[OFFICIAL ENGLISH TRANSLATION]
Date: 20021210
Docket: 2001-674(IT)I
BETWEEN:
RÉJEAN VILLENEUVE,
Appellant,
and
Her Majesty The Queen,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] These are appeals under the
informal procedure concerning the 1988 to 1992 taxation
years.
[2] The points at issue concern the
normal assessment period under subsection 152(4) of the
Income Tax Act (the "Act") and the
penalties assessed under subsection 163(2) of the
Act.
[3] On January 6, 1995, the
appellant received an income tax refund of $12,364.15 in respect
of the 1988 to 1992 taxation years on the basis of incorrect
facts.
[4] In making the reassessments dated
July 14, 2000, the Minister of National Revenue (the
"Minister") relied on the facts stated in
paragraph 8 of the Reply to the Notice of Appeal (the
"Reply") as follows:
[TRANSLATION]
(a) the case arises
from an internal investigation of certain employees of the
Jonquière Tax Centre who set up a scheme to enable certain
persons to receive fraudulent tax refunds in exchange for a
commission based on a percentage of the said refunds;
(b) on
January 6, 1995, the appellant deposited at the Bank of
Montreal, on Rue Racine in Chicoutimi, a total tax refund of
$12,364.15 for the 1988, 1989, 1990, 1991 and 1992 taxation years
as a result of reassessments dated December 28, 1994;
(c) the notices of
reassessment dated December 28, 1994, for the 1988, 1989,
1990, 1991 and 1992 taxation years showed that the appellant had
two dependent children and allowed inter alia the equivalent to
married credit and the credit for dependents in the computation
of non-refundable tax credits for 1988, 1989, 1990 and 1991;
(d) the notices of
reassessment dated December 28, 1994, for the 1988, 1989,
1990, 1991 and 1992 taxation years, showed that the appellant had
two dependent children and allowed the child tax credit in the
computation of the federal credits;
(e) the appellant
alleged to the Minister's investigators by solemn declaration
that Mario Boucher was a customer of his employer "Les
Automobiles Jacques Bouchard & fils
Ltée";
(f) the
appellant admitted to the Minister's investigators by solemn
declaration that, in the fall of 1994, Mario Boucher had
offered to revise his tax returns and that he had given his
consent and signed a document to that effect;
(g) the appellant
admitted to the Minister's investigators by solemn
declaration that he had never had any dependent children during
the taxation years in issue;
(h) with respect to
the total refund resulting from the reassessments dated
December 28, 1994, for the 1988, 1989, 1990, 1991 and 1992
taxation years, the appellant admitted to the Minister's
investigators by solemn declaration that he had given the sum of
$8,000 in cash to Mario Boucher in accordance with his
instructions;
(i) in the
Minister's view, the appellant displayed collusion,
connivance and complicity in this matter;
(j) in respect
of the 1988, 1989, 1990, 1991 and 1992 taxation years, the
appellant made a misrepresentation that was attributable to
neglect, carelessness or wilful default or committed fraud in
supplying information under the Act;
(k) the claim, under
non-refundable tax credits, for the equivalent to married credit
and the claim for the federal child tax credit for the 1988,
1989, 1990, 1991 and 1992 taxation years, and the claim, under
non-refundable tax credits, for the credit for dependents for the
1988, 1989, 1990 and 1991 taxation years leads the Minister to
believe that the appellant knowingly, or under circumstances
amounting to gross negligence, made or participated in, assented
to or acquiesced in the making of a false statement or omission
in the income tax returns filed for the 1988, 1989, 1990, 1991
and 1992 taxation years, as a result of which the tax he was
required to pay based on the information provided in the income
tax returns filed for those years was less than the amount of tax
actually payable for those years.
[5] The appellant's notice of
appeal was drafted by the accountants of the garage for which the
appellant worked as a mechanic. It states that the appellant was
born on August 12, 1966. He has had a de facto spouse since
1987, and they had a child in 1991. The appellant began working
as a mechanic at the garage "Les Automobiles
Jacques Bouchard et fils Ltée" in 1992, and that
is where he met Mario Jacques Boucher. In a discussion,
the appellant asked Mr. Boucher why most of his friends were
receiving income tax refunds at the end of the year and he was
receiving nothing. Mr. Boucher then proposed to revise his
returns for the years 1988 to 1992. Mr. Boucher obtained a
cheque for the appellant for approximately $12,000, and it was
then that he told him that he would keep two-thirds of the
amount.
