Spurvey v. R. - TCC: Gross negligence penalties on fictitious losses - Take #2

Spurvey v. R. - TCC:  Gross negligence penalties on fictitious losses - Take #2


Spurvey v. The Queen  (December 1, 2015 – 2015 TCC 300, Masse D.J.).

Précis:   This is another decision on fictitious losses released on the same day as the Chartrand decision blogged earlier on this site.  In this case the facts were slightly more bizarre.  The tax preparers peddling the scheme were only identified by first names and told the Mr. and Mrs. Spurvey that they were entitled to a tax holiday by virtue of a prior constitutional amendment.  Again the only issue before the Court was the imposition of penalties.

While the Court sympathized with the hardship the penalties might cause for a couple of very modest means it dismissed both appeals awarding costs to the Crown if it sought them.

Decision:   This decision is summarized in the concluding paragraphs:

[56]        There is no doubt that the Appellants’ 2008 T1 adjustment requests, their 2009 tax returns and the related requests for loss carryback contained false statements — the Appellants did not carry on a business and they did not incur any business losses whatsoever. I can come to no other conclusion than that the Appellants were wilfully blind as to the speciousness of these statements. There were many red flags or warning signs and they simply ignored them all. I am satisfied that the Crown has discharged its burden of proof and I am satisfied that the Appellants made the false statements in their returns in circumstances amounting to gross negligence. As such, they are properly subject to the penalties imposed pursuant to subsection 163(2) of the Act.

[57]        The Appellants are people of modest means and the penalties are very harsh. The Appellants will certainly suffer hardship as a result of these penalties. However, I can offer no relief against the harshness of the penalties. The only question I can decide is whether the penalties are well founded or not.

[58]        The Court draws to the Appellants’ attention the fact that a waiver of the penalty and interest may be sought from the CRA pursuant to the taxpayer relief provisions in subsection 220(3.1) of the Act. This Court has no role to play in relation to such applications and it should be made clear that a waiver of penalty and interest lies entirely in the discretion of the Minister. Such an application is made to the CRA; the CRA publishes an information circular (IC07‑1) as well as a form (RC4288) for making taxpayer relief applications.

[59]        For all the foregoing reasons, these appeals are dismissed. The Respondent is entitled to her costs if she wants them.