Barry L. Fossen Professional Corporation v. Minister of National Revenue, [1989] 2 CTC 2290, 89 DTC 526

Taylor, T.C.J.:—This is an appeal heard in Edmonton, Alberta, on June 13, 1989, against an income tax assessment for the year 1981, in which the Minister of National Revenue imposed a penalty for late filing, under subsection 162(1) of the Income Tax Act (“Act”), and added appropriate interest charges. The relevant assessment notice dated April 13,1984 gives the following explanation:

T2 Late filing penalty of $1,837.22 is included in Federal Tax. Interest of $621.02 on the balance of tax payable from the due date of the balance is included in balance shown in this notice. Your 1981 return has been processed in accordance with the information submitted.

The critical paragraph from the notice of appeal states:

Taxpayer appeals this confirmation as the payment in question for $10,000 was made on May 31, 1982 not after that date.

In reply thereto, the Minister noted:

(a) with respect to his taxation year 1981 the Appellant was required to file his return by May 31, 1982;

(b) a return for taxation year 1981 of the Appellant, dated May 31, 1982 and signed B.L. Fossen, President was received by the Respondent at its Edmonton Taxation Centre on December 15, 1983 in an envelope bearing a Camrose, Alberta post mark dated December 13,1983;

(c) a cheque in the amount of $10,000 dated May 31, 1982 was received from the Appellant by mail on June 15, 1982 by the Respondent at his Winnipeg Taxation Centre;

(d) it took no more than ten days from the time of mailing the cheque for it to reach the Winnipeg Taxation Centre;

(e) the Appellant after filing his Notice of Objection supplied the Respondent with copy of a covering letter written by the Appellant purportedly on May 31, 1982, accompanying the cheque above-mentioned and addressed to Revenue Canada Taxation, Winnipeg, Manitoba R3C 3M2 which read “We enclose herewith cheque for $10,000.00 for Nov. 30/81 year end for Barry L. Fossen Professional Corporation. The corporate tax return has been mailed under separate cover;

(f) the cheque mentioned above was not mailed on or before May 31, 1982 nor

was the corporate income tax return of the Appellant for taxation year 1981;

(g) the tax that was unpaid when the 7987 return of the Appellant was required to be filed amounted to $10,807.20;

5. The Respondent relies, inter alia, upon subsection 162(1) of the Income Tax Act, being R.S.C. 1952, c. 148, as amended by S.C. 1970-71-72, c. 63, 5.1, applicable to the 1981 taxation year of the Appellant.

6. The Respondent respectfully submits that as there was unpaid tax at the time when the 1981 return of the Appellant was required to be filed and such return was not filed until twelve months after the time above mentioned the penalty was properly assessed under subsection 163(1) of the Income Tax Act.

7. The Respondent submits that the Appellant has failed to show as he has to, that no taxes were unpaid at the time when his 1981 return was required to be filed.

The respondent, although he did not receive the cheque mentioned in subparagraph (c) above until June 15, 1982, calculated the interest in the appellant’s tax account as if the amount of the cheque mentioned in subparagraph 4(c) above had been paid on June 5, 1982.

June 5, 1982 was a Saturday and the respondent's Winnipeg Taxation Centre was closed on that day.

Evidence and Testimony

Counsel for the appellant corporation stated in opening remarks that the appellant accepted the fact above that the relevant T2 income tax return for 1981 was not filed with Revenue Canada until December of 1983. However, it was the assertion of the appellant that a cheque in the amount of $10,000 had been mailed on May 31, 1982 addressed to Revenue Canada and that therefore penalty on that $ 10,000 was not properly charged by the Minister. The issue before the Court, therefore, was simply "on the balance of probabilities" could it be said that the $10,000 cheque had been mailed. Barry L. Fossen, a chartered accountant, the sole shareholder of Barry L. Fossen Professional Corporation gave evidence on behalf of the corporation. The company was a partner in the accounting office in Camrose, Alberta in which Barry L. Fossen participates. In effect, Barry L. Fossen and his wife Pauline are employees of the appellant corporation. The professional income earned in Dodsworth, Dey, Fossen, Harberg & Nikifourk (which was the partnership name during the time material) resulting from the efforts of Barry L. Fossen, was channelled through the appellant corporation. The Court merely notes this process for the record; it is a procedure available under the laws of the Province of Alberta, but it is important in this matter only in that it does establish that Barry L. Fossen, C.A., is the guiding mind of the appellant corporation. Other than relatively minor bookkeeping by his wife, Barry L. Fossen directed everything, and is fully responsible for everything in the corporation.

