his currency exchange located on Jean-Talon Street to the Jewellery Store premises on St-Denis Street, where there already was a currency exchange.
[22] Mr. Tang purchased the Jewellery Store, which had primarily become a currency exchange, for $300,000. Mr. Kang, the vendor of the Jewellery Store, stated that at the time there was $300,000 in cash hidden on the premises; for his part, Mr. Tang, the purchaser, said that he moved between $300,000 and $350,000 in cash to the Jewellery Store from his exchange on Jean-Talon or from Saint‑Denis BCC.
[23] Following a major investigation by the Service de police de la Ville de Montréal (SPVM) aimed at compiling a list of all currency exchanges likely to be involved in the illegal business of money laundering, the currency exchange on the Jewellery Store premises was targeted as one business that was potentially involved in money laundering in Montréal, because the police had seen a drug trafficker going there periodically.
[24] After noting that this was possibly an illegal operation that was at least partially involved in money laundering, the SPVM mandated an undercover agent to conduct a more detailed investigation.
[25] The officer went several times to exchange currency. In general, the amounts increased from time to time.
[26] At a particular point in time, during a large transaction, the officer told the appellants that he was trying to recruit clients to buy drugs, which would effectively increase his sales and his exchange operations. The scenario was presented as being very advantageous for both parties; the appellants did not express any disapproval; however, they did not provide the name of any potential client.
[27] On the basis of this offer and the solicitation for new clients looking for drugs and in the light of the tacit or complete indifference regarding the source of the funds that the appellants agreed to exchange, the authorities at the SPVM concluded that their suspicions were justified and that the business was actually a currency exchange involved in the illegal business of money laundering.
[28] The SPVM then set up a large‑scale police operation to collect and seize anything that could be used to demonstrate the validity of potential charges under the Criminal Code of Canada for money laundering.
[29] On April 17, 2007, the officer went to the appellants’ place of business on St. Denis Street to exchange Can$800,000, corresponding to approximately US$690,000.
[30] Mr. Tang stated that he needed a deposit of $20,000 and about three hours to get that amount of money in US$100 bills.
[31] The officer left the premises, and a few minutes later the appellants also left to go to their respective personal residences.
[32] Since the appellants were being followed, police authorities were able to very accurately establish the time, the route taken and the duration of each person's visit to their respective homes.
[33] Mr. Tang left his home holding a relatively small plastic bag, while Mr. Kang was not holding anything when he left his home. They both returned to the Jewellery Store, and the undercover officer arrived shortly thereafter to finalize the exchange of Can$800,000 for approximately US$690,000.
[34] After the transaction was completed, and once the officer had left the premises with the American currency from the Jewellery Store where the currency exchange was located, a large number of police officers descended on the store and proceeded to seize everything that appeared to them to be relevant for filing possible criminal charges.
[35] During these searches on April 17, 2007, large amounts of cash were seized as per the details provided below:
A - Residence of Mr. Kang
Can$339,500
US$39,530
TOTAL
Can$339,500
Can$44,645
Can$384,145
B – Residence of Mr. Tang
Can$450,000
US$52,600
TOTAL
Can$450,000
Can$59,406
Can$509,406
C – On the premises of Bijouterie Yong Meer inc.
Can$61,840
US$703,422
EUROS 18,700
TOTAL
Can$61,840
Can$794,445
Can$28,656
Can$884,941
Can$778,902
Can$1,663,843
[36] The amount of $884,941 does not include the Can$800,000 that the undercover officer gave to the appellants.
[37] However, the consideration for the undercover officer’s transaction, i.e. US$689,660, equivalent to Can$778,902, was also seized.
[38] Consequently, the total amount seized from the Jewellery Store amounted to $778,902 plus $884,941, which totaled $1,663,843.
[39] In February 2009, i.e. almost two years later, the SPVM informed the Canada Revenue Agency (CRA) about the cash that was seized from the three appellants.
