Wynter v. The Queen

Wynter v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2016-04-22
Neutral citation
2016 TCC 103
File numbers
2012-2348(IT)G
Judges and Taxing Officers
Dwayne W. Rowe
Subjects
Income Tax Act
Decision Content
Docket: 2012-2348(IT)G
BETWEEN:
ROSETTA WYNTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on March 2, 2016, at Toronto, Ontario
Before: The Honourable D.W. Rowe, Deputy Judge
Appearances:
Counsel for the Appellant:
Duane R. Milot
Counsel for the Respondent:
Tony Cheung
JUDGMENT
The appeal from the reassessment made pursuant to the Income Tax Act for the 2009 taxation year is dismissed. Costs in the amount of $1,200, inclusive of disbursements, are awarded to the Respondent.
Signed at Sidney, British Columbia, this 22nd day of April 2016.
“D.W. Rowe”
Rowe D.J.
Citation: 2016 TCC 103
Date: 20160422
Docket: 2012-2348(IT)G
BETWEEN:
ROSETTA WYNTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rowe D.J.
[1] Pursuant to the Fresh Notice of Appeal – dated November 4, 2015 - the within appeal is from the imposition of a gross negligence penalty pursuant to subsection 163(2) of the Income Tax Act (the “Act”) in respect of the 2009 taxation year. The appellant, Rosetta Wynter (“Wynter” ), in filing her return for the 2009 taxation year, claimed a loss in the sum of $447,148.31 as “Claimed Agent Loss” which was detailed in her Statement of Business or Professional Activities (“SBA”) as follows:
Gross business or Professional Income Receipts as Agent
$204,999.65
Gross Profit
$204,999.65
Business Expenses – Amount to Principal from Agent
$652,147.96
Net Loss
$447,148.31
[2] The appellant used $114,201.31 of the Claimed Agent Loss against her income in the 2009 taxation year and requested the unused balance of $332,947 be carried back and applied to her 2006, 2007 and 2008 taxation years in the amounts of $91,497, $101,779, and $139,671, respectively. The Minister of National Revenue (the “Minister”) initially assessed the appellant for the 2009 taxation year – on June 3, 2010 - allowing the Claimed Agent Loss and denying the request to carryback a non-capital loss for previous years. The Minister reassessed the appellant – on July 8, 2011 – for the 2009 taxation year and applied a gross negligence penalty in the sum of $51,569.49.
[3] Pursuant to subsection 244(9), the affidavit of Sadruddin Suleman, Litigation Officer employed by the Canada Revenue Agency (“CRA”), was filed.
[4] Counsel for the parties agreed the following exhibits could be entered as follows:
Exhibit A-1 – Appellant’s Book of Documents, Tabs 1 to 12, inclusive.
Exhibit R-1 – Respondent’s Book of Documents, Tabs 1 to14, inclusive.
[5] Wynter testified she is a retired worker previously employed by Chrysler Canada Inc. (“Chrysler”). She was born in Jamaica and, in 2009, was 65 years old. She immigrated to Canada in 1967 from England where she had lived for four years. She became a Canadian citizen in 1977. In Jamaica, she attended school to Grade 6 but does not know the equivalent level in Canada. (Paragraph 4 of her Fresh Notice of Appeal stated this level was equivalent to Grade 10 in Canada.) Wynter stated she was an average student. She is married with four children. In 2012, she attended a college in Mississauga, Ontario, and in 2013, obtained a qualification as a Personal Support Worker, commonly known as a caregiver. She has no training in tax matters, business or accounting. In 1963, when living in England, she was a factory worker and after arriving in Canada, worked as a packer in a Planters Peanuts facility for about a year. She went to the United States of America for a short period but returned to Canada and obtained employment with Admiral, an appliance company, working on the assembly line to manufacture refrigerators. When that entity was taken over by Inglis, she worked again on the assembly line building washing machines. Her next job was with American Motors in Brampton, Ontario, where she worked steadily from 1986 to 1991 except for a brief layoff of three weeks. Chrysler purchased American Motors and the appellant worked for her new employer until her retirement in 2008. Her last duty was as an Inspector of dashboards, wipers and other instruments and her designation was a B Specialist. Wynter stated she often had worked double shifts and holidays. When her employer issued a T4 slip, she took it to a tax preparer to file her return and had not encountered any problems with CRA since her initial filing in 1967. She had not prepared any tax returns on her own and one preparer in Brampton had provided his services for several years. Before that, a co-worker at Chrysler prepared her returns. Wynter stated she had never owned or operated a business. Her only income had been employment income but when she moved to Brampton from Mississauga in 1999, she purchased a house and rented out a basement suite and declared the net income from that source. Over the years, she had deductions for charitable donations, Registered Retirement Savings Plan (“RRSP”) and other allowable amounts such as medical expenses, union dues and similar payments. In 2006, the appellant received a phone call from a man who introduced himself as Alrick Perkin (“Perkin”). She did not know him nor how he had obtained her home phone number. Perkin requested permission to visit the appellant at her home – which she granted – and he came to her residence and spoke about the advantages of donations to DSC Lifestyle Services (“DSC”). At this point, Wynter did not ask Perkin any questions but he invited her to attend a meeting and informed her that DSC also prepared income tax returns. Wynter attended the meeting where there was a video as part of a presentation which she understood to be about a charitable donation program and that it had some aspect of matching to increase the amount of the gift. Perkin worked with Janet Perry (“Perry”) at the DSC office located on the third floor of a large building at 5000 Steeles Avenue in Brampton. Wynter recalled that the office had computers, projectors and several desks in the work area but understood the Head Office of DSC was at 800 Steeles Avenue and it was there she attended to obtain advice because CRA wanted her to repay a refund of about $1,000 she had received. Between 2006 and when DSC no longer was operating, Wynter attended a meeting every year at which 30 or more people of different nationalities and origins were present and the consensus was that the programs offered to them were “okay” in the sense that they were normal and legal. In 2006, the appellant paid a fee of $6,000 to join DSC but the method of payment was based on what she understood was a loan from DSC which would be repaid when she received her tax refund. Wynter stated she asked about the basis for the refund and was informed by DSC personnel that it was because of her donations. Wynter stated she had received the material – Exhibit A-1, Tab 2 – from DSC including a document entitled Code of Ethics and another with the heading: The Financial Facts of Life. Wynter stated that she was required to complete an application to join DSC. She borrowed the sum of $90,000 from the TD bank and – relying on advice provided by Perkin and Perry – invested the money in a land development project in Whitby, Ontario. In 2008, Chrysler instituted a severance package program for older workers and the appellant received a payment from Chrysler in the amount of approximately $60,000, after tax. Wynter stated she signed the back of that Chrysler cheque and gave it to DSC and also withdrew about $40,000 from her RRSP account with Chrysler Credit Union because Perry had promised a higher rate of interest than the one paid by the Credit Union. Wynter stated she believed DSC operated a financial institution. In 2015, she received the sum of $60,000 which she deposited in an account with Chrysler Credit Union. Wynter stated she hired DSC to prepare her 2006 and 2007 tax returns but did not know the actual tax preparer. Wynter was referred to a document at Exhibit A-1, Tab 3, on the letterhead of Furry World Rescue Mission (“Furry World”) located in Lynden, Ontario. That document purported to be an official receipt for income tax purposes - dated December 29, 2008 - in the sum of $80,891.25 and the property allegedly donated by the appellant was described therein as 39,220 shares of RCT Global Networks Inc. The document stated the shares had been appraised by the Frankfurt Stock Exchange in Germany. The receipt was signed: Peter Black, Executive Director, Authorized by the Charity. Wynter stated she did not know what the money was used for but was accustomed to making charitable donations to various organizations throughout her working life and had not encountered any tax problems as a result. She had asked her contacts at DSC if these donations were like her usual gifts to charity and was assured they were in the same category. Wynter stated the people she dealt with at DSC were dressed in business attire and conducted themselves in a professional and courteous demeanour and there were certificates on the wall, although she did not know what they stated or by whom they had been issued. At one meeting in Toronto, Larry Watts was one of the presenters and spoke about savings and investments. Wynter attended with her husband and about 30 to 40 people were present. She stated there was no discussion about a concept of “natural persons” or the use of any agent or entity. DSC was