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The Supreme Court of Canada released its anticipated decision in Guindon v. Canada[1] on July 31, 2015, which held that administrative monetary penalties (“AMPs“) under section 163.2 of the Income Tax Act (the “ITA“)[2] are not offences that trigger constitutional protections such as the right to be presumed innocent.

Other AMPs schemes and the punitive paradigm

The door is still open for constitutional challenges to the myriad of other AMPs if they fall within the ‘punitive paradigm’. In Guindon, the Supreme Court observed that “[a] monetary penalty may or may not be a true penal consequence” and “[i]t will be so when it is, in purpose or effect, punitive.”[3] Where a penalty’s purpose or effect is punitive, this will trigger Charter[4] rights. The Court articulated a balancing test to determine whether an outcome is punitive: “Whether this is the case is assessed by looking at considerations such as the magnitude of the fine, to whom it is paid, whether its magnitude is determined by regulatory considerations rather than principles of criminal sentencing, and whether stigma is associated with the penalty.”[5] Applied to section 163.2 of the ITA, the balancing test led to the conclusion that the penalty in question was administrative in nature and not punitive. An important factor was that section 163.2 utilizes a somewhat mechanical formula for the assessment of the penalty. By way of contrast, other administrative regimes identify relevant factors in a manner that is far more similar to relying on principles used in criminal sentencing. Those other regimes will be open to constitutional challenges in the future.

Robust procedural and appeal protections

The Court noted that even though traditional constitutional protections under section 11 of the Charter are not engaged by section 163.2 of the ITA, those against whom penalties are assessed are not left without recourse or protection. They have a full right of appeal to the Tax Court of Canada and have access to other potential administrative remedies.[6] This reference to appeal rights and other remedies sets a high bar for comparing the regime in issue in Guindon with other AMPs regimes. To the extent that other regimes do not provide such robust appeal rights and administrative remedies, there may be even further room for a constitutional challenge.

Compliance programs and policy considerations

Apart from constitutional considerations, the decision in Guindon underscores the importance of compliance programs as proceedings of an administrative nature are primarily intended to maintain compliance outside of the punitive paradigm.[7] Below we suggest five steps that are essential in compliance programs. From a public policy perspective going forward, regulators ought to consider a ‘rational pyramid’ approach to AMPs. The Court in Guindon gave the example of parking tickets that can involve relatively small fines: where these are imposed in conformity with the general criminal process (e.g. pleading guilty or contesting the fine before a judge, prosecution by a Crown attorney), section 11 rights apply.[8] By way of comparison, the penalty in the Guindon case exceeded $500,000 but did not engage constitutional rights. As discussed below, this type of imbalance in administrative penalties may be characterized as an ‘inverted enforcement pyramid’ created by the process defined by the legislature. Various bodies have called for reform of these types of penalties and fines.[9]

I. Background and Discussion

The federal ITA contains an array of penalty provisions relating to various types of proscribed conduct.[10]  The particular penalty in issue in Guindon was the so-called ‘tax preparer penalty’ contained in subsection 163.2(4) of ITA, which reads:

Every person who makes, or participates in, assents to or acquiesces in the making of, a statement to, or by or on behalf of, another person (in this subsection, subsections (5) and (6), paragraph 12(c) and subsection (15) referred to as the “other person”) that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by or on behalf of the other person for a purpose of this Act is liable to a penalty in respect of the false statement. [emphasis added]

