Date: 20001122
Docket: 95-3156-IT-I
BETWEEN:
ANTHONY FOREMAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Rip, J.T.C.C.
[1] Anthony Foreman, the appellant, appeals from an assessment for 1990 in which the Minister of National Revenue ("Minister") disallowed the appellant a loss of $29,854 from a purported chartered boat business. The Minister also assessed the appellant a penalty pursuant to subsection 163(2) of the Income Tax Act ("Act") since the appellant knowingly, or under circumstances amounting to gross negligence in carrying out the duty or obligation imposed under the Act made or participated in, assented to or acquiesced in the making of false statement or omission in the income tax return filed for the 1990 taxation year, as a result of which the tax that would have been payable on the information provided in the appellant's income tax return filed for 1990 was less than the tax in fact payable by the amount of $8,070.30.
[2] The Minister has also alleged that the expenses claimed by the appellant are not reasonable and therefore, in accordance with section 67 of the Act, are not deductible in computing income.
[3] The appellant has also asked the Court for relief from the payment of interest on tax payable under the assessment for 1990 since the time taken to reassess him was excessive. The appellant was apparently assessed tax for 1990 by a notice of assessment dated September 9, 1991 and reassessed on April 19, 1993. I do not find that the time taken to reassess was excessive and, in any event, there is no authority for me to relieve Mr. Foreman of paying interest on the facts before me.
[4] Since the Minister assessed Mr. Foreman a penalty under subsection 163(2) of the Act, the Minister has the burden of establishing the facts justifying the assessment of the penalty. Counsel for the respondent called Mr. Foreman as his witness.
[5] Mr. Foreman is a retired police officer and during the year in appeal worked with the Metropolitan Toronto Police Force.
[6] In filing his 1990 tax return, Mr. Foreman reported income of $56,000 from his employment and $4,388.89 as a withdrawal from his Registered Retirement Savings Plan ("RRSP"). He also reported gross income of $4,105 from a chartered boat operation that was called "Gemini Charters". Net loss from the operation of Gemini Charters in 1990, after expenses, reported on Mr. Foreman's income tax return was $29,853.
[7] Gemini Charters was registered with the appropriate provincial Ministry. Mr. Foreman stated that he started operating Gemini Charters in Spring, 1990. He intended to take people fishing on Lake Ontario and on Lake Simcoe on a 20-foot Searay boat he purchased in 1987. The boat did not have a toilet. The boat was used for pleasure by Mr. Foreman during 1987, 1988 and 1989. In 1990, he stated, he used the boat for both pleasure and business. He had no recollection at trial on how many occasions in 1990 the boat was used for business except that the boat was used "at least once a week and once on a weekend". However, he also recalled that because of shift work for the police some weeks he did no charter business. The length of the fishing season was from May to late October.
[8] The charge for the charter was ten dollars per person per hour for an eight-hour day. Usually between two and four people were on a charter.
[9] Mr. Foreman's personal bank account was used for both Gemini Charters and his ordinary day-to-day expenses. He recalled that he gave a receipt to his customers and kept a copy of the receipts in a receipt book. He did not give a copy of the receipts to the auditor when the tax authority audited him in mid 1992 since, he said, the receipt book was included in his tax return and that he had no duplicate copies.
[10] Respondent's counsel, Mr. O'Donnell, reviewed the statement of income and expenses that were included in Mr. Foreman's income tax return for 1990. Gemini Charter's cost of sales was $3,205.31 and his gross profit was $899.29. Mr. Foreman had selling, general and administration expenses of $30,753. Mr. O'Donnell questioned him as to his source of funds to support his expenses since his income in 1990 from his employment and the RRSP withdrawal was approximately $60,000. Mr. Foreman replied that the accountant "determined" the figures. He himself could not answer. He said that he is not an accountant and that he does not understand such matters. Mr. O'Donnell asked what type of work clothing Mr. Foreman acquired for $489.75 in 1990. The appellant could not answer. Mr. Foreman also claimed interest expenses of $1,000 but did not know of any business or other loan he had outstanding in 1990.
[11] Mr. Foreman also claimed advertising expenses of $2,324. He testified that his sole advertising was in an internal magazine of the Metropolitan Toronto Police Force, "News and Views", and flyers that he circulated to various police stations in Metropolitan Toronto. The advertisements in News and Views were what are usually called "tombstone" advertisements, about one-eighth of a page, containing Mr. Foreman's name and telephone number, the name of the purported business and the type of boat and radio. The flyers were copies of a page containing information that Gemini Charters was "accepting bookings for fishing, etc." and Mr. Foreman's name and telephone number. Mr. Foreman could not recall how much he paid for advertising. He said that the advertisements in the magazine ran for three months; News and Views is published monthly. He also printed out business cards for Gemini Charters which were similar to the "tombstone" advertisements. When Mr. O'Donnell asked him how he could substantiate advertising being more than 50 per cent of the gross revenue of Gemini Charters, Mr. Foreman had no answer. He said that he is not an accountant.
[12] Mr. Foreman also claimed depreciation on a 1991 Chevy Blazer that he acquired in the summer of 1990. He said that he drove the car to and from work as a police officer and also to go from work to the boat. He did not keep a log of kilometres driven and he could not "estimate" what proportion of use of the Chevy Blazer was for business and what portion was personal. He stated that he had absolute faith in his accountant to make this decision.
[13] Apparently there was great animosity between Mr. Foreman and his representative on one hand and officials of Revenue Canada on the other hand. Thus, when Revenue Canada wrote to Mr. Foreman on September 10, 1992 asking him to provide any additional information with respect to his income tax return within ten days, he did not reply to the letter. Mr. Foreman said that he had no faith in Revenue Canada. He also stated that much of the material he gave to Revenue Canada was not returned to him notwithstanding the contents of the receipt signed by Revenue Canada when it seized the material and the receipt signed by Mr. Foreman when material was returned to him by Revenue Canada.
[14] Mr. Foreman informed Mr. O'Donnell that he was not surprised that he was entitled to a refund of $7,416. for 1990. He said that he had complete faith in his accountant, Ms. Job. Mr. Foreman's view was that if the accountant thought that was what he ought to receive he was content. The business of bookkeeping and tax preparation was carried on by a corporation and Ms. Job was its principal shareholder. Many of Mr. Foreman's colleagues used this accountant and referred Mr. Foreman to her. He never asked Ms. Job for her background or professional designation, if any.
[15] Giving his own evidence, Mr. Foreman indicated that in 1990 he had two sons out of work who helped him carry on Gemini Charters. One son was age 20 the other 25 years. He anticipated that with their assistance he would be able to create a business and he anticipated acquiring a larger boat with washroom facilities, for example.
[16] Mr. Foreman indicated that he had no idea how much money he lost from the Gemini Charters in 1991. He stated that in 1991, his family experienced difficult times.
[17] Mr. Foreman was unable to adduce any evidence that in 1990 he carried on a business. I found his testimony to be less than truthful. To accept Mr. Foreman's evidence would require me to find that he had no idea at all what his income and expenses were in 1990. I would have to accept evidence for example, that the taxpayer, a former police officer in a major Canadian city, did not know if he had any outstanding loan and could not inform me the amount of his advertising expenses in 1990. Anything his accountant suggested was alright with him even though it was he who contracted for, and presumably paid the expenses, including the costs of advertising. He let his accountant not only calculate but also determine his expenses. Mr. Foreman could not inform me how many charters he had in 1990, or what proportion of the use of the boat was for business. He replied the accountant "determined" the amounts. Mr. Foreman's attitude was that a taxpayer need not concern himself or herself with any of his or her income or expenses; this is a job best left to the accountant.
[18] An accountant does not "determine" expenses. Expenses are generally incurred before the accountant comes on the scene. The accountant's client provides the accountant with his or her expenses and income receipts. Hopefully the expenses and receipts have been recorded by the taxpayer over the year and is supported by receipts or other proof. The accountant then puts the taxpayer's income and expenses in order and prepares the necessary financial statements. It is the client, in this case, the appellant, who has knowledge of his affairs. The accountant only knows the information the client informs him or her about. If the accountant goes off on a lark of his or her own, the client, where the amounts are quite different from what the accountant was given, should be aware and make corrections. For a person such as Mr. Foreman to simply give his books and records, whatever they were, to the accountant to prepare his tax return and then absolve himself of any responsibility for the tax returns is a reckless abandonment of any responsibility of any duty or obligation imposed by the Act.
[19] Mr. Foreman was happy to learn he would get a tax refund for 1990 and did not inquire how or why. Ms. Job, he said, explained what she did but, Mr. Foreman said, he did not understand her. I cannot accept his explanation.
[20] The penalty assessed to Mr. Foreman is in order. He knowingly or under circumstances amounting to gross negligence, in carrying out a duty or obligation imposed under the Act made or participated in, assented to or acquiesced in the making of a false statement in his 1990 income tax return and as a result of which his return indicated the amount of tax he had to pay was in fact $8,070.30 less than he ought to have been assessed, and payable on May 1, 1991.
[21] This is not a case where any error is attributable only to the accountant, as in Udell v. M.N.R.[1] In Udell, the taxpayer kept meticulous records in an account book and gave the book to his accountant to prepare his tax return. Complete and accurate records were given to the accountant. Certainly, this is not the situation at bar. Mr. Foreman was privy to any gross negligence of Ms. Job. He knew – or was in a position to know – that the tax return had errors. Mr. Foreman was indifferent as whether the Act was complied with or not, so long as he got a refund.[2]
[22] Mr. Foreman did not submit any evidence to establish that the expenses he claimed were actually incurred by him in a business or otherwise. Ms. Job was in Court during the appeal. Mr. Foreman could have called her as a witness to explain how she prepared his tax return and what material she relied on to claim the expenses. She was not called and I infer that she could not substantiate the claims. Also, absent the dispute concerning the legitimacy of the expenses, there is no evidence before me on which I could reasonably conclude Mr. Foreman was carrying on a bona fide business in 1990. I do not know how many charters he had and how he operated the charters, among other things. I do have evidence of advertising but this alone does not lead me to conclude that Mr. Foreman carried on a business.
[22] The appeal is dismissed.
Signed at Ottawa, Canada, this 22nd day of November 2000.
"Gerald J. Rip"
J.T.C.C.