Wardlaw – Tax Court of Canada notes that the effective s. 163(2) penalty rate can exceed 50% where there has been a loss carryback

The taxpayer claimed a fictitious business loss of over $357,000, and requested that the excess of the claimed loss over what he could use in the current year be carried back to the prior three years. The s. 163(2) penalty was computed by multiplying the 50% penalty rate by the amount of additional tax that would have been payable by him in the current year if the false $357,000 claim were added to his reported taxable income for the year. Given that this produced a higher effective tax rate than the tax applicable to the taxable income of the prior years to which the carryback had been applied, the penalty worked out to over 70% of the tax he sought to eliminate.

Jorré DJ stated:

[I]t does seem odd that what is apparently meant to be a 50% penalty can, where a loss carry back is involved, become a significantly higher percentage.

The Appellant may wish to consider making an application for a reduction of the penalty and interest under … subsection 220(3.1) … .

Neal Armstrong. Summary of Wardlaw v. The Queen, 2019 TCC 199 under s. 163(2).