Tax Court of Canada


Income Tax

Administration and enforcement

Taxpayer liable for gross negligence penalty

Taxpayer was certified general accountant whose participation in charitable donation program, on invitation of close friend, led to reassessments and significant tax liabilities for three taxation years during period when he lost employment. Friend then promised that such liabilities could be “reversed” by having organization prepare his next tax return. Taxpayer, who was spending significant amount of time outside Canada to assist with family’s foreign farm venture and was anxious about tax liabilities, authorized friend to look after preparation and filing of tax return. Taxpayer’s income tax return was prepared by organization to report net business loss of $274,576.54, eliminating his taxable income for that year as well as for three preceding years. Minister reassessed taxpayer under Income Tax Act, denying loss and imposing gross negligence penalty. Taxpayer appealed only to challenge penalty. Appeal dismissed. Statements in taxpayer’s income tax return claiming business income and expenses were false. Taxpayer’s education and work experience provided him with knowledge and understanding of business and financial matters. Taxpayer did not make inquiry into previously unknown tax preparing organization, partly because of misplaced trust in friend. Warning signs included magnitude of claimed business loss, ready visibility of false entries about business income and separate statement of business activities, and absence of tax preparer’s name and contact information in box beside where he signed. Taxpayer failed to see warning sign of referral by friend who had also recommended donation program. Friend’s “explanation” clearly did not explain how taxpayer could be entitled to refund of taxes but he readily agreed to let friend proceed as proposed to clear tax liabilities, without insisting on full explanation of contents of return. Considering all factors, taxpayer was wilfully blind when he signed return. Placing undue trust in tax preparer, to extent of signing return without reviewing it, demonstrated indifference as to whether Act was complied with or not. Taxpayer made false statements in tax return under circumstances amounting to gross negligence.

Rowe v. The Queen (2017), 2017 CarswellNat 3032, 2017 TCC 122, Don R. Sommerfeldt J. (T.C.C. [General Procedure]).

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