Citation: 2009 TCC 136
Date: 20090323
Docket: 2008-1263(IT)I
BETWEEN:
MARCEL GÉLINAS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
This is an appeal under
the informal procedure from reassessments made by the Minister of National
Revenue (the Minister) with respect to the Appellant for the 2002, 2003 and
2004 taxation years. With respect to the reassessment for the 2002 taxation
year, the Minister added $24,025 to the Appellant’s income. For this taxation
year, the Minister added $22,415 to the Appellant’s income as unreported income
pursuant to subsection 9(1) of the Income Tax Act (the Act). In
addition, the Minister disallowed $1,610 for the 2002 taxation year, declared
by the Appellant as business expenses. The Minister also penalized the
Appellant pursuant to section 163(2) of the Act for unreported income of
$22,415 for the 2002 taxation year. Specifically, the Minister imposed a
penalty of $34.21 for the 2002 taxation year for late filing pursuant to
section 163(2) of the Act. In the 2003 reassessment, the Minister added
$10,989 to the Appellant’s income. The Minister added $834 to the Appellant’s
income for the 2003 taxation year in unreported income pursuant to subsection
9(1) of the Act. In addition, the Minister disallowed $10,155 declared by the
Appellant for the 2003 taxation year as business expenses. With respect to the
2004 reassessment, the Minister added $10,204 to the Appellant’s income for the
2004 taxation year. Specifically, the Minster added $7,319 as unreported
income to the Appellant’s income for the 2004 taxation year pursuant to
subsection 9(1) of the Act. The Minister also penalized the Appellant pursuant
to subsection 163(2) of the Act for the $7,319 in unreported income. Finally,
the Minister disallowed $2,885 declared by the Appellant as business expenses
for the 2004 taxation year.
[2]
I would like to
immediately highlight that the parties came to an agreement, during the hearing,
with respect to the business expenses declared by the Appellant for the
taxation years at issue. The parties agreed that the supplementary expenses of
$942, $1,051 and $1,273 were incurred by the Appellant for the purpose of
gaining business income for the 2002, 2003 and 2004 taxation years
respectively. I would like to also note that the Appellant admitted during the
hearing that the Minister was justified in imposing a penalty of $34.21 for the
2002 taxation year for late filing, pursuant to subsection 162(1) of the Act
and added to his income the amounts of $22,415, $834 and $7,319 as business
income for the 2002, 2003 and 2004 taxation years respectively. As a result,
the only question at issue is as follows: was the Minister justified in
imposing a penalty on the Appellant pursuant to subsection 163(2) of the Act
for unreported income in the amount of $22,415 and $7,319 for the 2002 and 2004
taxation years respectively?
[3]
In making and
confirming the assessments for the 2002, 2003 and 2004 taxation years, the
Minister relied on the following assumptions of fact which were neither
admitted nor denied:
a)
During the taxation
years at issue, the Appellant was a financial security advisor (insurance
broker) (hereafter the Company);
b)
The Appellant’s Company
was established in 1987;
c)
During the years in
question, the Appellant was the sole proprietor of his Company;
d)
The Appellant earned
commission from various companies that he dealt with;
e)
The Appellant dealt
with a general agent (Groupe Langevin) with respect to the administrative tasks
for the insurance business;
f)
The Appellant also
taught French as a “second language” to public servants;
g)
The accounting and
bookkeeping was done by the Appellant;
h)
During the audit, the
Appellant said the following:
i)
He reconciled his
income and expenses monthly and annually;
ii)
His method for
declaring his income consisted of adding the sums on the monthly and annual
statements received from third parties and by reconciling the deposits already
included in his bank account, as some commissions were directly deposited by
debit transactions;
iii)
He was also responsible
for depositing the money from his sales;
iv)
He calculated his
income and expenses before submitting these totals to his accountant;
v)
The accountant prepared
the Appellant’s income tax returns using the totals submitted;
vi)
The accountant did not
audit or adjust the numbers submitted by the Appellant;
i)
An audit of the
Appellant’s Company was carried out by an auditor for the Minister (the
auditor) for the 2002, 2003 and 2004 taxation years;
j)
The auditor audited:
i)
The summaries of
expenditures;
ii)
The bank statements and
the monthly credit card statements;
iii)
The tax accounts and
receipts;
iv)
The sales invoices from
the teaching income;
v)
Documentary evidence
for the Appellant’s business expenses;
vi)
The monthly and annual
statements from third party commission, provided by the Appellant;
k)
The auditor analyzed
the bank deposits;
Unreported income
l)
Following the audit,
the auditor determined the Appellant did not declare the following amounts:
$22,415, $834 and $7,319 for the 2002, 2003 and 2004 taxation years;
m)
These totals represent
commission from insurance companies paid to the Appellant;
Disallowed business
expenses
n)
Within his Company
(sales commission) the Appellant rarely met his clients in his home—he met them
at his general agent’s office or another office in Hull;
o)
During her audit, the
auditor concluded that the amounts of $1,610, $10,155 and $2,885 for the 2002,
2003 and 2004 taxation years (see the details in Annexes I, II and III), were:
i)
The Appellant’s
personal expenses;
ii)
Inadmissible expenses;
iii)
Expenses for other
taxation years that are not at issue;
iv)
Expenses unsupported by
documentary evidence;
v)
Expenses claimed twice;
vi)
Expenses claimed as
incorrect expenditure items;
p)
During her audit, the
auditor also determined the Appellant had no balance to bring forward for
expenses with respect to the part of the personal residence used for business
purposes at the end of the 2004 taxation year, (see Annex IV);
Penalties for late filing
2002
q)
The Appellant should
have filed his income tax return for the 2002 taxation year on or before June
15, 2003;
r)
The Appellant filed his
income tax return for the 2002 taxation year on July 3, 2003;
s)
For the late filing of
his income tax return for the 2002 taxation year, the Minister penalized the
Appellant for late filing pursuant to 162(1) of the Act, in the amount of
$34.21.
