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Docket: 2004-104(IT)I |
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BETWEEN: |
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PAUL GAGNON, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN,
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Respondent. |
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Appeal heard on June 5, 2004 at Calgary, Alberta
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By: The Honourable Justice Gerald J. Rip |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
John Paul Hargrove |
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JUDGMENT
The appeal from the assessment of tax made under the Income Tax Act for the 2001 taxation year is dismissed.
Signed at Ottawa, Canada, this 29th day of July, 2004
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Rip, J
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Citation : 2004TCC530 |
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Date : 20040729 |
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Docket: 2004-104(IT)I |
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BETWEEN: |
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PAUL GAGNON, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN,
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Respondent. |
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REASONS FOR JUDGMENT
Rip J.
[1] Paul Gagnon appeals from a penalty assessed against him pursuant to subsection 163(2) of the Income Tax Act ("Act"). The Minister of National Revenue assessed the penalty on the basis that Mr. Gagnon failed to include in his income for 2001 a dividend in the actual amount of $75,000 which, grossed up in accordance with subsection 82(1) of the Act, is $93,750.
[2] The Crown imposed the penalty for several reasons, stated Ms.Sharon Batshaw, an auditor for Canada Customs and Revenue Agency (CCRA), who audited Mr. Gagnon's tax return and recommended the penalty. Mr. Gagnon's income in 2001, excluding the dividend, was $209,000 and the omission represented a substantial portion, over 30 per cent, of his total reportable income. The appellant was an experienced businessman who in the past had reported dividends from the corporation in question, Joli Fou Petroleum Ltd. . The dividend was recorded in the corporation's books of account. Both directors of the corporation, Mr. Gagnon and his wife, passed the resolution on January 16, 2001 authorizing the payment of the dividend on January 31, 2001, the corporation's year-end. Mr. Gagnon signed the corporation's tax return and his personal tax return for 2001.
[3] Ms. Batshaw described Mr. Gagnon as a knowledgeable taxpayer, someone who at one time advised persons how to claim business losses for tax purposes. Mr. Gagnon also was alleged to have made several transfers of property electing to defer gains in accordance with subsection 85(1) of the Act. He also negotiated the tax treatment of Federal oil and gas issues with CCRA, she said. In short, Ms. Batshaw considered Mr. Gagnon to be an experienced businessman versed in at least some tax matters.
[4] Mr. Gagnon's position is clear and simple. He does not deny the allegations of the Crown: the dividend was paid to him in 2001 and he did not report the dividend in his 2001 income tax return.
[5] He explained that on March 8, 2001 the corporation's erstwhile bookkeeper left the corporation's employ. However, before leaving, the bookkeeper made a note on a file that a form T5 should be issued to Mr. Gagnon. The bookkeeper did not send out the form T5 to Mr. Gagnon. The bookkeeper's replacement did not notice the note on the file and no form T5 for 2001 was issued to Mr. Gagnon by Joli Fou Petroleums Ltd. in respect of the dividend of $75,000. When he signed his 2001 tax return in April 2002, Mr. Gagnon "overlooked" the receipt of the dividend when he reviewed the return and signed the certificate on his tax return.
[6] Mr. Gagnon's 2001 tax return was prepared by a chartered accountant. Mr. Gagnon stated that the return had 59 attachments (which included 47 receipts from registered charities). Because of the time elapsed from the receipt of the dividend in January 2001 to the preparation of his tax return in April 2002, coupled with the "complexity" of the return with a large number of attachments, there was, he claimed, "an understandable oversight" and no penalty ought to have been assessed. As soon as Ms. Batshaw informed him of the omission of the dividend, which was when he first became aware of the error, he cooperated fully with CCRA and provided the Agency with all the documentation requested. Subsection 163(2) provides:
Every person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, ... filed or made in respect of a taxation year ... is liable to a penalty of 50% ...
[7] On the evidence before me I am satisfied that Mr. Gagnon did not "knowingly" omit to include the "grossed up" amount of the dividend in his 2001 tax return. On the other hand, I am satisfied that the omission was due to Mr. Gagnon's negligence. The issue before me is whether the omission amounted to "gross negligence".
[8] Mr. Gagnon suggested that he was being held to a higher standard than CCRA itself. He produced two Notifications of Confirmation of the penalty issued to him by CCRA. One notification was a replacement of a prior notice. The first Notification of Confirmation states he is liable for a penalty of $4,516 and the latter notification states he is liable for a penalty of $7,343.82. The Minister, Mr. Gagnon argued, obviously made an error and if the Minister can err, a taxpayer should not be held to a standard that does not tolerate an error.
[9] Strayer J. defined "gross negligence" as follows:
"Gross negligence" must be taken to involve a greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not.[1]
[10] Mr. Gagnon's reason for not reporting the dividend is that he did not receive a T5 form from the corporation, and in any event it was over a year from the receipt of the dividend in January 2001 to having to report the dividend income when filing his return of income for 2001 in April 2002.
[11] It is not the receipt of the T5 form that triggers income; it is the receipt of the dividend. A payor corporation may, for whatever reason, fail to issue a T5 form to a shareholder but the shareholder is still liable to report the amount (grossed up) of the dividend, for the taxation year he or she received the dividend. Similarly, if a Canadian resident receives dividend income in the year from a corporation resident in a jurisdiction other than Canada, for example, the United States, the Canadian resident must include the amount of the dividend (in Canadian funds) in income for the year in his or her Canadian income tax return. The Canadian resident taxpayer would not have received a T5 form from the U.S. corporation although the U.S. corporation may have sent the taxpayer a U.S. tax form that is analogous to a T5 form.
[12] Depending on circumstances, one may excuse an omission of dividend income in a taxpayer's income tax return where the amount of the dividend is modest, relative to the taxpayer's total income or where no T5 form was received by the taxpayer. But in the case at bar the amount of the actual dividend - let us ignore for the moment the amount of "grossed up" dividend - was approximately 37 per cent of Mr. Gagnon's declared income and over 25 per cent of income that he ought to have reported.
[13] I do not find that the failure of the corporation, a corporation in which the appellant is the sole shareholder, to send to the appellant a T5 form is an oversight or "good" reason for the omission or the amount of the grossed up dividend in his declared income. Even with time, the amount of the dividend ought to have struck a cord with Mr. Gagnon when he reviewed and signed his tax return. The omission of an amount of income by Mr. Gagnon was not due to a mere mathematical error; the omission was caused by Mr. Gagnon's personal failure to record or remember a significant amount of income he received in the year. Mr. Gagnon's omission to report the dividend was due to his gross negligence.
[14] The appeal is dismissed.
Signed at Ottawa, Ontario on July 29, 2004
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Rip J.
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CITATION: |
2004TCC530 |
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COURT FILE NO.: |
2004-104(IT)I |
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STYLE OF CAUSE: |
Paul Gagnon and Her Majesty the Queen |
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PLACE OF HEARING: |
Calgary, Alberta |
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DATE OF HEARING: |
June 5, 2004 |
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REASONS FOR JUDGMENT BY: |
Honourable Justice Gerald J. Rip |
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DATE OF JUDGMENT: |
July 29, 2004 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
John Paul Hargrove |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |