Executive Summary: Key Legal and Evidentiary Issues

• The Tax Court allowed Afdon Contracting Ltd.’s GST and corporate income tax appeals in full, vacating the 12 GST reassessments for 2011–2014 reporting periods and the three income tax reassessments for its 2011–2013 taxation years.

• The Court upheld most of the CRA’s enhanced net worth reassessments of Afshin Tajbakhsh personally, including approximately $1.8 million of unreported income over 2011–2013, largely sourced from Bahamas profits that were treated as shareholder benefits or loans taxable to him.

• Significant adjustments were made in Mr. Tajbakhsh’s favour, including: (i) an $80,000 reduction to the 2013 net worth computation; (ii) a $73,249 reduction of the taxable capital gain on the Benbow property; and (iii) reductions in net rental income of $64,809 (2011) and $23,728 (2012), with certain management fee and section 80.4 deemed-interest amounts removed as statute-barred.

• The Court found that CRA could not link the net worth amounts to Afdon Contracting Ltd., so it could not rely on alleged unreported corporate income to open statute-barred years for that corporation or to support the related GST reassessments.

• Most of the statute-barred reassessments against Mr. Tajbakhsh were upheld because the Court found misrepresentations attributable at least to negligence, and often to wilful blindness or gross negligence, particularly regarding the Bahamas business and Benbow rental income.

• On costs, the Court later ordered no costs for either party in Afdon Contracting Ltd.’s GST and income tax appeals, but awarded lump-sum costs of $25,000 to the Respondent in respect of Mr. Tajbakhsh’s income tax appeal.

Factual background and business structure

Afshin Tajbakhsh came to Canada from Iran in 1988. He worked in the stone and tile business, learned the trade, and by 1994, after a period in business with a cousin, he was the sole owner of a successful tile business. Over time he expanded into painting, contracting, and property development.
On the advice of his accountant, George Georgeopoulos (a CPA), he established a group of corporations (the “Group”) in the early 2000s. These included: Afdon Management Ltd. as his holding company, with a complex share structure involving the Tajbakhsh Family Trust and Afdon Investments Inc.; Afdon Investments Inc., which purchased land for development and held other assets; Afdon Contracting Ltd., owned by Management, which acted as a general contractor for Group and third-party projects; Afdon Developments Ltd., also owned by Management, which developed projects for the Group; Afdon Stone and Tile Ltd., owned by Management, which did stone and tile work and was described as the primary driver of the Group’s activities; and Afdon Stone and Tile Bahamas Ltd. (“Bahamas Co.”), owned 50–50 by Mr. Tajbakhsh and his wife, incorporated in the Bahamas to carry out an airport project there.
The Group’s accounting records (other than year-end statements and tax returns) were maintained internally by an employee, Julie Guan, using Simply Accounting. She handled accounting data entry, bank reconciliations, deposits, payroll, and general back-office tasks, while Mr. Georgeopoulos prepared financial statements, corporate tax returns, GST returns for each Group corporation, and personal income tax returns for Mr. and Mrs. Tajbakhsh.

The Bahamas airport project and related income

The Group had successfully executed stone and tile work at Vancouver International Airport for the Vancouver Airport Authority (YVR) in domestic and US departure areas. After YVR contracted with the Bahamas government to revitalize the Nassau airport, YVR and its lead contractor, Ledcor Inc., invited Mr. Tajbakhsh to bid on tile work for the first phase (US departures terminal). He was awarded that contract and later won the tile and stone contracts for the second (international terminal) and third (domestic terminal) phases.
The three phases of the Bahamas airport work were carried out starting in 2011 and winding up toward the end of 2013 and into 2014.
Because the contract price was denominated and paid in US dollars and a local entity was needed to hold a US-dollar bank account and meet local requirements, Bahamas Co. was incorporated in 2010. Bahamas Co. maintained both a US-dollar account and a Bahamian-dollar account with Royal Bank of Canada in the Bahamas. The Bahamian-dollar account was used to pay local trades and expenses and a 1% local business tax on each contract.
Mr. Tajbakhsh testified that the project was profitable, generating almost USD $5 million in revenues and “significant net income” for Bahamas Co. He also testified that the Bahamas has no income tax and therefore no bookkeeping requirements. Financial records of Bahamas Co. were described as skeletal, and he said that he shredded Bahamas Co.’s corporate records about a year after the warranty period expired, around 2015.

CRA’s enhanced net worth audit and the Bahamas funds

CRA conducted an “enhanced net worth audit” of Mr. Tajbakhsh for 2011–2013. Auditor Benjamin Hon computed changes in net worth between a base year (2010) and 2013, added personal expenses, and deducted reported income and known non-taxable sources. The resulting net-worth amounts assessed totaled $1,814,818, allocated as follows: $550,029 for 2011; $464,224 for 2012; and $800,565 for 2013.
Of the $1.8 million net-worth figure, the judge found that $1.2 million could be linked to Bahamas Co. Evidence established that Bahamas Co. made approximately US $1.2 million in profit on the Bahamas airport work and that almost all of that profit ($1.172 million) was transferred out of the Bahamas. Mr. Tajbakhsh testified that the funds were loaned by Bahamas Co. to him and that he then lent the funds to the various Group companies. Contracting was the only Group company that did not receive any of the Bahamas funds, even though it was the only corporation derivatively assessed on the basis of the net-worth results. The net-worth computation also reflected substantial shareholder loan (credit) balances for Mr. Tajbakhsh within the Group, consistent with those inter-company lending arrangements.

Shareholder benefit and shareholder loan rules applied to Bahamas Co.

The Court found that the arrangements supporting the Bahamas Co. “loan” were non-existent: there was no loan agreement, no stipulated interest, no interest paid, no directors’ resolution, and no evidence of repayment or terms of repayment. The judge characterized this as a “straight up taking of the money out of Bahamas Co.”
Relying on subsection 15(1) of the Income Tax Act, the Court held that when a corporation confers a benefit on a shareholder, the value of that benefit must be included in the shareholder’s income in the year the benefit is conferred. The judge found that handing over approximately $1.2 million from Bahamas Co. to Mr. Tajbakhsh “no questions asked” clearly fit this provision.
Alternatively, the Court noted that subsection 15(2) deals specifically with shareholder loans and, as explained in Vern Krishna’s textbook (citing Pillsbury Holdings), is intended to prevent shareholders from withdrawing corporate surplus through loans instead of dividends. The Court emphasized that these shareholder-loan rules are stringent and can apply to loans from non-resident corporations to Canadian-resident shareholders. Appellant’s counsel acknowledged that Mr. Tajbakhsh must be taxed on what he actually did, not what he might have done, and no legal argument was advanced to show that the Bahamas-sourced funds were not taxable in his hands on the facts.

Why the corporate income tax reassessments failed

CRA took the net worth amounts computed in Mr. Tajbakhsh’s personal audit and assessed comparable income inclusions to Afdon Contracting Ltd., issuing corporate income tax reassessments for 2011–2013. The Court found that there was “little or nothing” to show that the source of the net-worth adjustments was income of Contracting. Of the $1.8 million, $1.2 million was clearly traceable to Bahamas Co. and therefore not Contracting’s income. The remaining $600,000 could have been income of Contracting, but it could just as easily have been income of other Group members, such as Developments or the tile company. The Minister led no evidence specifying the source.
Because the income tax years were statute-barred, the Crown needed to show that misrepresentations by Contracting allowed reopening. The alleged unreported income of Contracting was itself the misrepresentation relied on to open the years. In the absence of proof that Contracting was the source of the unreported income, the Court held that the corporate income tax reassessments could not be sustained and must be vacated.

Why the GST reassessments for Afdon Contracting failed

The net-worth amounts were also used to reassess Afdon Contracting’s GST net tax under the Excise Tax Act. The Court held that even if the income tax reassessments had been otherwise sustainable, the Bahamas-sourced $1.2 million was not consideration for any taxable supply made in Canada. The remainder of the net-worth amounts might have related to taxable supplies, but again there was no evidence connecting them to Contracting’s taxable activities, raising the same limitations issue as in the income tax context.
The Court accepted that the GST net tax reassessments were made beyond the four-year limitation period in subsection 298(4) of the Excise Tax Act and noted the respondent’s own pleading that the reassessments were outside the “normal reassessment period.” Because the Crown could not establish a relevant misrepresentation by Contracting in filing its GST returns, the GST reassessments were also vacated.

Correction to the 2013 shareholder loan account and net worth

One contested element of the net-worth computation was the shareholder loan account with Afdon Management Ltd. At the end of 2013, CRA had recorded a $657,500 credit balance owing to Mr. Tajbakhsh. Mr. Tajbakhsh testified that the true balance was $577,500 and produced Management’s 2013 shareholder loan account ledger, showing that closing balance.
Auditor Hon referred to a 120-page transaction summary and pointed to an $80,000 dividend entry as support for his higher balance. However, no underlying source document was identified for the $80,000 dividend. The judge reviewed the transcript of Mr. Hon’s testimony and the documents, and concluded that the only clear documentary evidence was the shareholder loan ledger itself. The $80,000 entry appeared only in a CRA-prepared summary and a summary of adjustments, not in original books or vouchers.
The Court therefore accepted the ledger and reduced the shareholder-loan asset balance, and consequently the 2013 net-worth amount, by $80,000.

Benbow property capital gain: adjustments to cost, proceeds, and allocation

The CRA assessed a capital gain on the disposition of a house at 3160 Benbow Road, acquired in 2007 and sold in 2012. After objection-level adjustments, the taxable capital gain was $152,664. The Court reduced that taxable capital gain by $73,249.
The use of the property was contested. CRA assessed Benbow as a rental property; the appellant contended it was originally acquired as a primary residence and only later used as a rental property. The judge was somewhat inclined to the view that Benbow was initially acquired with the intent of moving in and that Mr. Tajbakhsh and his family did reside there for a time, but it was clear that at disposition the property had been used as a rental property for more than a year, so a capital gain or loss had to be recognized.
Because there was almost no evidence of the property’s fair market value at the time of any change of use, and the 2008 property tax assessment figure was actually lower than the 2007 purchase price, the Court used the 2007 purchase price of just under $2.4 million as the starting point.
Mr. Tajbakhsh filed a worksheet arguing that, once additional amounts were added to cost (renovations, title insurance, property taxes, utilities, insurance, and mortgage interest), a capital loss arose. The Court considered these components in light of the Stirling decision. It concluded that routine carrying costs—mortgage interest, property taxes (apart from some closing adjustments), home insurance, and municipal utilities—were not part of the “cost” of the property for capital-gain purposes and could not be capitalized in the circumstances of this case. The Court also noted that certain costs included personal-use periods.
CRA had already reviewed 270 claimed renovation expenses and allowed $435,310.31 as capitalizable renovation costs, disallowing about $67,000 for items such as pool maintenance, invoices not identified to Benbow or identified to other sites, lawn furniture, and similar non-capital items. The appellant did not provide the underlying documentation to challenge these disallowances at trial, and the judge accepted CRA’s renovation figure.
CRA had also allowed certain property tax amounts and a utilities holdback on purchase and sale within the capital gain computation. The Court held that property tax amounts allowed in this way were simply carrying costs and should not be part of adjusted cost base or disposition costs, and removed them from the capital gain calculation.
The judge also found that Benbow was jointly owned by Mr. Tajbakhsh and his spouse and saw no reason why the entire capital gain was allocated solely to him. The Court therefore allocated only 50% of the taxable capital gain to Mr. Tajbakhsh.
An appendix to the reasons summarizes the corrected capital gain as follows: purchase price $2,375,000; land transfer tax $45,500; legal fees $2,729; renovation expenses $435,310, for a total cost of $2,858,539. Proceeds of disposition were listed as sale price $3,275,000 less commission of $96,740 and legal fees of $2,062, leaving total proceeds of $3,176,198. The resulting capital gain was $317,659 and the taxable capital gain $158,830. After allocating 50% of that taxable capital gain to his spouse, Mr. Tajbakhsh’s share was $79,415. The appendix notes the CRA reassessment at $152,664 and states: “RESULT: reassess to reduce by $73,249.”

Benbow rental income: expense deductions and spouse allocation

Gross rental income for Benbow was $96,000 in 2011 and $40,000 in 2012. CRA had allowed only property taxes as deductions. The Court accepted that Benbow was used as a rental property in 2011 and during January–April 2012, and allowed additional expenses for those rental periods but not for May and June 2012, when the property was no longer available for rent.
For 2011, the Court allowed mortgage interest of $39,703, property taxes of $10,797, insurance of $2,676, water charges of $1,585, and repairs of $453. For 2012, it allowed one-third of the 2011 mortgage interest ($13,234) for the first four months, property taxes of $3,663 (four months), insurance of $892 (one-third of a $2,676 invoice), water charges of $528 (one-third of the 2011 amount), and repairs of $249.
The appendix shows total rental expenses of $55,214 in 2011 and $18,566 in 2012, resulting in net rental income of $40,786 and $21,434 respectively. Because Benbow was jointly owned, the Court allocated 50% of each year’s net rental income to Mr. Tajbakhsh, yielding $20,393 for 2011 and $10,717 for 2012.
CRA had assessed net rental income of $85,202 in 2011 and $34,445 in 2012. The appendix therefore states that his rental income is to be “reassess[ed] to reduce by $64,809” in 2011 and “$23,728” in 2012.

