Section 163.2

Subsection 163.2(1) - Definitions

Culpable Conduct

Cases

Guindon v. Canada, 2015 SCC 41, [2015] 3 S.C.R. 3

conduct must be at least as bad as gross negligence

Before finding the preparer's penalty under s. 163.3(4) is not a criminal penalty so that the preparer does not benefit from procedural protections under s. 11 of the Charter, Rothstein J quoted the culpable conduct definition and stated (at paras. 58, 61):

"[W]ilful, reckless or wanton disregard of the law" refers to concepts well-known to the law, commonly encountered as degrees of mens rea in criminal law… . The use of such terms evinces a clear intention that "culpable conduct" be a more exacting standard than simple negligence. …

…[T]he standard must be at least as high as gross negligence under s. 163(2)… .

See summary under s. 163.2(4).

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 11 ITA s. 163.2(4) penalty not criminal so that s. 11 Charter protection not engaged 52
Tax Topics - Income Tax Act - Section 163.2 - Subsection 163.2(4) penalty not criminal so that s. 11 Charter protection not engaged 330

Administrative Policy

15 November 2000 Internal T.I. 2000-004847 -

The disclosure of the existence of a false statement in a return does not, but itself, preclude the penalty provisions of s. 163.2 from applying.

Subsection 163.2(2) - Penalty for misrepresentations in tax planning arrangements

See Also

Ploughman v. The Queen, 2017 TCC 64

promoter recommended the filing of false charitable receipts

Sommerfeldt J found that the individual (Mr. Ploughman) who, despite his submissions to the contrary, was found to be a creator or promoter of the charitable donation scheme at issue in Guindon, was also liable for s. 163.2 penalties. Shortly before the April 30 filing deadline, Mr. Ploughman sent a letter to the donors recommending that they submit their (false) charitable receipts to CRA. At that time, he was aware that the timeshare units which had purportedly been donated in the previous year had not yet been created, and was also aware that the trust which purportedly had distributed those units to the donors had not yet been settled (or was indifferent as to whether this was the case). Thus, Mr. Ploughman “participated in, assented to or acquiesced in the making of” the false donor statements.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163.2 - Subsection 163.2(4) promoter participated in false charitable receipt filings by recommending their filing 254
Tax Topics - Income Tax Act - Section 163.2 - Subsection 163.2(6) 399

Articles

Brian R. Carr, Grace Pereriera, "The Defence Against Civil Penalties", 2000 Canadian Tax Journal, Vol. 48, No. 6, p. 1737.

Subsection 163.2(4) - Penalty for participating in a misrepresentation

Cases

Guindon v. Canada, 2015 SCC 41, [2015] 3 S.C.R. 3

penalty not criminal so that s. 11 Charter protection not engaged

The taxpayer provided a legal opinion to the participants in a charitable donation "scheme [which] was a sham" (para. 8) on the tax consequences to them, in which she falsely represented that she had reviewed the relevant documentation. In her capacity of president of a registered charity which was involved in the scheme, she signed tax receipts. The Minister assessed the taxpayer for penalties of $546,747 under s. 163.2(5), calculated as 50% of the purported federal tax savings of all 134 participants in this program.

The Tax Court had found that her conduct was "culpable" under s. 163.2, but that as s. 163.2 created an offence, her assessment should be vacated as she had not been given the rights guaranteed by s. 11 of the Charter.

The Court exercised its discretion to consider the Charter question before it even though notice of that question had not been given to the federal and provincial Attorneys General in the Court proceedings below. However, s. 163.2 did not create an offence for purposes of s. 11. Rothstein J noted (at para. 62) that the purpose of proceedings by CRA to impose the s. 163.2 penalty "is to promote honesty and deter gross negligence, or worse, on the part of preparers, qualities that are essential to the self-reporting system of income taxation assessment," found that such proceedings do not "bear…the traditional hallmarks of a criminal proceeding," i.e., "the laying of a charge, an arrest, a summons to appear before a court of criminal jurisdiction, and…a criminal record" (para. 63), stated that although "if the amount at issue is out of proportion to the amount required to achieve regulatory purposes, this consideration suggests that it will constitute a true penal consequence" (para. 77), "the magnitude of penalties under s. 163.2(4) is directly tied to the objective of deterring non-compliance with the ITA" (para. 84) and found after referencing her "dishonesty" and "complete disregard of the law" that "the magnitude reflects the objective of deterring conduct of the type she engaged in" (para. 88).

See summary under s. 163.2(1) – culpable conduct.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 11 ITA s. 163.2(4) penalty not criminal so that s. 11 Charter protection not engaged 52
Tax Topics - Income Tax Act - Section 163.2 - Subsection 163.2(1) - Culpable Conduct conduct must be at least as bad as gross negligence 102

See Also

Ploughman v. The Queen, 2017 TCC 64

promoter participated in false charitable receipt filings by recommending their filing

A purported charitable donation program purported to entailed the settlement of a trust with time share units in respect of a property in the Turks and Caicos Islands, the distribution of those units to beneficiaries of the trust (the “Donors”) and the donation by the Donors of the units to registered charities in 2001. Mr. Ploughman was the president of the trustee of the trust, and was ultimately found by Sommerfeldt J (at para. 90) to be a “creator or promoter” of the donation program. Ms. Guindon, an Ottawa lawyer, issued a tax opinion letter on September 19, 2001, which listed the various documents that she ostensibly had reviewed in formulating her opinion, but some of those documents existed only in draft form. Mr. Ploughman unsuccessfully argued that his only involvement in this program was to market the program.

Sommerfeldt J found that when Mr. Ploughman sent a letter on April 5, 2002 to the Donors in which he recommended that they submit their official receipts to the CCRA, that for the purposes of s. 163.2(2), he participated in the making of, or caused the Donors to make or furnish, a false statement, and, for the purposes of s. 163.2(4), he participated in, assented to or acquiesced in the making of, a false statement by the Donors. When sending the letter, he was aware that the timeshare units which had purportedly been donated in 2001 had not yet been created, and was also aware that that the trust had not yet been settled (or was indifferent as to whether this was the case).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163.2 - Subsection 163.2(6) 399
Tax Topics - Income Tax Act - Section 163.2 - Subsection 163.2(2) promoter recommended the filing of false charitable receipts 134

Guindon v. The Queen, 2012 TCC 287, rev'd infra

The taxpayer was a family law and estates lawyer who also was the president of a registered charity. Various individuals (the "participants") supposedly acquired beneficial interests in an Ontario trust, which purportedly had been settled with time share units, in consideration for deferred payment obligations owing by them to the trustee, with the participants then "donating" their interests in the trust to the charity. The charity issued receipts (many of them, signed by the taxpayer) to the donors in amounts equal to 3 1/3 times the amount of their deferred payment obligations, and the charity received cash payments from the promoters based on the quantum of participant purchases of trust units.

The taxpayer provided a legal opinion to the participants on the tax consequences of this program based on oral assurances of the promoters and without review of documentation. She later learned that the trust was never settled with the time share units, so that the charitable donation aspects of the program were fictitious. The Minister assessed the taxpayer for penalties of $546,747 under s. 163.2(5), calculated as 50% of the purported federal tax savings of all 134 participants in this program.

Bédard J found that the taxpayer was not liable for penalties under s. 163.2(5) given that they were essentially criminal penalties.

He went on to find that if s. 163.2(5) had instead imposed a civil penalty, the taxpayer would have been liable therefor. First, although she had not signed all the receipts in question (which were false), she had participated with the charity's treasurer in their issuance, so that she had participated or assented to such false statements (para. 79). Second, although she very well may not have known that these statements were false at the time they were issued (which was the relevant time for applying s. 163.2(4) ), she knew that "her legal opinion was flawed and misleading" (para. 105), so that "her conduct [was] indicative either of complete disregard of the law ... or of wilful blindness" (para. 108).

The Court of Appeal, having rejected Bédard J's findings on the criminal penalties point, affirmed his findings under s. 163.2(4) and granted the Minister's appeal.

