ROSETTA WYNTER Appellant v. HER MAJESTY THE, 2017 FCA 195

Date: 20170922 Docket: A-156-16 Citation: 2017 FCA 195 CORAM: PELLETIER J.A. RENNIE J.A. WOODS J.A. BETWEEN: ROSETTA WYNTER Appellant and HER MAJESTY THE QUEEN Respondent Heard at Toronto, Ontario, on February 16, 2017. Judgment delivered at Ottawa, Ontario, on September 22, 2017. REASONS FOR JUDGMENT BY: RENNIE J.A. CONCURRED IN BY: PELLETIER J.A. WOODS J.A. Date: 20170922 Docket: A-156-16 Citation: 2017 FCA 195 CORAM: PELLETIER J.A. RENNIE J.A. WOODS J.A.

BETWEEN: ROSETTA WYNTER Appellant and HER MAJESTY THE QUEEN Respondent REASONS FOR JUDGMENT RENNIE J.A. [ 1 ] Rosetta Wynter appeals from a judgment of the Tax Court of Canada, cited as 2016 TCC 103 (Reasons), per Judge Rowe, which upheld a penalty imposed by the Minister of National Revenue under subsection 163(2) of the Income Tax Act , R.S.C. 1985, c. 1 (5th Supp.) (the Act). The penalty related to a business loss claimed by the appellant in her 2009 income tax return in the amount of $447,148.31.

Had the loss been allowed, the appellant would have been entitled to large tax refunds for the 2009 and prior taxation years. The Minister initially allowed the loss, but ultimately reassessed the appellant and imposed a penalty in the amount of $51,569.49. [ 2 ] The appellant does not dispute that a business did not exist and that there was no basis for claiming a business loss. She only disputes the penalty. [ 3 ] The relevant facts may be briefly summarized. [ 4 ] In 2006, after receiving a phone call from someone unknown to her, the appellant left the accountant who had prepared her

returns for many years and started using DSC Lifestyle Services (DSC) to prepare her tax return. Over the four subsequent years shepaid DSC roughly $12,000 for their services, a portion of which the appellant understood to be a charitable donation. During each of thefour taxation years, she received refunds that were significantly larger than any refund she had received in the previous thirty years. In2006, the appellant inquired of DSC as to why she was entitled to a large refund.

She was told that it was due to her charitable donation.Apart from that query she did not, in the three following years, ask why she was entitled to such large refunds. [5] The judge found that the appellant did not question the numbers indicating a large business loss despite not having operateda business, and nevertheless, signed the Request for Loss Carryback.

He also found that she gave conflicting testimony as to whether sheactually noticed the amount of the refund for 2009 which was over $30,000. [6] In upholding the imposition of the penalty, the judge found the appellant was wilfully blind to a false statement in her 2009income tax return and, as a result, she came within the legislative requirements of subsection 163(2). [7] The appellant impugns the judge’s reliance on the Tax Court’s decision in Torres v. The Queen, 2013 TCC 380, 2014 D.T.C.1028 (Torres) for his determination on wilful blindness.

While the appellant acknowledges that this Court upheld Torres in Strachan v.Canada, 2015 FCA 60, [2015] 3 C.T.C. 87, she submits that the formulation of the test applied by the judge was “watered down”, andthat the proper test is that formulated by the Supreme Court of Canada in criminal cases. The appellant refers in particular to the SupremeCourt’s decisions in Sansregret v. The Queen, (SCC), [1985] 1 S.C.R. 570 (Sansregret) and R. v.

Hinchey, (SCC), [1996] 3 S.C.R. 1128, and contends that the penalty could not be imposed because the judge made no finding that theappellant intended to cheat in filing her return and points to the concession by the Crown that the appellant did not “set out to cheat theadministration of justice”. [8] The appellant also challenges findings of fact, contending that the judge could not have found that the appellant was“deliberately ignorant” such that “it can almost be said that [she] actually knew” that there was a false statement in her 2009 income taxreturn. [9] For the following reasons, I would dismiss the appeal, with costs. [10] Subsection 163(2) of the Act authorizes the imposition of penalties for a taxpayer, as follows:

(2) Every person who, knowingly, or undercircumstances amounting to gross negligence, has madeor has participated in, assented to or acquiesced in themaking of, a false statement or omission in a return,form, certificate, statement or answer (in this sectionreferred to as a “return”) filed or made in respect of ataxation year for the purposes of this Act, is liable to apenalty of the greater of $100 and 50% of the total of…

