REASONS
FOR JUDGMENT
Russell J.
Introduction:
[1]
The Appellant, Philip Romaker, launched this
general procedure appeal of reassessments under the Income Tax Act
(Canada) (Act) in respect of his 2007, 2008 and 2009 taxation years. He is
appealing so-called gross negligence penalty assessments pursuant to subsection
162(3) of the Act in respect of deductions claimed in his 2007, 2008, 2009
returns, as prepared by persons the Appellant says he had trusted and that they
deceived him.
Evidence:
[2]
The Appellant, self-represented in this general
procedure appeal, testified that he has a Grade 13 education. He now is
retired, after 29 years serving as a police officer in Hamilton, Ontario. In
2008, apparently at the urging of friends, he attended two public presentations
offered by “Sovereign Trusts” regarding how taxpayers who primarily had T4
income might obtain substantial income tax refunds. He says he did not follow
much of what he heard at these sessions (and now says it was mostly “gibberish”). But he decided to go forward with seeking
refunds of income tax he had remitted in recent years. Accordingly he
contracted with the speaker at these presentations, one Christian Lachappelle
(Mr. L.), to lead him in so doing.
[3]
He testified that he signed forms Mr. L.
prepared and subsequently submitted on his behalf to Canada Revenue Agency
(CRA). He thereafter received negative responses from CRA. Mr. L. encouraged
him to continue, advising him that CRA simply was reluctant to pay him the tax
refunds. CRA continued to respond negatively. Eventually the Appellant became
disillusioned with Mr. L. and carried on instead with guidance from an apparent
associate of Mr. L., one R. Terracina (Mr. T.) in preparing and filing
representations to CRA at the objection stage for each of the subject years. Initially
Mr. T., through an assistant, apparently had given the Appellant a list of
made-up business expenses for submission to CRA.
[4]
The Appellant testified that he was duped
by Messrs. L. and T., being “the masterminds behind the
scam”. He says he was victimized and now CRA wants to victimize him again. He
says he has “learned his lesson” and this is a “sorry mess”. He now just wants
to move forward and there is “no need for salt in the wound.”
[5]
In
cross-examination he concurred he never had had a business. He, or another
person for electronic filing, had always prepared his returns. Before this
matter came up he had never paid a professional to prepare them. He reiterated
that friends had significantly influenced him to pay the fees to attend the two
Sovereign Trusts sessions and to then have Sovereign Trusts prepare his 2008
and 2009 returns and 2007 request for amendment.
[6]
Certain documents
were entered in evidence. They included Ex. A-1, the Sovereign Trusts ad for “a
private full-day seminar” including a three hour session on “how to reduce my
taxes”, which session the Appellant twice attended. The ad shows it was “revised”
May 14, 2008.
[7]
Ex. R-2 is a five
page document provided to the Appellant by Mr. L., entitled “Getting prepared
to apply the C2++ Process”. Its “Introduction” begins by stating (as actually
printed):
You, as a living man or woman, is called Humanus Being in the C2++
Process terminology. You are considered sovereign, thus having the free will to
govern yourself.
[8]
This section concludes, stating:
The underlying principle in the C2++ Process is that loans are NOT
revenues. Your employer is not taxed on the capital he received from you, isn’t
it? The banks are not taxed on their loans, isn’t it? You contracted a loan
from a bank, the money you received is not taxable, isn’t it? Only the accrued
value is! The profit is taxable. Since you are not in commerce but are used by
commerce, so you don’t generate profits. You loaned some value, and it came
back without profit. You are simply being reimbursed your capital.
[9]
The Appellant said that when, upon
receipt, he “skimmed” this document, he didn’t
understand it but viewed Mr. L. as the expert.
[10]
Other documents filed in evidence in the
course of the Appellant’s cross-examination included Ex. R-4 which was an email
from Mr. L. to the Appellant dated February 2, 2009 with six documents attached
for him to sign and courier back to Mr. L. These documents include one entitled
“corporate resolution to accept contract for hire”, one
entitled a “UCC financing statement” and one entitled “corporate resolution to
accept the annual invoice”. They basically meant nothing to the Appellant.