Appellant’s testimony
[4]
The Appellant testified
that his accountant, Mr. Paquin, prepared his income tax returns for the
taxation years at issue. The Appellant explained that Paquin established his
gross business income for each of the taxation years (which appear at line 132
of the income tax return) and that, according to the documentation that was
submitted to him, the documentation included the monthly statements from
insurances companies and his bank statements. I would like to emphasize that,
during the initial interview on January 20, 2006, the Appellant declared to
Estelle Lavigne (the auditor in charge of the Appellant’s file) that
[TRANSLATION]
“Mr. Paquin did the taxes based on the totals that he was provided and that
Paquin did not do any auditing”. The Appellant explained that he checked his
income tax return for the 2002 taxation year before signing it. However, the
Appellant testified that he did not examine his income tax return for the 2004
taxation year, declaring Paquin submitted it electronically. The Appellant
said that, when looking over his income statement for the 2002 taxation year,
he noticed his gross business income was not very high. The Appellant
explained that he did not really look into the reasons for which his gross
income was low because he was sure the amount was accurate because it was
calculated by Paquin, an individual who has more expertise than him in
financial matters and that he had full confidence in him. By and large, the
Appellant tried to absolve himself of his responsibility by pointing the finger
at his accountant who allegedly failed to properly add up his business income,
even though he had all the required documentation to do the job properly.
Analysis and conclusion
[5]
Subsection 163(2) of
the Act imposes a penalty on all individuals who, knowingly or under
circumstances amounting to gross negligence, make a false statement or omission
in a return for a taxation year or participate in, assent to or acquiesce to
such actions. More specifically, the part of subsection 163(2) of the Act that
precedes the manner in which 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 imposition of the penalty rests with
the Minister and not on 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.
[6]
As Justice Dussault
said 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.
[7]
The notion of gross
negligence that is accepted in case law is the one defined by Justice Strayer
in Venne v. Canada (Minister of National
Revenue – M.N.R.)
(F.C. T.D.), [1984] 4 F.C.J.
No. 314:
…“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. ...
[8]
In DeCosta v. Canada,
[2005] T.C.J. No. 396 (T.C.C. Informal Procedure), Chief Justice Bowman
made reference to Undell v. M.N.R., [1969] C.T.C. 704, 70 DTC 6019 (Ex.
Ct.), and two decisions by Judge Rip (as he was then known) 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.
[9]
The Federal Court of
Appeal further specified in Villeneuve v. Canada, 2004 DTC 6077,
that the expression “gross negligence” could encompass willful blindness in
addition to the intentional action and wrongful intent. In this decision,
Justice Létourneau expressed himself in this 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.
[10]
In my opinion, the
Appellant committed gross negligence in 2002, regardless of whether or not his
accountant omitted or did not account for all his business income for the 2002
taxation year. In my opinion, the Appellant knowingly omitted to declare all
his business income in 2002. When the Appellant looked at his income tax
return for the 2002 taxation year as prepared by his accountant, he knew, in my
opinion, that this statement contained an error, at the very least, with
respect to the corporation’s gross income. I do not see how it could be
otherwise. The unreported gross business income (of $22,414) was significant
(776%) compared to the gross business income declared ($2,887). Moreover, the
Appellant was able to recognize his income as he personally went over the
income and received the monthly and annual statements, which clearly indicated
the commissions that were paid to him. I would like to highlight in this
regard that the majority of the unreported income was from commissions paid by
insurance companies. The Appellant knew his accounts and registers enough to
be able to recognize at a glance that his income tax return for the 2002
taxation year prepared by his accountant contained a significant error with
respect to his gross business income. I also recall that the Appellant has
been running his insurance company since 1987 and that he took an accounting
course. So, who is the Appellant? He a very bright man (who does his own
accounting) who declares a gross business income of $2,887 and omits to declare
a gross business income of $22,414. Even though his accountant must assume
part of the responsibility, I do not think that we can say the Appellant could
just sign his return nonchalantly and overlook an amount representing 776% of
the amount he declared. So cavalier an attitude goes beyond simple
carelessness.
[11]
In my opinion, the
Appellant also committed gross negligence in 2004. I am of the opinion that
the Appellant’s negligence (based on the fact that he did not check his entire
return before his accountant sent it to the Canada Customs and Revenue Agency)
was serious enough to justify using the somewhat pejorative epithet “gross”.
The Appellant’s attitude was so cavalier that it translates to a complete
indifference in terms of respecting the Act. If the Appellant had examined his
income tax return for the 2004 taxation year, he would likely have discovered
the false statement contained within (a statement which apparently was made by
his accountant) in terms of the size of the amounts of unreported income and
other factors analyzed above. The Appellant cannot absolve himself of his
responsibility by pointing the finger at his accountant. By attempting to
absolve himself of all responsibility with respect to his income tax returns,
the Appellant is being negligent by ignoring the responsibilities, duties and
obligations imposed by the Act. Also, the Act imposes a minimum obligation to
the Appellant to check his income tax return for the 2004 taxation year before
his accountant sends it in; in addition, a more than cursory glance would have
permitted him, in my opinion to find the false statement that his accountant
had made.
[12]
For these reasons, the
appeal is allowed but only with respect to the scope of the agreement made by
the parties with respect to the business expenses.
Signed at Ottawa,
Canada, this 23rd day of March 2009.
“Paul Bédard”
Translation
certified true
on
this 11th day of May 2009.
Bella Lewkowicz, Translator
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