Brathwaite v. The Queen

Brathwaite v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2016-02-18
Neutral citation
2016 TCC 29
File numbers
2013-868(IT)G, 2014-1150(IT)G
Judges and Taxing Officers
Dwayne W. Rowe
Subjects
Income Tax Act
Decision Content
Docket: 2013-868(IT)G
BETWEEN:
ANGELINA BRATHWAITE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Ian Thompson (2014-1150(IT)G) on December 8, 2015, at Toronto, Ontario
Before: The Honourable D.W. Rowe, Deputy Judge
Appearances:
Counsel for the Appellant:
Jeffrey Radnoff
Counsel for the Respondent:
Katie Beahen
AMENDED JUDGMENT
The appeals from the reassessments made pursuant to the Income Tax Act (the “Act”) for the 2005, 2006 and 2007 taxation years are dismissed.
The appeal from the reassessment made pursuant to the Act for the 2008 taxation year is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the penalty imposed pursuant to subsection 163(2) of the Act is deleted.
One set of costs is awarded to the respondent in accordance with Tariff B. That sum – as calculated - is to be multiplied by 60% and the resulting number, when divided by two, is the amount of costs each of the appellants, Angelina Brathwaite and Ian Thompson, must pay to the respondent by March 31, 2016.
This Amended Judgment is issued in substitution for the Judgment dated February 1, 2016. The Judgment is amended solely to correct the date of the hearing of the appeal.
Signed at Toronto, Ontario, this 18th day of February 2016.
“D.W. Rowe”
Rowe D.J.
Docket: 2014-1150(IT)G
BETWEEN:
IAN THOMPSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of
Angelina Brathwaite (2013-868(IT)G) on December 8, 2015,
at Toronto, Ontario
Before: The Honourable D.W. Rowe, Deputy Judge
Appearances:
Counsel for the Appellant:
Jeffrey Radnoff
Counsel for the Respondent:
Katie Beahen
AMENDED JUDGMENT
The appeal from the reassessment made pursuant to the Income Tax Act (the “Act”) for the 2007 taxation year is dismissed.
The appeal from the reassessment made pursuant to the Act for the 2008 taxation year is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the penalty imposed pursuant to subsection 163(2) of the Act is deleted.
One set of costs is awarded to the respondent in accordance with Tariff B. That sum – as calculated - is to be multiplied by 60% and the resulting number, when divided by two, is the amount of costs each of the appellants, Angelina Brathwaite and Ian Thompson, must pay to the respondent by March 31, 2016.
This Amended Judgment is issued in substitution for the Judgment dated February 1, 2016. The Judgment is amended solely to correct the date of the hearing of the appeal.
Signed at Toronto, Ontario, this 18th day of February 2016.
“D.W. Rowe”
Rowe D.J.
Citation: 2016 TCC 29
Date: 20160218
Docket: 2013-868(IT)G
BETWEEN:
ANGELINA BRATHWAITE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2014-1150(IT)G
AND BETWEEN:
IAN THOMPSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
Rowe D.J.
[1] Upon consent of counsel for the respondent and counsel for both appellants, these appeals were heard on common evidence.
[2] The affidavit of Ahmadreza Fallahfini (“Fallahfini”), Litigation Officer employed by Canada Revenue Agency (“CRA”), filed in each of the above appeals, is directed to be filed pursuant to subsection 244(9) of the Income Tax Act (the “Act”).
Appeal of Angelina Brathwaite
[3] The appellant, Angelina Brathwaite (“Brathwaite”) appealed from assessments issued by the Minister of National Revenue (the “Minister”) with respect to the 2005, 2006, 2007 and 2008 taxation years. In those years, Brathwaite deducted certain amounts as Claimed Agent Loss as detailed in a Statement of Business Activities. The Minister initially assessed Brathwaite’s returns for 2005, 2006 and 2007, as filed. In issuing an assessment for the 2008 year, the Minister disallowed the professional loss and other deductions claimed and imposed a gross negligence penalty pursuant to subsection 163(2) of the Act in the sum of $53,509.34. The Minister reassessed Brathwaite for the 2005, 2006 and 2007 taxation years, disallowing the net business losses claimed and reduced other expenses claimed to nil for the 2005 taxation year. The Minister imposed gross negligence penalties under subsection 163(2) for the 2005, 2006 and 2007 taxation years in the amounts of $5,334.42, $15,025.92 and $5,849.20, respectively. On August 20, 2012, the Minister issued further reassessments for the 2005, 2006, 2007 and 2008 taxation years, allowing certain other expenses that were not part of the business losses or Claimed Agent Loss in those years.
