97-2894(IT)I
BETWEEN:
PATRICK RICHER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on September 30, 1998, at Ottawa, Ontario,
by Christie, A.C.J.T.C.
Appearances
Counsel for the appellant: The appellant himself
Counsel for the respondent: Shalene Curtis-Micallef
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1993, 1994 and 1995 taxation years are dismissed.
Signed at Ottawa, Canada, this 26th day of October 1998.
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"D.H. Christie" |
A.C.J.T.C.C.
Date: 19981026
Docket: 97-2894(IT)I
BETWEEN:
PATRICK RICHER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Christie, A.C.J.T.C.
[1] These appeals are governed by the Informal Procedure prescribed under section 18 and following sections of the Tax Court of Canada Act. The years under review are 1993, 1994, 1995.
[2] The appeals are from the imposition of penalties. The Notice of Appeal states in part:
"THE MINISTER imposed penalties under subsection 163(2) of the Federal Income Tax Act as follows:
Taxation year 1993 - $643.85
1994 - $751.45
1995 - $568.96
He also imposed penalties under subsection 19(2) of the Income Act (Ontario) as follows:
Taxation year 1993 - $451.53
1994 - $423.15
1995 - $385.34"
[3] The opening paragraph and paragraphs 1 to 8 inclusive of the Reply to the Notice of Appeal read:
"In reply to the Notice of Appeal for the 1993, 1994 and 1995 taxation years, filed on August 29, 1997, the Deputy Attorney General of Canada says:
A. STATEMENT OF FACTS
1. With respect to the section entitled 'Statement of Facts' of the Notice of Appeal:
(a) he admits the facts stated in numbered paragraphs 1 and 2; and
(b) he denies the facts stated in unnumbered paragraph 3.
2. The Appellant filed income tax returns for the 1993, 1994 and 1995 taxation years and declared net business income in the amounts of $6,148, $8,201 and $7,328 respectively.
3. By Notice of Assessment dated June 30, 1994, July 7, 1995 and May 21, 1996, the Minister of National Revenue (the 'Minister') assessed the Appellant's income tax returns as filed for the 1993, 1994 and 1995 taxation years respectively.
4. The Minister reassessed the Appellant's income tax returns for the 1993, 1994 and 195 taxation years by Notices of Reassessment dated December 23, 1996 and added $8,897, $8,583 and $6,496 in additional business income respectively.
5. Further, in reassessing the Appellant by the said Notices of Reassessment, the Minister levied penalties, pursuant to subsection 163(2) of the Income Tax Act (the 'Act'), in the amounts of $643.85, $751.45 and $568.96 for the 1993, 1994 and 1995 taxation years respectively.
6. On March 21, 1997, the Appellant served Notice of Objection on the Minister with respect to the said reassessments for the 1993, 1994 and 1995 taxation years.
7. A Notice of Confirmation dated June 3, 1997 was issued in response to the said Notice of Objection for the 1993, 1994 and 1995 taxation years.
8. In so reassessing the Appellant, the Minister made the following assumptions of fact:
(a) the facts hereinbefore stated and admitted;
(b) during the 1993, 1994 and 1995 taxation years, the Appellant was the sole proprietor of a taxi service;
(c) the Business had a December 31 year-end;
(d) the Minister reassessed the 1993, 1994 and 1995 income tax returns on the basis of understated income in the amounts of $8,897, $8,583 and $6,496 respectively;
(e) the percentage of unreported income on net business income was 145%, 105% and 89% for the 1993, 1994 and 1995 taxation years respectively;
(f) as a consequence of the said understatement of income, the Minister levied and the Appellant is liable for penalties in the amounts of $643.85, $751.45 and $568.96 for the 1993, 1994 and 1995 taxation years respectively pursuant to subsection 163(2) of the Act; and
(g) in so reassessing the Appellant, the Minister made the following assumption of fact regarding the penalties applied pursuant to subsection 163(2) of the Act, whereby 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 1993, 1994 and 1995 taxation years with respect to underreported business income in the amounts $8,897, $8,583 and $6,496 respectively, as a result of which the taxes that would have been payable assessed on the information provided in the Appellant's income tax returns filed for 1993, 1994 and 1995, were less than the taxes in fact payable attributable to the false statement or omission by the amounts of $1,286, $1,503 and $1,137 respectively."
[4] Subsection 163(2) of the Income Tax Act ("the Act") provides:
"163. (2) 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..." (What follows is the manner in which the penalties shall be calculated.)
Subsection 163(3) of the Act provides:
"163. (3) Where, in any appeal under this Act, any penalty assessed by the Minister under this section is in issue, the burden of establishing the facts justifying the assessment of the penalty is on the Minister."
[5] This Court is without jurisdiction in relation to the penalties imposed under the Income Tax Act of Ontario: Andrew Paving & Engineering Ltd. et al. v. M.N.R., 84 DTC 1157 at 1160-1 (T.C.C.). The same applies in respect of an assessment of provincial income tax: The Queen v. Bowater Mersey Paper Company Limited, 87 DTC 5382 at 5384 (F.C.A.).
