The taxpayer was a U.S. resident which operated in Canada from 1999 to 2008, under the misapprehension that it did not have a permanent establishment in Canada and therefore presumed that it was not required to file returns. On discovering its error in 2006, the taxpayer filed returns under the Voluntary Disclosure Program "(VDP"). Because of substantial loss carry-forwards and carry-backs, its total tax owing was $42,361. The Minister waived penalties but not interest, and the interest owing for 2001 through 2003 was $346.718,.17, $125,110.24 and $142,974.35.
In the second-level review decision it was found that, because the requirement to file a T2 return does not depend on the existence of a permanent establishment, the taxpayer had not exercised reasonable care in its tax compliance; furthermore, the continuity of the taxpayers' business operations and its employees' employment would not be jeopardized because the business no longer operated. O'Reilly J. agreed with these reasons, noting that the delegate at the second level had correctly treated the guidelines as non-binding. He also stated (at para. 36):
Finally, with respect to Toastmaster's submission that the result is plainly absurd and harsh, I cannot agree. The Minister's delegates reasonably concluded that Toastmaster's situation was brought about by its own unreasonable errors. By the time it filed its final VDP submissions in 2008, its outstanding balance owing was not large, taking into account the application of eight years of loss carry-forwards and carry-backs, effectively reducing the amount of net tax owing. Much more tax would have been payable in Toastmaster's profitable years had timely filings been made. And it is on those amounts that arrears interest was applied.