Date: 20000824
Docket: 1999-3668-IT-I
BETWEEN:
MARIELLE LAMARRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1]
The appeal concerns the assessment of a penalty in respect of the
1996 taxation year.
[2]
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.
[3]
The evidence established that the Royal Canadian Mounted Police
("RCMP") had launched a police investigation into
possible anomalies or irregularities in the handling of certain
files, in which the office of Ratelle et Associés
Redressement financier ("Ratelle") was implicated.
[4]
At first, the investigation focused essentially on some of
Ratelle's practices and on its connections with the office of
a trustee in bankruptcy.
[5]
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.
[6]
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
persons.
[7]
Accordingly, in order to get to the bottom of the whole matter,
they decided to meet with all the individuals who were concerned
or who were associated with the presumably fictitious
businesses.
[8]
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.
[9]
Various tactics were used. Ratelle apparently told some clients
that every taxpayer was entitled to a full tax holiday once in
his life. With others, Ratelle took what appears to have been a
more appealing tack, holding itself out as having expertise in
financial adjustment; in this regard, it claimed to have numerous
clients and businesses in difficulty that could not take
advantage of legitimate losses. These losses could be transferred
to the benefit of the transferees in return for a percentage
based on the benefits received.
[10] 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. In either case, the
losses were fictitious.
[11]
Ratelle's clients did not receive any documentation or
evidence showing that the loss they were claiming was valid.
Ratelle generally required payment of its fees for preparing the
tax return. In addition, those benefiting from the fictitious
losses paid Ratelle a percentage based on the tax refund they
obtained.
[12] In the
case at bar, the appellant claimed a gross business investment
loss in the amount of $25,659, or a deductible amount of
$19,244.25. This was a substantial amount to be applied against
her income of $38,203.13.
[13] The
fictitious loss that was claimed generated a federal income tax
refund of $3,877.74. The amounts in question were considerable, a
fact that would have alerted any reasonable person, especially
since the loss was unsupported by any documentation. It is
unimaginable that any moderately well-informed person could have
believed in the legitimacy of a scenario like that. The only
plausible explanation is no doubt that the appellant had decided
that she had nothing to lose and that, if any problems were to
arise, she had only to put the blame and the responsibility on
Ratelle.
[14] In actual
fact, there may exist tax shelters, allowable expenses,
exemptions, losses and so on that have the effect of reducing a
taxpayer's tax burden, provided, however, that the facts,
figures and transactions are genuine and not fabricated, because
if they are, what is involved is essentially fraud.
[15] The
appellant maintained that she had always been in good faith; she
said that she believed Ratelle to be a responsible and
trustworthy firm, adding that, to her knowledge and based on her
experience, there were many tax shelters that would allow one to
substantially reduce one's tax burden.
[16] The
appellant admitted that she had been looking for a tax shelter
and gave as examples various experiences she had had in real
estate.
[17] Relying
on an expert or on someone who holds himself out to be an expert
in no way absolves the one person who is really responsible for a
tax return concerning him or her.
[18] The
appellant signed a tax return that contained false and untruthful
information, and she cannot claim that this was done without her
knowledge. She had an obligation to ensure that all the
information contained in her return was truthful. Furthermore,
she formally signed her return for the year at issue.
[19] The
appellant was familiar with the decision of the Honourable Judge
Dussault of this Court in Desrochers v. Canada, [1999]
T.C.J. No. 879, which also involved Ratelle. She argued,
however, that her case was different in that her good faith could
not be questioned. She also stated that the facts in her case
were different and special and not to be compared with the facts
in Desrochers.
[20] I think
it is important to cite a passage from that judgment in which the
Honourable Judge Dussault stated the following:
. . .
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.
. . .
[21] Each case
indeed stands on its own merits, especially when it comes to
penalties and the assessment of good faith.
[22] There was
abundant evidence concerning the facts and circumstances
subsequent to the filing of the return. In the course of the
joint investigation by Revenue Canada and the RCMP, a number of
attempts were made to meet with those concerned in the matter of
the possibly untruthful information. Some promptly co-operated;
others co-operated less readily and some did not do so at
all.
