Date: 20000824
Dockets: 1999-2438-IT-I
BETWEEN:
CATHERINE OUELLETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Dockets: 1999-2439-IT-I
PIERRE PONTBRIAND,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Tardif, J.T.C.C.
[1] These two appeals were heard together on common evidence.
[2] The appeals concern the assessment of a penalty in respect of the 1996 taxation year.
[3] The appellant Pierre Pontbriand indicated that he had been asked by his spouse to prepare her income tax return every year and the appellant Catherine Ouellette confirmed in her testimony that she always relied on her spouse to prepare her tax returns.
[4] Section 163(2) of the Income Tax Act (the "Act"), which deals with the assessment of penalties, reads as follows:
(2) False statements or omissions. Every person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this section referred to as a "return") filed or made in respect of a taxation year for the purposes of this Act, is liable to a penalty of the greater of $100 and 50% of the total of
(a) the amount, if any, by which
(i) the amount, if any, by which
(A) the tax for the year that would be payable by the person under this Act
exceeds
(B) the amount that would be deemed by subsection 120(2) to have been paid on account of the person's tax for the year
if the person's taxable income for the year were computed by adding to the taxable income reported by the person in the person's return for the year that portion of the person's understatement of income for the year that is reasonably attributable to the false statement or omission and if the person's tax payable for the year were computed by subtracting from the deductions from the tax otherwise payable by the person for the year such portion of any such deduction as may reasonably be attributable to the false statement or omission
exceeds
(ii) the amount, if any, by which
(A) the tax for the year that would have been payable by the person under this Act
exceeds
(B) the amount that would have been deemed by subsection 120(2) to have been paid on account of the person's tax for the year
had the person's tax payable for the year been assessed on the basis of the information provided in the person's return for the year,
. . .
[5] The evidence established that the Royal Canadian Mounted Police ("RCMP") had launched a police investigation into possible anomalies or irregularities in the processing of certain files, in which the office of Ratelle et Associés Redressement Financier ("Ratelle") was implicated.
[6] At first, the investigation focused essentially on some of Ratelle's practices and on its connections with the office of a trustee in bankruptcy.
[7] In the course of the investigation, it was noted that some taxpayers might have received tax benefits the basis for which was fictitious. From that point on, the investigation became a joint investigation with Revenue Canada.
[8] The RCMP and Revenue Canada investigators soon discovered that several hundreds of files contained false and untruthful information; indeed, they identified a number of fictitious firm names that appeared on the income tax returns of a number of taxpayers.
[9] Accordingly, in order to get to the bottom of the whole matter, they decided to meet with all the individuals who had reported tax losses from presumably fictitious businesses.
[10] Ratelle described itself as a financial adjustment firm. Through aggressive advertising, Ratelle targeted groups of high-income employees generally working for the same business. They were solicited through circulars and faxes and—even more effectively—by word of mouth.
[11] In actual fact, Ratelle prepared tax returns for clients who were looking for tax refunds and set off against their incomes either a business loss or a business investment loss.
[12] Ratelle's clients did not obtain valid documentation supporting the losses claimed. In some cases, a deposit was paid, a portion of which corresponded to the fees for preparing the tax return.
[13] The appellant explained the circumstances that had led him to Ratelle's office. He and his wife were looking for a way to reduce the amount of taxes they had to pay. The appellant therefore showed a keen interest in Ratelle's proposal.
[14] The appellant said that when Ratelle called to ask them to come into the office to sign the tax returns that it had completed, he had refused and asked for their returns so that he and his spouse could examine them.
[15] After checking the amount of the tax refunds claimed, he sent the two signed returns back to Ratelle's office. Maintaining that he had little or no familiarity with tax matters, the appellant stated that he thought that he and his wife were entitled to the refunds claimed because they thought that they had bought bearer bonds.
