Corporate Tax

Corporate Tax Law includes advising on the taxation of public and private corporate, joint venture, and other related and non-related business structures; tax planning respecting mergers & acquisitions, company restructurings, reorganizations, debt rescheduling, and liquidations; taxation of commercial contract transactions, transfer pricing, leasing, and other commercial agreements; taxation of natural resource extraction, refining, and sales including various associated business structures; property-related taxation particularly in relation to property development; taxation of financing transactions; taxation of various debt instruments, capital market instruments, funds, and securitized assets; tax treaties, international corporate tax, and tax aspects of international commercial transactions; taxation of foreign investment in Canada and the taxation of Canadian off-shore investment.

Advisor Penalties

A 2015 decision of the Supreme Court of Canada continues to be impactful. In Guindon v. Canada, the SCC concluded that “advisor penalties” found in s. 163.2 of the Income Tax Act are administrative and not penal in nature. The decision has not ended controversy or the litigation surrounding AMPs, whether in the context of the ITA or otherwise.1

In Guindon, a 4–3 majority held that administrative monetary penalties do not offend constitutional rights because they are not criminal in nature and do not lead to the imposition of true penal consequences. The minority declined to deal with the argument, ruling that the constitutional argument should not even be considered because Julie Guindon, the lawyer who launched the appeal, failed to give proper notice to federal and provincial authorities.

In recent years, AMPs have become an increasingly common feature of sanctions available under Canadian business statutes. Now that the SCC has definitively categorized offenses giving rise to AMPs as civil proceedings, prosecutors and regulators will continue to have a much easier time proving them. Indeed, observers say that the battleground has now shifted from arguments about the constitutionality of AMPs to a determination of the procedural rights available to litigants exposed to such penalties, such as disclosure rights, rights to an oral hearing, and appeal rights.

Guindon involved “adviser penalties” found in s. 163.2 of the Income Tax Act. They are aimed at professional tax advisors, planners, and preparers—including lawyers and accountants—who provide tax advice regarding matters that eventually prove unsustainable before the Canada Revenue Agency and the courts.

As the majority saw it, the advisor penalties were not analogous to criminal law because they were not aimed at promoting public order and welfare within a public sphere of activity; rather, they were primarily intended to maintain compliance or regulate conduct within a limited sphere. The advisor penalties, aimed at promoting honesty and deterring gross negligence on the part of tax preparers, did precisely that.

Unlike the criminal process, the AMP process involved no charge, no arrest, no summons to a criminal court, and did not result in a criminal record. At most, the penalties involved being forced to pay by way of a civil action.

Guindon arose after the lawyer wrote an opinion for a relative regarding a tax shelter program. The opinion stated that Guindon had read the underlying documents even though she had not done so. The program involved the donation of Turks and Caicos timeshare properties to a charity. The lawyer was also president of the charity and signed at least some of the tax receipts issued to investors. Although the promoters confirmed orally that the property had been transferred, the lawyer never saw documentation substantiating the conveyances. As it turned out, the properties were never transferred. The CRA levied adviser penalties in excess of C$500,000.

At first instance, the Tax Court of Canada ruled that the penalties were criminal in nature and that it had no jurisdiction to hear what amounted to criminal charges. The Federal Court of Appeal ruled that the advisor penalties did not constitute true penal sanctions.

As the FCA saw it, the tax system required deterrents to ensure its proper functioning as a self-assessment system. Administrative sanctions, or penalties, were the way in which deterrence was achieved. The advisor penalties, then, were not about condemning “morally blameworthy conduct or inviting societal condemnation of the conduct” but about ensuring that the regulatory scheme worked properly.

“In my view, section 163.2 is mainly directed to ensuring the accuracy of information, honesty and integrity within the administrative system of self-assessment and reporting under the Act,” wrote Justice Stratas on behalf of a unanimous FCA bench. “The imposition of a section 163.2 penalty by way of assessment and the subsequent procedures for challenging the assessment are proceedings of an administrative nature aimed at redressing conduct antithetical to the proper functioning of the administrative system of self-assessment and reporting under the Act. Put another way, proceedings under section 163.2 aim at maintaining discipline, compliance or order within a discrete regulatory and administrative field of endeavour. They do not aim at redressing a public wrong done to society at large.”

In the final analysis, the majority in the SCC concurred with this reasoning. The demise of the constitutional argument, however, puts a renewed focus on compliance. Indeed, lawyers say that robust due diligence systems in support of such a defense are more important than ever because the constitutional argument is no longer available.

  1. For commentary on Guindon, see Jull, Kenneth. “Monetary Penalties Levied against Advisors in a Tax Case, Guindon v. Canada: Unconstitutional?” Gardiner Roberts. February 12, 2019.



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