Executive Summary: Key Legal and Evidentiary Issues

• Reassessments of Michael Poce, Lisa Dozzi, and GTA Siteworks Inc. beyond the normal reassessment period under the Income Tax Act were challenged, with the Court finding misrepresentation attributable to neglect or carelessness for all three appellants.

• Utterly inadequate books and records, combined with extensive commingling of personal and corporate accounts, made it near impossible to reconcile the financial transactions of the five appellants across seven related appeals.

• Michael was improperly assessed for shareholder benefits under subsection 15(1) from GTA, as he was not a shareholder of that corporation, resulting in significant concessions by the Respondent totalling $612,763 across six taxation years.

• Gross negligence penalties under subsection 163(2) of the ITA and section 285 of the ETA were upheld against Lisa, Michael, and GTA, as their conduct demonstrated indifference to legal compliance tantamount to intentional acting.

• A sloppy CRA audit compounded the evidentiary difficulties, forcing multiple concessions by the Respondent at trial, including a wrongly classified dividend and incorrectly included shareholder loan amounts.

• Deductions for director's fees paid to Lisa, wages, and construction materials were allowed by the Court or conceded by the Respondent, while vehicle rental deductions for personal-use vehicles were properly disallowed.

Background of the family business and corporate structure
In the early 1900s, Michael Poce's grandfather started an excavating business in Ontario, which eventually branched out into sewer and water main work. Michael joined the family business on a full-time basis after finishing his university studies in the 1970s. In 1991, the business experienced financial trouble and had to be shut down, leaving creditors unpaid. After working in a small Italian sandwich shop that his father set up for him and dabbling in small construction projects, and after working with a partner for a year and being dissatisfied with his partner's output, Michael decided to strike out on his own at Lisa Dozzi's urging. Following discussions with a lawyer, Lisa was designated as the sole shareholder and sole director of GTA Siteworks Inc. (GTA), the company set up to do site development work including sewers and water mains. Michael explained that after the previous company was shut down in 1991, creditors were left unpaid such that he could not get credit from the suppliers and subtrades. A second corporation, 2170144 Ontario Inc. (217), was later incorporated to be the purchaser and owner of equipment, with Lisa as its sole shareholder. A third entity, Patrick Poce Holdings Limited (PPHL), served as the holding company.

The Minister's reassessments and the issues at stake
The Minister of National Revenue reassessed all five appellants — Michael, Lisa, GTA, PPHL, and 217 — under the Income Tax Act (ITA) for shareholder benefits, unreported income, and disallowed expenses. Some of the corporate appellants were also assessed under the Excise Tax Act (ETA) for underreported HST and/or disallowed input tax credits (ITCs). Some of the taxation years were statute-barred but not all of them. In reassessing Michael and Lisa, the Minister imposed penalties under subsection 163(2) of the ITA, and in reassessing GTA, the Minister imposed penalties under subsection 163(2) of the ITA and section 285 of the ETA. The seven appeals were heard on common evidence over five days — April 15, 17, 18, 22 and 25, 2024 — before Chief Justice Gabrielle St-Hilaire at Toronto, Ontario.

The state of the books, records, and the audit
The Court stated that to say the books were a mess would be an understatement. The fact that Michael and Lisa lived through corporate accounts created such commingling between their personal expenses and accounts and those of the corporations that after five days of hearing, the Court stated it still did not know exactly what happened. The evidence about the transactions, the movement of funds in and out of the accounts, including the shareholder accounts, was at times confusing and near impossible to reconcile as between the accounts and between the documentary and testimonial evidence. The Court described the books and records as utterly inadequate, a pathetic attempt at record-keeping. Compounding this, the audit was described as sloppy — so sloppy that the Respondent's counsel had little choice but to make several significant concessions at the hearing. The Court noted in some cases, concessions were made not because amounts should not have been included in income but because the auditor's basis for their inclusion was flawed. The auditor was examined at length and was quite candid in her testimony, which led her to answer several questions by saying she was not sure, or not exactly sure, what she did. The Court acknowledged in fairness that the difficulties in conducting the audits were caused, in large part, by the state of the books and records provided by the appellants.

