4053893 Canada – Federal Court finds that CRA could not deny VDP relief to a corporation without explaining how its shareholder audit would have exposed the corporation

After Mr. Harris received a letter from CRA requesting that he file his personal returns (which he had not done for many years), he spoke briefly to CRA, disclosed that he owned an active corporation (“405” or the “applicant”) and was advised that he should file both business and personal returns. 405 was subsequently denied access to the voluntary disclosure program on the basis that, since this conversation had taken place before 405’s disclosure, such disclosure was not voluntary.

Gleeson J found that this decision was unreasonable because it lacked transparency, so that the matter was to be returned to another CRA official for redetermination. He noted that the CRA decision did not engage “in any analysis as to how the enforcement action against Mr. Harris would likely have uncovered the information disclosed by applicant.” He rejected the Crown’s submission that “the [CRA] Delegate could reasonably conclude, based on Mr. Harris’s role as the sole owner, director, and employee of the applicant alone, that the applicant’s information would have been uncovered in the course of the enforcement action against Mr. Harris,” stating:

This Court has consistently held that it is insufficient to simply conclude on the basis of an existing relationship that enforcement action against one taxpayer would uncover information contained in a second taxpayer’s voluntary disclosure.

Neal Armstrong. Summary of 4053893 Canada Inc. v. Canada (National Revenue), 2019 FC 51 under s. 220(3.1).