https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/363865/index.do
Saunders v. The Queen (February 20, 2019 – 2019 TCC 39, D’Arcy J.).
Précis: This is yet another case of a taxpayer claiming fictitious losses in 2011 using a tax promoter that was subsequently convicted criminally for its tax preparation activities. What distinguished this case to some extent is that at the time the taxpayer filed his 2011 return CRA had already advised him they were denying similar losses claimed in 2009 and 2010 and considering the imposition of gross negligence penalties. CRA did apply gross negligence penalties in 2011 and the taxpayer sought in this appeal to have them vacated. The Court dismissed the appeal holding that the facts justified the imposition of penalties. There was no order as to costs as this was an informal procedure appeal.
Decision: The Court made short work of the taxpayer’s claims to have the gross negligence penalties vacated:
[63] The Appellant testified that he participated in a conference call and received material from DeMara … [the convicted tax promoter] … describing the “Remedy” process. He stated that he did not understand the process. He also testified that he believed it would generate large refunds. A reasonable person would have sought professional advice from either an accountant or a lawyer before allowing DeMara to file income tax returns using the Remedy process, especially when the person was aware of the fact that the process involved claiming personal expenses as business expenses that would result in large refunds.
[64] A reasonable person would certainly have sought advice after receiving the letters from the CRA denying the business and capital losses claimed in other years.
[65] As a result of receiving the CRA letters, the Appellant was aware, before DeMara filed his 2011 income tax return, that DeMara had claimed fictitious business losses and capital losses in his previous income tax returns. In such a situation, a reasonable person would have reviewed the 2011 income tax returns before they were filed to ensure that DeMara was not claiming any additional fictitious losses.
[66] The Appellant was certainly aware that a person should review his or her income tax returns before they are filed with the CRA. He reviewed the 2008 and 2009 income tax returns prepared by Mr. Rossworn … [his former chartered accountant] … before they were filed with the CRA. Also, the Appellant acknowledged in the agreement he signed with DeMara that he was responsible for reviewing his income tax returns.
[67] However, he chose not to review the income tax returns prepared by DeMara. This is particularly troublesome since he testified that he knew very little about the principals behind DeMara and, in particular, did not know if they were accountants.
[68] In my view, on the evidence before me, the Appellant’s conduct with respect to DeMara represents such a marked and substantial departure from the conduct of a reasonable person in the same circumstances that it constitutes gross negligence as described in Venne.
Thus the Court dismissed the appeal holding that the facts justified the imposition of penalties. There was no order as to costs as this was an informal procedure appeal.