Citation: 2009 TCC 395
Date: 20090810
Docket: 2006-769(IT)G
BETWEEN:
DR. GALDINO PONTARINI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
The taxpayer,
Dr. Pontarini, contends that penalties were not properly imposed under
subsection 163(2) of the Income Tax Act (the “Act”) in respect
of the five years of reassessments in issue. The reassessments involved
significant underreporting of income and significant overstating of expenses by
Dr. Pontarini. The substantive issues were all resolved by the time the
three-day trial began and a Partial Consent to Judgment was filed with the
Court. In a case such as this, the onus is on the Crown to prove that the
taxpayer made false statements or omissions either intentionally or in
circumstances amounting to gross negligence as those phrases have been defined
by the courts. The Crown needs to prove this on a balance of probabilities
standard.
[2]
I heard two
witnesses for the taxpayer, Dr. Pontarini himself as well as his
psychiatrist, Dr. Pohlman, who testified for less than one hour.
[3]
Taxpayer’s counsel put
forward two arguments against the gross negligence penalties:
1)
Dr. Pontarini’s
actions constituted filing positions that ultimately proved incorrect and
unsuccessful but fall short of being false statements or omissions made
intentionally or in circumstances amounting to gross negligence; and
2)
Dr. Pontarini’s
mental health and other stressors in his life made it reasonable for him to
think that what he did was not to make a false statement or omission in his
return.
I. Facts
[4]
The evidence is that Dr. Pontarini was extremely
hard-working and ran a very financially successful medical practice. In
addition to his full-time practice at his clinic, he worked full shifts in the
emergency department of a Mississauga hospital. Prior to the Ontario Bob Rae
NDP government introducing amendments to the amounts the provincial health
insurance plan would pay for doctor services on an annualized basis,
Dr. Pontarini testified that his personal billings from his general
practice in Mississauga placed him amongst OHIP’s highest paid doctors.
[5]
Dr. Pontarini was
one of the few general practitioners adversely affected by the OHIP changes
which introduced a progressive fee claw-back imposed on billings beyond certain
thresholds. The effect of this in the years in question was to reduce his
revenue from his practice by about 25% from what it would have been but for the
OHIP changes.
[6]
The evidence detailed
that Dr. Pontarini had a lengthy history of mental health concerns for
which he regularly received treatment during periods of his adult life
beginning in medical school, but which did not interfere with his ability to
practise medicine.
[7]
Another stress factor
detailed by Dr. Pontarini in his evidence was the impact of his criminal
conviction for trafficking in narcotics. This related to his over‑prescribing
of morphine-based narcotics to two apparently unsavoury characters. His
criminal conviction led to the suspension of his medical licence.
[8]
Dr. Pontarini
testified that, with respect to the narcotics trafficking conviction, his
prescriptions began innocently, reasonably and in good faith in accordance with
normal medical standards, however, his participation increased to what he
described as unreasonable levels before he tried to end his involvement. It was
only after that, according to his own testimony, that any threats of harm were
made to him or his family if he failed to continue to illegally prescribe the
supply of narcotics.
[9]
Prior to the years in question,
Dr. Pontarini experienced significant financial difficulties which were a
combination of his falling revenues and some reassessed tax shelters. This in
turn resulted in the loss of his 12,000 plus square-foot home on 1.5 acres in Mississauga, protracted legal proceedings and other difficulties.
[10]
Prior to the years in
question, Dr. Pontarini had dropped his emergency shifts; his OHIP
revenues and his income were correspondingly reduced. Dr. Pontarini
testified that he voluntarily chose to cut his emergency work because of the
stresses and difficulties in his life created by, amongst other things, the impact
an extra-marital affair was having on his marriage. The evidence of
Dr. Pohlman was that Dr. Pontarini was asked by the hospital to
resign from the emergency work because of the difficulties created by an
extra-marital affair he was having with another emergency department colleague.
