The Minister's Reply was found to be inadequate to support that the taxpayer had sold partnership units constituting an alleged tax shelter (see summary under s. 237.1(1)). The Minister also assessed the taxpayer for penalties under s. 237.1(7.4). The Minister's reply stated that:
The Appellant is liable for a penalty because he acted as principal or agent to sell, issue or accept consideration in respect of the SRLP tax shelter before the Minister issued a tax shelter identification number, pursuant to subsection 237.1(7.4) of the Act.
Webb JA found that it was unnecessary to consider this issue in light of the tax shelter findings, but nevertheless stated (at paras. 27, 31):
Every possible combination enumerated in subsection 237.1(7.4) of the Act is included. There is no clear indication of why the penalty was imposed. The above paragraph 18 would include the allegation that Thomas O'Dwyer, as principal, issued units in the limited partnership. However, only the limited partnership could, as principal, issue units in itself.
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In setting out the basis upon which the penalty was assessed, the Minister should clearly identify the role that Thomas O'Dwyer is alleged to have played and not simply reiterate every possible permutation or combination that could satisfy the statutory conditions to impose the penalty. Any taxpayer who has been assessed a penalty should know why the penalty was assessed. Simply reiterating the multiple combinations of possibilities that could result in the imposition of the penalty does not tell a taxpayer what specific act (that would result in the imposition of the penalty) he or she is alleged to have committed.