Date: 20000824
Docket: 1999-3668-IT-I
BETWEEN:
MARIELLE LAMARRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1] The appeal concerns the assessment of a penalty in respect of the 1996 taxation year.
[2] 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.
[3] The evidence established that the Royal Canadian Mounted Police ("RCMP") had launched a police investigation into possible anomalies or irregularities in the handling of certain files, in which the office of Ratelle et Associés Redressement financier ("Ratelle") was implicated.
[4] At first, the investigation focused essentially on some of Ratelle's practices and on its connections with the office of a trustee in bankruptcy.
[5] 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.
[6] 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 persons.
[7] Accordingly, in order to get to the bottom of the whole matter, they decided to meet with all the individuals who were concerned or who were associated with the presumably fictitious businesses.
[8] 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.
[9] Various tactics were used. Ratelle apparently told some clients that every taxpayer was entitled to a full tax holiday once in his life. With others, Ratelle took what appears to have been a more appealing tack, holding itself out as having expertise in financial adjustment; in this regard, it claimed to have numerous clients and businesses in difficulty that could not take advantage of legitimate losses. These losses could be transferred to the benefit of the transferees in return for a percentage based on the benefits received.
[10] 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. In either case, the losses were fictitious.
[11] Ratelle's clients did not receive any documentation or evidence showing that the loss they were claiming was valid. Ratelle generally required payment of its fees for preparing the tax return. In addition, those benefiting from the fictitious losses paid Ratelle a percentage based on the tax refund they obtained.
[12] In the case at bar, the appellant claimed a gross business investment loss in the amount of $25,659, or a deductible amount of $19,244.25. This was a substantial amount to be applied against her income of $38,203.13.
[13] The fictitious loss that was claimed generated a federal income tax refund of $3,877.74. The amounts in question were considerable, a fact that would have alerted any reasonable person, especially since the loss was unsupported by any documentation. It is unimaginable that any moderately well-informed person could have believed in the legitimacy of a scenario like that. The only plausible explanation is no doubt that the appellant had decided that she had nothing to lose and that, if any problems were to arise, she had only to put the blame and the responsibility on Ratelle.
[14] In actual fact, there may exist tax shelters, allowable expenses, exemptions, losses and so on that have the effect of reducing a taxpayer's tax burden, provided, however, that the facts, figures and transactions are genuine and not fabricated, because if they are, what is involved is essentially fraud.
[15] The appellant maintained that she had always been in good faith; she said that she believed Ratelle to be a responsible and trustworthy firm, adding that, to her knowledge and based on her experience, there were many tax shelters that would allow one to substantially reduce one's tax burden.
[16] The appellant admitted that she had been looking for a tax shelter and gave as examples various experiences she had had in real estate.
[17] Relying on an expert or on someone who holds himself out to be an expert in no way absolves the one person who is really responsible for a tax return concerning him or her.
[18] The appellant signed a tax return that contained false and untruthful information, and she cannot claim that this was done without her knowledge. She had an obligation to ensure that all the information contained in her return was truthful. Furthermore, she formally signed her return for the year at issue.
[19] The appellant was familiar with the decision of the Honourable Judge Dussault of this Court in Desrochers v. Canada, [1999] T.C.J. No. 879, which also involved Ratelle. She argued, however, that her case was different in that her good faith could not be questioned. She also stated that the facts in her case were different and special and not to be compared with the facts in Desrochers.
[20] I think it is important to cite a passage from that judgment in which the Honourable Judge Dussault stated the following:
. . .
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.
. . .
[21] Each case indeed stands on its own merits, especially when it comes to penalties and the assessment of good faith.
[22] There was abundant evidence concerning the facts and circumstances subsequent to the filing of the return. In the course of the joint investigation by Revenue Canada and the RCMP, a number of attempts were made to meet with those concerned in the matter of the possibly untruthful information. Some promptly co-operated; others co-operated less readily and some did not do so at all.
[23] The appellant provided a whole series of explanations to justify her conduct during the investigation. The Court does not attach much importance to that phase of the case since it involves facts subsequent to the signing of her return.
[24] It has been held in a number of cases that facts subsequent to the filing of a return are of secondary importance in that, essentially, they may contribute to gaining a better understanding of the facts as they were when the return was signed.
[25] In the case at bar, the appellant, convinced at the time she signed her return that her claim was valid, chose to stick to her position and to rely on Ratelle to settle her case.
[26] Maintaining that she acted in good faith throughout does not in any way dilute, excuse or lessen the objective, actual and, above all, gross negligence committed when the appellant filed her tax return.
[27] Did the return that was signed contain false and misleading information?
[28] Was the information that it contained supported by truthful and valid documentation?
[29] Were there facts likely to put one on alert or make the Ratelle scenario look suspicious?
[30] Was there an actual expenditure, or a formal undertaking regarding the payment of a specific consideration, that validated the alleged transaction resulting in the losses claimed?
[31] Ratelle proposed a scenario based on one single consideration: a reduction of the tax burden according to the tastes and needs of the interested party. The method of achieving this was left to Ratelle's discretion.
[32] According to the evidence, what was involved was the purchase of one or more losses that could not be used by those who had incurred them. The purchase of property or a security implies the obligation to pay a consideration which is the subject of negotiation and discussion by the parties, who, at the stage at which the transaction is finalized, ultimately reach agreement and at the same time specify payment terms. A transaction that is neither real nor genuine cannot generate effects, much less tax benefits.
[33] In the case at bar, no significant expenditure was made, and payment of the consideration was conditional on an eventual refund and based on the amount refunded. Thus, the interested parties, including the appellant, would have paid nothing had there been no tax refund.
[34] This fact alone meant that no loss was possible; quite the contrary, with no expenditure or risk of loss whatsoever, there was enrichment.
[35] How could any moderately responsible and reasonable person believe unquestioningly that such a scenario could be proper, legitimate and beyond reproach?
[36] Instead of asking herself questions and making certain basic checks with qualified, independent persons, the appellant preferred to believe and essentially rely on an unscrupulous organization that was clearly in a conflict of interest and furthermore was benefiting from the situation: the greater the fraud the greater the return, for both Ratelle and the taxpayer.
[37] The fact that Ratelle maintained that the whole thing was proper and lawful is certainly not a sufficient basis for concluding that the parties involved were acting in good faith and that they were beyond reproach. It might justify a tort action against Ratelle but it in no way excuses the fact that the information provided to the respondent on the tax return was false.
[38] The facts and circumstances leading up to the filing of the tax return are such that a reasonable, normally prudent and serious person would not have agreed to let his or her name be associated with such an unsound, harebrained scheme.
[39] The lure of easy profits caused the appellant to prefer to close her eyes and take a risk, telling herself that she had nothing to lose.
[40] If the losses claimed were disallowed, the appellant thought that she could put the blame solely on Ratelle and argue that that firm was an acknowledged expert which she could and should trust.
[41] It is the person signing an income tax return who is accountable for the information provided in that return, not the agent who completed it, regardless of that agent's skills or qualifications.
[42] The respondent was fully justified in assessing the penalty; the evidence amply established that the appellant had knowingly made in her tax return for the 1996 taxation year a statement that amounted to gross negligence.
[43] The appeal is accordingly dismissed.
Signed at Ottawa, Canada, this 24th day of August 2000.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 29th day of October 2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-3668(IT)I
BETWEEN:
MARIELLE LAMARRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 8, 2000, at Montréal, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the Appellant: The Appellant herself
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 29th day of October 2001.
Erich Klein, Revisor