Imposition of gross negligence penalty upheld on appeal

Tax court of Canada | Taxation

Income tax

Imposition of gross negligence penalty upheld on appeal

As result of introduction from his long-time friend, taxpayer had Fiscal Arbitrators organization prepare his 2009 tax return in such way as to claim very large fictitious business losses, which would result in refund of taxes for 2006 through 2009 taxation years. Canada Revenue Agency (CRA) disallowed losses and imposed gross negligence penalty pursuant to s. 163(2) of Income Tax Act (Can.). Taxpayer appealed imposition of penalties. Appeal dismissed. Taxpayer’s 2009 tax return contained false statements, as he never owned or operated business. Taxpayer did not knowingly make false statements since he was not aware of what was in his return. Taxpayer did make, or participate in, assent to, or acquiesce in making of, false statements amounting to gross negligence. Taxpayer was not so lacking in education, intelligence or experience as to claim ignorance. There were ample warning signs that should have aroused taxpayer’s suspicions, such as not knowing organization, paying exorbitant fee to organization, lack of explanations by organization regarding preparation of return, and large magnitude of refund. False statements were blatant and readily detectable, had taxpayer looked at return. Taxpayer did not make genuine effort to comply with law or to respond to CRA’s letters. Taxpayer chose to remain blissfully ignorant and place his complete trust in organization, which amounted to wilful blindness.
Daszkiewicz v. R. (Feb. 12, 2016, T.C.C. [General Procedure], Rommel G. Masse D.J., 2013-492(IT)G) 263 A.C.W.S. (3d) 527.


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