[11]
Exhibits R-5, R-6
and R-8 are respectively the Appellant’s returns for 2008 filed June 30, 2010,
and 2009 filed April 30, 2010, and his September 2, 2008 letter to CRA Appeals
re his 2007 amendment request.
[12]
The 2009 return
claimed a business loss of $22,610. It is signed by the Appellant, under the
usual wording - “I certify that the information given on this return and in any
documents attached is correct, complete, and fully discloses all my income.”
[13]
The 2008 return
claimed other deductions of $89,713 as “Due to Animator (Principal) as agent”
and other income (in addition to employment income of $83,214) of $16,450 for a
net deductions loss of $73,216. The 2008 return was signed by the Appellant
directly under the typed in statement, “This tax return, done involuntarily
under protest and duress, uses a process in which the Animator (principal) is
being reimbursed his human capital he loaned to society, by his agent.” To the
right in the same signature box is typed, in upper and lower case as here
reproduced, this statement: “ALL RIGHTS RESERVED WITHOUT PREJUDICE UCC 1-308.
NON-ASSUMPSIT CONTRACT, WITHOUT COMPRENHENSION [sic]. Done for the Agent
by the Animator.” The usual statement appearing on this prescribed income tax
return form, “I certify that the information given on this return and in any
documents attached is correct, complete, and fully discloses all my income.” is
absent.
[14]
The 2007 taxation
year amendment request was that the “business net income” box, which per
original filing read zero, be amended to show a loss of $69,558. Again it was
signed by the Appellant, this time directly under the wording - “All rights
reserved, without prejudice, UCC 1-308 non assumes it contract, without
comprehension for the natural person PHILIP ROMAKER”. And directly below his
signature is the wording - “by Philip : Romaker, Animator for the natural
person PHILIP ROMAKER. Correspondence accepted in writing only.”
[15]
Each of these
three filed documents was signed by the Appellant, with Mr. L. having
provided the Appellant each document for his signature. In Court the Appellant
did not seek to say that the unique wordings in and about his signatures,
reproduced herein, had not been there when he signed.
Pleadings:
[16]
The Respondent’s key
assumptions of fact, pleaded at paragraph 15 of the Reply, are as follows:
a) the
appellant’s total income for the 2007 taxation year was $85,412 consisting of
employment income from The City of Hamilton, the Toronto Police Association and
other investment income;
b) the
appellant’s total income for the 2008 taxation year was $83,435.02 consisting
of employment income from The City of Hamilton and investment income;
c) the
appellant’s total income for the 2009 taxation year was $83,443.00 consisting
of employment income from The City of Hamilton and investment income.
2007 Claimed Agent Loss
a) in
filing a T1 adjustment request for the 2007 taxation year, the appellant
claimed a business loss in the amount of $69,557.61 (the previously defined
Claimed Agent Loss);
b) the
Claimed Agent Loss, if allowable, would have resulted in a refund of all taxes
withheld at source for the 2007 taxation year;
c) the
appellant claimed in his T1 Adjustment Request for the 2007 taxation year that
the business was a “default business”;
d) the
Claimed Agent Loss in the amount of $69,557.61, was not in respect of the
appellant’s alleged “default business”;
e) in
requesting a T1 Adjustment for a net business loss in the amount of $69,557.61
for the 2007 taxation year, the appellant requested that the entire amount be
deducted in the 2007 year;
f) the
appellant claimed in his T1 Adjustment Request for the year that the income
from this “business” was “business income” and that his expenses, which were
described as “exp. reimbursement as per private contract”, were $69,557.61 (the
“2007 Disallowed Expenses”);
g) the
appellant signed his T1 adjustment request for the 2007 year as “by Philip :
Romaker, Animator for the natural person PHILIP ROMAKER”;
h) the appellant claimed that:
Based on several communications with different CRA
agents we can give you this hint: in our letters you will come into contact
with the human being Philipp : Romaker and the natural person PHILIP ROMAKER
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 the 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 helps in your understanding.
…
The human being Philipp : Romaker signed a private
contract with the corporation PHILIP ROMAKER (the natural person). This
contract recognize [sic] the inestimable value of Philip : Romaker for the
corporation PHILIP ROMAKER (the natural person) to operate. Thus the
corporation PHILIP ROMAKER has committed itself, through the private contract
and in the title of compensation for incommensurable efforts, to reimburse the
human being Philip : Romaker for all his expenses which he encountered during
the period covered by the contract. These expenses reimbursement incurred by
the taxpayer (the natural person or the corporation PHILIP ROMAKER) is for the
purpose of gaining or producing income for all the businesses the corporation
is involved in, in accordance with section 18(1)(a) of the Income Tax Act or
its provincial equivalence. Note that for income tax purposes, only part of
these expenses were taken into consideration (see Other expenses in the already
submitted T2124).
i) the
appellant’s position is based on script;
j) the script shows that the appellant knowingly
participated in a type of detax group in order to avoid paying tax;
k) the
appellant was not involved in a business activity of any kind;
l) the
appellant had no source of income with respect to his alleged business;
m) the
appellant’s claim for an “exp. reimbursement as per private contract” consisted
solely of personal and living expenses;
n) the
appellant did not incur the claimed “exp. reimbursement as per private
contract” expenses for the purpose of gaining or producing income from business
or property;
2008 Other Deductions Loss
o) in
filing his 2008 tax return, the appellant claimed a deduction in the amount of
$89,713.35 “Due to Animator as Agent” (the previously defined Other Deductions)
and claimed other income in the amount of $16,450.18 as “Miscellaneous
Deposits” generating a loss of $73,263.17 (described as the “Other Deductions
Loss”);
p) the
Other Deductions Loss, if allowable, would have resulted in a refund of all
taxes withheld at source for the 2008 taxation year;
q) the
appellant claimed in his income tax return for the 2008 taxation year that the
business was as an “Agent as a Transmitting Utility”;
r) the
Other Deductions Loss in the amount of $73,263.17, was not in respect of the
appellant’s alleged “Agent as a Transmitting Utility business”;
s) the
appellant claimed that his income from this alleged business was “Moneys
collected for the Animator by Agent”;
t) the
appellant claimed in his 2008 tax return that the income from the “business”
(detailed in paragraph 7 above) was $16,450.18 (described as Moneys collected
for the Animator by agent, and are NOT reported as third parties). The
appellant claimed that his expenses, which were described as “Moneys owed to
the Animator by the Agent in paper money” were $89,713.35 (the “2008 Disallowed
Expenses”);
u) the
appellant signed his “Annual Statement for Agent’s Activities” for the 2008
taxation year as:
I certify that I
am the Animator (principal) for the Agent, PHILIP ROMAKER, and that the
information given on this statement is true and accurate. This statement,
prepared by the Animator, is an original receipt”
v) the
appellant signed his income tax return for the 2008 taxation year as:
This tax return,
done involuntary [sic] under protest and duress, uses a process in which
the Animator (principal) is being reimbursed his human capital he loaned to
society, by his agent.
ALL RIGHTS
RESERVED WITHOUT PREJUDICE UCC 1-308 NON ASSUMPSIT CONTRACT, WITHOUT
COMPREHENSION
Done for the
Agent by the Animator
PER: P. Romaker
w) the
appellant provided a ‘Notice of Usage’ which advised that as of May 27,
2009:
“Be advised that, as of May-27-2009, the natural
person aka taxpayer PHILIP ROMAKER (hereinafter “the Agent for which the SIN
449XXXXXX has been issued, is being used as an agent in commerce, having the
duty of a transmitting utility towards its sovereign, self governed Animator
free to choose its spiritual governance, Philip of the family Romaker aka
Philip : Romaker (hereinafter “the Animator”).
The Agent’s role consists of accepting the human capital
furnished by its Animator as a temporary loan to society without interest or
usury, and afterwards totally reimbursing the Animator, minus the Agent’s fees.
…
Furthermore, the Animator has not seen any evidence
supporting the alleged presumption that the Animator shall be the surety for
the Agent who is insolvent in nature, and any claim against the Agent having a
value will be presented to the Receiver General who will accept the payment
instrument as presented and shall do whatever necessary to offset the accepted
value of the claim against the exemption account bearing the number ….
x) the
appellant’s position is based on script;
y) the
script shows that the appellant knowingly participated in a type of detax group
in order to avoid paying tax;
z) the
appellant was not involved in a business activity of any kind;
aa) the
appellant had no source of income with respect to his alleged business;
bb) the
appellant’s claim for “Moneys owed to the Animator by the Agent in paper money”
consists solely of personal and living expenses;
cc) the
appellant did not make or incur the claimed “Moneys owed to the Animator by the
Agent in paper money” expenses for the purpose of gaining or producing income
from business or property;
2009 Claimed
Business Loss
dd) in filing
his 2009 tax return, the appellant claimed a business loss in the amount of
$22,610 (the previously defined Claimed Business Loss);
ee) the
Claimed Business Loss, if allowable, would have resulted in a refund of some
taxes withheld at source for the 2009 taxation year;
ff) the
appellant claimed in the business statement in his income tax return for the
2009 taxation year that the business was an “Art Services + Investment
Management Business”
gg) the
appellant’s position is based on script;
hh) the Claimed
business Loss in the amount of $22,610, was not in respect of the appellant’s
alleged “Art Services + Investment Management Business”;
ii) in
reporting a net business loss in the amount of $22,610 for the 2009 taxation
year, the appellant deducted the whole amount from his income;
jj) the
appellant claimed that he received no income from his alleged business;
kk) the
appellant’s claim for expenses as attached a Appendix “A” consisted solely of
personal and living expenses (the “2009 Disallowed Expenses”);
ll) the
appellant did not make of incur the claimed 2009 Disallowed Expenses attached
as Appendix “A” for the purpose of gaining or producing income for business or
property;
mm) the
appellant was not involved in a business activity of any kind;
nn) the
appellant had no source of income with respect to his alleged business;
oo) the
appellant did not make or incur the claimed business loss for the purpose of
gaining or producing income from business or property; and
…
Subsection
163(2) Penalties
17. In applying a
penalty under subsection 163(2) of the Act, for the 2007, 2008 and 2009
taxation years, the Minister relied on the following facts:
a) the
assumptions stated in paragraph 15 above;
Reassessments and Issue:
[17]
In the ensuing
reassessments the business expense claims were all denied, but included were
assessments of subsection 163(2) penalties plus counterpart provincial
penalties totaling $7,139, $9,013 and $1,337 for Mr. Romaker’s 2007, 2008
and 2009 taxation years.
[18]
I do not consider
that in the hearing the Appellant effectively rebutted any of the
above-reproduced assumptions. I do not believe he particularly sought to do so.
The Appellant’s position simply is that he was misled by supposed experts and
should not be penalized for having been taken in by these, in his words, “masterminds
behind the scam”.
Analysis:
[19]
The wording of the subsection 163(2) “gross negligence” penalty is as follows:
Penalty for
misrepresentations in tax planning arrangements
(2) Every person
who makes or furnishes, participates in the making of or causes another person
to make or furnish a statement that the person knows, or would reasonably be
expected to know but for circumstances amounting to culpable conduct, is a
false statement that could be used by another person (in subsections (6) and
(15) referred to as the “other person”) for a purpose of this Act is liable to
a penalty in respect of the false statement.
[20]
The two elements of subsection 163(2) to be
established are:
a)
a false statement in a return;
b) knowledge or gross negligence in the making of, asserting to or
acquiescing in the making of that false statement.
In accordance
with Venne v Canada, [1984] FCJ 314 (TD), gross negligence requires
something more than mere negligence. It involves a high degree of negligence
tantamount to intentional acting or indifference as to whether the law is
complied with or not.
[21]
I have considered the decisions of Torres v R,
2013 TCC 380; Strachan v R, 2015 FCA 60; Lauzon v R, 2016 TCC 71;
Lauzon v R, 2016 FCA 298; Tomlinson v R, 2016 TCC 246; Chartrand
v R, 2015 TCC 298.
[22]
As noted in Torres (supra) at
paragraph 62, it is settled law that gross negligence can include wilful
blindness. See also Villeneuve v Canada, 2004 DTC 6077 (FCA).
[23]
The Appellant testified that Mr. L. told
him to just make up a business in order to best claim deductions, as the
Appellant had no actual business. So the Appellant did make one up – a business
engaged in “art services and investment management”. He
testified that this came from the fact that his wife had an interest in art. See
in this regard Ex. R-7 being a CRA form “Statement of Business or Professional
Activities” for his 2009 taxation year. The above business description is
written in the field headed “main product or service”. (In Part 5 an itemized
listing of purported business expenses is set out, with the total of $22,610
shown at line 9369 as being a net loss.) The Appellant’s signature does not
appear on this document.
[24]
Complying with a
request to make up a business undertaking is indicative of an intentional false
statement. But to give the Appellant the benefit of the doubt, I will decide
this appeal on the basis of wilful blindness constituting gross negligence.
[25]
The guiding
jurisprudence in this regard is Torres (supra) which sets out a
check-list of items to be considered as “red flags” suggestive of an enquiry,
absent which wilful blindness constituting gross negligence may be found.
[26]
One red flag is
magnitude of the advantage or omission sought. Here, per Ex. R-8 for the 2007
taxation year a business loss of almost $70,000 was claimed in a letter to the
Sudbury Tax Services Office dated September 2, 2008. The “other deductions”
loss for “Due to Animator as Agent” claimed for the 2008 taxation year was
$89,713 gross and $73,263 net. This all was fictitious. And for the 2009 year a
business loss of $22,610 was claimed in respect of the fictitious “Art Services
and Investment Management Business”. These are all substantial amounts that
have been falsely stated and claimed, apparently without engendering any
enquiry from the Appellant.
[27]
The education and
experience of the taxpayer is a prominent red flag. The Appellant is a recently
retired police officer who as such presumably spent his career dealing with
persons of illegal action and intent. I feel obliged to say that one surely
would not last long as a police officer were one gullible to the extent the
Appellant is self-portrayed in this appeal. Also the Appellant’s education is
significant – he had graduated Grade 13, therefore having a full secondary education.
[28]
The blatancy of
the false statements as to existence of a fictional business and related losses
and “other deductions” loss (2008) is extreme – another significant red flag.
[29]
Also, a noted red
flag is if the supposed expert’s correspondence is incomprehensible and
nonsensical. That is surely the case here. Portions of such language have been
quoted at length herein, including at length from the Respondent’s pleadings, in
order to show this. Further, the Appellant as noted above described what he
heard in one of the seminars he attended as mostly “gibberish”. It is simply
not credible, given all the circumstances herein, that the Appellant, a retired
career police officer, dismissed the “gibberish” on the basis that the utterer
was an expert, so he the Appellant would, or could, or should not expect to
understand what was being said.
[30]
These
observations extend also to the nonsensical and incomprehensible language
appearing in the signature box for his 2008 tax return (Ex. R-5 noted above).
Conclusion:
[31]
On the basis of
the foregoing I readily find that this appeal should be dismissed. I am of the
clear view that the appealed gross negligence penalties were properly assessed
in respect of this Appellant for his 2007, 2008 and 2009 taxation years. The
dismissal of this appeal shall be with costs, as sought by the Respondent.
Signed at Ottawa, Canada, this 1st day of December 2017.
“B. Russell”
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