Date: 20000824
Dockets: 1999-2438-IT-I
BETWEEN:
CATHERINE OUELLETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Dockets: 1999-2439-IT-I
PIERRE PONTBRIAND,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Tardif, J.T.C.C.
[1]
These two appeals were heard together on common evidence.
[2]
The appeals concern the assessment of a penalty in respect of the
1996 taxation year.
[3]
The appellant Pierre Pontbriand indicated that he had been asked
by his spouse to prepare her income tax return every year and the
appellant Catherine Ouellette confirmed in her testimony
that she always relied on her spouse to prepare her tax
returns.
[4]
Section 163(2) of the Income Tax Act (the
"Act"), which deals with the assessment of
penalties, reads as follows:
(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
(a) the amount, if any, by which
(i)
the amount, if any, by which
(A) the tax for the year that would be
payable by the person under this Act
exceeds
(B) the amount that would be
deemed by subsection 120(2) to have been paid on account of the
person's tax for the year
if the person's taxable income for the year were computed by
adding to the taxable income reported by the person in the
person's return for the year that portion of the person's
understatement of income for the year that is reasonably
attributable to the false statement or omission and if the
person's tax payable for the year were computed by
subtracting from the deductions from the tax otherwise payable by
the person for the year such portion of any such deduction as may
reasonably be attributable to the false statement or omission
exceeds
(ii)
the amount, if any, by which
(A) the tax for the year that would
have been payable by the person under this Act
exceeds
(B) the amount that would have
been deemed by subsection 120(2) to have been paid on account of
the person's tax for the year
had the person's tax payable for the year been assessed on
the basis of the information provided in the person's return
for the year,
. . .
[5]
The evidence established that the Royal Canadian Mounted Police
("RCMP") had launched a police investigation into
possible anomalies or irregularities in the processing of certain
files, in which the office of Ratelle et Associés
Redressement Financier ("Ratelle") was implicated.
[6]
At first, the investigation focused essentially on some of
Ratelle's practices and on its connections with the office of
a trustee in bankruptcy.
[7]
In the course of the investigation, it was noted that some
taxpayers might have received tax benefits the basis for which
was fictitious. From that point on, the investigation became a
joint investigation with Revenue Canada.
[8]
The RCMP and Revenue Canada investigators soon discovered that
several hundreds of files contained false and untruthful
information; indeed, they identified a number of fictitious firm
names that appeared on the income tax returns of a number of
taxpayers.
[9]
Accordingly, in order to get to the bottom of the whole matter,
they decided to meet with all the individuals who had reported
tax losses from presumably fictitious businesses.
[10] Ratelle
described itself as a financial adjustment firm. Through
aggressive advertising, Ratelle targeted groups of high-income
employees generally working for the same business. They were
solicited through circulars and faxes and—even more
effectively—by word of mouth.
[11] In actual
fact, Ratelle prepared tax returns for clients who were looking
for tax refunds and set off against their incomes either a
business loss or a business investment loss.
[12]
Ratelle's clients did not obtain valid documentation
supporting the losses claimed. In some cases, a deposit was paid,
a portion of which corresponded to the fees for preparing the tax
return.
[13] The
appellant explained the circumstances that had led him to
Ratelle's office. He and his wife were looking for a way to
reduce the amount of taxes they had to pay. The appellant
therefore showed a keen interest in Ratelle's proposal.
[14] The
appellant said that when Ratelle called to ask them to come into
the office to sign the tax returns that it had completed, he had
refused and asked for their returns so that he and his spouse
could examine them.
[15] After
checking the amount of the tax refunds claimed, he sent the two
signed returns back to Ratelle's office. Maintaining that he
had little or no familiarity with tax matters, the appellant
stated that he thought that he and his wife were entitled to the
refunds claimed because they thought that they had bought bearer
bonds.
[16] For the
1996 taxation year, the appellant Pierre Pontbriand reported
a gross income of $55,896.83, and the appellant
Catherine Ouellette reported a gross income of $14,095.56.
On line 228 of his return, the appellant Pierre Pontbriand
reported a gross business investment loss of $33,900 and, on line
217, an allowable loss of $25,425. The appellant
Catherine Ouellette reported on those lines a gross loss of
$21,900 and a net loss of $16,425. The size of the losses claimed
by them was considerable in view of their incomes.
[17] The
appellant Pierre Pontbriand explained that he thought the whole
thing was legal and legitimate and did not ask himself any
further questions. He also indicated that he and his spouse had
not paid a cent to purchase what they thought were bearer bonds.
He added that the amount they had to pay was based on the size of
their refunds.
[18] When the
investigators wanted to meet with him to discuss his file, he
said that it was not a good time. He mentioned in that regard
extra work, his spouse's illness and the fact that one of his
children was sick and required a great deal of care and
attention. Finally, he stated a number of times that the ice
storm tragedy had played havoc with his availability.
[19] All the
facts related by the appellants obviously put the case in a
sympathetic light; but I do not see how that could excuse or
justify the false and untruthful information on the
appellants' tax returns or erase the effects thereof.
Regardless of what Ratelle might have said in pitching its
product, the fact remains that the information provided was
objectively false; furthermore, these were not mere trifles but
important statements having a very significant effect on the
appellants' tax burden.
[20] With
regard to the nature of the losses, no familiarity with tax
matters was required in order to grasp the meaning and scope of
the heading "Business investment loss".
[21] The
appellant maintained that he and his spouse thought they had
purchased bearer bonds. Such claims are utterly implausible,
especially since the appellants did not have to pay out anything
other than a percentage calculated in terms of the tax refunds.
In point of fact, they never suffered any actual losses but were
instead enriched, until the tax authorities discovered the
manoeuvre. In other words, the appellants could not lose, they
could only gain. How is one to believe that reasonable people
could have thought such a thing was possible unless they told
themselves they had nothing to lose?
[22] The Court
noted that the appellants were reasonable people with an
excellent education and capable of discernment. I think that the
appellant Pierre Pontbriand wilfully and deliberately
abandoned his critical sense. In other words, presented with an
opportunity for easy profit, he preferred to close his eyes,
telling himself that he could always justify the false statements
by his ignorance and by his reliance on persons who held
themselves out to be experts in the field.
[23] Despite
numerous attempts by the investigators to obtain a statement from
him, no meeting was ever held, for the various reasons mentioned
above.
[24] The
events subsequent to the filing of the return are, in my view, of
quite secondary importance, since the circumstances justifying a
penalty must be evaluated as they were when the return was
signed. Any assessment of subsequent events is solely for the
purpose of gaining a better understanding.
[25] In the
case at bar, the evidence did not reveal any facts subsequent to
the filing of the appellants' tax returns that erased or even
explained the false statements in those returns. The appellants
acknowledged that the information in their tax returns was false
and untruthful. They admitted that they signed their returns,
certifying that everything in them was true.
[26] The mere
fact of signing a return containing false statements is in itself
a serious offence or, at the very least, constitutes gross
negligence on the part of the person signing that return.
[27] In view
of the degree of the appellants' ignorance, incompetence or
naivety, there may be grounds for a tort action against Ratelle,
the originators of the false and untruthful return, but those
factors are certainly not valid excuses that can be put forward
against the Minister of National Revenue (the
"Minister").
[28] With
regard to the Minister, the negligence was so gross as to amount
to complicity, and the appellants cannot be viewed as the
innocent victims they tried to make themselves out to be.
[29] The
appellants in the instant case were highly educated people,
clearly possessing knowledge and experience that should have
alerted them or at least made them suspicious enough to consult
genuine experts who were independent from Ratelle. Having regard
to their income, the size of the losses claimed was substantial,
which in itself was another factor that should have prompted the
appellants to check with an independent expert. According to the
appellants, Ratelle is solely responsible, and no responsibility
can be assigned to them. But did Ratelle give the false and
untruthful information without the appellants' knowledge? The
evidence on this point made it clear that the answer is no.
