Chizuko Shimizu v. Minister of National Revenue, [1972] CTC 2019, 72 DTC 1020

Roland St-Onge:—The issue to be decided in this appeal is whether or not the respondent was justified in the assessing of penalties against the appellant in the amounts of $281.46, $893.86 and $1,098.80 with respect to the taxation years 1965, 1966 and 1967 respectively.

The appellant, with the assistance of her husband, carried on business as a retailer of imported Japanese items (mostly food) and in the course of such business she used the cash register for money received from cash sales across the counter and recorded in a book the credit sales, some of which were paid by cheque after invoicing. Consequently, the cash sales only were registered on the audit tape of the cash register and the credit sales were not rung up. When the banking was done the cash from the cash register and the cheques were deposited together in the sole bank account. From the audit tapes only, the bookkeeper responsible for preparing the tax returns computed periodic sales summaries from which, in turn, he prepared financial statements, and from the latter he prepared the tax returns. Although he was supplied with bank statements for the purpose of making the returns, he did not pick up any discrepancy between the cash register audit tapes and the deposits to the bank account. For the years under appeal the appellant reported the following net income from the business:

Upon investigation, the Minister discovered unreported receipts from charge sales in the following substantial amounts:

At the hearing the appellant did not dispute these figures but contended that she had supplied her bookkeeper with ail the information necessary to enable him to prepare a correct return; that she had only a limited education and very little business experience and therefore could not be expected to check or query the returns prepared by her bookkeeper.

The bookkeeper who prepared the returns for the years 1965 and 1966 was not present to testify at the hearing. An accountant who examined the affairs of the appellant in 1967 testified that the charge sales were not recorded as sales at the time of sale or at the end of the year and that, consequently, they were not reported as income. In his reply to the notice of appeal the respondent stated that he had received a letter dated January 19, 1970, from this accountant which reads in part as follows:

The major portion of the amount to be re-assessed was brought about by the failure of the taxpayer to include in daily cash totals amounts on account of charge sales.

Upon cross-examination, the appellant’s husband testified that he had worked eight years as an invoice clerk before opening the store.

Counsel for the appellant argued that all the money from the till was deposited in the bank; that all necessary information was given to the accountant and that they did not find any discrepancy between the cash sales registered in the till and the bank statements.

For the years under review the appellant did not refer her bookkeeping and the preparation of her income tax returns to an accountant but to a bookkeeper, and consequently cannot claim that she had taken all the necessary steps to see that her income was properly reported. The unreported income for the three consecutive years represented 50% to 79% of the total income from the business and could not, in any way whatsoever, have passed unnoticed by the appellant and especially by her husband who had been employed as an invoice clerk for a company for a period of eight years.

The fact that her bookkeeper did not testify and that the accountant who took over in 1967 stated that the charge sales were not recorded as sales at the time of sale or at the end of the year did not help in this issue. No matter how limited the appellant’s business experience may have been, her suspicions concerning the extent of her income should have been aroused by the fact that the initial equity in the business of only $2,000 had increased to $30,000 after only three years in business. There is no doubt that the appellant was aware of the omissions, and her negligence in not reporting all her income is tantamount to gross negligence.

Counsel for the respondent referred the Board to the following cases: George Ross Carson v MNR, 34 Tax ABC 105; Gerard Doucet v MNR, 42 Tax ABC 214; Robert Harold Cowan v MNR, [1969] Tax ABC 773.

I have read the above jurisprudence and under the circumstances I have no hesitation in following the principles enunciated therein.

For the above reasons, the appeal is dismissed.

Appeal dismissed.