Guindon v. Canada, 2015 SCC 41 (Constitutional law — Charter of Rights — Income tax — Penalty for misrepresentation)
On appeal from a judgment of the Federal Court of Appeal (2013 FCA 153), setting aside a decision of Bédard J. of the Tax Court of Canada (2012 TCC 287).
The Minister of National Revenue assessed G for penalties under s. 163.2 of the Income Tax Act for statements she made in donation receipts issued on behalf of a charity, which she knew or would reasonably be expected to have known could be used by taxpayers to claim an unwarranted tax credit. G appealed the Minister’s assessment to the Tax Court of Canada. In her oral submissions, she argued that the penalties imposed under s. 163.2 are criminal and that she is therefore a person “charged with an offence” who is entitled to the procedural safeguards of s. 11 of the Charter. In her notice of appeal, however, she did not raise any Charter issue and did not provide notice of a constitutional question to the attorneys general as required by s. 19.2 of the Tax Court of Canada Act. The Tax Court accepted G’s argument and vacated the penalty assessment. The Federal Court of Appeal set aside that decision and restored the assessment against G.
Held (7:0): The appeal should be dismissed.
Per Rothstein, Cromwell, Moldaver and Gascon JJ.:
This Court has a well-established discretion, albeit one that is narrow and should be exercised sparingly, to address the merits of a constitutional issue when proper notice of constitutional questions has been given in this Court, even though the issue was not properly raised in the courts below. That discretion should be exercised, taking into account all of the circumstances including the state of the record, fairness to all parties, the importance of having the issue resolved by this Court, its suitability for decision and the broader interests of the administration of justice. The burden is on the appellant to persuade the Court, that in light of all of the circumstances, it should exercise its discretion.
This is a case in which this Court’s discretion ought to be exercised. The issue raised is important to the administration of the Income Tax Act and it is in the public interest to decide it. All attorneys general were given notice of constitutional questions in this Court. Two intervened, the attorneys general of Ontario and Quebec. No provincial or territorial attorney general suggested that he or she was deprived of the opportunity to adduce evidence or was prejudiced in any other way. No one has suggested that any additional evidence is required let alone requested permission to supplement the record. The attorneys general of Ontario and of Quebec addressed the merits of the constitutional argument. This Court also has the benefit of fully developed reasons for judgment on the constitutional point in both of the courts below. Finally, there was no deliberate flouting of the notice requirement: G had advanced an arguable, although not ultimately successful, position that notice was not required in the circumstances of this case.
As for the merits, or the constitutional issue itself, it should be decided in favour of the respondent. Proceedings under s. 163.2 of the Income Tax Act are of an administrative nature. They are not criminal in nature and do not lead to the imposition of true penal consequences. Therefore, G is not a person “charged with an offence” and accordingly, the protections under s. 11 of the Charter do not apply.
A proceeding is criminal in nature when it is aimed at promoting public order and welfare within a public sphere of activity. Proceedings of an administrative nature, on the other hand, are primarily intended to maintain compliance or to regulate conduct within a limited sphere of activity. The focus of the inquiry is not on the nature of the act which is the subject of the proceedings, but on the nature of the proceedings themselves, taking into account their purpose as well as their procedure.
The purpose of the proceedings in issue is to promote honesty and deter gross negligence, or worse, on the part of the preparers. Enacted in 2000, s. 163.2 contains two administrative penalties: the “planner penalty” in subsection (2) and the “preparer penalty” in subsection (4). The planner penalty is not at issue in this appeal. The preparer penalty is intended to apply when an individual has made, participated in, assented to, or acquiesced in the making of a false statement. The preparer penalty is narrow: the false statement must be made knowingly or in circumstances amounting to culpable conduct. Culpable conduct is defined in s. 163.2(1) as “conduct, whether an act or a failure to act, that (a) is tantamount to intentional conduct; (b) shows an indifference as to whether this Act is complied with; or (c) shows a wilful, reckless or wanton disregard of the law”. While there has been debate as to the scope of “culpable conduct”, the standard must be at least as high as gross negligence. The third party penalties are meant to capture serious conduct, not ordinary negligence or simple mistakes on the part of a tax preparer or planner.