[16] For the 1996 taxation year, the appellant Pierre Pontbriand reported a gross income of $55,896.83, and the appellant Catherine Ouellette reported a gross income of $14,095.56. On line 228 of his return, the appellant Pierre Pontbriand reported a gross business investment loss of $33,900 and, on line 217, an allowable loss of $25,425. The appellant Catherine Ouellette reported on those lines a gross loss of $21,900 and a net loss of $16,425. The size of the losses claimed by them was considerable in view of their incomes.
[17] The appellant Pierre Pontbriand explained that he thought the whole thing was legal and legitimate and did not ask himself any further questions. He also indicated that he and his spouse had not paid a cent to purchase what they thought were bearer bonds. He added that the amount they had to pay was based on the size of their refunds.
[18] When the investigators wanted to meet with him to discuss his file, he said that it was not a good time. He mentioned in that regard extra work, his spouse's illness and the fact that one of his children was sick and required a great deal of care and attention. Finally, he stated a number of times that the ice storm tragedy had played havoc with his availability.
[19] All the facts related by the appellants obviously put the case in a sympathetic light; but I do not see how that could excuse or justify the false and untruthful information on the appellants' tax returns or erase the effects thereof. Regardless of what Ratelle might have said in pitching its product, the fact remains that the information provided was objectively false; furthermore, these were not mere trifles but important statements having a very significant effect on the appellants' tax burden.
[20] With regard to the nature of the losses, no familiarity with tax matters was required in order to grasp the meaning and scope of the heading "Business investment loss".
[21] The appellant maintained that he and his spouse thought they had purchased bearer bonds. Such claims are utterly implausible, especially since the appellants did not have to pay out anything other than a percentage calculated in terms of the tax refunds. In point of fact, they never suffered any actual losses but were instead enriched, until the tax authorities discovered the manoeuvre. In other words, the appellants could not lose, they could only gain. How is one to believe that reasonable people could have thought such a thing was possible unless they told themselves they had nothing to lose?
[22] The Court noted that the appellants were reasonable people with an excellent education and capable of discernment. I think that the appellant Pierre Pontbriand wilfully and deliberately abandoned his critical sense. In other words, presented with an opportunity for easy profit, he preferred to close his eyes, telling himself that he could always justify the false statements by his ignorance and by his reliance on persons who held themselves out to be experts in the field.
[23] Despite numerous attempts by the investigators to obtain a statement from him, no meeting was ever held, for the various reasons mentioned above.
[24] The events subsequent to the filing of the return are, in my view, of quite secondary importance, since the circumstances justifying a penalty must be evaluated as they were when the return was signed. Any assessment of subsequent events is solely for the purpose of gaining a better understanding.
[25] In the case at bar, the evidence did not reveal any facts subsequent to the filing of the appellants' tax returns that erased or even explained the false statements in those returns. The appellants acknowledged that the information in their tax returns was false and untruthful. They admitted that they signed their returns, certifying that everything in them was true.
[26] The mere fact of signing a return containing false statements is in itself a serious offence or, at the very least, constitutes gross negligence on the part of the person signing that return.
[27] In view of the degree of the appellants' ignorance, incompetence or naivety, there may be grounds for a tort action against Ratelle, the originators of the false and untruthful return, but those factors are certainly not valid excuses that can be put forward against the Minister of National Revenue (the "Minister").
[28] With regard to the Minister, the negligence was so gross as to amount to complicity, and the appellants cannot be viewed as the innocent victims they tried to make themselves out to be.
[29] The appellants in the instant case were highly educated people, clearly possessing knowledge and experience that should have alerted them or at least made them suspicious enough to consult genuine experts who were independent from Ratelle. Having regard to their income, the size of the losses claimed was substantial, which in itself was another factor that should have prompted the appellants to check with an independent expert. According to the appellants, Ratelle is solely responsible, and no responsibility can be assigned to them. But did Ratelle give the false and untruthful information without the appellants' knowledge? The evidence on this point made it clear that the answer is no.
