Until recently, I never fully appreciated the meaning behind the excuse, “The dog ate my homework.” That changed this past summer with the arrival of Jasper, our new golden retriever puppy. Consistent with his breed’s genetic disposition, I noticed he was a quick study when it came to retrieving the newspaper from the front stoop. Unfortunately, by the time the paper made it inside, it was no longer readable as he had shredded it to pieces.
I can’t recall a taxpayer ever saying “the dog ate my homework” as a defence in court for failing to provide backup documentation that the Canada Revenue Agency was requesting, but some of the excuses they come up with can occasionally strain credulity. Take two recent cases dealing with COVID-19 benefits eligibility, and the taxpayers’ unwillingness (or, perhaps, inability) to provide the necessary proof of income.
The first case, decided in late December 2023, involved a self-employed taxpayer who applied for and received the Canada Emergency Response Benefit (CERB) for the full seven four-week periods and the Canada Recovery Benefit (CRB) for the subsequent 27 two-week periods. The CRA found her ineligible because she had not earned at least $5,000 of (self-)employment income in the prior period.
The taxpayer had prior work experience conducting patent agent- and engineering-related work. In 2018, she worked as a patent agent trainee at a national intellectual property law firm. Prior to this, she worked as a patent agent in the United States.
In December 2019, the taxpayer allegedly received a job offer to work remotely as an independent contractor for an electrical equipment company. In this role, she was to provide patent-related advice and research to her client and be paid US$6,200 (or approximately $8,000 at the time). On the taxpayer’s 2020 tax return, she claimed $4,200 for expenses relating to the business use of her home, resulting in her 2020 net self-employed business income totalling $3,800. This was below the $5,000 income eligibility threshold to receive CERB or CRB.
After consulting with an accountant, the taxpayer recently amended her 2020 tax return and adjusted her use-of-home expenses down to $2,100 since, according to her, “she also used her work area for study and leisure time.” After the amendment, her self-employment net business income was $5,900.
Her COVID-19 benefits were selected for review by the CRA, and an agent called her requesting documentation to verify her self-employment income. She subsequently provided a single invoice and several letters from the company “with limited detail.” After conducting both a first- and second-level review, the CRA determined she was not eligible as she hadn’t earned the requisite $5,000 of income.
The taxpayer appealed the CRA’s second-level decision to the Federal Court requesting a judicial review. The court’s role is not to substitute its decision for that of the CRA officer, but to determine whether the CRA’s decision was “reasonable” considering the facts and evidence. A reasonable decision is “one based on an internally coherent and rational chain of analysis that is justified, transparent and intelligible in relation to the applicable factual and legal constraints.”
The judge reviewed all the evidence, including the CRA’s detailed and comprehensive decision reports. In those reports, the CRA agent noted the taxpayer had no previous history of earning self-employment income, and provided no documentation to support that she had actually received the US$6,200, or that this amount was sent through certified mail.
In addition, the invoice submitted to the corporation by the taxpayer did not indicate whether it had been paid, the type of payment or the date of payment, and it wasn’t signed by either party. The letter agreement was not a formal contract and only briefly indicated the nature of the engagement. But perhaps most importantly, all the documents the taxpayer provided from the corporation were created years after she claimed to have been paid the US$6,200, and failed to indicate the exact date of payment.
The CRA concluded the invoice and accompanying letters from the corporation did not constitute sufficient convincing evidence of a payment having been made to the taxpayer in the absence of an actual transfer or receipt of money. The judge acknowledged that the taxpayer “is certainly entitled to be remunerated in cash,” but it was her responsibility to maintain sufficient records in order to rely on cash payments to support her eligibility for the CERB or CRB benefits.
The judge concluded the CRA agent had “meticulously assessed the evidence provided by (the taxpayer) and found it was insufficient to establish her eligibility.” The judge, therefore, ruled the CRA’s decision to deny the benefit was reasonable, as it had “all the requisite attributes of transparency, justification, and intelligibility.”
The second COVID-19 benefits eligibility case, also decided in December 2023, was a follow-up decision of the Federal Court involving a self-employed bookkeeper in British Columbia who operates his business through a number of companies. The CRA determined he was not entitled to the CRB on the basis he had not earned at least $5,000 of (self-)employment income. In October 2022, the taxpayer applied for judicial review and succeeded on the basis that the CRA breached “procedural fairness” by failing to advise him that it required further documentation beyond his T4 and T4A slips.
The CRA requested the taxpayer’s bank statements to verify his income, but the taxpayer refused, saying: “I am a private citizen; I value my right to privacy and my civil liberties. I cannot divulge personal, private and confidential information such as bank statements as I value my right to privacy and my civil liberties, as a private citizen. Personally, I am not a business. Asking for my personal, private and confidential statements, is a breach of my civil liberty.”
This did not go over well with the judge, who dismissed the taxpayer’s second request for judicial review: “It is (the taxpayer’s) right to refuse to provide the requested information; however, he cannot now criticize that the CRA determined it had insufficient information to support his claim.”