HAJRUDIN HEDZIC, Appellant, v. HER MAJESTY THE QUEEN,, 2013 TCC 249

Docket: 2012-1007(IT)I BETWEEN: HAJRUDIN HEDZIC, Appellant, and HER MAJESTY THE QUEEN, Respon dent. [OFFICIAL ENGLISH TRANSLATION] ____________________________________________________________________ Appeal heard on common evidence with the appeal of Fikreta Hedzic (2012-1008(IT)I), on April 22 and 23, 2013, at Québec, Quebec.

Before: T he Honourable Justice Johanne D'Auray Appearances : For the appellant: The appellant himself Counsel for the respondent: Simon Vincent ____________________________________________________________________ AMENDED JUDGMENT The appeal from the reassessments made pursuant to the Income Tax Act for the 2007 and 2008 taxation years is allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment as follows: - add to the joint net worth $5,000 as current assets under [ translation ] "money in possession—safety deposit box" for the 2007 taxation year; - reduce to nil the current joint assets under [ translation ] "money in possession—safety deposit box" for the 2008 taxation year; - subtract from the joint net worth $2,427.72, $749.26, $4,000.00 as personal expenditures for the 2007 taxation year; - subtract from the joint net worth $1,061.45 as transportation expenditures for the 2008 taxation year; - subtract from the joint net worth $2,441.00 and $12,576.77 as personal expenditures for the 2008 taxation year;

- vacate the penalties imposed by the Minister under subsection 163(2) of the Act. This amended judgment is issued in replacement of the August 8, 2013, judgment. Signed a t Ottawa, Canada, this 8th day of November 2013. "Johanne D’Auray" D'Auray J. Translation certified true on this 18th day of November 2013.

Elizabeth Tan, Translator Docket: 2012-1008(IT)I BETWEEN: FIKRETA HEDZIC, Appellant, and HER MAJESTY THE QUEEN, Respondent. [OFFICIAL ENGLISH TRANSLATION] ____________________________________________________________________ Appeal heard on common evidence with the appeal of Hajrudin Hedzic (2012-1007(IT)I), on April 22 and 23, 2013, at Québec, Quebec. Before: The Honourable Justice Johanne D'Auray Appearances :

Agent for the appellant: Hajrudin Hedzic Counsel for the respondent: Simon Vincent ____________________________________________________________________ AMENDED JUDGMENT The appeal from the reassessments made pursuant to the Income Tax Act for the 2007 and 2008 taxation years is allowed, without costs, and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment as follows: - add to the joint net worth $5,000 as current assets under [ translation ] "money in possession—safety deposit box" for the 2007 taxation year; - reduce to nil the current joint assets under [ translation ] "money in possession—safety deposit box" for the 2008 taxation year; - subtract from the joint net worth $2,427.72, $749.26, $4,000.00 as personal expenditures for the 2007 taxation year; - subtract from the joint net worth $1,061.45 as transportation expenditures for the 2008 taxation year; - subtract from the joint net worth $2,441.00 and $12,576.77 as personal expenditures for the 2008 taxation year; - vacate the penalties imposed by the Minister under subsection 163(2) of the Act.

This amended judgment is issued in replacement of the August 8, 2013, judgment. Signed at Ottawa, Canada, this 8th day of November 2013. "Johanne D’Auray" D'Auray J. Translation certified true on this 18th day of November 2013. Elizabeth Tan, Translator Citation: 2013 TCC 249

Date: 20131108 Docket: 2012-1007(IT)I BETWEEN: HAJRUDIN HEDZIC, Appellant, and HER MAJESTY THE QUEEN, Respondent. Docket: 2012-1008(IT)I BETWEEN: FIKRETA HEDZIC, Appellant, and HER MAJESTY THE QUEEN, Respondent. [OFFICIAL ENGLISH TRANSLATION] AMENDED REASONS FOR JUDGMENT D'Auray J. [ 1 ] The appellants, Hajrudin Hedzic and Fikreta Hedzic are challenging the assessments made by the Minister of National Revenue (the Minister) for the 2007 and 2008 taxation years. The Minister added to Mr. Hedzic and Ms. Hedzic's income $15,790 for 2007 and $25,651 for 2008 as undeclared income. Mr. and Ms.

