REASONS
FOR JUDGMENT
Russell J.
Introduction:
[1]
In this matter the Appellant Abdulrasheed Isah
has appealed under the Income Tax Act (Canada) (Act), having elected the
informal procedure, three reassessments of his 2009, 2010 and 2011 taxation
years respectively. The appealed reassessments were each raised April 8, 2013
and upon being objected to were confirmed June 12, 2015 by the Minister of
National Revenue (Minister); hence this appeal.
Pleadings:
[2]
The Notice of Appeal of the self-represented
Appellant shows that the focus of the appeal is on disallowed charitable
deductions claimed in each of the Appellant’s three returns for the three
taxation years. In the Amended Reply of the Respondent, the Minister’s
assumptions were pleaded, particularly including:
a)
for the 2009 taxation year he had claimed
charitable donations of $5,045; in actuality only $45 was donated to a
registered charity; he did not transfer any other property to any registered
charity in this taxation year; he did not file with the Minister receipts
containing prescribed information for any donations allegedly made to World
Vision Canada (World Vision) and to Heart and Stroke Foundation of
Canada (Heart & Stroke), or to any other registered agency; he had
employment income of $47,934; he claimed various employment expenses although
he was not ordinarily required to perform duties of employment away from his
employer’s place of business;
b) for the 2010 taxation year he had claimed charitable donations of
$7,996; in actuality he did not transfer any property to any registered charity
in this taxation year; he did not file with the Minister receipts containing
prescribed information for any donations allegedly made to World Vision and to
Heart and Stroke, or to any other registered agency; he had employment income
of $56,442; he claimed various employment expenses although he was not
ordinarily required to perform duties of employment away from his employer’s
place of business;
c)
for the 2011 taxation year he had claimed
charitable donations of $4,998; in actuality he did not transfer any property
to any registered charity in this taxation year; he did not file with the
Minister receipts containing prescribed information for any donations allegedly
made to World Vision and to Heart and Stroke, or to any other registered
agency; he claimed gross business income of $1,150 and business losses of
$10,334; he did not have a source of business income at any time during the
taxation year.
Evidence:
[3]
At the hearing the Appellant testified in direct
that he trusted his tax return preparer and thought everything was alright. In
cross-examination he stated that he had not had a business and did not have
employment expenses. The only issue is the charitable donations deductions
(thereby including the “gross negligence” penalty
of $721 assessed in relation to the 2011 taxation year purported donations). He
testified he gave his tax return preparer money for charitable donations and a
fee to prepare his returns for each of three taxation years in issue. He testified
his work colleague Elvis in 2009 referred him to this tax return preparer, with
name (or approximate name) of Kizitto (Mr. K). His office was in North York,
near Jane and Finch. Mr. K cannot now be located. The Appellant trusted Elvis
that Mr. K was a good tax return preparer, although without knowing what tax
knowledge Elvis had. The Appellant’s previous tax return preparer, who had
charged $40 to $50 annually for this service, had died.
[4]
The Appellant further testified in cross-examination
that Mr. K never gave him charitable donation receipts. He cannot remember how
much cash he actually gave, but thinks he gave Mr. K roughly $500 to $700 for
donations in each year plus a fee of $50 to $60. The Appellant came to Mr. K’s
office to sign his returns for each of the 2009, 2010 and 2011 taxation years
(thus in 2010, 2011 and 2012). They were approximately five minute visits. He
wanted to donate because of hospital care his daughter had received in earlier
years. He chose to do so through this method of giving money to Mr. K, for Mr.
K ostensibly to use in making charitable donations on the Appellant’s behalf. The
Appellant did not check his 2009 tax return page by page before signing it. He
did not give Mr. K $2,982.64 for donation to Heart & Stroke or $2,017.36
for donation to World Vision for his 2009 taxation year - this despite the
Appellant’s acknowledgment on cross-examination that there are two donation
receipts in his 2009 return (Ex. R-1) from these institutions respectively for
these amounts.