I accept that both are correct descriptions. This, perhaps with the other
difficulties faced by him or him and his wife, contributed to marital
difficulties which resulted in a six-month separation. I detail this level
of personal information only because it has been put forward by the taxpayer
and his counsel as part of Dr. Pontarini’s overall stressed state of mind
and mental health at the time.
[11]
Dr. Pontarini
practised in a clinic partnership with other doctors. The medical clinic’s
chartered accountants prepared annual financial statements for the doctors.
These included allocating the revenues and the fixed and variable expenses
amongst the doctors in accordance with the revenue and expense sharing provisions
of the partnership. The clinic had a staff bookkeeper who kept track of each
doctor’s clinic and practice expenses for which the doctor was personally
responsible apart from the partnership. The bookkeeper also reconciled the OHIP
revenue statements received by each doctor and provided them to the clinic’s
accountants. Both the accountants and the bookkeeper provided clear written
communication to Dr. Pontarini and his partners of this information. The accountants
provided financial statements prepared by them together with revenue allocation
information in early to mid-April in time for tax filings.
[12]
Dr. Pontarini used
his own chartered accountant to do his taxes separate from the firm used by the
medical clinic. He did not provide to his accountant the clinic’s financial
statements nor did he provide the letters from the clinic’s chartered
accountants setting out his allocation of partnership, revenues and expenses.
Instead, as a taxpayer is entitled to do, he prepared his own listing of his
share of partnership revenues and expenses, the expenses of running his office
within the clinic for which the partnership was not responsible, as well as
other business‑related expenses incurred personally. In doing so however,
Dr. Pontarini significantly overstated his expenses and understated his
revenues; he even understated his gross revenue from the partnership as
reported by the clinic’s accountants.
[13]
The Canada Revenue
Agency (“CRA”) had previously audited the doctor for prior years. The CRA
audited the doctor for the years in issue after it was noted that his net
professional income was reported as only between 10% and 20% of his gross
professional income. This led to a criminal investigation, a search and seizure
at his home, and tax evasion charges. Dr. Pontarini pleaded guilty to tax
evasion. He had been charged with 10 counts, one for understating his
income in each of the years in question and one for overstating his expenses
for each year. He pleaded guilty to at least one count. There was some possible
confusion about how many counts he pleaded guilty to, however, he said he was
fined $200,000 and, since the fine for tax evasion is a function of the tax
sought to be evaded, I can infer that he pled guilty to a serious and
substantial amount of tax evasion for the years in question.
[14]
A major portion of the
amounts of unreported income and overstated expense related to the OHIP
claw-back. In the years in question, Dr. Pontarini approached this in a
most surprising manner. By way of example, if the aggregate OHIP fees for
services in the year were say $400,000 prior to the application of the
threshold claw‑back formula, and that formula reduced his OHIP revenue
entitlement by $100,000 to $300,000, he made downward adjustments to his gross
revenues and upward adjustments to his expenses of the $100,000 unearned and
unpaid amount. He initially said he took 50% of the claw‑back for which
he was unpaid and reduced his gross revenues. It should be noted that there was
no line item making that adjustment on the information he gave to his personal
accountant. The other 50% he testified he used to increase his expenses. He
said he believed he was entitled to do this because (i) the unpaid
services which he provided to his community were an investment in his practice
which he felt should, in the spirit of taxing statutes, be allowed as an
expense, and (ii) had another doctor who had not hit his or her threshold provided
these same services, that doctor would have been paid in full. It was striking that
the approach of taking one-half as a revenue reduction and the other half as an
expense was not consistent with his oft-repeated explanation that he could
rationalize the claw-back as being an expense. Further, the following day in
cross-examination, when faced with his own tax summary information prepared by
him for his personal accountant and it was clear that he did not take such a
50/50 approach to it in the years in question, he significantly and materially
changed his testimony from what he had told the Court the day before.