Reassessments beyond the normal reassessment period
Under subparagraph 152(4)(a)(i) of the ITA, the Minister bears the burden of establishing both that the taxpayer made a misrepresentation and that it was attributable to neglect, carelessness, wilful default, or fraud. In these appeals, the Minister did not allege fraud. The Court found that Lisa made misrepresentations, in profusion, by failing to report all of her income. She acknowledged that her personal expenses were paid through GTA, that she did not make inquiries as to whether her personal expenses were being accounted for, and trusted that everything was done correctly. She did not review her personal returns, did not as director of GTA review GTA's returns, had never seen the shareholder account, and could not shed any light on the adjustments made in that account. The Court described her conduct as careless and even cavalier, finding she had fallen short of exercising reasonable care. Similarly, Michael acknowledged that the extent of his review was to get to the bottom line because the company needed money. He had never seen the shareholder account, never looked at the general ledger, and would look at a draft of his return for a couple of minutes before it was done. His real concern was whether they were making money or not. The Court found his conduct equally neglectful. For GTA, the Court adopted its findings regarding Lisa's conduct as she was the sole director, noting that GTA's books and records were utterly inadequate, and that GTA and its director did not thoughtfully, deliberately, and carefully assess the situation before filing GTA's returns. The Court found the failure to keep adequate business records constitutes negligence, citing Lacroix v R, 2008 FCA 241. The Minister was found justified in reassessing all three beyond the normal reassessment period for their 2010, 2011, and 2012 taxation years.

PPHL and 217 appeals resolved through concessions
The appeals by PPHL were disposed of simply. PPHL had claimed deductions for management fees in the amounts of $66,000, $123,000, and $66,000 for its taxation years ending on February 28, 2014 and 2015 and on February 29, 2016 respectively. At the beginning of trial, counsel for the appellants indicated that PPHL was consenting to the disallowance of the deduction of the management fees and the corresponding disallowance of the ITCs. In return, the Respondent agreed that GTA's income assessed under the ITA would be reduced by $66,000 for its taxation years ending in 2014 and 2015, and that a corresponding adjustment would be made to GTA's assessment under the ETA. PPHL's appeals under the ITA were dismissed without costs, as the appeal was launched under the Tax Court of Canada Rules (Informal Procedure) and the Court did not find that PPHL unduly delayed the resolution of the appeal. With respect to the appeal under the ETA, no costs were awarded given what the Court viewed as a mixed result. For 217, which appealed reassessments for its taxation years ending on November 30, 2013, 2014, and 2015 for unreported income and disallowed expenses, the Respondent conceded that the additional income for the 2013 taxation year should be $4,188.83 and not $21,331. For the taxation years ending in 2014 and 2015, the appellant conceded that the amounts assessed should be included in income. The disallowance of $2,213 per year in vehicle insurance deductions was upheld, comprised of $1,823 per year for the Mercedes used by Lisa as her personal vehicle and $390 per year representing 20% of the insurance for the Ford trucks used by Michael. The 217 appeal for the 2013 taxation year was allowed to the extent of the Respondent's concession that $17,142.17 shall not be included in income, while the 2014 and 2015 appeals were dismissed, with no costs awarded given the mixed success.

