Citation: 2007TCC571
Date: 20071012
Docket: 2007-206(IT)I
BETWEEN:
PETER S. SPUNT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bédard J.
[1] This is an appeal under
the informal procedure from the reassessment issued by the Minister of National
Revenue (the "Minister") in accordance with the Income Tax Act (the
"Act") for the appellant’s 2000 taxation year.
[2] The only point at
issue is the assessment of a penalty under subsection 163(2) of the Act
and the interest on that penalty.
[3] The facts on which
the Minister relied in making the reassessment are set out in paragraphs 6, 7
and 8 of the Reply to the Notice of Appeal, as follows:
6. In order to establish the
reassessment, and the confirmation, the Minister relied on the following same
assumptions of fact:
a) The Appellant in filing his
income tax return for the 2000 taxation year failed to include the taxable
capital gains realized in the taxation year in relation to his investment
activities;
b) Following an
audit, by way of submitted documentation from the Appellant, Revenue Quebec determined that the appellant realized the
following gains on dispositions in his investment portfolio:
|
INVESTMENT
|
DATE OF
DISPOSAL
|
# of
UNITS
|
PROCEEDS
|
ADJUSTED
COST BASE
|
CAPITAL
GAIN
|
|
Royal Balanced
Fund
|
4-Feb-00
|
3839
|
$40,471.00
|
$30,000.00
|
$10,741.00
|
|
Bombardier Inc.-
CL B Sub-VTG
|
10-Jan-00
|
300
|
$9,082.00
|
$8,385.00
|
$697.00
|
|
Pepsico Inc.
|
14-Feb-00
|
310
|
$15,254.00
|
$12,689.00
|
$2,565.00
|
|
Loblaw
Companies Ltd
|
08-Jun-00
|
900
|
$ 39,570.00
|
$29,285.00
|
$10,285.00
|
|
Loblaw
Companies Ltd.
|
05-Jun-00
|
108
|
$ 4,722.00
|
$3,482.00
|
$1,240.00
|
|
Total
|
|
|
$109,099.00
|
$83,841.00
|
$25,258.00
|
c) In applying the inclusion
rate of 71.1975% for the 2000 taxation year, the Appellant's taxable capital
gain was $17,983;
7. In underreporting his revenues in the amount of $17,983
for the 2000 taxation year the Appellant made a misrepresentation that was
attributable to neglect, carelessness or wilful default as;
a) The Appellant knows he has to declare all his revenues
and he did not do so;
b) The Appellant did declare his dispositions in prior years
so he was aware that such has to be included in reporting his income;
c) The Appellant's sources of revenues, for the taxation
year, include dividends and interest from investment sources;
d) The Appellant maintains an active portfolio of
investments;
e) The Appellant is knowledgeable of the fiscal implications
of reporting his revenues;
f) The Appellant knows his revenues received and cannot
plead ignorance in not reporting the capital gains for the dispositions;
g) Following the reassessment by Revenue Quebec the Appellant did not inform the
Minister of amendments that would be required to his Federal income tax return
for the taxation year;
h) The income tax return was prepared for the Appellant by
an agent based upon the information provided by him to the agent;
i) The unreported taxable capital gain represents 21% of
the total revenue for the taxation year.
8. In failing to report the revenues in the amount of
$17,983 the Appellant knowingly or under circumstances amounting to gross
negligence, in carrying out a duty or obligation imposed under the Act, made or
participated in assented to or acquiesced in the making of a false statement or
omission in the income tax return filed in respect to the Appellant's 2000
taxation year, as a result of which the tax that would have been payable
assessed on the information provided in the Appellant's tax return in respect
of the year was less than the tax in fact payable in respect of that year by
the amount of $4,182.48 and the Appellant is liable for a penalty in the amount
of $2,091.24 as:
a) The Appellant knows he has to declare all his revenues
and he did not do so;
b) The Appellant did declare his dispositions in prior years
so he was aware that such has to be included in reporting his income;
c) The Appellant maintains an active portfolio of
investments;
d) The Appellant's sources of revenues, for the taxation
year, include dividends and interest from investment sources;
e) The Appellant is knowledgeable of the fiscal implications
of reporting his revenues;
f) The Appellant knows his revenues received and cannot
plead ignorance in not reporting the capital gains for the dispositions;
g) Following the reassessment by Revenue Quebec the Appellant did not inform the
Minister of amendments that would be required to his Federal income tax return
for the taxation year;
h) The income tax return was prepared for the Appellant by
an agent based upon the information provided by him to the agent;
i) The unreported taxable capital gain represents 21% of
the total revenue for the taxation year.
