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Citation: 2004TCC230
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Date: 20040318
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Docket: 2003-1203(IT)I
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BETWEEN:
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HAIM PINTO,
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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
Lamarre Proulx, J.
[1] The Appellant was using the
informal procedure to appeal the assessments based on net worth
for the 1997 and 1998 taxation years.
[2] The issue was whether the
respective amounts of $23,141 and $12,607 were correctly included
in calculating the Appellant's income for the years
concerned. Also at issue was whether the reassessment for
the 1997 taxation year was statute barred or valid pursuant to
subsection 152(4) of the Income Tax Act (the "Act").
[3] The Minister of National Revenue
(the "Minister") based the reassessments on the facts described
in paragraph 6 of the Reply which reads as follows:
a) the
Appellant was an accountant during the years at issue and ran his
own firm located at 133 Beaubien street west;
b) the
Appellant reported $9,669 in net business income in the 1997
taxation year, and $10,712 in 1998 on his tax returns;
c) the
Minister of National Revenue audited the Appellant's 1997 and
1998 tax returns;
d) the
Minister based the reassessments dated April 26, 2002 on net
worth because the Appellant's firm had no internal control
system;
e) the summary
of adjustments and the additional income determined by the
auditor for the notices of reassessment dated April 26, 2002 is
appended to this Reply as Appendix A as an integral part
thereof;
f) the
Minister of National Revenue made the following adjustments
further to the Appellant's notice of objection to the
reassessments dated April 26, 2002 for the 1997 and 1998 taxation
years:
i)
$10,000 was added to the Appellant's unreported income for
the 1997 taxation year to take into account the increase in term
deposits held by the Appellant between
December 31, 1996 and December 31, 1997 as indicated in
Appendix B;
ii) $15,000
was deducted from the Appellant's unreported income for the 1998
taxation year to take into account the decrease in term deposits
held by the Appellant between December 31, 1996 and December 31,
1998 as indicated in Appendix B;
iii) $20,000
was deducted from the Appellant's unreported income for the 1998
taxation year to take into account his uncle's repayment of an
account payable;
iv) $20,500 was
deducted from the Appellant's unreported income for the 1998
taxation year to take into account the Appellant's loan from his
sister, Ms. Debrah Pinto;
g) The value
of each asset and liability was based on documents or information
provided by the Appellant;
h) The
Appellant's personal expenses were based on documents he provided
concerning, among other things, amounts he spent on lodging,
electricity, property taxes, insurance, vacation (1998),
telephone, clothing (daughter), health care, eyeglasses, life
insurance premiums, Quebec pension board, licenses, gifts,
lotteries, membership fees, etc.;
i)
Statistics Canada estimates for a single person were used for
expenses for which no documentation was provided such as food,
vacation (1997), cleaning and household products, men's clothing,
clothing dry cleaning and pressing, gasoline, automobile
maintenance and repair, car insurance, dental care, personal
care, newspapers, magazines and books, contributions to religious
organizations, etc.;
j) the
summary of the Appellant's personal expenses used by the auditor
for the years at issue is appended to this Reply as
Appendix C as an integral part thereof;
k) since the
Appellant misrepresented facts on his tax return for the 1997
taxation year attributable to negligence, carelessness or wilful
default, the Minister issued the notice of reassessment dated
April 26, 2002 pursuant to subparagraph 152(4)(a)(i) of
the Act;
l) by
failing to report $23,141 and $12,067 respectively, the
Appellant knowingly or under circumstances amounting to gross
negligence made a false statement or omission on his tax returns
filed for the 1997 and 1998 taxation years or participated in,
assented to or acquiesced in the making of this false statement
or omission and as a result, the tax he would have been required
to pay based on the information provided in those years was less
than the amount of tax payable for each of those years.
[4] The Appellant testified on his own
behalf. Mr. Yvan Richard, who conducted the audit of the
Appellant and used net worth to calculate the discrepancy, and
Ms. Chantal Faubert, an objections officer, who made the
adjustments mentioned in paragraph 6 (f) of the Reply, testified
on behalf of the Respondent. The auditor's T-20
report was entered as Exhibit I-1 and his T2020 report as
Exhibit I-6. The objection report was provided by the
objections officer and entered as Exhibit I-7.
[5] I am going to provide the
Appellant's, the auditor's or the objection officer's position on
the issues and my conclusion.
[6] The Appellant first raised the
issue of the various entries used in Appendix C and mentioned in
paragraph 6(j) of the Reply. Appendix C is the calculation
of the Appellant's personal expenses.
[7] Two estimated amounts were used
for food in 1997: $2,199.75 for groceries and $955.09 for
restaurants. Virtually identical amounts were used in 1998.
The Appellant claimed that he never bought groceries and that
clients paid when he went to restaurants.
[8] He explained that he lives with
his mother and three brothers in a property he owns on
L'Épée street in Outremont. He said that
groceries are not one of the household expenses he pays for.
[9] The officers from the Minister of
National Revenue (the "Minister") explained that the Appellant's
mother receives old-age benefits, his two brothers are on welfare
and the third brother reported a very small income.
Further, Exhibit I-5 contains, among other things, a
bill the Appellant paid at a Price Costco store on which
only grocery items appear. This same exhibit contains
another bill from a Price Costco store located in
Plattsburgh, New York, in the United States, on which
grocery items also appear.
[10] I therefore feel that the Appellant is
not credible when he states that he never paid for any
groceries. Further, his statement concerning restaurant
expenses is at first glance implausible and in and of itself not
enough to convince me.
[11] An amount of $8,400 is indicated for
both years for lodging. This amount is paid for the lodging of
his ex-wife and his two daughters. The Appellant indicated
that the amount should be $7,700 for 1998. The Appellant's
ex-wife allegedly gave him $700 based on an entry in Exhibit
I-2 and Exhibit A-7 dated March 1, 1998. I feel
that this correction must be made.
[12] The Appellant objected to the estimated
$123.96 for trips. This objection is not credible either,
given the proof of his many trips to Plattsburgh.
[13] The Appellant objected to the housing expenses, that is,
to the estimated amounts of $127.01 and $158.50 for cleaning and
household products. This objection is
implausible.
[14] In fact, the Appellant objected to most
of the estimated personal expenses and others based on the
withdrawals and deposits indicated in his bank passbook. I
am going to mention only those that the Appellant succeeded in
convincing me to change or cancel.
[15] I noted that the Appellant objected to
the various personal expenses and certain tangible asset items at
the hearing, not during the audit or objection stage. This
decreases the credibility of the statements.
[16] The amount should be $3,091.44, not
$3,270.20, for life insurance for 1997.
[17] The Appellant stated that he never made
any religious contributions and that if he had, he would have
requested a receipt. I accept this statement. The
$154.40 and $155.38 for 1997 and 1998 must be removed.
[18] The amount indicated in 1998 as "Other"
for the Collège Hillet for his daughters should be $800,
not $1,000.
[19] The Appellant objected to the $2,891.28
indicated in Appendix A as tangible assets for renovations to a
house the Appellant had recently purchased on Coolbrook
Avenue. This single home was purchased in May 1998 for
$85,853.38 cash. The Appellant provided a contractor's
estimate for the renovations and claimed that this work was done
on a bathroom in a group of rental properties he owns at 133 to
137 Beaubien street. I feel that it is too late to provide
this type of document. The Appellant should have given it
to the auditor or the appeals officer, who could have checked
where the work had in fact been carried out.
[20] The auditor agreed that it was possible
to include the same amount as household goods in both
years. The amount is therefore $2,091.93, not $3,850.33 for
1998.
[21] The auditor agreed that the $500
investment (personal loan to an unknown person) indicated in 1998
could be cancelled.
[22] The Appellant mentioned a few times
that certain business expenses were included in the net
worth. The auditor informed the Court that no expense used
to calculate business income was used to calculate the net
worth. It is not enough at the hearing stage to make
straightforward statements that an expense is a business not a
personal expense unless it is clear from looking at the expenses
that it is a certain type of expense. This is not the case
with the use of a telephone or automobile.
[23] The Appellant indicated in connection
with the term deposits mentioned in paragraph 6 (f) of the
Reply that it was impossible that he had accumulated $10,000 in
income as at January 31, 1997. The deposit was dated
January 31, 1997. He maintained that it was his uncle's repayment
of a debt. The Appellant found the pertinent information
for the other term deposits. The burden was on him to prove
that this term deposit was not a result of unreported
income. He did not do so.
[24] The objections officer explained that
the Appellant is the type of person who reports $9,000 in income
and pays his ex-wife and two daughters $8,000 for rent. He
owns a number of buildings. He paid $85,853.38 cash to purchase a
single home in May 1998. She accepted the proof of payments
received from the Appellant's uncle and sister for the 1998
taxation year because they were plausible documents, but without
these, she cannot remove the $10,000 added for the 1997 taxation
year.
[25] I feel that the term deposit schedule,
as determined by the objections officer based on the information
provided by the Appellant, can be changed without convincing
evidence. This evidence was not provided.
