1. Tax Court's Initial Finding:

   • Penalty Basis: Subsection 163(2) of the Income Tax Act for gross negligence.
   • Bowker's Action: Relied on tax preparers for an amended return, claiming large losses without operating a business.
   • CRA's Action: Refused claimed losses and imposed the penalty.

2. Appellant's Grounds for Appeal:

   • Argued Tax Court fettered discretion by pre-setting cost range (50-75%).
   • Claimed misapplication of Rule 147(3) factors: result of proceeding, settlement offer, and pre-litigation conduct.
   • Asserted breach of procedural fairness by considering unraised factors.

3. Tax Court's Rule 147 Application:

   • Reviewed factors for awarding costs including result of proceeding, amount in issue, importance of issues, offers of settlement, and parties' conduct.

4. Issues with Bowker's Settlement Offer:

   • Bowker offered to waive costs in return for concessions, which included reassessment of the penalty.
   • Offer based on subsections 163(2) and 162(7)(b) of the Income Tax Act.
   • Tax Court initially found the offer principled, but it was legally infeasible.

5. Federal Court of Appeal's Decision:

   • Found errors in Tax Court's cost award process and reasoning.
   • Noted the misapplication of legal principles in evaluating the settlement offer and its impact on costs.
   • Directed a re-evaluation of costs by the Tax Court.

Conclusion:

• Judgment: Appeal allowed; matter returned to the Tax Court for fresh determination of costs.
• Implications: Reassessment of costs due to procedural and legal errors in the original Tax Court decision.