Citation: 2008TCC188
Date: 20080414
Docket: 2007-3958(IT)I
BETWEEN:
BERNADINE JACKSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bédard J.
[1]
This is an appeal under
the informal procedure from the reassessments issued by the Minister of
National Revenue (the « Minister ») in accordance with the Income
Tax Act (the “Act”) for the appellant’s 2000 and 2001 taxation
years.
[2]
The issues to be
decided are:
(a) whether the
Minister was justified in assessing pursuant to subsection 163(2) of the Act
penalties with respect to the fraudulent donation receipts that were used in
order to claim non-refundable tax credits for the 2000 and 2001 taxation years;
(b) whether the Court
has a statutory discretion to grant a reduction of the amount of interest
assessed.
[3]
The facts on which the
Minister relied in determining the appellant’s tax liability for the 2000 and
2001 taxation years are set out in paragraph 10 of the Reply to the Notice
of Appeal, as follows:
(a)
In filing her Income tax returns for her 2000
and 2001 taxation years, the Appellant claimed total donation amounts of $3,718
in 2000 and $5,320 in 2001.
(b)
Following an investigation of the tax preparer
engaged by the Appellant for the preparation of the Income tax returns for the
2000 and 2001 taxation years the Minister concluded that the donation receipts
as issued for the L’Oratoire Saint-Joseph du Mont-Royal and Our Lady
Fatima Parish (hereinafter “the donation receipts”) had been prepared and
claimed fraudulently;
(c)
The L’Oratoire Saint-Joseph du Mont-Royal and Our Lady Fatima
Parish confirmed to the Minister that the donation receipts as claimed by
the Appellant were not donations that they had received and that they had not
issued the donation receipts to the Appellant.
[4]
The facts on which the Minister relied
to assess the penalties pursuant to subsection 163(2) of the Act
are set out in paragraph 12 of the Reply to the Notice of Appeal, as
follows:
(a)
The Appellant had signed her Income tax returns for the 2000 and 2001
taxation years;
(b)
The Charitable organizations for which the donation amounts that were
refused confirmed to the Minister that they had not received such amounts nor
issued such receipts to the Appellant;
(c)
The Appellant should have been aware of the fraudulent donation receipts
upon the review of her Income tax returns for the taxation years as such
receipts were an integral part of the Income tax returns that she had signed
and she should have noted that the receipts were not receipts that she had
submitted to the preparer of her Income tax returns;
(d)
The Appellant would have been aware that she would obtain a greater
reimbursement of tax by engaging the particular tax preparer whom she engaged
through the referral to the preparer by her acquaintances;
(e)
The Appellant confirmed to the Minister that she did not make the
donations as claimed;
(f)
The Appellant admitted that she paid a greater than normal amount for
the preparation of her Income tax returns by the preparer;
(g)
The amounts of the donation receipts allowed the Appellant to increase
her Non-refundable tax credits for the 2000 taxation year in the amount of
$991.56 and for the 2001 taxation year in the amount of $1,518.05;
(h)
By claiming the donation receipts the Appellant reduced her income tax
payable on her taxable income by 34% and 55% respectively for the 2000 and 2001
taxation years;
(i)
The amounts of the donation receipts and the reduction to her income tax
payable because of such donation receipts are significant for the Appellant.
[5]
The Notice of Appeal reads as
follows:
. . .
This letter is
concerning the appeal to my case for the tax years of 2000 and 2001. An assessement
[sic] was made on june [sic] 11 2007 for the taxation years of 2000 and 2001, a
copy of that assessement [sic] is included with this letter.
I along
with hundreds of other people had my taxes prepared at what I thought was a
legitimate company called Gaavi Taxes. They did the work [sic] and I mailed in
the income tax forms immediately after leaving their office as I had already
missed the deadline for income tax submissions. I eventually received a refund
for both of those years. wasnt [sic] until this year when Revenue Canada
contacted me that I found out that something was wrong with those tax returns.
I have since found out that the tax company was fraudulently submitting false
donation reciepts [sic] along with the actual legitimate documents that I had
given to them. Because of those false reciepts [sic] my refund was larger than
I should have recieved [sic].
If i [sic]
had known that Iwas [sic] supposed to repay the government I would have done
so. I have always done my income taxes legally and promptly paid back whenever
it occurred that it was necessary. I have never been in any [sic] legal trouble
before and would not have purposely done something to defraud the government
and believe that I am a victim of a crime. I have since tried to contact the
tax company in question and speak to someone about the situation but have been
unsuccessful in locating them. This company is now under investigation for fraud
against the government. I am currently working with Mr. Claude Ayotte from the
Enforcements [sic] Division of Revenue Canada in order to find the tax company
and bring them to justice. He is willing to give you any additional information
about my case, please contact him.