The magnitude of the subsection 163.2(4) penalty is the greater of $1,000 and the lesser of two other amounts: (i) the penalty to which the third party would be subject if they improperly used the false statement in their income tax filings (generally 50% of the amount of tax avoided); and (ii) $100,000 plus the tax preparer’s compensation for making the false statement.  Given that a separate tax preparer penalty may be imposed for each false statement made (as was the case in Guindon), total penalty exposure will quickly add up where a tax preparer makes the same type of false statement to a number of clients or third parties. The decision in Guindon is somewhat unique in that only four judges of the Court made a determination on the merits. The Court sat in a panel of seven as Justice Côté had not yet been sworn in. The judgment of the four-judge majority was delivered by Rothstein and Cromwell JJ., while the three remaining judges dissented in reasons delivered by Abella and Wagner JJ. The dissenting judges concluded that the absence of notice of a constitutional question to the Attorneys General indicated that the Court lacked the benefit of a full and tested evidentiary record and that it should refrain from deciding the merits of the AMPs issue. It is therefore possible that, in a future challenge to an AMPs scheme where notice is properly given, a fully-constituted Supreme Court might adopt a different test or approach than the one set out in Guindon on a more fulsome evidentiary record.[11] (i) A balancing test to determine whether the punitive paradigm and constitutional rights will apply As set out above, the Court articulated a balancing test with at least four-factors to determine whether the outcome of a penalty is punitive. The four factors listed are: (1) the magnitude of the fine; (2) to whom it is paid; (3) whether its magnitude is determined by regulatory considerations rather than principles of criminal sentencing; and (4) whether stigma is associated with the penalty. Applied to the facts in Guindon, the Court analyzed the factors as follows: (1)   The magnitude of the fine Ms. Guindon was assessed a penalty of $546,747. The Court recognized that this amount is very high for an individual. However, in the circumstances it did not constitute a true penal consequence in light of the fact that there were 135 violations. (2)   To whom it is paid The penalties in issue in Guindon were paid into the Consolidated Revenue Fund. While this factor weighed in favour of characterizing the penalties as having a true penal consequence, the majority of the Supreme Court determined that this was insufficient when weighed against the other factors.[12] (3)   Whether its magnitude is determined by regulatory considerations rather than principles of criminal sentencing The Court concluded that the magnitude of penalties under subsection 163.2(4) is directly tied to the objective of deterring non-compliance with the ITA. The amount is calculated pursuant to subsection 163.2(5) and takes into account the penalty to which the other person (for whom or to whom the violator has made the false statement) would be liable in addition to the violator’s gross compensation in respect of the false statement. These factors speak to the magnitude of the tax that could potentially be avoided and the violator’s personal gain, both of which are relevant to deterring such misconduct. The amount is fixed without regard to other general criminal sentencing principles.[13] By way of contrast, AMPs have recently been established under the Telecommunications Act[14] as a general enforcement mechanism for the Canadian Radio-television and Telecommunications Commission. Consider the factors listed in subsection 72.002(1): The amount of the penalty is to be determined by taking into account the following factors: (a) the nature and scope of the violation; (b) the history of compliance with this Act, the regulations or the decisions made by the Commission under this Act, by the person who committed the violation; (c) any benefit that the person obtained from the commission of the violation; (d) the person’s ability to pay the penalty; (e) any factors established by any regulations; and (f) any other relevant factor. Future constitutional challenges will be based on the argument that factors such as the above are very similar to the types of sentencing factors that are listed in the Criminal Code, which characterize the resulting penalty as punitive in nature.[15] (4)  Whether stigma is associated with the penalty The Court found that “no stigma comparable to that attached to a criminal conviction flows from the imposition of the penalty.”[16] The decision does not elaborate on the reasons for this conclusion. There is no doubt that the stigma from a criminal conviction with the possibility of imprisonment and the imposition of a criminal record is higher than an AMP. Yet the nature of the violation in this case suggests that the stigma would be higher than that associated with some other AMPs. The wording of the section itself, as noted above, requires that the false statement must be made knowingly or in circumstances amounting to culpable conduct. Moreover, the Supreme Court described the conduct at issue in very serious language. To put this into perspective, imagine a hypothetical conversation where a person admits the following conduct at a social or work event using the words chosen by the courts in Guindon:[17]

  • dishonest in her initial legal opinion;
  • compounded this dishonesty by signing charitable receipts that she should reasonably have known were tainted by her own failure to verify the legal basis of the program;
  • wrote and endorsed a legal opinion that she knew was flawed and misleading; and,
  • indicative either of complete disregard of the law and whether it was complied with or not or of wilful blindness.

