Taylor,
T.CJ.:—This
is
an
appeal
heard
in
Vancouver,
British
Columbia,
on
July
19,
1990,
against
an
assessment
of
penalty
and
directly
related
interest
for
the
taxation
year
1985.
While
that
particular
issue
in
itself
is
straightforward,
the
background
leading
to
the
assessment
is
somewhat
complex,
and
best
understood
by
a
review
of
the
submissions
of
the
parties,
certain
portions
of
which
will
be
quoted:
For
the
appellant:
—
In
1980
the
Appellant
arranged
financing
of
$500,000
payable
on
demand
with
interest
at
/z%
over
prime,
and
acquired
four
(4)
units
of
the
"Daon
Shopping
Centres,
Alberta,
A
Limited
Partnership"
(Daon).
—
During
the
years
1981
through
1985
the
Appellant
was
able
to
pay
the
interest
on
the
Daon
debt
and
paid
part
of
the
principal
from
proceeds
realized
upon
the
sale
of
certain
investments
when
interest
rates
climbed
to
over
20%.
—
From
1981
until
1985
the
Appellant
received
standardized
reporting
forms
for
tax
purposes
which
he
utilized
in
preparing
his
income
tax
returns
for
the
years
1980
to
1984
inclusive.
—
Daon
sold
its
properties
in
July
1984
and
the
Appellant
received
his
share
of
the
proceeds
of
disposition
on
31
July,
1984
and
in
due
course
received
the
Daon
tax
information
for
1984
and
included
that
information
in
computing
his
1984
income
tax
liability.
—
Although
the
Appellant
realized
a
"paper"
gain
of
$139,224,
he
actually
received
on
31
July,
1984,
about
$46,626.80
in
excess
of
his
original
cost
which
excess
amount
included
1984
income
of
$21,600,
and
about
$327,100
of
the
proceeds
was
required
to
retire
indebtedness
in
respect
of
the
money
borrowed
to
acquire
the
units
and
the
balance
used
to
replace
investments
sold
to
retire
a
portion
of
the
principal.
—
Revenue
proposed
to
reassess
to
disallow
certain
soft
cost
deductions
made
in
1980
and
1981
which
proposal
culminated
in
a
settlement
made
in
December
1985.
The
Appellant
was
very
concerned
about
Revenue's
proposal
and
contacted
the
general
partner
by
telephone
in
December
1985,
and
was
advised
of
the
settlement
so
that
when
he
received
the
letter
from
Daon
of
17
December,
1985,
which
confirmed
the
settlement,
he
did
not
review
the
letter
in
detail
and
although
the
same
letter
reported
on
the
sale
of
the
Daon
assets,
he
inadvertently
missed
the
1985
income
tax
information
which
was
not
in
the
usual
standardized
form.
—
The
Appellant
was
under
extreme
job
pressure
in
December
1985
because
he
had
not
met
his
quota
and
knew
he
would
lose
his
job
if
he
did
not
meet
his
quota
and
accordingly
was
job-hunting
and
succeeded
in
obtaining
another
position
in
January
1986,
but
the
stress
of
possible
unemployment
and
his
focus
on
jobhunting
was
such
that
he
did
not
focus
upon
the
1985
aspects
of
the
Daon
letter.
—
In
early
1986,
the
Appellant
was
preoccupied
with
his
new
job
and
the
preparation
of
his
1985
return
and
a
terminal
return
for
his
deceased
mother-in-law
and
his
wife’s
first
return
and
did
not
knowingly
or
under
circumstances
amounting
to
gross
negligence
omit
the
Daon
income
from
his
1985
income
tax
return.
—
By
Notice
of
Reassessment
dated
18
July,
1988,
the
Minister
included
a
taxable
capital
gain
in
the
amount
of
$55,765.40,
recapture
of
capital
cost
allowance
in
the
amount
of
$27,642.00,
and
income
from
other
sources
of
$51.40
in
computing
the
income
of
the
Appellant
for
the
1985
taxation
year,
refused
to
allow
a
capital
gains
deduction
in
the
amount
of
$10,000
and
levied
penalties
aggregating
$10,958.59
under
s.
