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(2002) vol. 50, no 1 ■ 11111

Application of the Charter to CivilPenalties in the Income Tax Act

Colin Campbell*

P R É C I S

Les pénalités administratives imposées en vertu de la Loi de l’impôt sur le revenu, enparticulier les pénalités prévues au paragraphe 163(2) et à l’article 163.2, échappentaux règles de procédure et aux protections qui s’appliquent dans une instancecriminelle (par exemple, selon les articles 238 ou 239) en vertu de la Charte. À ce jour,les tentatives visant à étendre les garanties prévues dans la Charte à l’imposition depénalités administratives se sont avérées infructueuses.

L’auteur estime que la jurisprudence sur l’application de la Charte aux pénalitésadministratives devrait être réexaminée, en particulier à la lumière de la jurisprudenceeuropéenne sur la Convention européenne sur les droits de la personne. Lajurisprudence européenne considère en effet les dispositions semblables des régimesfiscaux européens comme étant de nature criminelle, de sorte que les garanties de laconvention, qui sont semblables à celles de la Charte, s’appliquent.

A B S T R A C T

The civil penalties imposed under the Income Tax Act, and in particular the penaltiesimposed under subsection 163(2) and section 163.2, are not subject to the proceduralrules and safeguards that apply in a criminal proceeding (for example, under section238 or 239) under the Charter. Prior attempts to have Charter protections extended tocivil penalty assessments have been unsuccessful.

The author argues that the earlier jurisprudence dealing with the application of theCharter to civil penalties should be reviewed, particularly in the light of Europeanjurisprudence applying the European convention on human rights. The Europeanjurisprudence treats similar penalty provisions in European tax regimes as criminal innature, attracting the protections of the Convention, which are similar to Charterprotection.

K E Y W O R D S : PENALTIES ■ RIGHTS ■ ADMINISTRATION ■ CRIMINAL LAW ■ CONSTITUTIONAL LAW

■ COUNCIL OF EUROPE

* Davies Ward Phillips & Vineberg LLP, Toronto, and adjunct professor, Faculty of Law,The University of Western Ontario.

2 ■ canadian tax journal / revue fiscale canadienne (2002) vol. 50, no 1

I N T R O D U C T I O N

The sanctions against a taxpayer who fails to comply with the provisions of theIncome Tax Act1 fall into two groups, monetary penalties2 and the fines and/orimprisonment imposed under sections 238 and 239.3 The latter are conventionallyconsidered to be criminal in nature; they are prosecuted in the criminal courts undercriminal procedure, and the person accused is entitled to all procedural safeguardsand defences available in a criminal matter, including those under the CanadianCharter of Rights and Freedoms.4 Penalties, on the other hand, are imposed underthe assessment procedures of the Act, are litigated in the first instance in the TaxCourt of Canada in the same manner as assessments of tax and interest, and aregenerally subject to the same procedural rules and safeguards as would apply gen-erally in a civil proceeding. The dividing line between civil penalties and criminaloffences under the Act has not been subject to recent scrutiny, academic5 or judi-cial. The Charter-based jurisprudence preventing the use of evidence gatheredunder the administrative provisions of the Act in the prosecution of a criminaloffence under the Act (discussed further below) has considered only section 238and 239 offences.6

The more substantial monetary penalties, particularly those contained in subsec-tion 163(2) and section 163.2, are essentially a compromise, or tradeoff, betweenthe deterrent and punitive force of full criminal penalties, including incarcerationand the consequences of a criminal record, and the increased chance of successfulimposition of the penalty using civil standards of proof and evidence. The existingCanadian jurisprudence, dating from the late 1980s, considering the status of themore substantial civil penalties in the light of the Charter, has concluded that theyare civil and administrative in nature and afford no entitlement to protection underthe Charter. However, a number of recent cases involving the application of theEuropean convention on human rights7 to tax penalty provisions, both in the Euro-pean Court of Human Rights and in European domestic courts, suggest that this isan opportune time to revisit the boundary between civil and criminal penalties inincome tax matters. In particular, it is time to question the continuing authority ofthe Canadian case law that denies Charter protection in the case of civil penaltiesinvolving a gross negligence or a “knowingly” test (the penalties under subsections162(10); 163(2), (2.2), (2.21), (2.3), and (2.4); and 227(8) and (9)) and the “culpableconduct” test for third-party adviser penalties in section 163.2 (referred to collec-tively in this article as the “gross negligence” penalties). If that case law is no longerpersuasive, it is then necessary to consider whether Charter provisions, particularlythe prohibition against double jeopardy and the right not to be compelled to testifycontained in section 11 of the Charter, would come into play. The starting point,however, is the European consideration of penalty provisions.

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T H E E U R O P E A N C O N V E N T I O N O N

H U MA N R I G H TS O F 1 9 5 0

The Convention for the Protection of Human Rights and Fundamental Freedomsis a multilateral treaty intended to enforce certain civil and political rights andfreedoms in its signatory European states. The Convention was signed at Rome onNovember 4, 1950 and entered into force on September 23, 1953. The Convention, asamended by a series of protocols, has now been acceded to by most European states.

Prior to 1998, a person alleging a breach of the rights and freedoms guaranteedby the Convention was required to petition the European Commission on HumanRights, which considered the admissibility of the complaint under the Convention.If the complaint was found to be admissible, the commission then assessed it on itsmerits. In the latter case, either the commission or one of the signatory states hadthe right to refer the matter to the European Court of Human Rights (“the EuropeanCourt”). The number of complaints referred to the European Court was relativelysmall and the court operated on an ad hoc, part-time basis. Some signatory statesreserved the right of a person to bring a complaint before the commission ratherthan through the signatory state itself.

In 1998, persons in signatory states acquired the right of individual petitiondirectly to the European Court in all instances. The commission effectively disap-peared, and the signatory states themselves ceased to have any direct role in theprocess. Signatory states are bound to abide by the final judgment of the EuropeanCourt,8 execution of which is supervised by the Committee of Ministers of theCouncil of Europe.9 The Convention is therefore enforceable in a signatory statethrough an appeal to the European Court. In addition, the Convention may havebeen incorporated into the domestic law of a signatory state and may therefore beenforced in the domestic courts of the state.10

For example, the Convention was incorporated into the domestic law of theUnited Kingdom under the Human Rights Act 1998, which came into force onOctober 2, 2000.11 Under this statute, all existing and future UK legislation mustbe construed so as to be compatible with rights under the Convention. If this is notpossible, the court may declare that the legislation is incompatible with the Con-vention. This does not invalidate the legislation but requires a minister to takeremedial action. In addition, all public authorities are required to act in a mannerthat is compatible with rights under the Convention, and all proposed legislationmust be accompanied by a statement as to its compatibility or incompatibility withthe Convention rights.

In addition to directly incorporating Convention rights into domestic law, where,and to the extent that, Convention rights have been separately incorporated intolaws of the European Community (EC), domestic courts in EC member states areobliged to enforce such laws independently of any other action taken to incorporateConvention rights. The effect of the Convention (particularly after the 1998 reforms),and of its incorporation into the domestic law of states such as the United Kingdom,is that the domestic law of such states, including taxation law, has become subjectto an overriding human rights code of quasi-constitutional status.


Article 6 of the European Convention:The “Criminal Charge” Threshold

The rights and freedoms protected by the Convention are generally similar tothose protected by the Charter. Article 6 of the Convention, which deals with theright to a fair trial,12 is analogous to section 11 of the Charter. Paragraphs 2 and 3of article 6 apply only with respect to a person “charged with a criminal offence.”Paragraph 1 of article 6 applies in the determination of the “civil rights and obli-gations” of a person or of “any criminal charge” against the person.

The Article 6 Jurisprudence: “Criminal Charge” and“Criminal Offence”

The jurisprudence considering article 6 of the Convention has consistently foundthat ordinary proceedings to determine tax liability are matters of public law anddo not involve the “civil rights and obligations” of a person,13 with the exception ofcases involving actions to recover property seized by tax authorities or to recoveroverpayments of tax. Such cases have been found to fall within “civil rights andobligations” for the purposes of paragraph 1 of article 614 and paragraph 1 of article6 would therefore apply to tax matters only if they involved such exceptions or a“criminal charge.” In order to determine whether a person is entitled to the rightsunder paragraphs 2 and 3 of article 6, the court must determine whether the matterin question is a “criminal offence” within the meaning of article 6. In a series ofcases, the European Court and domestic courts of signatory states have consideredwhether tax penalty provisions involve “criminal” charges for “criminal” offencesso as to engage the protection of article 6 of the Convention.

The leading case in the European Court dealing with the classification of taxpenalties is Bendenoun v. France.15 Following an investigation by the French taxauthorities, the taxpayer was accused and convicted of “deception” (“manoeuvresfrauduleuses”),16 and penalties were imposed which were calculated as a percentageof the tax evaded. These penalties were in addition to any payment for arrears orlate payment interest. The taxpayer was convicted in the French courts and appealedto the European Court. He took the position that paragraph 1 of article 6 of theConvention applied because the proceeding involved a “criminal charge,” and thathis rights under article 6 had been denied because he had been denied access to thewhole of the tax authority’s file. In determining whether the penalties imposed in thiscase were administrative penalties imposed in an administrative proceeding, ratherthan a sanction for a “criminal charge,” the European Court applied criteria setdown initially in several non-tax cases, principally Engel and Others v. The Netherlands(No. 1)17 and Öztürk v. Germany.18 These criteria are the classification of the offenceunder the domestic law, the nature of the offence, and the severity of the penalty.

In applying these criteria in Bendenoun, the European Court noted the Frenchgovernment’s submission that, under the relevant French tax law, the amountsimposed were classified as tax penalties rather than criminal penalties, were imposedby the administrative rather than the criminal courts, were directly proportional tothe tax evaded, were not an alternative to a custodial penalty, and did not result in a


criminal record. The European Court, however, found that the offences came undera law of general application,19 and that the penalties were not intended to compen-sate the state for loss of revenue but had a deterrent and punitive purpose and, infact, were very substantial (approximately FRF425,000). The court also noted thatthe taxpayer would be subject to imprisonment if he failed to pay the penalty. Thecourt concluded that, taken together and cumulatively, these factors made thecharge in issue a criminal charge within the meaning of paragraph 1 of article 6.

A similar result was reached in the case of MP, AP, and TP v. Switzerland.20 Inthat case, the taxpayers were the heirs of a deceased person who had, during hislifetime, evaded tax. Under the relevant Swiss law, the heirs, notwithstanding thatthe offence had been committed by the deceased, were liable to pay the fine thatwould have been imposed on the deceased, of up to four times the amount of taxevaded. The appellants argued, among other things, that this was a criminal offencefor purposes of the Convention and that the inheritance of the liability of thedeceased violated the presumption of innocence in paragraph 2 of article 6 of theConvention. In finding that the appellants had in fact been charged with a criminaloffence for the purpose of article 6, the European Court applied the criteria estab-lished in Öztürk and stressed the punitive and deterrent nature of the fines. Thecourt also noted that the Swiss courts had characterized the fine as “penal” incharacter, dependent on the “guilt” of the deceased person. It is worth noting alsothat the appellants would not have acquired a criminal record and, apparently,would not have been subject to imprisonment in lieu of payment.

Penalty provisions in UK value-added tax (VAT) legislation have been consideredin at least two cases. The relevant legislation21 imposed a penalty equal to the amountof tax in issue where the taxpayer, “for the purpose of evading VAT,” performs oromits to perform any act and the conduct involves “dishonesty,” whether or notthe dishonesty is such as to give rise to criminal liability. There was no possibilityof imprisonment for failure to pay the penalty; the taxpayer could not acquire acriminal record; and both the penalties and the underlying tax liability were assessedand adjudicated in the same forum.

In Georgiou and Anor. (t/a Mario’s Chippery) v. UK, the European Court had littledifficulty in concluding that the penalty was a “criminal charge” for purposes ofparagraph 1 of article 6 of the Convention:

The court notes that the penalty proceedings in the present case were classified ascivil, rather than criminal, in domestic law. However, as in Bendenoun v France (1994)18 EHRR 54 at 74-76, paras 44-48, the penalty was intended as a punishment to deterre-offending, its purpose was both deterrent and punitive and the penalty itself wassubstantial. These factors taken together indicate that the penalty imposed in thepresent case was a “criminal charge” within the meaning of art 6(1).22

In Han v. Customs and Excise Commissioners,23 identical provisions24 were con-sidered subsequent to the coming into force of the legislation that incorporated theConvention into the UK domestic law. The VAT Tribunal analyzed the penaltyprovision, noting that it proscribed “evasion” rather than “avoidance,” which


connoted something unlawful, and involved “dishonesty” on the part of the person,which, in this context, had the same meaning as in the criminal law. The VATTribunal also noted that the standard of proof lying on the state in the case of thepenalty was the civil balance of probability standard, that criminal procedures didnot apply, and that there was no possibility of imprisonment or a criminal record.The VAT Tribunal referred to the report of the Keith committee on enforcementpowers, which recommended the “decriminalization” of certain VAT offences,distinguishing

between acts such as robbery which it described as “mala in se” or “intrinsically wickedacts commonly regarded as such” and “mala prohibita” or offences that are regarded asnot criminal in any real sense but acts which in the public interest are prohibitedunder penalty.25

The VAT Tribunal found that the penalties in issue could be classed as eithercivil or criminal because, although they were part of the civil code and gave rise toneither criminal record nor imprisonment, they were penal, not compensatory, andwere intended to deter. The nature of the offence suggested that the penalties werecriminal in nature because they involved dishonesty and a potentially higher degreeof “criminality.” Finally, the substantial amount of the penalties was “sufficientlyburdensome to fall on the criminal side of the line.” On balance, the VAT Tribunalfound that the penalties were criminal for purposes of the Convention, concludingthat “[f]eatures that together weigh most heavily on the criminal charge side arethe punitive and deterrent characteristics of the s 60 and s 8 penalties coupled withthe amounts of those penalties.”26

The decision in Han was upheld in the English Court of Appeal on the basis ofthe “clear state of the Strasbourg [Court of Human Rights] case law” on the point.27

In King v. Walden,28 the English Chancery Division considered the applicationof the Convention to penalty provisions under UK income tax statutes. The relevantprovision29 imposed penalties in the case of fraudulently or negligently made incor-rect returns or statements, calculated as an amount up to the tax avoided because ofthe negligence or fraud. The court summarized the relevant jurisprudence, includ-ing Georgiou and Han, as well as Baker’s conclusion that “[i]t now seems clearlyestablished, therefore, that a tax-geared penalty can entail a criminal charge, andthe issue of liability to penalties of 25 per cent or higher has been regarded asinvolving the determination of a criminal charge.”30

Jacob J concluded:

In my judgment the system of imposition of penalties for fraudulent or negligentdelivery of incorrect returns or statements is ‘criminal’ for the purposes of art 6(2). Iso hold for the following reasons: (a) Plainly the system is intended to punish thedefaulting taxpayer and to operate as a deterrent. (b) The amount of fine is potentiallyvery substantial. (c) The amount of fine is not related to any administrative matter. . . .(d) The amount of fine imposed depends upon the degree of culpability of the taxpayer,the less culpable, the more mitigation there is. Mitigation is an essentially criminal


rather than civil consideration. (e) It is accepted that generally . . . it is not for thetaxpayer to show that the determination of penalties was wrong. On appeal the burdenof proof lies on the Crown. In this regard there is a clear distinction between apenalty determination and an appeal against ordinary assessment where the burden ofshowing what was wrong lies on the taxpayer.31

On this basis, the court found that the penalty proceeding constituted a criminaloffence for purposes of article 6 of the Convention. This case is particularly rele-vant in the Canadian context because it comes from a common law jurisdiction andinvolves a penalty triggered by fraud or negligence.

European Jurisprudence: Relief Sought

Once it is established that article 6 of the Convention applies to a matter, it mustbe determined whether the Convention standards have been complied with and towhat relief, if any, the taxpayer is entitled. The jurisprudence has considered vari-ous areas of alleged failure to meet those standards.

Lack of Full DisclosureThe right to a fair trial under paragraph 1 of article 6 has been found to requirethat the state disclose all material evidence to the taxpayer. In Georgiou, for example,the European Court stated:

The court notes that it is a requirement of fairness under art 6(1), indeed one which isrecognised under English law, that the prosecuting authorities disclose to the defenceall material evidence for or against the accused. . . . The court is aware of no reasonwhy that principle should not apply to criminal proceedings involving tax penalties.32

In Georgiou, the court found that the taxpayer’s right to disclosure had not beenviolated. A similar result was reached in Bendenoun.

Trial Within a Reasonable TimeParagraph 1 of article 6 guarantees a hearing within a “reasonable time.” Baker, onthe basis of his survey of Convention cases involving tax matters, has suggested:

One might hazard a tentative conclusion that there is a watershed around the five-year point: proceedings concluded within that five year period are unlikely to consti-tute a breach; proceedings that take longer than five years need to be justified by theauthorities.33

The appellants in Georgiou and King alleged unreasonable delay (approximately 5years and 61⁄2 years, respectively); neither succeeded.

Presumption of InnocenceParagraph 2 of article 6 guarantees the presumption of innocence. In MP, AP, andTP, the appellants had little difficulty in persuading the European Court that the


presumption of innocence had been violated by the provisions of the Swiss law thatvisited the consequences of the acts of the deceased on his heirs:

Inheritance of the guilt of the dead is not compatible with the standards of criminaljustice in a society governed by the rule of law. There has accordingly been a violationof Article 6(2).34

In King, the appellants sought to invoke the presumption of innocence, not-withstanding that the Inland Revenue bore the burden of upholding the penalty,on the basis that section 101 of the Taxes Management Act 1970 contained a rebut-table presumption that a previous determination of the current amount of taxpayable was correct. The court found that this shift of evidentiary burden did notdisplace the Crown’s fundamental onus, stating:

The right to be presumed innocent of a criminal offence until proved guilty accordingto law is expressed in art 6(2). This appears on its face to be an absolute requirement.But it has been held that it does not prohibit rules which transfer the burden to theaccused to establish a defence, provided the overall burden of proof remains on theprosecution, nor does it necessarily prohibit presumptions of law or fact providedthese are within reasonable limits. In Salabiaku v France (1988) 13 EHRR 379, 388,para 28 the court held: “Presumptions of fact or of law operate in every legal system.Clearly, the Convention does not prohibit such presumptions in principle. It does,however, require the contracting states to remain within certain limits in this respectas regards criminal law. . . . Article 6(2) does not therefore regard presumptions offact or of law provided for in the criminal law with indifference. It requires states toconfine them within reasonable limits which take into account the importance of whatis at stake and maintain the rights of the defence. The court proposes to considerwhether such limits were exceeded to the detriment of Mr. Salabiaku.”35

Right to Legal AidParagraph 3(c) of article 6 contains a guarantee of legal aid. Baker’s conclusion isthat, in appropriate circumstances, legal aid should be available in tax penaltycases.36 This argument was unsuccessful in Georgiou.37

Right to Silence (Self-Incrimination)There is no explicit right against self-incrimination in article 6. The courts applyingthe Convention have, however, implied such a right to silence as implicit in theguarantee of the right to a fair trial. In Funke v. France,38 the appellant’s house wassubject to a search and seizure of documents. The appellant was also asked to providecertain documents; when he failed to do so, he was charged, convicted, and fined forthe failure. The European Court found that article 6 had been breached, stating:

The Court notes that the Customs secured Mr. Funke’s conviction in order to obtaincertain documents which they believed must exist, although they were not certainof the fact. Being unable or unwilling to procure them by some other means, they


attempted to compel the applicant himself to provide the evidence of offences he hadallegedly committed. The special features of customs law cannot justify such an infringe-ment of the right of anyone ‘charged with a criminal offence,’ within the autonomousmeaning of this expression in Article 6, to remain silent and not to contribute toincriminating itself.

There has accordingly been a breach of Article 6(1).39

The point at which the tax authorities’ use of investigatory powers engages thearticle 6 protection appears to be the commencement of a criminal (within themeaning of the Convention) investigation. This is both the same issue and thesame conclusion reached by Canadian courts40 considering the application of Char-ter restrictions to the use of the investigative powers in the Act. In Abas v. TheNetherlands,41 the taxpayer answered questions in the course of an audit. Subse-quently, his home was searched and documents were seized. A charge of fraud andtax evasion was partially based on two answers to the audit questions. The EuropeanCommission on Human Rights found that the criminal investigation and article 6protection commenced with the search and seizure. Because of the Conventionjurisprudence reviewed above, an investigation in connection with a tax-gearedpenalty will similarly trigger the article 6 rights.

Double JeopardyThe principle that a person should not be tried twice for the same offence isaddressed specifically in article 4 of the seventh Protocol to the Convention, whichprovides:

1. No one should be liable to be tried or punished again in criminal proceedings underthe jurisdiction of the same State for an offence for which he has already been finallyacquitted or convicted in accordance with the law and penal procedure of that State.

The question whether this rule applies when the same factual circumstances giverise to both substantial penalties and a criminal offence has not yet been directlyaddressed under the Convention.42

C I V I L P E N A LT I E S A N D T H E C H A R T E R

The European cases reviewed above deal with penalties that are generally similarto the “gross negligence” penalties in the Act in that they generally involve sub-stantial amounts (for example, up to 50 percent of the tax in issue) and are intendedto have a punitive and deterrent effect. Some of the European penalty provisions,such as those in section 95 of the UK Taxes Management Act, contain a requirementof a similar mental state in the accused taxpayer to that required in gross negligencepenalties under the Act. This case law, which considers what constitutes a “criminaloffence” for purposes of the Convention, deserves to be examined carefully for itsrelevance to determining the criterion for application of the Charter to the grossnegligence penalties. The starting point is section 11 of the Charter, which providesprotection for legal rights similar to that provided under article 6 of the Convention.


“Charged with an Offence”: The Section 11 Threshold

The threshold for the application of section 11 of the Charter is whether a personhas been “charged with an offence.”43 The leading case on what is an “offence” forpurposes of section 11 is the decision of the Supreme Court of Canada in Wiggles-worth v. The Queen,44 which involved a police officer charged under the internaldiscipline regulations of the RCMP (which carried penalties consisting of fines upto $500 or imprisonment of up to one year) and fined $300 on conviction.45 Thegeneral conclusion of Wilson J for the court (which on this point was unanimous)was that

[t]he rights guaranteed by s. 11 of the Charter are available to persons prosecuted bythe state for public offences involving punitive sanctions, i.e., criminal, quasi-criminaland regulatory offences, either federally or provincially enacted.46

As discussed below, Wilson J reasoned that a matter might fall within section 11either because it was criminal by nature or because a conviction might result in “atrue penal consequence.”

Criminal by NatureTo illustrate matters that were criminal by nature, Wilson J referred to criminaloffences, such as minor traffic offences, which carried minimal consequences suchas a small fine. Notwithstanding the nominal punishment, she concluded that

[i]t cannot be seriously contended that just because a minor traffic offence leads to avery slight consequence, perhaps only a small fine, that offence does not fall withins. 11. . . . [I]f a particular matter is of a public nature, intended to promote publicorder and welfare within a public sphere of activity, then that matter is a kind ofmatter which falls within s. 11 [emphasis added].47

Wilson J did not refer specifically to the mental element—mens rea or the guiltymind—of a criminal offence, which is discussed further below.

Penal ConsequencesWilson J further expressed the view that a matter may fall within section 11, even ifit was only a disciplinary matter, if it resulted in “a true penal consequence,” whichcould include a fine:

In my opinion, a true penal consequence which would attract the application of s. 11is imprisonment or a fine which by its magnitude would appear to be imposed for thepurpose of redressing the wrong done to society at large rather than to the main-tenance of internal discipline within the limited sphere of activity.48

Wilson J therefore appears to find that in a matter involving such penal conse-quences, the accused would be entitled to section 11 protection notwithstandingthat the matter was not characterized as criminal by nature. In Wigglesworth, this


second, penal consequence, test applied because of the magnitude of the potentialpenalty for the disciplinary offence and, accordingly, section 11 of the Charterapplied.

The Supreme Court considered the application of section 11 of the Charter to apenalty provision in the pre-1984 Customs Act in R v. Amway Corp.49 In Amway, thedefendants were charged with customs and sales tax fraud by undervaluing importedgoods or by using false documentation. Under the provisions of the Customs Actat that time,50 a person so charged was subject to a penalty consisting of forfeitureof an amount equal to the value of the smuggled goods, enforceable by civil actionin the Federal Court. It was also open to the Crown to lay charges that would haveresulted in fines or imprisonment. At trial, Reed J found that these forfeiture penaltyprovisions were clearly penal and that therefore section 11 of the Charter applied,stating that “[t]he claim in issue here, though clothed in civil proceedings, is clearlypenal.”51 This reasoning was specifically approved by the Federal Court of Appeal,where Mahoney J stated:

I agree with the learned trial judge in the conclusion that the applicable provisions ofss. 180 and 192 of the Customs Act, taken with ss. 249 and 252, provide for the recoveryof a penalty by a civil proceeding in this court and, it follows, that this is a penalaction. I also agree with the reasoning of the learned trial judge in reaching thoseconclusions.52

In the Supreme Court, Sopinka J, speaking for the court, was prepared to assumewithout deciding the matter that section 11 of the Charter applied.53

Prior Charter Jurisprudence

The application of section 11 of the Charter to a subsection 163(2) penalty wasconsidered prior to Wigglesworth in several cases. In R v. Yes Holdings Ltd. andYesmaniski,54 the appellants were assessed penalties under subsection 163(2) andcharged under subsection 239(1). They challenged the proceedings, arguing that the“double jeopardy” provisions of section 11(h) of the Charter applied. Stevenson JAof the Alberta Court of Appeal found that section 11 was limited to “proceedingsof a criminal or quasi-criminal nature” and that, while there were “penal elements”in a subsection 163(2) assessment, to limit the state’s power to impose a penaltyoutside the criminal process was an “extravagant conversion” of section 11.55 Thejudgment made no attempt to analyze the mens rea element in the subsection 163(2)penalty, or to distinguish between subsection 163(2) penalties and other penaltiesunder the Act.

The same issue arose in The Queen v. Y. Sharma.56 In that case, the OntarioSupreme Court found in a brief judgment that section 11 had no application to asubsection 163(2) penalty because it was “entirely of a criminal law nature.” In sofinding, the court relied heavily on the decision of the Ontario Court of Appeal inRe Trumbley and Fleming and, in particular, Morden JA’s comments that section 11was in substance concerned with traditional criminal procedures:


The thrust of the provision is entirely of a criminal law nature. Taking this, and thefeatures of context which I shall discuss, into account, it is my view that “offence”means an offence which is prosecuted in a criminal or penal proceeding.57

The decision in Sharma was approved by the Ontario Court of Appeal in R v.Ferreira58 without reasons.

Trumbley was a case, like Wigglesworth, involving internal police disciplinary regu-lations; however, in contrast to Wigglesworth, the particular regulations; however,in contrast to Trumbley carried no possibility of imprisonment but, at worst, loss ofposition. In the Supreme Court of Canada, Wilson J, in a very brief judgment,given after Wigglesworth, found simply that section 11 did not apply to a policedisciplinary hearing of that sort.59 There was no discussion of the reasoning ofMorden JA about the general application of section 11.

In the decision of the British Columbia Supreme Court in R v. Georges Contr.Ltd., Toy J also stressed the criminal nature of section 11, stating, in respect of theprocess for adjudicating a subsection 163(2) penalty assessment, that

all the trappings and consequences are civil in their nature and I conclude that theresults are comparable to a civil judgment where part of the final judgment contains acomponent for punitive damages.60

He concluded that the taxpayer had not been “charged with an offence.”The British Columbia Court of Appeal61 upheld the decision in a brief and

largely unreasoned judgment, which noted without comment the Supreme Courtof Canada decisions in Wigglesworth and Trumbley.

In Lavers v. BC (Min. of Finance),62 the appellants were convicted in respect ofoffences under section 239 of the Act and were also assessed penalties under sub-section 163(2) of the Act in respect of the same facts involved in the section 239charges. In accordance with subsection 239(3), the penalties were assessed imme-diately before the criminal charges were laid. The appellants argued, among otherthings, that in both the assessing of a penalty and the bringing of section 239charges in respect of the same amounts, their rights not to be tried and punishedtwice for the same offence under section 11(h) of the Charter had been infringed.

In considering the preliminary issue, whether the penalty assessment was an“offence” for the purposes of section 11, Wallace JA, speaking for a majority (4-1)of the Court of Appeal, reviewed both the criminal by nature and the true penalconsequence tests set out in Wigglesworth. In reviewing the “nature” of a penaltyassessment, the court relied on the decisions in Yes Holdings, Sharma, Ferreira,Trumbley, and Georges Contr. to conclude that subsection 163(2) penalty assessmentswere “private matters of a regulatory nature.” By contrast, section 239 offences arecriminal in nature, designed to deter the public from “flagrant breaches” of the Act.63

Wallace JA also found that subsection 163(2) penalties did not entail “true penalconsequences” within the meaning stated in Wigglesworth, apparently because ofthe absence of the possibility of imprisonment, notwithstanding that the monetarypenalties imposed under subsections 163(2) and 239(1) were more or less equal.64


Lambert JA, dissenting in Lavers, found that the subsection 163(2) penalty wasindistinguishable from the fine provided for under section 239 and was large enoughto constitute a true penal consequence. On that basis, the taxpayers were being“punished” within the meaning of section 11(h) of the Charter. Lambert JA alsosuggested a broader interpretation of the Charter, stating:

The first point to note is that while the Charter must be interpreted in its linguistic,legal and historical context, it should not be interpreted in such a way as to freeze thecriminal and administrative law concepts that were embodied in the public law ofCanada in 1982 in the form that they had in 1982.65

The European case law described earlier relating to tax-geared penalties pro-vides a useful impetus to revisit the jurisprudence surveyed above on the applicationof section 11 of the Charter to gross negligence penalties and, in particular, thecriminal nature and penal consequence tests set out in Wigglesworth.

Criminal Nature TestThe gross negligence penalties are arguably of a public nature, intended to promotethe public order and welfare, which conditions are set out in Wigglesworth as thetouchstone of criminal nature. Furthermore, the mental element required in the“gross negligence” penalties is indistinguishable from the mental state, or mensrea, that underlies any true crime. This principle, that the essence of a crime is aparticular mental state, was stated by Dickson J in Regina v. City of Sault Ste. Marieas follows:

The doctrine of the guilty mind expressed in terms of intention or recklessness, but notnegligence, is at the foundation of the law of crimes. In the case of true crimes there isa presumption that a person should not be held liable for the wrongfulness of his actif that act is without mens rea: R. v. Prince (1875), L.R. 2 C.C.R. 154. . . . Blackstonemade the point over two hundred years ago in words still apt: “. . . to constitute acrime against human laws, there must be, first, a vicious will; and secondly, anunlawful act consequent upon such vicious will . . .”: see Commentaries on the Laws ofEngland (1809), Book IV, 15th ed., c. 15, p. 21. I would emphasize at the outset thatnothing in the discussion which follows is intended to dilute or erode that basicprinciple.66

Dickson J further stated that “public welfare offences” would not normally beconsidered to be criminal in the true sense unless the legislation creating theoffence showed a contrary intent:

They [public welfare offences] are not subject to the presumption of full mens rea. Anoffence of this type would fall in the first category only if such words as “wilfully,”“with intent,” “knowingly,” or “intentionally” are contained in the statutory provisioncreating the offence.67

The gross negligence penalties require actions made “knowingly, or under cir-cumstances amounting to gross negligence.” The leading case on the meaning of“gross negligence” in this context is Venne v. The Queen, where Strayer J stated:


With respect to the possibility of gross negligence, . . . “[g]ross negligence” must betaken to involve greater neglect than simply a failure to use reasonable care. It mustinvolve a high degree of negligence tantamount to intentional acting, an indifferenceas to whether the law is complied with or not.68

Strayer J therefore equates gross negligence to intentional action so that there iseffectively a single basis for imposing penalties under subsection 163(2), conductthat is intentional or tantamount to intentional.

The adviser penalty offence in section 163.2 requires the making of a falsestatement that the maker “knows, or would reasonably be expected to know but forcircumstances amounting to culpable conduct” to be false. For these purposes,“culpable conduct” is defined in subsection 163.2(1) as an action or failure to actthat is tantamount to intentional conduct, shows an indifference as to whether ornot the Act is complied with, or shows a wilful, reckless, or wanton disregard of thelaw. On the basis of the analysis in Venne, it can be argued that there are notindependent bases for imposing the penalty, but different manifestations of conductthat is intentional or tantamount to intentional. It is difficult to avoid the conclusionthat all of these penalty provisions are criminal in the true sense because theyinvolve an element of intentional conduct or conduct tantamount to intentionalconduct and therefore the guilty mental state that is the hallmark of a criminaloffence. On this basis alone, they would meet the criminal by nature test and wouldbe “offences” for the purposes of section 11.

Penal Consequence TestApplying the true penal consequence test in Wigglesworth, the gross negligencepenalties imposed of 50 percent of the tax avoided are clearly penal on the basis ofthe reasoning in Wigglesworth (“a fine which by its magnitude would appear to beimposed for the purpose of redressing the wrong done to society at large”)69 andAmway. The European jurisprudence is fully consistent with, and reinforces, thefinding in Amway. This conclusion is also reinforced by jurisprudence in the TaxCourt of Canada that has considered the general nature of penalties other thangross negligence penalties and, as discussed below, has treated them as a form ofpunishment.

Penalties Other Than “Gross Negligence” Penalties

The penalties in subsections 162(1) through (8), 163(1), and 227(8), paragraph227(9)(a), section 235, and subsection 237.1(7.4) do not include, as an element ofthe conduct giving rise to the penalty, the intentional or quasi-intentional mentalstate required for the gross negligence penalties. The penalties imposed underthese provisions typically are smaller,70 although failure to file returns attracts apenalty calculated as a percentage of the tax payable, which, in the case of repeated


failure to file under subsection 162(2), could result in a maximum penalty equal to50 percent of the tax payable for the year.

There do not appear to have been any attempts to apply the Charter to theapplication of these penalties, but the principles of statutory interpretation in theSault Ste. Marie case have been applied to these or similar penalties in several cases.The leading case is the decision of Bowman J in Pillar Oilfield Projects Ltd. v. TheQueen,71 where the taxpayer was assessed a penalty under section 280 of the ExciseTax Act for failure to remit goods and services tax collected. There was no mentalelement required for imposition of the penalty, which was in an amount equal to 6percent of the tax not paid or remitted. Bowman J noted that the penalty was similarto the penalties under subsections 163(1) and 227(9) of the Act. After quoting theportion of the judgment in Sault Ste. Marie that sets out the three categories ofoffences,72 Bowman J continued as follows:

Although Mr. Justice Dickson was dealing with “offences” I can see no reason inprinciple for not extending his analysis to administratively imposed penalties as well.A penalty, as the name implies, is a form of punishment. It is, I think, contrary toordinary concepts of fairness that a taxpayer should be penalized for a failure toobserve a statutory provision or to calculate tax correctly if that taxpayer demonstratesthat even with the exercise of due diligence the mistake was unavoidable.73

Bowman J therefore found that treating such penalties as absolute liabilityoffences could not be justified in the light of Sault Ste. Marie and would run “counterto ordinary principles of justice.”74 To treat them as absolute liability offences wouldrequire explicit statutory intention. In the course of the judgment, Bowman J bothassumed that penalties such as those contained in subsection 163(2) of the Act fellinto the first category of mens rea offences described in Sault Ste. Marie and mini-mized the distinction sought to be drawn by the Crown between criminal andadministrative penalties. He stated:

That a person should be susceptible of being penalized administratively by a publicservant without any possibility of exculpating himself by demonstrating due diligenceis not only extraordinary. It is abhorrent. It is no less abhorrent because it is mechani-cally and routinely imposed by anonymous revenue officials and therefore qualifiesfor the essentially meaningless rubric “administrative” rather than “criminal.” A pun-ishment is a punishment. Neither its nature nor its effect is tempered by the use ofpalliative modifiers.75

There was no consideration of Charter issues in the case.The result in Pillar Oilfields reflected a similar, but less extensively reasoned,

decision of Bowman J in Maltais v. The Queen76 and has been followed in othercases in the Tax Court of Canada.77

The older cases reviewed above, holding that section 11 of the Charter is notapplicable to the gross negligence penalties, are, in my view, no longer persuasivefor the following reasons:


1. Only Lavers considers the reasoning in Wigglesworth and then only by rely-ing on pre-Wigglesworth jurisprudence and on Trumbley (which the SupremeCourt considered in Wigglesworth but did not rely on in its analysis of themeaning of “offence” for section 11 purposes). The approach in Lavers oflimiting section 11 to traditionally criminal matters by reading it as only arestatement of rules of criminal procedure and therefore as being limited tomatters that are procedurally criminal is inconsistent with the much broaderreading in Wigglesworth and Amway, and has not been specifically consid-ered by the Supreme Court of Canada.

2. The jurisprudence does not consider the substantive mens rea element inthe gross negligence penalties, which suggests that they have a true criminalaspect.

3. The jurisprudence predates the growing volume of European, including UK,case law that finds that a monetary penalty provision involves penal conse-quences and demands procedural treatment appropriate to a criminal matter.

In my view, there is a strong argument that the lower court decisions that deniedthe application of section 11 should now be reviewed by the Supreme Court.

Relationship of Sections 11 and 7

If section 11 of the Charter applies in respect of true penalty provisions, the nextsignificant consideration is that article 6 of the Convention does not corresponddirectly to section 11. The rights under section 11 are significantly supplementedby the rights flowing from section 7, which prohibits the deprivation of life, liberty,or security of the person except in accordance with the principles of fundamentaljustice. The right to liberty and security described in article 5 of the Conventioneffectively corresponds to the protection against arbitrary detention or imprison-ment in section 9 of the Charter and does not have the same effect or operation assection 7. As Hogg78 points out, the courts have construed section 7 to import bothprocedural safeguards and elements of substantive law under the rubric of funda-mental justice and have tended to read section 7 together with the other provisionsof the legal rights division of the Charter, including section 11. Section 7, however,applies only in the case of deprivation of life, liberty, or security of the person; it doesnot apply to an offence that carries only the penalty of a fine, no matter how large.79

The operation of section 7 in this respect can be seen in the cases followingNorway Insulation,80 which effectively prevent the revenue authorities from using thebroad and compulsive investigative and audit powers in the Act to gather evidenceon which to base a criminal prosecution. To the extent that these cases do not involveevidence obtained through a search or seizure (which is covered by section 8 of theCharter), they are based on section 7; thus, for example, if a taxpayer has beenrequired to provide information pursuant to a demand from the minister undersection 231.2 of the Act, and the information is used in a criminal matter, this willbe viewed as contrary to the principles of fundamental justice. The criterion for


the application of this test, however, is not whether the matter is criminal in theclassic sense—that is, whether an element of the offence is a criminal mental state—but the section 7 criterion, whether there is a deprivation of liberty. An offence thatis otherwise criminal but cannot result in imprisonment will therefore not be subjectto the section 7 safeguards.81 In this respect, the developing European case law hasgone further than is apparently possible in Canada under the Charter.82

One of the clearest illustrations of this position is the Warawa case.83 The taxpay-er was charged with multiple counts of tax evasion under section 239 of the Act onthe basis of documents and statements obtained from him, for the most part underthe authority of section 231.1 of the Act. The taxpayer was not given any caution oradvice as to either the possible use of the information to ground a criminal prose-cution or his right to remain silent. The trial court judge concluded that, becausethe Revenue Canada audit and investigation was in fact a criminal investigation, thetaxpayer was entitled to the protection of section 7 of the Charter. In that context,he quoted a portion of the decision of Sopinka J in Hebert where he stated:

However, it cannot be denied that, apart altogether from the privilege, the right toremain silent—the right not to incriminate oneself with one’s words—is an integralelement of our accusatorial and adversarial system of criminal justice. As Cory J.A. (ashe then was) noted in R. v. Woolley (1988), 40 C.C.C. (3d) 531 at p. 539 . . . : “Theright to remain silent is a well settled principle that has for generations been part ofthe basic tenets of our law.” . . . In a different context Lamer J. pointed out in R. v.Collins (1987), 33 C.C.C. (3d) 1 at p. 19 . . . that the acquisition of a self-incriminatoryadmission from an accused following a Charter violation “strikes one of the fundamen-tal tenets of a fair trial, the right against self-incrimination.” I take Lamer J.’s words tomean that the full range of an accused’s right to stand mute in the face of an accusationby the state is not exhausted by reference to the privilege against self-incrimination,as that privilege has been defined by this court. It follows, it seems to me, that thebasic principle underlying the right to remain silent must be “principle of fundamentaljustice” within the meaning of s. 7 of the Charter. In other words the right to remainsilent is truly a right.84

The judge then concluded:

Therefore the accused as a result of the failure of the [sic] Revenue Canada to tell himthat the audits were in fact an investigation believed that he was still compelled by lawto answer questions and provide information. This distinction from the more tradi-tional situation makes the failure to caution him a very serious matter and a clearviolation of s. 7 Charter rights.85

The court in Warawa also found that by seizing documents pursuant to its auditpowers, Revenue Canada violated the accused’s rights to be secure against unrea-sonable search and seizure under section 8 of the Charter. While search warrantswere obtained, they were obtained on the basis of information acquired under com-pulsion and in violation of the section 7 rights. As noted above, section 7 would


have no application in the case of any of the gross negligence penalties.86 I will turntherefore to consideration of the possible application of the section 11 rights inrespect of the imposition of such a penalty.

Section 11 Rights

At the outset, it is clear that the rights referred to in sections 11(e) (denial of bailwithout just cause), 11(f ) (right to trial by jury), 11(g) (retroactive offences), and11(i) (variation of penalty) would have no relevance to the imposition of a grossnegligence penalty. The remaining provisions of section 11 are considered below.

Unreasonable Delay: Section 11(a)It is unclear whether section 11(a), which is directed principally to unreasonabledelays between the laying of criminal charges and the informing of the accused ofthe charge, would be relevant to the imposition of a gross negligence penalty. Inany event, the penalty is not assessed until the minister mails the notice of assess-ment specifying the taxation year, the amount of tax in issue, and the amount ofpenalty assessed to the taxpayer. Although an assessment may be validly made bybeing sent by the minister in some circumstances where the notice of assessment isnot actually received by the taxpayer,87 it would be very unusual for there to be anysignificant delay between the time at which the assessment of the penalty is deemedto have been made under the Act and the time of receipt of notice by the taxpayer.In addition, it is unclear whether a delay would be “unreasonable” unless it impairedin some manner the taxpayer’s right to effectively challenge the assessment of thepenalty. It appears that this would be the case only where the taxpayer failed toreceive notice of a valid assessment before the expiry of the limitation period.88 Inthe overall context of the self-assessment system in the Act, it is also likely that acourt would find that the statutory scheme for the making and sending of assess-ments, even if it did contravene section 11(a) of the Charter, would be saved as areasonable limitation under section 1 of the Charter.

Trial Within a Reasonable Time: Section 11(b)A consideration of the jurisprudence dealing with the application of section 11(b) isoutside the scope of this article. However, the combination of the requirementunder subsection 165(3) that the minister respond “with all due dispatch” to anobjection by a taxpayer, the taxpayer’s right to appeal directly to the Tax Courtunder paragraph 169(1)(b) where the minister fails to make a timely response to anobjection, and the case management system in the Tax Court itself (using the statushearing mechanism) will likely satisfy the requirements of section 11(b) (read togetherwith section 1 of the Charter), given that delay in the case of a penalty assessmentdoes not involve detention or imprisonment and does not likely impair the tax-payer’s ability to make a full answer to the assessment.


Non-Compellability: Section 11(c)Section 11(c) gives a person charged with an offence the right not to be compelledto testify at the hearing of the offence. The right against self-incrimination at thepre-trial stage has been found to be one of the principles of fundamental justiceguaranteed under section 7, which, as discussed above, would have no applicationin the case of a gross negligence penalty. Such a penalty is adjudicated under therules applicable to civil proceedings, and in particular the rules of the Tax Court,and under those rules a party is required both to submit to examination for dis-covery89 and to give evidence at trial.

Application of section 11(c) to prevent the compellability of a person assessedwith a gross negligence penalty presents some difficulty insofar as the adjudicationof the penalty assessment imposed on a taxpayer would normally be part of thesame proceeding as the adjudication of the underlying liability for tax, interest,and/or other penalties. This, of course, is not the case when a penalty is assessedagainst a third-party adviser under section 163.2, where there is no underlyingassessment of tax against the adviser. It may be, as a practical matter, that a rightto non-compellability could be maintained by allowing the taxpayer to refuse toanswer questions, either on discovery or at trial, that reasonably related to thepenalty assessed.

It is also possible that, because the courts have consistently held that relevantinformation in a tax case is normally in the hands of a taxpayer (so that, for example,the taxpayer generally bears the burden of proof ), compelling discovery and trialtestimony in the case of a gross negligence penalty assessment would be justifiedunder section 1 of the Charter.

Presumption of Innocence and Fair Trial: Section 11(d)Section 11(d) gives a person the right to be presumed innocent until proven guiltyin a fair and public hearing by an independent and impartial tribunal. There is nodoubt that the system for adjudicating penalty assessments in the Tax Court ofCanada with appeals to the Federal Court of Appeal or the Supreme Court ofCanada satisfies the requirements for a fair and public hearing by an independentand impartial tribunal.

Under subsection 163(3), the minister bears the burden of proof in respect of apenalty assessed under subsection 163(2) or section 163.2. While subsection 163(3)does not apply with respect to the similar gross negligence penalties in subsections227(9) and (9.1) or subsection 162(10), it is likely that the burden of proof in thosecases will also lie on the minister, on the basis of the reasoning in MNR v. Taylor90

that, where the minister has alleged the fraud or misrepresentation, the burden lieson the minister to prove it. Although Taylor involved the application of the pro-visions of what is now subsection 152(4) dealing with misrepresentation and statute-barring, the reasoning would appear to apply equally to these penalties. Thus,there is a general presumption of innocence as required under section 11(d).


As previously noted, where a taxpayer (rather than a third-party adviser) is assesseda penalty, the penalty assessment and the assessment of the underlying tax andinterest are treated as a single proceeding and dealt with at the same trial. Thecourts have found that the procedural requirement on the taxpayer to adduce evi-dence first is not modified where the hearing involves both an assessment of taxand an assessment of penalty.91 The courts do, however, recognize the need to dis-tinguish the taxpayer’s onus of demolishing the underlying tax assessment and theminister’s onus of justifying the penalty so that, on the same evidence, the ministercould succeed in upholding the assessment of tax but fail to uphold the assessmentof a penalty.92

Baker has suggested that, in such a case, under article 6 of the Convention, thearticle 6 protections should apply to the entire proceeding, as to both the taxliability and the penalty:

In theory, one can see the distinction between, on the one hand, proceedings wherethe taxpayer appeals against an assessment to additional tax plus penalties—and thesame proceedings consider both the tax liability and the penalties—and, on the otherhand, proceedings for the determination of the tax liability, followed by a separateassessment to penalties and proceedings to challenge those penalties. In theory, Arti-cle 6 applies to the entire proceedings in the first case, but only to the penalty pro-ceedings in the second. That situation seems, however, inherently unattractive. Whyshould an applicant have, for example, the guarantee of a determination within areasonable time for both his tax liability and the penalties in the first case, but only forthe penalties in the latter case? Where substantial penalties are involved, it seemslogical to say that Article 6 applies to the entire proceedings. This issue has not beenconclusively resolved by the Strasbourg organs.93

Baker’s comment may have more resonance in the European context, where theadjudication of the underlying tax assessment itself often falls short of the Canadianstandard of a timely, fair, and impartial trial in the Tax Court. The relative fre-quency of instances in the Tax Court or the Federal Court of Appeal in which apenalty assessment is rejected by the court while the underlying assessment of taxis upheld suggests that Canadian courts are, for example, able to weigh separatelythe respective onuses of the Crown and the taxpayer. It is likely therefore that thepractice of trying both penalty and underlying assessment together does not violatethe Charter presumption of innocence in that respect.

As noted above, it may be more difficult for a taxpayer to give evidence withrespect to the underlying assessment of tax and to refrain from doing so with respectto the penalty assessment on the basis of non-compellability and the presumptionof innocence. In principle, however, there seems to be no reason why a taxpayercan give evidence, or be compelled to give evidence, relevant to the underlyingassessment of tax while declining to do so in relation to the penalty assessment.The trial judge should be able to keep separate the two matters dealt with in thehearing and rule appropriately where there is a dispute.


The presumption of innocence under section 11(d) is not consistent with thecurrent practice of the courts in civil tax proceedings to draw an explicit adverseinference from the failure of the taxpayer to testify, including with respect to apenalty,94 which is prohibited in a criminal matter by section 4(b) of the CanadaEvidence Act. In principle, the court should be able to refrain from drawing suchan adverse inference in respect of a penalty assessment even while doing so inrespect of the underlying assessment of tax.

The Taylor case also established that the standard of proof required with respectto alleged fraud or misrepresentation under the statute-barring provisions of section152 of the Act was the civil standard of proof on the balance of probability, not thecriminal standard of proof beyond a reasonable doubt. The conclusion was basedon the view of the court that the adjudication of the assessment of tax in questionwas a civil, not a criminal, proceeding.

The Supreme Court of Canada has extensively considered the issue of the onusof proof and the required standard of proof under section 11(d) in the context ofso-called regulatory offences. For example, in R v. Wholesale Travel Group Inc.,95 theaccused was charged with counts of false or misleading advertising under theCompetition Act, the potential penalty for which included a substantial term ofimprisonment. There was no requirement for mens rea. While the court foundthat portions of the relevant statutory provisions, which in some circumstancesmade the offence an absolute liability offence, were unconstitutional, it would gono further than specifying, as a minimum constitutional standard, that an accusedhave the ability to show due diligence on the balance of probabilities. Accordingly,the onus remained with the accused and the civil standard of proof was applied.Because the onus lies with the Crown in the case of the gross negligence penalties,there is a greater degree of protection afforded to the accused than the apparentconstitutional minimum for a regulatory-type offence. Whether a proceeding toenforce a gross negligence penalty is viewed as civil or criminal in nature, it isunlikely that a court will find that the existing presumption of innocence andstandard of proof for these penalties violates the section 11(d) rights.

Double Jeopardy: Section 11(h)Section 11(h) of the Charter provides the right not to be tried or punished twicefor the same offence. There is arguably an element of double jeopardy arising outof the possible application of both the criminal tax evasion offences in sections 238and 239 of the Act and the gross negligence penalties. Subsection 238(3) providesthat a person convicted under section 238 is not liable to pay a penalty imposedunder section 162 or 227 for “the same failure” unless the penalty was assessedbefore the information or complaint giving rise to the tax evasion conviction.96

Subsection 239(3) provides that a person convicted of tax evasion under section239 is not liable to pay a penalty under section 162, 163, or 163.2 (but not section227) for “the same contravention” unless the penalty is assessed before the chargegiving rise to the conviction was laid.97


As noted above, it is the double jeopardy provisions of section 11(h) that havebeen the subject of the Charter jurisprudence relating to the gross negligence penal-ties. At the trial level in some of those cases,98 taxpayers were successful in arguingthat double jeopardy existed, but in each case the decision was reversed on appeal.In Lavers, the dissenting judge, Lambert JA, found that the same act—namely,knowingly making a false statement in a tax return—was the basis for the section239 charges and the assessment of the subsection 163(2) penalties. Accordingly, heconcluded that the taxpayer was being punished twice for the same offence.

If a taxpayer assessed a gross negligence penalty is found to have been chargedwith an offence for the purposes of section 11 of the Charter, it is difficult to avoidthe conclusion that, if such a person is also charged under section 238 or 239 of theAct in respect of the same factual circumstances, section 11(h) would apply, pre-sumably to stay whichever of the penalty and the offence was first instituted.

C O N C L U S I O N

Over the last 20 years, the Charter has been applied by the courts to impose ahigher standard of procedural fairness in the administration of taxes, particularly inrelation to audit-related investigation, search, and seizure powers. Generally, Euro-pean jurisdictions have lagged behind Canada in this area, and in some respects,they continue to do so.99 In dealing with tax-linked gross negligence penalties,however, European courts are applying the Convention in a manner that meritsclose attention by taxpayers, their advisers, and the courts in Canada. They areexposing the inherent unfairness of imposing penal consequences, assuming a cri-minal mental state, without Charter safeguards. Prior consideration of this issue inCanada occurred in the formative stages of Charter interpretation and arguablyflowed from an unnecessarily conservative reading of the scope of section 11. TheEuropean experience suggests that it is time to revisit the issue.

N OT E S

1 RSC 1985, c. 1 (5th Supp.), as amended (herein referred to as “the Act”). Unless otherwisestated, statutory references in this article are to the Act.

2 Imposed in sections 162, 163, 163.1, 163.2, 235, and 237.1 and subsections 227(8) and (9) and247(3).

3 The Income War Tax Act, SC 1917, c. 28, when originally enacted in 1917, made provisiononly for offences punishable on summary conviction. Penalties of a civil nature were added (forfailure to file returns) in 1919.

4 Part I of the Constitution Act, 1982, being schedule B of the Canada Act 1982 (UK), 1982, c. 11(herein referred to as “the Charter”).

5 There are brief discussions on the relationship between civil penalties and criminal offences inEdwin C. Harris, “Civil Penalties Under the Income Tax Act,” in Income Tax Enforcement,Compliance, and Administration, 1988 Corporate Management Tax Conference (Toronto:Canadian Tax Foundation, 1988), 9:1-24, at 9:16-17; Bruce Verchere and Jacques Bernier,“Rights and Freedoms in Tax Matters,” in Report of Proceedings of the Thirty-Eighth Tax Conference,1986 Conference Report (Toronto: Canadian Tax Foundation, 1987), 39:1-25, at 39:11-15; andWilliam I. Innes, Tax Evasion in Canada, 2d ed. (Toronto: Carswell, 1995), 9:8-14.


6 The Charter has, of course, been applied to other provisions of the Act. In particular, thesection 8 guarantee against unreasonable search or seizure has been applied to regulate thesearch and seizure provisions in section 231 (The Queen v. Print Three Inc. et al., 85 DTC 5303(Ont. CA), and MNR et al. v. Kruger Inc. et al., 84 DTC 6478 (FCA)) and to prevent the use ofevidence seized contrary to the Charter in the appeal of an assessment (O’Neill Motors Limitedv. The Queen, 96 DTC 1486 (TCC), aff’d. 98 DTC 6424 (FCA), and Norwood v. The Queen,2000 DTC 2019 (TCC), aff’d. in part 2001 DTC 5111 (FCA)).

7 The Convention for the Protection of Human Rights and Fundamental Freedoms, signed atRome on November 4, 1950; entered into force on September 23, 1953 (herein referred to as“ECHR” or “the Convention”).

8 ECHR article 46(1).

9 ECHR article 46(2).

10 In any event, the European Court will hear appeals only when the complainant has exhaustedall domestic remedies: ECHR article 35(1).

11 See Jonathan Peacock and Francis Fitzpatrick, “The Impact of the Human Rights Act 1998 inthe Tax Field” [2000] no. 4 British Tax Review 202-10.

12 ECHR article 6 provides as follows:

Article 6—Right to a fair trial

1. In the determination of his civil rights and obligations or of any criminal chargeagainst him, everyone is entitled to a fair and public hearing within a reasonable time byan independent and impartial tribunal established by law. Judgment shall be pronouncedpublicly but the press and public may be excluded from all or part of the trial in theinterests of morals, public order or national security in a democratic society, where theinterests of juveniles or the protection of the private life of the parties so require, or tothe extent strictly necessary in the opinion of the court in special circumstances wherepublicity would prejudice the interests of justice.

2. Everyone charged with a criminal offence shall be presumed innocent untilproved guilty according to law.

3. Everyone charged with a criminal offence has the following minimum rights:

(a) to be informed promptly, in a language which he understands and indetail, of the nature and cause of the accusation against him;

(b) to have adequate time and facilities for the preparation of his defence;(c) to defend himself in person or through legal assistance of his own

choosing or, if he has not sufficient means to pay for legal assistance, to be givenit free when the interests of justice so require;

(d) to examine or have examined witnesses against him and to obtain theattendance and examination of witnesses on his behalf under the sameconditions as witnesses against him;

(e) to have the free assistance of an interpreter if he cannot understand orspeak the language used in court.

13 See, for example, Schouten and Meldrum v. The Netherlands (1994), 19 EHRR 432. See also thediscussion in Philip Baker, “Taxation and the European Convention on Human Rights” [2000]no. 4 British Tax Review 211-377, at 228-32, and the decision in Ferragini v. Italy (2001), 3 ITLR918 (ECtHR), where the court found (by an 11-6 majority) that “tax matters still form part ofthe hard core of public authority prerogatives.”

14 Baker, supra note 13, at 233-35.15 (1994), 18 EHRR 54.16 As opposed to “evasion” (“sustraction frauduleuse”).

17 (1976), 1 EHRR 647.


18 (1984), 6 EHRR 409.

19 As opposed, for example, to a disciplinary offence applicable only with respect to a limited group.See C & E Comrs. v. Han, [2001] STC 1188, at paragraph 59 (CA), per Potter LJ.

20 (1997), 26 EHRR 541.

21 For example, section 13(1) of the Finance Act 1985 (UK), 1985, c. 54.

22 [2001] STC 80, at 88 (ECtHR).

23 (2000), 3 ITLR 224 (VAT Tribunal).

24 Section 60(1) of the Value Added Tax Act 1994 (UK), 1994, c. 23.

25 United Kingdom, Report of the Committee on Enforcement of Powers of the Revenue Departments,Cmnd. 8822 (London: Her Majesty’s Stationery Office, 1983), paragraph 18.4.1.

26 Supra note 23, at 232.

27 Supra note 19, at paragraph 74, per Potter LJ.

28 [2001] STC 822 (Ch. D.).

29 Section 95 of the Taxes Management Act 1970 (UK), 1970, c. 9, which provides as follows:

Incorrect return or accounts for income tax or capital gains tax

95(1) Where a person fraudulently or negligently—

(a) delivers any incorrect return of a kind mentioned in section 8 or 8A ofthis Act (or either of those sections as extended by section 12 of this Act), or

(b) makes any incorrect return, statement of declaration in connection withany claim for any allowance, deduction or relief in respect of income tax orcapital gains tax, or

(c) submits to an inspector or the Board or any Commissioners any incorrectaccounts in connection with the ascertainment of his liability to income tax orcapital gains tax, he shall be liable to a penalty not exceeding the amount of thedifference specified in subsection (2) below.

95(2) The difference is that between—

(a) the amount of income tax and capital gains tax payable for the relevantyears of assessment by the said person (including any amount of income taxdeducted at source and not repayable), and

(b) the amount which would have been the amount so payable if the return,statement, declaration or accounts as made or submitted by him had been correct.

95(3) The relevant years of assessment for the purposes of this section are, inrelation to anything delivered, made or submitted in any year of assessment, that, thenext following, and any preceding year of assessment.

30 Baker, supra note 13, at 237.

31 Supra note 28, at paragraph 71.


33 Baker, supra note 13, at 239-40.


35 Supra note 28, at paragraph 82, quoting Brown v. Scott, [2001] 2 WLR 817, at 825 (HL).

36 Baker, supra note 13, at 245-46.


38 (1993), 16 EHRR 297.

39 Ibid., at 326.


40 The line of cases following The Queen v. Norway Insulation Inc. et al., 95 DTC 5328 (Ont. Gen.Div.), discussed further below.

41 Application no. 27943/95 (ECtHR) [unreported].

42 See Baker, supra note 13, at 247-48 and 263-64. It should be noted that the United Kingdomhas not yet ratified the seventh protocol.

43 Section 11 of the Charter provides as follows:

Any person charged with an offence has the right

(a) to be informed without unreasonable delay of the specific offence;(b) to be tried within a reasonable time;(c) not to be compelled to be a witness in proceedings against that person in respect

of the offence;(d) to be presumed innocent until proven guilty according to law in a fair and public

hearing by an independent and impartial tribunal;(e) not to be denied reasonable bail without just cause;(f ) except in the case of an offence under military law tried before a military

tribunal, to the benefit of trial by jury where the maximum punishment for the offenceis imprisonment for five years or a more severe punishment;

(g) not to be found guilty on account of any act or omission unless, at the time ofthe act or omission, it constituted an offence under Canadian or international law orwas criminal according to the general principles of law recognized by the community ofnations;

(h) if finally acquitted of the offence, not to be tried for it again and, if finally foundguilty and punished for the offence, not to be tried or punished for it again; and

(i) if found guilty of the offence and if the punishment for the offence has beenvaried between the time of commission and the time of sentencing, to the benefit of thelesser punishment.

44 (1987), 45 DLR (4th) 235 (SCC).

45 The maximum penalty for the offence included imprisonment.


47 Ibid., at 251. It is worth noting that in “traditional” Criminal Code convictions, convictedaccused are punished only by fines in about one-third of all cases and that almost all such finesare less than $1,000. See Statistics Canada, Canadian Centre for Justice Statistics, AdultCriminal Court Survey (Ottawa: Statistics Canada, 2001), Adult Criminal Court Data Tables1999/00, tables 1.6 and 1.9.


49 [1989] 1 SCR 21.

50 Sections 180(2) and 192(2) of the Customs Act, RSC 1970, c. C-40.

51 The Queen v. Amway of Canada et al., [1986] 2 CTC 148, at 165 (FCTD).

52 Amway Corp. v. The Queen (1986), 34 DLR (4th) 190, at 192-93 (FCA).


54 (1987), 83 AR 81 (CA).

55 Ibid., at 85-86.

56 [1987] 2 CTC 253 (Ont. SC).

57 (1986), 55 OR (2d) 570, at 583 (CA). Morden JA concluded that the deletion of the word“criminal” from the corresponding provision of the Canadian Bill of Rights was to extend theCharter to provincial “quasi-criminal” offences under section 92(15) of the Constitution Act,but allowed that it “may also have been a purpose” to cover federal regulatory offences.


58 [1988] OJ no. 2258, rev’g. [1988] OJ no. 888.

59 Trumbley and Pugh v. Metropolitan Toronto Police, [1987] 2 SCR 577.

60 (1987), 15 BCLR (2d) 240, at 243 (SC).

61 (1988), 24 BCLR (2d) 175 (CA).

62 (1989), 41 BCLR (2d) 307 (CA).

63 Ibid., at 337.

64 Wallace JA stated, ibid., at 338, that “[i]n the present case the penalties which can be imposedfollowing the assessments by the minister pursuant to s. 23(1) of the Income Tax Act (BritishColumbia) and s. 163(2) of the Income Tax Act (Canada) for filing a false document do notcarry with them any threat of punishment, nor do they give a discretionary range of punishment.They are restricted in amount to 25 per cent of the tax sought to be evaded and, in the case of awilful attempt to evade the payment of taxes, to 50 per cent of such tax. By contrast, the taxpayerwho is guilty of a violation of s. 239 is liable to a fine ranging from 25 per cent to 50 per cent ofthe amount of tax sought to be evaded or to imprisonment for a time not exceeding two yearsor to both imprisonment and a fine.”

65 Ibid., at 322-23.

66 (1978), 85 DLR (3d) 161, at 165-66 (SCC).

67 Ibid., at 182.

68 84 DTC 6247, at 6256 (FCTD). The Federal Court of Appeal adopted the reasoning in Vennein Findlay v. The Queen, 2000 DTC 6345.


70 For example, the penalties for failure to file forms or information under subsections 162(2.1),(3), (4), (5), (6), (7), (7.1), and (8) are calculated in some instances as a fixed dollar amountranging up to $100 for each day of default or each particular event of default with an upperlimit, typically, of $2,500.

71 (1993), 2 GTC 1005 (TCC).

72 Supra note 66, at 181-82.


74 Ibid.

75 Ibid., at 1009.

76 91 DTC 1385 (TCC).

77 See Feuiltault v. The Queen, 94 DTC 1657 (TCC), and Bennett v. The Queen, [1995] 2 CTC2308 (TCC).

78 Peter W. Hogg, Constitutional Law of Canada, 4th ed., vol. 2 (Toronto: Carswell) (looseleaf),44-13 to 44-22.

79 Ibid., at 44-29. While the Supreme Court of Canada found, in Blencoe v. BC (Human RightsCommission), [2000] 2 SCR 307, that section 7 can apply outside the criminal context andwithout need for imprisonment, it is unlikely that a fine in itself would be a sufficient threat tolife, liberty, or security of the person to attract the operation of section 7.

80 Supra note 40.

81 Subject, however, to Blencoe, supra note 79.

82 See, for example, the Funke case, supra note 38 and the accompanying text, dealing with misuseof investigative powers.

83 98 DTC 6471 (Alta. QB).

84 R v. Herbert (1990), 57 CCC (3d) 1, at 10-11 (SCC), quoted in Warawa at 6494.


85 Warawa, supra note 83, at 6495.

86 It is therefore unclear whether obtaining information in accordance with the audit provision ofthe Act in connection with gross negligence penalties would constitute an unreasonable searchor seizure under section 8 of the Charter, even if a gross negligence penalty was considered anoffence for section 11 purposes.

87 See, for example, Flanagan v. The Queen et al., 87 DTC 5390, at 5391 (FCA).

88 As happened in Burroughs v. The Queen, 82 DTC 6340 (FCTD). See also the decision of theFederal Court of Appeal in The Queen v. Schafer, 2000 DTC 6542, that the minister was requiredunder the Act only to send the notice of assessment and the time of receipt was irrelevant.

89 In Amway, supra note 52, the court found that, while the matter in issue was an “offence” forthe purposes of section 11 of the Charter, the rule against non-compellability in section 11(c)did not prevent an officer or employee of a corporation from being compelled to give discoveryevidence where the corporation was charged with the offence.

90 61 DTC 1139, at 1141 (Ex. Ct.).

91 See Can-Am Realty Limited v. The Queen, 94 DTC 6069 (FCTD), and The Queen v. Taylor, 84DTC 6459 (FCTD).

92 See Fortis et al. v. MNR, 86 DTC 1795, at 1801 (TCC), per Rip TCJ.

93 Baker, supra note 13, at 247.

94 See Sommers v. MNR, 91 DTC 656, at 661-62 (TCC), per Sarchuk TCJ.

95 (1991), 84 DLR (4th) 161 (SCC).

96 There is no reference in subsection 238(3) to the section 163 or 163.2 penalties and there istherefore no statutory restriction on imposition of those penalties and a section 238 tax evasioncharge.

97 The apparent inconsistency may be a result of unintentional drafting error.

98 Georges Contr., supra notes 60 and 61, and Sharma, supra note 56.

99 For example, in excluding from the ambit of the Convention the determination of tax liabilityas a matter of “public law.” See Ferragini v. Italy, supra note 13, where a taxpayer was unable togain relief in respect of a 10-year delay in his objection to a tax assessment.

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