Because
the refund error took place 6 years ago interest and penalty fees have
been added. I am in agreement that any money that I shouldn’t have recieved [sic]
should be payed [sic] back but I believe that a reduction in the penalty and
interest fees is necessary because myself and all the other customers of this
tax preparing company are victims of the company’s illegal activities. Those
donation reciepts [sic] were not given to them by me and it would not be fair
for innocent people to pay for their wrong doings [sic]. As a victim I am
asking for leniancy [sic].
Since finding
out that I owed a balance to revenue [sic] Canada I have taken serious measures
to repay the entire amount and have successfully done so.
Thank you for considering my case.
. . .
[6]
The witnesses in this case were:
for the appellant, the appellant herself, and for the respondent,
Mr. François Bernier, Ms. Sonia Lavallée, Mr. Edwin Ricafort and
Ms. Diane Charette.
[7]
In her testimony, the appellant
essentially reiterated the facts stated in the Notice of Appeal. We also learnt
from the appellant’s testimony that:
(a)
she obtained a degree in nursing
from Vanier College;
(b)
in her 2000 taxation year, she
worked as a nurse at the Jewish General Hospital and as a waitress at a
restaurant named the “Waldorf”;
(c)
in her 2001 taxation year, she
worked as a nurse at the Jewish General Hospital;
(d)
she was not referred to Gaavi Tax
Services (“Gaavi”) by her acquaintances; she explained that she found a Gaavi’s
business card lying on the counter of a restaurant in her neighbourhood and
decided to have her tax returns prepared by Gaavi simply because their office
was in her immediate neighbourhood;
(e)
she does not remember the amount
of the fees she paid for the services rendered by Gaavi;
(f)
she was not in the least suspicious
about the legality of the tax refunds she received since the thought that her
employer had probably withheld too much tax on her salary;
(g)
her net income for 2000 amounted
to $26,230, all of which was employment income;
(h)
her net income for 2001 amounted
to $29,418, all of which was also employment income;
(i)
her tax refund for 2000 amounted
to $915;
(j)
her tax refund for 2001 amounted
to $1,577.
[8]
We also learnt from the evidence
submitted that:
(a)
in 2000, 2001 and 2002, about 1200
taxpayers used Gaavi’s services for the preparation of their income tax returns,
and all of them submitted fraudulent donation receipts in those years;
(b)
the mastermind behind this huge
tax fraud and the real owner of Gaavi’s business left the country when the
Minister started his inquiry.
[9]
Mr. Edwin Ricafort testified that
the fees he paid to Gaavi for having his tax returns prepared were a percentage
of the amounts of the fraudulent donation receipts submitted.
[10]
In Venne v. The Queen,
[1984] C.T.C. 223, 84 DTC 6247 (F.C.T.D.), Strayer J. made the following
comment on the meaning of gross negligence for the purposes of assessing
penalties under subsection 163(2) of the Act:
. . . “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. . . .
[11]
In DeCosta v. The Queen,
2005 DTC 1436 (T.C.C., informal procedure), Bowman C.J. referred to the
decision in Udell v. M.N.R., [1969] C.T.C. 704, 70 DTC 6019 (Ex. Ct.), and
two decisions by Judge Rip (as he then was) of this Court, 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 in employment income and fails to declare
gross sales of about $134,000 and net profits of $54,000. 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.
[Emphasis added.]
[12]
In this case, I am of the opinion
that the appellant did not willfully make false statements. However, I am of
the view that the appellant’s negligence was so great as to justify the use of
the somewhat pejorative epithet “gross”. The reduction to her income tax
payable obtained through the false statements was significant in relation to the
income earned. The false donation receipts allowed the appellant to increase
her non-refundable tax credits for the 2000 taxation year by $991, and for the
2001 taxation year, by $1,518. I would point out that by claiming the amounts
of the false donation receipts the appellant reduced her income tax payable on
her taxable income by 34% and 55% for the 2000 and 2001 taxation years
respectively. The amounts of the donation receipts and the reduction of her
income tax payable because of those receipts were significant for the appellant.
Any quick review of the line items for charitable donations in her 2000 and
2001 tax returns and of the receipts attached to those tax returns, which she
signed and mailed, would have shown the false statements and the false
receipts. The false statements and receipts should have been sufficiently
obvious that a woman of the appellant’s education and intellect would have
noticed them. In my view, the appellant’s failure to detect the false
statements and the false receipts when she signed and mailed the tax returns
was more than simple carelessness. The appellant’s attitude in not examining at
all her tax returns for those years before signing them was, in my view, so
cavalier that it went beyond simple carelessness. The late filing of her 1998,
2000, 2001 and 2002 tax returns and the failure to report her employment income
for 1994 also reflect her indifference as to whether the law is complied with
or not. In my view, the appellant cannot exculpate herself by the fact that she
blindly entrusted her tax affairs to Gaavi.
[13]
I am also of the opinion that the
Court has no statutory discretion to grant a reduction of the interest assessed
for the years in question.
[14]
As a result the appeal is
dismissed.
Signed at Ottawa, Canada, this 14th day of April 2008.
“Paul Bédard”
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