[OFFICIAL ENGLISH TRANSLATION]
1999-2569(IT)I
BETWEEN:
SYLVAIN 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 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 16th day of September 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20000824
Docket: 1999-2569(IT)I
BETWEEN:
SYLVAIN LAMARRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] The appeal concerns a penalty assessed for the 1996 taxation year.
[2] Subsection 163(2) of the Income Tax Act (the "Act") concerning 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 showed that the Royal Canadian Mounted Police ("R.C.M.P.") had commenced a police investigation into possible anomalies and irregularities in the handling of certain files in which the firm "Ratelle et Associés Redressement financier" ("Ratelle") was involved.
[4] At the outset, the investigation focused essentially on certain practices and ties Ratelle had with the office of a trustee in bankruptcy.
[5] During the investigation, investigators noted that certain taxpayers might have received tax benefits on the basis of fictitious information. From that point, the investigation became a joint investigation with Revenue Canada.
[6] The R.C.M.P. and Revenue Canada investigators very soon discovered that several hundreds of files contained false and untruthful information; they identified a number of fictitious firm names, which appeared on the tax returns of a number of taxpayers.
[7] They therefore decided to meet with all the individuals who were involved or connected with presumably fictitious businesses in order to shed light on the case as a whole.
[8] Ratelle called itself a firm of financial adjusters. Aggressive in terms of advertising, Ratelle went after groups of workers generally employed by the same business and earning high incomes. It solicited clients by means of circulars, faxes and, even more effective, word of mouth.
[9] Various tactics were used. In this particular case, Ratelle presented itself as an expert financial adjuster; as such, Ratelle said that it had numerous clients and firms in difficulty that could not take advantage of legitimate losses. These losses could be transferred in favour of anyone interested in return for a percentage of the benefits received.
[10] In actual fact, Ratelle prepared the tax returns of clients seeking a tax refund and applied against their incomes either a business loss or a business investment loss.
[11] The appellant argued that he was of good faith when he relied on the fact that Ratelle employed one or more chartered accountants in the firm. According to the appellant, a taxpayer who turns to a member of a professional corporation, such as an accountant, must rely on that person and have confidence in him or her. Interested in Ratelle's proposition, the appellant explained that he and a friend of his, Martin Vallerand, also an appellant in a similar file, had questioned Ratelle's employees at length. He also said that the answers to some of their questions took time to obtain.
[12] The appellant also said that his colleague had checked with the Ordre des comptables agréés du Québec to ensure that Mr. Ratelle was indeed a chartered accountant.
[13] As a result of their inquiries, the appellant decided to avail himself of Ratelle's offer, which would give him a sizeable tax refund, specifically, $4,988.20 in terms of federal taxes alone. He went ahead, claiming that he had to have confidence in a reputable and responsible business since it employed a real chartered accountant.
[14] An engineer by training, he testified that, to his knowledge, even though he was ignorant of such matters, there were numerous tax shelters and he believed that the one proposed by Ratelle was legitimate.
[15] Accordingly, he signed his tax return for the 1996 taxation year, certifying that all the information it contained was accurate and complete. His return reported a gross business investment loss in the amount of $35,780, entitling him to a deduction of $26,835.
[16] According to the appellant, at the time the return was signed, Ratelle had given him no documentation to substantiate the loss, even though it was quite substantial in view of his income of $45,213.94 for that year. He accepted Ratelle's explanations that the office was overloaded at tax time and that he would eventually be provided with the relevant documents.
[17] When he received his tax refund, Ratelle claimed from him the amount owed that was established on the basis of an agreed percentage. The appellant then made the payment conditional on being given the documents supporting the loss claimed. Given Ratelle's insistence, he finally paid the firm and obtained a document that he himself described as incomplete and irrelevant.
[18] Even though these new facts made him suspicious for a second time, he did nothing to correct the situation and refused to co-operate with the investigators. He preferred to depend on Ratelle and argue that he had nothing to reproach himself for doing business with an office that employed a chartered accountant.
[19] The facts following a tax return have a relative importance in that they essentially make it possible to better understand the circumstances prevailing at the time of the statement certifying that all the information was accurate.
[20] I do not believe that there can be any circumstances that could justify a false and untruthful statement in a case where the person signing that statement knew or ought to have known that the information provided was false, particularly when the statement in question has a significant impact on that person's tax burden.
[21] In the case at bar, the appellant had never invested in or made any disbursements to and never operated or been associated with the company that generated the loss claimed. It may be possible to conduct business without making any disbursements; this implies, however, that there has been a bona fide and formal undertaking at the completion of which the person making the undertaking will pay the consideration agreed upon regardless of the outcome of events.
[22] According to the appellant, he purchased an undefined and unidentified right, which the evidence also established as being unreal, in consideration of which he did not have to pay anything if the venture did not turn out to his benefit.
[23] To believe that such a scenario is legal suggests such a degree of naivety that it must be characterized as gross negligence.
[24] I do not believe that the appellant was so naïve; rather, he deliberately closed his eyes when he relied on the fact that everything had been orchestrated by a real chartered accountant who would eventually assume liability if the deduction were disallowed.
[25] Beyond the explanations that may have guided the appellant, there remains one objective and inescapable fact. He did indeed make a false statement and provided false and untruthful material information on his tax return that had significant consequences on his tax burden.
[26] He himself certified that the contents were complete and accurate, which in itself is more than enough to find that the penalty was warranted.
[27] The fact that the appellant and his friend, Vallerand, felt the need to make some inquiries to ensure that Mr. Ratelle was indeed a chartered accountant duly registered with the Ordre des comptables shows the extent to which they harboured some real doubts as to the legality of what Mr. Ratelle's firm was proposing.
[28] That action does not justify the false and untruthful statement, which he did indeed read before signing his return.
[29] The appellant deliberately chose to fall back on Ratelle's far-fetched explanations believing that doing business with an office in which there was a chartered accountant would protect him from any blame and be sufficient to show his good faith.
[30] Such conduct was certainly not reasonable and beyond reproach. The appellant rather acted recklessly to the point where he made himself fully complicit in the scheme initiated by Ratelle.
[31] Accordingly, the respondent was fully justified in assessing the penalty.
[32] The appeal is therefore dismissed.
Signed at Ottawa, Canada, this 24th day of August 2000.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 16th day of September 2003.
Sophie Debbané, Revisor