responsible for the preparation of the appellant’s 2009 tax return and she subsequently received a refund in the sum of $30,311.62. At tab 5 of the same exhibit, the appellant identified her 2009 T1 General Return which had been prepared either by someone at DSC or a preparer hired by DSC (page numbers referred to hereafter pertaining to this tax return are located at the upper-right corner and have been numbered by counsel for ease of reference). Wynter stated she provided Perry – at the 5000 Steeles Avenue DSC office - with her T4 slips, information about her income from renting the suite in her house and receipts for charitable donations. A week later, Wynter received a call from Perry that her tax return was ready to pick up and she met Perry at the DSC reception desk who told her where to sign and she followed those instructions. Perry put the return in an envelope and told Wynter to mail it to CRA. Wynter stated that prior to signing the tax return, she looked at the first page but did not notice the entry at line 135 - on the second page – where it showed a negative amount of business income in the sum of $447,148.31 nor did she take notice of other numbers such as $204,999.65, purporting to be business income. Rental income from her suite was entered at line 126 in the sum of $10,800 and - at line 130- the sum of $110,000 was reported as other income. Wynter stated she had not noticed her T4 slip - at page 19 – issued by Chrysler or the T4A slips in following pages as issued by DaimlerChrysler Opr. and had not been aware of the T5 slips and receipts for charitable donations. At page 51 of Tab 5, Wynter identified her signature but stated the word “per” was not present when she signed the return on 2010-04-23 (April 23). The box beside her signature to be completed by a professional tax preparer was blank. Wynter stated she had not noticed the amount of her claimed refund – in the sum of $30,311.62 – at line 484. Wynter stated she did not know the basis for the refund claim or why it would be payable. With respect to other taxation years, Wynter stated she paid DSC a fee of $100 to prepare her returns from 2006 to 2009, inclusive, and had received a refund in each taxation year and paid DSC the sum of $6,000 from the 2006 refund and $5,000 from a refund received in respect of the following year. She did not pay DSC any portion of her last refund. The appellant was referred to Tab 6 and to a document entitled Request for Loss Carryback. Wynter acknowledged she had signed that document but had not written the word “per” in front of her signature. Included in her 2009 tax return was the SBA which Wynter stated she did not see and had assumed – as before – that DSC were professionals and that this return was also correctly prepared. CRA sent the appellant a letter – dated Feb 7, 2011 – Tab 7 – advising that it required additional information concerning the business loss claimed in the sum of $447,148.31. Wynter stated she knew she had not operated a business and faxed that letter to Christine at Ed Gilmore’s office. Wynter stated she did not recognize the documents at Tab 8 which were a letter addressed to L. Rudyk - CRA Auditor at the Sudbury office - and a T4A Summary. Wynter received another letter from CRA – dated May 6, 2011 – at Tab 9 – advising that the Agency was considering the imposition of a gross negligence penalty pursuant to subsection 163(2) of the Act in addition to disallowing the business loss claimed for the 2009 taxation year and denying the request for a loss carryback of the non-capital loss claimed for 2007 and 2008. Wynter stated that after she received a statement from CRA – dated June 1, 2011 – indicating she owed the sum of $150,173.17 - including a provincial penalty of $29,790.26 - she went to the DSC office at 800 Steeles Avenue. (The Notice of Reassessment showing this amount is found at Tab 11 of Exhibit R-1, the Respondent’s Book of Documents.) Wynter stated she spoke with Esma Bowman (“Bowman”) who told her not to be concerned because the next statement from CRA would show she owed “zero” because DSC had professional tax experts working on the problem and Wynter would end up not owing any money. Bowman did not request any additional fee. Wynter stated she did not send the letter dated June 1, 2011, Tab 10 of Exhibit A-1 – to L. Rudyk at CRA, Sudbury office but had signed the Notice of Objection (“Objection”) – Tab 12 – dated 2011-10-05 (October 5, 2011) and mailed it to CRA. She had received the document from Perry or another person at DSC and did not know what was happening because she thought the problem was related to a donation which she thought was legitimate and did not understand how she had been “caught up in this bad situation.”
[6] The appellant was cross-examined by counsel for the respondent. Wynter stated she was able to subtract and multiply numbers but did not understand the concept of negative numbers generally but knew the significance of a minus amount in a bank statement. At Chrysler, she entered data into a computer after having made notes on a sheet of any faults in a vehicle interior that she had detected in the course of her inspection. Approximately 900 cars a day were constructed on the assembly line and she was one of the workers responsible for inspecting certain components. For a period prior to 2006, Sanjay Grouter (“Grouter”) prepared her tax returns and did not charge more than $100, and sometimes only $60. On occasion, a refund of nearly $1,000 was received. In 2006, Perkin telephoned her at home and spoke about a certain program and invited her to attend a meeting. Wynter went to the meeting where the material at Exhibit A-1 -Tab 2 – was provided in the course of a presentation which included a video and advice concerning preparation of income tax returns. As she was leaving the meeting, Perkin told her that he was a tax preparer, which she accepted without question. He did not promise any specific amount of a refund but she knew DSC promoted a charity and decided to use the services of that entity instead of Grouter because she was interested in participating in a new charitable donation program. Wynter met Perry at the DSC office in the spring of 2007 and delivered her T4 slips and other relevant slips and documents. Perry phoned her when the return had been prepared and Wynter went to the office and paid a fee of $100 but understood from Perry that a further sum would be payable when she received a tax refund. At DSC, Perkin raised the subject of the Furry World project which she understood to be a charitable organization and wrote a cheque in the sum of $5,000 payable to Global Learning Gift Initiative and handed it to either Perry or Perkin. Wynter reiterated her belief that DSC had loaned her the sum of $6,000 to join its program and that this amount – together with an undisclosed amount of interest – would be repaid from the proceeds of her tax refund. When signing her 2006 tax return, Wynter stated she did not review “everything but glanced through it” and signed in various places as instructed by Perry. She did not know what documents were inserted or appended to the return. However, the procedure did not seem to be different from the one followed by Grouter when he had prepared several of her returns. According to the affidavit of Suleman – paragraph 10 - the appellant earned $108,571 from Chrysler and had rental income and other income for a total of $110,468. On October 29, 2009, the Minister reassessed the 2006 year to disallow a donation in the sum of $35,003 (see paragraph 8 of the affidavit). Wynter acknowledged she had not made a donation in that amount but had written a cheque in the sum of $5,000 and was told by Perkin that DSC would in some way “match” that amount. Counsel referred the appellant to her signature on her 2009 tax return – last page of Tab 5 – Exhibit A-1 – and – as an example – directed her attention to the declaration immediately above the signature line which states, “I certify that the information given on this return and in any documents attached is correct, complete, and fully discloses all my income.” Wynter stated she was confident that DSC either had prepared each of her returns correctly at their office or had hired a competent person to do so. She stated she had not noticed the amount of the refund claimed for her 2006 taxation year. Perry had placed the tax return in an envelope and handed it to the appellant who mailed it to CRA the next day. Wynter received a refund of $10,000 in respect of her 2006 taxation year. It was the largest refund she had ever received and did not know the reason why she would get that amount. She paid the sum of $6,000 to DSC in accordance with the agreement made earlier. She decided to use the services of DSC to prepare her 2007 tax return and went to the office where she provided the usual documents but was not required to pay a fee in advance. The same procedure was followed with respect to signing and mailing the return ‑ personally - to CRA. For the 2008 taxation year, Wynter dealt with Perry and the same method was followed with respect to signing the return. Wynter issued a cheque payable to Furry World for what she understood was a “one-time” donation and received a receipt – included in her tax return - stating she had made a gift of shares with an appraised value of $80,891.25. In mid‑2009, the appellant received a refund of approximately $15,000 but the Minister issued a reassessment for the 2008 taxation year on March 10, 2011 to disallow the sum of $2,728 in donation and a further reassessment on February 24, 2012 