The Constitutionality of Administrative Monetary Penalties: Defining the punitive paradigm

The Supreme Court of Canada released its anticipated decision in Guindon v. Canada[i]on July 31, 2015, which held that administrative monetary penalties ("AMPs") under section 163.2 of the Income Tax Act (the "ITA")[ii] 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."[iii]  Where a penalty's purpose or effect is punitive, this will trigger Charter[iv]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."[v]

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.[vi]  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.[vii] 

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.[viii]  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.[ix]