BETWEEN:
and
____________________________________________________________________
Appeal heard on January 8, 9 and 10, 2007
at Toronto, Ontario
Before: The Honourable Justice D.W. Beaubier
Appearances:
|
Ryan Lay |
|
|
Eleanor H. Thorn |
____________________________________________________________________
JUDGMENT
The appeals are allowed. The reassessments of the Appellant made under the Income Tax Act for the 1997, 1998 and 1999 taxation years are referred to the Minister of National Revenue for reconsideration and reassessment as to income and penalties, all of which are to be recalculated and reassessed based upon the findings of this Court as calculated in the revised Schedule I set out in paragraph [7] and as further set out in paragraph [8] of the attached Reasons for Judgment. In particular, the Court finds that the Respondent has satisfied the onus upon it in order to establish the penalties assessed and, in addition, its reassessments of the 1997 and 1998 taxation years.
The Appellant shall pay the Respondent its party and party costs.
Signed at Kelowna, British Columbia this 7th day of February 2007.
Beaubier J.
BETWEEN:
MILOS MARKOVIC,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] This appeal pursuant to the General Procedure was heard at Toronto, Ontario on January 8, 9 and 10, 2007. Appellant's counsel called Thomas Cooper, a Canada Revenue Agency ("CRA") officer and CRA police contact officer on this file; Zahur Jiwa, CRA's auditor on this file; Sergeant James Cassells of the Toronto Police Service; Steve Subotic, the Appellant's accountant; Stanka Buskovic, his mother-in-law; Nikola Ljuba Buskovic, his father-in-law; Natasa Markovic, his wife; and the Appellant. Respondent's counsel called Zahur Jiwa and Detective Constable John Birrell.
[2] The facts in dispute are set out in paragraphs 9 to 19 and Schedule I of the Respondent's Reply to the Amended Notice of Appeal. They read:
9. The Minister reassessed the Appellant for the 1997, 1998 and 1999 taxation years and issued Notices of Reassessment dated December 16, 2002. The Minister reassessed the Appellant to include unreported income in the amounts of $114,151.81, $27,412.96 and $322,168.68 in the computation of the Appellant's total income, and levied penalties in the amounts of $16,938.03, $3,733.29 and $49,630.05 pursuant to subsection 163(2) of the Act respectively.
10. In so reassessing the Appellant, and confirming the reassessments, the Minister assumed the same facts as follows:
a) at all material times, the Appellant was married to Natasa Markovic and they have a daughter, Milica Mila Markovic, born February 25, 1994;
b) the Appellant was the sole shareholder and directing mind of 1145959 Ontario Ltd. (the "Corporation"), which carried on business as Maestro Pizza Plus ("Maestro");
c) as the Appellant produced no books and records for the proper computation of his income for the relevant taxation years, the Minister employed the "Net Worth" method of income computation. Attached hereto and marked as Schedule A is the Net Worth Statement which formed the basis of the Appellant's assessment;
d) the Appellant, his spouse and the Corporation reported their income in their income tax returns as follows:
|
|
1996 |
1997 |
1998 |
1999 |
Total |
|
|
|
|
|
|
|
|
Appellant |
$6,400 |
$ 9,120 |
$11,860 |
$20,160 |
$47,540 |
|
Spouse |
$6,000 |
$ 6,178 |
$ 6,400 |
$ 4,445 |
$23,023 |
|
Corporation |
0 |
($4,430) |
$ 1,460 |
$ 3,260 |
$290 |
e) in May, 1996, the Appellant and his spouse purchased property located at 41 Kitsilano Crescent, Richmond Hill, Ontario, for consideration of $210,000. The consideration and disbursements for the purchase totalling $213,059.63 were paid for with $113,059.63 in cash and funds from a $100,000 mortgage;
f) in 1996, 1997, 1998 and 1999, the Appellant owned a 1990 Chevy Beretta, and in 1997, the Appellant also purchased a 1997 Chevrolet Blazer for $36,838;
g) the Appellant deposited money into his daughter's Toronto-Dominion Bank account, and purchased guaranteed investment certificates in trust for his daughter as follows:
