Federal Appeal


Tax

Income tax

Administration and enforcement

Court held that taxpayers had been grossly negligent

Taxpayers were husband and wife, respectively retired draftsperson and employed administrative assistant, who went to R for tax preparation. Taxpayers met R, who was not affiliated with any established tax preparers, in coffee shop rather than professional office and he only charged $45 per return. R convinced taxpayers to make charitable donations through program with inflated gift receipts and to participate in investment program, in two taxation years. CRA challenged results of such participation. Taxpayers filed income tax returns for year in question, claiming business income, expenses, and losses and requesting loss carryback. Minister reassessed taxpayers under Income Tax Act, disallowing claimed business losses and applying gross negligence penalties. Taxpayers’ appeal with respect to imposition of penalties was dismissed. Tax Court judge concluded that taxpayers were not so lacking in education or experience as to claim ignorance and that warning signs about R’s professional status and his questionable prior dealing of schemes attracting CRA attention should have motivated them to inquire further. Taxpayers appealed. Appeal dismissed. Taxpayers did not demonstrate any error in Tax Court judge’s analysis of governing legal principles and appreciation of evidence. There was ample evidentiary foundation to support Tax Court judge’s conclusion of gross negligence. Tax Court judge concluded that taxpayers made no effort to verify accuracy and completeness of their returns, simply signing their returns without even examining them in circumstances where they should have been on notice that something was amiss. Tax Court judge concluded that, had taxpayers made most minimal effort, they would have easily noticed utterly false information contained in their returns. Conclusion that taxpayers had been grossly negligent could not be disturbed.

Maynard v. R. (2016), 2016 CarswellNat 5331, 2016 FCA 251, Donald J. Rennie J.A., Nadon J.A., and Stratas J.A. (F.C.A.); affirmed (2016), 2016 CarswellNat 214, 2016 TCC 21, Rommel G. Masse D.J. (T.C.C.).

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