https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/357150/index.do
Bradshaw v. The Queen (January 3, 2019 – 2019 TCC 1, D’Auray J.).
Précis: This is yet another case of the Tax Court approving gross negligence penalties where the taxpayer claimed business losses arising out of the Fiscal Arbitrators scheme.
Decision: The taxpayer had little formal education but years of experience as a co-owner of the family ironworks business. Justice D’Auray sustained the application of gross negligence penalties and succinctly outlined her reasoning:
[84] I will not repeat the facts. Suffice to say that a reasonable person in the same circumstances would have not signed and filed income tax returns claiming large business losses, knowing that he or she is not entitled to claim the business losses since he or she is not operating a business. A reasonable person would have not accepted the explanation of Fiscal Arbitrators that “everybody is a corporation”. A business person ought to know the difference between an employee and a corporation and that “everybody is not a corporation”. In addition, a reasonable person would have not certified the Statement of Agent Activities. The latter statement contained numerous false statements, deficiencies and overall was nonsensical. A reasonable person in the same circumstances would not sign and file his or her income tax returns whereby large refunds are claimed without understanding the filing method used by the tax preparer to obtain these refunds.
[85] Given the extraordinary tax result involved and the false statements contained in the material provided by Fiscal Arbitrators, a reasonable person in the same circumstances as the appellant, would have asked for some form of independent verification that the filing position being taken was legitimate. More particularly, in light of the May 21, 2010 warning letter received by the appellant from the CRA, whereby he was advised by the CRA, that penalties under subsection 163(2) of the Act could be assessed, since “the CRA did not support the participation in arrangement that attempts to avoid paying income tax resulting from an arrangement wherein the taxpayer deems himself to be the principal for the agent”.
[86] In my view, the conduct of the appellant in signing and filing his income tax returns and the “Request for Loss Carryback” represented a marked and substantial departure from the expected conduct of a reasonable person in the same circumstances. Therefore, I find that the appellant made false statements in his income tax returns under circumstances amounting to gross negligence pursuant to subsection 163(2) of the Act, for his 2008 and 2009 taxation years.
Thus Mr. Bradshaw’s appeal was dismissed with costs to the Crown.