[40] An auditor, Micheline Bélanger, was then mandated to conduct the necessary audits in order to determine (a) the source of these substantial amounts of money and (b) whether reassessments should be made.
[41] As part of her investigation, Ms. Bélanger tried to obtain the maximum information and number of documents that would enable her to complete her task properly and diligently.
[42] Other than learning from the appellants that the money seized came exclusively from the accumulation of personal savings and that the money seized at the Jewellery Store represented operating revenue, she was not able to obtain anything that would enable her to do the work she would have liked to do under the circumstances.
[43] The Minister therefore taxed Mr. Tang on the amounts seized at his home, i.e. $509,406, as well as on part of the funds seized at the Jewellery Store, i.e. $428,142.50.
[44] The Minister taxed Mr. Kang on the amounts seized at his home, i.e. $384,145, as well as on part of the funds seized at the Jewellery Store, i.e. $428,142.50.
[45] The Minister taxed the Jewellery Store on the amounts seized at its place of business.
[46] The Minister taxed the appellants for the 2007 taxation year because earlier years did not offer any explanation for the accumulation of these amounts. Following criminal proceedings with respect to money laundering operations, Mr. Tang pleaded guilty to the charge of “money laundering” and agreed to the confiscation of US$422,053 by the authorities.
OWNERSHIP OF AMOUNT SEIZED AT MR. KANG’S HOME– $384,145 [47] Mr. Kang began working in Canada in 1981. The evidence and the testimony provided by Mr. Kang lead to the conclusion that he arrived in Canada without any assets and did not receive any lottery or casino winnings, gifts or inheritance.
[48] Mr. Kang’s sole source of income was his salary. Mr. Kang did not receive any dividends.
[49] In his notice of objection, Mr. Kang initially claimed that the funds seized at his home belonged to the Jewellery Store. He later claimed instead that they represented savings he had accumulated since his arrival in Canada. He therefore acknowledged that the funds belonged to him.
[50] During the hearing, the respondent explained that it was impossible for Mr. Kang to have accumulated $384,145 since his arrival in Canada.
[51] Mr. Kang and his wife had after-tax cumulative income of $1,010,566 from the time of their arrival in Canada until 2006. This amount represents the income available to the Kangs without consideration of any expenses.
[52] Assuming the minimum amount of expenses established by Statistics Canada for two persons (without considering Mr. Kang’s two daughters), the balance available to accumulate assets was $590,047.
[53] The couple would therefore have had $590,047. However, their expenses amounted to $801,781 (according to the accumulated assets and investments made). At first glance, it does not make any sense that Mr. Kang could have spent more than he earned. When the amount seized at his home is added, there is a shortfall of $595,879.
[54] Moreover, Mr. Kang testified that he had made several trips to Cambodia or China with his wife between 1980 and 2006. The respondent did not consider these types of expenses (which would have increased the shortfall).
[55] Therefore, the income earned and declared by Mr. Kang does not explain or enable us to understand how Mr. Kang could have saved $384,145, which was the amount seized at his home.
OWNERSHIP OF AMOUNT SEIZED AT MR. TANG’S HOME–$509,406 [56] Mr. Tang arrived in Canada in 1980 with no assets. The evidence and the testimony provided by Mr. Tang showed that he did not receive any lottery or casino winnings, gifts or inheritance.
[57] Mr. Tang stated several times that the amounts seized at his home were savings. During his testimony, he also stated that he did not keep any funds belonging to the company in his home.
[58] At the hearing, the respondent explained that it was impossible for Mr. Tang to have accumulated $509,406 since arriving in Canada.
[59] Mr. Tang and his wife had after-tax cumulative income of $889,016 from the time of their arrival in Canada until 2006. This amount represents the income reported and available to the couple without consideration of any type of expense.
[60] Considering the minimum amount of expenses established by Statistics Canada, the balance available to accumulate assets was $460,637.
[61] The Tangs would therefore have had $460,637 but had expenses amounting to $570,128 (according to the accumulated assets and investments made). It is therefore impossible to explain how Mr. Tang could have spent more than he earned. The shortfall amounts to $109,491.
