‘Natural Person’ Argument Rejected

On September 16, 2009, the Tax Court of Canada released its decision in Kion v. R. The case involved a husband and wife who operated a business as a partnership. From 1994 to 1999, they filed their income tax and GST returns without controversy. Beginning in the 2000 tax year, the couple started to file income tax and GST returns showing zero income because the couple started to follow the ‘natural person’ argument. The ‘natural person’ argument states that an individual is a natural person and is separate from the legal entity created by the Canada Revenue Agency (CRA), in the form of a social insurance or business number.

The Tax Court flatly rejected the ‘natural person’ argument as having any basis in law. Further, the Tax Court upheld the assessment of gross negligence penalties against the couple. The Tax Court found that the couple knew that they were filing incorrect income tax and GST returns using the ‘natural person’.

This decision is consistent with previous decisions from the Tax Court of CanadaFederal Court of CanadaOntario Superior Court of Justice and B.C. Court of Appeal which have rejected it as well.