[5]
Likewise for his 2010 taxation year he admits he
did not give the amounts claimed in his 2010 return (Ex. R-2) as donations to
World Vision ($3,998.45) or Heart & Stroke ($3,997.80). He did not look
through the tax return page by page before signing it. He did not see these
charitable donation claims. He trusted Mr. K. Again for the 2011 taxation
year he agrees he did not make any donations as indicated in the return (Ex.
R-3) to Heart & Stroke ($2,464.08), and to World Vision ($2,533.86). He did
not review the whole return before signing it.
[6]
The Appellant received each year into his bank
account the tax refunds generated by these claims for purported charitable
deductions. The first he knew something may be wrong was when he received a Canada
Revenue Agency (CRA) letter dated March 1, 2013 questioning the validity of his
2011 charitable donations and claim for self-employment loss in 2011, and also
his claims for employment expenses for 2009 and 2010. He took this to Mr. K
who filled in the questionnaire for him and the Appellant signed it without
reading it. The Appellant was reassessed for the returns as CRA had proposed
and then he stopped using Mr. K and in any event could no longer find him. Lastly
in cross-examination the Appellant acknowledged that he did not give Mr. K the
full amounts claimed as donations in the returns. Nor did he personally follow
up with the charities to confirm donations had been made. So he would not know
if no money had gotten to them. This was despite by then he knew CRA had an
issue with the veracity of the claimed deductions.
[7]
The Respondent called Mr. Donald Mitchell as a
witness. He is Controller - Director of Corporate Finance for World Vision. His
evidence was that he had personally searched the donation data of World Vision
and advises that the donation numbers showing on the World Vision receipts
appearing in the returns under the Appellant’s name are numbers utilized for
one or other accounts (donors) in different cities. Both accounts (donors) and
cities differ from the Appellant’s identity and city of residence. Similarly,
Ms. Karen Brown, Co-ordinator Donor Services of Heart & Stroke was called
by the Respondent. Her testimony was that she had caused a search of that
institution’s records leading to her conclusion that none of the Heart &
Stroke receipts in evidence showing the Appellant’s name appeared to be
genuine. The Appellant did not cross-examine either of these two witnesses.
Submissions:
[8]
In argument the Respondent led, submitting that
the Appellant had no receipts of his own and he had disavowed the charitable
receipts as filed with his returns. Despite vagueness of the Appellant’s
evidence the Respondent accepts there was a tax return preparer, i.e. that Mr.
K actually existed. As to the subsection 163(2) penalty the question was
whether the Appellant was negligent or grossly negligent. Per Venne v. R.,
84 D.T.C. 6247 (FCTD), gross negligence is something more than failure to take
reasonable care. Was there any actual knowledge or wilful blindness on part of
the Appellant. The Respondent submits the Appellant knew what he was doing or
he was wilfully blind. The Appellant’s submission essentially was that he had
been duped by a person he trusted.
Issues:
[9]
The issues are whether the 2009, 2010 and 2011
appealed reassessments’ denial of claimed donations are correct, and whether
the gross negligence penalty applied to the Appellant’s 2011 taxation year is
correct.
Analysis:
[10]
It readily appears from the un-contradicted
evidence brought by the Respondent that the World Vision and Heart & Stroke
donations purportedly made by or on behalf of the Appellant for his 2009, 2010
and 2011 taxation years had in fact not been made. The evidence of Mr. Mitchell
of World Vision and Ms. Brown of Heart & Stroke establish that the donation
receipts that the Appellant’s tax return preparer Mr. K had included in the
Appellant’s returns for those three years, ostensibly from those two respected
charitable institutions, were fictitious. As well, the Appellant made no effort
to deny that these donation claims were falsely made. He was forthright in
saying he never gave the tax return preparer Mr. K funds in the amounts
fraudulently claimed as deductions, to gift on his behalf to World Vision and
Heart & Stroke. I add that while he knows now of these fraudulent claims,
it has not been established that the Appellant had actual knowledge of these
wrongful claims at the times they were advanced. But in whole I find that the
Minister’s appealed reassessments denying these claimed charitable donations are
correct.
