Federal Appeal


Income Tax

Administration and Enforcement

Taxpayer’s suggestion that Tax Court judge pre-judged facts was without merit

Taxpayer, who was studying to be denturist, was also taxi driver and owned rental properties. Taxpayer reported income of $3,857 and $1,807 for 2003 and 2004 taxation years respectively. During audit, CRA undertook net worth analysis and concluded that taxpayer had failed to report over $150,000 of income earned in those years. Minister reassessed taxpayer under Income Tax Act on this basis and imposing gross negligence penalties. Taxpayer’s appeal, seeking to reduce unreported income by taking alleged loan from his father of $90,000 into account, was dismissed. Taxpayer appealed. Appeal dismissed. Tax Court judge did not make palpable and overriding error in rejecting taxpayer’s evidence that his father loaned him total of $90,000 so as to reduce determination of income under net worth analysis. Tax Court’s judge’s conclusion that there was not sufficient reliable evidence to substantiate loans was based on rejection of testimony by taxpayer and father. Taxpayer’s suggestion that net worth analysis should not have been conducted in this case did not have merit. Apparent suggestion that entire assessment should be reviewed was not raised in Tax Court and it would be unfair to allow it be raised now where Minister had no opportunity to lead evidence. Where Tax Court judge found testimony of accused and father was not credible, it was open to him to conclude that there was insufficient reliable evidence regarding loans. Tax Court judge’s conclusion was not absurd in light of taxpayer’s full-time studies as it was certainly possible for full-time student to have source of significant income and was consistent with his credibility findings. Tax Court judge’s reasons were clear and detailed and, when read as whole, told taxpayer why he lost and why his testimony was found to be unreliable. Reasons were well within standards of adequacy. Taxpayer’s suggestion that Tax Court judge pre-judged facts was without merit, as impugned comments were merely attempt to ensure that he knew case he had to meet.

Sarmadi v. Canada (2017), 2017 CarswellNat 2790, 2017 FCA 131, Stratas J.A., Webb J.A., and Woods J.A. (F.C.A.); affirmed (2015), 2015 CarswellNat 10732, 2015 CarswellNat 1921, 2015 TCC 133, 2015 CCI 133, Réal Favreau J. (T.C.C. [General Procedure]).


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