Management fee benefit and deemed interest under section 80.4

CRA added $94,312 to Mr. Tajbakhsh’s 2013 income as a “management fee” and imposed a gross negligence penalty on that amount. This represented CRA’s estimate of the benefit conferred when Contracting acted as contractor for construction of his personal residence, using its suppliers and subcontractors. Although he reimbursed Contracting for its costs, CRA argued he obtained a non-cash benefit for the value of those contracting services.
Mr. Tajbakhsh testified that he acted as his own contractor and believed he received no benefit from Contracting. The Court considered CRA’s position to have merit on the substantive issue, but held that this adjustment was statute-barred because it did not meet the misrepresentation standard required to reassess beyond the normal period.
CRA also assessed imputed interest benefits under section 80.4 of the Income Tax Act for 2011–2013 on the basis of loans Mr. Tajbakhsh made to his corporations. The amounts at issue were $1,656 for 2011, $2,094 for 2012, and $134 for 2013. The Court found that these deemed-interest assessments were statute-barred. It noted that the amounts were relatively modest, the provision was technical, and it was reasonable for him to rely on his accountant, who had prepared his returns without including these imputed benefits. The judge concluded that the failure to report them was not attributable to carelessness, neglect, or wilful default.

Statute-barred years, misrepresentation, and limits on reassessments

All income tax years before the Court were beyond the normal reassessment period, as were the GST reporting periods, based on the pleadings and the dates of reassessments. The Court treated the GST net tax reassessments as issued beyond the four-year period in subsection 298(4) of the Excise Tax Act.
Under both the Income Tax Act and the Excise Tax Act, reassessments after the limitation period require a misrepresentation in filing or in providing information, and the misrepresentation must be attributable to carelessness, neglect, or wilful default. The Court also observed that, under subsections 152(4.01) ITA and 298(4) ETA, the reassessment must “relate to” the misrepresentation: a misrepresentation in one area (such as rental income) cannot justify reopening an entirely unrelated item (such as medical expense credits) for the same year.
For Afdon Contracting, the Court held that the Crown had not proven any misrepresentation in the filing of its income tax or GST returns, because there was no evidence that the net-worth adjustments were income or taxable supplies of that company. Therefore, the corporate income tax and GST reassessments were statute-barred and vacated.
For Mr. Tajbakhsh, the Court held that CRA was justified in reassessing beyond the normal period in respect of the Bahamas-related net-worth amounts, the remaining net-worth amounts (other than the $80,000 correction), the Benbow disposition, and the Benbow rental income. It found that his failure to disclose Bahamas Co. and its profits to his accountant, his destruction of related documents, his repeated non-reporting of rental income, and his failure to advise CRA of his foreign holdings and income constituted misrepresentations attributable at least to negligence, and in some respects to wilful blindness or worse. Conversely, the Court found that the management fee and section 80.4 deemed-interest issues did not meet that threshold and were statute-barred.

Findings on knowledge, wilful blindness, and gross negligence penalties

The judge considered gross negligence penalties imposed under subsection 163(2) of the Income Tax Act on three main categories: (a) the net-worth adjustments; (b) the Benbow disposition; and (c) the Benbow rental income.
Citing Wynter, the Court stated that a person acts “knowingly” when they actually know of the falsity of a statement or deliberately choose not to make inquiries, and referred to Venne for the definition of gross negligence as a “high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not.”
The Court concluded that, in respect of most of the Bahamas-related net-worth income and the Benbow rental income, Mr. Tajbakhsh knowingly made false statements or omissions. It found that he concealed the Bahamas project from his accountant, failed to disclose his interest in the Bahamas corporation and its profits to CRA, did not report any foreign property or foreign income, and destroyed relevant records before he was allowed to do so under section 230. The judge characterized this as wilful blindness and as evidence of gross negligence.
For the non-Bahamas portion of the net-worth adjustments, the Court noted that the unexplained amounts (after excluding Bahamas amounts and the $80,000 correction) remained material in each year and that the continued pattern of under-reported income over multiple years supported gross negligence.
Regarding Benbow rental income, the Court found the repeated failure to report that income, commencing in 2010 and continuing into 2011 and 2012, and the failure to tell the accountant about the rental activity, to be grossly negligent.
By contrast, the Court refused to uphold gross negligence penalties on the Benbow capital gain. It noted that the failure to report the capital gain flowed from the non-disclosure of rental use, but emphasized that the capital gain issue was a one-off event and that Mr. Tajbakhsh had prepared a statement showing what he believed was a capital loss. The judge concluded “by the narrowest of margins” that the failure to report the capital gain was negligent but not grossly negligent, so the gross negligence penalty on that component was deleted.

