Citation: 2009TCC99
Date: 20090213
Docket: 2008-1814(IT)I
BETWEEN:
LEONARD LUCIEN RABOUD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] This is an appeal by Leonard Raboud in respect of
federal and provincial penalties imposed for failure to report income.
[2] The appellant was assessed federal and provincial
penalties for the 2005 taxation year for failure to report income in that
year and in the prior two taxation years. The penalty imposed for each
jurisdiction was $2,400, which was ten percent of the alleged under-reporting
of income for the 2005 taxation year.
[3] The relevant statutory provision in the Income Tax
Act is subsection 163(1), which provides:
163. (1)
Repeated failures [to report income] — 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.
[4] I would first
comment that penalties under this provision can be harsh where source
deductions have been made with respect to the unreported income. This seems to
be the case here because the balance owing, before penalties and interest, is small
in comparison to the penalties assessed. According to Ex. R-6, the balance
owing was $883 and the total penalties were $4,800.
[5] Nothing turns on
this fact in this appeal, however. It is the prerogative of Parliament to enact
such legislation as it sees fit. The penalty in s.
163(1) seems to highlight the importance that Parliament has put on the
requirement for taxpayers to report all income.
Appellant’s
position
[6] The appellant
does not deny that he failed to include some employment income in the 2005
income tax return.
[7] However, the appellant’s notice of appeal mentions
that there was no intentional breach of the Act. The relevant T4 slips
were received in late May 2006, it was stated, and the slips were forwarded to
the CRA at that time. At no time was the appellant informed that this procedure
was incorrect.
Respondent’s position
[8] In the
reply, the respondent took no position on
the provincial penalty. The only comment was an acknowledgement that a
provincial penalty had been imposed.
[9] As for the federal penalty, according to the reply the
penalty was imposed because income was not reported in income tax returns for
the 2003, 2004 and 2005 taxation years.
[10] The factual assumptions made by the Minister are
reproduced below.
12. In
determining the Appellant’s liability for the penalty pursuant to subsection
163(1) of the Act in the 2005 year, the Minister relied on the following
facts:
(a) on filing his income tax return for the 2003 year the
Appellant failed to include:
(i)
employment income from TIC Canada ULC of $3,649.36;
(ii)
employment income from Jacobs Industrial Services Ltd. of
$15,865.79; and
(iii)
employment income from Clearwater Welding & Fabricating Ltd.
of $12,582.33;
(b) on filing his income tax return for the 2004 year the
Appellant failed to include:
(i)
employment income from the Ironworker’s Health and Welfare Trust
Fund of $332.32 and
(ii)
income from a RRSP of $4,616.00;
(c) on filing his income tax return for the 2005 year the
Appellant failed to include:
(i)
employment income from the Ironworker’s Health and Welfare Trust
fund of $382.00;
(ii)
employment income from Clearwater Welding and Fabricating Ltd. of
$7,657.56;
(iii)
employment income from VSL Canada Ltd. of $1,823.17; and
(iv)
employment income from Lockerbie & Hole industrial Inc. of
$14,139.92.
[11] The Minister also took no position in the reply
regarding the mailing of T4 slips separately from the income tax returns. It
appears that the Minister did not take this into account in assessing the
penalty. The only comment about the T4 slips in the reply is to the effect that
the Minister had no knowledge of it.
Analysis
[12] In respect to the provincial penalty, it is not
possible for this issue to be considered on the merits because the Tax Court of
Canada has no jurisdiction over this subject matter. The appeal will be
dismissed in respect to this issue.
[13] It is unfortunate that the jurisdiction issue was not
discussed in the reply or mentioned at the hearing. However, that deficiency
cannot change the outcome where the Court lacks jurisdiction.
[14] I turn now to the federal penalty.
[15] The penalty is properly imposed if the appellant
failed to report income that should have been reported in the income tax return
for (1) the 2005 taxation year, and (2) either or both of the 2003 and 2004
taxation years.
[16] The appellant was represented at the hearing by his
wife, Barbara Raboud, and she was the only witness for the appellant. The
appellant was present at the hearing but did not testify.
[17] In respect of the alleged failure to report income for
the 2005 taxation year, Mrs. Raboud testified that she made three separate
filings in respect of T4 slips that were received after the tax return had been
submitted.
[18] The first was the
forwarding of T4 slips to the CRA as mentioned in the notice of appeal. The
second and third filings were not mentioned in the notice of appeal. Mrs.
Raboud testified that, in addition to mailing the T4s, she also mailed two separate
T1 adjustment forms.
