Identity Theft Defense No Help in Federal Court

Despite an apparent identity theft, a taxpayer was obliged to pay taxes on income he could not prove was over reported. Filed by Greer Jacks, who is researching tax cases EverGreen Explanatory Notes.

In the case of Sivanathan Sivadharshan v. The Minister of National Revenue (2013) FC 47, the applicant in this case sought judicial review (review of administrative actions) of a delegate of the Minister of Finance, that denied his request to amend his 2004 and 2005 T1 income tax returns.

Pursuant to subsection 152(3.1) of the Income tax Act, an income tax return may be reassessed within three years of a Notice of Assessment. An exception to this three year period is found in subsection 152(4.2), granting the Minister discretion to reduce or refund tax payable after three years have passed if the Minister is satisfied that there would have been a reassessment if the request had been filed in time.

The issue regarded the applicant’s 2004 and 2005 tax returns where he reported $41,725 and $77,217 in net business income respectively. Notices of Assessment were issued on August 4, 2006.

Four years later the applicant filed an adjustment form to amend his tax returns because, he claimed, he mistakenly reported his income as $81,500 instead of $8,150 for 2005 and $44,500 instead of $4,450 for 2004.

The applicant told the Canada Revenue Agency (CRA) that he was a self-employed street vendor of flowers during the period in issue. He claimed that he did not have or use a bank account because he had been the victim of identity theft and that all of his transactions were done in cash. The applicant did provide evidence of the identity theft in the form of police reports.

In his first request for reassessment the applicant was denied relief because of his lack of records, leaving the Minister with no evidence of income in order to vary his assessments. The question to be determined by the Federal Court in this judicial review decision was whether the Minister’s decision to deny reassessments for the 2004 and 2005 taxation years was reasonable.

Again, the applicant failed to provide any solid evidence of his income during these years. At paragraph 16 of its judgment the court stated that it may well be the case that he mistakenly input too much income on his returns for those years, “but the difficulty for the applicant is that he was unable to produce any documentation to establish that his business was that of a flower-seller and the amount of income actually generated.” 

Subsection 230(1) of the Income Tax Act requires every person carrying on business to keep records so that the correct tax payable can be determined. At paragraph 23 the court stated:

"Discretion vested in the Minister to grant relief against the operation of certain provisions of the Income Tax Act is exercised in a legal and factual context. In this case, that context includes an absence of evidence upon which the Minister could reasonably exercise his discretion in favour of the applicant."

This case reveals the importance of good bookkeeping for tax filing purposes. Without evidence supporting your position, appealing to the Minister for reassessment or to the court for review of the Minister’s decision will be futile.