"In the case that is before us, the Tax Court Judge acknowledged that substantial sums had been transferred by Mr. Deyab to M.D. Consulting. The concern in this case related to the record keeping, and, in particular, to the failure of M.D. Consulting to properly record all of the transactions between that company and Mr. Deyab (and his family). It is possible that the amounts that were transferred to M.D. Consulting exceeded the personal expenses paid by M.D. Consulting and the amounts withdrawn, and that the withdrawals, if properly recorded, were a repayment of the amounts payable to Mr. Deyab. The question is then whether, in the circumstances of this case, the assessment of gross negligence penalties should be confirmed.\n\nOne critical piece of evidence that, in my view, was not considered by the Tax Court Judge in confirming the assessment of the gross negligence penalties was the evidence that M.D. Consulting had lost money in each and every taxation year. As part of its review of this matter, the CRA prepared a summary of the losses of M.D. Consulting for its taxation years ending March 31, 2007 to March 31, 2011. For its first taxation year ending March 31, 2006, the summary discloses that no revenue or expenses were recorded for that year. The losses as shown on this summary are as follows:\n\nTaxation Year Ending:\n\n(Loss)\n\nMarch 31, 2007\n\n($74,952)\n\nMarch 31, 2008\n\n($126,923)\n\nMarch 31, 2009\n\n($517,986)\n\nMarch 31, 2010\n\n($249,859)\n\nMarch 31, 2011\n\n($158,158)\n\nTotal:\n\n($1,127,878)\n\nWith losses in excess of $1 million, the obvious question is: how could M.D. Consulting have sourced the funds transferred to Mr. Deyab and his family? Clearly, any amounts transferred to them were not from the profits realized by M.D. Consulting. The fact that M.D. Consulting incurred losses throughout its corporate history supports a viable and reasonable hypothesis that M.D. Consulting could have been simply repaying Mr. Deyab amounts that he had previously advanced to M.D. Consulting. There was no other identified source for these funds.\n\nMr. Deyab’s failure to maintain proper records that might have established that M.D. Consulting was repaying amounts payable to him (if such amounts had been properly recorded) does not establish that his failure to include the amounts withdrawn in his income demonstrated “a high degree of negligence tantamount to intentional acting” or that he was indifferent as to whether he complied with the Act. Mr. Deyab’s failure to include the amounts reassessed in his income, in the circumstances of this case, did not amount to gross negligence.\n\nI would allow the appeal in relation to the assessment of the gross negligence penalties."