March 06, 2012

George R.H. Hsu (Appellant) v. Her Majesty the Queen (Respondent)

2001 DTC 5459
Federal Court of Appeal
Date: July 24, 2001

Court File No. A-390-00

Net worth assessments — Taxpayer reporting small amounts of interest income for two taxation years — In net worth reassessments, Minister adding substantial amounts to taxpayer’s reported figures — Whether, on the evidence, taxpayer having been able to impugn the accuracy of the Minister’s reassessments — Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, as amended, ss. 2(1), 2(3), 152(7) and 152(8).

Facts: In net worth reassessments for 1993 and 1994, the Minister added substantial amounts to the taxpayer’s reported income. The Tax Court of Canada dismissed the taxpayer’s appeal (2000 DTC 2232) finding, in essence, that the methodology used by the Minister’s auditor was reasonable and logical, and that the taxpayer had not produced any evidence to rebut any of the Minister’s assumptions underlying his reassessments. The taxpayer appealed to the Federal Court of Appeal.

Held: The taxpayer’s appeal was dismissed. The issues were (i) whether the Tax Court judge had erred in concluding that the taxpayer bore the onus of disproving the validity of the reassessments in issue; (ii) whether the Tax Court judge had erred in concluding that the taxpayer was in receipt of income not declared; and (iii) whether the Tax Court judge was correct in sustaining the Minister’s reassessments. The taxpayer’s principal argument that the Minister had not relied on a net worth method of assessment was untenable. Hence, the Tax Court judge did not err in concluding that the Minister’s approach involved a variation of a net worth assessment. Furthermore, despite the taxpayer’s contention that the Minister’s pleadings were inadequate, the taxpayer had not been deceived concerning the case against him. It was also open to the Tax Court judge to conclude that the methodology used by the Minister’s auditor in determining the taxpayer’s income had been reasonable and logical in the circumstances, even though it was arbitrary. The burden of disproving the validity of the reassessments, moreover, rested squarely on the taxpayer, in view of the presumption of validity of assessments in subsection 152(8) of the Act. Finally, the taxpayer had not attempted to demonstrate that the Minister’s assumptions were wrong in fact. For all of the foregoing reasons, the Minister’s reassessments were affirmed.