Mr. Fossen described for the Court the general practice followed in the accounting partnership for fulfilling obligations to clients including, where necessary, the mailing of returns and documents. In effect, his evidence was that he would have followed the same routine: cheque writing, memos, dates, signatures, mailing, etc. in doing the work for his own corporation, and since the critical cheque (Exhibit A-4) was dated May 31, 1982, as was the critical memo (Exhibit A-3) he would have mailed them that day or evening together. He was not able to tell the Court where or when exactly he had mailed an envelope containing these documents.

Mr. Fossen also produced a series of cheque stubs and pointed out to the Court that the stub pertaining to the cheque for $10,000 was in the proper order and also dated May 31, 1982. Neither the cheques nor the cheque stubs are prenumbered nor was it his practice to even assign numbers to them when they were used. Sometimes he made out the cheques (he stated he had done so in the case of the $ 10,000 at issue) and sometimes this was done by his wife. The handwriting could be distinguished.

Mr. Fossen recalled that on May 31, 1982, he had made up the work sheet for the appellant corporation, apparently at home. He calculated what would be approximately the taxes payable but, deciding he did not have sufficient time (before midnight) to complete the financial statements and the tax returns, he prepared a cheque for $10,000 and an accompanying memo and mailed them as noted above. It was not until he received a "demand to file” from Revenue Canada late in the year 1983 that he did complete and file the actual tax return. In his view, since $10,000 had been paid on account, there was no need to hurry, nor was concern required with respect to the balance of the filing. As a chartered accountant, he was in the habit of using to the very last minute the time and date available to him before mailing documentation he had prepared, and obviously felt no compunction to comply with other income tax requirements once an initial gesture (such as, in this case, allegedly mailing the cheque for $10,000) had been made. In summary, he relied on the dates indicated on the cheque, the memo and the cheque stubs, which together with his established office practice assured him, as he told the Court, that he would have mailed the cheque that same day.

I would note without much elaboration that counsel for the respondent questioned his conduct in leaving things to the last minute for clients, and in cross-examination succeeded in casting substantial doubt on the assertions of Mr. Fossen that the office routine at the accounting office was as standard and effective as he recalled and also whether any such alleged erroreliminating office routine had even been followed in this particular situation for his own corporation. Some of the practices in the preparation and finalization of documents, as detailed by Mr. Fossen, appeared to counsel to be at least unusual.

The main exhibits filed are referenced below:

Exhibit A-3: A 'Day Timer Time Saver" hand-written memo headed "Dodsworth, Dey, Fossen & Barr”, the same firm of chartered accountants, but apparently an office form from an earlier partnership, addressed to "Revenue Canada Taxation, Winnipeg, Manitoba, R3C 3M2” reading as follows:

We enclose herewith cheque for $10,000 for Nov. 30/81 year end for Barry L. Fossen Professional Corporation. The corporate tax return has been mailed under separate cover.

Exhibit A-4: A cancelled cheque dated May 31, 1982, for the Receiver General of Canada in the amount of $10,000. This was referenced by the Minister in the reply to the notice of appeal above as “a cheque in the amount of $10,000 dated May 31, 1982 was received from the Appellant by mail on June 15,1982 by the Respondent at his Winnipeg Taxation Centre".

Exhibit A-7: An office memo dated February 28, 1982 regarding mailing of T-4 wage slips and summaries for the Appellant corporation.

Exhibit A-8: A standard instalment remittance receipt form for $10,000 dated June 18, 1982. It contained the following note:

For interest calculation purposes your instalment payment has been credited as of 05 Jun 82 ... .

Argument

Counsel for the appellant contended that the question of credibility should not enter the matter since Mr. Fossen had been straightforward in providing information to the Court. The physical evidence available all pointed to the date of May 31, 1982 as that on which the disputed cheque would have been mailed, and the office routine which Mr. Fossen would have followed supported that conclusion. The respondent had not presented any testimony to support his assumptions.