[4] The notice of appeal
reads as follows:
NOTICE OF APPEAL Re: Notice
of Objection – Income Tax Return for 2000
Dears Sirs:
Further to the Notification of Confirmation
by the Minister dated at Laval on November 2, 2006 to the above Notice
of Objection, I wish to file this appeal with the Tax Court of Canada using the
Informal Procedure. I am therefore writing you this letter to request the
cancellation and waiver of the arrears interest of $2589.44 and penalties of
$2,091.24.
I have included a check in the amount of
$100 with this Notice of Appeal payable to the Receiver General of Canada in the amount of $100 which I trust will be
reimbursed if my appeal is allowed by the Court.
First, I wish to point out that I did NOT
knowingly, or under circumstances amounting to gross negligence, make an
omission in my return of income in respect of the 2000 taxation year, under
subsection 163(2) as I will explain below.
After living at our residence at 113 Ryan Street in Dollard Des Ormeaux
for over fifteen (15) years as of 2001, we were moving to a new residence that
was under construction at the time. Therefore all of our possessions, including
files and papers were being packed slowly from April 2001-September 2001 in
order to be put in storage for 6 months: from October 2001-March 2002, when the
new house would be finally ready. This is where we live now – 41 Edgewood St., DD0, QC, H9A 3K6. This
information can be confirmed by my addresses on my submitted tax forms.
We lived in temporary quarters
from October 2001-March 2002, totaling six months of displacement. Therefore,
it is possible that some trading slips/trading summaries (Nesbitt Burns and RBC
Action Direct) were lost in this process or in fact never received. I normally,
by routine course, submit all of my documents to my accountant, namely
DesRosiers Lombardi, for tax forms preparation. Similarly, I never declared any
capital losses for the same reason.
In the case of the Royal Balanced Fund,
where the gain was $10,471, which was a long term (5-year) bank deposit which
was purchased in October, 1996, there was NO paperwork issued by RBC
reflecting the gain and therefore, there was nothing to give to my accountant.
As this money continued to be reinvested and was NOT spent on purchased goods,
the gain, although made was never noticed or realized by me.
January 10, 2007
Tax Court of Canada
These are the explainable reasons for not
having submitted the required documentation in April, 2001 for the 2000 tax
period. Additionally, as this was not realized at the time, for the reasons
mentioned, it was impossible to realize that this had taken place subsequently
at a later date until it was pointed out by the audit made by the Minister of
Revenue Quebec.
This situation was not done intentionally
and to the best of by knowledge is the first and only occurrence of its type
and I am 56 years old and have been filing tax reports for over 40 years. That
is why I am contesting both the taxes and the interest owed in connection with
this appeal but at least the penalties associated thereof.
I trust that the following factors will
be considered when determining whether the Court will cancel or waive the
penalty:
(a) I have a 40+ years of history
of compliance with my tax obligations;
(b) I have never knowingly allowed
a balance to exist upon which arrears interest has accrued;
(c) I have exercised a reasonable
amount of care and have not been negligent or careless in conducting my affairs
under the self-assessment system until this event and;
(d) I acted quickly to remedy any
delay or omission as I did pay the full amount of this reassessment prior to
the due date of March 16th, 2006.
Therefore, I am appealing for leniency in
this case and respectfully request on a one-time only basis exoneration of any
arrears interest and associated penalties and that they be waived, as this
situation was due to circumstances beyond my control, and I trust that these
amounts will be refunded to me. Certainly the Fairness Provisions provide, you
the Court, the discretion in certain situations to cancel and waive the
penalties and interest. I believe that this is such a situation in that, as
explained above, the arrears interest and at the very least the penalties
should be forgiven as they resulted from circumstances beyond my control.
Thank you in advance for your anticipated
serious consideration of this appeal.
Sincerely,
Peter S. Spunt
President
[5] The witnesses in this
case were, for the appellant, the appellant himself, and for the respondent,
Diane Charette.
