Vachon v. R. – FCA: Appeal on opening statute-barred years sent back to Tax Court for re-hearing

Vachon v. R. – FCA: Appeal on opening statute-barred years sent back to Tax Court for re-hearing New Window

Vachon v. Canada (October 8, 2014 – 2014 FCA 224, Nadon, Gauthier, Scott (author) JJA).

Précis: Mr. Vachon was the victim of his accountant to whom he paid moneys that he wished to remit to CRA but his accountant misappropriated the funds. The Tax Court permitted CRA to open up Mr. Vachon’s 2003 and 2004 tax returns (which would otherwise be statute-barred) essentially on the basis that he should have been more vigilant in supervising his accountant. The Federal Court of Appeal concluded that the Tax Court had not identified any misrepresentation in the 2003 and 2004 returns filed by Mr. Vachon and allowed the appeal from the bench, with costs, and ordered the matter back to the Tax Court for re-hearing.

Decision: This case concerned the 2003 and 2004 taxation years of Mr. Vachon, which would have been statute-barred in the absence of misrepresentation:

[1] This is an appeal by Normand Vachon (the appellant) from a decision of Justice Tardif (the judge) of the Tax Court of Canada (the TCC), who, among other things, authorized the Minister to make an assessment for the 2003 and 2004 taxation years, despite the expiration of the limitation period referred to in subparagraph 152(4)(a)(i) of the Income Tax Act, R.S.C. (1985), c. 1 (5th Supp.) (the Act), on the ground that the taxpayer made a misrepresentation attributable to neglect.

[2] From the appellant’s standpoint, the only issue is whether the judge erred in considering that the reassessments made by the Minister were related to a “misrepresentation that is attributable to neglect, carelessness or wilful default” as stated in subparagraph 152(4)(a)(i) of the Act.

The Court of Appeal, ruling from the bench, concluded that the Tax Court Judge erred in not pointing to any misrepresentation in the returns in question:

[5] In the case at bar, the judge found that the appellant had indeed paid very significant amounts that should have been used to pay all or part of his tax debt, but, instead, the accountant Mr. Simard diverted the amounts in question to serve his own interests, thereby defrauding the appellant (para. 27 of the decision).

[6] The judge then analyzed the relationship between the appellant and his accountant before concluding that the appellant failed to exercise due diligence in his relations with Mr. Simard. In this regard, he referred to, among other things, the fact that the appellant should have read and followed up on the letters received from the respondent in 2007 and subsequently.

[7] The respondent acknowledges that the judge did not indicate what misrepresentations were made in the income tax returns or what the appellant knew or ought to have known when they were filed. The respondent emphasizes, however, that the evidence on the record is such as to enable the Court to perform this exercise and to draw conclusions on these points.

The Court of Appeal declined to make an evidentiary finding and referred the matter back to the Tax Court for rehearing:

[9] The relevant factual background is highly complex. To assess the appellant’s behaviour at the time of filing of his income tax returns would require an assessment of the evidence without the benefit of hearing the witnesses and in the absence of important documents that are usually part of this type of dispute (including the income tax returns of the appellant and his company). It is therefore inappropriate in the present case for this Court to substitute itself for the TCC in order to rule on this key issue of the dispute.

[10] For these reasons, we conclude that the appeal should be allowed, with costs. The decision of the judge dated October 24, 2013, dismissing the appellant’s appeal from the assessments for the 2003 and 2004 taxation years will be set aside, and the matter will be referred back to the Chief Justice of the TCC so that he can assign it for rehearing. The costs at trial will depend on the outcome of the new hearing.