Taxpayer’s Spouse Successful in Challenging CRA’s Third Party Re-assessment

The recent judgment in Ellis v. The Queen shows that it is possible to successful challenge the Crown’s case for penalties, after a third party re-assessment of taxes to a delinquent taxpayer’s spouse. The appellant had been assessed $10,199.73 in penalties under section 163 of the Income Tax Act (the Act) when her husband transferred 50% of their matrimonial home, targeted by CRA to cover his $50,000 federal tax bill.

In certain circumstances, such as a reassessment under section 160 of the Act, the Crown has the initial burden of proving a prima facie case against a taxpayer.  It makes sense, then, that the taxpayer’s first defence in these circumstances is to refute the claim that there is a prima facie case made against them in the first place. This could be intimidating for most taxpayers, however, as CRA often has the deeper pockets.  But, as this case proved, sometimes it helps to boil the analysis down to its basic elements in order to pick the Crown’s case apart. 

The Crown argued that the appellant, who was not represented by legal counsel when she made her amended Notice of Appeal, did not dispute her husband’s tax debt in her appeal. Regardless, her husband’s tax liability had to be established in order for the Crown to prevail and demand the penalties from her.

But the Crown, in this case, did not prevail.  It was only partially able to explain why the appellant’s husband was assessed gross negligence penalties. Therefore, the penalties were eliminated from the appellant’s assessment.

Understanding the CRA’s Ability to Collect Tax Debts from Third-Parties is a topic tax and financial  advisors should be familiar with and discussed as part of their clients’ annual review, particularly if they become aware of potential tax troubles. Are clients aware of the fact that the Income Tax Act & the Excise Tax Act allow the CRA to transfer the tax liability of a taxpayer onto third-parties, including non-arm’s length persons such as spouses and directors of corporations?  This subject will be covered in a special presentation by experts from the Farber Financial Group, one of the sponsors of the January Session of the Distinguished Advisor Workshops:  where the topic will be the Advanced Personal Tax Update.

Speaking in Vancouver on January 22 is James Bell, Director, Tax Solutions of Tax Solutions Canada. He has more than 22 years of experience working in a leadership role in a diverse range of departments within the Canada Revenue Agency (CRA). James’ knowledge of the CRA’s policies and procedures allows for the most effective strategies to be applied to a wide variety of situations such as debt repayment problems, removal of garnishees, the management of audits, objections, taxpayer relief applications and voluntary disclosures. Every day this experience is put to work to achieve the best possible outcome for our clients in their disputes with the CRA.

Speaking in Toronto on January 25 is Khalid Tariq, JD, Senior Manager,  a Senior Manager at Tax Solutions Canada (TSC) where he engages his management skills and tax experience to identify solutions for tax related problems for businesses and individuals. Khalid’s broad experience includes dealing with CRA audits, CRA collections, late or unfiled tax returns, outstanding tax arrears, voluntary disclosure, taxpayer relief, and objections/appeals at all levels. Prior to joining Tax Solutions Canada, Khalid practiced tax law at a Toronto tax law firm. Khalid received his Juris Doctor from Osgoode Hall Law School. Prior to pursuing his law degree, Khalid completed a Bachelor of Business Administration at the Schulich School of Business. Khalid is a member of a number of professional associations including: Canadian Tax Foundation, Canadian Bar Association, and the Ontario Bar Association.

For more information and to register visit {page_3942}/, Call 1-866-953-4769 or Print, Scan and Email to the attention of the Registrar or fax to 204-953-4762 individual or group registration form.

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.

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