Gross negligence penalties upheld against taxpayer for failure to maintain proper books

Larry Gordon Schafer and Amisk Investments Limited v. Her Majesty the Queen

Neutral Citation: 2013 TCC 382

Tax Court of Canada

Date: December 2, 2013

Docket Nos. 2010-757(IT)G, 2010-672(IT)G

Gross negligence penalties upheld against taxpayer for failure to maintain proper books and records and indifference to tax obligations — Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 15(1), 163(1).

Facts: The individual taxpayer, Mr. Schafer, was practising law through the other taxpayer, Amisk, of which he and his wife were the shareholders. In 2005, Amisk was the subject of a Canada Revenue Agency audit. The Minister reassessed Amisk’s 2005 tax year to include $214,770 of unreported income from Mr. Schafer’s law practice and applied gross negligence penalties. The only issue on appeal was whether gross negligence penalties should have applied. The taxpayer, Amisk, argued that penalties were not justified because its failure to report was inadvertent and quickly remedied. Mr. Schafer was also assessed in the amount of $241,088 for appropriating corporate funds from the business by way of shareholder benefit under subsection 15(1) of the Income Tax Act (the “Act”). Mr. Schafer argued that it was a shareholder loan that was repaid within one year and not income for the relevant period.

Held: The taxpayers’ appeal was dismissed with costs. Mr. Schafer lacked credibility, which greatly harmed his case. The amounts he received were more of a shareholder benefit than a loan, and following the instigation of the audit, Mr. Schafer revised books and records, amended company returns, and reclassified payments. The taxpayer conducted himself in a manner that justified imposition of penalties as he was indifferent to complying with the Act and keeping proper books and records.

Counsel: The appellant on his own behalf and on behalf of the other appellant; M. McCabe for the respondent