Taxpayer made false statements in circumstances amounting to gross negligence

Tax - Income Tax - Administration and enforcement

Taxpayer authorized tax preparer to complete tax returns via form acknowledging responsibility to review return before signing. Tax preparer filed tax return and, later, amended returns for prior years, which all claimed substantial business and capital losses that were queried and eventually denied by CRA in letters suggesting possibility of gross negligence penalties. Tax preparer filed taxpayer’s income tax return for year at issue, claiming business loss of $62,705.71 and capital loss of $62,206. Minister reassessed taxpayer under Income Tax Act, denying business and capital loss and imposing gross negligence penalty. Taxpayer appealed from penalty. Appeal dismissed. Taxpayer admitted that income tax return contained two false statements, claiming business losses in respect of business he was not carrying on and capital losses in respect of securities he had not owned or disposed of. As taxpayer knew tax preparer was claiming fictitious losses when he allowed it to file latest return, he made, participated in, or acquiesced in making of false statement. Taxpayer either knew or was wilfully blind to making of false statements. Given taxpayer’s provision of information and documents and application for GST registration number for fictitious business, taxpayer knew that tax preparer was taking position that he was carrying on business and claiming his personal expenses as business expenses. Taxpayer was able to understand duty to not make false statement on income tax return and made false statements in circumstances amounting to gross negligence as his conduct represented marked and substantial departure from conduct of reasonable person. Reasonable person would have sought professional advice before allowing tax preparer to apply “process” for generating large tax refunds in tax returns and certainly after receiving letters from CRA . Taxpayer chose not to review income tax returns prepared by tax preparer . Calculation of penalty was consistent with provisions of Act.

Saunders v. The Queen (2019), 2019 CarswellNat 442, 2019 CarswellNat 547, 2019 TCC 39, 2019 CCI 39, Steven K. D'Arcy J. (T.C.C. [Informal Procedure]).

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