http://www.canlii.org/en/ca/tcc/doc/201 ... I4IAAAAAAB
The Canada Revenue Agency is in a snit just because the taxpayer found a creative way to eliminate his tax obligations over a multi-year period. Claim massive fake business losses from a non-existent business;
While he cannot escape being reassessed to eliminate the fake losses he is fighting the gross negligence penalty. His defense against being found grossly negligent or willfully blind is;[4] In 2009, the Appellant participated in a tax savings scheme (the "Scheme") promoted by Solutions 21 Financial ("Solutions 21"). According to this Scheme, the Appellant reported in his 2009 return that he had gross business income of $100,209.59; and, a business expense of $426,336.97 which he described as "AMT TO PRINCIPAL FR AGENT". The Appellant claimed net business losses of $326,127.38.
[8] The Appellant did not have a business in 2009.
This defense is based on the argument that any normal reasonable person offered the same opportunity to reduce taxes that he was given would have jumped in as he did. So what group, in the taxpayer's opinion, should serve as a baseline for determining who a hypothetical "reasonable person" is?[10] It is the Appellant's position that gross negligence penalties should not have been assessed against him because he believed that the Scheme which had been marketed to him and thousands of other taxpayers was legitimate. In order to demonstrate that his negligence did not rise to the level of gross negligence, he will argue that he acted reasonably in the circumstances by comparing his actions with that of the "reasonable person". The Appellant submitted that he should be able to present the full circumstances of the Scheme, and the fact that many other taxpayers also participated in it.
Oops! So apparently the reference group he wants to use to demonstrate he wasn't negligent or willfully blind is the other people that leapt into the scheme along with him who, I assume, have also been hit with gross negligence penalties. Seems somewhat circular reasoning.[11] I inferred from counsel's submissions that he will argue that the "reasonable person" is all the other individuals who claimed false business losses in their returns in circumstances similar to the Appellant.
The case hasn't yet gone to Tax Court, this is just preliminary skirmishing. The taxpayer wants masses of documentation from the Canada Revenue Agency to show something or other to apparently demonstrate that the CRA thought that all the suckers were all normal reasonable people.
Sadly the Tax Court wasn't buying it;
The taxpayer has appealed this decision to the Federal Court of Appeals in the hope of getting a more sympathetic hearing. I doubt it.[22] The focus of the inquiry at the hearing of this appeal will be on facts specific to the Appellant's education, experience, knowledge and conduct. The documents sought by the Appellant are not relevant to these facts nor will the requested documents add any value to the Court's appreciation of the evidence with respect to the Appellant's state of mind and belief. An Order for full disclosure in this case will not secure the just, most expeditious and least expensive determination of the proceeding.
[23] Counsel for the Appellant stated that his objective will be to establish why it was reasonable in the circumstances for the Appellant to believe that the Scheme was legitimate. He plans to make an argument based on the "reasonable person" and he seeks information with respect to other taxpayers who also claimed false losses in their tax returns. However, the personal information with respect to other taxpayers is not relevant to the Appellant's appeal: Sinclair v R, 2003 FCA 348. It is my opinion that the Appellant has sufficient information to make the "reasonable person" argument. The Respondent has already given him data with respect to the number of taxpayers who have been audited for false business losses for the period 2009 to 2014. I make no decision as to the relevancy of the Appellant's proposed argument.
