The Canada Tax Court has deleted the gross negligence penalty against the assessee who was unaware about income, expenses and tax law.
The court noted that no evidence as to there being any degree of difficulty in recording payments for personal expenses in the shareholder loan account. It seems to me that that is not a sufficient reason for RDR not debiting shareholder loan repayments to its shareholder loan account. Quite possibly, assessee was unaware of the importance of the corporation maintaining a record of shareholder loan repayments (i.e., debit entries to the shareholder loan account) for corporate payments to or on behalf of the shareholder are to be accepted as being shareholder loan repayments.
Facts
The Appellant or taxpayer, Mr. Deo Kumar, appeals reassessments of his 2013 and 2014 taxation years, raised under the federal Income Tax Act (Act). He submits that unreported corporate payments made directly or indirectly to him in those years, were shareholder loan repayments and thus non-taxable; as opposed to being taxable benefits as reassessed by the Minister of National Revenue (Minister). Mr. Kumar also disputes the gross negligence penalties levied with these two reassessments.
In 2001, Mr. Kumar and his late wife sought to assist the career development of their eldest son Reanae Kumar (RK), a qualified auto mechanic. Mr. Kumar mortgaged their home to finance a loan made to a newly formed corporation, named RDR Tire & Autocentre Ltd. (RDR), of which he and his wife were shareholders. These loaned funds enabled RDR to purchase and set up an operating tire/auto servicing business, to be run by son RK.
The appealed reassessments reflect:
- unreported income totalling $24,249 (2013) and $41,680.40 (2014), as RDR payments made to and or for RDR shareholder Mr. Kumar, taxable per subsection 15(1) of the Act.
- unreported income totalling $13,693 (2013) and $28,131.40 (2014), as RDR payments made to and or for son RK, as Mr. Kumar directed or concurred in, indirectly benefitting Mr. Kumar and taxable per subsection 56(2) of the Act; and
- gross negligence penalties per subsection 163(2) of the Act, levied on unreported income.
Issues
Were the reassessed amounts rightly taxable as income to Mr. Kumar per subsections 15(1) and 56(2) of the Act?
Were gross negligence penalties per subsection 163(2) of the Act rightly reassessed?
Conclusion
The court held that with the April 3, 2017 reassessment having been raised within the applicable three-year normal reassessment period, it is not statute-barred. This is regardless of the fate of the appealed gross negligence penalty that is an element of this reassessment.
The court held that no records of RDR payments were submitted in evidence. Mr. Kumar testified in direct examination that RDR periodically paid small amounts to or for him. However, in cross-examination he said something different – that for each of his 2013 and 2014 taxation years RDR had paid him as personal expenses approximately the subsection 15(1) amounts that he had been reassessed, less approximately two thousand dollars.
“The appeal of the two reassessments will be allowed, to the extent of denying the subsection 163(2) gross negligence penalty levied as part of each of the two reassessments,” the judgement read.
Case Details
Case Title – DEO KUMAR V/s HIS MAJESTY THE KING
Court: Tax Court of Canada Judgments
Case Number: 2024 TCC 105
Judges – Bruce Russell
Agent for the Appellant: Nick DiMambro
Counsel for the Respondent: Mark Shearer
