Date: 20021017
Docket: 1999-4482-IT-G
BETWEEN:
MARIE-CLAUDE BOUCHER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Teskey, J.
[1] The Appellant appeals her 1988 assessment of income tax, notice of which was issued by the Minister of National Revenue (the "Minister") on July 2, 1996, which was confirmed by the Minister after a review of the Appellant's objection thereto.
[2] The assessment added to the Appellant's 1988 income $193,330 which reduced the previously assessed non capital loss from $216,529 to $68,199 and a gross negligence penalty was applied pursuant to subsection 163(2) of the Income Tax Act (the "Act") to this $193,330 added income.
[3] The issues before the Court are:
i) whether the four-year limitation applies to the reassessment made in 1996 for the 1988 taxation year;
ii) whether alleged trading losses should be treated as a deduction from the Appellant's 1988 income for the purposes of subsection 163(2.1) of the Act;
iii) whether penalties under subsection 163(2) were properly levied.
[4] The Minister in assessing the Appellant in July of 1996, for the 1988 year made assumptions of fact which are reproduced in paragraph 4 of the Reply to the Notice of Appeal. The following subparagraphs and excerpts as modified later herein are:
...
b) during 1987 and part of 1988, the Appellant, a lawyer, was employed by Burns Fry as a stockbroker;
c) as the Appellant had not filed tax returns for her 1986, 1987 and 1988 taxation years and following no response to the request from the Minister with respect to filing returns of income for those years, the Department of National Revenue prepared pro-forma tax returns for the 3 years and in so doing, it raised assessments dated November 14, 1990 pursuant to subsection 152(7) of the Act;
d) the Appellant's main income for the 1988 taxation year was T4 employment income from Burns Fry in the amount of $42,725;
e) in filing Notices of Objection on January 21, 1991 with respect to the 1986, 1987 and 1988 taxation years, the Appellant claimed that she had excessive losses in her personal trading account and these losses should be allowed for each of the 1986, 1987 and 1988 taxation years;
f) in 1991, the Appellant filed amended returns of income for the 1986, 1987 and 1988 taxation years;
g) with respect to the 1988 taxation year, the Appellant claimed a business loss of $75,985 as a result of personal stock trades made in her personal account with Burns Fry and carrying charges of $10,000;
h) during the course of reviewing the Notices of Objection, the Revenue Canada Appeals Officer obtained the Appellant's personal trading account statements from Burns Fry;
i) following a reviewing of the broker statements with the Appellant and her representative concurrent, Notices of Reassessments dated October 13, 1992, were issued allowing, in part, the objections with respect to the 1986, 1987 and 1988 taxation years;
j) Specifically, with respect to the 1988 taxation year, business-trading losses in the amount of $300,459 were allowed; carrying changes were allowed; and changes were made to interest income;
k) the 1988 adjustments resulted in non-capital losses of $261,529;
l) in 1991, two articles appeared in Toronto newspapers stating that the Investors Dealers Association of Canada ("IDA") banned the Appellant for working as a stockbroker for life as a result of her misappropriating funds from clients' accounts, falsifying documents and making trades, without her clients' consent;
m) consequently, a further review of the Appellant's 1988 tax return was undertaken by officials of the Department of National Revenue (now known as Canada Customs and Revenue Agency), (the "Agency");
n) the Agency served a Requirement on Burns Fry and the Agency learned that from October 1987 to May 1988, the Appellant removed a total of $320,000 from the trading accounts of two clients; the Appellant requisitioned cheques from Burns Fry, payable to either one of the two clients, forged the signatures as the client payee and deposited the cheques into her personal banking account; the Appellant then wrote cheques from her personal bank account to either her personal trading account with Burns Fry to cover trading activities in her account or she deposited the amounts to clients' accounts to cover authorization transactions that the Appellant put through without the clients' knowledge;
o) of the amount misappropriated, Burns Fry provided Agency officials with information that occurred between March 1988 and April 1988, totalling $270,000;
p) from the total of $270,000, Agency officials traced an amount of $209,000 as credits to the Appellant's personal trading account and $30,977 to the Appellant's personal bank account;
...
s) during the Appellant's contacts with Agency officials, she failed to disclose the misappropriation of funds;
t) the misappropriated funds were used by the Appellant as the source of funds for the Appellant's personal trades;
u) the misappropriated funds should have been evident to the Appellant from a review of the statements of her personal trading account and, or, a review of her personal bank account statements;
v) the amount of the misappropriated funds was significant when compared to the Appellant's T4 income in 1988 of $42,725;
w) the Appellant had direct knowledge of the funds misappropriated and as a lawyer, the Appellant should have been aware that such amounts are considered taxable income; and
...
Facts adduced at trial
[5] The Appellant stated her occupation to be a businessperson.
[6] She was called to the Manitoba Bar in 1973. She then worked for the Federal Department of Justice Legislation Branch drafting tax legislation and regulations and interpretation of legislation for the Privy Council, then worked in the Commercial Law Branch. In 1977, she worked for Magna International as a in-house counsel and then started to do consultingwork. In 1984, she became a stockbroker with Burns Fry Limited.
