http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/234804/index.do
Tang v. The Queen (September 7, 2017 – 2017 TCC 168, Lafleur J.).
Précis: Mr. Tang was assessed for the 2005, 2006 and 2007 taxation years on the basis of net worth analysis. This amounted to additional income for the 2005 to 2007 taxation years in the amounts of $122,100, $291,663, and $74,943 as well as gross negligence penalties in each of the taxation years. Mr. Tang came to Canada in 1994 as a business immigrant and was involved with rental properties and also bought and sold real estate. He left Canada in 2009 and was no longer a resident. Mr. Tang, who insisted on representing himself notwithstanding the advice of the Court, argued that the sums alleged to be unreported income arose from loans from family members and other non-taxable sources. Amazingly (for this type of net worth case) the Court accepted the bulk of his evidence and directed the reassessments be reduced by 84%. Notwithstanding Mr. Tang’s substantial success, the Court declined to order costs in his favour since his lack of adequate preparation had caused considerable delay in the proceedings.
Decision: Mr. Tang’s position on the net worth assessment was that it omitted the take into accounts loans he had received from family members and other non-taxable amounts:
[34] The net worth assessment, which imputed income on both Mr. Tang and his former spouse (whose income is not at issue in this appeal), showed income calculated under the net worth method as $244,200, $583,326 and $149,886 for the 2005, 2006 and 2007 taxation years respectively. That makes for a combined total alleged unreported income of $977,412 for both Mr. Tang and his former spouse. Mr. Tang’s share of that combined total alleged unreported income is 50% or $488,706.
[35] Mr. Tang submits that any apparent increase in net worth is due to a series of loans that were either omitted from, or understated in, the net worth assessment. Mr. Tang also argues that the CRA’s net worth assessment is fundamentally flawed and thus undermines its credibility.
[36] In terms of the loans, Mr. Tang submits that he received loans totalling $385,288 from his aunt on his mother’s side (and her family), a loan of $439,216 from his family in Taiwan (which is part of his father’s inheritance), and a loan of $125,000 from Neostar Technologies Co. Ltd.
[37] Furthermore, Mr. Tang also submits that the Shareholders’ loan balance in Tang Dynasty Investments Limited for $325,362 as of December 31, 2004, was undervalued due to an accounting error, and should instead be recorded as a loan for $558,610.89.
The Court accepted a substantial amount of Mr. Tang’s evidence:
[39] Overall, I found Mr. Tang’s testimony, although often unclear, to be credible. Given the credibility of Mr. Tang’s testimony and the evidence that he provided, I find that he made out a prima facie rebuttal of the Minister’s assumptions with respect to the loan of $385,288 from his aunt (and aunt’s family) and the loan of $439,216 from his family. As with the net worth assessment, where Mr. Tang was assigned half of the additional income, Mr. Tang’s share of these loans would again be 50%—$192,644 for the loans from his aunt and $219,608 for the loan from his family, giving a total of $412,252. These amounts would reduce Mr. Tang’s additional income as per the net worth assessment by approximately 84%. Concerning these loans, the Crown did not produce sufficient evidence or argument to refute Mr. Tang’s prima facie rebuttal. However, I find that Mr. Tang did not make out a prima facie case with respect to the various loans from Neostar Technologies Co. Ltd., the opening balance of the Shareholders’ loan in Tang Dynasty Investments Limited and in respect of Schedule D of the Reply.
As a result, the Court directed that the reassessments under appeal be reduced by 84%:
[68] The Minister has met her burden to show that Mr. Tang has made a misrepresentation that met the standard set out in subparagraph 152(4)(a)(i) of the Act and, therefore, the 2005 taxation year is not statute-barred.
[69] In respect of the reassessments for the 2005, 2006 and 2007 taxation years, since the Minister presented no evidence showing that Mr. Tang’s behaviour met the standard set out in subsection 163(2) of the Act, the gross negligence penalties will be deleted.
[70] Mr. Tang has given reasonable explanations with respect to how he maintained his lifestyle during the 2005, 2006 and 2007 taxation years, taking into consideration the loans from his aunt and the loans from his family, which account for approximately 84% of additional income assessed under the net worth assessment. Therefore, these loans will be reflected in the net worth assessment and the additional income assessed under the net worth method for each taxation year will be reduced by 84%. In other words, only 16% of the additional income calculated under the net worth method will be assessed.
Notwithstanding Mr. Tang’s substantial success, the Court declined to order costs in his favour since his lack of adequate preparation had caused considerable delay in the proceedings.