Citation: 2009 TCC 148
Date: 20090312
Docket: 2008-3041(IT)I
BETWEEN:
JOHN SHERRICK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] In this appeal, John Sherrick disputes the imposition
of a late-filing penalty under subsection 162(1) the Income Tax Act. A
penalty in the amount of $584.97 was assessed for the 2006 taxation year.
[2] The question to be decided is a simple one: Was the
2006 income tax return filed by the deadline, which was June 15, 2007?
[3] The appellant is a commissioned real estate broker who
is required to file income tax returns by June 15 of each year.
[4] The Minister’s conclusion that the income tax return
was not filed on time appears to have been based on an envelope postmarked by
Canada Post on June 19, 2007, and a Canada Revenue Agency (CRA)
receipt stamp dated June 22, 2007 which was affixed to the income tax
return.
[5] The appellant did not file the income tax return
himself. This was attended to on his behalf by Taxperts Corp., a corporation
that specializes in tax return preparation.
[6] A lawyer who is the principal of Taxperts testified
that in his view it is most likely that the income tax return was personally
delivered to a CRA office in Toronto on the afternoon of the filing deadline. He further
speculated that the envelope on which the CRA were relying contained other
correspondence related to the appellant’s business, such as non-resident real
estate forms.
[7] Subsection 162(1) provides:
162. (1) Failure to file return of income. Every person who fails to file
a return of income for a taxation year as and when required by subsection
150(1) is liable to a penalty equal to the total of
(a) an
amount equal to 5% of the person’s tax payable under this Part for the year
that was unpaid when the return was required to be filed, and
(b) the
product obtained when 1% of the person’s tax payable under this Part for the
year that was unpaid when the return was required to be filed is multiplied by
the number of complete months, not exceeding 12, from the date on which the
return was required to be filed to the date on which the return was filed.
[8] For purposes of this appeal, it is necessary to decide
which party’s position is more likely based on the evidence as a whole. If the
appellant’s submissions are accepted, then the income tax return was filed on
time. On the other hand, if the Minister’s assumptions are accepted, then the
income tax return missed the filing deadline by a few days and the assessment
is correct. The strict wording of subsection 162(1) does not allow for a
grace period.
[9] After reviewing the evidence, I have concluded that the
Minister’s position is more consistent with the evidence as a whole.
The appellant’s position
[10] For several years, the appellant has used the tax
preparation services of Taxpert Corp., and in particular the services of the
principal of the corporation, William Howse. Mr. Howse is a barrister and
solicitor.
[11] The appellant testified that he came into Mr. Howse’s
office on June 15, 2007 to execute the income tax return. He signed
it, put it in an envelope, and left the envelope to be filed by Taxperts. While
the appellant was at the office, he stated that he remembers having a brief
chat with Mr. Howse and a real estate colleague who was there for the same
reason.
[12] Mr. Howse also testified. The main part of his
testimony was in describing the procedures that are used by Taxperts to file
returns but Mr. Howse also stated that he recollected having a chat with the
appellant and one of his real estate colleagues on the day of the filing
deadline.
[13] Mr. Howse described in significant detail the
procedures that Taxperts follows in order to timely file the hundreds of tax
returns that are processed so that late-filing penalties are avoided.
[14] According to his testimony, it is the usual practice
for the office manager to keep a list of tax returns that are ready to be
delivered to the CRA on June 15. Although the office manager did not testify,
his list for the 2006 taxation year was entered into evidence. The appellant’s
name was on the list, which suggests, according to Mr. Howse’s testimony, that
the income tax return was likely delivered late in the afternoon on the day of
the filing deadline.
[15] Mr. Howse also testified that, although a few of
Taxperts’s clients have been assessed late‑filing penalties, all previous
assessments have been reversed by the CRA except for this one.
The Minister’s position
[16] The Minister’s case depends on two things, an envelope
and a receipt stamp on the income tax return.
[17] Counsel for the Minister stated that she received the
envelope stapled to the income tax return. Colour-coded copies of the envelope
were provided for the Court.