Hedzic (the Hedzics) had each declared $19,160 for the 2007 taxation year and $14,216 for the 2007 taxation year. [ 2 ] Penalties were also imposed under subsection 163(2) of the Income Tax Act (the Act). According to the Minister, the Hedzics knowingly or under circumstances amounting to gross negligence made a false statement or omission in their income tax returns for 2007 and 2008. [ 3 ] The appeals were heard on common evidence. Mr. Hedzic acted as agent for his spouse, Fikreta Hedzic, and represented himself.

Facts [ 4 ] Mr. Hedzic was a jurist in Bosnia. Because of the war in Bosnia, he came to live with his spouse in Québec. When he arrived, he worked in Île d’Orléans on a berry farm. He also worked as a delivery person at a pizzeria before buying a share in a restaurant, which he sold in 2003 for $20,000. [ 5 ] In 2001, he bought a grocery store that specialized in European products.

He sold this store in 2003 for $32,500. [ 6 ] In 2003, he and his spouse also opened a pizzeria, doing business as Pizza Jumelle 2003, located at 833 Myrand Avenue in Québec. [ 7 ] The Hedzics have three children: two girls, Alma and Amra and a boy, Amer. During the years in question, the Hedzics were not financially responsible for their children, although they occasionally provided them with financial assistance.

Amer worked at the pizzeria during the years in question. [ 8 ] At the hearing, the Hedzics brought eight boxes of documents containing invoices issued at the pizzeria and during deliveries, as well as all the cash register Z-tapes for the years in question. However, the Hedzics did not present any reconciliation between the invoices and the cash register Z-tapes to evidence. [ 9 ] Mr. Garneau from the Canada Revenue Agency (CRA) testified for the respondent. He conducted an audit of the Hedzics' files. He is a CMA and has been working for the CRA for 4½ years.

Prior to that, he worked for the Agence du revenu du Québec and in the private sector. [ 10 ] Upon review of the Hedzics' tax returns, Mr. Garneau found that the reported income was low. He therefore analyzed various methods for determining the gross income of the pizzeria before choosing the net worth method. He reviewed the pizzeria's sales over a 6-day period and this method was inconclusive, because the total of the invoices did not equal the total of the cash register Z-tapes. He also analyzed the deposits, which was also inconclusive because Mr.

Hedzic took money from the cash register to pay for certain expenses at the pizzeria, so not all the earnings were deposited. The method of calculating pizza boxes was also inconclusive; the pizzeria had a varied menu and one box did not necessarily equal one sale. He therefore proceeded with the net worth method. [ 11 ] With the Hedzics' authorization, Mr.

Garneau obtained the credit card statements, bank statements, entry and exit records for the safety deposit box, statements regarding vehicles registered in the Hedzics' name, a report from Equifax Canada and other documents relevant to the net worth from financial institutions and government organizations. [ 12 ] Reproduced in the appendix is the net worth established by the Minister of National Revenue. [ 13 ] Mr. Hedzic claims that the Minister erred: (

i) by not taking into consideration the amounts held in their safety deposit box, after the sale of the two businesses in 2003 and not considering his salary and that of his spouse; (ii) by adding to the non-current assets in 2008, assets the Hedzics did not own; (iii) by erroneously adding personal expenditures. These expenditures are indicated under [ translation ] "personal expenditures—other expenditures" in Appendix IV of the net worth. Analysis

[14] In cases involving net worth, it is the taxpayers who have the burden of proof. It is the taxpayer who must prove that theamounts making up the net worth established by he Minister are erroneous. [15] In Léger v Her Majesty the Queen, (TCC), 2001 DTC 471, [2003] 1 CTC 2437, my colleague ArchambaultJ. addresses the burden of proof, citing Bastille rendered by Favreau J. and Ramey rendered by Bowman J., at paragraphs 13 et seq: [13] First of all, the burden of proof resting on Mr. Léger in his appeals must be dealt with.

