Golden v. The Queen

Golden v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2008-10-31
Neutral citation
2009 TCC 396
File numbers
2004-26(IT)G
Judges and Taxing Officers
Patrick J. Boyle
Subjects
Income Tax Act
Decision Content
Citation: 2009 TCC 396
Date: 20090820
Dockets: 2004-26(IT)G,
2004-27(IT)G
BETWEEN:
SHARAN GOLDEN,
ALLAN R. GOLDEN,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
I. Introduction
[1] These appeals by Mr. and Mrs. Golden are from so-called net worth reassessments issued by the Canada Revenue Agency (“CRA”) in respect of their 1989, 1990 and 1991 taxation years. The CRA resorted to a net worth audit of the taxpayers following searches and seizures once it was determined that adequate books and records had not been maintained by the appellants or their businesses to permit a conventional audit of their returns.
[2] Although this was a lengthy trial of almost four weeks, it was not particularly complex. It involved the financial and business affairs of the two taxpayers individually and their three family-owned and controlled businesses, Transcona Country Club, Riverside Inn (originally named the St. Vital Hotel) and Provincial Vending. The first two businesses were carried on by two corporations in each case, an operating company and a real estate holding company. Provincial Vending Ltd. carried on its cigarette vending machine business directly by itself.
[3] There was extensive documentary evidence, including personal financial information of the individual taxpayers related to Mr. Golden’s Visa statements for the period and Mrs. Golden’s minivans.
[4] There was also evidence of various predecessor businesses and the financial interests of the Goldens prior to the 1989 taxation year that contributed to their closing net worth as at December 31, 1988, being the starting point for the determination by the CRA of their increased net worth during the three years in question.
[5] There was no evidence excluded by me during the trial as a result of my orders of March 26, 2008 relating to the application of the doctrines of issue estoppel and abuse of process against the relitigation aspects of this case.
[6] Mr. Golden was an elected city councillor for the city of Winnipeg in the years in question. By all accounts he was both a popular and successful city councillor. In the years in question he reported modest income and in 1989 the only income he reported was his $15,000 annual salary as a city councillor. Prior to being elected as city councillor and throughout the period in question Mr. Golden was a very driven and active entrepreneur in local businesses. All the evidence is that prior to the years in question many of Mr. Golden’s other business and real estate activities were very successful. That was clearly not the case for the Transcona Country Club, the Riverside Inn and Provincial Vending.
[7] Much of the taxpayer’s evidence and argument in this case appeared to have been focused on what Mr. Golden should have, would have or could have done if adequate or proper business records, books and accounts, and other documentation had been maintained which, by and large, they were not. Few if any of the tax returns of the Goldens and their corporations for the years in question were filed without the CRA’s demands therefor. Returns were filed by the Goldens only after the searches and seizures. Many remain unfiled.
[8] Mr. Golden was convicted of tax evasion criminal charges in respect of the 1989 taxation year based on the very net worth reassessments for that year of himself and his wife that are before this Court. The jury’s conviction and the judge’s sentence were upheld by the Manitoba Court of Appeal. In separate orders dated March 26, 2008, I ruled that the matter for which Mr. Golden was convicted of tax evasion could not be relitigated in this proceeding by Mr. Golden by virtue of the application of the doctrine of issue estoppel nor by Mrs. Golden as to do so would be an abuse of process. Since the hearing of this matter, my orders were upheld by the Federal Court of Appeal (Golden v. the Queen, 2009 FCA 86, 2009 DTC 5079).
[9] Mr. Golden and his business entities had been convicted criminally of tax evasion several times prior to the years in question. In none of these cases did he plead guilty. In addition to criminal income tax non-compliance, there were also convictions for tax evasion in respect of unpaid retail sales taxes and unpaid tobacco taxes by Provincial Vending. One such amount was not paid until the trial judge apparently found Mr. Golden in contempt and sentenced him to five months in jail which imprisonment was reversed on appeal. Mr. Golden has also been convicted after a guilty plea of an offence under the Immigration Act relating to an employee of one of his businesses. In short, Mr. Golden is a serial tax offender. He and companies with which he is involved have a sad tax history, including tax evasion convictions, failures to file returns and unreported shareholder appropriations. He and his wife were repeatedly warned in writing each year by one of their accountants that they were not in compliance with tax requirements and needed to make changes lest they find themselves in just the sort of predicament they are in. Mr. Golden is somewhat of a scofflaw and the author of their misfortune.
