In an October 22, 2019 Tax Court of Canada case (Greenstreet vs. H.M.Q., 2018-2463(IT)I), the taxpayer was reassessed to add unreported investment income of over $24,000 and charged a penalty for repeated omission of income (Subsection 163(1)). The income included $22,337 from cashing a life insurance policy and $1,841 from various other portfolio investments. All of the income was identified by matching to T3 and T5 slips.

Taxpayer loses – income inclusions
The Court addressed a variety of arguments presented by the taxpayer, asserting the income was not properly taxable, including the following:

• The taxpayer denied receiving the T3 and T5 slips, which the Court dismissed as irrelevant – income is taxable whether or not slips are received.

not having the slips download from CRA does not mean the income is not taxable

• The taxpayer argued the slips were not issued on time, based on their failure to download from CRA into his tax software, again irrelevant to the requirement to report the income.
• The taxpayer believed there were duplications of income between the various slips but provided no evidence of such duplication.

staying current on tax changes – especially over fifty years

• The taxpayer argued that he was told when the insurance policy was acquired that it was non-taxable. The Court noted that the taxpayer could not rely on tax advice received fifty years previously as tax law changes over time.

The income additions were, therefore, upheld.

Taxpayer loses – penalties
The Court set out, and addressed, five tests for the application of the penalty for repeated omission of income (Subsection 163(1)) based on the only general procedure case to address this issue (Galachiuk vs. H.M.Q., see VTN 395(10)), as follows:

• The taxpayer had unreported income of at least $500 for the year of the penalty, 2016, which was met based on the income the Court had already determined was properly reassessed.
• The taxpayer had unreported income of at least $500 for at least one of the three preceding years. The taxpayer had been reassessed for unreported investment income in two preceding years, 2014 and 2015, from slips similar to those unreported in 2016 (other than the life insurance payout). While the taxpayer had advanced similar arguments to those set out for 2016, these arguments were dismissed for the same reasons they were dismissed for 2016.

missing income in one year requires extra effort in later years to demonstrate due diligence

• The taxpayer did not exercise due diligence for the year of the penalty. The Court noted that, even if he accepted the explanation that the taxpayer did not receive the thirteen T slips in issue, the fact that he had missed income in two preceding years would require extra precautions in 2016. As well, it was not reasonable to rely on advice received fifty years previously in respect of the insurance policy, especially faced with the T5 slip issued in 2016. Due diligence required he ask questions before filing his 2016 return to determine whether this income was required to be reported.

communications with clients reassessed for unreported income regarding the added risks if income is missed again

• The taxpayer did not exercise due diligence for the prior year(s) of unreported income. The taxpayer’s explanations that so many slips were either not received or late every year were not plausible. His belief that the income was duplicated was not reasonable – he needed to ask questions to confirm or deny the accuracy of his belief to demonstrate due diligence. Even if his explanations were sufficient to establish due diligence for 2014, he should have taken extra precautions to ensure all income was reported after omitting income in the previous year and being reassessed.
• Gross negligence penalties (Subsection 163(2)) had not been assessed in respect of the same income, which was true.

The penalty was, therefore, properly assessed.