(2) Toute personne qui, sciemment ou dans descirconstances équivalant à faute lourde, fait un fauxénoncé ou une omission dans une déclaration, unformulaire, un certificat, un état ou une réponse (appelé« déclaration » au présent article) rempli, produit ouprésenté, selon le cas, pour une année d’imposition pourl’application de la présente loi, ou y participe, y consentou y acquiesce est passible d’une pénalité égale, sansêtre inférieure à 100 $, à 50 % du total des montantssuivants… [11] When Parliament uses alternative terms, it is assumed that it intended them to have different meanings. Put otherwise,Parliament does not repeat itself: see Ruth Sullivan, Statutory

Interpretation, 3rd ed. (Toronto: Irwin Law Inc., 2016) at

Section 163allows the imposition of penalties where the taxpayer has knowledge or in circumstances amounting to gross negligence. The

section isnot conjunctive, and presumptively, these two terms differ in their meaning and content. [12] The distinction between gross negligence – determined by an objective assessment of the comportment of the taxpayer – andwilful blindness – determined by reference to the taxpayer’s subjective state of mind – has a long history. Admittedly, it is, on occasion, afine distinction and one that is not always clearly drawn.

Nonetheless, Parliament is taken to have been cognizant of the distinction. [13] A taxpayer is wilfully blind in circumstances where the taxpayer becomes aware of the need for inquiry but declines to makethe inquiry because the taxpayer does not want to know, or studiously avoids, the truth. The concept is one of deliberate ignorance: R. v.Briscoe, 2010 SCC 13 at paras. 23-24, [2010] 1 S.C.R. 411 (Briscoe); Sansregret at para. 24. In these circumstances, the doctrine ofwilful blindness imputes knowledge to a taxpayer: Briscoe at para. 21.

Wilful blindness is the doctrine or mechanism by which theknowledge requirement under subsection 163(2) is met. [14] I turn to the appellant’s main argument. The appellant contends that wilful blindness requires evidence sufficient todemonstrate that the taxpayer actually knew the return was false and that the taxpayer “intended to cheat the administration of justice”. [15] The jurisprudence does not support the conclusion that an intention to cheat is a prerequisite for a finding of knowledge, andin particular, of wilful blindness. The decision of the Supreme Court of Canada in Guindon v.

Canada, 2015 SCC 41, [2015] 3 S.C.R. 3(Guindon), removes any doubt. The Supreme Court agreed with the decision of this Court, cited as Canada v. Guindon, 2013 FCA 153 atpara. 37, [2014] 4 F.C.R. 786, which stated that “the assessment of a penalty under

section 163.2 [dealing with tax preparers] is not theequivalent of being ‘charged with a [criminal] offence.’” While there is still a mental element present in subsection 163(2), I also notethe Supreme Court’s endorsement in Guindon at paragraphs 60-62 of the reasons of Justice Strayer in Venne v. The Queen (1984), (FC), 84 D.T.C. 6247, [1984] C.T.C. 223 (Venne), and those of the Tax Court in Sidhu v.

The Queen, 2004 TCC 174 atpara. 23, 2004 D.T.C. 2540 that “[t]he burden here is not to prove, beyond a reasonable doubt, mens rea to evade taxes.” [16] In sum, the law will impute knowledge to a taxpayer who, in circumstances that suggest inquiry should be made, chooses notto do so.

The knowledge requirement is satisfied through the choice of the taxpayer not to inquire, not through a positive finding of anintention to cheat. [17] While evidence, for example, of an actual intent to make a false statement would suffice to meet the “knowingly” requirementof subsection 163(2), requiring an intention to cheat to establish wilful blindness is inconsistent with the well-established jurisprudence

that wilful blindness pivots on a finding that the taxpayer deliberately chose not to make inquiries in order to avoid verifying that whichmight be such an inconvenient truth. The essential factual element is a finding of deliberate ignorance, as it “connotes ‘an actual processof suppressing a suspicion’”: Briscoe at para. 24. I would add that, in the context of subsection 163(2), references to “an intention tocheat” are a distraction.

The gravamen of the offence under subsection 163(2) is making of a false statement, knowing (actually orconstructively, i.e., through wilful blindness) that it is false. [18] Gross negligence is distinct from wilful blindness. It arises where the taxpayer’s conduct is found to fall markedly below whatwould be expected of a reasonable taxpayer. Simply put, if the wilfully blind taxpayer knew better, the grossly negligent taxpayer oughtto have known better. [19] Gross negligence requires a higher degree of neglect than a mere failure to take reasonable care.

