Citation: 2011 TCC 280
Date: 20110530
Docket: 2008-1482(IT)G
BETWEEN:
BERNICE THILL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
D'Arcy J.
[1]
The Appellant, Bernice
Thill, has appealed notice of reassessments in respect of her 2005 and 2006
taxation years. The issues before the Court are whether the Appellant failed to
report income in the amounts of $353,000 and $164,551 for the 2005 and 2006
taxation years (the “Unreported Income”) and whether the Minister properly imposed
gross negligence penalties under subsection 163(2) of the Income Tax Act
(the “Act”) in respect of the Unreported Income.
[2]
The parties filed a
Statement of Agreed Facts (Partial) (the “SAF”), which is attached hereto as
Appendix A. In addition, I heard testimony from two witnesses, the Appellant
and Ms. Shellen Leung, an auditor with the Canada Revenue Agency (the “CRA”).
[3]
I found the Appellant’s
testimony to be vague, inconsistent, and contradicted by the objective
documentary evidence before me. In short, I did not find her to be a credible
witness.
[4]
I found Ms. Leung to be
a credible witness.
Summary of Relevant Facts
[5]
The Appellant was
married to Mr. Henry Thill. Mr. Thill died on June 10, 2006. The
Unreported Income relates to amounts deposited in the Appellant’s bank accounts
by two corporations that were incorporated by Mr. Thill, Prime Packaging
Ltd. (“Prime”) and Quadrant Management Systems Ltd. (“Quadrant”).
[6]
The Appellant described
her husband’s business as promoting tax shelters or tax schemes. One of these tax
shelters appears to have involved Prime, Quadrant, the Canadian Literacy
Enhancement Society (“CLES”), a Canadian charity and Reading Enhancement and
Development (“READ”), a U.S. charity. It is clear from the evidence before me
that substantial amounts of money were paid by CLES and READ to Prime and
Quadrant.
[7]
The Appellant was a
director of CLES. She signed cheques that transferred some of the funds from
CLES and READ to Prime and Quadrant.
[8]
The Appellant testified
that she has been a realtor since 1990. However, it appears that she did not
earn any income from real estate activities in 2005 and 2006.
[9]
On her 2005 tax return,
she reported a single source of income; business income of $120,000, comprised of
“net sales, commission or fees” from Prime. No expenses were deducted from the
$120,000 of gross income.
[10]
On her 2006 tax return,
she also reported a single source of income; business income of $12,743. This
business income was comprised of $8,243 of net sales, commissions or fees from
Quadrant and $4,500 of net sales, commissions or fees from TCOB Management. No expenses were
deducted from the $12,743 of gross income.
[11]
When first asked about
her 2005 and 2006 tax returns, the Appellant did not recall reviewing the
returns before they were filed with the CRA. However, once counsel for the
Respondent drew her attention to her signature on her 2005 tax return, she
remembered that she had indeed reviewed the return.
[12]
It was the Appellant’s
testimony that she did not know where the information contained in the tax returns
“came from”. She was just given a copy of the returns by her accountant. The
returns were filed and she wrote a cheque for the tax owing.
[13]
She did appear to
accept that the $120,000 of business income from Prime was properly reported on
her 2005 income tax return. She referred to the amount as money that her
husband had deposited in her bank account as management fees.
[14]
The Appellant’s 2005
and 2006 income tax returns were filed after her husband passed away.
[15]
As noted previously,
the issue in this appeal is whether certain amounts deposited into the
Appellant’s bank account constituted income to the Appellant. One of the bank
accounts was maintained at the Prospera Credit Union (the “Prospera Account”)
and the second bank account was maintained at the Royal Bank of Canada (the
“RBC Account”). The Appellant was the sole signatory of both the Prospera
Account and the RBC Account. The Appellant noted that her husband had not
maintained a bank account for a “long, long time” because he “owed a lot of
money to Revenue Canada, and he was aware that if he kept a personal bank
account, Revenue Canada would take the money.”
[16]
The Appellant admitted
that $548,157 was deposited in her bank account by Prime and Quadrant in 2005
and 2006
(the “Deposits”). Further, she admitted that in 2006, cheques totalling
$97,637.39 were issued by Prime to Chrisdale Homes Ltd. for renovation work
performed on the Appellant’s home.
It is these amounts (minus the amounts reported on her 2005 and 2006 tax
returns) that constitute the Unreported Income.