[6] The appellant admitted
subparagraphs 8(b), (e), (f) and (h) of the Reply and, in
his testimony, repeated the facts stated in the notice of
appeal.
[7] It was Mr. Boucher who
brought him a cheque for $12,000. The appellant gave him the
$8,000 that he owed him in a restaurant.
[8] In response to a question by his
agent, the appellant confirmed that he did not know what
Mr. Boucher had said in order that he receive the income tax
refund in question and confirmed that he was a person who trusted
professionals.
[9] In cross-examination, counsel for
the respondent filed the appellant's solemn declaration as
Exhibit I-1. Since all the facts were repeated in
testimony, it is worth reproducing it in its entirety:
[TRANSLATION]
. . .
In the fall of 1994, Mario Boucher, a customer of the
garage where I work, "Automobile Jacques Bouchard"
offered to review my income tax returns. I agreed to have him go
over my file, and I signed a document to that effect. A few weeks
later, in December 1994, Mario Boucher called to tell me
that the refund would be $12,364.15. I then told him to let the
matter drop because it made no sense. Shortly afterward,
Mario Boucher called me back to tell me that he had the
cheque, and he asked me to go and meet him at his home. At that
meeting, I noted that the address on the cheque was
445 St-Philippe in Chicoutimi, whereas my address at
the time was 119 Blizard in Tremblay Township. I pointed
this out to Mario Boucher, and he told me to say that I was
no longer living with my wife and that I had changed addresses.
At that point, Mario Boucher told me that I had to cash the
cheque and give him back $8,000 in cash and that I could keep the
difference. I ultimately agreed to go through with the
transaction requested. I went to the Bank of Montreal on
Racine Street in Chicoutimi. The cashier found it curious
that it wasn't my address on the cheque, asked me for my
social insurance number and blocked the funds while she did the
checks. Two days later, she called me to say that the funds were
available. I then went to the bank to withdraw $8,000 in cash,
which I subsequently handed over to Mario Boucher at a
meeting at the "Bouffe et plus" restaurant in north
Chicoutimi.
I never had two dependent children between 1988 and 1992. I
had only two children, the first born in 1991 and the second in
1996.
Mario Boucher completed my income tax returns and those
of my spouse for the 1997 and 1998 taxation years.
Arguments
[10] The appellant's agent argues that
the Minister assessed outside the normal assessment period under
subsection 152(4) of the Act and furthermore that
there is no reason to assess the penalties under
subsection 163(2) of the Act. The appellant's
agent therefore requests that the assessments be vacated on the
basis that there was no wilful default, fraud or irregularity on
the appellant's part. It was not the appellant who had
intervened in the preparation and making of the corrections
requested. It was someone whom he trusted and who moreover was an
employee of the federal Revenue Department.
[11] Counsel for the respondent recalled the
appellant's surprise in learning the amount of the refund and
the fact that he had asked Mario Boucher to stop. She
suggested that, even before receiving the cheque, the appellant
had doubts about the legality of Mr. Boucher's actions.
Despite those doubts, the appellant took no action to inquire of
Revenue Canada about the legality of what was going on in his
case.
[12] According to counsel, the appellant had
a very strong economic interest in remaining ignorant since, in
exchange for that ignorance, he was going to receive $12,000.
[13] Counsel also stated that, for this
fraud to succeed, there had to be people at the tax centre
issuing refunds and other persons agreeing to receive those
amounts. When Revenue Canada officers conduct an audit, they do
not ask to be reimbursed by taxpayers for the efforts they make;
they are paid by the government, not by taxpayers. The
taxpayer's contribution to this fraud was essential, and it
therefore amounted to complicity.
