Citation: 2010TCC251
Date: 20100506
Docket: 2009-3558(IT)I
BETWEEN:
JENNIFER D. PORTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1]
The issue in this
appeal is whether the Appellant can rely on a defence of due diligence in
relation to a penalty that was imposed pursuant to subsection 163(1) of the Income
Tax Act in relation to $16,807 of employment income that the Appellant
failed to include in her tax return that she filed for 2007. This subsection
provides as follows:
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.
[2]
The penalty under
subsection 163(1) of the Income Tax Act is imposed on a person who fails
to report, in that person’s tax return that was filed for a particular year, an
amount of income that should have been included in that person’s tax return and
also failed to report in a tax return that was filed for any one of the three
preceding taxation years an amount of income that should have been included in
that tax return. It seems to me that the words “in a return filed under section
150” mean that the conditions for the imposition of the penalty will be met
(subject to a possible due diligence defence) if an amount of income is not
included in a tax return filed by a taxpayer. Therefore it would not be
sufficient for a taxpayer who is an employee and who fails to report an amount
of employment income in his or tax return to simply state that an amount of employment
income was reported by his or her employer when the employer filed T4 slips.
When the employer files the T4 slips, the amount is reported by the employer
not by the employee. The penalty is imposed upon the person who failed to
report the amount of income in their tax return, who would be the employee in
this case.
[3]
It must be remembered
that an individual’s income is also used to determine his or her eligibility
for the Goods and Services Tax Credit and the amount of such credit that will
be paid to such person as well as other amounts that a person may be entitled to
receive (for example, if applicable, the Child Tax Benefit). In a self
assessing system it is important that each person report all of their income.
As noted by Justice Woods in Saunders v. The Queen, 2006 TCC 51,
2006 D.T.C. 2267, [2006] 2 C.T.C. 2255:
15. …Parliament has enacted subsection 163(1) to ensure the
integrity of Canada's
self-reporting system.
[4]
The penalty is imposed
if a person has failed to report an amount of income in that person’s tax
return that was filed for a particular year and also failed to report an amount
of income in any of the tax returns that were filed for the three preceding
taxation years. Therefore there must be more than one time in four years when a
person failed to report an amount of income.
[5]
In this case the two
years in which the Appellant did not include an amount of income in her returns
that she filed are 2006 and 2007 and there is no dispute in this case that the
Appellant failed to report some of her employment income in her tax return that
was filed for 2006 and $16,807 of employment income in her tax return that was
filed for 2007.
[6]
The amounts that had
been omitted from the Appellant’s 2006 tax return but which were amounts shown
on T4 slips issued to the Appellant (based on the Canada Revenue Agency’s
records) are the following:
Silverbirch No. 4
Operations Limited $283.92
501874 Alberta
Ltd. $75.40
819887 Ontario
Inc. $4,405.00
Total: $4,764.32
[7]
In her Notice of Appeal
the Appellant stated that she had no knowledge of ever being employed by these
companies in 2006. During the hearing, counsel for the Crown introduced
documents that showed that 819887 Ontario Inc. was carrying on business as
Warren Youth Services and the Appellant acknowledged that she worked for Warren
Youth Services. Therefore it seems clear that there was at least $4,405 (which
is the amount shown on the T4 slip issued by Warren Youth Services to the
Appellant for 2006) of employment income that the Appellant earned in 2006 that
was not included in her tax return for 2006. This is a significant amount of
income for the Appellant. There were five T4 slips issued to the Appellant for
2006 according to the Canada Revenue Agency’s records. These were the following:
WestJet $6,434.29
1202232 Alberta
Ltd. $8,847.00
Silverbirch No. 4
Operations Limited $283.92
501874 Alberta
Ltd. $75.40
819887 Ontario
Inc. $4,405.00
Total: $20,045.61
[8]
The $4,405 which is the
amount shown on the T4 slip issued by Warren Youth Services (819887 Ontario
Inc.) was 22% of her total income for 2006 based on these T4 slips and 29% of
her reported income from employment for 2006. In filing her return for 2006 the
Appellant reported income from employment of $15,281.58.