|
|
1996 |
1997 |
1998 |
1999 |
|
|
|
|
|
|
|
Bank Balance |
$9,840.22 |
$ 3,658.78 |
$ 1,783.90 |
$12,540.93 |
|
GIC |
|
$ 14,096.84 |
$ 20,200.11 |
$22,000.00 |
h) the Appellant had funds held in his own Toronto- Dominion Bank account and guaranteed investment certificates in the following amounts:
|
|
1996 |
1997 |
1998 |
1999 |
|
|
|
|
|
|
|
Bank Balance |
$14,085.07 |
$24,458.24 |
$ 9,891.71 |
$12,247.91 |
|
GIC |
|
|
$10,100.05 |
$10,000 |
i) in 1999, the Appellant had not less than $233,100 in cash;
j) in 1999, the Appellant had controlled substances (cocaine and cannabis resin) valued at not less than $17,930;
k) together with his business investments, shareholder advances, furniture, jewellery and the assets noted in subparagraphs 6(g) to 6(l) above, the Appellant had total assets in amounts of not less than $300,494.56, $381,405.13, $377,654.95 and $673,284.52 at the end of his taxation years 1996, 1997, 1998 and 1999 respectively, as set out in Schedule I to the Net Worth Statement attached hereto as Schedule A;
l) the Appellant had liabilities in the total amounts of not more than $98,777.96, $80,759.13, $60,887.17 and $39,589.27 at the end of his taxation years 1996, 1997, 1998 and 1999 respectively, as set out in Schedule II to the Net Worth Statement attached hereto as Schedule A;
m) the Appellant's net worth at the end of his taxation years 1996, 1997, 1998 and 1999 were not less than the amounts of $201,716.60, $300,646.00, $316,767.78 and $633,695.25 respectively, as set out in Schedule II to the Net Worth Statement attached hereto as Schedule A;
n) at the end of his taxation years 1997, 1998 and 1999, the Appellant's net worth increased by the amounts of not less than $98,929.40, $16,121.78 and $316,927.47 respectively from the year before, as set out in Schedule II to the Net Worth Statement attached hereto as Schedule A;
o) the Appellant and his household incurred personal and living expenses in the amounts of not less than $32,813.45, $31,556.13 and $31,305.40 for the 1997, 1998 and 1999 taxation years respectively, as set out in Schedule III and IV to the Net Worth Statement attached hereto as Schedule A;
p) in order to generate the increases to his net worth after adjustments for personal expenses, income tax payments and refunds, GST credits, child tax benefits, and his spouse's reported income, the Appellant's income was not less than $129,449.81, $45,672.96 and $346,773.68 for his taxation years 1997, 1998 and 1999 respectively, as set out in Schedule III to the New Worth Statement attached hereto as Schedule A:
q) in filing his returns of income for his 1997, 1998 and 1999 taxation years, the Appellant failed to report income in amounts of not less than $114,151.81, $27,412.96 and $322,168.68 respectively (the "unreported income"), as set out in Schedule III to the Net Worth Statement attached hereto as Schedule A;
r) the Appellant's unreported income is material and substantial; and
s) the amounts of additional tax payable based on the Appellant's unreported income for the 1997, 1998 and 1999 taxation years are $31,535.05, $5,685.57 and $96,892.49 respectively.
11. He further states that:
a) in failing to report all of his income received in his 1997, 1998 and 1999 taxation years respectively, the Appellant made a misrepresentation in each of those taxation years that is attributable to neglect, carelessness or wilful default;
b) in failing to report all of his income received in his 1997, 1998 and 1999 taxation years respectively, the Appellant knowingly or in circumstances amounting to gross negligence made or participated in, assented to or acquiesced in the making of false statements or omissions on his 1997, 1998 and 1999 income tax returns; and
c) As a consequence of the Appellant's failure to report all of his income received in his 1997, 1998 and 1999 taxation years respectively, the Appellant is liable for penalties pursuant to subsection 163(2) of the Act in the amounts of $16,938.03, $3,733.29 and $49,630.05 for those years.
