REASONS
FOR JUDGMENT
Paris J.
[1]
The issue in this appeal is whether the Minister
of National Revenue (the “Minister”)
properly imposed a penalty of $1000 on the Appellant pursuant to subsection
162(7.2) of the Income Tax Act (the “Act”)
for the Appellant’s tax year ending January 31, 2014.
[2]
Subsection 162(7.2) provides for a penalty
in cases where a prescribed corporation fails to file its return of income for
a taxation year by way of electronic filing, as required by subsection 150.1(2.1)
of the Act.
[3]
The relevant provisions of the Act read
as follows:
150.1(2.1) If a
corporation is, in respect of a taxation year, a prescribed corporation, the
corporation shall file its return of income for the taxation year by way of
electronic filing.
162 (7.2) Every person who fails to file a return of
income for a taxation year as required by subsection 150.1(2.1) is liable to a
penalty equal to $1,000.
[4]
Subsection 250.1(2) of the Income Tax
Regulations sets out the definition of a prescribed corporation, which
includes any corporation whose gross revenue exceeds $1 million. That provision
reads:
205.1(2) For purposes of subsection 150.1(2.1)
of the Act, a prescribed corporation is any corporation whose gross
revenue exceeds $1 million except
(a) an insurance corporation as defined
in subsection 248(1) of the Act;
(b) a non-resident corporation;
(c) a corporation reporting in
functional currency as defined in subsection 261(1) of the Act; or
(d) a corporation that is exempt under
section 149 of the Act from tax payable.
[5]
The issues in this appeal are: whether the
penalty in subsection 162(7.2) can apply where no tax is payable for the
taxation year, whether the Appellant was a prescribed corporation at the
material time, and whether the Appellant has made out a due diligence defence
to the penalty.
[6]
The Appellant was represented at the hearing by
its sole shareholder and director Mr. Laurence Stephenson. Mr. Stephenson
testified that the Appellant has been in operation for over 20 years and that he
has always been solely responsible for the managing of its financial affairs
and for filing all of its income tax returns.
[7]
The Appellant’s business is mineral exploration
and development. During the period in issue it was most actively involved in a
project in Tanzania, which resulted in Mr. Stephenson’s absence from Canada
during 2013 and part of 2014. When he returned to Canada in July 2014, he caused
the Appellant’s 2014 tax return to be filed in paper form. That return showed
that the Appellant’s gross revenue was $1,073,838.56.
[8]
Mr. Stephenson said that he was unaware at that
time that the Appellant was required to file electronically. He also testified
that certain amounts reported as revenue were, in fact, repayable advances made
to the Appellant by himself and another corporation owned by him personally.
Mr. Stephenson admitted in cross-examination that the Appellant had been
assessed a subsection 162(7.2) penalty of $500 for its tax year ending
January 31, 2012. The Notice of Assessment which imposed the penalty was dated
June 13, 2013. Mr. Stephenson could not recall whether he received that Notice
prior to filing the 2014 return because he was away in Tanzania when it was
sent, and he did not return to Canada until July, 2014. He also testified that
2012 and 2013 were the only years that the corporation reported revenue in
excess of $1 million.
[9]
The Appellant’s principal argument is that no
penalty may be imposed under the Act where no tax is payable for the
year. Mr. Stephenson maintained that the decision of this Court in Goar, Allison & Associates Inc. v. The Queen, 2009 TCC 174 supports its position and in
particular, paragraph 6 of that decision, which reads:
The Appellant was not liable to a penalty as
it had no income. The words of subsection 162(2.1) are not where the taxpayer
files late, in which case clearly the taxpayer would be subject to the monetary
penalties imposed under subsection 162(2.1). But the words do not say that.
They say the Appellant must be liable to a penalty equal to a monetary amount.
So, what penalty is the Appellant liable to under subsection 162(1)? Nothing.
Zero. No income, no penalty. That being the case, the prerequisite for
subsection 162(2.1) has simply not been met, and no penalty under subsection
162(2.1) can be imposed.
[10]
The Appellant’s argument must be rejected.
