A firm that the taxpayer used to prepare both his personal return and the return of a corporation to which he had transferred his business had filed the s. 85(1) election showing the transfer and reporting a gain on the transfer, but failed to include this gain when it prepared his personal return.
Isaac J.A. found that as the Crown had not shown, on balance of probabilities, that the taxpayer had knowledge of this omission and did nothing about it, it could not be said that the gross negligence of the tax preparer could be attributed to the taxpayer. Furthermore, the trial judge, in noting the absence of a reasonable explanation by the taxpayer or the tax preparer as to the reason for the submission, had erroneously shifted to the taxpayer the burden of showing that he was not liable for gross negligence of the tax preparer. Accordingly, no penalty was payable.