My colleague Judge Tardif had anopportunity to discuss the burden of proof in a case that, like this one, raised the issue of the use of the net worth method. [14] In Bastille v. R., (TCC), 99 DTC 431 ([1999] 4 C.T.C. 2155), he wrote the following at paragraphs 5 et seq: [5] I think it is important to point out that the burden of proof rests on the appellants, except with respect to the question of the penalties,where the burden of proof is on the respondent. [6] A NET WORTH assessment can never reflect the kind of mathematical accuracy that is both desired and desirable in tax assessmentmatters.

Generally, there is a certain degree of arbitrariness in the determination of the value of the various elements assessed. The Courtmust decide whether that arbitrariness is reasonable. [7] Moreover, use of this method of assessment is not the rule.

It is, in a way, an exception for situations where the taxpayer is not inpossession of all the information, documents and vouchers needed in order to carry out an audit that would be more in accordance withgood auditing practice, and most importantly, that would produce a more accurate result. [8] The bases or foundations of the calculations done in a NET WORTH assessment depend largely on information provided by thetaxpayer who is the subject of the audit. [9] The quality, plausibility and reasonableness of that information therefore take on absolutely fundamental importance. [15] Another of my colleagues, Judge Bowman, stated the following in Ramey v.

Canada, (TCC), [1993] T.C.J. No.142 (QL) ([1993] 2 C.T.C. 2119, 93 DTC 791), at paragraph 6: I am not unappreciative of the enormous, indeed virtually insuperable, difficulties facing the appellant and his counsel in seeking tochallenge net worth assessments of a deceased taxpayer. The net worth method of estimating income is an unsatisfactory and impreciseway of determining a taxpayer's income for the year. It is a blunt instrument of which the Minister must avail himself as a last resort.

Anet worth assessment involves a comparison of a taxpayer's net worth, i.e. the cost of his assets less his liabilities, at the beginning of ayear, with his net worth at the end of the year. To the difference so determined there are added his expenditures in the year. Theresulting figure is assumed to be his income unless the taxpayer establishes the contrary. Such assessments may be inaccurate within arange of indeterminate magnitude but unless they are shown to be wrong they stand. It is almost impossible to challenge suchassessments piecemeal.

The only truly effective way of disputing them is by means of a complete reconstruction of a taxpayer's incomefor a year. A taxpayer whose business records and method of reporting income are in such a state of disarray that a net worth assessmentis required is frequently the author of his or her own misfortunes. [Footnotes omitted] Current assets as of December 31, 2003 [16] Mr. Hedzic claims that on December 31, 2006, he and his spouse had money in possession in the amount of $76,305.97,calculated as follows: In 2003 Sale of restaurant in 2003: $20,000.00 Sale of grocery store in 2003: $32,500.00

Ms. Hedzic's income from Légubec: $8,394.00 Total 2003 $61,394.00 In 2002 Mr. Hedzic's income: $20,602.00 Ms. Hedzic's income $12,261 + $8,394.25: $12,621.00 Total 2002 $94,617.29 Funding for restaurant JumellePizza2003: - $5,000.00 Equipment purchases for the pizzeria: - $ 13,311.32 $76,305.97 [ 17 ] According to Mr. Hedzic, $76,305.97 was used to pay credit cards in 2007 and a down payment on a house he and his spouse purchased in 2008. Mr. Hedzic claims this money was put into a safety deposit box, because he did not trust banks. He said he lost $100,000 during the war in Bosnian banks.

