Until 1995, a Quebec garbage collection company ("EBI") employed its garbage collectors and drivers. It then encouraged most of them to each become the sole shareholder and director of a newly incorporated Quebec company, so that EBI entered into contracts with each company for the provision of the services of the individuals which previously had been provided directly. CRA reassessed the 2004 to 2006 years of the individual companies (the taxpayers) on the basis that they were carrying on personal services businesses. Their Notices of Objection were not rejected until May 2010. CRA included gross negligence penalties in its reassessments before May 2010 of the companies for their 2007 and 2008 years. The structure was then terminated by EBI and the taxpayers.
In finding that the Minister had not established gross negligence, Favreau J noted that the taxpayers were represented by competent professionals and that the structure had not been challenged for the first nine years, and stated (at para. 97, TaxInterpretations translation):
The sole reason that the penalties were imposed appears to me to have been to force the parties to terminate the structure.