AMENDED
REASONS FOR JUDGMENT
Rowe D.J.
[1]
Upon consent of counsel for the respondent and
counsel for both appellants, these appeals were heard on common evidence.
[2]
The affidavit of Ahmadreza Fallahfini (“Fallahfini”),
Litigation Officer employed by Canada Revenue Agency (“CRA”), filed
in each of the above appeals, is directed to be filed pursuant to subsection
244(9) of the Income Tax Act (the “Act”).
Appeal
of Angelina Brathwaite
[3]
The appellant, Angelina Brathwaite (“Brathwaite”)
appealed from assessments issued by the Minister of National Revenue (the “Minister”)
with respect to the 2005, 2006, 2007 and 2008 taxation years. In those years,
Brathwaite deducted certain amounts as Claimed Agent Loss as detailed in a
Statement of Business Activities. The Minister initially assessed Brathwaite’s
returns for 2005, 2006 and 2007, as filed. In issuing an assessment for the
2008 year, the Minister disallowed the professional loss and other deductions
claimed and imposed a gross negligence penalty pursuant to subsection 163(2) of
the Act in the sum of $53,509.34. The Minister reassessed Brathwaite for
the 2005, 2006 and 2007 taxation years, disallowing the net business losses
claimed and reduced other expenses claimed to nil for the 2005 taxation year.
The Minister imposed gross negligence penalties under subsection 163(2) for the
2005, 2006 and 2007 taxation years in the amounts of $5,334.42, $15,025.92 and
$5,849.20, respectively. On August 20, 2012, the Minister issued further
reassessments for the 2005, 2006, 2007 and 2008 taxation years, allowing
certain other expenses that were not part of the business losses or Claimed
Agent Loss in those years.
[4]
For convenience, counsel for the appellants,
with the consent of counsel for the respondent, filed – as Exhibit R-1 – a
binder entitled Respondent’s Book of Documents, Tabs 1 to 25, inclusive. A
binder entitled Appellant’s Book of Documents, Tabs 1 to 6, inclusive, was
filed as Exhibit A-1.
[5]
Brathwaite testified she is 52 years old and
graduated with a Diploma in Business from Seneca College where she studied
insurance and investment. She joined Royal Bank of Canada (“RBC”) and
worked as a teller for 14 years and then managed a department dealing with
staff banking in a Toronto branch. After her employment with RBC, she started
working as a financial planning trainer at Investors Group. In 2000, she was
hired as a recruiter by Shared Vision Management and in 2006 joined Brunel Canada
Limited (“Brunel”) in the recruitment department as a senior client partner.
Brathwaite stated that during the course of her various employments she had not
dealt with accounting or tax matters. She met Ian Thompson (“Thompson”)
in 2005 and they were married in 2008. Thompson was acquainted with a man who
introduced them to Danasar Morlee (“Morlee”). At that point, Brathwaite
had not filed income tax returns for several years as her mother had been ill
and as she had been remunerated for years by commissions, she had not remitted
sufficient payments on account of tax because she needed the money. After
considerable discussion with Morlee, Brathwaite was advised that he could file
her 2007 tax return and also introduced her to an insurance agent from whom she
and Thompson later purchased a term insurance policy. With respect to her tax
return, Morlee advised that she could claim a variety of expenses pursuant to
the Form 2200 provided by her employer. He did not mention the amount of any
potential refund as a result of preparing a tax return on her behalf but
charged a fee of $2,500 which she paid. As a consequence of filing her 2007 tax
return, she received a refund in the sum of $7,283.11 and she and Thompson were
“very happy.” They spoke to Morlee who advised her to file returns for years
prior to 2007 because the nature of her work would entitle her to deduct
certain expenses which would reduce income and produce refunds of tax paid
earlier. Morlee also discussed with her and Thompson the opportunity to
participate in financial planning through policies and other investments
offered by insurance companies. Brathwaite stated there was no discussion about
business losses. Early in 2009, she began receiving letters from CRA concerning
claimed business losses and she contacted Morlee who introduced her and
Thompson to Christian Lachapelle (“Lachapelle”) who was someone
apparently experienced in tax matters derived in part from previous employment
with CRA. Counsel referred Brathwaite to a four-page letter dated 2009-01-12 (January
12, 2009) - at Tab 3 in Exhibit A-1 – that she sent to J. Adam, an auditor at
the CRA Audit Division and acknowledged that she had written at the bottom of
each page the phrase, “Certified Conform to the Original” and signed her name
below. She stated that she had read that document which had been e-mailed to
her by Lachapelle for the purpose of responding to the inquiry by CRA. Although
she did not understand the contents of the letter, she signed it and mailed it
to the auditor with respect to her 2005, 2006 and 2007 tax returns. Brathwaite
thought her 2008 return had been prepared by a different person but stated it
was not done by Morlee. Brathwaite stated she and Thompson had attended a
seminar for the purpose of meeting Lachapelle and listened to his explanation
about how they could rectify their financial situation and he recommended a
financial advisor – Paul Mahinder (“Mahinder”) who would attend at their
residence to provide relevant advice in that regard. Mahinder came to their
residence at some point during the Christmas holiday season and began
discussing various systems he had used to advise clients but he was inebriated
and they became concerned about their relationship with Morlee and Lachapelle
and instructed Mahinder to leave their home. They reported the incident to
the Toronto Metropolitan Police that same evening. Later in the course of their
attempts to obtain satisfaction in resolving their difficulties with CRA, they
appeared before a Justice of the Peace and swore out an Information alleging
that they had been the victims of fraud. They also spoke to CRA officials at
various levels within that organization and pursuant to their advice, filed
amended returns in an effort to demonstrate cooperation with the agency to
resolve the matter. When asked to provide a statement to be recorded on video
concerning their dealings with Morlee and Lachapelle, Brathwaite stated she and
Thompson were ready and willing to comply but had not been contacted
subsequently for that purpose. Counsel referred Brathwaite to a document –
Amended T1 General Return 2006 – at Exhibit R-1, Tab 11 – and she identified
her signature on the last page and had inserted the date, August 15, 2011. At
Tab 12, she also identified her signature on her amended tax return for
the 2007 year and confirmed the above date had been inserted and that the same
procedure was followed with respect to the amended return for 2008 at Tab 13.
All amended returns – prepared by the same firm - were delivered to the
Toronto West Tax Services Office and were stamped as received on August 30,
2011 and the information provided in the box for professional tax preparers in the
2006 and 2007 returns showed B T & Associates in Richmond Hill and Thornhill,
Ontario were the preparers. Brathwaite reiterated there had never been any
discussion with Morlee about claiming false business losses.
[6]
In cross-examination by counsel for the
respondent, Brathwaite stated that she and Thompson had retained the services
of Morlee to file their returns. Later, although letters sent by CRA were
addressed to them as individuals using their names, as filed, and each of them
had responded separately, they dealt jointly with their financial situation as
it pertained to the issue of income tax. Brathwaite stated her training at
Seneca College had been focussed on marketing and that she had taken business
writing courses at University of Toronto. In the 1980s, she took an investment
course and additional training to sell insurance. During her 14 years at
RBC, she worked as a teller and in the section dealing with term deposits,
fixed-term investments and lending, and in each instance used the appropriate
software. After leaving the bank, she worked with a small recruiting firm prior
to joining Brunel in 2006 - Life and Health Sciences Division - where she was
employed to sell contracting solutions to business entities that did not
perform their own hiring and are shown the advantages of retaining the services
of Brunel to institute outsourcing programs for specific purposes. Because she
was remunerated on a commission basis, her income varied and although she had
paid some payments in earlier years, she had not filed tax returns for the
taxation years 2000 to 2005, inclusive. Morlee prepared her 2007 return and
later the revised returns for the 2005 and 2006 years but did not file her 2008
return. Morlee had requested bank statements and advised that she was entitled
to claim certain expenses against commission income. Brathwaite acknowledged
that she had not verified the background of Morlee nor had she undertaken any
inquiry in that regard. She stated that when she signed her return for the 2007
taxation year, she did not take note of the business loss claimed, even though
it was contained within the tax return which she had not reviewed prior to
signing. She stated she had not inquired about the method of preparation of the
return for which she paid Morlee the sum of $2,500 as his fee for preparation
of the return and additional advice concerning financial matters. Counsel
referred Brathwaite to the last sentence in paragraph 5 of her Notice of Appeal
which stated that “On May 15, 2008, Angelina paid a total fee of $12,500 to Mr.
Morlee.” Brathwaite stated the amount was accurate but the money had been paid
at various times and that the total fee included services provided to her
husband, Thompson. She agreed with counsel’s observation that it was “a lot of
money to pay” when the only additional service Morlee performed was to
introduce them to a life insurance agent. When she received a refund of over
$7,000, she did not regard that sum as exceptional even though at that time she
owed income tax for prior years. As a result of having obtained the refund, she
retained Morlee to prepare her tax returns for 2005 and 2006 and agreed that in
those years business losses were claimed. However, she did not review the
returns prior to signing nor did she inquire about the method used to prepare
those returns. Counsel referred Brathwaite to a four-page letter - dated
November 27, 2008 - from CRA auditor J. Adam in which information was requested
concerning business and income and expenses for the years 2005 to 2007, inclusive.
There was a Business Questionnaire enclosed in the letter and various matters
requiring a specific response were set forth in bullet form on the first page.
On pages 2 and 3, there were paragraphs written in bold concerning the method
of providing receipts for business expenses and also for employment expenses
claimed in 2005. Brathwaite stated the letter caused her to worry and she
contacted Morlee to seek advice and he referred her and Thompson to Lachapelle.
In hindsight, she wished they had contacted the CRA auditor directly but
believed Morlee had the expertise to deal with the matter and accepted his
recommendation. Another letter - Exhibit R-1, Tab 3, dated January 13, 2009 -
was sent to Brathwaite by the auditor advising that there had been no response
to the earlier letter and that if no reply was received within 30 days, the
2005 return would be adjusted to delete the employment expenses and the
business loss claimed for 2005 would be deleted and the 2006 and 2007 returns
would be reassessed to reduce the business losses to nil. The last paragraph
stated there was the opportunity for Brathwaite to request an adjournment of
that deadline if required and it would be reviewed. Brathwaite stated she “probably”
passed that letter on to Morlee. Counsel referred her to the January 12, 2009
letter to J. Adam – Exhibit R-1, Tab 15, page 165 (referred to earlier (Exhibit
A-1, Tab 3) - in her direct examination and to paragraph 4 thereof which reads:
Based on several
communication with different CRA agents, we can give you this hint: in our
letters, you will come into contact with the human being Angelina Elizabeth
: Brathwaite and the natural person ANGELINA BRATHWAITE which is the
corporation. In order to differentiate them, anytime you see the word person,
we are referring to the legal construct, the corporation, the legal entity, the
judicial personality, as defined and referred in the law. Furthermore, when you
see a colon “:” in the name, it is precisely the sign that this name refers to a human being. The
meaning of this colon is “of the family”.
Hope this help [sic] you in your understanding.
[7]
Brathwaite stated that Lachapelle had explained
to her and Thompson that “as a human being, you are a corporation and have
certain write-offs.” In her understanding of that concept, the proposed
deductions were work-related expenses including items such as personal
grooming. She was not requested by Morlee to provide receipts in support of any
deductions nor did she ask if they were needed. In letters dated May 12, 2009
and June 4, 2009 - found at Tabs 6 and 7, respectively in Exhibit R-1 -
Brathwaite was advised that the position of CRA was unchanged and that it would
be applying the penalty pursuant to subsection 163(2) as explained in the
letter dated January 21, 2009. Brathwaite stated she and Thompson “hoped”
Lachapelle could rectify the situation as he had assumed conduct of their files
shortly after they had received the first correspondence from the CRA auditor.
She received an e-mail – Exhibit A-1, Tab 5 - from Lachapelle and read it but
thought the wording and grammatical construction was due to the fact he was a Francophone
and English was not his original language. She was instructed to sign the
letter in “RED” using her normal signature. In the first line of the e-mail
following the salutation, “Hi, Angelina”, Lachapelle informed her that the
kind of letter she had received from CRA “is meant to disorient you and to
shatter fear.” He went on to say that there was nothing to be nervous about and
the CRA letters were a “smoke screen” so she
could not see that the auditor was not responding properly to what had been
referred to as a “Usage Notice”. He also advised
that the “alledged [sic] debt is not certain anymore since you have
rescinded your signature from the original documents used to create this debt.”
Brathwaite recalled receiving another communication by e-mail – Tab 6 in same
exhibit dated April 9, 2010 - from Lachapelle but at this point she and Thompson
had reported to the Toronto Police the matters arising from their relationship
with Morlee and Lachapelle and the problems arising from the manner in which
their tax returns had been filed. Counsel referred Brathwaite to a document
entitled ANSWERS ON WRITTEN EXAMINATION FOR DISCOVERY – Exhibit R-2 – and to
the answer to Question 83 asking which of the facts in paragraphs 23(a)-(o),
24(a) and 25(a)-(i) of the Reply did she deny and why? The answer stated she
did not agree with paragraph 23(e), (g) and (i) that the tax preparer had
claimed losses. Brathwaite stated her 2008 tax return was not filed by Dan Rosenbault
and that her answer to Question 12 was incorrect but he had prepared returns
for her in the first few years after 2000. Brathwaite stated that the 2008 return
– filed on June 30, 2009 - may have been prepared by Morlee and submitted to
CRA but she had not instructed him to do that and had no knowledge of its
contents or that a loss of $281,092 had been claimed.
[8]
Counsel did not re-examine the appellant.
Appeal of
Ian Thompson
[9]
Thompson appealed from assessments issued by the
Minister for the 2007 and 2008 taxation years. Initially, the Minister assessed
the 2007 taxation year, as filed, and issued a refund in the sum of $19,136.76
on August 25, 2008. The Minister initially assessed Thompson for the 2008
taxation year pursuant to a Notice dated February 15, 2011. However, the
Minister issued reassessments for the 2007 and 2008 taxation years denying the
business losses claimed on the basis Thompson was not involved in any kind of
income-earning business activity and assessed penalties pursuant to subsection
163(2) of the Act. The appellant filed Notices of Objection and the
Minister subsequently did not vacate, confirm or reassess the 2007 or 2008
taxation years. A Notice of Appeal was filed on behalf of the appellant on
April 7, 2014.
[10]
On consent of counsel, the Respondent’s Book of
Documents was filed as Exhibit R-3, Tabs 1 to 31, inclusive.
[11]
Thompson testified he lives in Toronto and has
been employed as a welder for Chrysler Canada since 1992. He is 49 years old and
has been involved for 35 years in amateur boxing including participation in
national and international events. He was a three-time Canadian champion, first
as a flyweight at age 15 and later as a junior welterweight (139 pounds). During
his working life, he filed income tax returns and had never encountered a
problem with CRA or its predecessor. He and Brathwaite met in 2005 and were
married in 2008, an event he described as the most important in his life. Before
their marriage, they began discussing means to accumulate wealth for the
future. Thompson spoke with an acquaintance who recommended Morlee as a tax
advisor as he had worked for CRA but was now operating his own business where
he assisted clients to build wealth. Thompson and Brathwaite met with Morlee
who informed them that his experience as an employee at CRA qualified him to
utilize little-known techniques to obtain better tax treatment for his clients.
Thompson had been accustomed over the years to paying about $200 as a fee to a
tax preparer and had received refunds in amounts that sometimes represented up
to 10% of tax paid in a particular taxation year. However, he and Brathwaite
each paid Morlee a fee in the sum of $1,250 for his services including income
tax preparation and filing. Counsel for the appellant referred Thompson to his
2007 tax return – Exhibit R-3, Tabs 3 and 4 – which also contained a Statement
of Business Activities. Thompson identified his signature on the return which
showed a refund was claimed in the sum of $18,966.04. Above his signature,
Thompson wrote “with rights reserved and without prejudice” as instructed by
Morlee who had pointed to places where he and Brathwaite had to sign in each of
their returns. Thompson stated he asked how Morlee was able to obtain more
money for them and was told that it was due to knowledge gained during his
employment at CRA. With respect to the Statement of Business Activities,
Thompson stated he did not write any of the numbers nor the words contained
therein. Morlee had explained that he was able to obtain additional refunds of
tax paid in previous years by Thompson and Brathwaite and prepared the 2006 tax
return - at Tab 2 in the same Exhibit – which he signed and may have also
written the disclaimer referred to earlier or it may have been there prior to
signing. Thompson stated it took only minutes to sign both returns. Morlee
referred both of them to an insurance agent who sold certain products and also
spoke about a trust being established in the future to manage accumulated
wealth. Thompson stated that since he had received a refund of more than
$19,000, that a payment of $2,000 to Morlee was reasonable as it was only about
10% of that amount. Thompson said he and Brathwaite developed a trust in Morlee
and ‑ later ‑ with Lachapelle and that both were
responsive to their inquiries, empathetic and willing to work towards resolving
their difficulties with CRA. Counsel referred Thompson to a four-page document
– Tab 11 – and to the last page thereof where he identified his signature. The
four-page letter addressed to a CRA Senior Office Auditor at the Sudbury office
had been sent to Thompson as an attachment to an e-mail. Thompson stated he
read the document but did not understand it. Earlier, he had received an
explanation that seemed feasible concerning the novel filing method which was
based on an interpretation of his identity as disclosed on his birth
certificate. The draft letter provided by Lachapelle to be sent to CRA referred
to Thompson’s existence as a corporation or legal construct through which he
generated income and the relationship of that entity to himself as a natural
person which permitted a different interpretation for tax purposes. Thompson
stated he advised Brathwaite that they should retain the services of the tax
preparer Thompson had used for 20 years when reporting income from his
employment at Chrysler prior to obtaining the services of Morlee for the 2007
taxation year. However, he and Brathwaite had been warned by Morlee and
Lachapelle that CRA would “bury them” and decided to continue relying on those
individuals to resolve their problem and attended a seminar to seek further
advice but – instead – ascertained it was a recruitment session organized by
Morlee and Lachapelle to persuade people to hire them as income tax experts
based on their experience and talent. At that session, Thompson and Brathwaite
were introduced by either Morlee or Lachapelle to a man named Mahinder who was
willing to attend at their home to advise them with respect to financial
matters. At their home, when Mahinder attended and began to talk about various
investment instruments, Thompson stated he and Brathwaite noticed the man was
drunk and they instructed him to leave following which they attended at a
Toronto Metro Police station to report the incident and explained the nature of
their recent dealings with the alleged tax experts, Morlee and Lachapelle. The
police advised they were aware of the scheme promoted by certain persons in the
Toronto region and advised them to contact the elected representative for their
constituency. They met with that individual and explained their situation and
were advised to contact the Office of the Ombudsman which they did and were
informed that it did not have jurisdiction so they returned to the Toronto Police
station to advise of their lack of progress in resolving their troubles. CRA
issued a demand to Brunel requiring it to remit 50% of Brathwaite’s
remuneration and this prompted Thompson and Brathwaite to visit the relevant
CRA office where they spoke to a senior official and explained the
circumstances arising from their relationship with Morlee and Lachapelle. As a
result, the garnishee was removed but that official advised them to retain the
services of a reputable person to file amended tax returns for the years that
were the subject of reassessments issued to both of them. One CRA official at
the meeting had requested that Thompson and Brathwaite record their statements
on video, which they were willing to do, but that did not take place. Counsel
referred Thompson to a Memo For File – Telephone Contact – Tab 27, 2nd
paragraph on page 2 – where the CRA auditor described the conversation he had
with Thompson on June 29, 2010 in which he explained that he and Brathwaite had
not considered the manner of filing their returns to have been a scam since the
promoters of that method were approachable, provided further advice, responded
to ongoing enquiries and were willing to provide assistance in dealing with
CRA. During that conversation, the auditor’s notes indicate that when they
attended the seminar where the tax-filing program was offered to approximately
60 persons, Thompson and Brathwaite decided they “were not willing to go any further
with this and at that point felt that something may be wrong.”
