due diligence

CRA had assessed the taxpayer for interest under ETA s. 280 for his failure to file returns for what had now been found by Smith J to be a taxable activity of providing psychotherapy services. Smith J found that such interest was not payable because the taxpayer had established a due diligence defence, based on having consulted on the tax status of his supplies with his accountant and with professionals in his health care network. In this regard, he stated (at paras. 54-55):

The taxpayer made contributions to his RRSP for the years 1995 to 2005 (except 1998). In preparing his 1995 and 1999 returns, he reported his contributions, but failed to deduct them – but thought that he had. Furthermore, in 1997, he overcontributed based on an incorrect impression that he had unused RRSP deduction room. As a result of these errors, he had a cumulative excess amount as calculated under s. 204.2(1.1). CRA assessed him Part X.1 tax under s. 204.1(2.1) and assessed penalties under s. 162(1) for his failure to file returns as required under s.

Before finding that a due diligence defence had not been made out respecting the imposition of a 10% penalty under s. 227(8)(a) respecting failure to withold on consideration, paid to a non-resident company ("Marco"), which the taxpayer unsuccessfully argued was not for "services," and after noting (at para. 40) that a due diligence defence, based on Consolidated Canadian Contractors, was available if it could be made out on the facts, Lamarre J stated (at paras. 41-43):