Lessons from P.Q. Properties Ltd. v The King, 2024 TCC 126
The Risks of Relying Solely on Your Accountant
The Canadian tax system is famous for its complexity and byzantine nature. In the face of increasingly convoluted rules, Canadians have overwhelmingly turned to accountants and other professionals to address the burden of tax compliance, paying among the highest tax compliance costs per capita among Organization for Economic Cooperation and Development (“OECD”) countries. But does the Tax Court consider this? Can a Taxpayer use this reliance to protect themselves from reassessments by the Canada Revenue Agency (“CRA”)?
Lessons from P.Q. Properties Ltd. v The King, 2024 TCC 126
In the recent Tax Court decision of P.Q. Properties Ltd. v The King (“PQ Properties”), the Tax Court dealt with this question in the context of a reassessment made by the CRA beyond the normal reassessment period. Under ordinary circumstances, the CRA is not permitted to reassess a taxpayer beyond this normal reassessment period, which is three or four years past the initial assessment date depending on the type of taxpayer. However, the CRA is permitted to reassess any taxpayer beyond this period if the taxpayer makes a misrepresentation on their return that is attributable to neglect, carelessness, or wilful default.
In PQ Properties, the taxpayer was in the business of building residential properties and then leasing out the individual units. The taxpayer would regularly drop off invoices and other files with their accountant, who prepared all their tax returns. The taxpayer would not review these returns, instead providing the accountant with blank cheques and relying on them to remit the correct amount to the CRA.
The taxpayer was later reassessed as owing GST/HST arising from the construction of a residential complex the taxpayer had built and leased out. There was no dispute that this was the correct tax treatment given the circumstances, however, the CRA had not reassessed the taxpayer until after the normal reassessment period had passed. The issue before the court was whether the taxpayer had, by relying on their accountant to remit the correct amount of GST/HST, made a misrepresentation attributable to neglect, carelessness, or wilful default.
A Minimum Level of Engagement
The Tax Court recognized that the taxpayer’s accountant had not done their work to a competent level, and it was reasonable for the taxpayer to expect them to do so. However, ultimately the onus was on the taxpayer to ensure their returns did not contain any misrepresentations. The taxpayer did not review the returns, did not ask questions about their obligations, and did not exercise the diligence required of them. In the words of the court, “While being interested is not required, understanding one’s tax obligations necessitates a minimum level of engagement and knowledge that cannot be met by leaving all responsibility in another’s hands”. This lack of engagement was enough to rule against the taxpayer. Their reliance on their accountant, while reasonable, did not protect them in court.
Conclusion
The decision in PQ Properties is a cautionary tale for any taxpayer who relies heavily on their accountant to prepare their returns and remit their taxes. The Tax Court will expect a level of diligence that cannot be met by simply handing off your returns to an accountant to prepare.
If you have any concerns regarding your own tax affairs, speak to a qualified tax lawyer today. We can provide advice tailored to your specific circumstances and assist you at all levels of the process for any tax disputes with the CRA.
***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 this article. If you have specific legal questions, you should consult a lawyer.
Michelle Kosarnia
