Citation: 2013 TCC 330
Date: 20131024
Docket: 2011-1901(IT)G
BETWEEN:
NORMAND VACHON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1]
The appeal is
essentially with regard to the 2003 and 2004 taxation years. The 2002 taxation
year was the subject of a consent, which is attached to this judgment and is an
integral part of it.
[2]
The Minister of
National Revenue (the Minister) assessed the appellant for unreported income
"outside the normal reassessment period" based on subparagraph 152(4)(a)(i)
of the Income Tax Act (the Act), which provides:
Assessment and
reassessment
152(4) The Minister may at any
time make an assessment, reassessment or additional assessment of tax for a
taxation year, interest or penalties, if any, payable under this Part by a
taxpayer or notify in writing any person by whom a return of income for a
taxation year has been filed that no tax is payable for the year, except that
an assessment, reassessment or additional assessment may be made after the
taxpayer’s normal reassessment period in respect of the year only if
(a) the taxpayer or
person filing the return
(i) has
made any misrepresentation that is attributable to neglect, carelessness or
wilful default or has committed any fraud in filing the return or in
supplying any information under this Act...
[Emphasis added.]
[3]
The Minister also
imposed a penalty pursuant to subsection 163(2), which states:
False statements or
omissions
163(2) 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...
[Emphasis added.]
[4]
The appellant is a
businessman with more than 35 years of experience as director and manager in
large international businesses. He therefore acquired exceptional expertise.
[5]
On August 21, 2003, he
created his own human resources and business restructuring consulting firm.
[6]
As a self-employed
worker or consultant, his services were retained by L’Ébénisterie St-Patrick from
January to July 2002 for $151,063, then by Produits métalliques Roy inc. ("PMR")
from July 2002 to December 2004 for $829,320.
[7]
His compensation was
around $1,200 a day plus the repayment of certain expenses. Only the income
earned from PMR is in dispute.
[8]
At that time, his
status as a self-employed worker was challenged before the Tax Court of Canada,
which found that the appellant was an employee.
[9]
That judgment was
appealed before the Federal Court of Appeal; the Tax Court of Canada judgment
was overturned and the appellant's work was held to be not insurable because, as
he had submitted, it was work performed as a self‑employed worker.
[10]
The
appellant's record leaves no doubt as to his qualities and skills, which were
such that he had exceptional success with the businesses that retained his
services.
[11]
Articulate,
educated, clear-sighted and armed with extensive experience, he was very
successful in the various management mandates conferred on him.
[12]
First, the
appellant testified simply, spontaneously and clearly, which showed he was
disciplined and exceptionally qualified in his professional area of work,
namely human resources and business restructuring. Highly educated, he first
worked as an employee for a very large business in particular.
[13]
The first
part of his testimony led to the conclusion that he built an exceptional
reputation and acquired vast knowledge essential to the proper operations and
development of businesses, regardless of the economic area of activity.
Starting and restructuring businesses require multi-faceted knowledge.
[14]
However,
when he testified about his personal income and tax obligations, the picture
was not the same.
[15]
The appellant stated
that his knowledge of tax matters was very basic at best. He indicated that his
overall personal income was subject to an obligation to pay more or less 50% in
taxes, or approximately $150,000 for income of $300,000.
[16]
He also stated that he
knew an RRSP (Registered Retirement Savings Plan) was advantageous in that it
allowed for significant tax savings.
[17]
The appellant also knew
that the expenses incurred during his work as a consultant could offset the
income earned, if the expenses were directly related to the execution of his
work.
[18]
He stated
very early that his ignorance of tax matters led him to retain H&R Block to
complete his annual tax returns. Mr. Simard, an employee of H&R Block, was
responsible for his file when he worked as an employee.
[19]
When he
became a self-employed worker, he continued to work with the same Mr. Simard,
even though his career path was unstable and he had terminated his relationship
with H&R Block, started his own business, and changed business names a few
times. He also explained and insisted that the two of them had developed a
relationship of trust.
