Executive Summary: Key Legal and Evidentiary Issues

• Reassessments for fourteen taxation years (1997-2010) were raised beyond the normal reassessment period, triggering the statute-barred defense under subparagraph 152(4)(a)(i) of the Income Tax Act.

• Unreported self-employment consulting income totaling over C$305,000 from offshore contracts was not included in the appellant's 1997-2001 tax returns.

• Section 94.1 imputed income was assessed for offshore investment fund property held in Cayman Islands and British Virgin Islands funds from 1998-2010.

• The appellant's reliance on her tax preparer (who later became her common-law spouse) did not excuse her failure to review returns for accuracy per Yadgar v. R. and Venne v. R. jurisprudence.

• Whether tax avoidance was "one of the main reasons" for acquiring offshore fund shares became central to the section 94.1 analysis.

• Corporate filing arrangements through Marlo Communications Agency Inc. (MCAI) created confusion about income reporting responsibility despite MCAI being declared "inactive."

Background and the parties involved

Barbara Marleau, a former Bell Canada employee of 25 years, left her position in 1995 after qualifying as a trainer of staff for new telephone systems. Following employment with Bell Canada International in 1996 at two U.S. locations, she commenced work outside Canada as a consultant in 1997, providing training and related support services to new staff of long-distance, cable and internet companies establishing local telecommunication services.

Her tax preparer, David Marshall (DM), owned a tax preparer business in Toronto, operating under the name Universal Income Tax. He prepared and filed Ms. Marleau's T1 returns for her 1997 to 2007 taxation years. Over several years, they developed a personal relationship, becoming common-law spouses in 2006. DM passed away in 2008.

The consulting income and corporate arrangements

From 1997 to 2001, Ms. Marleau conducted her self-employment consulting work at various locations including Nassau Bahamas, Minnesota, Virginia, Argentina, and Los Angeles. The Minister reassessed her for unreported consulting income of C$93,046 (1997), C$65,866 (1998), C$80,229 (1999), C$29,405 (2000), and C$37,170 (2001).

On September 8, 1997, DM caused incorporation of 1254427 Ontario Inc. Ms. Marleau testified that this numbered company had been one of several that DM kept on hand for convenience of use in connection with his tax preparer business. On June 22, 1999, DM caused this numbered company to be re-named Marlo Communications Agency Inc. (MCAI). DM was MCAI's sole shareholder at all material times, though Ms. Marleau testified she was given to believe that she "owned" MCAI. She said it "came as quite a shock" to only learn years later from then CRA auditor Ms. Muller that Ms. Marleau was not a MCAI shareholder.

Ms. Marleau testified that her understanding was that DM set up MCAI so that she could send any money that she was making to the corporation. Income earned by the appellant through her consulting work was invoiced by MCAI, on the invoices requesting that payment be made by cheque made out to MCAI. Payments were deposited into a MCAI bank account to which Ms. Marleau had access. She testified that money sent to MCAI "was going to be my nest egg." Despite this structure, DM filed "T2 shorts" for MCAI advising the Minister that MCAI had been "inactive" for its taxation years ending August 31, 1998 through to August 31, 2002, meaning no taxable income was reported by either Ms. Marleau personally or through MCAI.

The offshore investment funds

In early 1998, Ms. Marleau first invested some of her consulting income in preferred shares of two offshore funds—the Future Growth Fund Limited and the Future Growth Global Fund Limited. The Funds were resident in the Cayman Islands, and after 1999 in the British Virgin Islands. They primarily derived value from investments in corporate shares worldwide. The Funds' earnings were reinvested, rather than distributed to shareholders. The Funds were not taxed in their resident jurisdictions.

Ms. Marleau testified that her reasons for investing as she did was that she had heard from a former Bell Canada colleague favourable views about the investment fund manager Mr. Frank Leemhuis. She spoke by telephone with Mr. Leemhuis to discuss her investing with him. She developed trust in him through direct, personal contact, and after discussion with DM decided to invest in the offshore funds that Mr. Leemhuis managed. She also testified that she had never seen promotional material regarding the subject offshore funds, including therein any warning of potential tax consequences in country of residence.

