Teskey J.T.C.C.:—The appellant elected to have these appeals from assessment of income tax for the years 1989 and 1990 heard pursuant to the Informal Procedure Rules.
Issue
The sole issue before me is the penalties imposed by the Minister of National Revenue (the "Minister") pursuant to subsection 163(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") on unreported income for these two years.
Facts
The appellant, at all relevant times, was one of three shareholders of Beothuk Data Systems Ltd. ("Data"), the other two shareholders being H.G. Benson ("Benson") and M.L. Siegel ("Siegel").
Benson, Siegel and the appellant were the only directors of Data. Each was an officer, the appellant being vice-president, the other two being the president and secretary-treasurer.
All three shareholders had loaned money to Data and personally guaranteed bank loans to Data. For this, they received monthly interest cheques from Data.
In both 1987 and 1988, Data issued TS’s to the shareholders showing the amount of interest each received in the year from Data.
In February 1990, the president, on behalf of the shareholders, instructed Neil Young ("Young"), Data's controller, not to issue TS’s to the shareholders for the interest that they received.
Young, knowing that the Act provided for T5's to be issued, prepared a memo and hand delivered the memo (R-1) to each shareholder (including the appellant). This memo reads:
Subject: Interest paid to shareholders in 1989
For taxation year 1989 you will not receive a T-5 form reporting interest paid to you by Beothuk Data Systems Ltd.
You are reminded that you must report this income for tax purposes — and that you may offset this income with interest paid by you in taxation year 1989.
The appellant says he read all memos, and I especially find that Young handed this memo (R-1) to the appellant who read the same. The appellant claims he must had misfiled the memo.
Young was not challenged, either by cross-examination or by rebuttal evidence, that the instructions not to prepare T5 for this shareholder interest came to him on behalf of all shareholders. I therefore find that the directors decided they could bury this extra income and that was why Young received these instructions.
On the evidence of the instruction to Young and Young's memo, I am satisfied the appellant deliberately did not declare the interest income from Data in the years 1989 and 1990.
I must say that even if acceptable evidence had been adduced by the president, that the appellant did not know or have any part in the decision not to have TS’s issued, the appeal would still fail.
The memo of Young brought forcibly to the appellant that, in 1989, there was interest paid to him that was taxable. The appellant over 1989 received $9,748.25 in monthly cheques as the interest was calculated each month. Thus he received a cheque of approximately $800.00 each month without a payroll slip. In 1990, he received a total of $8,393.96 or approximately $700.00 each month without payroll slips.
As a director of Data, it was his duty to know what was going on. Even if over the year 1989 he did not realize these amounts were taxable or would not be included in a T5 or T4, the memo from Young would dispel any false delusions in this regard.
I do not accept the appellant's statement that he believed the interest income was included with his employee income and shown on the T4 that he received. The interest income was never included in the T4's that he received from Data.
From the evidence before me, I can only conclude that, either the appellant deliberately took part as a shareholder, a director and an officer of Data to arrange that Data would not issue T5's for the interest paid out, so that each one of them could deliberately and knowingly not declare this interest income on their T1 income tax returns. Or that the appellant was so negligent and wilfully blind in his obligations and duties, both as a director of Data and as an individual when signing his T1 income tax returns in both years, that his actions and lack of inquiry constituted gross negligence.
If I had to make only one determination herein, I would determine that the appellant knowingly omitted to declare the interest income.
The appeals are dismissed.
Appeals dismissed.
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