Power of Attorney: Liabilities Binding Despite Dysfunctional Marriage

Taxpayers should receive legal advice prior to giving a power of attorney to anyone, including their spouse. Unintended tax consequences will not be forgiven by the CRA.

This was a hard lesson recently learned by the appellant in Mehravaran v. The Queen, who had inadvertently intermingled financials with her husband and her eldest son through the use of a power of attorney.

Having moved to Canada in 1997, Mrs. Mehravaran soon discovered her husband’s extra-marital affairs. However, she stayed with him for the children, and, as was the custom in her faith, remained a devoted, subservient wife until 2009 when she finally separated from her husband.

The Canada Revenue Agency (CRA) conducted a net worth audit on the appellant, her husband and her eldest son, reassessing them all for the 2004, 2005, and 2006 taxation years. Documentation was hard to come by, but the CRA was able to determine ownership of land in Port Moody and Coquitlam, BC, and in Toronto, along with a number of corporations intermingled in the financial affairs of the family. As a result, the CRA found unreported income, and liability was equally divided among the three members of the family.

In her defence, Mrs. Mehravaran asserted that in or around the year 2000 her husband demanded that she give him a power of attorney. She gave him a general power of attorney that continued to exist until after the separation in 2009 and said that she had no knowledge of, or involvement in, the family finances, or the business or financial affairs of the husband or her son. She also stated that she attended when and if required by her husband to sign any and all documents which he required for his businesses and basically did what she was told as and when required, playing no role in the business affairs of her son or husband.

Although she did not have a copy of the power of attorney, the Court found her to be credible. The Honourable Chief Justice ¬E.P. Rossiter stated that the appellant presented herself as a well-spoken lady who had a sincere love for her children, making them a priority in her life. The Chief Justice said, “She presented herself as a truthful person who wanted to present to the Court her life experiences and how the situation arose which placed her before the Court.”

Despite the appellant’s credibility and her claim being believable, the Tax Court of Canada ruled the explanation was insufficient to relieve her of the penalties assessed. It decided that a power of attorney given by a taxpayer to her husband could not be used to relieve the taxpayer of penalties assessed for not reporting income.

Furthermore, the tenor of the decision seemed to foreclose the possibility of a power of attorney ever absolving someone from penalties and assessments under the Income Tax Act.

Greer Jacks practices law in Victoria and contributes to the update of EverGreen Explanatory Notes and the Use of Trusts in Tax and Estate Planning course from Knowledge Bureau.