[9]
In 2007 the Appellant
worked for WestJet for the entire year. For part of the year she worked in the
call centre and for the rest of the year she worked as a flight attendant.
WestJet issued two T4 slips for 2007 – one for $8,560.09 and another one for
$16,816.36. In filing her tax return for 2007, the Appellant reported
employment income of $20,343.70 which was $9.26 more than the amounts as shown
on the T4 slips that were included with her return. The T4 slips that were
included with her return were the following:
WestJet $8,560.09
Government of the Province of Alberta $9,526.35
Central Alberta’s Safe Harbour Society $2,248.00
Total: $20,334.44
[10]
The second T4 slip
issued by WestJet for $16,816.36 was not included with her tax return and the
amount of income as shown on this T4 slip was not included in her income as
reported for 2007. However since she had reported $9.26 more in employment
income than was disclosed on the above T4 slips, the unreported income amount
was $16,816.36 - $9.26 = $16,807.10.
[11]
The only explanation
provided by the Appellant for the failure to include the unreported employment
income amounts in her tax returns was that she did not prepare her tax returns.
The Appellant’s mother prepared her tax returns. When the Appellant received
the T4 slips she did not open the envelope and simply put the T4 slips in
another envelope and sent them to her mother. Her mother did not question her
income and the Appellant did not review her tax returns. The amount that she
failed to report in 2007 was significant. Her only reported income for 2007 was
the income from employment which she reported as $20,343.70. The unreported
amount of $16,807 was 83% of the amount she reported and 45% of her total
income for 2007 of $37,151.
[12]
In Saunders, supra,
Justice Woods stated that:
12 The penalty in subsection 163(1) is
one of strict liability, although this Court has held that it can be vacated if
the taxpayer can establish due diligence.
[13]
Justice Boyle in Dunlop
v. The Queen, 2009 TCC 177, 2009 D.T.C. 650, [2009] 6 C.T.C. 2223 reiterated
that the penalty will not apply if the taxpayer “can demonstrate he exercised a
requisite degree of due diligence”.
[14]
In the recent decision
of the Federal Court of Appeal in Les
Résidences Majeau Inc. v. The Queen, 2010 FCA 28, Justice Létourneau,
on behalf of the Federal Court of Appeal, stated as follows:
7 As far
as the penalty is concerned, we are satisfied that the judge did not make any
mistake in upholding it. To avoid this penalty, the appellant had to establish
that it was duly diligent.
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 As
already stated, the second aspect of the defence requires that all reasonable
precautions or measures be taken to avoid the event leading to imposition of
the penalty.
[15]
Although the penalty in
issue is not identified in the decision of the Federal Court of Appeal, it
appears from the decision
which was appealed to the Federal Court of Appeal that the penalty in issue is
the penalty that was, prior to April 1, 2007, imposed under section 280 of the Excise
Tax Act. The imposition of this penalty was also subject to the due
diligence defence (see Pillar Oilfield Projects Ltd. v. The Queen,
[1993] G.S.T.C. 49).
[16]
There is no reasonable
mistake of fact in this case. The Appellant can hardly be found to have made a
reasonable mistake of fact that all of her employment income from WestJet was
reported on the one T4 slip that she sent to her mother when she did not even
open the envelope in which she received the T4 slip or review her tax return.
Likewise the Appellant cannot establish that she took reasonable precautions to
avoid the event that led to the imposition of the penalty. The events that led
to the imposition of the penalty were the failure of the Appellant to include
income in her tax returns for 2006 and 2007. The failure of the Appellant to
open the envelopes in which her T4 slips were sent to her or review her tax
returns demonstrates that she did not take any reasonable precautions to avoid
the failure to include the unreported amounts in her tax returns.
[17]
As a result the appeal
is dismissed without costs.
Signed at Toronto, Ontario, this 6th day of May, 2010.
“Wyman W. Webb”
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