Docket: A-122-16
Citation:
2016 FCA 298
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CORAM:
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STRATAS J.A.
WEBB J.A.
WOODS J.A.
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BETWEEN:
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PAUL LAUZON
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Appellant
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and
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HER MAJESTY THE
QUEEN
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Respondent
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REASONS
FOR JUDGMENT
WOODS J.A.
[1]
The appellant, Paul Lauzon, appeals from a
judgment of the Tax Court of Canada (2016 TCC 71) which upheld the imposition
of a gross negligence penalty in circumstances where false business losses were
claimed. The penalty was imposed pursuant to subsection 163(2) of the Income
Tax Act, R.S.C., 1985, c. 1 (5th Supp.) (the Act).
[2]
In Mr. Lauzon’s return of income for the 2008
taxation year, a deduction for net business losses in the amount of $308,073 was
claimed, as well as a refund for that year in the amount of $19,178.
[3]
Mr. Lauzon also signed a loss carryback request
to obtain a refund of tax for the three prior years using the balance of the
losses that could not be used in 2008. If the losses were allowed in full, Mr.
Lauzon’s entire tax for the years 2005 to 2008 would be refunded.
[4]
In a reassessment for the 2008 taxation year,
the Minister of National Revenue denied the deduction and imposed a gross
negligence penalty.
[5]
As it turned out, the losses were totally
fictitious, having been made up by the tax return preparer from Fiscal
Arbitrators. The Tax Court found that Mr. Lauzon was a victim of fraud.
[6]
Mr. Lauzon appealed to the Tax Court with
respect to the penalty only. The appeal was dismissed by Deputy Judge Masse
(the trial judge) on the basis that Mr. Lauzon was grossly negligent in
claiming the false business losses in his 2008 income tax return.
[7]
In this appeal, Mr. Lauzon submits that the
trial judge: (1) “made an error of law by applying the
legal test for the imposition of Gross Negligence Penalties objectively,
instead of subjectively;” and (2) made palpable and overriding errors in
applying the legal test to the facts.
[8]
This Court recently commented on the legal test
for determining gross negligence in the context of penalties under subsection
163(2) of the Act in Strachan v. The Queen, 2015 FCA 60, 2015 D.T.C.
5044, at paragraph 4:
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).
[9]
In the passage above, reference is made to the
prior decision of this Court in Panini v. The Queen, 2006 FCA 224. At
paragraph 43 of that decision, the Court stated:
[…] the law will impute knowledge to a taxpayer who, in
circumstances that dictate or strongly suggest that an inquiry should be made
with respect to his or her tax situation, refuses or fails to commence such an
inquiry without proper justification.
[10]
In this case, the trial judge found that Mr.
Lauzon was grossly negligent because he “had a duty to
exercise care and accuracy in the completion of his return and he failed in
this duty, making no effort at all to verify the accuracy and completeness of
his return” (reasons, paragraph 45).
[11]
The trial judge also relied on a constellation
of facts identified throughout the reasons which, in his view, supported a
finding of gross negligence based on the jurisprudence. The factors that he
considered were to be taken into account included: “(a)
the magnitude of the omission in relation to the income declared, (b) the
opportunity the taxpayer had to detect the error, (c) the taxpayer’s education
and apparent intelligence, (d) genuine effort to comply” (reasons,
paragraph 29). He also set out the non-inclusive set of factors identified by
the Tax Court in Torres v. The Queen, 2013 TCC 380, affirmed by this
Court in Strachan, above.
[12]
In this case, it is clear that the trial judge
had ample evidence before him to find that the test for gross negligence
described in Strachan and Panini, above, was satisfied. His
conclusion is not vitiated by palpable and overriding error.
[13]
In particular, the trial judge found that Mr.
Lauzon was an intelligent, sophisticated and well-educated man who in the past
had prepared his own tax returns. He was aware of the refund that was being
claimed and at trial he was asked why he did not inquire about such a large
amount. The trial judge considered his answer to be implausible (reasons,
paragraph 7). Based on this and a myriad of other factual circumstances that
were well described in the reasons, the trial judge found (at para 24) that Mr.
Lauzon acquiesced in the making of false statements in his return in
circumstances amounting to gross negligence. There are no grounds to interfere
with this amply-supported conclusion.
[14]
Mr. Lauzon also submits that palpable and
overriding errors were made in applying the legal test to the facts. I do not
agree. None of the factual findings of the trial judge contain errors that are
obvious or overriding.
[15]
Finally, I would comment in particular
concerning a submission of counsel for Mr. Lauzon that “it
is un-contradicted [sic] evidence that Lauzon did not have any suspicions when
signing his return in that he did not know he was claiming business losses and
did not know that someone differently [sic] that year was preparing his return”
(Memorandum, paragraph 43(a)(i)). This statement neglects to mention that the
trial judge did not believe Mr. Lauzon’s explanation for not making further
inquiries about claiming such a large refund.
[16]
In my view, the trial judge made no reviewable
error in concluding that Mr. Lauzon was grossly negligent. I would dismiss the
appeal with costs.
"Judith M. Woods"
“I agree
David Stratas J.A.”
“I agree
Wyman W. Webb J.A.”
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