JULIE GUINDON, Appellant, v. HER MAJESTY THE QUEEN,, 2012 TCC 287

Citation: 2012 TCC 287 Date: 201210 16 Docket: 2009-3368(IT)G BETWEEN: JULIE GUINDON, Appellant, and HER MAJESTY THE QUEEN, Respondent. AMENDED REASONS FOR JUDGMENT Bédard J. [ 1 ] The participants in a donation program (the “Program”) were to acquire timeshare units as beneficiaries of a trust for a fraction of their value and donate them to a charity in exchange for tax receipts for the actual value of the units. No donation ever took place as the timeshare units never existed and no trust was settled.

The Minister of National Revenue (the “Minister”), on the basis that the Appellant made, participated in, assented to or acquiesced in the making of 135 tax receipts that she knew, or would reasonably be expected to have known, constituted false statements that could be used by the participants to claim an unwarranted tax credit under the Income Tax Act (the “ Act ”), assessed against the Appellant on August 1, 2008 penalties under

section 163.2 of the Act in the amount of $546,747 in respect of false statements made in the context of that donation program. The Appellant appealed the assessment. [ 2 ] I would point out immediately that the Minister admitted he was wrong in assessing the third party penalty against the Appellant in respect of the tax receipt that was issued in her name. The penalty associated with that tax receipt should have been assessed under subsection 163(2) of the Act and not under subsection 163.2(4) of the Act . [ 3 ] The parties submitted in evidence the following Agreed Statement of Fact: 1.

The appellant is a Canadian resident. 2. The appellant is a lawyer practising in Ontario since 1991. 3. While she did some real estate law when she first started her practice, the appellant’s main fields of practice were and remain family law and wills/estates law. 4. Aside from the legal opinion involved in this appeal, the appellant has not practiced nor does she have any expertise in income tax law.

5. Starting in May 2001, the appellant had various meetings with Lee Goudie, the representative of Tropical Development Ltd. (“TDL”), a company incorporated and established under the laws of Turks and Caicos Islands, and Richard St-Denis and Glen Ploughman, representatives of KGR Tax Services Ltd. (“KGR”). Goodie [ sic ], St-Denis and Ploughman are referred to collectively in this document as the “Principals”. 6. In some documents TDL is also referred to as Tropical Amusement Inc., Tropical Development International Inc. and Tropical Development International Ltd. 7.

St-Denis is the appellant’s cousin and was the appellant’s financial advisor from 1991 to 2002. 8. The appellant was asked by the Principals to prepare a legal opinion (by reviewing a similar opinion on a different program) on a program involving a tax reduction through a leveraged donation structure which was called The Global Trust Charitable Donation Program (the “Program”). 9. The Program was planned by the Principals. 10. During the appellant’s discussions with the Principals, which discussions started in May 2001, the Program was verbally relayed to the appellant and outlined as follows: a.

Gordon Kerr, a lawyer and resident of Turks and Caicos Island [ sic ] (the “Settlor”) had agreed to be the settlor of a trust in Ontario called the Global Trust of Canada (the “Trust”); b. The Trust was for the benefit of a class of individuals who were both residents and non-residents of Canada and who had indicated a willingness to support charitable organizations; c. KGR had agreed to be the Trustee of the Trust; d.

The Settlor was going to acquire timeshare units called Biennial Vacation Ownership Weeks (“VOWs”) from TDL, which held the property of Hawkes Nest Plantation Resort/Arawak Inn in Turks and Caicos Island [ sic ]; e. After acquiring the VOWs the Settlor would gift the VOWs to the Trustee, who in turn would exchange the VOWs to the beneficiaries of the Trust, in return for the payment of a vendor take-back charge; f. The amount of the vendor take-back charge that was to be paid by beneficiaries of the Trust was $3,248 per VOW; g.

It was anticipated that the beneficiaries would donate the VOWs to a registered Canadian charitable organization for a receipt for the fair market value of the donated VOWs; and h. The VOWs were valued at $10,825 per VOW. 11. In a letter dated July 10, 2001 addressed to Goudie, the appellant accepted a retainer of one thousand dollars ($1,000) to prepare the opinion letter and confirmed inter alia that: a. The area of tax law did not fall within her field of expertise and therefore recommended that the representative of TDL have a tax

lawyer and an accountant review her opinion to ensure its accuracy; b. That Gordon Kerr had accepted to be the settler [ sic ] of the Trust; and c. That the appellant was waiting to review the documents establishing the Program in order to prepare her opinion. 12. In a letter dated July 11, 2001 addressed to KGR, the appellant provided her first draft opinion on the tax consequences on [ sic ] the donation of VOWs by an individual Canadian taxpayer to a registered charitable organization. 13.

Except for the removal of one paragraph that was initially in the July 11, 2001 version (top of p. 9 “In other words…”), additional versions of the draft opinion containing minor changes were issued by the appellant in July, August and September 2001. 14. Pressures [ sic ] were made by the Principals to have the appellant sign her legal opinion as soon as possible as they wanted to proceed with the Program in time for the 2001 taxation year. 15.

The appellant decided to provide KGR with an executed version of her legal opinion on September 19, 2001 (the “legal opinion”) without having reviewed the documents listed on page 2 (the “Documents”) which related to the creation of various aspects of the Program, the existence of the VOWs and the donation of the same to a registered charity. 16.

Despite the appellant’s recommendation stated in a separate letter dated July 10, 2001 to have her legal opinion reviewed by a tax lawyer and an accountant, she knew that the opinion could be used by the Principals and understood that potential participants in the Program could see it. 17. A promotional package, including the appellant’s legal opinion, was provided to potential participants in the Program in November and December of 2001. 18. In the event, as no VOWs were created and no trust settled, no VOWs were donated to the Charity in 2001. Tax Receipts 19.

From 1999 to 2004, the appellant was also the President of Les Guides Franco-Canadiennes District d’Ottawa (the “Charity”), a charity registered under the Income Tax Act . 20. In August 2001, the idea of involving the Charity as the potential recipient of the donated VOWs came up for the first time. 21. In October 2001, St-Denis and Ploughman discussed formally with the appellant their desire to involve the Charity as the potential recipient of the donated VOWs. 22.

On information provided by the appellant during a meeting of the Charity’s board of directors in October, a resolution was adopted in favour of the Charity participating in the Program. 23. On November 21, 2001, TDL launched the Program involving the Charity. 24. No other charities were involved in the Program.

25. On November 22, 2001, the Charity entered into an agreement with TDL to engage the services of TDL to market and sell all donated VOWs on behalf of the Charity for cash proceeds. The Charity was to receive a minimum return of $500 per unit sold. 26. The creation and sale of VOWs to various individuals was to be handled by the Principals of the Program. 27.

Prior to signing charitable donation tax receipts, the representatives of the Charity, including the appellant, were informed verbally by the Principals that the VOWs had been properly created and that the documentation effecting a gift of the VOWs from the ostensible donors to the Charity had been completed. In fact, no such documentation ever existed. 28. The appellant had general authority to sign tax receipts on behalf of the Charity. 29. On December 31, 2001, 135 tax receipts acknowledging the ostensible donation of VOWs were issued by the Charity in the amounts listed in Appendix A attached. 30.

The information on the tax receipts were [ sic ] entered by St-Denis and Ploughman at KGR’s place of business. Subsequently, the charity was asked to sign the tax receipts. 31. The appellant, with the help of Micheline Roy-Lane, Treasurer of the Charity, came to KGR’s place of business, reviewed the tax receipts by cross-checking them with a list of information provided by St-Denis and Ploughman and took turns in signing the tax receipts. 32. The parties were only able to positively identify the signature of the appellant on certain of the tax receipts as shown in Appendix A. Hawkes Nest Plantation Project 33.

At the time, the Principals were also involved in a development project known as the Hawkes Nest Plantation Resort/Arawak Inn in Turks and Caicos Island [ sic ] (the “Project”) and owned by TDL. 34. St-Denis and Ploughman were tasked with seeking loans to assist in financing the Project. 35. On July 20, 2001, the appellant lent money to TDL in the context of the Project in the amount of $20,000 USD. 36. The next day, on July 21, 2001, the appellant transferred her $20,000 USD promissory note to her parents for no consideration. 37.

Friends and family members of the appellant and St-Denis who participated in the Program were at the time also involved in the Project as follows: NAME RELATIONSHIP DATE AMOUNT LENT FOR THE PROJECT

Armand and Jeannine Guindon Father and mother Of the Appellant Aunt and Uncle of Richard St-Denis June 25, 2001 $50,000 USD Chantal Perrier Friend June 28, 2001 $ 20,000 USD Monique Trudel & André Henri Monique is related by marriage to the Appellant’s sister June 29, 2001 $ 50,000 USD Laurette Charlebois Aunt to both the Appellant and Richard St-Denis July 3, 2001 $ 30,000 USD Luc & Hélène Boileau Cousins to both the Appellant and Richard St-Denis July 5, 2001 $ 50,000 USD Jean-Marc Gaumond Friend of Jacques Charlebois July 6, 2001 $ 50,000 USD Noël & Réjeanne Boileau Uncle and aunt to both the Appellant and Richard St-Denis July 16, 2001 $ 10,000 USD Jacinthe Guindon and Jeannot Trudel Sister and brother- in-law of the Appellant July 20, 2001 September 21, 2001 $ 60,000 USD $ 40,000 USD Jacques & Diane Charlebois Cousins to both the Appellant and Richard St-Denis July 27, 2001 $ 90,000 USD TOTAL $450,000 USD 38.

As an incentive to encourage these individuals to cash in their RRSPs to loan monies for the Project, the Principals represented that they would also be allowed to participate in the Program which would provide them with generous tax refunds. 39. Their participation in the Program was as follows: NAME RELATIONSHIP # OF VOWs TAKE-BACK CHARGE Armand and Jeannine Guindon Father and mother of the Appellant Aunt and Uncle of Richard St - Denis 3 $ 9,744 Chantal Perrier Friend 4 $ 12,992 Monique Trudel & André Henri Monique is related by marriage to the Appellant’s sister 4 $ 12,992

Laurette Charlebois Aunt to both the Appellant and Richard St-Denis 1 $ 3,248 Luc & Hélène Boileau Cousins 6 $ 19,488 Jean-Marc Gaumond Friend of Jacques Charlebois 2 $ 6,496 Noël & Réjeanne Boileau Uncle and aunt to both the Appellant and Richard St-Denis 4 $ 12,992 Jacinthe Guindon and Jeannot Trudel Sister and brother- in-law of the Appellant 15 $ 48,720 Jacques & Diane Charlebois Cousins to both the Appellant and Richard St-Denis 4 $ 12,992 TOTAL $139,664 40.

Other friends and family members of the appellant who did not lend money to the Project participated in the Program as follows: NAME RELATIONSHIP #OF VOWs TAKE-BACK CHARGE Jacques Ferragne Richard St-Denis’ nephew by marriage 5 $16,240 Denise Guibord Richard St-Denis’ sister and cousin of the appellant 2 $6,496 Nathalie Lefebvre Richard St-Denis’ nephew’s wife 4 $12,992 Raymond Perrier Friend of the Appellant 1 $ 3,248 François St-Denis Richard St-Denis’ son 1 $ 3,248 Jérôme St-Denis Richard St-Denis’ son 2 $ 6,496 TOTAL $48,720 41.

Part of the appellant’s reasons for her involvement in the Program was that she wanted to help her cousin Richard St-Denis, who was her financial advisor. She also wanted to help friends and family members in saving money. 42. On March 17, 2002, the appellant met with St-Denis and Ploughman. The appellant was advised that the legal title deeds to the timeshares had not been finalized. Consequently, the purported Settlor had not acquired the deeds to the VOWs of the property held by TDL. 43.

As of March 17, 2002, the appellant knew with certainty that no transfer of deeds had taken place on December 31, 2001 from the

participants in the Program to the Charity as the participants did not have legal title of [ sic ] the VOWs. 44. In a letter dated March 18, 2002, addressed to all Global Trust of Canada 2001 Charitable Donors, the appellant and Ploughman signed a letter which: a. Stated ‘the legal “deeded” title has not yet been finalized’ for the VOWs; b. Recommended a delay in the filing of the charitable donation receipts until the issue could be resolved because the claim would be disallowed by the Canada Revenue Agency (“CRA”); c.

A recommendation to file a T1-adjustment form to eliminate the claim of donation receipts if they had already filed their 2001 tax returns. 45. In a letter dated April 5, 2002, addressed to all Global Trust of Canada Beneficiaries for Tax Year 2001, Ploughman without the consent or the involvement of the appellant, informed the beneficiaries that Kerr, legal counsel to TDL would personally ensure that all the steps that had to be taken to resolve the issue with the title would be completed prior to April 30, 2002.

Ploughman also advised the participants that he felt comfortable enough with the progress made to recommend that the beneficiaries go ahead and submit their charitable donation receipt with their 2001 tax returns. 46. As a participant in the Program, the appellant received the letter dated April 5, 2002 from Ploughman. 47. On May 13, 2002, the appellant filed her 2001 tax return and submitted a charitable donation receipt for her ostensible donation of VOWs to the Charity. 48.

By July 9, 2002, at the latest, the appellant knew that the charitable donations associated with the program would not be accepted by the CRA. 49. On June 12, 2003, the appellant made representations to the CRA in respect of her claim for a donation of VOWs to the Charity in respect of her 2001 taxation year. 50. Except for four participants whose donations were missed by the CRA officer who conducted the audit of the donation claims, the charitable donation tax credits that were claimed as a result of the receipts issued for the ostensible donations of VOWs were entirely disallowed.

51. No participants were assessed for penalties under subsection 163(2) of the Act, for making false statements in their 2001 income tax returns. 52. On August 1, 2008, the Minister assessed the appellant for penalties under s. 163.2 of the Act, in the amount of $546,747 in respect of false statements made in the context of a charitable donation arrangement. 53. The parties are in agreement with the information contained in Appendix A. 54. On July 28, 2009 the Minister confirmed the assessment.

Issues [ 4 ] Two main issues emerge from the facts of this case and from the assessment. [ 5 ] The first issue is whether the third party penalty imposed under

section 163.2 of the Act involves by its very nature a criminal proceeding. Such a finding would entail far-reaching consequences. In fact, if it is found that

section 163.2 of the Act leads to a true penal consequence, then the protection of

section 11 of the Canadian Charter of Rights and Freedoms [1] (the “ Charter ”) will apply to guarantee fundamental substantive and procedural legal rights to any individual charged with an offence under

section 163.2. Notably, the right to be presumed innocent [2] would raise the burden of proof from that of proof on a balance of probabilities to proof beyond a reasonable doubt. [3] [ 6 ] Furthermore, if this Court finds that

section 163.2 of the Act creates an offence, that offence would, pursuant to subsection 34(2) of the

Interpretation Act , [4] need to be prosecuted in provincial court under the criminal procedure provided for in the Criminal Code . [5] [ 7 ] If the penalty under

section 163.2 of the Act is a civil penalty, a second issue arises as to whether the Appellant should be

found liable to a third party penalty pursuant to subsection 163.2(4) of the Act in respect of false statements — i.e., the tax receipts — made in the context of the Program. In other words, did the Appellant know, or would she reasonably have been expected to know but for circumstances amounting to culpable conduct, that the VOWs and the Trust did not exist. [ 8 ] However, even if I do find that the penalties set out in

section 163.2 of the Act amount to genuine criminal consequences within the contemplation of

section 11 of the Charter , I will still make a determination on the second issue. Arguments [ 9 ] Pursuant to subsection 163(3) of the Act , the burden of establishing the facts justifying the assessment of the penalty is on the Minister. Therefore, the Respondent’s arguments in respect of both issues as previously described will be presented first, followed by the Appellant’s. [ 10 ] The Respondent argues that

section 163.2 of the Act creates a civil penalty which should be applied when a person is found liable on a balance of probabilities. That

section was enacted in response to the Report of the Technical Committee on Business Taxation [6] (the “Mintz Report”), which noted that the imposition of broader civil penalties was justified to defend the integrity of the tax system by holding third parties accountable for obviously faulty advice. [7] [ 11 ] In addition, the concept of “culpable conduct” under

section 163.2 was intended to be similar to if not the same as, “gross negligence” under subsection 163(2) of the Act . [8] The enacted version of the penalty provision substituted the words “culpable conduct” for “gross negligence” because concerns were expressed by professional bodies that the penalty could apply in cases where a tax professional made an honest error of judgment or where there was an honest difference of opinion. [9] Parliament defined “culpable conduct” by reference to the types of conduct to which the courts have, in the past, applied a civil penalty under the tax law. [ 12 ] The recommendation of the Mintz Report and the legislative intent as to the meaning of “culpable conduct” are evidence of the civil nature of the penalty. [ 13 ] Furthermore, on the basis of the Federal Court of Appeal’s decision in Martineau v.