It is a marked or significantdeparture from what would be expected. It is more than carelessness or misstatements. The point is captured in the decision of this Courtin Zsoldos v. Canada (Attorney General), 2004 FCA 338 at para. 21, 2004 D.T.C. 6672: In assessing the penalties for gross negligence, the Minister must prove a high degree of negligence, one that is tantamount to intentionalacting or an indifference as to whether the law is complied with or not. (See Venne v. R. (1984), (FC), 84 D.T.C. 6247(Fed.

T.D.), at 6256.) [20] There is no question that, while conceptually different, gross negligence and wilful blindness may merge to some extent intheir application. A taxpayer who turns a blind eye to the truth and accuracy of statements made in their income tax return is wilfullyblind, and is also grossly negligent. The converse is not, however, necessarily true. A grossly negligent taxpayer is not necessarilywilfully blind.

The possibility of this dual characterization of the same conduct may, on occasion, give rise to imprecision in thejurisprudence in the description of the alternative ways in which the Crown may meet its burden. Similarly, the common practice ofreferring to penalties imposed under subsection 163(2) as “gross negligence penalties” blurs the fact that the penalties may arise undereither the knowledge or gross negligence heading. This ought to be avoided.

What is at issue under subsection 163(2) is a penalty, whichmay be imposed either by a finding of knowledge or a finding of gross negligence. [21] While subjective considerations may play a role in either analysis, gross negligence is determined with reference to anobjective test.

In particular, where gross negligence is alleged, I would expect consideration of whether the conduct of the taxpayer atissue is such a marked departure from what would be expected that it constitutes a high degree of negligence sufficient to becharacterized as a marked departure from the standards, practices, and due diligence expected of a responsible taxpayer.

The cautionarywords of the Supreme Court of Canada in Guindon, at paragraph 61, are equally applicable here; these penalties “are meant to captureserious conduct, not ordinary negligence or simple mistakes”. [22] I return to the application of these principles in the context of the subsection 163(2) penalty in the present case. [23] While the judge at times uses the terms wilful blindness and gross negligence interchangeably, it is nonetheless clear from hisreasons that he concluded, based on the evidence (Reasons at paras. 19-21), the analytical framework (Reasons at para. 14), andconclusion (Reasons at paras. 23, 30 and 36) that he found that the appellant was wilfully blind.

I see no error in this conclusion. [24] The judge made a number of factual findings that support his final conclusion, including that “she knew that she knew better”(Reasons at para. 36) and “she was determined not to undertake any significant inquiry that would detract from her ability to receive arefund as promised” (Reasons at para. 30). [25] The appellant was aware of the many suspicious circumstances surrounding the preparation of her tax return. She was alsoaware that the Minister denied her claim for a donation in 2006.

Awareness of these circumstances alerted the taxpayer to the need toreview her tax return. She deliberately chose not to review her tax return and, in doing so, it can be said that, to revert to Briscoe, she “ineffect” intended to make a false statement. The judge found that she “did not try to glean even a marginal understanding of what wasbeing declared to CRA on her behalf.” [26] The appellant’s argument that the judge failed to take into account relevant facts relating to the appellant’s personalcircumstances fails.

This ground of appeal raises questions of fact or mixed fact and law for which the standard of review is palpable andoverriding error: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. The reasons of the judge are thorough and demonstrate thathe considered the relevant facts and committed no such error. [27] For these reasons, I would dismiss the appeal with costs. “Donald J. Rennie” J.A. “I agreeJ.D. Denis Pelletier J.A.”“I agreeJ. Woods J.A.” FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD

APPEAL FROM A JUDGMENT OF THE TAX COURT OF CANADA DATED APRIL 22, 2016, NO. 2012-2348(IT)G DOCKET: A-156-16 STYLE OF CAUSE: ROSETTA WYNTER v. HER MAJESTY THE QUEEN PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: February 16, 2017 REASONS FOR JUDGMENT BY: RENNIE J.A. CONCURRED IN BY: PELLETIER J.A. WOODS J.A. DATED: SEPTEMBER 22, 2017 APPEARANCES : Duane Milot For The Appellant H. Annette Evans Tony Cheung For The Respondent SOLICITORS OF RECORD : Milot Law Toronto, Ontario For The Appellant Nathalie G. Drouin Deputy Attorney General of Canada For The Respondent