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Docket: 2003-1203(IT)I |
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BETWEEN: |
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HAIM PINTO, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
[OFFICIAL ENGLISH TRANSLATION]
Appeals heard on February 25, 2004, at Montreal, Quebec.
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Before: The Honourable Justice Louise Lamarre Proulx |
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Appearances: |
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For the Appellant: |
The appellant himself/Haim Pinto |
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Counsel for the Respondent: |
Emmanuelle Faulkner |
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JUDGMENT
The appeals of the assessments pursuant to the Income Tax Act for the 1997 and 1998 taxation years are allowed and the assessments referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 18th day of March 2004.
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"Louise Lamarre Proulx" |
Lamarre Proulx, J.
Translation certified true on this
21st day of December 2004.
Wendy Blagdon, Translator
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Citation: 2004TCC230 |
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Date: 20040318 |
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Docket: 2003-1203(IT)I |
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BETWEEN: |
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HAIM PINTO, |
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Appellant, |
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And |
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HER MAJESTY THE QUEEN, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx, J.
[1] The Appellant was using the informal procedure to appeal the assessments based on net worth for the 1997 and 1998 taxation years.
[2] The issue was whether the respective amounts of $23,141 and $12,607 were correctly included in calculating the Appellant's income for the years concerned. Also at issue was whether the reassessment for the 1997 taxation year was statute barred or valid pursuant to subsection 152(4) of the Income Tax Act (the "Act").
[3] The Minister of National Revenue (the "Minister") based the reassessments on the facts described in paragraph 6 of the Reply which reads as follows:
a) the Appellant was an accountant during the years at issue and ran his own firm located at 133 Beaubien street west;
b) the Appellant reported $9,669 in net business income in the 1997 taxation year, and $10,712 in 1998 on his tax returns;
c) the Minister of National Revenue audited the Appellant's 1997 and 1998 tax returns;
d) the Minister based the reassessments dated April 26, 2002 on net worth because the Appellant's firm had no internal control system;
e) the summary of adjustments and the additional income determined by the auditor for the notices of reassessment dated April 26, 2002 is appended to this Reply as Appendix A as an integral part thereof;
f) the Minister of National Revenue made the following adjustments further to the Appellant's notice of objection to the reassessments dated April 26, 2002 for the 1997 and 1998 taxation years:
i) $10,000 was added to the Appellant's unreported income for the 1997 taxation year to take into account the increase in term deposits held by the Appellant between
December 31, 1996 and December 31, 1997 as indicated in Appendix B;
ii) $15,000 was deducted from the Appellant's unreported income for the 1998 taxation year to take into account the decrease in term deposits held by the Appellant between December 31, 1996 and December 31, 1998 as indicated in Appendix B;
iii) $20,000 was deducted from the Appellant's unreported income for the 1998 taxation year to take into account his uncle's repayment of an account payable;
iv) $20,500 was deducted from the Appellant's unreported income for the 1998 taxation year to take into account the Appellant's loan from his sister, Ms. Debrah Pinto;
g) The value of each asset and liability was based on documents or information provided by the Appellant;
h) The Appellant's personal expenses were based on documents he provided concerning, among other things, amounts he spent on lodging, electricity, property taxes, insurance, vacation (1998), telephone, clothing (daughter), health care, eyeglasses, life insurance premiums, Quebec pension board, licenses, gifts, lotteries, membership fees, etc.;
i) Statistics Canada estimates for a single person were used for expenses for which no documentation was provided such as food, vacation (1997), cleaning and household products, men's clothing, clothing dry cleaning and pressing, gasoline, automobile maintenance and repair, car insurance, dental care, personal care, newspapers, magazines and books, contributions to religious organizations, etc.;
j) the summary of the Appellant's personal expenses used by the auditor for the years at issue is appended to this Reply as Appendix C as an integral part thereof;
k) since the Appellant misrepresented facts on his tax return for the 1997 taxation year attributable to negligence, carelessness or wilful default, the Minister issued the notice of reassessment dated
April 26, 2002 pursuant to subparagraph 152(4)(a)(i) of the Act;
l) by failing to report $23,141 and $12,067 respectively, the Appellant knowingly or under circumstances amounting to gross negligence made a false statement or omission on his tax returns filed for the 1997 and 1998 taxation years or participated in, assented to or acquiesced in the making of this false statement or omission and as a result, the tax he would have been required to pay based on the information provided in those years was less than the amount of tax payable for each of those years.
[4] The Appellant testified on his own behalf. Mr. Yvan Richard, who conducted the audit of the Appellant and used net worth to calculate the discrepancy, and Ms. Chantal Faubert, an objections officer, who made the adjustments mentioned in paragraph 6 (f) of the Reply, testified on behalf of the Respondent. The auditor's T-20 report was entered as Exhibit I-1 and his T2020 report as Exhibit I-6. The objection report was provided by the objections officer and entered as Exhibit I-7.
[5] I am going to provide the Appellant's, the auditor's or the objection officer's position on the issues and my conclusion.
