Mr. Bandula, was a drywall contractor who immigrated to Canada in 2000. The reassessments related to his 2002 and 2003 tax years and GST reporting periods. Justice Bocock didn’t believe the contractor’s excuses for under-reporting or his claims to extra, unreceipted business expenses. (CRA had allowed unvouchered business expenses and, because the Appellant couldn’t show which of his claims were beyond those allowed, the TCC refused to allow any of them: para. 33.)
The only issue left was whether gross negligence penalties ought to apply. Justice Bocock said they should not, largely because: (a) Mr. Bandula was a new immigrant in 2002-2003 and didn’t understand Canada’s tax system well and (b) (more important) because CRA had dealt with him in English, though his English was obviously poor. (Para. 44.)
The result was generous to Mr. Bandula: He had admitted to telling his accountant (who was not a witness) that the excesses were gifts from family, when the accountant questioned unexplained bank deposits. Mr. Bandula abandoned that claim in the TCC, though. (Para. 24.) On its own, that fact suggests a deliberate attempt to mislead when he filed (through his accountant) his tax returns.
Though Mr. Bandula won gross negligence relief in Tax Court, this is an expensive, slow and unreliable way to resolve a tax problem. (Initially, CRA had charged Mr. Bandula with tax evasion. So, the problem would have been even more complicated, costly and uncomfortable for him.) His accountant had warned him about unvouchered expenses and, obviously, had suspicions of under-reported revenue. Given that Mr. Bandula was a contractor, his risk of audit was higher than average, in part because major construction clients will demand invoices and will file T5018s reporting their payments to CRA. (Clients had filed T5018s for payments to Mr. Bandula (para. 17) and that may easily be how CRA found him.)
The higher lesson from this decision seems this: Contractors are ideal candidates for CRA’s Voluntary Disclosure Program. And accountants who have clients in that industry whom they suspect of under-reporting would do a good service by warning their clients of the risks and alerting them to the benefits of the VDP.