Subsection 152(4)

On April 1, 2006, the taxpayers, who were executives of Gluskin Sheff+Associates Inc. (“GS+A”) (but with less clout than the founders), sold a portion of their shares to newly established family trusts at a price that was approximately 4.8% of that at which those shares were sold under an initial public offering that closed on May 26, 2006, following the filing of the preliminary prospectus on April 18, 2006. The pricing for the sale to the trusts applied a formula that had been used in agreements under which they (and other executives) had purchased their shares from the founders a few years previously, namely, 1.0 times the weighted average base management fee revenues of GS+A for the three preceding years. Such purchase agreements gave the right to the Board to require them at any time to sell their shares back to other executives at an amount determined under the same formula.

The taxpayers did not provide a valuation expert. Pizzitelli J accepted the opinion of the Crown’s expert, who estimated the maintainable earnings of GS+A (including performance fees) and capitalized those earnings to arrive at an en bloc enterprise value for GS+A (which perhaps not coincidentally largely coincided with the IPO valuation), and then applied a 40% “marketability” discount (to effectively the IPO price) to reflect “the risks that the IPO may not take place or the market for the shares does not materialize, or there would be a failure to agree on price, or the worsening of market conditions or a change of heart by the Founders” (para. 77). Pizzitelli J considered this discount to be eminently fair to the taxpayers given his finding that, on the valuation date (April 1, 2006), the prospects for a successful IPO were high (and of the founders requiring the taxpayers to sell their shares back at the formula price, quite fanciful). Accordingly, the gains realized on the taxpayers’ sales to the trusts were substantially increased pursuant to s. 69(1)(b).

The taxpayers were reassessed well beyond the normal reassessment period. Before finding that this was justified based on carelessness or neglect, Pizzitelli J referred to the finding in Vine Estate that the onus was on the Crown to establish that the taxpayer “(a) has made a misrepresentation; and (b) such misrepresentation is attributable to neglect, carelessness or wilful default,” and before discussing Petric and Regina Shoppers, stated (at para. 98):

[T]he following cases relied upon by the Appellants precede … Vine … where Webb JA set out the two step approach to analysing subparagraph 152(4)(a)(i) and that is the approach I followed. Nonetheless, although these cases address the reasonableness of the misrepresentation in the context of determining whether there has been a misrepresentation, I consider it more appropriate, following the Vine approach, to consider reasonableness in the context of the second element of whether the misrepresentation is attributable to carelessness, neglect or wilful default.

Pizzitelli J then stated (at para. 104):

[T]he Appellants did not seek an independent valuation and cannot be said to have thoughtfully, deliberately and carefully considered whether the proposed IPO would affect the share price. In fact, the Appellants just seemed to ignore it, when in my opinion, having regard to their skills in and knowledge of the securities industry from working as executives for a wealth management firm and the multiple other circumstances or red flags that went up … they were clearly aware of the impact of the IPO’s value on their holdings.

Mr Tooth, who wished to claim losses generated by a tax avoidance scheme, filed his tax return using IRIS software approved by HMRC. Due to a technical software issue, he was unable to enter such losses as an employment-related loss (as intended under the scheme), but was advised by IRIS technical personnel to enter the loss in some other box and then explain what he had done in a space provided for written explanations (a “white space”). Mr Tooth did so, such that in an adjacent white space, he explained that rather than a partnership loss (as reported), it was an employment-related loss.

HMRC’s statutory ability to open up such return with a “discovery assessment” depended inter alia on establishing that, under s. 29(4) of the Taxes Management Act 1970, the insufficiency of the initial assessment of the year “was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf,” with s. 118(7) further providing that “in this Act references to … a situation brought about deliberately by a person include … a situation that arises as a result of a deliberate inaccuracy in a document given to Her Majesty’s Revenue and Customs by or on behalf of that person.”

Lord Briggs and Lord Sales gave a joint judgment finding that "deliberate inaccuracy in a document" in s. 118(7) meant a statement which, when made, was deliberately inaccurate (i.e. the taxpayer intended to mislead HMRC), rather than a deliberate statement which was inaccurate.

First, this was the natural meaning of the phrase "deliberate inaccuracy" (para. 43):

Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely “inaccuracy”. An inaccuracy in a document is a statement which is inaccurate. Thus the required intentionality is attached both to the making of the statement and to its being inaccurate.

Second, it accorded with the differing statutory time periods within which HMRC could make a discovery assessment (i.e., 20 and 6 years for deliberate and careless inaccuracies, respectively, with the six-year period for carelessness resulting from a Parliamentary reduction for less blameworthy conduct) (para. 44, see also para. 46):

If the [alternative] interpretation were to be preferred the taxpayer could incur that [discovery assessment] exposure by making an honest but in fact inaccurate statement, even after taking reasonable care as to its truth or falsehood. The taxpayer would not even need to be careless, and yet would incur a much longer exposure than if he had been.

Third, it was consistent with the concept of deliberate inaccuracy in the penalty scheme, which “used the same concept of deliberate inaccuracy for the purpose of triggering penalties more serious than those arising from carelessness” (para. 45).

Furthermore, as to whether there was an inaccuracy, this turned on what "in a document" meant. There was no reason to depart from the usual approach to interpreting a document as a whole. Furthermore, regarding the online tax return form having clearly stated that it would be read upon receipt by an HMRC computer (para. 50):

A document written in the English language …does not have a different meaning depending upon whether it is read by a human being or by a computer. A choice by the recipient of such a document to have it machine-read cannot alter its meaning. Furthermore, the Revenue-approved online tax return form used by Mr Tooth and his advisors contained numerous “white spaces” … within which the taxpayer is invited to add information using his own words and phrases, so as to ensure that the declaration [was accurate].

Therefore, there was no inaccuracy in the document and, even if there were, it was not deliberate as Mr Tooth did his best with an intractable online form. HMRC’s appeal failed.

The taxpayer had a grade 9 education, and operated first a concrete pouring business and then a foundation repair business. He and his wife sold a house in the Ottawa region in each of 2007, 2008, 2009, 2011 and 2012. Significant upgrades, some done by Mr. Hansen, were made to each of the properties before selling. On his accountant’s advice, Mr. Hansen claimed the principal residence exemption for each disposition.

In finding that the Minister was precluded from reassessing the gains for the 2007, 2008 and 2009 taxation years on income account beyond the normal reassessment period, D’Auray J stated (at para. 93):

Here, Mr. Hansen had a bona fide belief that the sale of the houses qualified for the principal residence exemption. The Hansens lived in each house and personalized each to their likings and taste. In addition, Mr. Hansen sought advice from his long-standing accountant, Mr. Marsh, who confirmed that the houses qualified for the principal residence exemption. … The respondent did not introduce any evidence to rebut the accountant’s account of the events.

For its 2010 taxation year, the taxpayer, due to what Favreau J found to be carelessness of its external accountant, failed to include in its income the taxable dividends totalling $920,700 received in the year from subsidiaries while, at the same time, claiming a s. 112(1) deduction of $920,700 in computing its taxable income, thereby understating its taxable income by that amount. This was acknowledged to be a misrepresentation, and the only issue was whether CRA had demonstrated “neglect” or “carelessness” for purposes of s. 152(4)(a)(i).

In finding that CRA’s reassessment of the 2010 taxation year, beyond the normal reassessment period, to add back the dividend amounts, was valid, Favreau J stated (at paras. 72, 76-77, Tax Interpretations translation):

In paragraph 152(4)(a), the term "taxpayer" and the expression "the person filing the return" are to be interpreted as including the taxpayer itself, its legal representatives and any person duly authorized to file the tax return on its behalf, in this case the appellant's external accountant. Consequently, the taxpayer must be held liable for any error committed by any such persons representing it. …

[T]he error was obvious and … if Mr. Tremblay and Mr. Forest [the CEO and CFO] had checked the return, they would certainly have detected the error since they were both CPAs and it was fairly straightforward to ensure that the dividends were included. …

In my view, the failure to review the appellant's income tax return and the failure to question the accountant to ensure the accuracy of the information contained in the return demonstrate a lack of due diligence on the part of the appellant's officers. Considering the skills, experience and knowledge of the appellant's officers, I believe that they would have been able to discover the error had they taken the trouble to check the return as would a prudent and conscientious person.

The taxpayer was reassessed for quite a number of taxation years for which the main substantive issue was whether dispositions of shares in an offshore fund were on capital account – but many of the earlier years were beyond the normal reassessment period. The taxpayer sought to reduce the scope of the dispute to the latter years by bringing a motion for the Court to permit a Rule 58 determination that the earlier years could not be reassessed under s. 152(4)(a)(i) because this required that there have been a misrepresentation. In particular, in light of the French version of s. 152(4)(a)(i), “misrepresentation” referred to a factual misrepresentation, and the question of whether a gain was a capital gain or income account gain instead was one of mixed fact and law and, therefore, outside of the meaning of s. 152(4)(a)(i).

Wong J stated (at paras. 19-23):

This question requires a decision as to whether the English or French version of the provision is to be preferred… .

… I do not believe that this question is suitable for determination under rule 58. Specifically, I do not believe that where the assessment issue includes an allegation of neglect, carelessness or wilful default, it can be properly determined by a trier of fact without the factual context.

The meaning of the phrase “une présentation erronée des faits” appears to be prima facie different from the meaning of the phrase “any misrepresentation”.

The English and French versions are of equal force and effect, and there is no basis to prefer one version over the other without further context.

In dismissing the motion, she stated (at paras. 24-25):

I cannot agree with the Appellant’s proposition … that a question of income versus capital necessarily amounts to a difference in opinion. … [T]he factual circumstances of the appeal will determine whether the issue of income versus capital is purely a difference of opinion or not. …

The question of whether a misrepresentation under subparagraph 152(4)(a)(i) contemplates fact only or mixed-law-and-fact, should properly remain with the trier of fact to determine in conjunction with the related substantive issues.

The individual taxpayer (Demers) was a director of the owner of the RadioX team, which was a minor professional hockey team. The corporation had been treating its players (and other staff) as employees rather than independent contractors for Quebec health tax purposes in accordance with the known views of the ARQ, but then commenced to treat them as independent contractors. The players did not register for GST/QST purposes or invoice for their services, and declined to sign a written contract (which did not reflect the realities of how the team continued to be operated), and the only substantive change made was that the team manager was incorporated.

After finding that the players continued to be employees, the Court of Quebec next dealt with the due diligence defence of Demers under the equivalent of ITA s. 227.1(3) (the corporation having since been wound up without paying any of the source deductions), which was based on the proposition that he had been advised by his tax advisor, Ms. Rochette (who was also his wife and a co-director of the corporation) that the players were now independent contractors. In rejecting this defence, the Court of Quebec noted that the views of Ms Rochette were based on factually incorrect matters that could have been readily checked by her, including that the players could play for other teams, that they had their own tools and that the team did not reimburse them for their expenses, and also noted that Ms. Rochette had not consulted the jurisprudence.

However, the assessment of the Corporation for its 2006 year had been found by the Court of Quebec to be statute-barred as having been made beyond the four-year prescription period, based on the ARQ not having established carelessness of Demers or the Corporation. In reversing this finding (and before going on to direct that the assessments of the Corporation and of Demers for their 2006 years be affirmed), Bouchard JCA stated (paras. 92-94, TaxInterpretations translation):

In accordance with Regina Shoppers Mall … a taxpayer does not make a misrepresentation where he or she thoughtfully, deliberately and carefully assesses the situation and files on what he or she believes bona fide to be the proper method.

… Mr. Demers' position reflected his desire to save money by no longer making deductions at source. The position of the Corporation, which is virtually identical and which emanates from the same director, could not be different.

Moreover, the judge pointed out on several occasions that the change in the status of the players did not in any way materialize at the operational level and was strictly motivated by the Corporation’s desire to no longer pay deductions at source.

With respect, to the extent that she concluded in this way in the first part of her judgment, she could not, in my opinion, conclude a few paragraphs later that the ARQ had not succeeded in demonstrating the carelessness or wilful omission of the Corporation when it was clearly trying to avoid its tax obligations.

An insurance broker (Mr. Chabot), whose licence subsequently was revoked, engaged in a scheme to cheat insurers, resulting in his pocketing commissions from them in excess of the amounts he agreed to pay to his clients. One of these clients was the taxpayer (Mr. Scotti), who received amounts ($90,000) that were well in excess of the premiums he was required to pay under a universal whole life policy before he was able to terminate the premium obligations. After finding that the $90,000 was taxable to Mr. Scotti under the Quebec equivalent of s. 12(1)(x), Croteau, J.C.Q. went on to sustain the ARQ assessment made under such provision notwithstanding that it had been made beyond the normal reassessment period, and in the face of Mr. Scotti’s testimony that he had been advised by Mr. Chabot (as well as a garage owner, who had been the initial contact) that the amounts were non-taxable. She stated (at paras. 72-75), TaxInterpretations translation:

… Mr. Scotti knew, or ought to have known, that he was participating, without any financial contribution on his part, in a scheme which would provide him and Mr. Chabot with a significant pecuniary advantage.

In this context, how could Mr. Scotti, as a seasoned businessman, have validly relied on the statements of an insurance broker directly interested in the scheme, as well as on those of a garage owner who was the source of his meeting with Mr. Chabot, to determine whether or not he should include in his income the $60,000 received in 2008 and the $30,000 received the following year?

Such a decision certainly cannot be characterized as a "considered position" in the sense that it was defined in Cameron v. R. [2008-4063 (IP)G] … .

In addition to all of this, Mr. Scotti was able to rely, on a daily basis, on the independent support and advice of the accounting firm he employs for his business, as well as the comptrollers who work for each of his 14 automobile dealerships. Yet he admits that he never sought their assistance. Why did he not seek their assistance? In the context of this case, to ask the question is to answer it.

Following his disposition in 2012 of a parcel of undeveloped land which he had acquired in 1997, the taxpayer treated the adjusted cost base of the property as having been increased by poorly documented expenses such as municipal and school taxes and financing expenses.

In finding that the Minister could reassess beyond the normal reassessment period to increase the capital gain as reported on the basis that the taxpayer had made a misrepresentation attributable to neglect, Favreau J noted that the same types of ACB adjustments had been denied for the disposition by the taxpayer of another parcel of vacant land in 2008 QCCQ 7197, and that the taxpayer thus “knew very well the rules applicable to computing the adjusted cost base of land insofar as this related to school and municipal taxes and interest on money borrowed to acquire real property” (para. 29, TaxInterpretations translation).

Rebates (in the form of traveller’s cheques, gift cards and prepaid credit cards) were received by an incorporated pharmacy from generic pharmaceutical drug manufacturers, and not reported by it or the two shareholders (a married couple) as income. In finding that the corporation could be reassessed beyond the normal reassessment period to include the amounts in its income, Monaghan J stated (at paras 36):

In my view, the Corporation should have known that In-Kind Rebates are required to be included in its income, just as Rebates paid by cheque were, particularly given that the In-Kind Rebates are “near” cash items. … The Corporation should have taken steps to ensure that any amounts received as Rebates, regardless of form, were properly accounted for and reflected in its books and records. In my view, the failure to do so was negligent and resulted in the understatement of the Corporation’s income.

CRA assessed the taxpayer on the basis that there was a change in use of its rental property from commercial activity to exempt rental activity, when it started to rent the property to an NPO for homeless people, thereby triggering GST equal to the previously claimed input tax credits for the property. Paris J found that the Crown had failed to establish the basis under ETA s. 298(4)(a) for making this assessment beyond the four-year statute-barring period.

First, no “misrepresentation” had been established, as the Crown had failed to establish that in fact the users of the facility had exempt leases or licences, i.e., for continuous occupancy of over one month.

Second, there was no “carelessness” or “neglect.” The taxpayer’s principal, as a lay person, could not be expected to recognize the issue of triggering a change of use – and to expect him “to initiate a discussion with [the company’s accountant] concerning the possible application of a highly technical provision of the Act would be to hold him to an unrealistically high standard of care” (para. 46).

Finally (at para. 49):

Aridi … found that it was not sufficient to show negligence on the part of the taxpayer’s professional advisor in making the misrepresentation, and that the taxpayer must also be shown to have acted in a negligent or careless manner.

The CRA revocation of a registered pension plan (the “New Plan”) was invalid due to inadvertent failure to comply with the 30-day notice requirement in s. 147.1(12). Graham J found that the contemporaneous reassessment of the taxpayer under s. 56(1)(a)(i) for having purportedly transferred the commuted value of his (OMERS) pension plan to the New Plan was valid since the CRA’s subsequent issuance (well beyond the normal reassessment period) of a further retroactive deregistration of the New Plan effectively also retroactively validated such reassessment.

Graham J then stated (at para. 26, obiter):

[I]f the reassessment in question [instead] had been made after the normal reassessment period … it would be inappropriate for me to attribute knowledge of that revocation to Mr. Mammone when determining whether he had made a misrepresentation attributable to carelessness, neglect or wilful default in filing his 2009 tax return. I accept that Parliament intended that the fact of the revocation be retroactive, but I would need to see something very clear in the Act before I would accept that Parliament also intended a taxpayer to retroactively have knowledge of that retroactive fact.

The taxpayer incorporated a mortgage sourcing business in the “Corporation,” and hired a chartered accountant, Mr. Halford, to assist him and his wife to account for the income earned under the Corporation. After the first year of operation, the taxpayer questioned why the income reported in his personal return was less than the cash received from the Corporation, and Mr. Halford explained that this was because shareholder advances had not yet been converted into bonuses, so that taxpayers’ income had been deferred for at least one year. In late 2009 and early 2010 Mr. Thompson discovered significant errors in the draft financial statements prepared by Mr. Halford in respect of the Corporation’s 2009 financial year-end, and subsequently hired Ruben Jeffery, a CPA at Ernst and Young (“EY”) to finalize the Corporation’s 2009 financial statements. Mr. Jeffery discovered that the taxpayers had failed to report income amounts in 2006 to 2008. He added the unreported income to the income that they received from the Corporation in 2009, and reduced the Corporation’s management expenses for 2009 to account for the fact that it had expensed the unreported income in prior years. CRA did not accept this treatment, and instead the unreported income was added to the taxpayers’ incomes for 2006 to 2008.

Hogan J stated (at para 25):

… In Aridi, I held that an accountant’s neglect or carelessness in preparing a tax return is not sufficient in and of itself to allow the Minister to reassess beyond the Normal Reassessment Period. The taxpayer must also be shown to have acted in a neglectful or careless manner.

Hogan J dismissed the appeal, finding (at para 31):

When a taxpayer hires an accountant to prepare his tax return and is aware that tax planning involving a deferral strategy … is being used to secure a tax advantage for the taxpayer’s benefit, a minimum degree of attention to or oversight over the accountant’s work must be exercised by the taxpayer. …[T]he Appellants exercised oversight in 2005 but failed to pay reasonable attention to the reporting of the Deferred Income thereafter. In my opinion, the absence of oversight constitutes carelessness on the part of the Appellants. Had they paid attention to the matter by asking questions, the errors on their returns could have been avoided.

The taxpayer was a non-profit organization established for the purpose of operating a golf course for its members. In 2006 it disposed of a parcel of land and realized a gain of $1,742,500 on that disposition. The taxpayer reported the disposition on its T1044 Return which it filed in 2006. However, the taxpayer did not report the gain in its T3 trust return. The Minister reassessed in 2015 to include the gain in the computation of 2006 income on the basis that the land did not satisfy the test for exemption in s. 149(5)(e)(ii) that it was “used exclusively for and directly in the course of providing the dining, recreational or sporting facilities provided by it for its members.”

At issue was whether the Minister’s reply contained factual allegations which, if found to be true, could establish that the taxpayer had made a misrepresentation of fact in its return of income and had acted carelessly, negligently or willfully in making the misrepresentation. Paris J found that a pleading that the land was never used exclusively for and directly in the course of providing dining, recreational or sporting facilities for the members should be ignored as it was nothing more than a paraphrase of s. 149(5)(e)(ii) and that a statement that the taxpayer’s directors knew or ought to have known that the taxpayer’s filing position was incorrect should be struck as not disclosing what filing position was alleged to be incorrect. The remaining factual allegations relevant to the statute-barring issue were that that taxpayer’s board was sophisticated, a resolution to obtain professional advice on the tax treatment of the sale was not followed through on, a gain on the sale of a similar property 14 years’ previously had been reported as giving rise to a taxable gain, and the land sold in 2016 was zoned residential and was separated by a road from the gold course. Paris J stated (at para.26) that these did not represent:

sufficient facts to enable me to conclude that the Appellant made a misrepresentation due to carelessness, negligence or willful default in its T3 Return. Therefore, the Amended Reply should be struck as disclosing no reasonable cause of action.

He concluded (at para 29) by allowing the respondent 60 days to file an amended Reply, as the taxpayer had"not shown that it would be impossible for the Respondent to amend to support the reassessment."

The taxpayer had a registered retirement income fund worth $228,164 at his time of death, which the estate's tax preparers forgot to include in his terminal return. Graham J found that the Minister could reassess the taxpayer beyond the ordinary period, as the executor had been neglectful in only giving the return a cursory reading before signing it. An executor exercising reasonable care would have noticed the absence of the RRIF and made inquiries with the tax preparer (para. 31), given especially that the RRIF represented 70% of all assets distributed to the estate's beneficiaries (para. 32).

A review of a law firm's accounts in 2005 by its external accountant revealed various substantial errors for the 2002 to 2004 years. The appellant partners filed revised tax returns for those years in 2007, in which they claimed additional bad debt deductions, with the Minister apparently disallowing those deductions and assessing for additional income in resulting 2007 reassessments.

In finding that the 2002 and 2003 years could be reassessed beyond the normal reassessment period, Bocock J stated (at para. 24):

[T]he Appellants' conduct was not consistent with that of a wise and prudent law partner. Mr. Francis…co-chaired the Partnership's monthly budget meeting. He supervised internal accounting staff. In doing so, he failed to ensure that the amounts reported by the Partnership were correct… .

