Category: Federal Income Tax/Court Decisions/Tax Court of Canada

Document Excerpt:
Sarwari v. The Queen (General Procedure), Tax Court of Canada, July 6, 2009. Neutral Citation: 2009 TCC 357. Court File No. 2007-623(IT)G. Webb, J. Net worth reassessments - Penalties - The taxpayer operated his business as a mechanic through a corporation of which he was the sole shareholder. In reassessing the taxpayer beyond the normal reassessment period for 2000, 2001, and 2002, the Minister added to his income unreported business income of $163,600.62 for 2000 and $38,559.93 (rounded to $38,560) for 2001. Penalties for gross negligence wee also imposed. On appeal, the Minister conceded that the reassessment for 2002 should be vacated - Appeal allowed in part - The TCC concluded that: (a) by overstating the amount of a mortgage, by failing to deduct a tax exempt gain on the sale of a principal residence, and by failing to take into account gifts, loans, and a line of credit obtained by the taxpayer, the Minister had made serious miscalculations for 2000, so that the only amount that could justifiably be added to the taxpayer’s income for 2000 was $17,000; (b) the Minister was justified in adding the $38,560 to the taxpayer’s income for 2001; (c) the Minister’s reassessment for 2000 was statute-barred since, under the circumstances, the taxpayer had not made misrepresentations attributable to neglect or carelessness in filing his return for 2000; (d) the Minister’s reassessment for 2001 was not statute barred, because the taxpayer had made misrepresentations attributable to neglect or carelessness in filing his return for 2000; and (e) the taxpayer, although careless or neglectful with respect to his 2001 return, had not recklessly or intentionally failed to report income for that year, and hence did not have the mens rea to justify the imposition of the penalties for gross negligence for 2001. The Minister was therefore ordered to reassess on the bases that the reassessments for 2000 and 2002 were vacated, and the penalties for gross negligence for 2001 were to be deleted - I.T.A. ss. 152(7), 163(1), 163(2).