[30] There are a number of decisions of this Court regarding penalties. It is appropriate to reproduce some excerpts that seem to me to be very relevant in the circumstances. They are taken from decisions by Chief Judge Couture of this Court. In Morin v. M.N.R., 86-58(IT), ([1987] A.C.I. no 1109), he wrote as follows:
. . .
The appellant wrongly submits that as a taxpayer he fulfilled his fiscal obligation by signing reports prepared by an accountant without at the same time ensuring himself of the accuracy of these reports or verifying the amounts of income entered therein. In my opinion, this was another instance of gross negligence, since by his own testimony the appellant read closely and understood the implications of all the clauses in the various business contracts he signed, but when it came to tax returns he admitted that he signed them without even reading their contents on the pretext that he understood absolutely nothing about accounting. The fact is that the appellant was in a position to judge whether his tax returns accurately reflected the income from his business—which is what he failed to do.
. . .
In another case, Girard v. Canada (M.N.R.), [1988] T.C.J. No. 723, Chief Judge Couture wrote:
. . .
For an appellant to avoid liability under the Act when he fails to report income, he cannot simply attribute the omission to circumstances apparently beyond his control and try to place the blame on third parties. When he signs his tax return for a taxation year he also signs the following certificate:
I hereby certify that the information given in this return and in any documents attached is true, correct and complete in every respect and discloses my income from all sources.
This statutory formula appears to me to be quite clear and to require no explanation. When signed by a taxpayer it creates a presumption that the return is correct, based on the fact that the taxpayer was aware of and satisfied with its contents when he signed it. The same is true for all additions that must be completed and filed with the statement without exception, if the circumstances so require.
I do not suggest that the fact that a taxpayer signed such a certificate automatically makes him liable to the penalty mentioned in s. 163(2) if he commits any offence in the return. I admit that there are a whole range of circumstances in which he will be entirely free of liability under this subsection; but for him to succeed in persuading the Court that the offence committed by him resulted from independent circumstances beyond his control, and so avoid liability, he must show that in the circumstances he exercised reasonable attention and diligence in preparing and filing his return.
. . .
[31] I believe it is important to reproduce an excerpt from Desrochers v. Canada, [1999] T.C.J. No. 879, in which the Honourable Judge Dussault wrote:
. . .
I have read you section 163(2); you can see that gross negligence or the act of doing something knowingly occurs when a return is made; that is the relevant time for the purpose of analysing things.
Of course, subsequent factors may be indications of whether or not there was good faith. It has long been established in the case law that Revenue Canada's treatment of other taxpayers is not relevant in deciding a case. And that is exactly the situation here: the evidence that was adduced was adduced in your case, and the law requires me to confine myself to that evidence.
In closing, I would simply like to say that meeting with the investigator only after the whole matter is already in the newspapers, even though you had twice been notified beforehand that it was a case of fraud, is not exactly what one would call voluntary disclosure that could demonstrate your good faith. Once again, when you were told about the investigation, you preferred to turn to those implicated rather than to some independent person.
. . .
[32] Having regard to the evidence, the respondent was fully justified in assessing the penalty, and the appeal is therefore dismissed.
Signed at Ottawa, Canada, this 24th day of August 2000.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 23rd day of October 2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-2439(IT)I
BETWEEN:
PIERRE PONTBRIAND,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of Catherine Ouellette, 1999-2438(IT)I, on June 7, 2000, at Montréal, Quebec,
by the Honourable Judge Alain Tardif
Appearances:
Counsel for the Appellant: Martin Fortier
Counsel for the Respondent: Suzanne Morin
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1996 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 24th day of August 2000.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 23rd day of October 2001.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-2438(IT)I
BETWEEN:
CATHERINE OUELLETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of Pierre Pontbriand, 1999 2439(IT)I, on June 7, 2000, at Montréal, Quebec,
by the Honourable Judge Alain Tardif
Appearances:
Counsel for the Appellant: Martin Fortier
Counsel for the Respondent: Suzanne Morin
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1996 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 24th day of August 2000.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 23rd day of October 2001.
Erich Klein, Revisor