Citation:
2014TCC128
Date: 20140430
Docket: 2012-816(IT)G
BETWEEN:
BRIAN
BOLDUC,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
V.A. Miller J.
[1]
The Appellant has brought a Motion in which he
requests:
(a) an Order
directing that the parties file and serve on each other a list of documents
pursuant to section 82 of the Tax Court of Canada Rules (General Procedure)
(the “Rules”);
(b) an Order
permitting the Appellant to conduct further oral discovery upon a nominee of
the Respondent that is knowledgeable in respect of documents included in the
Respondent’s list of documents served on the Appellant pursuant to the Order
requested above; and,
(c) an Order
for costs of this motion.
[2]
The only issue in this appeal is whether the
Appellant is liable for gross negligence penalties which were assessed against
him in respect of false business losses he claimed in his income tax return for
2009.
[3]
The parties agree to the following facts.
[4]
In 2009, the Appellant participated in a tax
savings scheme (the “Scheme”) promoted by Solutions 21 Financial (“Solutions 21”).
According to this Scheme, the Appellant reported in his 2009 return that he had
gross business income of $100,209.59; and, a business expense of $426,336.97
which he described as “AMT TO PRINCIPAL FR AGENT”. The Appellant claimed net
business losses of $326,127.38.
[5]
The Appellant applied the business losses to his
employment income for 2009 so that there were nil federal taxes owing. He also
requested that the remaining losses be carried back to his 2006, 2007 and 2008
taxation years so that he would receive a refund of the taxes he had paid in
those years.
[6]
The Minister of National Revenue (the “Minister”)
disallowed the net business losses and assessed a gross negligence penalty of
$42,028.51 against the Appellant.
[7]
The Appellant did not receive any of the refunds
he requested.
[8]
The Appellant did not have a business in 2009.
[9]
The parties have already exchanged lists of
documents pursuant to section 81 of the Rules and they have held oral
discoveries.
Appellant’s Position
[10]
It is the Appellant’s position that gross
negligence penalties should not have been assessed against him because he
believed that the Scheme which had been marketed to him and thousands of other
taxpayers was legitimate. In order to demonstrate that his negligence did not
rise to the level of gross negligence, he will argue that he acted reasonably
in the circumstances by comparing his actions with that of the “reasonable
person”. The Appellant submitted that he should be able to present the full
circumstances of the Scheme, and the fact that many other taxpayers also
participated in it.
[11]
I inferred from counsel’s submissions that he
will argue that the “reasonable person” is all the other individuals who
claimed false business losses in their returns in circumstances similar to the
Appellant.
[12]
Counsel for the Appellant stated that the
Minister had an audit project for the Scheme which involved thousands of
taxpayers. The Minister controlled the audit project, the resulting assessments
and the investigations. It is the Appellant’s view that the Minister has the
documents which will assist him in establishing what the reasonable person did
and/or what was reasonable in the circumstances similar to that of the
Appellant.
[13]
As part of its Motion Record, the Appellant
included the affidavit which was used by an officer of the Canada Revenue
Agency (“CRA”) to obtain search warrants against the promoters of Fiscal
Arbitrators. (Fiscal Arbitrators also operated a tax savings scheme identical
to the one promoted by Solutions 21.) Counsel for the Appellant has requested
all documents used to obtain the search warrants; all documents obtained as a
result of the search warrants; the names of all CRA employees who have
knowledge of the Scheme and similar schemes; all documents the CRA may have
with respect to the Scheme and similar schemes; and, the CRA files for all
taxpayers who have been assessed under this Scheme and those similar to it.
Counsel stated that if this section 82 motion is granted, it will reduce the
number of subpoenas which would have to be issued for the hearing of this
appeal.
The Law
[14]
Section 82 of the Rules provides in part:
(1) The parties may
agree or, in the absence of agreement, either party may apply to the Court for
an order directing that each party shall file and serve on each other party a
list of all the documents that are or have been in that party's possession,
control or power relevant to any matter in question between or among them in
the appeal.
[15]
The party requesting full disclosure of
documents under section 82 must demonstrate that the requested documents are
relevant to the issues raised in the pleadings and that there are reasonable
grounds for such an order: Mintzer v R, 2008 TCC 72.
[16]
In making its decision for full disclosure, the
Court must be satisfied that full disclosure will secure the just, most
expeditious and least expensive determination of the proceeding: Section 4(1)
of the Rules.
[17]
In accordance with subsection 4(1) of the Rules,
the Court should also consider whether the issues under appeal are such that
the increased expense and time required to assemble the requested documents are
warranted: Long v R, 2010 TCC 197 at paragraphs 17. The objectives of
efficiency, effectiveness, practicality and the ‘need to get on with the
litigation’ also play a part in the Court’s decision for full disclosure: Canadian
Imperial Bank of Commerce v R, 2013 TCC 170 at paragraph 106.
[18]
When deciding whether it would exercise its
discretion to grant an order for full disclosure of documents, this Court has
also considered the importance of the principle of proportionality in tax
litigation. In Canadian Imperial Bank of Commerce (supra), Jorre J.
stated:
109 Both parties
have significant resources, there is a good deal of tax at stake and there
appears to be significant and serious issues at stake. In the sense
proportionality is often discussed, it is probably not an issue here.
110 However, there
is a long tradition in tax of trying to keep down, if possible, the amount of
time and effort spent on pretrial stages of the proceeding. It is reflected in
the choice of Rule 81 as the default rule. Arguably, this tradition is also a
kind of consideration of proportionality although, to my knowledge, discussions
of proportionality started much more recently than this tradition.
[19]
Although the burden of discovery should remain
proportionate to the issues, interest, and money at stake in an appeal, the
Court must also question whether the requested documents are material with
respect to the issue or whether they will add significant value to the Court’s appreciation
of the evidence: Cameco Corporation v R, 2014 TCC 45 at paragraphs 42
and 43.
Analysis
[20]
It is my view that the Appellant has not
demonstrated that full disclosure of documents should be granted in this
appeal. He has not shown that the documents he requested or the names of all
employees of the CRA who have knowledge of the Scheme are relevant to the issue
in this appeal.
[21]
The sole issue that the trial judge has to
decide in this case is whether the Appellant made his claim for false business
losses “knowingly, or under circumstances amounting to gross negligence”. In
the recent decision of Torres v R, 2013 TCC 380, C Miller J. analyzed
the existing case law with respect to gross negligence penalties and identified
the leading principles which were considered in those cases. He summarized
those principles as follows:
Based on this
jurisprudence and the evidence that I have heard in the six Appeals before me,
I draw the following principles:
a)
Knowledge of a false statement can be imputed by wilful blindness.
b)
The concept of wilful blindness can be applied to gross negligence penalties
pursuant to subsection 163(2) of the Act and it is appropriate to do so
in the cases before me.
c)
In determining wilful blindness, consideration must be given to the education
and experience of the taxpayer.
d)
To find wilful blindness there must be a need or a suspicion for an inquiry.
e)
Circumstances that would indicate a need for an inquiry prior to filing, or
flashing red lights as I called it in the Bhatti decision, include the
following:
i) the magnitude of the advantage or omission;
ii) the blatantness of the false statement and how readily
detectable it is;
iii) the lack of acknowledgment by the tax preparer who prepared the
return in the return itself;
iv) unusual requests made by the tax preparer;
v) the tax preparer being previously unknown to the taxpayer;
vi) incomprehensible explanations by the tax preparer;
vii) whether others engaged the tax preparer or warned against doing
so, or the taxpayer himself or herself expresses concern about telling others.
f)
The final requirement for wilful blindness is that the taxpayer makes no
inquiry of the tax preparer to understand the return, nor makes any inquiry of
a third party, nor the CRA itself.
[22]
The focus of the inquiry at the hearing of this
appeal will be on facts specific to the Appellant’s education, experience,
knowledge and conduct. The documents sought by the Appellant are not relevant
to these facts nor will the requested documents add any value to the Court’s
appreciation of the evidence with respect to the Appellant’s state of mind and
belief. An Order for full disclosure in this case will not secure the just,
most expeditious and least expensive determination of the proceeding.
[23]
Counsel for the Appellant stated that his
objective will be to establish why it was reasonable in the circumstances for
the Appellant to believe that the Scheme was legitimate. He plans to make an
argument based on the “reasonable person” and he seeks information with respect
to other taxpayers who also claimed false losses in their tax returns. However,
the personal information with respect to other taxpayers is not relevant to the
Appellant’s appeal: Sinclair v R, 2003 FCA 348. It is my opinion that
the Appellant has sufficient information to make the “reasonable person”
argument. The Respondent has already given him data with respect to the number
of taxpayers who have been audited for false business losses for the period
2009 to 2014. I make no decision as to the relevancy of the Appellant’s
proposed argument.
[24]
The Appellant has alleged that the auditor
referred to information when he decided that a penalty should be assessed
against him and this information has not been disclosed to him. My review of
the discovery transcript has shown that counsel for the Appellant conjectured
that there was a master file of “scripted responses and other things” which the
auditor used in his penalty report. The Respondent took the following under
advisement:
“To determine
whether there is a master file that the auditor was referring to with respect
to this assessment, and if so, to produce that master file.”
The answer given
to this question was:
“The auditor did
not review a master file with respect to this assessment,”
[25]
It is my view that the Respondent has answered
the question which he took under advisement.
[26]
It was also the Appellant’s position that the
documents obtained by the Minister in his investigation of the scheme promoters
are directly relevant to the Appellant’s case. While these documents may assist
the Appellant in giving the background to the Scheme, the cost and time
required for such full disclosure of documents outweighs any possible benefit
to the Appellant. It is arguable whether the background to the Scheme will be relevant
to whether the Appellant is liable for gross negligence penalties but that
issue is best left to the trial judge.
[27]
In addition to the reasons given above, I have
also concluded that the amount in issue in this appeal ($42,028.51) does not
warrant the costs which would be incurred in complying with an order for full
disclosure of documents.
[28]
In conclusion, the Appellant has not
demonstrated that the documents he seeks are relevant to the issue in his
appeal. Even if some of these documents may be relevant, I am not satisfied
that full disclosure will secure the just, most expeditious and least expensive
determination of the issue under appeal. The motion is dismissed with costs to
the Respondent.
Signed at Toronto, Ontario, this 30th
day of April 2014.
“V.A. Miller”
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