Tax Court upholds reassessment due to misrepresentation in property sale and unreported income

The court rejected the appellant's claim that specific expenses eliminated any gain

Tax Court upholds reassessment due to misrepresentation in property sale and unreported income

The Tax Court of Canada partially upheld an appeal concerning a 2016 tax reassessment, reducing the amount of unreported income while upholding the inclusion of a property sale

In Cheema v. The King, 2024 TCC 81, the appellant, a real estate associate in Calgary during the relevant period, contested the reassessment, arguing that he neither earned the undeclared income nor made a gain on the property sale. He claimed that expenses nullified any gain and disputed the sufficiency of the bank deposit analysis (BDA) conducted by the Canada Revenue Agency (CRA) based on one bank account.

The court had to determine whether the reassessment was justified under subsection 152(4) of the Income Tax Act, which allows reassessment beyond the normal period if a misrepresentation due to neglect, carelessness, or willful default occurred. The court concluded that a misrepresentation had indeed occurred regarding both the property sale and the unreported income, justifying the reassessment.

Regarding the property sale, the Tax Court found the appellant’s claim that specific expenses eliminated any gain to be unconvincing. The court noted inconsistencies and ambiguities in the evidence presented, including referral fees purportedly paid but inadequately substantiated. Consequently, the court upheld the Minister of National Revenue's determination of a $72,968 gain from the property sale.

On the issue of unreported income, the court scrutinized the CRA’s BDA, which was based on deposits into the appellant’s primary bank account. The court rejected the appellant’s argument that the CRA's focus on one account was insufficient and found that he had not provided satisfactory explanations for several unreported income deposits. However, the court did adjust the amount of unreported income, acknowledging errors in the CRA's assessment. It accepted that certain deposits, totalling $19,132, were misclassified, reducing the unreported income from $60,219 to $41,087.

Ultimately, the court partially allowed the appeal, directing the Minister to reconsider the reassessment based on the adjusted unreported income.

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