Citation: 2008TCC572
Date: 20081110
Docket: 2006-1147(IT)G
BETWEEN:
MOIRA AGREGAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1]
These are appeals from
reassessments made under the Income Tax Act (the Act) for the
Appellant’s 2000 and 2001 taxation years. In reassessing the Appellant, the
Minister of National Revenue (the “Minister”) assumed that the Appellant
had understated her gross income by the amounts of $26,393.55 and $9,470.78 and
had overstated her expenses by the amount of $23,742.35 and $28,065.91 in 2000
and 2001 respectively. The Minister assessed gross negligence penalties against
the Appellant pursuant to subsection 163(2) of the Act.
[2]
On reassessment the
Minister calculated the Appellant’s gross income to be $110,982.47 and
$98,109.78. The Minister allowed the Appellant a deduction for wages paid to
subcontractors in the amount of $9,775.58 and $17,992.97 for the 2000 and 2001
years respectively.
[3]
In her Notice of Appeal
the Appellant admitted that she had underreported her gross income for the 2000
taxation year. In Schedule A attached to the Notice of Appeal she calculated
her gross income for the 2000 taxation year to be $96,098.10; however according
to the amounts she used, it ought to have been $97,798.10. (Invoice #056141 was
erroneously subtracted from the gross income.) As well, in Schedule C attached
to the Notice of Appeal, she calculated her gross income for the 2001 taxation
year to be $88,297.75. In her returns the Appellant had reported her gross
income to be $84,588.92 and $88,369 in 2000 and 2001 respectively.
[4]
In Schedules B and D,
also attached to the Notice of Appeal, the Appellant calculated the wages she
paid to subcontractors to be the amounts of $29,162.50 and $22,487.85 in 2000
and 2001 respectively.
[5]
At the hearing of the
appeal, counsel for the Respondent stated that the amount of $10,573.79 should
be deleted from the Appellant’s gross income for the 2000 taxation year and
that the Appellant had incurred additional expenses for wages paid to
subcontractors in the amounts of $19,386.92 and $4,494.88 in 2000 and 2001
respectively. In effect the Respondent has agreed with the Appellant’s
calculation of the subcontractors wages in Schedules B and D of the Notice of
Appeal.
[6]
The only issues that
remained were: (a) whether the Appellant’s gross income for 2000 was
$100,408.68 or $97,798.10; (b) whether the Appellant’s gross income for 2001
was $98,109.78 as reassessed or $88,297.75 as recalculated by the Appellant;
and, (c) whether the gross negligence penalties were properly assessed.
[7]
Since 1997 the
Appellant has operated, as a sole proprietor, a drywalling business under the
name Gator’s Advanced Drywall Systems (the “Business”). The Business was
conducted from the Appellant’s home in Dundas,
Ontario.
[8]
The Appellant received
subcontract work from various businesses including D.A. Drywall and Waco
Drywall Services Ltd. She also used subcontractors to complete many of the
contracts which she received.
[9]
The Appellant had one
bank account which was used for both the Business and personal matters. Both
she and her common law spouse, Gatien Dion, had signing authority on the bank
account.
[10]
It was the Appellant’s
evidence that she always paid her subcontractors by cheque. She did not do a
cash business. However she did pay Gatien Dion by cash but she did not consider
him to be a subcontractor. He did not do drywalling as he had problems with his
back. Mr. Dion negotiated the jobs she received, answered the telephone and
filled out the invoices which she signed prior to submitting them to her
clients for payment.
[11]
The Appellant testified
that some of her clients did not pay the full amount she invoiced to them. In
such a situation the Appellant wrote the amount she actually received at the
bottom of the invoice. Other than the invoices, the Appellant did not keep
books for the Business.
[12]
It was the Appellant’s
evidence that Paul Snider prepared her income tax returns for the years under
appeal. She gave him her invoice book to prepare the returns as each invoice
number represented a contract and the amount of money that she received for the
contract.
[13]
Mr. Snider testified
that he prepared the Appellant’s returns from the records she supplied to him.
These records included the invoice book, the bank deposit book and various
receipts. He stated that no ledger was ever prepared for the Business and his
only involvement was to prepare the income tax returns for the Appellant. Once
he had finished the returns, he returned them by mail to the Appellant. He did
not know if she reviewed the returns prior to signing and mailing them.
[14]
Mr. Snider referred the
Appellant to Doug Simpson, an accountant, when he knew that the Appellant
wanted to appeal her reassessment to the Tax Court of Canada. He stated that
Doug Simpson was more familiar with the Tax Court procedure.
[15]
Doug Simpson prepared
the schedules that are attached to the Appellant’s Notice of Appeal in an
attempt to ascertain how the Minister calculated the amounts in the
reassessments. He used the Appellant’s invoices and bank statements to produce
Schedule A and C which detail the Appellant’s gross sales for 2000 and 2001. He
used the Appellant’s cancelled cheques to calculate the amount paid to
subcontractors in 2000 and 2001. As stated above, these amounts were detailed
in Schedules B and D.
[16]
I have reviewed the
calculation of gross income for 2000 in Schedules A to the Notice of Appeal. I
was not given sufficient documentation to ascertain how the Minister calculated
the amount he stated was unreported income for 2000. There was only a global
figure given of $26,393.55 which the Minister determined after an analysis of
the Business’ bank deposits, sales invoices and third party information.
