Lin v. The Queen (February 12, 2020 – 2020 CTC 26, Bocock J.).

Lin v. The Queen (February 12, 2020 – 2020 CTC 26, Bocock J.).

Lin v. R. – TCC:  Appeals related to unreported restaurant income and shareholder benefits dismissed with costs

Précis:  Mr. Lin was one of two shareholders of a restaurant in Hamilton operating as “Sushi Star” (1647208 Ontario Inc.).  The other shareholder of Sushi Star was Mr. Chen.  Mr. Chen also was a shareholder of a restaurant in Kitchener  operating as “Sushi Stars” (1773548 Ontario Inc.).  Mr. Lin was not a shareholder of Sushi Stars.  Both restaurants were assessed for unreported sales (Sushi Star – 2009 and 2010;  Sushi Stars – 2010 and 2011).  Both Mr. Lin and Mr. Chen were assessed shareholder benefits.  All of the taxpayers were assessed penalties.

Decision:   As is often the case in these unreported income appeals the Court was satisfied with the Minister’s methodology in reconstructing the unreported income:

[113]  For Hamilton Co., the premises, both as to size and operations were quite dynamic. It expanded considerably, renovated and closed during that process. As such the Minister’s agents utilized a ratio of revenue between cash sales and credit and debit card sales during the period it did operate.

 [114]  Overall, the detail, balance and deliberation of the Minister’s agents were unassailable. Concerning Hamilton Co., alternative methods were used as controls, but unutilized to assess because of resulting inflated income. Similarly, concessions, although minor and actually leading to an understated assessment, were employed. This probity added legitimacy to the approach and result.

[115]  The Court is equally satisfied with the Kitchener Co. reassessment. The method utilized fit the circumstances completely; a sales analysis method yielded the most reliable and conservative unreported income projection, once the taxpayers’ records were determined to be unreliable, because of the inexplicable and unwarranted alteration of POS sales records. The auditors used a chop stick projection and wage projection, by way of excluded comparison, to support the sales analysis method for the Kitchener Co.

[116]  Lastly, with respect to both locations, no evidence was marshalled to seriously challenge the CRA’s calculations of the quantum of unreported income.

Accordingly the Court dismissed the appeals of all four taxpayers and awarded one set of costs to the Crown in accordance with the Tariff (“subject to the right of either party to make written submissions thereon within 30 days of the date of the judgment, whereupon the Court shall consider such submissions and may vary its provisional cost award, failing which this provisional cost award shall become final” para. [135]).