However, on cross-examination, the financial institution statement showed that the amounts of $32,500 and $20,000, deposited in 2003 to the Caisse populaire Desjardins du Vallon for the sale of the grocery store and the restaurant, were mainly used to pay bills. Moreover, except for $10,000 for which the dates correspond, the record of entries and exits for the safety deposit box do not correspond with the days Mr.

Hedzic withdrew money from his account at the Caisse populaire Desjardins to deposit it in his safety deposit box. [ 18 ] I can accept that the Hedzics held $10,000 in their safety deposit box on December 31, 2006. Mr. Hedzic's testimony is supported by the documentary evidence that shows a correspondence between the date of a $10,000 withdrawal and an entry to the safety deposit box.

And $5,000 had already been allowed by the Minister under [ translation ] "money in possession—safety deposit box", the amount of $5,000 should be added to the Hedzics' net worth under [ translation ] "money in possession—safety deposit box" on December 31, 2006, and on December 31, 2007. However, regarding the net worth of December 31, 2008, there should not be an amount under [ translation ] "money in possession—safety deposit box" since the Hedzics used this money to purchase their house in 2008.

Aside from these adjustments, there were not other adjustments under [ translation ] "money in possession—safety deposit box". [ 19 ] I do not accept Mr. Hedzic's version regarding the liquid asset amounts he claimed he and his spouse held on December 31, 2006. Mr. Hedzic's testimony on this was particularly flexible. Mr. Hedzic, after stating they had around $95,000 then revised this in cross-examination to state they had liquid assets of around $23,000 on December 31, 2006.

The Hedzic's account at the Caisse populaire did not reflect this amount and moreover, from the $23,000, the Hedzics did not subtract any money for the cost of living. Non-current assets [ 20 ] With regard to the non-current assets, the Hedzics only challenged the furniture purchased from Ameublements Tanguay and Leon's Furniture in 2008. Mr. Hedzic feels that these amounts should not be included in the non-current assets because they were not for him and his spouse but for their children. [ 21 ] No evidence was submitted to support Mr. Hedzic's claims. All the invoices are in his name. Mr.

Hedzic did not feel the need to have his spouse or his son Amer testify to support his version of the facts, although they were both present at the hearing. I find it important to quote a passage from Léger regarding a taxpayer's failure to call certain witnesses testify to confirm his or her testimony. Archambault J. wrote the following comment at paragraph 16 of this reasons: [16] In the instant appeals, Mr. Léger was the only person who testified in support of his position. The auditor whose work led to the assessments testified for the respondent. In assessing the evidence provided by Mr.

Léger, something must be said about the failure to call certain witnesses who could have confirmed what he said. In Huneault v. The Queen , T.C.C., No. 96-1435(IT)G, February 6, 1998, at page 7 ( 98 DTC 1488 , at page 1491) , my colleague Judge Lamarre referred to certain statements that were made by Sopinka and Lederman in The Law of Evidence in Civil Cases and cited by Judge Sarchuk of this Court in Enns v. M.N.R. , 87 DTC 208 , at page 210 :

In The Law of Evidence in Civil Cases, by Sopinka and Lederman, the authors comment on the effect of failure to call a witness and Iquote: In Blatch v. Archer, (1774), 1 Cowp. 63, at p. 65, Lord Mansfield stated: It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced,and in the power of the other to have contradicted.

The application of this maxim has led to a well-recognized rule that the failure of a party or a witness to give evidence, which it was inthe power of the party or witness to give and by which the facts might have been elucidated, justifies the court in drawing the inferencethat the evidence of the party or witness would have been unfavourable to the party to whom the failure was attributed. In the case of a plaintiff who has the evidentiary burden of establishing an issue, the effect of such an inference may be that the evidenceled will be insufficient to discharge the burden. (Levesque et al. v.