Although income tax AMPs generally remain shielded from public view unless the violator appeals them to a Canadian court, the Supreme Court’s (public) denunciatory statements in Guindon suggest that the stigma analysis may require further elaboration in the future. For example, the measure of stigma could perhaps be the subject of expert evidence using an appropriate sample size in a future case.[18] (ii) Magnitude of the AMP: the proportionality test With respect to the magnitude of a given AMP, the Supreme Court articulated a proportionality test:

“The magnitude of the sanction on its own is not determinative. However, if the amount at issue is out of proportion to the amount required to achieve regulatory purposes, this consideration suggests that it will constitute a true penal consequence and that the provision will attract the protection of s. 11 of the Charter. This is not to say that very large penalties cannot be imposed under administrative monetary penalty regimes. Sometimes significant penalties are necessary in order to deter non-compliance with an administrative scheme: see Rowan v. Ontario Securities Commission, 2012 ONCA 208, 110 O.R. (3d) 492, at para. 49. The amount of the penalty should reflect the objective of deterring non-compliance with the administrative or regulatory scheme.”[19]

This test contemplates that some AMPs schemes may fail as being out of proportion to the amount required to achieve regulatory purposes, which then attracts the protection of section 11. If this occurs in respect of a particular penalty, and the provision in issue cannot be read as providing the relevant constitutional protections (such as being presumed innocent until proven guilty beyond a reasonable doubt), the penalty would be constitutionally invalid. (iii) Appeal procedures and other remedies: an important point of comparison The Court recognized that the ITA contains robust appeal procedures, in addition to other remedies such as the tax authority’s discretionary power to waive or cancel all or part of any penalty:

“Finally, we note that even though s. 11 of the Charter is not engaged by s. 163.2 of the ITA, those against whom penalties are assessed are not left without recourse or protection. They have a full right of appeal to the Tax Court of Canada and, as the respondent pointed out in her factum, have access to other administrative remedies: R.F., at para. 99; see, e.g., ITA, s. 220(3.1).”[20]

This important paragraph sets a benchmark for comparison to other regimes. In our view, the sophisticated structure of the ITA may also support a future constitutional challenge in other regulatory spheres. In short, if other administrative penalty regimes do not have similarly robust appeal mechanisms or additional remedies, it may be argued that those other penalty schemes are punitive and disproportionate to the relevant legislative objective. This concept can be further developed as follows. Taxpayers enjoy a full right of appeal to the Tax Court of Canada from any assessment of income tax, interest, or penalties under the ITA.  That right of appeal will normally arise after the taxpayer has proceeded through an income tax audit and an administrative objection before the Canada Revenue Agency (“CRA“).  Each of these earlier processes provides an opportunity to advance information, documentation, and argument in support of the taxpayer’s position on the relevant facts and law.  The Supreme Court commented on those prior opportunities by noting that CRA auditors conduct a penalty audit and consider any representations that the individual chooses to make before making a recommendation to a third-party penalty review committee. If that committee agrees with the recommendation to impose a penalty, it will give the individual another opportunity to make representations before making its decision.[21] Once a penalty is assessed, the individual has a right to an impartial review by filing an objection to a separate branch of the CRA. That appeals branch will then consider any information and representations the individual chooses to advance before deciding whether to confirm, vary, or vacate the penalty, failing which the individual may appeal the matter to the Tax Court. Despite these prior processes, a Tax Court appeal generally functions as a trial de novo: the judge hears evidence and makes all factual and legal findings necessary to determine whether the disputed tax assessment is correct, irrespective of what evidence was advanced previously and without deference to the CRA’s factual or legal findings at the audit or objection stages.  Tax Court litigants enjoy the right to documentary and oral discovery (where the amount in issue exceeds a minimum threshold), and have a full opportunity to lead oral and documentary evidence, to cross-examine and dispute the opposing party’s case, and to make legal and factual arguments before the trial judge. In addition to the traditional Tax Court appeal procedures, in the paragraph cited above the Supreme Court also observes that certain other administrative remedies may be available in the income tax context.  Most importantly, these include the taxpayer’s ability (grounded in statute) to request relief from interest or penalties lawfully imposed under the ITA in sympathetic circumstances.  That taxpayer relief procedure calls for a reasonable exercise of the CRA’s discretionary powers, which is itself subject to judicial review in the Federal Court. The benchmark of these income tax procedures is useful for analyzing other regimes where those regime’s procedures are not as robust or are themselves uncertain. For example, the AMPs provisions of the Telecommunications Act provide that a Notice of Violation must include “a statement as to the right of the person, within 30 days after the day on which the notice is served, or within any longer period that the Commission specifies, to pay the penalty or to make representations with respect to the violation and penalty, and the manner for doing so.” The provision does not specify the manner for making the representations, leaving this to be set out on a case-by-case basis. In addition, an appeal under the Telecommunications Act can only be brought in the Federal Court of Appeal on any question of law or jurisdiction, and only with the leave of that Court.[22] The stark contrast between the right of a full appeal in the tax context and the statutory appeal procedures in the telecommunications context will likely be front-and-centre in any future consideration of whether the telecom AMP is punitive or disproportionate to its legislative objective.

