Taxpayer blames $500,000 misstep on accountant, but the CRA doesn’t bite
If you’re a business owner whose tax situation is somewhat complex, chances are you hire an accountant to prepare your personal and corporate tax returns.
But beware that you are still ultimately responsible for making sure your taxes are done correctly and all your income is fully reported, and you won’t be able to put the blame on your accountant should the Canada Revenue Agency come knocking.
Take the recent Federal Court of Appeal case, decided in June 2024, involving a taxpayer who was appealing a 2023 decision of the Tax Court. The taxpayer operated several businesses, including a grocery store, through various corporations. One of these corporations had not filed any income tax returns for several tax years.
From 2005 through 2009, the corporation reported sales of between $2.2 million and $2.9 million, resulting in gross profits of between $200,000 and $400,000 annually. The CRA performed a bank deposit analysis of the corporation as well as the personal joint bank accounts of the taxpayer and his spouse.
The analysis showed a total of $512,211 of shareholder appropriations, being money taken from the business and transferred to personal name, that was not included in the taxpayer’s income for the years from 2006 through 2009.
Both the taxpayer and the CRA agreed that the agency had correctly calculated the amount of the taxpayer’s unreported income, but the dispute in tax court was whether the CRA was still able to assess the taxpayer for those years, which ordinarily would be considered to be “statute barred” and whether gross negligence penalties were applicable.
Under the Income Tax Act, the CRA is generally prohibited from reassessing an individual taxpayer more than three years after the original
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