[20]
As clear
and precise as the first part of his testimony was, the second part was equally
unclear, even confused at times. Moreover, it was even contradictory on certain
points, in particular regarding the attention he paid to Mr. Simard's
work, which consisted of taking care of his accounting and tax returns.
[21]
The
appellant explained that Mr. Simard took care of everything using the documents
he brought him, such as invoices for fees, expenses, etc. Mr. Simard did the
accounting work; the appellant prepared the cheques and signed them according
to Mr. Simard's instructions. At the beginning, the appellant seemed to pay
Mr. Simard's fees with a specific cheque and the taxes using separate cheques
made out to the tax creditors. Then, it seems the method changed. The appellant
admitted that, on many occasions, he wrote cheques to various entities Mr. Simard
mentioned to him and with which he had no relationship of any sort. He simply
executed Mr. Simard's instructions.
[22]
The fact
that a person as clear-sighted, meticulous and structured as the appellant
would become so careless and irresponsible when it came to his tax
responsibilities raises many questions for the respondent and the court.
[23]
The
appellant essentially referred to his lack of knowledge and the absolute
confidence he had in Mr. Simard who, in his opinion, had always acted properly,
and had done so for a long time.
[24]
To explain
his nonchalance, indeed his recklessness with regard to his tax obligations, he
stated that, despite his lack of knowledge in the field, he believed that the
case regarding his status as self-employed worker would have a significant
impact. He stated that this was his opinion and added he did not believe it was
necessary to discuss this with counsel representing him in the insurability
case.
[25]
The
appellant went through a stressful period because of the case regarding his
status as self-employed worker versus employee. The difference between the two
clearly had a significant impact, particularly with regard to taxable income;
for a self-employed worker this takes into consideration all expenses incurred
for the purpose of earning income, whereas an employee is usually not eligible
to deduct certain, usually very numerous, expenses. According to the appellant,
the questioning of his status was abusive to the point that the respondent's
position could be considered harassment. His judgment on this issue certainly
does not have the same quality as that which earned him such recognition
professionally.
[26]
The
appellant constantly used the issue of the insurability of his work with the
Canada Revenue Agency (CRA) to explain or justify certain peculiar and highly
disputable aspects of his behaviour. He also stated and repeated that he
sincerely believed that his entire tax matter would be settled automatically
with the final outcome of the case regarding his status, repeating that he had
little to no knowledge of tax matters.
[27]
In support
of his case, the appellant called an expert as a witness. This expert's work showed
conclusively that the appellant indeed paid significant amounts that normally
should have been used to pay all or part of his tax debt. However, this was not
at all what happened. Instead, Mr. Simard diverted the amounts in question to
serve his own interests, thereby defrauding the appellant.
[28]
The
expert's involvement in the appellant's case raised particular interest because
this was certainly not a case in which the parties usually call upon an expert.
[29]
The
expert's work was useful for understanding, but also for demonstrating the
scope of the fraud the appellant was involved in as a victim.
[30]
His
involvement established somewhat conclusively and therefore very convincingly
that the appellant indeed paid, while not the total, significant amounts that
were never remitted to the appropriate tax authorities, but were essentially
used to the profit and advantage of his mandatary Mr. Simard's personal
interests.
[31]
As to the
expert's contribution to the two issues in question, I feel that, with respect
to any other opinions, the expert's work showed unequivocally that the
appellant was a victim of fraud.
[32]
Was he the
victim of a skilful strategist that was impossible or at least difficult to
detect or uncover? I do not think so, although the appellant stated and
repeated that this was not an unwarranted relationship of trust, but a trust
that had developed over the years to the point where he had complete trust in
him.
[33]
Signing
cheques for large amounts to a person who is not the beneficiary is something
fundamentally careless and unjustifiably careless for someone moderately
reasonable and careful. As such, the appellant was, to a certain extent, the
architect of his own misfortune.
