Executive summary: key legal and evidentiary issues

• The Minister sought to reassess GST/HST reporting periods beyond the four-year statutory limitation period under subsection 298(4) of the Excise Tax Act, claiming the Appellant's misrepresentations were attributable to neglect or carelessness.

• Gross negligence penalties of $50,391.07 were assessed under section 285 of the Act for 11 quarterly reporting periods, requiring proof that false statements were made knowingly or under circumstances amounting to gross negligence.

• Material discrepancies between the Appellant's initially reported net tax and the accurate figures ranged from (4%) to 10,753%, yet the Respondent failed to provide detailed evidence explaining how or why the errors occurred.

• Credibility of witnesses was at issue, as the sole shareholder Mr. Saberi was found at times evasive, while CRA Appeals Officer Mr. Dhillon offered conclusions without establishing their evidentiary foundation.

• Sufficiency of the Respondent's pleadings was challenged by the Appellant, though the Court found the Reply, while sparse, was not fatally deficient.

• A computational error in the Minister's penalty calculation chart undermined the Crown's ability to prove the correct amount of penalties assessed.

The parties and the corporate background

3278735 Nova Scotia Limited, also known as GNF Commercial Investments, is a corporation that formed part of a corporate group engaged in various aspects of real estate development. Navid Saberi is the sole shareholder and director of each of the corporations in the group. Mr. Saberi testified that he owned over 20 corporations, including six active at the time of his testimony, and that his area of expertise is real estate development, including managing commercial leases and developing large scale development projects in Halifax, Nova Scotia. The accounting department was shared with all of Mr. Saberi's corporations and was managed by Terra MacMillan, an accounting clerk who had worked with his group of companies since 2009, and his accountant Mr. Nelson, who had worked with him for 30 years.

The CRA audit and the assessment

The Minister of National Revenue audited the Appellant's quarterly reporting periods between July 1, 2015, and December 31, 2018. The Appellant had filed quarterly returns for the periods in issue, save for the periods ending on September 30, 2018, and December 31, 2018, wherein it did not file at all. Following the audit, the Minister made adjustments including assessing a net increase to Goods and Services Tax / Harmonized Sales Tax (GST/HST) collectible in the amount of $41,240.16, a net reduction to Input Tax Credits (ITCs) in the amount of $141,319.81, and a net increase to GST/HST payable of $182,559.97. The Minister also assessed penalties pursuant to section 285 of the Excise Tax Act in the amount of $50,391.07. The Notice of Assessment was dated May 21, 2021, and was confirmed by Notice dated July 26, 2023.

The two central issues on appeal

The appeal before the Tax Court of Canada raised two issues. First, whether the Minister was entitled to reassess the Appellant's quarterly reporting periods from July 1, 2015, to March 31, 2017, beyond the statutory limitation period pursuant to subsection 298(4) of the Act. Second, whether the Minister correctly assessed penalties pursuant to section 285 of the Act for 11 quarterly reporting periods between September 30, 2015, and December 31, 2018.

The evidentiary challenges at trial

The Respondent called two witnesses: Mr. Saberi and Satbir Dhillon, an Appeals Officer with the Canada Revenue Agency (CRA). Justice Clark found Mr. Saberi to be at times evasive, noting that he did not answer direct questions in a straightforward manner. For instance, when asked if one of his companies, Glen Arbour Condominiums, was engaged in any transactions with the Appellant, Mr. Saberi said that he was not sure, but then later admitted that the issue in Glen Arbour Condominium's Tax Court appeal was the fair market value of property sold to the Appellant. Mr. Dhillon, while found to be well meaning and candid, had not been involved in the initial audit and did not sign off on the confirmation of the assessment. Critically, Mr. Dhillon was not asked to provide details concerning the adjustments made to the Appellant's GST/HST liability or a detailed explanation of the penalty calculation. The Court noted that none of the documents put to Mr. Dhillon were put to Mr. Saberi, and that the contents of many of those documents were not proven, leaving significant evidentiary gaps.

