Citation: 2013TCC235
Date: 20130729
Docket: 2012-1161(IT)G
BETWEEN:
LUCIE F. BRISSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2012-2039(IT)G
AND BETWEEN:
JACQUES J. BRISSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller J.
[1]
The Appellants, Jacques and Lucie
Brisson, agreed that their appeals could be heard on common evidence. They are
spouses to each other.
[2]
The only issue in each appeal is
whether the Minister of National Revenue (the “Minister”) properly imposed
gross negligence penalties against each of the Appellants for their 2008
taxation year.
[3]
At the beginning of the hearing,
counsel for the Respondent informed the Court that the amount of the gross
negligence penalty for Mr. Brisson should be reduced from $127,567.06 to
$120,948.70.
Facts
Mr. Brisson
[4]
Mr. Brisson has been employed with
Minto Communities Inc. (“Minto”) for several years. He started with them as an
assistant production manager and by 2000 he was the vice president of
construction for low rise residential units. He holds this same position today.
[5]
In this position, Mr. Brisson
supervises a staff of 12 and he reports to the executive vice president of
Minto who in turn reports directly to the owners of Minto.
[6]
In 2008, Mr. Brisson reported T4
employment income from Minto in the amount of $256,300.
[7]
Prior to 2008, Mr. Brisson always
prepared his and his spouse’s income tax returns. According to his evidence, he
had been preparing his own return for approximately 35 years and in the last 10
years he used a software program to aid in his preparation.
[8]
It was Mr. Brisson’s evidence
that, in the winter of 2009, he decided to look for someone else to prepare his
income tax return. A friend recommended the Fiscal Arbitrators. He gave no
reason for this decision and he gave no details about his friend. I asked him
to explain his relationship with this “friend” but no answer was forthcoming.
However, I did note that Mr. Brisson’s demeanor visibly changed when I asked
the question.
[9]
Mr. Brisson met with Philipe
Joanisse of the Fiscal Arbitrators who explained to him that the employees of
Fiscal Arbitrators were professional tax consultants. He was told that Larry
Watts who worked in the Toronto office was an accountant and had been employed
by the Canada Revenue Agency (“CRA”).
[10]
However, Mr. Brisson admitted that
Mr. Joanisse did not have an accounting certification nor did Mr. Joanisse tell
him that he was an accountant. Mr. Brisson never met Larry Watts and he made no
enquiries about the Fiscal Arbitrators.
[11]
According to Mr. Brisson, Mr.
Joanisse asked him to bring in his T4 for 2008 and his notices of assessment
for 2005 to 2007 inclusive. After these documents were reviewed, the Fiscal
Arbitrators would decide if they should prepare his 2008 income tax return.
[12]
In April 2009, Mr. Brisson met
again with Mr. Joanisse who stated that the Fiscal Arbitrators would prepare
his 2008 income tax return and he recommended that Mr. Brisson should re-file
his 2005, 2006 and 2007 returns. According to calculations made by the Fiscal
Arbitrators, Mr. Brisson would receive a refund. Mr. Brisson agreed that he
would pay 20% of any refund he received to the Fiscal Arbitrators as fees; and,
he would pay 40% of his refund to Frieslander Financial Inc. for the purchase
of gold bullion and energy commodities. I assume that Frieslander Financial
Inc. is a company controlled by the Fiscal Arbitrators or its principals.
[13]
Mr. Brisson stated that he signed
his 2008 income tax return but the Fiscal Arbitrators mailed it for him. He
stated that he did not read his return. However, I have concluded from Mr.
Brisson’s documents (exhibit A-1, tab 1, page 3) that he mailed his own 2008
income tax return. In a letter dated May 16, 2009 from the Fiscal Arbitrators
to Mr. Brisson, the Fiscal Arbitrators wrote that they had enclosed two copies
of his 2008 income tax return with the letter. He was instructed to sign the
income tax return by putting “Per” in front of his regular signature and send
it and a request for loss carry-back to the CRA. They asked him to review the
return “carefully before submitting to ensure that it is both accurate and
complete”. Also enclosed with the letter were a “Tax Completion Checklist” and
a “Statement of Agent Activities”. There are check marks on the checklist and
Mr. Brisson signed the “Statement of Agent Activities” (See exhibit R-1, tab
1.1).
[14]
The “Statement of Agent
Activities” was included with the 2008 income tax return filed by Mr. Brisson.
In this form, he calculated a loss of $876,260 as Claimed Agent Loss. I have
reviewed this form and intended to summarize it but it is nonsensical. In the
form, Mr. Brisson claims to be the principal for the agent JACQUES BRISSON.
[15]
In his 2008 income tax return, Mr.
Brisson reported the Claimed Agent Loss as a business loss. His employment
income, dividends and investment income totaled $258,822.09 and he deducted
this from the business loss of $876,260.10. He requested a loss carry-back of
$617,438.00 to his 2005, 2006 and 2007 taxation years in the amounts of
$206,738, $182,836 and $227,864, respectively.
[16]
Fortunately for Mr. Brisson, he
did not receive any of the refunds he claimed because he would have given 60%
of those refunds to the Fiscal Arbitrators. His 2008 taxation year was assessed
by notice dated March 26, 2010 to disallow the Claimed Agent Loss and the carry-back
losses. A gross negligence penalty pursuant to subsection 163(2) of the Income
Tax Act was imposed.
Mrs. Brisson
[17]
Mrs. Brisson has been a registered
nurse since 1977. She received her certificate from Algonquin College in 1977; and, at some later date, she received a degree from the University of Ottawa.
[18]
She stated that she and her spouse
were referred to the Fiscal Arbitrators by a friend. In response to a question
from me, she stated that the friend did not use the Fiscal Arbitrators to
prepare his income tax return.
[19]
Mrs. Brisson did not know the
Fiscal Arbitrators or whether they had a professional designation and she did
not ask them. According to her notice of appeal, she never met any persons
employed with the Fiscal Arbitrators. She had the Fiscal Arbitrators prepare
her 2008 income tax return and she signed it based on information provided to
her by her spouse.
[20]
In her 2008 income tax return, she
reported employment income of $66,779 and a business loss of $232,677.40.
Included with her income tax return was a “Statement of Agent Activities” which
purported to show the calculation of the business loss. Mrs. Brisson requested
a loss carry-back of $165,898.40 to her 2005, 2006 and 2007 taxation years in
the amounts of $54,630, $56,790 and $57,245, respectively. She received total
refunds of $46,147 and the losses she claimed reduced her tax payable to nil
for the 2005, 2006, 2007, and 2008 taxation years.
[21]
Mrs. Brisson paid Lawrence Watt a
fee equal to 20% of her refund ($9,229.63) for preparing her 2008 income tax
return. She also gave $18,459.28 to Frieslander Financial Inc. for the purchase
of gold bullion and energy commodities.
[22]
When they were first contacted by
the CRA in 2009 with respect to their 2008 income tax returns, the Appellants
used form letters supplied by the Fiscal Arbitrators to respond to CRA’s
questions. It was Mr. Brisson’s evidence that he did not realize that the
Fiscal Arbitrators were a scam until it was explained to him in 2010 by a
Collections Officer from the CRA. They have since re-filed their 2008 income
tax returns and they have cooperated fully with the CRA.
The Law
[23]
Subsection 163(2) of the Income
Tax Act (“ITA”) provides for the imposition of gross negligence
penalties 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 …
[24]
Pursuant to subsection 163(3) of
the ITA, “the burden of establishing the facts justifying the assessment
of the penalty is on the Minister”. The Crown must therefore prove (1) that the
Appellants made a false statement or omission in their 2008 income tax returns,
and (2) that the statement or omission was either made knowingly, or under
circumstances amounting to gross negligence.
[25]
An abundant case law has developed
with respect to the application of subsection 163(2). Although each decision is
deeply rooted in the specific facts of the case, some broad principles have
been enunciated by the courts.
[26]
The following passage from Venne v The Queen, 84 DTC 6247 (FCTD), at page 6256, has
been quoted and referred to in numerous decisions of the Tax Court of Canada
and the Federal Court of Appeal and remains the seminal definition of gross negligence.
"Gross
negligence" must be taken to involve greater neglect than simply a failure
to use reasonable care. It must involve a high degree of negligence tantamount
to intentional acting, an indifference as to whether the law is complied with
or not.
[27]
In Villeneuve v Canada, 2004 FCA 20 the
Federal Court of Appeal found that gross negligence could include wilful
blindness in addition to intentional action and wrongful intent. In this
regard, Justice Létourneau stated the following at paragraph 6 of that
decision:
With respect, I think the judge failed to consider the
concept of gross negligence that may result from the wrongdoer's willful
blindness. Even a wrongful intent, which often takes the form of knowledge of
one or more of the ingredients of the alleged act, may be established through
proof of willful blindness. In such cases the wrongdoer, while he may not have
actual knowledge of the alleged ingredient, will be deemed to have that
knowledge.
[28]
Since Villeneuve, it is
well established that actual knowledge by a taxpayer
of the accountant's negligence is not required to a finding of gross negligence:
Brochu v Canada 2011 TCC 75 at paragraph 20. Indeed, gross negligence also includes situations where a
taxpayer blindly trusts the person who prepared his income tax return, as was
recently held by Justice Bédard in Laplante v The Queen, 2008 TCC 335:
15 In any
event, the Court finds that the Appellant's negligence (in not looking at his
income tax returns at all prior to signing them) was serious enough to justify
the use of the somewhat pejorative epithet "gross". The Appellant's
attitude was cavalier enough in this case to be tantamount to total
indifference as to whether the law was complied with or not. Did the Appellant
not admit that, had he looked at his income tax returns prior to signing them,
he would have been bound to notice the many false statements they contained,
statements allegedly made by [his accountant]? The Appellant cannot avoid
liability in this case by pointing the finger at his accountant. By attempting
to shield himself in this way from any liability for his income tax returns,
the Appellant is recklessly abandoning his responsibilities, duties and
obligations under the Act. In this case, the Appellant had an obligation under
the Act to at least quickly look at his income tax returns before signing them,
especially since he himself admitted that, had he done so, he would have seen
the false statements made by his accountant.
[29]
Former Chief Justice Bowman
discussed some of the factors to consider when deciding whether gross
negligence penalties were properly imposed. In DeCosta v The Queen, 2005
TCC 545 he stated:
11 In drawing
the line between "ordinary" negligence or neglect and
"gross" negligence a number of factors have to be considered. One of
course is the magnitude of the omission in relation to the income declared.
Another is the opportunity the taxpayer had to detect the error. Another is the
taxpayer's education and apparent intelligence. No single factor predominates.
Each must be assigned its proper weight in the context of the overall picture
that emerges from the evidence.
Analysis
[30]
Mr. Brisson stated that he did not
make an omission or a false statement in his 2008 income tax return. The
evidence contradicted his testimony. It showed that he claimed a business loss
of $876,260.10 in his return and yet in cross-examination he admitted that he
did not have a business and the business loss he claimed did not occur. This is
exactly the type of false statement that subsection 163(2) is intended to
penalize and deter.
[31]
The magnitude of his false
statement was huge. In 2008, he earned employment income of $256,300.05 and
investment income of $2,522.06. When he deducted his alleged business loss, Mr.
Brisson reported a non-capital loss of $617,437.99 which he requested to be
carried back to his 2005, 2006 and 2007 taxation years. He claimed a refund of $104,548.58 in 2008 and refunds in 2005,
2006 and 2007. If Mr. Brisson had been assessed in accordance with the return
he filed, he would have had no tax payable for 2005, 2006, 2007 and 2008.
