[OFFICIAL ENGLISH TRANSLATION]
Date:
20020930
Docket:
2001-1077(IT)I
BETWEEN:
RÉJEAN
GOSSELIN,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers, J.T.C.C.
[1] The point for determination in this appeal, instituted under the
informal procedure, is whether the appellant was validly assessed a penalty for
the 1994, 1995 and 1996 taxation years for deducting non-capital losses of
other years for each of the taxation years concerned. The fact that the
appellant was not entitled to deduct the amounts claimed annually in respect of
non-capital losses of other years in computing his taxable income for the
three years in question was not disputed.
[2] The facts on which the Minister of National Revenue (the
"Minister") based the assessments for the three years in issue
and that the appellant admitted at the hearing are as follows:
[TRANSLATION]
(a) the case
originates from an internal investigation of certain employees of the Jonquière
Tax Centre who had set up a scheme to provide certain persons with fraudulent
tax refunds in consideration for a commission based on a percentage of the said
refunds;
(b) on
April 28, 1997, the appellant received a total tax refund of $7,772.13 for
the 1994, 1995 and 1996 taxation years as a result of reassessments issued on
that same date;
(c) the notices of
reassessment dated April 28, 1997, for the 1994, 1995 and 1996 taxation
years allowed the appellant, in computing his taxable income, a deduction in
respect of non-capital losses of other years for each of the said taxation
years;
(d) the claim of a
deduction for non-capital losses of other years for the 1994, 1995 and 1996
taxation years had been made possible by the fraudulent entry in the
department's computer system of a business investment loss totalling a gross
amount of $98,500 for the 1990 taxation year;
(e) the appellant
admitted to the Minister's investigators by solemn declaration that he had
listened to a suggestion by a certain Guy Joncas, whom he had known since
1994, who offered to have his income tax returns revised by two persons
who worked at the Jonquière Tax Centre, and it was for that purpose that the
appellant gave him his social insurance number;
(f) the appellant
did not know the nature of the deduction that would be claimed on his tax
returns or the total amount of the resulting refund;
(h) the appellant
admitted to the Minister's investigators by solemn declaration that, after he
had received a refund cheque totalling approximately $7,000, Mr. Joncas
went to meet him to ask him, on behalf of the two persons working at the
Jonquière Tax Centre, to hand over $5,000, which he refused to do, and, in
return, he asked that the refund be cancelled;
(i) the appellant
alleged to the Minister's investigators by solemn declaration that
Mr. Joncas had told him that it would be impossible to proceed with
reassessments to have the refund cancelled;
(j) the appellant
admitted to the Minister's investigators by solemn declaration that he had
panicked, that he had filed his balance sheet and that he had declared the said
sum of $5,000 in his bankruptcy;
(k) the appellant
did not approach the Minister at all:
(i) to
communicate with the authorities of the Jonquière Tax Centre, or
(ii) to simply
return the cheque to the said authorities;
The facts the
appellant denied or knew nothing of are as follows:
[TRANSLATION]
(g) the appellant contended to the
Minister's investigators by solemn declaration that he had never incurred a
business loss totalling a gross amount of $98,000;
(l) in the Minister's view, the
negligence the appellant displayed in this case was similar to aiding and abetting;
(m) with respect to the 1994, 1995 and
1996 taxation years, the appellant made a misrepresentation attributable to
neglect, carelessness or wilful default or committed any fraud in filing the
return or in supplying any information under the "Act";
(n) the deduction claimed in respect
of non-capital losses of other years for each of the 1994, 1995 and 1996
taxation years leads the Minister to believe that the appellant knowingly, or
under circumstances amounting to gross negligence, made or participated in,
assented to or acquiesced in the making of, a false statement or omission in
the income tax returns filed for the 1994, 1995 and 1996 taxation years, as a
result of which the tax that he would have been required to pay based on the
information provided in the tax returns filed for those years was less than the
amount of tax payable for those years.
[3] The appellant's solemn declaration was filed in evidence as
Exhibit I‑2. In the penultimate paragraph, he admits that he never
incurred a business loss of $98,000 because he was a driver/truck driver. The
appellant admitted subparagraphs (d), (f) and (j) but wanted to add
comments in his testimony.
[4] The appellant in fact testified in a manner consistent with his
admissions relating to the Reply to the Notice of Appeal but provided more
details. He said that, at the time, that is in 1997, he was employed by the
newspaper "Étoile du Lac". While preparing an advertisement for
H & R Block, he engaged in a discussion with Guy Joncas, a
journalist with the same newspaper, about how dissatisfied he was with his tax
returns prepared by H & R Block. At that point, Guy Joncas
informed him that it was possible to have his tax returns revised for the
previous five years. In order for this to be done, he had two former
classmates who worked for the Department of Revenue as inspectors hired to
detect tax evaders. The appellant had only to provide him with his social
insurance number so that those two classmates could examine his returns
for the previous five years, and the appellant did so. He described
Guy Joncas as an extraordinary person, and, knowing nothing about
accounting or income tax, the appellant trusted him.
[5] On April 28, 1997, barely one month later, the appellant
received a cheque from the Government of Canada for $7,772.13, without signing
any documents or amended returns. He said he was very surprised to receive the
cheque. He had thought he would receive only $200 or $300. He admitted he
"panicked" and did not know what to do. The next day, Guy Joncas
went to see the appellant to ask him for the sum of $5,000, which the
two employees of the Department were demanding. The appellant refused to
pay the amount because, in his mind, it would make him guilty. That also
confirmed what he had thought the day before¾that this situation was entirely abnormal. He also
feared that the situation would get worse if he returned the cheque. He
instinctively decided to deposit the cheque, which he did that same day, that
is, on April 29, 1997. He then asked Guy Joncas to have the matter
cancelled by the two employees, something Guy Joncas answered he
could not do. He then decided to wait for the Department of Revenue to claim
the refund from him. A request was eventually forwarded by Revenue Canada on
June 30, 2000, following a lengthy internal investigation at the
Department.
[6] In the meantime, on September 15, 1998, the appellant
declared bankruptcy. From the moment he received the cheque until a meeting
with a Revenue Canada investigator, Roland Pelletier, in May 2000, he did
not speak of the matter with any representative of the Department of Revenue,
claiming that he no longer trusted anyone and that he was afraid someone might
think he was involved in the scheme.
[7] It was not until May 1998 that an employee of the Revenue
Department realized that the Department had paid tax refunds to taxpayers
without there being any supporting documents in their files. Together with
others, Roland Pelletier was responsible for investigating the matter. The
findings of that investigation led to the conviction of two Revenue Department
employees. The investigation revealed that approximately 45 taxpayers had
been contacted by the two employees or third persons and that those
employees had received 66 2/3 percent of the tax refund received by
the taxpayer. Guy Joncas was apparently involved in four or five of the
cases, including the instant case.
[8] Every person who knowingly, or under circumstances amounting to
gross negligence, 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 filed or made in respect of a taxation year for the
purposes of this Act, is liable to a penalty (subsection 163(2) of the Income
Tax Act). In Venne v. Her Majesty the Queen, 84 DTC 6247,
gross negligence was defined as involving 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. It is clear in the instant case that, at all times, the appellant did
not know how Mr. Joncas' friends had managed to obtain a tax refund of
more than $7,000 for him. He signed no documents that could amend his tax returns
for the years in issue, and he was not aware that he had to pay a percentage of
the amount received for the service. In fact, he was surprised when he received
the refund in question.
[9] Having said that, I must now analyze the appellant's behaviour
from the time he had received the refund to April 1997. At first, he was
surprised at the amount, and, the next day, in his conversation with
Mr. Joncas, he learned that he had to pay a percentage of the amount to
Mr. Joncas' friends. That conversation confirmed in his mind that there
was something abnormal in all of that situation. He nevertheless chose to cash
the cheque and ask Mr. Joncas to do what was needed for the Department to
claim the same amount from him. I understand that the appellant was in the
midst of a separation at the time and was going through a difficult period. His
good judgment may have been affected, but I do not believe these reasons can be
argued for the period from when the cheque was deposited to his meeting with
Roland Pelletier, nearly three years later. The appellant would have
had many opportunities to inquire of responsible people as to the approach to
take in a situation such as that. When he received the refund cheque, he had
enough doubt in his mind as to the legitimacy of the refund and, at that point,
should have approached authorities to correct the matter. The appellant chose
to do nothing. This lack of action on his part demonstrates his carelessness in
and indifference toward compliance with the act. His behaviour, in my view,
constitutes a high degree of negligence, which I characterize as gross
negligence. He took advantage of the money knowing that it had been obtained
under abnormal circumstances. By failing to act, he therefore acquiesced in the
making of false statements by Mr. Joncas' two friends to obtain the
refund. His financial situation deteriorated and he benefited from the refund
obtained.
[10] I am therefore satisfied that the respondent showed on a balance
of probabilities that she had valid grounds to assess a penalty for each of the
taxation years in issue. The appeals are therefore dismissed.
Signed at
Ottawa, Canada, this 30th day of September 2002.
J.T.C.C.
Translation certified true
on this 22nd day of December
2003.
Sophie Debbané, Revisor
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