Comeau et al., (SCC), [1970] S.C.R. 1010, (1971), 16D.L.R. (3d) 425.) [22] Moreover, even if these purchases had indeed been for the children, Mr. Hedzic did not present any evidence that the childrenhad paid them back. The purchases were made in 2008, the year the Hedzics bought their house. Moreover, certain invoices fromAmeublement Tanguay that Mr. Hedzic submitted to evidence were not included in the net worth because the auditor did not have theseinvoices when he established the net worth. The net worth of the non-current assets is therefore undervalued for 2008. [23] In light of the evidence, Mr.

Hedzic did not convince me of the validity of his position. There will be no change to the net worthregarding the non-current assets. Current liabilities 2007 and 2008 [24] The Hedzics are not challenge any current liability amounts. However, it must be noted that most of the fluctuations in the networth are from the current liabilities. On December 31, 2006, the Hedzics had credit card debts in the amount of $39,830.73. OnDecember 31, 2007, these debts were $5,660.38.

Therefore, between the end of 2007 and the end of 2008, the Hedzics spent $34,170.35to reduce their credit card debts, when their combined income in 2007 was $28,432. Personal expenditures in 2007 [25] The Hedzics have many credit cards. In 2007, Mr. Hedzic paid certain credit cards with other credit cards to benefit from abetter interest rate. [26] On February 3, 2007, Mr. Hedzic paid his CIBC Visa Classic credit card with a cheque drawn from his Bank of MontréalMosaik-Mastercard for $2,427.72.

On February 20, 2007, he paid his American Express credit card with a cheque drawn from his Bankof Montréal Mosaik-Mastercard for $749.26. On March 5, 2007, Mr. Hedzic paid his American Express credit card with a cheque drawnon his MasterCard-Canadian Tire credit card for $4,000. [27] All these amounts were added to the Hedzics' personal expenditures in 2007 under [translation] "Personal Expenditures—other"in Appendix IV. Mr.

Hedzic submitted to evidence cheques to show the payments, except for $1,087.05. [28] The respondent claims that these amounts were loans through their credit cards to the Hedzics' daughter Amra. Mr. Hedzicclaimed that these payments from one credit card to another were to benefit from a better rate. I accept Mr. Hedzic's version, and find itacceptable that the Hedzics' would want to benefit from a better interest rate. [29] These amounts, except for $1,087.05 should be removed from the amounts making up the personal expenditures.

Personal expenditures in 2008 [ 30 ] In 2008, the Minister added $1,601.45 as personal expenditures under [ translation ] "Personal Expenditures—Pontiac Sunfire transportation" at appendix IV. It is clear from the invoice submitted by Mr. Hedzic that this expense was not for his "Pontiac Sunfire" vehicle but for his son-in-law's "Dodge Intrepid" vehicle. Mr. Hedzic indicated that his son-in-law repaid the amount in question. I have no reason to not believe Mr. Hedzic's testimony on this subject.

Therefore, $1,601.45 should be removed from the personal expenditures under transportation for 2008. [ 31 ] As he did in 2007, on June 15, 2006, Mr. Hedzic paid $2,441 on his CIBC Dividend credit card with a special transfer rate offered by the Royal Bank, to benefit from a better credit rate. Mr. Hedzic submitted a copy of the transfer to evidence. This amount should be removed from the 2008 personal expenditures, as it is simply a transfer from one account to another. [ 32 ] In 2008, $12,576.77 was also added to the personal expenditures. According to the Minister, Mr.

Hedzic paid this amount in cash as a down payment for the house. The documentary evidence shows that no cash was used by the Hedzics to purchase the house. As a result, $12,576.77 should be removed from the personal expenditures.

Penalties [ 33 ] Despite the changes I made to the Hedzics' net worth, gaps remain; however, they are not substantial. [ 34 ] In a unanimous Federal Court of Appeal decision, Molenaar v Canada , 2004 FCA 349 , Létourneau J. made the following comment about penalties at paragraph 4: [4] Once the Ministère establishes on the basis of reliable information that there is a discrepancy, and a substantial one in the case at bar, between a taxpayer's assets and his expenses, and that discrepancy continues to be unexplained and inexplicable, the Ministère has discharged its burden of proof.

