[OFFICIAL ENGLISH TRANSLATION]
2001-674(IT)I
BETWEEN:
RÉJEAN VILLENEUVE,
Appellant,
and
Her Majesty The Queen,
Respondent.
Appeals heard on August 29, 2002, at Chicoutimi, Quebec, by
the Honourable Judge Louise Lamarre Proulx
Appearances
Agent for the Appellant: André Hébert
Counsel for the Respondent: Annick Provencher
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1988, 1989, 1990, 1991 and 1992 taxation years are allowed, and the penalties and interest thereon shall be deleted in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 10th day of December 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Date: 20021210
Docket: 2001-674(IT)I
BETWEEN:
RÉJEAN VILLENEUVE,
Appellant,
and
Her Majesty The Queen,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] These are appeals under the informal procedure concerning the 1988 to 1992 taxation years.
[2] The points at issue concern the normal assessment period under subsection 152(4) of the Income Tax Act (the "Act") and the penalties assessed under subsection 163(2) of the Act.
[3] On January 6, 1995, the appellant received an income tax refund of $12,364.15 in respect of the 1988 to 1992 taxation years on the basis of incorrect facts.
[4] In making the reassessments dated July 14, 2000, the Minister of National Revenue (the "Minister") relied on the facts stated in paragraph 8 of the Reply to the Notice of Appeal (the "Reply") as follows:
[TRANSLATION]
(a) the case arises from an internal investigation of certain employees of the Jonquière Tax Centre who set up a scheme to enable certain persons to receive fraudulent tax refunds in exchange for a commission based on a percentage of the said refunds;
(b) on January 6, 1995, the appellant deposited at the Bank of Montreal, on Rue Racine in Chicoutimi, a total tax refund of $12,364.15 for the 1988, 1989, 1990, 1991 and 1992 taxation years as a result of reassessments dated December 28, 1994;
(c) the notices of reassessment dated December 28, 1994, for the 1988, 1989, 1990, 1991 and 1992 taxation years showed that the appellant had two dependent children and allowed inter alia the equivalent to married credit and the credit for dependents in the computation of non-refundable tax credits for 1988, 1989, 1990 and 1991;
(d) the notices of reassessment dated December 28, 1994, for the 1988, 1989, 1990, 1991 and 1992 taxation years, showed that the appellant had two dependent children and allowed the child tax credit in the computation of the federal credits;
(e) the appellant alleged to the Minister's investigators by solemn declaration that Mario Boucher was a customer of his employer "Les Automobiles Jacques Bouchard & fils Ltée";
(f) the appellant admitted to the Minister's investigators by solemn declaration that, in the fall of 1994, Mario Boucher had offered to revise his tax returns and that he had given his consent and signed a document to that effect;
(g) the appellant admitted to the Minister's investigators by solemn declaration that he had never had any dependent children during the taxation years in issue;
(h) with respect to the total refund resulting from the reassessments dated December 28, 1994, for the 1988, 1989, 1990, 1991 and 1992 taxation years, the appellant admitted to the Minister's investigators by solemn declaration that he had given the sum of $8,000 in cash to Mario Boucher in accordance with his instructions;
(i) in the Minister's view, the appellant displayed collusion, connivance and complicity in this matter;
(j) in respect of the 1988, 1989, 1990, 1991 and 1992 taxation years, the appellant made a misrepresentation that was attributable to neglect, carelessness or wilful default or committed fraud in supplying information under the Act;
(k) the claim, under non-refundable tax credits, for the equivalent to married credit and the claim for the federal child tax credit for the 1988, 1989, 1990, 1991 and 1992 taxation years, and the claim, under non-refundable tax credits, for the credit for dependents for the 1988, 1989, 1990 and 1991 taxation years leads the Minister to believe that the appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of a false statement or omission in the income tax returns filed for the 1988, 1989, 1990, 1991 and 1992 taxation years, as a result of which the tax he was required to pay based on the information provided in the income tax returns filed for those years was less than the amount of tax actually payable for those years.
[5] The appellant's notice of appeal was drafted by the accountants of the garage for which the appellant worked as a mechanic. It states that the appellant was born on August 12, 1966. He has had a de facto spouse since 1987, and they had a child in 1991. The appellant began working as a mechanic at the garage "Les Automobiles Jacques Bouchard et fils Ltée" in 1992, and that is where he met Mario Jacques Boucher. In a discussion, the appellant asked Mr. Boucher why most of his friends were receiving income tax refunds at the end of the year and he was receiving nothing. Mr. Boucher then proposed to revise his returns for the years 1988 to 1992. Mr. Boucher obtained a cheque for the appellant for approximately $12,000, and it was then that he told him that he would keep two-thirds of the amount.
[6] The appellant admitted subparagraphs 8(b), (e), (f) and (h) of the Reply and, in his testimony, repeated the facts stated in the notice of appeal.
[7] It was Mr. Boucher who brought him a cheque for $12,000. The appellant gave him the $8,000 that he owed him in a restaurant.
[8] In response to a question by his agent, the appellant confirmed that he did not know what Mr. Boucher had said in order that he receive the income tax refund in question and confirmed that he was a person who trusted professionals.
[9] In cross-examination, counsel for the respondent filed the appellant's solemn declaration as Exhibit I-1. Since all the facts were repeated in testimony, it is worth reproducing it in its entirety:
[TRANSLATION]
. . .
In the fall of 1994, Mario Boucher, a customer of the garage where I work, "Automobile Jacques Bouchard" offered to review my income tax returns. I agreed to have him go over my file, and I signed a document to that effect. A few weeks later, in December 1994, Mario Boucher called to tell me that the refund would be $12,364.15. I then told him to let the matter drop because it made no sense. Shortly afterward, Mario Boucher called me back to tell me that he had the cheque, and he asked me to go and meet him at his home. At that meeting, I noted that the address on the cheque was 445 St-Philippe in Chicoutimi, whereas my address at the time was 119 Blizard in Tremblay Township. I pointed this out to Mario Boucher, and he told me to say that I was no longer living with my wife and that I had changed addresses. At that point, Mario Boucher told me that I had to cash the cheque and give him back $8,000 in cash and that I could keep the difference. I ultimately agreed to go through with the transaction requested. I went to the Bank of Montreal on Racine Street in Chicoutimi. The cashier found it curious that it wasn't my address on the cheque, asked me for my social insurance number and blocked the funds while she did the checks. Two days later, she called me to say that the funds were available. I then went to the bank to withdraw $8,000 in cash, which I subsequently handed over to Mario Boucher at a meeting at the "Bouffe et plus" restaurant in north Chicoutimi.
I never had two dependent children between 1988 and 1992. I had only two children, the first born in 1991 and the second in 1996.
Mario Boucher completed my income tax returns and those of my spouse for the 1997 and 1998 taxation years.
Arguments
[10] The appellant's agent argues that the Minister assessed outside the normal assessment period under subsection 152(4) of the Act and furthermore that there is no reason to assess the penalties under subsection 163(2) of the Act. The appellant's agent therefore requests that the assessments be vacated on the basis that there was no wilful default, fraud or irregularity on the appellant's part. It was not the appellant who had intervened in the preparation and making of the corrections requested. It was someone whom he trusted and who moreover was an employee of the federal Revenue Department.
[11] Counsel for the respondent recalled the appellant's surprise in learning the amount of the refund and the fact that he had asked Mario Boucher to stop. She suggested that, even before receiving the cheque, the appellant had doubts about the legality of Mr. Boucher's actions. Despite those doubts, the appellant took no action to inquire of Revenue Canada about the legality of what was going on in his case.
[12] According to counsel, the appellant had a very strong economic interest in remaining ignorant since, in exchange for that ignorance, he was going to receive $12,000.
[13] Counsel also stated that, for this fraud to succeed, there had to be people at the tax centre issuing refunds and other persons agreeing to receive those amounts. When Revenue Canada officers conduct an audit, they do not ask to be reimbursed by taxpayers for the efforts they make; they are paid by the government, not by taxpayers. The taxpayer's contribution to this fraud was essential, and it therefore amounted to complicity.
