Date: 20001122
Docket: 95-3156-IT-I
BETWEEN:
ANTHONY FOREMAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Rip, J.T.C.C.
[1] Anthony Foreman, the appellant, appeals from an assessment
for 1990 in which the Minister of National Revenue
("Minister") disallowed the appellant a loss of $29,854
from a purported chartered boat business. The Minister also
assessed the appellant a penalty pursuant to subsection 163(2) of
the Income Tax Act ("Act") since the
appellant knowingly, or under circumstances amounting to gross
negligence in carrying out the duty or obligation imposed under
the Act made or participated in, assented to or acquiesced
in the making of false statement or omission in the income tax
return filed for the 1990 taxation year, as a result of which the
tax that would have been payable on the information provided in
the appellant's income tax return filed for 1990 was less
than the tax in fact payable by the amount of $8,070.30.
[2] The Minister has also alleged that the expenses claimed by
the appellant are not reasonable and therefore, in accordance
with section 67 of the Act, are not deductible in
computing income.
[3] The appellant has also asked the Court for relief from the
payment of interest on tax payable under the assessment for 1990
since the time taken to reassess him was excessive. The appellant
was apparently assessed tax for 1990 by a notice of assessment
dated September 9, 1991 and reassessed on April 19, 1993. I do
not find that the time taken to reassess was excessive and, in
any event, there is no authority for me to relieve Mr. Foreman of
paying interest on the facts before me.
[4] Since the Minister assessed Mr. Foreman a penalty under
subsection 163(2) of the Act, the Minister has the
burden of establishing the facts justifying the assessment of the
penalty. Counsel for the respondent called Mr. Foreman as
his witness.
[5] Mr. Foreman is a retired police officer and during the
year in appeal worked with the Metropolitan Toronto Police
Force.
[6] In filing his 1990 tax return, Mr. Foreman reported income
of $56,000 from his employment and $4,388.89 as a withdrawal from
his Registered Retirement Savings Plan ("RRSP"). He
also reported gross income of $4,105 from a chartered boat
operation that was called "Gemini Charters". Net loss
from the operation of Gemini Charters in 1990, after expenses,
reported on Mr. Foreman's income tax return was
$29,853.
[7] Gemini Charters was registered with the appropriate
provincial Ministry. Mr. Foreman stated that he started
operating Gemini Charters in Spring, 1990. He intended to take
people fishing on Lake Ontario and on Lake Simcoe on a
20-foot Searay boat he purchased in 1987. The boat did not
have a toilet. The boat was used for pleasure by Mr. Foreman
during 1987, 1988 and 1989. In 1990, he stated, he used the boat
for both pleasure and business. He had no recollection at trial
on how many occasions in 1990 the boat was used for business
except that the boat was used "at least once a week and once
on a weekend". However, he also recalled that because of
shift work for the police some weeks he did no charter business.
The length of the fishing season was from May to late
October.
[8] The charge for the charter was ten dollars per person per
hour for an eight-hour day. Usually between two and four
people were on a charter.
[9] Mr. Foreman's personal bank account was used for both
Gemini Charters and his ordinary day-to-day expenses. He recalled
that he gave a receipt to his customers and kept a copy of the
receipts in a receipt book. He did not give a copy of the
receipts to the auditor when the tax authority audited him in mid
1992 since, he said, the receipt book was included in his tax
return and that he had no duplicate copies.
[10] Respondent's counsel, Mr. O'Donnell, reviewed the
statement of income and expenses that were included in Mr.
Foreman's income tax return for 1990. Gemini Charter's
cost of sales was $3,205.31 and his gross profit was $899.29. Mr.
Foreman had selling, general and administration expenses of
$30,753. Mr. O'Donnell questioned him as to his source
of funds to support his expenses since his income in 1990 from
his employment and the RRSP withdrawal was approximately $60,000.
Mr. Foreman replied that the accountant "determined"
the figures. He himself could not answer. He said that he is not
an accountant and that he does not understand such matters.
Mr. O'Donnell asked what type of work clothing Mr.
Foreman acquired for $489.75 in 1990. The appellant could not
answer. Mr. Foreman also claimed interest expenses of $1,000 but
did not know of any business or other loan he had outstanding in
1990.
[11] Mr. Foreman also claimed advertising expenses of $2,324.
He testified that his sole advertising was in an internal
magazine of the Metropolitan Toronto Police Force, "News and
Views", and flyers that he circulated to various police
stations in Metropolitan Toronto. The advertisements in News and
Views were what are usually called "tombstone"
advertisements, about one-eighth of a page, containing Mr.
Foreman's name and telephone number, the name of the
purported business and the type of boat and radio. The flyers
were copies of a page containing information that Gemini Charters
was "accepting bookings for fishing, etc." and Mr.
Foreman's name and telephone number. Mr. Foreman could
not recall how much he paid for advertising. He said that the
advertisements in the magazine ran for three months; News and
Views is published monthly. He also printed out business cards
for Gemini Charters which were similar to the
"tombstone" advertisements. When Mr. O'Donnell
asked him how he could substantiate advertising being more than
50 per cent of the gross revenue of Gemini Charters, Mr. Foreman
had no answer. He said that he is not an accountant.
[12] Mr. Foreman also claimed depreciation on a 1991 Chevy
Blazer that he acquired in the summer of 1990. He said that he
drove the car to and from work as a police officer and also to go
from work to the boat. He did not keep a log of kilometres driven
and he could not "estimate" what proportion of use of
the Chevy Blazer was for business and what portion was personal.
He stated that he had absolute faith in his accountant to make
this decision.
[13] Apparently there was great animosity between Mr. Foreman
and his representative on one hand and officials of Revenue
Canada on the other hand. Thus, when Revenue Canada wrote to Mr.
Foreman on September 10, 1992 asking him to provide any
additional information with respect to his income tax return
within ten days, he did not reply to the letter. Mr. Foreman said
that he had no faith in Revenue Canada. He also stated that much
of the material he gave to Revenue Canada was not returned to him
notwithstanding the contents of the receipt signed by Revenue
Canada when it seized the material and the receipt signed by Mr.
Foreman when material was returned to him by Revenue Canada.
[14] Mr. Foreman informed Mr. O'Donnell that he was not
surprised that he was entitled to a refund of $7,416. for 1990.
He said that he had complete faith in his accountant, Ms. Job.
Mr. Foreman's view was that if the accountant thought that
was what he ought to receive he was content. The business of
bookkeeping and tax preparation was carried on by a corporation
and Ms. Job was its principal shareholder. Many of Mr.
Foreman's colleagues used this accountant and referred Mr.
Foreman to her. He never asked Ms. Job for her background or
professional designation, if any.
[15] Giving his own evidence, Mr. Foreman indicated that in
1990 he had two sons out of work who helped him carry on Gemini
Charters. One son was age 20 the other 25 years. He anticipated
that with their assistance he would be able to create a business
and he anticipated acquiring a larger boat with washroom
facilities, for example.
[16] Mr. Foreman indicated that he had no idea how much money
he lost from the Gemini Charters in 1991. He stated that in 1991,
his family experienced difficult times.
[17] Mr. Foreman was unable to adduce any evidence that in
1990 he carried on a business. I found his testimony to be less
than truthful. To accept Mr. Foreman's evidence would
require me to find that he had no idea at all what his income and
expenses were in 1990. I would have to accept evidence for
example, that the taxpayer, a former police officer in a major
Canadian city, did not know if he had any outstanding loan and
could not inform me the amount of his advertising expenses in
1990. Anything his accountant suggested was alright with him even
though it was he who contracted for, and presumably paid the
expenses, including the costs of advertising. He let his
accountant not only calculate but also determine his expenses.
Mr. Foreman could not inform me how many charters he had in 1990,
or what proportion of the use of the boat was for business. He
replied the accountant "determined" the amounts.
Mr. Foreman's attitude was that a taxpayer need not
concern himself or herself with any of his or her income or
expenses; this is a job best left to the accountant.
[18] An accountant does not "determine" expenses.
Expenses are generally incurred before the accountant comes on
the scene. The accountant's client provides the accountant
with his or her expenses and income receipts. Hopefully the
expenses and receipts have been recorded by the taxpayer over the
year and is supported by receipts or other proof. The accountant
then puts the taxpayer's income and expenses in order and
prepares the necessary financial statements. It is the client, in
this case, the appellant, who has knowledge of his affairs. The
accountant only knows the information the client informs him or
her about. If the accountant goes off on a lark of his or her
own, the client, where the amounts are quite different from what
the accountant was given, should be aware and make corrections.
For a person such as Mr. Foreman to simply give his books and
records, whatever they were, to the accountant to prepare his tax
return and then absolve himself of any responsibility for the tax
returns is a reckless abandonment of any responsibility of any
duty or obligation imposed by the Act.
[19] Mr. Foreman was happy to learn he would get a tax refund
for 1990 and did not inquire how or why. Ms. Job, he said,
explained what she did but, Mr. Foreman said, he did not
understand her. I cannot accept his explanation.
[20] The penalty assessed to Mr. Foreman is in order. He
knowingly or under circumstances amounting to gross negligence,
in carrying out a duty or obligation imposed under the Act
made or participated in, assented to or acquiesced in the making
of a false statement in his 1990 income tax return and as a
result of which his return indicated the amount of tax he had to
pay was in fact $8,070.30 less than he ought to have been
assessed, and payable on May 1, 1991.
[21] This is not a case where any error is attributable only
to the accountant, as in Udell v. M.N.R.[1] In Udell, the taxpayer
kept meticulous records in an account book and gave the book to
his accountant to prepare his tax return. Complete and accurate
records were given to the accountant. Certainly, this is not the
situation at bar. Mr. Foreman was privy to any gross negligence
of Ms. Job. He knew – or was in a position to know –
that the tax return had errors. Mr. Foreman was indifferent as
whether the Act was complied with or not, so long as he
got a refund.[2]
[22] Mr. Foreman did not submit any evidence to establish that
the expenses he claimed were actually incurred by him in a
business or otherwise. Ms. Job was in Court during the appeal.
Mr. Foreman could have called her as a witness to explain how she
prepared his tax return and what material she relied on to claim
the expenses. She was not called and I infer that she could not
substantiate the claims. Also, absent the dispute concerning the
legitimacy of the expenses, there is no evidence before me on
which I could reasonably conclude Mr. Foreman was carrying on a
bona fide business in 1990. I do not know how many
charters he had and how he operated the charters, among other
things. I do have evidence of advertising but this alone does not
lead me to conclude that Mr. Foreman carried on a business.
[22] The appeal is dismissed.
Signed at Ottawa, Canada, this 22nd day of November 2000.
"Gerald J. Rip"
J.T.C.C.
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