It is then for the taxpayer to identify the source of his income and show that it is not taxable. [ 35 ] In light of the adjustments I made to the net worth, the gaps are not substantial and therefore, the penalties imposed by the Minister under subsection 163(2) of the Act are vacated. [ 36 ] The appeals are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment as follows: - add to the joint net worth $5,000 as current assets under [ translation ] "money in possession—safety deposit box" for the 2007 taxation year; - reduce to nil the current joint assets under [ translation ] "money in possession—safety deposit box" for the 2008 taxation year; - subtract from the joint net worth $2,427.72, $749.26, and $4,000.00 as personal expenditures for the 2007 taxation year; - subtract from the joint net worth $1,061.45 as transportation expenditures for the 2008 taxation year; - subtract from the joint net worth $2,441.00 and $12,576.77 as personal expenditures for the 2008 taxation year;

- vacate the penalties imposed by the Minister under subsection 163(2) of the Act. [ 37 ] Without costs. These ameneded reasons for judgment are issued in replacement of the reasons for judgment dated August 8, 2013. Signed at Ottawa, Canada, this 8th day of November 2013. "Johanne D’Auray" D'Auray J. Translation certified true on this 18th day of November 2013.

Elizabeth Tan, translator Appendix APPENDIX I Taxpayer/Registrant HAJRUDIN HEDZIC/FIKRETA HEDZIC Auditor Erik Garneau Prepared Audit period 01-01-07 Oct. 8, 2010 to 12-31-09 Balance sheet – assets Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2008 F/T ASSET Business asset Current asset Money in possession 300.00 300.00 300.00 #810-5 Bank account 5,914.51 5,397.22 6,020.28 #9500, #9501, #9502, #9503 Cashflow (643.81) (0.15) (0.30) #9500, #9502 and #9502 Inventory 2,500.00 2,500.00 2,500.00 #742 Non-current asset

UCC per Appendix 1a – CCA 26,822.40 41,832.89 28,867.96 from app. 1a Total business assets 34,893.10 41,832.89 37,687.94 Personal asset Current asset Money in possession— safety deposit box 5,000.00 5,000.00 5,000.00 #810-10 Bank account— Desjardins Mr. Hedzic 286.49 1,008.28 2,893.41 #1001-1, #1001-3, #1002-5, #1003-4 Bank account— Desjardins Mrs.

Hedzic 9.77 26.29 5,627.34 #1051-1, #10552-1, #1053-3 Non-current assets 2009 Pontiac G5 #706-2, #704-4 2002 Pontiac Sunfire #200, #704-4 Home furnishings (CIBC Visa – Ameublements Tanguay) #3201-41 Home furnishings (Sears) 1,312.84 #3100-3 Home furnishings (AccordD Visa -Leon's Furniture) 3,049.46 #3000-13 Home furnishings (AccordD Visa – Ameublements Tanguay) #3001-25 Home furnishings (RBC Visa – Ameublements Tanguay) 1,340.00 #3502-15 Home furnishings (RBC Visa – Leon's Furniture) 413.86 #3501-22 Home furnishings (RBC Visa – Ameublements Tanguay) #3502-21 Home furnishings (Canadian Tire M/C – Ameublement Tanguay) 1,360.05 #3051-19 Personal residence 210,000.00 #3900-2 Land in Bosnia ($50,000 / 5) 10,000.00 10,000.00 10,000.00 #810-12 Total personal assets 15,296.26 16,034.57 240,996.96 TOTAL ASSETS 50,189.36 57,867.46 278,684.90 at app B APPENDIX II Taxpayer/Registrant HAJRUDIN HEDZIC/FIKRETA HEDZIC Auditor Erik Garneau Prepared Audit period 01-01-07 Oct. 8, 2010 to 12-31-09

