Maltais (R.O.F.J.) v. M.N.R., [1991] 2 CTC 2651

Bowman, T.CJ.:—The appellant appeals from a reassessment for his 1989 taxation year. His sole objection to the reassessment is the imposition of a $500 penalty which was levied pursuant to subsection 163(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the 'Act").

Under subsection 163(3) in any appeal under the Act where the penalty assessed by the Minister under section 163 is in issue the burden of establishing the facts justifying the assessment of the penalty is on the Minister. Accordingly, I called on counsel for the respondent to open. His position was that within the appellant's notice of objection and his notice of appeal to this Court, the appellant did not dispute that in 1988 and 1989 he failed to declare as income in his income tax returns amounts withdrawn from a registered retirement savings plan in the amounts of $1,617 in 1988 and $5,188 in 1989 and that these facts, without more, justified the penalty.

The facts upon which the appellant based his appeal are set out in Exhibit A-1 filed by the appellant. In March of 1989, he filed his 1988 income tax return and received a notice of assessment in April. In May of 1989, after filing his income tax return, he received a form T4RSP from the Mony Life Insurance Company. He did not inform the Department of National Revenue of this fact or ask that his income be adjusted for that year. In April of 1990, he received a notice of reassessment from the Department of National Revenue in which the amount of $1,617 was included in his income for 1988. No penalty was assessed.

In March of 1990, the appellant filed his income tax return for the taxation year 1989, before he received the notice of assessment for 1988 which the Minister issued in April 1990. He did not, in filing his 1989 return of income, include the sum of $5,188 which he had received in 1989 from a registered retirement savings plan held by the Canada Trust Company. In April of 1990 he received a notice of assessment for his 1989 taxation year and in making his original assessment for 1989 the Minister did not include the sum of $5,188 received from the registered retirement savings plan. In May of 1990, the appellant received from Canada Trust Company a form T4RSP for 1989 indicating a withdrawal of the sum of $5,188 from the registered retirement savings plan in 1989. On October 10, 1990, the Minister of National Revenue assessed the appellant for 1989 to include this amount in his 1989 income and it is in the last assessment from which the appeal was taken that the Minister of National Revenue imposed a penalty of $500 pursuant to subsection 163(1).

The appellant was represented at trial by his father who presented the case with skill and eloquence. Essentially the argument was that subsection 163(1) of the Act was adopted on September 13, 1988 and it represented a substantial change in the law. Whereas the former subsection 163(1) imposed a penalty where a taxpayer wilfully attempts to evade payment of the tax payable by him under Part I by failing to file a return of income as and when required by subsection 150(1), the new subsection 163(1), under which the penalty in this case is imposed, provides a penalty where a taxpayer has failed to report an amount required to be included in computing his income in a return filed under section 150 for a taxation year and had failed to report an amount required to be so included in any return filed under section 150 for any of the three preceding taxation years. In other words what the section appears to be designed to do is to penalize a taxpayer for failing to report an item of income in successive years. This section does not appear on its race to be limited to the situation where the unreported items in successive years are of the same nature as they are here. In both the years 1988 and 1989 the unreported income represented withdrawals from registered retirement savings plan.

Mr. Maltais’ argument was that it was unfair for the Minister to impose a penalty for his failure to declare the registered retirement savings plan withdrawal in his 1989 taxation year without having warned him at the time that the reassessment for 1988 was issued in April of 1990, that he was potentially liable for the penalty if he failed to report a similar item of income in the subsequent years. He suggested that this failure by the officials of the Department of National Revenue constituted either a negligent or deliberate entrapment of the taxpayer. I cannot accept this argument. It would require very cogent evidence to establish that the officials of the Department of National Revenue deliberately set out to lull the taxpayer into a false sense of security in which he believed he could fail to declare items in income with impunity. In a selfassessing system the taxpayer has an obligation to ensure that his or her returns are complete. If it turns out that the failure to declare items of income carries with it a penalty that is different from that which the taxpayer anticipated, the taxpayer must bear that responsibility himself and cannot lay the lame on the officials of the Department of National Revenue.

It was further argued that the appellant had no intention of wilfully evading tax. It was pointed out that at the time of filing his 1989 income tax return he had not yet received a formal notification from the Trust Company; that he was oing through a hectic time in his life; that he had recently been transferred from Ottawa to the Canadian Forces base at Petawawa; that his first child was born; that following an accident his wife had to go through major surgery and that he had bought his first house. I accept all of this evidence. The appellant struck me as an honest and honourable young man and I I find as a fact that it was not his intention to evade the payment of income tax. If it had been, more serious penalties under subsection 163(2) might have been considered. Mr. Ghan on behalf of the respondent contended that subsection 163(1) in the form which is applied to 1989 did not require that there be a wilful intention to evade tax. In support of this position he pointed to the wording of the former 163(1) which referred to "Every person who wilfully attempts to evade the payment of tax payable by him" and to the wording of subsection 163(2) which uses the expression “knowingly or under circumstances amounting to gross negligence". These provisions require a mens rea of intent or of recklessness. I agree With the respondent on this point. In my opinion, the omission giving rise to a penalty under subsection 163(1) as it applied to the 1989 taxation year is one of strict liability [1] . Otherwise, subsection 163(2) would be superfluous. It follows that where the Minister of National Revenue is called upon under subsection 163(3) to justify the imposition of a penalty under subsection 163(1) he meets that onus by establishing that the taxpayer had failed to report an amount of income in one year and that he or she had failed to report an amount in a return for any of the three preceding taxation years. It is not necessary for me to decide in this appeal whether the amounts which the taxpayer fails to report in two or more taxation years need be similar in nature.

The appeal is therefore dismissed.

Appeal dismissed.