II. The Psychiatric Evidence
[15]
Dr. Pohlman
described Dr. Pontarini as a hard-working doctor whose life seemed to be a
mess. He described him as turbulent and impulsive which caused him to run into
trouble with the College of
Physicians and Surgeons and
with the hospital, as well as socially naïve and a loner. From a psychological
point of view, he did not regard Dr. Pontarini as ill and he had no
perceptual abnormalities and no cognitive dysfunction or other problems
thinking. He had no real mood disorder such as manic depression although he had
periods of discouragement. While he did not regard Dr. Pontarini
clinically depressed, he described him as having reactive depression to
stressful events or circumstances. He did not think Dr. Pontarini suffered
from any personality disorder but he had an odd personality combined with
difficulty making good judgments in determining what was appropriate. While not
clinically dissociative, he described the doctor’s overall personality as being
one that would seek to avoid problems instead of resolving them.
Dr. Pontarini had testified he suffered panic attacks in the years in
question. Dr. Pohlman said those were not raised but Dr. Pontarini
had described episodes of rage where he felt close to breaking. Similarly,
Dr. Pontarini did not raise the issue of blackouts with Dr. Pohlman
although Dr. Pontarini did in his own testimony.
[16]
Dr. Pohlman said
Dr. Pontarini was not a good patient. He was not cooperative and could not
explore himself as needed and there were a number of things it now turns out he
did not tell Dr. Pohlman about. Dr. Pohlman did not use any
medication in his treatment of Dr. Pontarini other than a small dose of a
minor tranquilizer being prescribed to be used at times. Dr. Pohlman said
much of Dr. Pontarini’s problem was his own self-destructive behaviours.
Dr. Pontarini’s description of his mental health problems and medical
treatment was at significant odds with that of Dr. Pohlman who treated him
and who was unaware whether Dr. Pontarini had been treated by other mental
health professionals. While none of Dr. Pohlman’s assessments of the
emotional or mental state of Dr. Pontarini were issues I would normally
consider worthy of this level of detailed summary, since Dr. Pontarini and
his counsel put them forward strongly to excuse and explain
Dr. Pontarini’s penalty assessments, I feel obliged to summarize them to
the extent I have.
[17]
Dr. Pohlman’s
testimony was that, during the years in which he treated him, including the
years in question, Dr. Pontarini was not ill nor was his mental health
significantly impaired. He described Dr. Pontarini as a person with a
difficult and troubled personality who had avoidant personality struggles, was naïve
and had impaired judgment.
III. Credibility Issues
[18]
After hearing extensive
testimony over two days from Dr. Pontarini, and in light of the evidence
of Dr. Pohlman and the other evidence submitted, I am obliged to make
findings of credibility involving Dr. Pontarini in order to resolve this
appeal. I am unable to accept the truthfulness and completeness of
Dr. Pontarini’s evidence. I make this finding for a number of reasons,
including the following:
a)
The evidence regarding
his medical health: the testimony of Dr. Pontarini regarding his mental
health issues, diagnosis and treatments differed considerably from that of his
own psychiatrist, Dr. Pohlman. In essence Dr. Pohlman concluded
Dr. Pontarini was not ill in any clinical sense of the term and, while he
did not suffer any clinical personality disorders, he did have a difficult
personality in many respects which caused him to want to be looked up to and
respected, created difficulties in his dealings with other people, and he
tended to avoidance of problems. I am also confirmed in my assessment of
Dr. Pontarini’s credibility by his psychiatrist’s testimony that made it
clear Dr. Pontarini was neither forthcoming nor cooperative with him in
the doctor-patient relationship.
b)
The taxpayer’s
different testimony regarding the existence of two versions of his tax summary
information and which version he provided to his accountant Mr. Spiegel:
in his examination-in-chief, Dr. Pontarini clearly and equivocally
identified a document headed Tax Summary Information which reported gross
revenues correctly, i.e.: without any OHIP adjustment, as that which he
provided to his accountant to prepare his tax return. When faced in
cross-examination with a similar but materially different tax summary document
which showed a much reduced revenue and appeared to have been seized at the
accountant’s office and had the accountant’s handwritten notes on it,
Dr. Pontarini’s evidence changed materially and he could recall that he
had brought both with him but only gave the second adjusted version to the
accountant for their meeting at his office.