Counsel for the respondent noted that the question of credibility did remain, no matter how sincere Mr. Fossen may have been in his efforts to assure the Court. In the end analysis, Mr. Fossen's recollection of the critical event, mailing the cheque, had been vague at best. The record did not support Mr. Fossen's contention that either his standard office procedure or the system he personally followed in his own corporation would have ensured mailing the cheque on May 31, 1982. According to counsel, Mr. Fossen had simply not presented anything which supported his contention that the cheque had been mailed, no matter what his intentions had been.

Analysis

First, I would note that in connection with Exhibit A-3 above, Mr. Fossen agreed that no “corporate tax return had been mailed under separate cover" by May 31, 1982, and that the signed statement and the facts are in direct contradiction. That situation lends little support to the assertion of counsel for the appellant that there is no question of credibility in this matter.

On the other side, however, I would also note that while there is a date stamp on the back of Exhibit A-4 indicating that it had been processed by the Toronto Dominion Bank, Winnipeg, Manitoba, on June 15, 1982, there is no indication on the cheque that it had been "received from the appellant by mail on June 15, 1982, by the respondent at his Winnipeg Taxation Centre" (see the reply to notice of appeal above). This is a very crucial document in my view and I would add there is also a stamp on the front of the cheque indicating it was processed June 15 (I must assume 1982) by the Toronto Dominion Bank in Camrose, Alberta. No particular significance was apparently attached to that fact at the hearing by the parties; I do not recall that it was raised. There are other “stamps” on the back of the cheque, but they give little clue as to its routing. I am certainly aware that the stamps on the cheque could mean other things, e.g., that it was "certified" or had some other special treatment. No actual bank records were presented by the appellant nor was any physical evidence of the receipt of the cheque, such as an envelope, etc., presented by the respondent. June 15, 1982 was a Tuesday, the testimony in the case indicates, and it may well be that the return to Camrose, Alberta was by way of courier or some other more direct routing; possibly even that the two date stamps of June 15 can be misleading if one bank or the other changed date stamps at set hours, say four o'clock or some specified time instead of after midnight each day. But the Court had no information on that subject and I find no reason to speculate. The critical cheque appears physically to have been in Winnipeg, Manitoba and in Camrose, Alberta on the same day. That leaves the respondent's overpowering assumption that "it took no more than ten days from the time of mailing the cheque for it to reach the Winnipeg Taxation Centre" in serious jeopardy, in my view. I could reach the conclusion, without great difficulty, that it might have taken seven days to reach Winnipeg, Manitoba and seven days to return to Camrose, Alberta, and it is at least as possible the cheque did not get stamped in Winnipeg, Manitoba the day it arrived at Revenue Canada (say June 8, 1982) as it is possible that Mr. Fossen did not mail it on May 31, 1982. One might argue; not likely, but possible.

In this matter, as I understand it, the interest charge takes into account a five day period “as if the amount of the cheque had been paid on June 5th, 1982". I can only conclude that there is some kind of assessing policy in Revenue Canada which allows a “period of grace", apparently five days, for remittances to reach the designated office. The apparent contradiction between the five day period for interest calculation and the ten days suggested by the Minister for mail time was not explained to the Court. That raises all kinds of questions in itself since the respondent has by implication established a kind of ten day deadline limitation without, in my view, any statistical basis for doing so. The obvious question is if ten days is acceptable, why not fifteen days? But I pose that only in the rhetorical sense. I also recognize that the current subsection 248(7) of the Act was not in force in the taxation year at issue in this appeal. It is worth noting that in this appeal the Court was not made aware of how a taxpayer should be able to prove that a return, document or cheque had actually been mailed, without special precaution such as registration being taken.

I am fully conscious of all the areas in which the testimony presented by Mr. Fossen provides little verification of the assertion he makes that he mailed the cheque on May 31, 1982. There is, as counsel for the respondent noted, nothing specific to support that position and a good deal in Mr. Fossen's conduct and action which would leave it open to question. He was unsure about exactly when or where he did the accounting on May 31, 1982 to prepare his work sheet; he had only an excuse, not a reason, for indicating on Exhibit A-3 that the tax return had been sent already; he could not reconcile very adequately what appeared to counsel for the respondent to be lapses in his alleged usual office routine in this matter. He gave little reason for the long delay after May 31, 1982 in filing the 1981 income tax return, and a simple procedure such as not having prenumbered cheques or numbering them at all was not explained. The office practice of Mr. Fossen to prepare, or at least mail, deadline documents to Revenue Canada on the last day, even almost the last hour, is one which obviously places additional pressure on the postal system and leaves open such possible problems as the matter before the Court. In the end analysis, the Court is left, on the one side, with the assertion of the respondent upon which the assessment is founded: that the cheque at issue could not have been mailed on May 31, 1982; and on the other side, the testimony of the appellant together with the routing and the date stamp noted above, that it could have been mailed on that date.

The assessment under appeal in this matter falls under the provisions of subsection 162(1) of the Act which imposes a "penalty" just as does section 163 of the Act. The respondent has not been assigned the onerous responsibility under section 162, "the burden of establishing the facts justifying the assessment", which has been so assigned under subsection 163(3) of the Act. But, in my view, the respondent's responsibility in the instant matter is serious nonetheless because section 162 is just such a "penalty" provision. I have been unable in this set of circumstances to determine in what manner the appellant could have provided more "proof of mailing”; and clear and convincing evidence that the cheque was not mailed has not been presented by the respondent. As I see it, for this Court to sustain the respondent's assessment, I would be required to totally reject the sworn testimony of Mr. Fossen in explanation and support of the physical evidence which he provided, limited as it was. Both the evidence and the testimony of the appellant were properly and effectively questioned by the respondent but the very foundation for the respondent's assessment itself, ten days mailing time, was not supported at all by the respondent. The benefit of any reasonable doubt should be accorded to the taxpayer and accordingly I am prepared to accept the evidence and testimony that the cheque was mailed as stated by the appellant, over the arguments given to the Court by the respondent which would indicate the reverse.

I hasten to point out, however, that in view of the sensitive difficulties inherent in an appeal of this kind, and the vexatious question of credibility which it often entails, it could prove to be a very risky procedure for taxpayers or their advisors to lean so heavily on the postal system, and to mail documents almost at the last tick of the clock and then attempt to claim immunity from penalty based on some allegation of post office or Revenue Canada inefficiency. I know of very little which should relieve or even lighten the onus on taxpayers to prove "the mailing" however that might be accomplished and it may be very few of these "mailing" cases in which a “wisp of a thread" such as I am prepared to accept here would be sufficient to provide relief to the taxpayer. In my view even modest attention by the appellant to the practical considerations of leaving the preparation and mailing of the cheque to the very last minute would have avoided this entire procedure. There is a simple and direct responsibility imposed on a taxpayer, and, according to the Act, "the taxpayer is liable to a penalty (and interest) on an amount . . . that was unpaid . . .", subsection 162(1). Perhaps it would not be unreasonable for the respondent to expect the taxpayer to take adequate precautions to ensure that he had proof of mailing a cheque or a return, equal to the precautions he would normally take in completing any similar business deal with another party where a possible penalty or liability for failure to comply is imminent. A recent case of this Court, Charles Robert Kennedy v. M.N.R., [1989] 2 C.T.C. 2121 indicates the difficulty involved. An analogy to a mortgage payment might be good practice. The temptation to mail critical documents, without receipt verification, as close to deadline time as possible, is one which taxpayers might be well advised to subordinate to their real self-interest, in assuring that such contests as this matter are avoided, not invited. I am conscious of the similarities between this case and Kennedy, supra, but I would point out that in Kennedy there was no indication of receipt of the original documents at all, whereas in this matter the Department admits to receipt of the $10,000 cheque at least by June 15, 1982. That is the serious defect in the Minister’s assessment, in my view — selecting an arbitrary ten-day mailing limitation, without which unnecessary qualification Mr. Fossen's task would have been substantially greater.

The appeal is allowed and the entire matter is referred back to the respondent for reconsideration and reassessment on the basis that the $10,000 payment at issue was mailed on May 31, 1982. No costs are awarded to the appellant.

Appeal allowed.