The taxpayer had a s. 163(2) penalty vacated in the Tax Court on the basis that her involvement in the false amended return filed by her was completely passive.
Regarding its costs award, the Tax Court noted that the taxpayer’s counsel had offered to settle on the basis that the s. 163(2) penalty would be vacated and replaced by a $2500 penalty under s. 162(7)(b). In reversing the Tax Court’s finding that this settlement offer was a factor tending to increase the costs award in the taxpayer’s favour, Pelletier JA found that s. 162(7)(b) should be narrowly construed so that, on the basis of the Galway principle, the “settlement proposal was not one which the Minister could have accepted as the lower penalty under paragraph 162(7)(b) was not available” (para. 53).
Regarding a proposal made in the alternative under the settlement offer that the Minister waive the penalty under s. 220(3.1), Pelletier JA stated (at para. 64)\ that the “principle in Galway rests on the Minister’s view of the facts and the law, not on what the Minister’s view might have been.” Since at the time of the offer, the Crown “remained convinced that she had acted in a grossly negligent way in relation to false statements in her income tax return” (para. 63), the taxpayer’s offer was not one that the Crown could accept. Instead, a waiver of the penalty under s. 220(3.1) “could only be based on the respondent’s personal circumstances” (para. 67).