Citation: 2008TCC88
Date: 20080207
Docket: 2006-2346(IT)G
BETWEEN:
DIANE SÉGUIN BOYER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J.
[1]
The Appellant is appealing
from an assessment made under the Income Tax Act (ITA) by the
Minister of National Revenue ("the Minister") in respect of the
2000 taxation year.
[2]
In the Minister's
initial assessment, dated July 23, 2001, the Appellant's total income
was determined to be $35,625, the same amount that she reported on her income
tax return. This income consisted of $15,000 in employment income, $9,489 in
taxable dividends, $715 in interest income, and $10,422 in taxable capital
gains (based on $15,933 in capital gains).
[3]
On December 29, 2004, the Minister issued a reassessment for the year
2000, in order to add $168,283 in taxable capital gains (approximately
two-thirds of $252,556, consisting of $253,605 in unreported capital gains
minus $1,049 in capital losses) and impose a penalty of $20,862.12 under
subsection 163(2) of the ITA. This reassessment was made beyond the
normal reassessment period on the basis of subsection 152(4) of the ITA.
The Minister submits that subsection 152(4) applies because the
Appellant made a misrepresentation of fact attributable to neglect,
carelessness or wilful default by failing to report $252,556 in net capital
gains.
[4]
The Appellant is not
contesting the taxation of the unreported capital gains. However, she submits
that the Minister was time‑barred from issuing a reassessment beyond the
normal reassessment period because the Appellant made no misrepresentation
attributable to neglect, carelessness or wilful default within the meaning of subsection 152(4)
of the ITA. The Appellant also contests the imposition of the penalty under
subsection 163(2) of the ITA.
[5]
The parties admit that
the Respondent bears the burden of proving, on a balance of probabilities, that
the Minister was justified in relying on subsections 152(4) and 163(2) of the
ITA to make the reassessment of December 29, 2004, which is under
appeal in the instant case.
[6]
In order to make the
reassessment in issue, the Minister relied on the facts alleged in paragraphs 21
and 22 of the Reply to the Notice of Appeal, which read:
[TRANSLATION]
21. In making and confirming the reassessment
in issue, the Minister relied on the same facts, namely:
(a) During the period from January 27, 2000,
to February 22, 2000,
the Appellant incurred a capital loss of $1,049 resulting from the sale of
the securities described below:
|
Description of security
|
Number of units
|
Adjusted cost base
|
Proceeds of
disposition
|
Gain
(Loss)
|
|
Royal Dividend Fund
|
244
|
$5,368
|
$5,164
|
($204)
|
|
Sweig Global Balanced Fund
|
366
|
$5,028
|
$5,008
|
($20)
|
|
Royal Dividend Fund
|
236
|
$5,193
|
$5,000
|
($193)
|
|
Sweig Global Balanced
Fund
|
366
|
$5,028
|
$5,000
|
($28)
|
|
Motion International Inc.
|
1200
|
$6,360
|
$5,928
|
($432)
|
|
Motion International Inc.
|
200
|
$1,060
|
$959
|
($101)
|
|
Motion International Inc.
|
100
|
$530
|
$459
|
($71)
|
(b) The Appellant's deductible capital loss in
respect of the transactions listed above in subparagraph (a) was $787.
(c) During the period from March 6, 2000, to March 23, 2000, the Appellant realized a $253,605
capital gain resulting from the sale of the securities described below:
|
Description of securities
|
Number of shares
|
Adjusted cost base
|
Proceeds of
disposition
|
Gain
(Loss)
|
|
BCE Emergis Inc.
|
1,000
|
$11,214
|
$153,159
|
$141,945
|
|
BCE Emergis Inc.
|
500
|
$5,607
|
$59,937
|
$54,330
|
|
BCE Emergis Inc.
|
500
|
$5,607
|
$62,937
|
$57,330
|
(d) The Appellant's taxable capital gains from
the transactions listed in subparagraph (c) above amount to $169,070.
(e) The Appellant realized a taxable capital
gain of $168,283 from the transactions listed above in subparagraphs (a) and
(c).
(f) The Appellant did not report the taxable
capital gain of $168,283 in her 2000 income tax return.
(g) This $168,283 taxable capital gain was not
included in the Appellant's income in the initial assessment of July 23, 2001.
22. In imposing and confirming the penalty
under subsection 163(2) of the Act and in making the reassessment in issue
beyond the normal reassessment period, the Minister took the following facts
into account:
(a) The facts set out in paragraph 21 above.
(b) At $303,551, the proceeds of disposition
from the sale of the securities described in subparagraphs 21(a) and 21(c) above
represent a significant and considerable amount for the Appellant.
(c) At $252,556, the net capital gain realized
from the sale of the securities described in subparagraphs 21(a) and 21(c)
above represents a significant and considerable gain for the Appellant.
(d) It was clear to the Appellant, upon
signing her 2000 income tax return, that her $252,556 net capital gain had not been
reported.
(e) In 2000 and 2001, the Appellant's spouse
was a chartered accountant.
[7]
The Appellant and her
spouse Claude Boyer testified at the hearing.
[8]
The Appellant is an
accounting secretary. She has a diploma in administration. Her husband has been
a chartered accountant since 1975. He is primarily involved in corporate
accounting. He does not work on individual income tax returns. He and the
Appellant entrust the preparation of their tax returns to Johanne Bélec, who
works in a nominal partnership with Mr. Boyer.
[9]
The Appellant always
entrusted her personal investments to Mr. Demontigny, her broker at the
Royal Bank. In 1998, she sold the family residence, which was under her name.
On the advice of a couple of friends who bought and sold securities regularly,
she invested some of the proceeds of disposition in the stock market.
Her broker suggested that she register personally for an Action Direct
account with the Royal Bank, and she did so. She was the only person who could
do transactions on this account, for which she had a confidential number. She
used the account to purchase the shares of BCE Emergis Inc., which she disposed
of in 2000, thereby realizing the capital gain in issue.
[10]
The Appellant explained
that in 2000, owing to the prevailing stock market volatility, her friends
suggested that she sell. Consequently, she phoned Action Direct on March 6, 2000, and instructed them to sell 1000 shares of
BCE Emergis Inc. On March 17, 2000, just before leaving for Cuba, she called back Action Direct and told them to
sell 500 more shares of BCE Emergis Inc. She came back early from Cuba on March 24, 2000, following the death of her father‑in‑law.
Upon her return, she checked with Action Direct to ensure that her instruction
to sell the 500 shares had been carried out. This is when she learned
that, in addition to 500 shares sold on March 22, 2000, a further
500 shares of the company had been sold on March 23, 2000. Since
she never instructed anyone to sell the last 500 shares, she asked that the
transaction be cancelled, but was told that this would be impossible.
She made a $57,330 profit on that transaction. She therefore gave
instructions to buy another 500 shares of BCE Emergis Inc. with the
proceeds from the sale of the last transaction, and this was done on March 30, 2000. As for the proceeds of the first two sale
transactions (1500 shares of BCE Emergis), she had them deposited in her
Royal Bank investment fund, which was managed by Mr. Demontigny, her
broker.
[11]
Since Mr. Demontigny
did transactions on her investment account regularly, the Appellant did not
think that the profit realized on the sale of her BCE Emergis Inc.
shares was taxable. She thought that if the money was reinvested in her
portfolio with the other investments, she did not need to report anything to
the tax authorities.
[12]
This is why she did not
tell Ms. Bélec, her accountant, about the Action Direct securities transactions
at the time that her tax return was being prepared. However, she gave
Ms. Bélec all the slips received from financial institutions in connection
with her other investment income. This was the first year that she traded on the
stock market unaided. She had no experience in the field. Her broker did
not tell her that she had to report any capital gains realized through Action
Direct.
[13]
She herself did not see
fit to talk to her accountant or her husband, a chartered accountant, about
this. It appears that even though she and her husband have been married for 35
years, they never talk to each other about their personal investments, and they
raise their daughters in this context. They married separate as to property,
and have separate bank accounts. They never talk business with each other.
[14]
When signing her 2000
income tax return, the Appellant met with Ms. Bélec. Although the return
reports a $10,000 taxable capital gain that has nothing to do with the shares
of BCE Emergis Inc., the Appellant says that she did not know what a capital
gain was, and that she never asked her accountant. Yet this $10,000 gain represented
close to a third of her total income.
[15]
In December 2003, she
got a call from the Ministère du Revenu du Québec (MRQ) notifying her that the
capital gain from the shares of BCE Emergis Inc. had not been reported. On the
recommendation of the MRQ's employee, she wrote a letter explaining what
happened and attached a $25,000 cheque. She did not talk to her husband about
this. She received a notice of assessment from the MRQ in April 2004
claiming an additional $27,000, which she paid forthwith. The MRQ
assessment did not include any penalty. Following that assessment, she spoke to
the MRQ again. She allegedly asked them what she had to do with respect to her
federal taxes. She was supposedly told that the MRQ was taking the
necessary steps and that she would be hearing from the federal government. This
time, she spoke to her husband, who told her the same thing. She did not talk
to her accountant or her broker. It was only on
October 18, 2004, that she received a letter from the Canada Revenue
Agency (CRA). The reassessment, dated
December 29, 2004, included a penalty.
[16]
In order to establish
that it has the power to reassess beyond the normal reassessment period under
subsection 152(4) of the ITA, the Minister must first show that the Appellant
made a misrepresentation. This has been shown because the Appellant
acknowledges that the capital gains in question were not included in her income
tax return. Secondly, the Minister must show that the
misrepresentation was attributable to the Appellant's neglect, carelessness or
wilful default in reporting the capital gains in question. Neglect is
established if it is shown that the Appellant did not exercise reasonable care (see Venne
v. Canada (Minister of National Revenue – M.N.R.), [1984] F.C.J. No. 314
(QL), at page 6). In my opinion, the Appellant was certainly neglectful, or at
least careless, in that she did not inquire about the tax consequences of her
stock trades. It is true that she received tax slips in connection with her
other investments. However, a modicum of care would have been sufficient for
her to realize that a profit from the sale of shares could also give rise to a
tax liability. She signed her income tax return (which reported more investment
income than employment income) and had it explained to her. Even if she thought
the reinvested money was not taxable, she should at least have asked her
accountant or broker whether it was. Indeed, she received tax slips indicating
investment income that she had to report in her tax return. But this money was
always reinvested by her broker. If those amounts were taxable, why not her
capital gains from her shares?
[17]
In my opinion, the
evidence is amply sufficient to show that there was a misrepresentation
attributable to neglect, carelessness or wilful default and that the Minister
was justified in reassessing on the basis of subsection 152(4) of the ITA.
[18]
As for the penalty imposed
under subsection 163(2), the Respondent must prove that the Appellant
knowingly, or in circumstances amounting to gross negligence, omitted to report
the capital gains in question.
[19]
Gross negligence must
be interpreted to mean greater neglect than simply a failure to use reasonable
care. It must involve a high degree of negligence tantamount to intentional
acting, an indifference as to whether the law is complied with or not (see Venne,
supra, at page 11).
[20]
In Chabot v. Canada,
2001 FCA 383, Décary J.A. of the Federal Court of Appeal stated as follows
at paragraph 18:
Also relevant
are the comments made by Marceau and Strayer JJ. (as they then were), in Cloutier
v. The Queen, 78 D.T.C. 6485, at page 6487, and in Venne (supra,
paragraph 16) at page 6256:
The question
before the Court is whether the circumstances in which the omission occurred
are such that gross negligence may be attributed to the taxpayer: "gross
negligence" being taken to mean a relatively serious act of negligence,
which is difficult to explain and socially inadmissible. The factual
circumstances in themselves do not present a problem, they are all established;
it is the way in which they should be regarded which is at issue, namely, what
can be deduced from them concerning the acts of plaintiff which are at issue.
This is not a question of fact in the sense of a question regarding an earlier
factual circumstance or an event which took place at an earlier point in time,
but a question of legal appraisal and judgment on the actions, which is not
subject to proof but depends on the personal conviction of the individual
making the decision. (Marceau J.)
"Gross negligence"
must be taken to involve greater neglect than simply a failure to use
reasonable care. It must involve a high degree of negligence tantamount to
intentional acting, an indifference as to whether the law is complied with
or not. (Strayer J.)
[21]
That is the legal
appraisal of the taxpayer's conduct that must be done for the purposes of
imposing a penalty. Counsel for the Appellant cited Savard v. Canada,
[2002] T.C.J. No. 646 (QL),
for the proposition that subsection 163(2) requires a wrongful intent. In Canada (Attorney
General) v. Villeneuve, 2004 FCA 20, at paragraph 6, the Federal
Court of Appeal stated that wrongful intent can be established by evidence of
wilful blindness. Although the wrongdoer in such a case does not have actual
knowledge of the alleged ingredient, he or she will be deemed to have such
knowledge.
[22]
Unlike Chabot, supra, the case at bar does not involve a legal
disagreement about the characterization of taxable income. The Appellant now
acknowledges that the capital gains were taxable, and is not contesting this
point. In my opinion, the Appellant demonstrated wilful blindness when she
did not tell her accountant about these stock trades. Had she done so, her
accountant would have told her at once that the profit from these transactions
had to be included in her income. Moreover, the Appellant had other
investments with her broker. She reported income from her other
investments, which were also being reinvested. She should have known that
these stock trades would have tax consequences, or at least asked whether they
would.
[23]
The appeal is dismissed, with costs.
Signed at Ottawa, Canada,
this 7th day of February 2008.
"Lucie Lamarre"
Translation
certified true
on this 2nd day of
April 2008.
Brian McCordick, Translator
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