[4] For convenience, counsel for the appellants, with the consent of counsel for the respondent, filed – as Exhibit R-1 – a binder entitled Respondent’s Book of Documents, Tabs 1 to 25, inclusive. A binder entitled Appellant’s Book of Documents, Tabs 1 to 6, inclusive, was filed as Exhibit A-1.
[5] Brathwaite testified she is 52 years old and graduated with a Diploma in Business from Seneca College where she studied insurance and investment. She joined Royal Bank of Canada (“RBC”) and worked as a teller for 14 years and then managed a department dealing with staff banking in a Toronto branch. After her employment with RBC, she started working as a financial planning trainer at Investors Group. In 2000, she was hired as a recruiter by Shared Vision Management and in 2006 joined Brunel Canada Limited (“Brunel”) in the recruitment department as a senior client partner. Brathwaite stated that during the course of her various employments she had not dealt with accounting or tax matters. She met Ian Thompson (“Thompson”) in 2005 and they were married in 2008. Thompson was acquainted with a man who introduced them to Danasar Morlee (“Morlee”). At that point, Brathwaite had not filed income tax returns for several years as her mother had been ill and as she had been remunerated for years by commissions, she had not remitted sufficient payments on account of tax because she needed the money. After considerable discussion with Morlee, Brathwaite was advised that he could file her 2007 tax return and also introduced her to an insurance agent from whom she and Thompson later purchased a term insurance policy. With respect to her tax return, Morlee advised that she could claim a variety of expenses pursuant to the Form 2200 provided by her employer. He did not mention the amount of any potential refund as a result of preparing a tax return on her behalf but charged a fee of $2,500 which she paid. As a consequence of filing her 2007 tax return, she received a refund in the sum of $7,283.11 and she and Thompson were “very happy.” They spoke to Morlee who advised her to file returns for years prior to 2007 because the nature of her work would entitle her to deduct certain expenses which would reduce income and produce refunds of tax paid earlier. Morlee also discussed with her and Thompson the opportunity to participate in financial planning through policies and other investments offered by insurance companies. Brathwaite stated there was no discussion about business losses. Early in 2009, she began receiving letters from CRA concerning claimed business losses and she contacted Morlee who introduced her and Thompson to Christian Lachapelle (“Lachapelle”) who was someone apparently experienced in tax matters derived in part from previous employment with CRA. Counsel referred Brathwaite to a four-page letter dated 2009-01-12 (January 12, 2009) - at Tab 3 in Exhibit A-1 – that she sent to J. Adam, an auditor at the CRA Audit Division and acknowledged that she had written at the bottom of each page the phrase, “Certified Conform to the Original” and signed her name below. She stated that she had read that document which had been e-mailed to her by Lachapelle for the purpose of responding to the inquiry by CRA. Although she did not understand the contents of the letter, she signed it and mailed it to the auditor with respect to her 2005, 2006 and 2007 tax returns. Brathwaite thought her 2008 return had been prepared by a different person but stated it was not done by Morlee. Brathwaite stated she and Thompson had attended a seminar for the purpose of meeting Lachapelle and listened to his explanation about how they could rectify their financial situation and he recommended a financial advisor – Paul Mahinder (“Mahinder”) who would attend at their residence to provide relevant advice in that regard. Mahinder came to their residence at some point during the Christmas holiday season and began discussing various systems he had used to advise clients but he was inebriated and they became concerned about their relationship with Morlee and Lachapelle and instructed Mahinder to leave their home. They reported the incident to the Toronto Metropolitan Police that same evening. Later in the course of their attempts to obtain satisfaction in resolving their difficulties with CRA, they appeared before a Justice of the Peace and swore out an Information alleging that they had been the victims of fraud. They also spoke to CRA officials at various levels within that organization and pursuant to their advice, filed amended returns in an effort to demonstrate cooperation with the agency to resolve the matter. When asked to provide a statement to be recorded on video concerning their dealings with Morlee and Lachapelle, Brathwaite stated she and Thompson were ready and willing to comply but had not been contacted subsequently for that purpose. Counsel referred Brathwaite to a document – Amended T1 General Return 2006 – at Exhibit R-1, Tab 11 – and she identified her signature on the last page and had inserted the date, August 15, 2011. At Tab 12, she also identified her signature on her amended tax return for the 2007 year and confirmed the above date had been inserted and that the same procedure was followed with respect to the amended return for 2008 at Tab 13. All amended returns – prepared by the same firm - were delivered to the Toronto West Tax Services Office and were stamped as received on August 30, 2011 and the information provided in the box for professional tax preparers in the 2006 and 2007 returns showed B T & Associates in Richmond Hill and Thornhill, Ontario were the preparers. Brathwaite reiterated there had never been any discussion with Morlee about claiming false business losses.
