913186 24(1)
Dear Sirs:
Re: Failure to report a capital gain
This is in reply to your letter of November 14, 1991, concerning an apparent fact situation where an individual taxpayer omitted to report the disposition of shares that qualified at the time as qualified small business corporation shares as defined in subsection 110.6(1) of the Income Tax Act (the "Act"). You mention that the taxpayer's tax advisor prepared the 24(1) return and inadvertently omitted to report the disposition of the Opco shares. Further you state that the taxpayer's intention was to report the disposition of the shares and was not aware that this was not done until new tax advisors discovered the error. You seek our comments on Revenue Canada's policy of allowing capital gains exemption to be claimed under the above-mentioned circumstances.
Pursuant to paragraph 21 of Information circular 70-6R2, a taxpayer should request an advance income tax ruling when a requested interpretation relates to a contemplated transaction and should contact the local District Taxation Office where an opinion is required on a completed transaction. We do however provide the following general comments.
Our Comments
In our view, where a taxpayer failed to report knowingly or under circumstances amounting to gross negligence a capital gain or a substantial portion of the capital gain in his return for the applicable year and within one year of the time the return was required to be filed, the Department may deny the capital gains deduction. Whether a situation is such that gross negligence resulted or that there was a willingness on the part of a taxpayer to not report a gain, is a question of fact. However, the burden of proof in establishing the facts justifying the denial of a capital gains deduction under subsection 110.6(6) of the Act is on the Minister.
In a situation similar to that outlined in your letter, we would suggest sending a letter to the relevant Taxation Centre explaining the circumstances that led to the oversight. The taxpayer could then request an adjustment to his or her previously filed T-1 return, reporting the capital gain and claiming the capital gain deduction by way of a completed T-657 form for the appropriate taxation year.
Requests of this nature for your area should be addressed to the Taxation Centre at 4695 12th Avenue, Shawinigan Sud, Quebec, G9N 7S6.
We trust our comments are of assistance to you.
Yours truly,
G. Thornley for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs BranchInformation Act l'information