Moraes v. R., [1997] 1 CTC 2545 (Informal Procedure)

Rowe D.J.T.C.C.: - The appellant appeals from an assessment of income tax for the 1988 taxation year. In reassessing the appellant the Minister of National Revenue (the “Minister”) added into income the sum of $38,413.50 earned from Tricrane Inc. (Tricrane) and, as a consequence of the unreported income, assessed penalties under subsection 163(2) of the Income Tax Act. The appellant advised that he did not dispute the inclusion of that amount into income but did not agree the imposition of the penalty was justified.

The appellant testified he is an ironworker residing in Vancouver, British Columbia and agreed with the following assumptions of fact relied on by the Minister:

- he was a unionized worker obtaining his employment through the Iron Workers Union;

- in 1988, he obtained work with Tricrane and was paid the sum of $38,413.50 in the 1988 taxation year;

- he did not report that amount of income in his tax return for the 1988 taxation year which was prepared for him by Rozy Lalji of Harold Karo & Co.

The appellant further testified he moved from Vancouver to Toronto in 1987 in order to find work. He returned to Vancouver in October, 1988 and found work which took him out of town. Later on, certain information pertaining to his work arrived but no T4 slip was received from Tricrane. He thought the company would send in a statement of his earnings to Revenue Canada and that he would then be contacted. He stated that he believed income tax had been deducted from each pay cheque issued to him by Tricrane. When his 1988 tax return was being prepared, he stated he told Ms. Lalji that he had no employment details from Tricrane. In 1987, after relocating to Toronto to find work in his area of expertise, which was the erection and dismantling of hammerhead cranes, he had approximately 15 employers in one year. The nature of the work was such that a job might last one week, one month or six months. In Toronto, he was hired through the union hall and he had provided his social insurance number to Tricrane upon reporting for work. He belonged to the Operating Engineers Union and was paid at an hourly rate of $22. There was also a bonus system in place but when he received his cheques there were no stubs or slips showing any deductions that may have been made, including for pension and union dues. Tricrane appeared to be a family owned company and most of the workers and the owners spoke Italian so he did not have a lot of verbal contact with others at the job site. He stated that he thought the tax had actually been deducted.

In cross-examination, the appellant identified his 1988 tax return which was introduced into evidence as Exhibit R-l. He stated that he did not review the numbers when Ms. Lalji prepared the return. He had been working out of town and went to Ms. Lalji’s office to sign the return on April 27, 1990. He agreed that his 1988 tax return was filed one year late. He stated that Ms. Lalji told him that the other income - from Tricrane - should be reported and that he “should put something down about it”. There were three T4 slips included in his return totalling $8,910.88. In 1993, he met with Mr. Bourque of Revenue Canada and during the interview could not immediately recall working for Tricrane. He agreed that the list of cheques (Exhibit R-2) received by him from Tricrane was accurate.

Daniel Bourque testified that he has been employed by Revenue Canada for 17 years and for the past five years has worked as an investigator. He received a referral letter from the Toronto office - Exhibit R-3 - and contacted the appellant for the purpose of conducting an interview on April 2, 1993 at the appellant’s home. Bourque stated he took notes at the interview and transcribed them upon returning to his office. He referred to his notes and stated that at the interview he had the appellant identify himself and then asked him if he had worked in Ontario. The appellant replied that he had worked there in 1987 and also in 1988 but could not recall the name of the company. The appellant’s T1 return for 1988 was handed to him and he looked through it and stated that PCL Construction was his only employer in Ontario during that year and that he had been unemployed a lot. Bourque stated he then produced the list of pay cheques which had been issued to the appellant by Tricrane - Exhibit R-2 - after which the appellant admitted he had worked for that company. The appellant went on to say he did not report the income from Tricrane because he did not have a T4 slip and that he had not told his accountant about it.

The appellant did not have any questions for the witness in cross- examination.

Counsel for the respondent submitted that the Minister should be allowed to reassess the appellant even though three years had passed on the basis the requirements of subsection 152(4) of the Income Tax Act had been met and further submitted the penalties had been properly assessed.

The relevant provision of the Income Tax Act is subsection 152(4) with sub-paragraph (4)(a)(i) applying to this case.

Subject to subsection (5), the Minister may at any time assess tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, and may

(a) at any time, if the taxpayer or person filing the return

(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, ...

reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require, ....

In the case of Johnson v. Minister of National Revenue, [1984] C.T.C. 2242, 84 D.T.C. 1230, the Honourable Judge St-Onge, Tax Court of Canada found that a businessman had been grossly negligent in not reporting one-third of his farming income and that he had the responsibility to gather sufficient material in order to prepare his return. In the within appeal, the appellant neglected to report the amount earned from Tricrane which amounted to over 80% of his income for the year. It is difficult to understand how he could have failed to report this income when he spent the largest part of his time in 1988 - in Toronto - working for this employer. Further, his responses to Bourque were evasive and he did not admit to having worked for Tricrane until he was shown the list of cheques. It is clear that the failure to report the Tricrane income was attributable to neglect, carelessness and wilful default. Therefore, the Minister properly assessed the appellant for his 1988 taxation year.

The next issue is whether the Minister has demonstrated that the imposition of penalties pursuant to subsection 163(2) of the Income Tax Act was justified. The relevant portion of the provision is as follows:

Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this section referred to as a “return”) filed or made in respect of a taxation year as required by or under this Act or a regulation, is liable to a penalty ...

In Howell v. Minister of National Revenue, [1981] C.T.C. 2241, 81 D.T.C. 230 (T.R.B.) , Mr. D.E. Taylor - as he then was - of the Tax Review Board considered the case of a taxpayer who had not reported certain income and, as a result, was facing penalties imposed by the Minister. At

page 2246 (D.T.C. 234) he stated:

The direct testimony of the appellant provided only one significant piece of information in my opinion. The appellant had not only one but two opportunities to review his return. He did not review it - he did not even read it. The grounds noted above upon which the Board could find the imposition of the penalty warranted were in no way moderated by his own testimony, they were in fact exacerbated.

In an appeal where the question of “gross negligence” arises, the responsibility of a taxpayer for the accuracy of his own tax return is not eliminated by engaging a third party to prepare the return. Such professional help may be one point to be considered along with other factors such as the taxpayer’s own conduct, competence and contact in the preparation of the return; the complexity of the return; the practicality of any review; and the extent of such review before filing. These considerations are not all-inclusive, but they are indicative of the objective basis and serious approach he may have taken to that responsibility, and the degree therefore to which any inadequacies therein should reflect upon him. In the instant case the taxpayer failed to do that which a prudent man should have done - faced with a requirement to certify certain facts which were within his own knowledge - he did not review the return at all.

It is clear on the evidence that the appellant did not accept the advice of his accountant to make some notation on his 1988 return to indicate he had earned income from Tricrane in 1988. He was filing his 1989 return at the same time. His explanation that he thought income tax was being deducted by Tricrane throughout his employment period is countered by his testimony that there was nothing produced to him which would lead him to believe deductions were being made. It is not reasonable to accept that he expected Tricrane to report his income to Revenue Canada. He had worked for dozens of employers over the years and in all cases — except for Tricrane — at some point a T4 slip pertaining to income earned at a particular employment would catch up with him. It was usual for him to have T4 slips from several employers within the same year. The omission, from his 1988 tax return, of the income earned by him while working for Tricrane was the result of gross negligence on his part and the imposition of the penalty pursuant to subsection 163(2) of the Income Tax Act has been shown to have been properly imposed.

The appeal is dismissed.

Appeal dismissed.