Bailey v. R. - TCC: Penalties for late filing modified in part

Bailey v. R. - TCC:  Penalties for late filing modified in part

Bailey v. The Queen (February 13, 2017 – 2017 TCC 24, V. Miller J.).

Précis:   Mr. Bailey was assessed late-filing penalties of  $11,817.32 and $710.58 under subsection 162(2) of the Income Tax Act (the “Act”) for his 2010 and 2012 taxation years.  The Court affirmed the 2010 penalty on the evidence but in the case of the 2012 penalty held that the Crown did not demonstrate that a demand letter was sent to Mr. Bailey in order to justify a larger penalty under subsection 162(2).  The Court however found that the evidence justified a smaller penalty under subsection 162(1) for 2012.  Thus the appeal for 2010 was dismissed and the appeal for 2012 was allowed to delete the subsection 162(1) penalty and impose a smaller penalty under subsection 162(1).  There was no order as to costs since this was an informal procedure appeal.

Decision:   The Court’s decision was summarized as follows:

[17]        It is my view that Ms. Abesamis’ testimony did not satisfy the Respondent’s burden of proving that a demand letter was sent to the Appellant for his 2012 year. Rather, it begs the question.

[18]        The Respondent ought to have brought evidence similar to that described by Bowman J. at paragraph 23 in Schafer v R, [1998] GSTC 60. He wrote:

23        In a large organization, such as a government department, a law or accounting firm or a corporation, where many pieces of mail are sent out every day it is virtually impossible to find a witness who can swear that he or she put an envelope addressed to a particular person in the post office. The best that can be done is to set out in detail the procedures followed, such as addressing the envelopes, putting mail in them, taking them to the mail room and delivering the mail to the post office.

[19]        Justice Bowman’s observations were approved by Rothstein J.A. in Kovacevic v The Queen, 2003 FCA 293 at paragraph 16. He stated:

16        I accept that when legislation requires that documents be sent by a large organization such as a government department by ordinary mail, but does not require registered or certified mail or evidence of a more formal means of sending, the observation of Bowman J. in Schafer is reasonable. Generally, it would be sufficient to set out in an affidavit, from the last individual in authority who dealt with the document before it entered the normal mailing procedures of the office, what those procedures were.

[20]        However, this is not the end of the matter. In its Amended Reply, the Respondent relied on the alternative ground that the Appellant is liable for a penalty in respect of subsection 162(1) for his 2010 and 2012 taxation years.

[21]        The Appellant admitted that he failed to file his 2012 return as and when required by subsection 150(1) of the Act and that there was unpaid federal tax when the 2012 income tax return was required to be filed.

[22]        There was no evidence to demonstrate that the Appellant exercised due diligence in 2010 or 2012. In fact, the contrary was true. The Appellant stated that when he received the “brown envelopes” from the CRA, he didn’t open them. He tossed them into a container until the Minister seized funds from his bank account. It was only then that he took his documents to his accountant to have his tax returns prepared.

[23]        The appeal for the 2010 taxation year is dismissed. The appeal for the 2012 taxation year is referred back to the Minister for reconsideration and reassessment on the basis that the Appellant is liable for penalty pursuant to subsection 162(1) of the Act.