Deyab – Federal Court of Appeal confirms neglect (and, thus, no statute-barring) for failing to document corporate withdrawals – but not gross negligence
The taxpayer was assessed for approximately $2.4 million in shareholder benefits respecting amounts received by him over five years from his small engineering-consulting company (“M.D. Consulting”), which he asserted were repayments of amounts he had advanced to it.
In affirming the Tax Court’s finding that CRA could reassess those years beyond the normal reassessment period, Webb JA first found that the Crown had made out a prima facie case that the withdrawals were income to the taxpayer, and that this then permitted “the drawing of an adverse inference against [the taxpayer] for failing to call his accountant or bookkeeper, or presenting a properly completed shareholders’ loan account reconciliation” – hence, there had been a misrepresentation. Furthermore, such “misrepresentation was attributable to the neglect or carelessness of [the taxpayer] in not properly maintaining a shareholders’ loan account that perhaps could have justified the payment of the amounts to him as repayment of his shareholder’s loan.”
However, Webb JA reversed the imposition of a gross negligence penalty, stating:
[The taxpayer’s] failure to maintain proper records that might have established that M.D. Consulting was repaying amounts payable to him (if such amounts had been properly recorded) does not establish that his failure to include the amounts withdrawn in his income demonstrated “a high degree of negligence tantamount to intentional acting” or that he was indifferent as to whether he complied with the Act.