Date: 19981026
Docket: 97-2894(IT)I
BETWEEN:
PATRICK RICHER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Christie, A.C.J.T.C.
[1] These appeals are governed by the
Informal Procedure prescribed under section 18 and following
sections of the Tax Court of Canada Act. The years under
review are 1993, 1994, 1995.
[2] The appeals are from the
imposition of penalties. The Notice of Appeal states in part:
"THE MINISTER imposed penalties under subsection 163(2)
of the Federal Income Tax Act as follows:
Taxation year
1993 - $643.85
1994 - $751.45
1995 - $568.96
He also imposed penalties under subsection 19(2) of the Income
Act (Ontario) as follows:
Taxation
year
1993 - $451.53
1994 - $423.15
1995 - $385.34"
[3] The opening paragraph and
paragraphs 1 to 8 inclusive of the Reply to the Notice of Appeal
read:
"In reply to the Notice of Appeal for the 1993, 1994 and
1995 taxation years, filed on August 29, 1997, the Deputy
Attorney General of Canada says:
A. STATEMENT OF
FACTS
1. With
respect to the section entitled 'Statement of Facts' of
the Notice of Appeal:
(a) he admits the
facts stated in numbered paragraphs 1 and 2; and
(b) he denies the
facts stated in unnumbered paragraph 3.
2. The
Appellant filed income tax returns for the 1993, 1994 and 1995
taxation years and declared net business income in the amounts of
$6,148, $8,201 and $7,328 respectively.
3. By Notice
of Assessment dated June 30, 1994, July 7, 1995 and May 21,
1996, the Minister of National Revenue (the 'Minister')
assessed the Appellant's income tax returns as filed for the
1993, 1994 and 1995 taxation years respectively.
4. The
Minister reassessed the Appellant's income tax returns for
the 1993, 1994 and 195 taxation years by Notices of Reassessment
dated December 23, 1996 and added $8,897, $8,583 and $6,496 in
additional business income respectively.
5. Further, in
reassessing the Appellant by the said Notices of Reassessment,
the Minister levied penalties, pursuant to subsection 163(2) of
the Income Tax Act (the 'Act'), in the
amounts of $643.85, $751.45 and $568.96 for the 1993, 1994 and
1995 taxation years respectively.
6. On March
21, 1997, the Appellant served Notice of Objection on the
Minister with respect to the said reassessments for the 1993,
1994 and 1995 taxation years.
7. A Notice of
Confirmation dated June 3, 1997 was issued in response to the
said Notice of Objection for the 1993, 1994 and 1995 taxation
years.
8. In so
reassessing the Appellant, the Minister made the following
assumptions of fact:
(a) the facts
hereinbefore stated and admitted;
(b) during the 1993,
1994 and 1995 taxation years, the Appellant was the sole
proprietor of a taxi service;
(c) the Business had
a December 31 year-end;
(d) the Minister
reassessed the 1993, 1994 and 1995 income tax returns on the
basis of understated income in the amounts of $8,897, $8,583 and
$6,496 respectively;
(e) the percentage
of unreported income on net business income was 145%, 105% and
89% for the 1993, 1994 and 1995 taxation years respectively;
(f) as a
consequence of the said understatement of income, the Minister
levied and the Appellant is liable for penalties in the amounts
of $643.85, $751.45 and $568.96 for the 1993, 1994 and 1995
taxation years respectively pursuant to subsection 163(2) of
the Act; and
(g) in so
reassessing the Appellant, the Minister made the following
assumption of fact regarding the penalties applied pursuant to
subsection 163(2) of the Act, whereby the Appellant
knowingly, or under circumstances amounting to gross negligence
in carrying out a duty or obligation imposed under the
Act, made or participated in, assented to or acquiesced in
the making of false statements or omissions in the income tax
returns filed for the 1993, 1994 and 1995 taxation years with
respect to underreported business income in the amounts $8,897,
$8,583 and $6,496 respectively, as a result of which the taxes
that would have been payable assessed on the information provided
in the Appellant's income tax returns filed for 1993, 1994
and 1995, were less than the taxes in fact payable attributable
to the false statement or omission by the amounts of $1,286,
$1,503 and $1,137 respectively."
[4] Subsection 163(2) of the Income
Tax Act ("the Act") provides:
"163. (2) 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 false statement or omission in a return, form, certificate,
statement or answer (in this section referred to as a
'return') filed or made in respect of a taxation year as
required by or under this Act or a regulation, is liable to a
penalty..." (What follows is the manner in which the
penalties shall be calculated.)
Subsection 163(3) of the Act provides:
"163. (3) Where, in any appeal under this Act, any
penalty assessed by the Minister under this section is in issue,
the burden of establishing the facts justifying the assessment of
the penalty is on the Minister."
[5] This Court is without jurisdiction
in relation to the penalties imposed under the Income Tax
Act of Ontario: Andrew Paving & Engineering Ltd. et
al. v. M.N.R., 84 DTC 1157 at 1160-1 (T.C.C.). The same
applies in respect of an assessment of provincial income tax:
The Queen v. Bowater Mersey Paper Company Limited, 87 DTC
5382 at 5384 (F.C.A.).
[6] The question to be determined is
this: have facts been established showing that the appellant
knowingly or under circumstances amounting to gross negligence
made or participated in the making of false statements or
omissions in his returns of income regarding the years under
review?
[7] As she was entitled to do,[1] counsel for the
respondent called the appellant as the respondent's witness
with a view to assisting in the discharge of the onus imposed
under subsection 163(3) of the Act.
[8] In summary the appellant's
evidence is that during the years under review he drove a Blue
Line taxi. He was not an employee. He had a "plate"
which I presume is a licence. His relationship with Blue Line is
that it would dispatch calls to him and pay for stands at hotels.
In return he paid the company a certain amount per month. He
would drive Monday to Friday from 7 a.m. to 6 p.m. If he
needed extra money he would drive on weekends.
[9] In paying Blue Line the appellant
would first turn in government taxi chits and credit card slips.
If this was more than enough he would receive the difference in
cash. If the chits and slips were insufficient he would make up
the difference in cash. Apart from this he kept all cash received
from fares.
[10] The appellant was assessed in respect
of the years under review on the basis of net worth. In those
years he resided in a single family dwelling in Orleans with his
wife and daughter. The home was equipped with a swimming pool in
the backyard. His daughter is an adult. The home was mortgaged.
He looked after the mortgage and other expenses in relation to
the maintenance of the home from the income he earned as a taxi
driver.
[11] In his 1993 return of income he
reported total income to be $8,957.00. This was composed of
rental income in the amount of $2,809.00 and business income -
taxi driver - of $6,408.00. The same amounts in 1994 are
$13,412.00, $5,211.00, $8,201.00 respectively and in 1995 they
are $12,927.00, $5,599.00, $7,328.00 respectively.
[12] The Notices of Reassessment were placed
in evidence through this witness and they show that these amounts
were added to his business income as having been
unreported: 1993 - $8,897.00; 1994 - $8,583.00; 1995 -
$6,496.00. This is in conformity with paragraph 4 of the Reply to
the Notice of Appeal.
[13] During the years under appeal the
appellant had a bank account, but the only deposits that were
made to his credit were amounts sufficient to make payments on
the mortgage on his home, personal loans and insurance. The
appellant kept no written records of his income from driving a
taxi.
[14] On the other hand, the rental income
was derived from two condominiums. A separate bank account
existed in respect of each of those properties. The rental income
was deposited to the credit of each account. Also, expenses would
be paid through these accounts.
[15] The net worth statement is in evidence.
On page 4 there is a "Statement of Personal
Expenses". Incorporated as item 2 is "Shelter".
This includes maintenance and repairs, property taxes, insurance
premiums, mortgage interest, water, fuel, electricity. The
amounts are: 1993 - $6,585.00; 1994 - $6,322.00; 1995 -
$6,637.00. The appellant agreed that these are correct figures.
In addition there are numerous other items in the statement of
personal expenditures, e.g. household operation, recreation,
tobacco and alcohol, gifts and contributions. These total:
1993 - $13,185.00; 1994 - $14,711.00; 1995 - $12,643.00.
[16] Ms. Sheryl Glynn also testified on
behalf of the respondent. She is an employee of Revenue Canada.
She prepared the net worth assessment. In answer to a question
about the basis for levying the penalties she replied:
"Penalties were based on the fact that the
taxpayer had to have the knowledge of the unreported revenue.
He was the only person involved in the
business. He handled all the cash himself. He did not deposit all
of it into the bank account. He was also very much aware of his
personal expenditure situation, his personal expenses, and when
we reviewed the file, it was very obvious that the amount of
revenue that he reported was not enough to support the payments
that he was making."
[17] She testified that the Statement of
Personal Expenses was negotiated with and agreed to by the
appellant's representative, Mr. Calvin Baptiste, an
accountant.
[18] The amounts of liability to tax
reassessed are not in dispute. Subsection 163(3) requires that
counsel for the respondent establish facts that justify the
assessment of the penalties. The unreported business income
stated in the Notices of Reassessment as a percentage of the
business income reported in the appellant's tax returns is
139,[2] 105, 89 for
1993, 1994, 1995 respectively. I attach considerable significance
to these figures. Indeed, on the whole of the evidence, coupled
with a lack of a reasonable explanation from the appellant for
the discrepancies between what he reported as income as a taxi
driver and the agreed upon income from that source, I have come
to the conclusion that the appellant knowingly made false
statements in his returns of income for 1993, 1994, 1995.
[19] In the frequently cited case of
Venne v. The Queen, 84 DTC 6247 (F.C.T.D.) Mr. Justice
Strayer observed at page 6256 with reference to the phrase
"gross negligence" that appears in subsection 163(2) of
the Act that it involves "an indifference as to
whether the law is complied with or not". At the least such
indifference on the part of the appellant is to be inferred in
the case at hand.
[20] The appeals are dismissed.
Signed at Ottawa, Canada, this 26th day of October 1998.
A.C.J.T.C.C.
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