Canada: Tax Preparer Penalties Not Criminal Sanction: The SCC Judgment In Guindon

Last Updated: August 7 2015
Article by John Sorensen

The Supreme Court of Canada ("SCC") issued its judgment in Guindon v Canada1 on July 31, 2015, concluding that Ms. Guindon was properly penalized under ss. 163.2(4) ("preparer penalty") of the Income Tax Act (Canada) ("ITA"). This is the first reported case dealing with the preparer penalty.

Ms. Guindon was assessed preparer penalties totaling $546,747 for making false statements in donation receipts issued on behalf of a charity in circumstances where she knew (or would have reasonably been expected to know) the receipts could be used to claim unsupportable tax credits under the ITA. At each level of Court she argued that the penalty was a criminal sanction attracting procedural safeguards under s. 11 of the Charter of Rights and Freedoms ("Charter"). Consequently, she argued that the penalty should have been vacated because the matter should not have proceeded before the Tax Court of Canada ("TCC"). The TCC agreed, but the Federal Court of Appeal ("FCA") reversed the TCC judgment, leading to Ms. Guindon's further unsuccessful SCC appeal.


Ms. Guindon is a lawyer practicing primarily family law and wills and estates, with no background in income tax. In 2001, she was approached by promoters of a "leveraged donation" tax scheme which involved timeshare units in a Turks and Caicos resort. Participants would donate their timeshare units for an amount greater than they paid.2 She opined on the tax consequences based on a precedent provided by the promoter, knowing the opinion would be relied on to promote the scheme. The opinion included the false statement that she had reviewed supporting documents. She was also the president and administrator of the registered charity that received the donated timeshare units, which would be sold on the charity's behalf with the charity receiving $500 per unit.

The SCC described the leveraged donation tax scheme as a sham.3 The charity issued and Ms. Guindon signed 135 tax receipts in the aggregate amount of $3,972,775, which credits were denied when claimed by the donors, ultimately leading to the preparer penalty assessment against her. The penalty was calculated by summing the ss. 163(2) gross negligence penalties for which each of the donors would have been liable.


The SCC considered two issues. The first was procedural and the other substantive. The procedural issue arose from Ms. Guindon's failure in the TCC and FCA to provide notice of a constitutional question to the federal and provincial Attorneys General ("AGs").4 Notice to the AGs was provided in the SCC appeal.

The substantive issue was whether the preparer penalty was a criminal sanction or a civil/administrative penalty.


The SCC's majority reasons5 held that the Court should exercise its narrow discretion to address the constitutional question even though the issue was not properly raised in the lower Courts. However, the SCC decided the substantive issue in favour of the government of Canada, concluding that preparer penalties are civil/administrative in nature, thus Charterprotections did not apply. The minority reasons6 considered only the procedural issue and, having concluded that the failure to put the AGs on notice was fatal, did not provide reasons for the substantive issue.

Procedural issue: Notice to the AGs

The issue of notice to the AGs of a constitutional question concerned whether notification provisions are mandatory or directory. The purpose of the notification provisions in the Tax Court of Canada Act and the Federal Courts Act requiring notice to the AGs is to ensure a Court has a full evidentiary record before invalidating legislation, and governments should be given full and fair opportunity to argue impugned legislation is valid. In Guindon, it was conceded that no prejudice occurred and no AG argued that additional evidence was required, or requested the opportunity to supplement the record.

Substantive issue: The nature of preparer penalties

The substantive issue was whether a person assessed a preparer penalty is a "person charged with an offense", thus engaging s. 11 of the Charter, which turns on whether the provision is a civil or criminal sanction.7

The preparer penalty reads as follows:

(4) Every person who makes, or participates in, assents to or acquiesces in the making of, a statement to, or by or on behalf of, another person ... that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by or on behalf of the other person for a purpose of this Act is liable to a penalty in respect of the false statement.

Culpable conduct is defined in ss. 163.2(1) as "conduct, whether an act or a failure to act, that is tantamount to intentional conduct; shows an indifference as to whether this Act is complied with; or shows a wilful, reckless or wanton disregard of the law."

The SCC relied on R v Wigglesworth8 and Martineau v MNR,9 confirming that:

"A proceeding is criminal by its very nature when it is aimed at promoting public order and welfare within a public sphere of activity. Proceedings of an administrative nature, on the other hand, are primarily intended to maintain compliance or to regulate conduct within a limited sphere of activity ...

The focus of the inquiry is not on the nature of the act which is the subject of the proceedings, but on the nature of the proceedings themselves, taking into account their purpose as well as their procedure ...