c)
The taxpayer’s
testimony regarding how he made the adjustments for the OHIP claw-back amounts:
in response to one of my direct questions on how he had split the OHIP
claw-back amount between reducing his revenues and increasing his expenses, he
told me clearly that he split it so that 50% of it was a revenue adjustment and
50% was an expense adjustment. When this came up later in cross-examination,
his explanation changed accordingly and his recollection of his past approach
became much more generalized.
d)
The taxpayer’s limited
recollection of making inquiries about expensing the OHIP claw-back amount: Dr. Pontarini
testified he could recall making a telephone call to the CRA to ask about
treating an amount in respect of the OHIP claw-back as an expense. He also
testified he recalled clearly asking his accountant, Mr. Spiegel, about
it. Remarkably, he not only does not recall the specifics of the CRA’s answer
or Mr. Spiegel’s discussion, he does not recall the thrust of whether they
told him he could do it or he could not do it.
e)
I am most troubled by
the taxpayer testifying that he recalled discussing the OHIP claw-back
adjustments with his accountant, Mr. Spiegel, but that Mr. Spiegel
was not called to testify. No explanation was given by the taxpayer’s counsel
for why Mr. Spiegel was not testifying. It seems there are only a limited
number of things Mr. Spiegel could have said regarding his meetings with
Dr. Pontarini to review the Tax Summary Information and the discussions
regarding the OHIP claw‑back adjustments Dr. Pontarini sought to
make. Had Mr. Spiegel testified, he might have said he did not recall any conversation
whatsoever. He might have said that he recalled being asked the question but
did not recall anything regarding his answer. These possibilities are two that
would be helpful, or at least not harmful, to Dr. Pontarini’s position.
Mr. Spiegel might have said he told Dr. Pontarini that he could make
the adjustments in the manner adopted and that, while they may be challenged,
they were not unreasonable filing positions. If that would have been
Mr. Spiegel’s testimony, I assume the taxpayer would have called him. He
did not. The remaining possibilities include that either Mr. Spiegel would
say he was certain that in his recollection no such conversation happened which
would not be helpful to Dr. Pontarini, or that Dr. Pontarini had
asked the question and that his response was that such adjustments could not be
made. That may well have been the case and would be harmful to
Dr. Pontarini’s position. Since Dr. Pontarini’s Tax Summary Information
prepared for Mr. Spiegel did not itemize any deduction in respect of the
OHIP claw-back adjustment and he merely reduced his gross revenues and overstated
existing expense categories, Mr. Spiegel would have no way of knowing that
this advice was not followed or that he was in any way complicit in preparing
Dr. Pontarini’s tax returns contrary to his advice. Mr. Spiegel might
also have said “you will not like my answer so withdraw your question” which
would point toward Dr. Pontarini’s wilful blindness. Mr. Spiegel’s
absence informs my assessment of credibility.
[19]
For all of these
reasons, I have approached the taxpayer’s testimony, even when plausibly consistent
with documentary evidence, as suspect, self-serving and misleading.
IV. Findings and Analysis
[20]
In order for
subsection 163(2) penalties to be upheld, the Crown must show that
Dr. Pontarini made false statements or omissions in his returns knowingly
or under circumstances amounting to gross negligence. Gross negligence involves
a high degree of negligence tantamount to intentional acting, an indifference
as to whether the law is complied with or not: Venne v. The Queen,
84 DTC 6247 (FCTD). Wilful blindness can constitute gross negligence.
Wilful blindness involves a person choosing to remain ignorant when one is
aware of the need to make inquiry on a matter but would prefer not to know the
correct answer. Actual knowledge will be imputed to a taxpayer whose
circumstances strongly suggest an inquiry should be made with respect to his
tax situation if he does not make such an inquiry without reasonable
justification. See Panini v. The Queen, 2006 FCA 224, 2006 DTC 6450.
[21]
Subsection 163(3)
of the Act provides that it is the Minister of National Revenue that has
the burden of establishing the facts justifying the imposition of a
subsection 163(2) penalty. The standard of proof required is a balance of
probabilities standard. There is no greater standard of proof applicable
because a penalty assessment is involved. It may in some situations be the case
that, in balancing probabilities, a court should consider that a more serious
allegation or offence may be considered less likely to occur and therefore
require stronger evidence to tip the balance. That does not create a new and
greater standard of proof than a balance of probabilities. It merely
recognizes, from a common sense point of view, that inherent probabilities are
a necessary consideration in determining what the facts are on a balance of
probabilities basis: In re B (Children), [2008] UKHL 35.
[22]
Justice Webb of this
Court has written a commendable review and summary of this aspect of balancing
probabilities in Lesnick v. The Queen, 2008 TCC 522,
2008 DTC 4861, in paragraphs 10 through 16.
[23]
Dr. Pontarini’s
guilty plea of tax evasion provides some possible evidence of his intention to
make the false statements and omissions. It is not incontrovertible evidence by
reason of either issue estoppel or abuse of process because he pleaded guilty.
Dr. Pontarini testified he pleaded guilty because the Crown would have been
pursuing a jail sentence had it proceeded to trial. Aside from his guilty plea,
there is ample evidence for me to conclude that Dr. Pontarini’s false
statements and omissions were intentional or made in circumstances amounting to
gross negligence.
[24]
Many Canadian taxpayers
have dealt with stressful periods in their lives. Financial difficulties,
mental difficulties, failing business relationships, changing business
circumstances, regrettable involvement in criminal activity, health problems,
and threats to one’s personal safety are, regretfully perhaps, not entirely uncommon
occurrences. I appreciate fully that when they happen they can have huge and
negative, potentially devastating impacts on those affected. But, to have any
of these circumstances or their combined effect excuse Dr. Pontarini’s
approach to tax reporting would require me to be satisfied that they were not
just major distractions in his life but were debilitating and incapacitating to
the extent of interfering with his ability to function or think in a rational
fashion. I am not at all satisfied of this. For example, Dr. Pontarini’s
mental health problems did not rise to the level of him being delusional and how
else could a smart and educated man fail to appreciate money he did not receive
from OHIP as revenue did not need to be deducted a second time? And how else
could that possibly lead to treating only half of the reduction as an expense
and using the other half to reduce reported gross revenues?
[25]
With respect to the
taxpayer’s claim that his mental state and stressful life caused him to fail to
appreciate that his approach was a false statement or an omission, or negated his
ability to form an intention to be grossly negligent in adopting such an
approach, I can do no better than to refer to the former Chief Justice Bowman’s
decision in Cox v. The Queen, 2002 DTC 1515. In that case, the
taxpayer was a diagnosed paranoid schizophrenic whose symptoms included
delusions and hallucinations. In that case, then Associate Chief Justice Bowman
struggled with the issue of whether or not a taxpayer in those significantly
more extreme circumstances should or should not be subject to penalties. While
Bowman A.C.J. decided the taxpayer in that case should not be subject to
penalties, he acknowledged that others could reasonably disagree and have found
the taxpayer subject to penalties. At paragraph 23 he wrote:
For a penalty to be imposed under subsection 163(2) two elements
must be present: a misstatement or omission in a return and a requisite mental
state. The first element is obviously present. But can it be said that a person
who suffers from the type of paranoid schizophrenia that I have described
above, who has hallucinations, hears voices, and is divorced from reality for a
large part of the time, can have the requisite mental state to justify a
penalty under subsection 163(2)? Perhaps. But then again, perhaps not.
From my observation of the appellant I think the better view is that he did
not. Others might see it differently and I would respect that view. It would
not be without merit. He was after all smart enough to make money from his
investments. He did also have the wit to defraud the welfare authorities for
which he went to jail. He subsequently made full restitution. Where, however,
the court has such doubt I think the safer course is to give the benefit of
that doubt to the appellant.
[26]
These comments of
Bowman A.C.J. identify where he believed the line could be found: far cry from
Dr. Pontarini’s circumstances even as he described them. I find that there
was no credible evidence of a material, physical or mental health illness,
condition or treatment that interfered with Dr. Pontarini’s ability to
comprehend or reason or that in any way negated his ability to form the
intention or to behave with gross negligence as required by
subsection 163(2).
[27]
It was clear that the
gross revenues allocated to each doctor, as assembled from the OHIP statements
by the bookkeeper and the clinic’s accountants, only included the amounts
actually paid by OHIP as set out in OHIP’s monthly statements to
Dr. Pontarini and the deposits to his personal bank account. This is clear
from his monthly OHIP statements themselves, and from the information supplied
to Dr. Pontarini by the bookkeeper, and from the financial statement
information received by Dr. Pontarini and his partners. Dr. Pontarini
acknowledged that he understood the information when received from the clinic’s
accountants to be allocating revenue on this basis at the time he received it
from them. I find that he clearly understood that the OHIP claw-back amounts
were not recognized in his revenues in any fashion as they had been reported to
him.
[28]
The taxpayer’s
explanation and his testimony regarding the different Tax Summary Information revenue
numbers were unsatisfactory. I find he altered his Tax Summary Information for
purposes of the CRA audit and investigation. I do not accept that he had
both versions with him at his meeting with Mr. Spiegel. I do not accept
the doctor’s testimony that the version with the correct gross revenue numbers,
but with other offsetting deductions added instead, even existed at the time of
his meetings with his accountant.
[29]
I find that
Dr. Pontarini’s approach to making adjustments in his tax returns in
respect of the unpaid OHIP claw-back amounts is properly subject to penalties.
He clearly knew he had provided services for which he was paid in accordance
with the OHIP formula but that the formula reduced the amount he received as
compared with doctors who had not exceeded their threshold. He did not make the
mistake of thinking it was an expense he paid; he said he clearly understood he
did not pay it. His rationalization was that he had provided a service for
which he was not paid and should therefore get a deduction for the value of the
unpaid services as some form of investment that could be equated to an expense
that he made in his practice. He said he was angry with the OHIP formula and he
was disappointed with his government. He did not feel it was a fair assessment
of the services he provided in good faith since other doctors would have been
paid in full for the same services. I find that Dr. Pontarini’s OHIP
claw-back adjustments in his tax returns in the years in question were
political acts because he disagreed with the policy behind the changes to the
OHIP formula which adversely affected him and a significant minority of other Ontario doctors. According to Dr. Pontarini’s testimony
only 5% of Ontario doctors were affected by the threshold claw-backs.
[30]
The issue of deducting
OHIP claw-backs has previously been considered by this Court in Deep v. The
Queen, 2006 TCC 315, 2006 DTC 3033 (affirmed 2007 FCA 366,
2008 DTC 6016; leave to appeal to the Supreme Court of Canada
denied). Like Dr. Deep before him, Dr. Pontarini sought to fashion
his own tax remedy for the OHIP claw-back. Dr. Deep, in very similar
circumstances, deducted the OHIP claw-back as a gift to the Crown.
Dr. Pontarini testified he regarded the value of his unpaid services as an
investment in his practice that should, in spirit, be recognized as an expense.
That this is not how he in fact approached the adjustments he made belies the lack
of truthfulness in his own testimony. Just as Dr. Deep was subject to
penalties for his intentional or grossly negligent false statements, so too
Dr. Pontarini is entirely properly subject to penalties for his
intentional or grossly negligent false statements or omissions. This is not a
close case.
[31]
Dr. Pontarini’s
approach to the OHIP claw-back was neither a filing position he developed that
was not successful nor any other form of forgivable misconception. I have
difficulty seeing how a filing position not disclosed on the return filed is a
filing position.