[6] The question to be determined is this: have facts been established showing that the appellant knowingly or under circumstances amounting to gross negligence made or participated in the making of false statements or omissions in his returns of income regarding the years under review?
[7] As she was entitled to do,[1] counsel for the respondent called the appellant as the respondent's witness with a view to assisting in the discharge of the onus imposed under subsection 163(3) of the Act.
[8] In summary the appellant's evidence is that during the years under review he drove a Blue Line taxi. He was not an employee. He had a "plate" which I presume is a licence. His relationship with Blue Line is that it would dispatch calls to him and pay for stands at hotels. In return he paid the company a certain amount per month. He would drive Monday to Friday from 7 a.m. to 6 p.m. If he needed extra money he would drive on weekends.
[9] In paying Blue Line the appellant would first turn in government taxi chits and credit card slips. If this was more than enough he would receive the difference in cash. If the chits and slips were insufficient he would make up the difference in cash. Apart from this he kept all cash received from fares.
[10] The appellant was assessed in respect of the years under review on the basis of net worth. In those years he resided in a single family dwelling in Orleans with his wife and daughter. The home was equipped with a swimming pool in the backyard. His daughter is an adult. The home was mortgaged. He looked after the mortgage and other expenses in relation to the maintenance of the home from the income he earned as a taxi driver.
[11] In his 1993 return of income he reported total income to be $8,957.00. This was composed of rental income in the amount of $2,809.00 and business income - taxi driver - of $6,408.00. The same amounts in 1994 are $13,412.00, $5,211.00, $8,201.00 respectively and in 1995 they are $12,927.00, $5,599.00, $7,328.00 respectively.
[12] The Notices of Reassessment were placed in evidence through this witness and they show that these amounts were added to his business income as having been unreported: 1993 - $8,897.00; 1994 - $8,583.00; 1995 - $6,496.00. This is in conformity with paragraph 4 of the Reply to the Notice of Appeal.
[13] During the years under appeal the appellant had a bank account, but the only deposits that were made to his credit were amounts sufficient to make payments on the mortgage on his home, personal loans and insurance. The appellant kept no written records of his income from driving a taxi.
[14] On the other hand, the rental income was derived from two condominiums. A separate bank account existed in respect of each of those properties. The rental income was deposited to the credit of each account. Also, expenses would be paid through these accounts.
[15] The net worth statement is in evidence. On page 4 there is a "Statement of Personal Expenses". Incorporated as item 2 is "Shelter". This includes maintenance and repairs, property taxes, insurance premiums, mortgage interest, water, fuel, electricity. The amounts are: 1993 - $6,585.00; 1994 - $6,322.00; 1995 - $6,637.00. The appellant agreed that these are correct figures. In addition there are numerous other items in the statement of personal expenditures, e.g. household operation, recreation, tobacco and alcohol, gifts and contributions. These total: 1993 - $13,185.00; 1994 - $14,711.00; 1995 - $12,643.00.
[16] Ms. Sheryl Glynn also testified on behalf of the respondent. She is an employee of Revenue Canada. She prepared the net worth assessment. In answer to a question about the basis for levying the penalties she replied:
"Penalties were based on the fact that the taxpayer had to have the knowledge of the unreported revenue.
He was the only person involved in the business. He handled all the cash himself. He did not deposit all of it into the bank account. He was also very much aware of his personal expenditure situation, his personal expenses, and when we reviewed the file, it was very obvious that the amount of revenue that he reported was not enough to support the payments that he was making."
[17] She testified that the Statement of Personal Expenses was negotiated with and agreed to by the appellant's representative, Mr. Calvin Baptiste, an accountant.
[18] The amounts of liability to tax reassessed are not in dispute. Subsection 163(3) requires that counsel for the respondent establish facts that justify the assessment of the penalties. The unreported business income stated in the Notices of Reassessment as a percentage of the business income reported in the appellant's tax returns is 139,[2] 105, 89 for 1993, 1994, 1995 respectively. I attach considerable significance to these figures. Indeed, on the whole of the evidence, coupled with a lack of a reasonable explanation from the appellant for the discrepancies between what he reported as income as a taxi driver and the agreed upon income from that source, I have come to the conclusion that the appellant knowingly made false statements in his returns of income for 1993, 1994, 1995.
[19] In the frequently cited case of Venne v. The Queen, 84 DTC 6247 (F.C.T.D.) Mr. Justice Strayer observed at page 6256 with reference to the phrase "gross negligence" that appears in subsection 163(2) of the Act that it involves "an indifference as to whether the law is complied with or not". At the least such indifference on the part of the appellant is to be inferred in the case at hand.
[20] The appeals are dismissed.
Signed at Ottawa, Canada, this 26th day of October 1998.
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A.C.J.T.C.C.
COURT FILE NO.: 97-2894(IT)I
STYLE OF CAUSE: Patrick Richer and
Her Majesty the Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: September 30, 1998
REASONS FOR JUDGMENT BY: Christie, A.C.J.T.C.C.
DATE OF JUDGMENT: October 26, 1998
APPEARANCES:
For the appellant: The appellant himself
Counsel for the respondent: Shalene Curtis-Micallef
COUNSEL OF RECORD:
For the appellant:
Name:
Firm:
For the respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada