Date:
20021017
Docket:
1999-4482-IT-G
BETWEEN:
MARIE-CLAUDE
BOUCHER,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
Teskey,
J.
[1]
The Appellant appeals her 1988 assessment of income tax, notice
of which was issued by the Minister of National Revenue
(the "Minister") on July 2, 1996, which was
confirmed by the Minister after a review of the Appellant's
objection thereto.
[2]
The assessment added to the Appellant's 1988 income $193,330
which reduced the previously assessed non capital loss from
$216,529 to $68,199 and a gross negligence penalty was applied
pursuant to subsection 163(2) of the Income Tax Act
(the "Act") to this $193,330 added
income.
[3]
The issues before the Court are:
i)
whether the four-year limitation applies to the
reassessment made in 1996 for the 1988 taxation year;
ii)
whether alleged trading losses should be treated as a deduction
from the Appellant's 1988 income for the purposes of
subsection 163(2.1) of the Act;
iii)
whether penalties under subsection 163(2) were properly
levied.
[4]
The Minister in assessing the Appellant in July of 1996, for the
1988 year made assumptions of fact which are reproduced in
paragraph 4 of the Reply to the Notice of Appeal. The
following subparagraphs and excerpts as modified later herein
are:
...
b)
during 1987 and part of 1988, the Appellant, a lawyer, was
employed by Burns Fry as a stockbroker;
c)
as the Appellant had not filed tax returns for her 1986, 1987 and
1988 taxation years and following no response to the request from
the Minister with respect to filing returns of income for those
years, the Department of National Revenue prepared
pro-forma tax returns for the 3 years and in so doing, it
raised assessments dated November 14, 1990 pursuant to
subsection 152(7) of the Act;
d)
the Appellant's main income for the 1988 taxation year was T4
employment income from Burns Fry in the amount of
$42,725;
e)
in filing Notices of Objection on January 21, 1991 with respect
to the 1986, 1987 and 1988 taxation years, the Appellant claimed
that she had excessive losses in her personal trading account and
these losses should be allowed for each of the 1986, 1987 and
1988 taxation years;
f)
in 1991, the Appellant filed amended returns of income for the
1986, 1987 and 1988 taxation years;
g)
with respect to the 1988 taxation year, the Appellant claimed a
business loss of $75,985 as a result of personal stock trades
made in her personal account with Burns Fry and carrying charges
of $10,000;
h)
during the course of reviewing the Notices of Objection, the
Revenue Canada Appeals Officer obtained the Appellant's
personal trading account statements from Burns Fry;
i)
following a reviewing of the broker statements with the Appellant
and her representative concurrent, Notices of Reassessments dated
October 13, 1992, were issued allowing, in part, the objections
with respect to the 1986, 1987 and 1988 taxation
years;
j)
Specifically, with respect to the 1988 taxation year,
business-trading losses in the amount of $300,459 were allowed;
carrying changes were allowed; and changes were made to interest
income;
k)
the 1988 adjustments resulted in non-capital losses of
$261,529;
l)
in 1991, two articles appeared in Toronto newspapers stating that
the Investors Dealers Association of Canada ("IDA")
banned the Appellant for working as a stockbroker for life as a
result of her misappropriating funds from clients' accounts,
falsifying documents and making trades, without her clients'
consent;
m)
consequently, a further review of the Appellant's 1988 tax
return was undertaken by officials of the Department of National
Revenue (now known as Canada Customs and Revenue Agency), (the
"Agency");
n)
the Agency served a Requirement on Burns Fry and the Agency
learned that from October 1987 to May 1988, the Appellant removed
a total of $320,000 from the trading accounts of two clients; the
Appellant requisitioned cheques from Burns Fry, payable to either
one of the two clients, forged the signatures as the client payee
and deposited the cheques into her personal banking account; the
Appellant then wrote cheques from her personal bank account to
either her personal trading account with Burns Fry to cover
trading activities in her account or she deposited the amounts to
clients' accounts to cover authorization transactions that
the Appellant put through without the clients'
knowledge;
o)
of the amount misappropriated, Burns Fry provided Agency
officials with information that occurred between March 1988 and
April 1988, totalling $270,000;
p)
from the total of $270,000, Agency officials traced an amount of
$209,000 as credits to the Appellant's personal trading
account and $30,977 to the Appellant's personal bank
account;
...
