Documentary Evidence is Not a Suggestion

documentary evidence required by CRA

Assessed for Tax Owing in the Past 90 Days?

This recent tax court case illustrates that reliable records need to be kept throughout the business year and not just considered annually for tax purposes.

These words from the judge were particularly biting in making the tax liability worse by giving the CRA the right to assess for more periods than would otherwise be allowed by law:

[85] I find that the appellant was, at a bare minimum, careless in the Statute-Barred Periods. I rely upon the following factors:

  • i)No contemporaneous bookkeeping was performed. The methodology used by the appellant, involving a yearly calculation using bank statements, certainly would lead to an incorrect amount for both the GST/HST that had to be remitted as well as the ITCs claimed;

  • ii)ITCs were claimed based on a 13/113 calculation which lead to a vast over claim;

  • iii)No proper records were obtained to support the ITCs claimed.

[86] Therefore I find that the appellant, in not keeping proper books and records, and using a methodology to calculate the ITCs that was plainly wrong, was negligent or careless. The Minister was therefore able to reopen the periods ending April 30, 2010 and April 30, 2011.

In addition to the CRA being allowed to reopen periods that would otherwise be barred by law, the CRA assessed the taxpayer for gross negligence, which is a much more serious assessment with high penalty and no option to deduct the amount under the Income Tax Act. I won’t go into the entire statement of facts the judge used to affirm the CRA’s assessment but it was compelling in my view, particularly the single record of tax actually being paid upon import of goods into Canada being 3% of what should have been paid had the value of the imported goods been correctly reported.

Overall, while this particular appellant appears from the evidence to have been trying to play the system, even innocent taxpayers can make many of the same mistakes and end up being assessed for net tax owing, even where they otherwise would have been eligible for input tax credits had they maintained reliable records. If you find yourself being audited or assessed by the CRA for amounts you don’t believe you should owe, get in touch with a ZheroTax pro and get an honest assessment of your probability of success at appeals backed by an offer to take your appeal on contingency.