Vine Estate v. Canada
(March 19, 2015 – 2015 FCA 125, Nadon, Webb (author), Boivin JJA).
CRA assessed the Vine Estate for failure to report recapture (roughly $2,000,000) on the “Victoria Park” property owned by the late Mr. Vine. The Estate appealed to the Tax Court on the basis that the assessment was statute-barred. The Tax Court dismissed the appeal on the basis that the Estate had been negligent in failing to report the recapture. The Federal Court of Appeal dismissed the appeal on the basis that the Estate did not exercise an appropriate degree of care in reviewing the terminal tax return of Mr. Vine. The Court of Appeal left open the legal issue of whether the negligence required to open an otherwise statute barred year had to be that of the taxpayer or could be that of the taxpayer’s representatives (in this case its accountants) since if concluded that there was evidence to reasonably support an inference that the Estate itself had been negligent.
The Estate was assessed outside the normal limitation period for the failure to report approximately $2,000,000 in recapture. There had been mistakes made by the Estate’s accountants both in the original terminal return filed and in an amended terminal return. The accountants appeared to have erroneously believed that the property in question was held in a partnership and therefore would not give rise to recapture on the death of the late Mr. Vine. The Estate argued that negligence on the part of its accountants did not permit opening a statute-barred year. The Court of Appeal left this point open:
 It would seem to me that the wording of paragraph 152(4)(a) of the Act could support more than one meaning. One possible interpretation of the phrase “attributable to neglect, carelessness or wilful default” in this provision is that these words only apply to the “misrepresentation” and not to the person filing the return. Therefore, a misrepresentation could be “attributable to neglect, carelessness or wilful default” regardless of whether the person filing the return or someone else was negligent, careless or wilfully in default in making the misrepresentation.
 Alternatively, these words could mean that the person filing the return must be the one who was negligent, careless or wilfully in default. Generally “interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole” (The Queen v. Canada Trustco Mortgage Company, 2005 SCC 54,  2 S.C.R. 601, at paragraph 10).
The Court held that there was evidence before the Tax Court Judge to support her inference that the Estate had been negligent in failing to review the returns:
 As noted by the Tax Court Judge, in determining whether the person filing a return that has been prepared by someone else is careless or negligent, the degree of care that must be exercised is “that of a wise and prudent person” (Angus v. The Queen,  T.C.J. No. 883, 96 D.T.C. 1824 at paragraph 29, as cited in the reasons of the Tax Court Judge at paragraph 39). Mr. Glowinsky was the son-in-law of Stanley Vine and one of the executors of the Estate. He was also the President of the property management company for Stanley Vine’s real estate holdings. Schedule 3 to the final tax return lists eight companies. The Tax Court Judge found that Mr. Glowinsky would have known what assets were owned by Stanley Vine. There is no dispute that Victoria Park was not owned by any of the companies that are listed in Schedule 3 and that there is no reference to the interest of Stanley Vine in Victoria Park in Schedule 3.
 The question is whether the inference that the missing recaptured capital cost allowance would have been discovered is reasonably supported by the evidence. Since no questions were asked about Victoria Park, this is speculative. However, it seems to me that the best indication of what would probably have been the response to such questions is the response of Mintz when the return was reviewed in relation to the election to carry back the capital loss. The response of Mintz was that not only was the recaptured capital cost allowance not included, but also no amount was included for the capital gain related to Victoria Park. The amended return included both an amount for the recaptured capital cost allowance and an amount for the capital gain. It was not until over two and half years later that it was discovered that the total capital gains in the original final return had been overstated by $2,915,000. The evidence reasonably supports the inference that if questions would have been raised about why Victoria Park was not listed, that the error related to the unreported recaptured capital cost allowance would have been found.
 As a result I would not interfere with the finding of the Tax Court Judge that the Estate did not exercise the required degree of care in reviewing the original final tax return for Stanley Vine that it had filed.
The appeal was dismissed, with costs.
TAGS: Tax Litigation, Opening Statute-Barred Years - Negligence or Carelessness