http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/143777/index.do
Wynter v. The Queen (April 22, 2016 – 2016 TCC 103, Rowe D.J.).
Précis: I blogged earlier on this site that I am not going to comment on any more Tax Arbitrator cases since I don’t think they offer anything of value to my readers. I will make an exception with the Wynter decision (which appears to be a clone or offshoot of the Fiscal Arbitrator cases) because Deputy Judge Rowe takes the issue on directly and blasts CRA for its failure to create an early warning system to alert taxpayers to these scams and the danger they pose to taxpayers.
Decision: Deputy Judge Rowe did not mince words:
[40] The problem arising from these long delays in contacting taxpayers and the lack of a meaningful early-warning system at CRA is that it provides fodder to the scam artists who have assured their clients that they are on top of the problem and that their experts will battle CRA so effectively there will be nothing to worry about. The absence of prompt follow-up and the issuance of form-letter reminders months later is in effect a golden opportunity for the fraudsters to say, “I told you we would fix your problem with CRA.” Then, by the time CRA issues an assessment and the collection department takes over, the con artists are long gone or – in some cases – have been arrested or convicted and – rarely, I suspect – sent to prison for any significant period.
[41] I am convinced that there are hundreds – if not thousands – of computer‑savvy 9-to-19 year-olds in Canada who could develop software capable of recognizing the “red flags” and “flashing lights” that are referred to extensively in the relevant jurisprudence, albeit in another context. One phone call from a human being at CRA to Wynter – after having been alerted by an efficient computer program which spotted an egregious anomaly in her return - perhaps even triggering a flashing light on a desk or wall somewhere in the auditors’ compound – could have proceeded like this: “Mrs. Wynter, I am Mr. or Ms. Doe from CRA. We are wondering why you claimed a business loss of $447,148.31 in your 2009 return. Are you no longer working at Chrysler? What business were you operating and how did you lose so much money?” I am confident that the response by Wynter – after recovering her composure – could at that point have resolved the matter quickly and she would have identified who her advisors were at DSC and explained the nature of her relationship with that entity since 2006. Also, it would have prevented the payment of a large refund based on false information. Thousands and probably tens of thousands of refunds have been mailed or sent by direct deposit to taxpayers based on no examination of their return. A self-assessing system does not require the automatic initial acceptance by CRA of every nonsensical and false declaration of income and expense. Auditing a random percentage of returns months or years later expends a substantial amount of time, energy and money – including costs of counsel provided to CRA by the federal government – to recoup those payments and to issue reassessments, most of which impose penalties, and then to conduct the inevitable litigation which follows those reassessments when appeals are filed. It is one thing to lock the barn door after the horse has been stolen. To leave the door open not only for other horses to be taken by the same thieves or others of their ilk is another, but to facilitate delivery of quadrupeds of the genus Equus to the doors of putative claimants based solely on the presence of a counterfeit brand not detected due to the lack of even a superficial examination constitutes, in my opinion, irrational corporate behaviour.
[42] It has been announced that the federal government will increase CRA budgets by hundreds of millions to institute new policies and to hire perhaps hundreds of additional staff to administer programs designed to scrutinize overseas transactions carried out by the rich and super-rich who have the means to retain expertise to explore the benefits of tax havens located in countries, principalities, islands, archipelagos, spits or other domains that – even on a decent-sized globe - often are no larger than flyspecks. However, the ubiquitous domestic fraudsters require more attention from CRA because they are like the plastic mole in the Whac-a-Mole game where there is a large cabinet with five holes in its top and the player wields a large mallet. Once the game begins, the moles begin to pop out of their holes at random and the object is to force them back into their hiding place by hitting them directly on the head with the mallet. More hits on the head earn more points and the quicker all moles are dispatched, the higher the final score and the game is finished (Source is Wikipedia).
[43] The proliferation in scams and frauds of various types has increased substantially in recent years and to generate a profit for the con artists, people with higher incomes who have had substantial income tax withheld at source are the targeted group. It is difficult to believe that otherwise intelligent people in responsible positions in work - and in life generally - can be taken in by these crooks but there is a mob mentality that pervades the recruitment meetings and the resultant group non-think develops into a consensus and these outrageous concepts are accepted without question. Once along the path, there seems to be little or no thought of withdrawing from a program pitched to them earlier by the crooks or of asking for help from an independent source or of searching on their own for an escape route. Instead, they follow their dishonest gurus to the bitter end until they disappear, at which point the hurting truly begins. The financial hardship and stress on victims of these fraudulent schemes is cruel and can cause extreme damage and even destroy careers, lives, marriages and families. Human nature being what it is, there will always be con artists and no shortage of potential victims ready and eager to obtain the golden ticket to wealth but there has to be better detection techniques put into place by CRA as soon as possible to reduce the incidence of these tragedies. Perhaps, it is already underway. I hope so.
Unfortunately for Ms. Wynter her appeal against a gross negligence penalty for claiming a fictitious business loss of $447,148.31 in her 2009 taxation year was dismissed with costs fixed at $1,200, inclusive of disbursements.