The taxpayer was assessed a penalty for failure to file T1134 forms, which provided that filing was not required if the corporation had gross receipts of less than $25,000 in a year and at no time in the year did its assets exceed $1,000,000. As the reassessment was made outside the normal reassessment period, the Crown had the burden of establishing misrepresentation based on neglect etc. After describing the very substantial uncertainties associated with valuation of the corporation in question, Favreau J stated (at para. 37) that the taxpayer "made a thoughtful, deliberate and careful assessment of the value of OREX's investment."

The appellant, a small custom-home builder, was held equally by a married couple (the DeMarcos). In 2006, the couple sold their home and moved into the appellant's model home. This change in use triggered an obligation of the appellant to pay GST on the fair market value of the home under the ETA s. 191 self-supply rule.

Rip CJ allowed the Minister's reassessment beyond the normal limitations period, finding that the appellant had been neglectful in its failure to report this transaction in its GST return. The appellant argued that it was unreasonable to expect the DeMarcos to spot the self-supply issue.

Rip CJ pointed out that the appellant did not ask its chartered accountant for guidance (paras. 21, 40) and instead relied on a bookkeeper who was unfamiliar with tax matters (paras. 25, 40), and stated (para. 41):

The fact that the move by the family into the model home was a transaction the DeMarcos and the appellant had never experienced before in the over the 20 years existence of the company ... did not disturb [Mrs. DeMarco] sufficiently to ask questions.

Bocock J found that misrepresentations made by the taxpayer on audit in 2003 respecting the appropriateness of registering a single-employee registered pension plan in 2001 did not have the effect of allowing CRA to reassess the 2001 year, which was before the normal reassessment period. See the summary under s. 152(4.01). He went on to deal obiter with a submission of the taxpayer (contrasting misrepresentations made in returns with those relating to information supplied under the Act such as a pension plan registration) "that misrepresentations made in supplying information under the Act do not, in the absence of misrepresentations in the return, allow the Minister to reassess outside the normal period"(para. 70), and stated (para. 77):

[T]he Minister would not be entitled to reassess outside the normal period under paragraph 152(4) where the taxpayers' only misrepresentations were made outside the returns and occurred solely in supplying information under the Act.

The taxpayer had limited English skills and no understanding of the Canadian tax system or appropriate record-keeping standards. Bocock J found that reassessment beyond the normal period was justified given the failure to keep material receipts.

Bocock J found that the taxpayer, having failed to maintain adequate records and having engaged in "inscrutable" tracking of expenses, shareholder advances and shareholder benefits, could be reassessed beyond the normal period. (The taxpayer's appeal from gross negligence penalties was allowed, as the taxpayer's failure to maintain adequate records reflected colossal disorganization rather than duplicity.)

The taxpayer had disposed of half his interest in a rental property. His accountant informed him that a "rollover" was available for this disposition, such that he would not realize a capital gain on the disposition until he disposed of the other half. No such rollover provision in fact existed, and the Minister reassessed the taxpayer beyond the normal period.

After finding (at para. 26) that the phrase "person filing the return" referred to an authorized signatory of a taxpayer described in s. 150 rather than a person who merely prepares the return, and finding (at para. 34) that "it is not the accountant's neglect that makes it possible to disregard the limitation period," Hogan J granted the taxpayer's appeal, as he found no neglect etc. by the taxpayer, given that the taxpayer had carefully reviewed the return and asked probing questions about the "rollover." Hogan J stated (at para. 47):

The appellant knew the normal tax treatment of the transaction he had just completed. A specialist, namely his accountant, told him of another treatment, one that was more complicated but advantageous. The appellant asked some questions [in a meeting lasting more than an hour] and accepted the specialist's advice. He then reviewed the return and signed it. What more would a wise and prudent person have done?

The taxpayers ran a commercial fishing business. Because a substantial portion of that business was operated on a cash basis, a CRA auditor used a net worth assessment to determine that the taxpayers' income was under-reported. One of the three taxation years was beyond the normal assessment period, and the Minister assessed penalties under s. 163(2).

Tardif J agreed with the Minister's income adjustments (subject to small corrections) but not with the penalties or out-of-period reassessment. The net worth assessment was warranted in the circumstances, and it had been performed soundly. However, there was no evidence of dishonesty or negligence. Moreover, a disparity between the taxpayers' reported income and the amount determined under the net worth assessment did not in itself prove misrepresentation.

The deceased ("Roud") held shares in a corporation that was converted into an income trust. With no rollover treatment available, she realized a capital gain of approximately $71,000. Neither she nor another individual ("Murphy"), who had her power of attorney, was aware of the gain, and consequently Murphy omitted it from Roud's return.

Boyle J. found that the failure to report the gain was a misrepresentation attributable to neglect or carelessness, so that the limitations period did not apply. The taxpayer had applied for discretionary relief, and Boyle J. stated (at para. 14) that the situation was a "compelling case for the Minister to consider relief of at least some of the interest."

The Minister imputed additional income to the taxpayer based on deposits into his bank account that he had not included in his return, and on that basis reassessed the taxpayer beyond the normal limitations period and imposed penalties. Hogan J. accepted the taxpayer's explanation that the amounts represented loans from his brother, and the accommodation of deposits of cheques from his brother's business. Unlike in Lacroix, the explanation of a loan from a sibling was credible - the taxpayer's brother had a hold on his account and was unable to make immediate withdrawals, whereas the taxpayer could. The Minister's assumptions were thus demolished.

The taxpayers relied on charitable receipts which showed donations amounting to approximately 25% of their annual income, and which had been obtained from a tax planner who had subsequently been convicted for selling fraudulent charitable receipts to taxpayers. Paris J. found that the taxpayers had made misrepresentations on their returns, and reassessment beyond the normal period was justified.

The taxpayer was reassessed in respect of income from stock options exercised in 1997, 1999, and in 2001. He argued that he was not a Canadian resident in those years. V.A. Miller J. agreed that the taxpayer was not resident in Canada in 1997, when he was employed and customarily living in China, but dismissed the 1997 appeal on other grounds.

V.A. Miller J. found that the taxpayer was a Canadian resident in 1999 and 2001, and V.A. Miller J. found that his assertions to the contrary amounted to wilful default, for which he should be reassessed under s. 152(4)(a)(i) outside the normal period and pay penalties under s. 163(2). The taxpayer's severing of his ties to Canada was largely superficial - he ostensibly sold a Belleville estate to his children in exchange for a mortgage, but never actually requested payment from them. The core of his social and family life, as well as his finances, remained in Canada, and his personal investment in China, and subsequently Thailand, was only enough to maintain a particular lifestyle during his periodic sojourns there. Moreover, there was evidence to indicate that the taxpayer had spent more time in Canada than he claimed.

The individual taxpayer ("Vincent") was the sole shareholder and director of the corporate taxpayer ("9067"). Vincent's home, which was owned by 9067 and also used for business purposes, burned down. The insurance policy on the property, under which 9067 received a total of $1,170,800, stipulated that living expenses paid under the policy would not exceed $86,400 - however, Hogan J. found that none of the $1,170,800 were in fact living expenses. Therefore, by depositing $86,400 of the insurance benefits into his personal account, Vincent had received a shareholder benefit.