[19] During argument, counsel for the respondent did not
dispute that the T4 slips had been mailed to the CRA but counsel did dispute
Mrs. Raboud’s testimony that she had filed T1 adjustment forms.
[20] In my view, the respondent was right to challenge the
evidence with respect to the T1 adjustment forms. The evidence on this point,
including Mrs. Raboud’s testimony and documents purporting to be working papers
of the T1 adjustment forms, had several inconsistencies and the evidence was
not cogent enough to be believable.
[21] Nevertheless, I have concluded that most of the
penalty should not have been imposed.
[22] By virtue of s. 163(3) of the Act, the
respondent has the burden to establish the facts that support the imposition of
the penalty. I have concluded that this burden has not been satisfied with
respect of most of the alleged unreported income because the income had been
reported through the mailing of T4 slips.
[23] This conclusion is unsettling because I have found
that the testimony of the appellant’s only witness was not entirely truthful.
However, the burden of proof is on the respondent, and it must be satisfied.
[24] The appeals officer, Sandra Paul, provided evidence
for the respondent.
[25] About a week before the hearing, Ms. Paul sent an
email to the records department of the CRA in Winnipeg asking whether they had
a record of T1 adjustment forms being filed. Early the next morning the
answer came back in the negative.
[26] The search regarding the T1 adjustment forms appears
to have been perfunctory but that is not the problem. The problem with the
respondent’s position is that the evidence establishes that the income was
reported by mailing the T4 slips.
[27] The mailing of the T4s was mentioned in the notice of
objection and the notice of appeal, and it was not discussed in the reply
except to state that the Minister had no knowledge of it.
[28] In
argument, counsel for the respondent
acknowledged that if income had been reported subsequent to the filing of the
income tax return, this would be sufficient to negate the penalty. The
respondent submits, though, that forwarding T4 slips to the CRA is not
sufficient to report income.
[29] Mrs. Raboud, who prepared the appellant’s income tax returns,
testified that her practice was to include in the income tax returns only that
employment income for which she had T4 slips. If T4 slips were received
subsequent to the filing of the returns, they were then forwarded to the CRA.
[30] Mrs. Raboud acknowledged, however, that she never did report
income from VSL Canada Ltd. because no T4 slip had been received from that
employer.
[31] As
mentioned earlier, the respondent did not dispute that the T4 slips were
mailed. The position of the respondent is that mailing T4s does not constitute
reporting of income.
[32] I disagree with the respondent’s submission. It is not
necessary to use any particular form in reporting income. It is no doubt easier
for the CRA if reporting is made on a T1 adjustment form, but it is not
required. I find that the mailing of a T4 slip is sufficient in this case.
[33] It was suggested that the CRA would have a hard time
keeping track of T4 slips that are mailed.
[34] I fail to see why it would have been too onerous for the
CRA to keep a record of correspondence received in circumstances where the
correspondence clearly indicates the name of the taxpayer and the taxation year
involved. I am not prepared to accept that it would be too onerous without
having some evidence to support this.
[35] I would
also mention that the appellant was not aware of the respondent’s position on
this point prior to the hearing because it was not mentioned in the reply. I do
have some concern about procedural fairness in this case.
[36] The bottom line is that the respondent has not made a prima
facie case that the appellant failed to report income in the 2005 taxation
year, with the exception of income from VSL Canada Ltd.
[37] The penalty should be limited, therefore, to the one
source of unreported income.
[38] The question remains whether the appellant also failed
to report income in either or both of the two prior taxation years. This is
also a precondition of s. 163(1).
[39] In this respect, I have concluded that there was a
failure to report income for the 2004 taxation year, namely RRSP income in the
amount of $4,616.
[40] Mrs. Raboud testified that she had reported the RRSP
income in the proper line on the 2004 income tax return but that through some
sort of error the income was inadvertently not picked up in the computation of
tax.
[41] In support of this position, Mrs. Raboud introduced
into evidence a part of an income tax return which she testified was a
photocopy of her working paper.
[42] I have carefully looked at the working paper and have
great difficulty seeing how such an error could have been made as Mrs. Raboud
suggests. I am also not convinced by Mrs. Raboud’s vague explanations.
[43] In the result, the appeal with respect to the
provincial penalty will be dismissed, and the appeal with respect to the
federal penalty will be allowed. The federal assessment for the 2005 taxation
year will be referred back to the Minister of National Revenue for reassessment
on the basis that the penalty should be computed in respect to unreported
income of only $1,823.
[44] In light
of my findings with respect to the appellant’s evidence, there will be no order as to costs.
Signed at Toronto, Ontario this 13th day of February
2009.
“J. Woods”
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