Lubega-Matovu v. R. - TCC: Court finds business losses fictitious

Lubega-Matovu v. R. - TCC:  Court finds business losses fictitious

Lubega-Matovu v. The Queen (June 12, 2015 – 2015 TCC 147, Woods J.).

Précis:  Mr. Lubega-Matovu was, at the date of the hearing, a retired senior auditor with CRA.  In 2006, 2007 and 2008 he claimed business and rental losses that essentially reduced his taxable income to nothing.  His wife, Ms. Lukwago, claimed a small amount of business income in those years and also claimed losses from businesses carried on with her husband.  Mr. Lubega-Matovu had unsuccessfully appealed assessments of his 2004 and 2005 taxation years before Justice Campbell who found no evidence to substantiate his business activities during the course of a 1 day trial.  Similarly, Justice Woods found no evidence of business activities during the course of a 5 ½ day trial.

Both appeals were dismissed and gross negligence penalties were sustained;  the parties were to make submissions on costs.

Decision:  The Court rejected evidence of Mr. Lubega-Matova’s two business activities, PanelForm and Market America.  On the balance of the issues it was similarly not persuaded:

IV. Rental losses

[33]        Mr. Lubega-Matovu claimed losses from purported rentals of a portion of his principal residence. Again, there was a lack of cogent, detailed evidence to support these losses. I would note that one of the purported tenants was Ms. Lukwago. The evidence as a whole suggests that she was not a tenant but a common law partner of Mr. Lubega-Matovu in the years at issue. The evidence regarding other tenants, Lucy and/or Rita, was simply too vague to support losses being claimed.

V. Administration fee to Ms. Lukwago

[34]        Ms. Lukwago seeks a reduction of her income in the event that the $5,000 fees purportedly paid to her by Mr. Lubega-Matovu were disallowed. It is not appropriate to make this adjustment because I am not satisfied that these amounts were reported as income by Ms. Lukwago.

VI. Gross negligence penalties

[35]        The imposition of gross negligence penalties against Mr. Lubega‑Matovu is appropriate. The evidence as a whole suggests that the losses that were claimed were manufactured to offset employment income. It is hard to imagine a stronger case for gross negligence penalties than this which involves a senior CRA auditor who would have been very knowledgeable about proper support for business expenditures.

VII. Conclusion

[36]        In conclusion, the appeals by Mr. Lubega-Matovu and Ms. Lukwago will be dismissed in their entirety.

The parties were instructed to make submissions on costs.