M.N.R. , [10] the Respondent contends that penalties imposed in fiscal matters are, in a system of voluntary reporting, designed to govern the conduct of taxpayers with a view to preventively ensuring compliance with the tax legislation and are civil, not criminal, penalties. [11] This rationale has been applied by the Tax Court of Canada in cases where it was asked to determine whether subsection 163(2) of the Act entailed genuine criminal consequences. [12] [ 14 ] Like the penalty prescribed in subsection 163(2) of the Act , the third party penalty under

section 163.2 of the Act was designed to safeguard the integrity of the tax system. [13] It does not purport to punish the offender but rather is intended to maintain internal discipline within the sphere of the Act . [14] [ 15 ] The Respondent argues that the Appellant should be liable to a penalty under subsection 163.2(4) of the Act for each of the 134 tax receipts other than her own because: [15] a. The appellant made, participated in, assented to and acquiesced in the making of all 134 tax receipts. b. Each tax receipt reflected the donation of a property that did not exist. c.

Once issued, each tax receipt could be used by another person to claim unwarranted non-refundable tax credits. [ 16 ] The Appellant knew with certainty as of March 17, 2002 that the participants did not have legal title to the VOWs on December 31, 2001. [16] Also, by July 9, 2002, she knew that the tax receipts would not be accepted by the CRA and therefore knew that the recommendation made by Glenn Ploughman in April 2002 to go ahead and submit the tax receipts to the CRA was incorrect. [17] Despite what she knew, the Appellant did not inform the other participants of the situation and even attempted to convince the CRA that her own donation was valid. [18]

[ 17 ] If in fact the Appellant did not know the true state of affairs, it is reasonable to expect that she would have known that the VOWs and Trust did not exist had she compelled the Principals to provide her with the documents listed on page 2 of her legal opinion [19] as a precondition for the release either of that opinion or of the tax receipts. [20] Also, when Ploughman stated in his letter of April 2002 that the title issues had been resolved, the Appellant could have demanded that she be provided with supporting evidence. [21] [ 18 ] In this case, the Appellant was not only the president of the Charity but also the lawyer who signed the misleading opinion.

She knew that no supporting documents were ever provided by the Principals and, thus, that she could not rely on the legal opinion. [22] Her responsibilities as an officer of a charity did not cease to exist at the time the legal opinion was signed or the tax receipts issued. [23] On the contrary, the Appellant had ongoing responsibilities which required that proper actions be taken to disclose to the participants and to the CRA any false statement those documents may have contained. [ 19 ] In these circumstances, the Respondent argues, the Appellant was wilfully blind [24] and her conduct clearly showed indifference as to whether the Act was complied with. [25] The Appellant’s conduct was that of a person showing a wilful, reckless or, at least, a wanton disregard of the law. [26] The Appellant First Issue [ 20 ] The Appellant submits that

section 163.2 of the Act is a provision with true penal consequences and thus falls within the ambit of

section 11 of the Charter . In R. v. Wigglesworth , [27] the Supreme Court of Canada held that proceedings will be subject to

section 11 protection where the consequences include “imprisonment or a fine which by its magnitude would appear to be imposed for the purpose of redressing the wrong done to society at large rather than to [ sic ] the maintenance of internal discipline within the limited sphere of activity.” [28] Following this rationale, the Appellant argues that

section 163.2 of the Act attracts the protection of

section 11 by its unlimited terms as regards both the magnitude of the punishment and the time limit in which it can be imposed. [29] The Appellant further argues that the wrong done to society contemplated by the Wigglesworth test does not require harm to the fisc. [30] In the context of

section 163.2 of the Act , the harm contemplated is aid given by one person to a taxpayer which damages the integrity of our system of honest self-reporting. [ 21 ] Again relying on Wigglesworth , the Appellant notes that

section 11 of the Charter would apply to a matter where it is “intended to promote public order and welfare within a public sphere of activity.” [31] Indeed, the Appellant agrees with the Respondent’s characterization of the Canadian tax collection system as one of honest self-reporting, one which involves a relationship between the taxpayer and the Crown to the exclusion of all others.

Consequently, penalties assessed against a taxpayer for misrepresentation in his or her return are of a private nature. [32] However, third parties are not part of that private relationship and so, by default, they form part of the public, to which measures intended to promote public order and welfare within a public sphere of activity apply. [33] By expanding liability beyond the taxpayer to third parties, Parliament sought to denounce, punish and deter wrongdoers and would-be wrongdoers. [34] These are principles of sentencing that apply to criminal and quasi-criminal penalties, not to matters that are merely civil or administrative in nature. [ 22 ] Finally, a penalty imposed under

section 163.2 of the Act can burden the third party with the weight of a significant stigma. Specifically, in the case at bar, a finding under

section 163.2 of the Act against the Appellant could form the basis for professional sanctions, including disciplinary proceedings. [35] Even in the absence of formal sanctions, unlike penalties under subsection 163(2) of the Act , penalties under

section 163.2 will entail grave damage to the professional character and reputation of a professional found to have engaged in the conduct covered by this section. [36] Second issue [ 23 ] The Appellant divided her argument into three points: [37] a. The issuance of the charitable donation tax receipts by the Charity. b. The issuance of the March 18 th letter. c. The time period after Mr. Ploughman sent the letter of April 5 th .

[ 24 ] With respect to the issuance of the charitable donation tax receipts, the Appellant argues that the evidence shows that, at the time the receipts were issued, the Appellant was informed by her advisors that the property had been properly created and that the documentation effecting a gift of the VOWs had been completed. [38] It was beyond the Appellant’s ability to conduct an investigation regarding the underlying title to the property in the Turks and Caicos Islands.

Thus, she had no choice but to rely on her advisors with regard to the underlying title and was reasonably entitled to do so. [ 25 ] In fact, the Appellant submits that the case law on gross negligence indicates that if a subject matter is such that it is beyond the ability of the taxpayer to properly prepare statements for the purpose of the Act , he or she is mandated to retain an advisor. [39] The taxpayer is then entitled to rely on this advisor, except where the advisor’s advice would be, subject to the taxpayer’s own understanding and intellect, readily apparent. [ 26 ] The Appellant argues that she should not be held to a standard which requires the signatories of charitable donation tax receipts to review legal documents to ensure that legal structures are properly created. [40] This is especially true in cases, like this one, where there is reliance on professional advice indicating that the property existed and had been transferred. [ 27 ] With respect to the letter of March 18, 2002, the Appellant argues that her belief that the defect respecting the gift could have been remedied retroactively was an error of law rather than an error of fact. [41] Despite her being a lawyer, the Appellant maintains an error of law does not rise to the level of culpable conduct within the meaning of

section 163.2 of the Act . [ 28 ] Moreover, the fact that the Appellant co-signed a letter to each of the participants in the Program advising them not to use the charitable donation receipts is evidence that she was neither indifferent as to whether the Act was complied with nor acting with reckless disregard of the law. [42] The letter itself could not be used by any third party for a purpose of the Act.

Since the letter advised participants not to use the receipts, there can be no liability of the Appellant under subsection 163.2(4) of the Act in respect of statements intended to help maintain the integrity of the Act . [ 29 ] Finally, with respect to the letter of April 5, 2002, the Appellant argues that any communication from her contradicting that letter would necessarily have been in the nature of legal advice to correct the previous error of law conveyed in the March letter. [43] The Appellant asserts that she cannot be mandated to provide unsolicited legal advice by virtue of the Act .

