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Citation : 2004TCC530
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Date : 20040729
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Docket: 2004-104(IT)I
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BETWEEN:
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PAUL GAGNON,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
REASONS FOR JUDGMENT
Rip J.
[1] Paul Gagnon appeals from a penalty
assessed against him pursuant to subsection 163(2) of the
Income Tax Act ("Act"). The Minister of
National Revenue assessed the penalty on the basis that Mr.
Gagnon failed to include in his income for 2001 a dividend in the
actual amount of $75,000 which, grossed up in accordance with
subsection 82(1) of the Act, is $93,750.
[2] The Crown imposed the penalty for
several reasons, stated Ms.Sharon Batshaw, an auditor for
Canada Customs and Revenue Agency (CCRA), who audited Mr.
Gagnon's tax return and recommended the penalty. Mr.
Gagnon's income in 2001, excluding the dividend, was $209,000
and the omission represented a substantial portion, over 30 per
cent, of his total reportable income. The appellant was an
experienced businessman who in the past had reported dividends
from the corporation in question, Joli Fou Petroleum Ltd. . The
dividend was recorded in the corporation's books of account.
Both directors of the corporation, Mr. Gagnon and his wife,
passed the resolution on January 16, 2001 authorizing the payment
of the dividend on January 31, 2001, the corporation's
year-end. Mr. Gagnon signed the corporation's tax return and
his personal tax return for 2001.
[3] Ms. Batshaw described Mr. Gagnon
as a knowledgeable taxpayer, someone who at one time advised
persons how to claim business losses for tax purposes.
Mr. Gagnon also was alleged to have made several transfers
of property electing to defer gains in accordance with subsection
85(1) of the Act. He also negotiated the tax treatment of
Federal oil and gas issues with CCRA, she said. In short, Ms.
Batshaw considered Mr. Gagnon to be an experienced businessman
versed in at least some tax matters.
[4] Mr. Gagnon's position is clear
and simple. He does not deny the allegations of the Crown: the
dividend was paid to him in 2001 and he did not report the
dividend in his 2001 income tax return.
[5] He explained that on March 8, 2001
the corporation's erstwhile bookkeeper left the
corporation's employ. However, before leaving, the bookkeeper
made a note on a file that a form T5 should be issued to Mr.
Gagnon. The bookkeeper did not send out the form T5 to Mr.
Gagnon. The bookkeeper's replacement did not notice the note
on the file and no form T5 for 2001 was issued to Mr. Gagnon by
Joli Fou Petroleums Ltd. in respect of the dividend of $75,000.
When he signed his 2001 tax return in April 2002, Mr. Gagnon
"overlooked" the receipt of the dividend when he
reviewed the return and signed the certificate on his tax
return.
[6] Mr. Gagnon's 2001 tax return
was prepared by a chartered accountant. Mr. Gagnon stated
that the return had 59 attachments (which included 47 receipts
from registered charities). Because of the time elapsed from the
receipt of the dividend in January 2001 to the preparation of his
tax return in April 2002, coupled with the "complexity"
of the return with a large number of attachments, there was, he
claimed, "an understandable oversight" and no penalty
ought to have been assessed. As soon as Ms. Batshaw informed him
of the omission of the dividend, which was when he first became
aware of the error, he cooperated fully with CCRA and provided
the Agency with all the documentation requested.
Subsection 163(2) provides:
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, ... filed or made in respect of a taxation year ... is
liable to a penalty of 50% ...
[7] On the evidence before me I am
satisfied that Mr. Gagnon did not "knowingly" omit
to include the "grossed up" amount of the dividend in
his 2001 tax return. On the other hand, I am satisfied that the
omission was due to Mr. Gagnon's negligence. The issue
before me is whether the omission amounted to "gross
negligence".
[8] Mr. Gagnon suggested that he was
being held to a higher standard than CCRA itself. He produced two
Notifications of Confirmation of the penalty issued to him by
CCRA. One notification was a replacement of a prior notice.
The first Notification of Confirmation states he is liable for a
penalty of $4,516 and the latter notification states he is liable
for a penalty of $7,343.82. The Minister, Mr. Gagnon
argued, obviously made an error and if the Minister can err, a
taxpayer should not be held to a standard that does not tolerate
an error.
[9] Strayer J. defined "gross
negligence" as follows:
"Gross negligence" must be taken to involve a
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.[1]
[10] Mr. Gagnon's reason for not
reporting the dividend is that he did not receive a T5 form from
the corporation, and in any event it was over a year from the
receipt of the dividend in January 2001 to having to report the
dividend income when filing his return of income for 2001 in
April 2002.
[11] It is not the receipt of the T5 form
that triggers income; it is the receipt of the dividend. A payor
corporation may, for whatever reason, fail to issue a T5 form to
a shareholder but the shareholder is still liable to report the
amount (grossed up) of the dividend, for the taxation year he or
she received the dividend. Similarly, if a Canadian resident
receives dividend income in the year from a corporation resident
in a jurisdiction other than Canada, for example, the United
States, the Canadian resident must include the amount of the
dividend (in Canadian funds) in income for the year in his or her
Canadian income tax return. The Canadian resident taxpayer would
not have received a T5 form from the U.S. corporation although
the U.S. corporation may have sent the taxpayer a U.S. tax form
that is analogous to a T5 form.
[12] Depending on circumstances, one may
excuse an omission of dividend income in a taxpayer's income
tax return where the amount of the dividend is modest, relative
to the taxpayer's total income or where no T5 form was
received by the taxpayer. But in the case at bar the amount of
the actual dividend - let us ignore for the moment the amount of
"grossed up" dividend - was approximately 37 per cent
of Mr. Gagnon's declared income and over 25 per cent of
income that he ought to have reported.
[13] I do not find that the failure of the
corporation, a corporation in which the appellant is the sole
shareholder, to send to the appellant a T5 form is an oversight
or "good" reason for the omission or the amount of the
grossed up dividend in his declared income. Even with time, the
amount of the dividend ought to have struck a cord with Mr.
Gagnon when he reviewed and signed his tax return. The omission
of an amount of income by Mr. Gagnon was not due to a mere
mathematical error; the omission was caused by Mr. Gagnon's
personal failure to record or remember a significant amount of
income he received in the year. Mr. Gagnon's omission to
report the dividend was due to his gross negligence.
[14] The appeal is dismissed.
Signed at Ottawa, Ontario on July 29, 2004
Rip J.
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