Wynter v. R. – FCA: Claiming false business loss amounted to willful blindness – penalties upheld

Wynter v. R. – FCA:  Claiming false business loss amounted to willful blindness – penalties upheld


Wynter v. Canada (September 22, 2017 – 2017 FCA 195, Pelletier, Rennie (author), Woods JJ.A.).

Précis:   The appellant, who was employed at Chrysler, claimed a business loss of $447,148.31 in 2009.  Although the loss was initially allowed, she was subsequently reassessed to deny the loss and a gross negligence penalty of $51,569.49 was applied.  The Tax Court dismissed her appeal of the penalty and she appealed to the Federal Court of Appeal.  The primary basis of the appeal was that the Tax Court judge erred in imposing too low a standard for a finding of “wilful blindness”.  Counsel argued that the test, established in Supreme Court criminal jurisprudence, involved finding an intention to “cheat”.  The Federal Court of Appeal rejected this argument holding that imposing a criminal law standard was not appropriate for the imposition of gross negligence penalties under the Income Tax Act (the “Act”).  Wilful blindness connotes suppressing a suspicion; references to an intention to cheat are a distraction.  As a result the appeal was dismissed with costs to the Crown.

Decision:   While this decision was under reserve for some 7 months it does not appear that the Court had difficulty reaching a decision but rather that it wanted to set out some clear guidance on the distinctions between “willful blindness” and “gross negligence” under the Act, particularly in the case of so-called “gross negligence penalties” under subsection 163(2).

[12]           The distinction between gross negligence – determined by an objective assessment of the comportment of the taxpayer – and wilful blindness – determined by reference to the taxpayer’s subjective state of mind – has a long history. Admittedly, it is, on occasion, a fine distinction and one that is not always clearly drawn. Nonetheless, Parliament is taken to have been cognizant of the distinction.

[13]           A taxpayer is wilfully blind in circumstances where the taxpayer becomes aware of the need for inquiry but declines to make the inquiry because the taxpayer does not want to know, or studiously avoids, the truth. The concept is one of deliberate ignorance: R. v. Briscoe, 2010 SCC 13 at paras. 23-24, [2010] 1 S.C.R. 411 (Briscoe); Sansregret at para. 24. In these circumstances, the doctrine of wilful blindness imputes knowledge to a taxpayer: Briscoe at para. 21. Wilful blindness is the doctrine or mechanism by which the knowledge requirement under subsection 163(2) is met.

[14]           I turn to the appellant’s main argument. The appellant contends that wilful blindness requires evidence sufficient to demonstrate that the taxpayer actually knew the return was false and that the taxpayer “intended to cheat the administration of justice”.

[15]           The jurisprudence does not support the conclusion that an intention to cheat is a prerequisite for a finding of knowledge, and in particular, of wilful blindness. The decision of the Supreme Court of Canada in Guindon v. Canada, 2015 SCC 41, [2015] 3 S.C.R. 3 (Guindon), removes any doubt. The Supreme Court agreed with the decision of this Court, cited as Canada v. Guindon, 2013 FCA 153 at para. 37, [2014] 4 F.C.R. 786, which stated that “the assessment of a penalty under section 163.2 [dealing with tax preparers] is not the equivalent of being ‘charged with a [criminal] offence.’” While there is still a mental element present in subsection 163(2), I also note the Supreme Court’s endorsement in Guindon at paragraphs 60-62 of the reasons of Justice Strayer in Venne v. The Queen (1984), 84 D.T.C. 6247, [1984] C.T.C. 223 (Venne), and those of the Tax Court in Sidhu v. The Queen, 2004 TCC 174 at para. 23, 2004 D.T.C. 2540 that “[t]he burden here is not to prove, beyond a reasonable doubt, mens rea to evade taxes.”

[16]           In sum, the law will impute knowledge to a taxpayer who, in circumstances that suggest inquiry should be made, chooses not to do so. The knowledge requirement is satisfied through the choice of the taxpayer not to inquire, not through a positive finding of an intention to cheat.

[17]           While evidence, for example, of an actual intent to make a false statement would suffice to meet the “knowingly” requirement of subsection 163(2), requiring an intention to cheat to establish wilful blindness is inconsistent with the well-established jurisprudence that wilful blindness pivots on a finding that the taxpayer deliberately chose not to make inquiries in order to avoid verifying that which might be such an inconvenient truth. The essential factual element is a finding of deliberate ignorance, as it “connotes ‘an actual process of suppressing a suspicion’”: Briscoe at para. 24. I would add that, in the context of subsection 163(2), references to “an intention to cheat” are a distraction. The gravamen of the offence under subsection 163(2) is making of a false statement, knowing (actually or constructively, i.e., through wilful blindness) that it is false.

[18]           Gross negligence is distinct from wilful blindness. It arises where the taxpayer’s conduct is found to fall markedly below what would be expected of a reasonable taxpayer. Simply put, if the wilfully blind taxpayer knew better, the grossly negligent taxpayer ought to have known better.

[19]           Gross negligence requires a higher degree of neglect than a mere failure to take reasonable care. It is a marked or significant departure from what would be expected. It is more than carelessness or misstatements. The point is captured in the decision of this Court in Zsoldos v. Canada (Attorney General), 2004 FCA 338 at para. 21, 2004 D.T.C. 6672:

In assessing the penalties for gross negligence, the Minister must prove a high degree of negligence, one that is tantamount to intentional acting or an indifference as to whether the law is complied with or not. (See Venne v. R.(1984), 84 D.T.C. 6247 (Fed. T.D.), at 6256.)

[20]           There is no question that, while conceptually different, gross negligence and wilful blindness may merge to some extent in their application. A taxpayer who turns a blind eye to the truth and accuracy of statements made in their income tax return is wilfully blind, and is also grossly negligent. The converse is not, however, necessarily true. A grossly negligent taxpayer is not necessarily wilfully blind. The possibility of this dual characterization of the same conduct may, on occasion, give rise to imprecision in the jurisprudence in the description of the alternative ways in which the Crown may meet its burden. Similarly, the common practice of referring to penalties imposed under subsection 163(2) as “gross negligence penalties” blurs the fact that the penalties may arise under either the knowledge or gross negligence heading. This ought to be avoided. What is at issue under subsection 163(2) is a penalty, which may be imposed either by a finding of knowledge or a finding of gross negligence.

[21]           While subjective considerations may play a role in either analysis, gross negligence is determined with reference to an objective test. In particular, where gross negligence is alleged, I would expect consideration of whether the conduct of the taxpayer at issue is such a marked departure from what would be expected that it constitutes a high degree of negligence sufficient to be characterized as a marked departure from the standards, practices, and due diligence expected of a responsible taxpayer. The cautionary words of the Supreme Court of Canada in Guindon, at paragraph 61, are equally applicable here; these penalties “are meant to capture serious conduct, not ordinary negligence or simple mistakes”.


While this decision seems bound to become a touchstone for the application of penalties under the Act (other than penalties involving strict liability), it was of not assistance to Mrs. Wynter.  Her appeal was dismissed with costs.