Charles Robert Kennedy v. Minister of National Revenue, [1989] 2 CTC 2121

Taylor, T.CJ.:—This is an appeal heard in Vancouver, British Columbia, on May 1, 1989, against an income tax assessment for the year 1983 in which the Minister of National Revenue had imposed a penalty for late filing in the amount of $2,062.78 and assessed interest on unpaid taxes in the amount of $1,804.56. The reason for appeal was stated by the appellant as:

The appellant says, and the fact is, that his income tax return for his 1983 taxation year and payment for same were duly sent to Revenue Canada prior to April 30, 1984 and that his income tax return and his cheque covering his liability to tax for the 1983 taxation year were either lost by Canada Post or by officials of Revenue Canada. The appellant says that he is not liable for either the interest or the penalty assessed.

The Minister relied inter alia, upon section 156 and subsections 161(1) and 162(1) of the Income Tax Act, (the "Act") S.C. 1970-71-72, c. 63 as amended and paragraph 4300 of the Income Tax Regulations. The Minister asserted that the tax return dated February 8, 1985, a copy of which was filed with the Court as Exhibit R-2, was not received until February 11, 1985.

The notice of objection filed earlier by the appellant, with Revenue Canada sets out the basis for the dispute:

— Before April 30, 1984 my Income Tax return duly filled out by my accountant and signed by me along with my cheque in the sum of $14,649.28 in full payment of my 1983 Income Tax was properly mailed by Canada Post as indicated on the envelope provided by Revenue Canada to Taxation Centre, Surrey, B.C. After due inquiries through my accountant my cheque and forms were lost.

— The form was filed on time by mail;

— The payment by cheque was made on time by mail;

— The mailing was in the form prescribed by Revenue Canada.

In support of the appeal, counsel for Mr. Kennedy led evidence from Mr. James Boyce, a public accountant, who had for some ten years including the year 1983, prepared the returns for the appellant. He recalled that Mr. Kennedy together with Mrs. Kennedy came to his office (as well as he could remember) on Saturday, April 28, 1984, reviewed and picked up the completed tax returns for both of them — Mrs. Kennedy had a small refund coming. Early in the year 1985 on request from Mr. Kennedy, he had prepared a second income tax return, together with the relevant statement of income and expenses which was sent to and received by Revenue Canada (reference Exhibit R-2 above). Exhibit R-2 showed a balance owing as of April 30, 1984 for 1983 income tax of $14,649.28. One document attached to Exhibit R-2 read as follows:

On April 28 , 1984 my wife and I mailed the 1983 income tax return forms to you along with my cheque in the sum of $14,649.28. A copy of the stub from my office account books is enclosed.

Mr. James Boyce, my accountant who had prepared the forms made inquiries of you when it appeared we received no cheque or documents back and I understand that he requested you to search for our forms.

Enclosed are forms made up from or copies of the originals sent to you.

As I await a response from you I am prepared to stop the old cheque and issue a new one in the sum of $14,649.28 to conclude the matter of my tax payment and of course you can sort out my wife's situation. May I please hear from you in this regard or you can contact my accountant.

It is unfortunate that you cannot find the original forms or my cheque. .. . .

Other than in those two events, it is my impression that Mr. Boyce had little to do with the crux of the dispute before the Court in this matter. His recollection and description of events and procedures was at best indistinct and somewhat conflicting. He was not questioned at length, but I do not see him involved in this affair at the centre. The evidence of both Mr. Kennedy and Mrs. Kennedy later corroborated that they had taken the first set of returns from his office on April 28, 1984. I have simply chosen to neglect his testimony in arriving at a conclusion. Whether Mr. Boyce had anything at all to do with Mr. Kennedy on April 28, 1984, as I see it, is quite irrelevant. If tax returns were prepared and mailed, before April 30, 1984, then it is clear that they were in the possession of and under the control of Mr. Kennedy, and not Mr. Boyce during the critical period.

