[OFFICIAL ENGLISH TRANSLATION]
Date: 20000824
Docket: 1999-2569(IT)I
BETWEEN:
SYLVAIN LAMARRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] The appeal concerns a penalty
assessed for the 1996 taxation year.
[2] Subsection 163(2) of the Income
Tax Act (the "Act") concerning the
assessment of penalties reads as follows:
(2) False statements or omissions. 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, form,
certificate, statement or answer (in this section referred to as
a "return") filed or made in respect of a taxation year
for the purposes of this Act, is liable to a penalty of the
greater of $100 and 50% of the total of
(a)
the amount, if any, by which
(i)
the amount, if any, by which
(A) the tax for the year
that would be payable by the person under this Act
exceeds
(B) the amount that would
be deemed by subsection 120(2) to have been paid on account of
the person's tax for the year if the person's taxable
income for the year were computed by adding to the taxable income
reported by the person in the person's return for the year
that portion of the person's understatement of income for the
year that is reasonably attributable to the false statement or
omission and if the person's tax payable for the year were
computed by subtracting from the deductions from the tax
otherwise payable by the person for the year such portion of any
such deduction as may reasonably be attributable to the false
statement or omission
exceeds
(ii)
the amount, if any, by which
(A)
the tax for the year that would have been payable by the person
under this Act exceeds
(B) the amount that would
have been deemed by subsection 120(2) to have been paid on
account of the person's tax for the year had the person's
tax payable for the year been assessed on the basis of the
information provided in the person's return for the year,
[3] The evidence showed that the Royal
Canadian Mounted Police ("R.C.M.P.") had commenced a
police investigation into possible anomalies and irregularities
in the handling of certain files in which the firm "Ratelle
et Associés Redressement financier"
("Ratelle") was involved.
[4] At the outset, the investigation
focused essentially on certain practices and ties Ratelle had
with the office of a trustee in bankruptcy.
[5] During the investigation,
investigators noted that certain taxpayers might have received
tax benefits on the basis of fictitious information. From that
point, the investigation became a joint investigation with
Revenue Canada.
[6] The R.C.M.P. and Revenue Canada
investigators very soon discovered that several hundreds of files
contained false and untruthful information; they identified a
number of fictitious firm names, which appeared on the tax
returns of a number of taxpayers.
[7] They therefore decided to meet
with all the individuals who were involved or connected with
presumably fictitious businesses in order to shed light on the
case as a whole.
[8] Ratelle called itself a firm of
financial adjusters. Aggressive in terms of advertising, Ratelle
went after groups of workers generally employed by the same
business and earning high incomes. It solicited clients by means
of circulars, faxes and, even more effective, word of mouth.
[9] Various tactics were used. In this
particular case, Ratelle presented itself as an expert financial
adjuster; as such, Ratelle said that it had numerous clients and
firms in difficulty that could not take advantage of legitimate
losses. These losses could be transferred in favour of anyone
interested in return for a percentage of the benefits
received.
[10] In actual fact, Ratelle prepared the
tax returns of clients seeking a tax refund and applied against
their incomes either a business loss or a business investment
loss.
[11] The appellant argued that he was of
good faith when he relied on the fact that Ratelle employed one
or more chartered accountants in the firm. According to the
appellant, a taxpayer who turns to a member of a professional
corporation, such as an accountant, must rely on that person and
have confidence in him or her. Interested in Ratelle's
proposition, the appellant explained that he and a friend of his,
Martin Vallerand, also an appellant in a similar file, had
questioned Ratelle's employees at length. He also said that
the answers to some of their questions took time to obtain.
[12] The appellant also said that his
colleague had checked with the Ordre des comptables
agréés du Québec to ensure that Mr. Ratelle
was indeed a chartered accountant.
[13] As a result of their inquiries, the
appellant decided to avail himself of Ratelle's offer, which
would give him a sizeable tax refund, specifically,
$4,988.20 in terms of federal taxes alone. He went ahead,
claiming that he had to have confidence in a reputable and
responsible business since it employed a real chartered
accountant.
[14] An engineer by training, he testified
that, to his knowledge, even though he was ignorant of such
matters, there were numerous tax shelters and he believed that
the one proposed by Ratelle was legitimate.
[15] Accordingly, he signed his tax return
for the 1996 taxation year, certifying that all the information
it contained was accurate and complete. His return reported a
gross business investment loss in the amount of $35,780,
entitling him to a deduction of $26,835.
[16] According to the appellant, at the time
the return was signed, Ratelle had given him no documentation to
substantiate the loss, even though it was quite substantial in
view of his income of $45,213.94 for that year. He accepted
Ratelle's explanations that the office was overloaded at tax time
and that he would eventually be provided with the relevant
documents.
[17] When he received his tax refund,
Ratelle claimed from him the amount owed that was established on
the basis of an agreed percentage. The appellant then made the
payment conditional on being given the documents supporting the
loss claimed. Given Ratelle's insistence, he finally paid the
firm and obtained a document that he himself described as
incomplete and irrelevant.
[18] Even though these new facts made him
suspicious for a second time, he did nothing to correct the
situation and refused to co-operate with the investigators. He
preferred to depend on Ratelle and argue that he had nothing to
reproach himself for doing business with an office that employed
a chartered accountant.
[19] The facts following a tax return have a
relative importance in that they essentially make it possible to
better understand the circumstances prevailing at the time of the
statement certifying that all the information was accurate.
[20] I do not believe that there can be any
circumstances that could justify a false and untruthful statement
in a case where the person signing that statement knew or ought
to have known that the information provided was false,
particularly when the statement in question has a significant
impact on that person's tax burden.
[21] In the case at bar, the appellant had
never invested in or made any disbursements to and never operated
or been associated with the company that generated the loss
claimed. It may be possible to conduct business without making
any disbursements; this implies, however, that there has been a
bona fide and formal undertaking at the completion of
which the person making the undertaking will pay the
consideration agreed upon regardless of the outcome of
events.
[22] According to the appellant, he
purchased an undefined and unidentified right, which the evidence
also established as being unreal, in consideration of which he
did not have to pay anything if the venture did not turn out to
his benefit.
[23] To believe that such a scenario is
legal suggests such a degree of naivety that it must be
characterized as gross negligence.
[24] I do not believe that the appellant was
so naïve; rather, he deliberately closed his eyes when he
relied on the fact that everything had been orchestrated by a
real chartered accountant who would eventually assume liability
if the deduction were disallowed.
[25] Beyond the explanations that may have
guided the appellant, there remains one objective and inescapable
fact. He did indeed make a false statement and provided false and
untruthful material information on his tax return that had
significant consequences on his tax burden.
[26] He himself certified that the contents
were complete and accurate, which in itself is more than enough
to find that the penalty was warranted.
[27] The fact that the appellant and his
friend, Vallerand, felt the need to make some inquiries to ensure
that Mr. Ratelle was indeed a chartered accountant duly
registered with the Ordre des comptables shows the extent to
which they harboured some real doubts as to the legality of what
Mr. Ratelle's firm was proposing.
[28] That action does not justify the false
and untruthful statement, which he did indeed read before signing
his return.
[29] The appellant deliberately chose to
fall back on Ratelle's far-fetched explanations believing that
doing business with an office in which there was a chartered
accountant would protect him from any blame and be sufficient to
show his good faith.
[30] Such conduct was certainly not
reasonable and beyond reproach. The appellant rather acted
recklessly to the point where he made himself fully complicit in
the scheme initiated by Ratelle.
[31] Accordingly, the respondent was fully
justified in assessing the penalty.
[32] The appeal is therefore dismissed.
Signed at Ottawa, Canada, this 24th day of August 2000.
J.T.C.C.
Translation certified true
on this 16th day of September 2003.
Sophie Debbané, Revisor
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