REASONS
FOR JUDGMENT
Masse D.J.
Overview
[1]
These two appeals were heard together on common
evidence.
[2]
Elton and Lisa Maynard are appealing the
penalties for gross negligence that were imposed on them pursuant to subsection
163(2) of the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) (the “Act”)
in relation to their 2008 taxation year and related requests for loss carryback
to the 2005, 2006 and 2007 taxation years. An unscrupulous tax preparer
prepared their tax returns in such a way as to claim very large fictitious
business losses. These business losses, if allowed, would result in the refund
to the Appellants of all or practically all the taxes paid by them or deducted
at source for the 2005, 2006, 2007 and 2008 taxation years. The fact is that
these claimed business losses never existed. The Appellants never owned or
operated any kind of business at all during the 2008 taxation year. The Canada
Revenue Agency (the “CRA”) denied the losses and penalized the Appellants
pursuant to subsection 163(2) of the Act. This matter pertains only to the
penalties that were imposed.
Factual Context
[3]
Elton and Lisa Maynard were born in Trinidad.
Elton came to Canada in 1974, but he returned to Trinidad in order to bring his
wife, Lisa, back to Canada. They have been happily married for 33 years.
He has a grade 12 education in Trinidad and he also took some drafting
courses at Centennial College in Scarborough. These courses were taken over a
two-year period and included Autocad, a computerized drafting program. He
worked as a draftsperson for Trench Ltd. for 33 years before retiring.
[4]
Lisa obtained a grade 12 education in
Trinidad. She came to Canada in 1982. Since arriving in Canada, she enjoyed
several employments with the city of Toronto and is presently employed as an
administrative assistant at the Ministry of Finances of Ontario. She has taken
accounting courses at Durham College.
[5]
Elton sometimes prepared their tax returns using
computer software and other times they would have professionals such as H&R
Block prepare the returns for a fee.
[6]
Some time in 2005, a colleague at Elton’s work
recommended an individual named Muntaz Rasool to the Appellants. The colleague
never did go into too much detail about his experience with Mr. Rasool.
The Appellants believed Mr. Rasool to be a chartered accountant who had
been in business for 20 years and who had prepared the colleague’s tax
returns. They first met Mr. Rasool at a Tim Hortons in Scarborough that
was close to Mr. Rasool’s home. In fact, any meetings they had with Mr. Rasool
were at Tim Hortons. They never met him at his home office. They never asked Mr. Rasool
about his credentials, nor did they check out any references other than Elton’s
colleague. They testified that initially their relationship with Mr. Rasool
was comfortable and trusting. According to Lisa, Mr. Rasool was a very
pleasant person and the Appellants had an open dialogue with him. They
testified that they had no reason not to trust him.
[7]
Right from the very first meeting, Mr. Rasool
attempted to recruit them to invest in tax planning or investment schemes. The
first of these was something called the Universal Healthcare Trust Donation Program
(in conjunction with Liberty Wellness Initiative Foundation). This was a
gifting program that was supposedly designed to render assistance to disadvantaged
people in poverty stricken countries. The Appellants were provided with
material purportedly showing that the Premier of Ontario, the Prime Minister of
Canada and the Prime Minister of Grenada all endorsed this program. This
appeared to give this scheme some legitimacy. Mr. Rasool convinced Elton
to make a $6,000 donation to this program for the 2005 taxation year. Elton was
given a T5003 slip indicating that the eligible amount of the gift for tax
purposes was $30,000, not $6,000. Mr. Rasool also convinced Lisa to make a
$2,500 donation. She was given a T5003 slip indicating that $12,500 was the
eligible gift amount rather than $2,500. I find it difficult to understand how
a charitable donation can somehow be inflated to five times the amount of the
actual donation for tax purposes. The CRA advised the Appellants in August 2007
that it intended to disallow the donations and subsequently did so.
[8]
For the 2006 taxation year, Mr. Rasool
recruited Elton to invest in a business called StockLogic. Elton invested only
$7,000 but somehow claimed business losses amounting to $42,000 related to
StockLogic. Elton was advised in 2008 that the CRA was auditing the StockLogic
scheme. Later, this business loss was disallowed and Elton was assessed gross
negligence penalties pursuant to subsection 163(2) of the Act. I understand
that this assessment is currently being litigated.
