Federal Tax - Penalties. Deyab v. Canada
In Deyab v. Canada (Fed CA, 2020) the Federal Court of Appeal considered administrative sanctions against taxpayers for non-declaration of reportable income, related "gross negligence penalties" and how far back a re-assessment may go ('statute-barred' years under IT Act s.152(4)):
 The "“statute-barred years”" are those that were reassessed after the expiration of the normal reassessment period for such years.
 In this appeal, there is no allegation of fraud. Therefore, in order to reassess the statute-barred years (2007 to 2010), the Minister must prove, on a balance of probabilities, that Mr. Deyab:
(a) has made a misrepresentation; and....
(b) such misrepresentation is attributable to neglect, carelessness or wilful default.
[Estate of Stanley Vine v. The Queen, 2015 FCA 125, at para. 24]
 In listing the issues, the Tax Court Judge should have recognized that for four of the five taxation years [ed: the 'statute-barred years'] that were before him, the Minister had the onus of proving that there was a misrepresentation and that such misrepresentation was attributable to neglect, carelessness or wilful default (there being no allegation of fraud in this case). ...
C. The Application of Lacroix
 I agree with Mr. Deyab that the Tax Court Judge erred in applying this Court’s decision in Lacroix to the facts of this case. It is evident from reading the Tax Court Judge’s reasons that he effectively addressed the issues of whether the Minister could reassess the statute-barred years and whether gross negligence penalties could be assessed collectively. He concluded, as noted in the excerpt from the oral reasons quoted at paragraph 16 above, that "“the Minister has satisfied her onus under both subsections 152(4) and 163(2) of the Act”".
(1) The Decisions of this Court and the Tax Court in Lacroix
 That the facts of a particular case may support both the reassessment of statute-barred years and the assessment of gross negligence penalties is based on the comments of this Court at paragraph 32 of Lacroix:
 What, then, of the burden of proof on the Minister? How does he discharge this burden? There may be circumstances where the Minister would be able to show direct evidence of the taxpayer's state of mind at the time the tax return was filed. However, in the vast majority of cases, the Minister will be limited to undermining the taxpayer's credibility by either adducing evidence or cross-examining the taxpayer. Insofar as the Tax Court of Canada is satisfied that the taxpayer earned unreported income and did not provide a credible explanation for the discrepancy between his or her reported income and his or her net worth, the Minister has discharged the burden of proof on him within the meaning of subparagraph 152(4)(a)(i) and subsection 162(3) [sic]. This Court in Lacroix was simply confirming that in the circumstances of that case, which was a reassessment based on a net worth analysis, the same facts may support both a finding that statute-barred years may be reassessed and that gross negligence penalties could be assessed. The Court was not stating that this would always be the case. The facts of each case must be examined to determine if the distinct statutory requirements for reassessing statute-barred years and assessing gross negligence penalties are satisfied.
 In Lacroix, this Court also noted:
 The facts in evidence in this case are such that the taxpayer's tax return made a misrepresentation of facts, and the only explanation offered by the taxpayer was found not to be credible. Clearly, there must be some other explanation for this income. It must therefore be concluded that the taxpayer had an unreported source of income, was aware of this source and refused to disclose it, since the explanation he gave was found not to be credible. In those circumstances, the conclusion that the false tax return was filed knowingly, or under circumstances amounting to gross negligence, is inescapable. This justifies not only a penalty, but also a reassessment beyond the statutory period. In Lacroix, the taxpayer was arguing that he had received a loan of $500,000 from another individual and therefore the net worth analysis was not accurate. In rejecting this argument, the Tax Court Judge in Lacroix (2007 TCC 376) noted:
 My analysis of the evidence leads me to find that it is more likely than not that these loans never existed and that the notes (Exhibit A-4), the request for repayment (Exhibit A-8) and the cheques made out to Mr. Pronovost were merely a sham to hide the truth. Accordingly, it is difficult to arrive at any other conclusion than that the appellant deliberately failed to report $516,000 in income. In my opinion, the Minister has discharged the burden of proof on him and was therefore entitled to impose penalties under subsection 163(2) of the Act on the appellant's unreported income. Since the Minister's burden of proof is less under subsection 163(2) of the Act than under subsection 152(4), I am also of the opinion that the Minister was entitled to make reassessments. The reference to the Minister’s burden of proof being "“less under subsection 163(2) of the Act than under subsection 152(4)”" would appear to be a typographical error. The Minister’s burden of proof in relation to both the assessment of gross negligence penalties and the reassessment of statute-barred years is to establish, on a balance of probabilities, the relevant facts based on the statutory requirements for each provision. The logic of the sentence (i.e. that nothing further need be said to justify the reassessment of statute-barred years) confirms that the Tax Court Judge understood that once the finding was made that the documents were a sham and that the taxpayer, in that case, "“deliberately failed to report $516,000 in income”", this finding would also support the reassessment of the statute-barred year on the basis that there was a misrepresentation of his income that was attributable to wilful default.
 In Lacroix, the finding of the Tax Court was that the documents that purported to support a loan were a sham and that Mr. Lacroix "“deliberately failed to report $516,000 in income”". In Mr. Deyab’s case, there was evidence that significant amounts had been transferred to M.D. Consulting and there is no suggestion that any documents were a sham.
(2) Gross Negligence Penalties versus Reassessing a Statute-barred Year
 Subsection 163(3) of the Act provides that for any penalty assessed under subsection 163(2), "“the burden of establishing the facts justifying the assessment of the penalty is on the Minister”". With respect to how the Minister could satisfy his or her onus of proof, the Minister could introduce evidence by cross-examining the taxpayer or by calling the taxpayer as a witness (Rule 146 of the Tax Court of Canada Rules (General Procedure), SOR/90-688a). The Minister could also call other witnesses, although generally the person with the most knowledge of the taxpayer’s affairs is the taxpayer. In this case, Mr. Deyab testified and the Minister had an opportunity to cross-examine him.
 It is important to recognize that the statutory requirements for reassessing a statute-barred year are not the same as the statutory requirements for assessing gross negligence penalties. While there may well be cases where the same facts could justify both the reassessment of a statute-barred year and the assessment of gross negligence penalties, it will not necessarily always be the case.
 The right to reassess a statute-barred year is set out in paragraph 152(4)(a) of the Act. Unless a waiver has been filed by the taxpayer within the prescribed period of time, the Minister may only reassess a taxpayer in relation to a statute-barred year if "“the taxpayer or person filing the return (i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act […]”."
 The requirements for reassessing a statute-barred year are met if the misrepresentation is attributable to neglect or carelessness, without the need to consider whether the misrepresentation was attributable to wilful default or whether the taxpayer committed fraud (which in and of themselves could also justify the reassessment of a statute-barred year).
 By contrast, penalties can only be assessed under subsection 163(2) if the conduct of the taxpayer amounts to gross negligence: "“Every person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return […]”" is liable to the penalty imposed under this subsection.
 Neglect or carelessness should not be confused with gross negligence.
 In Guindon v. Canada, 2015 SCC 41, the Supreme Court of Canada addressed the issue of whether particular conduct was culpable conduct for the purposes of the preparer penalty imposed under section 163.2 of the Act. The Supreme Court, in addressing that issue, endorsed the following descriptions of gross negligence for the purposes of subsection 163(2) of the Act:
 The expressions “shows an indifference as to whether this Act is complied with” and “tantamount to intentional conduct” originated in the jurisprudence on the gross negligence penalty applicable directly to taxpayers in s. 163(2) of the ITA, which states: ....
(2) Every person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this section referred to as a “return”) filed or made in respect of a taxation year for the purposes of this Act, is liable to a penalty of . . . . [Penalty calculations omitted.] The Minister states in her factum that “culpable conduct” in s. 163.2 of the ITA “was not intended to be different from the gross negligence standard in s. 163(2)”: para. 79. The Federal Court in Venne v. The Queen,  C.T.C. 223 (T.D.), in the context of a s. 163(2) penalty, explained that “an indifference as to whether the law is complied with” is more than simple carelessness or negligence; it involves “a high degree of negligence tantamount to intentional acting”: p. 234. It is akin to burying one’s head in the sand: Sirois (L.C.) v. Canada, 1995 CarswellNat 555 (WL Can.) (T.C.C.), at para. 13; Keller v. Canada, 1995 CarswellNat 569 (WL Can.) (T.C.C.). The Tax Court in Sidhu v. R., 2004 TCC 174,  2 C.T.C. 3167, explaining the decision in Venne, elaborated on expressions “tantamount to intentional conduct” and “shows an indifference as to whether this Act is complied with”:
Actions “tantamount” to intentional actions are actions from which an imputed intention can be found such as actions demonstrating “an indifference as to whether the law is complied with or not”. . . . The burden here is not to prove, beyond a reasonable doubt, mens rea to evade taxes. The burden is to prove on a balance of probability such an indifference to appropriate and reasonable diligence in a self-assessing system as belies or offends common sense. [para. 23]
 Conduct that would justify the assessment of a gross negligence penalty is conduct that is tantamount to intentional acting. Conduct that would be tantamount to intentional acting to avoid the payment of taxes on money that is withdrawn from a corporation is different from careless or neglectful conduct that results in a person being taxed for receiving a benefit from that corporation in statute-barred years.
(4) Should the Assessment of the Gross Negligence Penalties be Confirmed?
 In Lacroix, at paragraph 28, this Court quoted the following passage from the decision of Justice Bowman in Farm Business Consultants Inc. v. Her Majesty the Queen,  2 C.T.C. 2450, 95 D.T.C. 200:
27 A court must be extremely cautious in sanctioning the imposition of penalties under subsection 163(2). Conduct that warrants reopening a statute-barred year does not automatically justify a penalty and the routine imposition of penalties by the Minister is to be discouraged ... . Moreover, where a penalty is imposed under subsection 163(2) although a civil standard of proof is required, if a taxpayer's conduct is consistent with two viable and reasonable hypotheses, one justifying the penalty and one not, the benefit of the doubt must be given to the taxpayer and the penalty must be deleted ...