Tax Tip:   STATUTE-BARRED ASSESSMENTS: Relying on Promoters

In a December 16, 2014 Tax Court of Canada case, at issue was whether the Minister could assess the taxpayers outside of the normal reassessment period (generally three years after the notice of Assessment is issued for individuals). A taxpayer can be assessed outside the normal period if there is a misrepresentation that is attributable to neglect, carelessness, wilful default or fraud.

In 2002 the taxpayers withdrew $80,000 and $148,000 from their RRSP and transferred it into a “high performance” investment but did not report the withdrawal from the RRSP as income. The taxpayer relied on the promoter for tax filing advice. In 2009 the Minister assessed the taxpayers with income for the 2002 year based on the withdrawals.

Taxpayers lose The Court noted that to rely mainly on promoters, their agents, and co-workers who were not experts, was not prudent behaviour. Further, there were additional red flags that should have made the taxpayers suspicious of the information provided by the promoters. Also, one of the taxpayers did not review their tax return.

As such, the Court found that the taxpayers did not exercise the required degree of diligence. The Appeal was dismissed and the Minister was permitted to assess beyond the normal period.

Action Item - Review your tax returns and tax related activities to ensure you are duly diligent. Ask an expert if there are areas of question.