Michael Poce's reassessments and the Respondent's concessions
The Respondent made several concessions regarding Michael's reassessments. Because Michael was not a shareholder of GTA, the shareholder benefits assessed under subsection 15(1) from GTA could not stand. The following amounts were removed from Michael's income for the 2010 to 2015 taxation years: $128,645, $78,823, $94,453, $98,639, $142,295, and $69,908 respectively, totalling $612,763. Insurance-related amounts of $390 per year for the 2013, 2014, and 2015 taxation years were similarly removed, as Michael was not a shareholder of GTA or 217. A shareholder benefit of $15,837 from PPHL for the 2014 taxation year was also conceded. A grossed-up dividend of $187,500 included in Michael's 2011 income was found to be unsupported, as the evidence was clear that there was no resolution declaring dividends in 2011 and no T5 was issued. The Respondent argued in the alternative that the underlying $150,000 should be included as an appropriation under subsection 15(1), but the Court found that no such alternative position had been put forth in the Reply, and the assessment of the dividend could not stand. However, a $320,000 shareholder appropriation for the 2013 taxation year, comprised of $150,000 and $170,000 credited to Michael's shareholder account with PPHL, was upheld because Michael did not persuade the Court that these amounts ought not to be included in his income. Michael was also assessed for shareholder loan benefits under subsection 15(2) with respect to loans received from 2204919 Ontario Inc., but the Respondent conceded those amounts as it appeared they were the result of a purchase of shares in PPHL by that corporation; hence, $103,850 and $164 were removed from his income for the 2010 and 2011 taxation years respectively, and a credit of $38 for the 2012 taxation year was also removed. Regarding shareholder loan benefits from PPHL, an amount of $436,903 included in Michael's income for the 2010 taxation year was reduced by $334,000, as the Respondent acknowledged the amount should have been included in Michael's income for the 2009 taxation year, which was not before the Court. The remaining shareholder loan benefits assessed under subsection 15(2) from PPHL were upheld for the 2010, 2011, 2012, and 2014 taxation years, and corresponding deductions pursuant to paragraph 20(1)(j) were allowed for the 2013 and 2015 taxation years. Interest benefits under section 80.4 were also upheld, as the auditor testified the interest benefit was assessed on loan amounts that were not captured by subsection 15(2), and Michael did not provide clear evidence to support a finding that the interest benefit was incorrectly calculated.

Lisa Dozzi's reassessments
Lisa's reassessments were upheld in their entirety. The Minister reassessed Lisa to include amounts of $50,000, $36,150, and $25,000 as funds appropriated from GTA for her 2010, 2011, and 2012 taxation years respectively, which were credited to her shareholder account and characterized as director's fees at the hearing. No evidence was introduced at trial to show that these amounts should not be included in her income. Shareholder automobile benefits in the amounts of $20,303, $19,223, and $19,223 were justified for the 2013, 2014, and 2015 taxation years respectively, as Lisa testified the Mercedes was the family car that she used as her personal vehicle and any business use was negligible, with no evidence in the form of a log or otherwise to support a finding of business use. Additional shareholder appropriations under subsection 15(1) ranging from $800 in 2010 to $40,420 in 2015 were upheld because Lisa failed to provide documents or credible explanations regarding the source of unidentified deposits in her personal bank accounts. The Court agreed it was up to Lisa to provide such documents and explanations, adding that she was the author of her own misfortune given the commingling between accounts. Shareholder loan benefits under subsection 15(2) for loans received from GTA and not repaid within one year after the end of the taxation year of the lender were maintained for the 2010, 2011, 2013, and 2015 taxation years, with corresponding deductions under paragraph 20(1)(j) for the 2012 and 2014 taxation years. Lisa acknowledged she could not provide evidence that the amounts were incorrect. Interest benefits under section 80.4 in the amounts of $817 and $329 for the 2010 and 2011 taxation years respectively were similarly upheld, as there was no evidence before the Court to support a finding that the calculation was erroneous.

