October 07, 2011

S. Gordon Fukushima (Appellant) v. Her Majesty the Queen (Respondent)

99 DTC 553
Tax Court of Canada
February 3, 1999

(Court File Nos. 96-561(IT)G and 96-569(IT)G.)

Reassessments — Taxpayers having reported reduced taxable income from a partnership of which they were partners — Minister subsequently reassessing taxpayers to rectify the situation — Whether Minister entitled to reassess beyond the normal reassessment period — Income Tax Act, R.S.C. 1985 (5th Supp.), c.?1, as amended, ss.?34 and 152(4)(a).

A partnership of which the taxpayers were partners computed its income for 1983 to 1993 on a full accrual basis, including therein work in progress that had not been billed. In computing their income from the partnership for 1983 to 1993, the taxpayers elected not to include their respective portion of the partnership’s work in process (WIP) (under section 34 of the Act). However, for each of the said taxation years, the taxpayers also failed to reverse the previous year’s deduction of WIP in calculating their taxable income for the following year, thereby reporting reduced taxable incomes for 1987 to 1990. The taxpayers later reported this situation to the Minister, and the latter reassessed them for 1987 to 1990 to include the amounts under-reported by them as aforesaid. The taxpayers appealed to the Tax Court of Canada, alleging that the Minister was not entitled to reassess them for the taxation years in issue beyond the normal reassessment periods.

Held: The taxpayers’ appeals were dismissed. On the evidence, the taxpayers had not exercised reasonable care in the completion and filing of their respective returns containing the said misrepresentations in issue. The Minister’s reassessments were affirmed accordingly.