Date: 20000824
Docket: 1999-3413-IT-I
BETWEEN:
MARTIN VALLERAND,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor 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. In the instant case, Ratelle held 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 any interested party in return for a percentage based on the benefits obtained.
[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.
[11] In the case at bar, the appellant argued that he had incurred a gross business investment loss in the amount of $10,750, or a deductible loss of $8,062.50. He thus received a federal tax refund of $1,825.82.
[12] The appellant contended that he had acted in good faith when he relied on the fact that Ratelle employed one or more chartered accountants. According to the appellant, a taxpayer who turns to a member of a professional corporation, an accountant for instance, should trust him and have confidence in him.
[13] Nonetheless, the appellant had felt the need to make some checks to ensure that Ratelle was in fact a chartered accountant duly registered with the Ordre des comptables. This reaction shows, however, to what point real doubt existed about the legality of what Ratelle's office had proposed.
[14] Taking that step does not, however, justify the false and untruthful return for the 1996 taxation year, which the appellant said he had looked at and signed. His return contained false and untruthful information which he certified to be true. When he paid Ratelle the balance of what was owed under the agreement, which was a percentage of his tax refund, he was given irrelevant and false documents confirming that the scheme was underhanded.
[15] Thus, if he was so bent on acting correctly and lawfully, the appellant should have done whatever it took to rectify the situation, since at that time he had in his possession documents confirming his initial concerns.
[16] But he did not; he deliberately chose to hide behind Ratelle's harebrained explanations in the belief that the fact that he had dealt with an office that had an accountant protected him from any blame and would be enough to put him in the clear should the need arise.
[17] That was certainly not conduct that was reasonable and beyond reproach. Rather, it demonstrated a reckless attitude that made the appellant a full accomplice in the scheme initiated by Ratelle. The respondent met the burden of proof that was on her and established that the appellant had made a false statement amounting to gross negligence, which justified the assessment of the penalty.
[18] The respondent was fully justified in assessing the penalty.
[19] The appeal is 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]
1999-3413(IT)I
BETWEEN:
MARTIN VALLERAND,
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 himself
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