Innocent until proven Guilty?

In criminal law, you are presumed to be innocent until the prosecution proves you are guilty beyond reasonable doubt. In civil law, the burden is generally on whoever brings an action to prove their case on a balance of probabilities. The line becomes a little more blurry in tax law.

If you are actually charged with a criminal tax offence, you are protected by the Charter and presumed innocent until proven guilty. However, for general audits, assessments and re-assessments the burden is on you, the taxpayer, to prove the Canada Revenue Agency (CRA) is wrong. A normal assessment or re-assessment is presumed to be correct and the CRA do not have to prove they are right. If you don't object or fail to provide adequate evidence, the assessment will stand. Uncertainty or ambiguity is generally resolved in favour of the CRA.

One area in which this is seen very clearly is ‘Net Worth Assessments’. These usually occur when the CRA believes your tax returns do not show your correct income so they add up the value of what you own etc. and estimated what you must have earned to buy all these things. They then assess you for taxes on this amount. If this happens, you have to show where the money came from and prove that it wasn't income. This can mean obtaining valuations for your property to show it is not worth as much as the CRA claim, going through old bank records to trace deposits and finding proof of any loans you have received. It can be a huge task because not many of us keep good records of all our personal spending.

The CRA have expansive powers such as this to ensure compliance with the Income Tax Act. Net Worth Assessments allow the CRA to assess taxes on people who perhaps deal in cash or may have an illegal source of income they are not paying taxes on. The biggest problem with Net Worth Assessments is that the CRA can’t usually find any evidence to show how much you spent on groceries or alcohol or magazines from 5 years ago. Instead, they use Statistics Canada averages to estimate what you probably spent. If you can’t provide actual proof or receipts, as opposed to you just claiming you don’t drink or eat expensive foods, you will likely face problems in proving your case. Therefore, you are effectively presumed to be ‘guilty’ of earning the additional income and liable for taxes.

Do you think this is fair? It is generally accepted that forcing the CRA to prove their case would be unfair as the taxpayer has all the information about their personal income and the CRA does not. This poses a problem for the CRA if they have to prove that an individual has earned a specific amount of income and the taxpayer destroys all the evidence. However, given that the taxpayer apparently knows their own situation best, should there be extra weight given to their declaration as to where the income came from or what their expenses were, even if there is no additional proof? When there is no evidence, what should win - the taxpayer’s sworn statement or the CRA’s estimation?

MeetUp Group

Just a quick update to let you know I have also created a "MeetUp" group for people with tax questions in the Ottawa area. If you want to join or come along to our meetings, we will be chatting about people's experiences with taxes and trying to find answers to any questions or problems people have.

http://www.meetup.com/Trouble-with-Taxes-Ottawa/