The appellants appealed penalties assessed by the Minister of National Revenue under subsection 163(2) of the Income Tax Act for fictitious business and capital losses reported in their 2010 tax returns.
The returns were prepared and filed by a third-party tax preparer, DeMara Consulting Inc., without the appellants' review or signatures.
The Tax Court of Canada found that the Minister failed to prove that the appellants knowingly made false statements or were wilfully blind, as they did not review the returns and relied on the preparer.
The Court also found that the appellants were not grossly negligent.
The appeals were allowed and the penalties were vacated.
