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Income tax — income not earned personally

My client and his wife worked as computer consultants. They provided their services through their corporations, in independent-contractor relationships with three clients. Their corporations paid them as employees.

The CRA, without notifying my clients, reassessed the husband for over $300,000 of income on the basis that he had earned it directly. It appears that this happened after an audit of one of the clients.

I filed a Notice of Objection, showing that my client's corporations had contracted with the clients and had been paid, had deposited the funds in corporate bank accounts and had reported the income on their corporate tax returns. The assessment of my client personally was wrong, and as I showed with reference to the case law, there was no justification for the CRA to "pierce the corporate veil". I backed up my submission with extensive documentation including contracts, invoices, bank deposits and corporate notices of assessment.

The CRA agreed, and cancelled the reassessments.

Problem vanished!

(2008)