Tax Forum
Get it in Writing
Documentation is invaluable when it comes to producing evidence.
FROM:
MAY-JUN 2005 ISSUE | BY
DON GOODISON
I am often given a bit of ribbing over my near-fanatical insistence on getting things in writing, particularly when it comes to dealings with the Canada Revenue Agency. This is because people often have a tendency to interpret spoken words to suit their purposes, as evidenced in
Tamara Bolton v. Her Majesty the Queen [2004 FCA 374], a case in which the taxpayer claims that she withdrew an appeal of her 1998 assessment due to misrepresentation by the Minister of National Revenue.
Bolton's 1997 and 1998 tax returns were both reassessed, reducing her business expenses for those years by $38,933.37 and $65,785.72 respectively, and thereby reducing her business losses for those years to zero. Bolton appealed to the Tax Court of Canada [2002-4153(IT)I], which increased her expenses for 1997 by $30,000, but when the Tax Court judge inquired about the 1998 taxation year, he was told that the parties had agreed to withdraw the appeal for that year.
The taxpayer told the Federal Court of Appeal that she had withdrawn her appeal of 1998 on the representation by counsel that the Minister would assess 1998 in the same manner as 1997. She claimed that she would not have withdrawn her appeal if this representation had not been given. Counsel for the Minister at the Tax Court trial denied having made such representation, stating under oath:
"I categorically deny any such conversation with the appellant and her husband. I never advised Mr. or Mrs. Bolton that the Canada Customs and Revenue Agency would have to consider and apply Justice McArthur's findings with respect to 1997 to the 1998 taxation year."
The burden of proof in this case rests solely on the appellant, and is quite onerous. Mere allegations are not sufficient to meet that burden; hard evidence is required. In this case, Bolton had only her word and that of her husband, who represented her at the Tax Court of Canada. In the absence of hard evidence, the appeal was dismissed.
Now, let's assume for a moment that the counsel for the Minister had in fact made the representation as Bolton claimed. Would it not have been prudent to request it in writing? Then, if the Minister reneged on the promise, the Boltons would have the proof needed to support their claim. And, if the counsel refused to put it in writing, it would have to be assumed that the representation was not really sincere. The "misrepresentation" most likely came from the Boltons' misunderstanding of what they were told. The following excerpt from the Tax Court transcript would seem to bear that out:
Judge: What do we do with 1998? I presume you have made a settlement and 1998 was not a concern.
Mr. Sherbert: No. Because Revenue Canada had again set that year for her loss — her net income for that year at zero, and we both felt that that was fine for both sides.
Judge: Now, the 1998 appeal is withdrawn?
Mr. Sherbert: Yes. Effectively, it is withdrawn or the appellant withdrew their appeal to that year, yes.
Judge: Is that accurate?
Mr. Bolton: Yes, Your Honour. We are basically agreeing with their submission of zero income for the year.
While the Federal Court of Appeal did not specifically refer to Tamara Bolton's decision to withdraw her appeal for 1998 in its Reasons for Judgment, it is evident that both she and the Minister agreed with the Minister's submission for 1998. Is the Federal Court of Appeal to assume that there was a "nudge, nudge, wink, wink" side deal between Bolton and the Minister that they would be allowed a loss of $30,000 for 1998 despite what was said in court? It is impossible to imagine any logical reason for such a thing and what purpose it would have served not to state it in court. It would be interesting to know exactly what was said that gave Bolton the impression that her 1998 tax return would be taxed in the same way as that from 1997.
My "fanaticism" for getting things in writing stems partly from a personal experience in which I was asked by a colleague to represent his client in a dispute with the Tax Department. I reviewed the facts as presented to me, and asked my colleague about one issue that was fundamental to our arguments. I was assured that the auditor had already agreed to that issue, and so prepared a submission based on that assurance.
Much to my chagrin and embarrassment, when we met with the auditor, I was told that no agreement had been reached and that it was, in fact, one of the areas of contention. My submission was useless, much like starting to build a house without setting a foundation. My colleague's client, unaware of what I had been told, was not impressed. Since I would never intentionally criticize a colleague in front of his client, it took a lot of diplomatic explaining to ensure the client that I wasn't a complete incompetent.
In addition, I couldn't begin to count the number of times I have had clients tell me that they had not told an auditor some of the things that appear in the auditor's submission. Maybe not in those exact words, but it is what the auditor has interpreted from what the client said. Putting things in writing removes any misunderstanding about what was asked and what was answered.
Having the facts presented in a written document also gives clients the time and opportunity to consider their responses. Too often, responses given on the spot are unintentionally misleading and result in needless disputes. A good example is the questionnaire used in interviewing a taxpayer at the beginning of an audit. If the questionnaire was sent to the taxpayer in advance and written answers were given, there would be no "he said; no I didn't" disagreements.
I don't see anything in the
Income Tax Act that gives a taxpayer the right to demand everything be in writing, so it is up to the individual auditor to accept or reject this request. I firmly believe that the right to demand that all questions and answers be in writing should be in the
Act. It would save a lot of time and money in tax disputes.
[
TOP ]
Don Goodison, CFP, FCGA, is a partner of Kemp Harvey Goodison, Certified General Accountants, in Burnaby, B.C. E-mail
goodison@axionet.com.