Federal Appeal


Income tax

Administration and enforcement

Minister imposing gross negligence penalties against taxpayer for failing to review tax return

In 2007, two holding companies owned and controlled by taxpayer paid him dividends, resulting in taxable dividends. Accountants failed to include dividends in taxpayer’s 2007 tax return, which taxpayer did not read or review before signing. Minister imposed gross negligence penalties against taxpayer. Tax Court judge dismissed taxpayer’s appeal on ground that penalties were warranted because of wilful blindness to actual content of tax return. Judge held that taxpayer assented to, participated or acquiesced in omission of dividends in his tax return in circumstances amounting to gross negligence. Size of omitted dividends was objectively massive, and related to unique and planned event of retirement. Taxpayer’s failure to review return was departure from his usual practice. Judge found that warning signs of omitted dividends were sufficient to strongly suggest that taxpayer initiate specific inquiry and review of tax return, and yet taxpayer averted his eyes to any warning. Taxpayer appealed. Appeal dismissed. Judge articulated correct legal test for establishing gross negligence. Minister did not need to establish that taxpayer knowingly made omission. Judge did not make any palpable and overriding error with respect to findings, which supported finding of wilful blindness amounting to gross negligence. Taxpayer did not demonstrate any palpable and overriding error in judge’s appreciation of totality of evidence.

Melman v. R. (2017), 2017 CarswellNat 1808, 2017 FCA 83, Eleanor R. Dawson J.A., Webb J.A., and Rennie J.A. (F.C.A.); affirmed (2016), 2016 CarswellNat 3044, 2016 TCC 167, Randall S. Bocock J. (T.C.C. [General Procedure]).

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