Mrs. Kennedy reviewed her role as an employee in the office of Mr. Kennedy, and identified as in her handwriting the details on cheque stub #7036 for $14,649.28 (from the business office cheque book of Mr. Kennedy). Two pages of these stubs (6 stubs in all) were filed with the Court as Exhibit A-3 and showed that cheque stubs #7034 and #7035 (immediately preceding) had been prepared by someone other than Mrs. Kennedy. A later witness, Mrs. Gauthier, identified the handwriting as her own. But cheque stub #7036 (relevant to the matter before the Court) and the stubs of #7037, #7038 and #7039 were in the handwriting of Mrs. Kennedy. In summary, the cheque stubs showed the following:

According to Mrs. Kennedy, she and her husband had returned to Mr. Kennedy's business office after seeing Mr. Boyce on April 28, 1984 and then, after preparing the cheque relevant to cheque stub #7036, in the amount of $14,649.28, they signed and mailed their two individual returns in the same envelope, in a postal box right close to the business office that same afternoon.

Mrs. Lisa Gauthier, legal secretary to Mrs. Kennedy, testified that she had typed the following letter for Mr. Kennedy's signature (part of Exhibit A-6):

Please find enclosed my cheque #7035 in the sum of $4,246.17 made payable to Receiver General for Canada, representing the balance due on my 1982 Income Tax Return.

A photostatic copy of cheque #7035 (see above) was at the bottom of the copy of the letter filed with Exhibit A-6. A receipt from “Swift Dispatch Service Ltd." was also presented by Mrs. Gauthier as part of Exhibit A-6 and she testified that she had sent, by courier that morning (April 30, 1984) the above-noted letter and cheque for $4,246.17 — not to the address on the letter (Surrey, B.C.), but to an office on the 4 floor, 1166 West Pender Street in Vancouver, B.C. The "Surrey" office was apparently the address for mailing all British Columbia income tax returns — the significance of the Pender Street address was not made clear.

In the end analysis, just as with Mr. Boyce, the testimony of Mrs. Gauthier does nothing to support the critical contention of Mr. Kennedy that the first copies of the two tax returns, his own and Mrs. Kennedy's, were mailed by him or his wife (that was not clear) on Saturday afternoon, April 28, 1984. Simply put, Mrs. Gauthier was not involved in that action. However, her total testimony regarding the documents to which she made reference in that testimony (Exhibits A-3 and A-6) is significant and will be dealt with later.

The appellant concurred with the testimony that had been given by the previous witnesses, and reiterated that the return had been mailed on April 28, 1984 with the cheque enclosed, in the postal box near his office. Again, as to whether he or his wife had actually made the postal drop, he was unsure, but I do not regard that as significant under these circumstances. He did not recall that he, personally, had ever contacted anyone at Revenue Canada regarding the missing return and cheque — that remained to his wife and Mr. Boyce up until the filing of the new return in February 1985. Sometime after that date, he did have a different accountant take over the matter and attempt to satisfy Revenue Canada, without success, that the amounts challenged in this appeal should be deleted from the assessments. I do not regard these events — subsequent to the assessment at issue — to be relevant to the point before the Court. Mr. Kennedy also noted that more than sufficient funds had been in the office bank account to cover the amount of $14,649.28 when the cheque stub #7036 indicates it was written on April 28, 1984. Mr. Grant Johnstone, an appeals officer, with Revenue Canada, stated that he had rejected the three assertions, supra, presented by the appellant in the notice of objection, and recommended that the assessment be confirmed. In addition, it was Mr. Johnstone's view that neither the cheque stub #7036 for $14,649.28 nor the fact that Mr. Kennedy's bank account contained sufficient funds to meet it were sufficient for Revenue Canada to accept Mr. Kennedy's assertion that the first returns had been filed on time.

Counsel for the appellant provided the Court with copies of the following cases:

Regina v. Kern's Motor Town Sales Ltd., [1968] C.T.C. 221; 68 D.T.C. 5141;

William R. Sinclair v. M.N.R., [1984] C.T.C. 2900; 84 D.T.C. 1759;

Erroca Enterprises Limited v. M.N.R., [1986] 2 C.T.C. 2425; 86 D.T.C. 1821.

Counsel for the respondent relied upon:

Joseph Eyamie v. M.N.R., [1983] C.T.C. 2708; 83 D.T.C. 649;

Stanford Management and Holdings Inc. v. M.N.R., [1984] C.T.C. 2517; 84 D.T.C. 1455;

The Queen v. Union Gas Limited, [1987] 2 C.T.C. 32; 87 D.T.C. 5296.

Counsel for the Minister argued that the entire appeal should be dismissed. She also asserted that in the event the Court accepted the appellant's position that the first set of documents had been mailed, even with the noted cheque, that in itself would be sufficient only to allow the appeal with respect to the penalty for late filing. Since the Minister had not been able to "apply" the cheque to the amount payable at April 30, 1984 (see section 161 of the Act) the interest added would remain. While counsel’s assertion is innovative and intriguing, I do not choose to look at the matter so narrowly. For me, the point is simply — shall the Court accept the contention of the appellant that he fulfilled his responsibility for filing his 1983 income tax return before April 30, 1984?

Analysis

In the nature of things, human beings and even machines being what they are, — something less than perfect — there is clearly always the possibility that the kind of event alleged by this appellant can take place — an income tax return deposited in a proper postal box — and never being seen or heard of again. As properly pointed out by counsel for the appellant in this matter, the determination of a dispute about mailing, then may be a point of credibility. Taken to its extreme on one side, that could mean that there would be no way for an appellant to prove he had mailed a tax return. Taken to its other extreme, the Court could be asked to simply accept as sufficient that the appellant swears that he had indeed mailed the return. Clearly, neither of these extremities is totally satisfactory. However, from the hearing, the court had before it certain representations which do help to reach a decision. As noted earlier, the testimony of Mr. Boyce and that of Mrs. Gauthier, while not directly relevant to the critical question are important.

First we should deal with the following evidence directly related to the mailing transaction:

(1) The testimony of Mr. Kennedy that the return had been filed.

(2) The corroborating testimony of Mrs. Kennedy that the return had been filed.

I am not aware of jurisprudence which would warrant this Court acceding to the taxpayer's appeal based solely on his own representation that the return had been mailed (although such evidence should not be taken lightly) when there is no record of either receipt or return of the documents. The corroborating testimony of Mrs. Kennedy has considerable persuasive effect, since it provides the evidence of two witnesses regarding the same act — mailing the return. It is a point for serious thought, whether this simple unshaken testimony of two or more persons under circumstances such as these before the Court, should be sufficient to discharge the burden of proof on a taxpayer. I would certainly lean heavily in that direction if the surrounding circumstances and external evidence, no matter how limited, supported their contention. However, in this appeal, I am not called upon to make that determination, as I see it, because what little relevant other evidence we do have, points the other way. That does not mean Mr. and Mrs. Kennedy may not be right in their contention or assumption that the return was mailed, or at least that they believe that they are right. It simply means that in my view that result — mailing the return — does not flow easily from the situation surrounding the return and the cheque.

First, cheque stub #7036 itself, while being useful, does not conclusively prove that the cheque itself was ever made out. Certainly, it does not prove that the return, with or without the cheque, was mailed.

Second, cheque stub #7036 is dated April 28, #7037 April 28, #7038 April 30, and #7039 April 28, all in the handwriting of Mrs. Kennedy. No realistic explanation for the variation in dating the cheques was provided and certainly if cheque #7038 had been written on April 30, then it is highly doubtful that #7039 was written on April 28. It is not a difficult conclusion that the dates on the cheque stubs may not have been very meticulously recorded, further diluting any value to attach to cheque stub #7036.

Third, cheque stub #7034 is dated April 28 and #7035 is dated April 30, both in the handwriting of Mrs. Gauthier. Mrs. Gauthier was a completely independent witness, and her testimony with regard to her role in the office left me with the clear impression she was competent, efficient and selfconfident.

Cheque #7034 would have been made out on April 28 and cheque #7035 on April 30, not on any other dates — and in proper chronological order is the way I read Mrs. Gauthier's rationale. That only adds to the question of how cheque stub #7036 could possibly have been made out on April 28, 1984.

Fourth, this again takes into account, the role of Mrs. Gauthier. The letter forming part of Exhibit A-6, supra, was dated April 27, 1984 (a Friday), and whether it was signed that day or not, it was not sent from the office until Monday, April 30, the same day that cheque #7035 was dated. That chronology would be consistent with the standard office procedure of Mrs. Gauthier.

Fifth, cheque #7035 together with the accompanying letter (see Exhibit A-6) were dispatched by courier on April 30, 1984 to an address only a short distance from the business office of Mr. Kennedy. No reason was advanced by Mrs. Gauthier for this unusual procedure, and I am left with the view that it might have been a requirement from Mr. Kennedy. Obviously the question arises—if payment for an amount of $4,246.17 for tax arrears required such special treatment on April 30, 1984, on what basis could Mr. Kennedy simply deposit his current income tax return in a postal box—not even a post office —on Saturday, April 28, 1984, containing a cheque for $14,649.28 since he was already aware from a previous experience, of the 5 per cent penalty for late filing, according to his testimony.

I indicate the five points above, not to show that they are determinative in themselves against the appellant — but to point out that they would all require very convincing explanations before the simple testimony of the appellant and his wife could be accepted in this matter. On the facts alone, therefore, the appellant in this case falls considerably short of fulfilling the requirement of adequate proof. With regard to the case law, I believe I need only deal with three cases — Sinclair, Erroca and Stanford, supra. The others noted by counsel in my view are clearly distinguishable.

I have some difficulty with the rationale in Sinclair supra, but I am prepared to accept that the fact the second cheque issued and personally delivered by the appellant was never cashed, influenced the judge considerably in favour of the appellant.

In Erroca, I would first note that the learned judge pointed out as follows on page 2428 (D.T.C. 1823):

. . . it does constitute one more element in the sequence of the circumstantial evidence that must be appreciated to arrive at a decision.

As I have already indicated in a determination of the credibility of the witnesses (agreed in Erroca on the same page as the only question) an examination of the surrounding circumstances and impinging events can be of some value. In Erroca, supra, there was "no direct evidence of the actual mailing of the said returns". In this matter, we have the testimony of both Mr. and Mrs. Kennedy that the return was mailed. As I read Erroca, supra, for the basis upon which that appeal was allowed I reach the conclusion that considerable weight in assessing credibility was placed on two factors arising out of the testimony of the witnesses — the accountant Mr. Stille and the office manager Mrs. Whiteman — as follows page 2428 (D.T.C. 1823):

. . . there is no doubt that the appellant's income tax returns for 1983 were prepared by the company's auditors and were signed in the presence of the senior partner of the auditing firm, Mr. F.J. Stille, C.A. who impressed me as a highly » competent accountant, whose evidence I accept without hesitation.

. . . Relying on the office manager to attend to the actual mailing of all outgoing mail is a normal and acceptable practice.

I have already indicated that I attach no importance to the evidence of either the accountant in this matter or the legal secretary with respect to the alleged critical act — mailing the return on April 28, 1984. But, I have also noted that my perception of the work habits and office procedure of Mrs. Gauthier lead me to question the recollection of the two other witnesses for the appellant. Simply put, the evidence and testimony from external sources does not assist me to reach a positive conclusion with regard to the essential credibility factor in this matter, as such circumstances permitted the Judge in Erroca, supra, to do.

Finally, we come to Stanford, supra. Mr. Kennedy was more certain with regard to mailing the document than was the case in Stanford, supra. In Stanford, supra, the Court had not found the testimony of the two witnesses sufficient to overcome the basic problem of the mailing of the return, as shown on page 1456:

. . . Nevertheless, the prospect of this particular return being misplaced or lost by either or both of Mr. Stanford or Mr. DePellegrin is equally plausible.

When I take into account the external and tangential factors noted above, the text from Stanford, supra, at the conclusion of that case is equally applicable in this instant matter in my opinion.

. . . Simply put the Minister's assumptions when cast against the known facts are equally or more plausible than the assertions of the appellant.

The appeal is dismissed.

Appeal dismissed.