What does it mean to be credible?

This recent Tax Court case perfectly illustrates the behaviours the courts are assessing when they say someone is credible and the impact of not being found credible has on the adjudication of the case. The introduction to the case is as follows:

“In many instances, the objective evidence before me contradicted the Appellant’s testimony.”

“Using the net worth method, the Minister assessed the Appellant for failing to report substantial income on his income tax returns for the 2009, 2010 and 2011 taxation years. He was also assessed penalties under subsection 163(2) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).

The Appellant; his spouse, Shannon Demchynski; and the Canada Revenue Agency (the “CRA”) auditor, Joanne Douglas, who conducted the audit of the Appellant, testified during the hearing.

I found Ms. Douglas to be a credible witness. I did not find either the Appellant or Mrs. Demchynski to be a credible witness.

Mrs. Demchynski briefly testified with respect to her family’s lifestyle. As I will discuss, this testimony was shown on cross-examination to be misleading.

I found the Appellant not to be forthcoming with respect to his contracting business and his family’s lifestyle. He was very evasive during cross-examination with respect to these two topics.

Under cross-examination, he either could not recall damaging testimony that he provided under oath during his examination for discovery or directly contradicted such damaging testimony.

In many instances, the objective evidence before me contradicted the Appellant’s testimony. This included his testimony with respect to his hours worked for his employer, his primary source of income, the nature of his contracting business and his family’s lifestyle. He was not a credible witness.”

Credibility in the Eyes of the Canadian Tax Court

Credibility and reliability are two key conditions for “demolishing” the assumptions of the respondent (CRA). In each tax act there is a provision that states that once an assessment has been made the assessment is deemed to be valid unless reassessed or vacated upon appeal. What this means is that the onus is on the taxpayer to “demolish” the assumptions made by the CRA to come to the assessment. The judge will look at the objective evidence and the examinations of the parties on the stand to determine if there is sufficient evidence to support that all or part of the CRA’s assumptions are incorrect and warrant an alternative interpretation in respect of the law and the assessment. That’s a high bar to clear for the most credible and reliable appellant but near impossible for one who is not.

When dealing with the CRA and the courts the best policy is to be both credible and reliable. By nature a third party representative tax professional will generally be credible, and as long as the information provided by the client is complete and truthful, reliable. Having a ZheroTax professional who has been part of the CRA and understands how the CRA works and what is required to get an amount reassessed, will help resolve tax issues before they get out of hand. In the case above, the appellant could not establish credibility and that destroyed any chance for getting a reassessment in his favour.