Phillip v. R. – TCC: Gross negligence penalties sustained against single mother claiming child care expenses

Phillip v. R. – TCC:  Gross negligence penalties sustained against single mother claiming child care expenses

Phillip v. The Queen (February 13, 2019 – 2019 TCC 37, Monaghan J.).

Précis:   Ms. Phillips claimed child care expenses in the years 2003 through 2007 (the notices of reassessment were issued in 2009 but did not come to trial until late in 2018).  The expenses were in respect of one of her children, Matthew, who was 3 years old in 2003 and 8 years old at the end of 2007.  Her evidence was that she had a babysitter she paid in 2003-2005 named Christian Richards and in 2006 and 2007 she hired her nephew, Kevin Phillip, to provide child care. Neither individual was called to testify, although three of her older children did testify in her support.  The amounts claimed were modest, ranging from $5,245 in 2005 to $1,067 in 2007.  Ms. Phillips had modest means since these deductions ranged from approximately 19% to approximately 28% of her annual income (she worked as a a packer with Georgia Pacific until she was injured in 2006 and went back to school for retraining).

The Court denied any deduction for child care, allowed the opening of statute barred years (2003-2005) and imposed gross negligence penalties in each taxation year. 

Decision:   The Court’s approach was black letter:


[20]  She did not keep records. She said Mr. Richards and Mr. Phillip did not keep records, and frankly I would have been surprised if they had, given the arrangements Ms. Phillip described. Yet somehow they could remember at the end of each year how much she paid them and give her a receipt and she was satisfied, based on her bank records, that the receipt was correct. With respect, no matter how good one’s memory is, it is not credible that a person who paid (or was paid) varying amounts, at irregular intervals over the course of 12 months could, at the end of that 12-month period, without any records, remember how much was paid.

[21]  Even her description of the caregiver’s hours didn’t ring true – if she knew her work schedule a month in advance why would she have to call them to come? Why wouldn’t there be a schedule that matched hers, at least in 2003, 2004 and 2005 when she was working full-time and in 2007 when she was in school? Yet Ms. Philip gave an example of calling Mr. Richards and asking him to come because she was busy dressing for work and he would tell her he would be there in a half hour.

[22]  Indeed, I find it hard to believe that a teenage daughter living with Ms. Phillip provided no assistance with Matthew, not to mention a daughter and son who lived nearby, notwithstanding their own commitments and schedules. Yet Ms. Philip said none of her children ever helped take care of Matthew. Ms. Phillip would have me believe that two young men would be prepared to give up ten evenings every month, not to mention mornings and afternoons on another ten days a month, for two years in the case of Mr. Phillip, and three years in the case of Mr. Richards, for whatever amounts she could pay them, when she was able to pay them, while a teenage daughter who lived with her, and two of her adult children who lived five minutes away, never helped with childcare because they were too busy. I am sorry, but that is not credible.

The Court did not accept the Crown’s pleading on the issue of gross negligence:

[33]  In assessing Ms. Phillip beyond the normal reassessment period, the Minister relied on a number of assumptions of fact, but called no witnesses and tendered no evidence, relying on the evidence of Ms. Philip and her witnesses. The Minister’s assumption of facts included that:


  1. the 2003-2007 tax returns were prepared by tax preparers charged with defrauding the Government of Canada of income tax revenues in excess of $5,000 in respect of charitable donation claims made by them on behalf of their clients and that those tax preparers pleaded guilty to those charges; and


  2. the Appellant sought out and retained the tax preparer because of their reputation for getting their clients large refunds.


Nevertheless Justice Monaghan sustained the imposition of gross negligence penalties:

[43]  I am satisfied that the amounts claimed for childcare expense by Ms. Phillip were false and that she participated in the making of the false statement. She told the tax preparer what the expense was. This was not a case where Ms. Phillip made a modest error computing or estimating her childcare expense. She was not paying a fixed amount on a periodic basis and basing a claim on an estimate. Her testimony was that the amounts she claimed were the amounts she paid as calculated by Mr. Richards and Mr. Phillip and verified by her. But her explanations for how she knew the amounts were correct, did not ring true. No one maintained records to substantiate the amounts and I am far from satisfied she had any receipts before 2009. In the circumstances, particularly given her testimony about the payment arrangements, this is at least gross negligence. Accordingly, I am satisfied gross negligence has been established, and therefore Ms. Phillip is liable for the gross negligence penalties assessed by the Minister.


[44]  I accept that Ms. Phillip needed childcare for Matthew so she could work and go to school. I am even prepared to accept that she may have relied in part on Mr. Phillip and Mr. Richards to provide some of that childcare. However, I am not at all satisfied that they were the only or even primary caregivers, that they provided nearly as much childcare as she claims they did, or that she paid them anything close to the amounts she claimed she did.

Thus Ms. Phillip’s appeal was dismissed.  There was no order as to costs since this was an informal procedure appeal.

Comment:  The Crown’s pleadings set out above appear to be extremely prejudicial, if not actually scandalous.  They appear to have been lucky not to have been sanctioned with a costs award, or worse.