[6] In cross-examination by counsel for the respondent, Brathwaite stated that she and Thompson had retained the services of Morlee to file their returns. Later, although letters sent by CRA were addressed to them as individuals using their names, as filed, and each of them had responded separately, they dealt jointly with their financial situation as it pertained to the issue of income tax. Brathwaite stated her training at Seneca College had been focussed on marketing and that she had taken business writing courses at University of Toronto. In the 1980s, she took an investment course and additional training to sell insurance. During her 14 years at RBC, she worked as a teller and in the section dealing with term deposits, fixed-term investments and lending, and in each instance used the appropriate software. After leaving the bank, she worked with a small recruiting firm prior to joining Brunel in 2006 - Life and Health Sciences Division - where she was employed to sell contracting solutions to business entities that did not perform their own hiring and are shown the advantages of retaining the services of Brunel to institute outsourcing programs for specific purposes. Because she was remunerated on a commission basis, her income varied and although she had paid some payments in earlier years, she had not filed tax returns for the taxation years 2000 to 2005, inclusive. Morlee prepared her 2007 return and later the revised returns for the 2005 and 2006 years but did not file her 2008 return. Morlee had requested bank statements and advised that she was entitled to claim certain expenses against commission income. Brathwaite acknowledged that she had not verified the background of Morlee nor had she undertaken any inquiry in that regard. She stated that when she signed her return for the 2007 taxation year, she did not take note of the business loss claimed, even though it was contained within the tax return which she had not reviewed prior to signing. She stated she had not inquired about the method of preparation of the return for which she paid Morlee the sum of $2,500 as his fee for preparation of the return and additional advice concerning financial matters. Counsel referred Brathwaite to the last sentence in paragraph 5 of her Notice of Appeal which stated that “On May 15, 2008, Angelina paid a total fee of $12,500 to Mr. Morlee.” Brathwaite stated the amount was accurate but the money had been paid at various times and that the total fee included services provided to her husband, Thompson. She agreed with counsel’s observation that it was “a lot of money to pay” when the only additional service Morlee performed was to introduce them to a life insurance agent. When she received a refund of over $7,000, she did not regard that sum as exceptional even though at that time she owed income tax for prior years. As a result of having obtained the refund, she retained Morlee to prepare her tax returns for 2005 and 2006 and agreed that in those years business losses were claimed. However, she did not review the returns prior to signing nor did she inquire about the method used to prepare those returns. Counsel referred Brathwaite to a four-page letter - dated November 27, 2008 - from CRA auditor J. Adam in which information was requested concerning business and income and expenses for the years 2005 to 2007, inclusive. There was a Business Questionnaire enclosed in the letter and various matters requiring a specific response were set forth in bullet form on the first page. On pages 2 and 3, there were paragraphs written in bold concerning the method of providing receipts for business expenses and also for employment expenses claimed in 2005. Brathwaite stated the letter caused her to worry and she contacted Morlee to seek advice and he referred her and Thompson to Lachapelle. In hindsight, she wished they had contacted the CRA auditor directly but believed Morlee had the expertise to deal with the matter and accepted his recommendation. Another letter - Exhibit R-1, Tab 3, dated January 13, 2009 - was sent to Brathwaite by the auditor advising that there had been no response to the earlier letter and that if no reply was received within 30 days, the 2005 return would be adjusted to delete the employment expenses and the business loss claimed for 2005 would be deleted and the 2006 and 2007 returns would be reassessed to reduce the business losses to nil. The last paragraph stated there was the opportunity for Brathwaite to request an adjournment of that deadline if required and it would be reviewed. Brathwaite stated she “probably” passed that letter on to Morlee. Counsel referred her to the January 12, 2009 letter to J. Adam – Exhibit R-1, Tab 15, page 165 (referred to earlier (Exhibit A-1, Tab 3) - in her direct examination and to paragraph 4 thereof which reads:
Based on several communication with different CRA agents, we can give you this hint: in our letters, you will come into contact with the human being Angelina Elizabeth : Brathwaite and the natural person ANGELINA BRATHWAITE which is the corporation. In order to differentiate them, anytime you see the word person, we are referring to the legal construct, the corporation, the legal entity, the judicial personality, as defined and referred in the law. Furthermore, when you see a colon “:” in the name, it is precisely the sign that this name refers to a human being. The meaning of this colon is “of the family”. Hope this help [sic] you in your understanding.
[7] Brathwaite stated that Lachapelle had explained to her and Thompson that “as a human being, you are a corporation and have certain write-offs.” In her understanding of that concept, the proposed deductions were work-related expenses including items such as personal grooming. She was not requested by Morlee to provide receipts in support of any deductions nor did she ask if they were needed. In letters dated May 12, 2009 and June 4, 2009 - found at Tabs 6 and 7, respectively in Exhibit R-1 - Brathwaite was advised that the position of CRA was unchanged and that it would be applying the penalty pursuant to subsection 163(2) as explained in the letter dated January 21, 2009. Brathwaite stated she and Thompson “hoped” Lachapelle could rectify the situation as he had assumed conduct of their files shortly after they had received the first correspondence from the CRA auditor. She received an e-mail – Exhibit A-1, Tab 5 - from Lachapelle and read it but thought the wording and grammatical construction was due to the fact he was a Francophone and English was not his original language. She was instructed to sign the letter in “RED” using her normal signature. In the first line of the e-mail following the salutation, “Hi, Angelina”, Lachapelle informed her that the kind of letter she had received from CRA “is meant to disorient you and to shatter fear.” He went on to say that there was nothing to be nervous about and the CRA letters were a “smoke screen” so she could not see that the auditor was not responding properly to what had been referred to as a “Usage Notice”. He also advised that the “alledged [sic] debt is not certain anymore since you have rescinded your signature from the original documents used to create this debt.” Brathwaite recalled receiving another communication by e-mail – Tab 6 in same exhibit dated April 9, 2010 - from Lachapelle but at this point she and Thompson had reported to the Toronto Police the matters arising from their relationship with Morlee and Lachapelle and the problems arising from the manner in which their tax returns had been filed. Counsel referred Brathwaite to a document entitled ANSWERS ON WRITTEN EXAMINATION FOR DISCOVERY – Exhibit R-2 – and to the answer to Question 83 asking which of the facts in paragraphs 23(a)-(o), 24(a) and 25(a)-(i) of the Reply did she deny and why? The answer stated she did not agree with paragraph 23(e), (g) and (i) that the tax preparer had claimed losses. Brathwaite stated her 2008 tax return was not filed by Dan Rosenbault and that her answer to Question 12 was incorrect but he had prepared returns for her in the first few years after 2000. Brathwaite stated that the 2008 return – filed on June 30, 2009 - may have been prepared by Morlee and submitted to CRA but she had not instructed him to do that and had no knowledge of its contents or that a loss of $281,092 had been claimed.
[8] Counsel did not re-examine the appellant.
Appeal of Ian Thompson
[9] Thompson appealed from assessments issued by the Minister for the 2007 and 2008 taxation years. Initially, the Minister assessed the 2007 taxation year, as filed, and issued a refund in the sum of $19,136.76 on August 25, 2008. The Minister initially assessed Thompson for the 2008 taxation year pursuant to a Notice dated February 15, 2011. However, the Minister issued reassessments for the 2007 and 2008 taxation years denying the business losses claimed on the basis Thompson was not involved in any kind of income-earning business activity and assessed penalties pursuant to subsection 163(2) of the Act. The appellant filed Notices of Objection and the Minister subsequently did not vacate, confirm or reassess the 2007 or 2008 taxation years. A Notice of Appeal was filed on behalf of the appellant on April 7, 2014.
[10] On consent of counsel, the Respondent’s Book of Documents was filed as Exhibit R-3, Tabs 1 to 31, inclusive.
[11] Thompson testified he lives in Toronto and has been employed as a welder for Chrysler Canada since 1992. He is 49 years old and has been involved for 35 years in amateur boxing including participation in national and international events. He was a three-time Canadian champion, first as a flyweight at age 15 and later as a junior welterweight (139 pounds). During his working life, he filed income tax returns and had never encountered a problem with CRA or its predecessor. He and Brathwaite met in 2005 and were married in 2008, an event he described as the most important in his life. Before their marriage, they began discussing means to accumulate wealth for the future. Thompson spoke with an acquaintance who recommended Morlee as a tax advisor as he had worked for CRA but was now operating his own business where he assisted clients to build wealth. Thompson and Brathwaite met with Morlee who informed them that his experience as an employee at CRA qualified him to utilize little-known techniques to obtain better tax treatment for his clients. Thompson had been accustomed over the years to paying about $200 as a fee to a tax preparer and had received refunds in amounts that sometimes represented up to 10% of tax paid in a particular taxation year. However, he and Brathwaite each paid Morlee a fee in the sum of $1,250 for his services including income tax preparation and filing. Counsel for the appellant referred Thompson to his 2007 tax return – Exhibit R-3, Tabs 3 and 4 – which also contained a Statement of Business Activities. Thompson identified his signature on the return which showed a refund was claimed in the sum of $18,966.04. Above his signature, Thompson wrote “with rights reserved and without prejudice” as instructed by Morlee who had pointed to places where he and Brathwaite had to sign in each of their returns. Thompson stated he asked how Morlee was able to obtain more money for them and was told that it was due to knowledge gained during his employment at CRA. With respect to the Statement of Business Activities, Thompson stated he did not write any of the numbers nor the words contained therein. Morlee had explained that he was able to obtain additional refunds of tax paid in previous years by Thompson and Brathwaite and prepared the 2006 tax return - at Tab 2 in the same Exhibit – which he signed and may have also written the disclaimer referred to earlier or it may have been there prior to signing. Thompson stated it took only minutes to sign both returns. Morlee referred both of them to an insurance agent who sold certain products and also spoke about a trust being established in the future to manage accumulated wealth. Thompson stated that since he had received a refund of more than $19,000, that a payment of $2,000 to Morlee was reasonable as it was only about 10% of that amount. Thompson said he and Brathwaite developed a trust in Morlee and ‑ later ‑ with Lachapelle and that both were responsive to their inquiries, empathetic and willing to work towards resolving their difficulties with CRA. Counsel referred Thompson to a four-page document – Tab 11 – and to the last page thereof where he identified his signature. The four-page letter addressed to a CRA Senior Office Auditor at the Sudbury office had been sent to Thompson as an attachment to an e-mail. Thompson stated he read the document but did not understand it. Earlier, he had received an explanation that seemed feasible concerning the novel filing method which was based on an interpretation of his identity as disclosed on his birth certificate. The draft letter provided by Lachapelle to be sent to CRA referred to Thompson’s existence as a corporation or legal construct through which he generated income and the relationship of that entity to himself as a natural person which permitted a different interpretation for tax purposes. Thompson stated he advised Brathwaite that they should retain the services of the tax preparer Thompson had used for 20 years when reporting income from his employment at Chrysler prior to obtaining the services of Morlee for the 2007 taxation year. However, he and Brathwaite had been warned by Morlee and Lachapelle that CRA would “bury them” and decided to continue relying on those individuals to resolve their problem and attended a seminar to seek further advice but – instead – ascertained it was a recruitment session organized by Morlee and Lachapelle to persuade people to hire them as income tax experts based on their experience and talent. At that session, Thompson and Brathwaite were introduced by either Morlee or Lachapelle to a man named Mahinder who was willing to attend at their home to advise them with respect to financial matters. At their home, when Mahinder attended and began to talk about various investment instruments, Thompson stated he and Brathwaite noticed the man was drunk and they instructed him to leave following which they attended at a Toronto Metro Police station to report the incident and explained the nature of their recent dealings with the alleged tax experts, Morlee and Lachapelle. The police advised they were aware of the scheme promoted by certain persons in the Toronto region and advised them to contact the elected representative for their constituency. They met with that individual and explained their situation and were advised to contact the Office of the Ombudsman which they did and were informed that it did not have jurisdiction so they returned to the Toronto Police station to advise of their lack of progress in resolving their troubles. CRA issued a demand to Brunel requiring it to remit 50% of Brathwaite’s remuneration and this prompted Thompson and Brathwaite to visit the relevant CRA office where they spoke to a senior official and explained the circumstances arising from their relationship with Morlee and Lachapelle. As a result, the garnishee was removed but that official advised them to retain the services of a reputable person to file amended tax returns for the years that were the subject of reassessments issued to both of them. One CRA official at the meeting had requested that Thompson and Brathwaite record their statements on video, which they were willing to do, but that did not take place. Counsel referred Thompson to a Memo For File – Telephone Contact – Tab 27, 2nd paragraph on page 2 – where the CRA auditor described the conversation he had with Thompson on June 29, 2010 in which he explained that he and Brathwaite had not considered the manner of filing their returns to have been a scam since the promoters of that method were approachable, provided further advice, responded to ongoing enquiries and were willing to provide assistance in dealing with CRA. During that conversation, the auditor’s notes indicate that when they attended the seminar where the tax-filing program was offered to approximately 60 persons, Thompson and Brathwaite decided they “were not willing to go any further with this and at that point felt that something may be wrong.”
[12] Thompson was cross-examined by counsel for the respondent. Counsel filed – as Exhibit R-4 – a binder entitled Respondent’s Book of Documents, Tabs 1 to 31, inclusive. The binder is almost identical to the one filed as Exhibit R-3, except some documents are inserted in a different order and the pages are numbered. Thompson stated that he spoke with Brathwaite whenever he received any correspondence from CRA. He had a Diploma in Business Administration from Seneca College and also studied at Sheridan College where he studied various subjects including torts and obtained a Diploma in Legal Administration. However, by 2007, he had not retained details of his earlier studies in business administration. He went to work at Chrysler and has been there for 23 years earning an annual salary of between $65,000 and $70,000. During most of that time, he hired a tax preparer to file his returns and often received a small refund and on a couple of occasions had owed a small amount. In 2008, he contacted Morlee and hired him to prepare the 2007 tax return. Morlee had been recommended by a man who was selling an investment which he and Brathwaite declined but they accepted his advice to retain Morlee, who was described as a tax expert. When speaking with Morlee, Thompson stated he did not know the amount of any refund to be received and when asked to pay a fee of $1,250, considered that amount was reasonable as it probably was about 10% of any future refund. Thompson agreed that the total sum paid by him and Brathwaite to Morlee was $12,500 as stated in her Notice of Appeal. Prior to signing his tax returns for 2007 and 2008, he saw the wording in the disclaimer above the signature line and if he had written it in one of the returns, did so on the instruction of Morlee even though he did not understand its significance. Thompson stated that he trusted an alleged professional to provide a service and accepted advice based on that individual’s knowledge and experience. He added that everyone should know that a person cannot lie on their tax return and he had not attempted to deceive CRA. He stated he was proud of being a Canadian and had represented his country at various amateur boxing competitions and would never seek to defraud his government. As a young man, he had accumulated a substantial amount of debt due in part to pursuing an education and had received advice to file for bankruptcy but refused to do so and undertook to repay all of his creditors over an extended period of time. Thompson acknowledged he did not review the returns prior to signing. As for the box to be completed by the tax preparer not having been filled in by Morlee, Thompson said it had been his experience throughout the years that a preparer often used a rubber stamp to provide the requested information. Counsel referred him to Exhibit R-4, Tab 3, page 38 – where the entry on line 135 ($61,786.36) represented a net loss. Thompson stated he had not seen that amount nor was he aware that this number was also used to show a minus amount for a net income as disclosed on the Statement of Business Activities at page 