II. Net Worth Assessments
[10] The Duke of Westminster principle entitles Canadians to arrange their affairs to minimize their tax burden as a general rule. Arranging affairs however requires demonstrably evident and credible arrangements being put in place. Taking the position with respect to sources of income that are not to any extent reported that things could have, should have or would have been reported or characterized a certain way simply does not constitute arranging one’s affairs.
[11] In the case of a net worth assessment, it is open to the taxpayer to attack whether the net worth assessment is needed or the most appropriate method of computing the taxpayer’s income from any source. In this case the taxpayer is not doing that. If the taxpayer does attack whether a net worth assessment is needed or the most appropriate, a taxpayer would need to prove to the satisfaction of the Court with what evidence there is, what records there are and other credible evidence, what the income of the taxpayer is from the source or sources in question. The taxpayer has not done that nor laid the groundwork in the evidence for that.
[12] The alternative is for the taxpayer to challenge specific aspects of the net worth assessment calculations. In this case the taxpayer challenges the following:
1) Loans to Mr. Golden from third parties, such as (i) Mr. Brock Cordes and his companies, (ii) Mr. Alf Skowron and his company Propensity Properties Ltd., (iii) Mr. Baranyk and his company Pratt’s Wholesale Ltd., and (iv) Mr. Sam Katz;
2) Loans to Mr. Golden from third parties funded by loans from the Royal Bank of Canada (“RBC”);
3) Loans to and from Mr. Salvaggio separate from his RBC funded loan;
4) Any personal benefit from the Counsel Trust financing repaying an overdraft on one of Mr. Golden’s bank accounts;
5) Deductibility of bank interest charges on that same account;
6) Mrs. Golden’s ownership or use of the Transcona Country Club’s minivans;
7) Paid down debt in respect of the Orion “Golden Retriever” bus;
8) Charges appearing on Mr. Golden’s Visa statements treated as personal expenditures; and
9) Several expenditures treated as personal by the CRA, including audio and video equipment purchases from Multi-Tech.
[13] In addition Mr. Golden maintains that penalties should not have been assessed against him. No penalties were assessed against Mrs. Golden.
[14] In the notices of appeal, the taxpayers pleaded that the CRA net worth assessments overlooked significant amounts of cash that had been available to the Goldens from the expropriation of two of their businesses, Core Industries and Rubin’s Deli. The Crown put in evidence two statements of adjustments from the Goldens’ law firm on those expropriations which make it clear that in fact no money was available to the Goldens from the expropriations after their directed payments to mortgagees, lenders, lawyers’ fees, etc.
[15] Taxpayers who do not keep proper records, do financial reporting, file tax returns or do other tax reporting are not entitled to have the CRA or the Court take on the obligation to reconstruct the most favorable scenario for the transactions that is not inconsistent with the evidence, such as it exists, gathered by the Crown, and submitted to the Court by the taxpayer. In most all circumstances, this would amount to retroactive tax planning.
[16] In any event, in this case the taxpayer’s evidence and submissions did not provide a consistent, coherent and demonstrable explanation or theory for how the financial transactions were, or were intended at the time, to be effected or accounted for. It is clear that little if any thought was given at the time to financial reporting, accounting or tax reporting. Clearly, the distinct legal person existence was largely ignored by Mr. Golden who appears to have instead treated all available cash flowing from all of his businesses and corporations as cash available to him from his own different wallets.
[17] In many respects, the evidence raises doubts in my mind about the correctness of the net worth computations and hence the assessments, but few of these doubts rise to the level needed to be presented by the taxpayer in order to satisfy the burden of proof of demonstrating on a balance of probabilities that things were not as the CRA assumed when they issued the assessments. Net worth assessments are inherently inaccurate last resort approaches to the computation of income. In situations as convoluted as this, net worth assessments may be even less accurate than can normally be expected.
[18] The balance of probability burden may as a practical matter prove difficult to satisfy when a taxpayer chooses to run at least three different businesses involving millions of dollars without maintaining records, preparing financial statements or filing returns. This is especially so where businesses have high degrees of cash receipts and where the business dealings amongst themselves and with third parties are very intermingled. In this case, nothing should be presumed to be done logically or reasonably and little should be ruled out on the basis there would be no apparent reason to do it that way. There is no need to resort to why one would or would not have done things a certain way when it is clear little thought went into how things should be done in the first place. Every different aspect of this dispute held factual surprises.
[19] With respect to the opening balance of shareholder loans, the taxpayer did not present any evidence of their value or of the corporations’ ability to repay them although this arguably may have been relevant. The taxpayers did not provide any evidence of the value or costs of the equity of those corporations, or, very importantly, whether the cash flows of the companies could support the assessments on this basis or otherwise.
[20] It is clear from the evidence that the financial records of the Goldens and their businesses and companies were in shambles. At times they were intentionally misleading; for example the $300 chits for cash to Sharan Golden and the cheques to Sharan Golden that described rent payments and advances. At other times they were misleading perhaps due to seemingly virtual total indifference or incompetence; for example the financial statements of Provincial Vending that do not show Provincial Vending’s loans to Transcona Country Club as assets. I find that the CRA clearly had no other choice but to use net worth assessments.
[21] Taxpayers are perfectly entitled to commingle business and personal cash by using a single bank account. As is evident in this case, this can give rise to any number of evidentiary and tracking problems if inadequate records are maintained, timely financial and tax reporting does not occur and the CRA comes asking.
[22] Taxpayers should not put themselves in this position where they are stuck with the imprecision inherent in the limitations of the net worth assessment method. When they do the task remains to ascertain or estimate the best we can the unreported income from the source or sources. Avoidable, identifiable, inappropriate injustices should not be upheld. The vans, perhaps the bus, and the shareholder loans need to be reviewed with this in mind.
[23] It is acknowledged that this trial has occurred almost twenty years after the period in question. Obviously memories fade and blur after twenty years or thereabouts. Similarly, some documents may have been lost, misplaced or destroyed. However, the criminal charges were in 1998 and the document seizure by the CRA and the RCMP occurred prior to that. One would not expect any documents that existed at that time to have since been destroyed or misplaced. Indeed, one would expect a very thorough search by the taxpayers in the subsequent intervening years for their documents and the documents of their business associates.
[24] I received very little corroborating evidence of how the third-party counterparties to the transactions accounted for the transactions for tax or accounting purposes. Where the transaction was between the Goldens and one of their businesses or corporations, the evidence often did not exist since in most cases financial statements were not prepared and tax returns were not filed.
III. The Testimony of Mr. and Mrs. Golden
[25] Mr. Golden sought to explain all of this away. He was not able to do so in a credible and convincing manner and his testimony and supporting evidence in most respects fell far short of satisfying the onus on the taxpayer to show the Minister’s reassessments were incorrect. Mr. Golden’s testimony was nothing short of an attempt to spin what evidence there is into a possible if not plausible version of events which would virtually explain away all of the reassessed income.
[26] I must address the inconsistencies in the testimony of Mr. Golden. The most glaring was his insistence on several occasions that he and his wife made very certain to separate their business and their personal affairs. This is belied by the general failure to keep any records at all, his attempts to explain away evidence that points to advances being made to his companies and not to him personally as sloppy paperwork, and his credit card statements in which business and personal expenses both appear.
[27] Mr. Golden is clearly sharp, literate and financially numerate. I find his attempt to hide behind his limited education an affront. While he did not complete high school, he did study part-time at university as an adult.
[28] I do not accept Mr. Golden’s testimony on any material aspect that is not corroborated clearly by the written evidence or by the oral evidence of persons other than his wife, Mr. Cordes or Mr. Skowron. Mr. Golden’s oral evidence was self-serving and he struck me consistently as a person who, after all of this, remains in complete denial and wants to try to explain everything away in large measure by blaming others. I do not accept that he reasonably continued to rely on his outside accountant Mr. Storey once he became aware of Mr. Storey’s past serious shortcomings with Mr. Golden’s personal and business tax returns. Mr. Golden still believes Mr. Storey was responsible for at least one of his earlier tax convictions, yet paradoxically maintains he was reasonable in continuing to rely on him.
