Toronto, Ontario
ORAL REASONS FOR DECISION:
JUSTICE ROWE:
All right. As a consequence of my dialogue with counsel and the reference to
the appropriate jurisprudence, I am going to point out that with respect to
this particular matter, the Minister assessed a gross negligence penalty with
respect to the Appellant's 2008 taxation year. I have canvassed the evidence in
the course of my dialogue, particularly with counsel for the Respondent.
I will say
that I find the evidence of Mr. Morrison to be credible. He was not an
individual who, like many of these cases, was at the outset participating in a
scheme which was manifestly foolish. He was advised by a good friend he had
known for 30 years, a chemist working and living in the same small town in
Ontario that this individual, Mr. Khan, had obtained a substantial refund of
nearly $40,000 and had shown the cheque to the Appellant, and then advised that
a particular individual, Mr. Thompson, had been an agent or a participant
in obtaining the services of a tax preparer that resulted in that refund being
forthcoming.
So Mr. Morrison
has been a car salesman for many, many years, filed his own paper returns for
40 years, sometimes got a small refund, sometimes owed a bit of money, and
never had any interaction or complaint or problem whatsoever with Revenue Canada
or Canada Revenue Agency. He is provided with a request for a T1 adjustment
which he signs where the arrows tell him to sign. The Statement of Agent Activities,
I find as a fact, was not included.
There was a
reference, certainly, on the T1 adjustment form as counsel for the Respondent
points out to a business loss. Mr. Morrison doesn't particularly pay much
attention to that except he has in his mind that someone who has earned about
$65,000 a year for ten years that even if there is the capacity to go back five
years for a recalculation at a couple or $3,000 a year overpayment, that that
could also produce a decent refund if that is in accordance with the Tax Act as
assessed by the Minister of National Revenue through the Canada Revenue Agency.
So that goes in,
and then Mr. Morrison obtains a letter inquiring about this business loss and
he phones the auditor, subsequent to which he contacts the tax preparer,
Rasool, and says, "I am getting these questions. Here is a letter I got. What
do I do?"
He follows up on
that and then very quickly e‑mails them in capital letters and says,
"Is this a scam? I am going to report this to the fraud squad."
When the nonsense
letter arrives that he is being asked to sign and submit to CRA, Morrison
absolutely refuses. He reads it and he said, "This is garbage. I am a
citizen of Canada. I have been paying my taxes for 40 years. This is absolute
nonsense. I won't go along with this." Counsel is retained, and
thereafter, a Notice of Objection is filed.
So there is, in
my mind on the evidence, not that kind of conduct that constitutes willful blindness,
and there most certainly is no intentional acting. He believed with good reason
that there was some justification for asking for a recalculation of tax
previously paid based on those returns for previous years, and he provided that
information to Thompson as intermediary to be taken to Rasool.
These facts are
not at all consistent with the facts in Bhatti, 2013 TCJ No. 123. They
are not consistent with the facts in Brisson, 2013 TCJ No. 2010, nor in
the other cases referred to including the judgment of Mr. Justice Campbell
Miller in Torres.
Looking at the
evidence as a whole, there isn't that kind of conduct here that permits a
finding, in my view, of gross negligence either based on the intentional acting
or the willful blindness by continuing, as Mr. Justice Rooke said in the Meads
v Meads case, of stubbornly continuing to pull the wool over your own eyes.
Now, I am aware
of the decision that was handed up to me, Morton v The Queen, 2014 DTC,
and this particular decision referred to a T1 amendment request, and the
appellant's counsel there had argued that it was not a return. The court
referred to that and to the use of the form, but in this particular instance,
just the mere reference to the business income and loss and the size of the
numbers that in the Appellant's mind went back for a considerable number of
years, did not in the absence of a Statement of Agent Activities -- and in the
absence of that ridiculous posturing that the Appellant was somehow a separate
individual as a living person from the one assigned to him by the government
through a social insurance number, doesn't indicate to me that there was any
false representation or intent, as Mr. Justice Bocock found, made solely to
generate a refund because Mr. Morrison was presenting the information on a
reference of a friend to what he thought was a qualified tax preparer so that
Canada Revenue Agency could assess that request and make a determination
whether it was in fact legitimate and whether he was entitled to a refund.
Thankfully, CRA
took a look at it, did its investigation, said no. There is no business loss
here, and Mr. Morrison thereafter cooperated with the appropriate investigation
division of CRA and regrets ever having been led into applying for that T1
adjustment request.
That error on his
part based on a recommendation from a friend he had known for years in a small
town is a long, long way from that kind of conduct that justifies the
imposition of the penalty under subsection 163(2).
Counsel for the
Respondent has adequately brought forward to the court the necessary
information and documentation to assist the court in arriving at an opinion,
and has also fairly characterized the testimony of Mr. Morrison as being
credible, but quite rightly argued that the T1 adjustment request itself under
the circumstances was sufficient to justify the imposition of the penalty by
the Minister. That is fair and that is good lawyering, and I accept that.
The appeal is
allowed, and the matter is referred back to the Minister of National Revenue
for consideration and reassessment on the basis that the penalty imposed under
subsection 163(2) be deleted.
MR. RADNOFF:
Obviously, I do have a submission on costs.
JUSTICE ROWE:
Okay.
MR. RADNOFF:
My submission is this: CRA has taken the position of assessing in each one of
these cases. It may very well be that the trial is necessary, as Your Honour
has stated.
However, I am
also of the view that had some of these cases been investigated at the audit
stage, as they should have been, as opposed to just assessing every single
person, some of this may not have happened.
The reality
is, and my client is here, it is probably costing him close to $20,000 in legal
fees to be here.
JUSTICE ROWE:
I know.
MR. RADNOFF:
And we have done a lot of work, and the consequences to him at his age would
have been devastating, so I am seeking costs in this case. I don't think that
an award of $10,000 is unreasonable. It only partially gives him some money
back for legal costs. He did make a mistake. He is paying for the mistake
still.
Those are my
submissions, Your Honour.
JUSTICE ROWE:
But you see, back in 2010, really, that is about when the situation matured to
the point where this flood had become obvious. Pretty well at that point, and
sometimes even earlier, the refunds weren't at least being sent out or were
being stopped.
MR. RADNOFF:
Yes.
JUSTICE ROWE:
So there was an inundation of these situations. It is not really the role of
CRA, although they do their best, to kind of be the protector and send out all
these warning notices and post them on their website, other than the generic
one: Don't fall for this stuff.
MR. RADNOFF:
It is actually not even about the warning. It is more ‑‑
JUSTICE ROWE:
At the audit level.
MR. RADNOFF:
At the audit level, you should call ‑‑
JUSTICE ROWE: Or
the objection level.
MR. RADNOFF:
Yes, call the taxpayer.
JUSTICE ROWE:
I know.
MR. RADNOFF:
Meet with the taxpayer. What happened? Not just blindly assess all these
people. That gets them into an expensive legal proceeding.
JUSTICE ROWE:
Right.
MR. RADNOFF:
Which I think it is important also to consider the cost to this court of having
to have dealt with all these cases, some of which, in my respectful submission ‑‑
and I know CRA was doing their best ‑‑ should not really have come
to a trial necessarily.
JUSTICE ROWE:
Okay, counsel. What do you have to say about costs?
MS. BEAHEN:
Your Honour, obviously I strongly disagree. Mr. Radnoff just said obviously,
this case shouldn't have come to court. Your Honour just said you understand
why this case had to come to court. We had to come to court to get all this testimony
and go through all this.
JUSTICE ROWE:
But they are entitled to some costs. Tariff ‑‑ tax court tariff is
very low. Right?
MS. BEAHEN: It
should be tariff, Your Honour. There is no reason to deviate from the tariff in
this case. The Respondent didn't delay in any way. Discoveries were done in
writing. I can't speak to what Mr. Radnoff's fees are, but there is no reason
to deviate from tariff in this case, in a case where we all acknowledge it did
have to come to court.
JUSTICE ROWE:
All right. Now, without more, if I just say the Appellant is entitled to costs,
that without more means tariff; doesn't it?
MS. BEAHEN:
Yes, Your Honour.
MR. RADNOFF:
It is somewhat easier to just make that the decision today, even if it is
obviously ‑‑ the tariff range, as my friend notes, for a trial like
this is about $3,500 to $5,000 roughly. I think it just makes sense to make a
number. It just saves costs for my client, just so we don't have to go back and
forth.
MS. BEAHEN:
Your Honour, there is no reason to do a number. If you say costs on the tariff,
then Mr. Radnoff can submit his bill of costs to us and we will look at it. There
is no reason to avoid that process. It is very short.
JUSTICE ROWE:
They are not very much. All right. The Appellant is entitled to costs. That will
be pursuant to the tariff.
MS. BEAHEN:
Thank you, Your Honour.
JUSTICE ROWE:
I was at a seminar last year when there was a Justice of the Supreme Court of
Ontario dealing with the matter of costs. Another Justice from Alberta - my own
province where I practiced - and they said costs in Tax Court are low.
MR. RADNOFF:
It would not be unusual, and most of our practice is in Superior Court, for
costs to be in the range of $50,000 to $100,000 for this trial.
JUSTICE ROWE:
Yes, but that is why in addition to the fee component, Chief Justice McLachlin
says you are seeing self‑represented people at absolutely every level. Right?
You have to win a lottery before we can hire one of you guys.
All right.
Thank you very much, counsel. Well-argued case. Thank you.
MS. BEAHEN:
Thank you, Your Honour.
THE REGISTRAR:
Order. All rise. Court is adjourned.
--- Whereupon the hearing was adjourned at 12:00
p.m.
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