Tony Cheung

The appellant appealed an assessment under subsection 325(1) of the Excise Tax Act related to the transfer of her husband's half-interest in their matrimonial home to her.

At the time of the transfer, the husband had an outstanding tax debt.

The Minister assessed the appellant on the basis that she provided no consideration for the transfer.

The Tax Court of Canada allowed the appeal, finding that the appellant provided consideration by assuming sole responsibility for a business line of credit that was previously the responsibility of her husband's company and her husband.

The matter was referred back to the Minister for reassessment to reflect the reduced shortfall in consideration.

The Minister reassessed the appellant's 2011 and 2012 taxation years, adding unreported business income from a restaurant and imposing gross negligence penalties under subsection 163(2) of the Income Tax Act.

The Minister assumed that various restaurant expenses were paid using cash from unreported sales.

The appellant appealed, arguing that all sales were recorded and that cash expenses were funded by cash sales not deposited in the business bank account, as well as personal funds transferred to the business.

The Tax Court of Canada allowed the appeal, finding that the appellant provided a plausible explanation and sufficient evidence to rebut the Minister's assumptions.

The court concluded that the appellant did not have unreported income and was therefore not liable for the penalties.