Docket: 2009-1135(IT)I
BETWEEN:
TRAVIS P. JAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on February 10, 2010 at Charlottetown,
Prince Edward Island
By: The Honourable
Justice Judith Woods
Appearances:
|
Counsel for the Appellant:
|
Jonathan
M. Coady
|
|
Counsel for the Respondent:
|
Gregory B. King
|
____________________________________________________________________
JUDGMENT
The appeal with respect to assessments made under the Income
Tax Act for the 2003 and 2004 taxation years is allowed, and the
assessments are referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that penalties assessed under
section 162(1) of the Act should be vacated.
Each
party shall bear their own costs.
Signed at Toronto, Ontario this 2nd day of March 2010.
“J. M. Woods”
Citation: 2010 TCC 122
Date: 20100302
Docket: 2009-1135(IT)I
BETWEEN:
TRAVIS P. JAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The appellant, Travis Jay, has instituted this appeal in
respect of assessments made under the Income Tax Act for the 2003 and
2004 taxation years.
[2] I would first like to clarify a matter for the 2002
taxation year.
[3] At the
commencement of the hearing, I was informed by counsel that the same issue is
relevant for the 2002, 2003 and 2004 taxation years, and that it was premature
to hear the appeal for 2002.
[4] The
problem is that the notice of appeal is
confusing as to whether relief is sought in respect of the 2002 taxation year. In
light of the position of the parties, I do not propose to deal further with
this taxation year. For clarity, a new notice of appeal would have to be filed
in order to institute an appeal in respect of this year.
[5] Turning
to the main issue, the issue concerns a
bursary received by the appellant from Appleby College in Ontario to defray the cost of attending high school there.
The amounts received were $34,000 for the 2003 taxation year and $35,000 for
the 2004 taxation year.
[6] Under the
relevant legislation in effect at the time, the amount of the bursary, less
$500, was required to be included in income.
[7] When the bursary was first granted, Appleby College did not inform the appellant or his parents that the
bursaries were taxable. Believing that there was no requirement to pay tax on
these amounts, the appellant did not file income tax returns for the 2003 and
2004 taxation years.
[8] The
Minister of National Revenue issued assessments for the 2003 and 2004 taxation
years, which included the amounts
received in excess of $500 in the appellant’s income. In addition, penalties
were imposed for the failure to file income tax returns on time.
[9] The notice of appeal sought relief for the tax, interest
and penalties, mainly on grounds of fairness. Counsel for the appellant abandoned
these arguments at the commencement of the hearing and sought relief for the
penalties only on grounds of due diligence. Counsel indicated that applications
elsewhere for remission of the tax and a waiver of interest are in progress.
[10] The only question to be determined, then, is whether
the penalties should be vacated on grounds of due diligence. The aggregate
amount of the penalties is $2,561.54.
[11] The penalties were imposed pursuant to subsection
162(1) of the Act, which does not provide for a statutory due diligence
defence. It provides:
162(1) 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.
[12] Notwithstanding
the strictness of the legislation, it has generally been accepted that a penalty of this nature should not be imposed if
the taxpayer has undertaken all reasonable measures to comply with the
legislation: Royal Bank of Canada v. The Queen,
2007 FCA 72, [2007] GSTC 18.
[13] The
appellant was the only witness at the hearing. He testified that neither he nor his family could afford to pay tax
on the bursaries and that he would not have attended Appleby College
if they had been aware of this. He also testified that his mother recently told
him that she had been advised by an accountant at the time that the bursaries
were not taxable.
[14] The
impression that I had from the evidence is that the appellant, due to his age, had relied on his mother to provide
assistance of this nature. This is understandable since the appellant was in
high school at the time.
[15] I am not satisfied by the appellant’s brief testimony
about the accountant that this constitutes reasonable due diligence. The mother
was not present in court to be cross-examined as to the circumstances in which
the accountant gave this advice.
[16] Nevertheless, the penalty was not levied against the
mother but the appellant himself. The mother’s lack of diligence is not the end
of the matter.
[17] This case is close to the line, but in my view it
would be in the interests of justice to give latitude to the due diligence
defence in circumstances such as these. The appellant was young at the time, he
seemingly relied on his parents for this type of advice, and it would not be
obvious to a high school student that bursaries have the character of income.
[18] It is
appropriate to vacate the penalties in this type of case.
[19] Counsel for the appellant also requested that I make a
recommendation that the appropriate authorities remit the tax and interest under
the Financial Administration Act. I make no comment on this as it is not
within the jurisdiction of the Court.
[20] Given that the notice of appeal sought relief for the
tax, interest and penalties, and that the only relief provided was with respect
to penalties, each party should bear their own costs.
Signed at Toronto, Ontario this 2nd day of March 2010.
“J. M. Woods”
CITATION: 2010 TCC 122
COURT FILE NO.: 2009-1135(IT)I
STYLE OF CAUSE: TRAVIS P. JAY and
HER
MAJESTY THE QUEEN
PLACE OF HEARING: Charlottetown, Prince Edward Island
DATE OF HEARING: February 10, 2010
REASONS FOR JUDGMENT BY: The
Honourable Justice J. M. Woods
DATE OF JUDGMENT: March 2, 2010
APPEARANCES:
|
Counsel for the
Appellant:
|
Jonathan M. Coady
|
|
Counsel for the
Respondent:
|
Gregory B. King
|
COUNSEL OF RECORD:
For the Appellant:
Name: Jonathan M. Coady
Firm: Stewart
McKelvey
Charlottetown, Prince Edward Island
For the
Respondent: John H. Sims, Q.C.
Deputy
Attorney General of Canada
Ottawa, Canada
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