The taxpayer was a certified contractor who started a business of buying homes, renovating them, and selling them. He sold one home for $319,000, but did not receive the funds - instead, they were deposited into his lawyer's trust account. The lawyer applied those funds against the purchase of another property, so that the lawyer's trust account ledger statement showed the proceeds of sale as $161,035.12 rather than $319,000. This lower amount was the one used to calculate the taxpayer's profits on his income tax return, with the result that he claimed a business loss rather than a healthy profit. The Minister assessed the taxpayer for gross negligence penalties.
Hershfield J. found that the penalties were inappropriate, and the taxpayer meant to be diligent and accurate in reporting income. The taxpayer relied on his wife ("Prevost"), who was skilled in financial accounting, to prepare the return. Her explanation for the error was that, despite her hounding the lawyer for accounting records, she received them only days before the filing deadline. Wanting to avoid late-filing penalties, she did not have enough time to notice the discrepancy in the proceeds of disposition on the property, and surmised that the reported business loss related to a legitimate tax-planning strategy. While acknowledging that the amount of the discrepancy in income reporting was suspiciously large on its own, Hershfield J. accepted that there had been an innocent mistake. The taxpayer's and Prevost's conduct did not at any time suggest any intention to conceal income. Hershfield J. also noted that the Minister was required to prove that the taxpayers were indifferent as to whether income was accurately reported - "a mere probability is not sufficient" (para. 33).
In light of the finding that neither the taxpayer nor Prevost were negligent, it was unnecessary to decide whether it mattered that the allegedly negligent return was prepared by Prevost rather than the Taxpayer. Hershfield J. reasoned that, if such a determination did matter, "the attribution question must be applied no differently in a case [involving spouses] than it does when the taxpayer and the tax preparer are not so closely tied" (para. 43).