Taxpayer Alleges Bank Account Belonged to Deceased

written on behalf of Feigenbaum Law

When people pursue estate planning, they likely do it in the hope that in the event of their death, their assets will be distributed according to their wishes while minimizing tax liability and the risk of litigation. Estate planning can be complicated when family members share bank accounts or other significant assets. It is important to make sure that these types of assets are structured in a way that makes it clear who the owner is. 

In a recent decision from the Tax Court of Canada, a taxpayer appealed the Canada Revenue Agency’s (“CRA”) decision that a bank account in China belonged to him rather than his father. While the taxpayer was ultimately successful in his appeal, the case serves as a good example of how important it is to pay attention to details in order to avoid scrutiny on taxes. 

Father opens Chinese bank account in son’s name

The issue arose after the CRA reassessed the taxpayer’s returns for the years 2013, 2014, and 2015. The reassessments were related to the taxpayer’s alleged failure to report on a bank account with the Bank of China in China with over $2 million Canadian in it. However, the taxpayer told the court that despite his name being on the account, he is not the beneficial owner of the money, which amounts to a foreign asset. The taxpayer told the court that his father (“JC”), who passed away in 2018, was the beneficial owner of the account and as such, the account should be considered his mother’s and not his. 

The taxpayer’s evidence was that in 2011 when he was 24 years old, his father asked him to accompany him to China, where JC opened an account with the Bank of China. The taxpayer said it was his father’s intention to open the account jointly but that the Bank of China advised them only one person’s name can be on the account. The father decided to open it in the taxpayer’s name for reasons not explained. However, the account was funded entirely by JC. 

By 2014 Chinese law allowed for a power of attorney to be given to JC. Later that year, the taxpayer signed a power of attorney over the account to his father, which allowed JC to access the account online. The taxpayer told the court that his father opened the account in order to have currency in China while he sought redress related to JC’s own father who had been militarily executed in China in the late 1940s following the civil war. There was little evidence provided in relation to how the funds were used towards this purpose, but the taxpayer said the account would help his father establish a presence in China that they would not otherwise have. 

Taxpayer did not carry out transactions related to the account

The taxpayer said he did not make any transactions in regard to the account outside of those directed by his father. He also said his father kept the account’s bank card and was the only one with access to the card’s PIN. After the father was granted Power of Attorney over the account, he used it to carry out transactions in China. 

The transactions performed by the taxpayer on behalf of the father were made, according to the taxpayer, because the father was not technically savvy. 

The taxpayer acknowledged that if the account was determined to have been owned by his father, it means that the father had unreported income from the years 2007-2016, and that the father may have used his own accounting practice to falsify tax returns. However, the taxpayer insists the liability for the money in the account should not be placed with him and that he had no knowledge of whether or not his father contravened Canada’s tax laws in funding the account or failing to report the existence of the account.

In the end, the taxpayer insists that while he was the sole owner of the account on paper, he was not the beneficial owner, something that was established with the signing of the Power of Attorney. 

The CRA told the court that its analysis was simple and looked at the bank account’s named owner, and that since the account was opened up in the taxpayer’s name, the account is his. 

The court ultimately agreed with the taxpayer, stating that while the account was in his name, he did not have beneficial title to the account or the funds held in it. In addition to relying on the taxpayer’s evidence, the court was also presented with a statement made by JC to his lawyer in 2017 (one year before he died) that even though the account was in his son’s name, he retained beneficial ownership of the fund in it for the duration of his lifetime, which included the tax years in question. The court also mentioned the fact that JC was the only one to carry on activity related to the account, and was the only person to provide funds to the account. This led the court to conclude that it was the father’s obligation to include the account in his tax returns and not that of the taxpayer.  

Feigenbaum Consulting can help you properly plan your estate in order to avoid unwanted tax litigation

Many people who serve as executors for an estate have not done so before. That’s why it’s important to work with a skilled lawyer to ensure all of an estate’s finances and taxes are addressed in order to avoid personal liability. It’s equally important to prepare for one’s eventual passing by creating a solid financial plan for one’s estate. Sadly, many of the situations we see where executors are personally liable for taxes owed by an estate could have been avoided through working with an experienced professional. Contact Mark Feigenbaum and the team at Feigenbaum Law either online or by phone at 1-877-275-4792 to see how we can help you prepare today.