Date: 20080612
Docket: A-536-06
Citation: 2008 FCA 206
CORAM: SHARLOW
J.A.
PELLETIER
J.A.
RYER
J.A.
BETWEEN:
ESTATE OF HERMAN GEBHART
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
RYER J.A.
[1]
This is an
appeal from a decision of Justice Beaubier (the “Tax Court Judge”) of the Tax
Court of Canada (2006 TCC 572), dated October 31, 2006, dismissing the appeal
of the Estate of Herman Gebhart (the “Estate”) from a reassessment (the
“reassessment”) of its 1996 taxation year that was issued, pursuant to the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “ITA”), on the basis
that the income of the Estate for that taxation year was under-reported by
$40,953, an amount that the Estate received in that taxation year as the
proceeds from the closure of an RSP account held by Mr. Herman Gebhart at the
time of his death.
[2]
The income
tax return of the Estate for the taxation year in question was assessed by the
Minister of National Revenue (the “Minister”) on January 27, 1997. The
reassessment was issued on January 31, 2002, a date that was beyond the normal
reassessment period, within the meaning of paragraph 152(3.1)(b) of the
ITA, for the Estate in respect of its 1996 taxation year. The Minister
justified the issuance of the reassessment pursuant to subparagraph 152(4)(a)(i)
of the ITA on the basis that the taxpayer or person who filed the income tax
return for the 1996 taxation year of the Estate made a misrepresentation that
was attributable to neglect, carelessness or wilful default in filing the
return.
[3]
The issue
in this appeal is whether the issuance of the reassessment after the normal
reassessment period for the Estate in respect of its 1996 taxation year is
sustainable.
THE APPLICABLE PROVISIONS OF THE ITA
[4]
The
relevant statutory provisions, paragraphs 152(3.1)(b) and 152(4)(a)
of the ITA, are as follows:
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152(3.1) For the purposes of subsections (4), (4.01), (4.2), (4.3), (5)
and (9), the normal reassessment period for a taxpayer in respect of a
taxation year is
(b) in any
other case, the period that ends 3 years after the earlier of the day of
mailing of a notice of an original assessment under this Part in respect of
the taxpayer for the year and the day of mailing of an original notification
that no tax is payable by the taxpayer for the year.
|
152 3.1) Pour l’application des paragraphes (4), (4.01), (4.2), (4.3),
(5) et (9), la période normale de nouvelle cotisation applicable à un
contribuable pour une année d’imposition s’étend sur les périodes suivantes :
b) trois ans suivant
le premier en date de ces jours, dans les autres cas.
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(4) The Minister may at any time make an assessment, reassessment or
additional assessment of tax for a taxation year, interest or penalties, if
any, payable under this Part by a taxpayer or notify in writing any person by
whom a return of income for a taxation year has been filed that no tax is
payable for the year, except that an assessment, reassessment or
additional assessment may be made after the taxpayer’s normal reassessment
period in respect of the year only if
(a) the
taxpayer or person filing the return
(i) has made any misrepresentation that is
attributable to neglect, carelessness or wilful default or has committed
any fraud in filing the return or in supplying any information under
this Act, or
…
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(4) Le ministre peut établir une cotisation, une nouvelle cotisation ou
une cotisation supplémentaire concernant l’impôt pour une année d’imposition,
ainsi que les intérêts ou les pénalités, qui sont payables par un
contribuable en vertu de la présente partie ou donner avis par écrit qu’aucun
impôt n’est payable pour l’année à toute personne qui a produit une
déclaration de revenu pour une année d’imposition. Pareille cotisation ne
peut être établie après l’expiration de la période normale de nouvelle
cotisation applicable au contribuable pour l’année que dans les cas suivants:
a) le contribuable
ou la personne produisant la déclaration:
(i) soit a fait une présentation erronée des faits,
par négligence, inattention ou omission volontaire, ou a commis quelque
fraude en produisant la déclaration ou en fournissant quelque
renseignement sous le régime de la présente loi,
[…]
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FACTS
[5]
Mr.
Gebhart died on his ranch near Mankota, Saskatchewan in May of 1996.
His nephew, Mr. Richard Kohl, was the Executor of the Estate. Mr. Kohl died in
2005.
[6]
In 1996, Mr.
Kohl retained Mr. Paul Lewans, a lawyer from Assiniboia, Saskatchewan, to handle the legal matters in relation
to the administration of the Estate. In the course of obtaining a grant of
probate, Mr. Lewans prepared a statement of assets (the “Statement of Assets”) of
the Estate that indicated that the deceased had an RSP with Mackenzie Financial
Corporation (“MFC”) and certain accounts with Canadian Imperial Bank of
Commerce (“CIBC”).
[7]
The
information pertaining to the CIBC accounts was contained in correspondence from
CIBC. That information contained indications that two of those accounts were
RSPs, although Mr. Lewans appears not to have recognized those indications. The
record contains no indication as to whether Mr. Kohl actually saw this
correspondence. The information pertaining to the MFC RSP was provided to Mr.
Lewans in correspondence to him from MFC.
[8]
In July of
1996, funds from the closure of the CIBC RSPs were sent to the Mankota branch
of the CIBC (“CIBC-Mankota”) and were deposited into the account of the Estate.
T4RSPs relating to the closure of the CIBC RSPs were also provided to CIBC-Mankota.
[9]
At some
unspecified time in 1996, funds from the closure of the MFC RSP were also sent
to CIBC-Mankota and were deposited into the account of the Estate. The record
does not contain any direct evidence that A T4RSP relating to the closure of
the MFC RSP was provided to the CIBC-Mankota.
[10]
Mr. Kohl
and Mr. Lewans were aware of the receipt of funds from CIBC and MFC on the
closures of the CIBC RSPs and the MFC RSP and of the T4RSPs from CIBC. However,
they were apparently surprised to learn that Mr. Gebhart had RSP accounts with
both CIBC and MFC. Mr. Lewans testified that on a number of occasions, he had
asked Mr. Kohl if a T4RSP had been received in relation to the MFC RSP.
[11]
The 1996
income tax return was prepared by Mr. Lewans and, according to his evidence,
was signed by him or by Mr. Kohl. In preparing that return, Mr. Lewans included,
as RSP income, the amounts indicated on the CIBC T4RSPs. However, that return
did not report any amount of RSP income in respect of the MFC RSP. Mr. Lewans
testified that he reviewed that return with Mr. Kohl before it was filed.
[12]
The 1996
income tax return was filed prior to 1997 and an assessment of that return was
issued by the Minister on January 27, 1997.
[13]
The
Minister received a T4RSP in respect of the MFC RSP, although the date of such
receipt is not apparent.
[14]
On
November 28, 2001, the Minister wrote to the Estate advising of the unreported
RSP income in relation to the MFC RSP and on January 31, 2002, the reassessment
was issued.
[15]
The Estate
objected to the reassessment, the Minister confirmed it and the Estate appealed
to the Tax Court of Canada.
THE DECISION OF THE TAX COURT JUDGE
[16]
The Tax
Court Judge found that the Minister was entitled to reassess the 1996 taxation
year of the Estate pursuant to subsection 152(4) of the ITA, holding that the
failure to report the RSP income that arose on the closing of the MFC RSP
amounted to a misrepresentation that was attributable to neglect or
carelessness.
[17]
In
reaching that conclusion, the Tax Court Judge noted that when CIBC provided the
proceeds of the CIBC RSPs to the Estate, it also provided the related T4RSPs. The
Tax Court Judge then inferred that MFC did the same thing, that is to say, it
provided a T4RSP along with the proceeds of the MFC RSP that were sent to CIBC-Mankota.
The Tax Court Judge further inferred that CIBC-Mankota gave the MFC T4RSP to
Mr. Kohl, who then misplaced it. According to the Tax Court Judge, the failure
on the part of Mr. Kohl to keep track of the MFC T4RSP constituted the kind of neglect
or carelessness that warranted the reassessment of the 1996 taxation year of
the Estate after the normal reassessment period.
ANALYSIS
[18]
Subparagraph
152(4)(a)(i) of the ITA permits the Minister to issue a reassessment for
a taxation year after the normal reassessment period for a taxpayer in respect
of such taxation year if the taxpayer or person filing the return in respect of
such a taxation year has made a misrepresentation that is attributable to
neglect, carelessness or wilful default in filing the return.
[19]
In this
appeal, the issue relates only to the neglect or carelessness elements of
subparagraph 152(4)(a)(i) of the ITA. In Venne v. Canada (Minister of National Revenue
– M.N.R.) (F.C.T.D.),
[1984] C.T.C. 223 Justice Strayer stated, at page 228, that:
… it is
sufficient for the Minister, in order to invoke the power under subparagraph 152(4)(a)(i)
of the Act to show that, with respect to any one or more aspects of his income
tax return for a given year, a taxpayer has been negligent. Such negligence is
established if it is shown that the taxpayer has not exercised reasonable care.
I agree with that statement as to the standard that must be
met to demonstrate that a misrepresentation is attributable to neglect or
carelessness for the purposes of subparagraph 152(4)(a)(i) of the ITA.
[20]
The Estate
attacks the decision of the Tax Court Judge on two grounds. The first is that
the findings of negligence on the part of Mr. Kohl cannot be supported because
they are based upon inferences that were improperly drawn by the Tax Court
Judge. The second ground is that apart from the inferences, there was no
evidence before the Tax Court Judge that supports a finding of negligence on
the part of Mr. Kohl in the filing of the 1996 income tax return.
[21]
While it
is possible that the attack upon the propriety of the inferences that were
drawn by the Tax Court Judge may have some merit, in my view, there was ample
evidence before the Tax Court Judge that supports his conclusion. In
particular:
(a) both
Mr. Kohl and Mr. Lewans knew that Mr. Gebhart had an RSP with MFC and that MFC had
sent the cash value of that RSP to CIBC-Mankota;
(b) Mr.
Lewans was expecting to receive a T4RSP from MFC and asked Mr. Kohl about the receipt
of such a document;
(c) Mr. Kohl
did not provide a T4RSP from MFC to Mr. Lewans. This may have been because no
such document was ever received by Mr. Kohl or because he received one but lost
it or because he received one, but did not realize it related to the MFC RSP,
possibly because it was issued in the name of MRS Trust Company;
(d) Mr.
Kohl, as executor of the Estate, was responsible for the filing of the 1996 income
tax return, which was prepared and filed by Mr. Lewans in accordance with
instructions from Mr. Kohl; and
(e) the 1996
income tax return does not report any amount of income in respect of the MFC RSP,
even though both Mr. Kohl and Mr. Lewans knew that the cash proceeds from that
investment had been received by the Estate.
[22]
The
explanation for the failure to report the amount of the proceeds from the MFC
RSP in the 1996 income tax return of the Estate is that Mr. Kohl and Mr. Lewans
were confused over the apparent existence of RSPs with both CIBC and MFC and
the non-existence of a T4RSP with respect to the MFC RSP.
[23]
Counsel
for the Estate concedes that the failure to report the proceeds from the
closure of the MFC RSP in the 1996 income tax return is a misrepresentation,
within the meaning of subparagraph 152(4)(a)(i) of the ITA, but contends
that this misrepresentation is not attributable to any neglect or carelessness
on the part of Mr. Kohl, the person legally responsible for the filing of that
income tax return.
[24]
I am
unable to agree with that contention. In my view, the evidence that was before
the Tax Court Judge supports the conclusion that there was neglect on the part
of Mr. Kohl in the performance of his responsibility, as executor of the
Estate, to ensure that the 1996 income tax return was properly filed.
[25]
Mr. Kohl
knew, or ought to have known, that the proceeds from the closure of all RSPs
owned by Mr. Gebhart at the time of his death were required to be included in
the income of the Estate for 1996. He was surely told that by Mr. Lewans and it
should have been obvious to him from his review of the 1996 income tax return
itself, which reported the proceeds from the closure of the CIBC RSPs as
income. Moreover, the absence of a T4RSP with respect to the amount received on
the closure of the MFC RSP did not exempt that amount from being reported as
RSP income in that income tax return.
[26]
The
confusion that may have been present in Mr. Kohl’s mind was whether there were,
in fact, more RSPs than he and Mr. Lewans had initially thought. This confusion
could easily have been cleared up by a visit or telephone call to CIBC-Mankota,
where Mr. Gebhart had conducted his financial affairs. It was not a difficult
problem to sort out and, in my view, Mr. Kohl did not exercise reasonable care
in authorizing the filing of the 1996 income tax return before the matter of
how many RSPs Mr. Gebhart actually held at the time of his death had been
clarified. It follows, in my view, that the evidence that was before the Tax
Court Judge supports his conclusion that there was a misrepresentation
attributable to neglect or carelessness on the part of Mr. Kohl in the filing
of the 1996 income tax return of the Estate, as contemplated by subparagraph
152(4)(a)(i) of the ITA, that warranted the reassessment of the Estate
in respect of its 1996 taxation year after the normal reassessment period for
the Estate in respect of that taxation year.
DISPOSITION
[27]
For the
foregoing reasons, I would dismiss the appeal with costs.
“C.
Michael Ryer”
“I
agree
K.
Sharlow J.A.”
“I
agree
J.D.
Denis Pelletier J.A.”
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