[18] The envelope has the following details: (1) it is
addressed to the International Tax Services Office in Ottawa, (2) it contains
the appellant’s name, hand-written by Mr. Howse, below the meter stamp, (3) it
contains Taxpert’s postal meter stamp dated June 15, 2006 (one year earlier),
and (4) it contains a Canada Post postmark dated “07 06 19.”
[19] Counsel also introduced the execution page of the
appellant’s tax return. It bore two stamps. The first states: “NCR Mailroom,
#5, Jun 22, 2007.” It is not in dispute that “NCR” refers to the National
Capital Region. The second stamp is also dated June 22, 2007 and contains the
following: “Recu, Agence du Revnu Canada, June 22, 2007, ITSO Penalty.”
[20] The reference on the penalty stamp to “ITSO” was not
referred to at the hearing. If the reference is to “International Tax Services
Office,” this provides a further possible connection between the envelope
(addressed to that office) and the income tax return. However, there is no
evidence before me that this is what ITSO means. It might refer to something
else, such as, Income Tax Services Office. Accordingly, I have not taken the
reference to “ITSO” into account.
Analysis
[21] Based on the evidence presented at the hearing, in my
view the Minister’s position is more consistent with this evidence.
[22] If the envelope entered into evidence contained the
income tax return, then the return could have not been filed on time because
the envelope was postmarked June 19, which was after the filing deadline.
[23] It is necessary to consider, then, whether the
envelope did contain the income tax return.
[24] On the face of the documents, this seems to be the
case. The return was stamped in the Ottawa region where the envelope was addressed. The received
stamp on the return says June 22, 2007, which is consistent with the postmark
on the envelope of 07 06 19, which was assumed by all at the hearing to be June 19, 2007.
[25] Mr. Howse testified that he would never use this
particular envelope for regular income tax returns because it was addressed to
the International Tax Services Office.
[26] It might be the case that Taxperts does not generally
send income tax returns to the International Tax Services Office. I would note,
though, that this envelope was clearly handled by Mr. Howse because he wrote
the appellant’s name on it. In my view, Mr. Howse did not provide a sufficiently
detailed explanation as to the circumstances in which this envelope was likely
used. He stated that the envelope likely contained non-resident forms for the
appellant. I am not satisfied with this brief explanation. I would also note
that the appellant did not testify as to filing non-resident forms.
[27] I would also comment that there is something out of
the ordinary about this envelope. The meter stamp is dated a year before the
postmark. I also note that the meter stamp is dated June 15, which is likely an
extremely busy day for Taxperts in filing regular tax returns for Canadian real
estate agents. It seems odd that non‑resident forms would be sent on this
day.
[28] In his testimony,
the appellant testified that he had a distinct recollection of placing the
income tax return in an envelope that was smaller than the envelope that was in
evidence. I have taken this testimony into account but I do not think that it
is sufficient to outweigh the evidence led by the Minister. It is possible that
the income tax return was taken out of the smaller envelope and mailed in the
larger envelope a few days later.
[29] In the result, I would conclude that the evidence as a
whole is more consistent with the Minister’s position. It is possible that the
appellant signed the income tax return on June 15 as he testified, but the
evidence as a whole suggests that the income tax return did not make it to the
CRA office in Toronto on that day.
[30] On a final note, I would mention that it is
unfortunate that no one provided testimony on behalf of the Minister. It would
have been helpful to have someone testify as to the processing of tax returns
and penalties.
[31] I considered whether an adverse inference should be
made from the failure of the Minister to lead this evidence. Ultimately, I have
concluded that none should be taken. The appellant’s position changed at the
hearing and it took a turn that was not expected by counsel for the Minister.
This is one of the unfortunate aspects of appeals that are heard under the
informal procedure where there are no discoveries and surprises are
commonplace. In the circumstances, I do not think that an adverse inference is
warranted.
[32] In the result, the appeal will be dismissed.
Signed at Toronto, Ontario this
12th day of March 2009.
“J. Woods”
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