[62] When the amount seized at Mr. Tang’s home is added, the shortfall is $618,897. It is therefore completely implausible that Mr. Tang could have saved $509,406.
[63] Moreover, Ms. Bélanger, the auditor, explained that she had not only taken into consideration statistics that were advantageous to Messrs. Tang and Kang but that she had also reduced the amount established by the statistics by 20% to reflect the very modest lifestyle of the appellants, according to what they had told her.
OWNERSHIP OF AMOUNTS SEIZED AT THE JEWELLERY STORE – $1,663,843 [64] Several explanations were provided to justify the source of the funds seized at the Jewellery Store.
[65] The initial notice of appeal of the Jewellery Store referred to three sources: amounts accumulated since the incorporation in 1997; amounts advanced by the shareholders (but Messrs. Kang and Tang did not mention this in their notice of appeal) and amounts from Saint-Denis BCC (3374335 Canada Inc.).
[66] The Jewellery Store’s amended notice of appeal refers to amounts from loans obtained from unidentified third parties who did not testify and who could not be properly identified. Even more mysteriously, these three loans, totalling US$800,000, materialized for the first time on January 6 2012; I believe it is important to remember that the seizures occurred on April 17, 2007.
[67] At the hearing, the appellants stated that only $300,000 of the amounts seized at the Jewellery Store actually belonged to the Jewellery Store. Based on their claims, approximately $300,000 came from Saint-Denis BCC or 3374335 Canada inc., and $800,000 came from loans from three unknown third parties.
Revenue of the Jewellery Store [68] From 2005 to 2007, the Jewellery Store reported the following revenue:
2005
Total Revenue
Gross Profit
Net Profit
$131,178
$66,639
$35,672
2006
Total Revenue
Gross Profit
Net Profit
$117,451
$30,143
$2,090
2007
Total Revenue
Gross Profit
Net Profit
$98,926
$16,020
$-17 097
[69] It is completely impossible that the company identified as the Jewellery Store could have accumulated $1,000,000. Even accumulating $300,000 was impossible in view of the revenue reported for the 2005, 2006 and 2007 taxation years. The company barely had a net profit. The complete lack of consistency is neither a perception nor an interpretation; it stems primarily from the explanations provided by the appellants themselves and their accountant.
[70] The evidence shows that the books and statements were not maintained or prepared in a diligent and serious manner. For example, the salaries paid by the Jewellery Store do not correspond to the salaries received by Messrs. Tang and Kang, specifically for 2007:
Salaries reported by the Jewellery Store
Salary received by Tang
Salary received by Kang
2005
$61,954
-
$62,400
2006
$67,413
-
$62,400
2007
$66,429
$0
$15,600
[71] Moreover, Messrs. Tang and Kang did not receive any dividends from 2005 to 2007. Most of the relevant and even essential documents relating to the management of the company that operated the Jewellery Store is inconsistent, confusing and incomplete; one thing is certain: neither the documents, nor the explanations are reliable or credible.
[72] At the time of the transaction with the undercover officer in 2007, the cash on hand, according to the balance sheet for the Jewellery Store, was $342,224. However, the respondent took this cash on hand amount into consideration to make the necessary adjustments to the assessments. The amount of the assessment for the Jewellery Store was therefore reduced accordingly.
[73] However, the Jewellery Store’s revenue and books fail to explain how $1,663,843 could have been accumulated.
[74] Since the appellants maintain that an amount of over $1,000,000 did not belong to the Jewellery Store, it would be appropriate to analyze whether their explanations regarding the respective amounts of $800,000 and $300,000 are plausible, rational and credible.
Loans totalling $800,000 from unknown lenders [75] With respect to the loans totalling $800,000 from three anonymous lenders, Mr. Tang claims that he borrowed the money because he did not have enough US$100 bills to complete the Can$800,000 transaction with the undercover officer. Mr. Tang provided these explanations a number of times. He stated that the Jewellery Store had enough cash to complete the $800,000 transaction; however, most of the notes were in denominations smaller than $100.