[29] With respect to Mrs. Golden’s income inclusions, her success depends almost entirely upon the evidence of and relating to Mr. Golden. Mrs. Golden only testified for twenty minutes in chief and twenty-five minutes in cross-examination in a four-week trial.
IV. Loans from Mr. Brock Cordes
[30] Mr. Brock Cordes gave his evidence very carefully. Most of the amounts advanced by Mr. Cordes and his companies were not advanced to Mr. Golden but rather were advanced by cheque to one of the Goldens’ corporations involved with the Transcona Country Club or Riverside Inn or their divisions. Few of the advances were by way of cheques made out to Mr. Golden.
[31] Mr. Golden and Mr. Cordes both said it did not work that way, however there was little to no corroborating evidence that things were really as they testified. Their position is that, although the cheques were made out to those corporations, this was a shortcut for Mr. Cordes advancing those loans to Mr. Golden personally to then on-lend them to the operating companies.
[32] I would expect to see corroborating evidence that should reasonably be available, for example lender’s financial statements, etc. A number of key documents were inconsistent with what the taxpayers’ witnesses say was really happening. The contemporaneous written evidence in the form of Provincial Drywall’s general ledger and tax returns in the years in question does not support the loans being reported in that way by the lender. Mr. Cordes’ statements of personal net worth filed with the banks are not consistent with the testimony of Mr. Golden and Mr. Cordes either. They support the reassessments and show very modest loans to Mr. Golden personally. Some of the cheques which Mr. Cordes signed actually referenced “company loan”. I am also especially mindful of the fact Mr. Cordes said several times that he was always careful in implementing effective tax structures.
[33] I would also expect to have heard evidence regarding who accounted for the losses for accounting and tax purposes since Mr. Golden and his companies did not fully repay all of these loans. I am mindful of the fact that for tax losses, especially “allowable business investment losses” or “ABILs”, accounting and banking issues and evidence can affect how such loan accounts are treated. I was not given many of the companies’ financial statements to help corroborate this. While Mr. Cordes did mention the fact that at no times were any of the loans treated as a bad debt by him, this was not corroborated by any continuity analysis of any financial records, there was no other supporting evidence for it, and he did not address whether he would be able to at some time in the future.
[34] In the circumstances, where Mr. Cordes’ evidence is inconsistent with the reassessments and the written evidence, I do not accept Mr. Cordes’ evidence as sufficient to establish that amounts actually advanced to the Golden’s companies were in reality loans to Mr. Golden.
[35] Mrs. Kellendonk worked as the office manager and bookkeeper for Mr. Brock Cordes and his group of companies other than Provincial Drywall. She was responsible for keeping the general ledger for Seabrook and his companies up-to-date amongst other things. She testified that the money advanced to Mr. Golden and his companies by Mr. Cordes’ companies would be reflected on the company’s books as a reduction in the shareholder loan owing by Mr. Cordes’ company to him. It was then tracked also as a loan owing by Mr. Golden and his companies; this would presumably be owing to Mr. Cordes but, for some reason, kept track of at the corporate level. While Mrs. Kellendonk said it was kept track of at Mr. Cordes’ company, little if any documentary evidence was put in to support that statement. There were Cordes corporate cheques to Mr. Golden and his companies as well as amounts corresponding to many of those cheques being transferred to Mr. Cordes’ shareholder loan account. Mrs. Kellendonk seemed most unclear on this point as she would describe the amounts being transferred to a shareholder loan account and from the account of Mr. Golden at the same time or interchangeably. She ended her examination‑in‑chief by saying she did not recall if she ever received directions from Mr. Cordes regarding the loans to Mr. Golden and his companies and Mr. Cordes’ shareholder account.
[36] Mrs. Kellendonk said that neither she nor the other staff did the Provincial Drywall financial work or bookkeeping. That work was done elsewhere and the information was provided to her to roll up into the Cordes holding company. She did not speak of or know anything about the Provincial Drywall advances to Mr. Golden or his company.
