Fraud alone wasn’t sufficient to make it unreasonable to deny relief

Tax - Income tax - Administration and enforcement

Taxpayer was director and 50 per cent shareholder of corporation that was defrauded by former accountant without her knowledge. Fraud resulted in corporation’s 2003 and 2004 tax returns being reassessed in 2009. Following reassessment, taxpayer requested relief from underlying tax liability, interest and penalties and corporation was granted relief from interest that had accrued until February 17, 2010. Corporation never paid tax debt, but between July 2008 and June 2010 it paid taxpayer $70,000 in dividends and therefore taxpayer was held jointly and severally liable for amount transferred. Taxpayer requested interest relief, then settled underlying claim, and relief was subsequently denied. Taxpayer made second request for interest relief, which Minister’s delegate denied. Taxpayer brought application for judicial review. Application dismissed. Decision-maker’s handling of delay did not make decision unreasonable. Taxpayer was aware interest was accruing, did not exercise reasonable care in conducting her affairs in receiving dividends while corporate tax debt remained unpaid and she did not act quickly. Length of delay between payment of dividends to taxpayer and October 2012 assessment of interest was insufficient to make delay unreasonable as both corporation and taxpayer were informed about possibility of interest accruing, but chose not to make payments, and had received some relief for underlying fraud. Delay in processing objections and relief requests were not relevant as no interest was charged at those times. Canada Revenue Agency did not make any error. Extraordinary circumstances related to fraud alone were not sufficient to make decision to deny relief unreasonable as corporation had received relief in arrears interest because of fraud and taxpayer received dividends after fraud was uncovered and reported and corporation was re-assessed.

Chau v. Canada (Attorney General) (2019), 2019 CarswellNat 6074, 2019 FC 1342, Glennys L. McVeigh J. (F.C.).

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