Overall results in the merits judgment

On the GST appeal (Docket 2022-1036(GST)G), the Court allowed Afdon Contracting Ltd.’s appeal and vacated the 12 GST reassessments dated June 28, 2019, covering quarterly reporting periods from February 1, 2011 to January 31, 2014.
On the corporate income tax appeal (Docket 2022-1038(IT)G), the Court allowed Afdon Contracting Ltd.’s appeal and vacated the three reassessments for its 2011, 2012, and 2013 taxation years, each dated October 24, 2017.
On the personal income tax appeal (Docket 2022-1037(IT)G), the Court allowed Mr. Tajbakhsh’s appeal for each of 2011, 2012, and 2013 and referred the reassessments back to the Minister for reconsideration and reassessment on specified bases:

• For 2011: his income is reduced by $1,656 assessed under section 80.4 as an imputed interest benefit (removed as statute-barred); his rental income is reduced by $64,809; and the subsection 163(2) penalty is to be adjusted to reflect the income changes.

• For 2012: his income is reduced by $2,094 assessed under section 80.4 (removed as statute-barred) and by $23,728 of rental income; the taxable capital gain on the Benbow property is reduced by $73,249; and the subsection 163(2) penalty is to be deleted for the capital gain on the Benbow property, with the balance adjusted to reflect the other income changes.

• For 2013: his income is reduced by $134 assessed under section 80.4; the inclusion of $94,312 as a management fee shareholder benefit is removed as statute-barred; his income established under the net-worth method is reduced by $80,000; and the subsection 163(2) penalty is to be adjusted to reflect the income changes.

Subsequent costs decision and allocation

Following the December 8, 2025 judgment on the merits (2025 TCC 175), the Court invited costs submissions. The appellants filed their submissions on January 7, 2026, the Respondent filed on February 6, 2026, and the appellants filed a response on February 23, 2026. The Court then issued reasons for order on March 12, 2026 (2026 TCC 47).
The Court described the outcome as favouring the Crown overall. It acknowledged that the corporate assessments were vacated but characterized them as derivative assessments, with the primary assessments arising from the audit of Mr. Tajbakhsh personally. It found that the Crown was “significantly successful” in defending his assessments: the net-worth assessments were maintained “almost in [their] entirely” apart from the $80,000 adjustment, the capital gain and rental income were reduced but remained, and the $94,000 management-fee adjustment was removed on statute-barred grounds rather than because it was substantively incorrect. Gross negligence penalties were adjusted but not vacated.
The Court noted that the issues were routine unreported-income and capital-gain matters, though the amounts were significant for an individual taxpayer, with federal tax and penalty approaching $1 million.
In terms of settlement, the Court reviewed a July 11, 2025 offer from the appellants (the terms of which were not disclosed in the reasons) and an August 28 offer and final October 22 offer from the Crown. The final offer, made the day before the trial resumed, proposed: vacating Afdon’s income tax and GST assessments in full; reducing Mr. Tajbakhsh’s 2011 income by $95,000 and removing gross negligence penalties (“GNP”) for that year; reducing his 2012 income by $42,000 and removing GNP; and reducing his 2013 income by $80,000 and removing GNP. The Court compared this with the actual result, in which Afdon’s assessments were vacated in full, but Mr. Tajbakhsh’s income was reduced by approximately $67,000 for 2011 (with GNP retained), by $26,000 for 2012 (with GNP retained), and by $174,000 for 2013 (with GNP retained). It observed that he did about $50,000 better than the Crown’s income-reduction offers across the three years, but that this was offset by the fact that the penalties were upheld.
On costs quantification, the Court accepted that the case required significant work but disagreed with billing that allocated roughly $75,000 of time to the corporate appeals, given that those appeals had no unique or separate issues and no evidence was led solely for them. It therefore gave “no credit” for 236 hours recorded on the corporate appeals after pleadings closed. The respondent’s tariff-based costs across all three appeals were about $21,000; the Court disallowed tariff costs for the two corporate appeals and treated the tariff amount as approximately $19,600 for the personal appeal alone.
Balancing these considerations, the Court ordered:

• In the GST appeal (Docket 2022-1036(GST)G), no costs of the appeal are awarded to either party.

• In the personal income tax appeal (Docket 2022-1037(IT)G), lump-sum costs of $25,000 are awarded to the Respondent.

• In the corporate income tax appeal (Docket 2022-1038(IT)G), no costs of the appeal are awarded to either party.