In the Tax Court of Canada’s decision, Lewis v The King, 2024 TCC 127, the Court examined whether a taxpayer’s 2012 and 2013 tax returns contained misrepresentations attributable to neglect under 152(4)(a)(i) of the Income Tax Act. (The provision applies to misrepresentations made due to carelessness, neglect or wilful default.)
This is an interesting case since the Court essentially decided that:
Tax returns for years that would be otherwise statute-barred (i.e. more than 3 years from date of assessment) may be opened by CRA and reassessed, if those Taxpayer’s returns contained misrepresentations and the Taxpayer failed to review their tax returns before signing them. As such, the Court concluded that the failure to review constitutes neglect by the Taxpayer.
Had the Taxpayer reviewed her returns, the Court concluded that she would have noted misrepresentations, with respect to:
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- Use of an automobile 100% for employment purposes. (The Court concluded that this level of use was highly doubtful and therefore amounted to a misrepresentation by the Taxpayer.)
- Basement rental renovation expenses claimed were not properly supported and therefore were “not incurred.” (This amounted to another misrepresentation by the Taxpayer.)
The Court held that a wise and prudent person would review their tax return before signing it.
In conclusion, taxpayers should diligently verify all factual information on their returns, regardless of whether they use a professional tax preparer, to avoid the risk of reassessment.
Practically speaking, a taxpayer would likely need to voluntarily admit to CRA that they did not review their returns prior to signing them, in order for CRA to apply the principle of taxpayer neglect, as discussed in this decision.