http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/126633/index.do
Ellis v. The Queen (November 17, 2015 – 2015 TCC 285, Hogan J.).
Précis: Mrs. Ellis’ husband transferred his 50% interest in their matrimonial home to her at a time when he had an income tax liability. Mrs. Ellis conceded that the transfer was for less than market value. The two points before the Tax Court were the amount of Mr. Ellis’ tax debt at the time of the transfer and the imposition of a gross negligence penalty on Mrs. Ellis. The Tax Court held that CRA had proven the assessment of Mr. Ellis’ tax debt was accurate however it vacated the penalty of $10,199.73 on the basis that CRA had not met its onus of proof with respect to the penalty. There was no order as to costs.
Decision: The Tax Court to some extent split the difference in this case. The penalty imposed on Mrs. Ellis was roughly 1/3 of the amount at issue (excluding interest). While the Court found that the computation of Mr. Ellis’ liability was proven, it held that there was no evidence to support the imposition of a gross negligence penalty:
[12] Ms. Rueger testified at length on how the Appellant’s liability under section 160 was redetermined to take into account the adjustments to Mr. Ellis’ tax liability under Part I of the Act brought about by numerous reassessments. Her evidence was not contradicted by the Appellant. Therefore, I am satisfied that the Crown has met its initial burden with respect to the amounts owed by the Appellant in connection with her husband’s Part I liability.
[13] Ms. Rueger, however, provided no explanation as to why Mr. Ellis was assessed gross negligence penalties under subsection 163(1) of the Act. In view of the failure to establish the circumstances that justify the imposition of a penalty, the penalties must be eliminated from the Appellant’s assessment.
[14] In her written representations, the Respondent argues that the Appellant did not dispute the Transferor’s tax debt in her amended notice of appeal. I observe that the Appellant was not represented by counsel when she prepared her amended notice of appeal. I do not believe that the Respondent suffered prejudice from the aforementioned shortcoming. The Appellant had arranged to call Ms. Rueger as a witness. Her testimony was required to explain the significant changes to Mr. Ellis’ tax liability brought about by the numerous reassessments that were issued against him, since the Appellant was assessed under subsection 160(1). In that context, it was clear that Mr. Ellis’ tax liability had to be established at trial.
[15] For these reasons, the Appellant’s appeal is allowed in part and the matter is referred back to the Minister for reconsideration and reassessment to remove the penalty of $10,199.73. Interest shall be adjusted accordingly. Each party is to bear its own costs.