Her Majesty the Queen v. Ulla Mackenzie, [1991] 2 CTC 142

Oliver, A.C.J.: —

Charge

on or about January 18, 1990, at or near the City of Calgary, in the Province of Alberta, did unlawfully fail to file a completed and signed Individual Income Tax Return on Form T1 including a Statement of all Assets and Liabilities and a Statement of all Income and Expenses for the Taxation Year 1987 on or before January 17, 1990, as required in a Notice served November 17, 1989, pursuant to Paragraph 231.2(1)(a) of the Income Tax Act, contrary to subsection 238(1) of the Income Tax Act.

Evidence

Mrs. Ulla MacKenzie (accused) admitted she had been served with the notice in question November 17, 1989, and that she knew the notice period was 60 days and therefore her tax return would have to be filed on or before January 17, 1990. Also, she admitted that she knew the return had not been filed within the prescribed period.

She said that when she was served with the notice, she gave it to her husband and asked him, as she had always done in the past, to file her return. She said he had always had her return prepared by the accountant "connected with her husband's business.”

She and her husband and their daughter were all shareholders in the family holding company (MacStar Holdings Ltd., hereinafter called "the Company").

She said that personal income tax returns for all three persons would be given to the accountant by the Office Manager, Ms. Margaret Glass, who would gather all the material necessary from the files before passing the returns on to the accountant.

She said she was aware that her return had not been filed because Margaret Glass had fallen and broken her hip and had not completed putting the files in shape that had been returned in disarray from the Superintendent of Brokers in Vancouver. There were four large filing boxes full of documents.

She said they were in a turmoil and Margaret fell about November 17, 1989 and "suddenly she was gone".

She said the documents had been returned from Vancouver "some months before”.

“There were no funds to hire extra staff but Mr. Peterson, an accountant, was hired at some point".

She told about the Northland Bank “going down" and taking them all with it.

She said the Company had to be looked at first by Mr. Peterson and then he would be able to do their personal returns.

She said she knew Mr. Peterson was doing everything he could because Gordon, her husband, had told her this but she never spoke personally to Mr. Peterson. She said she left it to her husband.

She said all their T-4 slips went to the accountant "who belongs to the Company".

She said she received no income from the Company in 1987 but “still the records had to be checked" and she could not have filed an accurate return. She said she received no cheques in 1987 but “maybe some properties were moved around from time to time.”

Mr. G. MacKenzie, the husband of the accused, testified that he was not an accountant and that "the Office always prepared my wife's tax returns".

When the Northlands Bank went under they needed alternate financing, etc. The records of the Company had been sent to the Superintendent of Brokers in Vancouver in March 1988, and came back in 1989 in a state of disarray. He said they came back "the better part of a year later”. Margaret Glass had started to put the records back but she fell before she had finished and there was no one else to do this other than himself. He said that, finally, he got the material to Mr. Peterson, an accountant who was instructed to file tax returns.

Ms. Margaret Glass, the Office Manager is a bookkeeper and not an accountant.

She said Mr. MacKenzie had told her about the notice served on his wife. She said Ulla’s tax return was involved with the Company and moneys came out of the Company to her and cheques, etc.

She said she had to get the Company's records done first.

When the records left the office for Vancouver, they were in good shape but they were there for a year and came back in a mixed up state. She said she did not have time to get them in order before her accident and only Mr. Mackenzie was left.

She felt that the accountant could not deal with the files until they had been put in order.

On cross-examination by Mr. Conley, she said he was basically correct when he suggested to her that nothing had been done to put the files in order before the accused received the requirement letter November 1, 1989. She said that after this she broke her hip.

She could not say when the files came back from Vancouver. They came back sometime before she injured herself.

Mr. S. Peterson, an accountant, said the first he had heard of his client, Mrs. Ulla Mackenzie's requirement letter from Revenue Canada was in January or February 1990. He said he finalized the Company first, then all three personal returns were filed in September 1990.

Her return was totally dependent, he said, on the Company's return for 1985 to 1989 being completed. He said Ulla had received a minimum amount of income in 1987 but he did not know whether she had any shareholder loans or vehicles, etc.

The Court asked why he did not question her about tax returns she had filed in earlier years, whether any cheques were received in 1987 or any loans or what vehicles she had, etc. i.e., to get some input from her that would permit the filing of an estimated return with a covering letter to explain why an accurate return could not be filed at the time, etc.

Mr. Peterson said he could not do that. “It would be irresponsible of him to file in that way.” He said he could have filed a nil return but he had never done this. He said Mr. Mackenzie called him in after the bookkeeper got sick but everything he received from Mr. Mackenzie was in a mess so that he really did not "get started" until January, 1990.

Ms. S. Waritsky, a Revenue Canada Officer in Calgary who had testified earlier for the Crown was recalled by the Court and asked if her office would have laid charges against Mrs. Mackenzie under the Income Tax Act if she had filed an incomplete return stating "it was the best she could give right now", together with an explanation as to why an accurate return was not filed. She replied that "in law they would generally accept an estimated return with a covering letter stating that an amended return would follow later".

Mr. S. Peterson was recalled by defence counsel with the permission of the Court and said he understood that if an incomplete return were filed, the tax Department would not accept it.

Law

The Queen v. Kurt Merkle, [1979] C.T.C. 519; 80 D.T.C. 6027 (Alta. C.A.) October 22, 1979.

The above case was cited by defence counsel for the reasons that appear in abbreviated form in the D.T.C. headnote:

Held: The Crown's appeal was dismissed. The Court examined the wording of the relevant statutory provision and concluded that the wording was inappropriate for an absolute liability offence. The offence was a strict liability offence. The taxpayer, having put the matter in his accountant's hands before expiry of the 30-day time period, had a valid defence to the charge. The Crown's appeal was therefore dismissed.

It was agreed without argument that the offence charged herein is a Strict Liability Offence.

Now, please see pages 521-22 (D.T.C. 6029):

The Alberta Court of Appeal has had occasion to consider the same issues in three recent cases: R. v. Cardinal, [1977] 3 Alta. L.R. (2d) 108; 36 C.C.C. (2d) 369; 4 A.R. 1; R. v. Service Ltd., [1977] 2 Alta. L.R. (2d) 388, and R. v. Lambrinoudis (1978), 5 Alta. L.R. (2d) 180.

It would seem to me, however, that the issue as a general principle of law has been finally examined and resolved in Canada by two recent decisions in the Supreme Court of Canada. The first of these is R. v. Sault Ste. Marie (1978), 3 C.R. (3d) 30; 40 C.C.C. (2d) 353; 85 D.L.R. (3d) 161; 21 N.R. 295 and the second is R. v. Chapin (1979), 7 C.R. (3d) 225. I quote from the latter where Dickson, J. at pages 231-232 of the judgment states:

In Sault Ste. Marie at pp 53-54, this court recognized three categories of offences, according to the mental element requisite for conviction, rather than the traditional two:

(1) Mens rea offences, in which some positive state of mind such as intent, knowledge or recklessness must be proved by the prosecution either as an inference from the nature of the act committed or by additional evidence;

(2) Strict liability offences, in which there is no necessity for the prosecution to prove the existence of mens rea; the doing of the prohibited act prima facie imports the offence, leaving it open to the accused to avoid liability by proving that he took all reasonable care. This involves consideration of what a reasonable man would have done in the circumstances. The defence will be available if the accused reasonably believed in a mistaken set of facts which, if true, would render the act or omission innocent, or if he took all reasonable steps to avoid the particular event;

(3) Absolute liability offences, where it is not open to the accused to exculpate himself by showing that he was free from fault.

Unfortunately, the evidence adduced before me is unclear on a number of points, for example:

1. (a) When, precisely, were the records returned from Vancouver?

(b) When, precisely, did Ms. Glass break her hip?

(c) When were the records finally sent to Mr. Peterson?

(d) When did Mr. Peterson begin sorting the files and when did he finish?

(e) When did Mr. Peterson actually start work on these files?

2. Did the company every employ a full-time accountant?

3. Did Mr. Peterson previously act for the Company?

4. Why was another bookkeeper not hired after Ms. Glass fell, i.e., from Mrs. Mackenzie's own resources?

5. Why was Mr. Peterson not told earlier by the accused or her husband that she had, on November 17, 1989, received requirement letters from the Income Tax Department containing a 60-day notice to file?

6. Why was there a need for the accountant to produce accurate returns for the Company for 1985-1988 before filing Mrs. Mackenzie's return for 1987? This was not satisfactorily explained by anyone.

7. Were there any problems with her tax returns for previous years?

8. While working on the Company's return, would there have been any real problems associated with pulling out information regarding her 1987 return?

9. Why did she not simply make an appointment with Ms. Waritsky to discuss her problems or write to her?

10. Finally, why did she not consider filing an estimated return with an explanatory letter attached requesting more time, etc.?

Argument

Defence Counsel argues that the accused was not in control of filing her own returns. "She did not know what funds had been allocated to her."

Crown counsel argues that the books were not in the state of order required by the Act and so the defence cannot challenge the reasonableness of the notice of 60 days.

Before dealing with defence counsel's argument, I should like to dispose of the matter raised by Mr. Conley above, by saying simply that no one is challenging the reasonableness of the notice in this case and both parties, as I said earlier, agree that the offence is one of strict liability where the defence of due diligence is open to the accused.

I do not know whether this requires some further comment from the Court; however, out of an abundance of caution, I will simply state that in my opinion the notice was in all respects reasonable.

In regard to defence counsel's argument that the accused was not in control of filing her own returns and that she did not know what funds had been allocated to her, defence counsel Mr. Smith referred the court once again to the Merkle decision. In Merkle the accused was acquitted because he had exercised due diligence in taking all the materials and information necessary to complete the T1 return to an accountant and had given that person instructions to complete the return and file it on his behalf. The accountant filed the return but "shortly after the time limit imposed by the demand."

What this Court must decide is whether the accused in the case at bar exercised due diligence in the matter of filing her return after receiving notice November 17, 1989, that she had 60 days left to file.

What did she do?

As had been her custom over the years, she simply gave the return to her husband and asked him to file for her. She said "he had always had her return prepared by the accountant connected with her husband's business.”

In the past, this arrangement had always worked out for her and her returns had always been filed on time by the Company's accountant. However, as I will outline below, this was not an ordinary year and everyone involved, including the accused, knew that serious problems were being experienced at the Company's office:

1. The Northlands Bank had folded earlier.

2. The Company's books were returned in disarray from the Superintendent of Brokers in Vancouver.

3. Ms. Glass, the Office Manager, fell and broke her hip.

4. Mr. MacKenzie was not an accountant, etc.

The situation, in my view, cried out for independent action on the part of the accused to ensure that her return was filed on time.

1. She could have discussed with her husband the need to direct Ms. Glass to get to work earlier than she did to sort out the mess. It is clear from the evidence that a substantial amount of time was available to Ms. Glass for this purpose after the books were returned*

2. After her fall, another bookkeeper could have been hired, even if it had to be at Ulla’s expense.

3. She could have spoken to her husband about engaging an accountant at a very early date with specific instructions to extract material that would be necessary to complete her personal return, again if necessary at her own expense.

4. She could have searched out returns from earlier years and tried to estimate what she would have received in 1987. Surely she could have provided the Income Tax Department with information concerning whether any cheques had been received by her in that year, together with information concerning any shareholder loans she might have had, any vehicles, etc. and get a letter off to the Tax Department explaining the whole situation and agreeing to send an amended return as soon as possible.

or

She could have gone down to the Income Tax Office and met with Ms. Waritsky or some other Revenue Officer in a demonstration of good faith and asked for their advice.

5. The accused had never taken the trouble after Mr. Peterson was hired to have a talk with him about her personal tax return.

This clearly is not the situation described in Merkle. The evidence in the case at bar bears no relationship whatever to what occurred in that situation.

I will repeat once again what defence counsel, Mr. Smith urges the Court to consider in Ulla’s defence.

He says she did not know what funds had been allocated to her but in response to questions by both counsel, she admitted that she had received no income from the Company in 1987 or any cheques. He argues that she was not in control of filing her own return but she could have taken control if she so desired. I have enumerated above some of the steps she could and should have taken to avoid the situation in which she now finds herself.

She could at the very least have had a serious talk with her husband when she knew her deadline was fast approaching. She did not even pick up the telephone or write a letter to the Tax Department.

The only defence available to her is the defence of due diligence and, in the opinion of this Court, based on all the evidence before me, it is crystal clear that, not only did she not exercise due diligence but she was not diligent in the least with regard to the matter of filing her 1987 tax return.

I find the accused guilty.

Guilty as charged.