Tax – Income tax – Administration and enforcement
Personal taxpayers C and L were shareholders in corporate taxpayers H Co. and K Co. that operated Asian food restaurants. Minister assessed taxpayers under s. 152(7) of Income Tax Act, including by adding unreported income, allocating shareholder benefits to personal taxpayers, and assessing gross negligence penalties against all taxpayers. Taxpayers appealed. Appeals dismissed. Fact that no reliable source records of any kind existed justified Minister’s decision to arbitrarily assess all four taxpayers. No evidence was led to suggest that taxpayers’ income tax returns were accurate and based upon reliable, cogent and fulsome records. Minister adopted sound methodology for arbitrary assessments, using ratio of revenue between cash sales and credit and debit card sales during period of H Co.’s operation, with use of alternative methods as controls and of concessions to led to understated assessment. Minister’s reassessment method for K Co. was equally satisfactory, involving sales analysis method to yield reliable and conservative unreported income projection once taxpayer’s records were found unreliable due to inexplicable alteration of point of sale records. Companies’ unreported income was established and it was admitted that such income was not deposited in corporate bank accounts which strongly suggested that personal taxpayers received it as controlling parties. There was no factual basis for concluding that Minister’s assumption that assessed unreported income was received by personal taxpayers as cash so shareholder benefits assessment must also stand. Penalties were appropriately levied and, as taxpayers failed to usher any evidence to refute Minister’s assumptions on other issues such as deductibility of rent expenses and of worker bonus, automobile benefits and capital gain, assessments would be upheld in full.
Lin v. The Queen (2020), 2020 CarswellNat 329, 2020 TCC 26, Randall S. Bocock J. (T.C.C. [General Procedure]).
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