REASONS
FOR JUDGMENT
Masse D.J.
Overview
[1]
Fiscal Arbitrators are unscrupulous tax
preparers who lured the Appellant into using their services to prepare his tax
return with the promise of receiving huge tax refunds. The tax refunds were the
result of fictitious business losses claimed by the Appellant when he never
owned or operated any kind of business. The Canada Revenue Agency (the “CRA”)
denied the losses and penalized the Appellant pursuant to subsection 163(2) of
the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) (the “Act”).
This case pertains only to the penalty.
[2]
The issue is simply whether the Appellant either
knowingly, or in circumstances amounting to gross negligence, made or
acquiesced in the making of false statements in his return so as to attract the
harsh penalties provided for in subsection 163(2) of the Act.
Factual Context
[3]
Patrick Chartrand has a grade 11 education and
he is a skilled tradesman, having worked as a carpenter for the past 28 years.
He is employed by Crossby Dewar Inc. and for the last six years he has been
working at the Bruce Nuclear Generating Station where he was responsible for
scaffolding. He was not involved in the management of other people.
[4]
In prior years, he had H&R Block prepare his
tax returns since, as he says, he did not understand tax returns. He usually
paid about $200 for this service. In prior years he reported employment income
only and usually got a refund of a couple of thousand dollars.
[5]
He was first introduced to Fiscal Arbitrators by
a friend at work who was involved with them. The colleague made arrangements
for the Appellant to meet representatives of Fiscal Arbitrators at an
informational seminar. The Appellant attended only the one seminar that took
place in December 2009 or January 2010. He does not remember the names of any
of the speakers and he does not remember if he signed a confidentiality
agreement, although it is possible. Fiscal Arbitrators showed him a way to get
more money back from the government. He testified that at the seminar he was
told that he could consider his home as a business since he had to travel from
home to go to work in order to make income to pay for the home, groceries,
clothing, insurance, gas, maintenance and so on. The Appellant also stated that
he may have possibly been told by representatives of Fiscal Arbitrators that
there was a way that an individual could be separated from his or her social insurance
number and thus create two separate entities for tax purposes. Frankly, the
Appellant does not provide us with much detail concerning the proposed scheme
and how it worked. All the Appellant knew was that his co‑worker’s return
looked good to him and, if Fiscal Arbitrators could go further than H&R
Block, then he was interested. There was an initial fee of $500 to prepare the
return and Fiscal Arbitrators would get a total fee of 20% of any tax refund
received. Later on, there were additional legal fees of $800 once the Appellant
started to get in trouble with the CRA. He stated that the fact that he had to
pay Fiscal Arbitrators much more than he had paid H&R Block in the past did
not ring any alarm bells.
[6]
The Appellant did not ask Fiscal Arbitrators for
any references concerning their services, and he did not get a second opinion
from an accountant or a lawyer concerning this tax savings scheme. The
Appellant did not take any steps at all to find out if what Fiscal Arbitrators
were suggesting was legal. He saw his co-worker get a huge tax refund and he
wanted the same.
[7]
The Appellant was shown his 2009 tax return
(Exhibit R-1, Tab 2). He acknowledges having put his signature on the last page,
but he was not the one who wrote “per” on the
signature line in front of his name and he imagines that Fiscal Arbitrators did
— he did not think anything of it and he did not ask any representative of
Fiscal Arbitrators why “per” was written on the
signature line. He stated that he did not review his return in its entirety and
never read any of the supporting documents. He says that he never goes over
anything. He agreed that no one signed or completed the box reserved for the
tax preparer who prepared the return but he states that he did not notice that
this box was left empty when he signed the return. In filing his tax return for
the 2009 taxation year, the Appellant reported his employment income from
Crossby Dewar in the amount of $113,126.52, as reported in his T4 slip as well
as other employment income of $1,027.56 reported in a T4A slip. He had no
income from any other sources whatsoever.
[8]
A cursory review of his 2009 tax return shows
some glaringly false information. In his tax return, the Appellant claimed gross
business or professional income (“receipts as agent”) in
the amount of $134,701.81 and he also claimed business expenses (“amt to principal fr agent”) in the amount of
$546,816.51 resulting in a net business loss of $412,114.70 (statement of business
or professional activities, Exhibit R-1, Tab 1). This is a significant business
loss compared to his reported employment income. The Appellant used $109,361.70
of the claimed business losses against his 2009 taxation year which would have
resulted in a refund of $35,899, all of the taxes withheld at source for the
2009 taxation year. The Appellant also signed a request for loss carryback
requesting that the unused balance of his claimed business losses be carried
back and applied to his 2006, 2007 and 2008 taxation years as non-capital
losses. This carryback would result in the refund of all or practically all of
the taxes paid for those years. He agrees that he was expecting a refund of
close to $36,000 and this still did not raise any red flags in his mind. He
acknowledges that this was a much higher refund than he got through H&R
Block and he knew that his friend had gotten a large refund. He acknowledges
that it would not be normal for him not to pay any taxes at all over a four‑year
period, but he felt that if he could get such a large return, then he was up
for it. He also acknowledges that if every citizen in Canada tried to do this,
then the country would be bankrupt — something he says he now realizes.
[9]
The Appellant does not dispute that he signed
both his tax return for 2009 and also his request for loss carryback for 2006,
2007, 2008 and 2009. He signed “per Patrick Chartrand”
even though he is not the one who wrote “per” on
those documents. He agrees that, by signing, he certified that the information
provided on the return and in any documents attached was correct, complete and
fully disclosed all his income. He claims that he had no idea how Fiscal
Arbitrators calculated the business losses or the loss carryback — he was
simply given the forms by Fiscal Arbitrators and reviewed them, but did not
understand them. Still, he signed the forms and tax return and submitted them.
The Appellant acknowledges that his only source of income during those years
was income from employment. He acknowledges that at no time during the period
under consideration did he own or operate a business of any kind. He
acknowledges that he had no idea what it meant to be in business as an “agent” nor did he understand what “receipts as agent” meant or what the business
expenses reported as “amt to principal fr agent”
meant. He had no idea what any of this meant and he never sought any
clarification from Fiscal Arbitrators. He agrees that he looked over the return,
but did not ask anyone about it.
[10]
On July 15, 2010, the CRA sent a letter
(Exhibit R-1, Tab 4) to the Appellant seeking further information from him in
relation to his claimed business losses. The CRA asked for the completion of a business
questionnaire explaining how his claim for “amounts
paid to principal for agent” qualifies as business expenses. The CRA
also requested that the Appellant furnish source documents in order to
establish the nature of the business income and details of expenses paid by the
business attributed to the sources of income. The CRA also requested
information regarding the bank account registered in the business name as well
as where the business applied for a business licence and business number. A
response from the Appellant was requested within 30 days. The Appellant had
been told that, if he had any problems, Fiscal Arbitrators had their own legal
department. Consequently, the Appellant sent this letter to Fiscal Arbitrators
who prepared a response. This response is set out at Tab 5 of Exhibit R-1. This
response only had the Appellant’s name on it and nowhere does it indicate that
it was prepared by Fiscal Arbitrators on behalf of the Appellant. The Appellant
admits that he went over this letter, but he did not understand it. On reading
this letter, it is obvious that this so‑called response is complete and
utter nonsense and is in no way responsive to the valid concerns raised by the
CRA. Still, the Appellant did not think that he had to contact the CRA directly
or that he should seek advice from anybody else concerning how he should
respond — he just put his faith in Fiscal Arbitrators.
[11]
The CRA never did receive the information
requested. The Appellant simply did not, and indeed could not, provide any
details related to his business income and losses since they did not exist. The
CRA sent a follow‑up letter dated October 6, 2010 to the Appellant
advising of its intent to disallow the net business losses claimed and also
advising of its intent to impose penalties pursuant to subsection 163(2) of the
Act. Again, rather than communicate with the CRA, the Appellant gave this
letter to Fiscal Arbitrators. Fiscal Arbitrators prepared another nonsensical
response (Exhibit R-1, Tab 8). Again, this letter was completely non‑responsive
to the concerns raised by the CRA. Consequently, the CRA denied the Appellant’s
business losses for 2006, 2007, 2008 and 2009 and imposed a gross negligence
penalty pursuant to subsection 163(2) of the Act totalling $54,496.62 in
addition to provincial penalties plus interest. The Appellant was assessed
accordingly by way of notice of assessment dated October 29, 2010 (Exhibit
R‑1, Tab 11). The Appellant objected to the assessment by notice of objection
dated November 26, 2010 (Exhibit R‑1, Tab 12). This notice of objection,
which was signed “per Patrick J. Chartrand authorized
representative”, was prepared by Fiscal Arbitrators. Fiscal Arbitrators are
not identified as having prepared this notice of objection or as representing
the Appellant. Again, the facts and reasons for the objection set out in the notice
of objection make no sense at all. Not surprisingly, the Minister of National
Revenue (the “Minister”) confirmed the assessment on July 23, 2012, hence
the appeal to this Court.
[12]
The Appellant contends that he did not
understand his tax return. He simply looked over the materials and did whatever
Fiscal Arbitrators told him to do. He simply followed instructions. He did not
question why his tax preparer did not indicate on his return that they had
prepared the return, nor did he understand or question why he claimed business
losses when he in fact had no business. He stated that he never prepared a tax
return in his life and that is why he goes to a tax preparer. He did not
understand what Fiscal Arbitrators were saying and he simply signed documents
without asking for any explanation of what was going on. He figured that if his
co‑worker could get a refund then maybe he could too. If he is guilty of
anything, he is simply guilty of ignorance for not reading his return before
signing it and sending it to the CRA. The Appellant has already suffered
greatly and he requests that the subsection 163(2) penalties be vacated.
[13]
The Respondent is of the view that the Appellant
made a false statement in his return either knowingly or in circumstances
amounting to gross negligence. At the very least the Appellant was wilfully
blind regarding the fraudulent scheme engaged in by his tax preparer. The
Appellant never had a business of any kind and therefore could not claim
business expenses of more than half a million dollars. The Appellant’s
suspicions were aroused to the point where further inquiries were needed, but
he simply did not care and chose not to inform himself. He turned a blind eye
to obvious warning signs. All he wanted was to obtain huge refunds which
amounted to practically all of the taxes he had paid over the last four years
and to that end he put blind trust and faith in Fiscal Arbitrators and did
whatever they told him to do without question. The Respondent therefore
contends that she has discharged the burden of proving that the Appellant was
grossly negligent and therefore that subsection 163(2) penalties are
appropriate in the circumstances, and urges the Court to dismiss the appeal
with costs.
Legislative Dispositions
[14]
Subsection 163(2) of the Act reads in part as
follows:
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 . . .
[15]
According to subsection 163(3), the burden of
establishing the facts justifying the assessment of the penalty is on the
Minister.
Analysis
[16]
There are two necessary elements that must be
established in order to find liability for subsection 163(2) penalties:
(a) a false statement in a return, and
(b) knowledge
or gross negligence in the making of, assenting to or acquiescing in the making
of that false statement.
[17]
There can be no question that the Appellant’s
2009 tax return and his request for loss carryback contained false statements.
The Appellant never owned or operated any kind of a business and therefore
could not have had any business income or business expenses — he most certainly
did not have business expenses exceeding half a million dollars. His claim for
business losses has no foundation in fact and is patently false.
[18]
Did the Appellant knowingly make a false
statement? I am not satisfied to the requisite degree of certainty that he did.
Did he make a false statement in circumstances amounting to gross negligence?
The burden of proving gross negligence lies on the Crown. It is not sufficient
for the Crown to prove mere negligence; it must go beyond simple negligence and
prove that the Appellant was grossly negligent.
[19]
Negligence is defined as the failure to use such
care as a reasonably prudent and careful person would use under similar circumstances.
The concept of negligence is so well known in Anglo-Canadian jurisprudence that
no authority need be cited for this definition. However, gross negligence
requires something more than mere negligence. 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 or
indifference as to whether the law is complied with or not; see Venne v.
Canada, [1984] F.C.J. No. 314 (QL). In Venne, Justice Strayer of
the Federal Court (Trial Division) cautions that subsection 163(2) of the Act “is a penal provision and it must be interpreted
restrictively so that if there is a reasonable interpretation which will avoid
the penalty in a particular case that construction should be adopted” and
the taxpayer should be given the benefit of the doubt. In Farm Business
Consultants Inc. v. Canada, [1994] T.C.J. No. 760 (QL), Justice Bowman
(as he then was) of the Tax Court of Canada stated at paragraph 23 that the
words “gross negligence” in subsection 163(2)
imply conduct characterized by so high a degree of negligence that it borders
on recklessness. In such a case a court must, even in applying a civil standard
of proof, scrutinize the evidence with great care and look for a higher degree
of probability than would be expected where allegations of a less serious
nature are sought to be established (paragraph 28).