However, Hogan J. went on to find that Vincent could not be reassessed beyond the normal reassessment period. He stated (at para. 78):

The evidence shows that the insurance adjuster, Mr. Gingras, did not have to resort to a claim for living expenses to secure a final settlement equal to the maximum coverage of $1,170,800. However, the Respondent has not shown that the Appellant was informed of this fact. The fact that an amount of $30,000 was advanced before the final settlement could have led the Appellant to believe that the final benefits included living expenses. The Respondent has not satisfied me that the Appellant had reasons to doubt that this was so.

The taxpayer was convicted of fraud for arranging, in his capacity of manager of a company, for a sale of a property of the company at a substantial under-value to a purchaser in which his personal holding company had a 50% interest.

V.A. Miller J. found that the Minister had not met the burden under s. 152(4)(a)(i) to reassess the taxpayer for a benefit received beyond the normal reassessment period. The Minister had relied heavily on conclusions reached in the taxpayer's fraud trial. V.A. Miller J. stated (at paras. 42-43):

The statements, in McGarry J.'s Reasons for Judgment which the Respondent has relied on, ought to have been posed to the Appellant so that he could offer an explanation. It would then have been up to me whether or not I accepted that explanation.

The evidence relied on by the Minister has left me with more questions than it has answered. Did the Appellant seek advice prior to filing his 1999 income tax return? Was the Appellant's view of the transaction so unreasonable that it could not have been honestly held?

The registrant's assessment beyond the normal period, for unreported income of $91,232, $50,125, $64,540 and $66,596 in successive years, and unremitted GST totaling $19,074.51 over the same period, was upheld subject to minor adjustments. The registrant had not kept proper records and the amounts were arrived at by a net worth assessment. V.A. Miller J. found that the net worth assessments were consistent with the registrant's lifestyle. The registrant's evidence to the contrary was not credible because his explanations to different CRA officials and the Court were largely unsubstantiated and mutually inconsistent.

The taxpayer sold a residence eight months after the point at which she had completed its construction and moved in. The Minister reassessed beyond the normal reassessment period on the basis that the gain was realized on income account. Hogan J. stated (at para. 16):

[T]he real question is whether subparagraph 152(4)(a)(i) applies to a taxation year that is otherwise time-barred when the facts considered incorrect are presented because the taxpayer interpreted the circumstances to favour the non-taxation theory since they fall in the grey zone of tax law. I believe, in view of the case law, the question can be answered in the negative where the taxpayer's position is not unreasonable.

Here, the taxpayer's position was not unreasonable, and the reassessment was statute-barred.

The taxpayer purchased a lot and built a house on it. Over a period of less than two years, he moved in with his family, rented the property out, and finally sold it. The Minister sought to reassess the taxpayer beyond the normal reassessment period for profit realized on the sale, on the basis that the taxpayer had misrepresented the sale as being a sale of principal residence.

After finding that the sale fell into the "grey zone" of tax law, Hogan J. found that the Minister had not met the test in s. 152(4)(a)(i). Given that the taxpayer's position was not, on the balance of probabilities, unreasonable, he was free to report his income in a manner that would lead to a favourable tax treatment. Therefore, even assuming the taxpayer had made a misrepresentation, it did not amount to neglect, carelessness, or willful default. Hogan J. stated (at para. 26):

[A]dopting a thoughtfully considered position that contradicts the Minister's position does not in itself mean the taxpayer made a misrepresentation that would allow the Minister to assess outside the normal period.

The taxpayer reported successive business losses, arousing the Minister's suspicion as to how the taxpayer could support his family when he purportedly had essentially no income. Paris J. disallowed the assessment for the year outside the normal reassessment period, notwithstanding that the taxpayer was uncooperative with the reassessment. (Para. 17):

The allegation that the Appellant misrepresented his income is based on on a net worth audit in which the great majority of the figures used were not verified by the auditor because the [taxpayer] did not cooperate. ... The assumptions made by the auditor in reassessing cannot be relied on by the [Minister] for the purpose of meeting the onus to prove a misrepresentation. ... It may have been possible for the Minister, during the audit, to obtain such evidence, if it existed, by issuing requirements to the Appellant and third parties, but for whatever reason, this was not done.

The Minister reassessed the taxpayer in respect of several taxation years by way of a net worth assessment, on the assumption that the taxpayer had taken money out of his wholly-owned corporation to pay for personal expenses without reporting those receipts as income. However, Hogan J. disallowed the assessment for the year that was outside the normal reassessment period, given that no misrepresentation had been proven. At para. 17:

When a taxation year is statute-barred, the Minister cannot simply assume a figure for the taxpayer's living expenses and claim victory if the taxpayer does not demolish this assumption. The Minister can only do this if the reassessment has been issued within the normal reassessment period. The ITA does not require taxpayers to keep records of their personal expenditures.

The filing position of the taxpayer that tax attributes of predecessor corporations did not flow through to it on an amalgamation that did not qualify as an amalgamation under s. 87(1) did not represent a misrepresentation attributable to neglect or carelessness given that this filing position was based on considerable thought and deliberation taking into account a published position of the CRA.

The taxpayers disguised a tax deferral scheme as a health plan for their employee wives. Bowie J. found that the plans had not been entered into with considered judgment as to their commercial benefit to the taxpayers' firm: the amounts paid to the plan were set without regard to the actual benefit of the services; no attempt was made to seek competing bids from actual medical insurance providers; and the plan was not extended to non-spouse employees. Bowie J. found that the taxpayers had clearly understood that the amounts contributed were not business expenses; therefore, reporting them as such was a misrepresentation attributable to neglect or carelessness.

The taxpayer could be reassessed under s. 227.1 beyond the normal reassessment period in light, inter alia, of a finding that she had tampered with the minute books in order to back-date her resignation as director.

After noting that the taxpayer's submissions as to his exemption under the Canada-France Convention on interest income earned by him from a French source "were unusual and even surprising" (para. 15), and that the taxpayer was taxable on such interest income. Tardiff, J. went on to find (at para. 22) that "the case at bar did not involve stubbornness or capriciousness; rather, it involved a legitimate question and a principled concern that had a modicum of foundation" so that the penalty did not apply.

After finding that donations of cartoon drawings by the taxpayer did not qualify as dispositions of personal-use property, Woods, J. went on to find that there had been no negligence in reporting those drawings as having been donated as personal-use property by the taxpayer's wife given that at that time they could not have foreseen that the taxpayer would have successfully obtained a rectification order to have those drawings treated as never having been transferred by the taxpayer to his wife, and as instead having been donated by him directly to universities.

The taxpayer was negligent in not even making a cursory review of his tax return, which claimed expenses which he clearly was not entitled to, for example, an office in his home and capital cost allowance on personal property.

The Minister was able to reassess the taxpayer beyond the normal reassessment period in respect of mortgage interest expenses claimed by her in her returns given that she had never reviewed them. However, the Minister could not assess her for a capital gain that she had failed to report given that she did not find out that the property had been disposed of until after she filed her return for that year.

The taxpayer, which made a voluntary disclosure in respect of its failure to report large corporations tax liabilities and its improper claiming of small business deductions, could be reassessed beyond the normal reassessment period. These errors were attributable, at least in part, to the taxpayer's accountant not having any knowledge of Part I.3 tax, and Bowie, J. quoted with approval (at para. 13 from Snowball v. The Queen, 97 DTC 512) that "negligence in the preparation of an income tax return retains its consequences under subparagraph 152(4)(a)(i) whether it is the negligence of the taxpayer personally or that of the accountant ...".

