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Citation: 2004TCC224
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Date: 20040505
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Docket: 2001-4125(IT)G
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BETWEEN:
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EDDIE MARQUIS,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR AMENDED JUDGMENT
Bédard J.
[1] These are appeals heard under the general procedure from assessments in respect of Mr. Eddie Marquis for the 1994 and 1995 taxation years. These assessments were made after the normal assessment period. In filing his income tax returns for those years, Mr. Marquis had failed to report his employment income earned in Algeria, as well as taxes paid on his behalf by his employer to the Algerian government. The Respondent alleged that Mr. Marquis had negligently made a misrepresentation when filing his income tax returns for those years.
[2] In this case, the only question at issue is to determine whether the misrepresentation made by Mr. Marquis in filing his income tax returns for the 1994 and 1995 taxation years was attributable to neglect, carelessness or wilful default under paragraph 152(4)(a) of the Income Tax Act (the "Act").
[3] Mr. Marquis appeals from the confirmation by the Canada Customs and Revenue Agency of the notices of assessment for the following reasons, set out in paragraph 6 of the Notice of Appeal:
[translation]
- The Notices of Reassessment issued by the Canada Customs and Revenue Agency for the 1994 and 1995 taxation years are out of time;
- There was no misrepresentation on the part of the Appellant that was attributable to carelessness or wilful default, nor was there a commission of fraud to circumvent the time period set out in the Act for issuing a notice of reassessment;
- Further, at all relevant times hereto, the Appellant's employer at the time represented him, a foreign employer within the meaning of the Act, that the income received for services rendered in Algeria was not taxable in Canada especially since taxes were payable directly by that employer;
- At no relevant time hereto did the Appellant believe that he was required to report income earned abroad when he in fact lived abroad.
[4] In order to issue and confirm assessments currently at issue, the Minister of National Revenue relied on the following assumptions of fact, which are set out in paragraph 5 of the Reply to the Notice of Appeal:
[translation]
(a) In his income tax returns filed in Canada for the 1994 and 1995 taxation years, the Appellant indicated that he was a resident of Canada and that he had not ceased to be a Canadian resident during those years.
(b) During the 1994 and 1995 taxation years, the Appellant was employed by Kellogg International Services Ltd. ("Kellogg").
(c) Kellogg is a foreign company based in the Cayman Islands.
(d) Kellogg and the Appellant entered into a contract of employment whereby the Appellant undertook to work for Kellogg in Algeria.
(e) For the years at issue, the Appellant received the following employment incomes from Kellogg:
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Amount in US dollars
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Amount in Canadian dollars
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1994
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$31,883
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$43,457[1]
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1995
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$87,355
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$119,677[2]
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. . .
(g) The contract entered into between Kellogg and the Appellant specifically stated that the Appellant was responsible for filing his income tax returns in his country of residence.
(h) The contract of employment also stipulated that Kellogg was responsible for paying the taxes payable by the Appellant in Algeria, not in Canada.
(i) Kellogg paid the Algerian tax authorities the following amounts, as taxes due by the Appellant:
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Amount in US dollars
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Amount in Canadian dollars
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1994
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$3,178
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$4,331[3]
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1995
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$19,827
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$27,163[4]
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. . .
(k) In his income tax returns for the years at issue, the Appellant neither reported the employment income received from Kellogg, nor the taxes paid by Kellogg to the Algerian government on the Appellant's behalf.
(l) In his income tax returns for the years at issue, the Appellant only reported the following amounts:
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1994
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1995
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Quebec Pension Plan benefits
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$5,887
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$5,887
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Old Age Security Pension
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$1,184
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$5,887
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$7,071
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. . .
Analysis
[5] Subparagraph 152(4)(a) of the Act is written as follows:
. . .
(a) the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or
. . .
[6] In this case, the Respondent had the burden of showing that Mr. Marquis, in filing his income tax returns for the 1994 and 1995 taxation years, had failed to report his employment income earned in Algeria as well as the taxes paid on his behalf by Kellogg to the Algerian government, the failure of which was attributable to neglect, carelessness or wilful default. In other words, the Respondent had the burden of showing that Mr. Marquis had not exercised due diligence, or the diligence of a normal, sophisticated and prudent taxpayer.
[7] It should immediately be noted that in his Notices of Objection and his Notice of Appeal, Mr. Marquis had argued that Kellogg had confirmed to him that his employment income earned in Algeria was not taxable in Canada. However, he admitted at the examination for discovery and at the hearing that Kellogg had not made that affirmation to him.
[8] The evidence indicated that almost 20 years ago, a foreign company had hired Mr. Marquis to render services to a French stationery business. He and his wife had then left Canada to settle in France. He was an employee of that French stationery company for over two years. During that period, he had not filed income tax returns in Canada because he had been told that he was a non-resident of Canada. So, he had opened a bank account in Scotland into which the foreign company deposited his employment income earned in France. Mr. Marquis' explanations given during cross-examination by counsel for the Respondent about the reasons for opening up that Scottish bank account and failure to report interest on amounts deposited in that account are worth noting:
[translation]
Q. O.K. When did you open your bank account in Scotland?
A. Well, I opened it when I went to France.
Q. Why did you open an account in Scotland?
A. Well, for the same reasons, because the pay was transferred to another account at that point. So we, the company who hired us suggested that we open an account in Scotland or some place like that.
Q. Why? To get away from the taxation authorities?
A. No, to have the money work for us a bit, because at that time, interest rates were good.
Q. And so, around what time, uh, did you work in France?
A. In 85, 86.
Q. 85, 86.
A. Something like that.
Q. O.K. So, after that, you returned to Canada?
A. Yes.
Q. Now, you mentioned that the money was working for you, so I assume that in your Scottish account, there was money that stayed in that account?
A. Yes, there is a bit of money that remained in that account, that is correct.
Q. Which generated income from interest?
A. Yes. Not much, but yes.
Q. And you did not report this interest income in Canada.
A. No.
Q. Why not?
A. Well, I don't know, I guess because it was never an issue.
Q. No, no, I am asking you a question, what I am saying . . .
A. Well, I don't know.
Q. You a have a foreign account, you have income, you came back to live in Canada, I am asking you a question.
A. Yes.
Q. Why did you not report your interest income?
A. Well, it never occurred to me that I was required to pay taxes on it. Besides, I had no official statement from the Bank that had paid me interest.
Q. Ah! Except that you, you know that you had earned interest and you know the approximate amount.
A. No, I do not know the amount.
Q. Ah, O.K. Perhaps you did not make the effort to find out.
A. No, not really.
[9] The evidence revealed that the Appellant himself filed his income tax returns. He reported not having felt the necessity of consulting a third party to help determine the Canadian tax treatment of his employment income earned in Algeria. Mr. Marquis' explanations for not reporting such incomes in Canada are also worth citing:
[translation]
Q. Why did you not include the income that you earned in Algeria in your 1994 and 1995 income tax returns?
A. Well, I, in my mind, I thought I did not need to report it. Can I explain why?
Q. Yes, that is what I am asking you.
A. Well, first of all, I was going to work in Algeria where one can easily be killed. I had been recruited, and not here, somewhere else, I was recruited by an American company, not here, but elsewhere, I was paid through a third country, so, once again, since the money was deposited in a fourth country, once again not here. So, we are quite far from the Canadian tax authorities. I did not believe I was required to report that income.
[10] The contract of employment entered into by Kellogg and Mr. Marquis specifically set out that the Appellant was responsible for paying taxes in his country of permanent residence (clause L of the contract of employment at Tab 10 of Exhibit I-1). The same clause stipulated that Kellogg was in charge of paying the taxes payable by Mr. Marquis in Algeria but not in his country of permanent residence. When cross-examined by counsel for the Respondent, Mr. Marquis admitted that he did not recall having read that clause. He clearly admitted, however, after reading the clause at the hearing, understanding the meaning and realizing that he should have reported his employment income in Canada.
[11] Admittedly, Mr. Marquis' credibility was affected by his admission that Kellogg had never told him that he did not have to report his employment income earned in Algeria in Canada, as he had so claimed in both his Notices of Objection and in his Notice of Appeal, as well as through his testimony regarding the opening of a bank account in Scotland and his failure to report the interest earned on the amounts deposited in that account.
[12] Therefore, it is hard to believe, as argued by Mr. Marquis' counsel in her submission, that Mr. Marquis acted in good faith and was justified in believing that the tax treatment of his employment income earned in Algeria should be the same as that of his employment income earned 20 years earlier in France. In fact, she argued that her client had not been negligent in not consulting an expert to help him determine the Canadian tax treatment of his employment income or in not reading the clauses of his contract with Kellogg because he was justified in believing that the situation he had known 20 years earlier in France would repeat itself.
[13] Mr. Marquis' explanations basically appeared to me as being not very credible considering his overall and unlikely testimony, and given the numerous factual differences between the French situation and the Algerian situation. In my opinion, Mr. Marquis had simply displayed wilful blindness.
[14] Therefore, I find that the Respondent met the burden of proof, showing that Mr. Marquis had made a misrepresentation attributable to neglect in filing his income tax returns for the 1994 and 1995 taxation years. It was able to show that Mr. Marquis had not exercised due diligence, or the diligence exercised by a normal, sophisticated and prudent taxpayer.
Signed at Ottawa, Canada, this 5th day of May 2004.
Bédard J.
Translation certified true
on this 14th day of June 2004.
Maria Fernandes, Translator
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