[76] Both Messrs. Tang and Kang went to their respective homes prior to the exchange with the undercover officer. Mr. Tang left with a six-by-eight white paper bag; Mr. Kang had nothing in his hands. The appellants could have gone to get the missing $100 bills; however, there is no evidence to confirm the amount that may have been transferred from the appellants’ homes to the Jewellery Store.
[77] For his part, Mr. Tang stated that he had approached three different third parties in order to obtain the requisite amount of US$ 800,000 by means of three loans, even though a smaller amount was required, since the transaction involved exchanging Can $800,000 into US currency, which amounted to over $100,000 less in US dollars.
[78] Mr. Tang was not able to provide the actual names of the three lenders and referred only to their nicknames. No record or document was signed to attest to the loans. The lenders never came forward to contest the seizure of the funds or to claim what was owed to them in subsequent years.
[79] The appellants maintained that they never repaid any amount whatsoever; for their part, the lenders never initiated any proceedings to recover the amounts owed to them, and, at the time of the trial, more than seven years had elapsed since the loans.
[80] If this simply involved a paltry amount, the appellants could conceivably have forgotten to mention it at the time of the seizures. However, given the size of the amount and especially the highly significant tax consequences, the information concerning the ownership of this amount should have been disclosed within a number of hours following the seizures.
[81] Not only did this not happen, but a very long period of time elapsed before the explanation was provided; moreover, the appellants were accompanied by legal representatives the day after the seizures, and there was never any reference to this amount of $800,000, which had a huge impact on their assessments.
[82] The existence of these loans totaling $800,000 emerged shortly before the trial, specifically on January 6, 2012.
[83] Moreover, the evidence demonstrated that the appellants did not need these loans to complete the transaction with the police officer; they had the money.
[84] Instead of borrowing to exchange the currency, they simply needed to exchange smaller denominations for $100 notes in their possession in order to satisfy the police officer client, the undercover officer.
[85] Mr. Tang also claimed that he had to pay several thousand dollars for these loans. Mr. Kang, for his part, did not seem to have any knowledge of these three loans totaling US$800,000 on his examination for discovery.
[86] As stated by the Court at the hearing, the explanations concerning the three loans totaling $800,000 to justify a substantial portion of the funds seized from the Jewellery Store premises are neither credible nor reasonable.
[87] In their notice of appeal, the appellants submitted that they are very thrifty people, to the point that they keep their savings at home to avoid bank fees and the cost of gasoline to go to the bank.
[88] It is difficult if not impossible to reconcile this concern to reduce certain marginal expenses to a minimum with the prohibitive fees that the appellants would have paid to borrow US$800,000, an amount that, in addition, was not necessary.
[89] Indeed, Mr. Tang confirmed that he borrowed US$800,000 when the amount actually needed was US$690,000. On the one hand, the appellants had access to the requisite amounts from their own assets, and on the other hand, these loans would have cost them several thousand dollars in fees and interest.
[90] Lastly, why did the disclosure of these three loans occur in January 2012 when the appellants would have had an interest in referring to them in the hours following the seizures in April 2007?
Money from Saint-Denis BCC [91] The other explanation for the cash seized at the Jewellery Store was that part of this money, i.e. between $300,000 and $350,000, had come from Saint-Denis BCC.
[92] There was never any reference to a loan between Saint-Denis BCC and the Jewellery Store. Moreover, nothing in the financial statements suggests that such a loan or transfer occurred.
[93] The books of Saint-Denis BCC do not reflect the alleged transfer to the Jewellery Store of between $300,000 and $350,000, and this explanation is completely irreconcilable with the explanations of the accountant.
[94] Indeed, the various accounting documents prepared by the accountant, which are highly questionable, completely belie the claims made by Mr. Tang regarding the availability of between $300,000 and $350,000 that he allegedly brought to the Jewellery Store:
2005
Total Revenue
Gross Profit
Net Profit
$87,139
$22,504
$-17,522
2006
Total Revenue
Gross Profit
Net Profit
$71,677
$-7,035
$-40,123
2007
Total Revenue
Gross Profit
Net Profit
$0
$0
$-180
[95] It is therefore implausible that Saint-Denis BCC accumulated that much cash when it did not make a profit.
[96] In addition, the company’s balance sheet for 2007 reflects cash assets of $30,343. Moreover, the company’s cash assets fell in 2005 and 2006 from $239,880 to $54,670.
[97] A similar decrease was also posted under “Due to shareholder” (from $209,371 to $57,073). The accountant tried unsuccessfully to demonstrate some kind of consistency. However, the explanations provided were so confusing that ultimately none of them were credible.
[98] All information concerning Saint-Denis BCC is nebulous and inconsistent. Moreover, no income tax return was filed for a number of years. The income tax returns were no doubt completed shortly before the trial, and the accountant failed spectacularly in trying to camouflage the documents.
[99] Mr. Tang stated that he had brought between $300,000 and $350,000 with him from Saint-Denis BCC. However, his counsel reported an amount of $265,000 further to undertaking No. 5, which was made after the examination for discovery; he therefore had all the time needed for a serious and responsible audit. Despite this, Mr. Tang stated and reiterated that he had brought between $300,000 and $350,000 to the store.
[100] Typically, someone living a modest lifestyle, as Mr. Tang claimed, would know exactly how much money they were carrying from one place to another at a particular point in time.
[101] The amount of $300,000 to $350,000 that was taken to the Jewellery Store when Mr. Tang returned to the former premises was an amount he attributed to himself.
[102] The company was revived solely for the purpose of attempting to establish a certain consistency. The evidence should have been convincing and, above all, credible. However, the evidence adduced is based on documents that were clearly prepared a number of years after the legal deadlines and that make reference to incomplete, often contradictory data characterized by numerous inconsistencies.
[103] It seemed clear to me that the accountant had at least tacitly agreed to be complicit in the attempt to make explanations that do not hold up seem reasonable. First, the income tax returns existed, then they did not, and then they reappeared shortly before the trial, with a number of inconsistencies.
[104] Two fundamental questions must be addressed to dispose of the appeals.
[105] The first is whether the audit was done correctly and professionally, while giving the appellants an opportunity to provide all information, explanations and useful, necessary and relevant documents.
[106] The second question consists in determining the credibility of all the persons concerned directly or indirectly by the assessments under appeal.
[107] In addition to these questions, there is the issue of the burden of proof.
[108] In presenting their respective cases to highlight all the relevant facts and evidence, the parties took diametrically opposed positions.
[109] Through the auditor, the respondent vigorously maintains that she did everything and spared no effort to produce accurate notices of assessment.
[110] For their part, the appellants accuse the respondent of producing cursory, botched and completely unacceptable work. They add that submitting prima facie evidence regarding the grounds used to justify the assessments shifted the burden of proof demonstrating the validity of the assessments onto the respondent’s shoulders.
[111] The significant gap between the positions of the parties is neither a perception nor an interpretation; it is clear from the very words used by counsel themselves in their written arguments.
[112] In her written representations, the respondent makes the following submissions:
[translation]
44. Following the preparation of the three reassessments of February 27, 2009, Ms. Bélanger continued to wait for explanations, specifically concerning how to correctly attribute the ownership of the amounts seized at the Jewellery Store (January 23, 2014, p. 99, 1.2 to 7).
45. However, as we saw earlier, Ms. Bélanger noted that she had forgotten to account for two amounts of cash seized: EUR 18,700 seized at the Jewellery Store, and US$689,660 seized by the undercover officer (January 23, 2014, p. 101, 1.5 to 9).
46. On March 2, 2009, before making the supplementary assessment of July 16, 2009, she returned to see Mr. Tang to try to obtain additional explanations, specifically regarding the amounts she had forgotten (January 23, 2014, p. 101, 1.10 to 14). This time, Mr. Tang refused to give her any information and referred her to his counsel (January 23, 2014, p. 102, 1.1 to 4).
