Where a taxpayer claimed the married or common-law partnership tax credit (the "Tax Credit") and, after the taxpayer’s spouse was assessed beyond the normal reassessment period to add unreported income, can CRA also reassess the taxpayer beyond the normal reassessment period? Assuming that the income of the taxpayer's spouse, after reassessment by the CRA, is such that the taxpayer was not entitled to the tax credit, you wish to know whether the CRA can reassess the taxpayer after the normal reassessment period has expired to deny the Tax Credit. The Directorate responded:
[A] taxpayer who claims for a taxation year the tax credit under paragraph 118(1)(a) in respect of the taxpayer’s spouse, where the income actually earned by the spouse for that taxation year would not qualify for the credit, is misrepresenting the facts for the purposes of subparagraph 152(4)(a)(i).
Once it has been established that a taxpayer has made a misrepresentation, it must be determined whether the misrepresentation was the result of neglect, carelessness, wilful omission, or any fraud committed by the taxpayer. In order to do so, and in order to be able to issue a notice of reassessment amending the amount of the tax credit provided under paragraph 118(1)(a), where a taxpayer's taxation year is statute-barred, the CRA has the onus of proving, on a balance of probabilities, either that the taxpayer was not acting in good faith when the taxpayer wrongly claimed this credit, or that a normally knowledgeable or prudent person would not have made such an error.