Citation: 2010 TCC 198
Date: 20100413
Docket: 2009-1993(IT)I
BETWEEN:
MICHELLE A. ALCALA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. Facts
[1] The Appellant
currently resides in Markham, Ontario.
[2] The Appellant
immigrated from The Phillipines to Canada in 2005.
Re: 2006 Taxation
Year
[3] When the Appellant
filed her income tax return for the 2006 taxation year, she reported the
following amounts as income:
|
Pottruff and Smith Travel Insurance Brokers Inc.
|
$23,422.50
|
|
Canadian Universities Travel Service Limited
|
$15,653.81
|
|
Sequoia Retail Systems Incorporated
|
$ 4,266.66
|
[4] The Minister of
National Revenue (the “Minister”) determined that the Appellant did not report
the following amounts in her income for the 2006 taxation year:
|
Total Credit Recovery Limited
|
$1,788.80
|
|
Portfolio Series Income Fund
|
$ 7.06 (taxable amount of $3.53)
|
|
Portfolio Series Income Fund
|
$ 2.88
|
|
Portfolio Series Income Fund
|
$ 0.22
|
[5] The Minister
reassessed the Appellant for the 2006 taxation year on October 16, 2007 and the
amounts referred to in paragraph [4] above were included in the Appellant’s
income for the 2006 taxation year.
[6] When the Appellant
filed her income tax return for the 2007 taxation year, she reported the
following amounts as income:
|
CGI Information Systems and Management Consultants Inc.
|
$23,392.59
|
|
Research House Inc.
|
$ 201.24
|
|
The Royal Bank of Canada
|
$ 1,623.18
|
|
Canadian Universities Travel Service Limited
|
$ 2,115.38
|
[7] The Minister
determined that the Appellant did not report the following amounts in
determining her income for the 2007 taxation year:
|
Canadian Universities Travel Service Limited
|
$37,616.03
|
|
Portfolio Series Income Fund
|
$ 23.34
|
|
Portfolio Series Income Fund
|
$ 11.21 (taxable amount of $5.60)
|
|
Portfolio Series Income Fund
|
$ 2.84 (taxable amount of $4.12)
|
[8] By Notice of
Reassessment dated October 27, 2008, the Minister reassessed the Appellant for
the 2007 taxation year to include the unreported income referred to in
paragraph [7] above and the Minister also assessed a repeat omission penalty in
the amount of $3,764.60 under subsection 163(1) of the Income Tax Act (the
“Act”).
B. Issues
[9] The issues to be decided are:
a) whether the Appellant exercised due diligence in
reporting all amounts required to be included in computing income for the 2007 taxation
year; and
b) whether the Appellant was properly assessed a
federal repeat omission penalty in the amount of $3,764.60 for the 2007
taxation year.
C. Analysis
and Decision
[10] Subsection 163(1) of
the Act reads as follows:
(1) Repeated failures. Every person who
(a) fails to report an amount required to be included in computing the person's income in a return filed under section 150 for a taxation year, and
(b) had failed to report an amount required to be so included in any return filed under section 150 for any of the three preceding taxation years
is liable to a penalty equal to 10% of the amount described in paragraph (a), except where the person is liable to a penalty under subsection (2) in respect of that amount.
[11] Subsection 163(1)
imposes a penalty of 10% of the amount which was not reported in the return of
income. In this situation, the penalty that was imposed by the Minister under
subsection 163(1) of the Act was $3,764.60.
[12] Basically, the
Minister concluded that the penalty provided by subsection 163(1) should
be applied in the 2007 taxation year because the Appellant failed to include
the following amounts in her income for the 2006 taxation year:
|
Total Credit Recovery Limited
|
$1,788.80
|
|
Portfolio Series Income Fund
|
$ 7.06 (taxable amount of $3.53)
|
|
Portfolio Series Income Fund
|
$ 2.88
|
|
Portfolio Series Income Fund
|
$ 0.22
|
|
Total
|
$1,795.43
|
[13] It will be noted
that the “repeat omission penalty” imposed under subsection 163(1) of the Act
is in the amount of $3,764.60, whereas the amount which the Appellant
failed to report in 2006 was $1,795.43. In other words, the penalty is more
than twice as much as the unreported amount which gave rise to the penalty.
[14] The Appellant was
asked to comment on the failure to report all of her income for the 2006
taxation year:
Q. When did
you prepare your tax return for 2006?
A. In
February of 2007.
(Transcript,
page 10, lines 5-7)
[15] When asked if she
had received the T-4 slip issued by Total Credit Recovery Limited, the
Appellant said:
A. … I
never received this.
(Transcript,
page 11, lines 7-8)
[16] When asked if she
had received the miscellaneous amounts from the Portfolio Series Income Fund,
the Appellant said:
A. … I
never received any money from there.
(Transcript,
page 12, lines 17-18)
[17] During the hearing,
the Appellant was asked the following questions by her Agent:
Q. Did you
understand what this capital gains, other income, eligible dividends, taxable
amount?
…
A. I never
received any money.
…
Q. … But
you paid the reassessment for 2006 … right?
A. Yes.
Q. Even
if you did not -- you were not sure on the accuracy of what was in there?
A. No.
Q. Why?
A. I
figured I should be paying it, anyways, because I have other matters to deal
with, so I just paid the reassessment.
(Transcript,
page 13, lines 8-10, line 15 and lines 22-25;
Transcript, page 14, lines 1-6)
…
Q. Who
prepared your 2007 tax return?
A. I
figured I should be having a tax professional, so I hired a tax professional to
do my tax for 2007.
(Transcript,
page 14, lines 15-19)
[18] The Agent for the Appellant
asked the Appellant to comment on her 2007 income tax return. The
following exchange occurred:
Q. Did
you submit everything, all your documents—
A. Everything that I had, that all the documents that I
had with me, I just gave it to her.
(Transcript, page 14, lines 20-24)
[19] The Appellant said that she
received a T-4 slip from Canadian University Travel Services after she
had filed her 2007 income tax return. The Appellant said:
A. … I called my accountant and saying, "What
should I do with this?", because it was already filed when I received the
T4; it came late.
(Transcript, page 15, lines 13-15)
[20] The Appellant said:
…
A. (Continued) And then she said that you are able to do a
matching process, meaning the employers will be already submitted their T4s and
there should be a self-correction on it, self-matching process, though. So I
believe that should be happen …
(Transcript, page 15, lines 16-21)
[21] The agent for the Appellant
said:
…
Q. Michelle, did you understand what this matching
process was all about?
A. What I understand to be matching process is the --
whatever it is reported, it will be matched against the ones that was submitted
by the employers …
Q. Submitted to who?
A. To the -- that one that -- whatever it is -- that I
reported to the CRA, it will be matched to the ones to -- that was submitted by
the employers to CRA.
(Transcript, page 17, lines 4-14)
[22] The agent continued:
…
Q. She [i.e. the professional tax preparer, Araceli
Coria] told you to pay the past amount; how about the penalties?
A. … I told her that I could not pay for the penalty
and -- and also, they already deducted it from my pay cheque, all the taxes.
So I felt I don't -- I didn’t need to pay anything. In fact, they already
deducted it from my pay cheque. Why should I pay this? And she advised me to
appeal.
(Transcript, page 19, lines 6-15)
(Emphasis added)
[23] On cross-examination, the
Appellant said that she had received a T-4 from Travel Cuts for the 2007
taxation year but that she received the T-4 slip after she had filed her
2007 income tax return.
Q. … So when
you received your T4, did you contact CRA about that T4 that you got from
Travel CUTS?
A. I contact my accountant to get her advice on what to
do.
Q. I see.
A. I just rely on her advice.
(Transcript, page 32, lines 8-14)
[24] In his argument, the agent for
the Appellant said:
She denies having received
the 2006 T4 from Total Credit Recovery. The 2007 T4 was late for inclusion in
the original filing, but her tax professional assured her that CRA’s matching
process will capture it and will just assess any tax shortfall, if any.
(Transcript, page 52, lines 11-16)
[25] After reviewing the Court
decisions dealing with subsection 163(1), I concluded that the decision of
Justice Mogan in Khalil v. Canada, [2002] T.C.J. No. 538,
[2003] 1 C.T.C. 2263, had very similar facts. In that case, Justice Mogan said:
[12] In my view,
having regard to all of the facts in this case, it is not equitable to assess a
penalty of $2,794 under subsection 163(1) when the amount of the penalty is
almost twice the basic difference ($1,478.99) between the refund which the
Appellant claimed in her return ($422) and the increased amount owing
($1,056.99) after giving full credit for the tax deducted at source. The
Appellant's case cries out for equity but there is an abundance of law which
states that equity has no place in determining a person's liability for tax
under a statute. There may, however, be a place for equity or due diligence in
the assessment of a penalty.
[13] I cannot conclude that a person
has "failed to report an amount" within the meaning of subsection
163(1) when the person knows (i) that the amount was payable to her as income
by a particular payor; (ii) that the payor withheld a certain portion of the
amount as income tax to remit to Revenue Canada; (iii) that the payor actually
paid to the person only the balance remaining after deducting the tax withheld;
and (iv) that the payor was required to report to Revenue Canada on a form
prescribed by Revenue Canada the gross amount payable to the person and the
portion withheld and remitted as tax. Accordingly, I will allow the appeal. If
I should be correct in my interpretation of subsection 163(1), there is no
prior "failure to report" with respect to the interest of $320.12
received from the Royal Bank of Canada.
[14] If I should be wrong in my
interpretation of subsection 163(1), then I would respectfully ask the Minister
to consider exercising the discretion permitted in subsection 220(3.1) of the Act
to waive or cancel all or most of the penalty imposed relating to the Symcor
earnings.
[26] To paraphrase Justice Mogan’s
decision from Khalil, I wish to state the following:
I cannot conclude that
the Appellant has “failed to report an amount” within the meaning of subsection
163(1) when the Appellant, Ms. Alcala, knows:
(a)
that the payor (Total
Credit Recovery) withheld a certain portion of the amount as income tax to
remit to the Canada Revenue Agency (the “CRA”);
(b)
that the payor
withheld a certain amount as an Employment Insurance Premium and withheld a
certain amount as a Canada Pension Plan deduction and remitted these amounts to
the CRA;
(c)
that the payor
actually paid to the person only the balance remaining after deducting the tax
withheld plus the EI premium and the CPP deduction;
(d)
that the payor
was required to report to the CRA on a form prescribed by the CRA the gross
amount payable to the person and the amounts withheld and remitted as tax; and
(e)
that the
Appellant testified that she had never received the T-4 slip issued by the payor
for the 2006 taxation year.
[27] I also wish to note that the
Appellant hired a professional tax preparer to prepare and file her 2007 income
tax return.
[28] Based on the above analysis, I
have concluded that there is no prior “failure to report” the amount of
$1,788.80 and $7.06, $2.88 and $0.22 (see paragraph [4] above).
[29] I also wish to state that if I
am wrong in my interpretation of subsection 163(1) of the Act, then
I would respectfully request that the Minister consider exercising the
discretion permitted in subsection 220(3.1) of the Act to waive or
cancel the repeat omission penalty.
[30] In reaching this conclusion, I
am aware of and I agree with the conclusion of Justice Woods in Saunders v. The
Queen, 2006 TCC 51, 2006 D.T.C. 2267, where she said at paragraph 15:
… Parliament has enacted
subsection 163(1) to ensure the integrity of Canada’s self-reporting system.
In my view, a Court should not lightly vacate the penalty provided for in the
legislation.
[31] In my opinion, the special and
unique circumstances involving Ms. Alcala justify the conclusion that I have
reached involving the penalty.
[32] The appeal is allowed, without
costs.
Signed at Vancouver, British Columbia, this 13th day of April 2010.
“L.M. Little”
Email this Content