A judgment that imposed a criminal standard of proof when the government goes after tax advisors has been overturned. The June decision from the Federal Court of Appeal, if it is not appealed further, means that tax advisors will not have as much protection from CRA penalties as they may have believed.
The appeal decision is a clear win for the Canada Revenue Agency (CRA); the agency had imposed fines of more than $500,000 on Ottawa lawyer Julie Guindon for advice involving a charitable tax shelter.
The Tax Court of Canada (TCC) found last fall that the penalty against Guindon was so severe that it amounted to a criminal sanction. The burden of proof in criminal cases is much higher than civil cases, and the TCC concluded that the criminal burden had not been met by the government.
The TCC also found, however, that if the CRA penalties were indeed civil, those penalties against Guindon should stand. The TCC case meant that the CRA faced a much tougher battle when it came to enforcing section 163.2 of the Income Tax Act (ITA). That section, which has been controversial, is designed to punish advisors who advise taxpayers to make false statements. (See CRA faces new hurdle pursing advisors, Investment Executive, November 2012.)
The Federal Court found that the TCC had no jurisdiction to make its decision because notice of a constitutional challenge had not been filed. Such notices are required; the government or others may wish to intervene, potentially affecting the outcome of the case. In addition, the status of legislation may change, if a court concludes that laws contravene rights guaranteed by the constitution.
In any event, the Federal Court also concluded that the penalties under s. 163.2 are not criminal in nature. Rather than relating to the most serious offences (criminal matters), this section deals with “ensuring the accuracy of information, honesty and integrity within the administrative system of self-assessment and reporting under the Act,” the decision says.
It adds: “Put another way, proceedings under section 163.2 aim at maintaining discipline, compliance or order within a discrete regulatory and administrative field of endeavor. They do not aim at redressing a public wrong done to society at large [as criminal law does].”