Fiorucci v. R. – FCt: CRA reasonable in refusing to allow loss where no documentation provided by taxpayer

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Fiorucci v. Canada (National Revenue) (February 20, 2015 – 2015 FC 223, Fothergill J.).

Précis: The applicant applied to CRA in 2011 to allow a loss he allegedly incurred in 2000. He was repeatedly asked for documentation and never provided any. CRA denied the request both at the first and second levels of review. The Federal Court dismissed his application for judicial review on the basis that CRA had acted reasonably in denying his request.

Decision: This decision arose out of a long history of dealings with CRA:

(a) On November 14, 2002, Mr. Martin Lapedus, the Applicant’s accountant, submitted a written request to the CRA for the ABIL.

(b) On May 14, 2003, the CRA acknowledged receipt of the requested ABIL and asked for further information to be submitted within 30 days.

(c) On June 19, 2003, the CRA wrote to Mr. Lapedus to inform him that they had not received the supporting documentation and gave the Applicant a further 30 days to provide it, failing which no action would be taken with regard to the requested ABIL.

(d) Having received no reply within 30 days, the CRA denied the requested ABIL and closed the file.

(e) On August 8, 2007, Mr. Lapedus wrote to the CRA to advise that the Applicant was unable to locate a copy of the financial statements of his corporation JOFCO Construction Inc. (JOFCO) for the 2000 taxation year to support his claim for the ABIL. He asked the CRA to provide a copy of the 2000 T2 return and financial statements to the Applicant.

(f) On October 2, 2007, the CRA telephoned Mr. Lapedus and told him that JOFCO’s 2000 T2 return had not been filed. Mr. Lapedus requested a copy of the 1999 T2 return instead.

(g) On October 15, 2007, the CRA forwarded a copy of JOFCO’s 1999 T2 return and financial statements to JOFCO, to the attention of the Applicant.

The applicant applied to CRA on June 21, 2011 pursuant to subsection 152(4.1) of the Income Tax Act (the “Act”) to allow a loss he claimed to have incurred in 2000.

[1] Joe Fiorucci (the Applicant) has brought an application for judicial review of a refusal by the Minister of National Revenue (the Respondent) to adjust his tax return for the 2000 taxation year. The Applicant asks the Respondent to permit a business investment loss of $144,683 and thereby apply an allowable business investment loss (ABIL) of $72,341.50 pursuant to subsection 152(4.2) of the Income Tax Act, RSC, 1985, c 1 (the Act).

His initial request was denied because it was made outside the ten year period provided by subsection 152(4.2). He applied again on October 3, 2011 and CRA agreed to perform a review. At the first level review CRA asked for supporting documentation:

(k) On May 2, 2013, the CRA wrote to the Applicant and stated the following:

Normally, a request to adjust a return must be made within three years from the mailing date of the respective “Notice of Assessment”. However, subsection 152(4.2) of the Income Tax Act allows certain adjustments to returns that are otherwise normally barred by statute, provided that all relevant documents to support the claim are provided at the time of the request.

[. . .]

In order for us to consider your request for adjustment, we require additional information. Please complete the enclosed questionnaire and return it to our office along with the supporting documentation.

He never provided the requested documentation and CRA advised him that on November 21, 2013 that his application was denied because of the lack of documentation. He applied for a second level review on December 11, 2013. On March 24, 2014 CRA again asked for supporting documentation and that he fill in a questionnaire. He provided a partially complete questionnaire but no supporting documents.

(r) On April 4, 2014, Mr. Lapedus provided the CRA with a partially completed questionnaire. He also informed the CRA that he had previously submitted all of the documentation that was available. Mr. Lapedus took the position, on behalf of the Applicant, that the CRA had only three years from the date of assessment to request information regarding JOFCO, and if the information had been requested in 2002 to 2004, then it would have been available.

On July 11, 2014 CRA advised that taxpayer that his request was again denied because of lack of supporting documentation.

The Court found that the taxpayer’s explanation of his failure to supply the supporting documentation was not credible and the argument that there was some three year limitation period on CRA’s ability to request the material was without merit:

[9] The Applicant has not identified any error on the part of the Respondent in considering his request for an ABIL. The sole ground advanced by the Applicant before the Court was that neither he nor Mr. Lapedus was informed until 2007 that supporting documentation would be required in order for the CRA to consider his claim. The Applicant did not offer sworn testimony from either Mr. Lapedus or himself to substantiate this allegation, which was raised for the first time in oral submissions. The Applicant was aware of the contents of the Affidavit of Nicole Giroux well in advance of the hearing, but he chose neither to cross-examine Ms. Giroux nor offer alternative sworn evidence in rebuttal. I reject the Applicant’s assertion that he and Mr. Lapedus did not receive the CRA’s demands for supporting documentation in 2003.

[10] Furthermore, I note that the letter from the CRA dated May 14, 2003 referred specifically to a request from Mr. Lapedus dated November 14, 2002 to adjust the Applicant’s return to include an ABIL in 2000. In addition, in his own affidavit the Applicant deposed that he had claimed a small business loss on his 2000 personal income tax return in the amount of $72,341, but that this was disallowed by the CRA. It is simply not credible for the Applicant to maintain that he was unaware of the CRA’s assessment of his 2000 tax return or the need for documentation to support the ABIL until 2007. His claim that the supporting documentation could not be obtained due to the passage of time is similarly unworthy of belief.

[11] The Applicant’s suggestion that a three-year limitation period applies to the CRA’s power to demand supporting documentation for the purpose of reassessment under subsection 152(4.2) of the Act leads to an absurdity. Under subsection 152(4.2) of the Act, a ten-year limitation period is prescribed for the Minister to exercise discretion in deciding whether to reassess a taxation year when the normal three-year limitation period has expired. If the Applicant’s position were correct, then any reassessment under subsection 152(4.2) of the Act would have to be conducted without a requirement of supporting documentation. In any event, I am satisfied that the Applicant and Mr. Lapedus were both aware of the need to provide documentation in support of the requested ABIL by May, 2003 at the very latest. By the Applicant’s and Mr. Lapedus’ own admission, the documentation was available at that time.

As a result the application was dismissed with costs.