Date: 20020506
Docket: 2001-751-IT-I
BETWEEN:
SATYA PAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
(Delivered orally at Toronto, Ontario on March 15, 2002 and subsequently edited as to form)
Bonner, T.C.J.
[1] The Appellant appeals from assessments of income tax and section 163(2) penalties for the 1994, 1995 and 1996 taxation years. During those years the Appellant earned income from the rental of a taxi cab which he owned. He rented the cab out because he had sustained injuries in an automobile accident which prevented him from driving the cab himself. The Appellant is married and lives with his wife. She is not well and does not work outside the home.
[2] In the first instance the Appellant's income tax returns for the years under appeal were filed electronically. Income as reported by him was: for 1994, $3,997.00; for 1995, $7,403.00 and for 1996, $20,848.00.
[3] The Revenue authorities investigated the Appellant's financial affairs after discovering that the Appellant had, for purposes of inflating GST input tax credits, claimed personal expenses.
[4] It was clear that the Appellant's income could not be measured directly. The Appellant apparently did not keep, and certainly did not produce at the hearing, any reliable financial records which would permit the direct measurement of income. A net worth assessment therefore followed.
[5] It was explained in detail by the witness, James Wynen.
[6] Broadly speaking a net worth calculation of income starts with measurement of the increase, if any, of net worth over the relevant period. That is followed by the addition of personal outlays over the period. Non taxable receipts are deducted and the resulting figures are assumed to represent income for the period. Net worth is a crude method for the measurement of income and should be utilized only when income cannot be measured directly. Such was the case here.
[7] After the Minister of National Revenue (the "Minister") had made his net worth calculations, the Appellant produced amended tax returns for three years. Income as reported in the amended returns was: for 1994, $2,096.00; for 1995, $11,315.00 and for 1996, $768.00.
[8] The evidence does not explain the discrepancies between the earlier returns and the amended returns either in matters of detail or in matters of final result. While, as already explained, the indirect measurement of income by the net worth method may not produce a perfect result, there was simply no evidence here indicating that the Appellant's calculations are any more accurate than the Minister's net worth calculations.
[9] The attacks on the net worth calculation made by the Appellant centred on personal expenditure figures and evidence of payment from an insurance company, which payments may have constituted reimbursements of expenses of other years. The Appellant offered no comprehensive credible evidence which would support a conclusion that his personal expenses were less than found by the Minister.
[10] The exact nature of the benefits paid by the Wellington Insurance Company and set out in Exhibit R-7 was not explained.
[11] The onus is on the Appellant to establish on a balance of probabilities that the Minister's calculations of income are wrong. The onus is one which is relatively easy to discharge where the Minister has relied on a net worth calculation because of the inherent imprecision of the method. However, there must be some credible evidence showing error in the result in order to discharge the onus. Such evidence was not adduced here.
[12] Section 163(2) authorizes the imposition of penalties on every person who, knowingly, or under circumstances amounting to gross negligence has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer filed or made in respect of a taxation year for purposes of the Act.
[13] In light of the findings which I have made there can be no doubt that the requisite false statements were made in the Appellant's original returns. In my opinion the amount of the discrepancies in the case of someone whose income is as easy to calculate as that of the Appellant is sufficient to establish, at the least, indifference to whether the law is complied with or not.
[14] The Appellant offered no explanation for the widely varying reports of income and expense except to blame his absent accountant. He did not show that the accountant was furnished with accurate data in the first place. The Appellant cannot be permitted to shrug off of his personal responsibility to file accurate returns in this way. The Respondent was discharged the onus of establishing the making of false statements in circumstances amounting to gross negligence.
[15] The appeal is therefore dismissed.
Signed at Toronto, Ontario, this 6th day of May 2002.
"M.J. Bonner"
T.C.J.
COURT FILE NO.: 2001-751(IT)I
STYLE OF CAUSE: Satya Pal and H.M.Q.
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: March 15, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge M.J. Bonner
DATE OF JUDGMENT: March 22, 2002
DATE OF REASONS
FOR JUDGMENT: May 6, 2002
APPEARANCES:
Agent for the Appellant: Manmohan Duggal
Counsel for the Respondent: Scott Simser
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada