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Citation: 2005TCC7
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Date: 20050111
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Docket: 2002-198(IT)I
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BETWEEN:
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ÉRIC FORCIER,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
BédardJ.
[1] The points at issue in these
appeals, brought under the informal procedure, are whether
(i) the Minister of National
Revenue (the "Minister") was entitled to reassess the
Appellant for each of the 1992, 1993, 1994, 1995, 1996 and 1997
taxation years, despite the expiry of the normal reassessment
period; and
(ii) the imposition of a penalty
against the Appellant, for those same taxation years, with regard
to a deduction for non-capital losses of other years for each of
the taxation years in question, was justified.
The fact that the Appellant was not entitled to deduct the
amounts claimed annually for non-capital losses of other years in
computing his taxable income for the years in question is not
disputed.
[2] The facts relied on by the
Minister in making the assessments for the years at issue are
listed in paragraph 5 of the Reply to Notice of Appeal as
follows:
[translation]
(a) the case arises
from an internal investigation of certain employees of the
Jonquière Tax Centre who set up a scheme to enable certain
persons to receive fraudulent tax refunds in consideration of a
commission based on a percentage of those refunds;
(b) through the
issuance of a zero balance assessment dated September 21,
1998, for the 1992 taxation year, the Minister granted the
Appellant an allowable business investment loss totalling
$112,500 ($150,000 x 3/4), and in that regard allowed a deduction
of $20,078 in computing the income;
(c) through the
reassessments made on September 21, 1998, the Minister granted,
in computing the Appellant's income for the 1993, 1994, 1995,
1996 and 1997 taxation years, $13,206, $11,522, $21,477, $19,158
and $19,041, respectively, with regard to the carry-over of a
loss other than a capital loss;
(d) pursuant to
those reassessments, on September 21 1998, the Appellant received
an tax refund totalling $17,316.76;
(e) the claims for a
business investment loss deduction for the 1992 taxation year,
and then the deduction for the carry-over of a loss other
than a capital loss for the 1993, 1994, 1995, 1996 and 1997
taxation years had been made possible by the fraudulent entry in
the Department's computer system of a business investment
loss totalling a gross amount of $150,000 for the 1992 taxation
year;
(f) the
Appellant admitted to the Minister's investigators that he
had followed the suggestion of Mario Boucher, an acquaintance who
offered to review his tax returns, and it was for that purpose
that the Appellant gave him his social insurance number;
(g) the Appellant
did not know the nature of the deduction that would be claimed on
his tax returns or the total amount of the resulting refund;
(h) the Appellant
told the Minister's investigators that he had never operated
a business;
(i) the
Appellant only acknowledged to the Minister's investigators
that after he had received the $17,316.76 refund, he withdrew
$5,000 for his personal use;
(j) the
Appellant did not undertake any steps with the Minister, such
as:
(i) communicating
with the authorities of the Jonquière Tax Centre, or
(ii) simply returning
the cheque or cheques to those authorities;
(k) the Minister is
of the view that the negligence shown by the Appellant in this
case is tantamount to complicity;
(l) as to the
1992, 1993, 1994, 1995 and 1996 taxation years, the Appellant
made a misrepresentation that is attributable to neglect,
carelessness or wilful default or committed fraud in filing the
return for each of those years or in supplying information under
this "Act;"
(m) the false deduction
claimed, for the 1992, 1993, 1994, 1995, 1996 and 1997 taxation
years, leads the Minister to believe that the Appellant,
knowingly or under circumstances amounting to gross negligence,
made or participated in, assented to or acquiesced in the making
of, a false statement or omission in the tax returns filed for
the 1992, 1993, 1994, 1995, 1996 and 1997 taxation years, as a
result of which the tax that he would have been required to pay
based on the information provided in the tax returns filed for
those years was less than the amount of tax payable for those
years.
[3] The Appellant denied the
statements in paragraphs (a), (k), (l) and (m) above.
Testimony
[4] The Appellant testified that he
was a welder during the years at issue and as such his employment
income was about $25,000 per year. He explained that his tax
returns for the years at issue had been prepared by H & R Block
and Carl Thibault. In the beginning of the summer of 1998,
he had repaired a trailer belonging to Mario Boucher, an
acquaintance with whom he had occasionally went motorcycling;
instead of paying the Appellant for the repairs, Mr. Boucher
offered to review his tax returns. It was for that purpose that
the Appellant had given his social insurance number to Mr.
Boucher. On September 21, 1998, the Appellant received a tax
refund of $17,316.76. He admitted that he had found it odd to
receive that cheque. He then called Mr. Boucher to find out about
the tax refund. The Appellant's comments in that regard are
worth quoting:
[translation]
. . . then I received a cheque for $17,000. Then I told
him, I said: What's going on, $17,000 that doesn't make
any sense? Ah, you're entitled to it, I went back five years,
you're entitled to it.[1]
The Appellant explained that he was satisfied with Mr.
Boucher's answer because he knew nothing about tax matters
and he thought he was justified in relying on Mr. Boucher's
explanations. The Appellant's comments in this regard are
also worth quoting:
[translation]
Why didn't I take it further? Because I trusted what he
told me. He's a government employee, that means that he must
. . . I imagine that they are honest. That's what I
thought.[2]
For those reasons, the Appellant did not feel it necessary to
take other steps to understand the nature of the refund. On
September 24, 1998, he deposited the cheque in his bank account.
