Ploughman – Tax Court of Canada indicates that a defence under s. 163.2(6) of “good faith” reliance on information is unavailable where the reliance was unreasonable
In Guindon, a family lawyer and president of a charity was liable for penalties under s. 163.2(4) for issuing charitable receipts to 134 different investors in a charitable donation scheme after falsely representing in a tax opinion that that she had looked at the implementing documents (which did not exist). Sommerfeldt J has now found that the individual (Mr. Ploughman) who, despite his protestations to the contrary, was found to be a creator or promoter of the charitable donation scheme at issue in Guindon, was also liable for s. 163.2 penalties.
The particular act which Sommerfeldt J focused on was that, shortly before the April 30 filing deadline, Mr. Ploughman sent a letter to the donors recommending that they submit their (false) charitable receipts to CRA. At that time, he was aware that the timeshare units which had purportedly been donated in the previous year had not yet been created, and was also aware that the trust which purportedly had distributed those units to the donors had not yet been settled (or was indifferent as to whether this was the case). Thus, Mr. Ploughman “participated in, assented to or acquiesced in the making of” the false donor statements.
Sommerfeldt J rejected Mr. Ploughman’s submission that he had relied in good faith on the opinion letter of Ms. Guindon. First, the s. 163.2(6) safe harbour for good-faith reliance applied only to information provided by or on behalf of the donors, which was not the case here. Second, he noted that although the phrase “good faith” has been interpreted as referring to the “’actual, existing state of the mind, whether so from ignorance, skepticism, sophistry, delusion, fanaticism, or imbecility’,” he preferred the standard applied in a BC Court of Appeal decision of:
Honesty of intention, and freedom from knowledge of circumstances which ought to put the holder on inquiry.
Mr. Ploughman was not free of knowledge that should have put him on inquiry.