Gingras v. The Queen, docket 1999-1681-IT-I (Informal Procedure)

Date: 20000824

Dockets: 1999-1681-IT-I; 1999-2405-IT-I; 1999-2407-IT-I; 1999-2409-IT-I

BETWEEN:

ROBERT GINGRAS, ROLLAND GINGRAS, ROMÉO GINGRAS, LOUISE ASSELIN GINGRAS,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Tardif, J.T.C.C.

[1] These are appeals from penalties assessed for the 1996 taxation year in the cases of Richard Gingras (1999-1681(IT)I) and Rolland Gingras (1999-2405(IT)I) and for the 1997 taxation year in the cases of Roméo Gingras (1999-2407(IT)I) and Louise Asselin Gingras (1999-2409(IT)I).

[2] These four appeals were heard together on common evidence at the request of the parties.

[3] Subsection 163(2) of the Income Tax Act (the "Act") concerning 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,

. . .

[4] In making and confirming the assessments, the Minister of National Revenue (the "Minister") made the following assumptions of fact:

First, in the case of Richard Gingras (1999-1681(IT)I):

[TRANSLATION]

(a) when he reported his income for the 1996 taxation year, the appellant claimed, for the purposes of computing his taxable income, an allowable business investment loss to which he was not entitled;

(b) the appellant never held any claims or shares in relation to that loss;

(c) the appellant thus did not dispose of claims or shares in relation to that loss;

(d) in thus claiming an amount of $48,652 against his income for the 1996 taxation year, 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 an omission in the income tax return filed for the 1996 taxation year, as a result of which the tax which he would have been required to pay on the basis of the information provided in the return of income filed for that year was less than the amount of tax payable for that year;

(e) after disallowing the loss claimed by the appellant, the Minister, in the notice of reassessment of July 27, 1998, assessed a penalty of $5,192.66 against the appellant for the 1996 taxation year under subsection 163(2) of the Act;

(f) the federal tax which the appellant should have paid for the 1996 taxation year and which was not paid on April 30, 1997, amounted to $15,577.98 (the difference);

(g) the interest assessed on the difference for the period from May 1, 1997 to the date of the reassessment amounts to $1,620.08.

Second, in the case of Rolland Gingras (1999-2405(IT)I):

[TRANSLATION]

(a) the Minister and the Royal Canadian Mounted Police, following a joint investigation of a tax return preparer, discovered, among other things, a scheme which consisted in claiming fictitious amounts in respect of business losses;

(b) on April 16 and 17, 1998, the Minister attempted to schedule a meeting with the appellant concerning the business loss claimed, but the appellant refused;

(c) on April 17, 1998, the Minister sent the appellant a letter in which he informed him that he intended to disallow the business loss claimed in his return of income for the 1996 taxation year and to apply thereto the penalty under subsection 163(e) of the Act, the whole subject to any relevant information which the appellant would be kind enough to send to him in the following 30 days;

(d) the appellant did not act on the letter dated April 17, 1998;

(e) the appellant had signed his return of income for the 1996 taxation year, attesting to the truth and accuracy of the information reported;

(f) in claiming a fictitious amount of $17,594.25 ($23,459 x .75) in respect of a business investment loss, the appellant knowingly, or in circumstances amounting to gross negligence, made or participated in, assented to, or acquiesced in, the making of a false statement or an omission in his return of income filed for the 1996 taxation year, as a result of which the tax which he would have been required to pay on the basis of the information provided in his return of income filed for that year was less than the amount of tax payable for that year;

(g) the return of income for the 1996 taxation year was supposed to be filed no later than April 30, 1998;

(h) the tax payable and the penalty unpaid as of April 30, 1997 totalled $4,072.50 (the surplus) for the 1996 taxation year;

(i) the prescribed interest on the surplus from April 30, 1997 to the date of the notice of reassessment (July 20, 1998) for the 1996 taxation year amounted to $421.47.

Third, in the case of Roméo Gingras (1999-2407(IT)I):

[TRANSLATION]

(a) the Minister and the Royal Canadian Mounted Police, following a joint investigation of a tax return preparer, discovered, among other things, a scheme which consisted in claiming fictitious amounts in respect of business losses;

(b) on August 13, 1998, the Minister attempted to schedule a meeting with the appellant concerning his share of the business loss claimed, but the appellant refused;

(c) on August 13, 1998, the Minister sent the appellant a letter in which he informed him that he intended to disallow his share of the business loss claimed in his return of income for the 1997 taxation year and to apply thereto the penalty under subsection 163(e) of the Act, the whole subject to any relevant information which the appellant would be kind enough to send to him in the following 30 days;

(d) the appellant did not act on the letter dated August 13, 1998;

(e) the appellant had signed his return of income for the 1997 taxation year, attesting to the truth and accuracy of the information reported;

(f) in claiming a fictitious amount of $10,666.50 in respect of his share of a business loss, the appellant knowingly, or in circumstances amounting to gross negligence, made or participated in, assented to, or acquiesced in, the making of a false statement or an omission in his return of income filed for the 1997 taxation year, as a result of which the tax which he would have been required to pay on the basis of the information provided in his return of income filed for that year was less than the amount of tax payable for that year;

(g) the return of income for the 1997 taxation year was supposed to be filed no later than April 30, 1998;

(h) the tax payable and the penalty unpaid as of April 30, 1998 totalled $2,868.90 (the surplus) for the 1997 taxation year;

(i) the prescribed interest on the surplus from April 30, 1998 to the date of the notice of reassessment (October 5, 1998) for the 1997 taxation year amounted to $99.32.

And fourth, in the case of Louise Asselin Gingras (1999-2409(IT)I):

[TRANSLATION]

(a) the Minister and the Royal Canadian Mounted Police, following a joint investigation of a tax return preparer, discovered, among other things, a scheme which consisted in claiming fictitious amounts in respect of business losses;

(b) on August 13, 1998, the Minister attempted to schedule a meeting with the appellant concerning her share of the business loss claimed, but she refused;

(c) on August 13, 1998, the Minister sent the appellant a letter in which he informed her that he intended to disallow her share of the business loss claimed in her return of income for the 1997 taxation year and to apply thereto the penalty under subsection 163(e) of the Act, the whole subject to any relevant information which the appellant would be kind enough to send to him in the following 30 days;

(d) the appellant did not act on the letter dated August 13, 1998;

(e) the appellant had signed her return of income for the 1997 taxation year, attesting to the truth and accuracy of the information reported;

(f) in claiming a fictitious amount of $10,666.50 in respect of her share of a business loss, the appellant knowingly, or in circumstances amounting to gross negligence, made or participated in, assented to, or acquiesced in, the making of a false statement or an omission in her return of income filed for the 1997 taxation year, as a result of which the tax which she would have been required to pay on the basis of the information provided in her return of income filed for that year was less than the amount of tax payable for that year;

(g) the return of income for the 1997 taxation year was supposed to be filed no later than April 30, 1998;

(h) the tax payable and the penalty unpaid as of April 30, 1998 totalled $2,361.62 (the surplus) for the 1997 taxation year;

(i) the prescribed interest on the surplus from April 30, 1998 to the date of the notice of reassessment (October 5, 1998) for the 1997 taxation year amounted to $90.

[5] The evidence showed that the Royal Canadian Mounted Police ("R.C.M.P.") had commenced a police investigation into possible anomalies and/or irregularities in the handling of certain files in which the office of "Ratelle et Associés Redressement financier" ("Ratelle") was involved.

[6] At the outset, the investigation focused essentially on certain practices and on ties which Ratelle had with the office of a trustee in bankruptcy.

[7] During the investigation, it was observed that certain taxpayers might have received tax benefits on the basis of fictitious information. From that point, the investigation became a joint investigation with Revenue Canada.

[8] The R.C.M.P. and Revenue Canada investigators very soon discovered that several hundreds of files contained false and untruthful information; they identified a number of fictitious firm names which appeared on the tax returns of a number of taxpayers.

[9] They therefore decided to meet all the individuals who had claimed tax losses from presumably fictitious businesses in order to shed light on the case as a whole.

[10] Ratelle called itself a firm of financial adjusters; with its aggressive advertising, Ratelle went after groups of workers generally employed by the same business and earning high incomes. It solicited clients by means of circulars, faxes and, even more effective, word of mouth.

[11] In actual fact, Ratelle prepared the tax returns of clients seeking a tax refund and applied against their incomes either a business loss or a business investment loss.

[12] Ratelle's clients generally received no valid supporting documents showing that the loss to be claimed was valid. In some cases, an instalment was paid, a portion of which corresponded to the tax return preparation fees.

[13] The appellants explained the circumstances that had led them to Ratelle's office. They said that the person they met there had informed them that every taxpayer was entitled to a tax holiday once in his life and that this was perfectly legal.

[14] Ratelle's office thus prepared the appellants' returns of income and the following losses were claimed in each case:

Appellant	Year	Income	Gross loss (BIL)	Net loss	Tax refund
Richard Gingras, 1999-1681(IT)I	1996	$68,711.58	$64,870.00	$48,652.50	$10,291.03
Rolland Gingras, 1999-2405(IT)I	1996	$34,529.18	$23,459.00	$17,594.25	$ 2,686.91
Roméo Gingras, 1999-2407(IT)I	1997	$34,062.47		$10,666.50	$ 1,999.37
Louise Asselin Gingras, 1999-2409(IT)I	1997	$18,756.80		$10,666.50	$ 1,891.23

[15] In the appeals of Roméo Gingras and Louise Asselin Gingras, the name of the business indicated on the returns of income was "R.E.G. Production", a business engaged in the production and recording of volumes. The evidence showed that this company was completely unknown to the appellants and that it was a fictitious business. Falling back on the explanations that the Ratelle office had given them, the appellants stated and repeated that they had always been in good faith, while admitting that they had never invested in, never paid anything out for and knew nothing at all about, the businesses with respect to which they had incurred the losses claimed.

[16] In actual fact, there may exist tax shelters, allowable expenses, exemptions, losses and so on which have the effect of reducing a taxpayer's tax burden, provided, however, that the facts, figures and operations are genuine and not fabricated, because if they are, the scheme essentially amounts to fraud.

[17] The appellants contended that they had always been in good faith; they stated that they believed that Ratelle was a responsible and reliable business, adding that they had little or no knowledge of tax matters.

[18] However, the appellants admitted that they had signed their returns which contained false and untruthful information.

[19] Relying on an expert or on someone who presents himself as such in no way absolves from responsibility those who certify by their signature that their returns are truthful.

[20] The appellants signed returns of income containing false and untruthful information and cannot claim that this was done without their knowledge. They had an obligation to ensure that all the information contained in their returns was truthful. If, as the theory put forward by Ratelle goes, every taxpayer is entitled to a total exemption from tax once in his life, which is not the case, this did not allow the appellants to submit false statements in order to exercise the alleged privilege, or justify them in so doing.

[21] It think it important to cite a passage from the judgment of the Honourable Judge Pierre Dussault of this Court in Desrochers v. Canada, [1999] T.C.J. No. 879. Judge Dussault wrote as follows:

. . . 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 you good faith. Once again, when you were told about the investigation, you preferred to turn to those implicated rather than to some independent person.

. . .

[22] The Court recognizes that each case stands on its own merits, particularly when it comes to matters of penalties and of the assessment of good faith.

[23] In the instant case, the appellants provided quite an array of explanations to justify their conduct at the time of the investigation conducted jointly by the R.C.M.P. and Revenue Canada. The Court does not attach a great deal of importance to this phase of the case since it involves facts subsequent to the signing of their returns.

[24] It has been held in a number of cases that facts subsequent to the filing of a return are of secondary importance: essentially, they can help to better understand the facts and elements available at the time the return was signed.

[25] In this case, the appellants, convinced at the time of their return that their claim was valid, chose to stick to their position and to rely on Ratelle to settle their cases.

[26] Arguing that they acted in good faith throughout does not in any way excuse or alter the objective, actual, and above all gross, negligence committed when the appellants' income tax returns were filed. The amounts involved were substantial in relation to their income.

[27] Ratelle outlined to them a scenario based on the utterly harebrained notion that every taxpayer is entitled to a tax holiday once in his life. Believing that this information was valid, they blindly put their trust in Ratelle, which completed their returns of income, including false and untruthful information in order to achieve the promised results.

[28] How was it possible for fairly responsible and reasonable persons to believe unquestioningly that this kind of scenario could be proper, legitimate and beyond reproach?

[29] Instead of asking themselves questions and making certain basic checks with qualified and independent persons, the appellants preferred to believe and to rely essentially on an unscrupulous organization which was clearly in conflict of interest and furthermore was benefiting from the situation, as Ratelle was remunerated based on the size of the tax refund.

[30] It is the person signing a return of income who is accountable for false information provided in that return, not the agent who completed it, regardless of the agent's skills or qualifications.

[31] With respect to penalties, the burden of proof is on the respondent. It was clearly shown on a preponderance of the evidence adduced that the appellants submitted in their respective returns major false statements which had significant impact on their tax burden. They could not have been unaware that these statements were false. The Court can understand that the taxpayers might have been incapable, inexperienced and incompetent when it came to preparing their income tax returns. However, it is utterly reprehensible to certify by one's signature that the information provided is correct when one knows or ought to know that it contains false statements. Such conduct is a sufficient basis for a finding of gross negligence justifying the assessment of the applicable penalties.

[32] For these reasons, the appeals are dismissed.

Signed at Ottawa, Canada, this 24th day of August 2000.

"Alain Tardif"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 31st day of January 2001.

Erich Klein, Revisor