The taxpayer, who had retired from a long career of managing pension funds (and, therefore, was considered to be sophisticated), made a misrepresentation attributable to neglect when he claimed the enhanced capital gains disposition with respect to a sale by him of shares of a corporation which was controlled by non-residents (a fact of which he professed to be unaware) at a time that was less than two years from the date of his acquisition of the shares. A simple check would have enabled him to see that the disposition did not qualify.

After finding that the taxpayers did not have limited recourse amounts for promissory notes they gave as consideration for the limited partnership units offered with the offering memoranda given the absence of any arrangements for payment of interest on the notes on a timely basis and other deficiencies, Campbell, J. found (at para. 104) that the taxpayers could not be reassessed beyond the normal reassessment period:

"I believe they were acting in a reasonable and prudent manner in placing reliance on the various professional opinions before making a decision to invest and should not be held to a higher standard. To do so would be to insist that they must personally investigate the technicalities of the various structures and arrangements of public offering documents."

The failure of the taxpayer, who was an accounting secretary, to report taxable capital gains of approximately $168,000 realized by her in both her 2000 and 2001 taxation years from the disposition of shares of BCE Emergis Inc. represented neglect or carelessness.

The failure of the taxpayer to include in his income the reimbursement by a corporation of expenses incurred by him in connection with a criminal prosecution of him did not permit the Minister to assess the year in question beyond the statute-barring period, given that the correct treatment of such reimbursements was by no means clear. Tardif, J. also stated (at para. 59):

"I do not believe that evidence of a single error resulting from the presence of an inaccurate fact is sufficient to preclude the effect of the time limit in the Act. Rather, I think that there needs to be evidence of a more serious wrongdoing than mere error."

O'Reilly J. indicated that he saw nothing preventing a company from making a request for judicial review of a decision of the Minister not to accede to the corporation's request for a reassessment of a taxation year (preceding the normal reassessment period) in which the taxpayer allegedly had exaggerated its own taxable income. However, in the circumstances, it had been reasonable for the Minister to conclude that there was insufficient evidence to assess whether a misrepresentation had in fact occurred for those earlier taxation years or, if so, to determine the actual amount of tax owing, if any.

In noting that the Minister had not discharged the onus placed on the Minister under s. 152(4)(a)(i), Bowman C.J. stated (at para. 37) that "there has been no basis shown to justify opening up the statute-barred 1993 taxation year, even if the respondent had been able to find a signed copy of the return".

The Crown did not discharge the onus on it of establishing that a misrepresentation by the taxpayer (relating to claiming losses from the disposition of bonds by a partnership of which he was a member on the basis that the bonds had a cost equal to the maturity value rather than the amount paid for them) was due to carelessness given that when the taxpayer first received the partnership's financial statements, he consulted with a chartered accountant (who was also a member of the partnership) to confirm the propriety of claiming his share of the reported losses.

Profits realized by the taxpayer from a fraudulent cheque-kiting operation were not statute-barred given the materiality of the amounts involved.

In finding that the Minister was statute-barred in assessing a corporation and its shareholder on the basis that property had been transferred from the corporation to the shareholder at an undervalue, Lamarre J. indicated that it was plausible that the taxpayers judged the method used by their appraiser to be the proper one for estimating the property's fair market value, after having noted (p. 3089) that "the matter of fair market value is a controversial issue" rather than a "clear-cut issue".

After indicating that where the Minister assessed under s. 152(4)(a)(i) the burden of proof was on him to establish that the taxpayer had made a misrepresentation, Bonner J. went on to find that the Minister had not met this burden.

The trustee of an estate (who was a lawyer) made a misrepresentation in completing a return of the trust for the year in which the 21-year rule applied by indicating "zero" in the line for taxable capital gains, and by answering "no" to a question as to whether the trust had disposed of capital property during the year. Archambault J. noted (at para. 32) that the trustee would have been negligent in answering this question without referring to the Revenue Canada guide and, on the other hand, if he had consulted the guide and read the passages dealing with the 21-year rule, then his failure to report capital gains from the deemed disposition under this rule would have constituted willful neglect.

The Minister had the right to reassess the taxpayer after the normal reassessment notwithstanding that the taxpayer had not been issued any T4 slips in respect of his failure to report over $1 million in employee stock option benefits realized over a period of four years.

Errors of the taxpayer were attributable to the state of mess of its records. The keeping of records in this fashion was negligent, with the result that its relevant taxation years were not statute-barred under s. 152(4)(a)(i).

The Minister, who sought to reassess the taxpayer beyond the normal reassessment period in respect of alleged unreported income from businesses, was unable to establish that bank deposits were revenues of a business or that costs of earning any revenues of the business did not exceed such revenues. Accordingly, the Minister failed to discharge the onus placed on him.

The taxpayer was grossly negligent in seeking professional assistance in preparing his tax returns which reported rental and business losses while at the same time not informing the advisor that he had disposed of a rental property at a gain of $160,000 that had been used briefly as a temporary residence shortly before the disposition.

The taxpayer had shown an indifference to the accuracy of its returns in classifying expenses relating to the acquisition of vehicles and certain equipment, and to the acquisition of land and obtaining changes to zoning as current expenses. The Minister could reassess beyond the normal reassessment period.

The taxpayer did not report his share of the profits realized by a real estate partnership. Although this failure would not have been negligent simply by reason of an erroneous assumption by him that the partnership interest in question was held by a corporation of which he was a shareholder, he was negligent in not checking that the corporation, in fact, had declared this income. Furthermore, even if the taxpayer's accountant had been negligent in failing to include the profits in the income of the corporation (which did not appear to be the case): "negligence in the preparation of an income tax return retains its consequences under subparagraph 152(4)(a)(i) whether it is the negligence of the taxpayer personally or that of the accountant or other tax return preparer who is his or her agent." (p. 514)

The taxpayers had made a misrepresentation attributable to "neglect, carelessness or wilful default" in taking the position that customer goodwill belonged to them rather than to their company that had carried on the business in question almost as long as it had existed and for whom they worked exclusively.

The taxpayer agreed to act as nominee for a bankrupt individual ("Gingras") and Gingras' wife in purchasing shares of a corporation ("Dalhousie") from the trustee in bankruptcy for a fee of $100,000 (later agreed to be increased to $210,000). The taxpayer made a misrepresentation attributable to neglect, carelessness or wilful default in reporting the sum of $210,000 received by it on the transfer by it of the shares of Dalhousie to a corporation held for the benefit of Gingras as a capital gain rather than as business income. Archambault TCJ, after quoting from Gauthier v. MNR, 93 DTC 728, at 756-57, stated (p.2711):

"I agree with Judge Tremblay who states that a taxpayer cannot be reproached for having made a misrepresentation when that error results from a mischaracterization of the income or misinterpretation of a provision of the Act. I hasten to add, however, that that error must be an error made in good faith."

Archambault TCJ noted that even if he had concluded that the taxpayer had purchased the Dalhousie shares for its own account and not as a nominee for Gingras (or Gingras' wife), that a transfer of the Dalhousie share one day after their acquisition by the taxpayer would be "considered as part of the normal operations of [the taxpayer], which carried on a real estate brokerage and a real estate purchase and resale business." Accordingly, reporting the amount received as a capital gain rather than business income, would have constituted misrepresentation.

The Minister's reassessment of the taxpayers' 1988 taxation year beyond the normal reassessment period, on the basis that various claimed expenses were household expenses, was not permitted. Bowman T.C.J. stated (at para. 13) that "a misrepresentation within the meaning of subparagraph 152(4)(a)(i) means a misrepresentation of fact", and that judgments as to the allocation of expenses between business and personal are not the subject of misrepresentation, that it had not been established that the taxpayers had suppressed any material facts and that the bold assertion in the Reply of the Minister that the Minister had "assumed" a misrepresentation was inappropriate where the Minister must prove a misrepresentation. He further stated:

"The precise misrepresentation alleged to have been made must be set out with particularity in the reply and proved with specificity. Three essential components must be alleged in pleading misrepresentation: (i) the representation; (ii) the fact of its having been made; and (iii) its falsity."

The taxpayer was found to have made a misrepresentation attributable to neglect, carelessness or wilful default when it deducted "management fees" in its tax returns paid pursuant to a consulting agreement whose legal substance was the provision of consideration for the purchase of goodwill.

Bowman TCJ. also found that in a case (such as here) where there was not only an issue as to the correctness of the assessment but also as to whether there was a misrepresentation described in s. 152(4)(a)(i), the Crown should present evidence and argument first on the misrepresentation point in order to establish the Minister's right to assess.

In finding that the Minister was entitled to reassess the taxpayers for business losses claimed by them with respect to an Amway distributorship business (whose revenues were minuscule relative to the expenses claimed by them), Beaubier TCJ. noted that they were "careful, frugal, comprehending individuals" (p. o), that no vouchers or documents for the claimed expenses were submitted to the Court and that the expenses were "so exaggerated as to comply, at least, with the description that they were filed 'carelessly'". (p. o)

The taxpayer did not make a misrepresentation attributable to carelessness or wilful default in following a cash basis of accounting rather than accrual basis of accounting or in treating advances made by him as running expenses. A taxpayer cannot be reproached for having made a misrepresentation when that error results from a mischaracterization of the income or misinterpretation of a provision of the Act.

The taxpayer, who did not have much education or accounting background, would spend periods of up to six months at a time in the bush cutting wood, while his wife did the accounting for his affairs and that of a family logging company. Various amounts earned by the company were deposited by her directly to their personal account.

In finding that there have been no misrepresentation by the taxpayer in connection with not including these amounts in his income, Mr. Taylor stated (p.116):

"that the Minister has not shown that Mr. Poulin made any single misrepresentation regarding his taxable income as it was known to him at that time. Further, I fail to see how it can be said that Mrs. Poulin's failure to bring the bank deposits issued to the attention of the accountant, or the accountant's failure to inquire into the affairs of Mr. Poulin sufficiently to uncover them, can be attributed to Mr. Poulin ... ."

The Minister made net worth reassessments of the taxpayer for his 1974 to 1976 taxation years beyond the normal reassessment. The Minister could not establish a misrepresentation in respect of the 1974 and 1975 tax returns because the Minister had destroyed copies of the taxpayer's returns for those years and was unable to prove that computer records that purported to contain information identical to those contained in the returns in fact were accurate. In also finding that the Minister had failed to establish negligence of the taxpayer in respect of his 1976 taxation year, Rip T.C.J. stated (at p. 1239):

"For the Minister to show the taxpayer has not exercised reasonable care requires, in my view, something more than simply submitting evidence that a taxpayer has made deposits to his bank accounts in amounts greater than his employment income and advising the Court that he, the Minister, does not accept the taxpayer's explanation of the source of funds."

When the taxpayer reported in its 1974 return a sale by it of a real estate option, it treated the cost to it of the option as being equal to its estimated fair market value of approximately $86,000 at the end of 1971, and reported an income-account loss on the sale of the option of approximately $46,000 based on proceeds of disposition of approximately $40,000.

In finding that the taxpayer had not made a misrepresentation, Mr. Taylor noted (at p. 50) that an argument might well be made that the nature of the option could have changed from capital to income at some time during the taxpayer's holding of the option and that the taxpayer had explained the transaction (albeit not in great detail) and its possibly problematic nature in a Schedule to the return, and stated that "a mistake is different from misrepresentation" and that there was not "neglect of carelessness to the degree that one might not expect to find in the work of a normally cautious and wise taxpayer".

The taxpayer was experiencing difficulties in locating documents to substantiate the amount of her capital gain form the disposition of shares of a company. On January 29, 2014, which was over three months before the expiry of the normal reassessment period for the year of disposition, the taxpayer met with an ARQ auditor (Mr. Drapeau) and signed, at his suggestion, a waiver, which was worded to extend to all sources of income rather than only the share sale. In February, the taxpayer learned from her accountant that she did not have to sign the waiver and, on the accountant’s advice, filed a revocation of the waiver. On September 15, 2914 (i.e., beyond the normal reassessment period), CRA reassessed the year to increase the capital gain over the amount reported.

The taxpayer’s appeal raised the validity of her waiver. Lévesque, J.C.Q. considered this issue to turn in part on whether the taxpayer’s consent was “free and enlightened” as required by Article 1399 of the Quebec Civil Code. She also referred to Article 1400, which provided: “Error vitiates the consent of the parties or of one of them where the error relates to the nature of the contract, to the object of the prestation or to any essential element that determined the consent.”

Before finding that the waiver was valid, Lévesque, J.C.Q. stated (at paras. 54-56, TaxInterpretations translation):

Nothing in the evidence demonstrated that Mrs. Loiselle signed the waiver through error or as a result of misrepresentation on the part of Mr. Drapeau.

Very much to the contrary, Mr. Drapeau had explained clearly and simply to Mrs. Loiselle that her signature to the waiver enabled her to assemble the documents necessary for substantiating her computation of the capital gain and avoiding a rushed assessment, which would not be in her interests.

In fact, Mrs. Loiselle received from Mr. Drapeau all the particulars necessary in order that she could give a free and enlightened consent by signing the waiver.

After noting that pursuant to the equivalent of ITA s. 152(4.1), six months had to run for the revocation to have effect, and the ARQ reassessed within this six month period, she stated (at para. 73) that “the revocation only served to confirm her acceptance of the waiver.”

An assessment made of the taxpayer beyond the normal reassessment period was void as the waiver pursuant to which it purportedly was made had also been given beyond the normal reassessment period.

A Canadian company (Kerry Canada) was reassessed under s. 247 to increase its income from product sales to a US affiliate and disallow deductions for royalties paid to an Irish affiliate. Kerry Canada objected to these reassessments, but requested that its objections be held in abeyance pending a decision by the Canadian competent authority (CCA) of these transfer-pricing issues. In its ensuing application to the CCA, Kerry Canada reiterated that it had requested such abeyance.

After the CCA agreed with Kerry Canada on the product transfer pricing issue, CRA issued second reassessments to give effect to that adjustment. Kerry Canada did not object to the second reassessments. Subsequently, the CCA also agreed with Kerry Canada on the deductibility of the royalties, but CRA refused to implement this favourable decision because the taxation years in question were now statute-barred.

Walker J found that Kerry Canada’s request to keep the objections in abeyance until a CCA decision on the two issues amounted to an implied waiver for those years, so that CRA was still permitted under s. 152(4)(c)) to reassess those years by virtue of having received the waivers. Kerry Canada had made the mistake of not objecting to the second reassessments. However, this was essentially irrelevant to the point that the implied waivers nonetheless had been given (albeit, in connection with objecting to reassessments that were replaced by, and, therefore, voided by, the second reassessments.)

Since CRA had not addressed this point, the matter was referred back to CRA for reconsideration of the request of Kerry Canada to reassess it to implement the favourable CCA decision.

