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donation programme involving timeshare units in the Turks and Caicos Islands. The
lawyer personally signed many of these receipts as an officer of the charity involved in
the programme. After disallowing the majority of the participants’ charitable donation
tax claims, the CRA assessed the lawyer for the impugned penalty. The quantum of the
penalty was based on the total penalties for which the third parties would be liable had
they used the receipts in their tax filings.
The Court determined that the lawyer would reasonably have been expected to
know that the tax receipts were false at the time she signed them. This is noteworthy
not only because of the size of the penalty involved, but also because of the far-reaching
consequences to tax preparers found liable for such a penalty. 84 However, this case is
particularly significant because the judge determined that the preparer penalty, which
many previously considered to be civil in nature, actually constituted a criminal offence.
The judge based his conclusion on the penalty’s potentially unlimited magnitude, the
resulting stigma and the fact that it was designed to redress harms done to society rather
than to ensure compliance with a regulatory scheme. Since other (ostensibly) civil
tax penalties share certain of these characteristics, and since the civil–criminal divide
affects everything from appeal rights to the reach of the CRA’s audit powers, the Court’s
conclusion may have far-reaching consequences.
XI
OUTLOOK AND CONCLUSIONS
In 2011, the CRA began the first phase of its move to a new risk-based audit system for
Canada’s largest businesses. 85 Based on a variety of risk-assessment factors, 86 this new
approach aims to streamline (but not reduce) audit activities by refocusing limited CRA
resources onto businesses whose audits are more likely to result in increased tax revenues.
Although the success of the new approach is yet to be determined, pressure arising from
a difficult economic climate and the increasing globalisation of modern business (and
tax avoidance strategies) suggests similar shifts may take place in related contexts. For
example, the exchange of tax information with foreign tax authorities and the use of
the CRA’s information-gathering powers to obtain both domestic and non-Canadian
tax records are also likely to grow. It is thus important for international taxpayers to
maintain cooperative dealings with tax authorities in each jurisdiction in which they
operate. However, it is similarly important to keep abreast of the dispute resolution tools
available in those jurisdictions, and to approach each interaction with the tax authorities
84 For example, if one partner or member of a global tax services firm is assessed a preparer
penalty, the entire firm stands to lose its ability to file Canadian tax returns electronically with
the CRA – a potentially devastating business consequence. See generally Paterson v. Canada,
2010 FC 644, 2010 D.T.C. 5130.
85 Businesses with annual sales greater than C$250 million.
86 Key factors may include a business’ audit history, corporate governance style and controls,
transparency in dealings with the CRA, participation in aggressive tax planning, or in unusual,
complex or international transactions, participation in major acquisitions or disposals, and
several industry-specific risk factors.
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