On March 20, 2014 the Supreme Court of Canada granted leave to appeal in the case of Guindon v. The Queen. If one had been listening closely on that Thursday morning, it is likely that one could have heard both gasps and cheers from the various lawyers, CRA officials and tax advisers who have been following the Guindon case since the Tax Court first released its decision on October 16, 2012. In order to understand the gasps and cheers, and in order to engage in some idle prognostication with respect to how the Supreme Court of Canada might ultimately decide this case, it is necessary to recap.
Guindon is a lawyer, but not a tax lawyer. She issued an opinion on the tax implications of what was called The Global Trust Charitable Donation Program. That opinion was included in the promotional materials for the Program. After the Program had been in operation and monies were donated and charitable donation tax receipts were issued, the Minister assessed Ms. Guindon penalties pursuant to 163.2 of the ITA.
On appeal of the assessment, the Appellant, Ms. Guindon argued, and the Tax Court agreed, that 163.2 is in its nature, criminal rather than civil. This argument was premised upon the severity of the penalties imposed under 163.2. In its introductory remarks, the Tax Court (2012 TCC 287) noted the significance of its conclusion (para.5):
Such a finding would entail far‑reaching consequences. In fact, if it is found that section 163.2 of the Act leads to a true penal consequence, then the protection of section 11 of the Canadian Charter of Rights and Freedoms (the “Charter”) will apply to guarantee fundamental substantive and procedural legal rights to any individual charged with an offence under section 163.2. Notably, the right to be presumed innocent would raise the burden of proof from that of proof on a balance of probabilities to proof beyond a reasonable doubt.
In the result, the appeal was allowed and the assessment was vacated.
An appeal was, of course, immediately launched and those who had applauded the decision of the Tax Court held their breath. On June 12, 2013 the hopes of those who disagreed with the Tax Court were rewarded and the Federal Court of Appeal overturned the Tax Court. The reasons were forceful. First, the appellate court held that the Tax Court did not even have jurisdiction to arrive at the result it did because, in order to engage the constitutional question a notice of constitutional question was required to have been served and this had not been done. (para.3) In addition, and in case the court was wrong on this first issue, the appellate court went on to find that “proceedings under section 163.2 are not criminal by their nature, nor do they impose true penal consequences. (para.5)
The Supreme Court of Canada may grant leave to appeal where the Court “is of the opinion that any question involved therein is, by reason of its public importance or the importance of any issue of law or any issue of mixed law and fact involved in that question, one that ought to be decided by the Supreme Court…”.
In 2010, the Supreme Court granted leave on 55 of the 388 leave applications that were made. In 2011, leave was granted in 69 of the 449 applications and in 2012, leave was granted in 69 of the 468 applications that were made.
Therefore, as a statistical matter, it is more likely than not that for any application, leave will not be granted. Against these odds, in Guindon leave to appeal was granted and, thus, to the delight of some and disbelief of others, the case and the important constitutional issue will move to the third and final court.
So what happens next? To begin, hopefully some groups will apply to intervene so that the relevant legal and constitutional issues can be fully canvassed on the appeal. Next, anyone who has a 163.2 case would be well advised to give careful consideration as to whether a notice of constitutional question should be filed.
What the Court might ultimately decide is, of course a guessing game. However, one can be certain that because leave was granted, the Court will not dismiss the appeal on grounds that an appropriate notice had not been filed at the Tax Court. Indeed, serious constitutional issues such as this is should not be so easily dismissed.
Next, and as has been seen in recent decisions from the Supreme Court, the Court properly and dutifully performs its role in measuring legislation against constitutional standards. Therefore, it is certain that if s.163.2 is properly characterized as criminal rather than civil, the Court will make such a declaration and the ripple effect from that of providing required constitutional protections will simply need to be contended with.
There is undoubtedly a sense that because the automatic application of certain penalties contained within the ITA can be crushing in their effect, that the penalties can, for that reason, also be unfair. Therefore, and while this is admittedly not legal argument, there is for some an intuitive attractiveness to the rebalancing that would come from providing greater protection to those who might be subject to such penalties.
It will be some months before the Guindon appeal is heard and then, likely some more months before the case will be decided. Until then, tax practitioners should be asking themselves, if s.163.2 is possibly criminal, rather than civil in nature, what other penalty provisions within the ITA might also be vulnerable to this same attack?