[34]
With
ongoing business relationships it is normal that trust is created and develops;
it is also normal, usual and cautious, particularly for someone whose fields of
expertise include human resources, to occasionally conduct verifications as to
the quality and honesty of the work performed.
[35]
A
relationship of trust should never be absolute, without the risk of becoming
responsible for something that could have been avoided by simply being
attentive and taking basic precautions.
[36]
The
appellant is a savvy, educated businessman, who was perfectly aware of human
weaknesses because of his training in industrial relations. He can certainly
not hide behind an explanation of the innocence of a beginner with no
experience in human behaviour. The fact that he signed cheques for substantial
amounts to persons other than the beneficiary of the amount shows carelessness
to the point that it can be considered negligence.
[37]
Habits,
routine and comfort in a business relationship do not automatically prevent errors
or abuse, therefore the reflex to be vigilant and cautious should never be put
aside. Yes, it is human nature to let oneself go, but it is also expected that
one must be responsible for the civil and administrative consequences of such
inaction.
[38]
The appellant
has a high level of academic training to which he adds exceptional analytical
and management skills, and he has the ability to implement relevant solutions
that produce remarkable results. Such expertise and such results certainly do
not come from taking everything for granted and never questioning anything when
in a relationship of trust.
[39]
The
appellant, despite the extent of his knowledge, his vast and sought-after
expertise in administrative management and his ultra-specialization in human
resources matters, claimed and repeatedly insisted that he had no knowledge of
tax matters. On this, the evidence shows that the appellant had the knowledge
that is commonly found in the general public.
[40]
The tax
dispute in his appeal involves an issue for which all or nearly all taxpayers are
aware of the requirements provided by the Act, namely knowing that everyone
must pay taxes and that generally, the higher the income, the greater the tax
burden. Added to this, perhaps to a lesser extent, is the fact that an RRSP
reduces a taxpayer's tax burden and lastly, that the expenses incurred when
carrying out a mandate as a consultant are deductible.
[41]
The appellant
is not, and was not, during the years in question, an exception to this
virtually absolute rule. Indeed, not only did the appellant know that he should
pay his taxes, he quickly and simply admitted as much; he knew that an RRSP was
beneficial and roughly knew that the percentage of taxes to which his income
was subject was more or less 50%.
[42]
The appellant's
main submission is that he paid the tax amounts he owed; but he also
acknowledges that the amounts in question were not paid to the true debtor, in
this case, the respondent.
[43]
Moreover,
the appellant also submits that he was not responsible for the fact he probably
signed tax returns that were not the same as those his agent submitted, since
his attention was directed at documents that did not comply with those sent to
the tax authorities or were simply false.
[44]
Indeed, he
was dealing with a con artist; however, I feel it is important to note that the
con artist in question had a much easier time with his malicious scheme because
of the appellant's carelessness, lack of attention and excessive and
unwarranted trust.
[45]
The
appellant had to read and follow-up on correspondence the respondent prepared. He
had to verify the quality of Mr. Simard's work. He especially had to question his
motives as to the cheques he was asked to prepare. It was his responsibility to
understand and verify the accuracy and details of the fees paid, to ascertain what
amount of the cheques was for the fees and what amount was for taxes.
[46]
It is human
nature to be vulnerable before wise and savvy fraudsters, but not all have the
same vulnerability and all must rely on their own resources to protect
themselves from fraudulent initiatives, which are numerous and widespread in
society, and particularly when faced with signs of trouble and behaviour that
normally trigger a reflex of suspicion.
[47]
The
appellant was careless. This appears from his own testimony. First, in the
transcript at page 36, lines 2 to 12:
[translation]
"Your
return will be ready this day or that day." It was not ready. They called
me back. There was a delay, OK, etc. With him, it was always... He is a
conscientious guy, in that he was always there on the day and at the time
agreed to and also the documents were well prepared. I conducted a complete
review with him and I would see that all the information was there and
everything was there. So that made him reliable.
...
[See transcript at page 54, lines 10 to 26.]
Q. We talked about the company earlier.
A. The way he operated in 2003, even if I had
instalments to pay or whatever, when I would get there, I always asked:
"OK. How much do I owe? What do I need to do?" And then I paid him
his fees. I wrote his cheque, ok, as such, for his fees, and then I would to
Revenue Canada, ok, or Revenue Quebec, for the given period.
Q. Hm.
A. Then I would write a cheque, ok, at that time,
based on the amount I owed. I would give him the cheque. He was the one who
took care of it to be able to file the reports meaning doing or completing the
rest, in terms of paperwork, etc.
...
[See transcript at page 55, lines 1 to 13, and page
56, lines 1 to 17.]
HIS HONOUR: When you say: "I wrote the cheque", who
wrote the cheque to Revenue Canada and Revenue Quebec?
WITNESS: It
was me, but I gave it to him.
HIS
HONOUR: O.K.
WITNESS: I was the one who always wrote the cheque
to Revenue Canada, so I knew the amount.
HIS
HONOUR: But according to the instructions he gave you?
WITNESS: The...
HIS
HONOUR: You wrote the cheque to Revenue Canada.
WITNESS: Exactly.
...
Then after that, yes, well, what I did was I wrote the
cheque. I always wrote the cheque like that. It was always my signature there
on the actual cheque. Then I would say: "Here, here is the cheque.
Proceed. How much do I owe you for your fees?" And then I paid his fees.
But, this was a reliable guy who did his job well. When I got there, he was
always well prepared, meaning that, for all intents and purposes, ok, I didn't
really have many questions to ask. He went over all the elements. He made sure
he answered my questions. It was the same as it had always been.
...
[See transcript at page 67, lines 25 to 28.]
Q. If you go to page 11, Mr. Vachon, you have a
$10,000 cheque dated June 13, 2004, payable to Les Industries Flamenco.
A. Hm.
[See transcript at page 68, lines 1 to 28.]
Q. Now, can you explain to the Court what this is?
A. That, actually, if memory serves, was... What he
did was he changed. He was with H & R Block and then at one point, he was
no longer with H & R Block and then he got new offices that were almost
across from, ok, uh, on the other side of the road, ok, like, in a shopping
centre.
Q. Yes.
A. He had space there with, I don't know, a couple
of offices and professionals who seemed to work there. So, from what I
remember, that's it. Ok, at that time, and that was the name of his company,
ok, so yeah.
Q. And if you went...
HIS HONOUR: This is the accountant's company or the company
for which he worked?
WITNESS: His own business. He always told me it was
his business. When he left H & R Block, what he told me was... He opened...
He opened his own firm. He opened his company. This is his company.
HIS HONOUR: Tell me, this guy, was he a CA, was he
a CGA? Was...
[See transcript at page 69, lines 1 to 27, page 70, lines 1
to 28, page 71, lines 1 to 28, and page 72, lines 1 to 3.]
WITNESS: You ask me this question and honestly, I never
checked this out. It is because when he was at H & R Block, for me, you
know... Before that, I dealt with H & R Block. Usually, it was always... I guess
that accountants work there, ok, so yeah. He said he was an accountant. But I
never asked for his papers because I knew him before personally, meaning, on
a... He did taxes on... personal taxes, so... Since I was in Repentigny. So
let's say from’95, ’96, ’97, nothing changed, up until 2002, 2003, uh, when it
started to change.
Q. Les
Industries Flamenco, you, do you have shares in that?
A. No.
Q. You
are not a shareholder of this---
A. No,
no.
Q. ---company?
A. No.
I don't even know what that is exactly, you know? I guess it is his company, the
accountants, the people who are there, yeah.
Q. If
you go to page 14, you have a cheque to Capital Finances Services. I don't
know... The print is not that great, but are you able to recognize your
signature, Mr. Vachon?
A. Yes,
that is my signature.
Q. Capital
Finances Services, what is that?
A. April
billing... He left Repentigny, ok, like, to go to Terrebonne. I guess it's
that, but I...
Q. To
the best of your recollection, Capital Finances Services...
A. It's
the company, the other company he was in, ok, yeah.
Q. "He"
being?
A. Daniel
Simard.
Q. Daniel
Simard.
A. Because
he left Repentigny to go to Terrebonne then.
Q. And
you, do you have shares in Capital Finances Services?
A. No.
Q. So
if you go to page 15, there is a cheque payable to ImpôtExpert. Do you
recognize your signature here too?
A. Yes.
Quarterly accounting, ok, like, ImpôtExpert, yes. Honestly, I...
Q. ImpôtExpert
as best you can remember, is this also Mr. Simard?
A. Yes,
that's him.
Q. And
you, do you have shares in ImpôtExpert?
A. No,
no.
Q. Ok.
A. I
don't remember what he told me. He must have changed the company or whatever.
Q. If
you go to page 20, there is cheque payable to Gestion PSC Inc.
A. Page
20?
Q. Page
20. Do you see that, Gestion PSC Inc.?
A. Yes.
Q. Can
you recognize your signature?
A. Yes.
Q. $3,500.
A. And
at the bottom, what is that, "DAS---
Q. "DAS".
A. ---Federal"?
Q. "Federal
DAS."
A. What
is that, "DAS"?
Q. Deductions
at source. That's how I understand it. But Gestion PSC,---
A. No.
Q. ---is
this the name of a company Mr. Simard mentioned to you?
A. Of
course because, you know, if I wrote a cheque and then wrote him a cheque, I
would say: "Who do I make it out to, ok, like that?"
[Emphasis added.]
[48]
First, the
appellant was clear about the fact he was wise, careful and vigilant about Mr.
Simard's work. He even noted that not hearing from the respondent was, in a
way, a confirmation of the quality of Mr. Simard's work. From the transcript at
page 58, lines 1 to 6, he states:
[translation]
A. Yes, absolutely. Well, I mean, Revenue Canada is usually
so fast that, if, let's say, a tax return I made wasn't right, I'm sure that
Revenue Canada would have gotten back to me quickly, ok, at the time. They
would not have gone to the accountant, but would have gotten back to me on that...
[49]
Second, it
is also very clear and unequivocal that his criteria for caution and his instincts
to be prudent became diluted to the point of becoming nonexistent, for absolutely
no reason. His failure to significantly follow up, with regard to the letters
by Jean‑Paul Payette from the audit division on April 2, June 15 and
September 11, 2007, is very revealing.
[50]
The
argument that the case regarding the insurability of his work explained and
justified his inaction is not a valid excuse, especially for a person as
qualified and resourceful as the appellant.
[51]
When Mr. Simard
became ill, he could have contacted either Mr. Payette, or another accountant,
especially when he was informed that no return date could be given for Mr.
Simard. The appellant himself stated that Mr. Simard was disciplined and
structured, did he not? This was a fairly major change that should have raised
suspicions in a reasonable person.
[52]
In the
summer of 2007, when Mr. Simard, described by the appellant as reliable, quick,
methodical and disciplined, admitted that he lost his file, again, he should
have acted quickly and efficiently, by contacting the respondent and/or her
representatives.
[53]
All the
justifications and excuses that followed seem trivial other than to confirm the
negligence, recklessness and carelessness, and to point to a fault that is
severe enough to allow the respondent to make an assessment outside the normal
statutory period.
[54]
If the
appellant had been careful, vigilant and blameless, as he claimed, when he
discovered certain abnormalities, irregularities, etc., he should have taken
the initiative of verifying and validating the quality and accuracy of the work
done by Mr. Simard over the previous years.
[55]
In that
respect, the appellant himself submitted convincing, relevant and very
revealing evidence. Indeed, the transcript from the criminal investigation
concerning Mr. Simard showed that he faced criminal charges following certain findings
of one of his clients who can clearly be defined and described as an ordinary
reasonable person. Yet, the finding of malfeasance was made very quickly, as
was the denunciation. The individual in question clearly does not have the same
assets as the appellant but still noticed Mr. Simard's malfeasance quickly and
just as quickly reported it.
[56]
In short,
the appellant clearly made an error by putting his absolute trust in a person
who did not deserve it, and who had shown many signs that should have raised
suspicions in a reasonable person.
[57]
The
appellant's choice is also rather debatable; indeed, an informed person knows
or should know that giving a mandate to a person who is not a member of a
professional association such as CA, CGA, etc. can have serious consequences
and be very costly. The mandator takes full responsibility for the deeds and
actions of his mandataries with the exception of penal or criminal faults. The
appellant had the knowledge to very quickly make an appropriate verification.
He did not do so. He simply made assumptions.
[58]
Indeed, the
mandator has an advantageous civil liability remedy, but the outcome could be
very disappointing if the mandatary is insolvent, which seems to be the
situation in the present case. The third party is not responsible for nor the
insurer of the facts and behaviour of the mandatary; consequently, the
appellant must assume all the consequences of his carelessness.
[59]
Indeed, Mr.
Simard had to be creative and/or imaginative to gain and retain the appellant's
trust. He acted fraudulently by setting up various strategies. But this same
fraudster was easily and quickly denounced by another person, which was established
by the appellant's own expert.
[60]
I do not
believe that the businessman in question was a great investigative detective.
He essentially acted from normal and reasonable actions and reflexes, which the
appellant did not do.
[61]
The mandator
is liable to third parties, including the Agency, for the actions of the person
executing the mandate conferred by a taxpayer to complete his or her annual tax
returns, notwithstanding the rights of that mandator against the mandatary with
regard to liability, in particular in terms of following the trade practices or
any other errors, whether of ignorance or otherwise. In other words, all that
is civil and not criminal entails a liability for the mandator to third
parties.
[62]
He preferred
to remain silent with people who were processing his file regarding the
insurability of his employment. He unconvincingly submits that he believed a
settlement in the insurability case would also settle his tax case. This
unjustified passiveness was fed by negative feelings towards the authorities;
in fact, the appellant felt that he was being harassed.
[63]
It seems
that the appellant was much harsher with the audit department than with his
accountant. Interpreting their various requests as harassment, he did not think
it was relevant to question the competence of his own representative, although he
had shown some questionable and suspicious actions.
[64]
Astoundingly,
as I mentioned during the hearing, the appellant had built an exceptional
reputation with many businesses, for which he met many equally exceptional
challenges. However, when it came to his tax case, which was rather simple, his
memory became selective, his explanations incomplete and confused; moreover, it
is completely impossible to make sense of the replies with respect to the
importance he granted his annual tax returns.
[65]
First, he
stated that he verified, analyzed, questioned and validated by his signature
the quality of Mr. Simard's work. Second, claiming to trust Mr. Simard, he
blindly signed wherever he was told to, did not keep any copies, etc., and
wrote cheques to people who were not the beneficiaries.
[66]
Similar
contradictions undermine the appellant's credibility with regard to the attention
he paid or devoted to his tax obligations; this led to the validation of many
elements that, overall, constitute a degree of fault severe enough to conclude
that the respondent has met the burden of proof that allows for an assessment to
be made outside the statutory period. In this case, the appellant's excessive
tolerance and unwarranted and disproportionate trust in Mr. Simard constitutes a
fault sufficiently serious to allow the respondent to make an assessment
outside the normal reassessment period. As a result, I feel that it is
appropriate and warranted to conclude there was a severe enough fault or error
to set aside the benefits of the limitation period provided for in subparagraph
152(4)(a)(i) of the Act.
Penalties
[67]
The
evidence showed that the appellant was unequivocally the victim of a fraud. The
appellant is also requesting that the penalties added to the assessments be
cancelled.
[68]
The various
complaints brought against the appellant, including his lack of vigilance, certain
recklessness, and near indifference, are attributable to him, and this surely
made Mr. Simard's strategy easier to carry out.
[69]
As for the
penalties, it is completely different; the appellant's breaches, his lack of
attention regarding his attitude and his behaviour with Mr. Simard do not seem
to me to have the degree of seriousness to call for penalties.
[70]
Although we
cannot refer to mens rea, an essential element in criminal law, it seems
important to me that to call for penalties in tax matters, the person in
question must have shown, whether passively or actively, a minimal intention to
hide certain data with a direct impact on his fiscal duty.
[71]
Wilful
blindness, the lack of attention, unwarranted or unjustified trust in an agent
are factors that, under the circumstances, could correspond to gross negligence
justifying the imposition of penalties.
[72]
In this
case, I believe the appellant when he states that he never had the intention or
desire to evade part of his fiscal duty.
[73]
Is the
appellant accountable for the penalties for which Mr. Simard is primarily
responsible as Mr. Simard clearly orchestrated a fraud against the appellant
who, I must restate, was to a certain extent, the architect of his own
misfortune?
[74]
Despite this,
I must say the answer is negative since it seems very difficult, if not
impossible, for me to conclude that there was gross negligence or any intention
to voluntarily and/or knowingly evade his tax obligations. The recklessness,
lack of vigilance and carelessness that the appellant showed do not constitute
gross negligence within the meaning of subsection 162(2) of the Act.
[75]
Lack of
vigilance, carelessness and even a lack of concern are not sufficiently serious
reasons to call for the imposition of a penalty when there is no malicious
intent.
[76]
Imposing penalties
requires negligence to the extent that the alleged carelessness is significant
and reckless enough that is it possible to detect some degree of complicity—at the
very least implied—that leads to the finding that there was wilful blindness.
[77]
In this
case, the appellant was very experienced, very educated and had the specific
abilities to assess human resources skills. He should have been able to put
into practice his own expertise, which would have quickly allowed him to
discover the fraud and the significant and crude abuse perpetrated by his
accountant. Despite this reality, there is no doubt that the appellant did not
want to avoid his tax burden for the benefit of Mr. Simard.
[78]
Penalties
imply gross negligence, wilful default, wilful blindness, etc. The basis for
imposing a penalty is closer to a criminal law concept.
[79]
Criminal
law is a field with very specific rules. First of all, in tax matters, the
burden of proof is on the respondent, not the taxpayer who is being assessed
the penalty.
[80]
In tax law,
the degree of proof required is the balance of probabilities, whereas in
criminal law, it is much more stringent; there must be proof beyond a
reasonable doubt.
[81]
In tax law,
there is no requirement for proof beyond a reasonable doubt at all; there must,
however, be a likelihood that the person being assessed has committed a fault
to the degree that it could be considered gross negligence and not a fault
resulting from a lack of vigilance.
[82]
In criminal
law, unless the mandator is complicit or is associated implicitly or explicitly
with the facts and behaviour attributed to the mandatary, or benefits from the
scheme, the mandator cannot be responsible for the criminal responsibility
resulting from the mandatary's facts and behaviour, which benefited the mandatary
to the detriment of his or her mandator.
[83]
In this
case, it seems clear to me that there is no such complicity. The appellant's
negligence and carelessness are not sufficient to lead to a conclusion that
there was wilful blindness; in fact, it would be unreasonable to accept that a
person would voluntarily or involuntarily accept that amounts paid for his or
her tax debts would benefit someone else.
[84]
For all
these reasons, the appeal is allowed and the penalties are cancelled. With
regard to the other elements of the assessments, they remain the same, all of
which is subject to the attached consent entered into by the parties for the
2002 taxation year, with costs to the respondent.
Signed at Ottawa, Canada, this 24th day of October 2013.
Tardif J.
Translation
certified true
on this 11th day
of February 2014.
François Brunet,
Revisor
Email this Content