Lucien Barbeau v. Minister of National Revenue, [1980] CTC 2196, 80 DTC 1181

Roland St-Onge [TRANSLATION]:—The appeal of Mr Lucien Barbeau came before me on December 4,1979 in Quebec City, Quebec. The point at issue is whether the respondent was justified in imposing penalties on the appellant in respect of his 1973, 1974, and 1975 taxation years.

The facts of this appeal are set out clearly in the following subparagraphs of the reply to the notice of appeal:

5.(a) The appellant is a trucker who during his 1973, 1974 and 1975 taxation years operated a trucking business and a garbage collection business from commercial premises;

(b) In computing his net income for the 1973, 1974 and 1975 taxation years; the appellant reported the following amounts of gross income:

1973	$45,784.03
1974	$53,307.43
1975	$82,262.41

(c) The appellant deducted from these figures the following amounts in respect of current expenses related to the operation of his business:

1973	$41,665.25
1974	$49,190.81
1975	$78,766.41

(d) Included in the amounts claimed by the appellant in respect of current expenses were the following amounts which represented costs of gasoline, oil, diesel, maintenance, repairs and tires:

1973	$18,604.53
1974	$21,974.19
1975	$32,252.82

(e) In the course of auditing the appellant’s income for his 1973 taxation year, the respondent noted that he had failed to include the following amounts in his income:

$11,891.25		Reed Paper Ltd
$	989.62	Constructions du St-Laurent

This amount of $11,891.25 was the largest amount received by the appellant from Read Paper Ltd in 1973.

(f) In the course of auditing the appellant’s expenses for his 1973 taxation year, the respondent noted that the amounts claimed by him in respect of gasoline, oil, diesel, maintenance, repair and tire expenses were greater than the amounts computed from the receipts submitted by the appellant’s suppliers.

$ 7,832.13	Gasoline, oil, diesel
$ 6,366.70	Maintenance and repairs
$ 1,292.10	Tires
$15,490.93

(g) As a result of the audit of the appellant’s income and expenses for his 1973 taxation year the respondent added the following amounts to the appellant’s previously reported net income of $4,999:

$11,891.25

$ 989.62

$ 3,114.00

$15,995.00

(h) In the course of auditing the appellant’s income for his 1974 taxation year, the respondent noted that he had failed to include the following amounts in his income:

$5,726.63	Eastern Waste Paper Ltd
$2,987.48	Other unreported income (income reconciliation)

(i) In the course of auditing the appellant’s expenses for his 1974 taxation year, the respondent noted that the amounts claimed by him in respect of gasoline, oil, diesel, maintenance, repair and tire expenses were less than the amounts computed from the receipts submitted by the appellant’s suppliers. The respondent therefore increased the expenses initially claimed by the appellant.

$10,326.42	Gasoline, oil, diesel
$12,126.96	Maintenance and repairs
$ 3,102.37	Tires

(j) As a result of the audit of the appellant’s income and expenses for his 1974 taxation year, the respondent added the following amounts to the appellant’s previously reported net income of $6,455:

$5,726.63

$2,987.48

($3,582.00)

$5,132.11

(k) In the course of auditing the appellant’s income for his 1975 taxation year, the respondent noted that he had failed to include the following amounts in his income:

$3,998.05	Eastern Waste Paper Ltd
($2,443.72)	Income reconciliation
$1,554.33

(l) In the course of auditing the appellant’s expenses for his 1975 taxation year, the respondent noted that the amounts claimed by him in respect of gasoline, oil, diesel, maintenance, repair and tire expenses were greater than the amounts computed from the receipts submitted by the appellant’s suppliers.

$ 9,867.26	Gasoline, oil, diesel
$12,543.88	Maintenance and repairs
$ 3,896.25	Tires

The respondent also noted that the amounts claimed by the appellant for dumping expenses were greater than the amounts computed from receipts submitted by the municipality of Lac St-Charles, the operator of the dump.

$5,500	Expenses claimed
$1,287	Vouchers
$1,500	Expenses allowed
$4,000	Difference

(m) As a result of the audit of the appellant’s income and expense for his 1975 taxation year, the respondent added the following amounts to the appellant’s previously reported total income of $7,500:

$ 1,554.33

$ 4,000.00

$ 5,945.61

$11,499.94

(n) During the taxation years in question, the appellant had maintained no accounting records of his business income and expenses.

(o) During the taxation years in question, the appellant employed Laberge and Vaillancourt of Quebec City, a firm of chartered accountants, to prepare and complete his tax returns; this firm’s mandate did not, however, include the auditing of the information supplied by the appellant; this is confirmed by the accountants’ comments attached to the income and expense statement:

“Accountants” Comments

The above accounting statement has not been audited. It was prepared solely on the basis of information supplied to us by the taxpayer in order to enable us to prepare his tax returns.

(p) As shown by the following schedule, the difference between the income reported by the appellant for his 1973, 1974, and 1975 taxation years and the income later assessed by the respondent is substantial:

	Income	Income
	Reported	Assessed	Difference
1973	$4,999.00	$20,994.00	$15,995.00
1974	$6,455.00	$11,587.11	$ 5,132.11
1975	$7,500.00	$18,999.94	$11,499.94

In my view, the respondent has proved all the statements made in his reply to the notice of appeal. Further, the evidence showed that the appellant paid no tax before 1973, that he paid no tax for the years in question and that the amounts of income reported are small by comparison with the substantial unreported income.

Moreover, the appellant’s evidence did not impress me and his attitude to his method of accounting for his income was so careless that it amounts to gross negligence in the performance of the duty imposed on him by the Income Tax Act to report all his income.

Counsel for the appellant stated that the appellant was not a businessman; I doubt the accuracy of that statement. He may not be an educated man but the evidence showed that he was a successful businessman. Mr Yvon Bélanger, the bank manager who prepared his personal balance sheet, stated that he was a substantial customer; he is, therefore, a man who has probably done well in business. There are many taxpayers who, because they lack formal education, have a duty to engage an accountant, not only to prepare their tax returns, but to keep their books and check their invoices. In this case, however, the evidence showed that Mr A Dion, the accountant who prepared the pay statements every month, had on several occasions unsuccessfully asked to see the invoices and then advised the appellant’s wife that a higher standard of bookkeeping was desirable. The appellant alone may therefore be held responsible for his negligence.

The Board often hears similar cases in which the evidence shows that the appellant failed to report a particular amount in a taxation year. The situation in this case is much more serious. The appellant filed no tax returns before 1973. In the years under appeal, he did not follow the advice of his accountant, refused to let him have the invoices and advised him of a figure of income just sufficient to involve no tax liability. The evidence is too overwhelming to allow him the benefit of the doubt.

In the circumstances, I have no alternative but to decide that the appellant was too negligent in his method of reporting his income, that this amounts to gross negligence within the meaning of section 163 of the /n- come Tax Act and that the respondent was correct in applying section 163 of the Act and imposing penalties for the taxation years in question.

The appeal is therefore dismissed.

Appeal dismissed.