[6] The Appellant first raised the issue of the various entries used in Appendix C and mentioned in paragraph 6(j) of the Reply. Appendix C is the calculation of the Appellant's personal expenses.
[7] Two estimated amounts were used for food in 1997: $2,199.75 for groceries and $955.09 for restaurants. Virtually identical amounts were used in 1998. The Appellant claimed that he never bought groceries and that clients paid when he went to restaurants.
[8] He explained that he lives with his mother and three brothers in a property he owns on L'Épée street in Outremont. He said that groceries are not one of the household expenses he pays for.
[9] The officers from the Minister of National Revenue (the "Minister") explained that the Appellant's mother receives old-age benefits, his two brothers are on welfare and the third brother reported a very small income. Further, Exhibit I-5 contains, among other things, a bill the Appellant paid at a Price Costco store on which only grocery items appear. This same exhibit contains another bill from a Price Costco store located in Plattsburgh, New York, in the United States, on which grocery items also appear.
[10] I therefore feel that the Appellant is not credible when he states that he never paid for any groceries. Further, his statement concerning restaurant expenses is at first glance implausible and in and of itself not enough to convince me.
[11] An amount of $8,400 is indicated for both years for lodging. This amount is paid for the lodging of his ex-wife and his two daughters. The Appellant indicated that the amount should be $7,700 for 1998. The Appellant's ex-wife allegedly gave him $700 based on an entry in Exhibit I-2 and Exhibit A-7 dated March 1, 1998. I feel that this correction must be made.
[12] The Appellant objected to the estimated $123.96 for trips. This objection is not credible either, given the proof of his many trips to Plattsburgh.
[13] The Appellant objected to the housing expenses, that is, to the estimated amounts of $127.01 and $158.50 for cleaning and household products. This objection is implausible.
[14] In fact, the Appellant objected to most of the estimated personal expenses and others based on the withdrawals and deposits indicated in his bank passbook. I am going to mention only those that the Appellant succeeded in convincing me to change or cancel.
[15] I noted that the Appellant objected to the various personal expenses and certain tangible asset items at the hearing, not during the audit or objection stage. This decreases the credibility of the statements.
[16] The amount should be $3,091.44, not $3,270.20, for life insurance for 1997.
[17] The Appellant stated that he never made any religious contributions and that if he had, he would have requested a receipt. I accept this statement. The $154.40 and $155.38 for 1997 and 1998 must be removed.
[18] The amount indicated in 1998 as "Other" for the Collège Hillet for his daughters should be $800, not $1,000.
[19] The Appellant objected to the $2,891.28 indicated in Appendix A as tangible assets for renovations to a house the Appellant had recently purchased on Coolbrook Avenue. This single home was purchased in May 1998 for $85,853.38 cash. The Appellant provided a contractor's estimate for the renovations and claimed that this work was done on a bathroom in a group of rental properties he owns at 133 to 137 Beaubien street. I feel that it is too late to provide this type of document. The Appellant should have given it to the auditor or the appeals officer, who could have checked where the work had in fact been carried out.
[20] The auditor agreed that it was possible to include the same amount as household goods in both years. The amount is therefore $2,091.93, not $3,850.33 for 1998.
[21] The auditor agreed that the $500 investment (personal loan to an unknown person) indicated in 1998 could be cancelled.
[22] The Appellant mentioned a few times that certain business expenses were included in the net worth. The auditor informed the Court that no expense used to calculate business income was used to calculate the net worth. It is not enough at the hearing stage to make straightforward statements that an expense is a business not a personal expense unless it is clear from looking at the expenses that it is a certain type of expense. This is not the case with the use of a telephone or automobile.
[23] The Appellant indicated in connection with the term deposits mentioned in paragraph 6 (f) of the Reply that it was impossible that he had accumulated $10,000 in income as at January 31, 1997. The deposit was dated January 31, 1997. He maintained that it was his uncle's repayment of a debt. The Appellant found the pertinent information for the other term deposits. The burden was on him to prove that this term deposit was not a result of unreported income. He did not do so.
[24] The objections officer explained that the Appellant is the type of person who reports $9,000 in income and pays his ex-wife and two daughters $8,000 for rent. He owns a number of buildings. He paid $85,853.38 cash to purchase a single home in May 1998. She accepted the proof of payments received from the Appellant's uncle and sister for the 1998 taxation year because they were plausible documents, but without these, she cannot remove the $10,000 added for the 1997 taxation year.
[25] I feel that the term deposit schedule, as determined by the objections officer based on the information provided by the Appellant, can be changed without convincing evidence. This evidence was not provided.
