Bilodeau v. The Queen
(June 30, 2014 – 2014 TCC 210, Jorré J.).
Précis: The taxpayer was convicted of fraud for amounts taken from her employer. CRA added $20,006 to her income for 2005 and $43,175 to her income for 2006 with respect to the amounts taken. In the Tax Court she disputed the quantum of the amounts she had taken. The Court made adjustments of $3,300 in 2005 and $11,560 in 2006. It sustained the imposition of penalties and the opening of statute barred years in light of her wilful fraud. Costs were awarded to the Crown.
Decision: This is a example of some of the factual difficulties associated with assessments of income derived from the proceeds of crime:
 The appellant worked as a controller for Hôtellerie CÉPAL from May 2005 to September 2006. She was responsible for CÉPAL’s accounting, and her duties were balancing the till, making accounting entries for sales, preparing deposits, paying suppliers and maintaining books and records.
 During that period, the appellant had drug and compulsive gambling problems.
 On May 28, 2008, the appellant pleaded guilty to a charge of fraud over $5,000 under the Criminal Code with regard to amounts taken from CÉPAL. The evidence does not show that there was agreement as to the amount of the fraud at the criminal proceedings stage.
 The respondent added $20,006 for 2005 and $43,175 for 2006 to the appellant’s income. According to the respondent, these are amounts that the appellant had taken from CÉPAL in 2005 and 2006. The respondent imposed penalties under subsection 163(2) of the Income Tax Act.
 The assessment for the 2005 taxation year was made after the normal reassessment period.
 The appellant does not dispute that she appropriated money belonging to CÉPAL and admits that amounts totalling $13,804 were taken in 2006. However, she disputes the amounts added for 2006 beyond $13,804 as well as all of the amounts added for 2005.
 Therefore, this is a quantum issue; it is not disputed that the stolen amounts are taxable.
 The difficulty in this case is that, on the one hand, the appellant has not kept separate accounting records of the amounts that she appropriated and, on the other hand, given that the amounts taken were not recorded as such in CÉPAL’s accounts, someone needed to try to analyze CÉPAL’s accounts to determine the amounts that the appellant had stolen from the company.
In the course of quite a lengthy decision (115 paragraphs) the Court dealt with multiple arguments by the taxpayer in her effort to lessen the amount of the income inclusion. These were, for the most part, unsuccessful. Similarly her arguments that the 2005 taxation year was statute-barred and against the imposition of gross negligence penalties were not accepted:
Assessment outside reassessment period and penalties under subsection 163(2) of the Income Tax Act.
 The assessment for the 2005 taxation year was made outside of the normal reassessment period. There is no doubt that the Minister validly assessed with respect to 2005 under subparagraph 152(4)(a)(i) of the Act, which sets out two conditions with regard to assessments outside the normal reassessment period:
(a) the taxpayer has made a misrepresentation
(b) attributable to neglect, carelessness or wilful default.
 With regard to the first condition, there is a misrepresentation because the appellant failed to report substantial amounts of income in 2005.
 As for the second condition, the amounts involved are significant and, in light of the evidence, it is impossible to find that the appellant did not know that she had stolen the amounts in question. Accordingly, there was a wilful default.
 With regard to the penalties for gross negligence set out in subsection 163(2) of the Act, which were imposed for both years, there are two conditions:
(a) the taxpayer has made a false statement or omission
(b) knowingly, or under circumstances amounting to gross negligence.
 With regard to the first condition, there can be no doubt that there was a false statement or omission as the appellant failed to report substantial amounts of income.
 With regard to the second condition, the amounts in question are significant and the appellant knew that she had stolen them from her employer. In these circumstances, the omission was made knowingly.
 In conclusion, limited adjustments should be made to the assessments. These adjustments are as follows:
(a) For 2005, the appellant’s income should be reduced by $2,500 to take into account the discrepancy resulting from traveller’s cheques.
(b) For 2005, the appellant’s income should be reduced by $800 to take into account additional cash deposits.
(c) For 2006, the appellant’s income should be reduced by $9,060 to take into account the impact of cashing Sylvain’s paycheques.
(d) For 2006, the appellant’s income should be reduced by $2,500 to take into account traveller’s cheques.
 With respect to costs, given that the result is much more favourable to the respondent than to the appellant, the appellant shall pay the respondent’s costs in accordance with the Tariff.