In Azmayesh-Fard v R, 2025 TCC 20, the Court considered whether the CRA had properly reassessed a taxpayer beyond the normal reassessment period and imposed gross negligence penalties for unreported income from a Swiss bank account and for failing to file T1135s for the account.
The taxpayer was a professional engineer who worked overseas until 1997 and had significant business experience. Before he returned to Canada, he deposited $431,000 into a Swiss bank account to hide the money from his wife with whom he was having marital difficulties. The taxpayer, in filing tax returns in Canada for the 1998 to 2013 taxation years, did not report any amounts in respect of the account or file a T1135 for it. The taxpayer engaged a CGA to prepare tax returns for him. The taxpayer never read his tax returns; he simply signed what was put in front of him. The accountant never asked about foreign property. The taxpayer never asked his accountant or anyone else about the Swiss account. The taxpayer took steps to ensure no one else knew about the account. The account was numbered and statements for it were never sent to the taxpayer. He conducted trades in the account over the phone.
The CRA reassessed the taxpayer beyond the normal reassessment period for those years to include amounts from the account in his income, impose gross negligence penalties for the unreported income in some of the years, to impose late-filing penalties for the T1135 for 1998 to 2013 and to impose gross negligence penalties for the failure to file the T1135 for 2007-2013. The taxpayer appealed the reassessments to the Tax Court.
The Court dismissed the taxpayer’s appeal in respect of the issues above. (The Court allowed appeals for 2014 and 2015 because they had been reassessed beyond the normal reassessment period but the Crown had not led evidence for the years.)
Regarding gross negligence penalties, the Court concluded the taxpayer had been grossly negligent in part because he had been wilfully blind per Torres v R, 2013 TCC 380, discussed at ¶26. The taxpayer was a well-educated engineer with a history of engaging in relatively sophisticated business activities. The unreported amounts added, on average, 63% to the taxpayer’s income when he was reassessed. The false statements were “readily detected”: if only the taxpayer had bothered to read his tax returns, he would have known to ask about the question relating to foreign property on the T1 jacket. He could have asked his accountant (which he never did), even if he genuinely believed that Canada did not tax the income of a resident taxpayer from foreign property. He could not be heard to blame his accountant for not asking him about the property, especially when he took steps to ensure no one else knew about it. The taxpayer took no steps to discuss the account with his accountant, a third party or the CRA. He could not hide behind the excuse that his only motivation was to hide money from his wife and not the CRA.
In light of the foregoing, as far as the T1135 penalties were concerned, the Court had no difficulty concluding that the taxpayer had not been duly diligent, so as to avoid late-filing penalties under subsection 162(7), or not grossly negligent, so as to avoid penalties under subsections 162(10) and (10.1).