47. In accordance with Mr. Tang’s instructions, Ms. Bélanger telephoned counsel for the appellants on March 19, 2009, April 7, 2009, April 14, 2009, April 27, 2009, May 20, 2009, May 21, 2009 and July 8, 2009. Bélanger also met with counsel on March 25, 2009, May 25, 2009, June 4, 2009 and July 6, 2009 (January 23 [2014], p. 100, 1.9 to 14).
48. Counsel for the appellants did not provide any explanation or justification concerning the amounts seized. He simply tried to settle the matter for a lump sum of Can$250,000 (January 23, 2014, p. 100, 1.9 to 28; p. 102, 1.9 to 17).
49. Under the circumstances, on July 16, 2009, Ms. Bélanger made the second reassessment against the Jewellery Store, adding the amounts that had been seized but forgotten (I-1, tab 2).
50. It is noteworthy that despite the meeting with Mr. Kang, the two meetings with Mr. Tang, and the multiple meetings and conversations with their counsel, at no time was the existence of a loan mentioned to Ms. Bélanger during the audit/assessment process. Also, at no time was the corporate name, “Saint-Denis BCC” (“BCC”) mentioned.
[Emphasis in the original.]
[113] These numerous factors established by the respondent’s evidence are such that the conduct of the appellants certainly does not meet the definition of the word “collaboration”.
[114] These facts and events occurred before the assessments under appeal were issued. When an assessment is made and is subsequently appealed from, it is common for the parties to communicate with each other in order to exchange useful and relevant information so that an assessment that better reflects the revenue statement can be calculated, especially where an assessment has been made on the basis of an arbitrary method.
[115] In this regard, the very clear preponderance of evidence shows not only that the appellants were uncooperative, but that they provided contradictory explanations and even took the liberty of adding completely new elements several years after the assessments were issued. Moreover, these were not secondary details but very important facts that could have a significant impact on the assessments in all three cases.
[116] In their reply to the respondent’s written representations, the appellants state the following:
4. The respondent also submits that the appellants demonstrated a lack of cooperation and that, in the absence of any credible explanation about the source of the amounts seized, the auditor had no choice but to assess all the amounts seized in the 2007 taxation year, for appellants Tang and Kang, and in the fiscal year ended March 31, 2007, for the Jewellery Store.
5. However, the facts show that the appellants offered their full cooperation and assistance to the auditor and to the Minster’s representatives. Despite this cooperation, the auditor, for reasons completely independent from the conduct of the appellants or the explanations they provided, conducted a hasty and superficial audit.
6. Indeed, the auditor started her audit on or about February 12, 2009, even though the disputed assessments were issued on February 27, 2009, just two weeks later.
7. Four days before the disputed assessments were issued, on February 23, 2009, the auditor met with Messrs. Tank and Kang.
8. Knowing that the meeting of February 23, 2009, lasted only about 45 minutes, and considering the size of the amounts seized, it is difficult to understand the auditor’s expectations with respect to the meeting or, at the very least, what she would have considered sufficiently credible explanations to warrant some investigative work being undertaken. At the very least, if the auditor was expecting to obtain some documents, she never requested any.
9. Given the alleged lack of cooperation by the appellants and the absence of a credible explanation, the auditor had no choice but to issue the disputed assessments four days later in which add the following unreported income was added to the taxpayers ‘income for a single taxation and fiscal year:
. . .
11. From the time they were issued, the Minister was aware of the flaws of the disputed assessments, specifically:
(a) the flaws respecting multiple taxation of certain amounts;
(b) the flaws respecting time-related inconsistencies due to the very short period of time during which the so-called unreported income was allegedly generated.
12. The appellants were always open to submitting all the necessary documents to the Minister so that he could correct the disputed assessments. The issue therefore is as follows: which documents and information did the appellants have in their possession, that they should have submitted, that would have enabled the Minister to consider that the appellants had adequately cooperated with the audit?