The Appellant says that she misunderstood the law and believed that the defect respecting the gift could be remedied. Absent any evidence of fraud, of which the Appellant contends there is none, the Appellant can be taken not to have known of the errors of law and fact contained in the April letter.

The Appellant relied on the opinion of Ploughman, her advisor, that the receipts could be properly submitted. [ 30 ] Finally, the Appellant submits that she cannot be required to know every element of the law and that it was up to each individual participant to review the matters discussed in the April letter with his or her own advisor.

Standard of Proof [ 31 ] Along the lines of her previous arguments, the Appellant submits that the burden to be met by the Respondent is that of proof beyond a reasonable doubt rather than proof on the balance of probabilities. [44] This change in the burden of proof results from the application of the protection of the Charter , specifically under paragraph 11( d ) , to a provision which is, the Appellant submits, by its nature a penal provision. [ 32 ] Additionally, even if this Court chooses not to apply the standard of proof beyond reasonable doubt, the applicable standard is at least higher than that of proof on the balance of probabilities. [45] Analysis Does

section 163.2 of the Act create a criminal offence?

Legislative Intent [ 33 ] The third party penalty under

section 163.2 of the Act was enacted following the Mintz Report recommendation to add a new civil penalty provision that would expand the scope of the provisions contained in subsection 163(2) of the Act . [46] The report emphasized the gap existing between the criminal liability under subsection 239(1) of the Act , to which could be subject any number of persons who participate in the offence, and the civil penalties contained in

section 163 of the Act , which only apply to a taxpayer whose liabilities or entitlements under the Act are affected by the improper conduct. Thus, it was suggested that a new penalty be created, one that would apply to third parties who knowingly, or under circumstances amounting to gross negligence, participate in, promote or assist conduct that results in the making of a false statement or omission in a return.

The Committee that produced the report explained its recommendation as follows: It is the Committee’s view that the imposition of broader civil penalties is justified to defend the integrity of the tax system . Such penalties would aim to deter transactions, arrangements and methods of reporting that do not genuinely yield the result claimed by a taxpayer, and would hold advisors and promoters accountable for obviously faulty advice. [Emphasis added.] [ 34 ] The Respondent submits that the comments in the report are indicative of the civil nature of the penalty.

However, important discrepancies can be seen between the recommendation of the Mintz Report and the third party penalty enacted in

section 163.2 of the Act . As will be discussed below, the penalty under

section 163.2 of the Act appears to be much broader than that originally recommended by the Committee. For example, some are of the opinion that it was clear from a reading of the Committee’s recommendation and comments that, in order for the penalty to apply, the false statement or omission needed to be one that affected a taxpayer’s “liabilities or entitlements” under the Act . [47] This does not appear to be the case under

section 163.2 of the Act . The discrepancy between the report’s recommendation and the enacted version of the third party penalty will be elaborated upon below and it will be demonstrated why the Committee’s recommendation to create a civil penalty should not be taken as evidence that the actual penalty is of that same nature. [ 35 ] Furthermore, in enacting the penalty, Parliament substituted the concept of “culpable conduct” for “gross negligence”.

This substitution was intended to address concerns expressed by professional bodies on behalf of their members that the proposed civil penalty might apply in cases where tax professionals made an honest error of judgment or where there were an honest differences of opinion. [48] In the technical notes of December 7, 1999, it is stated: … The gross negligence standard has been used elsewhere in the tax law and has been judicially interpreted in a number of cases. In the government's view there is a great deal of difference between “ordinary” negligence and “gross” negligence.

It is not the government's policy intent to apply a third party penalty under new

section 163.2 in cases of conduct that is an honest error of judgment, or an honest difference of opinion. Rather the gross negligence standard was selected because it addresses this legitimate concern while ensuring that participants in otherwise culpable activity do not escape liability. Nevertheless, in response to representations of professional bodies,

section 163.2 substitutes for “gross negligence” the concept “culpable conduct” which is defined with reference to the types of conduct to which the courts have, in the past, applied a civil penalty under the tax law. [49] [ 36 ] In other words, through the concept of “culpable conduct” it was sought to fix a higher standard of culpability and to counteract a tendency of court decisions to lower the requirements under the gross negligence test. [50] Thus, “culpable conduct” was defined by reference to the type of conduct to which the courts had, in the past, applied a civil penalty under the Act. [51] More precisely, “culpable conduct” was defined as conduct that is tantamount to intentional conduct, or that shows an indifference as to whether the Act is complied with, or that shows a wilful, reckless or wanton disregard of the law. [52] [ 37 ] By explaining its intention of assimilating the concept of “culpable conduct” to the concept of “gross negligence,” Parliament attempts to emphasize that

section 163.2 of the Act introduces a “civil” penalty. Also,

section 163.2 is included with the other clearly civil penalties of

section 163 of the Act . Clearly, Parliament intended to create a civil penalty comparable to that under subsection 163(2) of the Act , but applicable to third parties. [ 38 ] Nevertheless, taking into account Parliament’s intention with regard to

section 163.2 of the Act is insufficient to eliminate the possibility of the third party penalty being penal in nature. To come to a conclusion on this issue, other compelling arguments should be taken into consideration, such as the unlimited terms in which both the magnitude of the punishment and the time limit in which the penalty can be imposed are set out. Both of these aspects will be addressed later on.

Case Law on Penal Sanctions in the Act [ 39 ] Although cases such as Martineau [53] have concluded that the penalty under subsection 163(2) of the Act is not penal in nature, there have been many judgments affirming the penal nature of provisions using the expression “knowingly or under circumstances amounting to gross negligence.” These cases are worth mentioning given that

section 163.2 of the Act sets an even higher standard by substituting “culpable conduct” for the terms “gross negligence”. [ 40 ] First, the Supreme Court of Canada recognized in The Queen v. Sault Ste-Marie (City) [54] three categories of offences.

The first category consists of “[o]ffences in which mens rea , consisting of some positive state of mind such as intent, knowledge, or recklessness, must be proved by the prosecution either as an inference from the nature of the act committed, or by additional evidence.” [55] The Court then added that offences which are criminal in the true sense fall in this category. [56] [ 41 ] Second, in Udell v. M.N.R. , [57] the Exchequer Court of Canada wrote in respect to subsection 56(2), which preceded subsection 163(2): “There is no doubt that section 56(2) is a penal section.” [58] [ 42 ] Third, in Boileau v.

M.N.R. , [59] Judge Lamarre Proulx of this Court referred to the statement of the Exchequer Court in Udell and applied it directly to subsection 163(2): “… I believe that a proceeding under subsection 163(2) is of a penal nature. This aspect has already been discussed by Mr. Justice Cattanach in Udell v. M.N.R. …” [60] [ 43 ] The last and most interesting case, is this Court’s decision in Colangelo Estate v. R . [61] In that case, the Court was asked to determine whether subsections 163(2) and 110.6(6) applied.

Each provision applied in cases where the taxpayer had “knowingly or under circumstances amounting to gross negligence” carried out the actions described therein. The Court wrote: It is trite, of course, that ignorance of a penal law does not excuse the breach of it. The mental element is directed to the doing of the act; it does not require knowledge of the law that is being breached.

Although the provisions in issue here are penal in their nature, I am not persuaded that Parliament intended them to apply in such a way that a person who fails to report a gain because of ignorance of the requirement in the Act to do so must in every case suffer the penal consequences. [62] Comparison with

section 239 [ 44 ] The infractions and penalties in

section 163.2 of the Act share some similarities with the criminal offences and punishments found in

section 239 of the Act .

Section 239 states the following: Other offences and punishment 239.

