Advice Is (Not) Cheap: Tax Advisor Found Negligent For Overlooking GAAR Risks

Introduction

Tax advisors play a crucial role in navigating the complexities of the Income Tax Act (Canada)¹ (the "ITA") and its regulations by leveraging their expertise to implement tax planning strategies, maximize tax benefits and ensure compliance with the ITA for their clients. Aggressive tax planning can go wrong if not done properly, and can result in unintended tax consequences, potential penalties and interest. However, tax advisors who fail to properly advise their clients are also risking their own liability.

The Supreme Court of Canada in Jean Coutu Group (PJC) Inc. v. Canada (Attorney General)² held that, where an unintended tax consequence was realized, "the appropriate avenue [for taxpayers] to recoup their losses is not through the retroactive amendment of their agreement. Rather, if the mistakes are such a nature as to warrant it, taxpayers can bring a claim against their advisors, who generally have professional liability insurance, and try to