II. Practical steps for clients operating in a highly-regulated sphere of activity

There are five essential elements of internal compliance programs that can be applied in the AMPs context:[23]

  1. The compliance program must be founded upon strong leadership

The tone from the top should signal the importance of compliance regimes and that these will include the wider administrative ambit now recognized by the Supreme Court of Canada.

  1. A proper risk assessment should be completed

Risk management techniques are central to establishing a defence of due diligence and rebutting any suggestion of wilful blindness.

  1. Sufficient standards and controls should be developed and carefully implemented

In the past, organizations may have focused on financial regulatory requirements or the avoidance of criminal sanctions. Further standards and controls must now be developed in areas that may be subject to AMPs.

  1. Timely training and communication protocols ought to be rolled-out

Training must now include education about administrative regimes and penalties.

  1. The program must be properly monitored, audited, and updated as necessary

The level of monitoring and auditing will be linked to the risk assessment conducted under step 2.

 III. Policy Considerations

The decision in Guindon also contains a wide-ranging discussion of public policy issues, some of which were raised by the interveners. (i)   No fixed upper limit or ratio test With respect to potential bright-line tests, the Court rejected the suggestion by the Canadian Constitution Foundation that there should be an upper limit on the quantum of an administrative monetary penalty. The Court observed that an arbitrary upper limit on AMPs could undermine their goal: to deter actions which do not comply with the administrative regime. Moreover, the Court rejected the suggestion that the one-to-five ratio of AMPs to criminal fines in the Ontario securities law context was a general rule applicable to all AMPs. The Court also observed that various Court of Appeal decisions have upheld million-dollar AMPs in the securities context, under Investment Canada legislation, and under the Competition Act. (ii)   The mental element is not dispositive Ms. Guindon argued that the use of the term “culpable conduct” in subsection 163.2(4) indicates a mens rea requirement, which is classically criminal in nature. Some academics have argued that administrative penalties ought not to be used for intentional or reckless conduct but that they should instead be reserved for carelessness or negligence.[24] The Court ruled that this is irrelevant to the analysis because the “criminal in nature” test is concerned with the process and the nature of the proceedings, not the conduct that attracts the imposition of the AMP. The Court sets out a wide spectrum of conduct that may be the subject of an AMP:

“While some regulatory penalties are imposed without consideration of the person’s state of mind, in other cases it is rational that the state would only wish to impose a penalty on those who engage in misconduct knowingly, recklessly, or with a particular intention. Providing a due diligence defence or including a mental element as a component of the penalty does not detract from the administrative nature of the penalty.”[25]

If one applied the above test literally, it is possible to envision an AMP for fraud that would impose a civil penalty for intentional conduct or wilful blindness. We do not think that the Supreme Court intended to suggest with the above wording that an AMP for fraud would be constitutional. Indeed, the Court itself recognized that “[w]ilful, reckless or wanton disregard of the law” refers to concepts well-known to the law, commonly encountered as degrees of mens rea in criminal law.[26] We would argue that in future cases the above wording must properly be read in the context of the four-part balancing test to determine whether a particular AMP is punitive. For example, the combination of an intentionality concept coupled with criminal sentencing-like principles would likely lead to the conclusion that an AMP is punitive in nature. (iii)   Policy considerations for regulators As noted, the Court in Guindon commented that whether a proceeding is criminal by its very nature does not depend on the actual penalty imposed: “For example, parking tickets can involve relatively small fines, but where they are imposed in conformity with the general criminal process (e.g. pleading guilty or contesting the fine before a judge, prosecution by a Crown attorney), s. 11 rights apply.”[27] The parking ticket example illustrates that, apart from constitutional considerations, regulators ought to consider broader public policy issues in designing AMPs regimes. AMPs should play a role in the enforcement pyramid that is distinguishable from, and falls below, true crimes and regulatory offences. This principle is depicted in the following graphic:[28] [ot-caption title=”Canada” url=””] The parking ticket example shows that under the present system, a person issued a parking ticket for $100 has the full panoply of Charter rights. This is in stark contrast to a person such as Ms. Guindon who faced a penalty in excess of $500,000 without enjoying similar constitutional protections. From a policy perspective, these legislative choices appear to invert the enforcement pyramid. Notably, the Law Commission of Ontario has recommended the adoption of administrative penalties to enforce by-laws relating to the parking, standing, or stopping of vehicles, including by-laws relating to disabled parking.[29] The Commission also recommended the review of minor provincial offences to assess which offences may be better enforced under an AMPs regime. When fully considered, these would be welcome developments and it is hoped that the above factors are taken into account in redesigning existing systems and introducing new AMPs. It is hoped that regulators will also adopt a distinction between “prices” versus “sanctions” in the future. This conceptual distinction was articulated over 20 years ago by Robert Cooter in his article “Prices and Sanctions.”[30] Cooter conceptualized the distinction between whether a law creates a sanction or a price as follows: “Sanctions increase with the need for deterrence, as indicated by the actor’s state of mind, whereas prices increase with the amount of external harm caused by the act, which is invariant with respect to the actor’s state of mind.”[31] The classic example of a “price” is the parking ticket because one could theoretically park illegally 365 days a year so long as one paid a fine in a timely fashion. By way of contrast, the penalty for the offence of impaired driving is a “sanction” because the conduct is reprehensible and can cause harm to people. Accordingly, successive violations result in increased sanctions. Regulators would do well to keep these types of conceptual distinctions in mind to ensure AMPs regimes satisfy both the “criminal in nature” and “true penal consequences” tests going forward.   [1]     2015 SCC 41 (“Guindon“). Mr. Jull acted as co-counsel for Ms. Guindon at the Supreme Court of Canada level. [2]     R.S.C. 1985, c. 1 (5th Supp.). [3]     Guindon at paragraph 76. The Court does not tackle the semantic point that a penalty is defined as “[a] punishment imposed for breaking a law, rule, or contract” (see For a comment on this point, see Kenneth Jull, “Penalties that do not Punish: Administrative Monetary Penalties under the Canadian Anti Spam Legislation” Toronto Law Journal (May 2015), [4]     Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK), 1982, c 11 . [5]     Guindon at paragraph 76. [6]     Guindon at paragraph 90. [7]     Guindon at paragraph 45. [8]     Guindon at paragraph 64. [9]     See e.g. Law Commission of Ontario, Modernization of the Provincial Offences Act, Final Report (Toronto, August 2011), 10   Different circumstances may lead to relatively modest fixed monetary penalties (e.g. $25 per day to a maximum of $2,500), more serious civil penalties or criminal fines (the limits of which are generally based on a percentage of the tax amount in issue and may equate many millions of dollars), or imprisonment (e.g. for a term not exceeding five years). [11]   See e.g. Ontario (Attorney General) v. Fraser, 2011 SCC 20, [2011] 2 S.C.R. 3 at para. 131, where the Court commented as follows: “[The Supreme] Court’s most recent pronouncement on the question of overruling was in [R. v. Henry, 2005 SCC 76, [2005] 3 S.C.R. 609]. Writing for the Court, Justice Binnie first noted at para. 44 that the Court’s practice is against departing from precedent unless there are compelling reasons to do so. However, he also recognized that ‘while rare, departures [from precedent] do occur’. He further noted that constitutional decisions, including Charter decisions, are not immutable and may be overruled, though he held that ‘[t]he Court should be particularly careful before reversing a precedent where the effect is to diminish Charter protection.'” [12]   Guindon at paragraph 88. [13]   Guindon at paragraph 84. [14]   S.C. 1993, c. 38. [15]   See Criminal Code, R.S.C. 1985, c. C-46, s. 718 onward (Purpose and Principles of Sentencing). [16]   Guindon at paragraph. 84. [17]   Guindon at paragraphs 85-86. [18]   Robert J. Currie, “The Contextualized Court: Litigating ‘Culture’ in Canada,” (2005) 9 International Journal of Evidence & Proof 73 at 91. A very recent decision underlines that judicial notice of cultural factors cannot be made in the absence of expert evidence (See Quebec (Attorney General) c. 156158 Canada Inc. (Boulangerie Maxie’s) 2015 QCCQ 354 at paragraphs. 46-47). [19]   Guindon at paragraph 77. [20]   Guindon at paragraph 90. [21]   Guindon at paragraph 66. [22]    Telecommunications Act, S.C. 1993, c. 38, s. 64. [23]    “5 Essential Element of Compliance”, available online at Baker & McKenzie’s website: [24]    Professor Richard Macrory, Regulatory Justice: Making Sanctions Effective, Final Report (November 2006).See Figure 3.1 and Effective Sanctioning System. Also see “Regulatory and Corporate Liability from Due Diligence to Risk Management”, (Archibald, Jull & Roach), Canada Law Book, Chapter 15. [25]   Guindon at paragraph 72. [26]   Guindon at paragraph 58. [27]    Guindon at paragraph 64. [28]   “Regulatory and Corporate Liability – from Due Diligence to Risk Management”, (Archibald, Jull & Roach), Canada Law Book, Chapter 15] [29]   Supra note 9. [30]   Robert Cooter, “Prices and Sanctions” (1984) 84 Colum. L. Rev. 1523. [31]    Ibid. at pp. 1537-38.


Ken Jull is a member of Baker & McKenzie's White Collar Crime Steering Committee. Mr. Jull practices in the area of risk management strategies to promote regulatory and corporate compliance, which includes internal investigations and litigation of disputes which have a compliance component, including trials involving allegations of fraud and breach of fiduciary duty. He is a frequent contributor to Canadian Fraud Law.


Sarah Petersen is a member of Baker & McKenzie's Litigation Practice Group in Toronto. Ms. Petersen is a frequent contributor to Ms. Petersen maintains a diverse commercial litigation practice, advising in contractual disputes, professional liability litigation, civil fraud claims, oppression remedies, receiver liability as well as director, shareholder and partnership disputes. She also handles various forms of urgent interim relief, including injunctions and Anton Piller orders. She has appeared before all levels of the Ontario courts.


Mark Tonkovich is an associate in the Toronto office’s Tax Practice Group of Baker & McKenzie. Prior to joining Baker & McKenzie, he completed a judicial clerkship at the Federal Court of Appeal and was a tax litigator with the Canadian Department of Justice. Although he is experienced on both sides of the courtroom, he also frequently resolves tax controversies without the need for formal litigation.

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