163(2)
of
the
Income
Tax
Act
(Federal)
and
s.
23(1)
of
the
Income
Tax
Act
(B.C.).
—
By
confirmation
dated
29
March,
1989,
the
Minister
confirmed
the
1985
reassessment
on
the
grounds
that:
You
knowingly
or
under
circumstances
amounting
to
gross
negligence
made
an
omission
in
your
return
of
income
in
respect
of
the
1985
taxation
year
within
the
meaning
of
subsection
163(2)
of
the
Act.
As
the
tax
payable
under
subparagraph
163(2)(a)(i)
exceeds
the
tax
that
would
have
been
payable
if
computed
under
subparagraph
163(2)(a)(ii)
of
the
Act
by
an
amount
of
$29,221.10,
a
penalty
of
$7,305.27
has
been
levied
under
the
provisions
of
subsection
163(2)
of
the
Act.
For
the
respondent:
—
the
Appellant
had
acquired
four
units
valued
at
$125,000.00
each
in
Daon
Shopping
Centres,
Alberta,
a
Limited
Partnership
(which
investment
was
also
described
as
20,000
Class
A
units
valued
as
$5.00
per
unit
or
share);
—
the
Limited
Partnership
aforesaid
was
terminated
as
of
June
27,
1985
which
resulted
in
taxable
capital
gains
of
$55,765.36;
recapture
of
capital
cost
allowance
of
$27,642.00;
and
other
income
of
$51.40
to
the
Appellant
in
the
1985
taxation
year;
—
the
Appellant
was
advised
of
the
aforesaid
income
by
Daon
in
letters
dated
December
17,
1985
and
January
17,
1986;
—
the
Appellant
failed
to
report
the
income
from
the
disposition
of
his
aforesaid
interest
in
Daon
Shopping
Centres,
Alberta;
—
the
Appellant's
1985
tax
return
was
reviewed
as
part
of
a
follow-up
to
the
Daon
Shopping
Centre
audit
with
respect
to
the
disallowance
of
soft
costs
and
other
expenses
during
the
1980
and
1981
taxation
years;
as
a
result
of
that
review
the
Appellant’s
1985
T1
Return
was
reassessed
to
include
the
amounts
identified
aforesaid
into
income
and
to
levy
a
penalty
pursuant
to
Section
163(2)
of
the
Income
Tax
Act;
—
at
all
material
times,
the
Appellant
was
a
real
estate
salesman
for
Knowlton
Realty
Ltd.,
which
company
was
the
agent
selling
the
units
in
the
Daon
Shopping
Centre,
Alberta,
the
Limited
Partnership;
—
in
1984
the
Appellant
reported
income
from
the
aforesaid
Limited
Partnership;
—
by
letters
dated
December
17,
1985,
the
Appellant
was
advised
that
a
settlement
proposal
had
been
reached
with
respect
to
the
reassessments
on
each
partner
in
the
Daon
Shopping
Centres,
Alberta,
project
for
soft
costs
claimed
for
the
years
1980
and
1981.
By
the
letter
dated
December
17,
1985,
Mr.
William
H.
Levine,
President,
Daon
Development
Corporation
wrote
to
each
Limited
Partner
suggesting
acceptance
of
the
settlement
and
indicating
that
a
Limited
Partner
who
originally
invested
$125,000.00
and
who
accepted
the
proposed
settlement
should
recompute
his
taxable
income
for
the
1980
and
1981
as
shown
in
an
attached
exhibit;
in
that
same
letter
of
December
17,
1985
the
second
paragraph
on
page
two
stated
as
follows:
as
of
June
27,
1985
the
Partnership
was
terminated.
Accordingly,
I
am
enclosing
final
financial
and
taxation
statements
to
be
used
in
computing
your
1985
tax
return.
The
taxation
statements,
which
reflect
the
gain
on
the
sale
of
the
shopping
centres,
as
well
as
the
wind
up
of
the
Partnership,
have
been
prepared
on
the
assumption
that
the
settlement
would
be
accepted
by
you.
If
you
do
not
plan
to
accept
the
settlement
you
should
consult
your
professional
advisor
regarding
the
impact
on
your
1985
tax
return.
—
by
the
same
letter
of
December
17,
1985
a
letter
was
enclosed
from
Arthur
Anderson
&
Company,
Chartered
Accountants,
to
the
partners
of
Daon
Shopping
Centres,
Alberta
(dissolved
July
31,
1984),
which
letter
set
out
a
Statement
of
Distribution
of
Funds
of
Daon
Shopping
Centres,
Alberta
for
the
period
July
31,
1984
to
June
27,
1985
(the
date
of
termination),
.
.
.
—
by
letter
dated
January
17,
1986
a
further
letter
from
William
H.
Levine,
President,
Daon
Development
Corporation
to
the
Limited
Partners
of
Daon
Shopping
Centres,
Alberta,
setting
out
further
information
with
respect
to
the
allocation
of
the
taxable
capital
gain
to
limited
partners
who
purchase
their
units
under
the
initial
offering.
.
.
.
—
the
Appellant,
for
the
1985
taxation
year,
failed
to
report
income
of
$83,458.76
which
amount
represented
income
earnings
from
the
Appellant's
investment
in
Daon
Shopping
Centres,
Alberta,
a
Limited
Partnership
which
represented
the
entire
amount
of
income
earned
by
the
Appellant
from
Daon
Development
Shopping
Centres,
Alberta
in
the
1985
taxation
year;
—
during
the
1985
taxation
year
the
Appellant
received
over
$500,000.00
as
a
result
of
the
termination
of
the
Daon
Shopping
Centre,
Alberta,
Limited
Partnership;
—
the
Appellant's
total
reported
income
in
his
1985
taxation
return
was
$66,451.91
which
included
T4
income
of
$47,208.16
from
Knowlton
Realty
Limited
of
which
amount
$46,995.16
represented
employment
commissions;
—
the
Appellant
claimed
commission
expenses
of
$4,806.41;
—
the
Appellant
reported
dividend
income
of
$11,400.73
in
the
1985
taxation
year
and
reported
interest
and
other
investment
income
in
the
amount
of
$12,657.43;
—
the
$12,538.85
interest
represented
the
following:
|
McLeod,
Young,
Weir
|
$
|
74.22
|
|
Bank
of
Canada
|
$
|
225.00
|
|
Pemberton
|
$11,660.01
|
|
Revenue
Canada
|
$
|
579.62
|
—
the
Appellant
knowingly,
or
under
circumstances
amounting
to
gross
negligence,
made
an
omission
in
his
1985
Return
of
Income
in
that
the
Appellant
knew
or
ought
to
have
known
of
his
failure
to
report
more
than
half
of
his
total
income
for
the
1985
taxation
year;
—
the
Respondent
submits
that
the
Appellant
has
been
properly
assessed
in
accordance
with
the
above-noted
provisions
of
the
Income
Tax
Act
in
that
he
knowingly
or
under
circumstances
amounting
to
gross
negligence
made
an
omission
in
his
return
of
income
in
respect
of
his
1985
taxation
year
within
the
meaning
of
subsection
163(2)
of
the
Income
Tax
Act
assessed
and
further,
as
the
tax
payable
under
sub-paragraph
163(2)(a)(i)
exceeded
the
tax
that
would
have
been
payable
if
computed
under
sub-paragraph
163(2)(a)(iii)
of
the
Act
aforesaid
by
an
amount
of
$24,221.10,
a
penalty
of
$7,305.27
has
been
properly
levied
under
the
provisions
of
subsection
163(2)
of
the
Income
Tax
Act
aforesaid;
further,
the
Minister
properly
denied
the
Appellant
a
capital
gains
deduction
pursuant
to
Section
110.6(6)
of
the
Income
Tax
Act
aforesaid.
A
discussion
was
held
on
procedure
in
bringing
the
case
forward
to
Court.
