Penalties for false statements

The Court confirmed the imposition of gross negligence penalties in O’Hagan v R, 2023 TCC 52 (informal procedure) (a Fiscal Arbitrators case), after finding that the taxpayer had been “willfully blind” (among other things).

The taxpayer submitted a return for 2009 prepared by DSC, a Fiscal Arbitrators preparer. The return claimed fictitious business losses. The taxpayer did not respond to a CRA questionnaire issued in response to the return. Instead, in April, 2011, he submitted a return prepared by another firm that deleted the losses and reported net business income instead. The CRA assessed the second return as filed but imposed gross negligence penalties in respect of the false statements contained in the first one.

The Court wrote the following about the penalties imposed in respect of the first return (which, it appears, the CRA never assessed):

[35] In Nesbitt v. Her Majesty [1996 CanLII 11569 (FCA)], the FCA per Strayer J.A. observed that, “[w]hether or not there is misrepresentation through neglect or carelessness in the completion of a return is determinable at the time the return is filed.”

[36] In my view this logic applies equally to false statements or omissions within the meaning of subsection 163(2) of the Act. That is, whether such false statements or omissions in a return justify a subsection 163(2) penalty is determinable at the time the return is filed.

[37] Accordingly, I do not consider evidence heard that post-dates the filing of the 2009 return containing the false statement is of relevance to the matter of whether or not the herein appealed penalty was properly assessed.

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