[14] Counsel referred to a decision I rendered in Lévesque Estate v. Canada, [1995] T.C.J. No. 469 (Q.L.), particularly to paragraph 13:
Ignorance or failure to obtain adequate information could in certain circumstances be a sufficient element to constitute gross negligence, particularly in cases where there is an economic interest in remaining ignorant. Here, the element that tilts the scales in favour of accepting the taxpayer's position is that there was no economic interest in this omission or in this failure to obtain adequate information.
[15] She referred to the decision by Reed J. of the Federal Court - Trial Division in Patricio v. Canada, [1984] F.C.J. No. 540 (Q.L.):
. . . In my view, the extent to which he did not know what was required by the tax system was the result of purposely choosing to wear blinkers rather than mere carelessness or simple negligence. Wilful blindness by someone capable of acting in a responsible manner is in my view, in the circumstances of this case, gross negligence. In coming to this decision, I have considered the decisions in The Queen v. Columbia Enterprises, 83 D.T.C. 5247 and Venne v. The Queen, 84 D.T.C. 6247 which were cited to me by counsel.
[16] She also referred to the decision by Hamlyn J., formerly of this Court, in Carlson v. Canada, [1997] T.C.J. No. 1351 (Q.L.), more particularly to paragraph 19:
Further, wilful blindness or a lack of care by someone capable of acting in a responsible manner has been found in circumstances to be gross negligence. Deliberate failure to make enquiries as to fiscal responsibilities has been found in one case to constitute gross negligence, and that case is Holley v. M.N.R., 89 D.T.C. 366. That was Judge Kempo of this Court.
[17] In essence, these decisions say that wilful blindness constitutes gross negligence where a person derives an economic benefit and is in a position to make inquiries. Counsel argues that that describes the appellant's behaviour. He did not inquire of tax authorities about the legitimacy of the refund and of the payment in return to the persons who made the refund.
[18] She argued that the degree of negligence required in subsection 152(4) of the Act is less than that required by subsection 163(2) of the Act and that it was surely reached in order that the Minister be able to assess outside the normal assessment period. It is also amply sufficient for the purposes of assessing the penalty under subsection 163(2) of the Act.
Analysis and Conclusion
[19] At the end of the hearing, I asked counsel for the respondent to send me a schematic table of the computation of tax payable, interest payable on that tax, the amounts of the penalties and the amounts of interest payable on those penalties. I received computerized statements amounting to some 30 pages that established the amounts in issue. Unfortunately, that information is too detailed to be of any use to me. I shall state only the total balance owing at September 12, 2002, which is $43,084.98.
[20] However, a paragraph from the letter accompanying those computerized statements is worth noting and is reproduced below:
[TRANSLATION]
We would point out that, when issuing the reassessments cancelling the fraudulent refunds and assessing the penalties provided for under subsection 163(2) of the Income Tax Act, the Minister computed interest on the penalty from the date on which the penalty became payable for each of the taxation years in issue, but the interest on the amount of the false refund begins to accrue only as of the date the refund was made.
[21] With respect to the assessments made outside the normal assessment period, the appellant's ignorance of the incorrect facts presented in order to obtain the refund cannot serve as an excuse. According to the theory of mandate, the mandator agrees to the act performed by the mandatary when he ratifies it. In accepting the refund of the overpayment of tax and handing most of it back to the person responsible for the payment, the appellant ratified that person's wrongful act. The appellant thus displayed a sufficient degree of negligence for the purposes of assessing outside the normal assessment period.
[22] The appellant must therefore return the entire amount of the tax overpayment made to him plus interest.
[23] As to the penalty assessed under subsection 163(2) of the Act, in Jean-Marc Simard v. Canada, [2002] T.C.J. No. 265 (Q.L.), I concluded that the Court had discretion to determine the amount assessed on the basis of the taxpayer's ability to pay, the degree of his wrongful intent and his past behaviour. The respondent has appealed from that decision.
[24] Pending the decision of the Federal Court of Appeal, I think it more cautious for the moment to follow the approach that Court has recently taken in Chabot v. Canada, [2001] F.C.J. No. 1829 (Q.L.), in which it did not evaluate the degree of the taxpayer's wrongful intent but completely released him from any application of subsection 163(2) of the Act on the ground that the taxpayer had been caught in an ambush. The taxpayer had claimed charitable tax credits. In 1992, he made a charitable gift worth $10,000, for which he had paid $2,800 and, in 1993 and 1994, gifts of $15,000 and $8,000, whereas he had paid a total of $2,500.
[25] Paragraphs 40 and 41 are quoted:
40. I also note that Denis Lemieux, an investigator with Revenue Canada, explained to the Court that no action had been taken against the foundations involved themselves because, in the Department's view:
[TRANSLATION]
. . . they had been caught in an ambush. It had grown completely out of proportion for them. They were genuinely . . . they are not specialists when it comes to artwork. They found the offer very appealing. . . .
These are foundations; there was no criminal intent on the part of these people. They realized themselves that they were in the wrong.
(Appendix 6, pages 25 and 26)
In his own way, Mr. Chabot too "got caught in an ambush" and, in his own way, he too "found the offer appealing."
41. In these circumstances, I find it difficult to understand why Revenue Canada would assess penalties against such small taxpayers who, in good faith, tried to benefit from a tax credit that Revenue Canada itself dangled in front of their eyes and which, according to the guide, seemed so easy to obtain.
(My emphasis.)
[26] I believe that the appellant was also caught in an ambush. It was not he who developed the scheme. The proposal was put to him by an employee of a federal institution, which he respects. No mention was made to him of fraudulent acts. He was told that it was possible that he had not claimed all the tax refunds to which he was entitled. That is a premise that many people of good faith are tempted to believe. He received a substantial amount of money that surprised him. He was told that he had to hand over two-thirds of that amount to those responsible for the refund. He agreed without too much thought. He was subsequently caught in a situation that was hard for him to get out of.
[27] The respondent argues that the appellant did not discuss the matter with tax authorities. That is true, and there was not really any response from the appellant to that question by the respondent. However, it may conceivably have been difficult for the appellant to go and consult tax authorities. He had handed over too much money to the person responsible. He vaguely felt that he would not be able to recover that share and that he would have to hand it back to tax authorities along with his own share. He became a prey and behaved as such. He waited anxiously. Or the appellant may conceivably have dared to believe that the transaction was legitimate. This was a confused situation in which feelings were not clear.
[28] There is always a share of responsibility in acts carried out unless they are purely accidental. It is a serious act to hand over money to government officials when they are performing their duties.
[29] Subsection 163(2) of the Act requires, however, that false statements or omissions be made knowingly or in circumstances amounting to gross negligence. In other words, that subsection requires wrongful intent. It is my view that the Court must be all the more certain of that wrongful intent where the penalty resulting therefrom is a substantially high amount and is particularly burdensome for the taxpayer, as is the case here.
[30] The appellant has a good trade, but he is neither an accountant nor a legal expert. From what he said in his testimony and in his notice of appeal, he has always filed his income tax returns every year and has always wanted to comply with the Act. That statement was not contradicted by the respondent.
[31] I find that, at the outset, the appellant's act stemmed from thoughtlessness, unawareness or an error of judgment, not from wrongful intent. The appellant's action resulted much more from the ambush than a deliberate decision on his part to contravene the Act. He was subsequently caught in that ambush.
[32] The more educated a person is, the more difficult it will be for that person to avoid the application of subsection 163(2) of the Act on the ground of an error of judgment in circumstances such as those in the instant case. But here I am of the view that the appellant did not form the wrongful intent required by subsection 163(2) of the Act.
[33] The appeals are accordingly allowed on the basis that the penalties and interest thereon shall be deleted.
Signed at Ottawa, Canada, this 10th day of December 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.