|
Citation: 2004TCC629
|
|
Date: 20040922
|
|
Dockets: 2003-2589(IT)G
|
|
2003-2590(IT)G
|
|
BETWEEN:
|
|
ADRIENNE LAROUCHE
and
JOSEPH BOURSIQUOT,
|
|
Appellants,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] The issue in these two appeals
consists in determining the validity of the penalties imposed
under subsection 163(2) of the Income Tax Act (the
"Act").
[2] The parties agreed to proceed by
means of common evidence for both files.
The Notices of Appeal read as follows:
[translation]
Adrienne Larouche file (2003-2589(IT)G)
(a) during the 1999
taxation year, the Appellant was employed by the Commission
Santé et Sécurité du Travail [occupational
health and safety board] and also owned income properties;
(b) for the 1999
taxation year, the Appellant reported a total income of
$53,082.77;
(c) for the 1999
taxation year, the Appellant failed to report taxable capital
gains of $35,633 (75% of $47,511) from the sale of shares;
(d) the Appellant
knowingly failed to report the amounts described above.
Joseph Boursiquot file (2003-2590(IT)G)
(a) during the
taxation years in dispute, the Appellant was retired and also
owned income properties;
(b) for the 1998 and
1999 taxation years, the Appellant reported a total income of
$41,412.66 and $32,439.87, respectively;
(c) for the 1998
taxation year, the Appellant reported a taxable capital gain of
$72.05 (75% of $96.07);
(d) for the 1998 and
1999 taxation years, the Appellant failed to report taxable
capital gains of $6,026 (75% of $8,034) and $76,976 (75% of
$102,634), respectively, from the sale of mutual funds and
shares;
(e) for the 1998
taxation year, the Minister, by mistake, increased the capital
gain to $6,098 (75% of $8,130) instead of the $6,026 specified in
the preceding paragraph and the penalties were assessed based on
the incorrect amount;
(f) the
Appellant knowingly failed to report the amounts described
above.
[3] The Respondent relied on the
following facts to impose the penalties:
Adrienne Larouche file (2003-2589(IT)G)
(a) during the 1999
taxation year, the Appellant was employed by the Commission
Santé et Sécurité du Travail and also owned
income properties;
(b) during the 1999
taxation year, the Appellant reported a total income of
$53,082.77;
(c) during the 1999
taxation year, the Appellant failed to report taxable capital
gains of $35,633 (75% of $47,511) from the sale of shares;
Joseph Boursiquot file (2003-2590(IT)G)
(a) during the
taxation years in dispute, the Appellant was retired and also
owned income properties;
(b) for the 1998 and
1999 taxation years, the Appellant reported a total income of
$41,412.66 and $32,439.87, respectively;
(c) for the 1998
taxation year, the Appellant reported a taxable capital gain of
$72.05 (75% of $96.07);
(d) for the 1998 and
1999 taxation years, the Appellant failed to report taxable
capital gains of $6,026 (75% of $8,034) and $76,976 (75% of
$102,634), respectively from the sale of mutual funds and
shares;
(e) for the 1998
taxation year, the Minister, by mistake, increased the capital
gain to $6,098 (75% of $8,130) instead of the $6,026 specified in
the preceding paragraph and the penalties were assessed based on
the incorrect amount;
[4] All of the facts were admitted;
however, the Appellants vigorously deny having knowingly failed
to report the amounts obtained from the sale of their portfolio
comprised of shares and mutual funds.
[5] As evidence, the burden of which
was on the Respondent, the Respondent had the Appellants testify.
For her part, Ms. Larouche essentially confirmed
Mr. Boursiquot's testimony since she was apparently not
aware of the facts leading to the preparation of her income tax
returns given that she always had her husband prepare them.
[6] Because the Appellant's husband
was more available and had more flexibility in his professional
activities, he took care of everything. The Appellant essentially
only participated occasionally to help with some sorting.
[7] Mr. Boursiquot, whose testimony
constituted the bulk of the evidence in both files, went over the
content of the Notices of Appeal again. He added however that he
had not reported the capital gain, remembering that the Mulroney
government had instituted a special measure under which all
Canadian taxpayers could receive a $500,000 lifetime capital
gains exemption.
[8] That exemption was in addition to
another that, according to him, exempted all taxpayers from
paying income tax on a capital gain where that gain is
immediately reinvested.
[9] The Appellants retained the
services of a chartered accountant to prepare their income tax
returns. Mr. Boursiquot acknowledges that he never mentioned to
the accountant that he and his wife had realized a substantial
capital gain.
[10] He also acknowledges not having raised
the issue of the reinvestment of the capital gain realized and
the $500,000 exemption.
[11] When Revenu Québec discovered
that Mr. Bourisquot had failed to report a capital gain for 1998
and 1999 and Ms. Larouche for 1999, Mr. Bourisquot stated that,
in the days that followed, he contacted Revenue Canada to notify
them that he and his wife had not reported a capital gain.
[12] Those facts, in addition to those
described in the Notices of Appeal, which Mr. Bourisquot went
over again in his testimony, are the facts available to assess
the validity of the penalties.
[13] The following points were set out in
the Respondent's submission:
- The
Appellants had a much higher than average level of education.
- The
unreported amounts were substantial.
- The
Appellant never raised the issue of the capital gain with his
accountant.
- The argument
of the $500,000 exemption was not raised during discussions, at
the objection stage or, which is even more surprising, in the
Notices of Appeal.
- Mr.
Bourisquot was not able to explain where he got his information
about the advantages of immediately reinvesting a capital
gain.
- Mr.
Bourisquot, an educated and disciplined person, was not able to
prove, other than through his testimony, that he contacted
Revenue Canada after Revenu Québec informed him of the
failure to report the significant capital gain.
[14] There is no doubt that the Respondent
has identified the relevant points quite well and has clearly
indicated the issues that raise some questions, even doubts,
concerning the likelihood of the Appellants' explanations.
[15] Is this sufficient to conclude that the
penalties are valid? Before answering that question, it is
important to remember that the burden of proof is on the
Respondent and that such proof must be viewed within the context
of the preponderance requirement.
[16] If the degree of proof was that which
prevails in criminal matters, I would have to conclude that the
penalties are valid; however, this is not the case. I must decide
if the Appellants, knowingly or under circumstances amounting to
gross negligence, failed to report taxable capital gains for 1999
in the case of Ms. Larouche and for 1998 and 1999 in the
case of Mr. Bourisquot.
[17] "Knowingly" or "under circumstances
amounting to gross negligence" are requirements that have a
considerable scope.
[18] The issue of whether a person
"knowingly" made a false statement or omission in a "return" for
the purposes of subsection 163(2) of the Act is rather an issue
of evidence and is less difficult to determine than the concept
of "gross negligence." Here is what V. Krishna has to say about
the matter in The Fundamentals of Canadian Income Tax,
(5th ed., Scarborough: Carswell, 1995), at page 804:
There are three degrees of knowledge: (1) Actual knowledge;
(2) Deliberate refraining from making inquiries; and (3)
Constructive knowledge.
In the first category, the taxpayer must have actual
knowledge of the misstatement or omission on the return. The
second category deals with a situation where a person
deliberately shuts his or her eyes to an obvious means of
knowledge - in other words, deliberately refrains from making
inquiries the result of which he or she might not care to know.
The third category, generally referred to as "constructive
knowledge", is concerned with what a taxpayer "ought to have
known".
[19] With respect to the second category of
knowledge referred to by V. Krishna, the more fuzzy type, it
is also known as wilful blindness. Thus, a penalty can be imposed
if the Minister can show that the taxpayer demonstrated wilful
blindness: Canada (Attorney General) v. Villeneuve,
2004 DTC 6077, 2004 FCA 20, at paragraphs 6 to 8 (F.C.A.);
Canada v. Duguay, 2000 DTC 6620 (F.C.A.);
Marcoux-Côté v. The Queen, 2000
DTC 6615 (F.C.A.); Burkes v. Canada 2000 DTC 2576
(F.C.T.D.); Patricio v. The Queen, 84 DTC 6413
(F.C.T.D.); Lévesque Estate v. Canada,
[1995] T.C.J. No. 469 (T.C.C.); Carlson v.
Canada, [1997] T.C.J. No. 1351 (T.C.C.); Holley
v. M.N.R., 89 DTC 366 (T.C.C.). See also C. Campbell,
Administration of Income Tax, (Toronto: Thompson Carswell,
2003), at page 398 (and the cases cited in the footnote on
page 54).
[20] As for the concept of "gross
negligence," the courts still refer to Venne v.
Canada, 84 DTC 6247, at pages 6256 and 6257 (F.C.T.D.) as
their starting point: Findlay v. The Queen, 2000
DTC 6345 at paragraphs 19-22 (F.C.A.) and Saikali v.
Canada, [1998] 3 C.T.C. 200 at paragraph 6 (F.C.A.). Below I
have reproduced the relevant passage from Venne for
reference purposes:
With respect to the possibility of gross negligence, I have
with some difficulty come to the conclusion that this has not
been established either. '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. I do not find that high degree
of negligence in connection with the misstatements of business
income. To he sure, the plaintiff did not exercise the care of a
reasonable man and, as I have noted earlier, should have at least
reviewed his tax returns before signing them. A reasonable man in
doing so, having regard to other information available to him,
would have been led to believe that something was amiss and would
have pursued the matter further with his bookkeeper.