GTA Siteworks Inc.'s reassessments
GTA appealed reassessments under the ITA for its taxation years ending on November 30, 2010, 2011, 2012, 2013, 2014, and 2015, and assessments under the ETA for its reporting periods ending December 31, 2013, 2014, and 2015. The Respondent conceded that wages paid to Lisa, which she reported in her income on the basis of T4 slips issued to her, should be allowed as deductions for the taxation years ending in 2011 to 2015 in the amounts of $5,900, $31,523, $23,241, $4,393, and $54,401 respectively. A construction material expense of $62,854 for the 2015 taxation year was also conceded on the basis of the auditor's testimony. The Court found the Minister was not justified in disallowing the deduction of director's fees paid to Lisa, noting that over 100 statutes impose responsibilities on directors and it was difficult to accept that a director is not entitled to compensation. The full amounts of $50,000, $25,000, and $66,600 for the taxation years ending in 2010, 2011, and 2012 respectively were allowed as deductions. The disallowance of vehicle rental expenses was upheld — 100% for the Mercedes in the amounts of $16,350, $15,396, and $15,396 for the taxation years ending in 2013, 2014, and 2015 respectively, and 20% for the Ford trucks — because Lisa admitted the Mercedes was the family car, Michael admitted he did not use the Mercedes, and no logs were kept to support business use. The management fees of $66,000 were removed from GTA's income for the 2014 and 2015 taxation years as a consequence of the PPHL concessions. GTA's unreported income assessments, based on cash and cheques deposited in Lisa and Michael's accounts that were treated as unreported sales, were upheld because GTA did not establish that the amounts were included in another taxpayer's income, though the Respondent conceded that 13% of the unreported income should be deducted to allow for the GST assessed under the ETA. The ETA assessments for the reporting periods ending in 2013, 2014, and 2015 were adjusted as required by the adjustments made to the reassessments under the ITA.

Gross negligence penalties
The Court upheld gross negligence penalties against Lisa, Michael, and GTA under subsection 163(2) of the ITA, and against GTA under section 285 of the ETA. Applying the standard from Venne — that gross negligence must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not — the Court found Lisa's conduct met this threshold. She knew that her personal expenses were paid through GTA, something the Respondent submitted should have served as a red flag, yet she did not make any enquiries of her accountants, did not review the books and records, did not review the shareholder accounts or any other accounts, and did not review her returns, content to assume that things were being appropriately accounted for. The Court found this to be akin to burying one's head in the sand, citing Guindon v Canada, 2015 SCC 41, and conduct markedly below what would be expected of a reasonable taxpayer, citing Wynter v Canada, 2017 FCA 195. Michael's conduct was found to involve the same high degree of negligence. He did not review expenses with his accountants, had never seen documents put to him at the hearing, never reviewed the books, and did not care about his tax obligations, interested only in the bottom line. For GTA, Lisa as sole director knew from the outset that she was the sole director and knew why the corporation was set up that way, was paid director's fees for this role, knew the extent to which personal accounts were commingled with corporate accounts, knew that GTA was paying her personal and household expenses, and knew the Mercedes was a personal-use vehicle. She neither reviewed GTA's books and records nor its returns. The Court found GTA's conduct demonstrated an indifference as to whether the law was complied with, and represented a marked departure from the conduct one would expect of a reasonable person in the same circumstances. All penalties were to be recalculated to take into account amounts not included in the appellants' income based on concessions or the findings of the Court.

Outcome and costs
Michael Poce's appeal was allowed with costs, and his reassessments for the 2010, 2011, 2012, 2013, 2014, and 2015 taxation years were referred back to the Minister for reconsideration and reassessment. Lisa Dozzi's appeal was dismissed with costs to the Respondent. GTA's appeals under both the ITA and the ETA were allowed and referred back to the Minister for reconsideration and reassessment in accordance with the Court's reasons, but costs were awarded to the Respondent. PPHL's appeals under the ITA were dismissed without costs, and its appeals under the ETA were dismissed with no costs given the mixed result. 217's appeal for the taxation year ending November 30, 2013 was allowed to the extent of the Respondent's concession, while its appeals for the 2014 and 2015 taxation years were dismissed, with no costs awarded given the mixed result. The parties were given 30 days from the date of the judgment to reach an agreement on costs, failing which written submissions were to follow. The judgment was signed on February 17, 2026. No exact total monetary amount in favour of any single successful party was determinable from the judgment, as the reassessments were referred back to the Minister for recalculation rather than being quantified in a lump-sum award.