On April 25, 2017, the Tax Court of Canada (the “Court”) released its decision in Ploughman v The Queen (the “Ploughman Decision”), an appeal by Glenn Ploughman (“Ploughman”), from CRA’s assessment under section 163.2 of the ITA, often referred to as the third-party penalty provision.
The Court found that Ploughman participated in the making of, or assented to or acquiesced in the making of, false statements by 135 participants in a charitable donation program. The background facts of this case are complex and it is beyond the scope of this article to describe in detail. However, in general terms, the Court found Ploughman was a creator or promoter of a charitable donation program (“Donation Program”) that was based on the creation of a timeshare property and the donation of vacation ownership weeks to registered charities by participants in the Donation Program. However, timeshare units were never created and therefore vacation ownership weeks were never actually donated by any participants. Each of the 135 official receipts issued to participants in the Donation Program, which stated that each donor had made an in-kind donation of a specified number of “Biennial Weeks Vacation Ownership at Arawak Inn & Beach Resort”, contained a false statement.
Based on the evidence, the Court found that when Ploughman sent a letter to the participants in the Donation Program recommending that they submit their charitable receipts to CRA, he knew or would reasonably be expected to have known but for circumstances amounting to culpable conduct, that each of the official receipts contained a false statement. Further the Court found that Ploughman’s indifference concerning the non-existence of the timeshare units, the failure to implement other transactional steps on which the Donation Program was based, and his indifference as to whether his recommendation in that letter was well founded, showed an indifference concerning whether the ITA was complied with and thus constituted culpable conduct.
Subsection 163.2(6) of the ITA provides a safe harbour for an advisor who relies, in good faith, on information provided by or on behalf of a person who makes a false statement. However, the Court found that Ploughman’s reliance on the legal opinion letter of Ms. Guindon (the lawyer who had provided the legal opinion concerning the Donation Program as described below) did not satisfy the statutory criteria of subsection 163.2(6) of the ITA. The Court noted that subsection 163.2(6) of the ITA applies only where the advisor is acting on behalf of the person who makes the false statement, but the Donation Program involved a number of participants who were clients of other canvassers, such that Ploughman may not have been acting on behalf of those participants. In addition, the Court found Ploughman was not acting in good faith.
The Donation Program was previously at the centre of the case involving Guindon v R, as discussed in the August 2015 Charity & NFP Law Update. In that case, Guindon, a lawyer without expertise in tax law, provided a legal opinion on the tax consequences of a leveraged donation program and signed 135 charitable receipts totalling $3,972,775 in her capacity as the president of a registered charity. Guindon was found liable under s. 163.2(4) of the ITA for knowingly assisting another taxpayer with making false statements or omissions in a tax return.