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
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
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