[6] In his testimony, the
appellant reiterated the reasons stated in his notice of appeal for not having
declared all his income.
[7] We also learnt from
the appellant's testimony that:
(i) He has a degree
in political science from McGill University and a post-graduate diploma in management from the same
university.
(ii) During the
2000 taxation year, he was operating a business called Soluworks International
Inc., whose core activity was solving marketing and sales problems of
pharmaceutical companies.
(iii) He has a history
of over forty years of compliance with his tax obligations. The appellant also
said that he is fifty-six years old, has been happily married for thirty-two
years, has two adult children, and that he has no debt and no criminal record.
In short, the appellant depicted himself as an honest man.
(iv) In the year 2000
in particular, that is, the year he was preparing to move into a new residence,
he was not paying much attention to the trading summaries sent by his broker, Nesbitt
Burns. Indeed, the appellant said that the statements were "stacked up in
many cases, even unopened because it wasn't important at the time." The appellant also repeated that he
received no statement reflecting the capital gain on his Royal Balanced Fund.
(v) He was not aware
of the tax implications of his investment in the Royal Balanced Fund nor did he
inquire of his accountant regarding those tax implications.
(vi) For each year
(including 2000), he simply took his T4 slip and other tax information, which
he had sorted and put in folders, and delivered it to his accountant, who
prepared his personal tax return. The appellant testified that the same
accountant had been preparing his personal tax return for several years. The appellant
also said that in April 2001 he went to his accountant's office to sign his
income tax return for the 2000 taxation year, which that had been prepared by
his accountant. The appellant said that he did not look at his 2000 tax return
other than to see whether he owed money and to determine his RRSP contribution
for the 2001 taxation year. The appellant's testimony in this regard is worth
citing.
[120] Q. O.K. Do you usually
check your tax returns before signing them?
A. I go to the
accountant's office . . .
[121] Q. Yes.
A. . . . and there's
usually a summary letter and they tell me what basically I have to pay. I put
confidence in them, I do a quick, very quick review and I look at what my
upcoming RRSP opportunity is. Those are the things I pay attention, how much do
I owe and what's my RRSP opportunity. That's kind of globally what I look at.
And I immediately on the spot write the checks so I don't really contest how
much I owe or how much I don't owe. I leave that to my accountant.
[122] Q. Do you make sure that
all the information is accurate, complete and true?
A. All . . . I'd say
most, I look at the big numbers, like my revenue relative to T4.
[123] Q. O.K.
A. Because that's
normally the greatest percentage of what I earn is my income, now, my income
does not historically come from investment gains . . .
[124] Q. Yes.
A. . . . that's for
sure.
(vii) Following
the reassessment by Revenue Quebec, the appellant did not inform the Minister of amendments
that were required to his federal tax return for the 2000 taxation year because
he was not advised to do so by his accountant. The appellant's testimony in
this regard is also worth citing.
[145] Q. Did you contact anyone
from the Canada Revenue Agency to amend your income tax return for the year
2000 when you . . . after the audit of Revenue Quebec?
A. I missed the first
part of your question. Did I . . .
[146] Q. Did you contact anyone
from the Canada Revenue Agency . . .
A. No.
[147] Q. Did you make an
amendment to your 2000 income tax return, the federal part?
A. No.
HIS LORDSHIP:
[148] Q. Why didn't you?
A. I didn't know that
I needed to do that. I didn't . . .
[149] Q. But you were aware at
that time that you didn't declare all of your income, of course.
A. Yes.
[150] Q. So why didn't you?
A. I sent that
document, honestly, to my accountant, the same accountant that I had and I
wasn't advised that I needed to take any action, and I wasn't looking to
circumvent any action. I said, what do I do with this. And I sent it to
Lombardi Desrosiers, because whenever I get these things in I immediately fax them
to them with a handwritten note and I . . .
[151] Q. But they didn't advise
you that you had to . . .
A. No.
[152] Q. . . .file . . .
A. No.
[153] Q. . . . an amended
income tax return . . .
A. No.
[154] Q. . . . for your 2000. .
.
A. No, as a matter of
fact, I'm going to point something out. My . . . in the last
year, my father passed away. . .
[8] As noted above, the
only issue in this case is whether the assessment of a penalty under subsection
163(2) of the Act with respect to the unreported capital gain is valid.
[9] In Venne v. R.,
[1984] C.T.C. 223, 84 DTC 6247 (F.C.T.D.), Strayer J. made the following
comment on the meaning of gross negligence for the purposes of assessing penalties
under subsection 163(2) of the Act:
. . . Gross negligence must be taken to
involve greater neglect than simply a failure to use reasonable care. It must
involve a high degree of negligence tantamount to intentional acting, an
indifference as to whether the law is complied with or not . . .
[10] In DeCosta v. The
Queen, 2005 DTC 1436 (T.C.C., informal procedure), Bowman C.J. dealt with
the decision in Udell
v. Minister of National Revenue, [1969] C.T.C. 704, 70 DTC 6019 (F.C.T.D.)
and two
decisions by Judge Rip (as he then was), and made the following comments:
[9] I have no difficulty in
reconciling the decision of Cattanach, J. with those of Rip J. They each depend
on a finding of fact by the court with respect to the degree of involvement of
the taxpayers. The question in every case is, leaving aside the question of
wilfulness, which is not suggested here,
(a) "was the taxpayer negligent
in making a misstatement or omission in the return?" and
(b) "was the negligence so
great as to justify the use of the somewhat pejorative epithet
"gross"?"
This is, I believe, consistent with the
principle enunciated by Strayer, J. in Venne v. The Queen, 84
DTC 6247.
. . .
[11] In drawing the line between
"ordinary" negligence or neglect and "gross" negligence a
number of factors have to be considered. One of course is the magnitude of the
omission in relation to the income declared. Another is the opportunity the
taxpayer had to detect the error. Another is the taxpayer's education and
apparent intelligence. No single factor predominates. Each must be assigned its
proper weight in the context of the overall picture that emerges from the evidence.
[12] What do we have here? A highly
intelligent man who declares $30,000 in employment income and fails to declare
gross sales of about $134,000 and net profits of $54,000. While of course
his accountant must bear some responsibility I do not think it can be said that
the appellant can nonchalantly sign his return and turn a blind eye to the
omission of an amount that is almost twice as much as that which he declared.
So cavalier an attitude goes beyond simple carelessness.
[Emphasis added.]
[11] In this case, I am of
the opinion that the appellant did not wilfully make an omission in his 2000
tax return. However, I am of the view that the appellant’s negligence was so
great as to justify the use of the somewhat pejorative epithet "gross".
In this case, the omission was significant. Only the income from employment was
reported. The unreported taxable gain represents 21% of total revenue for the
2000 taxation year. The proceeds of disposition of the shares and of the Royal
Balanced Fund ($109,099) were substantial. The investments could not have been
sold without the appellant’s consent. The appellant did declare his
dispositions in prior years, so he was aware that such items had to be included
in reporting his income. The appellant is a well-educated and intelligent man
and is knowledgeable of the fiscal implications of reporting his income. I can
understand the appellant’s reasons for not having submitted to his accountant
all the documents related to the transactions for the 2000 taxation year. But
any quick review of the line items (related to investment income) in his 2000
tax return, which he signed in April 2001, would have shown that no capital
gain was reported. The omission in his 2000 tax return should have been sufficiently
obvious that a man of the appellant’s education, experience and intellect
should have noticed. In my view, the appellant’s failure to detect the omission
when he signed his 2000 tax return was more than simple carelessness. The appellant's
attitude when examining his tax return for that year before signing it was, in
my view, so cavalier that it went beyond simple carelessness. The fact that, following
the reassessment by Revenu Québec, the appellant did not inform the Minister of
amendments that would be required to his 2000 tax income return also reflects
his gross negligence. While the appellant’s accountant must bear some
responsibility for not informing the appellant that he had an obligation to
produce an amended tax return for his 2000 taxation year, I do believe that the
appellant cannot exculpate himself in this regard by the fact that he blindly entrusted
his tax affairs to an accountant without even asking him about the federal tax
consequences of his omission. Again, the appellant’s attitude was so cavalier
that it went beyond simple carelessness.
[12] As a result, the
appeal is dismissed.
Signed at Ottawa, Canada, this 12th day of October 2007.
"Paul Bédard"
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