The sufficiency of pleadings issue

The Appellant argued that the Respondent's Reply to the Notice of Appeal was deficient, citing Rail c R and Lubega-Matovu v R. Justice Clark rejected this argument, finding that the evidence adduced by the Respondent was limited to testimony that came from the Appellant's sole shareholder and director, testimony from the appeals officer, and documents that had been disclosed prior to the hearing. The Court saw no indication that the Appellant was unaware of the case the Respondent set out to meet. While the Reply to the Notice of Appeal was sparse, it did set out the general facts that the Respondent attempted to prove at the hearing, distinguishing this case from Lubega-Matovu, where the Respondent had pled no facts in support of assessed penalties.

Late assessment: misrepresentation attributable to neglect

On the first issue, the Court found that the Minister was entitled to reassess beyond the statutory limitation period. Under subsection 298(4) of the Act, the Minister must establish on a balance of probabilities that not only was a misrepresentation made, but also that it was attributable to neglect, carelessness or wilful default. The Appellant admitted that there were errors in its initial filings, and the reassessment was based on corrected figures provided to the Minister by the Appellant. The discrepancies were material, with the difference in reported net tax from the accurate net tax ranging from (4%) to 10,753%. Mr. Saberi testified that his accounting department was responsible for preparing tax returns, that he relied on his accounting department and made sure returns were reviewed, but that he did not personally review the returns. He admitted that he did not ask questions about the Appellant's returns, was not sure if they were prepared correctly, and was not sure if the general ledgers were properly prepared. He further admitted that he took no steps to ensure the returns were filed correctly, despite that some of his corporations had faced audit issues. During his testimony, Mr. Saberi demonstrated a strong understanding of the GST/HST system and indicated that he understood ongoing audits of his various companies to be a routine part of his business. The Court concluded that the Appellant failed to make reasonable efforts to comply with the standard of care expected of taxpayers and that the misrepresentations were attributable to neglect and carelessness.

Gross negligence penalties: the higher threshold not met

On the second issue, the Court vacated all gross negligence penalties. Justice Clark emphasized that while failing to exercise reasonable care is sufficient to reopen a late assessment, a finding of gross negligence to support imposition of penalties involves a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not. Citing Wynter v Canada, Torres v The Queen, and Farm Business Consultants, the Court found no evidence indicating that the Appellant or the accounting department knowingly filed erroneous returns. The Respondent's position was that prior audits of related companies, including a fruitless criminal investigation, constituted "flashing red lights" such that the Appellant was grossly negligent, but there was no evidence before the Court connecting the CRA's abandoned criminal investigations to the Appellant's false statements. Mr. Saberi testified that the criminal investigation matter was related to "a timing issue" and that no charges were laid. The Court found that the Respondent did not establish that the Appellant was aware of the need to make an inquiry but declined to make it because it studiously avoided the truth. Rather, the evidence was that Mr. Saberi delegated tax matters to his accounting department and did not make inquiries to ensure accuracy, stating that he trusted his accountants and believed they would deal with the Appellant's filings. While Mr. Saberi ought to have ensured the filings were correct, the Court saw no evidence of "flashing red lights" in respect of these reporting periods and this Appellant. The Court also noted concerns about the veracity of the Minister's computation of penalties, as Mr. Dhillon admitted a computational error in the chart he created that illustrated calculation of penalties. The Court agreed with Hans v R that the Minister must be able to establish correct computation of penalties, and based on the scant evidence, was not satisfied the Minister's computation was correct.

The ruling and outcome

Justice Clark allowed the appeals, and the assessment was referred back to the Minister of National Revenue for reconsideration and reassessment. The Court upheld additional net GST/HST payable pursuant to subsection 298(4) of the Act for the quarterly reporting periods from July 1, 2015, to March 31, 2017, with specific amounts across seven periods: -$6.63 (September 30, 2015), $6,829.84 (December 31, 2015), $5,209.88 (March 31, 2016), $18,398.62 (June 30, 2016), $13,923.09 (September 30, 2016), $42,010.16 (December 31, 2016), and $30,716.00 (March 31, 2017). However, 3278735 Nova Scotia Limited was the successful party on the penalty issue, as all penalties imposed by the Minister pursuant to section 285 of the Act for all quarterly reporting periods between September 30, 2015, and December 31, 2018, were vacated — relieving the Appellant of $50,391.07 in assessed penalties. The Court reserved the question of costs, directing the parties to file on or before May 1, 2026, either a statement that they will not seek costs or submissions seeking costs, with reply submissions, if any, due by May 12, 2026.