Tax court of Canada | Tax | Income tax | Administration and enforcement
In audit of taxpayer, CRA identified bank deposits that it believed were unreported income. Taxpayer’s documents and submissions, including that amounts were repayments of loans to associates including K, led to reductions in amounts viewed as unreported income. Minister reassessed taxpayer under Income Tax Act, increasing taxpayer’s income by total amount of $63,203.80 over three taxation years and imposing gross negligence penalties. Minister assessed taxpayer under s. 215(6) of Act for two taxation years, for failure to withhold and remit tax on amount paid or payable to non-resident company. Taxpayer appealed. Appeals allowed in part, with respect to Minister’s abandonment of position with respect to assessments on withholding tax and with respect to gross negligence penalties. Dramatic reduction in CRA’s aggregate amount of unreported income, from over $1.3 million to only $63,203.80, prompted conjecture that initially identified deposits all came from non-taxable sources but that taxpayer had lost documents showing non-taxable character of deposits still in issue. Such conjecture could not satisfy taxpayer’s evidentiary obligation. Taxpayer and K testified that taxpayer made cash loans to K, supported by K’s document listing dates and amounts of alleged cash repayments. Reliability of document was questionable as it was prepared, with taxpayer’s assistance, five years after last alleged repayment. Mere fact that dates and amounts of K’s alleged repayments were consistent with taxpayer’s explanation was not sufficient to prove that subject deposits were not derived from taxable sources. Questionable reliability of K’s document as well as inconsistencies and confusion in evidence pertaining to some of deposits at issue meant that evidence from taxpayer and K were not adequately corroborated. Some or all of subject deposits might have been derived from non-taxable sources described by taxpayer but he had not produced reliable evidence sufficient to demolish Minister’s assumptions.
Gorev v. The Queen (2017), 2017 CarswellNat 2422, 2017 TCC 85, Don R. Sommerfeldt J. (T.C.C. [General Procedure]).
