Date: 20000320
Docket: 1999-577-IT-I
BETWEEN:
BERNICE ERLY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal concerning the 1994, 1995 and 1996 taxation years. The question at issue is whether the Minister of National Revenue (the "Minister") properly assessed penalties pursuant to subsection 163(2) of the Income Tax Act (the "Act") for these years.
[2] The Appellant did not dispute that she had not reported some employment income for these years, but submitted that this non-reporting was done in good faith and in the honest belief that the income tax was taken care of by her employer.
[3] The facts on which the Minister relied to assess the Appellant are described at paragraphs 2 and 3 of the Reply to the Notice of Appeal (the "Reply") as follows:
2. On June 4th, 1998, in reassessing the Appellant for the 1994, 1995 and 1996 taxation years, the Minister of National Revenue (the "Minister"):
a) added to the Appellant's total income, employment income in the amounts of $18,088 in 1994, $9,701 in 1995 and $11,879 in 1996;
b) allowed as employment expenses the amounts of $1,200 in 1994, $700 in 1995 and $650 in 1996;
c) and assessed a penalty under subsection 163(2) on the amounts of $16,888 in 1994, $9,001 in 1995 and $11,229 in 1996.
3. In so reassessing the Appellant, the Minister made the following assumptions of fact:
a) in the 1994, 1995 and 1996 taxation years, the Appellant worked for Marilyn Craig, a home healthcare services;
b) in the 1994, 1995 and 1996 taxation years, Marilyn Craig considered the Appellant as a contractor;
c) in the 1994, 1995 and 1996 taxation years, Marilyn Craig made business with a CLSC;
d) in the 1994, 1995 and 1996 taxation years, the Appellant had to transport patients;
e) in the 1994, 1995 and 1996 taxation years, the Appellant received salaries from Marilyn Craig in the amount of $18,088 in 1994, $9,701 in 1995 and $11,879 in 1996;
f) in the 1994, 1995 and 1996 taxation years, as the Appellant had to use her personal vehicle, the Minister allowed car expenses in the amounts of $1,200 in 1994, $700 in 1995 and $650 in 1996;
g) 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 1994, 1995 and 1996 taxation years, as a result of which the tax that would have been payable assessed on the information provided in the Appellant's income tax returns filed for those years, was less than the tax in fact payable for those years;
h) as a consequence of the said understatement of income, the Minister assessed the Appellant the penalties under subsection 163(2) of the Act $1,578.47, $662.06 and $896.69 for respectively the 1994, 1995 and 1996 taxation years.
[4] In her Notice of Appeal, the Appellant stated her position as follows:
I am an honourable person and have filed my tax returns every year since I was 16 years old. I was deceived by my past employer "Marilyn Craig Home Health Care Services" (MCHHCS) when told that MCHHCS paid all applicable taxes for ALL employees on their staff. I never received any record or statement from MCHHCS to make me think this arrangement was untrue. MCHHCS stated that, through her reputable lawyers all was legal and correctly looked after.
For our take home wages of $7.00 per hour, we were expected to dress appropriately to represent the MHHCS business, have the use of a personal vehicle to transport the patients to and from appointments as well as provide the necessary care needed. We were advised that our vehicles were also insured while on MCHHCS business.
In good faith, (I was treated as a personal friend) I truly believed that the MCHHCS statement was true and that MCHHCS paid all the appropriate Government taxes on money earned through MCHHCS.
Due to the neglect of my former employer MCHHCS to fulfil their legal obligations as an honest employer, I feel no negligence can be proven for my part.
[5] Ms. Norma Mac Donald and the Appellant testified at the request of the Appellant's representative. Ms. Marilyn Craig testified at the request of counsel for the Respondent.
[6] Subparagraphs 2(a) and (b), 3(a), (d), (e) and (f) were admitted. The Appellant was paid by cheque on a weekly basis.
[7] Ms. Mac Donald was the co-ordinator for the Home Healthcare Services. She was also a caregiver. She stated that she, as the Appellant, was under the belief that Mrs. Marilyn Craig, the owner of the Home Healthcare Services, for which she was working, was looking after the tax aspect of the income that she received. She had also been assessed by the Minister for unreported income and had paid the penalties. She stated that she did not dispute the penalties because she did not want the worry of a litigation. She stated that the caregivers would ask Mrs. Craig once in a while, "What about the taxes?", and Mrs. Craig would answer: "Do not worry, everything is taken care of".