Proceedings have a criminal purpose when they seek to bring the subject of the proceedings 'to account to society' for conduct 'violating the public interest'.10

A "true penal consequence" is "imprisonment or a fine which by its magnitude would appear to be imposed for the purpose of redressing the wrong done to society at large rather than to the maintenance of internal discipline within [a] limited sphere of activity..."11

[emphasis added]

The Wigglesworth/Martineau tests have been criticized as unclear and circular, which is likely one of the reasons why Guindon was heard by the SCC.

"Criminal in nature" test

The SCC held that the "criminal in nature" test queries whether the proceedings rather than the underlying act are criminal in nature. The indicia for determining if proceedings are criminal are: the objectives of the legislation; the objectives of the sanction; and the process.12 Regarding the legislative scheme for third-party ITA penalties, the SCC confirmed that the standard for culpable conduct is higher than simple negligence and more closely associated with the mens rea concept in criminal law, but concluded that the purpose of a proceeding involving preparer penalties was to "promote honesty and deter gross negligence, or worse, on the part of [tax] preparers, qualities that are essential to the self-reporting system of income taxation assessment".13

Regarding the adjudicative process, indicia of criminal processes include charges, an arrest, a summons to criminal court and risk of a criminal record. Further indicia include the use of words associated with crime, including guilt, acquittal, indictment, summary conviction, prosecution and accused. Additionally, whether a proceeding is criminal does not depend on the penalty amount: a traffic ticket may result in a small fine, but is imposed in the context of a criminal process. The SCC contrasted the indicia of a criminal process with the preparer penalty process, stating that an ITA tax preparer penalty arises after an audit, taking into account the planner or preparer's representations, before a recommendation is made to the CRA's Third-Party Penalty Review Committee, which would receive further submissions from the planner or preparer. This process is entirely distinct from the criminal process engaged by s. 238 and 239 of the ITA.

The SCC dispensed with the argument that the conduct resulting in a preparer penalty could be the same as that required for a s. 239 criminal conviction, noting that prosecution risk is irrelevant to the issue of civil penalties. The SCC also gave short-shrift to the argument that preparer penalties are not administrative in nature because they depart from the general purpose of the ITA, being the collection of tax. In the SCC's view, the ITA's regulatory scheme encompasses more people than taxpayers, including entities that must file information returns and produce information to verify tax compliance: provisions including administrative penalties encourage compliance by non-taxpayers and are integral to the regulatory regime. The SCC also dispensed with the argument that the term "culpable conduct" confirms that mens rea is required, which is typically a criminal requirement, holding that this argument is irrelevant because the "criminal in nature" analysis is concerned not with the underlying act, but the legal process. The "mental element" aspect of ITA third-party penalties does not make them criminal in nature.

"True penal consequences" test

The SCC then considered whether preparer penalties were a "true penal consequence" and concluded that they were not. The SCC stated that imprisonment is obviously a true penal consequence, but a monetary penalty may or may not be. It would be a penal consequence where in purpose or effect it is punitive, taking into account the magnitude, to whom it is paid, whether its magnitude depends on regulatory considerations rather than criminal sentencing principles and whether there is stigma attached with the penalty.

While magnitude is not determinative, a disproportionate penalty may suggest it is a true penal consequence. However, the SCC stated that significant penalties could be necessary to deter non-compliance in an administrative regime.14 In any case, the SCC stated that an administrative penalty should reflect the deterrence objective within an administrative or regulatory context. Ms. Guindon argued that an administrative penalty should have an upper limit, but the SCC disagreed, holding that an arbitrary limit could undermine the deterrence goal of the penalty. The proper analysis according to the SCC was whether the amount is consonant with the misconduct and the need to serve regulatory purposes – an arbitrary threshold might not suit the regime or its goals.

The SCC stated that the purpose of the preparer penalty was to deter people from making false statements on behalf of others or from counseling false statements, thus promoting tax compliance, and that deterrence objectives do not take penalties out of the administrative arena. Tying the amount of the penalty to the magnitude of tax and the "violator's" personal compensation is relevant to deterring misconduct, the amount is fixed without regard to general sentencing principles and no stigma attaches as compared to a criminal conviction. Although the penalty against Ms. Guindon was quite high for an individual, the SCC held that it did not constitute a true penal consequence, since there were 135 violations, a dishonest legal opinion and a compounding of the dishonesty by signing charitable receipts that she should have known were tainted. This dishonesty cannot be allowed in a self-reporting system and, as the FCA noted, administrative penalties may sometimes need to be large to deter misconduct.


