Martineau v. R., [1998] 1 CTC 2468

Watson D.J.T.C. :

This appeal, which was heard under the informal procedure at Sherbrooke, Quebec, on April 24, 1996, concerns the 1990 taxation year.

By notice of reassessment dated October 11, 1994 the Minister of National Revenue (“the Minister”) added a taxable benefit, relating to a trip valued at $8,540, to the appellant’s income for the 1990 taxation year and imposed a penalty of $1,113 in respect of that amount on the appellant under s. 163(2) of the Income Tax Act (“the Art”). Following a notice of objection by the appellant dated November 25, 1994, the Minister issued a notice of reassessment for the 1990 taxation year dated July 21, 1995, which changed only the amount subject to penalty: this was revised to $4,270, reducing the penalty to $547.66 instead of $1,113.

In the reassessments of October 11, 1994 and July 21, 1995 for the 1990 taxation year, the Minister relied on the following allegations of fact:

[TRANSLATION]

(a) during the subject year the appellant was employed by and a shareholder of N.V. Cloutier (“the company”), a Chrysler dealer;

(b) on February 13, 1991 a letter from Chrysler Canada Limited (“Chrysler”) was posted to the appellant in the company’s name, regarding [TRANSLATION] “1990 taxable benefits - Aegean Odyssey”;

(c) the said letter informed the appellant that:

1. his dealership had won the aforementioned trip offered by Chrysler;

ii. the travel award was offered to the dealership, not to an individual;

iii. Chrysler would accordingly not issue any T4 or T4A slips, the

dealership would have to issue the slip in question and it would be advisable to check with your tax adviser to determine the Minister’s position on the matter;

iv. a list indicating the value of the trip, $8,540, the name and

social insurance number of the appellant and the name of his spouse was appended to the letter;

v. a copy of the letter and attachments would be sent to the

Minister;

vi. and that this information would assist in reporting the taxable benefits of dealership employees;

(d) the appellant and his spouse accordingly benefited from a company trip and the company conferred a benefit on the appellant in the amount of $8,540 in 1990, pursuant to ss. 6(1 )(a) and 56(2) of the Income Tax Act (“the Act’);

(e) this benefit was not reported by the appellant in his tax return for the 1990 taxation year;

(f) when filing his tax return for the 1990 taxation year the appellant made a misrepresentation that is attributable to neglect, carelessness or willful default;

(g) the appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of a false statement or omission in the income tax return filed for the 1990 taxation year;

(h) as a consequence of the taxation of this additional employment income the Minister imposed a penalty of $547.66 on the appellant for the 1990 taxation year in accordance with s. 163(2) of the Act.

At the hearing, the Appellant admitted paragraphs a), d), e) and h), denied paragraphs f) and g) and had no knowledge of paragraphs b) and c). The Minister relied on sections 6(1)a), 15(1), 56(2), 152(4» and 163(2) of the Act; the Appellant submitted that section 152(4)c) and 152(3.1) of the Act applied. The Appellant admitted that he omitted to include the value of the trip in his revenue for 1990.

The appeal deals with these two issues:

1) When the Appellant filed his 1990 income tax return, did he make a misrepresentation that is attributable to neglect, carelessness or willful default such that the Minister could have issued a notice of reassessment under subparagraph 152(4)»(i) outside the normal assessment period?

(2) Did the appellant knowingly or under circumstances amounting to gross negligence make a false statement or omission in the tax return which he filed for 1990 such as would justify the imposition of a penalty in accordance with s. 163(2) of the Act?

The Appellant has been operating a successful automobile dealership for many years and he had won trips for which he was issued a T4 slip and included the value of the trip in his income. In 1989, Chrysler Canada Ltd. sent the Appellant program No. 90-25 (in English only) giving details of travel awards for dealerships that met or exceeded their sales objectives for the period of January 2, 1990 to April 10, 1990. Paragraph 4 of the General Stipulations read as follows:

4. Travel awards are made by Chrysler Canada to the winning dealership and not to any individual participant. Since the trip awards are made to the dealership, Chrysler Canada will not issue T4 or T4A information slips. It will be the sole responsibility of the dealership to report any taxable benefit realized as the result of a travel award which is conferred on any individual under these programs that may be required under the Income Tax Act and to issue the requisite T4 and T4A information slips. NOTE: Chrysler Canada will continue to issue T4 and T4A slips for merchandise awards.

The Appellant, in his testimony, acknowledged having received this notice but did not recall having read the complete text, including paragraph 4 set out above.

Chrysler sent a letter dated February 13, 1991 to the Appellant, which stated in part as follows:

[TRANSLATION]

The travel award was offered to the dealership and not to an individual. Chrysler will accordingly issue no T4 or T4A slip. The dealership will be entirely responsible for reporting a taxable benefit conferred on an individual under the program in accordance with the Income Tax Act, and for issuing the necessary T4 or T4A slip.

It might be better to check with your tax adviser to determine Revenue Canada’s position on taxation of an earned trip. It would appear that Revenue Canada considers a trip to be a taxable benefit conferred on the recipient dealership unless the other participant is actively involved in operating the dealership and contributed to earning the trip.

The Appellant testified that this letter was not shown to him until October 1994 when he received the notice of reassessment; his secretary had filed the letter without showing it to him. In his notice of appeal dated October 17, 1995, the Appellant wrote, under the heading “Motifs d’Appel”:

The unreported $8,540 is not the result of willful default on my part or of any fraud whatsoever in filing my tax return for 1990. Unlike previous years in which I received an information slip telling me the amount of the taxable benefit, I received nothing of the kind for 1990. Instead I received a letter from Chrysler Canada about the matter in February 1991 and this letter was overlooked when my tax return was prepared in April 1991. I have always reported taxable benefits in my income for previous years.

The trip received by the Appellant for 1990 was not the first time that he had received such a benefit from Chrysler and he stated that he knew full well that it was to be included as income in his tax return, having always done so in the past.

I have studied the case law submitted to me by both counsel for the Minister and the Appellant.

The Appellant’s original assessment for the 1990 taxation year was dated July 29, 1991; the date of the reassessment was October 11, 1994, beyond the normal delays provided in sub-section 152(4) of the Act.

1) Did the Minister have the right to issue a reassessment after the normal period pursuant to sub-paragraph 152(4)(a)(i) of the Act?

In the case of Nesbitt v. R. (1996), 96 D.T.C. 6045 (Fed. T.D.) , Heald, J. of the Federal Court, referring to the case of Minister of National Revenue v. Foot (1964), 64 D.T.C. 5196 (Can. Ex. Ct.) [aff’d by (1966), 66 D.T.C. 5072 (S.C.C.)], stated at page 6049:

..The Court addressed the issue of what constituted a “misrepresentation” within the meaning of the applicable section at that time [42(4)(a) of the 1948 Income Tax Act, a predecessor to paragraph 152(4)(a)(i)]. It was held that the phrase “any misrepresentation” was synonymous with the expression “incorrect”. It was the submission of counsel for the Defendant that any incorrect statement amounts to a “misrepresentation” as that term is used in paragraph 152(4)(a)(i) supra. I agree with that view of the matter.

In the case of Minister of National Revenue v. Taylor (1961), 61 D.T.C. 1139 (Can. Ex. Ct.), Cameron, J. stated at page 1144:

I have reached the conclusion that the words “any misrepresentation”, as used in the section, must be construed to mean any representation which was false in substance and in fact at the material date, and that it includes both innocent and fraudulent misrepresentation.

Considering all of the circumstances of this appeal, including the testimony, admissions and documentary evidence, I am satisfied that when the Appellant made his 1990 income tax return, he made a misrepresentation that was due to carelessness and neglect (“inattention”) and that the Minister was consequently justified in issuing his reassessment dated October 11, 1994.

2) Penalty

Has the Minister succeeded in his burden of justifying the penalty imposed pursuant to subsection 163(2) of the Act?

In the case of Sigouin c. Ministre du Revenu national No. 90-3339(IT), signed on August 28, 1992, [now reported (1992), 93 D.T.C. 206 (Fr.) (T.C.C.)] Dussault, J.C.C.I. states at page 6:

Before analysing the evidence submitted, the Court must consider the taxpayer’s liability for reporting his income in light of his signature of the return by which he indicated that the information supplied was complete in all respects and disclosed all his income from all sources. In his decision in Girard v. Minister of National Revenue, 89 D.T.C. 60, Chief Judge Couture of this Court analysed the implications for the taxpayer as follows:

For an appellant to avoid liability under the Act when he fails to report income, he cannot simply attribute the omission to circumstances apparently beyond his control and try to place the blame on third parties. When he signs his tax return for a taxation year he also signs the following certificate:

I hereby certify that the information given in this return and in any documents attached is true, correct and complete in every respect and discloses my income from all sources.

This statutory formula appears to me to be quite clear and to require no explanation. When signed by a taxpayer it creates a presumption that the return is correct, based on the fact that the taxpayer was aware of and satisfied with its contents when he signed it. The same is true for all additions that must be completed and filed with the statement without exception, if the circumstances so require.

I do not suggest that the fact that a taxpayer signed such a certificate automatically makes him liable to the penalty mentioned in s 163(2) if he commits any offence in the return. I admit that there are a whole range of circumstances in which he will be entirely free of liability under this subsection; but for him to succeed in persuading the Court that the offence committed by him resulted from independent circumstances beyond his control, and so avoid liability, he must show that in the circumstances he exercised reasonable attention and diligence in preparing and filing his return.

At page 7 of his decision, he further states:

Accordingly, if the appellant did not fail to report rental and interest income “knowingly”, in my opinion the lack of any action on his part constitutes gross negligence within the meaning of s. 163(2) of the Act.

In the circumstances of this case, I am satisfied that the Minister has met his onus of establishing that the penalty imposed pursuant to sub-section 163(2) of the Act in his reassessment dated July 21, 1995 was justified.

Accordingly, the appeal is dismissed.

Appeal dismissed.