With respect to business income, I can more
readily recognize that effective surveillance would have been
difficult for the plaintiff and would have involved him making
and reviewing numerous computations of revenues, expenditures,
assets and liabilities. In other words the errors in business
income, small in some years but very substantial in others, would
not necessarily have 'sprung out' at a person of the
taxpayer's background and abilities. While it may have been
naive for him to trust his bookkeeper as knowing more about such
matters than he did, I do not think it was gross negligence for
him to fail to challenge the bookkeeper with respect to the
business computations. However egregious the errors committed by
the bookkeeper in this respect, it is quite conceivable that they
were not in fact noticed by the plaintiff and his neglect in not
noticing them fell short of constituting gross negligence.
[21] The courts have repeatedly offered
different ways of seeing that definition. Some descriptors used
for "gross negligence" ("faute lourde" in French), include "very
great negligence" (Paul v. Daughin (1941) 1
D.L.R. 775, restated in Wallace v. M.N.R., 66 DTC
593, at page 596 (T.A.B.)), "flagrant or glaring
negligence," "negligence of conspicuous magnitude" and
"negligence in a pronounced, striking or aggravated form"
(Sadownick v. M.N.R., 66 DTC 280, at page 283
(T.A.B.), "a relatively odious act of negligence, which is
difficult to explain and socially inadmissible" (Cloutier
v. The Queen, 78 DTC 6485 (F.C.T.D.)), as well as "a much
greater degree of negligence amounting to reprehensible
recklessness" and "a punishment for reprehensible
behaviour" (Klotz v. The Queen, 2004
TCC 147, at paragraphs 68 and 71 (T.C.C.)). See also C.
Campbell, Administration of Income Tax, supra, at
pages 395-396.
[22] It still remains that, in order for a
judge to uphold the penalty imposed by the Minister, the evidence
must be sufficiently convincing and credible in that regard:
Marcoux-Côté v. The Queen,
supra; Saikali v. Canada, supra, at
paragraphs 3 to 5; Baynham v. Canada, 98 DTC 6648,
at paragraph 4 (F.C.A.); 897366 Ontario Ltd., [2000]
G.S.T.C. 13 (T.C.C.); and Drozdzik v. R., [2003] 2
C.T.C. 2183 (T.C.C.). One of the factors that could affect
credibility is whether the taxpayer is experienced in the area in
question: Canada v. Duguay, supra;
Richard v. M.N.R., 88 DTC 1590, at page 1592
(T.C.C.); and De Graaf v. The Queen, 85 DTC 5280,
at page 5285 (F.C.T.D.).
[23] In the case at bar, I do not believe
that the evidence completely discredits the probability of the
Appellants' arguments. One thing is for sure, I cannot exclude
from the evidence all of the Appellants' explanations.
[24] To justify the penalties, the Minister
assumes that all of the Appellants' explanations are false or
deceptive. I cannot subscribe to such a rigid theory.
[25] Although not in the same way as Mr.
Bourisquot understood it, the issue of the $500,000 capital gains
exemption was already provided for during the Mulroney government
in specific situations. Why did the Appellants not ask their
accountant about it? The answer is because when a person does not
question something that he or she believes, of course that person
would not feel it was necessary to verify something about which
he or she has no doubt.
[26] As to the significance of the amount of
money involved, again, when a person believes that he or she has
a right, the amount has nothing to do with whether that right
exists.
[27] The argument that the Appellants had a
much higher than average level of education may, again, be
interpreted in a completely different way than that chosen by the
Respondent. Mr. Bourisquot, a specialist in philosophy and
ethics, knew that any breach could have an impact on both his
career and his reputation. Accordingly, there could not have been
any doubt in Mr. Bourisquot's mind as to what he believed.
[28] Those are sufficient elements to raise
very serious doubts about the quality of the Respondent'
theory.
[29] Therefore, I find that the Respondent
did not meet the burden of proof; consequently, I allow the
appeals and vacate the penalties imposed on Mr. Bourisquot for
having failed to report capital gains for the 1998 and 1999
taxation years and the penalty imposed on Ms. Larouche, for the
same reasons, for the 1999 taxation year.
[30] I officially recognize the consent to
judgment mentioned in paragraph 12 of the Response to Notice of
Appeal in Mr. Bourisquot's file.
[31] The assessment made with regard to Mr.
Bourisquot shall be referred back to the Minister for
reassessment given that the capital gain for 1998 must be reduced
to $6,096.
[32] The whole without costs.
Signed at Ottawa, Canada, this 22nd day of September 2004.
Tardif J.
Translation certified true
on this 21st day of December 2004
Aveta Graham
Email this Content