The statute-barred analysis for 1997-2001 taxation years

The Court found that the subparagraph 152(4)(a)(i) exception applied to the 1997-2001 reassessments regarding unreported consulting income. Justice Russell determined that misrepresentations existed in each return through non-inclusion of the appellant's income that she had earned from her self-employment consulting work, resulting in substantial understatement of the appellant's actual taxable income.

Critically, the Court held that Ms. Marleau's reliance on DM did not excuse her from exercising reasonable care. She testified that she assumed her consulting income "would show up on either my tax return or on Marlo Communications tax return" but never sought to review her returns to confirm that her taxable consulting income was being reported. The Court cited Yadgar v. R. for the principle that a taxpayer cannot "simply throw his hands up and say that he blindly relied on his accountant" without making any effort to verify the accuracy of the income reported in his income tax returns.

Both Ms. Marleau (who did not seek to review any of her five returns) and DM (who did not include Ms. Marleau's 1997 to 2001 consulting taxable income in preparing her T1 returns, nor in the T2 shorts he filed for MCAI) demonstrated the lack of care "of a wise and prudent person" as required by the Federal Court of Appeal in Regina Shoppers Mall Ltd. v. R. The returns were also only belatedly filed by DM on July 10, 2002.

The statute-barred analysis for 2002-2010 taxation years

For the 2002-2010 reassessments, which solely reflected section 94.1 imputed income, the Court found that the respondent failed to establish that a "main reason" for the appellant investing in the offshore investment fund properties was tax avoidance. The former CRA auditor Ms. Muller pointed to Ms. Marleau's questionnaire response—"can't recall other than rate of return"—as evidence that Ms. Marleau had had tax savings as "a main purpose" for purchasing shares in these investments. Ms. Muller testified that "if you're not paying tax, your rate of return is going to be a lot higher."

However, Justice Russell rejected this reasoning, stating that "almost certainly every investor, whatever the investment, seeks high returns" and that "tax avoidance is not a necessary element of high returns." The Court accepted Ms. Marleau's evidence that what motivated her to purchase these offshore shares was her ex-colleague's recommendation of the fund manager himself and the appellant's subsequent telephone contact with him. The Court noted there was no evidence that she was aware of, let alone particularly motivated by, the potential for tax avoidance.

Justice Russell also held that ministerial assumptions supporting a statute-barred reassessment cannot be cited to render per subsection 152(4)(a)(i) the reassessment as not being statute-barred, stating that would be "unacceptably circular reasoning."

The section 94.1 imputed income for 1998-2001

Although the 1998-2001 reassessments were found not statute-barred due to the consulting income misrepresentation, the Court still had to determine whether the section 94.1 imputed income components were correct. Justice Russell found that the evidence was sufficient to disprove the ministerial assumption that "one of the main reasons" the appellant had acquired the offshore investment shares was tax avoidance, on a balance of probabilities.

The appellant's testimony that she invested based on a former work colleague's recommendation of the relevant fund manager, with whom the appellant subsequently spoke by telephone, was found persuasive. The Court noted this direct telephone contact with the fund manager was "not usually done" and supported her position that this was her focus in deciding to so invest.

Ruling and outcome

The Tax Court of Canada delivered judgment on January 29, 2026. The appeal for the 1997 taxation year was denied. The appeals for the 1998, 1999, 2000 and 2001 taxation years were each allowed and the reassessments referred back to the Minister of National Revenue for reconsideration and reassessment on the basis of excluding section 94.1 implied income. The appeals for the 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009 and 2010 taxation years were each allowed on the basis that they are each "statute-barred." No costs were awarded due to divided success. The exact monetary amount flowing to Ms. Marleau cannot be precisely determined from the judgment, as the decision refers back reassessments for reconsideration rather than specifying final amounts.