[37] Mrs. Kellendonk also testified that she did not do any work for the Goldens or their businesses. However, the Crown put to her on cross‑examination a Riverside Inn/Comedy Oasis letter to the Royal Bank confirming she is one of the three persons with signing authority for the Riverside Inn. Her signature appears on that letter beside her name. Mrs. Kellendonk said she vaguely recognized it.
[38] I do not find Mrs. Kellendonk’s evidence helpful in trying to establish whether any particular advance by Mr. Cordes or one of his companies to Mr. Golden or his companies or businesses were advances to Mr. Golden personally or to the named payee of the cheques. Her evidence does appear to confirm that it was Mr. Cordes personally advancing these funds since corresponding amounts reduced the amount of Mr. Cordes’ shareholder loans to these companies, but that is not relevant to the Goldens’ reassessments.
[39] Ms. Elisabeth Silva was the bookkeeper for Provincial Drywall Ltd. in the years in question. Her testimony is that, in that capacity, she reported to Ken Golden (one of Mr. Golden’s brothers) as well as to Brock Cordes. She took all direction on financial matters from Mr. Cordes. The Provincial Drywall general ledger introduced through Ms. Silva showed that Provincial Drywall was funded in part by shareholder loans from Mr. Cordes to it and also showed that it loaned money at various times in 1991 to Mr. Golden, the Transcona Country Club, to Riverside Inn and the Comedy Oasis as well as other persons and businesses unrelated to this appeal. They also showed that the debts of Mr. Golden and his businesses were no longer owing to Provincial Drywall at the end of 1991. It may be that at year end they were rebooked as loans directly from Mr. Cordes to Mr. Golden and his businesses, and Mr. Cordes’ shareholder loans reduced accordingly, but the evidence fell far short of even beginning to explain that. In any event, the loans and advances to Mr. Golden by Provincial Drywall were very small as compared with those made to his businesses. While the businesses are not identified as necessarily being one of the operating companies, no attempt was made to line up the testimony about these advances, or the other documentary evidence such as the cheques, to the general ledger and similar entries. Ms. Silva testified that she did not actually recall any of the details of any of Provincial Drywall accounts for its loans to Mr. Golden’s Transcona Country Club, Riverside Inn or Comedy Oasis.
[40] Some Provincial Drywall monthly general ledger pages were put forward as corroborative of the testimony of Mr. Cordes, Mrs. Kellendonk and Ms. Silva. They are highly confusing at best and misleadingly so. There are missing steps and these general ledger printouts are not consistently prepared with the result that apples are potentially being compared to oranges. For example, the November ledger shows a number of loans to Mr. Golden and his companies as at November 30. The December general ledger, clearly prepared on an entirely different basis, begins with opening balances in these accounts of zero. Either something entirely inexplicable happened at midnight, these documents are not what they purport to be, were not prepared when they purport to be prepared, or one or more of them is manifestly incorrect.
[41] My conclusion with respect to the amounts advanced by Mr. Cordes or his companies directly to the Goldens’ companies or businesses is that I am not satisfied that those represented back-to-back loans via Mr. Golden. However, the reassessments should be revised to recognize those advances that were in fact made to Mr. Golden personally by Mr. Cordes or his companies as additional liabilities of Mr. Golden and, when used in the Goldens’ businesses, as additional assets.
V. Mr. Alf Skowron and Amounts Received from Propensity Properties Ltd.
[42] Mr. Golden was a Winnipeg city councillor. One of his material witnesses, who allegedly loaned money to him, was a fellow Winnipeg city councillor at the time, Mr. Alf Skowron.
[43] Mr. Skowron is now 75 years old. He testified candidly and forthrightly. However Mr. Skowron’s recollection of these events that occurred twenty years ago had largely completely faded as was evidenced by his common refrain of “I don’t know” and “I don’t recall” to questions of both counsel. His testimony does not help to lead me to the conclusion that Mr. Skowron ever loaned any money personally to Mr. Golden.
[44] I do not accept that any of the amounts paid directly or indirectly by Mr. Skowron’s Propensity Properties company were loans to Mr. Golden, including those where the payment was made to Mr. Golden. The Propensity Properties banking, financial and tax records in evidence were insufficient to corroborate any such claim.
