Date: 20001103
Docket: A-660-97
Ottawa, Ontario, Friday, November 3, 2000
Coram: Décary J.A.
Létourneau J.A.
Noël J.A.
Between:
RICHARD ROY
Appellant
and
HER MAJESTY THE QUEEN
Respondent
JUDGMENT
The appeal is dismissed with costs. The cross-appeal is dismissed with costs.
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Robert Décary J.A. |
Certified true translation
Suzanne M. Gauthier, LL.L. Trad. a.
Date: 20001103
Docket: A-660-97
Coram: Décary J.A.
Létourneau J.A.
Noël J.A.
Between:
RICHARD ROY
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Hearing held at Québec, Quebec on Friday, October 20, 2000
Judgment rendered at Ottawa, Ontario on Friday, November 3, 2000
REASONS FOR JUDGMENT BY: NOËL J.A.
CONCURRED IN BY: DÉCARY J.A.
LÉTOURNEAU J.A.
Date: 20001103
Docket: A-660-97
Coram: Décary J.A.
Létourneau J.A.
Noël J.A.
Between:
RICHARD ROY
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1] This is an appeal from a decision by Judge Archambault of the Tax Court of Canada dismissing in part the taxpayer's appeals in respect of his 1985 to 1989 taxation years inclusive. The respondent filed a cross-appeal in view of Judge Archambault's refusal to award costs to her.[1]
[2] Three questions were raised by the appellant at the hearing, two of which may be dealt with summarily. First, the objection to the values accepted by the trial judge in his assessment of the construction cost of the buildings is an attack on his findings of fact and no palpable or patent error was identified in this regard. Secondly, the refusal by the trial judge to grant the appellant a capital gains exemption appears to me to be in strict accordance with s. 110.6(6) of the Income Tax Act[2] and the appellant was unable to show how the trial judge would have erred in denying him this exemption.
[3] The third question merits some consideration. The appellant argued that Judge Archambault erred in calculating the penalty by refusing to deduct in that calculation the capital cost allowance to which he was entitled.
[4] The facts relevant to this question are set out in the trial judgment. It will suffice to note that the appellant was first assessed by the "net worth" method. His representatives then submitted to the Minister that the unreported income resulting from these assessments derived from the rental of five buildings and asked that the capital cost allowance for the class to which those buildings belonged be deducted from the unreported income. The appellant owned other rental property in the same class, the income from which was duly reported.[3]
[5] The Minister acceded to this request and by reassessments issued on January 19, 1995 a capital cost allowance of $24,615, $22,065, $35,190, $36,984 and $39,984 was deducted for the five years in question respectively. However, the Minister refused to allow the deduction of these amounts in calculating the penalty.
[6] Judge Archambault upheld this aspect of the assessments. First, he cited s. 163(2), which imposes a penalty amounting to 25% of the tax which a taxpayer knowingly, or in circumstances amounting to gross negligence, fails to report.[4] He also referred to subs. (2.1), which reads in part as follows:
| 163(2.1) For the purposes of subsection (2), the taxable income reported by a person in his return for a taxation year shall be deemed not to be less than nil and the "understatement of income" for a year of a person means the aggregate of (a) the amount, if any, by which (i) the aggregate of amounts that were not reported by him in his return and that were required to be included in computing his income for the year exceeds (ii) the aggregate of such of the amounts deductible by him in computing his income for the year under the provisions of this Act as were wholly applicable to the amounts referred to in subparagraph (i) and were not deducted by him in computing his income for the year reported by him in his return . . . |
163(2.1) Pour l'application du paragraphe (2), le revenu imposable déclaré par une personne dans sa déclaration pour une année d'imposition est réputé ne pas être inférieur à zéro et le « revenu déclaré en moins » d'une personne pour une année s'entend du total (a) l'excédent éventuel, si excédent il y a, (i) du total des montants qu'elle n'a pas déclarés dans sa déclaration mais qui devaient être inclus dans le calcul de son revenu pour l'année, sur (ii) le total des montants qu'elle pouvait déduire lors du calcul de son revenu pour l'année en vertu de la présente loi, qui étaient entièrement applicables aux montants visés au sous-alinéa (i) et qu'elle n'a pas déduit lors du calcul de son revenu pour l'année dans sa déclaration . . . |
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(Emphasis by trial judge.)
[7] Judge Archambault then proceeded to dismiss the appeal regarding the calculation of the penalty as follows:
As appears from reading the relevant provisions, for the penalty to be computed after the capital cost allowance is deducted it must be possible to conclude that that allowance is an amount which Mr. Roy could deduct and which was wholly applicable to the amount not reported by him. The capital cost allowance claimed here is not wholly applicable to the unreported income. The evidence has shown that Mr. Roy reported part but not the whole of his rental income. Consequently, the penalty must be computed on the unreported income calculated before deducting the capital cost allowance.
[8] This reasoning is troublesome since it means that if the appellant had concealed all his rental income he would be entitled to deduct the capital cost allowance in calculating the penalty. It is because he reported part of that income that he loses the right to the deduction. As the purpose of the penalty is dissuasion and the deterrent effect usually increases with the extent of the unreported income, this result seems absurd. The penalty is less if all the income is concealed than it would be if the income were only partly concealed.
[9] However, I find that the provision cannot be interpreted in any other way. Parliament is willing to allow for a deduction in the calculation of the penalty to the extent that it relates exclusively to the unreported income. Otherwise, the deduction must be disallowed altogether.
[10] While this may be justified by Parliament's desire to curb the undue reduction of a penalty by preventing the deduction of amounts which do not entirely relate to the unreported income, a result, which may have gone unnoticed, is that a so called "penal" provision is being used to encourage taxpayers inclined to report part of their income not to do so at all.
[11] Having said that, the fact that legislation can lead to absurd results does not authorize the courts to ignore its effects when Parliament has spoken clearly and without ambiguity (see R. v. McIntosh, [1995] 1 S.C.R. 686, at 704-705). Since the capital cost allowance deduction is not entirely applicable to the unreported income, the appellant cannot require that that allowance be deducted in calculating the income on which the penalty is based.
[12] I would dismiss the appeal with costs.
[13] I would also dismiss the cross-appeal with costs. As the taxpayer was partly successful before Judge Archambault, it was open to him to order that the parties assume their own costs.
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Marc Noël J.A. |
I concur.
Robert Décary J.A.
I concur.
Gilles Létourneau J.A.
Certified true translation
Suzanne M. Gauthier, LL.L. Trad. a.
FEDERAL COURT OF CANADA
APPEAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT FILE No.: A-660-97
STYLE OF CAUSE: RICHARD ROY v. HER MAJESTY THE QUEEN
PLACE OF HEARING: Québec, Quebec
DATE OF HEARING: October 20, 2000
REASONS FOR JUDGMENT OF THE COURT: Noël J.A.
CONCURRED IN BY: Décary & Létourneau JJ.A.
DATED: November 3, 2000
APPEARANCES:
Normand Roy for the appellant
Martin Gentile for the respondent
SOLICITORS OF RECORD:
Normand Roy for the appellant
Québec, Quebec
Morris Rosenberg for the respondent
Deputy Attorney General of Canada
Ottawa, Ontario
[1] The decision is published at 97 DTC 1355.
[2] S.C. 1970-71-72, c. 63.
[3] In addition to the five buildings at issue, the appellant owned 11 other buildings, three of which were sold in 1987. (Reasons for Decision, note 1, at p. 1356.)
[4] The appellant conceded before the trial judge that he had failed to report his income knowingly or in circumstances amounting to gross negligence. (Reasons for Decision, note 1, at p. 1360.)