The taxpayer, an employed construction engineer, claimed a fictitious net business loss of $333,418 for his 2009 taxation year with the assistance of Financial Arbitrators and DSC Lifestyles (“DSC”), thereby purportedly generating a full refund of that year’s source deductions and further refunds from carrybacks to his three previous years. He signed his return without reviewing it, and agreed to pay a fee to DSC equal to 20% of the refunds generated. He was instructed to forward any requests from CRA to DSC and to not discuss with any third party any of the tax information provided to or received from DSC.
In affirming the imposition of a penalty under s. 163(2), Lyons J concluded (at para. 80) that “by signing the Return without reviewing it or its contents and reporting the fictitious business losses and requesting loss carry backs for the three previous years, Mr. Fransen was both wilfully blind and grossly negligent.” After reviewing the various red flags, which did not generate any inquiries by the taxpayer, Lyons J stated (at para. 80):
In my view, he chose not to inquire because he strongly suspected, or suppressed a suspicion, that the inquiry would have provided him with knowledge that the statement in the Return was false thereby he would have discovered such inconvenient truth. This amounts to wilful blindness … .
She briefly found in the alternative that he had been grossly negligent, stating (at para. 83):
Failure to review a return at all is suffic[ient] to find that any false statements in the Return are made in circumstances amounting to gross negligence … .