2087028 Ontario Inc. v. R. - TCC: Bank transfers from relatives not unreported business income

2087028 Ontario Inc. v. R. - TCC:  Bank transfers from relatives not unreported business income


2087028 Ontario Inc. v. The Queen (September 28, 2016 – 2016 TCC 216, C. Miller J.).

Précis:   The taxpayer was owned by Ms. Lin and operated an immigration consulting business for Chinese immigrants.  It was reassessed for its 2012 and 2013 taxation years by adding alleged unreported income of $84,966 and $95,770.  That income represented 6 bank transfers to Ms. Lin by various members of her family.  The Crown alleged that the bank transfers were disguised income from the immigration business of 2087028 Ontario Inc.  The Court heard evidence from Ms. Lin and her family members who had transferred the funds.  The Court concluded that, while some aspects of the transfers were confusing, the evidence that these were personal advances to Ms. Lin by her family was credible.  As a result the appeal was allowed.  There was no order as to costs since this was an informal procedure appeal.

Decision:    This was a case that turned completely on credibility:

[1]             The Minister of National Revenue (the “Minister”) assessed 2187028 Ontario Inc., the Appellant, for its 2012 and 2013 taxation years by adding unreported income of $84,966 and $95,770 respectively to the Appellant’s immigration consulting business. The Appellant’s position was that those amounts represented financial assistance for the Appellant’s sole shareholder, Ms. Lin’s husband’s business, Calin Stone Ltd. (“Calin”). Oftentimes when I am faced with similar explanations from taxpayers of receipt of offshore funds, there is a lack of corroborative evidence. In this case, the six family members who purported to provide the financial assistance were lined up to testify from China, each having a copy of the wire transfer involved. After having heard two of such witnesses, Mr. Lin’s sister and brother-in-law, the Respondent allowed that the remaining families’ testimony would present a similar story. The Respondent’s position was that due to some brief wording on the wire transfer applications themselves, it is not plausible this was financial assistance from the family, but was in fact revenue arising from the immigration consulting business. While I appreciate the wording might raise an eyebrow, on balance I believe the family testimony, I have concluded the funds in dispute do not represent unreported income.

Ms. Lin’s case was not perfect.  She admitted to other small amounts of undisclosed income:

[12]        Finally, Ms. Lin acknowledged that on two occasions, in 2011 and 2012, she had admitted to having unreported income of $3,500 and $13,200 respectively, which she attributed simply to accounting mistakes. They had nothing to do with possible offshore income. Calin [her husband’s business] also had $36,000 in unreported income, though was unclear to me which year that related to.

The case was however enough to persuade the Court to allow the appeal deleting the unreported income and the gross negligence penalties:

[20]        I recognize there are some stumbling blocks that caused me some concern in reaching this conclusion, but they do not outweigh the consistent family story. The major stumbling block is the notations on the Transfer Forms. The family had an explanation for this that a non-businesslike remark was preferred, that the personal reason was not that significant and that it was left to the bank employee. It is not implausible that there are only a handful of personal like notations that are part of these forms. It is simply not as unfathomable as the Respondent suggests. Again, it is a matter of weighing the probabilities.

[21]        Likewise, the Respondent’s concern that there is a family tradition of unreported income. Can I accept Ms. Lin’s explanation (and apology)? I can and I do. These were mistakes.

[22]        I allow the Appeals and refer the Appeals back to the Minister for reassessment and reconsideration on the basis the Appellant did not have unreported income of $84,960 and $95,770 in 2012 and 2013. There likewise will of course be no penalties.

[23]        While I have ultimately fallen off the fence in favour of the Appellant, it should be clear to Ms. Lin that I fully understand why the Respondent questioned these transfers. The truth has not been crystal clear in surfacing and I have ruled based on a balance of probabilities that just tilt in her company’s favour.

There was no order as to costs since this was an informal procedure appeal.