Docket: 2007-3452(IT)I
BETWEEN:
DAVID ARTHUR PAUL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on March 13, 2008 at Toronto, Ontario
Before: The Honourable Justice G. A.
Sheridan
Appearances:
|
For the
Appellant:
|
The Appellant himself
and Bill Statten, CMA
|
|
Counsel for the
Respondent:
|
Hong Ky (Eric) Luu
|
____________________________________________________________________
JUDGMENT
The
appeals from the reassessments made under the Income Tax Act for the
2002 and 2005 taxation years are dismissed in accordance with the attached
Reasons for Judgment.
Signed at Ottawa, Canada, this 20th day of March, 2008.
"G. A. Sheridan"
Citation: 2008TCC159
Date: 20080320
Docket: 2007-3452(IT)I
BETWEEN:
DAVID ARTHUR PAUL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant,
David Paul, is appealing penalties assessed by the Minister of National Revenue
under subsection 163(1) of the Income Tax Act.
[2] Subsection
163(1) imposes penalties for a taxpayer’s repeated failure to report income:
(1) Repeated
failures. Every person who
(a) fails to
report an amount required to be included in computing the person’s income in a
return filed under section 150 for a taxation year, and
(b) had
failed to report an amount required to be so included in any return filed under
section 150 for any of the three preceding taxation years
is liable to a
penalty equal to 10% of the amount described in paragraph (a), except where the
person is liable to a penalty under subsection (2) in respect of that amount.
[3] In Maltais v.
Her Majesty the Queen[1], Bowman, J. (as he then was) held that the failure
described in subsection 163(1) was one of “strict liability”. To justify the
imposition of penalties under subsection 163(1), the Minister has only to show “… that
the taxpayer had failed to report an amount of income in one year and that he
or she had failed to report an amount in a return for any of the three
preceding taxation years.” Once this has been established, the onus shifts to
the taxpayer to prove that he exercised sufficient “due diligence” in reporting
his income to avoid liability under subsection 163(1).
[4] In the present
case, the Appellant admits that in 2000, 2002 and 2005 he failed to report
certain amounts received in respect of his employment and RRSP withdrawals. He
also accepts that he was obliged to pay the tax and interest owing in respect
of such amounts but asked the Court to relieve him from having to pay the
penalties assessed. In support of this argument, he testified that in the years
in question he had had a variety of employers and accordingly, had several
different T-4’s to keep track of. He further acknowledged that he was not a
very organized bookkeeper; his practice was to pass on whatever tax documents
he had accumulated for the year to his accountant, Bill Statten, upon whom he
relied to prepare his returns accurately. (I did not, however, take the
Appellant to be blaming his accountant for any of his own omissions.) Such was
his confidence in Mr. Statten that he assumed the returns to be correct and
signed them without reviewing the details of the information reported. Another
reason for his lack of concern was his (mistaken) belief that even if he did happen
to omit a T-4 or an RRSP withdrawal, such information would be reported to the
Canada Revenue Agency by his employers or the financial institutions concerned
and his omissions would be corrected accordingly. Finally, he explained that
his busy lifestyle (working, volunteering and providing for his children in
university) kept him from giving his full attention to his income tax returns.
[5] I do not doubt
the veracity of the Appellant’s testimony. The difficulty is that his reasons
for failing to report his income accurately for 2000, 2002 and 2005 fall short
of establishing the level of “due diligence” required to avoid liability under
subsection 163(1).
[6] In his very able
argument, counsel for the Respondent reviewed several decisions in which
taxpayers had tried to avoid liability under subsection 163(1)[3]. Whether due diligence had been established depends
on the particular facts of each case; in DeCosta v. Canada, Bowman, C.J.
listed some relevant considerations:
…
In drawing the
line between "ordinary" negligence or neglect and "gross"
negligence a number of factors have to be considered. One of course is the
magnitude of the omission in relation to the income declared. Another is the
opportunity the taxpayer had to detect the error. Another is the taxpayer's
education and apparent intelligence. No single factor predominates. Each must
be assigned its proper weight in the context of the overall picture that
emerges from the evidence.
[7] In the present
matter, there is no suggestion in the evidence (or from counsel for the
Respondent, for that matter), that the Appellant intended to deceive the
Minister in his manner of reporting. That, however, is not the issue in determining
his liability under subsection 163(1). Applying the factors in DeCosta, the
amounts omitted are significant in relation to the Appellant’s total income:
for example in 2005, his unreported employment income represented 44% of the
total income for that year; his unreported RRSP withdrawal, 65%. There was
nothing preventing the Appellant from checking the returns for errors or
omissions: because he collected the data reported by his accountant in his
returns, their accuracy depended on the completeness of the information he provided.
Mr. Statten presented the returns to the Appellant for his review prior to
signing; unfortunately, the Appellant failed to do so and accordingly, missed
one last chance to spot the rather large amounts omitted from his reported
income. As for his education and intelligence, the Appellant is a long-time
member of the workforce who understands his general obligation to pay all the
tax owing in each year. He gave me no reason to think he was not capable of
seeing to the accuracy of his returns. While I accept his evidence that he was
very busy, so are many other Canadian taxpayers who nonetheless, manage to file
their returns accurately. The Appellant’s case boils down to a lack of care,
precisely the evil that subsection 163(1) is aimed at correcting. To allow
these appeals would be wrong in law and unfair to the thousands of other
taxpayers, who each year, faithfully comply with their obligations under the Act.
[8] The legislation
imposes on every taxpayer a statutory duty to file a return for each taxation
year regardless of whether any income had been earned[5]. It also obliges the taxpayer to keep adequate books
and records[6], which in the case of an employee, means keeping
track of T-4’s from each of his employers in a particular taxation year. The
return must be signed by the taxpayer, certifying its completeness and
accuracy. The Minister’s duty is to assess the tax payable[7] based on the taxpayer’s information. Nothing in the Act
permits the taxpayer to rely on others to provide information which he himself
has omitted to report.
[9] As Woods, J. put
it in Saunders v. Her Majesty the Queen, “Parliament has enacted
subsection 163(1) to ensure the integrity of Canada’s
self-reporting system. In my view, a Court should not lightly vacate the
penalty provided for in the legislation.”[8]
In the present case, although I am sympathetic to the Appellant’s situation, he
has failed to establish that he exercised the sort of due diligence required to
permit me to vacate the penalty Parliament intended to impose under subsection
163(1) of the Act. Accordingly, the appeals are dismissed.
Signed at Ottawa,
Canada, this 20th day of March, 2008.
"G. A. Sheridan"
CITATION: 2008TCC159
COURT FILE NO.: 2007-3452(IT)I
STYLE OF CAUSE: DAVID ARTHUR PAUL AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: March 13, 2008
REASONS FOR JUDGMENT BY: The
Honourable Justice G. A. Sheridan
DATE OF JUDGMENT: March 20, 2008
APPEARANCES:
|
For the
Appellant:
|
The Appellant himself
and Bill Statten, CMA
|
|
Counsel for the
Respondent:
|
Hong Ky (Eric) Luu
|
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the
Respondent: John H. Sims, Q.C.
Deputy
Attorney General of Canada
Ottawa,
Canada
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