Tax Advisor Penalties not Criminal in Nature, Do Not Attract Charter Protection

August 8th, 2015 by

Earlier this month, the Supreme Court of Canada dismissed a taxpayer’s appeal in a decision which is sure to have broad implications for Canadians and their tax advisors. Simply put, the appellant was the director of a charity which had recruited a number of taxpayers to participate in a charitable donation scheme, which was ultimately found to be fraudulent by the CRA. In recruiting the taxpayers, Ms. Guindon, a lawyer, provided an opinion that she had reviewed the charity’s documents and that the arrangement was legal. In reality, she had not, and it was not. Consequently, she was assessed a large penalty under s.163.2 of the Income Tax Act. She appealed. After winning at trial, the decision was reversed on appeal and most recently ended up on the doorstep of the Supreme Court. (For a full background to the case, see our previous post on Guindon v. The Queen.

In a split 4-3 decision, the Court held that the penalty in s.163.2 is an administrative one, not a criminal one. Writing for the majority, Justices Rothstein and Cromwell held that a charge under s.163.2 “does not lead to the imposition of true penal consequences” and that the “assessment of a penalty under s.163.2 is not the equivalent of being ‘charged with a [criminal] offence’ Accordingly none of the [Charter, s.11] rights apply.” Thus, the Court succinctly dismissed the notion that the hallmark constitutional protections afforded to those charged with a criminal offence, the rights to a fair and speedy trial,  the presumption of innocence and the protection against double jeopardy, do not apply to those charged under s.163.2.

However, all is not lost for those facing penalties under s.163.2. The Supreme Court affirmed that to make out a charge under s.163.2, the Crown must demonstrate that any false statements were made knowingly or in circumstances that show indifference to, or wilful, reckless or wanton disregard of the law. This standard is similar to that for gross negligence penalties under the ITA and, as the Court opined, “is clearly a high standard.”

If you have been assessed an administrative or filing penalty under the Income Tax Act or would like to learn more about your rights as a taxpayer, contact the experienced team at Devry Smith Frank LLP.


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