No Charter Protection in Tax Shelter Civil Penalties Case

July 30, 2013 | Robert B. Hayhoe

In our December 2012 issue, we commented on the decision of the Tax Court in Guindon – that third party civil penalties were really criminal and therefore gave rise to Charter protection.  That decision has now been overturned by the Federal Court (Appeal Division), although we understand that leave to appeal to the Supreme Court is being considered by the Appellant.

The Income Tax Act contains third party civil penalties that apply to a person making a false statement knowingly or with gross negligence that is intended to be relied upon by someone else to reduce tax.  The person making the statement can be liable for all of the tax saved by anyone relying on the false statement.

Ms. Guindon had given a legal opinion and signed tax receipts as part of a tax shelter scheme allegedly involving the donation of time share units.  The Tax Court found that Ms. Guindon had given her opinion without verifying the truth of parts of it. The implication of the decision was that this could have been the basis of the culpable conduct required in order to apply these civil penalties.  However, relying on the very large penalties that were proposed against Ms. Guindon (calculated on the basis of all tax saved by all shelter participants), the Tax Court found that the so-called civil penalties were really criminal.  Of course, in the case of a criminal penalty, proof is required beyond a reasonable doubt and various Charter protections apply at the investigation stage, none of which had been provided to Ms. Guindon.

The Crown appealed and the Federal Court (Appeal Division) allowed the Crown’s appeal.  The Federal Court found that because Ms. Guindon had not served a Notice of Constitutional Question on the Attorney General, the Tax Court should not even have considered the legal argument that it accepted ultimately.  As well, even if the required Notice had been served, the Federal Court found that the civil penalty provisions were aimed at the proper functioning of the tax system, not at punishment.  The fact that the penalties could be very large is said by the Court to be moderated by the Minister of Revenue’s discretion to reduce penalties generally.

The decision is perhaps not surprising, given the unsympathetic facts.  It represents the continued hostility of the CRA and of the Courts toward charitable donation tax shelters and their various participants.  However one might question the extent to which anyone should be comforted by the discretion of the CRA as a way of avoiding unreasonable penalties.  It will be interesting to see if the Supreme Court of Canada grants leave to appeal if asked.  Even if the Supreme Court does not grant leave to appeal, the procedural failure in this case to serve the required Notice of Constitutional Question arguably leaves it open for the same argument to be advanced in another case, perhaps with more sympathetic facts.


This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. If you have any questions about our information practices or obligations under Canada's anti-spam laws, please contact us at

© 2022 Miller Thomson LLP. This publication may be reproduced and distributed in its entirety provided no alterations are made to the form or content. Any other form of reproduction or distribution requires the prior written consent of Miller Thomson LLP which may be requested by contacting