Comptois v. R., [1999] 2 CTC 2687

Dussault T.C.J.:

These appeals were heard jointly and partly on common evidence under the Court’s informal procedure.

The male and female appellants (referred to collectively as “the appellants”) are all employees of the Hôtel-Dieu hospital in Montréal (“the hospital”) and members of the Syndicat national des Employés de l’hôpital Hôtel-Dieu de Montréal (“the union”), which is affiliated with the Confederation of National Trade Unions (“the CNTU”).

Between 1992 and 1995 each of the appellants performed duties for the union at one time or another and for the performance thereof received from the union amounts, said to be for [TRANSLATION] “union leave”, in lieu of the regular salary ordinarily paid by the employer. However, no source deductions were made by the union from the amounts so paid and no T-4 information slips issued indicating the amounts paid.

The appellants failed to report the amounts in question and in October 1996, after contacting the union, the Minister of National Revenue (“the Minister”) assessed the unreported amounts, adding not only interest, but also penalties pursuant to s. 163(2) of the Income Tax Act (“the Act’).

The relevant particulars concerning each of the appellants are as follows:

Except in the cases of France Morin and Pierre Daoust, only the penalties are in dispute, on the ground that the failure to report was not due to gross negligence by the appellants. In the cases of those two individuals, the entire assessment for the 1992 taxation year is in dispute on the ground that it was unjustifiably made after the usual reassessment period, since to use the wording of s. 152(4)(«)(i), the misrepresentation was not attributable to neglect, carelessness or wilful default by the appellants. Fraud was not raised in the instant cases.

All the appellants testified, as did Linda Gauvin and Ginette Auger. Alain Lacoste, an appeals officer from Revenue Canada, testified for the respondent.

France Morin was the first to testify. Ms. Morin is a receptionist at the hospital. In 1984 she performed certain union duties for a period of only six months. She was elected vice-president in 1987; she also held the same position from 1992 to 1994. She said that in 1987 the fact that no T-4 was issued for the amounts paid for “union leave” gave rise to questions. However, according to her, after the union was created in the mid-sixties people had been told that these amounts were not taxable as they were a type of [TRANSLATION] “bonus” for work that was often done outside regular working hours.

According to Ms. Morin, it was not until a general meeting of members on April 19, 1993 (Exhibit A-l) that a motion was adopted to regularize [TRANSLATION] “the method of paying for union leave” beginning on July 1, 1993. She said that the question had not been discussed at previous meetings. However, it seems from the minutes of a meeting between the [TRANSLATION] “union executive” and some 30 stewards held on October 24, 1995 (Exhibit A-7) that the point was in fact raised in 1991. On the penultimate page of the document, the first entry under the heading [TRANSLATION] “Revenue Canada” is the following: [TRANSLATION] “1991 Motion general mtg.: no action taken”. Ms. Morin did not testify regarding this document, which was filed later at the hearing by Linda Gauvin. Furthermore, Ms. Gauvin’s explanations regarding this entry were to say the least vague. I will return to this point a little later.

Ms. Morin said she understood from the April 1993 resolution that the money paid by the union had to be reported by the people receiving it, but that it was up to the union to regularize the situation through action to be taken by the then president and treasurer, Pierre Demers and Lise Fréchette. It appeared to be understood that once the situation was regularized by the union and the T-4s issued, the individuals concerned would report the amounts received from the union together and all at the same time.

On July 1, 1993 it was noted that no further action had been taken on the resolution adopted on April 19 of the same year. According to Ms. Morin the members of the “union executive” then resigned in November 1993 and it was Laurent Duguay who became acting president until new elections were held in 1994. Mr. Duguay was then elected president and Neil Fisher treasurer.

The matter came up again at a meeting of the “union executive” held on February 22, 1994. Minutes prepared by Ms. Morin herself (Exhibit A-2) referred to a motion by Mr. Fisher who, based on his analysis, recommended that they wait until December 1994 to [TRANSLATION] “regularize the situation”. The minutes mentioned considerable costs, in the order of $8,000 annually, that would have to be incurred by the union in order to do this. Once again, Ms. Morin’s comment at the hearing was [TRANSLATION] “if the T-4s had been issued we could all have reported it together”.

Ms. Morin admitted that she knew that the amounts received were taxable but added that it would have been necessary to add the cheques received and deduct the amount of certain reimbursements for meals and travel expenses. Nonetheless, she admitted that she undertook a similar accounting exercise, which I would describe as elementary, regarding employment expenses claimed as deductions from income received from the Commission de la santé et de la sécurité du travail (“the CSST”), for which she also performed certain duties.

Denis Comptois is a stretcher-bearer at the hospital. He was a union steward in 1994. Although he was not a member of the “union executive”, his function was to distribute information to members of the union. He said that his first action immediately after being appointed was to request that Mr. Fisher, the treasurer, and Mr. Duguay, the president, issue T-4s. He said the answer he received was that this was [TRANSLATION] “being taken care of” and that he did not have to be concerned with it. Mr. Comptois said that he had already heard about the problem and that the individuals concerned were so insistent on having T-4s that at one stage about 30 stewards confronted the “union executive” demanding that more speedy action be taken. Mr. Comptois admitted that he knew the income had to be reported but that as he always had a T-4 for his salary he expected to get one from the union before reporting the income received for “union leave”. He explained that he trusted the more senior people who were responsible for the matter.

Pierre Daoust works as an electrician at the hospital. He served as vice- president of the union in 1992 and 1995. In 1992 he was responsible for prevention and for occupational health and safety. In that year he was also a member of the parity committee and performed certain review functions for the CSST. He said that in 1995 he only attended meetings of the “union executive” and handled certain matters for the CSST.

Mr. Daoust stated that his understanding of the situation in 1992, when he was receiving cheques from the union with no source deductions, was that the government exempted income from union work, which required long hours and was often done outside regular working hours. Then, referring to the social function performed by unions, he said that in the eighties his understanding was that labour confederations were exempt from tax in much the same way as religious communities, which to some extent made the money received by persons working for them non-taxable.

Mr. Daoust admitted that there were discussions regarding regularization a week, and perhaps even a month, before the general meeting of April 19, 1993. It should be noted that his tax return for 1992 was signed on March 15, 1993.

Regarding the income not reported in 1995, Mr. Daoust mentioned that the “union executive” had already been taking steps to regularize the situation with the government since 1994 or early 1995. He added that implementation was to take a certain time and that T-4s would eventually be issued, even if they were late.

While he admitted having reported rental income even though it was not supported by an information slip, Mr. Daoust stated that he had never attempted to conceal the amounts received but was waiting to report them when he was given a T-4, as is usually done for the payment of salary or interest.

Marcel Martin holds a position as an assistant X-ray technician at the hospital. In 1994 he was on the stewards’ committee and the union’s occupational health and safety committee. He was elected union vice-president in February 1995. He was present at the general meeting of members in April 1993; his understanding of the explanations given by the president, Laurent Duguay, was that the situation was to be regularized by the union and that as soon as this was done everyone would be paying tax, which no one had been doing up to then. Mr. Martin admitted that he had not mentioned the amounts received when his tax return was prepared by a specialized firm and that he had signed it without checking it.

François Deschênes is a linen room attendant at the hospital. In 1994 and 1995 he was a member of the union’s information committee. He admitted that he had received money in lieu of his salary and had also been reimbursed for certain meal expenses. In March 1995, when he was preparing his 1994 tax return, he said he asked the chairperson and another member of his committee whether he should include the money received from the union under “other employment income”, as he had received no T-4 for this purpose. Mr. Deschénes admitted that he knew the money received for “union leave” was in lieu of his salary, but said he was told at the time that he did not have to report it since, if I understood his explanation correctly, it had been paid by a non-profit organization. However, he admitted that there had been some talk at the hospital about the fact that the union was not in compliance by not making source deductions. Mr. Deschênes said he did not remember attending a general meeting at which regularization was discussed. He said that regularization and the fact that the union would eventually be issuing T-4s were probably brought to his attention in 1995, but after he had completed his 1994 return. In short, for 1994 Mr. Deschênes said he relied on the people he had questioned without making any further inquiry.

