In Ntakos Estate v. The Queen, 2018 TCC 224, a family business was owned by the deceased taxpayer, Anna (after her husband passed away in 1995) with two brothers-in-law through a holding corporation. Anna’s mental and physical health declined from 1995 until her death in 2004. She was diagnosed in 2002 with cancer, and apparently lacked mental capacity after that date.
In 2003, the accountant for the family business got Anna who at that point was mentally failing and months before her death, to file T1 adjustment requests for her 1998, 2001 and 2002 taxation years to allocate increased management fees and employment income to her by the family companies. This apparently had the effect of improving the tax position of one of Anna’s brothers-in-law, for whom the accountant was also acting. The Minister reassessed Anna based on these 2003 filings.
Over 10 years after the resulting reassessments of Anna (i.e., well beyond the deadline as stipulated by the Income tax Act), Anna’s estate filed notices of objections or applications for an extension of time to file a notice of objection. Then, in Tax Court, Anna’s estate applied, among other things, for an order either vacating the Reassessments, or extending the time for filing notices of objection to them.
The Estate’s application was allowed in part.
There was insufficient evidence to find that Anna lacked mental capacity before her diagnosis date. The Court concluded that Anna had capacity when she executed and filed her 1999 and 2000 tax returns. With documentary medical evidence concerning period after diagnosis date, witnesses indicated that Anna was in a confused and depressed state from her diagnosis date until time of her death. Finding was made, on balance, that Anna from and after her diagnosis date lacked mental capacity to execute or did not execute and file 2003 filings.
The Court concluded with reference to precedent cases that if Anna did not file or grant authority to file some or all of the returns in issue in this case, or if she lacked mental capacity to do so, then there was no need for Anna’s estate to file notices of objection to the reassessments. In fact, Anna did not affect the 2003 filings, and lacked the mental capacity to do so. Conversely the Court concluded they were done without her knowledge, authority, or direction, and the reassessments responsive to them were thus vacated. As a result no objections to the reassessments were necessary. In addition, Anna’s estate’s application for an order extending the time for filing notices of objection to them was also unnecessary, and was dismissed accordingly.