At issue was whether the taxpayer could be reassessed beyond the normal reassessment period for failure to report a capital gain of $445,551 realized on the disposition of a commercial property. The reassessment was made in reliance on a waiver which the taxpayer had given within the normal reassessment period. The taxpayer asserted that the waiver was invalid as it had been executed under duress (being the threat of s. 163(2) penalties) or during a period of mental incapacity or while there was a failure to understand that the normal reassessment period was being extended.

Before concluding that the waiver was valid, Bocock J found (consistently with Nguyen, 2005 TCC 697, at para. 33) that the taxpayer “was not unduly pressured, mislead or unduly influenced to the extent of nullifying his executed consent to the waiver” (para. 15). Furthermore, Bocock J found (at paras. 18 and 23):

The inclusion of the prospect of gross negligence penalties in the initial written correspondence…to Mr. Radelet was not unreasonable given the CRA’s position that the 2008 disposition of a valuable real property had not been reported in the 2008 tax return.

… Objectively, the letters and positions of CRA were not inconsistent, unreasonable or particularly ominous given the presence of an unreported capital disposition of some magnitude from Mr. Radelet’s tax return. … [T]he CRA … reasonably granted the extension, but in exchange for a waiver relevant to the upcoming reassessment period. This seems a normal quid pro quo involving mutual benefits to both parties.

Bocock J also found (at para 29) that none of the medical reports suggested that the taxpayer lacked mental capacity, and (at para. 41):

… One can reasonably and objectively conclude, given the relative ease, precision and detail exercised by Mr. Radelet in completing the [waiver] form without consulting his retained solicitor that he knew its contents… .

The taxpayers, a married couple, bought and sold stock options through a joint account with an investment firm ("Canaccord"). They had reported their modest losses in 2005 and gains in 2006 and 2007 on capital account but then characterized their substantial loss for 2008 as on income account, and made a T1 adjustment request that their 2005-2007 years reflect the same characterization.

CRA lost the adjustment request but accepted in 2012 that it had in fact been made in 2009. In a settlement covering all outstanding objections the taxpayers had with the Minister, the Minister reached a settlement agreement with the taxpayers to treat all years on capital account and reassessed accordingly. The taxpayers appealed the reassessments for 2006 and 2007 on the basis that they were statute-barred.

VA Miller J dismissed the taxpayers' appeal, agreeing with the Minister that the adjustment request constituted a waiver. Mitchell applied. The adjustment request form together with the accompanying letter contained all the necessary information. After having stated (at para. 36) that "the standard for determining a taxpayer's intention to waive…the normal reassessment period is from the perspective of the objective reasonable bystander," she noted (at para. 48) that, notwithstanding the husband's insistence that the request was not intended to act as a waiver, "a reasonable person observing Mr. Remtilla's interactions with the CRA in 2009 and in 2012 would infer that he always intended the T1 Adjustment Requests to be acted upon, even after the 2006 and 2007 years became statute-barred."

McArthur J. dismissed the taxpayer's argument that his waiver of the normal limitations period on reassessments applied only to the first reassessment issued beyond the limitations period and thus excluded the second. The words "at any time" in s. 152(4) mean "from time to time" and allow for multiple reassessments both inside and outside the limitations period. (Canada v. Agazarian, 2004 DTC 6366, 2004 FCA 32 at para. 33.)

A waiver signed by the taxpayer was valid given that he had the ability to read the title of the form (and if he did not understand what "waiver" meant he could have asked the CRA auditor); and there was no evidence that the auditor had resorted to trickery to have the taxpayer sign the waiver).

The taxpayer was unsuccessful in establishing that its vice president did not have authority to sign a waiver on its behalf. He had the ostensible authority to do so given that the taxpayer had allowed him to represent himself as the person in charge of tax-related matters, and he also had the implied authority to sign given that he was one of the two people who ran the business and was the one who had chief responsibility for corporate administrative and tax matters.

Although a waiver signed by the taxpayer referred to tax under Part XI.3 and XVI of the Act, whereas the reassessment by the Minister beyond the normal reassessment period was under Part I, the narrative description in the waiver referred to capital gains (clearly a Part I matter) and the taxpayer knew what was in issue. Accordingly, the references to the wrong Parts of the Act were a technical defect which did not preclude the subsequent reassessment by the Minister. Mogan D.J. also stated (at p. 3278) that "a waiver is not a contract between a taxpayer and Revenue Canada, excluding extrinsic evidence as to its interpretation."

After an initial review of the taxpayer's deduction of Canadian exploration expense ("CEE") in respect of the acquisition of seismic data the taxpayer signed a waiver drafted by a Revenue Canada auditor referring to "income ... as affected by application of Canadian Exploration and Development Expense". After referring (at p. 2123) to the doctrine that "where both parties know what is at issue, a technical error will not invalidate the waiver", Miller J. found that since the term CEDE in the context of a 1992/1993 waiver was in its strict technical sense an outmoded term, it should be interpreted as meaning CEE and CDE. Furthermore, even if "CEDE" could only mean pre-1974 expenditures as described in the definition of that term, the CEE claim of the taxpayer could "reasonably be regarded as relating to" CEDE given that CEDE was the statutory predecessor to CEE and CDE.

Assessments could be made of the taxpayer beyond the normal assessment period in respect of an arrangement under which he paid an individual $8,000 in cash for making a claim on his behalf for a tax refund of $12,364 in respect of deductions for fictitious dependants. Lamarre Proulx T.C.J. stated (at p. 2261):

"According to the theory of mandate, the mandator agrees to the act performed by the mandatary when he ratifies it. In accepting the refund of the overpayment of tax and handing most of it back to the person responsible for the payment, the appellant ratified that person's wrongful act."

After stating (at. p. 1142) that he could not "think of any good reason why (at least before the introduction of subsection 152(4.1)) a section 152 waiver ought to be construed as conferring on the Minister a right to defer reassessing action beyond the period reasonably required in all the circumstances of the case", Bonner TCJ. went on to find here that the Minister had not acted in a dilatory fashion by reassessing approximately seven months after the relevant court action had been withdrawn.

Taxpayer's counsel was unsuccessful in a submission that a reassessment of the Minister was void because the Minister is only permitted to make one reassessment pursuant to a waiver and is required to make such reassessment in an expeditious manner.

Webb, J. found that the Minister was not entitled to reassess the taxpayer on the basis that s. 75(2) imputed income of a family trust to the taxpayer with such income of the family trust, in turn, arising under the "fapi" provisions of the Act, given that there was no transaction involving the taxpayer and the non-resident corporation that gave rise to the alleged fapi. Webb, J. quoted, with approval a statement in MNR v. Dufresne, 67 DTC 5105 (Ex. Ct.) that "transaction" meant "any act having operative effect in relation to a business or property" and stated (at para. 23) that "'transaction' would not include the operation of certain provisions of the Act that deem income of one person to be the income of the other person".

The taxpayer had obtained a guarantee by a Canadian bank of the liabilities of a US sister corporation ("Fusion") to a US bank. Fusion then became insolvent and the US bank indicated that it would call on the taxpayer's guarantee. In order to avoid this result (which would have prejudiced its relationship with the Canadian bank), the taxpayer entered into a "Forbearnace Agrement" with the US bank and Fusion pursuant to which it agreed to repay the loan owing by Fusion.

The Forbearance Agreement was found to be a "transaction" (eg, a "piece of ... commercial business") (para. 29) involving Fusion, so that the three-year addition to the normal reassessment period applied to permit the Minister to reassess the taxpayer by disallowing the deduction by the taxpayer of payments made by it to the US bank.