[26] The assessment for the 1998 taxation year was made after the normal assessment period. Paragraph 152(4)(a) of the Act reads as follows:
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Assessment and reassessment |
(4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, except that an assessment, reassessment or additional assessment may be made after the taxpayer's normal reassessment period in respect of the year only if
(a) the taxpayer or person filing the return (i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or
(ii) has filed with the Minister a waiver in prescribed form within the normal reassessment period for the taxpayer in respect of the year; or |
[27] What does "made a misrepresentation that is attributable to neglect, carelessness or wilful default" mean? I cite Venne v. Canada, [1984] F.C.J. No.314 (Q.L):
I am satisfied that it is sufficient for the Minister, in order to invoke the power under subparagraph 152(4)( a )(i) of the Act to show that, with respect to any one or more aspects of his income tax return for a given year, a taxpayer has been negligent. Such negligence is established if it is shown that the taxpayer has not exercised reasonable care. This is surely what the words "misrepresentation that is attributable to neglect" must mean, particularly when combined with other grounds such as "carelessness" or "wilful default" which refer to a higher degree of negligence or to intentional misconduct. Unless these words are superfluous in the section, which I am not able to assume, the term "neglect" involves a lesser standard of deficiency akin to that used in other fields of law such as the law of tort. See Jet Metal Products Limited v. Minister of National Revenue (1979) 79 DTC 624, pp. 636-37 (T.R.B.).
[28] I also cite Justice Pratte then sitting on the Federal Court of Appeal Trial Division in Canada v. Bisson, [1972] F.C. 719:
19 Appellant could only proceed with re-assessments for the years 1955 to 1962 if, in the words of s. 46(4)(a)(i), respondent had "made any misrepresentation or committed any fraud in filing" his return. It is clear that, when he declared his income for the years in question, respondent made an error in good faith; he did not know that the sums paid to Thorn by Hull City Transport Ltd. formed part of his income. It has been held on several occasions that a "misrepresentation", though innocent, justifies the Minister in proceeding with a re-assessment at any time (see: M.N.R. v. Taylor 61 DTC 1139; M.N.R. v. Appleby 64 DTC 5199; M.N.R. v. Foot 66 DTC 5072). However, in all cases where the courts have so found, the taxpayer, though he had acted in good faith, had been clearly negligent. The question thus remains undecided, whether the Minister may proceed with a re-assessment after the period of four years, when the taxpayer has made an innocent misrepresentation involving no negligence on his part. If, as appellant's counsel maintained, even errors committed by a taxpayer entailing no negligence justified the Minister in proceeding with a re-assessment at any time, s. 46(4) would provide wholly illusory protection to the taxpayer, since the only case in which he would benefit from it, undoubtedly very rare, would be where the re-assessment was designed to correct an error attributable solely to the Department itself. If this had been the purpose Parliament had in mind when it enacted s. 46(4)(a)(i), it is not clear why it provided that the Minister may proceed with re-assessments at any time if the taxpayer "has made any misrepresentation or committed any fraud in filing the return". In effect, any fraud necessarily presupposes a misrepresentation", and if the latter word covered every type of inaccurate representation, the reference to fraud in the provision would be totally unnecessary. In my view, the fact that the legislator referred not only to "misrepresentation" but to "fraud" indicates that, by the first word, he meant innocent misrepresentation which, without being fraudulent, are still culpable in the sense that they would not have been made if the person committing them had not been negligent. I therefore conclude that a taxpayer who, without any negligence on his part, commits an error in declaring his income, does not make a misrepresentation within the meaning of s. 46(4)(a)(i). When the Minister seeks to rely on this provision to proceed with a re-assessment after four years, he must therefore not only show that the taxpayer committed an error in declaring his income but also that that error is attributable to negligence on his part.
[29] An assessment cannot be made after the normal assessment period unless there is a certain degree of negligence on the taxpayer's part or, in other words, unless he or she did not exercise due diligence. The taxpayer must have been to some extent careless in correctly calculating his or her income on his or her tax return.
[30] In my opinion, when a $23,000 discrepancy for a year is revealed during a Minister's audit, there is no question that there was negligence on the taxpayer's part, especially since the taxpayer is an accountant by profession.
[31] A penalty was imposed pursuant to subsection 163(2) of the Act, which reads as follows:
False statements or omissions
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163(2) 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 [...] |
[32] In this regard, I cite once again Venne (supra):
"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.
[33] The Minister's officers stated that the accounting firm's books had not been kept properly. The audit officer had trouble obtaining the relevant information. The term deposits were mentioned to the objections officer, but not the auditor. The Appellant objected to virtually all the entries in Appendix C concerning personal expenses. These expense amounts were minimal. I feel that the taxpayer was cooperative while the parameters of the dispute were being identified because he was trying to hide his income. I am convinced, based on the evidence provided at the hearing, that the Appellant attempted wilfully to hide his income and that the penalty imposed pursuant to subsection 163(2) of the Act was justified under the circumstances.
[34] The appeal is allowed in order to allow the Minister to reassess the Appellant pursuant to these reasons.
Signed at Ottawa, Canada this 18th day of March 2004.
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"Louise Lamarre Proulx" |
Lamarre Proulx, J.
Translation certified true
on this 21st day of December 2004.
Wendy Blagdon, Translator.