[32]
Mr. Brisson stated that he does
not have an accounting background and he didn’t understand the terminology used
by the Fiscal Arbitrators. When he started to work at Minto he was only a
carpenter. He was not hired by Minto for his administrative skills. All of this
may be true; but I have concluded that he must have honed his administrative
skills with Minto. As vice president with Minto, he has significant
responsibility and accountability. He is responsible for the workmanship of
those he supervises and he has to ensure that they adhere to all building codes
for the residential units. He reports indirectly to the owners of Minto. Mr.
Brisson personally owned residential rental properties in 2005, 2006 2007 and
2008. By 2008, he owned nine rental properties. He managed the properties
himself; he negotiated the leases with his tenants; and, he kept the books for
his properties. He is not a novice to the business world.
[33]
Mr. Brisson had knowledge of the
income tax system. He completed his own income tax return for 35 years. In
2005, 2006 and 2007, his employment income was $220,667, $201,886 and $236,986.
The largest refund he received in these years was $9,417.86. When he was told
by the Fiscal Arbitrators that he would be eligible for a refund of $104,548.58
(almost one-half of his employment income), Mr. Brisson should have sought a
second opinion. The evidence showed that he did not consult with anyone. He did
not seek advice from the CRA.
[34]
Mr. Brisson stated that he was
told by the Fiscal Arbitrators that the method they used to calculate his
refund was like the RRSP program. He would receive a refund and he had to use
40% of the refund he received to purchase gold bullion and energy commodities
from them. He could then get a deduction for the purchase as he did with an
RRSP. However, Mr. Brisson was familiar with the RRSP program; he reported a
RRSP deduction in 2006 and 2007. He knew that one had to invest in a RRSP
before he could deduct the amount from his income.
[35]
Considering Mr. Brisson’s business
experience, that he had prepared his own income tax returns for 35 years and
the magnitude of the false statement he reported in his 2008 income tax return,
I have concluded that Mr. Brisson knew that the amounts he reported in his
return were false and I have concluded that the gross negligence penalties were
properly imposed.
[36]
Mr. Brisson stated that he did not
read his 2008 income tax return prior to signing it. According to his own
exhibit, Mr. Brisson was instructed to review his return carefully and I have
concluded that he did read his return. If Mr. Brisson truly did not know that
he was participating in a scam on the tax system, then he was wilfully blind.
He was willing to sign his income tax return and join in the deception in
exchange for a refund of all the taxes he had paid in 2005, 2006, 2007 and
2008.
[37]
Mrs. Brisson is well educated. She
stated that she did not have a business and the business loss she reported in
her 2008 income tax return was false. She didn’t understand the calculations
made by the Fiscal Arbitrators and she didn’t ask anyone to explain the
calculations. She assumed the Fiscal Arbitrators were professionals but she had
not met them and she made no enquiries. Mrs. Brisson said she relied on her
spouse. It is my view that Mrs. Brisson had an obligation to ascertain the
accuracy of her own income tax return prior to signing and mailing it to the
CRA. At the time that she signed her income tax return, Mrs. Brisson knew she
had not made a business loss. She did not even have a business. However, she
signed her income tax return certifying that the information given in her
return was correct, complete and fully disclosed all of her income.
[38]
Considering Mrs. Brisson’s
education and the magnitude of her false statement, I have concluded that Mrs.
Brisson knowingly made a false statement in her 2008 income tax return and
gross negligence penalties were properly assessed against her as well.
[39]
Mr. Brisson’s appeal is allowed
and the matter is referred back to the Minister for reconsideration and
reassessment on the basis that the gross negligence penalties are to be reduced
to $120,948.70.
[40]
Mrs. Brisson’s appeal is
dismissed.
[41]
The Respondent is awarded one set
of costs.
Signed at Halifax, Nova Scotia, this 29th
day of July 2013.
“V.A. Miller”
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