Off-the-shelf tax-reduction products based on untenable interpretations of the ITA (or worse, shams) erode the tax base while lining the pockets of people willing to structure tax schemes. These schemes typically result in little or no benefit to participants after the scheme is discovered by the CRA. Disincentives should be strong, to increase the economic risk associated with creating or advising on untenable schemes in a self-reporting tax system.

Further, although ITA penalties such as preparer penalties can become extraordinarily high, they are not unbounded: the penalty against Ms. Guindon would have been lower if there had been fewer instances of non-compliance. Stated another way, it is untenable to argue about the magnitude of a penalty when the penalty is composed of over one hundred instances of "culpable conduct". If one tax preparer is penalized for a single instance of culpable conduct, another for a hundred instances of culpable conduct, and another for a thousand instances of culpable conduct, is there a point at which the magnitude of the penalty becomes a true penal consequence? To suggest that there is a point where the magnitude becomes unjust may be tantamount to saying that a prolific bad actor should be treated more leniently.

The Charter position in this case was worth testing, particularly since there was seemingly no other defense against the preparer penalty and there was at least some chance that the Charter challenge may have succeeded. On one hand, the presumption of innocence is a practical principle. No one wants to live in a society where they may be arbitrarily punished by the state. A free and democratic society requires procedural safeguards when the state doles out its harshest punishments. It should not be contentious that punishment should be proportionate to the impugned act and that the associated process of meting out a penalty should appropriately reflect the nature and severity of the penalty. Where a person's liberty interests are at stake, it makes sense that the state's strongest procedural protections would apply, including the presumption of innocence and the requirement of proof beyond a reasonable doubt. On the other hand, the legal system may grind to a halt if every allegation of misconduct could be tested in a full criminal proceeding. Thus, a functioning regulatory system should include a range of procedural options and defenses against state-imposed sanctions, from absolute liability (no defense), strict liability (subject to a due diligence defense) to mens rea penalties (in which the state bears the burden of proof). The questions to ponder following Guindon are whether we are genuinely concerned about:

  • The presumption of innocence: the reverse onus provision in ss. 163(3) requires the Crown to prove its case in a preparer penalty assessment. Thus, there is a kind of presumption of innocence established in the ITA. Therefore, being presumed to have engaged in culpable conduct is not an issue.
  • Proof beyond a reasonable doubt: the standard of proof in civil tax cases, including penalties cases, is "balance of probabilities", which is a more relaxed standard than the criminal standard. Rhetorically, should tax professionals feel at risk because the assessment of preparer penalties is based on a civil standard? Arguably, if tax preparation or planning is "more likely than not" misconduct under s. 163.2, wouldn't most of us agree that the preparer or planner should be punished? Would we feel more or less comfortable if tax-related misconduct had to be proven beyond a reasonable doubt?
  • Procedure: the procedure for challenging a third-party penalty assessment allows for submissions to the CRA before and after the matter is referred to the Third-Party Penalty Review Committee. The penalty can then be challenged in the TCC. Arguably, a tax professional might be more comfortable having tax preparation or advising issues considered by the TCC in the context of a civil proceeding, rather than before a Superior Court Justice in a criminal proceeding who, respectfully, may not be as well versed in the underlying substantive issues.


1. 2015 SCC 41 ("Guindon").

2. Time share units were acquired for $3,248 per unit, but donation receipts were issued for $10,825 per unit.

3. Ms. Guindon and another charity representative signed and issued 135 tax receipts dated December 31, 2001, acknowledging donations of the time-share units. However, no time-share units were created, acquired or donated to the charity in 2001.

4. The TCC notice of appeal did not raise a Charter issue, notice was not provided to the AGs as required by s. 19.2 of the Tax Court of Canada Act and notice was not given in the FCA appeal.

5. Written by Rothstein and Cromwell JJ with Moldaver and Gascon JJ concurring.

6. Written by Abella and Wagner JJ with Karakatsanis J concurring.

7. The FCA mentioned in passing that s. 12 of the Charter (prohibiting cruel and unusual punishment) was untested in administrative law and may provide an alternative basis for challenging s. 163.2 of the ITA, while expressing some doubt about whether a s. 12 challenge might work.

8. [1987] 2 SCR 541 ("Wigglesworth").

9. [2004] 3 SCR 737 ("Martineau").

10. At para. 45.

11. At para. 45.

12.Guindon, at para. 52.

13.Guindon, at para. 62.

14. See also Rowan v Ontario Securities Commission, 2012 ONCA 208.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions