SCC Upholds Third-Party Civil Penalties

In Guindon v. Canada (2015 SCC 41), the SCC rejected a constitutional challenge of the section 163.2 third-party civil penalties provision. Counsel for Ms. Guindon had successfully argued in the TCC (2012 TCC 287) that these penalties constituted a criminal offence, raising the standard of proof from the civil “balance of probabilities” to the criminal “beyond a reasonable doubt.” The FCA overturned the TCC decision on a procedural question (2013 FCA 153), but in lengthy obiter challenged the finding of the TCC on the criminality issue. With this issue now finally settled by the SCC, the CRA is free to continue to assess these penalties on the basis intended when they were introduced in the 1999 budget—as an alternative to the section 239 criminal penalties, but with a lower standard of proof and therefore a higher probability that the penalties will be applied in practice.

Most of the SCC’s decision is not concerned with the criminality issue at all, but rather with the procedural question that formed the crux of the FCA result. Ms. Guindon’s counsel had failed (at both the TCC and the FCA) to notify the attorney general and the provinces that the appeal involved a constitutional question, thus contravening the Tax Court of Canada Act and the Federal Courts Act. Because proper notice had been given at the SCC, the court had the discretion to consider and decide the constitutional issue of the criminality of section 163.2. Specifically, the question was whether Ms. Guindon was a person “charged with an offence” who was entitled to the safeguards provided for in section 11 of the Charter.

The court split 4-3 in favour of exercising the discretion to consider the constitutional issue. While the minority refused to comment on the criminality of section 163.2, the majority opinion confirmed and further clarified the two-part test provided in Wigglesworth (1987 CanLII 41 (SCC)) and Martineau (2004 SCC 81). Applying this test, the court considered the following issues in determining that the section 163.2 process is not criminal in nature and that the penalty is not a true penal consequence:
  • The process leading to the imposition of the penalty under section 163.2 is administrative in nature (in contrast to the laying of an information or complaint for criminal sanctions), and if the assessment is upheld and payment is not made, the minister may only invoke civil collection procedures under the Act (paragraph 67).

  • The fact that the same conduct that could form the basis of an administrative penalty could also lead to a criminal conviction is irrelevant to the characterization of the administrative penalty (paragraph 68).

  • Providing a due diligence defence or including a mental element as a component of the penalty does not detract from the administrative nature of the penalty (paragraph 72).

  • The purpose of section 163.2 is to promote compliance with the self-reporting scheme of the Act (paragraph 83). The magnitude of the penalties under subsection 163.2(4) is directly tied to this purpose because it takes into account the penalty to which the other person (that is, the taxpayer for whom the violator has made the false statement) would be liable in respect of the false statement (paragraph 84).

The court rejected the argument of Ms. Guindon’s counsel that an upper limit should apply to an administrative monetary penalty. Although the court acknowledged the magnitude of the penalty assessed (approximately $547,000), it found that the penalty reflected the objective of deterring the type of conduct engaged in by Ms. Guindon, which, for the penalty at issue in this decision, consisted of signing donation receipts connected to a “sham” tax shelter (paragraph 99). (Counsel for Ms. Guindon had based the appeal to the SCC solely on the constitutional and procedural questions, and did not dispute any questions of fact.)

Amanda S.A. Doucette
Stevenson Hood Thornton Beaubier LLP, Saskatoon
[email protected]

Canadian Tax Focus
Volume 5, Number 3, August 2015
©2015, Canadian Tax Foundation