http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/232213/index.do
Liu v. The Queen (June 21, 2017 – 2017 TCC 117, Bocock J.).
Précis: Mr. Liu was assessed with respect to unreported income for the 2010 and 2011 taxation years as well as gross negligence penalties in respect of such unreported business income. At or before trial the Crown made substantial concessions on the amount of unreported income. In addition, the Court allowed somewhat modest adjustments to the expenses Mr. Liu was entitled to claim. On balance the Court found that this was not an appropriate case for the imposition of gross negligence penalties and vacated the penalties imposed for 2010 and 2011. Although this was a general procedure case, the Court decided to make no order as to costs.
Decision: After a careful review of the factors touching upon the imposition of gross negligence penalties the Court concluded that this was not an appropriate case for such penalties:
[46] Altogether, the analysis of the factors above leave the Court with a certain uneasiness in concluding that Mr. Liu was indifferent to complying with the law or reckless to the point of reprehensible behaviour. He was unsophisticated, admitted his failings, attempted to comply, but through his ignorance, lack of knowledge and inexperience simply failed to do so. This was not the case of having no records or invoices, but merely keeping or mislaying them in an unhelpful, unorganised and unsorted manner. This was evident, when at the end of the hearing, Mr. Liu realized such documents existed, could be and were produced. Through the real-time explanatory process of the hearing, Mr. Liu gained an understanding of what was and is ultimately required. Such a revelation satisfied that Court that an abject lack of understanding and not gross negligence was the cause of the inaccurate returns. This lack of appreciation by Mr. Liu causes a gap in the imputation of a high enough degree of negligence to achieve the elevated level of intentional action or wrongful intent. As a result, the penalties are cancelled.
Although this was a general procedure case, the Court decided to make no order as to costs:
[47] In light of the mixed result, the general condition and unpreparedness of Mr. Liu’s documents at the outset of the hearing and the very helpful and useful efforts of Respondent’s counsel, the Court shall apply its discretion and award no costs in the appeal.
Thus the appeal was allowed to give effect to the concessions made by the Crown, the additional expenses allowed by the Court and to vacate the gross negligence penalties, with no order as to costs.