http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/218047/index.do
Lubega-Matovu v. Canada (December16, 2016 – 2016 FCA 315, Dawson, Webb (author), Boivin JJ. A.).
Précis: This is an appeal of a decision blogged earlier on this site. 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. Mr. Lubega-Matovu appealed to the Federal Court of Appeal which found no reversible errors and dismissed the appeal with costs.
Decision: The Court of Appeal rejected the appellant’s argument that he was denied procedural fairness:
[17] The Appellant asserts that the Tax Court Judge indicated in paragraph 2 of her reasons that the Appellant had paid for the amounts incurred from his employment income. However, there is no such statement in paragraph 2 of her reasons:
2 Mr. Lubega-Matovu is a retired auditor with the Canada Revenue Agency (CRA), and in the taxation years at issue he had a senior position with the CRA with responsibility for auditing large corporations. His employment income in these years, as disclosed in his income tax returns, was in the neighbourhood of $70,000 to $80,000.
[18] Paragraph 2 is simply a statement of his prior employment with the CRA and his level of income from employment in those years. As well, the source of any financing of any expenditure incurred by the Appellant was not the issue in the appeal. The issue was whether the Appellant had incurred the amounts in question and, if so, whether he had incurred these for the purpose of earning income from a business or property. How such expenditures were financed was simply not relevant nor was it discussed by the Tax Court Judge. The Appellant’s allegation in relation to this issue is incorrect.
[19] As a result, there is no merit to any of the Appellant’s procedural fairness arguments.
Nor did the Tax Court Judge err in focusing on the amounts claimed as losses:
[30] In this case the Tax Court Judge focused on the amounts claimed as expenses (which resulted in the losses claimed). The Tax Court Judge also referred to “PanelForm’s business” in paragraph 12 and to “this business” in paragraph 15 and to the “business losses” of Market America in paragraph 31. Although there was no explicit finding that the PanelForm and Market America activities were sources of business or property income, it is implicit that the Tax Court Judge either assumed that the PanelForm and Market America activities were sources of business or property income or made such a finding.
[31] Since the result would be the same whether there was a finding that:
(a) the PanelForm and Market America activities were not sources of business or property income; or
(b) the Appellant had not established that he had incurred the expenses that were before the Tax Court or that any such expenses that were incurred were not incurred for the purpose of gaining or producing income from a business or property,
the Tax Court Judge did not commit any error by focusing on the issue of whether the Appellant had substantiated the amounts claimed as losses.
Finally the Court of Appeal found that there was no error in upholding the gross negligence penalties:
[41] The Appellant also did not establish that the Tax Court Judge committed any error in upholding the assessment of the gross negligence penalties.
As a result the appeal was dismissed with costs.