(1) Every person who has (

a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, (

b) to evade payment of a tax imposed by this Act, destroyed, altered, mutilated, secreted or otherwise disposed of the records or books of account of a taxpayer, (

c) made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular, in records or books of account of a taxpayer, (

d) wilfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act, or (

e) conspired with any person to commit an offence described in paragraphs 239(1)(

a) to 239(1)( d ), is guilty of an offence and, in addition to any penalty otherwise provided, is liable on

summary conviction to (

f) a fine of not less than 50%, and not more than 200%, of the amount of the tax that was sought to be evaded, or (

g) both the fine described in paragraph 239(1)(

f) and imprisonment for a term not exceeding 2 years.

[45] The conduct referred to in

section 239 of the Act, and especially in paragraph 239(1)(a), is strikingly similar to the conductdescribed in

section 163.2 of the Act. Although

section 239 may be much broader in scope than

section 163.2, Warren J. A. Mitchellnotes the following: In both sections 163.2 and 239 the basis of the charge is the making of false statements; in both the standard is culpability, either by wayof “culpable conduct” or “evasion,” and in both the charge can be invoked not only for falsely reporting one’s own income, but also forthird-party misfeasance.[63] [46] In this context and because of the similarities between the two sections, the author says that one suspects that

section 163.2 ofthe Act was enacted as an alternative to

section 239, which has proven to be cumbersome for the Crown.[64] Indeed,

section 239 of theAct requires proof beyond a reasonable doubt at trial as well as strict observation of the Charter provisions when conducting theinvestigation that leads up to the imposition of the prescribed penalty. [47] However, while

section 239 of the Act can clearly be described as creating a criminal offence, and

section 163.2 as providing fora civil penalty, it is worth noting that the fine imposed by

section 239 of the Act can potentially be lower than the penalty undersection 163.2 of the Act. In fact, under

section 239, the fine may vary from 50% to 200% of the amount of tax that is sought to be evaded,whereas

section 163.2 of the Act sets the penalty at an invariable at 100% of the amount specified. Thus, there is a possibility of theamount of penalty assessed under

section 163.2 of the Act being higher than under

section 239, but without the third party concernedbeing able to benefit from the protection of the Charter. [48]

Section 239 of the Act is clearly identified as being penal in nature, which is not the case with

section 163.2 of the Act.However, such a characterization is inconclusive in itself. As stated by Sopinka J. in Baron v. Canada:[65] The point is that the characterization of certain offences and statutory schemes as “regulatory” or “criminal”, although a useful factor, isnot the last word for the purpose of Charter analysis. In R. v. Wholesale Travel Group Inc., (SCC), [1991] 3 S.C.R. 154,a case in which the false/misleading advertising offence in the Competition Act, R.S.C. 1970, c. C-23, as amended, was attacked underss. 7 and 11(

d) of the Charter, Justice La Forest said at 209 that “what is ultimately important are not labels (though these areundoubtedly useful), but the values at stake in the particular context”, and held that the potential five-year prison term upon conviction ofthe offence was a deprivation of liberty requiring much greater safeguards to conform with

section 7 or 11(

d) than the provisions at issuein Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), (SCC), [1990] 1 S.C.R. 425. [Emphasis added.] [49] This excerpts summarizes well the idea that legislative intent as stated in technical notes, the grouping of the third party penaltywith other civil penalties, and the absence of a label indicating a criminal offence are useful elements to consider but are not sufficientlyconclusive. [50] Having said all that, I turn now to the decision of the Supreme Court of Canada in Wigglesworth, which provides practicalguidance to help determine the true nature of

section 163.2 of the Act. Application of the Wigglesworth test [51]

Section 163.2 of the Act contains two distinct penalties known as the “planner penalty” [66] (subsection 163.2(2) of the Act) andthe “preparer penalty”,[67] (subsection 163.2(4) of the Act). In the case at bar, the Minister assessed the Appellant on the basis ofsubsection 163.2(4) of the Act and applied the penalty prescribed in subsection 163.2(5) of the Act. Since both penalties are similar inmany ways and because the differences between them have no impact on the analysis that follows, the focus hereunder will be onsubsections (4) and (5). These subsections read as follows: Penalty for participating in a misrepresentation

(4) Every person who makes, or participates in, assents to or acquiesces in the making of, a statement to, or by or on behalf of, anotherperson (in this subsection, subsections (5) and (6), paragraph (12)(

c) and subsection (15) referred to as the “other person”) that the

person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by or on behalf of the other person for a purpose of this Act is liable to a penalty in respect of the false statement. Amount of penalty

(5) The penalty to which a person is liable under subsection (4) in respect of a false statement is the greater of ( a ) $1,000, and (

b) the lesser of (

i) the penalty to which the other person would be liable under subsection 163(2) if the other person made the statement in a return filed for the purposes of this Act and knew that the statement was false, and (ii) the total of $100,000 and the person’s gross compensation, at the time at which the notice of assessment of the penalty is sent to the person, in respect of the false statement that could be used by or on behalf of the other person. [ 52 ] The Appellant argues that the magnitude of the penalty and the unlimited time span contemplated by

section 163.2 of the Act attract the protection of

section 11 of the Charter and give the penalty under

section 163.2 of the Act the character of a criminal sanction rather than a civil penalty. In Wigglesworth , the Supreme Court considered the application of the legal rights enumerated in

section 11 of the Charter to non-criminal proceedings. That case confirmed that

section 11 did not apply exclusively to criminal proceedings: While it is easy to state that those involved in a criminal or penal matter are to enjoy the rights guaranteed by s. 11 , it is difficult to formulate a precise test to be applied in determining whether specific proceedings are proceedings in respect of a criminal or penal matter so as to fall within the ambit of the section.

The phrase "criminal and penal matters" which appears in the marginal note would seem to suggest that a matter could fall within s. 11 either because by its very nature it is a criminal proceeding or because a conviction in respect of the offence may lead to a true penal consequence . I believe that a matter could fall within s. 11 under either branch. [68] [ Emphasis added.] [ 53 ] Thus, the Supreme Court determined that a matter could fall within the ambit of

section 11 in two cases, namely: where the matter is by its very nature a criminal proceeding or where the offence involves a sanction that is a true penal consequence. I am of the opinion that

section 163.2 of the Act attracts the protection of

section 11 for both reasons. The Nature of the Matter [ 54 ] First, although some offences are clearly criminal in nature, the Supreme Court added the following: . . . if a particular matter is of a public nature, intended to promote public order and welfare within a public sphere of activity, then that matter is the kind of matter which falls within s. 11. It falls within the

section because of the kind of matter it is. This is to be distinguished from private, domestic or disciplinary matter which are regulatory, protective or corrective and which are primarily intended to maintain discipline, professional integrity and professional standards or to regulate conduct within a limited . . . sphere of activity. [69] [ 55 ] The Court tells us to look at the nature of the matter involved, that is whether it is of a public nature or, rather, a private, domestic or disciplinary matter.

Invoking the Federal Court of Appeal’s decision in Martineau , the Respondent argues that penalties imposed in fiscal matters are, in a system of voluntary reporting, designed to govern the conduct of taxpayers with a view to preventively ensuring compliance with the tax legislation. [70] The proceedings are administrative in nature and therefore not the kind of “offence” to which

section 11 of the Charter applies. [ 56 ] While this proposition undoubtedly applies to a penalty under subsection 163(2) of the Act , the penalty under

section 163.2 of the Act differs from the former in that its purpose goes beyond being a sanction in administrative proceedings. Subsection 163.2(4) requires that the false statement could be used by or on behalf of another person for a purpose of the Act . The use of the verb “could” indicates that this provision would allow a penalty to be assessed in respect of a false statement that was never acted upon and even in circumstances where that statement was never intended to be acted upon. [71] This is a clear deviation from the Mintz Report recommendation and from the nature of the penalty under subsection 163(2) of the Act . In this sense,

section 163.2 of the Act serves a purpose beyond the deterrent effect necessary in a self-reporting system. How can the third party penalty be said to apply to preventively ensure compliance with the tax legislation when an individual can be held liable for a false statement that was never acted upon or that may never be acted upon? On this point, Brian Nichols wrote the following: [72]

In my view, subsection 163.2(4) is seriously flawed because it imposes a statutory duty of care on every person with respect to the taxes of every other person. Every person means every person. The consequences of this can be harsh, inappropriate and in some cases absurd. [ 57 ] As the Appellant submitted,

section 163.2 of the Act goes beyond the private, domestic or disciplinary matters contemplated in Wigglesworth and partakes more of a matter intended to promote public order and welfare within a public sphere of activity. The individual against whom a third party penalty is assessed is not one who himself or herself made a misrepresentation in his or her return. Rather,

section 163.2 of the Act contemplates the harm that may be done by aid given by a person to a taxpayer which could damage the integrity of the system of honest self-reporting. In Knox Contracting Ltd. v. Ca nada , [73] Cory J. stated: . . . The Income Tax Act , for example, to the extent it creates a regulatory scheme for the calculation and payment of taxes by taxpayers and authorizes spot audits to ensure that voluntary compliance is working, is not criminal law. It is clearly tax law.

But to the extent the legislation makes the filing of a fraudulent and dishonest return an offence punishable by fine or imprisonment, it just as clearly appears to be legislation in relation to criminal law. Those provisions recognize that not all taxpayers can be trusted to report their incomes accurately and that the self-reporting and self-assessing system has to have some teeth in it in order to deal with miscreants.

While it is, of course, possible to view these provisions as part of administration or regulation in that they may have a deterrent effect on those disposed in the future to stray from the straight and narrow path, they are more than that. They deal with deliberate misconduct that has already taken place by characterizing it as an offence punishable on

summary conviction or by indictment. They are aimed at the suppression of an evil and an injury to the public interest. In that sense they are quintessential criminal law. There is, in my view, nothing unusual or inconsistent about an otherwise predominantly regulatory piece of legislation containing criminal prohibitions and sanctions and a challenge to specific provisions in the statute under the division of powers must, in my view, be directed at the challenged provisions, not at the statute as a whole. [74] [ 58 ] I believe these comments are applicable to

section 163.2 of the Act .

Section 163.2 applies to third parties who, by making a false statement, could have led another person to use that statement for a purpose of the Act . The third party is not the person considered to have acted upon the false statement and, as mentioned earlier,

section 163.2 of the Act takes aim even at situations where the false statement has not been acted upon by another person. For these reasons, the argument that

section 163.2 prescribed a civil penalty as part of a regulatory scheme designed to ensure compliance with the Act is unpersuasive. [ 59 ] Nonetheless, the context of the Act is such that it balances provisions of a regulatory or administrative nature needed to ensure compliance with the Act in a self-reporting system and provisions that create criminal offences and that are intended to punish tax evasion. Therefore, the line between private and public matters is one that is difficult to draw. For this reason, I turn to the second test stated in Wigglesworth. This second test involves determining whether the penalty applied under

section 163.2 of the Act constitutes a true penal consequence. True Penal Consequences [ 60 ] In Wigglesworth , the Supreme Court stated that proceedings will benefit from

section 11 protection where the consequences include “imprisonment or a fine which by its magnitude would appear to be imposed for the purpose of redressing the wrong done to society at large rather than to [ sic ] the maintenance of internal discipline within the limited sphere of activity.” [75] Again, the potential magnitude of the third party penalty clearly sets

section 163.2 of the Act apart from subsection 163(2) of the Act . [ 61 ] If an individual is found liable under subsection 163.2(4) of the Act , the penalty is calculated under subsection 163.2(5). This subsection provides that a third party will be held liable for an amount equivalent to “the penalty to which the other person would be liable under subsection 163(2) if the other person made the statement in a return filed for the purposes of this Act and knew that the statement was false.” [76] [ 62 ] In the case at bar, the Appellant was assessed a penalty in the amount of $546,747.

This amount was calculated by adding up the amounts of the penalties under subsection 163(2) of the Act to which each of the 134 other donors would have been liable. The penalty under subsection 163.2(5) thus has the potential of increasing ad infinitum depending on the number of “other persons” involved.

As the Appellant submitted, where the penalty is unlimited and is imposed on a third party, it seems evident that its purpose is to redress a wrong done to society and consequently ceases to be a purely administrative matter or one of internal discipline. [ 63 ] The conclusion would be different if Parliament had capped the penalty amount. Oddly enough, subsection 163.2(5) of the Act reads as though there could be an upper limit to the penalty amount:

(5) The penalty to which a person is liable under subsection (4) in respect of a false statement is the greater of ( a ) $1,000, and (

b) the lesser of (

i) the penalty to which the other person would be liable under subsection 163(2) if the other person made the statement in a return filed for the purposes of this Act and knew that the statement was false, and (ii) the total of $100,000 and the person’s gross compensation, at the time at which the notice of assessment of the penalty is sent to the person, in respect of the false statement that could be used by or on behalf of the other person. [ 64 ] Because the penalty to which every other person would be liable is calculated individually, subparagraph 163.2(5)( b )(

i) of the Act will often result in a lower amount than the $100,000 plus gross compensation of subparagraph 163.2(5)( b )(ii). It should be noted that if the amount referred to in subparagraph 163.2(5)( b )(

i) were calculated with reference to all of the other persons, there would be a better chance of the penalty being capped at $100,000 plus gross compensation received. Supporting this possibility is subsection 33(2) of the

Interpretation Act , which states that “[w]ords in the singular include the plural, and words in the plural include the singular.” [ 65 ] As Pierre-André Côté explains in Interprétation des lois , [77] the general practice is for legislation to be written in the singular form. [78] However, one should not automatically conclude that there was an intention to exclude the plural form. Only by analyzing the context of each provision can it conclusively be determined whether the use of one form or the other was intended to be significant. This approach is also confirmed in subsection 3(1) of the

Interpretation Act , which states that “[e]very provision of this Act applies, unless a contrary intention appears, to every enactment, whether enacted before or after the commencement of this Act.” [79] [ 66 ]

Section 163.2 of the Act was initially enacted to broaden the scope of the existent civil penalty under

section 163 of the Act , which applies to individuals who have made, participated in, assented to or acquiesced in the making of a false statement. Therefore,

section 163.2 of the Act was a reaction to cases in which individuals had made or been involved in making a false statement as a result of following the faulty advice of a third party. This appears to support the idea that the “other person” referred to in subsection 163.2(4) of the Act was intended to mean a single other person. On that basis, the penalty under subsection 163.2(5) would apply with reference to one other person at a time and not to the multitude of other persons involved. [ 67 ] Thus, the context in which the third party penalty exists and the legislative intent behind the enactment of

section 163.2 of the Act indicates that “other person” was intended to be interpreted as being singular and not as being either singular or plural. Consequently, I am of the opinion that “other person” should be interpreted as singular only. [ 68 ] Yet that is how the Respondent interpreted subsection 163.2(5) of the Act . Consequently, the penalty the Appellant was assessed amounted to $546,747.

Given the absence of a specified maximum amount, the penalty could potentially reach higher amounts depending on how many “other persons” were involved and the penalty amount they would each be assessed under subsection 163(2) of the Act . Consequently, the gravity of the punishment may well bring down on a third party found liable a stigma that cannot be ignored. I agree with the Appellant’s submissions that the professional damage, the damage to reputation and, I should add, the personal damage occasioned by a penalty under

section 163.2 of the Act is undeniable. In the case at bar, a penalty in the amount assessed could affect the Appellant’s life for years to come. [ 69 ] The Respondent submits that it is not the penalty that would stigmatize the Appellant but rather her unlawful conduct and the professional sanctions that could result from it. What the Respondent fails to recognize is that this judgment, when rendered, will be public.

That professional sanctions may be imposed subsequently does not alter the fact that there will be a public document setting out all the details of the Appellant’s conduct, whether that conduct was found to qualify as culpable conduct or not, and indicating the amount of the penalty that she is being assessed. This constitutes a form of stigma which one should not fail to consider. [ 70 ] In conclusion, applying the rationale enunciated in Wigglesworth ,

section 163.2 of the Act should be considered as creating a criminal offence because it is so far-reaching and broad in scope that its intent is to promote public order and protect the public at large rather than to deter specific behaviour and ensure compliance with the regulatory scheme of the Act. Furthermore, the substantial penalty imposed on the third party — a penalty which can potentially be even greater than the fine imposed under the criminal provisions of

section 239 of the Act , without the third party even benefiting from the protection of the Charter — qualifies as a true penal consequence.

Second Issue [ 71 ] For a person to be held liable under subsection 163.2(4) of the Act , that person must have made, participated in, assented to or acquiesced in the making of a statement to, by or on behalf of another person (the “other person”). In addition, it must also be the case that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, that the statement is false and that it could be used by or on behalf of the other person for a purpose of the Act .

Making a False Statement [ 72 ] The Respondent submits that, in the case at bar, the false statements consist of the charitable donation tax receipts issued by the Charity in exchange for VOW donations. Responding to this submission, the Appellant puts forward two alternative arguments to be considered should this Court find the Appellant liable pursuant to

section 163.2 of the Act . [ 73 ] First, because she was one of two authorized representatives of the Charity who signed the receipts, the Appellant’s liability should only be joint liability with the other directors for the entire penalty. [80] Second, if this Court should find that the penalty applies because the Appellant issued donation receipts, she should only be liable for the receipts she actually signed. [81] [ 74 ] Moreover, the Appellant’s submissions also suggest that the false statement could have resulted from an error of law found either in the letter of March 18, 2002 addressed to the participants in the Program or in Ploughman’s April letter. [82] This error of law happened when the Appellant mistakenly indicated in her March letter that the defect in title could be remedied retroactively to perfect the donation. [ 75 ] Neither party argued that the false statement could have been the Appellant’s legal opinion.

Nevertheless, in the document containing her legal opinion, the Appellant specifically lists a number of important documents and confirms having reviewed them. [83] It is a known fact, however, that the Appellant only had the opportunity of reviewing the draft documents and never reviewed the final versions. [ 76 ] These considerations need not to be discussed any further, however, since both parties agree that, by issuing the charitable donation tax receipts, the Appellant made a false statement. [ 77 ] Another of the requirements necessary for the application of the penalty is the possibility of the false statement being used for a purpose of the Act .

This requirement is undoubtedly met with the tax receipts, which can be used to obtain a tax benefit under the Act . For these reasons, the false statements in the case at bar consist of the tax receipts. [ 78 ] Returning briefly to the Appellant’s two alternative arguments, I am of the opinion of that subsection 163.2(4) of the Act is not written nor does it apply in such a way that a group of individuals can be held jointly liable.

The focus in subsection 163.2(4) is on punishing a third party for knowingly making a false statement, and this case is centered on the Appellant’s conduct, not the conduct of the treasurer of the Charity. [ 79 ] Additionally, the Appellant can surely be held to have made a false statement in the case of the tax receipts she personally signed.

With respect to the tax receipts she did not sign, the Appellant can nevertheless be held to have participated, assented to, or even acquiesced in the making of the false statement because all the receipts were signed at the same time by the Appellant and the treasurer together. [84] [ 80 ] The question that now begs an answer is whether the Appellant knew, or would reasonably be expected to have known but for circumstances amounting to culpable conduct, that the statement was false.

On this issue, the Act states that a “ ‘ false statement’ includes a statement that is misleading because of an omission from the statement.” [85] Knowingly or Culpable Conduct

[ 81 ] The evidence presented by the parties strongly suggests that the Appellant did not know she was making a false statement when she was issuing the tax receipts on or around December 31, 2001. Although the receipts were signed without the Appellant having ever reviewed the final supporting documents she wrongly stated, in her legal opinion, that she had reviewed, there is no strong evidence that would allow one to say with conviction that the Appellant knew, when signing the receipts, that the title deeds to the timeshares had not been finalized.

In fact, the evidence indicates that it was only on March 17, 2002 that the Appellant met with St-Denis and Ploughman and was advised of the title issues. [ 82 ] Consequently, if the Appellant did not know the statement was false when she made it or participated in its making, subsection 163.2(4) requires alternatively, that we verify whether the Appellant would reasonably be expected to have known but for circumstances amounting to culpable conduct that the statement was false. [ 83 ] Before determining whether the Appellant’s conduct may be described as culpable conduct, there is a timing issue which needs to be addressed. [ 84 ] When describing the circumstances which allegedly amount to culpable conduct, [86] the Respondent writes that the Appellant’s responsibilities as an officer of the Charity did not cease to exist at the time the tax receipts were issued. [87] Instead, these responsibilities were ongoing and required that proper actions be taken to disclose to the participants and to the CRA any false statement the receipts may have contained.

The Respondent adds: . . .

But more importantly for our case, she was grossly negligent in fulfilling her responsibilities as an officer of a charity to all participants in the Program and to CRA by providing false statements to 134 taxpayers and allowing the use of such statements under the Act, and by trying to support what she knew was false. [88] [ 85 ] The Appellant, for her part, submits that the fact that she co-signed a letter to each of the participants in the Program advising them not to use the charitable donation receipts is evidence that she was neither indifferent as to whether the Act was complied with nor acting with reckless disregard of the law. [89] [ 86 ] Both parties present facts which occurred after the tax receipts were issued as evidence of culpable conduct or absence thereof.

I am of the opinion that the Appellant’s alleged ongoing responsibilities as an officer of the Charity and her attempt to make the false statement known to the participants in the Program are both irrelevant considerations in determining whether the penalty should apply to the Appellant. [ 87 ] It is clear from the wording of subsection 163.2(4) of the Act that its intent is to penalize third parties who either knew a statement was false when making it or engaged in culpable conduct prior to making the statement such that they are subject to the same consequences as they would have been if they had known the statement was false.

Both situations (either knowing a statement was false or engaging in culpable conduct) must be considered in relation to the same time frame because there is nothing to indicate that it should be otherwise. [ 88 ] The Respondent did not argue that the Appellant should fall within the ambit of subsection 163.2(4) of the Act because she knew, after the tax receipts were issued, that the statement she had already made was now false. For the same reason, the Respondent should not rely on facts or events which occurred after the false statement was made in order to establish the Appellant’s culpable conduct.

Similarly, the Appellant should not rely on actions she took after the tax receipts were issued to support the absence of culpable conduct. Indeed, the train of events following a false statement can do no more than help support the third party’s credibility and character. It can contribute to either aggravating or mitigating what is determined to be the third party’s conduct leading up to the false statement. [ 89 ] The need to focus on events prior to the Appellant making the false statement when determining whether there was culpable conduct is also emphasized by the purpose of subsection 163.2(4) of the Act .

This point will be further developed in the following section, however, it may simply be said here that subsection 163.2(4) aims at penalizing individuals who have intentionally made a false statement or whose conduct was so reckless that intention may be imputed to those individuals with respect to their actions. [ 90 ] We must now evaluate the Appellant’s conduct prior to the false statement and determine whether it qualifies as “culpable conduct” thus triggering the application of the penalty prescribed in subsection 163.2(4) of the Act .

The Notion of Culpable Conduct [ 91 ] As previously explained, Parliament initially used in subsection 163.2(4) of the Act the words “gross negligence” rather than “culpable conduct”. It was only after professional bodies expressed their concerns about “gross negligence” resulting in a lower standard of fault being applied by the courts that Parliament agreed to substitute for those words the phrase “culpable conduct”. Since this phrase was being used in the Act for the first time, a definition was provided in subsection 163.2(1) of the Act , which reads as follows: “culpable conduct” means conduct, whether

an act or a failure to act, that (

a) is tantamount to intentional conduct; (

b) shows an indifference as to whether this Act is complied with; or (

c) shows a wilful, reckless or wanton disregard of the law. [ 92 ] The conduct described in the definition refers to types of conduct the case law had previously associated with gross negligence. For this reason, the Respondent argues that the two should not be differentiated. [90] [ 93 ] I disagree with the Respondent on this issue. Although “culpable conduct” may not differ greatly from “gross negligence”, it must be acknowledged that Parliament chose to use different words.

One phrase simply cannot be identified with the other otherwise Parliament’s words would be rendered meaningless. [ 94 ] However the two phrases are not completely different either. In light of the technical notes referred to earlier, it appears Parliament chose the terms “culpable conduct” to express conduct which had previously been described in the strongest cases of gross negligence. In those cases, the courts have held that gross negligence required evidence of mens rea .

Because “culpable conduct” should only be found to exist in strong cases of gross negligence, I am of the opinion that evidence of mens rea is necessary in order to make a finding of “culpable conduct.” Furthermore, the courts should be looking in such cases to find conclusive proof of culpable conduct. Proving Mens Rea or Intention [ 95 ] In Boileau , [91] this Court stated in the following terms the required standards in applying subsection 163(2) of the Act : . . . I believe that a proceeding under subsection 163(2) is of a penal nature. This aspect has already been discussed by Mr.

Justice Cattanach in Udell v. M.N.R. [citation omitted]: “There is no doubt that subsection 56(2) [now s. 163(2)] is a penal section.” It is true that by virtue of subsection 163(2), there is no accused nor is there a criminal charge. It would thus appear that it is not, as such, a criminal proceeding and that it remains a civil proceeding. However, the application of that subsection requires the evidence of mens rea or culpable conduct . . . [ 96 ] In light of these words, Parliament’s use of the phrase “culpable conduct” confirms the necessity of finding evidence of the third party’s mens rea or intention.

The Court also confirmed this idea in Maltais (R.O.F.J.) v. M.N.R. [92] In that case (at page 2653), this Court commented as follows, in obiter , on subsections 163(1) and (2): “These provisions require a mens rea of intent or of recklessness”. This comment was later adopted in Dunleavy (F.) v. Canada . [93] [ 97 ] Proving mens rea does not exclude establishing

an act, or a failure to act, that is tantamount to intentional conduct. For example, wilful blindness describes a type of conduct which is assimilated to having knowledge. As the Ontario Superior Court of Justice explained in R. v. Chahine-Badr , [94] “wilful blindness is not an alternative theory of culpability. It is inherent in the concept of knowledge.” [95] The Court added, by referring to the Ontario Court of Appeal decision in R. v.

Harding : [96] . . . “Criminal law treats wilful blindness as equivalent to actual knowledge because the accused ‘knew or strongly suspected’ that inquiry on his part respecting the consequences of his acts would fix him with the actual knowledge he wished to avoid.” Thus the requisite knowledge of wrongdoing can be either actual or inferred through wilful blindness. [97]

Burden of Proof [ 98 ] Pursuant to subsection 163(3) of the Act , the burden of establishing the facts justifying the assessment of the penalty rests on the shoulders of the Minister. The Minister needs to prove on a balance of probabilities that the penalty should be assessed against the third party. [ 99 ] The evidence submitted may very well be circumstantial evidence, however, it should be clear and convincing. [98] Furthermore, the Minister must be careful not to shift the burden of proof to the appellant.

In other words, the Minister’s evidence must show more than an absence of a rational explanation for the appellant’s conduct. [ 100 ] The courts have been clear in ruling that leaving the appellant to bring forward a rational explanation for his or her conduct is tantamount to shifting the burden of proof onto the appellant. That is contrary to subsection 163(3) of the Act . As explained by the Federal Court of Appeal in Findlay v. The Queen : [99] [27] . . .

Subsection 163(2) imposes that burden on the Minister; but the Tax Court Judge based his conclusion as to liability not on a proof by the respondent of gross negligence on a balance of probabilities, but on the absence of a reasonable explanation by the appellant or the tax preparer. This is, as I have already said, contrary to the provisions of subsection 163(2) of the Act. [100] [ 101 ] In other words, the application of a penalty “must be reserved to situations where the facts do not allow for a rational

interpretation favorable to the taxpayer.” [101] Does the Appellant’s Conduct Qualify as “Culpable Conduct”? [ 102 ] The evidence submitted and the facts established by the Minister conclusively demonstrate the Appellant’s culpable conduct. [ 103 ] The Appellant submitted that she could not be required to know every element of the law. It was beyond her ability to conduct an investigation of the underlying title to the property located in Turks and Caicos Islands when she issued the tax receipts.

She relied on professional advice that the property existed and submits that she was entitled to do so. [ 104 ] Subsection 163.2(4) of the Act does not create an obligation for administrators of a charity to do checks on property that is donated to them, and professionals are indeed fully entitled to rely on another professional’s advice. However, the Appellant’s situation is different.

The Appellant was both the legal professional responsible for the legal opinion concerning the Program and the administrator of the Charity who got the Charity involved in the Program and signed the charitable donation tax receipts. [ 105 ] The Appellant wrote and endorsed a legal opinion regarding the Program, an opinion which she knew would be part of a promotional package intended for potential participants in the Program. Her legal opinion clearly states that she reviewed the principal documents relating to the Program when these documents had in fact never been provided to her.

She knew, therefore, that her legal opinion was flawed and misleading. [ 106 ] The Appellant chose to rely on the Program’s Principals. They pressured her into providing them with an executed version of the legal opinion without providing her with the supporting documents on which to found her opinion. Yet her legal opinion does not reflect this reality. Rather, it indicates that the documents were reviewed. [ 107 ] When the Appellant chose to involve the Charity in the Program and, later, to sign the tax receipts, she knew she could not rely on her legal opinion. She again decided to rely on the Principals.

However, the Principals had relied on the Appellant to attest the legality of the Program. The Appellant knew her legal opinion could not be relied on and, for that reason, she could not be entitled to blindly rely on the Principals. In other words, the Appellant would have been entitled to rely on the Principals if a different professional had signed the legal opinion. She could not, however, rely on her own legal opinion which she knew to be incomplete .

[ 108 ] Her conduct is indicative either of complete disregard of the law and whether it was complied with or not or of wilful blindness. The Appellant should have refrained from involving the Charity and signing the tax receipts until she had either reviewed the documents herself or had another professional approve the Program’s activities.

When the Appellant issued the tax receipts, she could have reasonably been expected to know that those receipts were tainted by an omission, namely, that no professional had ever verified the legal basis of the Program. [ 109 ] The Appellant cannot agree to endorse a legal opinion and then justify her wrongful conduct by saying she did not have the necessary knowledge — either of tax law or of foreign law — to write that opinion. [ 110 ] Moreover, the Appellant’s conduct after the tax receipts were signed negatively affects her credibility and reflects badly on her character.

When the Appellant was informed, after the tax receipts had been issued, that the legal titles were not in order, she co-signed a letter informing the participants of the situation. At that point, the Appellant knew she could not rely on the Principals — the same individuals who had never provided her with the documents she was supposed to review and the same individuals she had trusted in signing the tax receipts.

Yet when Ploughman sent out a letter, days before the end of the fiscal year, stating that all was in order and that the participants could submit their receipts, the Appellant blindly relied on him again, without asking any further questions. [ 111 ] And finally, the facts established show that by July 9, 2002, at the latest, the Appellant knew that the charitable donations associated with the Program would not be accepted by the CRA. Yet, on June 12, 2003, the Appellant made representations to the CRA regarding her claim in respect of a donation of VOWs to the Charity in her 2001 taxation year.

The Appellant lied to the authorities. This conduct reflects negatively on the Appellant’s character. [ 112 ] For these reasons, the Appellant’s culpable conduct leads me to conclude that she would reasonably be expected to have known that the tax receipts were false statements. The penalty would therefore be applicable if that penalty were a civil one. [ 113 ] For these reasons, the appeal is allowed and the assessment is vacated. These Amended Reasons for Judgment are issued in substitution of the Reasons for Judgment dated October 2 nd , 2012.

Signed at Ottawa, Canada, this 16th day of October 2012. “Paul Bédard” Bédard J. CITATION: 2012 TCC 287 COURT FILE NO.: 2009-3368(IT)G STYLE OF CAUSE: Julie Guindon and Her Majesty the Queen PLACE OF HEARING: Ottawa, Ontario DATE OF HEARING: May 1, 2012 AMENDED REASONS FOR JUDGMENT BY: The Honourable Justice Paul Bédard

DATE OF JUDGMENT: October 16, 2012 APPEARANCES: Counsel for the Appellant: Adam Aptowitzer Courtney West Counsel for the Respondent: André LeBlanc Paul Klippenstein COUNSEL OF RECORD: F

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