Citation: 2011 TCC 75
Date: 20110210
Docket: 2009-3400(IT)I
BETWEEN:
NADYNE BROCHU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau, J.
[1]
These are appeals from
reassessments dated March 26, 2009, made under the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.), as amended (the Act) in respect of the
2001, 2004 and 2006 taxation years.
[2]
In making these reassessments,
the Minister of National Revenue (the Minister) disallowed the following
deductions, credits and losses claimed by the appellant:
(a)
For the 2001 taxation
year,
(i) a business loss
of $3,600, that is, a total of $7,200 x 50% (appellant's percentage
interest in a general partnership) resulting from a rent expense of $6,000 and
telephone, heating, electricity and other public utility expenses of $1,200;
(ii) a $1,000 reduction in
employment income; and
(iii)
a spouse or common-law
partner amount of $6,293.
(b)
For the 2004 taxation
year, a deduction of $1,398 for child care expenses;
(c)
For the 2006 taxation
year, a business loss of $20,127.32 resulting from a deduction of $2,127.32 for
motor vehicle expenses and from a deduction of $18,000 for a private management
fee claimed at 100%.
[3]
The Minister imposed a
penalty under subsection 163(2) of the Act on the amounts of $4,600 and $20,127
for the 2001 and 2006 taxation years respectively, namely, $354.98 for 2001 and
$2,529.34 for 2006.
[4]
The reassessments for
the 2001 and 2004 taxation years were issued outside the normal reassessment
period.
[5]
In making the
reassessments dated March 26, 2009, in respect of the 2001, 2004 and
2006 taxation years, the Minister relied on the following assumptions of
fact stated in paragraph 7 of the Reply to the Notice of Appeal:
[Translation]
(a) In her original returns for the 2001 and 2006
taxation years, the appellant reported no business activity; [admitted]
(b) In her original return for the 2001 taxation
year, the appellant correctly reported her employment income; [admitted]
(c) In her amended return for the 2001 taxation year,
the appellant tried to claim $3,600 in business losses and a $1,000 reduction
in employment income; [admitted]
(d) In her amended return for the 2001 taxation year,
the appellant also tried to claim the spouse or common-law partner amount; [admitted]
(e) In her original return for the 2004 taxation
year, the appellant claimed a credit for a wholly dependent person and child
care expenses; [admitted]
(f) In an adjustment request for the 2006 taxation
year, the appellant tried to claim a business loss of $20,127; [admitted]
(g) The appellant confirmed that she had never
operated a business; [admitted]
(h) The appellant had no spouse in the 2001 taxation
year; [admitted]
(i) The Minister denied the appellant's adjustments
for 2001 and 2006; [admitted]
(j) The appellant had a common-law partner in the
2004 taxation year; [admitted]
(k) The appellant's common-law partner had the
lower net income for the 2004 taxation year; [admitted]
[6]
The Minister imposed a
penalty for gross negligence set out in subsection 163(2) based on the
following facts:
(a) The appellant had signed her amended tax return as
well as her adjustment request.
(b)
The appellant knowingly
made false statements by claiming business losses that did not exist in 2001
and 2006.
(c)
The appellant knowingly
made false statements by claiming child care expenses in 2004.
[7]
The appellant testified
at the hearing. She stated that she had been a victim of an unscrupulous
accountant named Guylaine Tremblay, who did the accounting for the founder of
the self-employed workers association. According to the appellant, the
accountant reviewed her tax returns saying that they had not been correctly
prepared. The accountant prepared an amended income tax and benefit return in
respect of the 2001 taxation year and a T1 adjustment request for the
2006 taxation year. The appellant acknowledged that she had signed the
amended income tax and benefit return for 2001 and the T1 adjustment request
for 2006, trusting the accountant's statements that everything was fine and
that she had verified the credits to which every Canadian citizen was entitled.
The appellant, who has a bachelor's degree in communication from Université Laval,
acknowledged that a percentage of the tax refund had to be given to the
accountant as a fee for reviewing the files.
[8]
The appellant
acknowledged that she had been naive when she trusted the accountant's words,
but she stated that she did not have bad intentions and that she had never
wanted to make false statements or to defraud the system.
Analysis and conclusion
[9]
The relevant provisions
of the Act concerning the normal reassessment period are set out in
paragraphs 152(3.1)(a) and (b), subparagraphs 152(4)(a)(i)
and 152(4.01)(a)(i) and subsection 152(4.2). These provisions
read as follows:
152(3.1) Definition of "normal reassessment period" – For the purposes of subsections (4), (4.01), (4.2), (4.3), (5) and
(9), the normal reassessment period for a taxpayer in respect of a taxation
year is
(a) if at the end of the year the taxpayer is
a mutual fund trust or a corporation other than a Canadian-controlled private
corporation, the period that ends four years after the earlier of the day of
sending of a notice of an original assessment under this Part in respect of the
taxpayer for the year and the day of sending of an original notification that
no tax is payable by the taxpayer for the year; and
(b) in any other case, the period that ends
three years after the earlier of the day of sending of a notice of an original
assessment under this Part in respect of the taxpayer for the year and the day
of sending of an original notification that no tax is payable by the taxpayer
for the year.
