Citation: 2010TCC114
Date: 20100226
Docket: 2009-2641(IT)I
BETWEEN:
ELIZABETH SAUNDERS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The only issue
in this appeal is whether the Appellant, Elizabeth Saunders, is liable for a
penalty under subsection 162(1) of the Income Tax Act for having failed
to file her 2007 income tax return, as required by section 150(1)(d), on
or before April 30, 2008.
[2] Subsection
162(1) provides that:
162.(1) Failure to file return of income - Every
person who fails to file a return of income for a taxation year as and when
required by subsection 150(1) is liable to a penalty equal to the total of
(a) an amount
equal to 5% of the person’s tax payable under this Part for the year that was
unpaid when the return was required to be filed, and
(b) the
product obtained when 1% of the person’s tax payable under this Part for the
year that was unpaid when the return was required to be filed is multiplied by
the number of complete months, not exceeding 12, from the date on which the
return was required to be filed to the date on which the return was filed.
[3] There is no
question that the Appellant’s return was due on April 30, 2008 and that the unpaid
tax payable was $44,813.55. What is in dispute is the date upon which the
return was filed.
[4] The Minister
assessed a late filing penalty on the basis that the return was filed on May
20, 2008, the date stamped on the return by the Canada Revenue Agency.
[5] The Appellant’s
position is that, in fact, the return was filed on April 29, 2008, the date it
was placed by her accountant in a container designated for the collection of
returns located in the Canada Revenue Agency offices in Montreal.
[6] At the
commencement of the hearing, counsel for the Respondent requested and was
granted an order for the exclusion of the Appellant’s witnesses.
[7] The Appellant, a
lady in her 80’s, did not appear at the hearing of this appeal. She was
represented by Nicolas Karavolas, a Certified General Accountant, who also
testified on her behalf. Also called for the Appellant were Rita Doherty
and David Boilly, accountants associated with Mr. Karavolas’ office. I found
all three witnesses to be credible in their testimony.
[8] The Minister
called Phillippe Demeule, the Canada Revenue Agency official who reviewed the
Appellant’s Notice of Objection and who testified as to the standard filing
procedures of the Canada Revenue Agency in place in April 2008. Because Mr. Demeule
was also present as the Minister’s representative, the order excluding
witnesses did not include him. I have no reason to doubt the veracity of his
testimony; its only weakness was that as an official working out of the Canada
Revenue Agency offices in Shawinigan, he had no personal knowledge of the
return collection facilities and procedures in place in the Montreal office
between April 29 and May 20, 2008, or of how the Appellant’s return was treated
at the time of filing.
[9] Having had the
opportunity to hear each of the witnesses, I am satisfied on a balance of
probabilities that the Appellant’s return was filed on April 29, 2008 when Mr.
Boilly deposited it in the return collection box in the Montreal Canada Revenue
Agency office.
[10] I accept, in
particular, Mr. Karavolas’ evidence that the practice in his office was to
prepare several individual returns until a sufficiently large number were ready
for delivery to the Canada Revenue Agency. Mrs. Doherty would then type a list
of the returns to be filed on a particular day and Mr. Boilly would take them
to the Canada Revenue Agency office for filing.
[11] Prior to 2008,
this system had worked very well as the returns were received by an official
who, upon their presentation, would date stamp each return with the current
date. In 2008, however, the Canada Revenue Agency changed its procedure.
Although taxpayers still had the option of presenting their returns to an
official at the counter, this usually involved a long wait in line. Perhaps in
the hope of expediting the process, in 2008, the Canada Revenue Agency offered
an alternative filing method: the taxpayer could avoid the counter line up by
simply inserting the return in the slot of a closed container similar to a
Canada Post mailbox. As the Appellant was later to find out, the weakness of
the new system was that it was without any mechanism for recording the date of
its insertion into the collection box. Mr. Demeule confirmed this fact but
countered that there was a procedure in place to ensure the noting of the time
of filing of the returns placed in the collection box: at day’s end or, at the
very latest, early the next morning, an official was charged with retrieving the
filed returns from the box and delivering them to the mailroom. There, the
returns were entrusted to other officials for date stamping prior to turning
them over to yet other officials to dispatch to the appropriate Canada Revenue
Agency office for processing.
[12] Interestingly,
any return filed on any day prior to May 1st, 2008 was simply
stamped “April 30, 2008” rather than with its actual date of filing. The
rationale behind this policy was apparently that only late-filed returns
attracted penalties so there was no need to record the actual date of filing. (While there is some logic to this, it
strikes me as a poor practice, especially for a government agency that oils its
machinery with due dates and timely actions.) Nonetheless, when asked in direct examination as to the reliability of
the new system, Mr. Demeule’s opinion was that it was “pretty” reliable.
Indeed, in reaching his conclusion that a penalty was correctly assessed
against the Appellant, he relied “basically” on the May 20, 2008 date stamp on
her return. He was also influenced by the fact that in the Appellant’s Notice
of Objection[1], Mr. Karavolas had stated that her return had been
delivered to the Montreal office on April 28, not April 29, 2008 as he would later
claim. Further, he noted that of the returns listed in Exhibit A-1 as having
been filed on April 29, 2008, about half bore Canada Revenue Agency date stamps
indicating filing dates after April 30, 2008. In his view, that discovery outweighed
Mr. Karavolas’ assertions that all of the returns in Exhibit A-1 had been
deposited in the Canada Revenue Agency collection box on the same day.
[13] I must say that I
do not share Mr. Demeule’s faith in the infallibility of a huge government
bureaucracy, especially during its busiest time of the year. First of all, even
if I accept Mr. Demeule’s otherwise uncorroborated findings during the
objection stage, it seems equally likely that the different date stamps
resulted from the mishandling of the returns by the roster of unidentified
(and, for the Appellant’s purposes, unidentifiable) officials charged with retrieving,
stamping and redirecting the flood of returns that would have been deposited at
the Montreal office in the dying days of April 2008. Furthermore, Mr.
Karavolas’ error in identifying the date of filing in the Notice of Objection
as “April 28” is no more a blot on his credibility than Mr. Demeule’s own slip
when he said, during his testimony, that the return had been date stamped “May 29”
when he meant to say “May 20”. While I can understand Mr. Demeule’s belief
that the system was supposed to work, I am not convinced in the Appellant’s
case that it did.
[14] The filing
procedures employed in Mr. Karavolas’ office were consistent with prudent
business management. It would hardly have been cost-effective to have had his
colleague Mr. Boilly running to the Canada Revenue Agency office to file
individual returns as each was completed. Furthermore, I am persuaded by his
challenge of the date stamps which apparently appeared on the returns of some
of his other clients listed in Exhibit A-1: his evidence was that he normally
prepared the returns of husbands and wives at the same time to ensure harmony
in the reporting of transferable credits and so on. This is a perfectly
sensible approach that lends credence to his testimony that it was also his
practice to send the spouses’ returns for filing on the same day. In reviewing
the Appellant’s Notice of Objection, however, Mr. Demeule noted that the returns
of a certain Mr. and Mrs. Robertson listed in Exhibit A-1 bore date stamps
“May 21” and “May 20”, respectively, leading him to conclude that the list was
uncorroborative of Mr. Karavolas’ position. In my view, this says more
about the likelihood of human error in one of the various departments at the
Canada Revenue Agency than the truth of when the Appellant’s return was filed.
[15] Mrs.
Doherty was responsible for preparing the list of taxpayers’ names according to
the batches of prepared returns provided by Mr. Karavolas and Mr. Boilly
and their date of delivery to the Montreal office of the Canada Revenue Agency. This strikes me
as an imminently sensible way of recording such information, especially since
the Canada Revenue Agency procedure had no independent validating system of its
own in place.
[16] The Appellant’s
return was prepared by Mr. Boilly. I accept his evidence that he met with the
Appellant early in April 2008 to advise her that a significant amount of tax
would be payable; because the Appellant needed time to transfer funds to her chequing account to cover the cheques she would ultimately be sending to the
Canada Revenue Agency and Revenu Québec, he put her return aside until the end
of April. After having made the necessary arrangements, the Appellant brought
to his office the cheques needed for her provincial and federal taxes. According
to the assumption in paragraph 7(f) of the Reply to the Notice of Appeal, a
cheque for $47,324.35 was enclosed with the Appellant’s federal income tax
return. His evidence is also supported by Exhibit A-3, a portion of the
Appellant’s bank statement showing a wire transfer into her account on April
28, 2008 of $96,000 making for a total balance of $101,137.84, more than enough
to cover her federal and provincial tax. Further, there was no late filing
penalty in the 2007 Notice of Assessment from Revenu Québec[2] and the bank statement confirms that on May 5, 2008,
the amount owed to Revenu Québec of $48,475 (noted as “No.3”) was debited to the
Appellant’s account. On May 21, the amount owed to the Canada Revenue Agency of
$47,324.35 (noted as “No.4” and suggesting that the cheque was written
concurrently with the one to Revenu Québec) was taken out of her account.
[17] In these
circumstances, it is highly unlikely that Mr. Boilly, after going to the
trouble of preparing the Appellant’s returns, advising her of the attendant tax
liabilities, ensuring that she had funds in place to cover the amounts payable
and properly filing her provincial return, would then neglect to file her
federal return until May 20, 2008. Once inserted into the Canada Revenue Agency
collection box, the Appellant’s 2007 income tax return was beyond her control
and that of Mr. Karavolas’ office. Up to that point, they had done all
that could reasonably have been expected of them to ensure the timely filing of
the Appellant’s return. In closing, it is interesting to note that after 2008,
the Canada Revenue Agency modified the collection box procedure to allow for
date stamping upon delivery.
[18] All in all, any
doubt must be resolved in favour of the Appellant. For the reasons set out
above, I am satisfied that the Appellant’s 2007 return was duly filed at the
Montreal Canada Revenue Agency on April 29, 2008; accordingly, the appeal is
allowed and the assessment of a late filing penalty is vacated.
Signed at Ottawa, Canada, this 26th day of February, 2010.
“G. A. Sheridan”
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