For 1995, Mr. Deschênes said he was waiting to be issued a T-4 so he could report the amounts received, since he had simply cashed the cheques and had not kept any record of them himself.

Linda Gauvin has been a wardmistress at the hospital since 1989. She has been serving as secretary of the “union executive” since November 24, 1993, except for the period from October 1996 to January 1997. She has also been a member of several committees.

Ms. Gauvin began by explaining that under the collective agreement certain “union leave” was paid for by the employer, which then paid the employee’s regular salary and made the necessary deductions, while other payments were made by the union without making deductions and without issuing T-4s.

Ms. Gauvin admitted that she wrote something on a standard form which he appellants used to file their notices of objection and notices of appeal. This included a statement that several proposals were made at general meetings for the union to regularize its situation [TRANSLATION] “so that union representatives could pay taxes like all workers”. Reference was made to general meetings allegedly held in November 1992, September 1993, August 1995 and May 1996. Ms. Gauvin said that she gave these dates on the basis of information she obtained from individuals who were there at the time. However, she later learned that the dates were not accurate and, on inquiry, she said she found that there was no general meeting in November 1992 or September 1993. In 1993 it was on April 19 that the general meeting was held.

Additionally, referring to the minutes of a meeting of the “union executive” on January 17, 1994 (Exhibit A-5), she acknowledged that the matter was discussed at that time and placed on the agenda of the general meeting of members scheduled for January 26, 1994. Ms. Gauvin said that when she herself questioned treasurer Fisher and president Duguay on the subject at that time, she received the same answers as the others had, namely that the union had been paying the gross salary for a long time, that the regularization process was under way and that once it was completed T-4s would be issued.

Ms. Gauvin further noted that the regularization issue resurfaced at a meeting of the “union executive” on February 14, 1995 (Exhibits A-6 and A-6a). A motion that regularization be effected [TRANSLATION] “as re- solved in 1993” was ruled out of order by president Duguay because the 1995 budget had been adopted and this was likely to entail additional costs.

According to Ms. Gauvin, both in 1994 and in 1995 several people, including herself, asked questions and were told, by the treasurer among others, that discussions were in progress both with the employer and with the governments and that when the situation was regularized T-4s would be issued, even if they were issued later.

In her testimony Ms. Gauvin also mentioned the meeting between the “union executive” and the stewards’ committee on October 24, 1995, which was referred to above (Exhibit A-7). Ms. Gauvin stated that questions about regularization were quite frequent but that people were relying on Mr. Duguay and Mr. Fisher, who both had extensive experience.

The minutes of that meeting, prepared by Ms. Gauvin herself, mention the following under the heading [TRANSLATION] “Revenue Canada”:

[TRANSLATION]

199] Motion general mtg.: no action taken.

1994 Executive report, Motion general mtg. CNTU charges us $10,000 a year to “legalize” us.

1995 Complaint by employee. Meeting with Mr. Beaulieu and Mr. Hurteau (CNTU). No opening.

• 0 fine to union, 0 fine individuals — union to be responsible.

• Rectify situation (regularize).

° 1992, 1993, 1994 amounts paid each year for each person involved in union.

° Revenue Quebec would have to follow ....

Ms. Gauvin’s explanation for the entry [TRANSLATION] “1991 Motion general mtg.: no action taken” was that this was a statement by Mr. Fisher. However, she said, although Mr. Fisher and Mr. Duguay controlled the union both were frequently absent and they did not even attend the general meetings from 1993 to 1997. This comment, undoubtedly made to lessen the impact of the entry, was both vague and surprising since Ms. Gauvin held no union positions before 1993 and at no time mentioned inquiring into what took place in 1991.

At a special general meeting of the members held on May 13, 1996 (Exhibits A-8 and A-8a), Ms. Gauvin herself tabled a resolution that [TRANSLATION] “the situation be regularized as of July 1, 1996”. This motion was adopted and was immediately followed by another, made by Hélène Coderre and seconded by Neil Fisher, which reads as follows:

[TRANSLATION]

That union dues of the membership not be used to pay the income tax of the people being investigated by Revenue Canada and Revenu Québec.

