Citation: 2011 TCC 208
Date: 20110418
Docket: 2010-470(IT)I
BETWEEN:
ALEXANDRE PAQUETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Rip, C.J.
[1]
It is not disputed that
Alexandre Paquette, the appellant, failed to report employment income of $955
received from Protect Security Services Ltd. in the 2006 taxation year and that
two years later, in 2008, failed to report employment income of $18,941 from
Greyhound Canada Transportation Corp. (Greyhound). As a result of these
omissions, under subsection 163(1) of the Income Tax Act (the Act), the
Minister of National Revenue (the Minister) imposed a penalty of $1,779.10 on
the appellant for 2008, 10 percent of $17,791, the difference between the
amount not declared in 2008 ($18,941) and the amount of the registered pension
plan contributions ($757) and union dues ($393). What is at issue here is what
constitutes the due diligence defence that may be invoked under subsection
163(1) of the Act, which states the following:
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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.
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Toute personne
qui ne déclare pas un montant à inclure dans le calcul de son revenu dans une
déclaration produite conformément à l'article 150 pour une année d'imposition
donnée et qui a déjà omis de déclarer un tel montant dans une telle
déclaration pour une des trois années d'imposition précédentes est passible
d'une pénalité égale à 10 % du montant à inclure dans le calcul de son revenu
dans une telle déclaration, sauf si elle est passible d'une pénalité en
application du paragraphe (2) sur ce montant.
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[2]
The appellant was
almost 30 years old at the time of the hearing. In 2008, the appellant
worked for Greyhound as a "service man" in Ottawa. He still works for
Greyhound. His work involves cleaning the coaches and checking the motor oil
and tire pressure. He is now living with his father.
[3]
During his very credible
and clearly trustworthy testimony, the appellant explained that he had always
had difficulties with French and mathematics and the he did not understand much
about tax matters other than that the government deducted tax from his income. His
father, Michel Bédard, who also works for Greyhound, has prepared his income
tax returns since he began working.
[4]
In fact, Mr. Bédard
represented the appellant during the appeal. He put in evidence an assessment
from a resource teacher describing his son's learning difficulties that go back
twenty years. Despite these problems, the appellant was able to finish grade 12
in an adapted class. He has a Facebook account and an email account.
[5]
On or about April 15,
2009, the appellant, through his father, filed his 2008 income tax return. The
return was filed electronically. The appellant has always given his father all
of the relevant documentation such as T4 slips, but he never gave him his pay
stubs. The father has always declared his son's income according to the information
contained in the T4 slips available to him.
[6]
At the time of
preparing his income tax return in 2008, the appellant had not received the T4
slip from Greyhound pertaining to employment income of $18,941.66. In winter
2009, the appellant contacted his employer to obtain his T4 slip without
success. He also contacted the landlord of the apartment he had been living in
at the time. He still had not received his T4.
[7]
Mr. Bédard stated
that he knew when he prepared the 2008 return that his son’s T4 slip was
missing. He decided to file his son's tax return before the April 30,
2009, deadline without including the Greyhound income on the belief that he
could be reassessed later with the income in question. He said that he did not
think that it was important to include this amount of income since source
deductions had already been made on it. The father never asked the Canada
Revenue Agency (CRA) about the situation. The appellant's father testified that
his son never received a notice of assessment; he was waiting for a notice of
assessment. He only received a notice of reassessment. It was only after
receiving the notice of reassessment that he contacted the CRA. His son was
unaware of the situation. The testimony of Mr. Bédard and his son was very
credible and not contested in cross‑examination.
[8]
The respondent
submitted that the appellant had not exercised due diligence in reporting his
income for 2008. As indicated above, the appellant acknowledged that he failed
to declare income in 2006 and again in 2008.
The respondent maintains that the appellant was negligent by not informing the
employer of his new address, which contributed to him not receiving his T4 slip
on time.
[9]
In Résidences Majeau
Inc. v. Canada
and Corporation de l'école polytechnique v. Canada the Federal
Court of Appeal stated that a defendant may rely on a defence of due diligence
if either of the following can be established: that the defendant made a
reasonable mistake of fact, or that the defendant took reasonable precautions
to avoid the event leading to imposition of the penalty. In Résidences
Majeau, Justice Létourneau explained:
8 According
to Corporation de l’école polytechnique v. Canada, 2004 FCA 127, a
defendant may rely on a defence of due diligence if either of the following can
be established: that the defendant made a reasonable mistake of fact, or that
the defendant took reasonable precautions to avoid the event leading to
imposition of the penalty.
9 A
reasonable mistake of fact requires a twofold test: subjective and objective.
The subjective test is met if the defendant establishes that he or she was
mistaken as to a factual situation which, if it had existed, would have made
his or her act or omission innocent. In addition, for this aspect of the
defence to be effective, the mistake must be reasonable, i.e. a mistake a
reasonable person in the same circumstances would have made. This is the
objective test.
[10]
Mr. Paquette has never prepared
an income tax return. When he was nine years old, the school authorities
noticed that he was having problems with reading and mathematics. Although he
completed grade 12, it was in a program for students with learning disabilities.
As he felt that he was not competent to prepare his income tax returns, the
appellant relied on other people to do so. Since 2008, his father has prepared
and filed his tax returns.
[11]
Crown counsel
maintained that Mr. Payette knew that his 2008 tax return had been
prepared without including a substantial amount of income, $18,941, but had
done nothing to correct the situation before he received the notice of
reassessment that included the $18,941 in his income.
[12]
The appellant testified
that he had tried to obtain the T4 slip. He stated that he asked his former
landlord if he had received it. Before moving, he had completed a change of
address form for Greyhound. In the end, he never received the T4 slip or the
notice of assessment. Following the instructions in the 2008 Income Tax Guide,
he waited to receive a notice of assessment. What he actually received was a notice
of reassessment.
[13]
Greyhound had deducted
tax on the $18,941 paid to Mr. Paquette in 2008 and remitted this tax
to the CRA. Mr. Paquette and his father knew that the amount of tax had been
paid to the CRA.
[14]
There is no doubt that
Mr. Bédard could have done something to avoid the imposition of the
penalty. For example, he could have been more active and informed the CRA of
his son’s new address and of the omission of the income. Mr. Bédard was
responsible for his son's financial affairs, particularly with respect to taxation.
[15]
Mr. Paquette's income
tax return was filed electronically. Mr. Bédard reiterated that his son
never received a notice of assessment for 2008. The Court can only presume that
the notice was sent to his old address. The 2008 Guide advises taxpayers who
wish to amend their income tax return to wait to receive a notice of assessment
before making any changes. Neither Mr. Bédard nor the taxpayer received a
notice of assessment. Mr. Bédard contacted the CRA only after receiving a
notice of reassessment. Mr. Bédard stated that he was not worried because Greyhound
had deducted tax from Mr. Paquette’s salary.
[16]
The father claimed that
he had followed the suggested procedure for when a T4 slip is missing. At the
hearing, he acknowledged that he had committed errors in managing his son's
income tax return, but stated that his son should not be penalized for these
errors. Mr. Bédard never thought that his decisions would have such consequences.
ANALYSIS
[17]
Subsection 163(3) of
the Act provides that the burden of establishing the facts justifying the
assessment of the penalty is on the Minister. Nevertheless, it is up to the
taxpayer to prove due diligence. Thus, the taxpayer must present evidence that
demonstrates that, when preparing the return, he or she used the required
diligence or committed a reasonable mistake of fact.
[18]
The context of this
case is specific. These are two persons with different abilities, the appellant
and his father. The actions of the father and his son must be considered
separately since the penalty is applied to punish the negligent actions of the
taxpayer, specifically the failure to declare income for two years. Thus, it is
evidence of due diligence on his part and not that of his father that would
enable Mr. Paquette to avoid the penalty.
[19]
In this respect Dunlop, presents similar
facts to those in this appeal. Mr. Dunlop was a university student who
worked part-time in 2005 and 2006. Mr. Dunlop failed to report income for
2005 because he had not received his T4 slip. He did not receive a T4 for 2006
either. Thus, he went to the store where he worked to try to obtain his T4
slip, without success. When he was at university, Mr. Dunlop had a
temporary address; also his parents had moved in 2007. Mr. Dunlop’s father
prepared his son's 2006 income tax return. The father wrote an estimate of the
employment income on the return. Apparently, the estimate was accurate to
within $1000. In determining whether Mr. Dunlop had shown due diligence,
Justice Boyle looked at what the CRA advises taxpayers to do when they are
missing a T4 slip.
[20]
In Dunlop, my
colleague referred to the 2006 Income Tax Guide. Under the heading “What if you are missing information? ”, it is written:
If you have to file a return for 2006, as explained on
page 7, make sure you file it on time (see page 7) even if some slips or
receipts are missing. If you know that you will not be able to get a slip by
the due date, attach to your paper return a note stating the payer’s name and
address, the type of income involved, and what you are doing to get the slip.
To calculate the income to report, and any related deductions and credits you
can claim, use any stubs you may have, and attach them to your paper return. If
you are filing electronically, keep all of your documents in case we ask to see
them.
[21]
Under the heading “How do you change a return?”, it is written:
If you need to make a change to any return you have sent
us, do not file another return for that year. You should wait until you
receive your Notice of Assessment before requesting any change to a
return that has not been processed. ...
[22]
The 2008 Guide that Mr.
Bedard consulted has the same information. Moreover, there are special
circumstances in this appeal.
[23]
I would allow the
appeal. Mr. Paquette is not very educated. He knows his limits and this is why
he asked his father to prepare and file his income tax returns. His father, Mr.
Bédard, followed the instructions of the 2008 Income Tax Guide. Certainly, Mr. Bédard
or Mr. Paquette could have made greater efforts to obtain the T4 slip and
the notice of assessment. Considering the particular circumstances and fact situation,
however, the appeal should be allowed.
[24]
The appeal is allowed.
Signed at Ottawa, Canada, this 18th day of April 2011.
“Gerald J. Rip”
Translation
certified true
On this 30th day of
May 2011
Monica F.
Chamberlain, Reviser
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