[8] The Appellant testified that she has worked since she finished high school. She had been salaried for many years and never had any problems with her income tax. She stated that she never received a T4 from Mrs. Craig and that she was told repeatedly that there was no income tax to pay, that it was taken care of by Mrs. Craig. Her husband, now deceased, had asked Mrs. Craig about it, since he was a manager of the accounting department of a firm. He would have received the same answer from Mrs. Craig.
[9] When Mrs. Craig testified, she stated that what she had told her employees or contractors, was that the income was minimal and that the taxes would be very low if none at all. She stated that she never told them not to report their income. They were small earners and, in that perspective, the income tax would be very low. She had 27 employees and she was not aware that 90% of these employees had not reported accurately their income.
[10] The Appellant's representative submitted that the Appellant did not knowingly fail to report her income, that she had all reasons to believe that her taxes were being paid and therefore, that no penalties should be assessed.
[11] Counsel for the Respondent submitted that the Appellant had been working since the end of high school and that she was thus well aware that she had to fill income tax returns. He also submitted that even if her employer had told her that her income was low and that she may not have to pay income tax, the Appellant surely knew that the whole of the income made by a person has to be reported on an annual basis by the individual who has earned the income. If she did not report it, it was done knowingly, or at least in circumstances amounting to gross negligence in the carrying out of her duty imposed under the Act.
[12] Counsel for the Respondent referred to R. Girard v. M.N.R., [1989] 1 C.T.C., 2138, at pages 2140 and 2141:
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. ...
...
... 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.
[13] Counsel for the Respondent also referred to G. Sigouin v. M.N.R., [1993] 2 C.T.C., 2760, at page 2164:
In the instant case, the appellant stated that he had not declared the rental and interest income because he had not had the relevant information and documents. ... However, supposing that one can accept such an explanation, the appellant nevertheless reported taking no steps to ensure he obtained the necessary information so as to complete his return correctly, ...
... Thus, here again, while I cannot state with certainty that the appellant “knowingly” failed to mention the sale of the building on Marlowe Street, I can at least find that this omission must be considered as made “under circumstances amounting to gross negligence”.
Conclusion
[14] Paragraph 163(2) of the Act reads as follows:
Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, 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 as required by or under this Act or a regulation, is liable to a penalty of the greater of $100 and 50% of the aggregate 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 him under this Act
exceeds
...
[15] Paragraph 150(1) of the Act reads as follows:
A return of income for each taxation year in the case of a corporation (other than a corporation that was a registered charity throughout the year) and in the case of an individual, for each taxation year for which tax is payable or would be payable if this Part were read without reference to sections 127.2 and 127.3, in which the individual has a taxable capital gain or has disposed of a capital property, or for which a payment has been received by the individual under section 164.1, shall, without notice or demand therefor, be filed with the Minister in prescribed form and containing prescribed information,
...
[16] Paragraph 150(1) of the Act requires that a return of income, in the case of an individual, be filed with the Minister for each taxation year for which tax is payable. At some point in the analysis of this appeal I was wondering if tax was payable on the small amounts received by the taxpayer and I was informed by both parties that this was the case especially as there was other income for each of the taxation years in question. There is also to be considered that no penalties would be imposed under paragraph 163(2) of the Act if there had not been tax payable as the penalties are calculated on the basis of the exceeding tax payable.
[17] Regarding the application of paragraph 163(2) of the Act, the Appellant stated in her Notice of Appeal that she was an honest and honourable person and that she did not on purpose omit to include the income in question in her income tax return. There is no reason for me not to believe that she is an honest and honourable person in her family and social life. However, it would be difficult for me to conclude, in the circumstances of this case, that the Appellant did not act, if not knowingly, at least under circumstances amounting to gross negligence, in not reporting the totality of her income. Even if she believed that taxes had been deducted from her income by her employer and that her employer had remitted these taxes to the Minister, she knew from her past experience as a worker that she had to file income tax returns showing her income and the amounts deducted for her by her employer. I must therefore find that regarding her obligations and duties in complying with the provisions of the Act she did not exercise the degree of care and diligence required. Her appeals are dismissed accordingly.
Signed at Ottawa, Canada, this 20th day of March, 2000.
"Louise Lamarre Proulx"
J.T.C.C.