Apex City – Tax Court of Canada finds that a due diligence defence was not available where the taxpayer incorrectly disagreed with a CRA position

A partnership (Apex) hired a general contractor to construct condos which it then sold. It was required under Reg. 238(2) to file T5018s if its business income was “derived primarily from” construction activities. MacPhee J rejected Apex’s argument that it was not in the business of constructing condos but, rather, “in the business of selling condos after they are constructed,” stating:

To ignore the construction component of the Appellant’s business would be an incorrect interpretation of the phrase “derived primarily from”.

A due diligence defence to s. 162(7) penalties also was not established given that Apex had become aware of CRA’s position that T5018s should be filed but had nonetheless chosen not to file the T5018s because it disagreed with that position. This did not come within the l’École Polytechnique doctrine (2004 FCA 127) that “due diligence excuses either a reasonable error of fact, or the taking of reasonable precautions to comply with the Act.”

Neal Armstrong. Summaries of Apex City Homes Limited Partnership v. The Queen, 2018 TCC 247 under Reg. 238(2) and s. 162(7).