REASONS
FOR JUDGMENT
Masse D.J.
[1]
The Appellant is appealing Notices of
Reassessment dated February 20, 2009, made under the Income Tax Act,
R.S.C., 1985, c. 1 (5th Supp.), as amended (the “Act”), whereby the
Minister of National Revenue (the “Minister”) disallowed charitable donations
regarding the Appellant’s 2003, 2004, 2005 and 2006 taxation years.
Factual
Context
[2]
The Appellant currently resides in the city of
Brampton, Ontario. He works at Cadbury Chocolates. Years back, he met an
individual named William “Billy” Ankomah (“Ankomah”) who also worked at
Cadbury’s. Ankomah also did work as a tax preparer and has prepared the
Appellant’s tax returns for several years and did so, for the taxation years
under consideration here. Ankomah always e-filed the Appellant’s tax returns.
[3]
In computing tax payable for the 2003, 2004,
2005 and 2006 taxation years, the Appellant claimed federal charitable donation
non-refundable tax credits in respect of charitable donations allegedly made by
him. These claimed charitable donations are as follows:
|
2003
2004
2005
2006
|
Whit-Tee Youth Shelter
Canadian Foundation for Child Development
Unidentified charities
Unidentified charities
|
$5,200
$7,586
$8,500
$3,707
|
[4]
The Appellant was initially assessed and allowed
the federal charitable donation non-refundable tax credits, as claimed. He was
reassessed for those taxation years by Notices of Reassessment dated February
20, 2009. As a result of these reassessments, the Minister disallowed all of
the charitable donations allegedly made by the Appellant for each of those
taxation years.
[5]
The Appellant served a Notice of Objection to
the reassessments for those years on May 1, 2009. The Minister confirmed the
reassessments and issued a Notice of Confirmation dated May 2, 2016. Hence, the
appeal to this Court.
[6]
In his evidence, the Appellant indicated that
his tax preparer, Billy Ankomah, would come to his house to prepare his tax
returns. The Appellant is of African origin and he testified that he wanted to
improve the lives of people in Africa. Ankomah promoted some charities
supposedly associated with his church and he accepted charitable donations from
the Appellant of goods and cash on behalf of these charities. The Appellant did
not know anything about the charities being promoted by Ankomah. He does not
know what these charities did or where they were based. He never had any
contact at all with the charities. The Appellant testified that he did not know
anything about Whit-Tee Youth Shelter, the charity he supposedly supported to
the extent of $5,200 in goods and cash in 2003. He also stated that he does not
know anything about the Canadian Foundation for Child Development, the charity
to which he donated $7,586 worth of goods and money in 2004. For the 2005 and
2006 years, the Appellant is not able to tell us what charities he supported;
only that everything went to Ankomah’s church.
[7]
The Appellant testified that he gave mostly
goods to the charities but he also gave some cash. This was all given directly
to Ankomah and not to the charities themselves. The Appellant really does not
remember what property he gave to Ankomah. He states he gave more in the way of
property than he did in cash but he could not tell us how much was cash and how
much was property. Nor could the Appellant provide any details of the property
given other than some old furniture, a vehicle, old computers and various other
items. The Appellant did not have the goods appraised. The Appellant could not
produce any appraisal reports regarding the property allegedly given to the
charities. According to the Appellant, Ankomah looked after the valuation of
the goods. The Appellant could not produce any receipts at all for any of the
taxation years here under consideration. The Appellant testified that he had
asked Ankomah for receipts but Ankomah only gave him two or three receipts but
that was all. The only receipt the Appellant could produce was a receipt for
the 2002 taxation year (Exhibit A-1) in the amount of $8,640 from the Canadian
Foundation for Child Development. This is a significant amount. The 2002
taxation year is not the subject of the present appeal and therefore this
receipt is of no help to the Appellant. The Appellant surmised that this
donation could have been carried forward to the 2003 taxation year but this
simply is not so.
[8]
The Appellant also says that he would buy goods
on-line from Kijiji and then donate those goods to Ankomah’s charities. This
makes no sense at all. Why buy goods to donate when it is simply more effective
to give money?
[9]
The Appellant admits that he never reviewed any tax
returns before Ankomah e-filed them on his behalf. The Appellant states that he
always trusted Ankomah and never thought he would do anything wrong since he
was a man of God and he always went to church. It is to be noted that the
Appellant did not go to the same church as Ankomah since the two are of
different religions.
[10]
The Appellant testified that when he started to
get in trouble with the Canada Revenue Agency (“CRA”), he met Ankomah either in
2008 or 2009 and he asked Ankomah for the receipts in order to prove that he
had made the questionable charitable donations. The receipts were not
forthcoming. After a while, Ankomah simply disappeared from the Appellant’s
life and was never seen by the Appellant again.
[11]
Lucy Amatuzio has worked for the CRA for the
last 32 years; for 12 of those years she was an appeals officer and the last 5
years she was a project coordinator.
[12]
Ms. Amatuzio examined all of the electronic
documents that the CRA had on file with respect to the Appellant’s 2003 to 2006
taxation years. She produced to the Court hard copies of electronic documents
known as “Option-C” computerized printouts for each of those years. These
documents contain information pertaining to the income and deductions reported in the Appellant’s
personal tax return for any specific year. The information contained
thereon is cross-referenced to the corresponding numbered line on the personal tax
return.
[13]
Option-C for 2003 (Exhibit R-1) shows that in
2003, the Appellant earned $16,260 from T4 earnings, $10,731 from Employment
Insurance and $417 as Registered Retirement Savings Plan (“RRSP”) income for a total
income of $27,408 (line 150). He claimed charitable donations of $5,200 (line
340). This is a significant amount equivalent to 19% of gross income. The tax
preparer code was C2934 which is assigned to Guaranteed Income Tax Services
operated by Sandra Ankomah. This tax preparer is affiliated with Billy Ankomah.
[14]
Option-C for 2004 (Exhibit R-3) shows that in
2004, the Appellant earned $21,853 from T4 earnings, $8,999 from Employment
Insurance and $417 as RRSP income for a total income of $31,269 (line 150). He
claimed charitable donations of $7,586 (line 340). Again, this is a significant
amount, equivalent to 24.25% of his gross income. The tax preparer code was
E2614 which is assigned to Boulos Tax Services operated by Paul Soueidan, an
associate of Billy Ankomah.
[15]
Option-C for 2005 (Exhibit R-5) shows that in
2005, the Appellant earned $30,929 from T4 earnings, $5,757 from Employment
Insurance and $417 as RRSP income for a total income of $37,103 (line 150). He
claimed charitable donations of $8,500 (line 340) or 23% of his gross income.
The tax preparer code was E7739 which is assigned to JW Finances operated by
Jezrael Fernandez, another associate of Billy Ankomah.
[16]
Option-C for 2006 (Exhibit R-6) shows that in
2006 the Appellant earned $30,647 from T4 earnings, $6,608 from Employment
Insurance and $417 as RRSP income for a total income of $37,672 (line 150). He
claimed charitable donations of $3,707 (line 340) or 10% of his gross income.
The tax preparer code was F3427 which is assigned to Osbon Tax Services
operated by Jeffrey Osei Bonsu who is also believed to be an associate of Billy
Ankomah.
[17]
It is readily seen that the amount of claimed
charitable donations was a significant proportion of the Appellant’s gross
income for all of these years, ranging from a low of approximately 10% in 2006
to a high of 24.25% in 2004. I consider these to be very high percentages for a
person who is a low income earner and who, for a period of time every year, was
unemployed and collecting employment insurance.
[18]
Ms. Amatuzio testified that in March 2007, the Royal
Canadian Mounted Police (“RCMP”) and the CRA were investigating a group of tax
preparers who were defrauding the CRA by filing claims of fraudulent charitable
donations and claiming non-refundable tax credits on behalf of their clients
when, in fact, no charitable donations had been made and no charity had
received any charitable donations. Billy Ankomah was one such tax preparer. Ms.
Amatuzio testified that clients of Ankomah would pay him 10% of the
fraudulently claimed charitable donations, in return for filing the fraudulent
tax returns. This would result in the taxpayers receiving significant
non-refundable tax credits to which they were not entitled in respect of these
so-called charitable donations.
[19]
In May 2007, the RCMP raided the offices of
Ankomah and seized computers and papers as well as receipt books that were
blank but signed. The RCMP found documents that related to the Appellant among
those that were seized at Ankomah’s business premises.
