Kim – Federal Court of Appeal indicates that a taxpayer may not be able to avoid a s. 163(2) penalty even where the Crown does not have its own witnesses
The taxpayer, who had claimed substantial fictitious business losses based on an unintelligible theory espoused by the “Fiscal Arbitrators” tax preparers, stated at the outset of the trial that the only issue being pursued by him was the gross negligence penalties. The Tax Court Judge then incorrectly told the taxpayer that he had the burden of convincing the Court that the facts underlying the penalty assessment were incorrect. After thus being misled by the Court, the taxpayer presented oral testimony of himself and the creator of Fiscal Arbitrators, before his appeal was dismissed.
Webb JA noted that if the taxpayer had remained seated rather than proffering this testimony, there would have been no evidence for the Crown to have satisfied its s. 163(3) onus. He nonetheless did not direct a fresh trial, applying the principle in Mercure, 2013 FCA 102 that:
The mere fact that a breach of procedural fairness occurred is enough to warrant a new trial. This general rule has only one exception, which is the case in which the question before the court has an inevitable answer.
If the taxpayer had not testified on his own account, the Crown could have compelled him to stand up as a Crown witness which, given the extreme facts, would have been sufficient to sustain the penalty.