With respect to the process itself, the analysis is concerned with the extent to which it bears the traditional hallmarks of a criminal proceeding. Here, the Canada Revenue Agency auditors conduct a penalty audit, advise the preparer or planner in writing of the audit, and consider any representation that the individual chooses to make before imposing the penalty. This administrative process can be contrasted with the process which applies to criminal offences. No one is charged. No information is laid against anyone. No one is arrested. No one is summoned to appear before a court of criminal jurisdiction. No criminal record will result from the proceedings. At worst, once the administrative proceeding is complete and all appeals are exhausted, if the penalty is upheld and the person liable to pay still refuses to do so, he or she risks being forced to pay by way of a civil action.
In addition to not being criminal in nature, the process under s. 163.2 of the Income Tax Act does not lead to the imposition of any “true penal consequence”. A true penal consequence is imprisonment or a fine which, having regard to its magnitude and other relevant factors, is imposed to redress the wrong done to society at large rather than simply to secure compliance. A monetary penalty may or may not be a true penal consequence. It will be so when it is, in purpose or effect, punitive. Whether this is the case is assessed by looking at considerations such as the magnitude of the fine, to whom it is paid, whether its magnitude is determined by regulatory considerations rather than principles of criminal sentencing, and whether stigma is associated with the penalty.
In this case, the penalties assessed against G do not impose a true penal consequence — the magnitude reflects the objective of deterring conduct of the type she engaged in. The Tax Court found that G wrote and endorsed a legal opinion that she knew was flawed and misleading: in the opinion, she stated that she had reviewed supporting material which had in fact never been provided to her. Later, when she signed charitable tax receipts as part of the program, she chose to rely on her own legal opinion which she knew to be incomplete. In short, the Tax Court found that G’s conduct was indicative either of complete disregard of the law and whether it was complied with or not or of wilful blindness.
Per Abella, Karakatsanis and Wagner JJ.:
There is no ambiguity in the text of s. 19.2 of the Tax Court of Canada Act. It explicitly states that the court shall not adjudge a law to be invalid, inapplicable or inoperative unless the notice requirements are satisfied. Because G failed to satisfy those requirements, the Tax Court judge was not entitled to deal with the constitutional issue. This Court, however, has the discretion to entertain new issues. The question in this case, therefore, is how that discretion should be exercised when the new issue raised is a constitutional one which was subject to a mandatory notice requirement in the court or tribunal of first instance. The existence of such a notice requirement argues for the discretion being a very narrow one which should only sparingly be exercised to avoid the practice and perception that such mandatory provisions can be circumvented by raising constitutional arguments as new issues and giving notice for the first time in this Court.
As this Court explained in Eaton v. Brant County Board of Education,  1 S.C.R. 241, provisions that require litigants to file notice of a constitutional question serve two central purposes: extending a full opportunity to governments to defend their legislation and ensuring that an evidentiary record that is the result of thorough examination is before the court.
Eaton remains the only case in which this Court has explicitly and fully considered the policy and evidentiary consequences of the failure to give the requisite notice of a constitutional issue in the court or tribunal where it was required. With the exception of cases where de facto notice was given or the Attorney(s) General consented to proceeding in the absence of notice, the Court concluded that such notice provisions were mandatory and failure to give the notice invalidates a decision made in its absence. There was, the Court held, no need to show actual prejudice since absence of notice is in itself prejudicial to the public interest. Prejudice is assumed from the failure to give notice since it means that a party entitled to make representations has been denied the opportunity to do so.
In Eaton, this Court declined to hear the constitutional issue because the required notice had not been given in previous proceedings. There is no suggestion in any subsequent decision of this Court that the notice issue was wrongly decided in Eaton. As a result, as Eaton directs, the mandatory language of s. 19.2 of the Tax Court of Canada Act and its underlying policy rationales support the conclusion that this Court should not, absent exceptional circumstances, adjudicate the constitutionality of s. 163.2 of the Income Tax Act in the absence of notice in the Tax Court.
Notice provisions play a particularly crucial role in Charter litigation, where, if an applicant successfully establishes a violation of an enumerated right, the burden shifts to the government to demonstrate on a balance of probabilities that the legislation in question is justified under s. 1 of the Charter. Notice provisions therefore protect the public interest by giving Attorneys General an opportunity to present evidence so that a court can assess the constitutionality of the law fully and fairly. Bypassing this crucial evidentiary step in a first instance forum where the evidence can be properly tested and challenged, erodes not only the credibility of the outcome, but also public confidence that Chartercompliance will be robustly reviewed. And notice is essential not just for the Attorney General whose legislation is being challenged, but also for the other Attorneys General whose legislation may be incidentally affected by the outcome of the case and who, as a result, may wish to intervene. Prejudice to the public is presumed from the failure to have full Charter scrutiny when it is first required. The central role notice provisions play in our constitutional democracy is reflected in the fact that every province and territory has a law requiring that notice of a constitutional question be served on the provincial and territorial Attorney(s) General, and, at times, also requiring that the Attorney General of Canada be served.
The failure to notify Attorneys General in the forum where notice is required and doing so only for the first time in this Court undermines the purposes underlying the notice provisions. Most significantly, it undermines public confidence because it extinguishes the legislative assurances that this Court will have the benefit of a complete and tested record when scrutinizing the constitutionality of legislation.
Moreover, if this Court arrogates to itself a broad authority to retroactively remedy a failure to give notice in the Tax Court where it is required, the mandatory character of s. 19.2 is eroded. Permitting the artifice of notice at this Court to replace notice in the forum from which an appeal is taken would, in effect, permit parties to do an “end run” around these mandatory notice provisions. Such an approach would have the effect of replacing Eaton’s presumption of prejudice with an assumption of no prejudice if notice is eventually given in this Court. Not only does this send the message that compliance with mandatory notice provisions is merely optional, it also has the effect of making them essentially discretionary.
The mandatory wording of the Tax Court of Canada Act and the policy reasons underlying notice provisions therefore lead to the conclusion that, in addition to the two exceptions set out in Eaton — de facto notice and the consent of the Attorneys General — absent exceptional circumstances, this Court should not entertain a constitutional argument where notice was not properly provided in the court or tribunal of first instance. Exceptional circumstances include those where the constitutional issue has an overwhelming urgency or public importance that justifies hearing it in this Court, or where the party bringing the constitutional challenge had little choice but to raise it for the first time in this Court.
In this case, G failed to serve notice of a constitutional question before the Tax Court. She once again failed to serve the notice required by s. 57 of the Federal Courts Act in proceedings before the Federal Court of Appeal. Before this Court, G filed notice for the first time. She attempted to bring her case outside the scope of s. 19.2 by arguing that she was merely asserting her Charter rights, as opposed to seeking a declaration of invalidity, inapplicability or inoperability. Having raised a constitutional argument, however, G was bound by the notice requirements that govern its determination. The protections set out in s. 11 of the Charter cannot simply be read into the regulatory scheme without rendering s. 163.2 invalid, inapplicable or inoperative. The Income Tax Act provides a set of procedures and processes that are distinct from those set out in the Criminal Code. Section 34(2) of theInterpretation Act, as a result, does not apply.
Neither exception from Eaton applies in this case. Nor are there any exceptional circumstances: there is no particular urgency or overwhelming public importance that distinguishes this case from other constitutional cases, and there is virtually no explanation for why notice was not given where required in the prior proceedings.
At the Tax Court, the Attorney General of Canada objected to G’s constitutional argument, arguing that notice was required. Neither the Attorney General of Canada, nor the provincial Attorneys General whose own regulatory schemes could clearly be affected by the outcome, had the opportunity to fully participate in building the necessary evidentiary record before the Tax Court. And two of the three Attorneys General who participated in this Court objected to the failure to provide notice at the Tax Court. Far from conceding that there was no prejudice, the Attorney General of Canada in fact insisted that there was prejudice to the public from the failure to provide notice. The burden of showing the contrary is on G, not on the Attorneys General. Moreover, it is impossible in the absence of a full evidentiary record and argument, to conclude that this Court has the benefit of full developed reasons for judgment on the constitutional point from both of the courts below.
To consider the constitutional issue in this case, as the majority does, essentially means that it could be exercised in any case where the Court is sufficiently attracted by the constitutional issue, notwithstanding the public importance of notice provisions, the wording of s. 19.2, and the binding precedent of Eaton. G knew that the Attorney General of Canada had objected to her failure to file notice before the Tax Court when she made her closing argument, yet even in the Federal Court of Appeal, she failed to file the required notice. Essentially, she took the risk of gambling with public resources, rather than simply complying with plain statutory requirements.
Joint Reasons for Judgment by Rothstein and Cromwell JJ. (Moldaver and Gascon JJ. concurring)
Joint Reasons Concurring That the Appeal Be Dismissed but Dissenting as to Whether the Court Should Exercise Its Discretion to Address the Merits of the Constitutional Issue by Abella and Wagner JJ. (Karakatsanis J. concurring)
Docket No.: 35519.