[45] The majority of the Skowron advances were not to Mr. Golden; they were to the operating companies. These amounts and the amounts paid by cheque from Mr. Skowron to Mr. Golden do not appear to be loan transactions. No interest was provided for or paid, there was no provision for repayment of the principal, there were never any repayments of principal and, surprisingly, Mr. Skowron never asked for any payment.
[46] Mr. Skowron testified he never loaned money on this basis to anyone but Mr. Golden. Mr. Skowron had no recollection of what any of the cheques were made out for or why. He said it was as simple as Mr. Golden asking him for a cheque. Most of the time Mr. Golden would tell him why; sometimes he just asked to leave him a cheque. He could not describe why some of the Propensity Properties cheques were described as the payment of loan interest or the repayment of loans in part and in full.
[47] I stopped counting the number of times Mr. Golden’s answer to why people loaned him money was “because I asked him”. Mr. Cordes similarly said he made the cheques out to Mr. Golden “because he asked me to”. Mr. Skowron similarly said “he needed it and I gave it to him”. Mr. Skowron said he did not know and did not need to know what Mr. Golden used the money for.
[48] Mr. Skowron said several times in his testimony that he made these loans because he valued the work Mr. Golden did for him in respect of the Tenth Avenue property owned by Propensity Properties which in turn was owned by Mr. Skowron.
[49] It is not clear what happened to Mr. Skowron’s Tenth Avenue building. He testified that he “gave up the building” at some point indeterminate at which point he washed his hands of it and never gave a thought to seeking repayment from Mr. Golden. The Tenth Avenue redevelopment project appears to have been Propensity Properties’ only activity.
[50] While I do not have to decide the matter beyond that the amounts were not loans, they could have been fees for services or profit participations. I could in any event not make sense of any characterization since Mr. Skowron paid $450,000 for the Tenth Avenue property and it seems substantial renovations were done to it which amount was not put in evidence. In any event, making payments to Mr. Golden in the hundred thousands of dollars by way of what can at best be described as non-repayable loans is, simply put, not credible given the lack of corroborating evidence, and the lack of consistent evidence from Mr. Golden and Mr. Skowron regarding the Propensity Properties amounts.
[51] Propensity Properties also used Mr. Storey as its accountant in the relevant years. Mr. Skowron changed that when he became frustrated with Mr. Storey’s compliance shortcomings. Propensity Properties’ tax returns do show a $200,000 plus loan being made to a Golden Hospitality and Convention Corporation, not Mr. Golden. Mr. Skowron admitted in cross-examination that the information and documents used by Mr. Storey to prepare the returns were provided by Mr. Skowron from the information he kept at his home office. Mr. Skowron said he had no knowledge of the Golden Hospitality corporation referred to in the notes to the financial statements attached to the tax return he had verified as being true and correct.
[52] A retired chartered accountant, Mr. Storey, had also done the financial books for Mr. Skowron’s Propensity Properties in the years in question. He described Propensity Properties as a corporation with meticulous records. The Propensity Properties financial statement shows its loan as owed to it by Golden Hospitality and Convention. This is the same corporate name as that to which Mr. Storey had thought his company Vortex Management Ltd. had loaned the money it borrowed from RBC. Propensity Properties recorded the loan as to one of Mr. Golden’s corporations, the one understood to be operating the Transcona Country Club business. Propensity Properties did not record it as a loan to Mr. Golden.
[53] With respect to the amounts advanced by Propensity Properties, the evidence does not satisfy me that it was a loan at all. In any event, if it was a loan, there is little and inadequate evidence to support it as a loan to Mr. Golden and not to the Goldens’ companies which operated their businesses. Whatever it was it was not a loan to Mr. or Mrs. Golden.
