Arbuckle v. R. – TCC: Gross negligence penalties upheld in “Detax” program

Arbuckle v. R. – TCC:  Gross negligence penalties upheld in “Detax” program

Arbuckle v. The Crown (September 18, 2017 – 2017 TCC 181, Paris J.).

Précis:  The taxpayer, an employee of the Government of Ontario, claimed business losses of $209,664.62 and $167,111.43 in 2008 and 2009, respectively.  The losses were part of a “Detax” plan recommended by her tax preparer, Mr. Rasool.  CRA denied the losses and imposed gross negligence penalties.  The Tax Court rejected much of the taxpayer’s evidence, particularly the suggestion that the losses were added to the returns after she had signed them and without her knowledge.  As a result the gross negligence penalties were sustained and the appeal was dismissed with costs to the Crown.

Decision:   This case shares many elements of the various “tax protest” cases seen in recent years:

[15]         In December 2008, the Appellant met with Rasool to discuss another program he was promoting for the 2008 taxation year, which she said he called the “Detax” program. The Appellant testified that she met Rasool at the home of her friend, Jolaine Guignard, who was also interested in participating in the program. During the meeting, which the Appellant said lasted a couple of hours, Rasool explained to them that there was a loophole in the Income Tax Act that would allow them to get a large tax refund because of an account held by the Canada Revenue Agency (the “CRA”) for each person born in Canada. He said that every baby born in Canada had a serial number on the back of his or her birth certificate that relates to an account number with the government and that the account was opened by the CRA and that money was put into it and that the government was earning interest on the money. He said that people could withdraw money from this account against their income to receive a refund every year but that nobody knew about the loophole and no one claimed the refunds. The Appellant also understood from Rasool that the loophole was based on each person having two separate identities from the time of birth. She testified that Rasool convinced her and Guignard that they could get a large tax refund as a result of the loophole.

The letter the taxpayer sent to CRA in response to its initial inquiries about the losses is also illustrative:

[24]         Rasool provided a letter to the Appellant to send to the CRA in response to the request for information and she signed it and faxed it to the CRA on December 11, 2009. That letter contained typical Detax language, including statements that the Appellant was “not a ‘person’ in Canada, nor in a Province, and thus, not subject to any laws of Canada” , that “JENNIFER ARBUCKLE is a fictional entity with no physical body or mind”, that she was “a free will adult man” and that:

All assets and property held in the name of JENNIFER ARBUCKLE, or any variation of that name thereof, the trustee in trust and agent in commerce are for, are the property under claim in equity of the free will adult man, commonly called Jennifer of the Arbuckle family, the principal and beneficiary of the said trust.

The Court did not accept the taxpayer’s evidence that she had been duly diligent and had been duped by Mr. Rasool:

[51]         I do not accept counsel’s suggestion that the false business loss claims and loss carry back requests were added by Rasool after the Appellant reviewed and signed her 2008 and 2009 tax returns. There is little credible evidence upon which to draw the conclusion that Rasool altered the returns without the Appellant's knowledge.

[52]         First, the Appellant herself admitted that she paid little attention to what was in the returns when she reviewed them. She flipped quickly through the pages and apparently only stopped at the places where she needed to sign. Also, the fact that she signed the loss carry back request forms that were attached to both her 2008 and 2009 returns directly contradicts her statements that she had not seen those forms. Therefore her testimony that she did not recall seeing the business loss claims and related statements, or the loss carry back requests before her returns were filed carries little weight.

[53]         It also seems to me, that if the Appellant had not seen the business loss claimed on her 2008 return, she would have brought this up to Rasool after receiving the November 13, 2009 CRA letter questioning the business loss claim. In court, the Appellant was clear that she had never carried on a business, and there was no suggestion that she did not know what a business was when she signed the returns in issue, and I infer that she knew when she received the November 13, 2009 letter that she had not carried on a business in 2008. However, in her email to Rasool attaching the CRA letter, she does not express concern or surprise that a business loss had been claimed, nor does she suggest that it had been done without her knowledge.

[54]         I would have expected that, if the Appellant had been unaware of the business loss and loss carry back requests made in her 2008 return, she would have brought it to the attention of the CRA as soon as she found out. Instead, it appears that she proceeded to have Rasool prepare her return for 2009 in the same manner as he had done for 2008. The Appellant’s testimony that there was little discussion of the Detax program between herself and Rasool when she met with him in December 2009 seems hard to reconcile with her recently having learned that he had claimed business losses in her return without her knowledge.

[55]          Finally, there was no evidence to show that, prior to the hearing, the Appellant had ever represented that Rasool had altered her returns after she signed them. I note that, in a letter to the CRA written by the Appellant's representative in the course of the objection process, the representative stated that “the company Detax, who originally prepared Jennifer Arbuckle’s 2009 tax return assured Ms. Arbuckle that the business venture she was claiming was legal.” This is clearly inconsistent with the Appellant's position with the losses were claimed without her knowledge.

[56]         In addition to the difficulty I have accepting the Appellant’s testimony that she believed that the loss claims were added to her return without her knowledge, other inconsistencies between her testimony and that given by her father and by Ms. Guignard lead me to question the reliability of the Appellant’s testimony generally concerning her investigations into Rasool and the programs he was promoting. I find it difficult to accept her assertions that she repeatedly searched Rasool’s name on the internet. This would appear to show that the Appellant was suspicious of Rasool throughout the period in issue, but is inconsistent with her blind acceptance of the explanation he gave concerning the secret account linked to her birth certificate. It is also inconsistent with the Appellant’s assertions that she had no reason not to trust Rasool when he prepared her returns.

As a result the gross negligence penalties were sustained and the appeal was dismissed with costs to the Crown.