Pirart v. R. - TCC: Mixed success on unreported income from drug sales - no order of costs

Pirart v. R. - TCC:  Mixed success on unreported income from drug sales - no order of costs

http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/214326/index.do

Pirart v. The Queen (December 20, 2016 – 2016 TCC 291, Lyons J.).

Précis:   This is a report of a motion to reconsider the Tax Court’s decision not to award costs on the earlier trial, which was blogged on this site.   Mr. Pirart was assessed unreported income in the amounts of $1,050,000 for 2005, $1,200,000 for 2006, $1,350,000 for 2007, and $1,500,000 for 2008, mostly from an alleged cocaine business;  in addition he was assessed for gross negligence penalties on the unreported income.  The Tax Court accepted his evidence that the cocaine was the property of his former partner, Wendy Anderson (since deceased), and allowed the appeal with respect to that income.  It dismissed the appeal with respect to his income in the amount of $32,400 from a marihuana business in 2007 and 2008 and sustained the penalties on that unreported income.  There was no order as to costs since success was mixed.

The motion for reconsideration was unsuccessful.  The balance of factors did not weigh in favour of a costs award to the appellant.  Costs on the reconsideration motion were awarded to the Crown, payable forthwith.

Decision:   The motion for reconsideration was unsuccessful.  The main evidentiary factors did not favour the appellant:

[12]        One of the difficulties with the applicant’s approach is his assertion that the respondent denied sales of marijuana. However, it is clear from the Reply to the Amended Notice of Appeal, under the issues and submissions segments, that the respondent did not deny this. Rather, she viewed the unreported income from the applicant’s cannabis cloning (marijuana) operation as an issue.  At the hearing, he was cross-examined and provided details about his marijuana operation, he admitted he made such sales but did not report the income nor tell his accountant. Oral and written submissions were prepared by respondent counsel relating to that issue and a valuation of marijuana was included in the respondent’s expert report which ultimately went uncontested.  In light of such considerations, I fail to see how the applicant can assert that this was denied by the respondent.

[13]        Admittedly income from marijuana was not pled in the Reply as an assumption, nonetheless the respondent referred to “Unreported Incomes” from business which included income from cocaine and income from marijuana. Nor can it be said it was unreasonable for the respondent to make such an argument especially based on the applicant’s admissions during the hearing relating to the marijuana operation.

[14]        Analyses were conducted and findings were made relating to the marijuana operation, the issue as to sales/income from marijuana and associated gross negligence penalties, all of which were separate and apart from the issue as to sales/income from cocaine. Based on the issues, the result of the proceeding was divided in that it was found that there was unreported income from the marijuana operation in half the years under appeal and gross negligence penalties were properly levied. Where success is divided, as here, it is not unusual for no order as to costs be made.

[Footnote omitted]

Nor did the appellant’s abortive settlement offer support an award of costs:

[17]        Over four months later, the applicant made a “firm” written settlement offer to the respondent to include $500,000 as partnership income commencing in 2008, that penalties be deleted and the 2005 to 2007 taxation years be vacated and that adjustments be made to his goods and services tax assessments (“applicant’s  offer”).

[18]        The next day, the respondent proposed a counter-offer that the reassessments for the 2005 and 2006 taxations years be vacated, that the unreported income in the 2007 and 2008 taxation years be reduced by 25% and that gross negligence penalties be adjusted accordingly. It was not accepted. I note that the applicant did not refer to the counter-offer in his motion materials and that it resulted in a lower amount than the initial offer made by the respondent which is reflected at paragraph 4(b) of his motion.

[19]        As pointed out by respondent counsel, no attribution of partnership income could be made with respect to the late Wendy Anderson thus the respondent could not reasonably accept such an offer. I observe that there was no suggestion that consent had been sought from Ms. Anderson’s Estate with respect to such attribution. Consequently, this renders this condition incapable of acceptance and especially since it was characterized by the applicant as a “firm” offer.

[Footnote omitted]

In addition, the Court found that the appellant’s conduct unduly lengthened the trial:

[26]        In addition, in my view, conduct unnecessarily lengthened the duration of the proceeding as contemplated in paragraph 147(3)(g). For example, time was spent during the hearing on questions surrounding the marijuana operation, the locations plus other evidence and submissions were made. Yet, during the last several minutes of the trial in reply submissions, and after a recess, the applicant capitulated, in part, with respect to that operation. This is reflected in the remarks made by applicant counsel that “I have instruction to agree if the Minister is seeking to raise the marijuana income as an alternative basis of assessment pursuant to 152(9) we would not oppose that for the ’07 and ’08. We would, however, suggest that if that’s the case, as we suggested before, that is consistent with – the appellant’s evidence is consistent on that.”

[27]        I find that this late capitulation - especially since it is clear from the respondent’s Reply that this was in issue - unnecessarily elongated the proceeding and he neglected to admit this sooner as contemplated in the criteria in paragraph 147(3)(h).  

[Footnote omitted]

As a result, the motion for reconsideration was unsuccessful.  The balance of factors did not weigh in favour of a costs award to the appellant.  Costs on the reconsideration motion were awarded to the Crown, payable forthwith.