Goldhar v HMK, 2023 TCC 30
BACKGROUND
Counsels of Record:
- Jason Rosen, Managing Partner; and
- Kendal Steele, Of Counsel.
In this decision by the Tax Court of Canada, the Appellant was David Goldhar, a taxpayer with international sales and business experience, who carried on business in Canada, the British Virgin Islands and Hong Kong. Like many other Canadians, he did not have any formal accounting or tax related education nor training. Accordingly, he relied upon qualified professionals such as Chartered Professional Accountants and lawyers to manage that portion of his business and affairs.
Unfortunately, due to information obtained by the International Consortium of Investigation Journalists, the Appellant was subjected to an audit by the CRA’s Offshore Compliance Specialized Team. The audit initially focused on the Appellant’s 2006 to 2013 taxation years; his representatives at Rosen & Associates Tax Law were able to limit the audit scope and reassessments to the 2008 to 2011 taxation years.
As a result of the reassessments, the Appellant was assessed with unreported income of approximately $5.5 million throughout his 2008 to 2011 tax years, which allegedly related to benefits of shares, benefits of warrants, unreported cash advances, and cash conferred onto others. These reassessments were issued beyond the normal reassessment period of three years pursuant to subparagraph 152(4)(a)(i) of the Income Tax Act (the “ITA”).
In addition, the Appellant was reassessed with penalties of approximately $1.2 million for gross negligence penalties (“GNPs”) pursuant to subsection 163(2) of the ITA and penalties for non-filing of foreign income T1134 forms. As a result, the Appellant appealed to the TCC.
The Issues:
At issue in this appeal was:
- whether the Minister of National Revenue (the “Minister”) correctly reassessed the Appellant’s 2008, 2009, 2010 and 2011 taxation years to include unreported shareholder benefits;
- whether the Minister correctly reassessed all of the taxation years beyond the normal reassessment period;
- whether the Minister properly assessed penalties in respect of the Appellant’s 2008, 2009, 2010 and 2011 taxation years; and
- whether the Minister properly imposed any of the referenced T1134 penalties.
As identified by Justice Visser, a common thread prevailing through all of these issues was the degree of care that the Appellant, with assistance of his wife, took in handling his tax filing obligations during the 2008 to 2011 taxation years.
The Decision:
In this case, the Minister did not allege that the Appellant committed fraud but suggested that it was entitled to reassess him beyond the normal period because it alleged that the Appellant made misrepresentations attributable to neglect, carelessness, or wilful default. As such, the onus of proof rested upon the Minister.
In reviewing the evidence, Justice Visser determined that the facts did not support several of the Minister’s assumptions relating to the timing of certain transactions and that some of the impugned transactions occurred in years prior to those reassessed. Further, His Honour found that some of the amounts that were attributed to unreported income were documented loans that were repaid in subsequent periods. As a result, even if the years were to be reassessed, Justice Visser indicated they would need to be significantly reduced.
Justice Visser, after reviewing the relevant jurisprudence, stated that the established standard of care is that of a wise and prudent person.
Ultimately, the reported returns must be made in a manner that the taxpayer truly believes is correct and that negligence will only be established where the Minister has shown that the taxpayer did not exercise this level of reasonable care.
After considering the facts and circumstances, Justice Visser held that, on a balance of probabilities, the Appellant, with the assistance of his spouse and accountants, had acted in a wise and prudent manner and exercised reasonable care in dealing with the filing of his tax returns. In arriving at this conclusion, Justice Visser considered the following facts, among others:
- The Appellant’s experience level with tax, business administration or accounting;
- The Appellant’s history using professionals to file his returns;
- The Appellant’s constant communication with his accountants;
- The Appellant’s sudden change to his filing complexity at the onset of the disputed years;
- The Appellant’s actions to provide his accountants with the required information;
- Errors committed by the Minister, such as intercorporate loans as mischaracterized income;
- The Appellant’s diligent action to switch accountants when they committed errors; and
- The Appellant’s history of compliance with personal and corporate tax filing obligations.
Further, Justice Visser also found that gross negligence penalties under subsection 163(2) ought to be vacated in these circumstances for similar reasons.
Finally, in relation to the T1134 Penalties, Justice Visser held that the due diligence defence was established and applied the same as the Appellant “took all reasonable steps and was not negligent in filing his tax returns, including form T1134 in each of his 2008-2011 taxation years.”
After working with our client for nearly 10 years, we could not be happier to deliver such finality in his financial affairs. Costs have been awarded in favour of our client, the quantum is yet to be solidified. This decision allowed the appeals in full, sending the reassessments back to the Minister to be vacated.
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions, you should consult a lawyer.
Jason Rosen