Date: 20000824
Docket: 1999-3413-IT-I
BETWEEN:
MARTIN VALLERAND,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Tardif, J.T.C.C.
[1]
The appeal concerns the assessment of a penalty in respect of the
1996 taxation year.
[2]
Section 163(2) of the Income Tax Act (the
"Act"), which deals with 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 established that the Royal Canadian Mounted Police
("RCMP") had launched a police investigation into
possible anomalies or irregularities in the handling of certain
files, in which the office of Ratelle et Associés
Redressement financier ("Ratelle") was implicated.
[4]
At first, the investigation focused essentially on some of
Ratelle's practices and on its connections with the office of
a trustee in bankruptcy.
[5]
In the course of the investigation, it was noted that some
taxpayers might have received tax benefits the basis for which
was fictitious. From that point on, the investigation became a
joint investigation with Revenue Canada.
[6]
The RCMP and Revenue Canada investigators soon discovered that
several hundreds of files contained false and untruthful
information; indeed, they identified a number of fictitious firm
names that appeared on the income tax returns of a number of
persons.
[7]
Accordingly, in order to get to the bottom of the whole matter,
they decided to meet with all the individuals who were concerned
or who were associated with the presumably fictitious
businesses.
[8]
Ratelle described itself as a financial adjustment firm. Through
aggressive advertising, Ratelle targeted groups of
high-income employees generally working for the same
business. They were solicited through circulars and faxes
and—even more effectively—by word of mouth.
[9]
Various tactics were used. In the instant case, Ratelle held
itself out as having expertise in financial adjustment; in this
regard, it claimed to have numerous clients and businesses in
difficulty that could not take advantage of legitimate losses.
These losses could be transferred to the benefit of any
interested party in return for a percentage based on the benefits
obtained.
[10] In actual
fact, Ratelle prepared tax returns for clients who were looking
for tax refunds and set off against their incomes either a
business loss or a business investment loss.
[11] In the
case at bar, the appellant argued that he had incurred a gross
business investment loss in the amount of $10,750, or a
deductible loss of $8,062.50. He thus received a federal tax
refund of $1,825.82.
[12] The
appellant contended that he had acted in good faith when he
relied on the fact that Ratelle employed one or more chartered
accountants. According to the appellant, a taxpayer who turns to
a member of a professional corporation, an accountant for
instance, should trust him and have confidence in him.
[13]
Nonetheless, the appellant had felt the need to make some checks
to ensure that Ratelle was in fact a chartered accountant duly
registered with the Ordre des comptables. This reaction shows,
however, to what point real doubt existed about the legality of
what Ratelle's office had proposed.
[14] Taking
that step does not, however, justify the false and untruthful
return for the 1996 taxation year, which the appellant said he
had looked at and signed. His return contained false and
untruthful information which he certified to be true. When he
paid Ratelle the balance of what was owed under the agreement,
which was a percentage of his tax refund, he was given irrelevant
and false documents confirming that the scheme was
underhanded.
[15] Thus, if
he was so bent on acting correctly and lawfully, the appellant
should have done whatever it took to rectify the situation, since
at that time he had in his possession documents confirming his
initial concerns.
[16] But he
did not; he deliberately chose to hide behind Ratelle's
harebrained explanations in the belief that the fact that he had
dealt with an office that had an accountant protected him from
any blame and would be enough to put him in the clear should the
need arise.
[17] That was
certainly not conduct that was reasonable and beyond reproach.
Rather, it demonstrated a reckless attitude that made the
appellant a full accomplice in the scheme initiated by Ratelle.
The respondent met the burden of proof that was on her and
established that the appellant had made a false statement
amounting to gross negligence, which justified the assessment of
the penalty.
[18] The
respondent was fully justified in assessing the penalty.
[19] The
appeal is dismissed.
Signed at Ottawa, Canada, this 24th day of August 2000.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 23rd day of October
2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-3413(IT)I
BETWEEN:
MARTIN VALLERAND,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 8, 2000, at
Montréal, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Suzanne Morin
JUDGMENT
The
appeal from the assessment made under the Income Tax Act
for the 1996 taxation year is dismissed in accordance with the
attached Reasons for Judgment.
Signed at Ottawa, Canada, this 24th day of August 2000.
J.T.C.C.
Translation certified true
on this 23rd day of October 2001.
Erich Klein, Revisor
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