[2013] 1 F.C.R. D-2
Income Tax
Income Calculation
Appeal from Tax Court of Canada (T.C.C.) decision (2011 TCC 540) vacating appellant’s (Canada) reassessments under Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1 for 2002, 2003 on basis amounts included in respondent’s (Johnson) income not taxable—Respondent entering business agreement with individual on belief funds provided thereto to be invested in option trading—Arguing that net receipts received from business partner not taxable since innocently believing receiving share of aftertax profit derived from option trading—Unbeknownst to respondent, partner using funds to operate Ponzi scheme until collapse thereof—Whether respondent’s net receipts in 2002, 2003 from transactions with partner constituting income from a source; whether reassessments for 2002, 2003 statute-barred—Act, s. 3(a) providing that income from all sources must be included in taxpayer’s “income” for taxation year—No evidence upon which T.C.C. could reasonably conclude that partner contractually obligated to respondent to generate profits by option trading or any other manner—T.C.C.’s narrow construction of agreement between respondent, partner leading to incorrect conclusions in determining whether particular amount constituting income from a source or a non-taxable receipt—Person who participates in Ponzi scheme may be engaged in undertaking that would be recognized as business for income tax purposes, even if business unlawful—Such person taxable on any profits derived from Ponzi scheme; may be permitted to deduct related losses—Therefore, respondent required by Act, s. 3(a) to report net receipts from partner in 2002, 2003 in income tax returns for years at issue—Given respondent’s carelessness in omitting to include payments received in 2002, 2003 income, reassessments for taxation years at issue not statute-barred since conditions under Act, s. 152(4)(a)(i) justifying late reassessment met—Appeal allowed.
Johnson v. Canada (A-491-11, 2012 FCA 253, Sharlow J.A., judgment dated October 4, 2012, 27 pp.)