The following are recent Tax Litigation and Dispute cases involving Hoffman & Associates
Tax Court Case
Inside vs. Outside Director March 14, 2002
Case involving Sergio Mariani as one of the
shareholders'/directors' of a corporation wherein
he
was, at the relevant times, a director of
Vaughan Iron Works Ltd. He has been assessed under section 323 of the Excise
Tax Act which imposes liability for the unpaid taxes of a corporation on the
directors of the corporation.
Tax Case - February 2003
Taxpayer was assessed under section 323 of the Excise Tax Act that the director of a corporation can be held jointly and severally liable with the corporation to pay the corporation GST arrears in the amount of $15,135. We were successful in proving that the amount in question was a notional or an arbitrary amount. Assessment was vacated.
Settlements Made at the Justice Department
(1) Employer Provided Automobile - February 2004
Taxpayers, a husband and wife, both working for the same employer, were re assessed for employer provided automobile expenses. Their accountant had filed a notice of objection, but the appeal section confirmed the assessment. A Notice of Appeal was filed, and a meeting was arranged with a crown lawyer at the Justice Department. The taxpayers' mileage log book was presented to the crown attorney (the same evidence that was presented to the CRA). At the conclusion of the meeting, the crown overturned the notice of reassessment and the employees stand by charge of using their vehicles for 90% business use allowed for the reduced stand by benefit as filed by the taxpayers, was held to be correct with a reduced stand by charge.
(2) Issue re Legal Fees - July 2002 - were legal fees paid on account of capital or income.
Taxpayer incurred legal fees relating to his dismissal as director and shareholder. Legal fees were incurred for wrongful dismissal and relinquishing of shares. CRA disallowed all legal fees paid as it related to capital. Our firm represented the taxpayer and sought a meeting with the Justice Department. Evidence was presented, and we substantiated that the legal fees were on account of income loss. The legal fees incurred were allowed in full, and the taxpayer did not have to go to court.
(3) GST Assessment - April 2001
Taxpayer a corporation, was reassessed and disallowed input tax credits. The director of the corporation claimed that a full audit was not done, therefore, CRA's assessment of $75,000 was incorrect. A Notice of objection was filed by our firm wherein our firm requested copies of all papers to substantiate the assessment. The appeals officer refused to co-operate and confirmed the assessment. A Notice of Appeal was filed by our firm and further demand was made on the Justice Department for it to produce its statement of facts to substantiate the assessment. After months of deliberation, the documents were produced. Upon review of the CRA documents, it was proven that the assessor ignored the examination of certain input tax credits and the work done by the auditor was unsubstantiated in most part. Upon further discussion, a proposal was made by the Justice Department and accepted to reduce the amount in question to $18,000.
Special Investigations Unit - August 2004
In March 2004 the taxpayer as a result of the special investigation unit audit proposed the following adjustments be made to the taxpayer income as follows:
1999 2000 2001 Total
Stock Gains
Proposed Reassessment $545,000 $1,693,000 $133,000 $2,371,000
Facts:
(1) All the accounts at the brokerage houses were listed in the taxpayers name:
(2) Statements of Disclosure were requested from the CRA, which were provided. The statement of disclosure included copies of cheques made payable to the taxpayer.
(3) The taxpayer claimed that although the cheques were payable to herself, the proceeds were in fact given to the party for whom the taxpayer actually opened the account for but was listed in her name and not in trust.
Conclusion:
Our office was able to substantiate the taxpayers' claim that the proceeds from certain stock transactions were not retained by the taxpayer but were in fact turned over to the party for whom she had opened the account for.
The result of these findings is that the taxpayer will be reassessed solely on the funds retained as follows:
1999 2000 2001 Total
Stock Gains CRA Settlement $42,375 $152,650 $43,098 $238,123
Unreported income 89,746 89,746
Total Adjustment $42,375 $242,396 $43,098 $327,869
Net Savings to the taxpayer $502,625 $1,450,604 $89.902 $2,043,131
Note: The stock gains were subject to capital gain treatment rates as follows:
1999 - 75.00% inclusion rate (75.00% x 42,375 = $31,780)
2000 - 66.67% inclusion rate (66.67% 152,650 = $101,772)
2001 - 50.00% inclusion rate (50.00% x 43,098 = $ 21,549)
Relief of Interest and Penalties
Sergio Mariani - May 2003
Although the court found Mr. Mariani responsible for one of the periods, Mr. Mariano's partner also went to trial and was found guilty. Mr. Ricciuti of Vaughan Iron Works Ltd., participated in false and fraudulent invoicing of its customers for work that it never did in order to deceive Vaughan's bank and maintain its line of credit. However, such facts might also cause a criminal prosecution of the Appellant i.e. Mr. Ricciuti.
Based on the results of this court case, our firm wrote to the Minister of Finance and as well held discussions with the fairness committee at CRA and as a result of our efforts, all interest and penalties levied against Mr. Mariani were dropped and a refund cheque was issued.
Application of Fairness - December 2004
Tax Payer - a corporation was assessed for failure to remit GST and was also charged interest and penalties. Interest and penalties were assessed from 1996 up to including June 2004 in the aggregate sum of $125,000. In December 2004 the taxpayer received a favorable decision that is, the interest and penalties from January 1, 1996 thru to April 29, 2002 were cancelled.
Refer to letter of December 30, 2004
Arranging Time to Pay a Reassessment - April 2004
A corporate taxpayer was assessed for failure to remit employees withholding tax and GST. Interest and penalties were levied as well. At the onset, the taxpayer retained our services and calls were made to the taxation collection centre. A timely arrangement was made on behalf of the taxpayer for the complete repayment of the debt so as to avoid undue hardship on the taxpayer in terms of repayment.
Advance Income Tax Rulings
Taxpayer suffered losses both in the registered and non registered i.e. Group RRSP account. Taxpayer was terminated by her employer. Taxpayer brought an action against employer for losses sustained in both the registered and non registered portfolios. The employee agreed with the employer that if the employer replenishes the employer's portion of the RRSP contribution, all claims against the employer will be dismissed
The issue to be decided is whether the employer's contribution to the employee's RRSP would be considered (1) income, (2) an excess contribution to the RRSP plan (3) a non taxable contribution in present times but to taxable when the taxpayer ultimately withdraws the funds from the RRSP plan.