CRA Audit Powers Suing CRA

[32]        I agree with the Appellant that reassessments made pursuant to subsection 165(3) are subject to the limitation on reassessing found in subsection 152(5). [34]        In Anchor Pointe Energy Ltd. v. The Queen, 2003 FCA 294, the Federal Court of Appeal held that the limitation in subsection 152(5) does apply to reassessments made under subsection 165(3). At paragraphs 34 and 35 of that decision the Court said: 34… Read More »Foster v. The Queen 2015 TCC 334 (Paris) — CRA Appeals Branch can reassess despite the normal reassessment period limitation but only in taxpayer’s favor or based on same transactions

Normally, CRA is limited to three or four years for reassessing your tax return after the original assessment.  But if you made a negligent misstatement when you filed your return there is no limitation period.  Here, the deceased taxpayer’s long-standing accountants, a reputable firm, made several errors in both the original return and later amendments. Nevertheless, the Tax Court and, now, the Federal Court of… Read More »Vine Estate v. Canada, 2015 FCA 125 (Webb) – Late reassessment — you cannot excuse your neglect by pointing to your accountant’s error 

“[15]        Case law and commentary are plentiful in the taking the same view in the situation where the revised taxable income of a taxpayer is increased taking account of prior adjustments, in that that constitutes a very clear indication for treating the assessment as being a “new assessment” instead of an “additional assessment”.   … “[17]       In the same… Read More »Rio Tinto Alcan inc. c. La Reine, 2014 CCI (Favreau) — If CRA reassesses you to increase a previous assessment, you may need to file another objection

Mr. Pouliot ran strip clubs and was a loan shark.  Revenue Quebec seems to have started the audit based on a police referral.  Justice Lamarre explained the principles of the deposit method which CRA used to challenge Mr. Pouliot’s 2000-2003 reported taxable income: “[11]   Briefly, the verification method based on deposits consists of adding all the deposits and from them subtracting all the amounts… Read More »Pouliot c. La Reine, 2014 CCI (Lamarre) — CRA’s audit deposit method for unreliable tax reporting — losses aren’t relevant; to avoid penalties, taxpayer must show a credible explanation for under-reporting

Under section 231.7 of the Income Tax Act, a judge of a superior court or the Federal Court may order a person to give CRA auditors access, assistance, information or documents sought under ITA s. 231.1.  If the taxpayer doesn’t comply with the order, the court will demand that the taxpayer show why he isn’t in contempt. If the taxpayer doesn’t explain his failure, the court can impose a fine or… Read More »Canada (National Revenue) v. Cameron, (2014 FC Manson) — Contempt of Court for failing to give documents and information to CRA

Suppose you transfer shares to a family trust, which redeems the shares and pays tax on the “deemed dividend” that results; and CRA assesses the trust and confirms the dividend.  Can the CRA later reassess you, saying the whole transfer to the trust was a sham, and tax you also on the deemed dividend, so that, for the time being, both you and the trust… Read More »McAdams v. Canada, (2014 FCA Sharlow) — CRA can take inconsistent assessing positions pending resolution of a tax dispute

If you trust your experienced accountant to file your tax returns rightly and you do not make any effort to review the return or ask basic questions, but the accountant makes a careless mistake, can CRA reassess you at any time?  Yes, the “normal” 3-year reassessment period will not apply to you.   Here, the executors of the Estate had relied on the accountants who… Read More »Vine Estate v. The Queen, (2014 TCC D. Campbell)–If you rely on your accountant without asking questions about your return, CRA can reassess you any time

Can a Tax Court judge invalidate CRA’s tax assessment against you because during the audit the CRA officers arbitrarily searched and seized your property, abused their powers in the process of assessing you, and seized your property without legal due process?  No.   You can challenge an assessment only by showing that the amount assessed is wrong on the facts or the law, (including that… Read More »Cheikhezzein v. The Queen, (2013 TCC  Bocock) — It doesn’t matter how wrongly CRA conducted the audit; only whether the assessment was wrong

CRA has 3 or 4 years to reassess you after it first reviews your tax return.  If you want to amend your return at any time during that “normal reassessment period”, and if CRA agrees, it can allow the adjustments.  After that 3-4 year period, CRA may not be able to allow adjustments to your return, even if it wants to, unless you filed a… Read More »Newfoundland Transshipment Limited v. The Queen, (2013 TCC, D’Auray) – If you want to amend your tax return, you might need to file a waiver or an Objection

In this case Justice Valerie Miller said that CRA may use documents it gets in a criminal investigation to assess the taxpayer’s income tax obligation, even if the evidence couldn’t be used for criminal prosecution.  In this view, she seems to disagree with Justice D’Arcy, who thought that such evidence might be inadmissible on a GST reassessment.  See Cambridge Leasing v. The Queen. Here’s what happened… Read More »Piersanti v. The Queen, (2013 TCC, V. Miller) – CRA may reassess you using documents it gets in a criminal investigation, even if it couldn’t use the documents in a criminal prosecution

This is another procedural case dealing with taxpayer rights to sue CRA.  It is a technical decision; it doesn’t say CRA did wrong.  It simply says that the tax advisors are entitled to a court trial for their abuse of process and negligence claims against the CRA investigators.  The plaintiffs advised taxpayers on Scientific Research & Experimental Development (SR&ED) claims.  CRA prosecuted them for fraud… Read More »McCreight v. Canada (Attorney General), (2013 ONCA, Pepall) – You can sue CRA for misfeasance, abuse of process and negligence but that doesn’t mean you will win

CRA auditors can demand that you answer questions, give access to your books and records, or give documents or information about another taxpayer.  (ITA ss. 231.1 and 231.2.)  If you refuse to comply with CRA’s demands, it may apply to the Federal Court for an order forcing you to comply.  If you ignore that Court order, CRA can ask the Court to find you are in… Read More »Black Sun Rising Inc., 2013 FC (Harrington) – You are liable to imprisonment if you don’t comply with CRA audit demands, but Crown must prove beyond reasonable doubt that your failure was deliberate

Like Klundert, this is another case where the TCC said that it might refuse CRA evidence if the evidence could not be used in a criminal prosecution.  This view seems unreliable.  The Supreme Court of Canada said, in a 2002 case called R. v. Jarvis, that the CRA cannot use its normal audit powers to investigate a criminal case.  The usual audit powers, which are broad, are… Read More »Cambridge Leasing v. The Queen (2013 TCC, D’Arcy) — TCC may reject evidence because it couldn’t be used in a criminal prosecution

Ms. Gardner felt that CRA wrongly reassessed her in 1996 as a way to support its reassessment of her husband.  She fought the CRA’s reassessment in Court and won in 2005.  Then, in 2007, she tried to sue CRA for “the tort of abuse of power or misfeasance in public office.”  The Ontario Superior Court judge agreed with the Government that Ms. Gardner started her… Read More »Gardner v. A.G. of Canada and The Queen, (2013 Ont. CA) – If you want to sue CRA, you can start by challenging its reassessment

It’s not enough for CRA to show an increase in net worth, even a large one, to meet its burden for opening a statute barred tax year.  If the taxpayer neglected to report the income innocently through ignorance, CRA may not be able to reassess, if the normal reassessment period has passed.  See Lenneville (2013 TCC, Tardif, J.) esp. at paras. 28, 38 and 41.

Normally, CRA cannot reassess more than 4 years after CRA makes its “original assessment”, when you have first filed your tax return.  But if you make a negligent misrepresentation, CRA can reassess you any time; there is no limitation period.  In Johnson, the Federal Court of Appeal said at paras 58 and 60: In early 2003 when Ms. Johnson would have been preparing to file… Read More »Johnson (FCA): CRA can reassess late if you don’t get independent advice