B. ISSUES TO BE DECIDED
12. The issues are:
a) whether the Appellant made misrepresentations attributable to neglect, carelessness or wilful default in filing his returns of income or in supplying any information under the Act with respect to the 1997 and 1998 taxation years;
b) whether the Minister correctly assessed the Appellant to include in his income the amounts of $114,151.81, $27,412.96 and $322,168.68 for the 1997, 1998 and 1999 taxation years respectively;
c) whether the Minister properly assessed the Appellant penalties pursuant to subsection 163(2) of the Income Tax Act in the amounts of $16,938.03, $3,733.29 and $49,630.05 for the 1997, 1998 and 1999 taxation years respectively because the Appellant made misrepresentations that were attributable to neglect, carelessness, wilful default or committed fraud in filing his returns of income for the 1997, 1998 and 1999 taxation years and in supplying any information under the Act; and
d) whether sections 8 and 24 of the Charter have any application in this matter.
C. STATUTORY PROVISIONS, GROUNDS RELIED ON, AND RELIEF SOUGHT
13. He relies on sections 3, 9, 152, and subsections 163(2), 171(1), 231.1(1), 231.2(1) and 248(1) of the Act; sections 8 and 24 of the Charter of Rights and Freedoms (the "Charter"); and section 12 of the Tax Court of Canada Act.
14. He submits that the Minister correctly reassessed the Appellant for the 1997 and 1998 taxation years pursuant to subsection 152(4) of the Act as the Appellant has made misrepresentations attributable to neglect, carelessness or wilful default in filing his returns of income or in supplying any information under the Act with respect to the 1997 and 1998 taxation years.
15. He submits that the Appellant was properly assessed to include the amounts of $114,151.81, $27,412.96 and $322,168.68 in the calculation of his income for the 1997, 1998 and 1999 taxation years respectively pursuant to sections 3, 9 and 152 of the Act.
16. He submits that the penalties assessed against the Appellant for the 1997, 1998 and 1999 taxation years in the amounts of $16,938.03, $3,733.29 and $49,630.05 respectively were properly assessed pursuant to subsection 163(2) of the Act as, in carrying out a duty or obligation imposed by or under the Act, the Appellant knowingly or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of false statements or omissions in the income tax returns filed for his 1997, 1998 and 1999 taxation years, as a result of which the tax that would have been payable if assessed on the basis of information provided in the income tax returns filed for those years, was less than the tax payable for those years within the meaning of subsection 163(2) of the Act.
17. He submits that the issue of whether the Appellant's rights under section 8 of the Charter were violated is not properly before the Court as the Appellant has not pleaded any material facts in the Amended Notice of Appeal to support such a cause of action. Consequently, the Appellant is prohibited from putting this issue forward.
18. He submits that a remedy under section 24 of the Charter is not available to the Appellant in these circumstances.
19. He also submits that this Honourable Court does not have competent jurisdiction to vacate the reassessments under subsection 24(1) of the Charter.
He requests that the appeal be dismissed with costs.
SCHEDULE A
SCHEDULE I Index
Client: Milo Markovic
Auditor: Zahur Jiwa Prepared: 09-Sept-02
Audit Period:
Balance sheet - assets
1996 1997 1998 1999 W/P
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal assets |
|
|
|
|
|
|
Cash on hand |
1.00 |
1.00 |
1.00 |
485.00 |
1 |
|
Cash in the house |
|
|
|
54,890.00 |
2 |
|
Cash from spouse |
|
|
|
330.00 |
3 |
|
Bank Accounts: |
- |
- |
- |
- |
|
|
Savings Account 25545 - Daughter |
9,840.22 |
3,658.78 |
1,783.90 |
12,540.93 |
4 |
|
Savings Account 037910 - M N Markovic |
14,085.07 |
24,458.24 |
9,891.71 |
12,247.91 |
5 |
|
TD GIC in Trust for Milica Mark Marlovic |
|
14,096.84 |
20,200.11 |
22,000.00 |
6 |
|
TD GIC for M N Marlovic |
- |
- |
10,100.05 |
10,000.00 |
7 |
|
Value of drugs on person |
|
|
|
2,430.00 |
8 |