[20]
It is also well‑settled law that gross
negligence can include “wilful
blindness”. The doctrine of wilful blindness is
well known to the criminal law. “Wilful blindness” in the context of
the criminal law was fully explained by Justice Cory of the Supreme Court of
Canada in the decision in R. v. Hinchey, [1996] 3 S.C.R. 1128. The rule
is that if a party has his suspicion aroused but then deliberately omits to
make further inquiries, because he wishes to remain in ignorance, he is deemed
to have knowledge. Stated otherwise, “wilful blindness” occurs where a
person who has become aware of the need for some inquiry declines to make the
inquiry because he does not wish to know the truth, preferring instead to
remain ignorant. There is a suspicion which the defendant deliberately omits to
turn into certain knowledge. The defendant “shut his
eyes” or was “wilfully
blind”.
[21]
It has been held that the concept of “wilful
blindness” is applicable to tax cases; see Canada v. Villeneuve, 2004
FCA 20, and Panini v. Canada, 2006 FCA 224. In Panini, Justice Nadon
made it clear that the concept of “wilful blindness”
is included in “gross negligence” as that term
is used in subsection 163(2) of the Act. He stated:
43
. . . the law will impute knowledge to a taxpayer who, in
circumstances that dictate or strongly suggest that an inquiry should be made
with respect to his or her tax situation, refuses or fails to commence such an
inquiry without proper justification.
[22]
It has been held that in drawing the line
between “ordinary” negligence or neglect and “gross” negligence, a number of
factors have to be considered:
(a) the magnitude of the omission in relation to the income
declared,
(b) the opportunity the taxpayer had to detect the error,
(c) the taxpayer’s education and apparent intelligence,
(d) genuine effort to
comply.
No single factor predominates. Each must be
assigned its proper weight in the context of the overall picture that emerges
from the evidence (see DeCosta v. The Queen, 2005 TCC 545, at paragraph
11; Bhatti v. The Queen, 2013 TCC 143, at paragraph 24; and McLeod v.
The Queen, 2013 TCC 228, at paragraph 14).
[23]
In Torres v. The Queen, 2013 TCC 380,
Justice C. Miller conducted a very thorough review of the jurisprudence
regarding gross negligence penalties under subsection 163(2) of the Act and, in
so doing, he was able to distill the governing principles to be applied. I
paraphrase his dicta found at paragraph 65:
a) Knowledge of a
false statement can be imputed by wilful blindness.
b) The concept of
wilful blindness can be applied to gross negligence penalties pursuant to
subsection 163(2) of the Act . . . .
c) In determining
wilful blindness, consideration must be given to the education and experience
of the taxpayer.
d) To find wilful
blindness there must be a need or a suspicion for an inquiry.
e) Circumstances
that would indicate a need for an inquiry prior to filing, or flashing red
lights . . ., include the following:
i) the magnitude
of the advantage or omission;
ii) the
blatantness of the false statement and how readily detectable it is;
iii) the lack of
acknowledgment by the tax preparer who prepared the return in the return itself;
iv) unusual
requests made by the tax preparer;
v) the tax
preparer being previously unknown to the taxpayer;
vi) incomprehensible
explanations by the tax preparer;
vii) whether others
engaged the tax preparer or warned against doing so, or the taxpayer himself or
herself expresses concern about telling others.
f) The . . .
taxpayer makes no inquiry of the tax preparer to understand the return, nor
makes any inquiry of a third party, nor the CRA itself.
[24]
This is certainly not an exhaustive list and
there may be other factors that may need to be considered depending on the
circumstances of any particular case. However, I am of the view that Justice C.
Miller provides an excellent template that can be used in analyzing cases such
as the one here under consideration. I will proceed to apply the factors
enumerated by Justice C. Miller to the case at hand.
Education and Experience of the Taxpayer
[25]
The Appellant has a grade 11 education.
He presented as an intelligent individual. He has enjoyed steady employment in
a skilled trade for 28 years. Although he professes to not understand
accounting or tax returns, he still understood concepts of business income and
business expenses. The Appellant is not so lacking in education or basic
understanding of concepts such as business, or taxation, as to claim ignorance.
Education, experience and intelligence are not factors that could relieve the
Appellant of a finding he made false statements under circumstances amounting
to gross negligence.
Suspicion or Need to Make an Inquiry
[26]
There were ample warning signs or “red flags”
that should have aroused the Appellant’s suspicions and awakened in him the
need to make further inquiries.
The Fee Structure
[27]
The fee structure proposed by Fiscal Arbitrators
is concerning. In prior years, the Appellant paid H&R Block a few hundred
dollars to prepare his returns. Fiscal Arbitrators charged him a fee of $500 and
up to 20% of any monies refunded by the CRA. This fee structure was so
different from that of his previously well-known and trusted tax preparer that
it should have given him pause to think about the legitimacy of Fiscal
Arbitrators.
Speciousness of the Tax Avoidance Scheme
[28]
The scheme proposed by Fiscal Arbitrators was so
preposterous as to defy any semblance of credulity even by a very naive person.
The Appellant claims that he was told by Fiscal Arbitrators that his home was
his business which allowed him to claim all related personal expenses against
income. The operation of a home is not a business. This proposition of Fiscal
Arbitrators as it was explained to the Appellant is so patently absurd and
ludicrous that no one except the most unsophisticated, ignorant, naive and
gullible could believe that he could claim such deductions against income.
These expenses, if they existed, were personal expenses, not business expenses,
and the Appellant knew this. The alternate theory that there was a way that an
individual could be separated from his social insurance number and thus create
two separate entities for tax purposes is equally ludicrous and no sane person
with a modicum of intelligence and life experience in Canada could
possible accept this. The scheme advanced by Fiscal Arbitrators just does not
pass the “smell test”.
Magnitude of the Advantage
[29]
The Appellant agreed that he was expecting a
refund of close to $36,000 for 2009. This was significantly different from
prior years’ filings where he only claimed a few thousand dollars, more or
less, in refunds. In addition, if the request for loss carryback had been
allowed, he would likely not have to pay any income taxes at all for four years
of his working career. He agrees that this would not be normal. Although this
is likely his understanding in hindsight, he should have realized that this was
the result at the time he filed his return. The fact that he did not realize
this is due to the fact that he was blinded by the prospect of obtaining huge
refunds. The magnitude of the advantage that he was seeking constitutes a
glaring red flag that should have made him critically question what Fiscal
Arbitrators were doing. He was simply content to let Fiscal Arbitrators carry
on without question in the hopes of getting a lot of money.
Blatant False Statement — Readily Detectable
[30]
In his return, the Appellant claimed business
income as an agent and he also claimed a huge amount of business expenses,
exceeding half a million dollars, when he was not actually even engaged in
business. This false statement was blatant. He indicates that he did not really
review his return. I conclude that, had he taken even a cursory look at his
return, he would have easily detected these obvious false statements. Even an
unsophisticated person having no business experience would realize that one
cannot claim business expenses of over half a million dollars when one is not engaged
in business.
Tax Preparer does not Acknowledge Preparing Return
[31]
It is obvious that the Appellant paid someone to
prepare his tax return. Yet, the tax preparer did not complete the box on the
return reserved for tax professionals. This box, on the last page of the
return, is right beside the line to be signed by the Appellant certifying the
information is correct and complete. The box labelled “For
professional tax preparers only” is obvious to the taxpayer who signs
the return. The fact that it was left empty should have alerted the Appellant
to the fact that the tax preparer may have wished to remain anonymous to the
CRA. This may not be a major point, but, when considered cumulatively with all
the other red flags, it should have aroused suspicion in the mind of the
Appellant.
Tax Preparer Makes Unusual Requests
[32]
The Appellant was instructed to sign his return
after the word “per” which was handwritten on
the signature line. It is clear that he had never been asked to do this before
on his tax returns of prior years. He was never told why “per” was on the signature line, nor did he ever
question this odd request. This strange request should have aroused the
Appellant’s suspicions.
Tax Preparer Previously Unknown to Taxpayer
[33]
Fiscal Arbitrators were unknown to the
Appellant. Prior to 2009, the Appellant had H&R Block, a well-known tax
preparer, prepare his returns. The Appellant heard about Fiscal Arbitrators not
through the usual advertising or promotional media, but rather through a
colleague at work. Fiscal Arbitrators were simply not well known to the
Appellant. This is perhaps a small factor but when taken together with all of
the other factors it should have alerted the Appellant to undertake some due
diligence with regard to the legitimacy of Fiscal Arbitrators. The Appellant
did not do so.
Incomprehensible Explanation by Tax Preparer
[34]
I have already alluded to the speciousness of
the scheme proposed by Fiscal Arbitrators. The scheme was not only ludicrous,
but totally incomprehensible. In addition, the letters that were drafted by
Fiscal Arbitrators on behalf of the Appellant in response to inquiries made to
him by the CRA are complete nonsense and incomprehensible. This may be after
the fact conduct, but it does serve to explain the mindset of the Appellant. He
simply did not care about the contents of any document that he signed so long
as he got a huge refund.
Others do not do it or the Taxpayer is Warned Against it
or the Taxpayer is Fearful of Telling Others
[35]
This is not a factor in the circumstances of
this particular case.
Lack of Inquiries of Other Professionals or of the CRA
[36]
The Appellant contends that he simply did not
understand his return or the tax savings scheme as it was explained to him by
Fiscal Arbitrators. One must wonder why he did not seek clarification from
Fiscal Arbitrators or others. I conclude there were sufficient warning signs to
cause the Appellant to make further inquiries of the tax preparers themselves,
independent advisers or even the CRA, prior to signing his return. As stated by
Justice V.A. Miller in Janovsky v. The Queen, 2013 TCC 140:
24 . . .
If he [the taxpayer] indeed did not understand the terminology used by FA in
his return and if he did not understand how FA calculated his expenses, then he
had a duty to ask others aside from FA. . . .
[37]
In the instant case, if the Appellant had looked
at his return and if he truly did not understand how Fiscal Arbitrators
calculated his alleged business losses or why he even had business losses, then
he should have asked some very critical questions of Fiscal Arbitrators. In the
absence of a good explanation, he should have sought advice elsewhere. He did
not do so. He made no efforts to even determine if this unorthodox and unusual
tax savings proposal was even legal. All he wanted was to get a large refund.
His failure to seek out advice from other professionals or even from the CRA in
the face of such a dubious scheme is indicative of a high degree of negligence
amounting to wilful blindness.
Failure to Make any Genuine Efforts to Comply
[38]
It is very telling that even after the Appellant
received the first letter from the CRA dated July 15, 2010, the Appellant
made no efforts at all to try and comply with the law. Instead, he adopted a
course of obstructionism at the behest of, and on the instructions of, Fiscal
Arbitrators. He should have known on reading the letter from the CRA that there
were serious questions concerning the information contained in his return and
in his request for loss carryback and he should have seen that the CRA was
questioning his business expenses. This was the time that he should have
disassociated himself from Fiscal Arbitrators. This after the fact conduct
certainly provides a lens through which this Court can interpret his frame of
mind at the time he signed and filed his return.
Appellant’s Trust in his Tax Preparer
[39]
The Appellant left everything to Fiscal
Arbitrators. In other words, he trusted them.
[40]
In some cases, a taxpayer can shed blame by
pointing to negligent or dishonest professionals in whom the taxpayer reposed
his trust and confidence; for example, see Lavoie c. La Reine, 2015 CCI
228, a case where the taxpayers relied on a lawyer whom they had known and
trusted for more than 30 years and who was a trusted friend. However,
cases abound where the taxpayers could not avoid penalties for gross negligence
by placing blind faith and trust in their tax preparers without at least taking
some steps to verify the correctness of the information supplied in their tax
return.
[41]
In Gingras v. Canada, [2000] T.C.J. No. 541
(QL), Justice Tardif wrote:
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.
. . .
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.
[42]
In DeCosta, above, Chief Justice Bowman
stated:
12 . . . While of course his
accountant must bear some responsibility I do not think it can be said that the
appellant can nonchalantly sign his return and turn a blind eye to the omission
of an amount that is almost twice as much as that which he declared. So
cavalier an attitude goes beyond simple carelessness.
[43]
In Laplante v. The Queen, 2008 TCC 335,
Justice Bédard wrote:
15 In any event, the Court finds that the Appellant’s negligence (in
not looking at his income tax returns at all prior to signing them) was
serious enough to justify the use of the somewhat pejorative epithet “gross”.
The Appellant’s attitude was cavalier enough in this case to be tantamount to
total indifference as to whether the law was complied with or not. Did the
Appellant not admit that, had he looked at his income tax returns prior to
signing them, he would have been bound to notice the many false statements they
contained, statements allegedly made by Mr. Cloutier? The Appellant cannot
avoid liability in this case by pointing the finger at his accountant. By
attempting to shield himself in this way from any liability for his income tax
returns, the Appellant is recklessly abandoning his responsibilities, duties
and obligations under the Act. In this case, the Appellant had an obligation
under the Act to at least quickly look at his income tax returns before signing
them, especially since he himself admitted that, had he done so, he would have
seen the false statements made by his accountant.
[Emphasis in original.]
[44]
In Brochu v. The Queen, 2011 TCC 75,
gross negligence penalties were upheld in a case where the taxpayer simply
trusted her accountant’s statements that everything was fine. She had quickly
leafed through the return and claimed that she did not understand the words “business income” and “credit”,
but yet had not asked her accountant nor anyone else any questions in order to
ensure that her income and expenses were properly accounted for. Justice
Favreau of this Court was of the view that the fact that the taxpayer did not
think it necessary to become informed amounted to carelessness which
constituted gross negligence.
[45]
In Bhatti, above, Justice C. Miller
pointed out:
30
. . . It is simply insufficient to say I did not review my
returns. Blindly entrusting your affairs to another without even a minimal
amount of verifying the correctness of the return goes beyond carelessness. So,
even if she did not knowingly make a false omission, she certainly displayed
the cavalier attitude of not caring one way or the other. . . .
[46]
In Janovsky, above, Justice V.A. Miller
stated:
22 The Appellant said he reviewed his return
before he signed it and he did not ask any questions. He stated that he placed
his trust in FA as they were tax experts. I find this statement to be
implausible. He attended one meeting with the FA in 2009. He had never heard of
them before and yet between his meeting with them and his filing his return in
June 2010, he made no enquiries about the FA. He did not question their
credentials or their claims. In his desire to receive a large refund, the
Appellant did not try to educate himself about the FA.
23 Considering the Appellant’s education and
the magnitude of the false statement he reported in his 2009 return, it is my
view that the Appellant knew that the amounts reported in his return were fake.
[47]
Another recent example can be found in the
matter of Atutornu v. The Queen, 2014 TCC 174, where the taxpayers
simply blindly relied on the advice of their tax preparer without reading or
reviewing their returns and without making any effort whatsoever to verify the
accuracy of their returns.
Conclusion
[48]
There is no doubt that the Appellant’s 2009 tax
return and his request for loss carryback contained false statements — the
Appellant did not carry on a business and he did not incur any business losses
whatsoever, let alone a business loss exceeding $400,000. These false
statements could have easily been detected by him simply by taking a closer
look at his return. The Appellant was blinded by the prospect of receiving a
large refund which he admits was not normal. He did not check out the
credentials of Fiscal Arbitrators and he did not question the speciousness of
the tax savings scheme. He did not seek out any advice from anyone else even
though he must have known that what was being proposed was very suspicious. He
made no efforts to comply with the law. I can come to no other conclusion than
that the Appellant was wilfully blind as to the falseness of these statements.
As such, he is properly subject to the penalties imposed on him pursuant to
subsection 163(2) of the Act.
[49]
It is difficult to feel any sympathy for the
Appellant; he was blinded by greed. Had he even bothered to consider the
information that he, by his signature, certified to be correct and complete, he
would have quite easily discovered that his return contained information that
was patently false. He would have realized, with just a little bit of thought,
that this kind of stratagem was a fraud perpetrated on the CRA and, by
extension, on every other Canadian taxpayer. As has often been stated by our
courts, our tax system is one of self‑assessment and each individual
taxpayer has the obligation to ensure that all the information contained in his
returns is truthful, complete and accurate. The Appellant totally ignored the
numerous red flags that presented themselves to him. He made no effort to
verify the accuracy and completeness of his return. As stated by Justice Tardif
in Gingras, above:
31 . . . 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.
[50]
For all of the foregoing reasons, this appeal is
dismissed with costs.
Signed at Toronto, Ontario, this 1st day of December 2015.
“Rommel G. Masse”
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