Evidence vs. Credibility 

Tax Forum

Evidence vs. Credibility

When arguing a tax case, there is no substitute for hard evidence.

FROM: JAN-FEB 2007 ISSUE | BY DON GOODISON

When contesting a matter with the Canada Revenue Agency (CRA), it goes without saying that it’s in your best interest to have solid evidence to back up your position. It’s surprising, then, when a taxpayer who could produce such evidence, fails to do so. In Lency Turner v. Her Majesty the Queen, Federal Court of Appeal, 2006, the required evidence took the form of a testimony from the appellant’s mother.

In 1998, the Special Investigations section of the CRA in Quebec was assigned two files in which large refunds were claimed at the federal level but not at the provincial level. The investigation revealed that it was a case of internal fraud at the Jonquiere Tax Centre in Quebec, and that the amounts had been entered internally on-screen. Further investigation uncovered four other files with similar attributes. The trail led to three employees of the Jonquiere Tax Centre: the appellant, who was employed as an office clerk, her spouse, who worked in refunds, and a third man. In total, 42 taxpayers were questioned regarding the fraudulent refunds. Charges were laid against the spouse and the third person, and both entered guilty pleas. The appellant was not charged, but was dismissed from her job.

In 1994, the appellant had deposited $33,000 into a personal bank account. The minister took the position that these funds resulted from the fraud carried out by her spouse, and reassessed her 1994 taxation year accordingly. The invested funds received interest in 1995, 1996, and 1997, and these amounts were also reassessed. Penalties under subsection 163(2) were assessed for gross negligence.

Turner appealed to the Tax Court of Canada in 2005, claiming that the funds had belonged to her mother, for whom she had cared since 1994, and whose finances she handled as well. She claimed that the money came from a settlement worth $15,000 to $20,000 her mother had received following a car accident in 1977.

At the Tax Court, the Crown introduced evidence in the form of a Provincial Court judgment showing that the mother had been awarded damages in 1977 in the amount of $1,035.15, representing the cost of repairs to her vehicle. No documentation was produced to confirm the receipt of bodily injury compensation. Turner argued that the bodily injury compensation was received from another accident that occurred somewhere between 1977 and 1980. The Crown also introduced evidence that the mother’s only source of income from 1973 until she began collecting old age assistance was social assistance. Turner did not call her mother as a witness, stating that she was very ill, and that she didn’t want to expose her to cross-examination.

The Tax Court of Canada dismissed Turner’s appeal. The court simply couldn’t believe that her mother could have accumulated the funds with the income she received, and questioned the failure to call the mother as a witness.

Turner appealed to the Federal Court of Appeal, arguing that the Tax Court judge should have believed her version of the facts, even in the face of hard evidence to the contrary. In dismissing her appeal, the court agreed with the Tax Court’s view on the absence of Turner’s mother, stating:

Given that the appellant’s case is based entirely on acts and events that she attributes to her mother, it is surprising, as the trial judge himself noted, that the appellant’s mother was not called to testify.

The appeal court said this about the appellant’s credibility:

It was up to Angers, J. to draw a conclusion as to her credibility, and nothing that the appellant has told us during this hearing gives me reason to question his judgment.

The average taxpayer can be forgiven for thinking he or she can simply tell a story and have it believed by the courts, but a CRA employee should really know better. While credibility is a very important factor in a judge’s decision-making process, it doesn’t stand up to hard evidence, and is in fact lost if the hard evidence puts holes in the taxpayer’s claims. This case is full of examples in which evidence contradicts the appellant’s claim; she claimed that her mother kept her money in a sock at home until the bank account was opened in 1994. She also claimed that the deposit in 1994 came from the proceeds of an accident settlement worth $15,000 to $20,000 in 1977 or thereabouts. If the mother kept that money in a sock, how would it have increased to $33,000 by 1994?

It is admirable that Turner stuck to her story even in the face of contradictory evidence produced by the Crown, but I, like the court, find it surprising she wouldn’t have called her mother to testify. She stated that her mother was in poor health, but provided no additional details. One is left to speculate what the mother’s testimony may have been. The Tax Court probably stated it best:

[. . .] failure to present evidence that a party could have presented and that could have clarified the facts forces the Court to assume that such evidence would have been detrimental to that party.

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Don Goodison, CFP, FCGA, is a partner of Kemp Harvey Goodison, Certified General Accountants, in Burnaby, B.C. E-mail goodison@axionet.com.