Guindon case raises tax ethics issues

The Supreme Court case about third-party penalties for tax fraud (Guindon) highlights important ethical concerns for tax advisors. Find out why CPA Canada felt compelled to intervene.

At the centre of the Guindon case was a tax lawyer who issued phony receipts that she allegedly could expect people would use to claim fraudulent charitable donation credits. Canada Revenue Agency (CRA) imposed a special penalty in the tax law for third parties, such as tax shelter promoters, who make false statements that others can exploit to escape taxes.

The issue for the Supreme Court was whether the penalty was civil or criminal. If criminal, the lawyer would have protection under the Charter of Rights and Freedoms, including the right not to testify, the presumption of innocence and a stronger burden of proof.

In the end, the Supreme Court found the penalties were civil. The charter protections did not apply, although other safeguards are in place to ensure the penalty only captures serious misconduct, not ordinary negligence or simple mistakes on the part of a tax advisor or preparer.

Chartered Professional Accountants of Canada (CPA Canada) supports measures that encourage compliance with Canada’s self-assessment tax system, which depends on the honesty and diligence of taxpayers and their advisers.

But, for CPA Canada, the case raised a broader issue for its members. CPA Canada was granted intervener’s status before the Supreme Court of Canada. CPA Canada’s objective was to ensure that any guidance by the court applied to CPAs, not just lawyers, by highlighting the ethical concerns raised by the application to CPAs of penalties under section 163.2 from the perspective of its members. The penalty’s imposition should be subject to protections informed by rules of professional ethics — namely, the duty of loyalty, the duty of care and the duty of confidentiality.

Tax law is notoriously complex, and many taxpayers rely on CPAs and others to help them comply. CPA Canada believes ethical safeguards are crucial for protecting Canadians’ expectations when they hire a CPA and for promoting voluntary compliance.

A new briefing from Gabe Hayos, CPA Canada’s vice-president, Tax, and Dominic Belley, CPA Canada’s legal counsel, explains these issues in more detail.