BETWEEN:
and
____________________________________________________________________
Appeals heard on November 10, 2006, at Calgary , Alberta, and by teleconference on January 24, 2007, at Ottawa, Ontario,
By: The Honourable Justice Campbell J. Miller
Appearances:
____________________________________________________________________
JUDGMENT
The appeals from assessments made under the Income Tax Act for the 2001, 2002 and 2003 taxation years are allowed and the assessments are referred back to the Minister of National revenue for reconsideration and reassessment on the basis that the Appellant's income is increased in each year by the amounts of $30,411, $16,770 and $18,931, respectively, with penalties pursuant to subsection 163(2) calculated accordingly.
Signed at Ottawa, Canada, this 21st day of February 2007 .
Docket: 2006-1533(GST)I
BETWEEN:
GLADYS LOUISE MARKS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on November 10, 2006, at Calgary , Alberta, and by teleconference on January 24, 2007, at Ottawa, Ontario,
By: The Honourable Justice Campbell J. Miller
Appearances:
|
For the Appellant: |
The Appellant herself |
|
Counsel for the Respondent |
Tyler Lord |
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated March 23, 2005, and bears number 10CT0501172, for the reporting periods ending between November 1, 2001 and December 31, 2003, is dismissed.
Signed at Ottawa, Canada, this 21st day of February 2007 .
"Campbell J. Miller"
Miller J.
2006-1533(GST)I
BETWEEN:
GLADYS LOUISE MARKS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] Ms. Gladys L. Marks was assessed under the Income Tax Act for her 2001, 2002 and 2003 taxation years on the basis that she earned net business income of $60,822, $33,541 and $37,862, respectively. She was also assessed under the Excise Tax Act net tax of $6,418.18 plus interest and penalties with respect to the period November 1, 2001 to December 31, 2003 in connection with the business income. She has appealed both assessments by way of the Informal Procedure, claiming that the business to which these assessments relate was the business of her ex-husband, Garry Marks.
[2] In the years 2001, 2002 and 2003, Ms. Marks was employed as a property manager with the Georgian Group. Her husband, Mr. Garry Marks, worked for Menkes Developments Ltd. as a property manager. 637182 Ontario Limited, carrying on business as Faion Landscaping and Snowplowing (Faion Co.), provided services to Menkes Developments Ltd.; in fact, Mr. Faion acknowledged that 25% of his company's work in the years in question was for Menkes.
[3] Mr. Faion testified that Ms. Marks worked on a contract basis for Faion Co. during 2001, 2002 and 2003 doing office work, tendering documents, estimating and reviewing contracts and drawings. He indicated she performed this work at his office, at her home and on-site. He had no written agreement with her. He stated that she was paid by cheque, but could not recall how much. The Respondent totaled cheques from Faion Co. to Ms. G.L. Marks of $61,717 in 2001, $34,567 in 2002 and $38,909 in 2003. These amounts were not disputed. Ms. Marks endorsed most of the cheques, claiming Mr. Marks also endorsed some. Mr. Faion testified that half the time he would deliver the cheques to Mr. Marks. Ms. Marks testified that the cheques went into a joint account with Mr. Marks. Mr. Faion also indicated that he saw Mr. Marks helping out Ms. Marks with the work, and that he would occasionally give directions to Mr. Marks as he and Ms. Marks were together all the time, according to Mr. Faion. He concluded that "mainly Ms. Marks" worked for him.
[4] Mr. Marks told quite a different story. He was familiar with Mr. Faion because Faion Co. did work for Menke's, though Mr. Marks stated he was not involved in that contract, and that he never worked for Faion Co. in any capacity. He stated that Ms. Marks had a fulltime job with Georgian Group, but also did contract work for Faion Co. He saw her doing Faion work at home and occasionally saw her meeting Mr. Faion at her Georgian properties, when he would drive by. He claimed he never assisted her with any Faion work at home or on-site, nor perform any of the work she contracted to do for Faion. He testified that Mr. Faion never gave him cheques for any reason, not even cheques to be handed on to Ms. Marks.
[5] Mr. Marks admitted that he completed tax returns for himself and for Ms. Marks.
[6] Finally, I heard Ms. Marks' story which changed from her testimony to her argument. Interestingly, it is different again from either Mr. Faion's or Mr. Marks. Her story was that because Mr. Marks' employer, Menkes, dealt with Faion Co., he did not personally want to be seen as doing contract work directly for Faion Co., so had everything go through Ms. Marks' name. All she claimed to have done for Faion Co. was type some invoices, but in reality it was Mr. Marks' business. The invoices she prepared had her name and social insurance number on them. She was unable to describe what she believed Mr. Marks did to earn $61,000 from Faion Co. in one year. She simply believed that because Faion Co. was a contractor for Menke Developments, Mr. Marks could not be seen to be involved directly. She claims the cheques from Faion were primarily received and deposited by Mr. Marks.
[7] In her testimony, Ms. Marks maintained it was merely Mr. Marks' business, and she had only a very small role. When first approached by Canada Revenue Agency, however, she took responsibility for the unreported income, indicating she did some minor consulting work. She suggested she was too scared to do anything else, and only raised the fact it was not really her income on appeal to this Court.
[8] She confirmed that she did not prepare her tax returns, but just signed what Mr. Marks prepared.
[9] In argument, Ms. Marks acknowledged she received some of the money and that she was no longer disputing some of it was hers, just not all of it. The Minister assessed her under the Income Tax Act and Excise Tax Act on the basis all of the revenue from Faion Co. was her business income.
[10] This is a classic case of the truth lying somewhere in the middle of all the contradictions and assertions of the three main witnesses, Ms. Marks, Mr. Marks and Mr. Faion. I do not believe Mr. Marks' claim that he was not in any way involved with Faion Co. Mr. Faion, while attempting to stick to the basic premise that Faion Co. contracted with Ms. Marks, certainly made it crystal clear that Mr. Marks was absolutely involved with Ms. Marks in most aspects of the "consulting". Mr. Marks' version of the facts is simply too inconsistent with Mr. Faion's, and certainly with Ms. Marks. It is not credible.
[11] Yet, neither is Ms. Marks particularly believable. Her story has vacillated from full involvement, to no involvement, to some involvement with Faion Co. I find "some involvement" is likely closest to the truth. I find Mr. and Ms. Marks set up a certain arrangement for this consulting business to make it appear it was Ms. Marks' business, notwithstanding Mr. Marks had a significant part in it. I also find it was Mr. Marks who prepared tax returns and knew full well that neither his nor his wife's returns included the income from Faion Co. Ms. Marks signed her return, knowing she had some involvement with the business of Faion Co., yet did nothing to determine whether any of that income should properly have been reported by her.
[12] So, what is the import of my reading of the facts vis à vis the income tax and GST assessments before me. There are two possibilities. First, Mr. and Ms. Marks were acting in partnership; second, Ms. Marks was the sole proprietor, but retained her husband to assist providing the services. On balance, I favour the second possibility as it is more consistent with all payments having been made to Ms. Marks and all invoices having been addressed to her. But it also reflects the reality of the situation, as I have found, that Mr. Marks very much had a role in this business. This finding does not assist Ms. Marks with respect to the GST assessment. As the proprietor, she was responsible for the failed remittances. She has provided no evidence to suggest the assessment of the Minister of National Revenue was incorrect. I therefore dismiss her appeal against the Excise Tax Act assessment.
[13] With respect to the income tax matter, however, my findings do cast doubt on the correctness of the Minister's assessment for the three years in question. I find that, on balance, the facts support the position that Ms. Marks shared the earnings of the business with Mr. Marks. While Mr. Marks may not have worked directly for Faion Co., he did work in the business, took cheques from Mr. Faion and deposited them in a joint account. I conclude Ms. Marks was paying Mr. Marks for his contribution to the business that was set up in her name. Mr. Faion's evidence that he gave cheques (though always made out to Ms. Marks) equally to Mr. and Ms. Marks, combined with their deposit into a joint account, lead to the conclusion that Ms. Marks paid half the revenues from Faion Co. to Mr. Marks. I there allow half of $60,822, $33,541 and $37,862 in 2001, 2002 and 2003, respectively as a deduction to Ms. Marks
[14] Ms. Marks remains responsible for ensuring her returns are filed correctly. Notwithstanding Mr. Marks' involvement in the preparation of her returns, she is not absolved from this responsibility. She acknowledged she was responsible for some of the revenue from Faion Co., yet knowingly did not report one penny of it. Ms. Marks is liable for penalties pursuant to subsection 163(2) based on additional business income in 2001, 2002 and 2003 of $30,411, $16,770 and $18,931, respectively.
[15] In summary, the GST appeal is dismissed, and the income tax appeals are allowed and referred back to the Minister for reassessment on the basis that Ms. Marks' income is increased for the years 2001, 2002 and 2003 by $30,411, $16,770 and $18,931, respectively, with penalties pursuant to subsection 163(2) calculated accordingly.
Signed at Ottawa, Canada, this 21st day of February, 2007 .
"Campbell J. Miller"
Miller J.
COURT FILE NO.: 2006-1532(IT)I and 2006-1533(GST)I
STYLE OF CAUSE: GLADYS LOUISE MARKS AND
HER MAJESTY THE QUEEN
PLACE OF HEARING: Calgary, Alberta and Ottawa, Ontario
DATE OF HEARING: November 10, 2006 and January 24, 2007
REASONS FOR JUDGMENT BY: Campbell J. Miller
DATE OF JUDGMENT: February 21, 2007
APPEARANCES:
|
For the Appellant: |
The Appellant herself |
|
Counsel for the Respondent: |
Tyler Lord |
COUNSEL OF RECORD:
Firm: N/A
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada