Aug 4, 2015

Guindon: The Great Disapointment

Guindon v. Canada, 2015 SCC 41 (CanLII)

Can the government dole out huge monetary penalties without providing its citizens with the rights protected under the Charter?

In Guindon v Canada, 2015 SCC 41, Ms. Guindon was ordered to pay hundreds of thousands of dollars by the Canada Revenue Agency as punishment for her negligent legal advice. She prepared a legal opinion in regards to a fabricated donation scheme in her capacity as a lawyer. Her opinion was circulated to entice people to buy into the scheme. For every person that relied on it, she was fined. In total, she was fined $564,747. In addition, this fine earned a huge amount of interest.

The Supreme Court of Canada was asked to determine if the huge penalty levied against her was penal or merely an administrative monetary penalty.

The Supreme Court had a real opportunity to explain what makes something criminal versus administrative.

In the Majority’s decision, the Supreme Court reinforced circular reasoning. Although the court lists a variety of factors, to me it all seemed to boil down to one test. Something is criminal if it contains the indicia of a criminal proceeding.

“With respect to the process, the heart of the analysis is concerned with the extent to which it bears the traditional hallmarks of a criminal proceeding.”

How circular!

Obviously if the government wants something to be administrative it is not going to cloak the proceeding in criminal garb. So why should that be the test?

The Supreme Court justifies its decision by remarking that “The amount [of the fine] is fixed without regard to other general criminal sentencing principles and no stigma comparable to that attached to a criminal conviction flows from the imposition of the penalty.”

I highly disagree. Section 163.2 of the Income Tax Act directly targets tax professionals like accountants and lawyers. Having a proceeding instituted against you for counselling others in making false statements is deeply shameful. The stigma could be equal to the stigma of being charged with a criminal offence. When your livelihood and identity are on the line, the government should not be allowed to hide behind labels. The substance of the crime and punishment should be determinative rather than the proceedings.

The Tax Court of Canada's decision (2012 TCC 287) stated that section 163.2 is "so far‑reaching and broad in scope that its intent is to promote public order and protect the public at large rather than to deter specific behaviour and ensure compliance with the regulatory scheme of the Act. Furthermore, the substantial penalty imposed on the third party — a penalty which can potentially be even greater than the fine imposed under the criminal provisions of section 239 of the Act, without the third party even benefiting from the protection of the Charter —qualifies as a true penal consequence."

The Supreme Court's interrpretation of section 163.2 in Guindon will likely have a chilling effect on the tax planning community.