Balance sheet – liabilities Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2008 F/T Liability Business liability Current liability Sales tax to pay 5,270.70 8,793.92 5,900.97 #95500, #9501, #9502, #9503 Non-current liability Owing on equipment 4,602.40 #9501 Total business liability 5,270.70 13,396.32 5,900.97 Personal liabilities Non-current liability Line of credit Visa Desjardins credit cards Mr. Hedzic 546.64 1,749.46 #3000-6, #3000-11, #3001-3, #3001-26 Canadian Tire card Ms. Hedzic 4,754.06 3,557.71 367.24 #3051-3, #3051-15 #3051-26, #3051-37 Canadian Tire card Mr.

Hedzic 3,808.17 2,060.19 (2.27) #3050-3, #3050-15 #3050-27, #3050-36 Sears card Ms. Hedzic 790.70 #3100-21 TD Canada Trust Visa credit card Mr. Hedzic 5,466.32 5.77 (2.87) #3150-4, #3150-16 #3150-28, #3150-40 CIBC Visa card Mr. Hedzic 6,740.30 (8.72) 9.70 #3200-4, #3200-28 #3200-54, #3200-81 CIBC Visa card Mr. Hedzic, 2nd account 4,968.84 (4.00) #3201-1, #3201-6 #3201-30, #3201-54 BMO MC card Mr. Hedzic 2,843.54 45.43 #3250-10, #3250-12 #3250-14, #3250-26 HBC card Mr. Hedzic 421.76 #3300-26, #3300-22 MBNA credit card Mr. Hedzic #3350-1, #3350-8 MBNA credit card Mr.

Hedzic, 2nd account 5,782.88 #3350-1, #3350-12, #3350-25 #MBNA credit card Mr. Hedzic, 3rd account 7,874.96 #3350-4, #3501-16 RBC Visa credit card Mr. Hedzic (3.45) #3501-4, #3501-16 RBC Visa credit card Ms. Hedzic (2.34) 848.03 #3502-4, #3502-9 #3502-16, #3502-24 CitiBank credit card Mr. Hedzic 2,025.14 #3551-2, #3551-13 #3551-25, #3551-37 CitiBank credit card Ms.

Hedzic 383.34 #3552-2, #35552-13 #3552-25, #3552-37 Non-current liabilities Mortgage: personal residence 193,747.37 #3900-1 BMO loan – Pontiac G5 #706-2 and #3699 Total personal liabilities 39,830.73 5,660.38 203,282.79 TOTAL LIABILITIES 45,101.43 19,065.70 209,183.76 to report below Caluculation of net worth

TOTAL ASSETS 50,189.36 57,867.46 278,684.90 from app. 1 Minus TOTAL LIABILITIES 45,101.43 19,056.70 209,183.76 from above Net worth 5,087.93 38,810.76 69,501.14 Net worth, prior year 5,807.93 38,810.76 Increase (decrease) of net worth 33,722.83 30,690.38 at app.

III APPENDIX III Taxpayer/Registrant HAJRUDIN HEDZIC/FIKRETA HEDZIC Auditor Erik Garneau Prepared Audit period 01-01-07 Oct. 8, 2010 to 12-31-09 Calculation of gap between total income net worth (for tax purposes) Dec. 31, 2007 Dec. 31, 2008 F/T Increase (decrease) in net worth (according to Appendix II) 33,722.83 30,690.38 from App 2 Adjustments Additions Personal expenditures (according to Appendix IV) 35,014.68 48,576.27 from App 4 Source deductions – taxpayer/registrant Source deductions – spouse QC tax payment – taxpayer/registrant 2,974.75 #702-2 QC tax payment – spouse 381.91 3,048.35 #702-3 CAN tax payment – taxpayer/registrant 926.58 #135-1.1 CAN tax payment – spouse 985.53 #135-4 Amount of gross-up for dividends Value of cashed-in RRSP from contributions Non-deductible loss on sale of personal-use property Non-deductable portion of capital loss Non-deductable portion of expenses for food, etc. under 67.1 Income per civil year – taxpayer/registrant Income per civil year – spouse Reserve prior year re: end of year change Additional ITC allowed by the auditor from App. 7 Other Total additions 37,308.70 54,599.37 Deductions Non-taxable gains on sale of personal assets Additional GST/HST payable according to reasonableness test from App. 7 Additional GST/HST payable according to ITC adjustments from App. 7 QC tax rebate – taxpayer/registrant 324.74 #702-2 Tax rebate – spouse

GST credit 469.00 350.90 #135-2 QST credit 338.00 183.32 #702-2 Non-taxable insurance product 5,020.60 #5500 Family gift Inheritance Lottery winnings Non-taxable earnings on sale of personal-use property Non-taxable portion of capital gains Reserve re: end of year change Income according to fiscal year – taxpayer/registrant Income according to fiscal year – spouse Other Total deductions 1,131.74 5,554.82 Net adjustments 35,176.96 49,044.55 Total income according to adjusted net worth 69.899.79 79.,734.93 Less: total reported income (line 150) Taxpayer/registrant 19,160.00 14,216.00 Spouse 19,160.00 14,216.00 Other Gap in total income according to net worth 31,579.79 51,302.93 APPENDIX IV Taxpayer/Registrant HAJRUDIN HEDZIC/FIKRETA HEDZIC Auditor Erik Garneau Prepared Audit period 01-01-07 Oct. 8, 2010 to 12-31-09

Summary of personal expenditures Dec. 31, 2007 Dec. 31, 2008 F/T

(1) Food 8,000.00 8,000.00 from pers. exp.

(2) Lodging 3,788.16 14,720.02 from pers. exp.

(3) Lodging expenses 1,287.03 2,007.04 from pers. exp.

(4) Clothing 2,054.88 2,102.72 from pers. exp.

(5) Transportation 3,671.39 3,974.08 from pers. exp.

(6) Health care 1,043.55 1,053.88 from pers. exp.

(7) Personal care 421.00 430.80 from pers. exp.

(8) Entertainment - - from pers. exp.

(9) Newspapers, magazines and books 344.57 352.59 from pers. exp.

(10) Education - - from pers. exp.

(11) Tabacco and alcohol - - from pers. exp.

(12) Life insurance 451.07 932.40 from pers. exp.

(13) Gifts and contributions 1,284.30 1,314.20 from pers. exp.

(14) Varia 4,353.66 403.59 from pers. exp.

(15) Other 8,315.07 13,284.96 from pers. exp. 35,014.68 48,576.27 from App III

Statement of personal expenditures Year: 2007 Taxpayer/registrant: HAJRUDIN HEDZIC/FIKRETA HEDZIC Client profile according to Stats Can: Two-person household - 2 members >= 20 yrs and up

CITATION: 2013 TCC 249 COURT FILE NO.: 2012-1007(IT)I 2012-1008(IT)I STYLE OF CAUSE: HAJRUDIN HEDZIC v. HER MAJESTY THE QUEEN FIKRETA HEDZIC v. HER MAJESTY THE QUEEN PLACE OF HEARING: Québec, Quebec DATE OF HEARING: April 22 and 23, 2013

AMENDED REASONS FOR JUDGMENT BY: The Honourable Justice Johanne D'Auray DATE OF AMENDED JUDGMENT: November 8, 2013 APPEARANCES: For the appellant: The appellant himself Agent for the appellant: Hajrudin Hedzic Counsel for the respondent: Simon Vincent COUNSE L OF REC ORD: For t he appellant: Name: Firm: For the respo ndent: William F. Pentney Deputy Attorney General of Canada Ottawa, Canada