Margaret Copland v. Minister of National Revenue, [1980] CTC 2699, 80 DTC 1618

D E Taylor:—This is an appeal heard in Toronto, Ontario, on June 24, 1980, against the imposition of a penalty on an income tax assessment for the year 1977. The assessment related to an amount of $5,037.58 on account of RRSP withdrawals from Canada Permanent Trust Company (“Permanent”) for which T4RSP forms, one in the amount of $4,047.58, the other for $990, had been issued. This amount was not included as income in the income tax return signed by the taxpayer. The income tax assessed was not disputed, only the penalty in the amount of $397.38 levied thereon was at issue. In assessing, the respondent relied, inter alia, upon sections 3,146(8) and 163(2) of the Income Tax Act, SC 1970-71-72, c 63, as amended, and upon section 17 of the Income Tax Act of Ontario.

Contentions

The appeal (on a Notice of Objection form) filed by the appellant’s authorized agent, H&R Block Inc, 3045 Hurontario Street, Mississauga, Ontario, L5A 2G9, on August 22, 1979, provided the following information:

STATEMENT OF FACTS AND REASONS

Statement of Facts and Reasons are contained on attached sheets.

Also included are copies of the assessment notice, and the withdrawal letter received from H Hutchinson of Appeals Division (Hamilton DTO), which we decided against using.

This penalty was assessed under section 163(2) of the Income Tax Act. Master Tax Guides’ reference to that section, 11,270(2) states “It has been held that the gross negligence of an accountant was not attributable to the taxpayer’’.

Registrar of the Tax Review Board,

Kent Professional Building,

381 Kent Street,

Ottawa, Canada

K1A 0M1

STATEMENT OF FACTS AND REASONS

Regarding the closure and subsequent withdrawal of her Registered Retirement Savings Plan (RRSP), the assessment notice dated October 20, 1978 includes a provincial penalty of $138.91 assessed under section 17 of the Act, and a federal penalty of $258.47 assessed under section 163(2) of the Income Tax Act.

Section 163(2) refers to a person who knowingly prepares a false return. Mrs Copland’s intent was not to file an incorrect or fraudlent (sic) return. She attended our H&R BLOCK office on April 29th of 1978. She informed our representative, at this time, of her RRSP closure and withdrawl (sic) and produced a receipt showing the amount withdrawn. The receipt produced was not the official receipt for income tax purposes (T4RSP), but was a temporary slip issued upon the initial withdrawl (s/c).

The BLOCK representative in question was only with our firm a short time and was not entirely acquainted in the finer points of the Act. Therefore, when Mrs Copland left the office she was of the understanding that the amount could not be claimed without a proper receipt and that she could take one of two choices. She could either send in the amount of withdrawl (sic) in an adjustment letter to the DNR once she received the proper receipt or she would wait for the assessment notice to arrive and see that the DNR had included the correct amount of monies withdrawn from the RRSP and compute the taxes payable.

Mrs Copeland (sic) received a letter from the Revenue department in September 1978 asking for information concerning the closure and withdrawl (sic) of the RRSP Mrs Copland prompity (sic) sent a letter of explanation back to the department, which included all of the above mentioned facts. The original letter sent was returned at this time.

Upon filing her 1977 income tax return, Mrs Copland was expecting the Revenue department would include the amount of RRSP withdrawn and that they would subsequently compute the tax liability on this amount. Mrs Copland did not intend to commit any type of fraudlent (sic) act concerning her total income in 1977 or more specifically her RRSP withdrawl (sic), and for these reasons we would like to request the penalties be waived in this case.

I have read the preceding information and agree that the information is true and correct in all respects.

Dated	May 15	1979	(Sgd) Mrs Margaret M Copland
			Mrs Margaret M Copland
Dated	May 15	1979	(Signature) William L
			Mr William Langdon
			District Manager
			H&R BLOCK, INC

Evidence

Counsel for the Minister accepted the responsibility for supporting the penalty, and the Board agrees with this in view of the fact that the taxpayer was not contesting the basis of the assessment of income tax itself. Miss

Osier, an officer of Revenue Canada, filed with the Board (no objection was raised by the appellant’s agent) a copy of a letter (Exhibit R-1) which read as follows:

As per our telephone conversations, this letter is to confirm that Retirement Savings Plan # 077617 was redeemed as at January 1977, at which time, a T4RSP was issued to Margaret Copeland for the amount of $990. As well, Retirement Savings Plan # 077649 was redeemed as at March 1,1977 and issued a T4RSP for $4,047.58.

Should you have any further inquiries, please do not hesitate to contact this office.

Yours truly,

(Sgd) P Yama

Patricia Yama

Customer Services Administrator

Retirement Savings & Fund Services

/py

In addition, Miss Osier filed a copy of the taxpayer’s 1976 income tax return in which had been included as income an amount of $495 similar to the amount in question in this appeal.

The agent for the appellant requested that Miss Osier confirm that the 1976 income tax return did not appear to contain any indication that the tax- payer had received assistance in the preparation of her return. The 1977 income tax return did indicate such assistance from Block. The agent for the appellant called no evidence, and the appellant did not take the stand.

Argument

Counsel for the respondent pointed out that the inclusion of a similar amount in 1976, together with the issue of the relevant redemption receipts by Permanent very early in 1977, demonstrated that the appellant had “knowingly” left the amounts out of her 1977 reported income, or was “grossly negligent” in so doing, thereby improperly relying upon Revenue Canada to catch the error and make the corrections. Two cases were cited by counsel as support for the position that the fault of a taxpayer’s accountant could not absolve the taxpayer himself of such a charge:

John P Bigras v MNR, [1971] Tax ABC 256; 71 DTC 195;

Sylvester Brygman v MNR, [1979] CTC 3117; 79 DTC 858.

Reference was also made to the case of D M Weeks v MNR, [1970] Tax ABC 633; 70 DTC 1431, (Minister’s appeal dismissed: [1973] CTC 60; 72 DTC 6001).

The agent for the appellant offered no argument or references.

Findings

Counsel for the Minister placed considerable weight on Bigras and Brygman (supra) to make a point that any alleged negligence of the accountant should not absolve the appellant of his own responsibility. With that I agree. However, in both Bigras and Brygman, the taxpayers themselves, either knowingly or through “gross negligence”, participated in the transactions underlying the imposition of the penalties. From Bigras (supra), for example, at pages 261 and 198 respectively:

This taxpayer has shown a lack of seriousness and complete disrespect for statutory authority by not reporting, on time, his income from all sources in accordance with Section 5 of the Income Tax Act. His course of conduct exhibited a carelessness which was tantamount to gross negligence. According to his own admission, he knew that it was his duty to report his rental income as well as the gain from his personal real estate transactions, but he failed to do so within the time prescribed. As he was on the cash-basis method, his taxation year ended on December 31, 1966, thereby giving him four months in which to prepare his tax return. When he did file a return on April 30, 1967 (the last day for filing) he reported only two-thirds of his income, leaving approximately $6,000 unreported. This showed a lack of diligence on his part and he had no reason whatsoever to try to shift the onus of responsibility to his accountant.

And from Brygman (supra) at pages 3119 and 860 respectively:

In auditing the appellant’s books, Mr Tunstall found serious discrepancies between the information contained in the appellant’s records and the figures used in the appellant’s tax returns, as more particularly set out in paragraphs 6 to 11 of the Minister’s Reply. In questioning the appellant of the considerable differences between the records and his tax returns, the appellant was unable to provide any explanation and shrugged off the question.

In both Bigras and Brygman (supra), the appellants attempted to shift the responsibility for their own actions to the respective accountants, a tactic properly rejected by my learned colleagues.

In this appeal, the particular amounts of income (and there were two of them) were not included, there was no reference whatsoever in the tax return to any reason (lack of receipt or whatever) which allegedly prevented doing so at that time. I am satisfied that the appellant understood that they were not reported when she signed her income tax return, and that she was fully aware of the reduced income tax liability which resulted from their omission. In my view, that clearly fits within the parameters covered by the term “knowingly” in the relevant section of the Act. As Mr Cardin so aptly put the issue in Brygman (supra) at pages 3121 and 861 respectively:

What is wrong here is the belief that once a taxpayer has retained an accountant, he can no longer be held responsible for inaccuracies or omissions in his tax returns.

If the proven “inaccuracies or omissions” by the taxpayer as they affect the Minister of National Revenue, are of such a nature that they fall within the penalty provisions of the Act, then redemption or relief may not be found by enjoining therein third party advisers. The acknowledged participation of H&R Block for compensation in the preparation of the relevant income tax return, which now results in a penalty imposition against the taxpayer, isa separate matter between those two parties, and the Board makes no further comment thereon.

The situation in this appeal is markedly different from those in the cases of Michael S Mark, [1978] CTC 2262; 78 DTC 1205, Columbia Enterprises Ltd, [1978] CTC 3082; 78 DTC 1783, or Reginald Snelgrove, [1979] CTC 2938; 79 DTC 781, in which the evidence to support a charge of negligence or even participation on the part of the respective taxpayers themselves was slim indeed, let alone any implication that such involvement could be characterized as “knowingly” or the result as “gross negligence”.

Decision

The appeal is dismissed.

Appeal dismissed.