[12]
Thompson was cross-examined by counsel for the
respondent. Counsel filed – as Exhibit R-4 – a binder entitled Respondent’s
Book of Documents, Tabs 1 to 31, inclusive. The binder is almost identical to
the one filed as Exhibit R-3, except some documents are inserted in a different
order and the pages are numbered. Thompson stated that he spoke with Brathwaite
whenever he received any correspondence from CRA. He had a Diploma in Business
Administration from Seneca College and also studied at Sheridan College where
he studied various subjects including torts and obtained a Diploma in Legal
Administration. However, by 2007, he had not retained details of his earlier
studies in business administration. He went to work at Chrysler and has been
there for 23 years earning an annual salary of between $65,000 and $70,000.
During most of that time, he hired a tax preparer to file his returns and often
received a small refund and on a couple of occasions had owed a small amount.
In 2008, he contacted Morlee and hired him to prepare the 2007 tax return.
Morlee had been recommended by a man who was selling an investment which he and
Brathwaite declined but they accepted his advice to retain Morlee, who was
described as a tax expert. When speaking with Morlee, Thompson stated he did
not know the amount of any refund to be received and when asked to pay a fee of
$1,250, considered that amount was reasonable as it probably was about 10% of
any future refund. Thompson agreed that the total sum paid by him and Brathwaite
to Morlee was $12,500 as stated in her Notice of Appeal. Prior to signing his
tax returns for 2007 and 2008, he saw the wording in the disclaimer above the
signature line and if he had written it in one of the returns, did so on the
instruction of Morlee even though he did not understand its significance.
Thompson stated that he trusted an alleged professional to provide a service
and accepted advice based on that individual’s knowledge and experience. He
added that everyone should know that a person cannot lie on their tax return
and he had not attempted to deceive CRA. He stated he was proud of being a
Canadian and had represented his country at various amateur boxing competitions
and would never seek to defraud his government. As a young man, he had
accumulated a substantial amount of debt due in part to pursuing an education
and had received advice to file for bankruptcy but refused to do so and
undertook to repay all of his creditors over an extended period of time.
Thompson acknowledged he did not review the returns prior to signing. As for
the box to be completed by the tax preparer not having been filled in by
Morlee, Thompson said it had been his experience throughout the years that a
preparer often used a rubber stamp to provide the requested information.
Counsel referred him to Exhibit R-4, Tab 3, page 38 – where the entry on line
135 ($61,786.36) represented a net loss. Thompson stated he had not seen that
amount nor was he aware that this number was also used to show a minus amount
for a net income as disclosed on the Statement of Business Activities at page
52. When he received a refund in excess of $19,000, he was very happy and
instructed Morlee to re-file returns for earlier years. At Tab 1, Thompson
identified his signature on the last page of his T1 General 2005 return.
He did not write the disclaimer but had read it before signing. He stated he
had not noticed the business loss claimed in the sum of $73,652.14. At Tab 2,
he identified his signature on his 2006 tax return and did not take note of the
specific amount - $15,918.13 - of the refund claimed nor had he seen the number
($55,693.99) at line 135 representing the amount of a business loss. He stated
that he had hoped he would be entitled to a refund in an amount similar to the
one received for his 2007 taxation year. Thompson acknowledged he had signed
the document – at Tab 5, entitled Special Resolution – purporting to state
the result of a meeting between the corporation Ian Thompson and Ian Floyd
Fangio : Thompson, a human being whereby the corporation accepted to transfer
the required assets to the human being – as identified – to manage the
corporation and its “Subsidiaries and Divisions and businesses” to the amount
of $119,067.81 for the year 2005. The document purported to conform with the
requirements of the “Canada Company Act”. Thompson stated he thought that
resolution had something to do with what was printed on the reverse of his
birth certificate as explained earlier by Morlee and Lachapelle. Thompson
stated that he and Brathwaite both believed the Morlee methodology was correct
and that each was entitled to a refund of tax paid which was confirmed when
each of them received a refund. When he received a letter – Tab 9, dated
October 27, 2008 - from an auditor at CRA enclosing a Business Questionnaire
and asking for details of income, expenses and documentation in support of all
business expenses, he read it before sending it to Morlee and was worried about
the content of that letter because he knew he had no receipts for business
expenses because he did not operate a business. Thompson received another
letter – Tab 10, dated December 3, 2008 - informing him that if CRA did not
hear from him within 30 days it would deny his claim for business losses in
2005 and 2006 and would adjust his 2007 tax return to reduce the previously‑assessed
net business loss from $61,786 to zero and he forwarded the letter to Morlee. Lachapelle
sent ‑ by e-mail – a
four-page letter dated 2009‑01‑12 - for Thompson to sign and send
to the CRA Senior Office Auditor and he complied by signing his name below the
typed words, “For the natural person IAN THOMPSON” and that signature was
described on the line below it as having been affixed by Ian Floyd Fanio : Thompson.
Lachapelle had told him “not to worry about it”. In the letter dated January
23, 2009 – Tab 18 – the Senior Auditor advised Thompson that CRA had determined
that he may have participated in an arrangement that attempts to avoid paying
income tax and that if a reply was not received within 30 days, the 2005, 2006
and 2007 tax returns could be reassessed to include the levying of penalties
pursuant to subsection 163(2). Pursuant to the CRA letter to Thompson – Tab 19,
dated June 4, 2009 - he was advised that the proposed reassessments would be
forthcoming and enclosed a copy of Form T400A (Notice of Objection). Thompson
acknowledged that he had signed the bottom of a letter – Tab 22 – which had
been prepared for him by Lachapelle on the letterhead of “Ian Floyd Fangio :
Thompson sui juris” for mailing to “Canada Revenue Agency c/o Mister William
V. Baker, commissioner and first leader” at an address in Ottawa.
Thompson’s signature purported to conform to the name on the letterhead. Thompson
received a reply ‑ Tab 23, dated October 7, 2009 - on behalf of
William V. Baker informing him that the document and information he had
provided did not absolve him or his obligations or cancel his rights as a
taxpayer and provided therein a definition of “person” as defined by section
248 of the Act. Thompson stated he and Brathwaite had visited a website
that provided details of a program that had been the subject of the seminar
they had attended when they wanted to seek advice from Lachapelle as it
pertained to their specific problems with CRA. When Brathwaite forwarded the
letter - by way of e-mail to Lachapelle - that was sent to Thompson on behalf
of the Commissioner of CRA, the response was an e-mail – Exhibit A-2, Tab 10 –
which was referred to earlier in the testimony of Brathwaite. Thompson identified
his signatures on the documents at Exhibit R-4, Tabs 24 and 25, respectively,
which were addressed to the Assistant Director of CRA at Mississauga, Ontario
and also to the Senior Auditor at the Sudbury office, which – first - purported
to be a document in confirmation of an agreement reached between Thompson and
Commissioner Baker whereby all Notices of Assessment would be considered as
void and all procedures relating thereto would be stopped and – second – a
document entitled Contract for Hire, Independent Animator Agreement between the
Actors Ian Thompson, “a determined statutory corporation known by law as a
Natural Person” and Ian Floyd Fangio : Thompson, a HUMAN BEING” who was
fulfilling the role of Animator to said corporation. Thompson agreed with counsel
that at this point he was in the “sign and send” mode but had not considered
anything in those documents as illegal. Thompson stated he thought the 2008 tax
returns for him and Brathwaite were filed sometime in October, 2009 by an
accountant, Mr. Abecassis.
[13]
Ahmadreza Fallahfini was called as a witness by
counsel for the respondent and testified he is a Litigation Officer employed by
CRA and has been in the Appeals Division for eight months. He drafts the Reply
to a Notice of Appeal filed pursuant to the Informal Procedure and assists
counsel assigned to conduct appeals to be heard under the General Procedure. A
search of the records pertaining to the appeal of Brathwaite was conducted by
him as set forth in the affidavit affirmed by him and filed as noted at the
outset of these appeals. Fallahfini stated the records disclosed that a return
for Brathwaite’s 2008 taxation year had been filed on June 30, 2009 and that a
business loss in the sum of $281,092 had been claimed therein. With respect to
the appeal of Thompson, Fallahfini stated an examination of the relevant records
as attached as Exhibit “A” to his filed affidavit at the part described as “screen 2” and at
line 139, indicated business income in the sum of $222,518 had been reported
and did not represent a loss in that amount.
[14]
In cross-examination by counsel for the
appellants, Fallahfini stated he did not see either appellant’s tax returns for
the years at issue. He does not know whether they were filed electronically nor
does he know who prepared those returns.
[15]
Counsel for the appellants did not call any
rebuttal evidence and closed the case on their behalf.
[16]
Counsel for the respondent closed the case for
the respondent.
[17]
Counsel for the appellants submitted that no
returns – except the amended returns – for the years at issue had been
submitted into evidence on behalf of the respondent. There was a return filed
by someone purporting to act on behalf of Thompson in respect of the 2008
taxation year but there was no return entered into evidence and the only
information relevant to any statement of income was provided by Fallahfini
which disclosed that no loss had been claimed on behalf of Thompson and that
the reported business income in the sum of $222,518 when considered in the
context of employment income and certain permissible deductions would not
constitute the basis for any reduction in tax payable nor would it entitle
Thompson to any refund of tax already deducted by his employer and remitted to
the Receiver General.
[18]
Counsel submitted there had been no evidence
adduced that Brathwaite had submitted a tax return for 2008. There had been no
evidence adduced in that regard and Fallahfini had not reviewed the actual
return and there was no information available within the CRA records to reveal
who had prepared it. With respect to the issue of gross negligence penalties imposed
on Thompson for the 2007 taxation year and on Brathwaite for the 2005, 2006,
2007 and 2008 taxation years, counsel submitted the onus on the respondent is
high and that there must be negligence tantamount to intentional acting, an
indifference to whether the law is complied with or not, and that subsection
163(2) is a penal provision and must be construed accordingly in accordance
with the decision of Strayer J. of the Federal Court – Trial Division – as it
then was – in the case of Venne v Canada (Minister of National Revenue –
MNR), 84 DTC 6247 (FCTD). Counsel submitted there was jurisprudence to
support the contention that where there is more than one way of construing the
taxpayer’s conduct, that individual should be granted the benefit of the doubt
and should not be responsible for the false statements where there was honest
reliance on a trusted financial advisor, tax preparer, friend or family member.
Counsel described the appellants as victims of a scam which was well-organized
and presented by unscrupulous persons who designed the scheme and promoted it
to take advantage of the lack of expertise on the part of ordinary people who
despite their ability to earn a respectable amount of income in the course of
employment had no real knowledge of tax or accounting matters. Counsel warned
against using hindsight to make a finding of a taxpayer’s intention at the
outset in light of such lack of understanding and that the conduct of both
appellants throughout was consistent in that they did not consider any of their
conduct was other than legal and in conformity with advice received from
persons whom they believed ‑ reasonably – to be professionals in the
field of income tax matters including preparation, filing and providing advice
when dealing subsequently with inquiries from CRA.
[19]
Counsel for the respondent conceded that the
evidence had established that there had not been any understatement of income
in the tax return of Thompson for the 2008 taxation year and there had been no
loss claimed according to the only records available from CRA. Since the
penalty imposed pursuant to subsection 163(2) is based on the understatement of
income that is reasonably attributed to the false statement, there was no basis
for the imposition of the penalty against Thompson for the 2008 taxation year.
[20]
Counsel also acknowledged that there was no
direct evidence adduced to support a finding that Brathwaite filed or had
instructed any person on her behalf to file her 2008 tax return and there was
no information in the records at CRA to reveal who had prepared and/or
submitted said return.
[21]
Counsel acknowledged that the evidence had not
disclosed that either of the appellants had intended to defraud the government
by filing the income tax returns during the years at issue.
[22]
Counsel submitted the penalties levied against
Brathwaite in respect of her 2005, 2006 and 2007 taxation years were justified
as the evidence supported a finding that her conduct during those years,
including her ongoing failure to make inquiry of the methodology used by
Morlee, and the signing of returns without review or attempting to understand
the contents thereof, constituted wilful blindness which was sufficient to meet
the definition of gross negligence pursuant to subsection 163(2) of the Act.
[23]
Counsel submitted the penalty levied against
Thompson in respect of his 2007 taxation year was justified and that a review
of the evidence was consistent with the conduct required to support a finding
of gross negligence attributable to wilful blindness.
[24]
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 . . .
[25]
Pursuant to subsection 163(3), the burden of
establishing the facts justifying the assessment of the penalty is on the
Minister.
[26]
There are two elements that must be established
to justify the imposition of those penalties:
1. a
false statement in a return; and
2. knowledge or gross negligence in the making
of, assenting to or acquiescing in the making of that false statement.
[27]
In the case of Guindon v Canada, 2015 SCC
41, [2015] SCJ No. 41, the Supreme Court of Canada heard an appeal from a
decision of the Federal Court of Appeal setting aside a decision of the Tax
Court of Canada that had vacated the assessment of a penalty imposed pursuant
to subsection 163.2 on the basis that the provision was penal in nature. The
appellant was a lawyer with no expertise in income tax law who participated in
a leveraged donation program. The case also considered whether that Court could
hear and decide a constitutional issue when it had not been raised in the
courts below by complying with the usual requirements of notice to the
interested parties. For the purposes of the within appeal, the comments by
Rothstein and Cromwell J.J. – who delivered judgment for the majority – beginning
at paragraphs 60 to 62 inclusive are as follows:
[60] The
Minister states in her factum that "culpable conduct" in s. 163.2 of
the ITA "was not intended to be different from the gross negligence
standard in s. 163(2)": para. 79. The Federal Court in Venne v. The
Queen, [1984] C.T.C. 223 (T.D.), in the context of a s. 163(2) penalty,
explained that "an indifference as to whether the law is complied
with" is more than simple carelessness or negligence; it involves "a
high degree of negligence tantamount to intentional acting": p. 234. It is
akin to burying one's head in the sand: Sirois (L.C.) v. Canada,
1995 CarswellNat 555 (WL Can.) (T.C.C.), at para. 13; Keller v. Canada,
1995 CarswellNat 569 (WL Can.) (T.C.C.). The Tax Court in Sidhu v. R.,
2004 TCC 174, [2004] 2 C.T.C. 3167, explaining the decision in Venne,
elaborated on expressions "tantamount to intentional conduct" and
"shows an indifference as to whether this Act is complied with":
Actions "tantamount" to
intentional actions are actions from which an imputed intention can be found
such as actions demonstrating "an indifference as to whether the law is
complied with or not"... . The burden here is not to prove, beyond a
reasonable doubt, mens rea to evade taxes. The burden is to prove on a
balance of probability such an indifference to appropriate and reasonable
diligence in a self-assessing system as belies or offends common sense. [para.
23]
[61] Therefore,
while there has been debate as to the scope of "culpable conduct" (as
argued before the Tax Court in this matter), the standard must be at least as
high as gross negligence under s. 163(2) of the ITA. The third party
penalties are meant to capture serious conduct, not ordinary negligence or
simple mistakes on the part of a tax preparer or planner.
[62] We can conclude that the purpose of this proceeding is to
promote honesty and deter gross negligence, or worse, on the part of preparers,
qualities that are essential to the self-reporting system of income taxation
assessment.
[28]
The judgment continued at paragraphs 71 to 73,
inclusive, to conclude as follows:
[71] Ms.
Guindon also submits that the use of the term "culpable conduct" in
s. 163.2(4) indicates a mens rea requirement, which is classically
criminal in nature. This is irrelevant to the analysis because, as discussed,
the criminal in nature analysis is concerned with the process, not the conduct.
