Sneaky Pete is self-employed as a consulting engineer in the construction industry. He works around the country for various companies on a contract basis. Some of his contracts last several months requiring him to physically move to the job’s location for months at a time.
A few years ago he was working on a project in Alberta. The contract was expected to last 10 months or more so he moved to Alberta temporarily to work on the project. His permanent home, though is in Ontario. At the same time, he was a shareholder and director of a consulting engineering company with 3 other partners.It was essentially an incorporated partnership. We’ll call the company Consult Co. just to give the company a name. The partners used Consult Co. as the vehicle for bidding and contracting on the various projects that they were able to get work on, and paid themselves a salary through Consult Co.
While he was working in Alberta, Sneaky Pete filed his income tax return
giving his temporary Alberta address as his residence on his tax return. Canada Revenue Agency processed his return normally, and sent his Notice of Assessment to the Alberta address he had given.
When the project he was working on in Alberta finished a few months later, he moved back to Ontario. Sometime later that year, the partners of Consult Co. had a falling out. Pete resigned as a director and eventually the company was dissolved. For the next taxation year, he filed his incone tax return using his Ontario address as his place of residence. Once again, the CRA processed his return as normal and sent his Notice of Assessment to his Ontario address.
Two years later, the CRA issued a Notice of Assessment to Pete as a director of Consult Co. in an amount of approximately $200,000 for unremitted employee source deductions from salaries and unremitted GST. They sent this Notice of Assessment to the Alberta address that Sneaky Pete had given them on his earlier tax return. Of course, he was no longer at that address.
It is importabt to pause here to briefly explain the directors’ liability provisions of the Income Tax Act. Corporations are supposed to deduct from an employee’s salary,certain benefits such as Employment Insurance and Canada Pension Plan, and remit those deductions (called source deductions) to the CRA. They are also supposed to remit GST payable on the goods or services that they provide. When the corporation fails to do this , the CRA can come after the directors personally for the amount owing, if they are unable to collect those amounts from the corporation directly. However, CRA must issue the assessment against the directors within two years of when the director last ceased to be a director.
The director’s liabilty assessment did not come to Sneaky Pete’s attention until the following year, when the CRA realized that he was no longer at the Alberta address and sent the assessment to Pete’s Onatrio address. This was now three years after he ceased to be a director of Consult Co.
Sneaky Pete wisely hired me to dispute this assessment. We argued that the assessment was invalid as being issued outside of the two-year limitation period. CRA disagreed. They took the position that although they sent it to the wrong address, it was issued in time and was therefore valid. They refused to vacate the assessment. So we appealed to the Tax Court of Canada. I argued, that an assessment sent to the wrong address is invalid because the CRA is required to send assessments to the last known address provided by the taxpayer – in this case Sneaky Pete’s Ontario address. Furthermore, the CRA knew his correct address was in Ontario because they had issued his Notice of Assessment for his personal Income Tax Return to that address two years earlier. When they eventually issued the assessment to the correct address, they were outside of the two-year limitation period and therefore it was also invalid. We won the case and the assessment was vacated.
Later when having an after court drink with the Department of Justice lawyer representing the CRA, their lawyer tells me ” The thing that bugs me about this case , Norm, is that your guy knew what he was doing. ” On that point we’ll never know. But I’ll just call him Sneaky Pete.