Strachan v. R. – FCA: Federal Court of Appeal upholds gross negligence penalties in Fiscal Arbitrators case

Bill Innes on Current Tax Cases New Window

Strachan v. Canada
(March 2, 2015 – 2015 FCA 60, Dawson (Author), Stratas, Scott JJA).

Précis: Ms. Strachan’s case was heard in the Tax Court on common evidence with a number of others, all involving fictitious losses and the Fiscal Arbitrators group. That decision was blogged here earlier under the name Torres v. The Queen. The Tax Court upheld gross negligence penalties where she claimed gross business income of $15,000 and a business loss of $62,068 in 2007 which she used to offset her employment income. She had neither business income nor loss. She appealed to the Federal Court of Appeal which found no error in the Tax Court decision and dismissed the appeal from the bench with costs to the Crown.

Decision: Ms. Strahan claimed a fictitious business loss in her 2007 taxation year:

[2] For reasons cited as 2013 TCC 380, a judge of the Tax Court of Canada dismissed an appeal brought by the appellant from the assessment of a gross negligence penalty in respect of the 2007 taxation year. The facts giving rise to the imposition of the penalty were that the appellant, at the behest of an unscrupulous tax preparer, claimed a fictitious business loss in an amount sufficient to generate a complete refund of all taxes paid by the appellant in respect of her employment income.

The Court of Appeal dismissed her appeal from the bench, with costs to the Crown:

[4] First, as conceded in oral argument by counsel for the appellant, the Judge made no error in articulating the applicable legal test. Gross negligence may be established where a taxpayer is willfully blind to the relevant facts in circumstances where the taxpayer becomes aware of the need for some inquiry but declines to make the inquiry because the taxpayer does not want to know the truth (Canada (Attorney General) v. Villeneuve, 2004 FCA 20, 327 N.R. 186, at paragraph 6; Panini v. Canada, 2006 FCA 224, [2006] F.C.J. No. 955, at paragraphs 41-43).

[5] Contrary to counsel for the appellant’s submissions, the Judge’s reasons demonstrate that he properly considered the appellant’s background and circumstances.

[6] Second, the appellant has failed to establish that the Judge misapplied the correct legal test. No palpable and overriding error has been shown in the Judge’s finding of mixed fact and law that given the numerous “warning” signs, the appellant was required to make further inquiries of her tax preparer, an independent advisor or the Canada Revenue Agency itself before signing her tax return. Nor has any palpable and overriding error been shown in the Judge’s conclusion that the circumstances precluded a defence that, based upon the wrongful representations of her tax preparer, the appellant believed that what she was doing was permissible.

[7] In the result, the appeal will be dismissed with costs.