[30] There are
a number of decisions of this Court regarding penalties. It is
appropriate to reproduce some excerpts that seem to me to be very
relevant in the circumstances. They are taken from decisions by
Chief Judge Couture of this Court. In Morin v. M.N.R.,
86-58(IT), ([1987] A.C.I. no 1109), he wrote as
follows:
. . .
The appellant wrongly submits that as a taxpayer he fulfilled
his fiscal obligation by signing reports prepared by an
accountant without at the same time ensuring himself of the
accuracy of these reports or verifying the amounts of income
entered therein. In my opinion, this was another instance of
gross negligence, since by his own testimony the appellant read
closely and understood the implications of all the clauses in the
various business contracts he signed, but when it came to tax
returns he admitted that he signed them without even reading
their contents on the pretext that he understood absolutely
nothing about accounting. The fact is that the appellant was in a
position to judge whether his tax returns accurately reflected
the income from his business—which is what he failed to
do.
. . .
In another case, Girard v. Canada (M.N.R.), [1988]
T.C.J. No. 723, Chief Judge Couture wrote:
. . .
For an appellant to avoid liability under the Act when he
fails to report income, he cannot simply attribute the omission
to circumstances apparently beyond his control and try to place
the blame on third parties. When he signs his tax return for a
taxation year he also signs the following certificate:
I hereby certify that the information given in this return and
in any documents attached is true, correct and complete in every
respect and discloses my income from all sources.
This statutory formula appears to me to be quite clear and to
require no explanation. When signed by a taxpayer it creates a
presumption that the return is correct, based on the fact that
the taxpayer was aware of and satisfied with its contents when he
signed it. The same is true for all additions that must be
completed and filed with the statement without exception, if the
circumstances so require.
I do not suggest that the fact that a taxpayer signed such a
certificate automatically makes him liable to the penalty
mentioned in s. 163(2) if he commits any offence in the return. I
admit that there are a whole range of circumstances in which he
will be entirely free of liability under this subsection; but for
him to succeed in persuading the Court that the offence committed
by him resulted from independent circumstances beyond his
control, and so avoid liability, he must show that in the
circumstances he exercised reasonable attention and diligence in
preparing and filing his return.
. . .
[31] I believe
it is important to reproduce an excerpt from Desrochers v.
Canada, [1999] T.C.J. No. 879, in which the Honourable Judge
Dussault wrote:
. . .
I have read you section 163(2); you can see that gross
negligence or the act of doing something knowingly occurs when a
return is made; that is the relevant time for the purpose of
analysing things.
Of course, subsequent factors may be indications of whether or
not there was good faith. It has long been established in the
case law that Revenue Canada's treatment of other taxpayers
is not relevant in deciding a case. And that is exactly the
situation here: the evidence that was adduced was adduced in your
case, and the law requires me to confine myself to that
evidence.
In closing, I would simply like to say that meeting with the
investigator only after the whole matter is already in the
newspapers, even though you had twice been notified beforehand
that it was a case of fraud, is not exactly what one would call
voluntary disclosure that could demonstrate your good faith. Once
again, when you were told about the investigation, you preferred
to turn to those implicated rather than to some independent
person.
. . .
[32] Having
regard to the evidence, the respondent was fully justified in
assessing the penalty, and the appeal is therefore dismissed.
Signed at Ottawa, Canada, this 24th day of August 2000.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 23rd day of October
2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-2439(IT)I
BETWEEN:
PIERRE PONTBRIAND,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal
of Catherine Ouellette, 1999-2438(IT)I, on June 7,
2000, at Montréal, Quebec,
by the Honourable Judge Alain Tardif
Appearances:
Counsel for the
Appellant:
Martin Fortier
Counsel for the
Respondent:
Suzanne Morin
JUDGMENT
The
appeal from the assessment made under the Income Tax Act
for the 1996 taxation year is dismissed in accordance with the
attached Reasons for Judgment.
Signed at Ottawa, Canada, this 24th day of August 2000.
J.T.C.C.
Translation certified true
on this 23rd day of October 2001.
Erich Klein, Revisor
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