Toronto, Ontario
‑‑‑
Upon commencing delivery of oral reasons on Tuesday, November 24, 2015 at 2:45
p.m.
DELIVERY OF ORAL REASONS:
JUSTICE ROWE: The
Appellant appealed from a reassessment with respect to her 2009 taxation year. In
filing the return for that year, she claimed certain losses which were denied
by the Minister of National Revenue in issuing the particular assessment. Again,
a situation where there had been a request to carry back non-capital losses.
Now, in the case
of Brisson v Canada, 2013 TCJ No. 210, Justice Valerie Miller dealt with
the situation of the imposition of penalties pursuant to subsection 163 of the Income
Tax Act, and at paragraph 24 of her judgment, she said this:
Pursuant
to subsection 163(3) of the Income Tax Act, the burden of establishing
the facts justifying the assessment of the penalty is on the Minister. The
Crown must therefore prove (1) that the Appellants made a false statement or
omission in their 2008 income tax returns, and (2) that the statement or
omission was either made knowingly, or under circumstances amounting to gross
negligence.
Paragraph
25: An abundant case law has developed with respect to the application of
subsection 163(2). Although each decision is deeply rooted in the specific
facts of the case, some broad principles have been enunciated by the courts.
26.
The following passage from Venne v The Queen, 84 DTC 6247 (FCTD), at
page 6256, has been quoted and referred to in numerous decisions of the Tax
Court of Canada and the Federal Court of Appeal and remains the seminal definition
of gross negligence.
“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.
27.
In Villeneuve v Canada, 2004 FCA 20, the Federal Court of Appeal found
that gross negligence could include wilful blindness in addition to intentional
action and wrongful intent. In this regard, Justice Létourneau stated the
following at paragraph 6 of that decision:
With
respect, I think the judge failed to consider the concept of gross negligence
that may result from the wrongdoer's willful blindness. Even a wrongful intent,
which often takes the form of knowledge of one or more of the ingredients of
the alleged act, may be established through proof of willful blindness. In such
cases the wrongdoer, while he may not have actual knowledge of the alleged
ingredient, will still be deemed to have that knowledge.
Justice Valerie
Miller goes on to say that since Villeneuve, it is well established that
actual knowledge by a taxpayer of the accountant's negligence is not required
for a finding of gross negligence, and there is reference to the case of Brochu.
Now, we are all
well aware of the decision of Mr. Justice Campbell Miller in Torres. That
decision was approved by the Federal Court of Appeal at 2015 FCJ No. 252. At
paragraph 4, Justice Dawson speaking for the court said:
First,
as conceded in oral argument by counsel for the appellant, the Judge made no
error in articulating the applicable legal test. Gross negligence may be
established where a taxpayer is willfully blind to the relevant facts in
circumstances where the taxpayer becomes aware of the need for some inquiry but
declines to make the inquiry because the taxpayer does not want to know the
truth.
The reference there
again is to the Villeneuve decision.
Then the judgment
of Mr. Justice Campell Miller in Torres, he discusses the various
indicia that are to be considered, considering the person's education and the
amount of the refund, whether there are any flashing red lights or flags, and whether
they basically knew what was going on and the magnitude of the advantage to be
gained.
In this
particular instance, the evidence of the Appellant - which I accept - is that
her tax returns had been done for many, many years by her sister‑in‑law
who she understood to have a university background with respect to accounting,
and in many years, she had obtained some refunds because of the deductibility
of union fees paid to teachers’ union or its equivalent, and also for an RRSP.
In 2004, 2005,
her sister‑in‑law Denise Hunt started to work for an entity called
DSC. The Appellant continued to get her taxes done there and would see her at
DSC and met a number of employees, including the receptionist.
Ms. Hunt died at
the end of January in 2010. At that point, Ms. Hunt had done the
Appellant's taxes up to the 2008 taxation year. So the Appellant goes to the
DSC office with her previous tax return in hand that had been done by her
sister‑in‑law and makes inquiries as to whether they would prepare
the return. She was informed that they would prepare the return by means of referring
it to somebody else. Ms. Sam asked, “Who is that person?” Well, the response
is, “Don't worry about it because that individual has done thousands of returns
and the return will come here and you come back and you can sign it.”
So, she goes back
there and she has a cursory look at it and signs the return and then signs the
loss carryback, but the actual return itself according to the book of documents
is flawed because there are some lines crossed out without any explanation as
to when or by whom, and as a consequence, any ambiguity there has to be resolved
in favour of the Appellant.
Now, practically
speaking and looking at this, especially when Ms. Sam was referred to Larry
Watts who told her don't worry about this and provided her with letters that
are complete nonsense, gobbledygook, and irrational stringing together of
words, she went along with it because she thought she was getting this advice.
That it was valid advice from somebody that should know what he was doing.
In contrast to
what is sometimes the situation in these cases, the Appellant was not pitched
to specifically hire Larry Watts or whoever did do that return as an agent for
DSC on the basis that there would be a refund. She wasn't specifically pitched
on the basis that when that refund came in, she would owe a percentage on a
sliding scale to the entity.
Her sister‑in‑law
had done her return for many years for about a hundred dollars and that seemed
reasonable, but also, it didn't seem unreasonable with a quotation by a person
called Janet at DSC that the return might be up to about $600. So there weren't
any real red flags or lights flashing at this particular point.
Where did Ms. Sam
go wrong subsequently? Well, fortunately, the refund wasn't sent out. Instead
of going directly to CRA, she went back to DSC, and I can understand that the
first time. But when that letter or letters were provided to her to sign and to
send back to CRA, they, in my opinion, were obviously so nonsensical that she
should literally just have torn them up.
But that does not
mean that she had the requisite intent at the outset. In my view of the
evidence, there was no actual knowledge by her of this scam and her acts and
omissions were attributable to human failure. They were attributable to
carelessness on her part. When as individuals who deal with these cases on a
regular basis see this kind of conduct, one has to be very careful not to
impose our concepts of awareness on people who are just seeking some advice.
This is not one
of those circumstances where the Appellant had been pitched on the basis that
somehow she could be separated from her social insurance number. Really, she
literally accepted the advice that she was given, but when you look at the
complete body of the evidence and her testimony, which I find to be credible,
it does not reveal that she qualifies to be the subject of the imposition of
the gross penalties imposed by the Minister pursuant to subsection 163(2) of
the Act.
As I said to
counsel who has the onus here, close, but this isn't horseshoes, and therefore,
the Appellant is entitled to that inability of the Crown to discharge its
burden. Therefore, the appeal is allowed.
The assessment is
referred back to the Minister of National Revenue for reconsideration and
reassessment on the basis that the penalty imposed with respect to the 2009
taxation year be deleted.
MR. RADNOFF:
Thank you very much, Your Honour. My client obviously thanks you, and the only
thing is if the appeal is allowed with costs. Shall we deal with that now?
JUSTICE ROWE:
You can. I want to tell you in these circumstances, I am not too eager to hand
out costs much.
MR. RADNOFF: I
understand, but in these circumstances, I think she unwittingly became involved
in something that she didn't feel ‑‑ having said that, I am asking
you for the benefit of my client, but I understand whichever order you make,
obviously ‑‑
JUSTICE ROWE:
Any comment on costs, Mr. Cheung?
MR. CHEUNG:
Just that, Your Honour, if the court is inclined to award costs, the Respondent
submits that tariff costs is appropriate.
JUSTICE ROWE:
Well, I was thinking of not even going that far. I was just thinking of a
fixed number.
MR. CHEUNG: In
that case, Your Honour, the Respondent suggests a fixed amount of $1,000
inclusive of disbursements.
MR. RADNOFF:
The reality is even if she was awarded $5,000 in costs, that would be a
fraction of what it costs reasonably for a taxpayer to come here.
JUSTICE ROWE:
I know.
MR. RADNOFF: I
would say $5,000 is not unreasonable. It is an amount that I think is fair.
She still has to ‑‑
JUSTICE ROWE:
How much are your disbursements?
MR. RADNOFF:
With the disbursements, it is about $400 to do the appeal, so I would assume
disbursements are between $750 to $1,000 roughly.
JUSTICE ROWE:
All right. I am also awarding costs in the sum of $3,000 plus disbursements.
MR. RADNOFF:
Thank you, Your Honour.
JUSTICE ROWE:
That is a fixed sum awarded pursuant to the relevant rule.
MR. RADNOFF:
Thank you.
--- Whereupon the oral reasons for decision
concluded
at 2:59 p.m.
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