[7] The Appellant entered as Exhibit A-1 a timeline, which is hereby reproduced:
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Time Line Re: 1988 Taxation Year of Marie-Claude Boucher
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Date
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Activity |
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1987/1988 |
Computerized generated forms sent to last known TP's address requesting filing of 1986 T1
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April 1990 |
Ms. Boucher contacted via telephone by I & C officer requesting the filing of the 1986, 1987 and 1988 T1s
TP advised officer that she has a large expense to claim and will be getting refunds once she has filed them. Officer agrees to send her blank tax returns in her business address and she agrees to complete them.
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May-Aug 90 |
T & C officer is unsuccessful in contacting TP. No response from telephone messages left or to letter dated August 2/90.
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Nov. 14/90 |
Dept prepares pro-forma returns for 1986, 1987 & 1988 and raises assessments pursuant to ss. 152(7) of the Act. Main income was T4 employment income from Burns Fry. In 1988, the T4 amount was $42,725.
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Jan. 25/91 |
Ms. Boucher files Notices of Objection. She states that she has not been allowed certain allowable deductions and has incurred non-capital losses. Specifically that she incurred trading losses in her personal trading account with Burns Fry (and that of her ex-husband's to which she was entitled). These losses should be allowed in 1986, 1987 and 1988.
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March 20, 1991 |
Date of unsigned letter from TP to Sudbury TC stating that she suffered "excessive losses" in her personal trading account and wishes that they be taken into consideration. (This letter accompanied the 1986/87/88 T1s prepared by her.)
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May 29, 1991 |
Dept receives amended T1s for 86/87/88 from TP. For 1988 TP claims a business loss of $75,985 and carrying charges of $10,000.
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Sept. 30/91 |
Articles appear in the Globe & Mail and in the Financial Post re Ms. Boucher's misappropriation of funds from client's accounts. To date TP has made no mention of this to the Dept (i.e. funds misappropriated are taxable income.)
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Nov. 1991 |
After several discussions with Ms. Boucher and her representative, the appeals officer requests and obtains from Burns Fry copies of the TP's personal trading account with Burns Fry.
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Nov. 1991 - April 1992 |
Appeals Officer reviews Trading accounts sheets. Various conversations with TP and representative ensue. Final figures agreed upon April 8, 1992. Neither the taxpayer nor her representative have disclosed the additional taxable amounts that Ms. Boucher acquired by way of misappropriation from client's accounts with Burns Fry. From a review of her personal trading accounts and the subsequent working paper prepared by SI, it is clear that these misappropriations were used by her as the source of funds for her personal trades. The misappropriated funds would have been evident to her from a review of personal bank account.
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Oct. 13/92 |
Notice of Reassessment issued for 86/87/88 allowing the objections in part. Trading losses of $15,278, $67,303 and $300,959 were allowed respectively in 1986, 1987 and 1988. Carrying charges were allowed and changes made to interest income. The 1988 adjustment resulted in non-capital losses of $261,529 which the TP requested be applied to 1987 and 1990.
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August 1995 |
The Special Investigation section of the Dept commences their investigation of Ms. Boucher's 1988 T1. The issue is the non-reporting of a significant amount of funds misappropriation from client's accounts at Burns Fry.
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July 2/96 |
Notice of reassessment issued for 1988 adding misappropriated funds of $193,330 and applying ss 163(2) penalty for 1988.
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Aug 30/96 |
Ms. Boucher files Notice of Objection against the imposition of the ss. 163(2) penalty for 1988. |
[8] The only salient fact omitted therefrom is that the Appellant, in March of 1990, filed blank T1 tax returns for the years 1986, 1987 and 1988 with a letter (Exhibit A-3). The letter made no mention of misappropriated funds. The only issue raised therein is claimed extensive losses. The last paragraph says: "I wish to claim all those losses as business losses which losses will be required to be ascertained by Revenue Canada directly from Burns Fry. As I have stated earlier, the losses were very extensive."
[9] In August of 1991, the Investors Dealers Association of Canada held a hearing concerning the actions of the Appellant while in the employment of Burns Fry. The Appellant was duly notified of the hearing and did not attend. She was found guilty of misappropriating funds from clients and accepted documents with false signatures (hers) attached thereto and fraudulently endorse cheques payable to clients and deposited the funds into her own bank account. She was fined and suspended from trading as a stockbroker for life.
[10] When the Appellant left Burns and Fry, she hired a legal counsel and an agreement was reached with Burns Fry, it being agreed that Burns Fry would cover all client losses and that the Appellant would not appear at a discipline hearing to be held by the Investors Dealers Association of Canada and that she would never reapply for a stockbroker's license.
[11] The Respondent produced as a witness Erlinda Penas ("Penas") who has been with Revenue Canada and the Canada Custom and Revenue Agency for 23 years. She has been an investigator since 1988.
[12] Penas said that Revenue Canada received in 1995 copies of two newspaper articles, one in the Globe and Mail and the other one in the National Post that had been published in September 1990. The essence of the two articles were to the effect that the Appellant had removed from trading accounts of two clients $320,000.
[13] As a result of Revenue Canada receiving these articles, the Appellant's file was assigned to Penas.
[14] Penas wrote the Appellant in August of 1995 advising her of the information and that a penalty was being recommended and asking her to respond in 30 days.
[15] Penas called the Appellant repeatedly and only saw the Appellant in person in November. At the meeting, the Appellant did not dispute the amount but said she disagreed with the penalty under subsection 163(2) of the Act.
[16] When Penas was asked whether the Appellant fully cooperated with the department, she responded: "She cooperated with the Department but she did not include this amount. She had all the chances to do that during the objection stage, and whatever cooperation she gave to the Department at that stage was self-serving to her."
Analysis
[17] The Appellant is a well-educated articulate person who started her law career in 1973, who has specialized knowledge of the Act and used that knowledge for four years.
[18] I accept the evidence of Penas without reservation in every detail.
[19] I did not find the Appellant to be credible. The Appellant's attitude and general behaviour did not demonstrate good faith or credibility throughout the entire period from 1986 to date.
[20] The Appellant in her in-chief evidence stated she began to work for Burns Fry in 1986 as a stockbroker. Then in cross-examination, when asked if she had been a broker from 1984, she answered: "Maybe, okay. I'll grant you that."
[21] When the hearing before the Investors Dealers Association of Canada was brought up, she claimed that it did not have any validity because she was not present. It was not until after cross-examination, when I questioned her, did she acknowledge that she had been served with a notice of the hearing and that the reason she did not attend the hearing was that it was part of the deal made by her legal counsel with Burns Fry. She had given evidence of this deal but no particulars of the deal in examination-in-chief.
[22] I conclude that she was quite prepared in her direct testimony and in cross-examination to leave out pertinent facts so that the Court might draw a wrong conclusion on the evidence. Her entire behaviour and attitude throughout the whole period from 1986 to now showed a lack of good faith and in the witness box, she ruined her own credibility.
[23] I am satisfied from the evidence before me that the Appellant knew that she had fraudulently taken some $300,000 from various clients and that she deliberately did not disclose the misappropriation of the funds to Revenue Canada during their investigation.
[24] The Appellant had ample opportunity to advise Revenue Canada of these funds which she never did, such as:
(i) the blank T1 tax returns filed in March 1990;
(ii) in her objection, in the pro-forma assessments issued in November 1990, the only issue raised were the purported losses;
(iii) in May of 1991, when the Appellant filed amended returns for 1988, no mention of any misappropriated money was made;
(iv) and all through her discussions with the Department, until she was confronted with the figures, misappropriated money was never disclosed by her.
Issue One
[25] The four year limitation period to reassess is lost when a taxpayer has made "any misrepresentation", that is false. This has been interpreted as being really synonymous with incorrect: Nesbitt v. The Queen, 96 DTC 6045. The Appellant fails on this issue.
Issue Two
[26] The Appellant produced no evidence of trading losses whatsoever and therefore fails on this issue also. It was the income that was not deliberately disclosed upon which the penalty was assessed. The Appellant did not submit any argument on this point.
Issue Three
[27] The late Chief Judge Couture of this Court said in Morin v. M.N.R., 88 DTC 1596, at page 1597:
To escape the penalties provided in subsection 163(2) of the Act, it is necessary, in my opinion, that the taxpayer's attitude and general behaviour be such that no doubt can seriously be entertained as to his good faith and credibility throughout the entire period covered by the assessment, from 1978 to 1981.
[28] Having come to the conclusion that this Appellant knew she had appropriated for her own use a substantial sum of money and knowing that it was taxable, she deliberately withheld this information and deliberately filed false returns. To claim it was a simple error is just not believable. She was quite prepared to say nothing and if National Revenue did not discover the misappropriated money when looking for her claimed losses, that was quite satisfactory to the Appellant.
[29] For all the above reasons, the appeal is dismissed with costs.
Signed at Toronto, Ontario, this 17th day of October 2002.
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"Gordon Teskey" |
J.T.C.C.
COURT FILE NO.: 1999-4482(IT)G
STYLE OF CAUSE: Marie-Claude Boucher
and Her Majesty the Queen
PLACE OF HEARING: Victoria, British Columbia
DATE OF HEARING: September 23, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge Gordon Teskey
DATE OF JUDGMENT: October 17, 2002
APPEARANCES:
For the Appellant: The Appellant herself
Counsel for the Respondent: David W. Chodikoff
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-4482(IT)G
BETWEEN:
MARIE-CLAUDE BOUCHER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on September 23, 2002 at Victoria, British Columbia by
the Honourable Judge Gordon Teskey
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: David W. Chodikoff
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1988 taxation year is dismissed, with costs, in accordance with the attached Reasons for Judgment.
Signed at Toronto, Ontario, this 17th day of October 2002.
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"Gordon Teskey" |
J.T.C.C.