An April 17, 2025 Tax Court of Canada case considered whether CRA could reassess beyond the normal reassessment period for the 2014 and 2015 taxation years based on alleged misrepresentations related to omitted capital gains and improperly claimed capital cost allowance (CCA) and recapture. Gross negligence penalties were also assessed.
Taxpayer loses – statute-barred
A $6.1 million taxable capital gain for 2015 was omitted due to what the taxpayer called an “inexplicable glitch” in the external accountant’s preparation process. Although the capital gain had
been correctly included in earlier draft financial statements, it was ultimately omitted from the final tax return without anyone having reviewed the return before filing.
In respect of CCA and recapture for 2014 and 2015, the taxpayer argued that CRA’s failure to provide finalized undepreciated capital cost (UCC) balances, which was promised during previous audits, left them unable to claim accurate amounts. However, the Court noted that the taxpayer decided to file the corporate tax returns without the finalized UCC balances or even reviewing the returns. The Court found that the circumstances surrounding both issues amounted to neglect, noting that the taxpayer’s use of financial statements and Form T183 (this is the form with limited income information that authorizes efiling) as proxies for the tax return review was insufficient. Reassessment beyond the normal reassessment period was permitted.
Taxpayer wins – gross negligence penalties.
The Court found that while the taxpayer’s conduct may have been negligent, it did not rise to gross negligence, which would require a high degree of disregard for tax obligations. Longstanding practices, reliance on both internal and external accountants and a lack of egregious indifference led the Court to conclude that there was no mal intent or willful blindness. The gross negligence penalties were cancelled.
ACTION:
Review the full tax return and not just Form T183 before filing.