|
Value of drugs in house |
|
|
|
7,000.00 |
9 |
|
Value of drugs in brother's house |
|
|
|
8,500.00 |
10 |
|
Safety Deposit Box Royal Bank-Cash |
- |
- |
- |
127,395.00 |
11 |
|
Safety Deposit Box TD Bank-Cash |
|
|
|
50,000.00 |
12 |
|
Investments - Purchase of business |
25,079.19 |
25,079.19 |
25,079.19 |
25,079.19 |
13 |
|
Auto-97 Chevy Blazer |
- |
36,838.00 |
36,838.00 |
36,838.00 |
14 |
|
Auto-90 Chevy Beretta |
14,099.00 |
14,099.00 |
14,099.00 |
14,099.00 |
15 |
|
Residence-41 Kitsilano Crescent |
210,000.00 |
210,000.00 |
210,000,00 |
210,000.00 |
16 |
|
Furniture |
19,812.63 |
19,812.63 |
27,457.54 |
61,550.04 |
17 |
|
Jewellery |
6,677.45 |
6,677.45 |
6,677.45 |
6,677.45 |
18 |
|
Shares held in 1145959 Ontario Ltd. |
100.00 |
200.00 |
200.00 |
200.00 |
19 |
|
Other-Shareholder's Loan to Business |
800.00 |
26,484.00 |
15,327.00 |
11,022.00 |
19 |
|
Total personal Assets |
300,494.56 |
381,405.13 |
377,654.95 |
673,284.52 |
|
|
TOTAL ASSETS |
300,494.56 |
381,405.13 |
377,654.95 |
673,284.52 |
|
[3] Assumptions 10 (a) to (g) inclusive, and (o) were not refuted by the evidence.
[4] The evidence from Messrs. Cooper and Jiwa is that they were aware, by hearsay from the police, that both the Appellant and his wife Natasa were charged with dealing in illegal narcotics, that many of the documents they had came from the police and that, using Schedule I, the far right column, lines 5, 6, 7 and 16 were items in both their names. The $8,500 value of drugs were found in Milos' brother's house. The furniture invoices and estimates (line 17) were in Natasa's name. The jewellery was the same throughout Schedule I, but it is irrelevant since it is also the same in the base 1996 year. Finally, both safety deposit boxes in lines 11 and 12 were in Natasa's name and Natasa proved to the satisfaction of the Court that she received gifts of $82,835 in 1991, $67,558 in 1993 and $53,565 in 1995 (see Exhibits A-19, 20 and 22) and that the funds described in lines 11 and 12 contained in her safety deposit boxes were hers consisting of the residue of those gifts. The gifts were confirmed by Natasa's parents' testimony; they are believed.
[5] Line 8 of Schedule I describes drugs, namely cocaine and hashish, which Detective Constable Birrell found in the possession of Milos while conducting a search of Maestro Pizza Plus under the authority of a legal search warrant to search for possession of illicit drugs on October 28, 1999 at approximately 7:34 p.m. He took the hashish from Milos' person and picked the cocaine up when it fell from a Tupperware dish Milos was carrying at the time. Mr. Birrell affixed the value of these items at $2,430. He is a police officer of 17 years experience, much of it involving drugs. The value he fixed was not refuted and based on his experience and the fact that the Court believes his testimony completely, that value is accepted as is his testimony that the drugs were in Milos' possession.
[6] Line 9 of Schedule I describes cocaine found in Milos' and Natasa's home at 41 Kitsilano Crescent, Richmond Hill during a simultaneous search under the authority of a legal search warrant to search for possession of illicit drugs. Detective Constable Birrell did not conduct this search, but it was conducted by a police team which was coordinated with his team and he wrote up the report for the Toronto Police Service respecting that search later in the evening of October 28, 1999. His report is the basis for that line and for that assumption. Both Milos and Natasa denied dealing in or possessing "drugs". The Court does not believe this. Furthermore, for the purposes of this Judgment, it finds that Milos is not a credible witness. This finding that Milos is not credible is because:
1. In sworn testimony at a hearing by a Superior Court in Ontarioon September 11 and 12, 2000, Milos testified that he then owned a "lake property" in Montengro at Plav. He testified in this Court that he sold his interest in that property in 1990 for $160,000 CDN and brought that money in cash to Canadaat that time. In cross-examination he admitted that his September 2000 testimony was a lie.
