[OFFICIAL ENGLISH TRANSLATION]
Date: 20021210
Docket: 2001-565(IT)I
BETWEEN:
GÉRALD GAUTHIER,
Appellant,
and
Her Majesty The
Queen,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal under the informal
procedure concerning the 1989 to 1994 taxation years. The issue is whether the
appellant must pay interest on the amounts of tax owed and the penalties and
related interest.
[2] On September 25, 1995, the
appellant received a tax refund amounting to $15,387.71. This is a refund to
which he was not entitled that was fraudulently obtained for him by two
employees at the Department of National Revenue.
[3] The facts on which the Minister
of National Revenue (the “Minister”) relied in making his reassessments are
described in paragraph 6 of the Reply to the Notice of Appeal (the
“Reply”) as follows:
[TRANSLATION]
(a) the case arises from an internal investigation of certain
employees of the Jonquière Taxation Centre who had set up a scheme to enable
certain persons to receive fraudulent tax refunds in exchange for a commission
based on a percentage of the said refunds;
(b) on September 25, 1995, the appellant received a total tax
refund of $15,387.71 for the 1989, 1990, 1991, 1992, 1993 and 1994 taxation
years as a result of reassessments dated September 25, 1995;
(c) the notices of reassessment, dated September 25, 1995, for the
1989, 1990, 1991, 1992, 1993 and 1994 taxation years, allowed in the
computation of the appellant’s income the deduction of an annual amount of
$8,500 in respect of alimony or other allowance payable on a periodic basis;
(d) the appellant claimed to the Minister’s investigators in a
solemn declaration that he had known Mario Boucher in 1991 and 1992 and that in
the course of some desultory conversation he had told him about the weekly
payments of approximately $70 that he made to his former spouse, without
however having any receipts;
(e) the appellant admitted to the Minister’s investigators in a
solemn declaration that Mario Boucher had offered to review his tax returns,
that he had given his agreement, but had not signed any document in relation
thereto;
(f) regarding the total refund arising out of the reassessments
dated September 25, 1995, for the 1989, 1990, 1991, 1992, 1993 and 1994
taxation years, the appellant admitted to the Minister’s investigators in a
solemn declaration that he had given a total amount of $11,000 to
Mario Boucher in accordance with Mr. Boucher's instructions through an
initial payment of $8,000 and a second payment of $3,000;
(g) in the Minister’s opinion, the negligence shown by the
appellant in this matter amounted to complicity;
(h) concerning the 1989, 1990, 1991, 1992, 1993 and 1994 taxation
years, the appellant made a misrepresentation that was attributable to neglect,
carelessness or wilful default or committed fraud in supplying information
under the “Act”;
(i) the claim for alimony, with regard to the 1989, 1990, 1991,
1992, 1993 and 1994 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 1989, 1990, 1991,
1992, 1993 and 1994 taxation years, as a result of which the tax that he would
have been required to pay based on the information provided in the income tax
returns filed for those years was less than the amount of tax actually payable
for those years.
[4] The Notice of Appeal reads as
follows:
[TRANSLATION]
…
This
is to inform you that I disagree with paying the penalties and interest and with
the notice, a copy of which you will find attached hereto, for the following
reasons:
Mario
Boucher took advantage of my vulnerability and my lack of judgment since at the
time of the events I was under the influence of alcohol.
Since
I never signed any documents or gave any follow-up or information to Mario
Boucher, I forgot about this until I received the cheque. Mario Boucher asked
me to give him $10,000, which I did, because he seemed disreputable to me and I
was afraid of the reprisals there might be since Mario had told me that there
were two other people who worked with him and I do not know who they are.
[5] The appellant testified for the
appellant party. Rolland Pelletier and André Tremblay testified at the request
of counsel for the respondent.
[6] The appellant is a civil
engineering technician. He admitted subparagraphs 6(b) and 6(d) to 6(f) of the
Reply.
[7] Concerning subparagraph 6(e) of
the Reply, the appellant made the following qualification, as described at page
6 of the transcript:
[TRANSLATION]
A. It was not... he had not said that he was going to audit my tax
returns, they just said... I was paying alimony, but I did not have any
receipts. Then, he said to me, "This is not normal; there might be
something to do for this," and... He said, "I could perhaps check
into it to see if something could be done." He worked in taxation. I said:
"See what you can do."
[8] With reference to subparagraph
6(f) of the Reply, he confirmed that he had in fact given Mr. Boucher $11,000
from an amount of $15,387.
[9] With reference to subparagraph
6(g) of the Reply, the appellant said he completely disagreed with this
statement. According to him, there was no question of complicity, because he
was not aware that the operation was fraudulent. He said the following at page
8 of the transcript:
[TRANSLATION]
...
A. I had absolutely no idea that there was something underhanded
about these dealings. In my view, he was someone who had been introduced to me,
and besides, it was someone who said .... In any event, since I was paying
alimony and did not have a receipt, he said: "Well! Maybe we'll have a
look and do something about it for you." Fine, but I did not know about
this, Ma'am, not at all.
...
[10] The appellant explained the
statement in his Notice of Appeal, at pages 9 and 10 of the transcript, as
follows:
[TRANSLATION]
A. It is because, Ma'am, when I had the amount there, I found...
first, I found it was a lot, but I had slips for the years that they had reviewed,
and besides, it was marked that they had reviewed my situation and I was
entitled to it. In any case, I called him to thank him and also to ask him if I
could give him something, something or other to thank him, like a bottle of
wine or I don’t know, something like that, but then, when he told me that
stuff, well, then I kind of jumped; I said, "Tabarnik, what's this about?"
So he said: "There were three of us working on it, and then, we worked
hard, and besides, bla, bla, bla, I have to pay my people, and..." Then,
it was... That's when I saw, Ma'am, that it did not make any sense. He tells you
you're entitled to a refund of $15,000, but then he asks you to give back
$11,000 to pay his people. I could really see that this made no sense. But I
don't know who these others who worked with him were.
...
[11] This is what the appellant would
like to see, at page 10:
[TRANSLATION]
...
A. I agree about paying back the payment that I got; I know that I
was not entitled to it and besides I got part of it; I agree about paying it
back.
...
A. Maybe to pay a penalty, how can I say this... symbolic, I don’t
know...
...
A. ... a few thousand dollars.
...
A. But not that you should put interest on it and make me
penniless for the rest of my life to pay all that.
...
[12] On cross-examination, a photocopy
of the cheque dated September 25, 1995, in the amount of $15,387.71 was filed
as Exhibit I-1. The appellant explained that since the 1990s he had paid alimony
to the mother of his child and former spouse. He was supposed to give her about
$125 a week, but since his former spouse could not or would not give him a
receipt, he gave her $70 a week.
[13] In answer to the question asked
by counsel for the respondent as to why he had agreed to pay $11,000 to those
responsible for the refund, he replied:
[TRANSLATION]
Well,
when I saw... when I saw Mario arriving at our house, also, this is going to sound
strange, on motorbikes, Harleys, and all that, I am going to tell you that this
made me... it isn’t that he was physically big, but you never know who you’re
dealing with─it made me kind of afraid, and then when he told me that
three of them were involved, I didn’t know what was going on...
...
... I felt like I was cornered, like I didn’t have a choice.
[14] Counsel for the respondent asked
him if he had been threatened, and he answered: [TRANSLATION] “No, because I
gave him what he wanted. I didn’t know who I was dealing with; I didn’t know
him very well.”
Q. And according to you, at that time, were you entitled to
the $15,387 before he suggested that you give him $11,000?
A. Well, in my mind... he had told me that he was going to
check all that, and besides he told me what I had... yes.
[15] He claimed that he did not call
Revenue Canada because he was afraid of reprisals.
[16] Rolland Pelletier, a senior investigator,
testified at the respondent’s request. He has worked in Special Investigations
since 1977. He said that someone from Client Services in the Jonquière Taxation
Centre realized in May 1998 or thereabouts that the federal government had made
a refund of $22,000 but the province had not made such a refund. That is how
the investigation began. The facts of the investigation were fully narrated
earlier in Jean-Marc Simard v. Canada, [2002]
T.C.J No. 265 (Q.L.). For the purposes of these Reasons, it is not necessary
to go over them again.
[17] A recent event is that Mario
Boucher, the chief instigator behind the fraud system pleaded guilty and was
sentenced in June 2002 to two years less a day in prison and a fine of
$306,000. The fine corresponds to 100 per cent of the amount of the kickbacks
he received.
[18] Mr. Pelletier also said that, of
the taxpayers who received refunds to which they were not entitled, two-thirds
confessed that they had given back 66 per cent of the amount to Mr. Boucher or
Mr. Simard. The other third of the taxpayers did not admit to returning such
payments, but in every case the financial statements show immediate withdrawals
equivalent to two-thirds of the amount deposited.
[19] The witness also testified that
some forty-five people received fraudulent refunds for an approximate total of
$500,000.
[20] Counsel for the respondent
referred to my decision in Lévesque Estate v. Canada, [1995]
T.C.J. No. 469 (Q.L.) and, specifically, to paragraph 13:
13. Ignorance or failure to obtain adequate information could in
certain circumstances be a sufficient element to constitute gross negligence,
particularly in cases where there is an economic interest in remaining
ignorant. Here, the element that tilts the scales in favour of accepting the
taxpayer's position is that there was no economic interest in this omission or
in this failure to obtain adequate information.
[21] He said that, in returning 66 per
cent of the amount received to those responsible for the refund, the appellant
participated in the fraud and, even if it could be argued that there was
blindness, it was wilful blindness that gives rise to the assessment of a
penalty under subsection 163(2) of the Act.
Conclusion
[22] The assessments appealed from
were not filed in evidence. I had asked counsel for the respondent to send me a
chart showing the calculations for the tax owed, the interest owed on the
taxes, the amount of the penalties and the interest owed on the penalties. I
received approximately 30 pages of computer printouts establishing the amounts
at issue. Unfortunately, the information was too detailed to be of use to me. I
will merely indicate that the balance on September 12, 2002, was in the amount
of $43,130.77.
[23] Nonetheless, I believe it is worth
reproducing a paragraph from the letter that accompanied the computerized
statements:
[TRANSLATION]
We
wish to explain that, in issuing reassessments cancelling the fraudulent
refunds and assessing the penalties provided for in subsection 163(2) of
the Income Tax Act, the Minister calculated the interest on the penalty
from the date due for each of the taxation years at issue, but the interest on
the amount of the fraudulent refund does not start to accrue until the date on
which the refund was made.
[24] Concerning the penalty assessed
under subsection 163(2) of the Act, in Jean-Marc Simard (supra),
I had determined that the Court had the discretion to adjust the amount taxed
according to the taxpayer’s ability to pay, the degree of his wrongful intent
and his previous behaviour. This decision was appealed by the respondent.
[25] While awaiting the decision of
the Federal Court of Appeal, I believe that for the time being it is more
prudent to follow the approach taken by the Court of Appeal in a recent
decision in the case of Chabot v. Canada, [2001] F.C.J.
No. 1829 (Q.L.). In that decision, the Court did not assess the taxpayer’s
degree of wrongful intent but completely relieved him from any application of
subsection 163(2) of the Act on the grounds that the taxpayer had
been ambushed. The case involved a taxpayer who had claimed tax credits for
charitable donations. In 1992, he reported a charitable donation in the amount
of $10,000 for which he had in fact paid $2,800, and in 1993 and 1994, charitable
gifts of $15,000 and $8,000 whereas he had paid $2,500 in all.
[26] I quote paragraphs 40 and
41 of that decision:
[40] I also note that Denis Lemieux,
an investigator with Revenue Canada, explained to the Court that no action had
been taken against the foundations involved themselves because, in the
Department's view:
[TRANSLATION] … they had been caught in
an ambush. It had grown completely out of porportion [sic] for them. They were genuinely … they are
not specialists when it comes to artwork. They found the offer very appealing.
It required a lot of work and profits were virtually nil.
…
These are foundations; there was no
criminal intent on the part of these people. They realized themselves that they
were in the wrong.
(Appendix 6, pages 25 and 26)
In his own way, Mr. Chabot too "got
caught in an ambush" and, in his own way, he too "found the offer
appealing."
[41] In these
circumstances, I find it difficult to understand why Revenue Canada would assess
penalties against such small taxpayers who, in good faith, tried to benefit
from a tax credit that Revenue Canada itself dangled in front of their eyes and
which, according to the guide, seemed so easy to obtain.
[Emphasis added.]
[27] I believe that the appellant also
got caught in an ambush. He is not the one who developed the scheme. The
suggestion came to him from a Revenue Canada employee who did not talk to him
about fraudulent acts. The employee, Mario Boucher, told the appellant that he
might not have claimed all the tax refunds to which he was entitled. This is a
premise that many people of good faith are tempted to believe. The appellant
received a substantial amount of money that surprised him. Mr. Boucher then told
him that he had to return two-thirds to those responsible for the refund. The
appellant hesitated but agreed without taking the time to carefully think it
over. He was afraid. He had the misgivings of a person preyed upon─caught
in an ambush. The appellant did not know what to do and let himself be carried away
by the events.
[28] The respondent contended that a
person could choose and that even after the appellant had made a choice, he
could still seek to have his situation rectified by the tax authorities. It is
true that the appellant chose the path of obscurity and doubt and that he did
not go and disclose his situation to the tax authorities. One might think,
however, that it would be hard for the appellant to consult the tax
authorities. Immediately after he had received the payment, he had given back
too much money to those responsible for the refund. He must have felt deep down
that he could not recover that amount and that he should return it to the tax
authorities along with his own share. He anxiously awaited the train of events.
[29] There is always a measure of
responsibility in the acts that are committed unless a purely accidental act is
involved. It is a serious act to give money back to government employees when
they are performing their duties.
[30] Subsection 163(2) of the Act
requires, however, that the false statement or omission be made knowingly, or
under circumstances amounting to gross negligence. In other words, this
subsection requires wrongful intent. I am of the opinion that the Court must be
even more certain of a wrongful intent when the resulting penalty is an
extremely large amount and would have a particularly onerous effect on the
taxpayer, as is the case here.
[31] The appellant has a good
occupation, but he is not an accountant or a legal expert. According to what he
said in his testimony, he always filed his tax returns every year and always
wanted to comply with the Act. This statement was not contradicted by
the respondent.
[32] In my opinion, the circumstances
described by the appellant are much more attributable to an ambush than to a
deliberate decision on the appellant’s part to contravene the Act. The
appellant’s act derived from a lack of reflexion and an error of judgment and
not from wrongful intent. After that, he was trapped in an ambush.
[33] The more educated a person is,
the harder it will be for the person to avoid the application of
subsection 163(2) of the Act on the grounds of an error in judgment
in circumstances like those in the case at bar. But here I am of the opinion
that the appellant did not form the wrongful intent required by
subsection 163(2) of the Act.
[34] Consequently, the appeals are
allowed in order to delete the penalties and related interest.
Signed at Ottawa, Canada, this 10th
day of December 2002.
J.T.C.C.
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