disallowed $90,891 in donation (see paragraph 14 of the affidavit of Suleman). After receiving her refund, Wynter paid DSC $6,000 from the proceeds. The appellant was referred to an unsigned letter – Exhibit A-1 – Tab 4 – dated March 11, 2009 - purporting to be from Siddiqi & Company Inc. in which two copies of her 2008 tax return were enclosed. The letter – at paragraph 2 – advised the appellant to “review the federal tax return carefully to ensure that it is accurate and complete.” She was advised in the following paragraph that she was entitled to a refund of $27,290.71. The letter continued to state further relevant information pertaining to that return. Wynter stated she doubted that she had received this letter even though it had been provided in her List of Documents. Wynter stated that when she was reassessed for her 2006 taxation year – on October 29, 2009 – to disallow $35,003 in donation, she went to the DSC office at 5000 Steeles Avenue because the one at 800 Steeles Avenue had been closed for the winter months. She spoke to Bowman who told her the professionals retained by DSC would be able to reduce that outstanding balance to zero. Earlier, Wynter had faxed correspondence from CRA pertaining to her 2006 taxation year to the DSC office. Wynter conceded that she should have consulted Grouter – her former tax preparer – but at that time “was not thinking”. Wynter hired DSC to prepare her 2009 tax return and attended at the office early in April and spoke to Perry but did not inquire whether DSC had been able to resolve problems with CRA arising from her 2006 taxation year as evidenced by a reassessment dated months earlier in October, 2009. With respect to her 2009 return, the appellant stated she received a phone call from Perry to advise the return was ready to be signed. Wynter went to the office and the same procedure was followed and she did not review the return in detail but verified that the personal information on Exhibit A-1, Tab 5 - page 1 was correct. She did not look at the information contained on page 2 nor did she review pages 19 to 31, inclusive which were composed of various slips and receipts relevant to her income for that year. At page 28, there is a receipt from Olympia Trust Company pertaining to the appellant’s self-directed RRSP in the sum of $59,447. Fortunately, this money had been placed there by DSC from the proceeds of the Chrysler severance payment that Wynter assigned to it by endorsing the cheque. Wynter stated DSC never repaid her investment from what had been referred to as the Whitby Land Project but she received an amount in 2015 from some source that was to a large extent related to the amount of her initial capital contribution. Wynter stated she had not seen the SBA in her return - at page 46 - and does not know why it would be included. When signing her 2009 return, Wynter stated she did not look at pages 47 or 48 but had signed at the bottom of page 49 to certify that the information contained about her business income and losses were correct. She stated she did not see page 50 and the number at the top – line 150 – showing the negative sum of $273,419.79 as representing her income. Wynter did take note of the amount of the claimed refund of $30,311.62 but did not ask Perry why or how she was entitled to that amount. She did not have any reaction to the absence of identification of DSC or someone hired by it as the tax preparer. Wynter stated she never told DSC that she had operated any business. She did not pay DSC any portion of the refund initially received for the 2009 year. When she received the February 7, 2011 letter from CRA – Tab 7 – she contacted Ed Gilmore as she did not feel sufficiently confident to contact the CRA auditor directly. She did not have any further dealings with DSC as the offices had been closed at some point, probably in late 2010. As stated earlier, Wynter did not send nor did she authorize anyone to send the letter – dated March 29, 2011 – to L. Rudyk, CRA auditor. When she received a further letter from CRA – dated May 6, 2011 – Tab 9 – she sent it to Gilmore. Wynter stated she had not seen the letter to CRA – dated June 1, 2011 – Tab 10 – purporting to be sent on her behalf and did not authorize or instruct anyone to do so. The appellant acknowledged her signature on the Objection – Tab 12 – dated 2011‑10-05 which had been sent to her computer as an attachment. She read some of that document, signed it and mailed it to the Chief of Appeals at Sudbury. Wynter stated she had never known or suspected that DSC was operating a tax avoidance scheme and had believed her refunds were due to having contributed to a charitable donation program that was legally able to increase the amount of the actual donation.
[7] Counsel did not re-examine and closed the appellant’s case.
[8] Counsel for the respondent did not call any evidence.