[11]
I now turn to the subsection 163(2) penalty
assessment of $721 for his 2011 taxation year. This penalty is in the amount of
one half of the tax sought to be avoided for a 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…”. I note also
that for this penalty the burden of proof is upon the Respondent (subsection
163(3)).
[12]
In Venne, supra, Justice Strayer stated
para. 37 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. I do not find that high degree of negligence in connection with the
misstatements of business income. To be sure, the plaintiff did not exercise
the care of a reasonable man and, as I have noted earlier, should have at least
reviewed his tax returns before singing them. A reasonable man in doing so,
having regard to other information available to him, would have been led to
believe that something was amiss and would have pursued the matter further with
his bookkeeper.
[13]
The Court continued, at para. 38:
With respect to
business income, I can more readily recognize that effective surveillance would
have been difficult for the plaintiff and would have involved him making and
reviewing numerous computations of revenues, expenditures, assets, and liabilities.
In other words the errors in business income, small in some years but very
substantial in others, would not necessarily have ‘sprung out’ at a person of
the taxpayer’s background and abilities. While it may have been naive for him
to trust his bookkeeper as knowing more about such matters than he did, I do
not think it was gross negligence for him to fail to challenge the bookkeeper
with respect to business computations. However egregious the errors committed
by the bookkeeper in this respect, it is quite conceivable that they were not
in fact noticed by the plaintiff and his neglect in not noticing them fell
short of constituting gross negligence...
[14]
This language from this early “gross negligence” decision, probably being the
decision most cited in respect of subsection 163(2) penalties, is helpful. When
does not reviewing a tax return before signing it constitute gross negligence
and when might it not? The answer from Venne is, if the false statements
in the return would “spring out” upon review, keeping
in mind the background of the taxpayer, then not reviewing the return likely
would constitute gross negligence. (If, for example, the false statements in a
return were “legal gobbledigook” (which is not
the case here) then while their meaninglessness could well “spring out” to someone with elements of legal
training or work experience, that would not necessarily be so for someone
lacking such background. Or there might be some other unique circumstance in
the relevant factual matrix that renders excusable to some lesser or greater
extent the trusting of, in hindsight, an unscrupulous tax return preparer. Each
case is unique. The gross negligence penalty is a serious penalty, applicable
in situations of or tantamount to intentionally made false statements, through
act or omission.)
[15]
In this case however the mis-statements in the
2011 return are the claims for deduction for charitable donations to World
Vision and to Heat & Stroke in the respective amounts of $2,533.86 and
$2,464.08. I do not think the Appellant, who represented himself in this
matter, would have had a problem in spotting these wrong amounts if he had
taken time to review the return (as he said he did not) before signing it. I
think that these two false statements would have been obvious to him, as they
would have been to almost anyone in reviewing that return. The Appellant was
completely aware that he had had no intention of donating any such amounts to
these two charitable institutions.
[16]
Accordingly I do find that the Respondent has
met its burden of proof, through cross-examination of the Appellant, that the
false statements in the return as established by the evidence of Mr. Mitchell
and Ms. Brown, were made, participated in, assented to or acquiesced in through
gross negligence of the Appellant.
[17]
In concluding, and as a separate matter entirely
I note that the Appellant is unhappy that he was assessed interest in the
appealed reassessments. I believe at the hearing I advised that interest relief
was not a matter over which this Court has jurisdiction (unless the wrong
interest rate was used or otherwise a wrong calculation of the interest was
made, thereby affecting the balance of the appealed (re)assessment). Rather, it
is the Minister per subsection 220(3.1) of the Act who has discretionary
jurisdiction to waive or cancel interest (and penalties), with right of
judicial review of these discretionary decisions to the Federal Court per
section 18.1 of the Federal Courts Act.
[18]
I dismiss this informal procedure appeal,
without costs.
Signed at Toronto, Ontario, this 31st day of January 2018.
“B. Russell”
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