Does the presumption of validity of assessment notices apply when the Agence du revenu du Québec (ARQ) uses alternative methods to determine an individual’s income and contribution? Read on to find out more about the Alterpay affair.

To remember, in 30 seconds:

• Not cooperating with the CRA during an audit forces the latter to use alternative data sources, such as a shareholder’s public declarations.
• The CRA used these public statements to issue a notice of assessment.
• Alterpay contested the notice of assessment, as the declarations were fictitious (read: exaggerated).
• The court upheld the notice of assessment, on the grounds of Alterpay’s lack of cooperation, and the lack of “real” data this generated.
• When carrying out an audit, it is strongly recommended that you seek advice from a tax lawyer on what you should, and should not, give to revenue agencies.

A look back at the Alterpay affair

Alterpay Inc. is a company that operates an electronic payment system similar to PayPal, i.e. it enables the transfer of money from one banking institution to another, including those outside Canada. In 2019, the ARQ is auditing the company’s annual declarations for fiscal years 2006 to 2009. Alterpay has been very uncooperative, failing to provide the documentation requested by the ARQ in order to proceed with the verification of annual sales figures.

Contested alternative method

The ARQ therefore uses an alternative method for determining income, based on the public declarations of the company’s sole shareholder. This method enables it to issue a notice of assessment that Alterpay is contesting in court. Alterpay alleges that the presumption of validity cannot apply since ARQ based its determination of the amount of the contributions on fictitious data. The court rejected this argument, stating that ARQ had resorted to this method due to Alterpay’s lack of cooperation, and that invoking the fiction of data was therefore not sufficient to overturn the presumption.

Final decision

As a result, the presumption of validity of assessment notices applies when ARQ uses alternative methods to determine an individual’s income and contribution, since this method may be necessary when ARQ is faced with a lack of cooperation from an individual.

Good to know

The Alterpay case highlights the application of the presumption of validity of notices of assessment when the ARQ uses alternative methods to determine income. The company’s lack of cooperation led to the use of public statements by the shareholder. Despite the allegations of fictitious data, the court upheld the notice of assessment.

If you find yourself in a similar situation, call your favourite tax lawyer!

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