Rowe v. R. - TCC: Gross Negligence Penalties Affirmed on Fiscal Arbitrator Client

Rowe v. R. - TCC:  Gross Negligence Penalties Affirmed on Fiscal Arbitrator Client

Rowe v. The Queen (June 23, 2017 – 2017 TCC 122, Sommerfeldt J.).

Précis:  This is a Fiscal Arbitrators case with two twists.  Mr. Rowe was a professional accountant (CGA).  He claimed the large Fiscal Arbitrators loss in 2009 in order to carry it back to prior taxation years where he had unsuccessfully attempted to claim bogus charitable donations.  The only issue in this appeal was whether gross negligence penalties were applicable.  Not surprisingly, the Court held that they were and dismissed the appeal.  In view of Mr. Rowe’s contrition on the stand, among other factors, the Court did not award costs.

Decision:  While the Court was impressed by Mr. Rowe’s demeanor on the stand, it found that he was the author of his own misfortunes:

[39]        At the hearing Mr. Rowe was contrite, forthright and well aware that he should have conducted some due diligence in respect of Fiscal Arbitrators before authorizing Mr. Lewis to use the Fiscal Arbitrators program in preparing the 2009 income tax return. On several occasions during the hearing, Mr. Rowe acknowledged that he did not do all that he should have done in order to verify the contents of his 2009 income tax return. During his direct examination, he stated:

… I did not do in-depth research of the text, of the procedure he [i.e., Mr. Lewis] had used for this, for the filing of my 2009 tax return. I trusted him and I felt that he had done the research necessary….

… I felt that I could trust him to go ahead and do what needed to be done because I was not at the time here in Canada or able to do the research that I would have normally done on a tax program like – not a tax program, but on the Fiscal Arbitration program….

… I have to say that I probably had – well not probably, it is clear that I did not – I trusted this individual more than I should have, and I’ve allowed him to take care of a lot of my – the tax issues that related to these two issues, and I did not do the work as I should have on my own.

[40]        While I accept that Mr. Rowe did not knowingly make false statements in his 2009 income tax return, I find that, in addition to turning a blind eye to the warning signs that were there to be seen, he was indifferent as to whether the ITA was complied with or not. Accordingly, I have concluded that Mr. Rowe, under circumstances amounting to gross negligence, made false statements in his 2009 income tax return. Therefore, this Appeal is dismissed.

[41]        I anticipate that the penalty that is the subject of this Appeal will likely have a devastating effect on Mr. Rowe. For that reason, as well as others (including Mr. Rowe’s forthrightness, contrition, acceptance of responsibility and demeanor on the witness stand and in his oral submissions), I am not awarding costs against him.

[Footnotes omitted]

Thus the appeal was dismissed without costs.