Yvon Morel v. Her Majesty the Queen, [1994] 1 CTC 2023

Tremblay, J.T.C.C.:— This appeal was heard in Montréal, Quebec, in accordance with the informal procedure on June 15, 1993.

1. Point at issue

The question is whether the appellant is correct in not paying the $1,993.91 penalty for late filing of his return of income for the 1989 taxation year.

The appellant argued that on receipt of the respondent's demand that he file his return, he obeyed within a reasonable time.

According to the respondent, the return of income for the 1989 taxation year should have been filed by April 30, 1990 at the latest. It was not filed until October 23, 1991. The appellant's taxable income was $123,639. Since 1985, the respondent has imposed penalties for late filing.

2. Burden of proof

In civil matters, the appellant must discharge the burden of proof in that he must show that assessments made by the respondent are incorrect.

However, where a penalty is in question the roles are reversed and this burden is on the respondent. It may discharge the burden by showing that the conditions of the provision for imposing the penalty have been observed. In the instant case, the provision is subsection 162(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the “Act”).

3. Subsection 162(2) of Act

3.01 Although the penalty in question is covered by subsection 162(2) of the Act, it is also necessary to refer to subsection 162(1), as subsection 162(2) makes reference thereto in determining its conditions. They read as follow:

162. Penalties. (1) Every person who has failed to file a return of income for a taxation year as and when required by subsection 150(1) is liable to a penalty equal to the aggregate of

(a) an amount equal to 5 per cent of his tax for the year that was unpaid when the return was required to be filed, and

(b) the product obtained when 1 per cent of his tax for the year that was unpaid when the return was required to be filed is multiplied by the number of complete months, not exceeding 12, from the date on which the return was required to be filed to the date on which the return was filed.

(2) Repeated penalties.— Every person

(a) who has failed to file a return of income for a taxation year as and when required by subsection 150(1),

(b) on whom a demand for a return for the year has been made under subsection 150(2), and

(c) who, at the time of failure, had been assessed for a penalty under subsection (1) or this subsection in respect of a return of income for any of the three preceding taxation years,

is liable to a penalty equal to the aggregate of

(d) an amount equal to ten per cent of his tax for the year that was unpaid when the return was required to be filed, and

(e) the product obtained when two per cent of the tax for the year that was unpaid when the return was required to be filed is multiplied by the number of complete months, not exceeding 20, from the date on which the return was required to be filed to the date on which the return was filed.

3.02 First condition: failure to file within deadline specified in subsection 150(1)

The evidence showed that the appellant's return for the 1989 taxation year was not filed by April 30, 1990 at the latest as required by paragraph 150(1)d) of the Act, but in 1991, namely in August according to the appellant and in October according to the respondent.

However, this difference has no effect on the point at issue since the filing was considerably later than April 30, 1990.

3.03 Second condition: demand must have been served upon the appellant

Subsection 150(2) of the Act provides that following demand from the Minister of National Revenue, a taxpayer must file the requested return even if he has no taxable income. The appellant was sent demands by registered letter on August 20, 1990 and October 4,1990.

According to the appellant, he paid no attention to notices left by postal workers that he had a registered letter waiting for him at the post office. When he got to his house, the post office was closed. His wife also worked away from home.

3.04 Third condition: penalty specified for a year under subsection 162(2) must have been preceded by penalty under subsection 162(1) for any of the three preceding taxation years

According to the evidence filed as Exhibit A-1 by the appellant himself, the penalties specified under subsection 162(1) have been imposed since 1985. Exhibit A-1 reads as follows:

These facts are confirmed by the respondent, and the latter further submitted that since 1975 the appellant has never filed a return by April 30 of the following year at the latest.

4. The appellant is a member of the professional corporation of certified general accountants. Since 1987, he has worked as a manager with Canadelle Inc. According to the appellant, such high amounts were taken as source deductions (see Exhibit A-1) that he always thought he would be receiving rebates. He also admitted his negligence. Sometimes, he files his returns of income every three years.

It appeared from his testimony that he is in fact a very busy taxpayer. His work produces substantial taxable income:

$90,919 in 1985

$131,290 in 1986

$92,800 in 1987

$144,600 in 1988

$123,639 in 1989

The appellant felt he should have continued to be penalized under subsection 162(1) in 1989 but not under subsection 162(2). The penalty of $1,994 is 44 per cent of the tax payable of $4,531. He considers that this was arbitrary and incorrect.

5. The respondent was justified in imposing the penalty. It met all the conditions required by the Act. The respondent's evidence and the appellant's admissions are very strong evidence to support application of subsection 162(2).

6. Conclusion

For the foregoing reasons, the appeal must be dismissed.

Appeal dismissed.