Taxpayer Successfully Appeals Gross Negligence Penalties

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The Tax Court of Canada has found that an international businessman who hired lawyers and accountants to organize his financial affairs was not liable for tax penalties assessed against him.
Canada Tax
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This article was prepared with the assistance of summer student Cole Shrimpton.

The Tax Court of Canada has found that an international businessman who hired lawyers and accountants to organize his financial affairs was not liable for tax penalties assessed against him.

Goldhar v The King, 2023 TCC 30 ("Goldhar") concerns David Goldhar ("Goldhar"), an individual who successfully appealed Notices of Reassessment from the Minister of National Revenue (the "Minister") for the 2008–2011 taxation years.

Background and appeal

Goldhar used complex corporate structures for his businesses, which included corporations and partnerships in Canada, the British Virgin Islands and Hong Kong.

The Offshore Compliance Specialized Team of the Canada Revenue Agency conducted an audit of Golhar's 2006–2013 taxation years, which resulted in the Minister issuing Notices of Reassessment under the Income Tax Act (the "Act") in respect of Goldhar's 2008–2011 taxation years. These reassessments would have increased Goldhar's income in 2008, 2009, 2010 and 2011 by $3,032, 271, $1,316,399, $1,190,262, and $16,089, respectively.

Goldhar appealed these reassessments on the basis that they were all barred by statute. He argued the reassessments did not represent income and disputed the application of penalties on the basis that he exercised due diligence in filing his tax returns for the taxation years in question.

Goldhar's testimony

During his testimony, Goldhar outlined that he has a high school education and has not obtained any degrees, certificates or other qualifications. He never took any tax courses either.

Goldhar testified that his wife helped him with his financial affairs for the taxation years at issue. Further, he hired professional accountants and lawyers to look after his tax and legal affairs, and he would review his tax returns with his accountants each year before they were filed.

Justice Visser found Goldhar's testimony credible. He took note of the fact that Goldhar never filed his own tax returns and communicated frequently with his accountants. Goldhar's financial affairs became more complicated just before and during the taxation years under appeal, and Goldhar consistently provided the same information to his accountants in respect to each of his 2008–2011 taxation years.

Although the Crown argued Goldhar's accountants were unaware of his offshore corporations, suggesting that he did not communicate the existence of these corporations, Justice Visser found that Goldhar's accountants filed T1134 forms for the 2008 and 2010 taxation years for one of his corporations, and for two of his corporations in the 2011 taxation year. Upon finding out there was a deficiency in respect of his 2008 T1134, Goldhar engaged a new accountant. Justice Visser found there was clear evidence that Goldhar's accountants were aware of the offshore corporations and the requirement to report on them.

Justice Visser found that Goldhar, with the assistance of his wife, made every attempt to ensure that his tax returns were filed correctly and accurately.


Justice Visser found that the Minister incorrectly reassessed Goldhar's 2008–2011 taxation years beyond the normal reassessment period pursuant to subparagraph 152(4)(a)(i) of the Act and incorrectly applied penalties.

(1) Statute Barred Years: Pursuant to section 152(4)(a)(i) of the Act, if neglect, carelessness or wilful default is established, the Minister can successfully reassess taxation periods beyond the normal reassessment period of three years.

The Crown alleged that Goldhar made misrepresentations in each of his 2008–2011 taxation years attributable to neglect, carelessness or wilful default. However, Justice Visser found that on a balance of probabilities, Goldhar did not conduct his affairs with neglect, carelessness or wilful default because he exercised the care of a wise and prudent person. Goldhar engaged lawyers and accountants to assist in filing his personal and corporate tax returns. Further, with the assistance of his spouse, Goldhar provided his accountant with all information necessary and on a timely basis.

Importantly, Justice Visser highlighted additional steps were not practical in the circumstances of the case because Goldhar would have had to be a tax expert to undertake a more thorough review, which is not the standard.

(2) Subsection163(2) Penalties: Given the complexity of Goldhar's business affairs and the efforts he took to provide his accountants and lawyers with all relevant information, Justice Visser held that subsection 163(2) penalties should not apply.

The case of Venne v The Queen, [1984] C.T.C. 223, 84 D.T.C. 6247 was referenced on the principle that gross negligence must involve a high degree of negligence tantamount to intentional acting or indifference as to compliance.

Justice Visser held that it was reasonable for Goldhar to rely on his professional accounting firm to ensure his tax returns were properly filed. Any failure to comply was not due to a lack of effort or due diligence on the part of Goldhar or his wife, and they did not knowingly fail to file or make any false statement or omission in a grossly negligent manner.

(3) T1134Penalties (Foreign Reporting): Justice Visser also found that Goldhar took all reasonable steps and was not negligent in filing his T1134 in each of his 2008–2011 taxation years. Due to the complexity of his financial affairs and lack of tax background, Goldhar reasonably relied on his accountants to properly file his tax returns in the 2008–2011 taxation years.

Goldhar reinforces the principle that relying tax advisors and accountants can help you overcome gross negligence penalties. It is critical to exercise care and diligence in your tax filing. Having honest and reasonable reliance on lawyers and accountants to help you in your tax matters can provide you protection against the Minister reassessing your tax return beyond the normal period and tax penalties.

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.

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