Section 163.2

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.

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).

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.

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).

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.