CRA publishes a substantially revised Circular on third-party penalties

CRA has published a revised version of its Circular on the third-party penalties imposed under s. 163.2, which represents a substantial rewriting of the previous version.

Points made include:

• Indicating the basic distinction between the penalty imposed under s. 163.2(2) and that under s. 163.2(4):

The planner penalty is directed primarily at any person who generally prepares, participates in preparing, selling, or promoting, either directly or in-directly, a planning activity or valuation activity.

…. The preparer penalty is generally directed at any person providing tax-related services to a taxpayer.

• Providing examples of misrepresentations in tax planning arrangements, including “a lawyer giving a favourable legal opinion about an abusive tax scheme knowing that it contains false statements” and “an accountant creating offshore structures to obtain a tax benefit relying on false statements”.
• However, stating that “CRA does not require more of reputable practitioners than compliance with the professional standards of their governing bodies.”
• Stating factors that may be relevant to determining whether penalties will be assessed:

• whether the position taken is obviously wrong, unreasonable, and/or contrary to well-established case law
• the person’s experience with the relevant subject matter and knowledge of the other person’s specific circumstances, or lack thereof
• the extent of knowing or deliberate participation in false statements
• the degree to which the culpable conduct represents the most aggressive and blatantly abusive behaviour
• the extent to which there is a pattern of repeated abuse
• the significance of the tax benefit

• Indicating that if “a practitioner discovers that another person made a false statement for tax purposes, the CRA expects practitioners to take the necessary steps to rectify the situation.”
• However, when the Circular then provides the example of a practitioner who discovers that the previous accountant of a new client had made a false statement by not reporting income of the client from the underground economy, CRA indicates that the practitioner should advise the client to make a voluntary disclosure (and, of course, that the practitioner not make the same omission in fresh returns) but does not suggest any further action including where a voluntary disclosure is declined.

Neal Armstrong. Summaries under IC 01-1R2 Third-Party Penalties 17 February 2026 under s. 163.2(1) – culpable conduct, excluded activity, subordinate, s. 163.2(2), s. 163.2(4), s. 163.2(5), s. 163.2(8), and s. 163.2(12).