Executive Summary: Key Legal and Evidentiary Issues

• Long-term non-disclosure of a Swiss UBS investment account and its income for the years reassessed and ultimately in issue on appeal, 1998–2013

• Reassessments issued beyond the normal reassessment period were upheld because the misrepresentations on the returns were found to be at least due to neglect or carelessness, not innocent mistake

• Gross negligence penalties for failure to report UBS investment income were sustained on the basis that the appellant was either wilfully blind or grossly negligent in meeting his tax-reporting obligations

• Separate penalties for failing to disclose foreign property on Form T1135 were maintained, including one analyzed under a due diligence defence and two under a gross negligence standard

• The appellant’s explanations (reliance on his accountant, belief that Libya-earned funds were not taxable in Canada, and use of a safekeeping account to hide assets from his spouse) were rejected as insufficient to negate neglect, carelessness, or gross negligence

• The Federal Court of Appeal found no legal error and no palpable and overriding error in the Tax Court’s conclusions, dismissed the appeal for 1998–2013, and awarded costs to the respondent fixed at $3,300

Factual background

The case concerns Mr. Kamal Azmayesh-Fard, who emigrated to Canada from Iran in 1967. He obtained a degree in mining engineering from the University of Saskatchewan in 1973 and acquired an engineering designation around 1978. He worked in the engineering field in Canada from 1973 to 1982. From 1982 to 1994, he worked in Libya as an engineering supervisor with Veba Oil Operations, a German company. During this period, he directed Veba to deposit his remuneration into accounts in Jersey, in the Channel Islands, and in Holland.

In 1997, anticipating a move back to Canada, the appellant opened an investment account in Switzerland with Swiss Bank Corporation, which later became UBS AG. He deposited into the UBS account the earnings he had accumulated from his employment with Veba. At that time, he was having marital difficulties and was hiding these assets from his spouse. The UBS account was a “safekeeping account” in which all documentation was kept at source for a fee, and all communications about the investments were conducted by telephone.

The appellant did not disclose on his Canadian income tax returns either the property held in the UBS account or the income produced by that account. He did not tell anyone about the UBS account, including the accountant who prepared his personal tax returns. After an audit, the appellant destroyed all his personal financial records.

After returning to Canada, the appellant engaged in several business ventures. At least two had an international element. In one, he recruited people in Alberta for short-term work placements with Veba in Libya, placing advertisements and recommending suitable candidates to Veba. In another, he was the chief executive officer of a public company engaged in oil and gas exploration, and his role included negotiating oil and gas concessions with several foreign governments.

Reassessments and penalties imposed

Following the audit, the appellant was reassessed for his 1998 to 2015 taxation years in connection with the UBS account. The reassessments were issued after the normal reassessment period. They included in his income the earnings from the UBS investments and imposed gross negligence penalties. The reassessments also imposed penalties for failure to disclose foreign property on Form T1135 (Foreign Income Verification Statement).

The appellant appealed these reassessments to the Tax Court. In those appeals, the respondent had the burden of proof, but no witnesses were called. Instead, the Tax Court’s findings were based on agreed facts and discovery read-ins. For reasons reported as 2025 TCC 20, the Tax Court judge, Justice Cook, dismissed the appeals for the 1998 to 2013 taxation years, but allowed the appeals for 2014 and 2015 on the basis that the income for those later years did not pertain to the UBS account. The appellant then appealed to the Federal Court of Appeal in respect of the dismissed years, 1998 to 2013.

Tax Court decision on limitation period and misrepresentations

The first issue before the Tax Court was whether the reassessments were statute-barred. The appellant argued that the reassessments were out of time because any misrepresentations on his returns were the result of innocent mistakes rather than carelessness, neglect, or wilful default. He submitted that his accountant never asked him about foreign property and that he believed the funds were not taxable because he had earned the money in Libya.

The Tax Court judge was not persuaded by these explanations. He found that the misrepresentations were due to neglect or carelessness, at a minimum. On that basis, the judge concluded that the conditions allowing reassessment beyond the normal period were met, and the reassessments for 1998–2013 were not statute-barred.

Tax Court findings on gross negligence penalties for unreported income

The second issue concerned the gross negligence penalties imposed for failing to report the UBS investment income. The appellant explained that he used the safekeeping account to hide funds from his spouse and asserted that he honestly believed that the UBS earnings were not subject to Canadian tax.

The Tax Court judge did not accept this justification. He found that the penalties were applicable because the appellant was either wilfully blind or grossly negligent. In reaching this conclusion, the judge noted that the appellant had a standard of care with respect to his tax returns and that he failed to meet that standard. The judge was also influenced by the appellant’s background, including his education and international work and business experience, which suggested that he should have had some familiarity with international tax issues.

Tax Court conclusions on T1135 foreign property penalties

The third issue was whether penalties for failing to disclose the foreign property in the UBS account on Form T1135 were properly imposed. The Tax Court’s reasons explained that these penalties were described at paragraph 42 of that decision. One of the penalties was subject to a due diligence defence, while two others were subject to a gross negligence test.

The judge upheld all of these penalties. As to the due diligence-based penalty, he found that the appellant did not take all reasonable precautions to comply with the obligation to file a T1135 and did not make a reasonable error of fact. As for the penalties requiring gross negligence, the judge held that the appellant was liable for them for the same reasons he was liable for gross negligence penalties on the unreported income: his conduct amounted to at least wilful blindness or gross negligence in relation to his reporting obligations.

Overall, the Tax Court dismissed the appeals for the 1998 to 2013 taxation years and allowed the appeals for 2014 and 2015, because the income for 2014 and 2015 did not relate to the UBS account.

Appeal to the Federal Court of Appeal and final outcome

The appellant appealed further to the Federal Court of Appeal concerning the 1998 to 2013 taxation years. At the hearing, counsel for the appellant conceded that the relevant years were not statute-barred and that the Tax Court had made no legal errors.

With respect to the remaining issues, the Federal Court of Appeal saw no reversible error in any of the Tax Court judge’s conclusions. In particular, the Court held that the judge had not made any palpable and overriding errors—errors that were obvious and that affected the outcome. The Court observed that in some cases it could be risky for the Crown not to call the taxpayer as a witness where credibility might be at issue, but it found that this concern did not arise on the facts of this case.

The Federal Court of Appeal dismissed the appeal for the 1998 to 2013 taxation years. It ordered that the appeal be dismissed with costs to the respondent, His Majesty the King, fixed in the all-inclusive amount of $3,300.