The taxpayer filed his tax returns for his 2003 and 2006 taxation years several years late. Although no tax was owing by him for those years, he was assessed a penalty under s. 162(7) because the T1135 forms included with the returns were thus filed on a late basis. After noting (at para. 15) that "Parliament's intention is to motivate taxpayers who own foreign property whose cost amount exceeds $100,000 to report their foreign source income", Favreau, J. found that the penalty was imposed correctly and that the due diligence defence was not applicable in this case.
Woods, J. found that if (contrary to her findings), s. 162(2.1) did not apply to the taxpayer (a non-resident corporation that was late in filing returns but which had no tax payable for the related taxation years) had not been subject to a penalty under s. 162(2.1), it would not have been subject to any penalty under s. 162(7). The penalty for failure to file an income tax return is provided for in s. 162(1) and, in her view, "it is not relevant that the penalty could be nil" under that subsection (para. 32). Accordingly, s. 162(7) would not apply because a penalty for failure to file returns on a timely basis was nonetheless "set out" in s. 162(1).