Majeau built an addition on one of its properties for a total cost of $1,295,688, but calculated its GST owing on the basis that the FMV of the addition was only $716,500, and thereby reduced the amount of GST collectible from an individual occupying the new addition. The Court upheld the trial judge's finding that the low FMV estimate was not credible. Létourneau JA stated (at paras. 8-10):
According to Corporation de l'école polytechnique v. Canada, 2004 FCA 127, a defendant may rely on a defence of due diligence if either of the following can be established: that the defendant made a reasonable mistake of fact, or that the defendant took reasonable precautions to avoid the event leading to imposition of the penalty.
A reasonable mistake of fact requires a twofold test: subjective and objective. The subjective test is met if the defendant establishes that he or she was mistaken as to a factual situation which, if it had existed, would have made his or her act or omission innocent. In addition, for this aspect of the defence to be effective, the mistake must be reasonable, i.e. a mistake a reasonable person in the same circumstances would have made. This is the objective test.
As already stated, the second aspect of the defence requires that all reasonable precautions or measures be taken to avoid the event leading to imposition of the penalty.