The simple fact that there is a mental element that must be present in order
for the penalty to be imposed does not render the provision criminal. For
example, intentional torts require proof of intention, commonly understood as a
subjective desire to cause the consequence of one's action: see P. H. Osborne, The
Law of Torts (4th ed. 2011), at p. 251. In addition, some non-criminal
statutory causes of action include mental elements such as recklessness or
knowledge. For example, the statutory cause of action in s. 134(4) of Ontario's
Securities Act, R.S.O. 1990, c. S.5, includes a knowledge requirement.
Also, s. 36 of the Competition Act, R.S.C. 1985, c. C-34, creates a
cause of action for those who have suffered loss or damage as a result of conduct
contrary to Part VI, which contains the Act's criminal offences. Given that
these are criminal offences, all contain a mens rea element, but that does not
render s. 36 proceedings criminal.
[72] While some regulatory penalties are imposed without consideration
of the person's state of mind, in other cases it is rational that the state
would only wish to impose a penalty on those who engage in misconduct
knowingly, recklessly, or with a particular intention. Providing a due
diligence defence or including a mental element as a component of the penalty
does not detract from the administrative nature of the penalty. (See the
Federal Court of Appeal's reasons, at para. 48.)
(c) Conclusion
on the "Criminal in Nature" Test
[73] We
conclude that the s. 163.2 process is not criminal in nature.
[29]
In Torres v Canada, 2013 TCC 380, 2014
DTC 1028, C. Miller J. heard the appeals of six taxpayers who were described in
paragraph one of his judgment as being participants in a “sad and sorry tale
... who were led down a garden path, with the carrot at the end of the garden
being significant tax refunds.” The tax refunds were the result of the
taxpayers having claimed fictitious business losses in accordance with the “unwavering
faith” by which they accepted advice and instructions provided by representatives
of Fiscal Arbitrators to prepare their tax returns in a manner capable of
producing those refunds.
[30]
C. Miller J. reviewed the relevant jurisprudence
including recent decisions from the Federal Court of Appeal and referred to his
earlier decision in Bhatti v Canada, 2013 TCC 143, 2013 DTC 1129, which
also involved participation in a scheme promoted by Fiscal Arbitrators. In Torres,
based on that jurisprudence and the evidence heard in the six appeals before
him, at paragraphs 65 and 66, he stated as follows:
[65] Based
on this jurisprudence and the evidence that I have heard in the six Appeals
before me, I draw the following principles:
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
and it is appropriate to do so in the cases before me.
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 as I called it in the Bhatti
decision, 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.
[66] Did the Appellants act with wilful blindness?
[31]
C. Miller J. then applied the evidence to each
of the individuals utilizing the criteria developed in his reasons as quoted
above and, at paragraphs 70 to 72, inclusive, commented as follows:
[70] I
readily conclude there were sufficient warning signs to cause the Appellants to
make further inquiries of the tax preparers themselves, independent advisers or
even the CRA, prior to signing their returns. None of the Appellants made such
inquiries before making the false statements. Mr. Barrett argues there
were no warnings justifying an inquiry. As I have made clear, the evidence does
not support that argument. He then seems to suggest the warnings were not so
evident or strong as to demand an inquiry. Again, I have found otherwise - the
evidence simply does not support that position. Then he suggests that even if
there were warnings, the Appellants were so conned by Fiscal Arbitrators they
may have been blind to those warnings, but they were not wilfully blind. There
was no wilful or intentional wrongdoing punishable by such harsh penalties.
Negligence perhaps, Mr. Barrett would argue, but not such cavalier disregard
for the law as to attract gross negligence. They were simply duped.
[71] The
Appellants argument in this regard would be more persuasive where the
circumstances do not suggest so strongly the need to inquire. It is difficult
to counter wilful blindness with a defence of no wrongful intention when the
concept of wilful blindness imputes knowledge regardless of intention (see
Panini). Perhaps it might be better stated that such strong circumstances as I
find exist here, that scream for an inquiry, impute the wilful element of
wilful blindness. Blindness is evident. The strong circumstances effectively
preclude a defence that "I believed what I was doing was okay", even
where that belief arises from being duped by others.
[72] As is
clear from a review of the evidence, as well as a review of the factors that
indicate an inquiry was warranted, there are significant similarities amongst
the six Appeals. The circumstances surrounding the preparation, review, signing
and filing of the returns are not so dissimilar to reach any different results.
The difference in circumstances are minor. I will identify a few.
Mr. Hyatali may
not have read the return to see the glaring large business loss staring him in
the face. That was negligent: combined with the other warning signs, all
ignored by Mr. Hyatali, there is more than enough to conclude he too was
wilfully blind.
Ms. Mary Torres
not only should have suspected something amiss when filing her 2007 return, she
clearly knew something was wrong when she filed her 2008 return, given the CRA
had been in touch with her regarding her 2007 return.
While Ms. Eva Torres indicated Mr. Watts worked at the same organization
for 18 months, she did not suggest there was any close working relationship
that might have alleviated any suspicion.
[32]
At paragraphs 77 to 79, inclusive, he concluded:
Conclusion
[77] It is
difficult to feel a great deal of sympathy for the Appellants notwithstanding
some presented as most sympathetic characters, simply duped by the bad guys.
Yet, underlying this purported duping is a motivation attributable to all of
them to not have to pay taxes. Fiscal Arbitrators was not hired just to prepare
their returns - it was hired to prepare their returns in such a way as to
produce a significant refund; in fact, a refund that would result in no tax in
the year in question, and with respect to some, prior years as well. I question
how an individual, regardless of the level of education, who has worked in
Canada, paid taxes and benefited from all the country has to offer, can without
question enter an arrangement where he or she claims fictitious business
losses and therefore simply does not have to pay his or her fair share, indeed,
does not have to pay any share of what it takes to make the country function. I
am not unsympathetic to spouses and family who may suffer from the significant
negative financial consequences these penalties will heap upon them by the
actions of the Appellants: the Appellants' penalties are indeed harsh. I
however cannot pretend the specific 50% penalty called for by subsection 163(2)
of the Act can be something less. That is only something the Government
can consider.
[78] It was clear to me these Appellants have paid a huge price,
not just economically, as a result of Fiscal Arbitrators' deceitful ways. I
have concluded, however, that penalties are clearly justified, though I am
concerned about the devastating effect the magnitude of the penalties will have
on the Appellants. I recognize this consideration is not a factor cited in Rule
147 of Tax Court of Canada Rules (General Procedure), but I do not view
the list of factors as exhaustive. Add to this the fact that few General Procedure
cases have been heard regarding Fiscal Arbitrators, that I view these matters
akin to test cases, though acknowledging the Parties did not present them as
such, and that a novel argument was presented by the Appellants' counsel, I
exercise my discretion to not award costs. Having said that, I make no
representation that not awarding costs is something I would consider in future
Fiscal Arbitrators' cases.
[79] The Appeals are dismissed.
[33]
I will consider the factors identified by C.
Miller J. in his analysis as they pertain to the appellant in the within
appeal.
Angelina
Brathwaite
Education and experience
[34]
Brathwaite is 52 years old and studied at Seneca
College where she received a Diploma in Business Studies. Later, she studied
insurance and investments and worked 14 years for RBC where after working as a
teller, undertook management responsibilities in a branch department dealing
with investments and staff banking. After leaving her employment with RBC in
2000, she joined a small firm engaged in recruiting individuals for hiring or
placement with businesses or organizations and worked in that capacity until
joining Brunel where she was hired to sell contracting and outsourcing programs
to various potential clients. Although she did not have any specific knowledge
of income tax and had used the services of a preparer in the past, she must
have had a significant understanding of the importance of numbers as used in
various documents pertaining to financial matters. The concept of generating
income from the operation of a business and the distinguishing characteristics
between that and employment in the ordinary sense would have been apparent
based on her extensive banking experience and her new career as a recruiter
selling business solutions to a variety of clients. As an employee for most of
her career, except for her early foray into the recruiting business where she
worked for a small firm - apparently as an independent contractor required to
remit instalment payments in respect of her earnings – she would have knowledge
concerning the types of income to be reported and the permissible deductions
pertaining to employment particularly where the employer required certain
expenses to be paid personally by the worker. In her previous experience
retaining the services of tax preparers, she had not paid other than a modest
amount for the preparation and filing of a return, yet was not concerned with
the demand of Morlee to be paid the sum of $1,250 for the same services to be
provided and an equal amount to prepare a return for her husband, Thompson.
Apart from her early education and subsequent work experience in the banking,
insurance and business solutions industries where proven facts and
documentation and precision in information gathering would have been extremely
important, her life experience at that point in 2008 had equipped her to
comprehend certain complex matters concerning finance in a general sense. The
testimony of Brathwaite and her demeanour readily permitted a conclusion to be
drawn that she is a literate, articulate, highly‑intelligent individual.
Suspicion
or need to make an inquiry
[35]
Brathwaite did not know Morlee and relied on the
recommendation her husband had received from an acquaintance who sold a certain
investment that this individual was an expert in matters of income tax. She
accepted Morlee’s statement that he had been an employee at CRA where he
acquired special expertise in providing clients with the means to reduce their
income tax burden by using what he described as “little-known techniques”. She
did not inquire as to the nature of those methods or stratagems to be applied
to her tax return and the further financial services Morlee had agreed to
perform in order to earn his fee paid to him in 2008 consisted of a referral to
an insurance agent which was not required since Brathwaite had been an agent
and was familiar with the process of acquiring insurance. When she received a
refund in excess of $7,000 in respect of her 2007 taxation year, she and
Thompson were very pleased and accepted Morlee’s advice to file returns for her
2005 and 2006 taxation years because he was confident she was entitled to
significant refunds in those years based on certain deductions that had been
overlooked in the past. Due to her financial situation and family commitments
earlier, she had not filed returns for the years 2000 to 2005, inclusive, and
was aware that she owed income tax as a result because when she had made
instalment payments on a sporadic basis, the amounts remitted were insufficient
to meet her obligations based on her income during that period. Although Morlee
requested bank statements for the relevant period which she provided, he did
not ask for any receipts pertaining to business expenses which – supposedly -
were the basis of legitimate deduction from income nor did she inquire about
the need for such production for review by CRA. When Brathwaite signed her
return for the 2007 taxation year, it was at the residence of her and Thompson
and she signed it as instructed by Morlee. She admitted that she did not
review the return and did not notice there was a business loss claimed and did
not inquire of Morlee about what method he was using or how particular sums
were produced as a consequence of his calculations. She signed her returns
for the 2005 and 2006 taxation years in which business losses were claimed and
did not review those returns nor did she inquire about the method used in their
preparation or why and how business losses could be claimed.
The fee structure
[36]
Brathwaite and Thompson paid Morlee a total of
$12,500 for his services. Apart from paying an advance fee of $1,250 for the
preparation of her return and the same amount for her husband, Morlee was
rewarded for his services that had produced the refunds for both of them of
more than $26,000 ($26,419.87). I do not understand why Brathwaite personally
and on behalf of her husband would have paid Morlee a total fee that was equal
to approximately 47% of the total refunds they received. In comparison to
earlier experience with tax preparers and in the context of her knowledge of
banking and other professional services rendered by various individuals in the
business world, this payment was excessive and out of proportion to the
relatively mundane nature of the services provided.
Anonymity of the tax preparer and lack of acknowledgment in
preparing returns
[37]
The original returns were not in evidence but it
soon became apparent that Morlee was not about to intervene directly with CRA
as agent for Brathwaite and Thompson. When handed off to Lachapelle, who had
been described by Morlee as another expert with superior talent acquired while
working at CRA, thereafter neither of these alleged experts ever contacted any
official at CRA on their behalf. Instead, they produced nonsensical material with
instructions for Brathwaite to sign and send to the relevant person at CRA and
she complied without questioning the rationale of that material. Again, there
was nothing to indicate that Lachapelle was making the snowballs Brathwaite was
directed to lob at the CRA auditors.
[38]
The amount of the refund - $7,283.11 - received
for Brathwaite’s 2007 taxation year was not inordinate but she was surprised in
the sense that she knew she owed a balance on unpaid taxes from earlier years.
However, the amount was sufficient to inspire her to accept Morlee’s advice
that significant refunds could be obtained by filing returns for 2005 and 2006
and claiming certain expenses which were categorized in those returns as
business expenses which resulted in significant losses of $34,768.27 in 2005,
$129,782.81 in 2006, and $63,954.22 in 2007. Had these false losses been
accepted by CRA, it is likely the entire amount of income tax paid in those
years by Brathwaite by deduction from Brunel would have been refunded and a
credit applied to any outstanding balance on unpaid taxes that had accrued in
the period prior to starting work for Brunel in 2006.
Blatantly
false statement – readily detectable
[39]
It is not reasonable to accept that Brathwaite
could not have detected the large amount of the refund claimed in each of the
tax returns for the years 2005 to 2007, inclusive, and that she could fail to
appreciate that any such refund must be inextricably linked to a huge loss
arising from a business which she had not operated. Her income was from
employment with Brunel or from working as a self-employed individual with the
small recruiting firm prior to joining Brunel.
Tax preparer makes unusual requests
[40]
Morlee instructed Brathwaite to sign her returns
where he indicated and to retain the services of Lachapelle for the purpose of
dealing with the auditors and other officials at CRA and not to question the
strategy employed. However, a perusal of the material sent to her for
forwarding to CRA should have revealed that it made no sense including the
instruction to sign that correspondence in the colour red while using her
original signature.
Tax
preparer previously unknown to taxpayer
[41]
Morlee had been recommended as a tax expert by
an acquaintance of Thompson. For many years prior to 2008, each of them had
their tax returns prepared by a person practicing that occupation either alone
or in a firm and the process had been relatively routine for which each had
paid a modest fee of $200 or less per year. Brathwaite and Thompson knew
nothing of the background and qualifications of Morlee except as described in
the bald assertions of Thompson’s acquaintance.
Lack of inquiries of professionals or officials at CRA
[42]
Unlike other cases of this nature, Brathwaite
was not aware of any organized scheme such as the one peddled by Fiscal
Arbitrators or scam artists of their ilk but she accepted without question the
explanation of Morlee that the technique he was utilizing to generate refunds
for her and Thompson was legitimate without attempting any verification whether
personally by using search engines to find information available on the
Internet or from colleagues at Brunel or other associates who were employed in
the banking or insurance industry or by obtaining information from CRA either
via telephone or from the agency website. It was not until Brathwaite and
Thompson had attended a seminar where Lachapelle was pitching his tax-dodging
magical program to a roomful of potential victims, that they became suspicious
and their serious doubts were confirmed when the alleged expert – Mahinder –
who had been dispatched to their residence by Lachapelle and/or Morlee turned
out to be a babbling drunk who spouted nonsense about the brilliance of his
programs and the success realized on behalf of those clients who had followed
his bizarre advice.
Appellant’s trust in the tax preparer and his cohort
[43]
Even in the face of clear and repeated demands
from an auditor at CRA for information pertaining to the operation of the
alleged business which had produced losses in 2005, 2006 and 2007, Brathwaite
did not contact CRA but chose to forward the correspondence to Morlee and Lachapelle
and relied on their subsequent instructions on how to reply to the demands of
the auditor. When it was obvious as of May 12, 2009 that severe penalties under
subsection 163(2) of the Act would be imposed, Brathwaite testified that
she “hoped” Lachapelle could rectify the situation. Although the e-mail
received from him with a draft letter attached did not seem clear, she
attributed that absence of clarity to a language problem and proceeded to
forward it to the CRA auditor after reading it but without understanding the
content or the points being made therein. She relied on an earlier explanation
by Morlee that the manner of her tax filings was based on a concept that as a
human being she was a corporation and in the course of earning a living in the
name of Angelina Brathwaite, as defined by certain government-issued
identification, she was entitled to some write-offs against income.
Ian Thompson
Education and experience
[44]
Thompson has a Diploma in Legal Administration
from Seneca College. He is 49 years old and has worked for Chrysler Canada for
23 years earning a substantial salary. He has been involved in amateur boxing
in Canada and won his first national title at age 15 and won two others before
he left the ring to spend time coaching, mentoring and participating in boxing
tournaments and other events. He did not have any specific knowledge of income
tax or accounting and had relied on the services of a tax preparer in the
course of his working career. He had an understanding of the burden of debt
because as a young man he was a candidate to file for bankruptcy but refused to
do so and soldiered on with the discipline of a person dedicated to training,
hard work and attention to detail in the pursuit of specific goals in his
chosen sport. He worked at an occupation requiring precision and consistency in
conformity with established procedures. Thompson is literate, articulate,
intelligent, and has had exposure to various situations, travelled to different
locations within Canada and dealt with many different individuals in the course
of his participation in the sport of boxing over decades.
Suspicion or need to make an inquiry
[45]
Thompson testified that shortly after meeting
Brathwaite, they became concerned about the need to discover ways to create and
retain wealth for their future and met with a man who had attempted to sell
them an investment. Although they decided not to participate in that program or
fund, Thompson accepted the man’s advice to hire Morlee as an expert in tax and
other matters. He and Brathwaite met with Morlee and Thompson acknowledged that
they had been impressed with him and with his background as a former employee
of CRA who had decided to operate his own business as a financial advisor.
Until the issues arose which are the subject of his appeal, Thompson had not
encountered any problem arising from the manner in which his tax returns had
been filed. Sometimes, he received a refund and now and then had owed a small
balance but the fee paid to his preparer was not more than $200. His employment
income in 2007 was in excess of $70,000 and there was an RRSP withdrawal of
$20,000 as shown on his T1 General return for that year – Exhibit R-3, Tab 3.
He received a refund in excess of $19,000 and when he asked Morlee how he was
able to obtain refunds for him, Thompson was told it was based on Morlee’s
knowledge and experience gained from working at CRA. Thompson was so pleased
with the refund that he hired Morlee to file returns for previous years based
on advice that it was quite likely similar refunds would be paid. He did not
notice the Statement of Business Activities as part of his 2007 tax return and
did not review the return prior to signing. He was aware of the disclaimer
above his signature but is not sure whether he wrote it on instructions of
Morlee or if it had been written before the return was presented for signing.
He also read the same disclaimer – as referred to earlier in the evidence – in
his 2005 and 2006 returns and signed each return without noticing that there
had been net business losses claimed of $73,652.14 and $55,693.99,
respectively. Thompson testified he had not noted the specific amount of the
refunds claimed in those returns and assumed Morlee had done the calculations
correctly. When signing any returns, he did so at places Morlee pointed out and
accepted the need for the disclaimers.
The fee structure
[46]
In Exhibit A-2, at Tab 1, there are copies of
four cheques – each dated 2008‑05-15 – issued by Thompson in the
following amounts to these payees:
Multi Marketing Strategies – $2,800.00
Sovereign Trusts - $2,700.00
Multi Marketing Strategies - $4,300.00
Sovereign Trusts - $2,700.00
[47]
The total amount paid is $12,500 which was
acknowledged in Brathwaite’s Notice of Appeal. Brathwaite’s recollection was
that this sum had been the subject of payments over a period of time but it is
apparent Thompson paid that amount on May 15, 2008 but the refund in the sum of
$19,136.76 issued to Thompson for his 2007 taxation year was not issued until
August 28, 2008. Brathwaite’s refund in the sum of $7,283.11 for her 2007
taxation year was received in September, 2008. Brathwaite testified that she
had paid the sum of $12,500 to Morlee as set forth in her Notice of Appeal but
that assertion was not correct as the money was paid by Thompson. The question
then arises as to why Thompson would issue those cheques to the two different
entities in that large total amount compared with what he and Brathwaite had
been accustomed to throughout their working life when paying tax preparers to
file returns. The only logical inference to be drawn is that he was aware – at
that time – of the probable amount of refunds that would be paid to each of
them as a consequence of hiring Morlee and following his advice. The total sum
paid was out of proportion to the services rendered by Morlee and his other
purported financial advice was to refer Thompson and Brathwaite to an insurance
agent so certain policies and investments could be explained.
Anonymity of the tax preparer and lack of acknowledgment in
preparing returns
[48]
Thompson’s previous experience with tax
preparers had been without incident but as for identification of the preparer
at the appropriate place in the return, it had been his experience that this
was filled in later by the preparer using a stamp which provided the requested
information. However, there was not any identification by Morlee at any point
subsequently that he had been the author of the returns for either Thompson or
Brathwaite and when CRA began inquiring about the alleged business losses
claimed for each of them, Morlee recommended that they contact Lachapelle and
follow his advice which they did without question even though he did not have
any direct contact with the auditor or other officials at CRA and provided
advice via e-mail with attached drafts of letters or other documents that
Brathwaite and Thompson were to submit in response to repeated inquiries from CRA
about those business losses.
Magnitude of the advantage
[49]
The refund received by Thompson was substantial
and probably represented most – if not all – of the income tax payable for the
2007 year that had been remitted on his behalf by his employer and the
financial institution from which he took out $20,000 from an RRSP account. He
was impressed by that large refund and the one in excess of $7,000 received by
Brathwaite the following month and it prompted him to instruct Morlee to file
amended or adjusted returns for previous years with the expectation similar
refunds would be forthcoming for 2005 and 2006.
Blatantly false statement – readily detectable
[50]
Thompson knew he did not operate a business and
that his principal income was derived from employment. The Statement of
Business Activities and the amount of business loss entered in the relevant
line of the 2007 tax return would have alerted him immediately that the claim
for a business loss was false. However, his evidence was that he did not review
the return or take notice of the statement but merely signed the return where
Morlee indicated. It seems reasonable to expect that he would have inquired of
Morlee why the tax return included a disclaimer that it was being filed “with
rights reserved and without prejudice.” Thompson had a Diploma in Legal
Administration from Seneca College and had been exposed in the course of his
studies to various legal terms and concepts and while he may not have retained
much of that knowledge after 25 years or so, would have reason to question the
purpose of a disclaimer written immediately above a certification above the
signature line which states “I certify that the information given on this
return and in any documents attached is correct, complete and fully discloses
all my income.” From many years of filing income tax returns, Thompson should
have been aware that documents are often enclosed such as T4s, T5s, various
receipts for union or professional dues and other similar disbursements and the
presence of a statement purporting to pertain to business activities should
have been one of proverbial “red flags or flashing lights” that would alert him
to the potential danger in filing that return.
Tax preparer makes unusual requests
[51]
Morlee instructed Thompson to sign his returns
where indicated and thereafter to comply with instructions from Lachapelle and
to accept without question their advice as to the validity of the methodology
employed in filing the returns for him and Brathwaite. When CRA began inquiring
about the claimed business losses, Lachapelle forwarded draft letters and
documents with instructions to send them to the CRA auditor and even to the
Commissioner in Ottawa. The letter is found at Tab 24 of Exhibit R-4 and the
document entitled Contract for Hire Independent ANIMATOR Agreement is at Tab
25. Thompson did not inquire why these were to be sent or what they meant. He
did not understand them but was willing to accept they were somehow valid
despite being riddled with nonsensical and illogical strands of babble that should
have been obvious to almost anyone, let alone someone as intelligent, literate
and possessing an equivalent amount of life experience. The letterhead
Lachapelle had created was in the name of Ian Floyd Fangio: Thompson and
Thompson was instructed to sign the letter “per
Ian Floyd Fangio: Thompson” on behalf of the
legal person Ian Thompson. If that is not sufficiently bizarre, Thompson sent
that agreement and also a purported special Corporate Resolution – Tab 12 of
Exhibit R-4 – to CRA. The wording therein is an incomprehensible string of
meaningless words and numbers that purport to derive authority pursuant to an
Act of Parliament.
Tax preparer previously unknown to taxpayer
[52]
Morlee had been recommended as a tax expert by
an acquaintance of Thompson who had been trying to sell him and Brathwaite an
investment. For many years prior to 2008, each of them had their tax returns
prepared by a person practicing that occupation either alone or in a firm and
the process had been relatively routine for which each had paid a modest fee of
$200 or less per year. Thompson knew nothing of the background and
qualifications of Morlee except as described in the bald assertions of the
individual who had named him as a tax expert.
Lack of inquiries of professionals or officials at CRA
[53]
There was no inquiry by Thompson of his former
tax preparers or advisors nor of the bankers with whom he and Brathwaite dealt
or of CRA about the legitimacy of a tax-filing method that would produce large
refunds even though they were employees who had tax deducted and remitted on
their accounts. There is no evidence that Thompson did anything other than rely
on the recommendation of the person who tried to sell an investment to him and
Brathwaite and inquiries from CRA were ignored or responded to by means of the
correspondence and provision of documents referred to above.
Appellant’s trust in the tax preparer and his cohort
[54]
The faith Thompson placed in Morlee and then in
Lachapelle seemed to be without limit until he and Brathwaite attended a
seminar hoping to ask them specific questions about their troubles with CRA and
realized they were in the presence of some hucksters. Until then, each had
followed the advice provided even though it was patently absurd and Thompson should
have realized that in light of his education, intelligence and life experience.
The extent to which that misplaced trust was present is demonstrated by the
willingness of Thompson to send that absurd letter and those phoney documents
referred to earlier in this analysis. Conduct subsequent to the original false
statement does not prove ‑ without more - that wilful blindness was
present at the precise moment the tax return was signed but an examination of
his consistent conduct in obeying the directions of Morlee and Lachapelle is
indicative of the blind trust placed in those individuals. He chose to maintain
faith in their methods by following directions explicitly in an effort to
retain the refunds already received by him and Brathwaite.
[55]
In Torres v Canada [appeal by Strachan], 2015
FCA 60, 2015 DTC 5044 ‑ a decision of the Federal Court of Appeal –
Dawson J.A. delivered orally the judgment of the Court and the entire judgment
reads:
The judgment
of the Court was delivered by
1. DAWSON J.A. (orally):-- Subsection 163(2) of the Income
Tax Act, R.S.C., 1985, c. 1 (5th Supp.) renders a taxpayer liable to
payment of a penalty when the taxpayer knowingly, or under circumstances
amounting to gross negligence, makes a false statement in a return.
2. For
reasons cited as 2013 TCC 380, a judge of the Tax Court of Canada dismissed an
appeal brought by the appellant from the assessment of a gross negligence
penalty in respect of the 2007 taxation year. The facts giving rise to the
imposition of the penalty were that the appellant, at the behest of an
unscrupulous tax preparer, claimed a fictitious business loss in an amount
sufficient to generate a complete refund of all taxes paid by the appellant in
respect of her employment income.
3. While
counsel for the appellant asserts various errors on the part of the Judge, the
appellant has failed to establish any basis for interfering with the judgment
of the Tax Court. We reach this conclusion on the following basis.