52. When he received a refund in excess of $19,000, he was very happy and instructed Morlee to re-file returns for earlier years. At Tab 1, Thompson identified his signature on the last page of his T1 General 2005 return. He did not write the disclaimer but had read it before signing. He stated he had not noticed the business loss claimed in the sum of $73,652.14. At Tab 2, he identified his signature on his 2006 tax return and did not take note of the specific amount - $15,918.13 - of the refund claimed nor had he seen the number ($55,693.99) at line 135 representing the amount of a business loss. He stated that he had hoped he would be entitled to a refund in an amount similar to the one received for his 2007 taxation year. Thompson acknowledged he had signed the document – at Tab 5, entitled Special Resolution – purporting to state the result of a meeting between the corporation Ian Thompson and Ian Floyd Fangio : Thompson, a human being whereby the corporation accepted to transfer the required assets to the human being – as identified – to manage the corporation and its “Subsidiaries and Divisions and businesses” to the amount of $119,067.81 for the year 2005. The document purported to conform with the requirements of the “Canada Company Act”. Thompson stated he thought that resolution had something to do with what was printed on the reverse of his birth certificate as explained earlier by Morlee and Lachapelle. Thompson stated that he and Brathwaite both believed the Morlee methodology was correct and that each was entitled to a refund of tax paid which was confirmed when each of them received a refund. When he received a letter – Tab 9, dated October 27, 2008 - from an auditor at CRA enclosing a Business Questionnaire and asking for details of income, expenses and documentation in support of all business expenses, he read it before sending it to Morlee and was worried about the content of that letter because he knew he had no receipts for business expenses because he did not operate a business. Thompson received another letter – Tab 10, dated December 3, 2008 - informing him that if CRA did not hear from him within 30 days it would deny his claim for business losses in 2005 and 2006 and would adjust his 2007 tax return to reduce the previously‑assessed net business loss from $61,786 to zero and he forwarded the letter to Morlee. Lachapelle sent ‑ by e-mail – a four-page letter dated 2009‑01‑12 - for Thompson to sign and send to the CRA Senior Office Auditor and he complied by signing his name below the typed words, “For the natural person IAN THOMPSON” and that signature was described on the line below it as having been affixed by Ian Floyd Fanio : Thompson. Lachapelle had told him “not to worry about it”. In the letter dated January 23, 2009 – Tab 18 – the Senior Auditor advised Thompson that CRA had determined that he may have participated in an arrangement that attempts to avoid paying income tax and that if a reply was not received within 30 days, the 2005, 2006 and 2007 tax returns could be reassessed to include the levying of penalties pursuant to subsection 163(2). Pursuant to the CRA letter to Thompson – Tab 19, dated June 4, 2009 - he was advised that the proposed reassessments would be forthcoming and enclosed a copy of Form T400A (Notice of Objection). Thompson acknowledged that he had signed the bottom of a letter – Tab 22 – which had been prepared for him by Lachapelle on the letterhead of “Ian Floyd Fangio : Thompson sui juris” for mailing to “Canada Revenue Agency c/o Mister William V. Baker, commissioner and first leader” at an address in Ottawa. Thompson’s signature purported to conform to the name on the letterhead. Thompson received a reply ‑ Tab 23, dated October 7, 2009 - on behalf of William V. Baker informing him that the document and information he had provided did not absolve him or his obligations or cancel his rights as a taxpayer and provided therein a definition of “person” as defined by section 248 of the Act. Thompson stated he and Brathwaite had visited a website that provided details of a program that had been the subject of the seminar they had attended when they wanted to seek advice from Lachapelle as it pertained to their specific problems with CRA. When Brathwaite forwarded the letter - by way of e-mail to Lachapelle - that was sent to Thompson on behalf of the Commissioner of CRA, the response was an e-mail – Exhibit A-2, Tab 10 – which was referred to earlier in the testimony of Brathwaite. Thompson identified his signatures on the documents at Exhibit R-4, Tabs 24 and 25, respectively, which were addressed to the Assistant Director of CRA at Mississauga, Ontario and also to the Senior Auditor at the Sudbury office, which – first - purported to be a document in confirmation of an agreement reached between Thompson and Commissioner Baker whereby all Notices of Assessment would be considered as void and all procedures relating thereto would be stopped and – second – a document entitled Contract for Hire, Independent Animator Agreement between the Actors Ian Thompson, “a determined statutory corporation known by law as a Natural Person” and Ian Floyd Fangio : Thompson, a HUMAN BEING” who was fulfilling the role of Animator to said corporation. Thompson agreed with counsel that at this point he was in the “sign and send” mode but had not considered anything in those documents as illegal. Thompson stated he thought the 2008 tax returns for him and Brathwaite were filed sometime in October, 2009 by an accountant, Mr. Abecassis.
