KM Strike – Federal Court of Canada finds potential merit in taxpayers’ position that being victims of fraud of their own officer could open up old taxation years

In 2023, three companies requested that CRA reassess their 2012 to 2019 returns on the basis that the capital gains reported by one of the companies (Strike) had been overstated due to fraud perpetrated by an officer of Strike and (in the case of the other two companies) on the basis that the management fees charged by them to Strike had been overstated due to Strike’s falsified records. Other than Strike’s income tax return for the 2017 taxation year, CRA (in the “Decisions”) rejected those requests on the basis that the applicants had exceeded the relevant limitation period under (as applicable) either ITA s. 152 or ETA s. 298.

After some unanswered letters to CRA, on May 24, 2024, the applicants filed these motions for extensions of time to file applications for judicial review of the Decisions.

Before granting the applications, Southcott J noted that the Crown had an "arguable position" that the above provisions required that the reassessment be based on misrepresentation or fraud that was that of the taxpayer. He also noted that the evidence did not demonstrate a reasonable explanation for the delay in commencing an application for judicial review. However, he nonetheless granted the applications given that the applicants’ arguments appeared to have some merit. He stated that he found “compelling the Applicants’ position … that CRA appears to have considered the relevant statutory authority to have been sufficient to authorize a reassessment of Strike’s income tax return for the 2017 taxation year (a year in which the Applicants submit the reassessment was favourable to CRA).“

Neal Armstrong. Summary of KM Strike Management Inc v. Canada (Attorney General), 2024 FC 947 under Federal Courts Act, s. 18.1(2).