Citation: 2011 TCC 407
Date: 20110826
Docket: 2011-519(IT)I
BETWEEN:
DEAN SHEPPARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
Dean Sheppard appeals in respect
of a penalty assessed under the Income Tax Act for the 2008 taxation
year.
[2]
Subsection 163(1) of the Act
provides for a penalty where a taxpayer has a failed to properly report income on
more than one occasion. The penalty, which in this case is $1,407, is equal to
10 percent of the unreported amount in the second occurrence.
[3]
Subsection 163(1) provides:
163.(1)
Every person who
(a) fails to report an amount required to be included in
computing the person’s income in a return filed under section 150 for a
taxation year, and
(b) had failed to report an amount required to be so included in
any return filed under section 150 for any of the three preceding taxation
years
is liable to a
penalty equal to 10% of the amount described in paragraph (a), except
where the person is liable to a penalty under subsection (2) in respect of that
amount.
Background
[4]
Mr. Sheppard does not dispute that
he omitted income from tax returns on two occasions.
[5]
The first omission occurred in the
2005 tax return in which employment income in the amount of $837 was not
reported. Mr. Sheppard explained that he inadvertently forgot to include this
amount.
[6]
The second omission was for the
2008 taxation year, in which employment insurance benefits in the amount of
$14,071 were not reported.
[7]
The omissions are acknowledged,
but Mr. Sheppard submits that it would be unfair to impose the penalty.
[8]
First, Mr. Sheppard submits that
he never received a T4 slip for the omitted benefits. Apparently there were
other employment insurance benefits received for that year. Mr. Sheppard
received a T4 slip in the amount of $15,645 for these benefits and he included
this amount in his tax return. He submits that he thought that all employment
insurance benefits would be reported on one T4 slip.
[9]
The amount that was reported was
for regular employment insurance benefits which expired sometime during 2008.
The omitted amount was received after the regular benefits expired and represents
tuition for a truck driving course and supplementary income benefits. In the
tax return, Mr. Sheppard claimed a credit for the cost of tuition that was paid
for through these benefits.
[10]
The tax return was prepared by a
friend who is experienced in tax return preparation and who volunteered to
prepare Mr. Sheppard’s return without compensation.
Discussion
[11]
As mentioned above, the penalty in
s. 163(1) of the Act applies where there has been at least two failures
to report income. Parliament has not provided any discretion to vacate the
penalty and it can be quite harsh. This reflects the importance that Parliament
has placed on the responsibility of all taxpayers to fully report their income.
[12]
Although the legislation does not
explicitly provide discretion to vacate the penalty, this Court has implied
such a discretion in exceptional circumstances. In general, it is necessary for
the taxpayer to establish that he took reasonable measures to properly report
the income.
[13]
I am not satisfied that reasonable
measures were taken in this case.
[14]
First, Mr. Sheppard testified that
he never received the second T4 slip regarding employment insurance benefits. I
am reluctant to accept a self-interested assertion that a T4 slip was not
received without further evidence. There is no evidence that the T4 slip was
sent to the wrong address or any other evidence in support of a finding that
the T4 slip was not received. Perhaps it was inadvertently mislaid by Mr. Sheppard.
[15]
However, even if the T4 slip was
not received, this would not be a sufficient reason to not report the income.
[16]
Quite simply, the onus is on
taxpayers to keep track of their income and properly report it. Reliance on T4
slips is not sufficient. The income tax return omitted a substantial amount of
benefits, over $14,000.
[17]
In addition, in the tax return Mr.
Sheppard claimed a tax credit for tuition paid. This amount was actually paid
by way of a government benefit. By claiming this amount as an expense for
purposes of the credit, and by not reporting the government benefit as income, Mr.
Sheppard did not take proper care in the preparation of the tax return.
[18]
Innocent good faith is not
sufficient to avoid the strict penalty under s. 163(1): Pillar Oilfield
Projects Ltd. v Canada, [1993] GSTC 49, at para 27 which is reproduced
below:
… innocent
good faith in the making of unintentional errors is not tantamount to due
diligence. That defence requires affirmative proof that all reasonable care was
exercised to ensure that errors not be made.
[19]
Mr. Sheppard testified that he did
not understand the appropriate tax filing. I can understand that the tax filing
was complex, but a taxpayer is under an obligation to ensure that all income is
properly reported. If a taxpayer is not aware of the proper tax treatment of an
amount received, competent advice should be sought. It was not suggested that
the person who prepared the tax return for Mr. Sheppard had undertaken to
provide such advice.
[20]
In order to avoid the strict
liability penalty for a two-time failure to report income, a taxpayer must
demonstrate that appropriate measures were taken to correctly report all
income. I am not satisfied that Mr. Sheppard has done so.
[21]
I would conclude that the penalty
has been properly imposed. The appeal will be dismissed.
[22]
As for costs, the respondent
requested costs in the reply but abandoned this claim at the hearing. The
parties will bear their own costs.
Signed at Ottawa, Ontario this 26th
day of August 2011.
“J. M. Woods”
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