Federal Court of Appeal overturns decision in Guindon

publication date: Sep 18, 2013
author/source: Karen J. Cooper

Karen Cooper photoOn June 12, 2013, the Federal Court of Appeal (FCA) released its judgment in Guindon, J. v. The Queen (2013 FCA 153), which essentially overturned a previous Tax Court of Canada (TCC) ruling setting aside a penalty that Canada Revenue Agency had assessed against Ms. Guindon for her part in a charitable donation scheme.


Ms. Guindon had provided a legal opinion on the “The Global Trust Charitable Donation Program,” in respect of which she issued 134 charitable donation receipts As a result of an investigation, CRA assessed a penalty of $564,747 against her under section 163.2 of the Income Tax Act. That section provides for monetary penalties assessable against third parties who knowingly, or in circumstances amounting to gross negligence, participate in, promote, or assist conduct that results in another taxpayer making a false statement or omission in a tax return.

The TCC had held that section 163.2 created an “offence” such that Ms. Guindon had the rights set out in section 11 of the Charter. Her penalty was overturned on the basis that CRA had not respected these rights in its investigation and assessment process (see Charity Law Bulletin No. 291 for a detailed discussion of the TCC decision).

Federal Court reasoning

Given the constitutional nature of the argument, however, the FCA held that Ms. Guindon should have been obligated to serve a notice of constitutional question when she sought a finding that a section of the Act was invalid, inoperative or inapplicable. Since she failed to do so, the FCA held that the TCC had no jurisdiction in this instance to consider whether section 163.2 of the Act created a criminal offence, and her penalty should not have been overturned.

In the alternative, the FCA reviewed the TCC’s assessment of the criminal nature of the penalty under section 163.2. The FCA compared the penalty and offence provisions in the Act in order to determine whether a penalty in the Act could be considered a criminal offense. The Act contains approximately 60 penalty provisions, including section 163.2, which prescribe non-discretionary fixed amounts or non-discretionary formulae for the calculation of a penalty to be included in an assessment.

The FCA determined that these provisions provided no evaluation of the “moral blameworthiness or turpitude on the conduct.” In comparison, the FCA determined that the offence provisions were punishable by fines, imprisonment or both, and none were fixed or calculated by a rigid formula. According to the FCA, proceedings under section 163.2 were put in place to maintain discipline, compliance or order “within a discrete regulatory and administrative field of endeavour” and are, therefore, not criminal in nature.

Possible reduction of penalty earlier?

In response to some commentators suggesting that the application of section 163.2 is unfair, the Court also noted that penalties imposed under subsection 163(3) of the Act are subject to appeal to the TCC, and it is up to the Minister to demonstrate the facts that would justify the penalty. The FCA stated that some penalties set by formulae or in fixed amounts that are administrative in nature may be harsh, but relief may be found under subsection 220(3.1) of the Act. The Minister’s discretion on an application for relief must be “genuinely exercised and must not be fettered or dictated by policy statements such as Information Circular 07-1”, and her discretion must be based on the “purposes of the Act, the fairness purposes that lie behind subsection 220(3.1) of the Act, and a rational assessment of the all of the relevant circumstances of the case.” 

In this case, Ms. Guindon had the ability to request the cancelation of all or some of her penalty from the Minister, yet she did not choose this recourse, so whether or not the Minister would have reduced her penalty is not known.

Courts will support CRA against questionable donation schemes

This decision by the FCA to enforce the substantial penalty assessed against Ms. Guindon, and other recent Tax Court decisions, show that neither CRA nor the courts will tolerate charitable donation schemes. Individuals and charities who are considering taking part in these schemes should be aware of the significant legal and financial consequences of such a move, and should seek legal advice before doing so. Advisors to charities and the planners considering such schemes should be mindful of the potential personal consequences of participating in charitable donation tax shelters. It is doubtful, given CRA’s current approach to such participants, that comfort can be had from CRA’s discretion to waive the penalties in some circumstances.

Karen J. Cooper is a partner with Carters Professional Corporation and practices charity and not-for-profit law in the firm’s Ottawa office. Formerly a Senior Rulings Officer with the Income Tax Rulings Directorate of Canada Revenue Agency, as well as former counsel for the Department of Justice in tax litigation. Ms. Cooper also is a contributing author to The Management of Charitable and Not-for-Profit Organizations in Canada (LexisNexis Butterworths, 2009) and has been recognized as a leading expert in charity and not-for-profit law by Lexpert and The Best Lawyers in Canada. Contact her by email.

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