[17]
The Appellant testified
that she did not do anything to initiate the payments. The amounts were
deposited into her account by her late husband. She testified that although her
husband was not a signatory of the account he deposited amounts into it by
phone transfer.
[18]
It was the Appellant’s
testimony that her husband deposited the amounts to allow her to pay the
household bills. She also noted that her husband determined the payment of
amounts out of the bank accounts.
[19]
It was the Appellant’s
testimony that she did not work for Prime or Quadrant and that she was not a
director of either company.
[20]
She noted that her
husband made her a signing officer for Quadrant’s bank accounts after he became
ill.
[21]
I do not accept the
Appellant’s testimony. After considering all of the evidence before me, I find
that the Appellant was indeed involved in the businesses of both Prime and
Quadrant and the amounts deposited into her account constituted income she had earned
from these companies.
[22]
She was an officer of
Quadrant and had signing authority for its bank account. Also she was a
director of CLES, the charity that paid significant amounts to Prime and
Quadrant. Further she was the executor of her husband’s estate. Her statements
that she was not aware of the business operations of Prime and Quadrant are
simply not credible.
[23]
On her 2005 and 2006
income tax returns, the Appellant reported business income derived from Prime
and Quadrant of nearly $130,000. The reporting of such income clearly contradicts
her oral testimony that she was not involved in the activities of Prime and
Quadrant.
[24]
In addition, a
significant portion of the Deposits were deposited into her bank account after
her husband passed away and at a time the Appellant had signing authority for
the Quadrant bank account. Clearly, these amounts were not deposited at the
direction of her husband. Amounts were also paid to her by Prime after her
husband’s death. The Appellant stated that she was not sure how this occurred.
She did not have signing authority over the Prime bank account. She thought
that perhaps her husband had left her a “few” blank cheques. This is another
example of testimony of the Appellant that was not credible.
[25]
In the fall of 2005,
the Appellant applied for a mortgage with the Prospera Credit Union. The
mortgage was for $305,000 and it was secured by the home that the Appellant
owned in Richmond, British Columbia.
[26]
The loan officer at
Prospera Credit Union made the following comments in an internal memo
summarizing her meeting with the Appellant and her husband:
. . . Capacity: GDS_TDS 33% based on [the Appellant’s] income only
of $120K confirmed by 2004 tax assess. (exception). Income is from their
jointly held company Prime Packaging acct#1816560. Mbrs have not
provided us with financial statements as they claim they are in storage and do
not show a profit for tax reasons. Account activity shows $4.24m in deposits
annually. . . .
(Emphasis added)
[27]
The Appellant claimed
that the above information is not correct; she did not own a part of the
company. She stated that her husband provided the information. She did not know
that Prime took in $4.2 million annually. She merely signed the documents. The
Appellant is a sophisticated business person, a real estate agent and the director
of a charity (CLES) that clearly raised significant amounts of money. I cannot
accept that such a person would sign a document for a mortgage without
discussing the matter with the loan officer.
[28]
The preceding provides
examples of the Appellant’s testimony with respect to any contradictory written
evidence presented to the Court. Either she had no idea what the documents were
referring to or they were prepared by her late husband and are not accurate. I
do not accept either of these explanations.
[29]
In summary, I conclude that
the amounts deposited into the Appellant’s bank account by Prime and Quadrant
were income to the Appellant.
[30]
In reaching this
conclusion, I am satisfied that the amounts at issue were not included in her
late husband’s return. The Appellant, as the executor of her late husband’s
estate, filed his tax returns for 2005 and 2006. The amounts at issue were not
included in these returns.
Gross Negligence
[31]
Subsection 163(2) of
the Act levies a penalty on
[e]very 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. . .
Pursuant to subsection 163(3) of the Act, the
burden of establishing the facts justifying the assessment is on the Minister.
[32]
As Justice Strayer
stated in Venne v. the Queen, 84 DTC 6247 (FCTD), [1984] C.T.C. 223:
. . . “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. . . .
[33]
On the basis of the
evidence before me, it is clear that the Appellant either intentionally failed
to report the income at issue, or was completely indifferent as to whether the
income should be reported. As a result, she knowingly, or under circumstances
amounting to gross negligence, either made, or acquiesced in the making of, a
false statement or omission on her tax returns for the 2005 and 2006 taxation
years.
[34]
For the foregoing
reasons, the appeal is dismissed with costs to the Respondent.
Signed at Saskatoon, Saskatchewan,
this 30th day of May, 2011.
“S. D’Arcy”
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