On July 31st, 2015, the Supreme Court of Canada (“SCC”) issued a landmark ruling in the case of Guindon v. Her Majesty the Queen, 2015 SCC 41. This case is particularly relevant as it dealt with the levy of penalties under section 163.2 of the Income Tax Act; that is a penalty on third party tax planners and tax preparers.
This case involved a nontax lawyer, Ms. Guindon, who prepared an opinion on the tax consequences of a charitable program to be used as part of the promotional package given to potential participants. Ms. Guindon prepared the tax opinion, despite having no tax law expertise and having never reviewed the material related to the program. Moreover, Ms. Guindon was a director of the charity and signed a number of false donation receipts.
Upon discovery of this activity, and uncovering that the donation scheme was actually a sham, CRA assessed Ms. Guindon as a third party planner and issued a penalty in excess of $540,000.00.
In issuing this assessment, CRA relied on s.163.2 of the Income Tax Act (“ITA”) which allowed CRA to impose penalties on any third party planner who knowingly, or taking action which amounts to “culpable conduct”, makes, or participates in making, fraudulent statements. Relying on s.163.2, the CRA claimed that Ms. Guindon’s actions showed an indifference to tax compliance and a disregard for the law.
Ms. Guindon argues that the application of s.163.2 of the ITA deemed her actions to be a criminal offense and, thus, she was deprived of a number of Canadian constitutional rights granted to any persons charged with a criminal offence.
The Supreme Court of Canada Decision
The real issue in this case, other than whether Ms. Guindon was negligent or at fault, is whether the penalty under s.163.2 was administrative or criminal in nature. The Court took the opportunity to set out exactly what they consider constitutes an administrative penalty and what constitutes a criminal penalty.
At paragraph 89, the Court concludes that the proceeding under s.163.2 is not criminal in nature and does not lead to the imposition of true penal consequences. We agree with Stratas J.A., writing for the Federal Court of Appeal, that “the assessment of a penalty under s.163.2 is not the equivalent of being ‘charged with a [criminal] offence.’ Accordingly, none of the s.11 rights apply in s.163.2 proceedings”: para. 37.
At paragraph 89, the Court adds, finally, we note that even though s.11 of the Charter is not engaged by s.163.2 of the ITA , those against whom penalties are assessed are not left without recourse or protection. They have a full right of appeal to the Tax Court of Canada and, as the respondent pointed out in her factum, have access to other administrative remedies.
Without a doubt, this decision shall have significant implications for tax professionals in Canada. The decision in Guindon should provide tax planners and advisers with the knowledge that s.163.2 of the ITA is an administrative deterrence. Any breach under this section could result in rather large monetary penalties for tax professionals and be upheld without any of the constitutional rights afforded to a criminal offender.
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Disclaimer: This article is provided as an information resource and is not intended to replace advice from a qualified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter referenced in this document before making decisions. Any use of this document does not constitute a lawyer-client relationship.