All About Estates

Fraudulent investment—recourse options

In an earlier post I provided general reporting information that applies to taxpayers who participated in what reasonably appeared to be a legitimate investment for income tax purposes and turned out to be a fraudulent investment scheme.  The economic losses in these situations can be devastating when compounded by the fact there may be little to no tax relief given.  What if you feel the Canada Revenue Agency (CRA) has either misinterpreted the facts or applied the law incorrectly?

The CRA has several measures in place to resolve complaints and disputes and to offer relief.  One of these measures is filing a notice of objection which allows for an opportunity to weigh in on the notice of assessment, reassessment, determination, or redetermination.  When an objection is filed, the CRA reviews all the information provided before making a final decision.  Timely filed objections allow taxpayers a formal and impartial review of an assessment, determination, or decision made by the CRA.  However, there are time limits on when a notice of objection can be filed.  Generally, the filing deadline is the later of one year after the tax-filing deadline for the income tax and benefit return and 90 days from the date of the notice of assessment or determination.

Another measure is the taxpayer relief provisions.  Under the taxpayer relief provisions, the CRA may, in some cases, authorize a reassessment or redetermination for an individual beyond the normal three-year reassessment period where the adjustment would result in a refund or a reduction in an amount payable (for example, on a T1-adjustment request the taxpayer made) and accept certain late, amended, or revoked elections.  The individual must make all requests within a ten-year time limit.  Under the taxpayer relief provisions, the CRA may also provide interest and penalty relief in situations where a taxpayer has a confirmed inability to pay or is experiencing financial hardship related to a balance owed to the CRA.

There is no right of objection or appeal for a taxpayer to dispute a decision made under the taxpayer relief provisions.  However, if you believe that discretion has not been properly exercised, you can ask that another delegated official from the tax services office or the tax centre to reconsider the original decision made under the taxpayer relief provisions and review the situation again.  The second review is an independent review of the original decision.  CRA officials not involved in the first review and decision will do the second review.

In this day and age of fraudsters there may be some tax relief for the losses experienced in fraudulent schemes.

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com

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