[9]
Mr. Rasool did prepare the Appellants’ tax
returns for the 2005 through to 2008 taxation years. In the past, the
Appellants paid Mr. Rasool $45 for the preparation of each return. When it
came time to prepare their 2008 tax returns, they again met Mr. Rasool at
Tim Hortons as they always did. They got their documents together, such as T4
slips, to give to him. Mr. Rasool advised them that they had the right to
redo their taxes for the last 10 years. Mr. Rasool asked them to
contact the CRA and obtain their past returns back to 1999. They did so and
they gave all of this information to Mr. Rasool. When the returns were
prepared, they again met Mr. Rasool at the Scarborough Town Centre. The
Appellants never asked any questions to Mr. Rasool regarding the returns
and Mr. Rasool never offered any explanations at all as to what he had
done. Mr. Rasool did not inform them what he had found as a result of
going over the last 10 years of returns, nor did they ask. The Appellants
did not review the returns with Mr. Rasool — in fact, they never even took
a look at the returns. The Appellants have absolutely no idea what information
was contained in the returns. Mr. Rasool simply flipped the pages and the
Appellants simply signed wherever they were told to sign without any question. Mr. Rasool
did not provide them with a copy of their returns. In the past, Mr. Rasool
had electronically filed their tax returns for 2005, 2006 and 2007. However, Mr. Rasool
did not electronically file the 2008 tax returns since he claimed that they
were too large to electronically file. Instead, Mr. Rasool instructed the
Appellants to file the returns themselves. The Appellants dropped off their
returns at the nearby CRA office. The Appellants only paid Mr. Rasool $45
cash for the preparation of their 2008 tax returns. This fee was also in
relation to the work done in reviewing their returns for the last 10 years.
This is an unusually low fee for reviewing 10 years’ worth of tax returns.
[10]
Elton’s 2008 tax return can be found at Exhibit
R-2, Tab 2. Lisa’s 2008 tax return can be found at Exhibit R-1, Tab 18.
Both returns are dated March 21, 2009. Both of these returns contain some
blatantly false information. In his return, Elton claimed business income in
the amount of $76,938.67. He also claimed total business expenses of
$262,775.12 resulting in business losses of $255,150.57. In her return, Lisa
claimed business income in the amount of $50,341.14. She also claimed total
business expenses of $123,482.99 resulting in business losses of $115,803.83.
All this information contained in their 2008 tax returns is completely and
utterly false. Elton’s only income during the 2008 taxation year was employment
income in the amount of $69,314.12. Lisa’s only income during the 2008 taxation
year was employment income in the amount of $42,519.98. Neither Elton nor Lisa
ever owned or operated any business whatsoever during 2008 and neither one of
them ever incurred the business expenses that were claimed. Both of them agree
that this false information would have been readily detected by them had they
bothered to take a look at their returns. However, it is their evidence that
they signed their returns and the related requests for loss carryback without
looking at these documents and, in so doing, they certified by their signatures
that the information given in these documents is complete and correct —
clearly, it was not. They took no steps at all to verify the accuracy of the
information in their returns. The Appellants do not know why the word “per” appears on the signature line just before their
signatures. They do not remember if that word was there, but clearly it was
since they were the last ones to handle the returns before the returns were
filed. The returns indicated quite large refunds — $16,304.64 for Elton and
$7,553.88 for Lisa. They indicated that they did not see the amount of the
refund that appears on the last page of the returns; however, they were told
how much the refund would be. They claim that the size of their refunds did not
arouse any suspicion in their mind. They did not ask why they were to get such
large refunds. They both did not notice that box 490, which is to be completed
by their professional tax preparer, was left blank. They did not know that they
signed requests for loss carryback which clearly they did. In fact, they did
not notice anything at all about their returns since they did not look at them.
They both acknowledge that, had they looked at the returns and had they seen
the obviously false information, they would not have signed and filed the
returns.
[11]
The tax returns were assessed as filed and they
both received refunds.
[12]
Lisa testified that before she got her refund,
she got a call from Mr. Rasool stating that she could expect her refund
that week and that she had to see him with her cheque book to pay him for his
expertise. He was demanding 40% of her tax refund. She responded that she had
already paid him $45, his usual fee. He then told her that if she did not pay
him, he would call the CRA and tell them to reverse her taxes. She told him
that this was extortion and that she would not pay him a dime. She then
contacted the CRA in order to report Mr. Rasool’s behaviour and to let the
CRA know not to let anybody else have access to her tax records. The CRA
assured her that Mr. Rasool could not access her records without her
permission and that he could not reverse her taxes.
[13]
The Appellants only found out there was a
problem with their 2008 tax returns in 2011 when they got a letter from the CRA
questioning their claimed business losses. Lisa immediately called the CRA to
let them know that they must have had the wrong person and they should check
the social insurance number since she and her husband had never had any
businesses at all. She was convinced that the CRA had made some kind of
mistake. Unfortunately, the CRA had not made any mistake. Lisa was devastated,
confused and panicky. She had no idea at all that Mr. Rasool had indicated
on their returns that they were operating a business. She tried on many
occasions to get in touch with Mr. Rasool and she even went to his home.
However, Mr. Rasool had fled and was not to be found. She now knew they
were in trouble so she tried to get a hold of someone from the CRA to work
things out. She also took steps to report Mr. Rasool to the law
enforcement authorities since they were the victims of a fraud. She also made
enquiries of the governing body of professional chartered accountants to lodge
a complaint and she learned that Mr. Rasool was not in fact a chartered accountant.
She also lodged complaints with the Better Business Bureau, Equifax and any
other organization that she could think of in order to bring Mr. Rasool to
task.
[14]
The Minister of National Revenue (the “Minister”)
reassessed the Appellants for the 2008 taxation year disallowing the claimed
business losses and applied a penalty pursuant to subsection 163(2) of the Act.
The Appellants objected to these reassessments, but the Minister confirmed the reassessments,
hence the appeal to this Court.
[15]
The Appellants take the position that they
honestly and sincerely believed that Mr. Rasool was a responsible
professional and that he would prepare their tax returns according to the law
and in keeping with his professional responsibilities. They had no idea that he
would perpetrate a fraud in the preparation of their returns. They are
unsophisticated and law abiding people. They are victims and it is not fair for
them to now have to pay a penalty because they were too trusting and naive.
They submit that the fact that they signed their returns without reviewing them
may demonstrate negligence, but this does not amount to gross negligence such
as to attract the imposition of the harsh penalties provided for in subsection
163(2) of the Act. These appeals should therefore be allowed and referred back
to the Minister for reconsideration and reassessment on the basis that the
penalties imposed pursuant to subsection 163(2) are not appropriate in the
circumstances of this matter. The Appellants also seek their costs.
[16]
The Respondent submits that the Appellants
either knew that their returns contained false information or they were
wilfully blind as to the falsity of the information contained in the returns.
It is incumbent on taxpayers in a self‑assessing taxation system to
ensure that income and expenses are correctly reported. They acknowledge that,
had they taken even a moment to review their tax returns before signing, they
would have seen the huge business losses and they would not have signed them.
They simply signed whatever was put in front of them by their tax preparer
without review, without question and without verifying the accuracy of the
information. This amounts to gross negligence. These appeals should therefore
be dismissed with costs.
Legislative Dispositions
[17]
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 . . .
[18]
According to subsection 163(3), the burden of
establishing the facts justifying the assessment of the penalty is on the
Minister.
Analysis
[19]
There is constant jurisprudence to the effect
that our system of taxation is both self-reporting and self-assessing. It
relies on the honesty and integrity of the individual taxpayer. It is the
taxpayer’s 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 stated 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.”
[20]
In the matter of R. v. Jarvis, 2002 SCC
73, Justices Iacobucci and Major of the Supreme Court of Canada explained the
responsibilities and duties of taxpayers as well as some of the measures in the
Act designed to encourage compliance:
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.]
[21]
It has been held that the penalties provided for
in section 163 of the Act have been conceived in order 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. In Sbrollini v. The Queen, 2015 TCC 178,
Justice Boyle of this Court was of the view that the penalty provisions set out
in subsection 163(2) of the Act reflect:
15 . . . the significance and
importance of the requirements of honesty and accuracy in the Canadian
self-reporting income tax system. . . .
16 Such
penalties are properly payable . . . if [a taxpayer] knowingly, or under
circumstances amounting to gross negligence, made or participated in, assented
to or acquiesced in, the making of false statements or omissions in his
returns.
[22]
Therefore, the decision of whether or not a
taxpayer should be subjected to the penalties under subsection 163(2) of the
Act should be considered in the context of the responsibilities and duties of
the taxpayer to accurately and completely report his income in a self-reporting
and self-assessing system.
[23]
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.
[24]
There can be no question that the Appellants’
2008 tax returns and related requests for loss carryback contained false
statements. The Appellants never owned or operated any kind of a business
during that year and therefore could not have had any business income or
business expenses.
[25]
I am not satisfied that the Appellants knowingly
made any false statements since they were not even aware of what was contained
in their returns. They admit that they never so much as glanced at their
returns before signing them. I am satisfied however, that the Crown has
demonstrated to the requisite degree of proof that the Appellants made,
participated in, assented to or acquiesced in the making of, false statements
in their returns in circumstances amounting to gross negligence.
[26]
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). 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).
[27]
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
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. “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”.
[28]
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.
[29]
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).
[30]
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. 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.
[31]
This is a not an exhaustive list. There may be
other factors that need to be considered depending on the circumstances of any
particular case.
[32]
In the matter at bar, I am satisfied that the
Appellants did not knowingly make any false statements. It is their own
testimony that they simply did not know what was in their 2008 tax returns
since they never even looked at them. However, I am satisfied that they made,
participated in, assented to or acquiesced in the making of, the false
statements in circumstances amounting to gross negligence. At the very least,
they were wilfully blind. I come to this conclusion for the reasons that
follow.
[33]
The Appellants have the equivalent of a high
school education here in Canada. They have been in Canada for a long time. They
are intelligent and articulate. They have taken post‑secondary school
courses that were very useful to them in their line of work. They have been
steadily employed in positions of responsibility and both earn a good living. Elton
has knowledge of the tax system since he has prepared his wife’s returns and
his own in the past. He and his wife both have a basic understanding of
business organization and concepts of profit and loss. They are not so lacking
in education or life experience as to claim ignorance. Education, experience
and intelligence are not factors that could relieve the Appellants of a finding
that they made false statements under circumstances amounting to gross
negligence.
[34]
There were ample warning signs that should have
aroused the Appellants’ suspicions and motivated in them the need to make
further inquiries.
(a) Tax
Preparer Previously Unknown to Taxpayers — Mr. Rasool was previously
unknown to the Appellants. Mr. Rasool was not affiliated with any
well-known tax preparers or accounting firms. The Appellants did not know
anything about him other than he prepared the colleague’s tax returns and the
colleague told them he was a chartered accountant. The Appellants retained his
services on the recommendation of just one co-worker. Other than this one
recommendation, the Appellants did not ask for or check out any other
references. The Appellants did not check out his credentials. This is perhaps a
small factor, but when taken together with all the other factors, it should
have alerted the Appellants to undertake a bit more due diligence with regard
to the legitimacy of Mr. Rasool.
(b) Venue
of the Meetings — The Appellants never met Mr. Rasool at his office;
they only met him at Tim Hortons or at the Scarborough Town Centre. One has to
ask, why would a chartered accountant with 20 years of experience receive
clients elsewhere than at his place of business? These are very public places
and, as such, are not conducive to the discussion of highly confidential
matters such as the preparation of tax returns, tax planning and investment
opportunities. This is perhaps a small factor, but when taken together with all
the other factors, it should have alerted the Appellants to exercise more care.
(c) Questionable
Prior Dealings — The Appellants testified that they had no reason to be
suspicious of Mr. Rasool. However, Mr. Rasool had convinced them to
participate in two programs that were subsequently challenged by the CRA — the
Universal Healthcare Trust Donation Program and the StockLogic investment
scheme. The Appellants knew before they filed their 2008 tax returns that both
of these schemes which had been introduced to them by Mr. Rasool were
being challenged by the CRA and that they could be liable to repay significant
amounts as a result. This is another reason why they should have carefully considered
the information contained in their 2008 filings.
(d) The
Fee Structure — Mr. Rasool was charging the Appellants a flat fee of
$45 per return. He charged this same fee even when he reviewed the Appellants’
returns for the last 10 years. This would seem to be inordinately low for the
amount of work involved in reviewing 10 years’ worth of returns. It is
hard to believe that a chartered accountant with 20 years of experience would
only charge $45 for the preparation of a tax return and the review of the last
10 years of returns. This should have been a red flag for the Appellants.
(e) Lack
of Explanations by Tax Preparer — Mr. Rasool did not offer any
explanations whatsoever concerning the preparation of the Appellants’ tax
returns. A true professional would want to make sure that his clients
understood the scope of what he was doing and why. Mr. Rasool could not be
bothered to take the time to explain the work that he did — he simply told the
Appellants where to sign. What is even more startling is that the Appellants
did not ask any questions at all of Mr. Rasool as to what was contained in
their returns, as to why they would get such large refunds and as to what Mr. Rasool
had found as a result of reviewing the past 10 years of returns. A
reasonable and diligent taxpayer would at the very least be curious and would want
to know and understand what his accountant had done on his behalf and how it is
that the tax preparer was able to get such a significant refund. That is simply
human nature.
(f) Manner
of Filing — In the past, Mr. Rasool had always used electronic filing.
This time, he gave the returns to the Appellants and told them to file the
returns themselves. On being asked why, he simply stated that the returns were
too large to be electronically filed. This explanation is dubious. Mr. Rasool
had not given the Appellants a copy of their returns. A professional accountant
would have prepared a copy and provided it to his client with instructions to
preserve the copy for future reference. In any event, even if Mr. Rasool
did not give them a copy, it would only have been prudent for the Appellants to
make their own copy for their own records. This, they did not do.
All the foregoing factors should have
aroused the Appellants’ suspicions and should have incited them to exercise
more diligence in the preparation and filing of their returns and to question
what was going on. However, they did not. In fact, they did nothing, choosing
instead to remain blissfully ignorant. Such conduct is evidence of wilful
blindness amounting to gross negligence.
[35]
Quite apart from any consideration of wilful
blindness, I am of the view that the Appellants have demonstrated conduct
amounting to gross negligence. As has often been stated by our courts, our tax
system is one of self‑assessment and self-reporting. Each individual
taxpayer has the obligation to ensure that all the information contained in his
return is complete and accurate regardless of who prepares the return. The
Appellants made no effort whatsoever to verify the accuracy and completeness of
their returns. They simply signed their returns, thus certifying that the
returns were complete and accurate, and then they filed their returns without
even looking at them. They completely disregarded their duty to verify the
accuracy and completeness of the information contained in their returns. Had
they made even the most minimal effort, they would have quickly and easily
discovered the blatantly false information contained in their returns. The
Appellants cannot be heard to say, in an effort to deflect blame away from
themselves, that they were the victims of a dishonest tax preparer when they
made no effort at all to verify the accuracy of their returns.
[36]
In Laplante v. The Queen, 2008 TCC 335,
Justice Bédard wrote:
15 . . .
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. . . .
[37]
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.
[38]
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.
[39]
It has been held that the failure to review
one’s return before signing and filing it may, in and of itself, be sufficient
to amount to gross negligence. As stated by Justice Tardif in Gingras v.
Canada, [2000] T.C.J. No. 541 (QL):
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.
[40]
In Laplante, above, 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? . . . 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.]
[41]
Even more recently, Justice Bowie stated in Brown
v. The Queen, 2009 TCC 28:
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.
[42]
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 . . . .
[43]
I am of the view that, in the circumstances of
this matter, the Appellants were completely remiss in discharging their duties
under the Act. They made no effort at all to comply with their duty to
accurately and completely report their income and allowable expenses in their 2008
tax returns. Their actions throughout are not only negligent, but are grossly
negligent. They showed indifference as to whether or not they complied with the
law.
Conclusion
[44]
There is no doubt that the Appellants’ 2008 tax
returns and their requests for loss carryback contained false statements — they
did not carry on a business and they did not incur any business losses
whatsoever. In the circumstances of this matter, I can come to no other
conclusion than that the Appellants were wilfully blind and grossly negligent
as to the falsity of these statements. This is especially so since they signed
their returns certifying the accuracy of the information contained therein
without bothering to even look at the returns or make any effort at all to
verify the returns’ accuracy. As such, they are properly subject to the
penalties imposed pursuant to subsection 163(2) of the Act.
[45]
For all the foregoing reasons, these appeals are
dismissed. The Respondent is entitled to her costs if she wants them.
Signed at Kingston, Ontario, this 28th
day of January 2016.
“Rommel G. Masse”
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