Frank-Fort Construction – Tax Court of Canada reverses gross negligence penalty for failure of new home builder to report two sales

D’Auray J found that a one-man corporation that had a business of constructing (through using third-party contractors) and selling about 10 or 20 new homes per year had not been demonstrated by the Crown to be liable for gross negligence penalties for failure to report in its GST returns two of the home sales it made in the 2 ½ year audit period. Factors noted by her included:

  • all the necessary information for preparing the tax returns and financial statements had been provided to the taxpayer’s CPA firm
  • due to an inexplicable error on the part of the CPA firm, the receipts from the two sales had been recorded as proceeds of mortgage loans received by the taxpayer
  • the GST returns were prepared and signed by an accountant at the CPA firm, which delegation did not constitute gross negligence on the part of a taxpayer whose principal had no accounting background and a modest education
  • although there also had been failures to report sales in preceding reporting periods for which QST penalties had been assessed, the taxpayer had been assured by a different accountant at the CPA firm that he would now personally attend to the file

Neal Armstrong. Summary of Frank-Fort Construction Inc. v. The Queen, 2020 CCI 6 under ETA s. 285(1).