IC01-1R2 Third-Party Penalties 17 February 2026 [IC 01-1R2]

Conventional tax-planning techniques carried out for a fee generally are not excluded activities

53. Generally, the use of rollover provisions, estate freezes, and other conventional tax-planning techniques that are consistent with the intent of the law are not considered excluded activities when the activity is carried on for a fee for a specific client.

General background to ss. 163.2(2) and (4)

Before the third-party penalties took effect on June 29, 2000, there were no administrative penalty provisions that applied to those who:

• counselled others to file their returns based on false or misleading information
• turned a blind eye to false information provided by their clients for tax purposes

S. 163.2(2) planner penalty directed at those involved in planning or valuation activity

13. The planner penalty under subsection (2) targets third parties responsible for misrepresentations in tax planning arrangements.

No need to identify misuse of the false statement/ examples including re lawyers and accountants

15. To apply the planner penalty, it is enough that the false statement could be used by another person to obtain a tax advantage under the ITA, ETA, or both. The CRA does not need to identify the person who used, could have used, or relied on the false statement.

Examples of misrepresentations in tax planning arrangements could include:

• a lawyer giving a favourable legal opinion about an abusive tax scheme knowing that it contains false statements
• appraisers and valuators preparing materially inaccurate reports for a non compliant tax plan
• an accountant creating offshore structures to obtain a tax benefit relying on false statements
• promoters holding seminars or presentations on how to hide income and assets
• an influencer posting misinformation about tax obligations on social media
• a person participating in a carousel scheme by filing false GST/HST returns

Use of subordinate definition

27. To determine if the particular person participated in the making of a false statement, it may be necessary to establish if a person is considered to be a subordinate of the particular person. This may apply where a particular person, such as a promoter or tax planner, subcontracts certain activities for the making of a false statement to an apparently unrelated person to make it appear that they did not participate in the making of the false statement.

Meaning of key adjectives

Tantamount to intentional conduct

31. The expression tantamount to intentional conduct in the definition of culpable conduct means conduct that is equivalent to purposefully acting or failing to act.

32. This means that, when looking at a person’s overall conduct, it can be concluded that they intended to make, participate in, or assent to the making of a false statement.

Indifference

33. The expression shows an indifference as to whether the ITA or the ETA is complied with in the definition of culpable conduct highlights the passive aspect of culpable conduct.

34. This means that the person’s actions, or failure to act, indicate they were wilfully blind to the facts or the application of the tax legislation. The person suspects that certain questions need to be asked but chooses not to ask them so as not to acquire the knowledge of the false statement.

Wilful, reckless, or wanton disregard of the law

35. The expression shows a wilful, reckless, or wanton disregard of the law in the definition of culpable conduct highlights the active aspect of culpable conduct.

36. It refers to the situation where a reasonable and prudent person would know that it is highly likely that a false statement could be made but chooses to proceed with the chosen course of action anyways. In other words, a person shows culpable conduct when they would be expected to be aware of an obvious risk that the statement is a false statement but proceeds without making any attempt to mitigate that risk.

Compliance with professional standards of the governing body is sufficient

112. … The CRA does not require more of reputable practitioners than compliance with the professional standards of their governing bodies. Most professional advisors operate in accordance with the codes of conduct, duty of care, and ethical principles well known in these institutions.

Availability of good faith exception

45. … The good faith reliance exception is available when the information is provided to the advisor by or on behalf of the other person and is not clearly false, obviously unreasonable to a prudent person, or does not raise questions in the mind of the advisor. …

47. … [A] person may not rely in good faith on information if there are any reasons that could lead a reasonable and prudent person to believe the information could be incorrect and that more investigating must be done before it can be found to be credible.

S. 163(2) penalty is used only as a quantitative measure in the s. 163.2(5) calculation

83. For this calculation, it is important to note that the gross negligence penalty under subsection 163(2) of the ITA:

• is a quantitative amount only
• is based solely on the tax benefit the false statement would create if the other person knowingly made the false statement in a return filed for the ITA
• does not actually have to have been assessed against the other person

Avoidance of double-counting

91. Paragraph (12)(b) ensures that each planner penalty assessed against a person for the same planning activity or valuation activity excludes the gross entitlements already used in calculating a previously assessed penalty. This means that any future penalty assessments that are due to the increase in the person’s gross entitlements for the false statement would be calculated based only on the amount of the increase and not the person’s total gross entitlements. In general, this rule makes sure that a person’s gross entitlements exclude all amounts already used to calculate a previous planner penalty for which a notice of assessment was already sent to the person.

92. However, if the person’s gross entitlements are lower, or in any other case, then subparagraph (12)(a)(ii) deems the notice of assessment of the earlier penalty not to have been sent and paragraph (12)(b) would not apply. In this case, the planner penalty assessment would be calculated based on the person’s total gross entitlements at the time the later notice of assessment is sent.

Basic distinction between s. 163.2(2) and (4)

11. The planner penalty is directed primarily at any person who generally prepares, participates in preparing, selling, or promoting, either directly or in-directly, a planning activity or valuation activity.

12. The preparer penalty is generally directed at any person providing tax-related services to a taxpayer.

Factors considered in determining whether to assess the s. 163.2(2) or (4) penalty

110. Whether penalties will be assessed in a given situation in which a false statement was made knowingly or in circumstances amounting to culpable conduct will depend upon the facts of the situation. Factors that may be relevant include:

• whether the position taken is obviously wrong, unreasonable, and/or contrary to well-established case law
• the person’s experience with the relevant subject matter and knowledge of the other person’s specific circumstances, or lack thereof
• the extent of knowing or deliberate participation in false statements
• the degree to which the culpable conduct represents the most aggressive and blatantly abusive behaviour
• the extent to which there is a pattern of repeated abuse
• the significance of the tax benefit

Rectification of false statement previously made

116. If a practitioner discovers that another person made a false statement for tax purposes, the CRA expects practitioners to take the necessary steps to rectify the situation.

Example:
A practitioner gets a new client and finds that the previous accountant made a false statement by not reporting income the client earned from the underground economy.

117. There are two things the practitioner should take into account:

1. For the previous years, the practitioner should advise their client to make a voluntary disclosure … . If the client chooses not to follow this advice, the practitioner would not be exposed to the third-party penalties for the previously reported false statements.

2. Going forward the practitioner is expected to prepare future returns accurately. …

Application of GAAR does not by itself engage the application of s. 167.2

124. The third-party penalty provisions are not intended to apply to arrangements by reason only of a determination that they are subject to the application of the general anti-avoidance rule (GAAR). The GAAR applies only if an arrangement is otherwise technically effective.

125. The third-party penalties can be applied to arrangements involving the application of the GAAR, if the filing position is based on one or more false statements. In addition, the third-party penalties could also be considered if a person takes a filing position contrary to well-settled jurisprudence on the application of the GAAR in circumstances similar to the transaction(s) undertaken by or with the taxpayer.