[13] Ahmadreza Fallahfini was called as a witness by counsel for the respondent and testified he is a Litigation Officer employed by CRA and has been in the Appeals Division for eight months. He drafts the Reply to a Notice of Appeal filed pursuant to the Informal Procedure and assists counsel assigned to conduct appeals to be heard under the General Procedure. A search of the records pertaining to the appeal of Brathwaite was conducted by him as set forth in the affidavit affirmed by him and filed as noted at the outset of these appeals. Fallahfini stated the records disclosed that a return for Brathwaite’s 2008 taxation year had been filed on June 30, 2009 and that a business loss in the sum of $281,092 had been claimed therein. With respect to the appeal of Thompson, Fallahfini stated an examination of the relevant records as attached as Exhibit “A” to his filed affidavit at the part described as “screen 2” and at line 139, indicated business income in the sum of $222,518 had been reported and did not represent a loss in that amount.
[14] In cross-examination by counsel for the appellants, Fallahfini stated he did not see either appellant’s tax returns for the years at issue. He does not know whether they were filed electronically nor does he know who prepared those returns.
[15] Counsel for the appellants did not call any rebuttal evidence and closed the case on their behalf.
[16] Counsel for the respondent closed the case for the respondent.
[17] Counsel for the appellants submitted that no returns – except the amended returns – for the years at issue had been submitted into evidence on behalf of the respondent. There was a return filed by someone purporting to act on behalf of Thompson in respect of the 2008 taxation year but there was no return entered into evidence and the only information relevant to any statement of income was provided by Fallahfini which disclosed that no loss had been claimed on behalf of Thompson and that the reported business income in the sum of $222,518 when considered in the context of employment income and certain permissible deductions would not constitute the basis for any reduction in tax payable nor would it entitle Thompson to any refund of tax already deducted by his employer and remitted to the Receiver General.
[18] Counsel submitted there had been no evidence adduced that Brathwaite had submitted a tax return for 2008. There had been no evidence adduced in that regard and Fallahfini had not reviewed the actual return and there was no information available within the CRA records to reveal who had prepared it. With respect to the issue of gross negligence penalties imposed on Thompson for the 2007 taxation year and on Brathwaite for the 2005, 2006, 2007 and 2008 taxation years, counsel submitted the onus on the respondent is high and that there must be negligence tantamount to intentional acting, an indifference to whether the law is complied with or not, and that subsection 163(2) is a penal provision and must be construed accordingly in accordance with the decision of Strayer J. of the Federal Court – Trial Division – as it then was – in the case of Venne v Canada (Minister of National Revenue – MNR), 84 DTC 6247 (FCTD). Counsel submitted there was jurisprudence to support the contention that where there is more than one way of construing the taxpayer’s conduct, that individual should be granted the benefit of the doubt and should not be responsible for the false statements where there was honest reliance on a trusted financial advisor, tax preparer, friend or family member. Counsel described the appellants as victims of a scam which was well-organized and presented by unscrupulous persons who designed the scheme and promoted it to take advantage of the lack of expertise on the part of ordinary people who despite their ability to earn a respectable amount of income in the course of employment had no real knowledge of tax or accounting matters. Counsel warned against using hindsight to make a finding of a taxpayer’s intention at the outset in light of such lack of understanding and that the conduct of both appellants throughout was