Citation: 2010 TCC 245
Date: 20100505
Docket: 2007-4191(IT)G
BETWEEN:
JEAN BENOIT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
The only issue in this
case is whether the Minister of National Revenue (the Minister) was correct in
imposing a penalty of $27,034 under subsection 163(2) of the Income Tax Act (the
Act) for the 2003 taxation year in respect of taxable dividends of $470,032,
which the appellant failed to report.
Background
[2]
On
April 26, 2004, the appellant signed his income tax return for the
2003 taxation year. The appellant reported no income in his income tax
return for the 2003 taxation year. Louise Benoit, the appellant's sister, died
on January 26, 2002. The appellant, as well as his mother, Étiennette
Benoit, his brother Luc Benoit, and his niece Chantal Benoit, inherited the
shares held by Louise Benoit in the company Marc Benoit inc. (the company). The
appellant held preferred shares in the company. At the request of the
succession of Louise Benoit (the succession), the company redeemed the 33
common shares held by Louise Benoit for a consideration of a demand note for
$1,514,616. As a result of that transaction, the succession received a deemed
dividend and decided not to pay tax on the deemed dividend but to transfer it
to the four heirs. The appellant (as well as the other three heirs)
received from the succession, as a dividend payment, 55 class-2 common shares newly
purchased from the company as well as a demand note, for a total value of
$376,025. The succession provided each heir with a T3 slip containing the
following information:
|
(i) Real dividends:
|
$376,025
|
|
(ii) Taxable dividends:
|
$470,032
|
|
(iii) Federal dividend tax credit:
|
$62,670
|
The appellant received the T3 slip and knew that a
copy of it had been sent to the Minister. The other heirs reported their
taxable dividends in their income tax returns for the 2003 taxation year.
Luc Benoit, who acted as the liquidator of the succession, and the chartered
accountants for the succession oversaw the various steps that led to
attributing the taxable dividends to the heirs and issuing the T3 slips.
[3]
The appellant's
testimony is as follows:
a.
On
October 9, 2003, the heirs attended a meeting called by the
accountants and liquidator of the succession. The agenda for that meeting (the
agenda) was provided to them. Among other things, the agenda outlined all the
steps taken by the succession and the heirs in order for the dividend resulting
from the company's redeeming its shares held by the succession to be taxable in
the hands of the heirs rather than of the succession. The appellant explained
that he had received the T3 slip at the meeting, but that he did not understand
the accountants' explanations that he had to report the amount shown on the T3
slip that he had received.
b.
After he had read his
sister's will, consulted the tax guide (section on other income) and spoken
with information officers from the Canada Customs and Revenue Agency (the
Agency), the appellant concluded that the T3 slip had been issued by mistake.
In fact, the information obtained from the guide and from the information
officers indicated that he did not need to report the property that was transferred
to him by the succession. I note that the appellant was unable to name the
Agency's information officers with whom he had spoken or to indicate when he
had spoken with them. I also note that the appellant admitted that he had not
told the Agency's information officers that he had received a T3 slip. I would
add that the appellant (though convinced that the slip was issued by mistake)
also admitted that he had never brought the error to the attention of the
succession's accountants or its liquidator, the Agency or his co-heirs or tried
to correct it.
c.
The appellant has a
bachelor's degree in industrial relations.
d.
He owned a company of
75 employees for 10 years.
e.
He received taxable
dividends from Canadian companies several times, and as a result, received the
tax slips related to them.
Analysis and conclusion
[4]
Subsection 163(2) of
the Act imposes a penalty on 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 filed or made in respect of a taxation year. More specifically, the part
of subsection 163(2) of the Act that sets out how penalties are calculated
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 . . . .
Pursuant to subsection 163(3) of the Act, the burden
of establishing the facts justifying the assessment of the penalty is on the
Minister, not the taxpayer. Subsection 163(3) of the Act reads as follows:
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.
[5]
As Justice Dussault
stated in Prud’homme v. Canada, 2005 TCC 423, at paragraph 47,
. . . the facts on which the imposition of a penalty for
gross negligence under subsection 163(2) of the Act is based must be analysed
having regard to their particular context, which means that drawing a
comparison with the facts of another situation would be a purely random
exercise, if not patently dangerous.
[6]
The concept of
"gross negligence" accepted in the case law had been defined by
Justice Strayer in Venne v. The Queen, [1984] F.C.J. No. 314 (F.C.T.D):
. . . "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. . . .
[7]
In DaCosta v. Canada,
2005 TCC 545, Chief Justice Bowman referred to the decision in Udell v.
M.N.R., [1970] Ex.C.R. 176 (Ex. Ct.), and two
decisions by Judge Rip (as he then was) and made the following comments:
9 I have no difficulty in reconciling the decision of
Cattanach J. with those of Rip J. They each depend on a finding of
fact by the court with respect to the degree of involvement of the taxpayers.
The question in every case is, leaving aside the question of wilfulness, which
is not suggested here,
a.
"was the taxpayer negligent in making a
misstatement or omission in the return?" and
b.
"was the negligence so great as to justify
the use of the somewhat pejorative epithet 'gross'?"
This is, I believe, consistent with the principle enunciated by
Strayer J. in Venne v. The Queen, 84 DTC 6247.
. . .
11 In drawing the line between "ordinary" negligence or
neglect and "gross" negligence a number of factors have to be
considered. One of course is the magnitude of the omission in relation to the
income declared. Another is the opportunity the taxpayer had to detect the
error. Another is the taxpayer's education and apparent intelligence. No single
factor predominates. Each must be assigned its proper weight in the context of
the overall picture that emerges from the evidence.
12 What do we have here? A highly intelligent man who declares
$30,000.00 in employment income and fails to declare gross sales of about
$134,000.00 and net profits of $54,000.00. While of course his accountant must
bear some responsibility I do not think it can be said that the appellant can
nonchalantly sign his return and turn a blind eye to the omission of an amount
that is almost twice as much as that which he declared. So cavalier an attitude
goes beyond simple carelessness.
[8]
The Federal Court of
Appeal further specified in Villeneuve v. Canada, 2004 FCA 20, that the
expression "gross negligence" could encompass wilful blindness in
addition to the intentional action and wrongful intent. In that decision,
Justice Létourneau made the following comments in that regard at paragraph 6:
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.
[9]
In my opinion, the
appellant committed gross negligence because he was wilfully blind in this
case. The appellant in this case is an intelligent and very educated
businessman. In addition, the appellant had received T3 slips several times and
reported the dividends indicated on those slips. The appellant maintains that
he did not report the taxable dividends in his tax return for the 2003 taxation
year because the research he had allegedly done and his communications with the
Agency's representatives had led him to conclude that he did not need to report
the property he had received from the succession and that therefore the T3 slip
had been issued by mistake. The fact that the appellant never indicated to the
Agency representatives (with whom he had spoken) that he had received a T3
slip; that he had never pointed out to the accountants, to the liquidator of
the succession or to his co-heirs that, to his knowledge, the slip was issued
by mistake; and especially that he had never asked those people or the Agency
representatives what he had to do to correct that mistake are indicia of wilful
blindness, if not deliberate conduct amounting to gross negligence. In fact,
given that the appellant is an informed and educated businessman, it is more
likely that he had deliberately omitted to ask all of these people the right
questions.
[10]
For all these reasons,
the appeal is dismissed with costs.
Signed at Ottawa, Canada, this 5th day of May 2010.
"Paul Bédard"
on this 20th day
of July 2010
François Brunet,
Revisor
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