Date: 20011210
Docket: 2001-937-IT-I
BETWEEN:
SUKHVINDER SHOKER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: Jasmine Sidhu
____________________________________________________________________
Reasonsfor
Judgment
(Delivered orally from the Bench on
October 23, 2001, at Vancouver, British
Columbia
McArthur J.
[1]
This is an appeal from an assessment for 1997 taxation year. The
predominant issue is whether the Appellant was properly assessed
for a gross negligence penalty under subsection 163(2) of the
Income Tax Act which penalty amounted to approximately
$1,450. The assumptions pleaded in the Reply to the Notice of
Appeal by the Minister of National Revenue with the
Appellant's comments are as follows:
(a)
The Appellant acquired a 1/3 interest in a property described as
2870 Pinewood Avenue, Prince George, B.C. on June 26,
1990;
(b)
The remaining 2/3 interest was owned in the property was owned
equally by the Appellant's parents;
(c)
The property was a single-family dwelling;
(d)
The Appellant rented the property from the time he acquired his
interest in it until its sale;
(e)
At all material times, the Appellant did not report the rental
income from the property;
(f)
The property was sold by the Appellant and his parents in October
1997;
(g)
The taxable capital gain was the Appellant's share of the
gain on disposition of the property for proceeds of $117,000;
The Appellant agrees with paragraph (a) to (g), inclusive.
(h)
The Appellant did not declare the taxable gain;
The Appellant agrees with paragraph (h) and this is the crux
of his argument in that he thought he had some room left in a
$100,000 exemption.
(i)
The gain from the disposition of the property was not an exempt
capital gain under the provisions of the Income Tax
Act;
The Appellant is unaware of the provisions in this regard.
(j)
The Appellant was a real estate agent from at least 1992 until
sometime in 1995;
(k)
At all material times, the Appellant was an active participant in
the real estate market;
(l)
At all material times, the Appellant maintained rental income and
loss records for the property;
The Appellant together with others, owned further
properties.
(m) The
Appellant's return for the 1997 taxation year was required to
be filed with the Minister on or before April 30, 1998;
(n)
The Appellant filed the Return with the Minister on August 7,
1998;
(o)
The Minister properly calculated the late filing penalty for the
Appellant's failure to file the Return by the required
date;
The Appellant agrees with paragraphs, (j), (k), (l), (m), (n)
and (o).
(p)
The Minister properly calculated the interest owed by the
Appellant respecting his 1997 taxation year; and
(q)
The Appellant knowingly or under circumstances amounting to gross
negligence made an omission in his 1997 taxation year return by
not declaring the taxable capital gain.
The Appellant disagrees with paragraphs (p) and (q).
[2]
The Appellant is a 35-year-old British Columbia resident. In the
late 1980s he, along or with others, began purchasing
income-producing properties. He sold at least two such properties
prior to 1997 and rightly claimed the capital gains tax exemption
of between $3,000 or $4,000 for each one. In his 1997 income tax
return, he declared ownership of four rental properties with a
total income of $29,760 and claimed a total rental loss of
$6,250. He had purchased the subject property for $72,800 with
his parents around 1990 and sold it in 1997 for $117,000. He
rented it off and on over his seven-year ownership, and was not
sure whether there was a rental loss or rental gain. In any
event, he never declared the property's rental history in any
year, nor did he report his share of the gain upon the sale in
1997.
[3]
The Appellant's position is that he did not report the sale
because he understood that he was exempt from tax under the
$100,000 exemption permitted and did not know that this exemption
was rescinded in about 1993. He had no explanation why he did not
declare the income over the years other than stating he owned the
property with his parents and was more relaxed with respect to
the accounting than other properties he owned. He had an
accountant do his return and could not explain why the property
was not declared with his other real estate. His parents, the
co-owners, did not testify. He stated that their English was
limited.
[4]
The position of the Respondent is that the Appellant knowingly,
or under circumstances amounting to gross negligence, made an
omission in his 1997 taxation year return by not declaring the
taxable gain. Counsel for the Respondent further added that the
Appellant had considerable real estate experience and that an
inference should be drawn that he knowingly did not advise his
accountant of the property, and he knew or ought to have known
that he did not declare a taxable gain, let alone rental
income.
Analysis
[5]
The Canadian tax system is a self-reporting and self-assessing
one which depends upon the taxpayer's honesty and integrity
for its success. I refer to decision of the Supreme Court of
Canada in McKinlay Transport Limited et al v. The Queen,
90 DTC 6243. Counsel for the Respondent also referred me to the
often-quoted case of Venne v. The Queen, 84 DTC 6247,
where Strayer J. of the Federal Court of Appeal stated at
6256:
... "Gross negligence" must be taken to involve
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. ...
[6]
Considering all of the evidence, I find on balance that the
Appellant's behaviour and misstatements in his 1997 return
showed an indifference as to whether the law was complied with. I
find that he knowingly withheld advising his accountant of his
interest in the property. He reported other properties that he
owned, apparently with partners. His accountant did not testify
and the Appellant stated that he could not locate him. I find
that hard to believe.
[7]
The Appellant had rental income from the property for six or
seven years without reporting it. He probably was in the rental
real estate business, and perhaps even as a trader in real estate
from 1989 to 1997. That is a question which is not an issue
before me. Pursuant to subsection 163(3) of the Act, the
Minister has the burden of proof and I find that the Minister
properly assessed the Appellant for gross negligence penalty in
accordance with subsection 163(2). The Appellant is liable for
interest arrears as calculated by the Minister as long as the
calculation itself is correct and it was not contested. I have no
jurisdiction over liability for interest. The Appellant does not
contest the late filing penalty. The appeal is dismissed.
Signed at Ottawa, Canada, this 10th day of December, 2001.
"C.H. McArthur"
J.T.C.C.
COURT FILE
NO.:
2001-937(IT)I
STYLE OF
CAUSE:
Sukhvinder Shoker and
Her Majesty the Queen
PLACE OF
HEARING:
Vancouver, British Columbia
DATE OF
HEARING:
October 22, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge C.H. McArthur
DATE OF
JUDGMENT:
October 30, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Jasmine Sidhu
COUNSEL OF RECORD:
For the
Appellant:
Name:
N/A
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
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