Taxpayers may complain about the decisions made by authorities like the Canada Revenue Agency (CRA), but they generally do not question them. But what if the decision is wrong or the situation falls in a grey area, not covered properly by current Income Tax rulings? In Radonjic v. The Queen (2013 FC 916), a taxpayer brought an application for judicial review of the CRA’s refusal to make certain adjustments to his tax returns, as he believed they had made the wrong decision. AG Tax has prepared a brief summary on this case, examining why the taxpayer felt ill-treated.
Background
In mid-2003, the taxpayer started playing online poker, and by 2004 he had begun to make significant income through these poker winnings. After consulting with his accountant, the taxpayer decided that, since the winnings were not his main source of income, they would be non-taxable. However, when the taxpayer decided to quit his job to play online poker professionally, he decided to pay taxes on his winnings as ‘Miscellaneous Receipts’ in his tax filings from 2004 until 2007. He assumed that if the income was actually non-taxable, he could always file for to adjust his tax returns and receive a refund from the CRA.
After discussions with other poker players, the taxpayer was informed that court judgments are the binding legal authorities on the taxability of gambling winnings (not the CRA Interpretation Bulletins that he had based his research on), and that the law states that poker winnings are non-taxable. Therefore, the taxpayer filed adjustments of his tax returns with the CRA for the years 2004 to 2007, requesting a refund of his taxes (under subsection 152(4.2) of the Income Tax Act).
The CRA, however, denied the taxpayer’s adjustment request. There were multiple communications between the taxpayer and CRA, and each time the adjustment was denied. The taxpayer finally decided to apply for a judicial review of the CRA’s decision to deny the adjustment request.
Federal Court Decision
The Federal Court considered each party’s position on the issue and examined the various court cases addressing the taxation of gambling gains and losses. After a long battle between the taxpayer and CRA, the federal Court finally concluded that the CRA’s judgment was incorrect.
It gave its verdict that the taxpayer was a law-abiding citizen, who decided to disclose his poker winnings as income in his tax filings, with good faith that the CRA would return the taxes if the winnings were actually non-taxable. Additionally, the court held that, as subsection 152(4.2) allows the Minister to carry out a reassessment after the expiration of the 3-year normal assessment period, but within 10 years of the taxation years in question, the taxpayer had applied for the adjustment in time.
It is a tough choice to make when it comes to opposing the decision of an authoritative body, such as the CRA. However, if taxpayers think that the decision of the CRA is not based on proper reasoning, or have other legitimate reasons for doubting the decision, they have every right to challenge it.
AG TAX LLP CAN HELP
If you have any concerns about decisions made by the CRA or have any other tax queries, please contact AG Tax. Our tax professionals have over 20 years’ experience dealing with the CRA and the US Internal Revenue Services (IRS), allowing us to bring our clients the very best service.
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
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