Charles J. Asselin v. Her Majesty the Queen (Informal Procedure), [1995] 1 CTC 2957, 96 DTC 1342

McArthur J.T.C.C. (orally):-! am prepared to give judgment in Charles J. Asselin v. The Queen.

This appeal was heard in Winnipeg under the informal procedures of this Court with respect to the appellant’s 1990 and 1991 taxation years. The issue 1S:

...whether the appellant knowingly or under circumstances amounting to gross negligence in carrying out a duty or obligation imposed under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") made or participated in, assented to or acquiesced in the making of a false statement or Omission in the income tax returns filed for the 1990 and 1991 taxation years, as a result of which the tax that would have been payable assessed on the information provided in the appellant’s income tax returns filed for the 1990 and 1991 taxation years, was less than the tax in fact payable.

The issue is whether the Minister properly applied a penalty thereto pursuant to subsection 163(2) of the Act.

The relevant facts not in dispute include the following, and for the most part are taken from the notice of appeal and the respondent’s reply to the notice of appeal.

The appellant read and put in testimony a prepared text, and basically it includes pages 1, 2 and 3 of a six-page document constituting his notice of appeal:

Prior to 1990, I always had prepared my own returns. In 1988, I received a notice of assessment statement that informed me that I had made an error and had to repay $347.94. I promptly, without question repayed this amount. The fact that I made an error and such an expensive one at that disturbed me. In discussing this at work over coffee, a co-worker recommended his accountant to me. Her name is Elaine Vande Vyvere.

I contacted this person to prepare my 1990 return. She had me drop my stuff off at her home. We talked briefly but there wasn’t a whole lot to go over. It seemed pretty standard.

I phoned her back a few weeks later and she informed me that I’d be getting back something like $1,800. I went down to her place to review and sign the form. The amount of refund on the form was $1,800.

Some weeks later, my wife phoned me at work and asked me to guess the amount of my refund. I was flabbergasted when she told me it was for $2,900. But I had earned a sizeable company bonus that year (my first). It came in the form of a cheque with income deducted. Almost half of the bonus was deducted for income tax. Since then, the company has only taken 10 per cent off for tax.

I assumed that I had been overtaxed on my bonus and Revenue Canada had corrected this. (See statement from Revenue Canada 1989 against 1990.)

I had no reason to suspect anything was out of the ordinary. Nothing in the notice from Revenue Canada alerted me to any problems.

We used Elaine again the next year and received a refund of $1592.48.

In the spring of 1993 my wife received a letter from Revenue Canada requesting receipts for babysitting services. When my wife called Dan Salupa, for clarification. He indicated the names of Arlette Brown and Colleen Paavola were on her return as having done some babysitting for her. My wife was shocked and thought there was some kind of mistake made by Elaine. We’ve never heard of Arlette Brown. We knew Colleen, but she’d never babysat for us. Then Mr. Salupa said that I too would be receiving a letter.

I called Mrs. Vande Vyvere and told her about it and requested an explanation. She said to me, "No problem, we can fix it, but we shouldn’t talk on the phone, as our conversation could be taped".

She told me to call her when I received my letter. My wife and I were very upset as we’ve never experienced this before. We did not know what was going on.

I received my letter and it was requesting receipts regarding business losses for the 1990 and 1991 tax years. Again, didn’t know what was happening. I didn’t have a business.

I called Elaine over and over. I finally got her to come over, but she didn’t bring a copy of my return. They’d been misfiled. She was in the habit of storing her clients working copies for use the following year. As we’d never used an accountant before, we thought it was common practice.

She still wouldn’t explain the business loss but suggested that we should dig up as many receipts as possible for anything from gas to household goods. Also, she asked if we knew anyone under 18 yrs of age who would say that they had babysat for us, even if they hadn’t.

As soon as she left, we decided to get to the bottom of this.

The respondent’s reply included

Further, the appellant reported business losses of $4,197 and $6,226, in the 1990 and 1991 taxation years for a business that did not exist.

The appellant has prepared his tax returns in all taxation years prior to the 1990 and 1991 taxation years on his own. In the 1990 and 1991 taxation years, the appellant’s returns were prepared and filed by a representative of his, Elaine Vande Vyvere.

Subsequent to the events as described in the appellant’s prepared text, the appellant retained the services of a certified general accountant who was his representative at trial. When made aware of the incorrect returns, he promptly returned the money received and paid any outstanding taxes.

The appellant testified that he had no knowledge of the incorrect information in his returns. It was a fabrication by the author of those two returns in question.

He had reviewed the returns before signing them. The 1990 return contains his signature. The 1991, he denies this signature as being his own. He was not aware that business losses were claimed in the amounts as stated. He had no business. His total income was from his employment as a salesman for a company producing graphic art. I am satisfied that the signature on the 1991 return was not his.

The appellant testified in a reliable and straightforward manner and I accept his evidence.

The position of the appellant; he submits that he relied in complete confidence on another person to prepare his returns for the relevant years. He had no knowledge of the incorrect information in the returns. He has a history of being responsible, honourable and an honest taxpayer over the years. When the misrepresentation was brought to his attention he cooperated fully.

The returns, he believes, were altered after his review, a situation over which he claims he had no control. There was indirect evidence that the person who completed the returns was under investigation for similar occurrences with third parties.

The respondent’s position included that, the appellant knowingly or under circumstances amounting to gross negligence in carrying out a duty or obligation imposed under the Income Tax Act, made or participated in, assented to or acquiesced in the making of a false statement or omission in the income tax returns filed for 1990 and 1991 taxation years, and that the Minister properly applied a penalty pursuant to subsection 163(2).

Counsel for the respondent further submitted that the appellant had the responsibility to review and understand his returns before filing, and had he done so he would have discovered the mis or wrong information and, indeed, fabricated information. He had an obligation to act upon receipt of the $2,900 refund when he anticipated a maximum of $1,800 and that the appellant had a better idea of his income tax returns than he admitted in testimony.

The respondent further referred the Court to several precedents including Morin v. M.N.R., [1988] 2 C.T.C. 2334, 88 D.T.C. 1596, wherein Couture C.J.T.C.C. said the following at page 2338 (D.T.C. 1598-99):

The appellant wrongly submits that as a taxpayer he fulfilled his fiscal obligation by signing reports prepared by an accountant without at the same time ensuring himself of the accuracy of these reports or verifying the amounts of income entered therein. In my opinion, this was another instance of gross negligence, since by his own testimony the appellant read closely and understood the implications of all the clauses in the various business contracts....

The Act for the relevant years being subsection 163(2) reads as follows, at least it reads in part as follows:

163(2) False statements or omissions-Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made or participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer filed or made in respect of a taxation year as required by or under this Act or regulation is liable to a penalty of....

The issue before the Court in determining whether to impose a penalty depends on whether the appellant has "knowingly, or under circumstances amounting to gross negligence...participated in.…"

There is a wide spectrum of jurisprudence on this question. As indicated, the onus is on the Minister. [A high or] An onerous has been set by jurisprudence.

In the case of Udell v. M.N.R., [1969] C.T.C. 704, 70 D.T.C. 6019, the Exchequer Court concluded

that the gross negligence of the accountant should not be imputed to the taxpayer.

Justice Cattanach stated at page 722 (D.T.C. 6026):

I take it to be a clear rule of construction that in the imposition of a tax or duty, and still more of a penalty if there be any fair and reasonable doubt the statute is to be construed as to give the parties sought to be charged the benefit of the doubt.

On the evidence that the appellant had a person recommended to him by a fellow employee who, from all appearances, seemed knowledgable to prepare his returns. He explained that the large refund of $2,900 for the 1990 return was surprising but possible, because he had about one-half of a $5,000 bonus deducted from his taxes in that year, which he deemed as being far more than should have been deducted. The following year the refund was not as dramatic and he justified it as being in the vicinity of the refunds received by fellow employees in similar circumstances.

In an unreported case, Roger B. Johnson v. The Queen, of this Court, Judge Beaubier found that a taxpayer was not grossly negligent in not having reported over $180,000 in income in his 1986 taxation year. Judge Beaubier stated,

After that the appellant relied on the chartered accountant completely and did what the chartered accountant told him to do respecting his income tax return. The chartered accountant was negligent, but these actions and any consequent omission in the income tax return do not make the appellant grossly negligent.

While the person upon whom the appellant relied in the present was not an accountant, the reliance on her ability, by the appellant, is understandable. She held herself out as being an expert and was very busy in the tax return business and had been recommended to him. She may have been grossly negligent or, indeed, may have "knowingly...participated in...a false statement...".

The evidence before the Court is not sufficient to conclude that the appellant be said to be, "...knowingly, or under circumstances amounting to gross negligence ...", etc., as set out in subsection 163(2).

While there was a degree of negligence by the appellant in processing his tax returns for 1990 and 1991 taxation years, this was not gross negligence and certainly he can not be said to have "knowingly" filed improper returns.

For these reasons, the appeal is allowed and referred back to the Minister for reconsideration and reassessment.

Appeal allowed.