[23] The
appellant provided a whole series of explanations to justify her
conduct during the investigation. The Court does not attach much
importance to that phase of the case since it involves facts
subsequent to the signing of her return.
[24] It has
been held in a number of cases that facts subsequent to the
filing of a return are of secondary importance in that,
essentially, they may contribute to gaining a better
understanding of the facts as they were when the return was
signed.
[25] In the
case at bar, the appellant, convinced at the time she signed her
return that her claim was valid, chose to stick to her position
and to rely on Ratelle to settle her case.
[26]
Maintaining that she acted in good faith throughout does not in
any way dilute, excuse or lessen the objective, actual and, above
all, gross negligence committed when the appellant filed her tax
return.
[27] Did the
return that was signed contain false and misleading
information?
[28] Was the
information that it contained supported by truthful and valid
documentation?
[29] Were
there facts likely to put one on alert or make the Ratelle
scenario look suspicious?
[30] Was there
an actual expenditure, or a formal undertaking regarding the
payment of a specific consideration, that validated the alleged
transaction resulting in the losses claimed?
[31] Ratelle
proposed a scenario based on one single consideration: a
reduction of the tax burden according to the tastes and needs of
the interested party. The method of achieving this was left to
Ratelle's discretion.
[32]
According to the evidence, what was involved was the purchase of
one or more losses that could not be used by those who had
incurred them. The purchase of property or a security implies the
obligation to pay a consideration which is the subject of
negotiation and discussion by the parties, who, at the stage at
which the transaction is finalized, ultimately reach agreement
and at the same time specify payment terms. A transaction that is
neither real nor genuine cannot generate effects, much less tax
benefits.
[33] In the
case at bar, no significant expenditure was made, and payment of
the consideration was conditional on an eventual refund and based
on the amount refunded. Thus, the interested parties, including
the appellant, would have paid nothing had there been no tax
refund.
[34] This fact
alone meant that no loss was possible; quite the contrary, with
no expenditure or risk of loss whatsoever, there was
enrichment.
[35] How could
any moderately responsible and reasonable person believe
unquestioningly that such a scenario could be proper, legitimate
and beyond reproach?
[36] Instead
of asking herself questions and making certain basic checks with
qualified, independent persons, the appellant preferred to
believe and essentially rely on an unscrupulous organization that
was clearly in a conflict of interest and furthermore was
benefiting from the situation: the greater the fraud the greater
the return, for both Ratelle and the taxpayer.
[37] The fact
that Ratelle maintained that the whole thing was proper and
lawful is certainly not a sufficient basis for concluding that
the parties involved were acting in good faith and that they were
beyond reproach. It might justify a tort action against Ratelle
but it in no way excuses the fact that the information provided
to the respondent on the tax return was false.
[38] The facts
and circumstances leading up to the filing of the tax return are
such that a reasonable, normally prudent and serious person would
not have agreed to let his or her name be associated with such an
unsound, harebrained scheme.
[39] The lure
of easy profits caused the appellant to prefer to close her eyes
and take a risk, telling herself that she had nothing to
lose.
[40] If the
losses claimed were disallowed, the appellant thought that she
could put the blame solely on Ratelle and argue that that firm
was an acknowledged expert which she could and should trust.
[41] It is the
person signing an income tax return who is accountable for the
information provided in that return, not the agent who completed
it, regardless of that agent's skills or qualifications.
[42] The
respondent was fully justified in assessing the penalty; the
evidence amply established that the appellant had knowingly made
in her tax return for the 1996 taxation year a statement that
amounted to gross negligence.
[43] The
appeal is accordingly dismissed.
Signed at Ottawa, Canada, this 24th day of August 2000.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 29th day of October
2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-3668(IT)I
BETWEEN:
MARIELLE LAMARRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 8, 2000, at
Montréal, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the Appellant:
The
Appellant herself
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 29th day of October 2001.
Erich Klein, Revisor
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