Rajah v. The Queen, 2005 TCC 637 is not a case that breaks new ground, legally, but it serves as a useful reminder — expressed with the usual clarity and concision that one finds in Mr Justice Bonner’s decisions — that (1) the key question in any dispute about an assessment of tax is whether it is too high; (2) the taxpayer bears the onus of proving that the assessment is too high; and (3) the taxpayer cannot rely on information (supposedly) obtained from the CRA, especially if it is obtained from a nameless agent contacted through the CRA’s 800 number.
Mr Rajah encountered difficulties with the CRA because he engaged in numerous securities transactions in the 1995, 1996 and 1997 taxation years and did not report them. His securities dealers, however, did report the transactions to the CRA. Mr Rajah filed tax returns in 1999 only after he received a demand to do so from the CRA. In these returns he failed to report the securities transactions despite that in 1996, for example, the total value of his trades was almost $2 million.
Eventually, the CRA assessed Mr Rajah, and, in response to an objection he filed, reassessed to adjust for the cost of some of the securities he traded based on information that he submitted. The taxpayer appealed and tried to make an issue of
1. The accuracy of the information for the acquisition and dispositions of securities for the taxation years 1995, 1996 and 1997 as obtained and computed by CCRA.
2. The responsibility of CCRA in obtaining accurate information from the brokerage houses regarding the acquisition and disposition of securities in order to conduct their audit, assessment and reassessment for the taxation years 1995, 1996 and 1997.
Mr Justice Bonner was unsympathetic, for the most part.
[13] The first two issues raised by the Notice of Appeal relate to the manner in which Revenue officials performed their duties. The evidence suggests that the assessor was quite prepared to treat gross revenues from sales as profits. Clearly she was not prepared to make any enquiries whatever regarding cost or to recognize cost save to the extent that the Appellant established cost by the production of documentary evidence. Although it is clear that the Appellant did little to help himself, I cannot approve of the assessor’s intransigence. However, in the end, it does not affect the validity of the assessments under appeal.
[14] The essential question which must be addressed in an appeal from an assessment of tax is whether the assessment is too high. In the context of the present case, the answer depends on whether the Minister’s computation of the income on which tax was levied is correct. That, in turn, depends on the question whether the full cost of the securities sold was allowed on assessment. The onus is on the Appellant to establish on the balance of probabilities that he incurred costs in excess of those allowed by the October 12, 2001 reassessments.
Clients often express concerns about the manner in which the CRA conducts itself when auditing or assessing tax. The CRA’s conduct, however, is almost always irrelevant to the question of how much tax is owed. At the end of the day, under our self-assessment system, the question to be answered is how much tax is owed, and the taxpayer has the responsibility to prove the facts that justify a particular level of taxation.
The CRA also assessed gross negligence penalties against Mr Rajah in respect of his 1995–97 tax returns. Mr Rajah tried to avoid the penalties by claiming that some of his trades during the years in question were disputed and that, when he informed a CRA agent about the disputed trades during a telephone conversation on the 800 number, the agent advised him not to report any of his trades.
Mr Justice Bonner was skeptical.
[11] I am far from convinced that this rather improbable story is true or, at a minimum, complete. […] It is unlikely that any Revenue official to whom the Appellant spoke told the Appellant to omit reference to all transactions when only some of them were in dispute. […] Finally on this point I note that the Appellant did not offer the name of the official to whom he said he spoke. Thus his story could not be verified.
Undoubtedly, CRA officials, in their attempt to assist a bemused public as it navigates through our increasingly arcane tax system, often give incorrect advice, not least because the public often does not provide a complete account of the facts relevant to that advice. Clients will often explain their tax problems by saying that they were told to adopt a particular course of action by a CRA official. The clients rarely have detailed notes about their conversations with the CRA — the date and time they occurred, the agents to whom they spoke, the facts they related to the agents and details on the advice provided — and so the fact that the conversations occurred is rarely helpful. In any case, even if such detailed notes exist, they would only serve as the basis for a fairness application. The clients’ liability for tax would be unaffected.
