The taxpayer was a family law and estates lawyer who also was the president of a registered charity. Various individuals (the "participants") supposedly acquired beneficial interests in an Ontario trust, which purportedly had been settled with time share units, in consideration for deferred payment obligations owing by them to the trustee, with the participants then "donating" their interests in the trust to the charity. The charity issued receipts (many of them, signed by the taxpayer) to the donors in amounts equal to 3 1/3 times the amount of their deferred payment obligations, and the charity received cash payments from the promoters based on the quantum of participant purchases of trust units.
The taxpayer provided a legal opinion to the participants on the tax consequences of this program based on oral assurances of the promoters and without review of documentation. She later learned that the trust was never settled with the time share units, so that the charitable donation aspects of the program were fictitious. The Minister assessed the taxpayer for penalties of $546,747 under s. 163.2(5), calculated as 50% of the purported federal tax savings of all 134 participants in this program.
Bédard J found that the taxpayer was not liable for penalties under s. 163.2(5) given that they were essentially criminal penalties.
He went on to find that if s. 163.2(5) had instead imposed a civil penalty, the taxpayer would have been liable therefor. First, although she had not signed all the receipts in question (which were false), she had participated with the charity's treasurer in their issuance, so that she had participated or assented to such false statements (para. 79). Second, although she very well may not have known that these statements were false at the time they were issued (which was the relevant time for applying s. 163.2(4) ), she knew that "her legal opinion was flawed and misleading" (para. 105), so that "her conduct [was] indicative either of complete disregard of the law ... or of wilful blindness" (para. 108).
The Court of Appeal, having rejected Bédard J's findings on the criminal penalties point, affirmed his findings under s. 163.2(4) and granted the Minister's appeal.