The Canada Revenue Agency is financially destroying victims of tax scams through the imposition of gross negligence penalties!
You may have fallen victim to a tax scam, or perhaps one of your family members, friends or co-workers has been victimized. After a wave of tax scams over the last number of years, thousands of victims across Canada find that they have been assessed “Gross Negligence Penalties” for their participation in these schemes.
Many of these victims will lose their homes and their life savings – not because of the con artists running away with their money, but because of the penalties imposed by the Canada Revenue Agency. The con artists in most cases took under $1000. The CRA seeks to take tens or hundreds of thousands.
Section 163(2) of the Income Tax Act allows for the imposition of Gross Negligence penalties, which equate to 50% of the tax reduction that would have been obtained had the returns been processed as filed.
In the case of Fiscal Arbitrators, for example, unsuspecting Canadians were duped into filing loss carry-backs for 10 years (without their knowledge), which in some cases would have resulted in tens or hundreds of thousands of dollars in refunds.
Instead of providing a refund, the CRA instead imposed a 50% penalty on the amount that taxpayers sought to have refunded. All in all, tens, even hundreds of millions of dollars of penalties are at stake. And the people falling for these schemes are precisely the types of people who can ill afford to pay these penalties.
In a recent case of Torres v. the Queen that I argued in November 2013 before the Tax Court of Canada, the Honourable Justice Campbell J. Miller acknowledged that the Fiscal Arbitrators victims had already suffered, and that he was concerned about the effect of the magnitude of the penalties upon them.
“It was clear to me these Appellants have paid a huge price, not just economically, as a result of Fiscal Arbitrators’ deceitful ways. I have concluded, however, that penalties are clearly justified, though I am concerned about the devastating effect the magnitude of the penalties will have on the Appellants.”
The problem is, as Mr. Justice Miller indicated, that there is no discretion to anybody – even a judge of the Tax Court of Canada, to reduce the penalty – irrespective of its devastating effects upon a taxpayer:
“ I however cannot pretend the specific 50% penalty called for by subsection 163(2) of the Act can be something less. That is only something the Government can consider.”
A judge has discretion over the sentence of a murderer – why not allow discretion over the size of the gross negligence penalty? Particularly when one penalty could crush a family. And I can assure you, that if Parliament does not take action on this matter – for all the victims who still owe tens of millions of dollars – the lives of many thousands of Canadians will be ruined. Financially and emotionally.
And shouldn’t a penalty, for a first-time offender, fit the crime?
Is it fair to assesses a $100,000 penalty (plus interest) against an individual with a grade 12 education, who works as a carpenter for $50,000 a year, who simply signed his returns where his (con artist) tax preparer told him to? This is a fairly typical victim and a fairly typical penalty.
Section 12 of the Canadian Charter of Rights and Freedoms is supposed to protect us against cruel and unusual punishment.
This 50% penalty is arbitrary and is overly severe in many cases because it is not subject to any mechanism by which to reduce it based on the circumstances of the case. The blanket application of the Gross Negligence penalty, without a mechanism to deviate from the size of the penalty, leads to penalties of cruel and unusual proportions – a violation of the Charter rights of Canadian taxpayers.
One of the six appellants (Strachan) from the Torres v. the Queen case appealed to the Federal Court of Appeal. This case was just recently heard and the court has not gone back on their position with respect to the penalties.
And since this is only a matter the government can consider, I would like you to join me in demanding that the Government of Canada amend the Income Tax Act to allow for a range of penalties where Gross Negligence has been found, and to provide immediate relief to all those taxpayers who have been assessed gross negligence penalties as a result of a tax scam.
This may be a last resort for thousands of Canadian families who have been victimized by con artists who the government has decided committed crimes worthy of criminal prosecution.
Please also write letters to your MPs and ask for their support!
To view and sign the petition please click here.