I
was
impressed
by
the
points
regarding
“onus
of
proof"
and
"procedure"
dealing
with
the
commencement
of
the
trial,
cross-examination,
reply
or
rebuttal
evidence,
etc.
raised
by
both
parties,
and
it
was
contended
the
case
law
may
not
be
clear
and
precise
on
the
distinctions
to
be
made
in
the
situation
before
a
Court,
where
the
issue
is
only
the
imposition
of
a
penalty
under
subsection
163(2)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
In
the
instant
appeal,
that
issue
was
rendered
even
more
acute
by
virtue
of
the
further
application
by
the
Minister
of
subsection
110.6(6)
of
the
Act
which
read:
Notwithstanding
subsections
(2)
and
(3),
where
an
individual
has
a
capital
gain
for
a
taxation
year
from
the
disposition
of
a
capital
property
and
knowingly
or
under
circumstances
amounting
to
gross
negligence
(a)
fails
to
file
a
return
of
his
income
for
the
year
within
one
year
after
the
day
on
or
before
which
he
is
required
to
file
a
return
of
his
income
for
the
year
pursuant
to
section
150,
or
(b)
fails
to
report
the
capital
gain
in
his
return
of
income
for
the
year
required
to
be
filed
pursuant
to
section
150,
no
amount
may
be
deducted
under
this
section
in
respect
of
the
capital
gain
in
computing
his
taxable
income
for
that
or
any
subsequent
taxation
year
and
the
burden
of
establishing
the
facts
justifying
the
denial
of
such
amount
under
this
section
is
on
the
Minister.
The
end
effect
of
the
position
taken
by
counsel
for
the
appellant
in
this
appeal
on
both
points
above—the
penalty
and
the
denial
of
the
capital
gains
deduction—was
to
put
forward
a
motion
that
it
was
for
the
respondent's
counsel
first
to
bring
forward
evidence
to
fulfil
the
requirements
under
subsection
163(3)
of
the
Act:
”.
.
.
the
burden
of
establishing
the
facts
justifying
the
assessment
of
the
penalty
is
on
the
Minister".
The
Court
agreed
with
that
position
noting
that
substantiating
the
penalty
under
subsection
163(3)
of
the
Act,
should
also
serve
to
fulfil
the
Minister’s
responsibility
under
subsection
110.6(6)
of
the
Act,
supra.
Counsel
thereupon
proceeded
to
put
in
the
case
for
the
respondent.
I
do
emphasize,
as
I
have
noted
earlier,
that
the
Court's
ruling
on
that
point,
and
the
agreement
of
counsel
for
the
respondent
to
so
proceed
does
not
dispense
necessarily
with
the
procedural
points
in
any
final
way—
indeed
they
may
come
up
again—but
did
provide
the
basis
for
getting
on
with
this
appeal
at
least.
Evidence
Mr.
Gary
Myers,
an
auditor
with
Revenue
Canada,
outlined
the
review
of
the
matter
which
had
been
conducted,
and
filed
considerable
documentation
dealing
with
the
information
available
to
Mr.
Dymond,
upon
which
it
was
decided
that
a
penalty
should
be
imposed.
By
agreement
between
counsel
a
book
of
the
documents
compiled
by
counsel
for
the
appellant,
(Exhibit
A-1)
was
also
introduced
and
the
eighteen
items
therein
were
used
as
reference
material
by
Mr.
Myers.
Exhibit
A-1
also
formed
the
basis
of
the
examination
and
cross-examination
of
Mr.
Dymond
at
a
later
point
in
this
trial.
Analysis
I
do
not
wish
to
minimize
the
effort
of
counsel
or
their
witnesses
in
bringing
forward
information
to
the
Court,
but
I
am
content
to
rest
my
determination
of
this
matter
on
the
perspective
I
take
of
two
major
comments
from
the
Notice
of
Appeal
(above)
and
the
evidence
available
to
the
court
regarding
them
which
I
shall
recount
to
the
degree
necessary:
—
Although
the
Appellant
realized
a
"paper"
gain
of
$139,224,
he
actually
received
on
31
July,
1984,
about
$46,626.80
in
excess
of
his
original
cost.
.
.
—
he
inadvertently
missed
the
1985
income
tax
information
which
was
not
in
the
usual
standardized
form.
[Emphasis
added.]
First,
however,
I
would
note
that
I
do
not
find
merit—in
the
circumstances
of
this
case—for
the
other
reasons
for
the
omission,
given
in
the
same
notice
of
appeal
(above):
—
The
Appellant
was
under
extreme
job
pressure
.
.
.
—
.
.
.
the
Appellant
was
preoccupied
with
his
new
job
.
.
.
—
.
.
.
the
preparation
of
his
1985
return
.
.
.
—
.
.
.
(the
preparation
of)
a
terminal
return
for
his
deceased
mother-in-law
.
.
.
—
.
.
.
(the
preparation
of)
his
wife’s
first
return
.
.
.
I
regard
those
as
circumstances
and
situations
which
routinely
face
a
multitude
of
taxpayers,
perhaps
with
dismaying
regularity,
but
they
are
not
generally
descriptive
of
adequate
reasons
for
inappropriate
conduct
when
filing
income
tax
returns.
That
leaves
simply
the
rationale
provided
above
that
the
different
format
used
by
Daon
to
inform
this
taxpayer
of
the
financial
results
for
the
year
1985
was
of
such
a
character
that
Mr.
Dymond
did
not
recognize
it
as
a
requirement
in
determining
his
proper
taxable
income.
I
do
not
accept
that
for
the
following
reasons:
—
Mr.
Dymond
was
an
accomplished
and
experienced
businessman.
—
He
was
knowledgeable
about
the
Daon
project,
and
had
been
instrumental
in
selling
some
of
the
units
to
his
clients.
—
A
main
feature
of
the
Daon
project
was
its
tax
shelter
element,
with
which
Mr.
Dymond
was
quite
familiar
and
which
he
knew
he
needed
in
the
years
in
question.
—
He
was
a
man
with
a
respectable
but
not
exceptional
financial
position.
—
He
borrowed
—
with
the
Daon
units
as
security—
his
entire
investment
of
$500,000.
—
He
regularly
and
properly
calculated
and
reported
the
tax
shelter
deductions
for
the
years
1980
through
1984.
Using
the
year
1982
as
typical,
the
following
information
was
supplied
as
a
part
of
the
annual
financial
statements
from
Daon
:
Daon
Shopping
Centres,
Alberta
A
limited
partnership
Allocation
of
Taxable
Income
for
the
year
ended
October
31,
1982
|
Net
Income
per
Financial
Statements
|
$19,134,377
|
|
Less:
Capital
cost
allowance
|
5,856,933
|
|
Taxable
Income
|
$13,277
,444
|
|
Allocated
to:
|
|
|
Partners
holding
Class
B
Units
|
$4,297,683
|
|
Partners
holding
Class
A
Units
|
8,979,761
|
|
$13,277,444
|
|
Taxable
Income
per
$25
Class
A
Unit
By
Quarter
|
|
|
Per
unit
held
on
January
31,
1982
|
$0.272452
|
|
Per
unit
held
on
April
30,
1982
|
$0.264554
|
|
Per
unit
held
on
July
31,
1982
|
$0.363270
|
|
Per
unit
held
on
October
31,
1982
|
$0.363270
|
|
Per
unit
held
for
the
entire
fiscal
year
|
$1.263546
|
—
From
the
information
above,
Mr.
Dymond
made
the
following
calculation
in
his
own
handwriting
on
the
same
page,
and
so
reported
in
Schedule
F
of
his
income
tax
return
for
1982:
Taxable
Income
20,000
units
x
$1.263546
$25,270,92
Less
Interest
on
Loan
for
above
investment
(Bank
of
Montreal
Statements
attached)
$53,218.16
|
149.04
|
$53,367,20
|
|
Loss
(to
Schedule
7)
|
$28,096.28
|
—
During
the
years
1980
through
1984,
whether
related
to
losses
or
profits
from
Daon,
Mr.
Dymond
had
religiously
deducted
his
own
costs
for
interest
on
the
loan
of
$500,000
(or
any
other
remaining
balance
thereof)
taken
out
to
acquire
his
tax
shelter
investment.
—
During
the
same
years
1980
through
1984
Mr.
Dymond
had
carefully
applied
all
available
cash
receipts
from
Daon,
as
well
as
some
other
personal
funds
available
(largely
realization
of
certain
other
investments)
to
repaying
his
bank
loan.
By
July
1984
(when
he
received
the
1984
Daon
financial
statements
and
tax
information)
the
loan
balance
rested
at
$327,100.
—
Commencing
with
the
fiscal
year
1981
each
set
of
financial
statements
contained
a
section
headed
“Allocation
and
Distribution
of
Distributable
Income”,
which
presented
very
clearly
the
fact
that
cash
was
distributed
as
it
became
available.
For
1981,
1982
and
1983
it
was
stated
that
the
"partners'
current
accounts”
(the
distributable
cash)
would
be
distributed
on
January
31
of
the
following
year.
—
The
1984
financial
statements,
however,
contained
the
following
statements:
"The
Class
A
Limited
Partners’
current
accounts
.
.
.
were
distributed
on
July
31,
1984.
.
.”.
—
In
July
1984
Mr.
Dymond
received
a
final
cheque
from
Daon
in
the
amount
of
$546,626.80
and
it
is
related
to
the
receipt
of
this
cheque
that
the
calculations
underlying
this
assessment
were
made
by
the
Minister.
—
The
majority
of
the
funds
for
the
above
cheque
for
$546,626.80
came
from
the
sale
of
the
assets
of
Daon
on
July
31,
1984
as
well
as
from
the
earnings
of
Daon
for
the
nine
month
period
ended
July
31,
1984.
—
The
Daon
financial
statements
for
the
fiscal
year
1981
were
dated
November
14,
1984
and
contained
an
"Allocation
of
Taxable
Income
Schedule"
(similar
to
that
for
1982
shown
above
as
an
example)
which
Mr.
Dymond
used
in
his
usual
routine
to
calculate
the
amount
of
“taxable
income"
to
be
included
in
filing
his
1984
return.
But
the
same
set
of
financial
statements
also
contained
clearly
the
following
"Report
of
the
General
Manager"—as
the
very
first
item
on
page
1
thereof:
At
a
special
meeting
on
June
6,
1984,
the
partners
of
Daon
Shopping
Centres,
Alberta
agreed
to
dissolve
the
Partnership.
This
is,
therefore,
the
final
annual
report
of
Daon
Shopping
Centres,
Alberta
and
covers
the
nine
months
ending
July
31,
1984.
On
July
31,
1984
the
shopping
centres
were
sold
for
$279,930,025.00.
We
are
pleased
to
report
that
the
sale
resulted
in
each
limited
partner
receiving
105.017%
of
the
subscription
price
per
Class
A
unit.
The
final
accounting
of
the
affairs
of
the
Partnership,
signifying
the
termination
of
the
Partnership,
will
be
prepared
and
forwarded
to
each
partner
in
the
Spring
of
1985.
Included
as
part
of
the
final
accounting
will
be
a
tax
statement
reflecting
the
sale
of
the
shopping
centres.
This
statement
should
be
included
with
your
1985
income
tax
return.
and
in
a
note
to
the
financial
statements
(page
6):
The
sale
proceeds
were
distributed
to
the
Partners
on
July
31,
1984
as
follows:
(A)
To
Partners
holding
Class
A
Units
(other
than
Daon
Development
Corporation):
$155,162,617
(representing
105.017%
of
the
subscription
price
per
Class
A
Unit)
in
cash;
.
.
.
—
On
December
17,
1985,
a
final
reporting
letter
from
the
President
of
Daon
was
sent
to
Mr.
Dymond,
and
among
other
matters
this
was
covered:
As
of
June
27,
1985
the
partnership
was
terminated.
Accordingly,
I
am
enclosing
final
financial
and
taxation
statements
to
be
used
in
computing
your
1985
tax
return.
The
taxation
statements,
which
reflect
the
gain
on
the
sale
of
the
shopping
centres,
as
well
as
the
wind
up
of
the
Partnership,
have
been
prepared
on
the
assumption
that
the
settlement
will
be
accepted
by
you.
.
.
.
The
“final
financial
and
taxation
statements",
with
only
a
minor
later
mathematical
correction,
contained
the
following
schedules:
Daon
Shopping
Centres,
Alberta
A
Limited
Partnership
Allocation
of
Taxable
Income
For
The
Period
Ended
June
27,
1985
(Amended)
|
Per
$25
|
Per
|
|
Class
A
|
$125,000
|
|
Total
|
Unit
|
Investment
|
|
Taxable
Capital
Gain
|
|
|
on
sale
(1)
of
Shopping
Centres
|
$67,220,211
|
$2.76427
|
$13,821.34
|
|
Recapture
of
|
|
|
Capital
Cost
Allowance
|
|
|
on
sale
of
Shopping
Centres
|
$15,363,545
|
1.38210
|
6,910.50
|
|
Net
Income
from
other
sources
|
34,064
|
.00257
|
12.85
|
|
Taxable
Capital
Gain
|
|
|
on
winding-up
of
the
Partnership
|
|
|
(2)
|
|
.024
|
120.00
|
(1)
The
taxable
capital
gain
on
the
sale
of
the
shopping
centres
has
been
calculated
on
the
assumption
that
the
Limited
Partner
will
accept
the
proposed
settlement
with
the
Department
of
National
Revenue
with
respect
to
1980
and
1981
soft
costs.
(2)
This
calculation
assumes
that
the
Limited
Partnership
Units
were
purchased
under
the
initial
offering.
For
Limited
Partnership
Units
purchased
at
a
later
date,
the
gain
would
be
based
on
the
proceeds
of
$26.26604
per
Unit
less
the
cost
base
of
those
Units.
—
For
the
1985
reporting
requirement,
the
following
information
was
received
from
Daon:
January
17,
1986
Dear
Limited
Partner:
Attached
to
my
letter
to
you
dated
December
17,
1985
was
a
schedule
entitled
“Allocation
Of
Taxable
Income
For
The
Period
Ended
June
27,
1985”.
As
indicated
in
my
letter,
this
schedule
was
prepared
to
reflect
your
taxable
income
on
the
assumption
that
the
proposed
settlement
with
Revenue
Canada
will
be
accepted
by
you..
..
—
It
is
this
“Allocation
of
Taxable
Income"
statement
which
Mr.
Dymond
claims
was
in
a
form
which
he
did
not
recognize
as
similar
to
the
previous
five
years—mainly
because
it
was
not
in
the
usual
"glossy
annual
report"
format.
Neither
on
the
above
page
(as
in
previous
years),
nor
from
the
above
information
in
any
other
way
did
Mr.
Dymond
calculate
the
income
to
be
reported-
taxable
capital
gains
$55,765.36,
recapture
of
capital
cost
allowance
$27,642,
and
other
income
of
$51.40
(also
see
reply
to
notice
of
appeal
above).
I
can
only
reach
the
conclusion
that
it
was
quite
evident
after
the
distribution
on
July
31,
1984
that
no
more
funds
would
follow—but
that
a
further
accounting
for
income
tax
purposes
would
be
necessary
and
provided
later—
which
it
was—for
inclusion
in
the
1985
income
tax
returns
of
the
partners.
The
operating
practices
of
Daon
were
to
pay
to
the
partners
on
a
regular
basis
whatever
cash
could
be
spared,
and
to
provide
to
the
partners
just
as
regularly
a
statement
showing
how
much
of
the
distribution
represented
income—
obviously
the
balance
represented
capital
return
of
some
form.
To
my
knowledge,
there
are
only
two
differences
between
the
circumstances
surrounding
the
receipt
of
the
above
"Statement
of
Allocation
of
Taxable
Income”,
and
those
of
previous
years.
These
are,
first,
that
no
funds
were
received
by
Mr.
Dymond
in
the
year
1985—they
had
been
received,
both
return
of
capital
and
distribution
of
income—over
the
previous
years;
and
second
that
there
were
no
further
interest
charges
for
Mr.
Dymond
to
write
off
in
1985
the
balance
of
the
bank
loan
had
been
retired
in
1984.
These
are
not
factors
which
warrant
the
omission
of
the
easily
calculable
amounts
at
issue.
Before
closing,
I
feel
constrained
to
comment
on
one
particular
judgment
relied
upon
by
counsel
for
the
appellant—that
of
Reginald
Snelgrove
v.
M.N.R.,
[1979]
C.T.C.
2938;
79
D.T.C.
780.
I
recognize
that
some
of
the
elements
in
that
case
have
a
similarity
to
some
in
this
appeal.
Counsel
referenced
in
particular
that
Mr.
Dymond
in
his
testimony
indicated
he
had
inadvertently
placed
(in
the
wrong
file
in
his
own
record
keeping
system)
the
"85
tax
information"—somewhat
analogous
to
Snelgrove,
supra.
In
my
view
the
situation
in
Snelgrove,
supra,
even
with
the
assertion
of
Mr.
Dymond
that
the
“85
tax
information”
was
misfiled,
does
not
serve
to
absolve
this
appellant.
In
Snelgrove,
supra,
the
Tax
Review
Board
was
dealing
with
one
receipt—one
small
slip
of
paper,
a
T600
form,
different
than
the
T5
form
to
which
the
taxpayer
was
accustomed.
Mr.
Snelgrove
might
have
recognized
the
T5
form
and
turned
it
over
to
his
accountants
in
his
usual
way,
but
by
the
time
for
filing
his
1976
return
in
April
1977,
he
had
misplaced
the
form
T600
and
forgot
about
it.
Effectively,
according
to
Mr.
Snelgrove,
therefore
he
had
nothing
in
his
own
files
to
remind
him
of
the,
amount.
Most
importantly,
as
I
read
the
case,
Mr.
Snelgrove
had
not
been
cashing
in
bond
interest
coupons
regularly—although
he
had
received
and
declared
other
interest.
There
was
no
specific
“missing
amount”,
which
would
trigger
review
of
his
1976
tax
return
either
by
him
or
by
his
accountants.
In
the
instant
appeal—as
I
have
documented
above—there
were
several
items
in
the
files,
and
a
series
of
occurrences
which
should
have
made
it
clear
to
Mr.
Dymond
that
he
had
an
income
tax
liability
arising
out
of
the
sale
of
Daon.
The
Snelgrove
case,
supra,
must
come
close
to
the
outer
limit
of
the
latitude
available
to
a
taxpayer
under
such
circumstances,
even
with
just
one
item
of
omission.
I
would
think
that
the
circumstances
of
the
instant
case
more
closely
parallel
those
in
The
Queen
v.
Stefan
Jachimowicz,
[1977]
C.T.C.
162;
77
D.T.C.
5148,
in
which
it
is
suggested
in
Snelgrove,
supra,
on
page
2942
(D.T.C.
783)
that:
”.
.
.the
filing
procedures
and
general
conduct
of
the
appellant
[Stefan
Jachimowicz]
must
have
been
seriously
aand
consciously
breached
or
altered
by
the
lack
of
administrative
follow-through.
.
.”.
In
my
opinion,
the
respondent
has
shown
that
the
circumstances
underlying
the
assessment
of
the
penalty
in
this
matter
support
the
charge
of
"gross
negligence”
on
the
part
of
Mr.
Dymond.
That
disposes
of
the
respondent's
responsibility
under
both
subsections
163(3)
and
110.6(6)
of
the
Act,
as
I
see
it.
The
appeal
is
dismissed.
Appeal
dismissed.
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