[14] Counsel referred to a decision I
rendered in Lévesque Estate v. Canada, [1995]
T.C.J. No. 469 (Q.L.), particularly to
paragraph 13:
Ignorance or failure to obtain adequate information could in
certain circumstances be a sufficient element to constitute gross
negligence, particularly in cases where there is an economic
interest in remaining ignorant. Here, the element that tilts the
scales in favour of accepting the taxpayer's position is that
there was no economic interest in this omission or in this
failure to obtain adequate information.
[15] She referred to the decision by
Reed J. of the Federal Court - Trial Division in
Patricio v. Canada, [1984] F.C.J. No. 540
(Q.L.):
. . . In my view, the extent to which he did not
know what was required by the tax system was the result of
purposely choosing to wear blinkers rather than mere carelessness
or simple negligence. Wilful blindness by someone capable of
acting in a responsible manner is in my view, in the
circumstances of this case, gross negligence. In coming to this
decision, I have considered the decisions in The Queen v.
Columbia Enterprises, 83 D.T.C. 5247 and Venne v. The
Queen, 84 D.T.C.
6247 which were cited to me by counsel.
[16] She also referred to the decision by
Hamlyn J., formerly of this Court, in Carlson v.
Canada, [1997] T.C.J. No. 1351 (Q.L.), more particularly
to paragraph 19:
Further, wilful blindness or a lack of care by someone capable
of acting in a responsible manner has been found in circumstances
to be gross negligence. Deliberate failure to make enquiries as
to fiscal responsibilities has been found in one case to
constitute gross negligence, and that case is Holley v.
M.N.R., 89 D.T.C.
366. That was Judge Kempo of this Court.
[17] In essence, these decisions say that
wilful blindness constitutes gross negligence where a person
derives an economic benefit and is in a position to make
inquiries. Counsel argues that that describes the appellant's
behaviour. He did not inquire of tax authorities about the
legitimacy of the refund and of the payment in return to the
persons who made the refund.
[18] She argued that the degree of
negligence required in subsection 152(4) of the Act
is less than that required by subsection 163(2) of the
Act and that it was surely reached in order that the
Minister be able to assess outside the normal assessment period.
It is also amply sufficient for the purposes of assessing the
penalty under subsection 163(2) of the Act.
Analysis and Conclusion
[19] At the end of the hearing, I asked
counsel for the respondent to send me a schematic table of the
computation of tax payable, interest payable on that tax, the
amounts of the penalties and the amounts of interest payable on
those penalties. I received computerized statements amounting to
some 30 pages that established the amounts in issue.
Unfortunately, that information is too detailed to be of any use
to me. I shall state only the total balance owing at
September 12, 2002, which is $43,084.98.
[20] However, a paragraph from the letter
accompanying those computerized statements is worth noting and is
reproduced below:
[TRANSLATION]
We would point out that, when issuing the reassessments
cancelling the fraudulent refunds and assessing the penalties
provided for under subsection 163(2) of the Income Tax
Act, the Minister computed interest on the penalty from the
date on which the penalty became payable for each of the taxation
years in issue, but the interest on the amount of the false
refund begins to accrue only as of the date the refund was
made.
[21] With respect to the assessments made
outside the normal assessment period, the appellant's
ignorance of the incorrect facts presented in order to obtain the
refund cannot serve as an excuse. According to the theory of
mandate, the mandator agrees to the act performed by the
mandatary when he ratifies it. In accepting the refund of the
overpayment of tax and handing most of it back to the person
responsible for the payment, the appellant ratified that
person's wrongful act. The appellant thus displayed a
sufficient degree of negligence for the purposes of assessing
outside the normal assessment period.
[22] The appellant must therefore return the
entire amount of the tax overpayment made to him plus
interest.
[23] As to the penalty assessed under
subsection 163(2) of the Act, in
Jean-Marc Simard v. Canada, [2002] T.C.J.
No. 265 (Q.L.), I concluded that the Court had discretion to
determine the amount assessed on the basis of the taxpayer's
ability to pay, the degree of his wrongful intent and his past
behaviour. The respondent has appealed from that decision.
[24] Pending the decision of the Federal
Court of Appeal, I think it more cautious for the moment to
follow the approach that Court has recently taken in
Chabot v. Canada, [2001] F.C.J. No. 1829 (Q.L.),
in which it did not evaluate the degree of the taxpayer's
wrongful intent but completely released him from any application
of subsection 163(2) of the Act on the ground that
the taxpayer had been caught in an ambush. The taxpayer had
claimed charitable tax credits. In 1992, he made a charitable
gift worth $10,000, for which he had paid $2,800 and, in 1993 and
1994, gifts of $15,000 and $8,000, whereas he had paid a total of
$2,500.
[25] Paragraphs 40 and 41 are
quoted:
40. I also note that
Denis Lemieux, an investigator with Revenue Canada,
explained to the Court that no action had been taken against the
foundations involved themselves because, in the Department's
view:
[TRANSLATION]
. . . they had been caught in an ambush. It had
grown completely out of proportion for them. They were genuinely
. . . they are not specialists when it comes to
artwork. They found the offer very
appealing. . . .
These are foundations; there was no criminal intent on the
part of these people. They realized themselves that they were in
the wrong.
(Appendix 6, pages 25 and 26)
In his own way, Mr. Chabot too "got
caught in an ambush" and, in his own way, he too "found
the offer appealing."
41. In these
circumstances, I find it difficult to understand why Revenue
Canada would assess penalties against such small taxpayers who,
in good faith, tried to benefit from a tax credit that Revenue
Canada itself dangled in front of their eyes and which, according
to the guide, seemed so easy to obtain.
(My emphasis.)
[26] I believe that the appellant was also
caught in an ambush. It was not he who developed the scheme. The
proposal was put to him by an employee of a federal institution,
which he respects. No mention was made to him of fraudulent acts.
He was told that it was possible that he had not claimed all the
tax refunds to which he was entitled. That is a premise that many
people of good faith are tempted to believe. He received a
substantial amount of money that surprised him. He was told that
he had to hand over two-thirds of that amount to those
responsible for the refund. He agreed without too much thought.
He was subsequently caught in a situation that was hard for him
to get out of.
[27] The respondent argues that the
appellant did not discuss the matter with tax authorities. That
is true, and there was not really any response from the appellant
to that question by the respondent. However, it may conceivably
have been difficult for the appellant to go and consult tax
authorities. He had handed over too much money to the person
responsible. He vaguely felt that he would not be able to recover
that share and that he would have to hand it back to tax
authorities along with his own share. He became a prey and
behaved as such. He waited anxiously. Or the appellant may
conceivably have dared to believe that the transaction was
legitimate. This was a confused situation in which feelings were
not clear.
[28] There is always a share of
responsibility in acts carried out unless they are purely
accidental. It is a serious act to hand over money to government
officials when they are performing their duties.
[29] Subsection 163(2) of the
Act requires, however, that false statements or omissions
be made knowingly or in circumstances amounting to gross
negligence. In other words, that subsection requires wrongful
intent. It is my view that the Court must be all the more certain
of that wrongful intent where the penalty resulting therefrom is
a substantially high amount and is particularly burdensome for
the taxpayer, as is the case here.
[30] The appellant has a good trade, but he
is neither an accountant nor a legal expert. From what he said in
his testimony and in his notice of appeal, he has always filed
his income tax returns every year and has always wanted to comply
with the Act. That statement was not contradicted by the
respondent.
[31] I find that, at the outset, the
appellant's act stemmed from thoughtlessness, unawareness or
an error of judgment, not from wrongful intent. The
appellant's action resulted much more from the ambush than a
deliberate decision on his part to contravene the Act. He
was subsequently caught in that ambush.
[32] The more educated a person is, the more
difficult it will be for that person to avoid the application of
subsection 163(2) of the Act on the ground of an
error of judgment in circumstances such as those in the instant
case. But here I am of the view that the appellant did not form
the wrongful intent required by subsection 163(2) of the
Act.
[33] The appeals are accordingly allowed on
the basis that the penalties and interest thereon shall be
deleted.
Signed at Ottawa, Canada, this 10th day of December
2002.
J.T.C.C.
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