Gobeil v. The Queen
(December 5, 2015 – 2015 TCC 361, Favreau J.).
Précis: The taxpayer had unreported rental income from properties in the Dominican Republic. The Minister reassessed for the 2005 to 2009 taxation years using a net worth assessment basis. The 2005 and 2006 taxation years were otherwise statute barred. The Court held that the Minister had established evidence of gross negligence on the part of the taxpayer that permitted both opening the statute barred years and imposing penalties in all of the taxation years under appeal.
Decision: This is a fairly run of the mill case where the taxpayer had unreported rental income from properties in the Dominican Republic. CRA used a net worth assessment basis, opened up otherwise statute-barred years and imposed gross negligence penalties.
 The issues are as follows:
(a) For the 2005 and 2006 taxation years, was the Minister authorized to reassess after the normal reassessment period?
(b) Was the Minister justified in adding to the appellant’s income the respective amounts of $25,747, $11,475, $21,876, $25,245 and $59,246 for the 2005, 2006, 2007, 2008 and 2009 taxation years?
(c) Was the Minister justified in applying the penalty set out in subsection 163(2) of the Act to the amounts added to the appellant’s income for the 2005 to 2009 taxation years inclusively?
The Court held that the Minister was justified in opening the statute-barred years:
 The onus is on the respondent to establish for each of the statute-barred years, in this case, 2005 and 2006, that the appellant has made a misrepresentation of fact that is attributable to neglect, carelessness or wilful default and that the penalties set out in subsection 163(2) of the Act were imposed correctly for each of the taxation years at issue.
 In light of the facts of this appeal, I am of the view that the respondent has discharged her burden of proof. The appellant also specifically admitted during the hearing that she had not reported, in the 2005 and 2006 taxation years, the income generated by her activities in the Dominican Republic and that she should have reported it. Because of this, the Minister was justified in making reassessments for said taxation years after the normal reassessment period and in imposing penalties for gross negligence under subsection 163(2) of the Act.
Similarly the use of the net worth assessment method was justified:
 The net worth calculations made by the Minister were very thoroughly examined by the appellant’s accountant, and, for that reason, two sets of adjustments were made to them. The only dispute that remains concerns the appellant’s personal expenses.
 The amounts of personal expenses used as part of the net worth assessment seem reasonable to me in the circumstances, considering the appellant’s lifestyle: residence in Quebec, condominium in Florida, pleasure craft in Quebec, etc.
 The fact that adjustments were made to the appellant’s net worth does not mean that the net worth was calculated incorrectly or botched. The net worth method to reconstruct the increase in a taxpayer’s net assets is an alternative method whose results are sometimes imperfect but still sufficiently reliable when it is done rigorously like in this case.
Finally, the gross negligence penalties were upheld:
 With regard to the penalty under subsection 163(2) of the Act for the 2005, 2006, 2007, 2008 and 2009 taxation years, the respondent has also discharged her burden of proof. Significant discrepancies were identified between the appellant’s reported and unreported income. The appellant knew that her income was underestimated because she gave the numbers to her accountant at the end of each year so that she could prepare her income tax returns. In proceeding in that way, the appellant was negligent in not reporting all of her income. The appellant had sufficient knowledge to know that she should report all of her foreign income. The appellant was the subject of criminal proceedings because she had not reported all of her income for the 1993 to 1997 taxation years. Therefore, she knew the consequences of not reporting all of her income.
 Given the concessions made by the respondent at the hearing, Ms. Gobeil’s appeal is allowed and the reassessments are referred back to the Minister for reconsideration and reassessment in order to give effect to those concessions. The penalties must be adjusted accordingly.