Citation: 2009 TCC 290
Date: 20090528
Docket: 2007-3015(IT)G
BETWEEN:
GILLES CHARRON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif
J.
Year in issue
[1]
This is an
appeal pertaining to the 2002 taxation year. The assessment imposes a penalty on
the ground that the Appellant overvalued by $402,225 the losses resulting from
his numerous securities transactions for the 2002 taxation year.
Issue
[2]
Was
the penalty Minister imposed by on the Appellant under subsection 163(2) of the
Income Tax Act ("the
Act") for the 2002 taxation year warranted?
[3]
The answer to that
question must follow from an analysis of the facts in niew of subsection 163(2)
of the Act, which reads as follows:
163(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
…
[4]
The Respondent
bears the burden of proof in this matter. The evidence consisted of the
testimony of the Appellant, of Charles Landreville, chartered accountant, and
of Pierre-Luc Meunier, in his capacity as auditor of the Appellant's
income tax returns.
[5]
The Appellant
explained and described his long career as an investment advisor with several
of the most reputable institutions in this field.
[6]
After the
Appellant was selected for a tax audit, an initial telephone conversation took
place in which the auditor, Pierre‑Luc Meunier, asked the Appellant to
gather all the relevant documents to enable Mr. Meunier to audit the 2000, 2001
and 2002 taxation years.
[7]
For the
taxation years in issue, most if not all of the Appellant's income was derived
from the buying and selling of shares on the Canadian and U.S. stock markets.
[8]
At
their first meeting in a restaurant a few weeks after the initial telephone
contact, the Appellant had with him and gave the auditor the relevant documents
for the 2000 and 2001 taxation years. He did not have the documents for the
2002 taxation year at that time.
[9]
The
Appellant suggested to the auditor that the 2002 taxation year not be audited
if the audit of the 2000 and 2001 taxation years showed that he had met the
requirements and fulfilled his tax obligations. That is the explanation he gave
for not having the relevant documents for 2002 at that time.
[10]
An
analysis of the information and documents provided for the 2000 and 2001 taxation
years showed fairly quickly that everything was satisfactory and acceptable.
[11]
However,
the auditor did not follow the Appellant's suggestion or recommendation that he
not audit the 2002 taxation year. Instead, he insisted that the information and
documents for 2002 be given to him, finding it suspicious and very odd that the
Appellant would urge him so strongly not to audit the 2002 taxation year.
[12]
The
auditor thus renewed his request to obtain the documents for 2002, but the
Appellant continued to show reluctance to accede to that request, adding that
he would have to pay substantial costs to the institution in order to obtain
the information and documents requested.
[13]
To
avoid having the Appellant pay those costs, it was agreed that the auditor
would send a letter of requirement instructing the institution to prepare and
remit the relevant documents at a lower cost.
[14]
Despite
clear, plain and precise instructions regarding the documents required, the
Appellant submitted incomplete documents which were found, after a very cursory
analysis, to contain a major discrepancy, and, moreover, which a simple reading
showed to be incomplete and unreliable.
[15]
In
addition, the documents contained a gross and obvious error, namely stating
that the loss claimed resulted from the purchase and sale of securities in 2002.
[16]
The documents
indicated all purchases and all sales, but did not take into account unsold
shares, thus rendering the exercise entirely futile and contrary to even the
most elementary rules for computing the amount of eligible losses for the 2002
taxation year. In other words, unsold securities appeared in the report, thus
distorting the calculation of the value of the unsold shares.
[17]
Once
this was discovered, it became even more imperative that the Appellant provide
all useful, relevant and reliable documents to establish the actual loss that he
was entitled to claim.
[18]
There
were major contradictions in the accounts of what followed. The Appellant said that
he had asked the auditor to provide a rough estimate of the loss that he was
entitled to claim. Mr. Meunier, still according to the Appellant, came up with an
estimate of between $70,000 and $80,000 for 2002.
[19]
On
the basis of that arbitrary assessment provided by the auditor, the Appellant drew
up a detailed document showing a loss somewhat above $70,000. The Appellant
said that he had done so at the express request of the auditor. The Appellant
claimed that it had been tacitly agreed that it was sufficient to prepare a
document showing a loss of $70,000 to $75,000 to close the file and end Mr.
Meunier's audit mandate. According
to the Appellant, he therefore prepared a document to put an end to the audit, knowing
that it was untruthful.
[20]
The Appellant
said that he had drafted this cursory, imprecise and unreliable document because
he thought that he simply had to justify the auditor's arbitrary estimation of
the amount of the loss. Given this rather farfetched explanation, the Appellant
then stated that he had been deliberately entrapped by Mr. Meunier, whom he
criticized for his supposed arrogance, ignorance, inexperience and youth.
[21]
There
again, the auditor soon found that the document contained several errors and
information that was quite simply false, in particular with regard to the
average price.
[22]
The
auditor then demanded more complete and reliable documents so that a proper
audit could be conducted, especially since the Appellant's conduct confirmed
his initial suspicions that he was plainly trying to hide the truth as to the
eligible losses for 2002.
[23]
A colleague of
the Appellant's stated that there were difficulties in obtaining reliable
documents. He
explained different situations that could cause account statements to be
unreliable.
[24]
He
gave the example of a client coming from another broker, saying that it was
impossible to know what had happened before the transfer. In that type of
situation it became difficult, if not impossible, to determine a true average
price and the amount indicated was thus either arbitrary or based on intuition.
He also said that an advisor could make changes to certain account statements,
and vigilance was therefore called for regarding the quality and provenance of
any statement.
[25]
He
nevertheless acknowledged that the statements issued by brokers were generally
reliable and satisfactory. At the end of the day, relevant and reliable
documents were given to the auditor.
[26]
The audit that
was finally conducted thanks to the relevant documents – after the Appellant's
many reservations and attempts to avoid it, after the filing of incomplete and
inappropriate documents, after the filing of a misleading document –
established convincingly and decisively that the Appellant had overvalued his
losses by $402,255.
[27]
Faced
with this situation, which was awkward to say the least, to the point where it
became impossible to challenge the audit's findings regarding the assessment of
losses, and faced with the evidence that the amount of the losses had been
inflated considerably, the Appellant advanced a whole series of explanations
and excuses to seek the vacating of the penalty that led to the assessment.
[28]
In
particular, he argued that he did not have the requisite knowledge to compute
the losses incurred precisely and that he had been the subject of an audit in
which he had been conned. He also said that he had been misled by people who
were clearly acting in bad faith.
[29]
He also
criticized the accountant for not having offered to check things thoroughly for
him. He submitted that he did not have the necessary knowledge to do the work
properly, even though the work was satisfactory for the first two years
targeted by the audit. In his written arguments, he said that he had 10 years'
experience, although the evidence disclosed that it was 20 years. In short, the
Appellant claimed that he had always been vigilant and prudent and conducted
himself normally, without fault or negligence, adding that he was an honest
taxpayer acting in good faith who had always fulfilled his tax duties. In his response to the
Respondent's Reply to the Notice of Appeal, he wrote:
[TRANSLATION]
12. The appellant did not
attempt to conceal anything whatsoever from the tax authorities. He cooperated
with the auditor and trusted him, but the auditor tried to entrap him.
13. It is true that the appellant
was negligent in filling out his 2002 income tax return, he was uninterested in
going over his financial setbacks again and was careless in preparing his tax
return. Nevertheless, he
acted in good faith and should not be penalized under subsection 163(2) of the
ITA.
[30]
The
Appellant also criticized the auditor for misleading him following the draft
assessment. He had further complaints concerning the person responsible for considering
his Notice of Objection.
[31]
According to
the Appellant, the auditor called him by mistake, thinking he was calling a
towing service, no doubt because of a mix-up in the telephone number. The
Appellant interpreted this error as being an attempt at intimidation, or even corruption.
[32]
The imposition
of a penalty under subsection 163(2) of the Act is certainly a punitive
measure that is clearly aimed at making taxpayers understand the importance of
filing income tax returns with accurate information and figures.
[33]
To report
income in accordance with the provisions of the Act is not an arbitrary
or intuitive exercise, but calls for meticulousness, discipline and rigour and
may require the help of a competent person.
[34]
Since
good faith is presumed, a mistake, an omission and ignorance may in some cases
explain an error in an income tax return. However, the error must be something
minor or trivial having in view of the figures in question and the overall context
and circumstances. Wilful blindness, recklessness and carelessness are not
acceptable excuses, especially when the result shows considerable discrepancies
between the information provided and the reality.
[35]
Indeed,
where a discrepancy represents large amounts and the taxpayer is a
well-informed person working in a field where tax implications are a concern,
it becomes extremely difficult to explain and especially to justify appreciable
discrepancies.
[36]
Inexperience
and ignorance are not acceptable arguments, particularly where large amounts
are concerned. The tax payable does not depend on knowledge, experience,
education, and so on; it is determined by the Act and everyone, without
exception, is subject to it.
[37]
The
Appellant has complained that his accountant had not offered to check the loss
incurred more thoroughly. This explanation and this complaint are unfounded, even
farfetched. The Appellant gave his accountant the information and details that he
prepared himself. The accountant signed everything but had nothing to do with
the accuracy of the content. Indeed, the Appellant proceeded the same way for
the 2000 and 2001 taxation years, which were found to be in compliance.
[38]
The
Appellant is an intelligent and articulate person who possesses, without the
shadow of a doubt, knowledge and skills in his field of work, as demonstrated
by the length of his career with the most reputable brokerage firms.
[39]
Computing
losses incurred is relatively simple and easy to do. The precise calculation of
a loss is also very simple, particularly with statements in hand from the
brokers handling the funds.
[40]
I
would also point out that the Appellant had for years been making stock-market
transactions worth hundreds of thousands of dollars. On the implausible and
improbable theory that the Appellant was not comfortable or not sufficiently
knowledgeable to calculate losses incurred, he had to retain a qualified and competent
person to provide an accurate statement of the loss claimed.
[41]
The
following factors should be noted: the Appellant's knowledge; the type of work
he had been performing for many years; his experience; the clarity and quality
of his income tax returns for the two years preceding the year in issue, namely
2000 and 2001; his attempt the dissuade the auditor from auditing the year in
issue; the non-disclosure of the statement which existed during the audit; the
attempt to submit a document that he knew to be false or inaccurate; the
unwarranted refusal to file a corrected and accurate return; his unjustifiable
stubbornness in clinging to an untenable position; and the type of mandate he
gave his accountant. His complaints regarding everyone involved (the auditors,
the appeals officer and the accountant), his explanations and general conduct,
and his farfetched explanations are sufficient evidence from which to find that
the Appellant's justifications and explanations are in no way credible and must
be rejected.
[42]
Moreover,
considerable time elapsed between the first contact with the auditor and the
discovery of the actual amount of the loss. During that whole period, the
Appellant could easily have taken corrective measures and cooperated, but no,
he showed mainly stubbornness and devoted all of his energy to fighting the
auditor's initiatives.
[43]
In the introduction to his written
submissions, the Appellant wrote:
[TRANSLATION]
1.
For the purposes of computing his income for the
2002 taxation year, the appellant overvalued his losses resulting from his
securities transactions in his U.S. account by US$249,200.
...
3.
Because mainly (1) the appellant should not pay any penalty for
having used the 2002 securities transactions form duly issued by his employer,
which he believed was accurate (2) the appellant acted in good faith (3)
the appellant did not make any false statements or omissions, he used the wrong
form which seemed official (4) the appellant should not pay a penalty
owing to the undue obstinacy of the Department's rookie auditor.
[44]
Under the heading [TRANSLATION]
"Representations", the Appellant wrote:
[TRANSLATION]
11.
The appellant did not make any false statements
or omissions.
[45]
As for the content of
the other paragraphs, totalling 55, the Appellant argued that this was a minor
error, especially since he had only finished high school and taken a
correspondence course in securities.
[46]
While acknowledging the
error, he blamed the way in which statements from brokerage firms were
prepared, which, he argued, caused a certain confusion.
[47]
He has repeatedly
blamed the auditor and questioned his competence:
[TRANSLATION]
3.
... the undue obstinacy of the Department's
rookie auditor.
...
31.
The appellant taxpayer was not surprised to see the
auditor become involved in his file, having himself worked for Revenue Canada in the 1980s, one year as a CR-3 and
one year as a CR-4 in primary audit. And knowing the complexity of his file and
the many transactions and large sums, he thought that the auditor would recalculate
but not try to entrap him.
32.
The rookie Meunier, the auditor of the file, was
only 24 and had barely a few months' experience when he began auditing the appellant
in June 2004.
...
36.
For five (5) months, the auditor tried without success to obtain the
gains and losses document from the Desjardins Securities brokerage firm, as
mentioned in the T2020 document issued by the agency and filed with the Court
by the appellant. This delayed the audit.
37.
An experienced auditor would not have made that
request to the brokerage firm, not having to submit this internal document.
...
39.
The appellant urged the auditor to speed things up but the auditor said
that he had courses, there was also a strike, all of that irritated the appellant
and created animosity between the parties.
40.
In early December 2004, the auditor telephoned the appellant,
asking if he could send him a tow truck. The appellant
refused, finding this practice unethical.
41.
In mid-December 2004, the auditor came to
deliver the securities transaction report to the appellant, explaining that he
could not take the report; he then tried to entrap the appellant and to have
him produce new calculations while indicating that in his opinion the loss
should be reduced to between 65 and 85 thousand dollars.
...
43.
The auditor Meunier did not ask the appellant to
use the account statements; if that had been the case, the appellant would have
complied and produced a much more meticulous report.
...
45. Ms. Dilala was stunned by Mr. Meunier's attitude and asked
the appellant to make representations within thirty (30) days.
46. At the end of that meeting, the auditor Meunier saw the appellant
out and pointed out the counter and where he had to file his appeal.
47. This questionable attitude consciously aimed at confusing
the appellant worked. The appellant did file an appeal within
thirty (30) days instead of meeting with Ms. Dilala. The appellant never met
with Mr. Meunier's supervisor. This hurried appeal document was filed in
evidence by the appellant.
...
49.
The auditor Meunier came to testify in Court even though he was on
parental leave, having recently become the father of triplets, which
demonstrates his stubborn determination to penalize the appellant taxpayer,
making the latter go so far as to think that Mr. Meunier had a personal dislike
for him.
[48]
The least that can be said is that
the Appellant spent a lot of time criticizing the auditor. Was the auditor overly
zealous, to the point of invalidating the grounds for the assessment?
[49]
The Appellant first made the
auditor suspicious by attempting to dissuade him from auditing the 2002
taxation year. He also
provided the auditor with a totally inadequate document for the computation of
the amount of the losses, namely a list of purchases and sales that did not
take into account unsold securities, thus creating an artificially inflated
loss.
[50]
As an intelligent
person with a high school diploma and who took a correspondence course in
securities, with 10 years' experience (20 years according to the evidence) at
the largest brokerage firms and with at his disposal several different
statements of stock-market transactions, the Appellant knew full well what was
reliable. He chose, by all sorts of means, to mislead the auditor by suggesting
different tracks.
[51]
I note also that he
wrote the following:
[TRANSLATION]
16.
It was logical and reasonable for the appellant
to believe that he had suffered a loss of US$249,200 since the U.S. market, the nasdaq, had lost 50% of
its value in 2002, while a loss of US$249,200 represented barely less than 10% of
the securities traded.
...
18. The number of zeros has nothing to do with the existence or
non-existence of the right. Moreover, $390,000 may seem like a large amount but
the total transacted in 2002 was over $5 million and for the euphoric period
from 2000 to 2002 the total reached $30 million, so $390,000 is roughly 1% of
the total.
19.
At that time, the reports issued by brokerage firms led to confusion.
...
31.
The appellant taxpayer was not surprised to see the
auditor become involved in his file, having himself worked for Revenue Canada in the 1980s, one year as a CR-3 and
one year as a CR-4 in primary audit. And knowing the complexity of his file and
the many transactions and large sums, he thought that the auditor would recalculate
but not try to entrap him.
...
35.
The appellant is a credible advisor who always
obeys the law.
...
37. An experienced auditor would never have made
that request to the brokerage firm, not having to submit this internal
document.
[52]
There is no doubt in my
mind that the Respondent has discharged her burden of proof. The evidence
shows, on a balance of probabilities, that the Appellant deliberately and
knowingly decided to report losses that were greatly overstated owing to
circumstances he considered favourable in that the vast majority of investors
in the stock market, if not all, had sustained considerable losses.
[53]
Not only did he knowingly make
that choice, he then made every effort and attempt to distract the auditor. He
took it for granted that the auditor was young, inexperienced and a little
naïve and tried from the very start to persuade him not to take an interest in
his tax return, which he knew to be inaccurate. Rather than choose to amend his
tax return to make it accurate, he tried again and again to have the auditor drop
the matter.
[54]
Even when faced with the obvious
and unavoidable, he still tried to deflect the blame on the auditor, his
accountant and the person responsible for the objection, even adding that he
had neither the knowledge nor the skills to provide the real figures, although
he had done so for the two preceding taxation years, 2000 and 2001.
[55]
These
facts are sufficient to support a finding that the penalty was entirely
warranted, since the evidence also leads to the conclusion that the Appellant
deliberately made a false and misleading statement regarding the amount of the
loss.
[56]
Since
the penalty is entirely warranted, the appeal is therefore dismissed, with
costs in favour of the Respondent.
Signed
at Ottawa, Canada, this 28th day of May 2009.
"Alain Tardif"
Translation certified true
on this 16th day of June
2009.
François Brunet, Revisor
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