He withdrew $5,000, $2,000 and $1,700 in cash from his bank
account on September 28, 1998, October 9, 1998, and
November 20, 1998, respectively. He testified that he had
withdrawn the money for his personal use and that at no time had
he paid any money whatsoever to Mr. Boucher as commission or
remuneration for his services.
[5] Roland Pelletier, a dedicated
investigation officer with the Canada Customs and Revenue Agency,
testified that in May 1998 an employee of that Agency realized
that the Department had given tax refunds to taxpayers without
supporting documents in their file. Mr. Pelletier explained that
he had, with others, investigated the matter. That investigation
led to the charging and conviction of two of the Agency's
employees, including Mr. Boucher. The investigation, according to
Mr. Pelletier, established that about 45 taxpayers had been
contacted by those two employees or a third party and that they
had received about 50% to 66.66% of the tax refund collected by
the taxpayers. Mr. Boucher's name was linked to a number
of files, including the one in the instant case. That is why Mr.
Pelletier met with the Appellant and took his statements, which
are set out in the Reply to Notice of Appeal. Mr. Pelletier also
testified that the Appellant had always denied having paid a
commission or any other form of remuneration to Mr. Boucher and
that he was not able to prove otherwise. However, he added that
he was persuaded that the Appellant had paid Mr. Boucher a
commission given the funds withdrawn by the Appellant from his
bank account in cash that corresponded to about 55% of the tax
refund obtained in the instant case.
Analysis
[6] The Federal Court of Appeal
recently applied the principle of wilful blindness with respect
to penalties imposed under subsection 163(2) of the Act in
Canada (Attorney General) v. Villeneuve, 2004 FCA 20 and
Canada (Attorney General) v. Savard, 2004 FCA 150, when it
confirmed the penalties imposed on other taxpayers who
participated in the same scheme as the Appellant in the instant
case.
[7] That being said, it is necessary
to analyze the Appellant's behaviour once he received the tax
refund of more than $17,000 in September 1998. He was first
surprised by how much it was. He immediately contacted Mr.
Boucher, and rightly so given the amount of the refund in
relation to his income. So, he thought that there was something
odd in all this. He was satisfied with Mr. Boucher's
rather simplistic response. In my view, he then showed wilful
blindness. Despite everything, he chose to cash the cheque. The
Appellant had numerous chances to inquire with responsible people
about what to do in that situation. As my colleague Angers J.
said in Réjean Gosselin v. Her Majesty the
Queen, [2002] T.C.J. No. 520, at paragraph 9 (QL):
. . . When he received the refund cheque, he had enough doubt
in his mind as to the legitimacy of the refund and, at that
point, should have approached authorities to correct the matter.
The appellant chose to do nothing. This lack of action on his
part demonstrates his carelessness in and indifference toward
compliance with the act. His behaviour, in my view, constitutes a
high degree of negligence, which I characterize as gross
negligence. He took advantage of the money knowing that it had
been obtained under abnormal circumstances. By failing to act, he
therefore acquiesced in the making of false statements by Mr.
Joncas' two friends to obtain the refund.
[8] Although it is understood from
Villeneuve, supra, at paragraph 2, and
Savard, supra, at paragraphs 3 to 7 that all the
taxpayers in those cases had admitted to paying a commission in
exchange for the refund, there was one taxpayer who had not
admitted to making such payment. In fact, Lamarre Proulx T.C.J.
wrote the following in Robin Villeneuve v. Her Majesty the
Queen, [2002] T.C.J. No. 666, at paragraphs 14, 20 and
21 (TCC):
[14] The appellant did not admit
that he had made a payment to the originator of the refund, but
he did admit that he had immediately withdrawn two-thirds of the
amount. He claimed that it had been to repay a loan that he had
contracted with a friend in order to build his house.
. . .
[20] The appellant admitted
subparagraph 8(c) of the Reply regarding the fact that the
appellant withdrew $8,000 in cash the same day the deposit was
made. That is standard procedure under this scheme. The statement
that he did not pay a cent for the service rendered by the
originator of the refund is not plausible. The evidence of the
repayment of an $8,000 loan made by a friend for the construction
of his house is not supported by any supporting document.
[21] I am convinced on the basis
of a rational deduction from the facts and circumstances, that
is, the immediate withdrawal of $8,000 corresponding to
two-thirds of the amount of the refund and the absence of valid
evidence of the repayment of a loan from a friend, that the
appellant was not an exception to the system of paying two-thirds
of the amount of the refund received, an organized scheme proven
by the respondent.
[9] Not only would I agree with those
paragraphs, but I would even add that the Appellant's
testimony as a whole was not very credible.
[10] I am therefore persuaded that the
Respondent established, on a balance of probabilities, that she
was justified in imposing a penalty on the Appellant for each of
the years at issue.
[11] The appeals are therefore
dismissed.
Signed at Ottawa, Canada, this 11th day of January 2005.
Bédard J.
Translation certified true
on this 22nd day of April 2005
Aveta Graham, Translator
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