First, the Goar, Allison & Associates Inc. decision dealt with a different penalty provision, subsection 162(2.1), and turned on the particular wording of that provision. It applies where
a non-resident corporation has failed to file a tax return on time. As a
condition to its application, it requires that the non-resident corporation be
liable to a penalty under subsection 162(1), which is a monetary amount based
on the tax payable by the corporation for the year. The Court held that since
there was no tax payable, the corporation could not be liable to a subsection
162(2.1) penalty.
[11]
The wording of subsection 162(7.2),
however, does not make the penalty for failing to file an electronic return
conditional in any way on tax being payable by the corporation. The only
condition to the imposition of the penalty is a failure to file an electronic
return as required by subsection 150.1(2.1) which applies where the
taxpayer is a prescribed corporation as defined in subsection 205.1(2) of
the Income Tax Regulations.
[12]
Second, the decision in Goar, Allison &
Associates Inc. was effectively overturned by the Federal Court of Appeal
in Exida.com Limited Liability Company v. The Queen, 2010 FCA 159, which
involved facts identical in all material respects. In Exida.com, the
Court held that, although a penalty under subsection 162(2.1) could not be
imposed where a non-resident corporation failed to file a tax return on time if
there was no tax payable, a penalty under paragraph 162(7)(b) of
the Act was applicable. Paragraph 162(7)(b) provides for a
penalty where a taxpayer fails to comply with a duty or obligation under the Act.
Clearly then, there is a no general rule that prohibits the imposition of a
penalty under the Act in cases where no tax is payable.
[13]
The next question is whether the Appellant was a
prescribed corporation as defined in subsection 205.1(2) of the Regulations.
In the Reply to the Notice of Appeal, the Respondent has pleaded that one of
the assumptions made by the Minister in assessing the penalty was that the
Appellant had revenues in excess of $1 million in its 2014 taxation year.
Therefore, in order to show that it was not a prescribed corporation, the
Appellant bears the onus of proving that its revenue did not exceed $1 million.
Despite Mr. Stephenson’s suggestion that the revenue was misreported in the
Appellant’s return, no clear or convincing evidence on this point was presented
to the Court, and I find that the Appellant has not refuted the Minister’s
assumption.
[14]
Although the Appellant did not explicitly raise
a due diligence argument, in light of his testimony that he was unaware of the
electronic filing requirement and that he did his best to meet all tax filing
requirements, a due diligence defence should be considered. The requirements of
a due diligence defence are described by Boyle J. in Comtronic Computer Inc.
v. The Queen, 2010 TCC 55 at paragraph 35
as follows:
1. in order to establish a due
diligence defence to a penalty an appellant must show he either (a) made a
reasonable error in his or her understanding of the facts, or (b) took
reasonable precautions to avoid the event leading to the penalty, and
2. subject to very limited
exceptions, mistakes of law as to the existence or interpretation of
legislation are not recognized as an excuse or defence to a section 280 penalty.
The exceptions are officially induced mistake of law and invincible mistake of
law involving a defect in the promulgation or publication of the law.
[15]
A mistake as to the existence of the electronic
filing requirement set out in subsection 150.1(2.1) of the Act is a
mistake of law and is not a defence to the subsection 162(7.2) penalty in
issue, since neither exception set out in paragraph 2 of the portion of the Comtronic
decision cited above is applicable.
[16]
The only question that remains is whether Mr.
Stephenson, acting on behalf of the Appellant, took reasonable precautions to
avoid the events leading to the penalty. I find that it has not been shown that
he did. The evidence shows that prior to Mr. Stephenson filing the Appellant’s
2014 tax return, the Canada Revenue Agency had assessed a
subsection 162(7.2) penalty on the Appellant for its 2012 taxation year,
and it was only because Mr. Stephenson was away from Canada for an extended
period that he did not become aware of the Notice of Assessment for 2012 or the
electronic filing requirement. There was no evidence that Mr. Stephenson had
put in place any system to deal with matters like the 2012 Notice of Assessment
during his absence or to have them brought to his attention. If he had, it is
clear that he would have learned of the electronic filing requirement. Finally,
there was no evidence that Mr. Stephenson sought any professional assistance in
handling the Appellant’s tax matters, or made any efforts to keep his knowledge
of tax filing requirements up-to-date.
[17]
For all of these reasons, the appeal is
dismissed.
Signed at Ottawa,
Canada this 14th day of March 2016.
“B.Paris”
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