However, as a result of the concessions made by both parties, the only dispute
remaining for 2000 is whether $2,610.58 was unreported income. I have found
that according to the records of P.J. Daly Contracting which were given in
Exhibit A-1, Tab 17 at page 19, the Appellant was paid the following amounts by
cheque:
|
DATE
|
AMOUNT
|
|
May 9, 2000
|
$2,140
|
|
May 10, 2000
|
$642
|
|
May 25, 2000
|
$3,000
|
|
June 2, 2000
|
$2,500
|
|
June 16, 2000
|
$3,060
|
|
June 28, 2000
|
$2,140
|
|
July 6, 2000
|
$2,140
|
|
July 13, 2000
|
$1,500
|
It appears from
Schedule A and the bank records at Exhibit A-1, Tab 16, that the Appellant did
not deposit the cheque dated May 10, 2000; nor did she deposit the full amount
of the cheque dated June 16, 2000. The bank records show that she deposited
only the amount of $1,060 on June 16, 2000. These two amounts ($642 + $2000),
which were not deposited and not included in the Appellant’s calculation of
gross income, exceed the amount that the Minister now states was unreported in
2000. Without any further analysis it is clear that the Appellant has not been
able to establish that her calculation for gross income in 2000 is more
accurate than that of the Minister’s.
[17]
In the 2001 taxation
year, the amount alleged by the Minister to be unreported income was calculated
as follows:
|
DESCRIPTION
|
YEAR
|
AMOUNT
|
|
Sales to D.A. Drywall
|
2001
|
$4,084.00
|
|
Sales
|
2001
|
$5,386.78
|
|
TOTAL
|
|
$9,470.78
|
I have found that
all amounts from D. A. Drywall which the Minister had reassessed as unreported
income have been included in the Appellant’s Schedule C. I was not provided
sufficient evidence by the Respondent to ascertain the details of the amounts
included in $5,386.78 and counsel for the Appellant did not address this issue.
[18]
The Appellant has
demonstrated that in 2001 the amount of $4,084 was included in her calculation
of gross income for 2001 on Schedule C. She has not shown that the amount of
$5,368.78 was included in that Schedule.
[19]
The Appellant’s
computation of gross income for 2001 included a deduction of $4,800 for amounts
deposited to her bank account. These amounts were marked as personal on
Schedule C. At the hearing I questioned the Appellant about this deduction. I
was not given a satisfactory answer. The evidence established that the
Appellant’s sole source of income was from the Business. As a result, I found
that the $4800 deposited to her account had to be from sales she made in the
Business and should not have been deducted from the computation of gross income.
[20]
The onus was on the
Appellant to demolish the assumptions made by the Minister. This she has not
done. After careful consideration of all the evidence I have concluded that the
gross income as calculated by the Appellant in her Notice of Appeal is not
correct. The more accurate computation of her gross income for 2000 and 2001
was $100,408.68 and $94,025.78 respectively.
[21]
The last issue is
whether the Appellant is liable for the gross negligence penalty which was
assessed pursuant to subsection 163(2) of the Act. That subsection
provides:
(2) False statements or omissions -- Every
person who, knowingly, or under circumstances amounting to gross negligence,
has made or has participated in, assented to or acquiesced in the making of, a
false statement or omission in a return, form, certificate, statement or answer
(in this section referred to as a "return") filed or made in respect
of a taxation year for the purposes of this Act, is liable to a penalty of the
greater of $100 and 50% of the total of …
[22]
Counsel for the
Respondent submitted that the Appellant ought to have known that there was
unreported income as her net business income on her income tax returns was
extremely low. Her Business was the sole source of income for her family which
consisted of two children and her common law spouse. Counsel correctly stated
that the Appellant’s credibility is central to my final decision.
[23]
The onus is on the
Respondent to establish that the Appellant knowingly, or under circumstances
amounting to gross negligence made a false statement or omission in her return
in 2000 and 2001.
[24]
In Venne v. R.[1]
at paragraph 37 Strayer J. stated the test for gross negligence as follows:
"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.
[25]
The Appellant stated that she does
not understand bookkeeping nor did she understand how Paul Snider calculated
her income. She never looked at her returns; she accepted the returns as
prepared by Paul Snider and signed them. This does not exonerate the Appellant
as she is responsible for ascertaining the accuracy of her returns. She is also
responsible for keeping books and records for her Business.
[26]
Doug Simpson used the same
documents to produce the schedules attached to the Notice of Appeal that Paul
Snider used to prepare the income tax returns. It was the Appellant’s position
that she gave Paul Snider all of her documents and she relied on his expertise.
[27]
In DeCosta v. R.[2] at paragraph 11
Chief Justice Bowman, as he then was, wrote:
[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.
[28]
I found the Appellant to be
unsophisticated and extremely naïve. She stated that her common law spouse
negotiated the contracts for the Business and prepared the invoices. I was left
to wonder who was actually in charge of the Business.
[29]
The Appellant did unquestionably
seem to be lost when faced with the complexities of bookkeeping. In fact she
did not have any books for the Business beyond an invoice book.
[30]
The amounts of income that the
Appellant failed to report were $15,819.76 and $9,740.78 in 2000 and 2001. The
unreported amounts represented 18% and 11% of the gross income reported in 2000
and 2001. I find that the magnitude of the unreported income is not so
substantial that that I can conclude that the Appellant knew or ought to have
known that she failed to report some of her income.
[31]
In my opinion this is not a
situation of gross negligence or deliberate action or blatant disregard on the
part of the Appellant. When faced with the Minister’s reassessment, the
Appellant provided her documents to another accountant to ascertain how the
Minister had calculated her income. This calculation she included in her Notice
of Appeal. It does not appear that she deliberately set out to conceal her
income. I have come to the conclusion that the circumstances of the case do not
warrant the imposition of penalties.
[32]
The appeal is allowed.
Signed at Ottawa, Canada, this 10th
day of November 2008.
“V.A. Miller”
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