Date: 20011210
Docket: 2001-937-IT-I
BETWEEN:
SUKHVINDER SHOKER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: Jasmine Sidhu
____________________________________________________________________
Reasonsfor Judgment
(Delivered orally from the Bench on
October 23, 2001, at Vancouver, British Columbia
McArthur J.
[1] This is an appeal from an assessment for 1997 taxation year. The predominant issue is whether the Appellant was properly assessed for a gross negligence penalty under subsection 163(2) of the Income Tax Act which penalty amounted to approximately $1,450. The assumptions pleaded in the Reply to the Notice of Appeal by the Minister of National Revenue with the Appellant's comments are as follows:
(a) The Appellant acquired a 1/3 interest in a property described as 2870 Pinewood Avenue, Prince George, B.C. on June 26, 1990;
(b) The remaining 2/3 interest was owned in the property was owned equally by the Appellant's parents;
(c) The property was a single-family dwelling;
(d) The Appellant rented the property from the time he acquired his interest in it until its sale;
(e) At all material times, the Appellant did not report the rental income from the property;
(f) The property was sold by the Appellant and his parents in October 1997;
(g) The taxable capital gain was the Appellant's share of the gain on disposition of the property for proceeds of $117,000;
The Appellant agrees with paragraph (a) to (g), inclusive.
(h) The Appellant did not declare the taxable gain;
The Appellant agrees with paragraph (h) and this is the crux of his argument in that he thought he had some room left in a $100,000 exemption.
(i) The gain from the disposition of the property was not an exempt capital gain under the provisions of the Income Tax Act;
The Appellant is unaware of the provisions in this regard.
(j) The Appellant was a real estate agent from at least 1992 until sometime in 1995;
(k) At all material times, the Appellant was an active participant in the real estate market;
(l) At all material times, the Appellant maintained rental income and loss records for the property;
The Appellant together with others, owned further properties.
(m) The Appellant's return for the 1997 taxation year was required to be filed with the Minister on or before April 30, 1998;
(n) The Appellant filed the Return with the Minister on August 7, 1998;
(o) The Minister properly calculated the late filing penalty for the Appellant's failure to file the Return by the required date;
The Appellant agrees with paragraphs, (j), (k), (l), (m), (n) and (o).
(p) The Minister properly calculated the interest owed by the Appellant respecting his 1997 taxation year; and
(q) The Appellant knowingly or under circumstances amounting to gross negligence made an omission in his 1997 taxation year return by not declaring the taxable capital gain.
The Appellant disagrees with paragraphs (p) and (q).
[2] The Appellant is a 35-year-old British Columbia resident. In the late 1980s he, along or with others, began purchasing income-producing properties. He sold at least two such properties prior to 1997 and rightly claimed the capital gains tax exemption of between $3,000 or $4,000 for each one. In his 1997 income tax return, he declared ownership of four rental properties with a total income of $29,760 and claimed a total rental loss of $6,250. He had purchased the subject property for $72,800 with his parents around 1990 and sold it in 1997 for $117,000. He rented it off and on over his seven-year ownership, and was not sure whether there was a rental loss or rental gain. In any event, he never declared the property's rental history in any year, nor did he report his share of the gain upon the sale in 1997.
[3] The Appellant's position is that he did not report the sale because he understood that he was exempt from tax under the $100,000 exemption permitted and did not know that this exemption was rescinded in about 1993. He had no explanation why he did not declare the income over the years other than stating he owned the property with his parents and was more relaxed with respect to the accounting than other properties he owned. He had an accountant do his return and could not explain why the property was not declared with his other real estate. His parents, the co-owners, did not testify. He stated that their English was limited.
[4] The position of the Respondent is that the Appellant knowingly, or under circumstances amounting to gross negligence, made an omission in his 1997 taxation year return by not declaring the taxable gain. Counsel for the Respondent further added that the Appellant had considerable real estate experience and that an inference should be drawn that he knowingly did not advise his accountant of the property, and he knew or ought to have known that he did not declare a taxable gain, let alone rental income.
Analysis
[5] The Canadian tax system is a self-reporting and self-assessing one which depends upon the taxpayer's honesty and integrity for its success. I refer to decision of the Supreme Court of Canada in McKinlay Transport Limited et al v. The Queen, 90 DTC 6243. Counsel for the Respondent also referred me to the often-quoted case of Venne v. The Queen, 84 DTC 6247, where Strayer J. of the Federal Court of Appeal stated at 6256:
... "Gross negligence" must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not. ...
[6] Considering all of the evidence, I find on balance that the Appellant's behaviour and misstatements in his 1997 return showed an indifference as to whether the law was complied with. I find that he knowingly withheld advising his accountant of his interest in the property. He reported other properties that he owned, apparently with partners. His accountant did not testify and the Appellant stated that he could not locate him. I find that hard to believe.
[7] The Appellant had rental income from the property for six or seven years without reporting it. He probably was in the rental real estate business, and perhaps even as a trader in real estate from 1989 to 1997. That is a question which is not an issue before me. Pursuant to subsection 163(3) of the Act, the Minister has the burden of proof and I find that the Minister properly assessed the Appellant for gross negligence penalty in accordance with subsection 163(2). The Appellant is liable for interest arrears as calculated by the Minister as long as the calculation itself is correct and it was not contested. I have no jurisdiction over liability for interest. The Appellant does not contest the late filing penalty. The appeal is dismissed.
Signed at Ottawa, Canada, this 10th day of December, 2001.
"C.H. McArthur"
J.T.C.C.
COURT FILE NO.: 2001-937(IT)I
STYLE OF CAUSE: Sukhvinder Shoker and
Her Majesty the Queen
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: October 22, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge C.H. McArthur
DATE OF JUDGMENT: October 30, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Jasmine Sidhu
COUNSEL OF RECORD:
For the Appellant:
Name: N/A
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada