George M. Eakin v. Her Majesty the Queen (Informal Procedure), [1994] 2 CTC 2419

Christie A.C.J.T.C.:— This appeal relates to the appellant's 1992 taxation year and is governed by the informal procedure prescribed by section 18 and following sections of the Tax Court of Canada Act.

In computing his taxable income for 1992 the appellant deducted $1,187.30 as a contribution to a registered retirement savings plan ("RRSP"). In assessing the appellant for that year the Minister of National Revenue disallowed the deduction.

The notice of appeal reads:

The writer herewith files an appeal to the Tax Court of Canada—"informal procedure" based on the notification of confirmation by the Minister dated at Ottawa January 24 1994 per Mr. S. R. G. Harrison—Chief of Appeals.

Paragraphs 1 to 4 inclusive of the reply to notice of appeal read:

1. Except for the appellant's statement, based on the Notification of Confirmation by the Minister dated January 24th, 1994, per S.R.G. Harrison—Chief of Appeals, he denies all other allegations of fact contained in the appellant’s notice of appeal.

2. In computing income for the 1992 taxation year, the appellant sought to deduct the amount of $1,187.30 in respect of contribution to a Registered Retirement Savings Plan ("RRSP").

3. In assessing the appellant for the 1992 taxation year, by notice of assessment mailed on May 20, 1993, the Minister of National Revenue (the 'Minister') disallowed the deduction of the RRSP contribution in the amount of $1,187.30.

4. In so assessing the appellant, the Minister made the following assumptions of fact:

(a) in 1991, the appellant’s earned income for the purpose of calculating the RRSP deduction limit for the 1992 taxation year was nil;

(b) the appellant's RRSP deduction limit for the 1992 taxation year was 20 per cent of 1991 earned income, or nil.

At trial the appellant admitted that his employment income for 1990 was $13,230. He also stated that his total income in 1991 consisted of $13,200 that he received from Metropolitan Life in respect of a deregistered RRSP, plus $4,074 in interest. Exhibit R-2 indicates the interest income was received from the Canadian Imperial Bank of Commerce.

The argument on behalf of the Crown was succinctly and ably put by its counsel. I agree with what she said and it will be sufficient for the purpose of these reasons to reiterate her submissions.

Your Honour, in reassessing the appellant for his 1992 taxation year, the Minister disallowed the deduction of his RRSP contribution in the amount of $1,187.30 on the basis that the appellant’s income for 1991 was made up of RRSP income and interest income.

Income from these various sources is not included in “earned income" as defined by paragraph 146(1)(c) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). Subsection 146(5) of the Act allows the deduction of the lesser of two amounts in respect of premiums under an RRSP. The second of these amounts is the taxpayer's RRSP deduction limit for the year. Paragraph 146(1 )(g.i) of the Income Tax Act defines the “RRSP deduction limit” as a formula which includes determining the taxpayer’s earned income for a specific period. Thedefinition of “earned income” in paragraph 146(1)(c) of the Income Tax Act is therefore relevant in determining the amount deductible in respect of premiums under an RRSP pursuant to subsection 146(5).

The facts before us are that in 1990 the appellant’s earned income was $13,230. In 1991, he had no earned income within the meaning of paragraph 146(1)(c). If Your Honour will refer to paragraph 146(1 )(l)(i), it says:

(I) “unused RRSP deduction room" of a taxpayer at the end of a taxation year means,

(i) for taxation years ending before 1991, nil. . . .

Therefore, any so-called room that might be left from 1990 or prior years will not be put into consideration. Based on 18 per cent of the appellant’s 1990 income, he was allowed the full $2,381 RRSP deduction in 1991. Consequently, there was no deduction room left from 1991.

HIS HONOUR: For 1992.

MS. THORN: For consideration in 1992.

HIS HONOUR: Right.

MS. THORN: The appellant was not in receipt of earned income in 1991; therefore, no amount could be deducted in 1992 in respect of premiums paid under an RRSP pursuant to the Act.

The appeal is dismissed.

Appeal dismissed.

Gerry Power v. Her Majesty The Queen (informal procedure)

[Indexed as: Power (G.) v. Canada]

Tax Court of Canada (Teskey J.T.C.C.), August 24, 1994 (Court File No. 93-2555).

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

The appellant, along with B and S, were the only three shareholders and directors of B Ltd. Each was an officer, the appellant being vice-president, the other two being the president and secretary-treasurer. All three shareholders loaned money to B Ltd. and personally guaranteed bank loans to B Ltd. For this, they received monthly interest cheques. In both 1987 and 1988, B Ltd. issued TS’s to the shareholders showing the amount of interest each received in the year from B Ltd. In February 1990, the president, on behalf of the shareholders, instructed Y, B Ltd.'s controller, not to issue TS’s to the shareholders for the interest they received. Y, knowing that the Act provided for TS’s to be issued, hand delivered a memo to each shareholder informing them of their obligation to report the interest. The appellant did not report the interest income in either 1989 or 1990. By way of assessment, the Minister included the unreported interest income in the appellant’s income for 1989 and 1990 and also levied penalties under subsection 163(2). The sole issue was whether the penalties were properly levied.

HELD:

The appellant either knowingly omitted to declare the interest income or was wilfully blind in his obligations and duties. Appeal dismissed.

The appellant appeared on his own behalf.

Valerie Miller for the respondent.

Teskey J.T.C.C.:—The appellant elected to have these appeals from assessment of income tax for the years 1989 and 1990 heard pursuant to the Informal Procedure Rules.

Issue

The sole issue before me is the penalties imposed by the Minister of National Revenue (the "Minister") pursuant to subsection 163(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") on unreported income for these two years.

Facts

The appellant, at all relevant times, was one of three shareholders of Beothuk Data Systems Ltd. ("Data"), the other two shareholders being H.G. Benson ("Benson") and M.L. Siegel ("Siegel").

Benson, Siegel and the appellant were the only directors of Data. Each was an officer, the appellant being vice-president, the other two being the president and secretary-treasurer.

All three shareholders had loaned money to Data and personally guaranteed bank loans to Data. For this, they received monthly interest cheques from Data.

In both 1987 and 1988, Data issued TS’s to the shareholders showing the amount of interest each received in the year from Data.

In February 1990, the president, on behalf of the shareholders, instructed Neil Young ("Young"), Data's controller, not to issue TS’s to the shareholders for the interest that they received.

Young, knowing that the Act provided for T5's to be issued, prepared a memo and hand delivered the memo (R-1) to each shareholder (including the appellant). This memo reads:

Subject: Interest paid to shareholders in 1989

For taxation year 1989 you will not receive a T-5 form reporting interest paid to you by Beothuk Data Systems Ltd.

You are reminded that you must report this income for tax purposes — and that you may offset this income with interest paid by you in taxation year 1989.

The appellant says he read all memos, and I especially find that Young handed this memo (R-1) to the appellant who read the same. The appellant claims he must had misfiled the memo.

Young was not challenged, either by cross-examination or by rebuttal evidence, that the instructions not to prepare T5 for this shareholder interest came to him on behalf of all shareholders. I therefore find that the directors decided they could bury this extra income and that was why Young received these instructions.

On the evidence of the instruction to Young and Young's memo, I am satisfied the appellant deliberately did not declare the interest income from Data in the years 1989 and 1990.

I must say that even if acceptable evidence had been adduced by the president, that the appellant did not know or have any part in the decision not to have TS’s issued, the appeal would still fail.

The memo of Young brought forcibly to the appellant that, in 1989, there was interest paid to him that was taxable. The appellant over 1989 received $9,748.25 in monthly cheques as the interest was calculated each month. Thus he received a cheque of approximately $800.00 each month without a payroll slip. In 1990, he received a total of $8,393.96 or approximately $700.00 each month without payroll slips.

As a director of Data, it was his duty to know what was going on. Even if over the year 1989 he did not realize these amounts were taxable or would not be included in a T5 or T4, the memo from Young would dispel any false delusions in this regard.

I do not accept the appellant's statement that he believed the interest income was included with his employee income and shown on the T4 that he received. The interest income was never included in the T4's that he received from Data.

From the evidence before me, I can only conclude that, either the appellant deliberately took part as a shareholder, a director and an officer of Data to arrange that Data would not issue T5's for the interest paid out, so that each one of them could deliberately and knowingly not declare this interest income on their T1 income tax returns. Or that the appellant was so negligent and wilfully blind in his obligations and duties, both as a director of Data and as an individual when signing his T1 income tax returns in both years, that his actions and lack of inquiry constituted gross negligence.

If I had to make only one determination herein, I would determine that the appellant knowingly omitted to declare the interest income.

The appeals are dismissed.

Appeals dismissed.