http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/127250/index.do
Taylor v. The Queen (December 18, 2015 – 2015 TCC 335, Masse D.J.).
Précis: The only issue in this case was the propriety of levying gross negligence penalties where the taxpayer claimed fictitious business losses. As in many prior cases the court sustained the penalties.
Decision: This case is yet another example of the well known cautionary mantra about the dangers of claiming fictitious business losses:
[4] In 2006, the Appellant became involved with a financial advisory group called DSC Lifestyles (“DSC”). He attended weekly meetings with DSC. He says that his involvement with DSC was educational, more than anything else. It was also a place for him to make some connections and socialize. DSC also offered investment and business opportunities. In the past the Appellant acted upon advice provided by DSC and made donations to the Global Learning Gifting Initiative (“GLGI”) in the amount of $24,506 for the 2006 taxation year. This donation has since been disallowed by the CRA and, according to Lorraine DuPont, senior office auditor for the CRA, the reassessment disallowing this donation was in July 2009, prior to the Appellant filing his 2009 tax return, so he knew prior to May 2010 when he filed his 2009 return that the CRA was questioning some of his prior deductions.
[5] The Appellant testified that DSC came up with a proposal that would maximize his tax refunds. No one explained to him how the tax savings scheme worked. He provided all the information that DSC requested of him to allow them to prepare his return. He did not find out until after the fact that an organization known as Fiscal Arbitrators, not DSC, had prepared his 2009 tax return and a request for loss carryback to the 2006, 2007 and 2008 taxation years.
[6] In May 2010, Mr. Taylor got a call from Janet Perry, a DSC associate, who told him that his tax return for 2009 was ready to be picked up. He met with Ms. Perry in order to sign his return. Mr. Taylor signed his 2009 tax return (Exhibit R‑1, Tab 3) together with a request for loss carryback to the years 2006, 2007 and 2008 (Exhibit R-1, Tab 2). He signed these documents in front of Ms. Perry and there was no discussion about the tax return or the request for loss carryback. He did not review these documents before signing since he claims that he had a relationship with DSC for the past four years and he had no reason at all not to trust them. He then filed his return. At the time he picked up his return, he was presented with an invoice which indicated total fees of $10,302.98 in relation to the total tax refunds of $38,639.88 for the 2006, 2007, 2008 and 2009 taxation years (Exhibit A-1, Tab 21, page 51). This invoice mentions Trem-Dy Group Inc. and Fiscal Arbitrators, but nowhere mentions DSC. This certainly should have alerted the Appellant that DSC was not the tax preparer. The Appellant testified that he was expecting $18,000 as a refund for 2009 but in the past he got sometimes $13,000 or $14,000 so he was not surprised at the amount since it was in the range that he received in previous years. However, knowing that he was expecting refunds totalling more than $38,000 and that he would have to pay fees of more than $10,000, and not knowing any of the details of the tax return or how it was that he should expect such a significant refund, he signed the return and sent it in anyways.
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[57] There is no doubt that the Appellant’s 2009 tax return and his request for loss carryback contained false statements — the Appellant did not carry on a business and he did not incur any business losses whatsoever, let alone business losses exceeding $244,000. I can come to no other conclusion than that the Appellant was wilfully blind and grossly negligent as to the falsity of these statements. This is especially so since he signed his return and thus certified the accuracy of the information contained therein without bothering to make any efforts to verify the return’s accuracy. As such, he is properly subject to the penalties imposed on him pursuant to subsection 163(2) of the Act.
[58] I have much sympathy for the Appellant. He and his wife are good people of modest means who were taken in by unscrupulous people. However, he should have known better, given all of the circumstances, and all of this could have been avoided had Mr. Taylor simply taken a look at the information contained in his return. These penalties are very harsh and will undoubtedly cause much hardship to this family. I wish I had the authority to alleviate the harshness of these penalties, but unfortunately I do not. The only question I can decide is whether the penalties are well founded or not.
[59] The Court draws to the Appellant’s attention the fact that a waiver of the penalty and interest may be sought from the CRA pursuant to the taxpayer relief provisions in subsection 220(3.1) of the Act. This Court has no role to play in relation to such applications and it should be made clear that a waiver of penalty and interest lies entirely in the discretion of the Minister. Such an application is made to the CRA; the CRA publishes an information circular (IC07-1) as well as a form (RC4288) for making taxpayer relief applications.
[60] For all the foregoing reasons, this appeal is dismissed. The Respondent is entitled to her costs if she wants them.