Roland
St-Onge
[TRANSLATION]
(orally
November
1,
1977):—The
appeal
of
Mr
Simon
Thibault
came
before
me
on
November
1,
1977
in
Montreal,
Quebec,
and
is
against
penalties
levied
pursuant
to
the
provisions
of
subsection
56(2)
of
the
old
Act
and
subsection
163(2)
of
the
new
Income
Tax
Act
in
respect
of
the
1971,
1972
and
1973
taxation
years.
The
respondent
contends
that,
in
respect
of
1971,
the
appellant
reported
income
in
the
amount
of
$4,886.91
and
did
not
disclose
$23,765.64;
in
respect
of
1972,
he
reported
$3,780.27
and
did
not
disclose
$10,601.49;
in
respect
of
1973,
he
reported
$13,303.58
and
did
not
disclose
$8,590.95;
thus,
he
did
not
disclose
/s
of
his
income
for
1971,
a
little
over
one-half
for
1972
and
almost
one-third
for
1973.
The
penalties
are
$1,135.67,
$411.92
and
$473.52
for
1971,
1972
and
1973
respectively.
The
respondent
claims
that
the
appellant
committed
gross
negligence
in
failing
to
report
such
substantial
amounts
of
income,
and
thus
participated
in
a
serious
omission
resulting
in
lower
taxes
for
the
years
in
question.
The
appellant
maintains
that
he
entrusted
expert
accountants
with
the
preparation
of
his
tax
returns
and
the
relevant
financial
statements,
and
that
he
neither
contributed
to
nor
participated
in
any
wilful
failure
to
report
income
or
pay
tax.
The
Board
must
decide
whether
the
appellant
was
negligent
in
dealing
with
his
accountants.
Mrs
Raymond,
who
was
a
field
auditor
in
1971,
received
Mr
Thibault’s
file
for
auditing.
Upon
telephoning
him,
she
was
referred
to
his
bookkeeper,
a
Mr
Casey.
The
following
documents
were
missing
at
her
first
meeting
with
him:
adjusting
entries,
accounts
payable
and
accounts
receivable
books,
inventories,
sales
invoices,
and
supporting
documents
for
expenses.
When
Mrs
Raymond
examined
these
documents
shortly
afterward,
she
discovered
that
no
income
had
been
reported
for
December
1973.
Study
of
the
cash
receipts
and
disbursements
journal
and
wages
account
revealed
that
the
entries
were
not
complete
for
the
years
in
question.
Since
a
number
of
documents
as
well
as
invoices
were
missing,
Mrs
Raymond
was
compelled
to
proceed
by
what
is
known
as
the
Capital
reconciliation
method.
she
arrived
at
the
figures
I
mentioned
at
the
outset,
which
were
accepted
by
the
taxpayer.
At
the
hearing,
Mr
Simon
Thibault,
a
garage
owner,
testified
that
he
had
deposited
all
his
receipts
in
the
bank
and
had
paid
all
his
expenses
by
cheque.
If
the
taxpayer
had
proceeded
in
the
manner
he
described
to
the
Court,
the
Department
of
National
Revenue,
Taxation
employees
would
have
been
able
to
determine
his
income
quite
easily,
without
having
to
resort
to
the
capital
reconciliation
method.
The
appellant
further
testified
that
he
had
not
been
negligent
since
he
had
entrusted
everything
to
his
bookkeeper,
Mr
Casey.
The
evidence
showed
that
the
appellant’s
accounting
was
very
poor,
that
many
supporting
documents
were
missing,
and
that
the
appellant
had
not
given
his
bookkeeper
all
the
information
needed
for
the
preparation
of
his
income
tax
returns.
A
taxpayer
cannot
escape
penalty
merely
by
telling
the
Board
that
he
entrusted
everything
to
his
accountant
and
that
any
gross
negligence
must
have
been
committed
by
him.
It
is
difficult
to
see
how
the
appellant
was
not
negligent,
since
he
signed
income
tax
returns
reporting
incomes
substantially
less
than
those
he
agreed
to
pay
after
Mrs
Raymond’s
investigation.
Even
though
the
appellant
entrusted
the
preparation
of
his
returns
to
an
accountant,
the
low
incomes
reported
were
such
as
to
attract
his
notice.
Thus,
his
negligence
is
gross
because
he
reported
incomes
that
were
substantially
less
than
those
he
had
earned,
and
also
because
he
operated
his
business
while
failing
to
keep
all
the
documents
needed
for
the
preparation
of
his
income
tax
returns.
For
these
reasons,
I
must
dismiss
the
appeal.
Appeal
dismissed.
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