[9] Counsel for the appellant submitted the appellant had a limited education and did not have a good grasp of numbers as reflected in certain parts of her testimony when describing the number of cars - 900 - she had inspected in one day when that number was attributable to the entire production of the assembly line. The appellant was a hard-working woman, aged 65 in 2010 when her 2009 tax return was filed. It is likely she had been the victim of some DSC scam pertaining to the land development project in Whitby and the money later received in 2015 was not readily identifiable by her as to the source. Counsel submitted it was obvious that Wynter had never represented to DSC that she had a business and trusted DSC on the basis it appeared to be a legitimate business ‑ with two offices in Brampton – that was operated by professionals with income tax expertise in addition to offering other financial programs to clients. Counsel referred to the uncontradicted evidence of Wynter that she had not seen or been made aware of the SBA or the Request for Loss Carryback so there were no warning signs or “flashing lights” to arouse her suspicion that a business loss had been claimed. Her belief that she was participating in a legitimate donation program was bolstered by the fact she made a $5,100 donation on January 10, 2010 to a church in Kitchener which was recognized by the Minister as a legitimate registered charity that had issued a proper receipt. Counsel submitted the Crown had not discharged its onus and that the appeal should be allowed with costs. Counsel made further submissions concerning the current state of the law as it pertained to the concept of wilful blindness and I will deal with those later in these Reasons.
[10] Counsel for the respondent conceded there was no intentional acting on the part of the appellant and that she had not sent nor had she authorized the letters ‑ at Tab 8 and Tab 10 – Exhibit A-1 to be sent to CRA but she had signed the Objection - dated October 5, 2011 –which she had received as an attachment to an e-mail sent to her by DSC and had mailed it to the Chief of Appeals in Sudbury. Counsel submitted the facts disclosed that the appellant had been wilfully blind and that an analysis of the evidence as required by the relevant modern jurisprudence with respect to the imposition of a penalty pursuant to subsection 163(2) of the Act supported a finding that the imposition of the penalty for her 2009 taxation year was justified. Counsel submitted the appeal should be dismissed with costs.
[11] Pursuant to subsection 163(3) of the Act, the burden of establishing the facts justifying the assessment of the penalty is on the Minister.
[12] There are two elements that must be established to justify the imposition of those penalties:
1. a false statement in a return; and
2. knowledge or gross negligence in the making of, assenting to or acquiescing in the making of that false statement.
[13] In the case of Guindon v Canada, 2015 SCC 41, [2015] SCJ No. 41 [Guindon], the Supreme Court of Canada heard an appeal from a decision of the Federal Court of Appeal setting aside a decision of the Tax Court of Canada that had vacated the assessment of a penalty imposed pursuant to subsection 163.2 on the basis that the provision was penal in nature. The appellant was a lawyer with no expertise in income tax law who participated in a leveraged donation program. The case also considered whether that Court could hear and decide a constitutional issue when it had not been raised in the courts below by complying with the usual requirements of notice to the interested parties. For the purposes of the within appeal, the comments by Rothstein and Cromwell J.J. – who delivered judgment for the majority – beginning at paragraphs 60 to 62, inclusive, are as follows:
[60] The Minister states in her factum that "culpable conduct" in s. 163.2 of the ITA "was not intended to be different from the gross negligence standard in s. 163(2)": para. 79. The Federal Court in Venne v. The Queen, [1984] C.T.C. 223 (T.D.), in the context of a s. 163(2) penalty, explained that "an indifference as to whether the law is complied with" is more than simple carelessness or negligence; it involves "a high degree of negligence tantamount to intentional acting": p. 234. It is akin to burying one's head in the sand: Sirois (L.C.) v. Canada, 1995 CarswellNat 555 (WL Can.) (T.C.C.), at para. 13; Keller v. Canada, 1995 CarswellNat 569 (WL Can.) (T.C.C.). The Tax Court in Sidhu v. R., 2004 TCC 174, [2004] 2 C.T.C. 3167, explaining the decision in Venne, elaborated on expressions "tantamount to intentional conduct" and "shows an indifference as to whether this Act is complied with":
Actions "tantamount" to intentional actions are actions from which an imputed intention can be found such as actions demonstrating "an indifference as to whether the law is complied with or not"... . The burden here is not to prove, beyond a reasonable doubt, mens rea to evade taxes. The burden is to prove on a balance of probability such an indifference to appropriate and reasonable diligence in a self-assessing system as belies or offends common sense. [para. 23]
[61] Therefore, while there has been debate as to the scope of "culpable conduct" (as argued before the Tax Court in this matter), the standard must be at least as high as gross negligence under s. 163(2) of the ITA. The third party penalties are meant to capture serious conduct, not ordinary negligence or simple mistakes on the part of a tax preparer or planner.
[62] We can conclude that the purpose of this proceeding is to promote honesty and deter gross negligence, or worse, on the part of preparers, qualities that are essential to the self-reporting system of income taxation assessment.
[14] In the case of Torres v Canada, 2013 TCC 380, 2014 DTC 1028 [Torres], C. Miller J. reviewed the relevant jurisprudence, including recent decisions from the Federal Court of Appeal and referred to his earlier decision in Bhatti v Canada, 2013 TCC 143 which also involved Fiscal Arbitrators. In Torres, based on that jurisprudence and the evidence heard in the appeals before him, at paragraphs 65 and 66, he stated as follows:
[65] Based on this jurisprudence and the evidence that I have heard in the six Appeals before me, I draw the following principles:
a) Knowledge of a false statement can be imputed by wilful blindness.
b) The concept of wilful blindness can be applied to gross negligence penalties pursuant to subsection 163(2) of the Act and it is appropriate to do so in the cases before me.
c) In determining wilful blindness, consideration must be given to the education and experience of the taxpayer.
d) To find wilful blindness there must be a need or a suspicion for an inquiry.
e) Circumstances that would indicate a need for an inquiry prior to filing, or flashing red lights as I called it in the Bhatti decision, include the following:
i) the magnitude of the advantage or omission;
ii) the blatantness of the false statement and how readily detectable it is;
iii) the lack of acknowledgment by the tax preparer who prepared the return in the return itself;
iv) unusual requests made by the tax preparer;
v) the tax preparer being previously unknown to the taxpayer;
vi) incomprehensible explanations by the tax preparer;
vii) whether others engaged the tax preparer or warned against doing so, or the taxpayer himself or herself expresses concern about telling others.
f) The final requirement for wilful blindness is that the taxpayer makes no inquiry of the tax preparer to understand the return, nor makes any inquiry of a third party, nor the CRA itself.
[66] Did the Appellants act with wilful blindness?
[15] C. Miller J. then applied the evidence to each of the individuals utilizing the criteria developed in his reasons as quoted above and, at paragraphs 70 to 72, inclusive, commented as follows:
[70] I readily conclude there were sufficient warning signs to cause the Appellants to make further inquiries of the tax preparers themselves, independent advisers or even the CRA, prior to signing their returns. None of the Appellants made such inquiries before making the false statements. Mr. Barrett argues there were no warnings justifying an inquiry. As I have made clear, the evidence does not support that argument. He then seems to suggest the warnings were not so evident or strong as to demand an inquiry. Again, I have found otherwise - the evidence simply does not support that position. Then he suggests that even if there were warnings, the Appellants were so conned by Fiscal Arbitrators they may have been blind to those warnings, but they were not wilfully blind. There was no wilful or intentional wrongdoing punishable by such harsh penalties. Negligence perhaps, Mr. Barrett would argue, but not such cavalier disregard for the law as to attract gross negligence. They were simply duped.
[71] The Appellants argument in this regard would be more persuasive where the circumstances do not suggest so strongly the need to inquire. It is difficult to counter wilful blindness with a defence of no wrongful intention when the concept of wilful blindness imputes knowledge regardless of intention (see Panini). Perhaps it might be better stated that such strong circumstances as I find exist here, that scream for an inquiry, impute the wilful element of wilful blindness. Blindness is evident. The strong circumstances effectively preclude a defence that "I believed what I was doing was okay", even where that belief arises from being duped by others.
[72] As is clear from a review of the evidence, as well as a review of the factors that indicate an inquiry was warranted, there are significant similarities amongst the six Appeals. The circumstances surrounding the preparation, review, signing and filing of the returns are not so dissimilar to reach any different results. The difference in circumstances are minor. I will identify a few.
Mr. Hyatali may not have read the return to see the glaring large business loss staring him in the face. That was negligent: combined with the other warning signs, all ignored by Mr. Hyatali, there is more than enough to conclude he too was wilfully blind.
Ms. Mary Torres not only should have suspected something amiss when filing her 2007 return, she clearly knew something was wrong when she filed her 2008 return, given the CRA had been in touch with her regarding her 2007 return.
While Ms. Eva Torres indicated Mr. Watts worked at the same organization for 18 months, she did not suggest there was any close working relationship that might have alleviated any suspicion.
[16] At paragraphs 77 to 79, inclusive, he concluded:
Conclusion
[77] It is difficult to feel a great deal of sympathy for the Appellants notwithstanding some presented as most sympathetic characters, simply duped by the bad guys. Yet, underlying this purported duping is a motivation attributable to all of them to not have to pay taxes. Fiscal Arbitrators was not hired just to prepare their returns - it was hired to prepare their returns in such a way as to produce a significant refund; in fact, a refund that would result in no tax in the year in question, and with respect to some, prior years as well. I question how an individual, regardless of the level of education, who has worked in Canada, paid taxes and benefited from all the country has to offer, can without question enter an arrangement where he or she claims fictitious business losses and therefore simply does not have to pay his or her fair share, indeed, does not have to pay any share of what it takes to make the country function. I am not unsympathetic to spouses and family who may suffer from the significant negative financial consequences these penalties will heap upon them by the actions of the Appellants: the Appellants' penalties are indeed harsh. I however cannot pretend the specific 50% penalty called for by subsection 163(2) of the Act can be something less. That is only something the Government can consider.
[78] It was clear to me these Appellants have paid a huge price, not just economically, as a result of Fiscal Arbitrators' deceitful ways. I have concluded, however, that penalties are clearly justified, though I am concerned about the devastating effect the magnitude of the penalties will have on the Appellants. I recognize this consideration is not a factor cited in Rule 147 of Tax Court of Canada Rules (General Procedure), but I do not view the list of factors as exhaustive. Add to this the fact that few General Procedure cases have been heard regarding Fiscal Arbitrators, that I view these matters akin to test cases, though acknowledging the Parties did not present them as such, and that a novel argument was presented by the Appellants' counsel, I exercise my discretion to not award costs. Having said that, I make no representation that not awarding costs is something I would consider in future Fiscal Arbitrators' cases.
[79] The Appeals are dismissed.
[17] I will consider the factors identified by C. Miller J. in his analysis as they pertain to the appellant in the within appeal.
Education and experience
[18] Wynter received a Grade 6 education in Jamaica – as noted earlier, equivalent to Grade 10 in Canada - and has worked as a factory/plant assembly line worker most of her working life until her retirement with Chrysler in 2008. Her last position was as an Inspector of the interior of vehicles proceeding down the line and she was required to note any defaults and – later – to input that data into a computer. She participated in RRSP programs, made charitable donations, obtained a mortgage, created a rental suite in the lower level of the home she purchased in Brampton and understood the requirement to report net rental income. She was knowledgeable in terms of her earning capacity and worked overtime and holidays to augment her income. She did not have any training in income tax matters and retained the services of a tax preparer or had her return prepared by a co-worker at Chrysler.
Suspicion or need to make an inquiry
[19] In 2006, the appellant received an unsolicited telephone call from Perkin whom she did not know. He persuaded her to attend a meeting, the purpose of which was to promote a program referred to herein as DSC. She was provided with certain material and viewed a video and listened to speakers explain the donation mechanism used by DSC and details of other services offered to clients. As she was leaving the meeting, Perkin spoke to Wynter about preparing her tax returns, which for several years earlier had been done by Grouter. Wynter paid DSC a fee of $6,000 for a membership but understood that was paid by means of a loan to her from DSC which would be repaid – together with unspecified interest – from a tax refund. Wynter did not know the details of the alleged charitable donation program promoted by DSC and did not inquire beyond having received a vague explanation from Perkin or one of his associates that it involved some sort of matching, the effect of which was to increase the amount of the initial donation for purposes of claiming a charitable donation deduction on a return for the applicable taxation year. Wynter had invested the sum of $90,000 – on the advice of Perkin and Perry – into what she understood was a land development project in Whitby. To obtain those funds, Wynter took out a loan from her bank. Perkin and Perry advised her to remove her RRSPs from the Chrysler credit union because DSC could obtain a higher rate of interest and she complied without question. Initially, Wynter received a refund for her 2006 taxation year and that was not disallowed until a reassessment dated October 29, 2009. She did not understand the reason for the large refund, which was many times larger than she had received since filing ta