REASONS
FOR JUDGMENT
Masse D.J.
Overview
[1]
The Appellant is appealing the penalty for gross
negligence imposed on him pursuant to subsection 163(2) of the Income Tax
Act, R.S.C., 1985, c. 1 (5th Supp.) (the “Act”), in relation to his 2008
taxation year. In his return, the Appellant claimed very large business losses
which, if allowed, would result in the refund to the Appellant of all taxes
paid or deducted at source for 2008 and prior taxation years. The fact is that
the Appellant never owned or operated any kind of business at all during 2008,
or at any time, and the claimed business losses are fictitious. The Canada
Revenue Agency (the “CRA”) disallowed the losses and penalized the Appellant
pursuant to subsection 163(2) of the Act. This case pertains only to the
penalties that were imposed.
Factual Context
[2]
The Appellant is 45 years old and was born in
Texas. He completed his high school education but did not go on to university.
He has not taken any accounting or tax courses. He is a former member of the
U.S. Navy and held the rank of Communications Petty Officer. He held a top secret
clearance level. When he came to Canada in 1995, he began working in sales for
a family company. In 1997, he obtained employment with FedEx as a cargo
handler. At the present time he holds the position of Operations Manager for
FedEx.
[3]
In 1998, the Appellant met an individual named
Lloyd at the local barbershop. He does not know Lloyd’s last name. The two men
would see each other at the barbershop, about twice a week. They got to know
each other and eventually they struck up a friendship. They would discuss a
variety of topics at the barbershop. Eventually, they began to talk about
income taxes.
[4]
Prior to 2008, the Appellant used the services
of H&R Block to prepare his income tax returns. Some time around 2008 or
2009, he was looking for a change.
[5]
Around March 2009, Lloyd told the Appellant
about a company called Fiscal Arbitrators (“FA”). FA were professional tax
preparers. They were fast and easy. FA would recalculate his taxes over the
last 10 years and obtain a refund of overpaid taxes. Lloyd explained that,
if the Appellant wanted to use the services of FA, the fee was $500 and a
percentage of any refund obtained. Lloyd had a briefcase with him that
contained a lot of documentation and files of other people who had used the
services of FA. Some time later, the Appellant again met with Lloyd and Lloyd’s
sister at a restaurant called “Dave and Buster’s”. She was a client of FA.
Lloyd’s sister told the Appellant that FA provided a good service and it took
no time for her to get her refund. The Appellant was of course concerned about
the legality of all this and Lloyd told him that it was perfectly legal and
that FA were just like H&R Block. The Appellant liked the idea that he
would not have to wait in line like he did with H&R Block. He decided to
retain the services of FA.
[6]
At the end of April 2009, Lloyd came to the
Appellant’s house. The Appellant gave Lloyd his T4 slips for the last 10 years
together with a cheque in the amount of $500 to cover the initial fee (compared
to H&R Block’s fee of about $100). Later on, the Appellant met Lloyd at a
very nice home that had been set up just like an office. Lloyd presented to the
Appellant documentation, his 2008 return, that had already been prepared. The
Appellant testified that he did not review his return before signing. Lloyd
simply flipped to the bottom of the pages requiring a signature and told him
where to sign. The documents had yellow sticky notes reading “sign here”,
wherever he was required to sign. The Appellant agrees that he signed where he
was told and simply did not take a look at his return.
[7]
A copy of the Appellant’s 2008 tax return is found
at Exhibit R-1, Tab 3. Had the Appellant bothered to take a look at his tax
return, he would have discovered some blatantly false information. In his
return, the Appellant claimed gross business income in the amount of
$87,864.91. He also claimed total business expenses of $369,416.47 resulting in
business losses of $281,551.56. All this is completely, utterly and obviously
false. The Appellant’s only significant income during the 2008 taxation year
was employment income in the amount of $74,461.79. He never owned or operated
any business whatsoever during 2008 and he never incurred the business expenses
that were claimed. He admits that he signed his return. Just above his
signature, we see the usual certification stating “I
certify that the information given on this return and in any documents attached
is correct, complete, and fully discloses all my income”. The truth is
that the Appellant made no effort at all to verify the accuracy and
completeness of his return — he simply trusted Lloyd. The Appellant also signed
a request for loss carryback relating to the years 2005, 2006 and 2007. He
states that he did not know that he signed this document — he never looked at
it before signing. The word “per” appears in
front of his signature on both the return and the request for loss carryback.
He does not know who wrote “per” in front of his
signature and he does not know what that means. He claims that the word “per” was not there when he signed these documents. He
testified that he did not see that box 490, reserved for the identification of
professional tax preparers, was left blank.
[8]
The Appellant testified that he did not take a
look at the numbers on his return. However, he did see the figure of $281,000
at the bottom of one page. He stated that he thought that this represented the
total amount of taxes that he had paid over the last 10 years. Had he
taken a closer look, he would have clearly seen that this amount was a net
business loss. Just to the right and up from his signature, it is indicated
that the Appellant was claiming a refund of just over $16,000. This is a
significant amount. He testified that he did not see this at the time of
signing his return. I find his assertion to this effect to be unconvincing. The
reason why he wanted FA to prepare his tax return was so he could get a refund of
taxes he had overpaid in the last 10 years. It is only human nature for persons
to want to know the amount of the refund they could expect. He himself states “[t]hat’s what the focus was, it was never about anything
else but about overpayment of taxes for the past ten years” (transcript,
page 22). The Appellant and Lloyd had no discussion at all about the contents
of the return other than about overpayment of taxes for the last 10 years.
The Appellant asked no questions. Lloyd gave no explanations.
[9]
The CRA began to send the Appellant letters
questioning his business losses (for example, letter of December 4, 2009,
Exhibit R-1, Tab 6). The Appellant stated that he did not know what was going
on. He was confused and quite upset so he contacted Lloyd who told him to send
him the letters. More letters followed. Lloyd gave him the name of Larry Watts
from FA who could help him out with the letters. However, any responses drafted
by FA for the Appellant simply made no sense at all. Still, the Appellant
signed these responses and sent them in to the CRA. He had nowhere to go and no
one to turn to other than FA. All this correspondence did not help to resolve
the situation since the letters drafted for the Appellant by FA were simply not
responsive to the questions raised by the CRA. Eventually, the Appellant came
to the realization that using FA was a huge mistake. He began to reach out to
the CRA asking for help and some guidance on what he could do. He telephoned
the CRA and spoke to a person named Debbie. He told Debbie that there had been
a mistake and that he was in a panic mode because the numbers were so
astronomically large. He was told that he had to appeal the assessment.
[10]
After this fiasco with FA, the Appellant went
back to H&R Block.
[11]
The Appellant never did get a refund. The
Minister of National Revenue (the “Minister”) disallowed the claimed business
losses, denied the request for loss carryback and imposed a penalty pursuant to
subsection 163(2) of the Act. The Appellant objected to this assessment, but
the Minister confirmed the assessment, hence the appeal to this Court.
[12]
It is argued that the Appellant ought not to be
liable for gross negligence penalties as he relied on a tax preparer and a
friend that he trusted and believed that all they did was completely above
board. He reposed his complete trust and confidence in Lloyd and FA and he had
no reason to question them. He was completely unaware that his 2008 tax return
contained any false information. It is submitted that he was not wilfully blind
or otherwise grossly negligent. Lloyd and FA may be fraudsters, but the
Appellant is an innocent victim of their fraudulent conduct. It is unjust to
punish the Appellant for the wrongdoings of Lloyd and FA. The Appellant
therefore prays that his appeal be allowed with costs and that this Court waive
the penalties and interest that are the subject of the present appeal.
[13]
The Respondent is of the view that the Appellant
never owned or operated any kind of business during the 2008 taxation year and
so his claimed business losses as reported in his tax return are obviously
false. These false statements are of such a magnitude that, if allowed, would
result in the refund of all taxes withheld or paid from 2005 through to 2008.
The Respondent submits that the Appellant was wilfully blind or otherwise
grossly negligent regarding the falseness of the statements contained in his
return. The penalties for gross negligence imposed pursuant to subsection
163(2) of the Act are therefore justified. The Respondent urges this 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]
In the case at hand, I will engage in the same
analysis as was done in the recent cases of Daszkiewicz v. The Queen,
2016 TCC 44, and Lauzon v. The Queen, 2016 TCC 71.
[17]
Our system of taxation is both self‑reporting
and self‑assessing. It is based on the “honour system” and relies on the
honesty and integrity of the individual taxpayer. The taxpayer has a positive duty
to report his taxable income completely, correctly and accurately, no matter
who prepares the return. Therefore, the taxpayer must be vigilant in ensuring
the completeness and accuracy of the information contained in his return.
Justice Martineau succinctly stated it in Northview Apartments Ltd. v.
Canada (Attorney General), 2009 FC 74, at paragraph 11: “It is the essence of our tax collection system that
taxpayers are sole responsible for self‑assessment and self‑reporting
to the CRA.”
[18]
The responsibilities and duties of taxpayers as
well as some of the measures in the Act designed to encourage compliance were
explained by the Supreme Court of Canada in the matter of R. v. Jarvis,
2002 SCC 73:
49 Every person resident in Canada during a
given taxation year is obligated to pay tax on his or her taxable income, as computed
under rules prescribed by the Act (ITA, s. 2 . . .). The process of
tax collection relies primarily upon taxpayer self‑assessment and self‑reporting:
taxpayers are obliged to estimate their annual income tax payable (s. 151), and
to disclose this estimate to the CCRA in the income return that they are
required to file (s. 150(1)). . . . Upon receipt of a taxpayer’s
return, the Minister is directed, “with all due dispatch”, to conduct an
examination and original assessment of the amount of tax to be paid or
refunded, and to remit a notice of assessment to this effect (ss. 152(1) and
152(2)). Subject to certain time limitations, the Minister may subsequently
reassess or make an additional assessment of a taxpayer’s yearly tax liability
(s. 152(4)).
50 While voluntary compliance and
self-assessment comprise the essence of the ITA’s regulatory structure, the tax
system is equipped with “persuasive inducements to encourage taxpayers to
disclose their income”. . . . For example, in promotion of
the scheme’s self‑reporting aspect, s. 162 of the ITA creates monetary
penalties for persons who fail to file their income returns. Likewise, to
encourage care and accuracy in the self‑assessment task, s. 163 of the
Act sets up penalties of the same sort for persons who repeatedly fail to
report required amounts, or who are complicit or grossly negligent in the
making of false statements or omissions.
51 It follows from the tax scheme’s basic self‑assessment and
self‑reporting characteristics that the success of its administration
depends primarily upon taxpayer forthrightness. As Cory J. stated in Knox
Contracting, supra, at p. 350: “The entire system of levying
and collecting income tax is dependent upon the integrity of the taxpayer in
reporting and assessing income. If the system is to work, the returns must be
honestly completed.” It is therefore not surprising that the Act exhibits a
concern to limit the possibility that a taxpayer may attempt “to take advantage
of the self-reporting system in order to avoid paying his or her full share of
the tax burden by violating the rules set forth in the
Act” . . . .
[Emphasis added. Citations omitted.]
[19]
The penalties provided for in section 163 of the
Act have as their purpose to ensure the integrity of our self‑assessing
and self‑reporting system and to encourage a taxpayer to exercise care
and accuracy in the preparation of his return, no matter who prepares the
return.
[20]
I have often stated that I am of the view that
the decision of whether or not a taxpayer should be subjected to the penalties
under subsection 163(2) of the Act should be determined in light of the
positive responsibilities and duties of the taxpayer to accurately and
completely report his income in a self-reporting and self-assessing system.
[21]
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, participating in, assenting to or
acquiescing in the making of, that false statement.
[22]
There can be no question that the Appellant’s
2008 tax return contained false statements. The Appellant never owned or
operated any kind of business during that year and therefore could not have had
any net business losses amounting to more than $281,000. His claim for business
losses has no foundation in fact and is patently false.
[23]
I am satisfied that the Appellant had no
knowledge that his return contained any false information since he simply never
bothered to look at his return before signing it.
[24]
However, I come to the conclusion that the Crown
has established on the balance of probabilities that the Appellant made, participated
in, assented to or acquiesced in the making of, the false statements in his
return in circumstances amounting to gross negligence. I come to this
conclusion for the reasons that follow.
[25]
There is a difference between ordinary
negligence and gross negligence. Negligence is the failure to use such care as
a reasonably prudent and careful person would use under similar circumstances.
Gross negligence involves greater neglect than simply a failure to use
reasonable care. It involves 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). The penalties pursuant
to subsection 163(2) ought to be imposed only where there is a high degree of
blameworthiness involving knowing or reckless misconduct.
[26]
It is also well‑settled law that gross
negligence can include “wilful blindness”. The
concept of “wilful blindness”, well known to the
criminal law, was explained by Justice Cory of the Supreme Court of Canada 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.
[27]
It has been long recognized that the concept of “wilful blindness” is applicable to tax cases and is
included in the term “gross negligence” as that
term is used in subsection 163(2) of the Act; see Canada v. Villeneuve, 2004
FCA 20, and Panini v. Canada, 2006 FCA 224, at paragraph 43.
[28]
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).
[29]
In Torres v. The Queen, 2013 TCC 380,
Justice C. Miller of this Court conducted a very thorough review of the
jurisprudence regarding gross negligence penalties under subsection 163(2) of
the Act. He summarized the governing principles to be applied 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 . . .
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
final requirement for wilful blindness is that 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.
This is certainly not an exhaustive list.
[30]
The Appellant is an intelligent man with a
secondary school education who enjoyed a position of responsibility in the U.S.
Navy and who now occupies a position of responsibility with his employer,
FedEx. The basic concepts of business organization such as profit and loss are
not so complex as to elude him. The Appellant is not so lacking in education,
intelligence or life experience as to claim ignorance. Education, experience
and intelligence are not factors that could relieve the Appellant of a finding
that he made false statements under circumstances amounting to gross
negligence.
[31]
In the case at bar, the Appellant certified by
his signature that the information contained in his return was complete and
accurate. Yet he made no effort at all to verify the accuracy of the contents
of his tax return, as it was his duty to do. All he did was sign his return
without even looking at it. Had the Appellant bothered to take even a cursory
look at his return, he would have immediately discovered the blatantly false
information contained therein. The only thing he was interested in was
receiving a refund of taxes that he had supposedly overpaid over the last
10 years. He did not even question how it was that H&R Block, his
prior tax preparers who are well‑known professionals, could possibly have
missed something that was so obvious that his barbershop friend, Lloyd, whose
last name he does not know, and some hitherto unknown tax preparer from FA,
whom he has never met, had serendipitously discovered. Such conduct in refusing
to inform himself, even in general terms of what was contained in his return,
is not only evidence of wilful blindness but is conduct otherwise amounting to
gross negligence in my opinion.
[32]
The Appellant takes the position that he placed
his complete trust and confidence in Lloyd and FA. He argues that he is an
innocent victim who was betrayed by Lloyd. 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 their lawyer whom they had
known and trusted for more than 30 years and who was a friend. Other
examples can be found and counsel for the Appellant has referred the Court to
these cases in his casebook of authorities. It is to be noted that all these
cases depend on their own peculiar facts.
[33]
However, there is a significant body of
jurisprudence to the effect that taxpayers cannot 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 returns. Quite apart from wilful blindness, taxpayers who take no
steps whatsoever to verify the completeness and accuracy of the information
contained in their returns may thereby face penalties for gross negligence.
[34]
In Gingras v. Canada, [2000] T.C.J. No.
541 (QL), the appellants contended that they had always acted in good faith and
that they believed that their tax preparer was conducting a responsible and
reliable business, adding that they had little or no knowledge of tax matters.
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.
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 [the tax preparer] 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.
Justice Tardif further wrote:
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.
[Emphasis added.]
[35]
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.
[36]
In Laplante v. The Queen, 2008 TCC 335,
the appellant, just as in the case at bar, did not look at his tax return at
all before signing. This was held to be gross negligence. 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 added.]
