Docket:
2006-1354(IT)I
BETWEEN:
CHRISTIANE LE TREMBLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
__________________________________________________________________
Appeal heard on
October 13, 2006, at Montréal, Quebec.
Before: The
Honourable Justice Alain Tardif
Appearances:
|
For
the Appellant:
|
The
Appellant herself
|
|
Counsel
for the Respondent:
|
Vlad
Zolia
|
_____________________________________________________________
JUDGMENT
The appeal from
assessments made under the Income Tax Act for the 2001 and 2002 taxation
years is dismissed and the penalties are confirmed, without costs, in
accordance with the attached Reasons for Judgment.
Signed
at Ottawa, Canada, this 16th day of November 2006.
“Alain Tardif”
on this 28th day of May 2007.
Gibson Boyd, Translator
Citation: 2006TCC568
Date: 20061116
Docket:
2006-1354(IT)I
BETWEEN:
CHRISTIANE LE TREMBLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an
appeal from assessments for the 2000 and 2001 taxation years essentially
pertaining to penalties assessed under subsection 163(2) of the Income Tax
Act (the “Act”).
[2] In assessing
the penalties provided in subsection 163(2) of the Act, the Minister of
National Revenue (the “Minister”) relied on the following facts:
[TRANSLATION]
8. .
. .
(a) concerning
the taxation years at issue, the Minister performed an audit using the deposit
method, and the Appellant acknowledged the unreported income that it revealed; (admitted)
9. The Minister determined that the Appellant
had knowingly or under circumstances tantamount to gross negligence, made a
false statement or omission in her income tax returns for the 2001 and 2002
taxation years, or had participated in, consented to or acquiesced to this
false statement or omission, resulting in the tax that the Appellant would have
had to pay according to the information provided for those years being less than
the amount of tax payable for those years:
(a) the
Appellant was aware of the professional fees that she earned because all
earnings were deposited to her bank books; (denied)
(b) inexistent
account books; (admitted)
(c) neglect
to submit all documents to the accountant; (denied)
(d) the
net worth method confirmed yearly that the Appellant’s cost of living
corresponded with her revised net income; (neither admitted nor denied)
(e) the
undeclared amounts represent 72% and 134% respectively of the net professional
income reported for 2001 and 2002. (admitted)
[3] The Appellant
admitted paragraphs 8 (a), 9 (a) and 9 (e).
[4] The Appellant
stated that she had never had any knowledge of how to account for the income
that she had to report. She indicated that she collected her professional fees
and deposited them to her bank account without thinking of the total amount.
She deposited the fees that she received and, as long as the deposits enabled
her to cover her various expenses, whether personal or professional, she did
not ask herself any more questions.
[5] The Appellant
also stated that she was not interested in anything to do with the accounting
of her income; all that mattered was to have enough income to meet her
obligations. She did not have the interest, the knowledge, the will to
understand or the time to do so given the demands of her workload. She put the
documents she thought were important in a plastic bag; she gave the contents to
an accountant who completed her tax returns.
[6] As the Appellant
had admitted that the accountant in question had used and taken into
consideration all information documents that she provided in order to calculate
her taxable income, consequently the Appellant must have omitted to supply
certain documents because the auditor’s verification of the deposits showed
that significant income had not been reported.
[7] She explained
that she worked very long hours as a self-employed psychologist in a private
clinic. She indicated that someone else did what she described as file
management, which included billings.
[8] She had two
types of patients, those who consulted her individually and those who were
under an assistance program. In the second case, the fees were paid to her by
the centre or the business responsible for the program.
[9] She explained
that she put everything concerning her fees and expenses pell-mell in a plastic
bag and submitted everything to an accountant at year end.
[10] Though she was
present at the hearing, the accountant did not testify, as the Appellant had
admitted that she had done the work correctly from the information that she had
provided. In other words, the Appellant acknowledged that the work performed by
the accountant based on the contents of the plastic bag was appropriate.
[11] During the
audit, the Appellant and her new accountant collaborated and provided
everything relevant. The Appellant submitted that the Court should take this
collaboration into account and set aside the penalties for this reason.
[12] Not being
interested in the tax treatment of one’s income, not understanding it or even
not wanting to understand it is not, in itself, reprehensible. However,
taxpayers are required to do what is necessary to compensate for this
shortcoming by entrusting the task to a competent person and, in particular,
provide that person with all relevant documentation required to prepare an
income tax return corresponding with the actual revenues and expenses.
[13] If a taxpayer is
ignorant or uninterested to the point of omitting to communicate certain
essential documents and information, he or she takes the risk of having serious
problems potentially resulting in reassessments and heavy penalties.
[14] Section 230 of
the Act reads as follows:
Records
and books
230. (1) Every person
carrying on business and every person who is required, by or pursuant to this
Act, to pay or collect taxes or other amounts shall keep records and books of
account (including an annual inventory kept in prescribed manner) at the
person's place of business or residence in Canada or at such other place as may
be designated by the Minister, in such form and containing such information as
will enable the taxes payable under this Act or the taxes or other amounts that
should have been deducted, withheld or collected to be determined.
[15] This is a legal
obligation that everyone must respect. It is not a simple obligation of means
where one must do one’s best according to one’s upbringing, education and
interest.
[16] Although, a
priori, taxation can be complex, this is not different from other fields of
activity. Indeed, automobile mechanics, construction, electricity and anything
relating to good health are fields where it is necessary to rely on skilled
individuals to solve certain problems.
[17] There are countless
fields in which the assistance of third parties is required. Taxation is not an
exception to this rule, especially if one does not have the interest, knowledge
or desire to do what is necessary to figure it out.
[18] In tax matters,
without being able to respect one’s obligations using one’s own knowledge and
experience, it is imperative to rely on skilled individuals. Ignorance and
inexperience are not acceptable excuses because everyone must report all
income.
[19] In this case,
the Appellant no doubt did not intend to deliberately hide certain income; in
other words, she had not set up a system designed to hide part of her income.
Is this a sufficient reason to set aside the penalties?
[20] I do not think
so. The Appellant was very well educated. She practised a professional
occupation and was the only one in charge of managing her revenue. The
Appellant stated that she had always acted in good faith. If she did not
declare all of her income, it was because she had no tax knowledge, was not interested
in this field and relied on an accountant to whom she had submitted documents
in a plastic bag and to whom she had assigned the task of completing her income
tax returns. All of the explanations submitted to the Court were moreover
consistent with the content of her Notice of Appeal:
[TRANSLATION]
1: I
never had any intention of not reporting my income to the tax authorities and I
find your claim that I “knowingly” (written in your letter of April 27) made an
omission in my returns is offensive, out of place and false.
I was working a lot
and I had complete faith in my accountant at the time, Patricia Ménard CA. She
seemed satisfied with the documents I submitted to her and I had complete faith
in her professionalism.
Furthermore, I was
never informed by anyone that the deposits were required to determine my income
since the invoices and stubs from my clients’ cheques seemed to be sufficient
for my returns.
2: On
that subject, I must point out to you that, at the time of Mr. Froment’s audit,
my current accountant, Mr. Correia, and I very quickly and efficiently provided
him with all the documents that he asked us for. I consider that if I had
wanted to “knowingly” make omissions, our work methods with Mr. Froment would
have been very different.
3: At our
first meeting with Mr. Froment, his unit head and my accountant, I stated
in front of everyone that I did not know anything about my income or any of the
tax procedures.
This declaration,
made in good faith, was sincere, honest and true. The proof is that after that
I hastened to provide Mr. Froment with all the requested documents and to pay
the taxes in arrears. I consider that this all demonstrates my good faith.
4: I
was informed by my accountant that he was never called or informed about the
progress of my application to set aside the section 163.2 penalties. He
only received your notice of April 27, 2006, with no possibility for discussion
of my case.
[21] The audit of the
Appellant’s deposit books revealed a substantial discrepancy between reported
income and real income, respectively evaluated by the Respondent at 72% for the
2001 taxation year and 134% for the 2002 taxation year. The Appellant’s
accountant did the same exercise based on her net income and came up with
discrepancies of 26% and 57%. Again, this is a significant difference between
reported income and real income.
[22] To conclude that
there was gross negligence, it is not necessary to demonstrate the intentional
or deliberate aspect or the setting up of a system designed to hide part of her
income.
[23] Nonchalance,
imprudence, negligence, total disinterest and absence of accounting records are
indeed sufficient to conclude that there was gross negligence, all the more so
when reported income is substantially lower than real income and when the
person put in charge of reporting has not received all information or
documentation to prepare the income tax return.
[24] Just being
uncomfortable with anything to do with taxes, or the Appellant’s ignorance,
lack of interest or excessive workload, do not diminish in any way her duty to
report all of her income. Being unable to meet this obligation on her own, she
had the responsibility to find an alternative that would have allowed all of
her income to be reported.
[25] The Appellant
should have compensated for her lack of interest, time and knowledge of the
field by hiring a qualified individual to set up an accounting system that
would report all of the Appellant’s income.
[26] This omission in
itself constitutes gross negligence justifying the penalties. To subscribe to
the Appellant’s explanations and excuses to justify setting aside the penalties
would result in limiting the application of the penalty set out in subsection
163(2) to situations where the taxpayer expressly intended to hide income.
[27] However,
commission of gross negligence can result from carelessness, negligence or
simply unjustifiable disinterest in one’s tax obligations, or, what often
summarizes all of these qualifiers, very convenient voluntary blindness.
[28] The excuses
submitted by the Appellant are not admissible to explain or justify the failure
to report a significant part of her income. Therefore I confirm the ground of
the penalties and dismiss the appeal, without costs.
Signed at Ottawa,
Canada, this 16th day of November 2006.
“Alain Tardif”
on this 28th day of May 2007.
Gibson Boyd, Translator
CITATION: 2006TCC568
COURT
FILE NUMBER: 2006-1354(IT)I
STYLE OF CAUSE: Christiane Le Tremble and Her Majesty
the Queen
PLACE
OF HEARING: Montréal, Quebec
DATE
OF HEARING: October 13, 2006
REASONS
FOR JUDGMENT BY: The Honourable Justice Alain Tardif
DATE
OF JUDGMENT: November 16, 2006
APPEARANCES:
|
For the Appellant:
|
The
Appellant herself
|
|
For
the Respondent:
|
Vlad
Zolia
|
COUNSEL
OF RECORD:
For
the Appellant:
For
the Respondent: John H. Sims, Q.C.
Deputy
Attorney General of Canada
Ottawa,
Ontario
Email this Content