Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether the disclosure of the existence of a false statement in a return is sufficient to preclude the penalty provisions of section 163.2 of the Act from applying. It is claimed that the Hudson Bay Mining and Smeting Co., Limited case supports the view that the disclosure would be sufficient.
Position TAKEN:
It is our view that the fact that the existence of a false statement has been disclosed in a return does not, in and by itself, preclude the penalty provisions of section 163.2 of the Act from applying.
Reasons FOR POSITION TAKEN:
The determination of whether the third party civil penalty provisions apply in a particular situation is ultimately a question of fact which requires a review of all relevant facts of each particular situation, also taking into account that the stated intent of these provisions is to not apply in situations of an honest error of judgement, or an honest difference of opinion. Both subsections 163.2(2) and (4) refer to a person who, inter alia, "makes" a false statement and, in our view, the fact that a false statement has been disclosed does not negate the fact that it has been made.
We do not agree that the Hudson Bay case stands for the premise that disclosing the existence of a false statement will, in and by itself, preclude the application of a penalty, or even that the case is precedential setting with respect to the application of penalties. The central issue of that case was whether a particular amount qualified as a "gift" and, after deciding that it did not qualify as a gift, the Court went on to decide that the penalties of subsection 163(2) of the Act should not apply mainly because the taxpayer, in claiming a charitable deduction, relied on an audit opinion and a legal opinion obtained from reputable individuals. In addition, in that case, a false statement was made in a return, but the existence of the false statement (i.e., the fact that the statement was false) was not disclosed.
November 15, 2000
Mr. Walter Szyc HEADQUARTERS
Manager M. Azzi
Audit Directorate 957-8972
2000-004847
Third Party Civil Penalties - Section 163.2 of the Income Tax Act (the "Act")
This is in reply to your two memos of September 19, 2000, regarding the third party civil penalties provisions in section 163.2 of the Act. You have requested our views on a comment from XXXXXXXXXX, to the effect that he is of the view that if the existence of a false statement is disclosed in a return, then the third party penalty cannot apply. You also request our views on the application of the penalty to non-residents.
In our view, the determination of whether the third party civil penalties apply in a particular situation is ultimately a question of fact which requires a review of all relevant facts of each particular situation. Nonetheless, it is our view that the fact that the existence of a false statement has been disclosed in a return does not, in and by itself, preclude the penalty provisions of section 163.2 of the Act from applying. Both subsections 163.2(2) and (4) of the Act refer to a person who, inter alia, "makes" a false statement and, in our view, the fact that a false statement has been disclosed does not negate the fact that it has been made. Accordingly, as previously noted, in deciding whether to apply the penalty provisions of section 163.2 of the Act in a particular situation, we would have to review all surrounding circumstances, also taking into account that the stated intent of these provisions is to not apply in situations of an honest error of judgement, or an honest difference of opinion.
We would also note that there are varying degrees and forms of disclosure and, from the limited information provided, it is unclear as to what type of disclosure and circumstances XXXXXXXXXX is referring to. He cites the Hudson Bay Mining and Smeting Co., Limited case (86 DTC 6244, FCTD, affirmed 89 DTC 5515, FCA) as support; however, in that case, a false statement was made in a return, but the existence of the false statement (i.e., the fact that the statement was false) was not disclosed. That is, in that case, the taxpayer claimed a deduction for a gift on its corporate tax return; however, the taxpayer did not disclose the fact that the amount did not qualify as a gift. In any event, we do not agree that the Hudson Bay case stands for the premise that disclosing the existence of a false statement will, in and by itself, preclude the application of a penalty, or even that the case is precedential setting with respect to the application of penalties. The central issue of that case was whether a particular amount qualified as a "gift" and, after deciding that it did not qualify as a gift, the Court went on to decide that the penalties of subsection 163(2) of the Act should not apply mainly because the taxpayer, in claiming a charitable deduction, relied on an audit opinion XXXXXXXXXX obtained from reputable individuals. We would also note that, arguably, the Hudson Bay case dealt with whether the false statement was made "under circumstance amounting to gross negligence", rather than being made "knowingly", whereas in a situation involving the disclosure of the existence of a false statement, the person disclosing this information would necessarily "know" that the statement is false.
As indicated in our letter of August 22, 2000 to Mr. Nanner of your Directorate, relating to the examples (and, in particular, example 1) which were to be discussed at the 2000 Canadian Tax Foundation Conference, it is our view that the third party penalties of section 163.2 of the Act can apply to non-residents. It is our understanding that this was confirmed at the Conference. As regards to your enquiries relating to the processes and policies for collecting such amounts from non-residents, we would suggest that you consult with Assessment and Collections Branch, as such issues fall within their area of responsibility.
We trust that these comments will be of assistance.
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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