Peter Elchuk v. Minister of National Revenue, [1970] CTC 326, 70 DTC 6235

JACKETT, P.:—This is an appeal from a decision of the Tax Appeal Board dismissing the appeal of the appellant from reassessments made against him on a net worth basis for the 1952, 1953, 1955, 1956, 1957, 1958, 1959 and 1960 taxation years, and a cross-appeal by the Minister from the Board’s decision that the penalties for all except the 1960 taxation year under Section 56 of the Income Tax Act were wrongly imposed.

As far as the appeal is concerned, no submission was made to me on the basis of which I could hold that the penalty for the 1960 year was wrongly imposed and that part of the appeal is, therefore, dismissed.

The main thrust of the appeal was directed to bringing about an elimination of part, but not all, of the additional tax levied by re-assessment as a result of a ‘‘net worth’’ appraisal of the taxpayer’s affairs. In my view, an attack on such an assessment should be dealt with in the manner indicated by Cameron, J. in Chernenkoff v. M.N.R. [1950] Ex. C.R. 15 at 22-21; [1949] C.T.C. 369 at 374-379, where he said:

In effect, the appellant agrees that the “net worth” computation of her income is a satisfactory basis for arriving at her taxable income, but that some of the items—those which I have indicated

—are wrong. When these are corrected in accordance with the evidence adduced—so she states—the result is that there is no taxable income for any of the years in question.

My opinion is that the appellant must do far more than she has attempted to do here if her appeal is to be successful. There can be no question that the onus lies on the appellant and that, in my view, means that she must establish affirmatively that her taxable income was not that for each of the years for which she was assessed. Two courses were open to her, the first being to establish her income with proper deductions and allowances, and that course could quite readily have been followed.

In the absence of records, the alternative course open to the appellant was to prove that even on a proper and complete “net worth” basis the assessments were wrong. But that also she has failed to do.

In this case, it was found that there was an increase of over $45,000 in the appellant’s net worth over the period in question that was unexplained by his declared income or other apparent sources. He was re-assessed accordingly: Of this amount, some $16,381.07 was explained by undeclared reventies and claims for expenditures not made that the investigators were able to uncover. The balance of $26,801.27 not being explained, the assessments were made on the assumption that it came from income that had not been revealed.

The appellant, in this Court, made no attempt to show what his actual income for each year was. He contented himself with a principal attack on the Minister’s net worth calculations — being that he had over $20,000 in currency in a trunk at the beginning of the period and not merely the $3,800 allowed by the Minister — and some rather subsidiary attacks.

As far as the currency on hand at the beginning of the period is concerned, I find the appellant’s evidence unconvincing. Not only did his story vary according to the circumstances put to him, but it would appear that, during the period when he claims to have had a large part of the money in currency, he swore an affidavit under the Farmers Creditors Arrangement Act that is inconsistent with his having any of it. While I do not think that, in these cases, one should be to suspicious of testimony by the taxpayer that supports his case — because:frequently it will be the only testimony available to him — in this case, the appellant must be assumed to have had a much better knowledge of his affairs, as they then were, when he took that affidavit than he has now many years later. I am of the view that the appellant’s testimony on many vital points is a mere reconstruction today of what he now thinks must have been the facts at an earlier time, and that that reconstruction is influenced by what he would like the facts to be. That being so, I cannot accept it.

With reference to the subsidiary attacks on the amounts of the re-assessments, they fall far short of establishing that any particular assessment was excessive. I am of the view that the allowances made in the statements for personal expenses were, far from being excessive, on the low side, and that any minor errors revealed in other parts of the statements are more than compensated for by that fact.

For the above reasons, I decided at the end of the argument for the appellant to dismiss the appeal and I did not call on counsel for the respondent with regard thereto.

On the cross-appeal, I note first that the penalties in question were levied under Section 56(1) of the Income Tax Act, which reads as follows:

56. (1) Every person who has wilfully, in any manner, evaded or attempted to evade payment of the tax payable by him under this Part for a taxation year or any part thereof is liable to a penalty, to be fixed by the Minister, of not less than 25% and not more than 50% of the amount of the tax evaded or sought to be evaded.

and that they were disallowed by the Tax Appeal Board for the reasons given in Légaré Foundry Limited v. M. N. R., 36 Tax A.B.C. 351. The reasons referred to are, I believe, in part, those set out in the quotation at page 375 from Mr. Fisher’s Judgment in No. 632 v. M.N.R., 22 Tax A.B.C. 120, reading:

. . . Section 51A is merely a penalty provision which is to be applied if the Minister is of the opinion that the taxpayer has wilfully evaded, or attempted to evade, payment of the tax payable by him, or any part thereof, for a taxation year. Evasion or attempted evasion of payment of the whole or any part of the tax payable by a taxpayer can very easily be quite a different thing from committing a fraud or making wilful misrepresentation, and is a distinct and separate offence from. that envisaged by the provisions of subsection (4) of Section 46 of chapter 148 of the Revised Statutes of Canada which gives the Minister the power to re-assess at any time. I need only indicate one example, where a taxpayer has fully reported all his income and has made no mis- representation, either innocent or wilful, and has committed no fraud whatsoever. He has not, however, made any payment against his assessed tax and has so dealt with his assets, by transferring them to other parties or taking: them outside the jurisdiction, that he has attempted to evade payment of the tax which the Minister has assessed against him. In such a case, the legislation provides that the Minister may impose an additional penalty and endeavour to collect this amount in addition to the tax previously owing, but IJ am sure it will be recognized that this is not the same thing as the misrepresentation or fraud referred to in Section 46 of the Income Tax Act.

I cannot agree with the view expressed in this passage that the penalty provision only applies to action taken to evade collection of tax. In my view, one can evade payment of income tax by concealing the existence of the income just as effectively as by concealing one’s assets so that the tax cannot be collected.

The view of the effect of Section 56(1) adopted in the Légaré case is also supported (page 382) by reference to the definition of “tax payable’’ contained in Section 139(1) (ba). I cannot agree that this provision makes Section 56(1) inapplicable in respect of what has happened before the assessment.

I am, however, of the view that the closs-appeal should nevertheless be dismissed because the Reply to the Notice of Appeal does not sufficiently allege the facts necessary for its success.

The allegations of facts, or of facts that were assumed in making the assessments for penalties, as set out in the Reply, do not establish, if correct, that the penalty assessments were properly made. Without saying whether or not the pleading would otherwise be sufficient, it will suffice to say that there is no allegation of any amount of tax that was evaded, or sought to be evaded. In the absence of such information, it is impossible for the Court to determine whether any particular penalty was in an amount authorized by Section 56(1). If such amounts had been so alleged, the allegations would have necessarily involved connecting up the amounts with the facts giving rise to the application of Section 56(1) in such a way as to raise the factual issues that the Court would have to decide to determine whether the penalties were properly imposed. The appellant would then have been put on notice of what was alleged against him and could have pleaded accordingly so that the issues of fact, if any, would have been crystallized for purposes of trial.* [1]

In the result, both appeals are dismissed without costs.