[32]
Dr. Pontarini
arranged that Dr. Kates, an associate physician in the clinic who effectively
sublet some of Dr. Pontarini’s space in which to conduct his practice,
made out his cheques directly to Dr. Pontarini. Dr. Pontarini
deposited those in his personal bank account, which was the bank account Dr. Pontarini
also used to pay his share of office expenses monthly against statements
received from the bookkeeper. These $3,500 monthly cheques from Dr. Kates
were never reported to the CRA, nor were they reported to the clinic’s
accountants or the clinic’s bookkeeper as amounts received from Dr. Kates
which should have been added to his or his company’s rental income or should
have reduced his share of office expenses. Unlike the similar payments received
from the tenant medical laboratory in the clinic and from the doctor on locum
during Dr. Pontarini’s suspension, the amounts from Dr. Kates were
not paid directly to the clinic’s bookkeeper to be credited as payments toward
Dr. Pontarini’s share of the clinic expenses. I conclude that
Dr. Pontarini put these arrangements in place in this fashion to permit
him to fail to report this income. The Dr. Kates amounts of over $40,000
per year were amongst the next most significant understated revenue or
overstated expense items in the reassessments.
[33]
No explanation was
offered of why Dr. Kates’ arrangements were not documented, nor why his
cheques were paid to Dr. Pontarini and deposited into Dr. Pontarini’s
account. No explanation was offered of why they were not paid to or made known
to the bookkeeper, nor was there evidence why they were not dealt with in the
same manner as the lab rental payments and the payments from the doctor on locum.
[34]
The deduction by Dr. Pontarini
in one year of $24,000 of interest on the $75,000 debt to Dominion Roof for the
roof on his home, which was secured by a mortgage on his interest in his clinic
building, was entirely unreasonable. I do not accept that he believed that
because the debt was secured on his business it could give rise to a business
expense anymore than I accept that he deducted an aggregate amount of interest
accrued over a number of years in that one year for reasons unrelated to the
OHIP claw-back adjustments he sought to make.
[35]
I find virtually all of
Dr. Pontarini’s explanations for his other categories of overstated expenses
to be incredible as well. His own phone, fax and copier, the examples he kept
coming back to, could not cost anywhere near the amount of his inflated personal
clinic expenses.
[36]
My conclusions of
Dr. Pontarini’s credibility combined with my findings regarding the
significant overstatings and understatings in respect of the OHIP claw-back,
the Dr. Kates payments and the overstated personal clinic expenses taint
my perception of the evidence of all of the remaining reassessed overstated business
expenses, such as the car and home office, which have also been significantly
reduced by the Partial Consent to Judgment. I find that all of his other
disallowed aggressive or fictitious expenses are also properly subject to
penalties.
[37]
Further evidence of
Dr. Pontarini’s intention can be seen from his entire course of conduct. He
made adjustments from year to year on how best to not show the OHIP claw-back
adjustments and he reworked his drafts before taking them to his accountant. His
reported expenses averaged approximately 85% of his reported gross revenue,
which he had already adjusted downward; this was further evidence of the
knowing or gross negligent nature of his actions. Even further, the fact that
his net professional income reported in each year did not cover, or barely
covered, the amount of the five‑sixths of his house expenses reported to
his accountant that did not relate to his home office also confirms his
understatements and overstatements as intentional or grossly negligent.
[38]
Dr. Pontarini was
under considerable stress during the period from a number of sources, some of
which were caused by him, some by others, and some by his medical conditions.
However, he was able to focus on and maintain his medical practice. Similarly,
he was able to focus on and repair his family relationships. I find that
Dr. Pontarini not only chose not to focus the same diligence and attention
on his tax compliance responsibilities, he intentionally underreported his
income and overstated his expenses for which he must now accept responsibility.
[39]
The penalties assessed
are to be reduced only to reflect the reassessments of tax to be done in
accordance with the Partial Consent to Judgment. All remaining reassessed
adjustments are properly subject to penalties. To that extent only the appeal
is allowed. Costs are to be payable by Dr. Pontarini to the Crown.
Signed at Ottawa, Canada, this 10th day of August 2009.
"Patrick Boyle"
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