https://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/460960/index.do
Xia v. Canada (February 3, 2020 – 2020 FCA 35, Rennie, DeMontigny (Author), Locke JJ.A.).
Précis: The taxpayer was a slot machine attendant. He was assessed for his share of pooled tips and the Minister imposed gross negligence penalties. The taxpayer argued in the Tax Court that the amount was a non-taxable windfall. He was unsuccessful in the Tax Court and appealed to the Federal Court of Appeal. The Court of Appeal dismissed the appeal from the bench, with costs.
Decision: The Court of Appeal had little sympathy for the taxpayer’s position and little patience for his arguments:
[5] The fact that the tip amounts received by the appellant derived from non-taxable income is irrelevant for tax purposes. It is the nature of the gratuity as a source of income in the hands of the appellant that matters. Even if gambling winnings are generally not taxable in the hands of a casino patron, a tip or gratuity given by that same casino patron to a casino employee is not a gift and is taxable income if the criteria set out in Cranswick are met (see e.g. Bach v. HMTQ, 2003 TCC 328, [2003] 4 C.T.C. 2005 [Bach]). Applying these criteria, the Tax Court found that the tip amounts were not windfalls of gifts but were tied to the services that the appellant performed while employed as a slot attendant at the casino.
[6] The appellant has not convinced us that the Tax Court erred in applying these criteria to the case at bar. Indeed, the decision of the Tax Court is consistent with previous decisions according to which tips paid out of gambling winnings constitute taxable income (Bach, at para. 5). As the Tax Court stated, “[t]he fact that the amount is paid to a committee and pooled with other amounts paid to the attendants before distribution does not change the nature of the payment. It remains a gratuity for services provided by the slot attendant by virtue of his employment.” (Reasons, at para. 14).
[7] As for the gross negligence penalties, the appellant has not convinced us that the Tax Court erred in coming to the conclusion that he displayed a “dismissive and indifferent attitude” in failing to inquire as to whether he should report the tip amounts. Mr. Xia is an intelligent and well-educated individual, has provided tax and financial advice, has knowledge of the tax benefits and consequences of security funds and life insurance, and yet made no effort to ascertain whether the tip amounts he received from casino patrons had to be reported. It is clear that the evidence supports a finding that the appellant was liable for willful blindness and gross negligence.
[8] The appellant also raised before this Court arguments of procedural fairness. These arguments seem to arise from the length of time the Minister took to process his notice of objection, the amount of interest owed, and the fact that the Minister may have settled with other taxpayers. None of these arguments have any merit, and also touch on matters of settlement privilege, to which the Crown objected.
As a result, the Court of Appeal dismissed the appeal from the bench, with costs.