INCOME TAX |
Penalties |
Findlay v. Canada
A-424-97
Isaac J.A.
12/5/00
13 pp.
Appeal from Tax Court of Canada decision dismissing taxpayer's appeal from assessment made under Income Tax Act for taxation year 1991--Before 1991, taxpayer operated three video stores in Ontario as sole proprietorship--In 1991, on advice of lawyer, incorporated business, rolled over assets in corporation--Rollover generating capital gains--Prior to 1991, taxpayer hired Farm Business Consultants Inc. as bookkeeper to prepare books of account, income tax returns--In reviewing taxpayer's 1991 personal income tax return, Department of National Revenue noticed sum of $135,000, identified as capital gains generated by rollover, not reported at line 127 of return--Tax Court Judge posing three questions as to liability of tax preparer in failing to include item of capital gain, at line 127 of taxpayer's return--Income Tax Act, s. 163(2), (3) prescribing who has burden of proof of establishing facts to justify assessment of penalty--Tax Court Judge erred in law in concluding gross negligence of tax preparer attributable to taxpayer--Answer to third question inconsistent with answer to second question--No evidence taxpayer privy to actions, omissions of tax preparer--Failure to apply correct test amounting to error of law, warranting intervention by appellate court--Tax Court Judge based conclusion as to liability not on proof by respondent of gross negligence on balance of probabilities, but on absence of reasonable explanation by taxpayer or tax preparer, contrary to Act, s. 163(2)--Appeal allowed--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 163.