[20]
Exhibit R-2 is a document titled “Tax Summary
2003” with respect to the Appellant. This document, found on the business
premises of Ankomah, contains information that is consistent with Option-C for
2003 (Exhibit R-1) in terms of employment income, employment insurance benefits
and charitable donations. The third page of Exhibit R-2 also shows that the
Appellant supposedly made charitable donations in the amount of $5,200 to
Whit-Tee Youth Shelter. Exhibit R-4 is a document titled “Tax Summary 2004”
with respect to the Appellant. Again, this document found on the business
premises of Ankomah, contains information that is consistent with Option-C for
2004 (Exhibit R-3) in terms of employment income, employment insurance benefits
and charitable donations. The third page of Exhibit R-4 indicates that the
Appellant supposedly made charitable donations of $7,585.50 to the Canadian
Foundation for Child Development. The fourth page of Exhibit R-4 is an invoice
for services rendered to the Appellant. The fees are for services described as
preparation of 2004 tax return and e-filing in the amount of $70 and “Advanced
payment due” in the amount of $758.55. This amount is exactly 10% of the
claimed charitable donations for that year. The full payment for these services
was due upon refund. This is consistent with the scheme operated by Ankomah as
described by Ms. Amatuzio. The Appellant says he has no knowledge of any
of this and he denies ever having paid any more than $40 for the preparation of
his tax returns. Specifically, he denies having paid Ankomah $758.55 on account
of “Advanced Payment Due”. He surmises that Ankomah made all this up and
fabricated this invoice. I do not accept this explanation.
[21]
The charitable registration number of Whit-Tee
Shelter Inc. was revoked and gazetted on November 3, 2007. The charitable
registration number of Canadian Foundation for Child Development was revoked
and gazetted on June 21, 2008. These revocations are pursuant to s. 168(2)
of the Act.
[22]
On October 16, 2009, Ankomah pleaded guilty
before the Honourable Justice Durno of the Ontario Superior Court of Justice to
one count of fraud over $5,000 for having prepared income tax returns for his
clients and claiming therein false charitable donations on behalf of his
clients. Ankomah received a jail sentence of two years less a day to be served
conditionally in the community, followed by probation for 24 months and an order
of forfeiture of crime-related property. Even though the indictment to which
Ankomah pled guilty was within the time frame of March 1, 2007 to May 31, 2007,
the facts read into the record in support of the guilty plea indicated that the
fraudulent activities attributable to Ankomah extended from 2003 to the 2007
taxation years. It cannot be disputed that during this time period, the tax preparer
for the Appellant was Ankomah.
Position
of the Parties
[23]
The Appellant argues that he did not know that
what Ankomah was doing was wrong. He is a naïve individual and he trusted
Ankomah because Ankomah was a man of God. The first time Ankomah asked for
donations, the Appellant was concerned and he asked if he would get in trouble.
The Appellant claims that he, in fact, made the charitable donations claimed
within the meaning of s. 118.1(1) and 118.1(3) of the Act. The
Appellant also argues that the Minister has not made out a case for reassessing
the Appellant for the 2003 and 2004 taxation years that are beyond the normal
reassessment period.
[24]
The Respondent admits that the 2003 and 2004
taxation years of the Appellant were reassessed beyond the normal reassessment
period of three years and the burden is on the Minister to justify this
reassessment. The Respondent submits that there has been a misrepresentation in
the filing of the Appellant’s 2003 and 2004 tax returns that is attributable to
neglect, carelessness or wilful default thus justifying the reassessment of
those two years beyond the normal reassessment period. The Respondent also takes
the position that the Appellant did not make any charitable donations in the
taxation years under consideration here and if he did, then the Respondent
claims that the charitable donations do not comply with subsection 118.1(2) of
the Act and Regulations 3500 and 3501 of the Income Tax Regulations.
The Respondent therefore submits that the appeal be dismissed.
Analysis
[25]
There are two issues to be determined in this
appeal:
a.
whether the appellant made a misrepresentation
attributable to neglect, carelessness or wilful default in filing his 2003 and
2004 tax returns, allowing the Minister to reassess those years beyond the
normal limitation period of three years; and
b.
whether the Appellant made charitable donations
in the amounts claimed, and if he did, whether he is entitled to claim a
charitable donation non-refundable tax credit for the 2003, 2004, 2005 and 2006
taxation years.
[26]
Subsection 152(4) of the Act reads in
part as follows:
152(4) The
Minister may at any time make an assessment, reassessment or additional
assessment of tax for a taxation year, interest or penalties, if any, payable
under this Part by a taxpayer or notify in writing any person by whom a return
of income for a taxation year has been filed that no tax is payable for the
year, except that an assessment, reassessment or additional assessment may be
made after the taxpayer’s normal reassessment period in respect of the year
only if
(a)
the taxpayer or person filing the return
(i)
has made any misrepresentation that is attributable
to neglect, carelessness or wilful default or has committed any fraud in filing
the return or in supplying any information under this Act, . . .
(b)
the assessment, reassessment or additional
assessment is made before the day that is 3 years after the end of the normal
reassessment period for the taxpayer in respect of the year and
. . .
(b.2) the assessment, reassessment or additional assessment
is made before the day that is three years after the end of the normal
reassessment period for the taxpayer in respect of the year and if
. . .
(4.01) Notwithstanding subsections (4) and (5), an assessment,
reassessment or additional assessment to which paragraph (4)(a), […] applies in
respect of a taxpayer for a taxation year may be made after the taxpayer’s normal
reassessment period in respect of the year to the extent that, but only to the
extent that, it can reasonably be regarded as relating to,
(a) where paragraph 152(4)(a) applies to
the assessment, reassessment or additional assessment,
(i) has made any misrepresentation made by the
taxpayer or a person who filed the taxpayer’s return of income for the year
that is attributable to neglect, carelessness or wilful default or any fraud
committed by the taxpayer or that person in filing the return or supplying any
information under this Act, . . .
[27]
The normal reassessment period is three years
from the date of assessment. If the Minister wishes to reassess a taxpayer
outside of this normal reassessment period, the Minister must satisfy a
two-part test as set out in Boucher v. Canada, [2004] F.C.J. No.169
(Fed. C.A.), at para. 5. There must be (1) a misrepresentation in the tax
returns of the year sought to be reassessed, and (2) such misrepresentation is
attributable to neglect, careless or wilful default in supplying the incorrect
information.
[28]
It has been held that any erroneous statement in
a return is a misrepresentation. In Nesbitt v. Canada, [1996] F.C.J No.
1470 (Fed. C.A.), Justice Strayer observed at paragraph 8:
[8] . . . It
appears to me that one purpose of subsection 152(4) is to promote careful and
accurate completion of income tax returns. Whether or not there is a
misrepresentation through neglect or carelessness in the completion of a return
is determinable at the time the return is filed. A misrepresentation has
occurred if there is an incorrect statement on the return form, at least one
that is material to the purposes of the return and to any future reassessment.
It remains a misrepresentation even if the Minister could or does, by a careful
analysis of the supporting material, perceive the error on the return form. .
. .
[29]
The neglect, carelessness or wilful default need
not be that of the taxpayer. The taxpayer will still be subject to having
his/her tax returns reassessed beyond the normal period if the
misrepresentation resulted from the conduct of the taxpayer’s agent such as an
accountant or tax preparer. In the matter of College Park Motors Ltd. v.
Canada, [2009] T.C.J. No. 316, Justice Bowie of this Court observed at
para. 13:
. . . Negligence
in the preparation of an income tax return retains its consequences under
subparagraph 152(4)(a)(i) whether it is the negligence of the taxpayer
personally or that of the accountant or other tax preparer who is his or her
agent. In Nesbitt v. The Queen, 96 DTC 6045, Heald J. held that a taxpayer
could not shield himself from the effect of subparagraph 152(4)(a)(i) by
blaming his accountant. The same considerations apply here.
[30]
This same theme was affirmed by the Federal
Court of Appeal in Vine Estate v. Canada, [2015] F.C.J. No. 651, where
Justice Webb observed at para. 43 that “. . . a misrepresentation could
be ‘attributable to neglect, carelessness or wilful default’ regardless of
whether the person filing the return or someone else was negligent, careless or
wilfully in default in making the misrepresentation”. In determining whether
the person filing a return that has been prepared by someone else is careless
or negligent, the degree of care that must be exercised is “that of a wise and
prudent person”. I refer to the decision of Angus v. The Queen, [1996]
T.C.J. No. 883, at para. 29. In Venne v. M.N.R., [1984] F.C.J. No. 314
(F.C.T.D.), neglect within the meaning of subsection 152(4)(a)(i) of the
Act is established if it is shown that the taxpayer has not exercised
reasonable care in filing his/her return. If a taxpayer entrusts another to
prepare his/her tax returns and does not bother to review the return before
filing it with the CRA, then that amounts to neglect.
[31]
Has there been a misrepresentation made in the
Appellant’s tax returns for 2003 and 2004? Based on the evidence before me, I
am satisfied on the totality of the evidence presented in this case that it has
been established on a preponderance of probabilities that the Appellant through
his tax preparer, Ankomah, made misrepresentations in his tax returns for 2003
and 2004. I conclude that it is more likely than not, that there were no
charitable donations made in 2003 and 2004 and if there were, then the amounts
reported were likely inflated and inaccurate. I so conclude for the following
reasons:
a. The Appellant was suspicious right from the very
beginning, of the legitimacy of what Ankomah was doing and asked him if this
scheme would get him in trouble. The Appellant certainly was prescient because
this scheme did get him in trouble. The Appellant, having had his curiosity
peaked by Ankomah’s scheme, should have investigated further into what his tax
preparer was doing.
b. The Appellant claimed that his 2003 charitable
donations were carried forward from 2002 – this is simply not true.
c. The ratio of the alleged donations compared to
the Appellant’s gross income for the 2003 and 2004 years is very high. In 2003,
the charitable donations amounted to 19% of his gross income and in 2004 the
charitable donations amounted to 24% of his gross income. The Appellant was a
low-income earner who was unemployed for a period of time each year and
collected employment insurance. It is highly unusual for a taxpayer of his
means to donate goods and/or cash of one-fifth to one-quarter of his gross
income to charity. This, among other factors, leads to a finding that the
charitable donations were at the very least inflated, if not, non-existent.
d. The Appellant claims that he wanted the people
in Africa to benefit but yet, he did not know anything about the charities,
Whit-Tee Youth Shelter Inc. or the Canadian Foundation for Child Development.
The Appellant could not provide any information concerning the causes or
programmes supported by these charities and he did not know where they were
based. He had no contact whatsoever, with any of these charities; he only had
contact with Ankomah.
e. The Appellant never gave anything to the
charities in question; if he gave anything, he gave it to Ankomah or to his
church. He never verified if any of the charities actually received the goods
and cash supposedly donated.
f. The Appellant had no particulars of what he
actually donated. He was unable to produce any records concerning any of his
charitable gifts. He has no bank records, no receipts, no cancelled cheques, no
itemized lists of goods donated, no appraisal reports regarding the goods
donated, no records regarding the dates and the amounts of cash that he would
have donated. He is unable to tell us how the goods donated were evaluated and
he is unable to tell us what goods he donated other than some old furniture,
old computers, a walker and an old car. Any prudent taxpayer would have kept
some documentation. I draw a negative inference from his lack of records.
g. The Appellant claims that he purchased used
goods on Kijiji, an on-line marketing site, and donated those same goods to
charity. We do not know what those goods were that he purchased on Kijiji, or
how much he paid for them or what valuation those goods were given for
charitable purposes. Purchasing used goods from Kijiji just to give them to
charity makes no sense. Why not just give cash and let the charity decide for
itself what items to purchase to best meet its benevolent goals? Purchasing used
goods on Kijiji leads me to believe that the valuation of the goods may not
have been the same as the purchase price.
h. Ankomah, who prepared the Appellant’s tax
returns, was clearly a very dishonest tax preparer who engaged in a scheme to
defraud the CRA by falsely claiming non–existent or inflated charitable
donations on behalf of his clients. At his guilty plea, it was revealed that
this fraudulent scheme extended back to 2003. Thus, there is a high likelihood
that Ankomah submitted fraudulent claims of charitable donations on behalf of
the Appellant, one of his clients, for 2003 and 2004.
i. Documents that were seized from the business
premises of Ankomah indicate that the Appellant was invoiced the amount of
$758, or 10% of the charitable donations that the Appellant claimed he made in
2004. This supports the contention of the Respondent that Ankomah was charging
his clients 10% of the face amount of the fraudulently claimed charitable
donations. I reject the Appellant’s evidence that he was unaware of this and
that he did not pay this amount to Ankomah.
[32]
The Appellant through the agency of Ankomah has
certainly made a misrepresentation in his tax returns. He knew or ought to have
known that the amounts of $5,200 and $7,586 were far in excess of any donations
actually made by him in 2003 and 2004 respectively. He was at the very least
neglectful in not reviewing his tax returns for 2003 and 2004 before Ankomah
e-filed them on his behalf. In the circumstances, the Minister was justified
to reassess beyond the normal reassessment period pursuant to subsection 152(4)
of the Act.
[33]
Having determined that the Minister was
justified in reassessing beyond the normal reassessment period, it is now
incumbent on the Appellant to satisfy this Court that he, in fact, made the
charitable donations he allegedly made during the taxation years under
consideration here. The burden of proof is now on the Appellant to demolish the
case for the Crown. I refer to the decision of Hickman Motors v. R.,
[1997] 2 S.C.R. 336.
[34]
The first step in doing so would be to obtain
and produce receipts issued by the registered charitable organizations.
Subsection 118.1(2)(a) of the Act provides:
118.1(2) An
eligible amount of a gift is not to be included in the total charitable gifts,
total cultural gifts or total ecological gifts of an individual unless the
making of the gift is evidenced by filling with the Minister
(a) a
receipt for the gift that contains prescribed information;
. . .
[35]
The Appellant was not able to produce a single
receipt supporting his claim of charitable donations during the taxation years
2003 through to 2006. Subsection 118.1(2) is mandatory and the failure to
comply with this subsection is fatal to any claim.
Conclusion
[36]
For all of the foregoing reasons, this appeal is
dismissed.
Signed at Kingston,
Ontario, this 17th day of October 2017.
“Rommel G. Masse”
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