Administrative Policy

May 2016 Alberta CPA Roundtable, Q.13

penalty relief standards for gross negligence also applicable to culpable conduct

Guindon noted that the Minister’s factum suggested that the taxpayer relief provisions of s. 220(3.1) could be available to an individual assessed with a civil penalty. Before indicating that the position in IC07-1, paras. 37-38 respecting relief from gross negligence penalties being available only in exceptional circumstances would also apply to culpable conduct penalties (which were at issue in Guindon), CRA stated:

CRA policies and procedures have not changed in light of the Guindon SCC decision. The taxpayer relief provisions of subsection 220(3.1) could be available to an individual assessed a civil penalty…including a third-party penalty.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1) same (exceptional circumstances) policy applied to relief of penalties for culpable conduct as for gross negligence 118

Subsection 163.2(5) - Amount of penalty

See Also

Canada v. Guindon, 2013 DTC 5133 [at 6117], 2013 FCA 153, aff'd supra

The taxpayer provided a legal opinion to the participants in a charitable donation "scheme [which] was a scam" (para. 10) on the tax consequences to them, in which she falsely represented that she had reviewed the relevant documentation. In her capacity of president of a registered charity which was involved in the scheme, she signed tax receipts. The Minister assessed the taxpayer for penalties of $546,747 under s. 163.2(5), calculated as 50% of the purported federal tax savings of all 134 participants in this program.

The Tax Court had found that s. 163.2 created an offence - so that the taxpayer's assessment should be vacated as she had not been given the rights guaranteed by s. 11 of the Charter. The Tax Court lacked jurisdiction to make this finding as the taxpayer had not served notice of this constitutional question on the federal and provincial Attorneys General.

Stratas JA rejected an alternative submission that the taxpayer could assert those s. 11 rights (such as proof beyond a reasonable doubt) which did not override the wording of s. 163.2 ("section 11 is not a buffet table" (para. 35)) - and went on to note that, in any event, s. 163.2 did not create an offence: the penalties under s. 163.2 are "not about condemning morally blameworthy conduct," but rather for "ensuring that this discrete regulatory and administrative field of endeavour [i.e. taxation] works properly" (para. 41); and "sometimes administrative penalties must be large in order to deter conduct detrimental to the administrative scheme and policies [being] furthered" (para. 46).

Subsection 163.2(6)

See Also

Ploughman v. The Queen, 2017 TCC 64

Sommerfeldt J found that the individual (Mr. Ploughman) who, despite his submissions to the contrary, was found to be a creator or promoter of the charitable donation scheme at issue in Guindon, was also liable for s. 163.2 penalties. Shortly before the April 30 filing deadline, Mr. Ploughman sent a letter to the donors recommending that they submit their (false) charitable receipts to CRA. At that time, he was aware that the timeshare units which had purportedly been donated in the previous year had not yet been created, and was also aware that the trust which purportedly had distributed those units to the donors had not yet been settled (or was indifferent as to whether this was the case). Thus, Mr. Ploughman “participated in, assented to or acquiesced in the making of” the false donor statements.

Mr. Ploughman submitted that he had relied in good faith on the opinion letter of Ms. Guindon in viewing the legal steps pertaining to the donation program had been completed satisfactorily, as well as oral assurance of a Turks and Caicos Islands lawyer (Mr. Kerr) that the timeshare units would be created by April 30, 2002. Sommerfeldt J found that such reliance did not satisfy the statutory criteria of s. 163.2(6) and in any event, was not done in good faith. Respecting the first point, he noted that under s. 163.2(6), “the information on which the advisor relies must be provided by the person who ultimately makes the false statement or by someone acting on behalf of that person,” whereas here, the information which he claimed to have relied upon was not “provided to him by or on behalf of those Donors” (para. 64).

Respecting the second point, he noted that although phrase noted that although the phrase “good faith” has been interpreted as referring to the “’actual, existing state of the mind, whether so from ignorance, skepticism, sophistry, delusion, fanaticism, or imbecility, and without regard to what it should be from given legal standards of law or reason’,” he preferred the standard applied in MacAlpine v T.H. [1991] 5 WWR 699 (BCCA) of:

Honesty of intention, and freedom from knowledge of circumstances which ought to put the holder on inquiry.

Here, Mr. Ploughman should have known that steps referenced in the legal opinion, such as the creation of the trust, had not yet occurred, and should have been on notice that the process for creating the timeshare units was proceeding slowly.

Words and Phrases
good faith
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163.2 - Subsection 163.2(4) promoter participated in false charitable receipt filings by recommending their filing 254
Tax Topics - Income Tax Act - Section 163.2 - Subsection 163.2(2) promoter recommended the filing of false charitable receipts 134

Subsection 163.2(15) - Employees

Administrative Policy

December 2000 TEI Round Table, Q. XXVIII

An officer of a corporation will be considered to be an "employee... employed by the" corporation in applying s. 163.2(15).