Seeking to protect herself from being sued by her brother, the taxpayer transferred title to all her real properties for no consideration to corporations under her majority control. She reported rental and business income and expenses from these properties while her accountant did the same in the corporations' returns. The Minister's reassessment included the inclusion in her income of a taxable capital gain on a disposition of the properties to the corporations, and gross negligence penalties.
Hogan J. found that the taxpayer had retained beneficial ownership of the properties and that the corporations had acted as mere agents, so no capital gain was realized and the income and expenses on the properties were hers and not the corporations'. He also found that the taxpayer had not been negligent. She was unsophisticated in matters of tax and accounting, and her accountant (Mr. Chambers) had failed to advise her properly about the tax issues involved (having not even inquired how the corporations had acquired the new properties). Hogan J. stated (at para. 56):
The evidence shows that there was an absence of effective communication between the Appellant and Mr. Chambers. For example, he admitted that the Appellant was presented with copies of the corporations' 2003 and 2004 tax returns much later, after they had been electronically filed. Those returns are not comprehensible to anyone other than a person who has memorized the line codes opposite which the tax information appears. ... A taxpayer, or a tax lawyer for that matter, cannot determine what the codes mean unless they have access to a detailed coding manual which explains their meaning. ... On reviewing the returns at issue, the Appellant had no way of knowing that Mr. Chambers claimed the same losses as she had claimed on her personal tax return.