André Rioux v. Minister of National Revenue, [1979] CTC 2871, 79 DTC 470

Guy Tremblay [TRANSLATION]:—This case was heard at Quebec City, Quebec on April 20, 1979.

1. Point at Issue

The question is whether the respondent was correct in imposing a penalty of 25% as provided in subsection 163(2) of the new Income Tax Act, because the appellant “knowingly, or under circumstances amounting to gross negligence” made an omission in his income for 1976 amounting to $4,265. According to the appellant, this was an oversight because he did not receive the T4.

2. Burden of Proof

The respondent has the burden of proof under subsection 163(3) of the new Act. By that section, the Minister has the burden of “establishing the facts justifying the assessment of the penalty”.

3. Facts

3.01 In 1976 the appellant was working full time for Laiterie Cite Ltée. During the year he earned the sum of $12,194.63 from this employer.

3.02 During the same period, he worked part time for Provifruit Inc, three or four evenings a week for four or five hours each evening. He stopped working on this job in November 1976.

3.03 When the time to make his tax return (the exact time is not indicated in the evidence but it was probably around the end of March), the appellant took an envelope into which his wife had put all the documents relating to tax (T4, TP4, T1, TP1, receipts and so on) and took it to his brother, who would be making up his tax return. Several days later, he went to see his brother and was told where to sign his tax return. The tax return was then posted.

3.04 The Department of National Revenue investigators checked the T4s issued by Provifruit Inc and found that the appellant had omitted to include income entered on this T4, namely $4,265.

3.05 The appellant, however, maintained that at the time he had not received the T4 from Provifruit Inc, simply because it has been sent to his former residence, that is 5090 5E Avenue Est, Apartment 5, Quebec City, Quebec, as appears from the address shown on the T4 (Exhibit 1-1). The appellant moved from this residence in February 1976 and went to live in a family residence at 9165 Avenue Pradier, Charlesbourg, Quebec. The same old address was shown on the T4 issued by Laiterie Cité Ltée, but the T4 which was issued in February or March 1977 in the appellant’s pay envelope. As the appellant did not receive the T4 at his residence he forgot the income from Provifruit Inc.

3.06 In 1976 the appellant claimed a rebate of $109, whereas in 1975 he had had to pay a substantial amount.

4. Act— Case Law—Comments

4.1 Act

The principal section concerned in the case at bar is subsection 163(2) of the new Act. This section reads as follows:

Statements or omissions in return.

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 statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, as a result of which the tax that would have been payable by him for a taxation year if the tax had been assessed on the basis of the information provided in the return, certificate, statement or answer is less than the tax payable by him for the year, is liable to a penalty of 25% of the amount by which the tax that would so have been payable is less than the tax payable by him for the year.

4.2 Case Law

The case law cited by the respondent is as follows:

1. Yves Cloutier v Her Majesty the Queen, [1978] CTC 702; 78 DTC 6486;

2. Antal Susztek v MNR, [1978] CTC 2959; 78 DTC 1690.

4.3 Comments

The essence of the problem is to decide whether the appellant “knowingly, or under circumstances amounting to gross negligence” made an omission of $4,265 earned from Provifruit Inc.

(A) Did the appellant act knowingly?

The evidence before the Board is mainly the appellant’s testimony. According to him, it was an oversight explained by his not receiving the T4, as a result of his change of address. Did the appellant lie in alleging an oversight? The Board saw no clear contradiction in the testimony. The Board cannot in any way assume that the appellant is a liar. If the appellant had Still been employed by Provifruit Inc at the end of March and in early April 1976, his oversight would then have been more difficult to explain; but at that time the appellant had left his employer for over 4 months, namely in November 1975. The oversight may thus be more readily understood.

The Board therefore cannot conclude on the basis of the evidence that the appellant made the omission knowingly.

(B) Did the appellant commit gross negligence?

Counsel for the respondent submitted that by omitting to include $4,265, that is over 23% of his income, the appellant committed gross negligence.

The Board has many times cited the percentage of unreported income as a reason for upholding the penalty provided for in subsection 163(2).

These have primarily been cases of unreported business income. The unreported amount entailed a vast number of omissions during the year as a result of not entering daily sales in accounting records. Substantial amounts were involved, and there was often no accounting record at all.

In the case at bar, there was only one oversight, not a vast number of them.

Counsel for the respondent further submitted that the appellant could not have failed to notice that when he filed his tax return for 1976, he received a rebate of $109, while in 1975 he had had to pay additional tax of $422.73. An argument of this kind has already been used in Cloutier v Her Majesty the Queen (supra). The appellant had omitted to include income of $180,000. The Court stated that this could not be an error of judgment or mere ordinary negligence.

It must be remembered that if the Crown (which had the burden of proof) had proved that for five years the appellant had always paid additional tax, it might then seem strange that he did not ask why he was receiving a rebate. Even then, would that be gross negligence?

The appellant is a salaried employee 24 or 25 years old, and he is definitely not an experienced businessman such as Mr Cloutier was in the aforementioned case, or Mr Antal Susztek in the other case cited above, where he had omitted $16,000 of interest in four years.

There continues to be a strong doubt in my mind, and because of the burden of proof, which rests with the respondent, this doubt must work in the appellant’s favour.

4. Conclusion

The appeal is allowed and the matter referred back to the respondent for re-assessment in accordance with the foregoing reasons for judgment.

Appeal allowed.