On Friday, July 31, 2015 the Supreme Court of Canada sent a
clear message to tax advisors: the advisor penalties provided for
in section 163.2 of the Income Tax Act ("Advisor
Penalties") are administrative in nature, not criminal. Even a
penalty of $546,747 to an advisor who made false statements in
circumstances amounting to gross negligence will not attract the
enhanced procedural safeguards of a criminal process afforded by
At the centre of Guindon v. Canada, 2015 SCC 41 is a family law lawyer who
signed a legal opinion relating to the tax effects of a leveraged
donation program involving the donation of timeshare units. It was
an agreed fact that she knew that the opinion would be used as part
of the promotional materials for the leveraged donation scheme. Her
opinion included a statement that the transactions described in the
plan would be implemented based on supporting documents she had
seen and reviewed. However, she had not reviewed the supporting
The appellant was also the president and administrator of the
charity who agreed to be the recipient of the donated timeshare
units. No timeshare units were ever created or donated to the
charity. Nonetheless, 135 donation receipts were signed by the
appellant and the treasurer of the charity totalling
As a result, the appellant was assessed for Advisor Penalties on
the grounds that she knew or would have known but for wilful
disregard of the Income Tax Act, that the tax receipts constituted
In the Tax Court of Canada, the appellant argued that the
Advisor Penalties are criminal and that she was therefore a person
"charged with an offence" who is entitled to the
procedural safeguards of the Charter. She made this argument
without raising any Charter issues in her notice of appeal and
without providing notice of constitutional questions to the federal
and provincial attorneys general as required by the Tax Court
of Canada Act. Regardless of these technical deficiencies, she
prevailed at the Tax Court level, but the penalties were restored
at the Federal Court of Appeal.
The Supreme Court of Canada denied the appellant's appeal in
concurring judgments. The majority held that the Advisor Penalties
are administrative and not criminal. The minority found that the
appellant did not satisfy the notice requirements to plead a
constitutional question in the Tax Court of Canada.
The majority distinguishes administrative and criminal
proceedings and penalties by their various purposes.
Criminal proceedings are aimed at promoting public order and
welfare within a public sphere of activity. Administrative
proceedings are intended to maintain compliance or to regulate
conduct within a limited sphere of activity. Criminal penalties
involve imprisonment or a fine which, having regard to its
magnitude and other relevant factors, is imposed to redress the
wrong done to society at large rather than simply to secure
compliance. Monetary penalties can be criminal but only when they
are punitive in purpose or effect.
The majority held that the Advisor Penalties were administrative
because they did not impose a true penal consequence
notwithstanding the quantum of them. The court held that the
purpose of the penalties is "to promote honesty and deter
gross negligence, or worse, on the part of preparers, qualities
that are essential to the self-reporting system of income taxation
assessment". The amount of the penalty in this case reflected
the objective of deterring the very serious and culpable conduct in
which the appellant was engaged -- intentional acting, and a wilful
blindness or indifference as to whether the law is complied with.
They are not intended to address ordinary negligence or simple
mistakes on the part of a tax preparer or planner.
The appellant argued that the sheer size of the penalty caused
it to be criminal in nature. The court noted that the penalty was
calculated with regard to the amount of tax that could potentially
be avoided by the person to or for whom the false statements are
made and the amount of the violator's potential personal gain.
None of the other criminal sentencing principles are engaged in
calculating the penalty. Furthermore, the court held that no stigma
comparable to a criminal conviction flows from the imposition of
the penalty. The only factor that the court found to support the
argument that the fine was criminal was that it was paid into the
Consolidated Revenue Fund. That alone was not enough to
characterize the fine as criminal instead of administrative.
The Supreme Court's decision also has implications for the
Excise Tax Act. Section 285.1 of that statute imposes a similar
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
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