2. During an examination for discovery in these proceedings he responded to question 105 and stated that he had used $160,000 for his living expenses by 1996. The context of that statement clearly stated or implied that he had used all of the $160,000. In testimony in this hearing he denied that he had used "all" that money by 1996.
3. Again at the September 2000 Ontario Court examination, Milostestified directly that he received $800 per month rent from Marco Adamo who lived in an apartment above Maestro Pizza Plus in September 2000. In this Court he testified that Marco received free rent for being the pizza cook, that Marco was fired at least twice, and that neither Milos nor the Corporation (1145959 Ontario Ltd., which Milos wholly owned) ever reported any such rent or any form of rental benefit as salary paid to Marco.
These three occurrences, combined with Detective Constable Birrell's testimony, which Milos did not refute, are the basis for this Court finding Milos to lack any credibility. Miloswill say and will swear under oath to whatever he has to in order to serve his own interests. Because he did not directly refute Detective Constable Birrell's testimony, as described, that the police found drugs in his house valued at $7,000 during their October 28, 1999 search of his house, or that the drugs were his, and because the assumption as specified in Schedule I, line 9 is based on Mr. Birrell's police report, the Court finds that line 9 constituted a valid assumption which was not refuted.
[7] As a result of these findings, if an item of property described in Schedule I is shown in both Milos' and Natasa's names, the Court finds that Natasa's one-half is her own and is not part of Milos' property and is not the subject of these reassessments against Milos. However, Milos testified that the funds Milos held in trust for his daughter, Milica, were contributions made by him from his money. Therefore they constituted additions to his worth in that year which he transferred to the trust he held for Milica, as described in lines 4 and 6 of Schedule I. For these reasons, the Court finds that the descriptions in Schedule I respecting the reassessments of Milos should be revised. Milos did not deny that the cash described at line 2 was his. An assessment of Natasa is not the subject of this appeal. Therefore, the Court revises Schedule I respecting Milosto read as follows:
SCHEDULE A
SCHEDULE I
Client: Milos Markovic
Auditor: Zahur Jiwa
Audit Period:
Balance sheet - assets
1996 1997 1998 1999 W/P
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal assets |
|
|
|
|
|
|
Cash on hand |
1.00 |
1.00 |
1.00 |
485.00 |
1 |
|
Cash in the house |
|
|
|
54,890.00 |
2 |
|
Cash from spouse |
|
|
|
Nil |
3 |
|
Bank Accounts: |
- |
- |
- |
- |
|
|
Savings Account 25545- Daughter |
9,840.22 |
3,658.78 |
1,783.90 |
12,540.93 |
4 |
|
Savings Account 037910 - M N Markovic |
7,042.54 |
12,229.12 |
4,945.85 |
6,123.96 |
5 |
|
TD GIC in Trust for Milica Mark Markovic |
- |
14,096.84 |
20,200.11 |
22,000.00 |
6 |
|
TD GIC for M N Markovic |
|
|
5,050.02 |
5,000.00 |
7 |
|
Value of drugs on person |
|
|
|
2,430.00 |
8 |
|
Value of drugs in house |
|
|
|
7,000.00 |
9 |
|
Value of drugs in brother's house |
|
|
|
|
10 |
|
Safety Deposit Box Royal Bank-Cash |
|
|
|
Nil |
11 |
|
Safety Deposit Box TD Bank-Cash |
|
|
|
Nil |
12 |
|
Investments - Purchase of business |
25,079.19 |
25,079.19 |
25,079.19 |
25,079.19 |
13 |
|
Auto-97 Chevy Blazer |
- |
36,838.00 |
36,838.00 |
36,838.00 |
14 |
|
Auto-90 Chevy Beretta |
14,099.00 |
14,099.00 |
14,099.00 |
14,099.00 |
15 |
|
Residence-41 Kitsilano Crescent |
105,000.00 |
105,000.00 |
105,000,00 |
105,000.00 |
16 |
|
Furniture |
Nil |
Nil |
Nil |
Nil |
17 |
|
Jewellery |
Nil |
Nil |
Nil |
Nil |
18 |
|
Shares held in 1145959 Ontario Ltd. |
100.00 |
200.00 |
200.00 |
200.00 |
19 |
|
Other-Shareholder's Loan to Business |
800.00 |
26,484.00 |
15,327.00 |
11,022.00 |
19 |
|
Total personal Assets |
161,961.95 |
237,685.93 |
228,524.07 |
302,708.08 |
|
|
TOTAL ASSETS |
161,961.95 |
237,685.93 |
228,524.07 |
302,708.08 |
|
[8] The discrepancy in assets from the previous years as described in the revised Schedule I in paragraph [7] is:
|
|
1997 |
1998 |
1999 |
|
|
$ 75,723.98 |
- $ 9,161.86 |
$ 74,184.01 |
Add one-half the year-to-year mortgage reduction on 41 Kitsilano Crescent taken from Schedule II to the Amended Reply:
|
|
1997 |
1998 |
1999 |
|
|
$ 9,009.42 |
$ 9,935.98 |
$ 10,648.95 |
Add one-half the adjustment for personal expenditures and the net income tax and GST refunds paid to the Appellant taken from Schedule III to the Amended Reply:
|
Adjusted Income of Appellant |
1997 |
1998 |
1999 |
|
$ 15,488.12 |
$ 15,712.01 |
$ 16,438.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,181.52 |
$16,486.13 |
$101,271.87 |
By comparison, Milosreported his income to be:
|
|
1997 |
1998 |
1999 |
|
|
$ 9,120.00 |
$ 11,860.00 |
$ 20,160.00 |
The discrepancies are large: in 1997, eleven times; in 1998, 1.4 times; and in 1999, five times. The Appellant's accountant admitted that the reported figures were imaginary and the net worth incomes found are based upon what could be found having regard to, what might best be called, legal niceties being applied to Mr. and Mrs. Markovic. Nonetheless, the differences are material and substantial. Moreover, they are clearly deliberate and intentional by Milos.
[9] The basis of the Appellant's Charter argument is that sections 8 and 24 of the Charter were violated respecting the search warrants exercised by the police on October 28, 1999 and by the police informing CRA of its findings in these searches. The searches followed the Toronto Police Service receiving information that alleged that Milos was selling illicit drugs. Weeks of surveillance followed and legitimate search warrants were obtained and exercised. There is no evidence that CRA knew about this or participated in it in any way, and this Court finds that to be a fact. Following the searches and the arrest and charging of Milos and Natasa, Detective Constable Chris Higgins advised Thomas Cooper of these occurrences and gave CRA copies of many documents that the police legally seized from Milosand Natasa under the authority of the search warrants. There is no evidence that Mr. Higgins acted illegally at the time that he informed Thomas Cooper in the first instance. Nor does the Court find anything illegal or improper in the activities of the police or in the CRA activities respecting the subsequent interaction of Mr. Cooper, Mr. Higgins, Mr. Chin as the initial auditor or, subsequently, Mr. Jiwa as the assessing auditor in either speaking to each other or in the police delivering copies of the Markovic documents to CRA. The Appellant's counsel called Sergeant James Cassells who testified that he believes that a police officer revealing evidence or information respecting an ongoing police file to CRA was and is not appropriate. Nonetheless, the Sergeant's testimony is merely his belief. In this case there was nothing illegal in the communication between the CRA and the police. It was simply a case of the police informing CRA after the searches and after subsequent criminal proceedings. Ultimately the charges against Natasa Markovic were withdrawn and the charges against Milos were stayed. As a result, this Court finds that there is no basis for the Appellant's claim that his Charter rights under sections 8 and 24 were violated. In particular, the principles described by Bowman, J. and by the Federal Court of Appeal in O'Neill Motors Limited v. The Queen 96 DTC 1486 and its appeal at 98 DTC 6424, and in similar cases, are not violated in this case.
[10] Steve Subotic was the accountant for the Appellant, Natasa, and the Corporation at all material times. He prepared their income tax returns and the Corporation's GST documents. He visited Maestro Pizza Plus' premises once each month for tax purposes and he knew Milospersonally during the years in question. Milos testified that he took money freely from Maestro Pizza Plus' cash till constantly and repeatedly and did not report it for accounting or tax purposes. Nor did he keep track of the cash he took. Mr. Subotic knew this and testified that Milos and he discussed the fact that Milos was living well above the levels of someone who earned the income that Milos and Natasa were reporting for accounting or tax purposes. As a result, when completing Milos' income tax returns for the years in question they agreed on a number to report without any factual basis whatsoever. They simply struck any imaginary figure they chose and reported that in both Milos' and the Corporation's income tax returns in all of the years in question. This constituted wilful default in violation of subsection 152(4) of the Income Tax Act in the Appellant's 1997 and 1998 income tax returns; and gross negligence in violation of subsection 163(2) of the Income Tax Act in the Appellant's 1997, 1998 and 1999 income tax returns by Milos Markovic, the Appellant. Moreover, the discrepancies between Milos' income found in these reasons and the income that Milos reported in his 1997, 1998, 1999 income tax returns was both material and substantial.
[11] The evidence is that Maestro Pizza Plus consisted of a restaurant, a bar and a take-out pizza business at which Marco Adamo was employed as a cook, Miloswas employed for at least 60 hours per week and which had 15 or more delivery personnel. The delivery personnel were paid $30.00 per day plus their tips. Natasa also worked there occasionally, cleaning up. The Corporation operated Maestro Pizza Plus and the only "wages" it reported each year was the money it showed as Milos' income. Maestro Pizza Plus operated its business at 896 Wilson Avenue, Toronto, Ontario, on the main floor and the basement, and Marco and his family lived on the second floor.
[12] Milos is now 46 years old. He was orphaned at age 13 and finished his grade 12 in Montengro. He then came to Canadaand lived with his uncle and aunt. He worked here, then returned to Montengro and spent 15 months in the army and returned to Canadawhere he worked, had an automobile accident and recovered damages of $126,000 of which he invested $100,000. He obtained his grade 12 equivalency in Canadaand hired a lawyer in Montengro through whom he alleges that he recovered an inheritance in Montengro of the lake property, a city duplex and forms of insurance money in respect to the deaths of his parents. The duplex is allegedly rented at $1,200 per month which he never reported as income to CRA. He never reported the alleged sale of the lake property for tax purposes anywhere, nor did he report the alleged recovery of his parents' insurance money. He states that he brought the $160,000 from the sale of the lake property; rents of $100,000 in a lump sum; and his parents' insurance money into Canadahimself or with a relative's assistance, but there is no document or testimony by anyone in support of his testimony. So it is not corroborated. Milos states that he used these monies to live on, again without any corroboration. Without independent third party testimony and supporting documents, and given the Court's finding that Milos is not credible, these statements are found to be false. Indeed, Milostestified that he hid all of this from his brothers and sister since they might claim some of it.
[13] The result is that these reassessments are referred to the Minister of National Revenue for reconsideration and reassessment as to income and penalties, all of which are to be recalculated and reassessed based upon the findings of this Court as calculated in the revised Schedule I set out in paragraph [7] and as further set out in paragraph [8] of these Reasons. In particular, the Court finds that the Respondent has satisfied the onus upon it in order to establish the penalties assessed and its reassessments of the 1997 and 1998 taxation years.
[14] The Appellant shall pay the Respondent its party and party costs.
Signed at Kelowna, British Columbia this 7th day of February 2007.
"D.W. Beaubier"
Beaubier J.
COURT FILE NO.: 2003-3899(IT)G
STYLE OF CAUSE: Milos Markovic v. The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: January 8, 9 and 10, 2007
REASONS FOR JUDGMENT BY: The Honourable Justice D.W. Beaubier
DATE OF JUDGMENT: February 7, 2007
APPEARANCES:
|
For the Appellant: |
David W. Chodikoff and Ryan Lay |
|
Counsel for the Respondent: |
Jenny P. Mboutsiadis Eleanor H. Thorn |
COUNSEL OF RECORD:
Name: David W. Chodikoff and Ryan Lay
Firm: Goodman and Carr, LLP
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada