Decae v. R., [1998] 4 CTC 2636

Beaubier T.C.J. (orally):

His Honour: And the Appellant is present in person. Put that on the record, please. This appeal pursuant to the Informal Procedure was heard at Saskatoon, Saskatchewan on June 29 and 30, 1998. The Appellant testified. The Respondent called three employees of Revenue Canada: Barry McKenzie, Sheila Nixon and Gilbert Hertlein.

Paragraphs 7 to 10 inclusive of the Reply to the Notice of Appeal read:

7. The Appellant filed income tax returns for the 1990, 1991, 1992 and 1993 Taxation Years and reported total income in the following amounts:

8. By Notices of Reassessment dated October 18, 1995 and October 19, 1995 for the 1990, 1991, 1992 and 1993 Taxation Years, the Minister of National Revenue (the “Minister”) increased the Appellant’s total income by the following amounts of unreported income from investments and assessed penalties under Subsection 163(2) of the Income Tax Act (herein “the Act”):

9. In so reassessing the Appellant, the Minister made the following assumptions of fact:

(a) The facts as admitted and plead above.

(b) The Appellant was employed by the Revenue Canada since 1978.

(c) At all material times to the Appeal, the Appellant was employed as a senior business auditor with Revenue Canada Taxation and then as an Audit Unit Manager with the Customs and Excise office.

(d) The Appellant’s position required him having extensive knowledge of the Income Tax Act and the Excise Tax Act.

(e) The Appellant had thorough knowledge of his obligation to report income.

(f) The Appellant was a member of the Certified Management Accountants.

(g) The Appellant was married to Wendy (DeCae) Long (herein “Wendy”) in 1990, 1991, 1992 and 1993.

(h) In 1993, the Appellant and Wendy separated and subsequently divorced.

(i) The Appellant filed his income tax return for 1993 giving his marital status as separated and the date of the marital status change as September 15, 1993.

(j) The Appellant claimed an Equivalent to Spouse amount for his son, Shaun T. DeCae in the 1993 Taxation Year.

(k) Wendy had little investment knowledge or accounting and taxation knowledge and relied upon the Appellant because he was an accountant and long-standing employee of Revenue Canada.

(1) At all material times to this Appeal, the Appellant prepared his Own income tax returns and for the 1990, 1991 and 1992 Taxation Years and the Appellant prepared or directed the preparation of the income tax returns for Wendy.

(m) The Appellant and Wendy had two children (herein “the Appellant’s Children”) as follows:

Shaun Troy, Son, Born January 1, 1980 Charmaine Danielle, Daughter, Born May 13, 1982

(n) At all material times to this Appeal, the Appellant’s Children were minors.

(o) The Appellant reported the following as family allowance payments in his income tax returns:

(p) The Appellant has not proven these family allowance payments were segregated as the family allowance payments were initially deposited into separate bank accounts and then were subsequently intermingled with income and investments of the Appellant.

(q) The Appellant handled and managed all the investments for himself and his family (Wendy and the Appellant’s Children).

(r) The Appellant allocated investment income stated on T5’s and T3 in his name and Wendy’s name to his children by handwriting on the TS and T3 notes such as “Interest of Dependent Children” and thus designated his investment income as income of the Appellant’s Children.

(s) The investment income from the Appellant’s investment accounts was allocated to the Appellant as follows and the unre- ported income was included in the Appellant’s income by the Minister:

(t) The income of the Appellant during the 1990, 1991, 1992 and 1993 Taxation Years was understated by the amounts of $1,069.00, $8,788, $3,120 and $8,376 respectively, totalling $21,353.75.

(u) The Appellant reported interest income from Canada Trustco Mortgage in the amount of $301.39, $317.79, $185.12 and nil in the 1990, 1991, 1992 and 1993 Taxation Years respectively.

(v) The Appellant did not report any Taxable Capital Gains in the 1990, 1991, 1992 and 1993 Taxation Years.

(w) The Midland Walwyn Account #59-1364A was opened on May 3, 1990 with a cheque in the amount of $34,801.83 written by the Appellant on the joint account of the Appellant and his former spouse, Wendy (DeCae) Long, after the Appellant had received a gift of $36,550 from his parents and deposited this gift of money in the joint account of the Appellant and his former spouse, Wendy.

(x) The Appellant attended at Midland Walwyn alone to open the Midland Walwyn account under the name “Wendy DeCae in trust”. The Appellant did the depositing and withdrawing from the account. All dealings with Midland Walwyn were with the Appellant as opposed to his former spouse, Wendy.

(y) The Minister allocated the earnings of the Midland Walwyn Account as detailed in Schedule 1 attached herein.

(z) The Bank of Montreal account #1493386 had various forms of investment such as mortgage funds, money market funds and mortgage fund taxable capital gains.

(aa) The amount allocated to the Appellant from the Bank of Montreal account #1493386 totalling $2,946 included net gains and losses realized on disposition of units in the mutual funds which were not reported on T3 slips as follows:

(bb) The Appellant’s father, Jules Morris DeCae, gifted large amounts of money to the Appellant.

(cc) The Appellant received computer printouts showing the results of his investment in treasury bills and failed to report this investment income.

(dd) The Appellant was found guilty on September 10, 1996 by the Provincial Court of Saskatchewan of willfully evading the payment of taxes imposed on him for the 1990, 1991, 1992 and 1993 Taxation Years in the amount of $5,523.17 by not reporting investment income in the amount of $21,353.75 ($1,069, $8,788, $3,120 and $8,376) in the 1990, 1991, 1992 and 1993 Taxation Years.

(ee) The Appellant was charged by the Provincial Court of Saskatchewan with a fine of 100 percent of the federal tax which was sought to be evaded on the unreported income totalling $21,353.

(ff) The Appellant knowingly, or under circumstances amounting to gross negligence in carrying out a duty or obligation imposed under the Act, made or participated in, assented to or acquiesced in the making of false statements or omissions in the income tax returns filed for the 1990, 1991, 1992 and 1993 Taxation Years, within the meaning of Subsection 163(2). As the taxes payable under Subparagraph 163(2)(a)(i) exceed the taxes that would have been payable if computed under Subparagraph 163(2)(a)(ii)(A), the Appellant is liable for penalties in the amount of $145.43, $1,390.43, $594.00 and $1,121.30 for the 1990, 1991, 1992 and 1993 Taxation Years respectively.

B. Issues to be Decided

10. The issues are:

(a) whether the Appellant’s income for the 1990, 1991, 1992 and 1993 Taxation Years was understated by the amounts of $1,069, $8,788, $3,120 and $8,376 respectively (totalling $21,353);

(b) whether the Minister properly assessed the Appellant income pursuant to Subsection 74.1(2) in relation to the Appellant transferring funds either directly or indirectly, by means of a trust or by any other means whatever, to or for the benefit of the minor children of the Appellant;

(c) whether the Appellant is entitled to deduct the Capital Gains Exemptions under Section 110.6 of the Act and if so, in what amount;

(d) whether the Minister properly assessed penalties pursuant to Subsection 163(2) of the Act in those years.

All of the assumptions, except assumptions (a) and (b) are true, as are paragraphs 7 and 8. The Appellant is no longer an employee of Revenue Canada.

The Respondent filed Exhibit R-4, which is a judgment of the Provincial Court of Saskatchewan delivered on September 10, 1996 in which the Appellant was convicted of tax evasion. Exhibit R-1 is the set of calculations filed as an exhibit in the tax evasion proceedings which details the subject matter of the taxes evaded. On the basis of these exhibits and the testimony respecting them, the Respondent’s counsel applied for issue estoppel respecting issues 10(a), (b) and (c).

The application is granted. The parties are identical; the Provincial Court decision was not appealed, so it is final; and the question and amounts of income and tax are the same. Therefore the appeal is dismissed in respect to these issues.

In order for the assessment of penalties described in issue 10(d) and levied pursuant to Section 163 of the Income Tax Act to stand, the Respondent must lead evidence to meet the test described by Strayer J. in Lucien Venne v. The Queen, 84 D.T.C. 6247 at 6256, when he said:

Gross negligence must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not.

The Respondent’s counsel also applied for issue estoppel in the assessment of the penalties based upon Goldstein J.’s judgment filed as Exhibit R- 4 and Exhibit R-1 and the testimony.

The Provincial Court Judge found the Appellant guilty of willfully evading the payment of income tax on the very sums in question in this case pursuant to count one of the conviction. In order to obtain that conviction, the Respondent had to establish proof beyond a reasonable doubt, which is a higher standard than is upon it to establish issue 10(d), the penalties. Moreover, a “willful” evasion constitutes intentional acting.

For these reasons, the motion of Respondent’s counsel in respect to issue 10(d), the penalties, is granted. The appeal of the penalties is also dismissed.

The appeal is dismissed in its entirety.

Appeal dismissed.