4. First,
as conceded in oral argument by counsel for the appellant, the Judge made no
error in articulating the applicable legal test. Gross negligence may be
established where a taxpayer is willfully blind to the relevant facts in
circumstances where the taxpayer becomes aware of the need for some inquiry but
declines to make the inquiry because the taxpayer does not want to know the
truth (Canada (Attorney General) v. Villeneuve, 2004 FCA 20, 327 N.R.
186, at paragraph 6; Panini v. Canada, 2006 FCA 224, [2006] F.C.J. No.
955, at paragraphs 41-43).
5. Contrary
to counsel for the appellant's submissions, the Judge's reasons demonstrate
that he properly considered the appellant's background and circumstances.
6. Second,
the appellant has failed to establish that the Judge misapplied the correct
legal test. No palpable and overriding error has been shown in the Judge's
finding of mixed fact and law that given the numerous "warning"
signs, the appellant was required to make further inquiries of her tax
preparer, an independent advisor or the Canada Revenue Agency itself before
signing her tax return. Nor has any palpable and overriding error been shown in
the Judge's conclusion that the circumstances precluded a defence that, based
upon the wrongful representations of her tax preparer, the appellant believed
that what she was doing was permissible.
7. In the result, the appeal will be
dismissed with costs.
DAWSON J.A.
[56]
Over the last few months, I have heard more than
a dozen cases involving Fiscal Arbitrators or similar entities as well as
appeals by taxpayers who utilized stratagems and techniques recommended to them
by friends, family, complete strangers or alleged experts advertising
tax-avoidance methods on the Internet. In some instances, appellants were not
merely disputing the imposition of the gross negligence penalties but were convinced
they were entitled to the business losses claimed pursuant to various ludicrous
theories either peddled by fraudsters or acquired on their own by perusing
certain sites on the Internet devoted to avoiding income tax based on ludicrous
interpretations of law applicable only to natural persons, freemen, citizens of
some sort of sovereign commonwealth or devotees of Moorish law. I am familiar
with the relevant jurisprudence including recent decisions by the Honourable
R.G. Masse, Deputy Judge in Chartrand v Canada, 2015 TCC 298, [2015] TCJ
No. 231 (QL) and Spurvey v Canada, 2015 TCC 300, [2015] TCJ No. 232 (QL).
In those decisions, Masse D.J. reviewed the jurisprudence pertaining to the
responsibility of a taxpayer and the constituent elements required to be proven
to justify the imposition of a penalty pursuant to subsection 163(2), and
paragraphs 47 to 57 of the Spurvey decision, inclusive, read as follows:
Appellants'
Blind Trust in Tax Preparer
[47] The Appellants simply indicated that they trusted Alex.
[48] 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.
[49] 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.
[50] 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.
[51] 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.]
[52] 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.
[53] 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 . . . .
[54] 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.
[55] 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
[56] There
is no doubt that the Appellants' 2008 T1 adjustment requests, their 2009 tax
returns and the related requests for loss carryback contained false statements
-- the Appellants did not carry on a business and they did not incur any
business losses whatsoever. I can come to no other conclusion than that the
Appellants were wilfully blind as to the speciousness of these statements.
There were many red flags or warning signs and they simply ignored them all. I
am satisfied that the Crown has discharged its burden of proof and I am
satisfied that the Appellants made the false statements in their returns in
circumstances amounting to gross negligence. As such, they are properly subject
to the penalties imposed pursuant to subsection 163(2) of the Act.
[57] The Appellants are people of modest means and the
penalties are very harsh. The Appellants will certainly suffer hardship as a
result of these penalties. However, I can offer no relief against the harshness
of the penalties. The only question I can decide is whether the penalties are
well founded or not.
[57]
In the within appeals, both Brathwaite and
Thompson were motivated by assurances provided by Morlee – the self-styled
expert - that substantial tax refunds were available if they accepted without
question his advice. Both appellants trusted Morlee that this novel method – which
they did not understand or attempt to verify - was legitimate and made possible
by applying special expertise he had acquired in the course of prior employment
with CRA. Neither appellant comprehended the material provided by Lachapelle to
be submitted in response to inquiries from auditors and other officials at CRA
but that did not prevent them from sending letters and documents that abounded
in nonsense, twaddle, jargon, drivel and babble sprinkled with random Latin
words or phrases. Brathwaite and Thompson were intrigued initially by the lure
of receiving tax refunds and when each received a substantial cheque in
relation to the 2007 taxation year, they promptly accepted Morlee’s advice to
file or re-file tax returns for previous years with the expectation this would
entitle them to similar refunds. The profound trust the appellants placed in
Morlee and Lachapelle went beyond reason and their conduct throughout the
period relevant to their appeals was fuelled by their desire to obtain tax
refunds as part of an overall plan to amass wealth for their future. This
consistent and egregious suspension of rational thinking constituted wilful
blindness.
[58]
Both appellants are decent, hard-working,
citizens and a loving couple who were duped by unscrupulous individuals who
were part of a widespread fraud perpetrated by various persons acting alone or
with one or more associates or as part of a larger well-organized entity that
targeted professionals and other higher‑income taxpayers who were
interested in recouping most – or perhaps all – of income tax already paid
or in reducing the amount payable for the current year.
[59]
A week or so after hearing the evidence in the
within appeals, I saw an item posted on the Internet at
ca.finance.yahoo.com/news which read as follows:
Tax protester
Christian Lachapelle sentenced to four years in prison
Fri, 27 Nov. 2015
5:11 PM EST
MONTRÉAL, Nov.
27, 2015/CNW Telbec/ - Nicolet resident and tax protester Christian Lachapelle
was sentenced to four years in prison today by a Court of Quebec judge in
Sherbrooke. He pleaded guilty last October 22nd to tax fraud charges.
A Canada Revenue
Agency (CRA) investigation revealed that, between June 2007 and November 2010,
Mr. Lachapelle advised and enabled 93 individuals to avoid, or try to avoid,
paying nearly $2 million in income tax for the 2003 to 2010 tax years.
The scheme used
by Mr. Lachapelle consisted of helping or advising individuals to file income
tax returns or request a reassessment using the distinction between a “natural” person and a “legal”person.
According to this false argument made by tax protesters, there are two distinct
persons for tax purposes. Canadian courts have repeatedly and consistently
rejected such arguments.
This is not the
first time that Mr. Lachapelle has had issues with the CRA and the law. He was
sentenced to 30 days in jail in 2012 for failing to file his income tax returns
despite a court order, as well as fines of $7,000 in 2005 and $14,000 in 2011
for the same reasons.
All case-specific information above was obtained from the court
records. …
Conclusion
Brathwaite
[60]
With respect to the appeal of Brathwaite for the
2008 taxation year, the Crown has failed to discharge the requisite onus as
there is no proof she made or participated in, assented to or acquiesced in the
making of any false statement or omission in the tax return she did not sign
and did not know that it had been submitted by someone without any instructions
or authorization issued by her or by anyone on her behalf.
[61]
The appeal for the 2008 taxation year is allowed
and the Minister is directed to issue a reassessment in which the penalty
previously imposed pursuant to subsection 163(2) of the Act is deleted.
[62]
With respect to the appellant’s appeal for the
2005, 2006 and 2007 taxation years, the evidence supports a finding that the
imposition of penalties pursuant to subsection 163(2) in each of those years is
justified and each assessment for each year is confirmed and the appeal with
respect to those years is dismissed.
Thompson
[63]
As conceded by counsel for the respondent at the
outset of her submissions, the penalty imposed under subsection 163(2) for the
2008 taxation year is not justified as the evidence established that no loss
had been claimed that would have the effect of reducing the amount of tax
payable and therefore could not trigger the process to levy a penalty. The
appellant’s appeal is allowed and the Minister is directed to issue a
reassessment for that year and to delete the penalty previously imposed.
[64]
With respect to the appellant’s 2007 taxation
year, the evidence supports a conclusion that the assessment of the Minister is
correct and it is confirmed and the appeal is dismissed.
Costs
[65]
Brathwaite was successful in having the penalty
imposed in the 2008 taxation year deleted. It was in the sum of $53,509.34
compared with penalties for 2005, 2006 and 2007 in the amounts of $5,334.42,
$15,025.92 and $5,849.20, respectively.
[66]
Thompson’s appeal in respect of the 2008
taxation year was allowed.
[67]
Although the two appeals were heard on common evidence,
each appeal is separate and the matter of costs has to be addressed with that
in mind.
[68]
I have taken into consideration the provisions
in section 147 of the Tax Court of Canada Rules (General Procedure) and
particularly paragraph 147(5)(b) in arriving at the decision to award
one set of costs to the respondent in accordance with Tariff B. However, that
sum – as calculated - then is to be multiplied by 60% and that resulting
number, when divided by two, is the amount of costs each appellant must pay to
the respondent by March 31, 2016.
These Amended Reasons for Judgment are issued in
substitution for the Reasons for Judgment dated February 1, 2016. The Reasons
for Judgment are amended solely to correct the date of the hearing of the
appeal.
Signed at Toronto, Ontario, this 18th day of February
2016.
“D.W. Rowe”
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