s)
during the Appellant's contacts with Agency officials, she
failed to disclose the misappropriation of funds;
t)
the misappropriated funds were used by the Appellant as the
source of funds for the Appellant's personal
trades;
u)
the misappropriated funds should have been evident to the
Appellant from a review of the statements of her personal trading
account and, or, a review of her personal bank account
statements;
v)
the amount of the misappropriated funds was significant when
compared to the Appellant's T4 income in 1988 of
$42,725;
w)
the Appellant had direct knowledge of the funds misappropriated
and as a lawyer, the Appellant should have been aware that such
amounts are considered taxable income; and
...
Facts
adduced at trial
[5]
The Appellant stated her occupation to be a
businessperson.
[6]
She was called to the Manitoba Bar in 1973. She then worked for
the Federal Department of Justice Legislation Branch drafting tax
legislation and regulations and interpretation of legislation for
the Privy Council, then worked in the Commercial Law Branch. In
1977, she worked for Magna International as a in-house
counsel and then started to do consultingwork. In 1984, she became a stockbroker with
Burns Fry Limited.
[7]
The Appellant entered as Exhibit A-1 a timeline, which
is hereby reproduced:
|
Time Line Re: 1988 Taxation Year of Marie-Claude
Boucher
|
|
Date
|
Activity
|
|
1987/1988
|
Computerized generated forms sent to last known
TP's address requesting filing of 1986 T1
|
|
April
1990
|
Ms.
Boucher contacted via telephone by I & C officer
requesting the filing of the 1986, 1987 and 1988
T1s
TP
advised officer that she has a large expense to claim and
will be getting refunds once she has filed them. Officer
agrees to send her blank tax returns in her business
address and she agrees to complete them.
|
|
May-Aug 90
|
T & C officer is unsuccessful in contacting TP. No
response from telephone messages left or to letter dated
August 2/90.
|
|
Nov.
14/90
|
Dept
prepares pro-forma returns for 1986, 1987 & 1988 and
raises assessments pursuant to ss. 152(7) of the
Act. Main income was T4 employment income from Burns
Fry. In 1988, the T4 amount was $42,725.
|
|
Jan.
25/91
|
Ms.
Boucher files Notices of Objection. She states that she has
not been allowed certain allowable deductions and has
incurred non-capital losses. Specifically that she
incurred trading losses in her personal trading account
with Burns Fry (and that of her ex-husband's to
which she was entitled). These losses should be allowed in
1986, 1987 and 1988.
|
|
March 20, 1991
|
Date
of unsigned letter from TP to Sudbury TC stating that she
suffered "excessive losses" in her personal
trading account and wishes that they be taken into
consideration. (This letter accompanied the 1986/87/88 T1s
prepared by her.)
|
|
May
29, 1991
|
Dept
receives amended T1s for 86/87/88 from TP. For 1988 TP
claims a business loss of $75,985 and carrying charges of
$10,000.
|
|
Sept.
30/91
|
Articles appear in the Globe & Mail and in the
Financial Post re Ms. Boucher's misappropriation
of funds from client's accounts. To date TP has made no
mention of this to the Dept (i.e. funds misappropriated are
taxable income.)
|
|
Nov.
1991
|
After
several discussions with Ms. Boucher and her
representative, the appeals officer requests and obtains
from Burns Fry copies of the TP's personal trading
account with Burns Fry.
|
|
Nov.
1991 - April 1992
|
Appeals Officer reviews Trading accounts sheets.
Various conversations with TP and representative ensue.
Final figures agreed upon April 8, 1992. Neither the
taxpayer nor her representative have disclosed the
additional taxable amounts that Ms. Boucher acquired
by way of misappropriation from client's accounts with
Burns Fry. From a review of her personal trading accounts
and the subsequent working paper prepared by SI, it is
clear that these misappropriations were used by her as the
source of funds for her personal trades. The
misappropriated funds would have been evident to her from a
review of personal bank account.
|
|
Oct.
13/92
|
Notice
of Reassessment issued for 86/87/88 allowing the objections
in part. Trading losses of $15,278, $67,303 and $300,959
were allowed respectively in 1986, 1987 and 1988. Carrying
charges were allowed and changes made to interest income.
The 1988 adjustment resulted in non-capital losses of
$261,529 which the TP requested be applied to 1987 and
1990.
|
|
August
1995
|
The
Special Investigation section of the Dept commences their
investigation of Ms. Boucher's 1988 T1. The issue is
the non-reporting of a significant amount of funds
misappropriation from client's accounts at Burns
Fry.
|
|
July
2/96
|
Notice
of reassessment issued for 1988 adding misappropriated
funds of $193,330 and applying ss 163(2) penalty for
1988.
|
|
Aug
30/96
|
Ms.
Boucher files Notice of Objection against the imposition of
the ss. 163(2) penalty for 1988.
|
[8]
The only salient fact omitted therefrom is that the Appellant, in
March of 1990, filed blank T1 tax returns for the years 1986,
1987 and 1988 with a letter (Exhibit A-3). The letter
made no mention of misappropriated funds. The only issue raised
therein is claimed extensive losses. The last paragraph says:
"I wish to claim all those losses as business losses
which losses will be required to be ascertained by Revenue Canada
directly from Burns Fry. As I have stated earlier, the losses
were very extensive."
[9]
In August of 1991, the Investors Dealers Association of Canada
held a hearing concerning the actions of the Appellant while in
the employment of Burns Fry. The Appellant was duly notified
of the hearing and did not attend. She was found guilty of
misappropriating funds from clients and accepted documents with
false signatures (hers) attached thereto and fraudulently endorse
cheques payable to clients and deposited the funds into her own bank account. She was
fined and suspended from trading as a stockbroker for
life.
[10] When the
Appellant left Burns and Fry, she hired a legal counsel and an
agreement was reached with Burns Fry, it being agreed that Burns
Fry would cover all client losses and that the Appellant would
not appear at a discipline hearing to be held by the Investors
Dealers Association of Canada and that she would never reapply
for a stockbroker's license.
[11] The
Respondent produced as a witness Erlinda Penas
("Penas") who has been with Revenue Canada and the
Canada Custom and Revenue Agency for 23 years. She has been
an investigator since 1988.
[12] Penas said
that Revenue Canada received in 1995 copies of two newspaper
articles, one in the Globe and Mail and the other one in the
National Post that had been published in September 1990. The
essence of the two articles were to the effect that the Appellant
had removed from trading accounts of two clients
$320,000.
[13] As a result
of Revenue Canada receiving these articles, the Appellant's
file was assigned to Penas.
[14] Penas wrote
the Appellant in August of 1995 advising her of the information
and that a penalty was being recommended and asking her to
respond in 30 days.
[15] Penas
called the Appellant repeatedly and only saw the Appellant in
person in November. At the meeting, the Appellant did not dispute
the amount but said she disagreed with the penalty under
subsection 163(2) of the Act.
[16] When Penas
was asked whether the Appellant fully cooperated with the
department, she responded: "She cooperated with the
Department but she did not include this amount. She had all the
chances to do that during the objection stage, and whatever
cooperation she gave to the Department at that stage was
self-serving to her."
Analysis
[17] The
Appellant is a well-educated articulate person who started her
law career in 1973, who has specialized knowledge of the
Act and used that knowledge for four years.
[18] I accept
the evidence of Penas without reservation in every
detail.
[19] I did not
find the Appellant to be credible. The Appellant's attitude
and general behaviour did not demonstrate good faith or
credibility throughout the entire period from 1986 to
date.
[20] The
Appellant in her in-chief evidence stated she began to work
for Burns Fry in 1986 as a stockbroker. Then in
cross-examination, when asked if she had been a broker from
1984, she answered: "Maybe, okay. I'll grant you
that."
[21] When the
hearing before the Investors Dealers Association of Canada was
brought up, she claimed that it did not have any validity because
she was not present. It was not until after
cross-examination, when I questioned her, did she
acknowledge that she had been served with a notice of the hearing
and that the reason she did not attend the hearing was that it
was part of the deal made by her legal counsel with Burns Fry.
She had given evidence of this deal but no particulars of the
deal in examination-in-chief.
[22] I conclude
that she was quite prepared in her direct testimony and in
cross-examination to leave out pertinent facts so that the
Court might draw a wrong conclusion on the evidence. Her entire
behaviour and attitude throughout the whole period from 1986 to
now showed a lack of good faith and in the witness box, she
ruined her own credibility.
[23] I am
satisfied from the evidence before me that the Appellant knew
that she had fraudulently taken some $300,000 from various
clients and that she deliberately did not disclose the
misappropriation of the funds to Revenue Canada during their
investigation.
[24] The
Appellant had ample opportunity to advise Revenue Canada of these
funds which she never did, such as:
(i)
the blank T1 tax returns filed in March 1990;
(ii)
in her objection, in the pro-forma assessments issued in November
1990, the only issue raised were the purported losses;
(iii)
in May of 1991, when the Appellant filed amended returns for
1988, no mention of any misappropriated money was
made;
(iv)
and all through her discussions with the Department, until she
was confronted with the figures, misappropriated money was never
disclosed by her.
Issue
One
[25] The four
year limitation period to reassess is lost when a taxpayer has
made "any misrepresentation", that is false. This has
been interpreted as being really synonymous with incorrect:
Nesbitt v. The Queen, 96 DTC 6045. The Appellant
fails on this issue.
Issue
Two
[26] The
Appellant produced no evidence of trading losses whatsoever and
therefore fails on this issue also. It was the income that was
not deliberately disclosed upon which the penalty was assessed.
The Appellant did not submit any argument on this
point.
Issue
Three
[27] The late
Chief Judge Couture of this Court said in Morin v. M.N.R.,
88 DTC 1596, at page 1597:
To escape
the penalties provided in subsection 163(2) of the Act, it
is necessary, in my opinion, that the taxpayer's attitude and
general behaviour be such that no doubt can seriously be
entertained as to his good faith and credibility throughout the
entire period covered by the assessment, from 1978 to
1981.
[28] Having come
to the conclusion that this Appellant knew she had appropriated
for her own use a substantial sum of money and knowing that it
was taxable, she deliberately withheld this information and
deliberately filed false returns. To claim it was a simple error
is just not believable. She was quite prepared to say nothing and
if National Revenue did not discover the misappropriated money
when looking for her claimed losses, that was quite satisfactory
to the Appellant.
[29] For all the
above reasons, the appeal is dismissed with costs.
Signed at
Toronto, Ontario, this 17th day of October 2002.
J.T.C.C.
COURT FILE
NO.:
1999-4482(IT)G
STYLE OF
CAUSE:
Marie-Claude Boucher
and Her
Majesty the Queen
PLACE OF
HEARING:
Victoria, British Columbia
DATE OF
HEARING:
September 23, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge Gordon
Teskey
DATE OF
JUDGMENT:
October 17, 2002
APPEARANCES:
For the
Appellant:
The Appellant herself
Counsel
for the
Respondent:
David W. Chodikoff
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-4482(IT)G
BETWEEN:
MARIE-CLAUDE
BOUCHER,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on September 23, 2002 at Victoria, British Columbia
by
the
Honourable Judge Gordon Teskey
Appearances
For the
Appellant:
The Appellant herself
Counsel
for the
Respondent:
David W. Chodikoff
JUDGMENT
The appeal from the assessment made under the Income Tax
Act for the 1988 taxation year is dismissed, with costs, in
accordance with the attached Reasons for Judgment.
Signed at
Toronto, Ontario, this 17th day of October 2002.
J.T.C.C.
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