. . .
152(4) Assessment and reassessment [limitation period] – The Minister may at any time make an assessment, reassessment or
additional assessment of tax for a taxation year, interest or penalties, if
any, payable under this Part by a taxpayer or notify in writing any person by
whom a return of income for a taxation year has been filed that no tax is
payable for the year, except that an assessment, reassessment or additional
assessment may be made after the taxpayer’s normal reassessment period in
respect of the year only if
(a) the taxpayer or person filing the return
(i) has made any misrepresentation that is
attributable to neglect, carelessness or wilful default or has committed any
fraud in filing the return or in supplying any information under this Act, or
. .
.
(4.01) Assessment to which paragraph 152(4)(a),
(b) or (c) applies – Notwithstanding
subsections (4) and (5), an assessment, reassessment or additional assessment
to which paragraph (4)(a), (b) or (c) applies in respect
of a taxpayer for a taxation year may be made after the taxpayer’s normal
reassessment period in respect of the year to the extent that, but only to the
extent that, it can reasonably be regarded as relating to,
(a) where paragraph 152(4)(a) applies to the assessment,
reassessment or additional assessment,
(i) any misrepresentation made by the taxpayer or a
person who filed the taxpayer’s return of income for the year that is
attributable to neglect, carelessness or wilful default or any fraud committed
by the taxpayer or that person in filing the return or supplying any
information under this Act, or
. .
.
(4.2) Reassessment with taxpayer’s consent – Notwithstanding subsections (4), (4.1) and (5), for the purpose of
determining, at any time after the end of the normal reassessment period of a
taxpayer who is an individual (other than a trust) or a testamentary trust in
respect of a taxation year, the amount of any refund to which the taxpayer is
entitled at that time for the year, or a reduction of an amount payable under
this Part by the taxpayer for the year, the Minister may, if the taxpayer makes
an application for that determination on or before the day that is ten calendar
years after the end of that taxation year,
(a) reassess tax, interest or penalties
payable under this Part by the taxpayer in respect of that year; and
(b) redetermine the amount, if any, deemed by
subsection 120(2) or (2.2), 122.5(3), 122.51(2), 122.7(2) or (3), 127.1(1),
127.41(3) or 210.2(3) or (4) to be paid on account of the taxpayer’s tax
payable under this Part for the year or deemed by subsection 122.61(1) to be an
overpayment on account of the taxpayer’s liability under this Part for the
year.
[10]
From these provisions,
it is evident that
(a)
The normal reassessment
period for an individual is three years after the day of sending of a notice of
an original assessment;
(b)
The Minister can make
an assessment at any time if the taxpayer or person filing the return made any
misrepresentation that is attributable to neglect, carelessness or wilful
default;
(c)
At any time after the
end of the normal reassessment period, the Minister may reassess tax, interest
or penalties, if any, payable by a taxpayer in respect of a taxation year if
the taxpayer makes an application to do so on or before the day that is ten
calendar years after the end of that taxation year.
[11]
In the case at bar, the
appellant's 2001 taxation year was outside the normal reassessment period,
but, by filing an amended income tax and benefit return in respect of that year
on July 10, 2007, the appellant sought to reopen the year. Under those
circumstances, the Minister was justified in issuing a reassessment for the
year in question.
[12]
Given the appellant's
admissions in regard to the 2001 taxation year to the effect that she had not
operated a business, that her employment income had been correctly reported in
her original tax return and that she had had no spouse, the Minister was
justified in disallowing the deduction claimed as a self-employed worker, the
business loss of $3,600, the $1,000 reduction in employment income and the
amount of $6,293 claimed as a spouse or common-law partner amount.
[13]
In making a
reassessment for the 2001 taxation year, the Minister imposed a penalty set out
in subsection 163(2) of the Act, which provides for a penalty for every
person who, 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 in respect of a taxation year. The part of
subsection 163(2) preceding the conditions for determining the penalty
reads as follows:
163(2) False statements or omissions – Every 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, is liable to a penalty of the greater of $100 and
50% of the total of
. . .
[14]
The burden of
establishing the facts justifying the assessment of a penalty is on the
Minister, not the taxpayer. To that end, subsection 163(3) stipulates the
following:
163(3) Burden of proof in respect of penalties
Where, in an appeal under this Act, a penalty assessed by the
Minister under this section or section 163.2 is in issue, the burden of
establishing the facts justifying the assessment of the penalty is on the
Minister.
[15]
At paragraph 10 of Venne
v. Canada, [1984] F.C.J. No. 314 (F.C.T.D.), Justice Strayer defines
the concept of "gross negligence" as follows:
. . . "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.
. . .
[16]
In Villeneuve v.
Canada, 2004 FCA 20, the Federal Court of Appeal specified that "gross
negligence" could include wilful blindness. Thus, knowing about the specialist's
negligence is not required. In this regard, Justice Létourneau stated the
following at paragraph 6 of that decision:
With respect, I think the judge failed to
consider the concept of gross negligence that may result from the wrongdoer's
willful blindness. Even a wrongful intent, which often takes the form of
knowledge of one or more of the ingredients of the alleged act, may be
established through proof of willful blindness. In such cases the wrongdoer,
while he may not have actual knowledge of the alleged ingredient, will be
deemed to have that knowledge.
[17]
In cross-examination,
the appellant explained that she had prepared her original return for 2001
herself and that she had correctly reported her employment income. After
claiming that she was a [Translation]
"word girl" and not a [Translation]
"numbers girl", she said that, when she had signed her tax return,
she had not tried to get information from another accountant or another person
with accounting knowledge in regard to the content of her return because she
had trusted Ms. Tremblay.
[18]
As for the business
losses, Ms. Brochu indicated that she did not understand the words
"business income" and had simply trusted Ms. Tremblay.
[19]
The appellant also
claimed that she was not indifferent to whether she complied with the Act, but
that she had been naive and did not understand the errors. The Minister's
counsel claimed that the appellant had committed gross negligence in carrying
out her obligations under the Act because she had been wilfully blind.
[20]
Since Villeneuve,
the issue is no longer confined to determining whether a taxpayer was aware of
the specialist's negligence and whether he or she was indifferent, but also
includes cases where the taxpayer blindly trusts the person preparing the
return. In this case, even though the appellant had no intentional and
deliberate knowledge of Ms. Tremblay's errors, she was still wilfully
blind.
[21]
Examining the factors
stated in Venne, supra, I have no doubt that the appellant should
have paid more attention to the returns filed by Ms. Tremblay. Moreover,
the errors were evident because she claimed credits to which she was not
entitled. The following excerpt from paragraph 15 of Justice Bédard's
decision in Ghislain Laplante v. The Queen, 2008 TCC 335 (CanLII), also
applies to this case:
In any event, the Court finds that the
Appellant's negligence (in not looking at his income tax returns at all prior
to signing them) was serious enough to justify the use of the somewhat
pejorative epithet "gross". The Appellant's attitude was cavalier
enough in this case to be tantamount to total indifference as to whether the
law was complied with or not. Did the Appellant not admit that, had he looked
at his income tax returns prior to signing them, he would have been bound to
notice the many false statements they contained, statements allegedly made by
Mr. Cloutier? The Appellant cannot avoid liability in this case by
pointing the finger at his accountant. By attempting to shield himself in this
way from any liability for his income tax returns, the Appellant is recklessly
abandoning his responsibilities, duties and obligations under the Act. In this
case, the Appellant had an obligation under the Act to at least quickly look at
his income tax returns before signing them, especially since he himself
admitted that, had he done so, he would have seen the false statements made by
his accountant.
[22]
The appellant testified
that she had quickly leafed through the return but that she did not understand
the words "business income" and "credit". Considering her
education level and the fact that she had prepared her original return for the
2001 taxation year herself, it is difficult to believe that the appellant
did not understand those words. If it is true that she did not understand them,
she cannot use that as an excuse to avoid her liability. She should have tried
to understand by asking Ms. Tremblay questions or by getting information
from others in order to ensure that her income and expenses were properly
accounted. For some reason, she did not think it necessary to get informed, and
it is that carelessness which constitutes gross negligence, in my opinion. The
penalty is thus justified under the circumstances.
[23]
The reassessment dated
March 26, 2009, in respect of the 2004 taxation year was also made outside
of the normal reassessment period since the original assessment was dated
April 7, 2005. In that reassessment, the Minister disallowed a $1,398
deduction for child care expenses because the appellant had a common-law partner
at that time and that partner had the lower net income of the two. Since the
appellant admitted those facts, the Minister was justified in making a
reassessment outside of the normal reassessment period. The appellant made a
misrepresentation through neglect,
carelessness or wilful default
when she filed her tax return. For the 2004 taxation year, the Minister did not
impose a penalty for gross negligence.
[24]
The reassessment dated
March 26, 2009, in respect of the 2006 taxation year followed up
on an adjustment request filed by the appellant but was not outside the normal
reassessment period. The Minister disallowed the deductions claimed and the
business loss and imposed the penalty for gross negligence.
[25]
The above reasoning
concerning the assessment of a penalty for gross negligence in respect of the
2001 taxation year also applies to the 2006 taxation year in that the
Minister was justified in assessing the penalty set out in
subsection 163(2) of the Act.
[26]
For these reasons, the
appeals are dismissed.
Signed at Ottawa, Canada, this 9th day of February
2011.
"Réal Favreau"
on this 31st day
of March 2011
Margarita
Gorbounova, Translator
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