REASONS
FOR JUDGMENT
Paris J.
[1]
Mr. Hogg claimed
a fictitious business loss of $316,225 in an amendment to his tax return for
his 2008 taxation year. He also filed a request to carryback the unused
non-capital losses resulting from the alleged business loss to his 2005, 2006
and 2007 taxation years.
[2]
The Minister of
National Revenue (the “Minister”) did not accept Mr. Hogg’s adjustment
request and loss carryback request, and in a reassessment of Mr. Hogg’s 2008
taxation year, imposed a penalty of $44,733.51 under subsection 163(2) of the Income
Tax Act (the “Act”) in respect of the false claims.
[3]
Mr. Hogg admits
that he did not incur the business loss that was claimed in the amendment
request and that he did not have any non-capital losses available to be carried
back to his earlier taxation years. He is only appealing the imposition of the
penalty.
[4]
Mr. Hogg
testified that he was the victim of a scam carried on by certain individuals,
including one who had allegedly been a previous employee of the Canada Revenue
Agency (the “CRA”) (Muntaz Rasool). Mr. Hogg said he was aware
that some of his co-workers who had used the services of those individuals had
received large tax refunds, and therefore believed that the activities of
Rasool and his associates were legitimate. He said that once he learned that
the losses claimed in the amendment request were false, he cooperated with the
CRA and was told that the penalty that would be imposed would only be
“moderate”.
Relevant Statutory Provisions
[5]
Every taxpayer
who knowingly or in circumstances amounting to gross negligence makes a false
statement in a tax return, form, certificate, statement, or answer filed in
respect of a taxation year in respect of a taxation year is liable to a penalty
under subsection 163(2). That provision reads as follows:
163(2) False statements or omissions. 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
of 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 of the greater of $100 and
50% of the total of
(a) the
amount, if any, by which
(i) the amount, if any, by which
(A) the tax for the year that would be payable by the person under
this Act
exceeds
(B) the amounts that would be deemed by subsections 120(2) and
(2.2) to have been paid on account of the person’s tax for the year
If the person’s taxable income for the year were computed by adding
to the taxable income reported by the person in the person’s return for the
year that portion of the person’s understatement of income for the year that is
reasonably attributable to the false statement or omission and if the person’s
tax payable for the year were computed by subtracting from the deductions from
the tax otherwise payable by the person for the year such portion of any such
deduction as may reasonably be attributable to the false statement or omission
exceeds
(ii) the amount, if any, by which
(A) the tax for the year that would have been payable by the person
under this Act
exceeds
(B) the amounts that would be deemed by subsections 120(2) and
(2.2) to have been paid on account of the person’s tax for the year had the
person’s tax
had the
person’s tax payable for the year been assessed on the basis of the information
provided in the person’s return for the year,
Facts
[6]
Mr. Hogg has a Grade 12 education and works as a
labourer at a foundry. He and his spouse also raise veal calves on their farm
near Durham, Ontario.
[7]
At some point in 2009, he learned that a number
of his co-workers had obtained income tax refunds of up to $40,000 after having
their tax returns prepared by someone who had worked at the CRA. It is not
clear if Mr. Hogg was told the name of that person – Rasool – but it is not
disputed that it was in fact Rasool who prepared the returns.
[8]
At the suggestion of his co-workers, Mr. Hogg
met with Tom Thompson, Rasool’s associate, who told Mr. Hogg that there were
deductions available for him to claim that would allow him to obtain a large
tax refund, and that he could arrange to have the claim prepared for Mr. Hogg.
[9]
Mr. Hogg was not told what those deductions
were, nor did he ask. Mr. Hogg simply agreed to allow Thompson to arrange
to have the claim prepared and was asked to provide copies of his tax returns
and assessments for the previous 10 years. He signed an agreement to pay 30% of
the refund received for the 2008 taxation year and 45% of the refunds received
in respect of the application of the loss carrybacks.
[10]
At a subsequent meeting with Thompson, Mr. Hogg
signed a T-1 Adjustment Request form showing that he had business income of
-$316,225. He also signed a Request for Loss Carryback form asking to apply
non-capital losses of $71,551, $74,479 and $78,752 to his 2005, 2006 and 2007
taxation years, respectively. Mr. Hogg was also shown a form entitled
“Statement of Agent Activities” on which he printed his name, and which was
included with the T-1 Adjustment Request form that was sent to the CRA. The
Statement of Agent Activities purported to support the business loss claim, but
the information on the Statement makes no sense and the loss shown on it
($298,549) does not, in fact, reconcile with the amount of the business loss
claimed on the Adjustment Request form.
[11]
Mr. Hogg said that he signed the forms without
reading them. He said that it was his usual practice to sign his tax returns
without reading them because he does not understand income tax matters. He
believed the claims on the forms were legitimate, however, because he thought
the CRA would not have given tax refunds to his co-workers if there had been
any problem with the returns filed for them. He admitted in cross-examination,
though, that he knew what a business loss was and that he knew that he did not
have a $300,000 business loss in 2008.
[12]
For all his tax years up to and including 2008,
Mr. Hogg had always had an accountant prepare his tax returns. Mr. Hogg did not
ask the accountant who prepared his 2008 tax return about the T-1 Adjustment
Request or Loss Carrybacks and did not try to find out how that accountant
could have missed the deductions he was told by Thompson he could claim. He did
not ask his co‑workers how they qualified for the refunds they received,
either.
[13]
Mr. Hogg’s Adjustment and Loss Carryback
Requests were denied by the CRA and he was advised that penalties could be
imposed. At that point, he said he realized that Thompson and Rasool were
“cons” and he offered to testify against them. He cooperated with the CRA
investigation and said he was told that the penalties that would be imposed
would not be severe. However, when the reassessment was issued, the total of
the federal and provincial penalties and interest came to more than $70,000.
[14]
Mr. Hogg takes the position that he would not
have gotten involved with Thompson and Rasool if the CRA had not paid tax
refunds to his co-workers who used them to prepare their tax returns. He also
points to his cooperation with the CRA investigation, and the fact that the CRA
has already withheld over $17,000 of tax refunds due to him for subsequent
years. He also asked the Court to take into consideration that his spouse and
child have significant health issues as circumstances that would justify vacating
the penalty.
Analysis
[15]
The only issue before the Court is whether Mr.
Hogg knowingly, or under circumstances amounting to gross negligence, made a claim
for the fictitious business loss.
[16]
Subsection 163(3) of the Act provides
that the burden of establishing the facts justifying the assessment of the
penalty is on the Minister.
[17]
In the case of Arbuckle v. The Queen,
2017 TCC 181, I set out the following summary of the test to be applied to
determine whether a taxpayer’s conduct amounts to gross negligence within the
meaning of subsection 163(2):
[42] The
most frequently quoted definition of gross negligence in relation to
subsection 163(2) of the Act is that found in the case of Venne
v. The Queen, 84 D.T.C. 6247. At paragraph 37 of that decision, Strayer J.
wrote that gross negligence “must be taken to involve greater neglect than
simply a failure to use reasonable care. It must involve a high degree of
negligence tantamount to intentional acting, an indifference as to whether the
law is complied with or not…”
[43] In
discussing the concept of gross negligence in subsection 163(2) of the Act,
the Supreme Court of Canada in Guindon v. The Queen, 2015 SCC 41
(CanLII) (at paragraph 60), cited the following comments of this Court in Sidhu
v. The Queen, 2004 TCC 174 (CanLII):
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] …
[44] It has
been held that in drawing the line between “ordinary” negligence or neglect and
“gross” negligence, a number of factors have to be considered:
(a) the magnitude of the misrepresentation 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) the
genuine effort to comply.
[45] No
single factor predominates. Each must be assigned its proper weight in the
context of the overall picture that emerges from the evidence (DeCosta v.
The Queen, 2005 TCC 545 (CanLII).
[18]
I would also adopt the following statement of
this Court in Lauzon v. The Queen, 2016 TCC 71:
The penalties
provided for in section 163 of the Act have been conceived in order to
ensure the integrity of our self‑assessing and self‑reporting
system and to encourage a taxpayer to exercise care and accuracy in the
preparation of his return, no matter who prepares the return.
(at paragraph 19)
[19]
In the case before me, Mr. Hogg admitted that he
did not read the T-1 Adjustment Request form or the Request for Loss Carryback
form before signing them and having them filed with the CRA. His signature
appears immediately after a declaration on each of those forms that he was
certifying the information given on the forms and any attached documents was correct
and complete.
[20]
This Court has repeatedly held that a taxpayer
who does not review his tax returns prior to filing them is grossly negligent.
[21]
In Brown v. The Queen, 2009 TCC 28
(CanLII), Bowie J. stated that:
Quite apart from
all of that, in respect of the gross negligence penalties under the Income
Tax Act, the Appellant in his own evidence early on made it clear that he
signed his returns for each of the four years under appeal without having paid
the least attention to what income was included in them and what expenses were
claimed in them. He said that he kept the records that he kept, prepared
spreadsheets from them and gave them to a tax preparer who, in each year,
prepared the returns for him based on the material that he gave her. We did not
hear from her on that, but taking that statement at its face value, it still
leaves the Appellant with an onus to look at the completed return before
signing it and filing it with the Minister. The declaration that the taxpayer
makes when he signs that form is,
I certify that the information given
on this return and in any documents attached is correct, complete and fully
discloses all my income.
To sign an income
tax return and make that certification without having even glanced at the
contents of the return, because that is what I understood his evidence to be is
of itself, in my view, gross negligence that justifies the penalties.
(at paragraph 20)
[22]
Similarly, in Bhatti v. The Queen, 2013
TCC 143 (CanLII) , C. Miller J. wrote:
…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.
(at paragraph 30)
(See also: Laplante v. The Queen, 2008
TCC 335 and Brochu v. The Queen, 2011 TCC 75)
[23]
These cases are equally applicable in cases,
such as this one, where a taxpayer files forms for the purposes of the Act
and those forms contain false statements.
[24]
I do not accept that Mr. Hogg would have
required knowledge of income tax beyond what he already possessed in order to
appreciate that the forms in issue contained false statements. The T-1 Adjustment
Request form shows quite clearly a change to business income from 0 to
-$316,225 and the Request for Loss Carryback form shows a loss of $316,225 on
the line for “Business Income”. By his own admission, he knew what a business
loss was and that he did not have a business loss of $316,225 in 2008. Had he
taken even a moment to read those forms, I am convinced that it would have been
readily apparent to him that they contained false statements.
[25]
I find that Mr. Hogg abdicated his
responsibility for the correctness of the information contained in the forms,
and that his conduct in filing those forms amounted to gross negligence.
[26]
Mr. Hogg’s cooperation with the CRA
investigation after the false statements were discovered is not relevant. The
relevant point in time for the determination of whether his conduct was grossly
negligent is the time he signed and filed the forms containing the false
statements. I am also unable to take into account his family circumstances or
the withholding of tax refunds relating to subsequent tax years. This Court has
no equitable jurisdiction and I cannot reduce the amount of the penalty once I
have determined that it has been imposed in accordance with the law.
[27]
For all of these reasons, the appeal is
dismissed. No costs are awarded.
Signed at Ottawa, Canada this 22nd day of
November 2017.
“B. Paris”
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