[26] The assessment for the 1998 taxation
year was made after the normal assessment period. Paragraph
152(4)(a) of the Act reads as follows:
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Assessment and reassessment
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(4) The Minister may at any time make an assessment,
reassessment or additional assessment of tax for a taxation
year, interest or penalties, if any, payable under this
Part by a taxpayer or notify in writing any person by whom
a return of income for a taxation year has been filed that
no tax is payable for the year, except that an assessment,
reassessment or additional assessment may be made after the
taxpayer's normal reassessment period in respect of the
year only if
(a) the taxpayer or person filing the return
(i)
has made any misrepresentation that is attributable to
neglect, carelessness or wilful default or has committed
any fraud in filing the return or in supplying any
information under this Act, or
(ii) has filed with the
Minister a waiver in prescribed form within the normal
reassessment period for the taxpayer in respect of the
year; or
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[27] What does "made a misrepresentation
that is attributable to neglect, carelessness or wilful default"
mean? I cite Venne v. Canada, [1984] F.C.J. No.314
(Q.L):
I am satisfied that it is sufficient for the Minister, in
order to invoke the power under subparagraph 152(4)( a )(i) of
the Act to show that, with respect to any one or more aspects of
his income tax return for a given year, a taxpayer has been
negligent. Such negligence is established if it is shown that the
taxpayer has not exercised reasonable care. This is surely what
the words "misrepresentation that is attributable to
neglect" must mean, particularly when combined with other
grounds such as "carelessness" or "wilful
default" which refer to a higher degree of negligence or to
intentional misconduct. Unless these words are superfluous in the
section, which I am not able to assume, the term
"neglect" involves a lesser standard of deficiency akin
to that used in other fields of law such as the law of tort. See
Jet Metal Products Limited v. Minister of National Revenue
(1979) 79 DTC 624, pp. 636-37 (T.R.B.).
[28] I also cite Justice Pratte then sitting
on the Federal Court of Appeal Trial Division in Canada v.
Bisson, [1972] F.C. 719:
19 Appellant could only proceed
with re-assessments for the years 1955 to 1962 if, in the words
of s. 46(4)(a)(i), respondent had "made any
misrepresentation or committed any fraud in filing" his
return. It is clear that, when he declared his income for the
years in question, respondent made an error in good faith; he did
not know that the sums paid to Thorn by Hull City Transport Ltd.
formed part of his income. It has been held on several occasions
that a "misrepresentation", though innocent, justifies
the Minister in proceeding with a re-assessment at any time (see:
M.N.R. v. Taylor 61 DTC 1139; M.N.R. v. Appleby 64
DTC 5199; M.N.R. v. Foot 66 DTC 5072). However, in all
cases where the courts have so found, the taxpayer, though he had
acted in good faith, had been clearly negligent. The question
thus remains undecided, whether the Minister may proceed with a
re-assessment after the period of four years, when the taxpayer
has made an innocent misrepresentation involving no negligence on
his part. If, as appellant's counsel maintained, even errors
committed by a taxpayer entailing no negligence justified the
Minister in proceeding with a re-assessment at any time, s. 46(4)
would provide wholly illusory protection to the taxpayer, since
the only case in which he would benefit from it, undoubtedly very
rare, would be where the re-assessment was designed to correct an
error attributable solely to the Department itself. If this had
been the purpose Parliament had in mind when it enacted s.
46(4)(a)(i), it is not clear why it provided that the Minister
may proceed with re-assessments at any time if the taxpayer
"has made any misrepresentation or committed any fraud in
filing the return". In effect, any fraud necessarily
presupposes a misrepresentation", and if the latter word
covered every type of inaccurate representation, the reference to
fraud in the provision would be totally unnecessary. In my view,
the fact that the legislator referred not only to
"misrepresentation" but to "fraud" indicates
that, by the first word, he meant innocent misrepresentation
which, without being fraudulent, are still culpable in the sense
that they would not have been made if the person committing them
had not been negligent. I therefore conclude that a taxpayer who,
without any negligence on his part, commits an error in declaring
his income, does not make a misrepresentation within the meaning
of s. 46(4)(a)(i). When the Minister seeks to rely on this
provision to proceed with a re-assessment after four years, he
must therefore not only show that the taxpayer committed an error
in declaring his income but also that that error is attributable
to negligence on his part.
[29] An assessment cannot be made after the
normal assessment period unless there is a certain degree of
negligence on the taxpayer's part or, in other words, unless he
or she did not exercise due diligence. The taxpayer must
have been to some extent careless in correctly calculating his or
her income on his or her tax return.
[30] In my opinion, when a $23,000
discrepancy for a year is revealed during a Minister's audit,
there is no question that there was negligence on the taxpayer's
part, especially since the taxpayer is an accountant by
profession.
[31] A penalty was imposed pursuant to
subsection 163(2) of the Act, which reads as follows:
False statements or omissions
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163(2) 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
[...]
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[32] In this regard, I cite once again
Venne (supra):
"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.
[33] The Minister's officers stated that the
accounting firm's books had not been kept properly. The
audit officer had trouble obtaining the relevant
information. The term deposits were mentioned to the
objections officer, but not the auditor. The Appellant
objected to virtually all the entries in Appendix C concerning
personal expenses. These expense amounts were
minimal. I feel that the taxpayer was cooperative while the
parameters of the dispute were being identified because he was
trying to hide his income. I am convinced, based on the
evidence provided at the hearing, that the Appellant attempted
wilfully to hide his income and that the penalty imposed pursuant
to subsection 163(2) of the Act was justified under the
circumstances.
[34] The appeal is allowed in order to allow
the Minister to reassess the Appellant pursuant to these
reasons.
Signed at Ottawa, Canada this 18th day of
March 2004.
Lamarre Proulx, J.
Translation certified true
on this 21st day of December 2004.
Wendy Blagdon, Translator.
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