Ms. Gauvin stated that she had been asking for her T-4s for two years and that Mr. Fisher had always give her the same answers. As matters were dragging on, she said she made her motion so as to force Mr. Duguay and Mr. Fisher to act.

The matter was finally resolved on October 22, 1996. The minutes of a meeting of the “union executive” held on that day (Exhibits A-9 and A-9a) refer to an agreement which became effective that very day; according to it, [TRANSLATION] “the employer will pay employees on union leave and will be reimbursed by the union once a month”.

It was also at this meeting that Ms. Gauvin and Ms. Auger handed in their resignations. Ms. Gauvin said that although she originally had confidence in Mr. Duguay and Mr. Fisher, she had subsequently gained some experience and no longer agreed with their methods.

These resignations aroused concerns which resulted in a general election. In January 1997, having put forward a new team against Ms. Duguay (the wife of the outgoing president) and Mr. Fisher, Ms. Auger was elected president of the union and Ms. Gauvin was elected secretary.

The Revenue Canada audit took place in July 1996 and as mentioned above the assessments at issue here were made in October 1996.

Ginette Auger is a records clerk at the hospital. She was a member of the “union executive” from November 1993 to October 1996 and was elected president of the union on January 23, 1997.

Ms. Auger began by saying that she was in agreement with Ms. Gauvin’s testimony regarding the requests made to Mr. Fisher for T-4s. She also mentioned the negative impact of the absence of deductions from “union leave” payments on the pensions of the persons concerned.

As to the actual payments for “union leave”, Ms. Auger said that the cheques were issued every two weeks based on time sheets filled out by each individual. In her submission, it was possible to distinguish money paid for “union leave” from amounts paid as expense reimbursements, since the cheques indicated the nature of the expenses reimbursed, if any (e.g. a breakfast, a lunch, a supper and so on).

Alain Lacoste, a Revenue Canada appeals officer, mentioned inter alia his contacts with Ms. Auger, who represented herself, after he received her Notice of Objection. This notice, like those received from the other appellants, was written in a standard form and indicated that motions for the union to regularize the situation had been made and adopted at general meetings held in November 1992, September 1993, August 1995 and May 1996. Mr. Lacoste concluded that the adoption of these motions necessarily meant that the individuals concerned knew the amounts received were taxable, and that they had thus knowingly failed to report them. According to Mr. Lacoste, Ms. Auger confirmed that requests had been made to the union, and she also sent him a photocopy of the minutes of the general meeting of April 19, 1993 (Exhibit A-1). Mr. Lacoste said he had not asked Ms. Auger for a copy of other documents pertaining to general meetings of the union at which, according to the Notice of Objection, the question of regularization was raised. He also stated that Ms. Auger told him that [TRANSLATION] “everyone” had asked the union to issue T-4s and that they were waiting to receive them before filing their returns.

In Mr. Lacoste’s opinion, it was the personal responsibility of each individual to report the money received if he or she knew these amounts were taxable and he said he was not influenced by the fact that the union had not regularized its situation.

Counsel for the appellants distinguishes the period preceding the general meeting of April 19, 1993 from that following the meeting. In the cases of France Morin and Pierre Daoust, he maintains that the assessments for the 1992 taxation year are not valid as they were made after the usual reassessment period and the respondent has submitted no evidence that there was in the filing of the tax returns for that year any misrepresentation attributable to neglect, carelessness or wilful default within the meaning of s. 152(4)(tf)(i) of the Act. In his submission, the first requirement of s. 152(4)(a)(i) is knowledge that the amounts received had to be reported, but the taxpayers had no such knowledge. He says the fact that people had been told for 30 years that they did not have to report the money received should be taken into account even though certain discussions of the matter may have taken place.

As to the period following the general meeting of April 19, 1993, counsel for the appellants argues that the break with the past did not necessarily happen at once and that some people were not really sure what to do. At the union, they were told that it was once the situation was regularized that they would be reporting. In his submission the appellants gave their leaders, and in particular Mr. Duguay and Mr. Fisher, instructions to regularize the situation. These persons had extensive experience and the appellants relied on them. Further, he says, the appellants never demonstrated antisocial behaviour and never intended not to report the money received. They were simply waiting for the individuals responsible for the matter to regularize the situation and issue T-4s, which they requested several times. Counsel for the appellants argues that the context should also be taken into account, since the union had never undertaken to deduct taxes for over 30 years. Accordingly, he says, it is necessary to understand the tradition and culture of unions, which are based on trust in and solidarity with the responsible leaders. In his submission, if there was gross negligence it should be attributed to those leaders, not the appellants, who in light of their level of knowledge and their inexperience simply acted in accordance with their understanding of the system. Counsel for the appellants also notes the tensions caused by this entire matter within the union, the disquiet resulting from the resignation of Ms. Gauvin and Ms. Auger in October 1996, and their subsequent election with a new team to replace the old leaders.

Accordingly, in light of all these circumstances, the special situation of the appellants, their good faith and their credibility, counsel for the appellants submits that the Court should cancel the penalties. In support of his arguments counsel for the appellants refers to several decisions (see attached list) in which gross negligence was compared with ordinary negligence in light of the particular circumstances of each taxpayer.

According to counsel for the respondent, how the union was operated is irrelevant to determining whether the penalties assessed are justified. He submits that a distinction must be drawn between the regularization of the situation by the union and the filing of a tax return, which is an individual action. In his submission, the appellants’ excuse or defence, which transfers the blame to the union leaders, is not acceptable as it amounts to treating them like children and relieving them of personal responsibility.

Counsel for the respondent argues that it is clear from the repeated requests that the union regularize the situation by making deductions and issuing T-4s that the appellants knew the amounts received, which were also easily identifiable, were employment income and so taxable. Accordingly, the appellants knowingly failed to report the amounts in question; their excuse was that they were waiting for T-4s, but they were unable to show they had done anything whatsoever to ensure that their returns were correct. In substance, counsel for the respondent maintains that the appellants cannot exonerate themselves based on their knowledge by relying on precedents on the negligence of a third party, nor can the personal responsibility resulting from, inter alia, their signatures attesting to the correctness of their returns be avoided on the basis of the union culture.

Concerning the limitation period for the 1992 taxation year in the cases of France Morin and Pierre Daoust, counsel for the respondent argues that these individuals probably knew that the money received was taxable before the general meeting of April 19, 1993. He relies on the testimony of Mr. Daoust, who said it is not only possible but probable that there were discussions prior to the decision taken at that meeting. Furthermore, Ms. Morin said that she made inquiries in 1997 and was told that these were [TRANSLATION] “bonuses”. Counsel for the respondent concludes that there were probably other discussions well before April 1993.

The first salient point in the situation presented by the appellants is that nobody took any initiative whatsoever to inquire outside the restricted circle of the union leaders and stewards into the consequences of their personal situations and the proper course of action to be taken if they were in doubt. It is as if the appellants were living in a world of their own. It may well have been thought in the sixties, seventies or even eighties that the money received by the appellants corresponding to their gross salaries was something other than income which they had to report. However, I do not believe that such a belief still existed at the hospital in 1992. If none of the appellants ever took the matter further or sought information from anyone outside the limited group to which they belonged, it was probably because they knew the answer. The minutes of the meeting between the “union executive” and the stewards on October 24, 1995 (Exhibit A-7) provide us with some evidence of this. As indicated above, under the heading [TRANSLATION] “Revenue Canada” there is on the first line the entry [TRANSLATION] “1991 Motion general mtg.: no action taken”.

The tax returns of Ms. Morin and Mr. Daoust for the 1992 taxation year were filed in March 1993, that is, in the month preceding that in which, at a general meeting of the union, a motion was adopted requiring that the method of payment for “union leave” be regularized as of July 1, 1993. To say that the persons concerned did not know a month earlier that money received for this purpose was taxable is sheer fantasy.

Regularizing the method of payment for “union leave” means not only that the employer must issue T-4 slips attesting to the salaries paid but, first and foremost, that it must comply with the statutory and regulatory provisions regarding source deductions. I think this was no secret to anyone long before the motion was adopted at the general meeting of April 19, 1993.

No one doubts that the union and its leaders were negligent in taking so long, whether for the financial reasons raised by the appellants or for any other reasons, to assume the obligations imposed on all employers. However, that does not eliminate the personal and individual responsibility borne by all taxpayers to ensure that the tax returns they file report all their income. The certification to this effect which a taxpayer must sign on the return itself is designed to remind taxpayers of this obligation under the Act.

In so far as all the persons concerned knew that the union’s procedure was incorrect and that the situation had to be regularized, since they had realized that the money paid for “union leave” was income, it is hard to see how they could have been in good faith when they deliberately refrained from reporting the money received on the ground that T-4s had not been issued. Knowing that the union had never issued any and that this situation was irregular does not mean it can still be argued that they thought it was the issuing of the T-4s rather than the receipt of the money that was determinative.

In light of the facts that no one took any action or even sought information from persons unrelated to the union, and that all the appellants acted in the same way, whether out of solidarity or for other reasons, we are certainly entitled to ask whether they were not collectively hoping they could in this way avoid assessments as long as the union did not perform its own obligations relating to source deductions and to the reporting of income by issuing T-4 information slips.

There is no need to refer to a list of precedents on the concept of gross negligence and extenuating circumstances that should be considered for the purposes of s. 163(2) of the Act when the evidence shows that a taxpayer deliberately failed to report money received that he or she knew to be taxable. The fact that the failure results from being too trusting or from a manifestation of union solidarity does not reduce the individual responsibility imposed on every taxpayer. In the circumstances, to fail to act, to wait or to close one’s eyes is to commit deliberate act. That is precisely what the word “knowingly” used in s. 163(2) of the Act means when the conditions for imposing a penalty are set out as follows: “Every person who, knowingly ... has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return ... is liable to a penalty ....”

As a consequence of the foregoing, the appeals are dismissed.

Appeals dismissed.

Appendix

Cases cited by counsel for the appellants:

¢ Couture v. Minister of National Revenue (1985), 86 D.T.C. 1183 (Eng.), [1986] I C.T.C. 2224 (Eng.) (T.C.C.).

° Venne v. R. (1984), 84 D.T.C. 6247, [1984] C.T.C. 223 (Fed. T.D.).

° Yacoub c. Québec (Sous-ministre du Revenu), [1985] R.D.F.Q. 155 (Que. Prov. Ct.).

° Thibault v. Minister of National Revenue (1977), 78 D.T.C. 1641, [1978] C.T.C. 2876 (T.R.B.).

° Poitras c. Québec (Sous-ministre du Revenu), [1985] R.D.F.Q. 146 (Que. Prov. Ct.).

° Belzile c. Québec (Sous-ministre du Revenu), [1987] R.D.F.Q. 66 (Que. Prov. Ct.).

° Fernstenfeld c. Québec (Sous-ministre du Revenu) 29 mars 1993, C.Q. Montréal 500-02-003722-894 [reported [1993] R.D.F.Q. 86 (C.Q.)].

° Labelle c. R. (1997), 97 D.T.C. 1090 (Fr.), [1998] 1 C.T.C. 2509 (headnote only) (T.C.C.).

¢ Martin v. R. (1996), 97 D.T.C. 487, [1997] I C.T.C. 2005 (T.C.C.).

° Regina Shoppers Mall Ltd. v. R. (1991), 91 D.T.C. 5101, [1991] 1 C.T.C. 297 (Fed. C.A.).

Cases cited by counsel for the respondent:

° Venne, supra.

• Girard v. Minister of National Revenue (1988), 89 D.T.C. 63 (Eng.), [1989] 1 C.T.C. 2138 (T.C.C.).

° Sigouin c. Ministre du Revenu national^ 992), 93 D.T.C. 210 (Eng.), [1993] 2 C.T.C. 2760 (T.C.C.)