13. At the examinations for discovery, the Minister, through his representatives, made numerous requests for documents and information, which the appellants duly provided. Specifically, the appellants responded to all the following undertakings, thereby providing the Minister with the existing documentation to support their explanations about the source of the so-called unreported assessed income and the period of time during which it was generated: . . .
[117] The trial, which lasted over a week, without taking into account the written arguments of the parties which had been preceded by the examinations for discovery, produced a very large amount of information and details which facilitated the assessment of credibility.
[118] First, I believe that it is important to stress that the information and justifications provided have gone through numerous changes, particularly with respect to the amounts seized at the Jewellery Store.
[119] Messrs. Tang and Kang maintained that they owned the amounts seized at their respective residences, i.e. $509,406 in the case of Mr. Tang and $384,145 in the case of Mr. Kang.
[120] With respect to the $1,663,843 seized from the premises of the Jewellery Store, they contended that it belonged to the company identified as the Jewellery Store.
[121] With respect to the amounts seized from their personal residences, the appellants repeatedly stated and insisted that they were essentially their personal savings accumulated over the years from all reported income since their arrival in Canada.
[122] The funds from the Jewellery Store were operating revenues, from which had to be subtracted money coming from another company, Saint‑Denis BCC, and the amount of US$800,000, which was supposedly the property of three different lenders as a result of two amounts of US$200,000 and one amount of US$400,000.
[123] Mr. Casella, the accountant, testified at length. Throughout his testimony, he was clearly nervous, uncomfortable, hesitant and even confused on a number of occasions. The witness also benefitted from a language advantage.
[124] He testified in English, and the translation gave him much more time because clearly he understood French very well. The poor quality of his testimony and the numerous inconsistencies were undoubtedly the reason for his discomfort and nervousness.
[125] He admitted to making several errors. Clearly, Mr. Casella willingly agreed to arrange the financial and corporate documents of Saint-Denis BCC in order to make them coherent; he failed spectacularly in this regard.
[126] This testimony has no credibility and cannot be used to demonstrate anything. The file for which he had received a mandate from Mr. Tang turned out to be a mess reconstructed at the last minute.
[127] This file is neither reliable nor credible. In addition, I am convinced that the information it contains does not correspond to reality. After initially stating that he had all the copies of the returns, Mt. Tang claimed that he could no longer find them and then was finally able to produce copies, the originals of which had never been submitted to the CRA.
[128] This portion of the evidence demonstrates the level of Mr. Tang’s reluctance to present a serious and documented case with plausible information.
[129] The testimony provided by the appellants was riddled with contradictions, inconsistencies and improbabilities. Most of their assertions and justifications must be rejected for the simple reason that they are unreasonable on the basis of a simple and elementary mathematical exercise.
[130] With respect to the companies that the appellants were associated with, i.e. the Jewellery Store and Saint-Denis BCC, the few documents available simply do not reflect the explanations provided and are so inconsistent that there is good reason to question the role that the companies actually played in their financial activities.
[131] Given the almost total lack of credible and reliable information provided by the appellants and the poor quality of the available documents, which were very often contradicted by the appellants themselves, the Minister made the assessments under appeal by calculating the gap in the net worth for the appellants.
[132] With respect to the appellant company, the Minister used the selective method based on points by comparing the presumed revenue in the form of cash or bank deposits versus the revenue reported during the same fiscal year.
[133] Both cases involve an indirect method, which produces a necessarily imperfect result.
[134] Moreover, the responsible auditor herself admitted to making a number of errors.
[135] The final result is clearly also imperfect in that certain income is attributed to the three appellants. Could the auditor have taken a different approach?
[136] The answer to this question is essentially based on the available documents and the information provided by the appellants themselves. In this regard, the auditor did not strictly receive anything that would have enabled her to take a different approach. In other words, the appellants reaped the result that they themselves had sought by completely refusing to cooperate.
[137] However, the evidence established that the auditor had favoured the appellants in terms of some of the choices she had made