Canada: Supreme Court to decide scope of Charter protections for tax penalties
04 April 2014
Posted by: Author: Robert B. Hayhoe
Author: Robert B. Hayhoe (Miller Thomson LLP)
The Supreme Court of Canada has granted leave in Guindon v. R., an appeal involving the question of whether tax civil penalties are criminal in nature and therefore whether they give rise to Charter protections.
As reported on in our December 2012 and July 2013 issues, the Tax Court had decided that Charter protections do attach to tax civil penalties, while the Federal Court of Appeal had decided that they do not.
The Income Tax Act contains third party civil penalties that apply to a person making a false statement knowingly or with gross negligence that is intended to be relied upon by someone else to reduce tax. The person making the statement can be liable for all of the tax saved by anyone relying on the false statement. These penalties can apply to tax advisors but also to charities issuing official donation receipts and to their staff authorising receipts.
Ms. Guindon had given a legal opinion and signed tax receipts as part of a tax shelter scheme allegedly involving the donation of time share units. The Tax Court found that Ms. Guindon had given her opinion without verifying the truth of parts of it, with the implication of the culpable conduct required in order to apply these civil penalties. However, relying on the very large penalties that were proposed against Ms. Guindon (calculated on the basis of all tax saved by all shelter participants), the Tax Court found that the so-called civil penalties were really criminal. Of course, in the case of a criminal penalty, proof is required beyond a reasonable doubt and various Charter protections apply at the investigation stage, none of which had been provided to Ms. Guindon. The Federal Court of Appeal had suggested that Parliament's intent in providing for these penalties was to protect the integrity of the tax system not to punish and that the discretion of the CRA to reduce penalties could be relied upon to avoid unfair results.
While Ms. Guindon's situation may not provoke much sympathy, we are aware of situations where penalties (and associated interest) of over several million dollars have been assessed against charity directors in situations where there was no obvious wrongdoing and where the directors received no personal benefit. We therefore look forward to receiving the guidance of the Supreme Court on the application of these civil penalties.
This article first appeared on lexology.com.