VI. Financial Dealings with Mr. Baranyk and Pratt’s Wholesale
[54] I am not sure why Mr. Baranyk, the owner and operator of Pratt’s Wholesale, testified. Mr. Golden testified that Pratt’s had also loaned some money to Transcona Country Club. Pratt’s was one of the major suppliers for Provincial Vending’s tobacco and confectionery products. It is owned by Mr. Baranyk who is an accountant. Mr. Golden testified that Mr. Baranyk may have taken title to some Transcona Country Club land and mortgaged it though no further details much less a mortgage was tendered. There is also some suggestion in Mr. Golden’s testimony and documents that Pratt’s, which I assume to be a corporation, may have been one of the sources of funds for the purchase price of the St. Vital Hotel. This appears to have been done through Provincial Vending who lent the money to the Transcona Recreation Centre which took title to the Hotel but this was far from clear.
[55] In any event, Mr. Baranyk testified that in the period 1992 to 1994 he advanced $100,000 to Mr. Golden to purchase a hundred acres of land in Transcona, perhaps adjacent to the golf course which was adjacent to the Transcona Country Club. He said he took security of $150,000 to cover that $100,000 loan as well as Provincial Vending’s account receivable.
[56] Neither the loan documentation nor the security documentation was put in evidence so the Court has no knowledge of whether the loan was advanced by Mr. Baranyk or by Pratt’s, whether the borrower was Mr. Golden, Provincial Vending or another of the Goldens’ companies associated with the Transcona Country Club, nor whether the security was granted by Provincial Vending or one of the Transcona Country Club companies and/or the Goldens personally.
[57] Given the paucity of evidence relating to the Baranyk/Pratt’s loan and repayments, including the lack of corroborating written evidence, I am not satisfied the taxpayers have been able to discharge the onus on them to satisfy the Court on a balance of probabilities that the Baranyk/Pratt’s transactions are not properly reflected in the reassessments, to the extent they are even relevant.
VII. The Royal Bank Back-To-Back Loans
[58] Mr. Gustal was the RBC manager at the branch where Mr. Golden and his companies banked at the time that these indirect loans for Mr. Golden’s benefit were made. When Mr. Gustal became Branch Manager, Mr. Golden was already indebted to the branch for more than $400,000. Mr. Gustal arranged for a further $50,000 interim financing pending a third-party financial institution refinancing for Mr. Golden.
[59] There is no evidence from Mr. Gustal that he approved any further loans to Mr. Golden. Instead he spoke of the loans made to others that he knew would be on-loaned to Mr. Golden. These included Mr. Golden’s friends, relatives and associates.
[60] Mr. Gustal was very familiar with Mr. Golden and his businesses. He had occasion to meet with him three to four times a week in the branch, the main reason for which was that Mr. Golden always needed money. Mr. Gustal also testified that the loans already advanced to Mr. Golden were “risky” and while they had been approved at the branch, they had not been authorized by the District Office downtown. The indirect loans were necessary because Mr. Gustal could not get downtown’s approval for any further loans to Mr. Golden or his businesses.
[61] To facilitate these transactions, Mr. Gustal would have RBC make loans to creditworthy people that Mr. Golden would send or bring in. He acknowledged this was not exactly a correct thing to do. He did sit down and meet with each of these borrowers and received their personal statement of financial information and their credit application. They were told they would be fully responsible for the loans and the bank would take action against them if Mr. Golden did not repay the bank. The loans were only interest-bearing. All of these credits were duly authorized as required by the RBC’s policies and promissory notes were taken from the borrowers.
[62] Mr. Gustal understood clearly that Mr. Golden would be the person repaying the loans. However, he consistently avoided answering questions related to whether, to his knowledge, the borrowers were aware of that even though it seems reasonable to conclude they were. He cannot remember if he was ever told by Mr. Golden why he or his businesses needed the money being loaned through these other individuals. He had already concluded the RBC’s loans to Mr. Golden and his businesses were risky and approval could not be obtained for them being increased.
[63] Mr. Gustal does not remember anything about any payments or missed payments on these loans except that interest was generally paid on time or they would have gone into default.
[64] I place little reliance on Mr. Gustal’s testimony in the circumstances in determining whether the RBC’s borrowers went on to lend money to Mr. Golden or to the Goldens’ business corporations. No banking records were introduced through him nor was anyone else from RBC used for this purpose. Mr. Gustal seemed very careful in his testimony as related to the indirect loans and Mr. Golden. He acknowledged he did not do things correctly. There were some inconsistencies in his testimony and considerable vagueness. Some inconsistencies were misleading. He had little recollection of these loans except he was certain they were made in full compliance with the bank’s requirements notwithstanding his acknowledgment they were not done correctly.
[65] Mr. Gustal left the bank and took “early retirement” from RBC very shortly after these loans were made although he continued to work for another fifteen years. His retirement was in December 1989 although negotiations for his departure took until April 1990. He had been at the bank for most of the period since 1952.
[66] All of the RBC loans in question were the subject of a Settlement Agreement among the RBC, the borrowers and the Goldens and some of their companies. Mr. Gustal did not have any knowledge of the RBC Settlement Agreement since it occurred after his time. Little evidence was received with respect to the RBC Settlement Agreement. There was some suggestion the RBC amounts were repaid but with borrowed money. There was no evidence as to where this borrowed money came from.
[67] I find much of the evidence regarding the RBC loans lacking. Notably, the taxpayer did not call anybody from RBC other than Mr. Gustal and, with one exception, did not produce any RBC loan applications or similar documents. While Mr. Gustal did testify, clearly Mr. Gustal was doing unconventional if not unauthorized lending on RBC’s behalf. He as much as admitted to that in his evidence. I am therefore left without any corroborating evidence from the lender, RBC, as to what its records of the borrower/lender relationship were, nor what the declared use of funds was for the loans. No one from RBC was called to testify that RBC no longer had such records.
[68] At best, these loans are exactly what they purport to be. Loans made by RBC to individual and corporate borrowers other than the Goldens or any of their companies. The existence or not of loans from these associates and colleagues of Mr. Golden to Mr. Golden or any of the Goldens’ companies remains to be addressed. Mr. Gustal did not know if any of the third-party loans were in fact advanced, to whom they were advanced or if they were repaid.
[69] While the RBC-funded loans have that much in common, they each have to be looked at individually. An important distinction between them is that some were made by persons who had no other financial dealings with Mr. Golden and his businesses while others, such as Mr. Salvaggio and Mr. Katz, had a historic and continuing practice of having financial transactions, including advances, with Mr. Golden and his businesses. With the second group it becomes much more difficult for me to conclude that monies moving between those individuals and Mr. Golden and his companies necessarily were sourced in or were payments of the RBC-funded advances from these individuals to Mr. Golden or his companies.
[70] Clearly, there is some evidence that there are a number of loans made by third parties either to Mr. Golden or to his corporations during the period in question. It also appears that at least some of those funds were advanced to Mr. Golden and then found their way from Mr. Golden to his businesses. The taxpayer’s theory and evidence is that, notwithstanding most of the funds were actually advanced directly from the third parties to the businesses, this was done at the unwritten direction and understanding of Mr. Golden that the funds were being borrowed by him and being on-loaned by him to his corporations. If that is the case, the third-party loans increased Mr. Golden’s and Mrs. Golden’s joint liabilities and, to the extent that these monies were the source of what the CRA added to their assets on account of shareholder loans due to them from the books and records and financial statements of their companies, constitute an offset which would reduce dollar-for-dollar the shareholder loan assets.
[71] Another interpretation of the evidence would be that the RBC-sourced funds advanced by third parties directly to Mr. Golden’s businesses were in fact loans to the corporations and the businesses and did not flow to them via back-to-back loans at the Mr. Golden level. In that case, it brings into question seriously whether the CRA’s schedule has the correct asset value down for shareholder loans since, in such a case, it would be inappropriate to attribute a cash cost to Mr. Golden of a shareholder receivable if he in fact did not advance the money. For example, in the case of Provincial Vending, the company’s accountant, with Mr. Golden’s concurrence, recorded all amounts that did not relate to Provincial Vending’s business as advances from Mr. Golden regardless of their source or as repayments of those advances regardless of the payee or recipient.
[72] Either way, to the extent I accept that amounts were loaned directly or indirectly to Mr. Golden’s businesses by third parties either his assets are overstated or his liabilities are understated.
[73] I do not accept that all of the RBC-sourced borrowings were made either as loans to Mr. Golden on-loaned to his businesses or were loaned directly to