[37]
In Brown v. The Queen, 2009 TCC 28,
Justice Bowie stated:
20 Quite apart
from all of that, in respect of the gross negligence penalties under the Income
Tax Act, the Appellant in his own evidence early on made it clear that
he signed his returns for each of the four years under appeal without having
paid the least attention to what income was included in them and what expenses
were claimed in them. He said that he kept the records that he kept,
prepared spreadsheets from them and gave them to a tax preparer who, in each
year, prepared the returns for him based on the material that he gave her. We
did not hear from her on that, but taking that statement at its face value, it
still leaves the Appellant with an onus to look at the completed return before
signing it and filing it with the Minister. The declaration that the taxpayer
makes when he signs that form is,
I certify
that the information given on this return and in any documents attached is
correct, complete and fully discloses all my income.
To sign an income tax return and make that certification without
having even glanced at the contents of the return, because that is what I
understood his evidence to be is of itself, in my view, gross negligence that
justifies the penalties.
[Emphasis added.]
[38]
Of particular relevance is the decision of
Justice Bédard in Gélinas v. The Queen, 2009 TCC 136, where he stated:
11 In my opinion, the Appellant also committed gross negligence in
2004. I am of the opinion that the Appellant’s negligence (based on the fact
that he did not check his entire return before his accountant sent it to the
Canada Customs and Revenue Agency) was serious enough to justify using the
somewhat pejorative epithet “gross”. The Appellant’s attitude was so cavalier
that it translates to a complete indifference in terms of respecting the Act.
If the Appellant had examined his income tax return for the 2004 taxation year,
he would likely have discovered the false statement contained within (a
statement which apparently was made by his accountant) in terms of the size of
the amounts of unreported income and other factors analyzed above. The
Appellant cannot absolve himself of his responsibility by pointing the finger
at his accountant. By attempting to absolve himself of all responsibility with
respect to his income tax returns, the Appellant is being negligent by ignoring
the responsibilities, duties and obligations imposed by the Act. Also, the Act
imposes a minimum obligation to the Appellant to check his income tax return
for the 2004 taxation year before his accountant sends it in; in addition, a
more than cursory glance would have permitted him, in my opinion to find the
false statement that his accountant had made.
[Emphasis added.]
[39]
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 or 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 get informed amounted to carelessness, which constituted gross
negligence. This is not much different from the case at hand.
[40]
In Janovsky v. The Queen, 2013 TCC 140,
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.
24 If I am incorrect and the Appellant did not knowingly make the
false statement, then I find that he was wilfully blind. If he 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. In a self‑assessing system such as ours, the Appellant
had a duty to ensure that his income and expenses were correctly reported. Our
system of taxation is both self‑reporting and self‑assessing and it
depends on the honesty and integrity of the taxpayers for its success: R.
v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627. The Appellant’s cavalier
attitude demonstrated such a high degree of negligence of wilful blindness that
it qualified as gross negligence: Chénard v. The Queen, 2012 TCC
211.
[Emphasis added.]
[41]
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. . . .
[42]
Another recent example can be found in the
matter of Atutornu v. The Queen, 2014 TCC 174, where the taxpayers
simply signed their returns where they were told to sign and 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.
Justice Jorré held that gross negligence penalties pursuant to subsection
163(2) were appropriate in the circumstances.
Conclusion
[43]
It cannot be disputed that the Appellant’s 2008
tax return contained false statements — the Appellant did not carry on a
business and he did not incur any business losses whatsoever, let alone losses
amounting to more than $281,000. On considering the entirety of the evidence
and recent jurisprudence, I come to the conclusion that the Appellant made,
participated in, assented to or acquiesced in the making of, a false statement
in his return in circumstances of gross negligence. He was content to let Lloyd
and FA take care of everything and he did nothing to verify the accuracy of the
information contained in his tax return. He simply signed his return where he
was instructed to sign without looking at it. In so doing, he certified that
the return was complete and accurate — it was not. He had a duty to exercise
care and accuracy in the completion of his return and he failed in this duty,
making no effort at all to verify the accuracy and completeness of his return.
Had he made even the most minimal effort, he would have quickly and easily
discovered the blatantly false information contained in the return. His actions
are not only negligent but are grossly negligent. As such, he is properly
subject to the penalties imposed on him pursuant to subsection 163(2) of the
Act.
[44]
For all the foregoing reasons, this appeal is
dismissed. The Respondent is entitled to her costs if she wants them.
Signed at Kingston, Ontario, this 18th day of April 2016.
“Rommel G. Masse”
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